<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1997
NO. 333-20885
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL BROADCASTING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3895162
5961
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NO.)
JURISDICTION OF
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:
JOHN R. GARRETT, ESQ.
R. RONALD HOPKINSON, 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. [_]
---------------
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 FEBRUARY 11, 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 COMMON STOCK
In order to comply with the FCC foreign ownership rules, the Company's
Certificate of Incorporation permits the Company to redeem any shares of
either class of Common Stock owned by foreign nationals, foreign governments
or the representatives of either ("Foreign Interests") and to take other
actions designed to ensure compliance with the foreign ownership restrictions
of the Communications Act and related FCC rules. In general, the
Communications Act limits direct ownership by Foreign Interests in FCC
broadcast licensees to 20% and indirect ownership by Foreign Interests to 25%.
Pursuant to the Company's Certificate of Incorporation, if the Company elects
to effect any such redemption of Common Stock, the redemption price per share
will be equal to the lesser of fair market value or, if such shares were
purchased within one year of the redemption date, the purchase price therefor,
and may be paid in cash, securities or a combination thereof.
INABILITY TO SATISFY A CHANGE OF CONTROL OFFER
The Indenture provides that, upon the occurrence of a Change of Control, the
holders of the Notes will have the right to require the Company to repurchase
the Notes at a price equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. If a
Change of Control were to occur, due to the highly leveraged nature of the
Company, the Company might not have the financial resources to repay all of
its obligations under any indebtedness that would become payable upon the
occurrence of such
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<PAGE>
Change of Control. The Company's failure to make a required repurchase of the
Notes in the event of a Change of Control would create an Event of Default
under the Notes. See "--Leverage; Inability to Service Obligations" and
"Description of 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.
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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.
San Francisco, California
The Company 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.
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 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.
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.
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
Lacher & Lovell-Taylor. Mr. De Wolf is a Director of Innopet 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.
44
<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.
47
<PAGE>
DESCRIPTION OF INDEBTEDNESS AND FACTORING ARRANGEMENTS
DESCRIPTION OF NOTES
General
The Notes will be issued pursuant to the Indenture (the "Indenture") between
the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and Holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the text of the Indenture, including the definitions therein of
certain terms used below. A copy of the proposed form of Indenture is
available as set forth below under "--Available Information." The definitions
of certain terms used in the following summary are set forth below under
"Certain Definitions."
The Notes will be general unsecured obligations of the Company (except as
described below under "Security"), subordinated in right of payment to all
existing and future Senior Indebtedness of the Company. See "Subordination."
As of December 31, 1996, on a pro forma basis, the Company had no Senior
Indebtedness outstanding.
As of the date of this Prospectus, the Company has no Subsidiaries. Each
future subsidiary of the Company (if any) will constitute a Restricted
Subsidiary unless the Company designates such Subsidiary as an Unrestricted
Subsidiary in the circumstances permitted by the Indenture. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set
forth in the Indenture.
Principal, Maturity and Interest
The Notes will be limited in aggregate principal amount to $270.0 million
and will mature on , 2007. Interest on the Notes will accrue at the rate
of % per annum and will be payable semi-annually in arrears on and
, commencing on , 1997, to Holders of record on the immediately
preceding and . Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. Principal, premium (if any),
and interest on the Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or,
at the option of the Company, payment of interest may be made by check mailed
to the Holders of the Notes at their respective addresses set forth in the
register of Holders of Notes; provided that all payments with respect to Notes
the Holders of which have given wire transfer instructions to the Company will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof.
Security
The Company will enter into a pledge and security agreement (the "Pledge
Agreement") with IBJ Schroder Bank & Trust Company, as collateral agent (the
"Collateral Agent"), providing for the pledge by the Company to the Collateral
Agent for the benefit of the Holders of the Notes of the Pledged Securities
referred to below and all proceeds of the foregoing (collectively, the
"Collateral").
The Pledge Agreement will provide that, upon the closing of the Notes
Offering, the Company will be required to purchase and pledge to the
Collateral Agent (for the benefit of the Holders of the Notes) U.S. Government
Securities in such amount as will be sufficient upon receipt of scheduled
interest and principal payments on such Pledged Securities, in the opinion of
a nationally recognized firm of independent public
48
<PAGE>
accountants selected by the Company or the Company's regular independent
public accountants, to provide for payment in full of the first two scheduled
interest payments due on the Notes (together with any securities pledged in
substitution therefor, as provided below, the "Pledged Securities"). The
Company expects to use approximately $36.45 million of the net proceeds of the
Notes Offering to acquire U.S. Government Securities initially constituting
the Pledged Securities; however, the precise amount to be acquired will depend
upon the interest rates on U.S. Government Securities prevailing at the time
of the closing of the Notes Offering. The Pledged Securities will be held by
the Collateral Agent in a separate account (the "Pledge Account"). Pursuant to
the Pledge Agreement, immediately prior to an interest payment date on the
Notes, the Company may either deposit with the Trustee from funds otherwise
available to the Company cash sufficient to pay the interest on the Notes
scheduled to be paid on such date or the Company may direct the Collateral
Agent to release to the Trustee from the Pledge Account proceeds sufficient to
pay interest then due on the Notes. In the event that the Company exercises
the former option, the Pledge Agreement provides that the Company may
thereafter direct the Collateral Agent to release to the Company proceeds of
Pledged Securities from the Pledge Account in like amount.
Interest earned on the Pledged Securities will be added to the Pledge
Account and invested in U.S. Government Securities. In the event that the
funds or Pledged Securities held in the Pledge Account exceed the amount
sufficient, in the opinion of a nationally recognized firm of independent
public accountants selected by the Company or the Company's regular
independent public accountants, to provide for payment in full of the first
two scheduled interest payments due on the Notes (or, in the event an interest
payment or payments have been made, an amount sufficient to provide for
payment in full of any interest payments remaining, up to and including the
second scheduled interest payment), the Trustee will be permitted to release
to the Company at the Company's request any such excess amount. The Notes will
be secured by a first priority security interest in the Pledged Securities and
in the Pledge Account and, accordingly, the Pledged Securities and the Pledge
Account will also secure repayment of the principal amount of the Notes to the
extent of such security. At any time while the Pledge Agreement is in force,
the Pledge Agreement allows the Company to substitute Marketable Securities
(as defined in the Indenture) for the U.S. Government Securities originally
pledged as collateral; provided, however, that the Marketable Securities so
substituted must have a fair market value (measured at the date of
substitution), in the opinion of a nationally recognized firm of independent
public accountants selected by the Company or the Company's regular
independent public accountants, at least equal to 125.0% of the aggregate
amount of the first two scheduled interest payments on the Notes that remain
unpaid (or a pro rata portion of such interest payments equal to the
percentage of such interest payments to be secured by such Marketable
Securities) as of the date such Marketable Securities are proposed to be
substituted as security for the Company's obligation under the Pledge
Agreement.
Under the Pledge Agreement, assuming that the Company makes the first two
scheduled interest payments on the Notes in a timely manner, all of the
Pledged Securities will be released from the Pledge Account, and thereafter
the Notes will be unsecured.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Pledge
Agreement, the Company will be entitled to exercise any voting and other
consensual rights pertaining to the Pledged Securities. Upon the occurrence
and during the continuance of an Event of Default, (a) all rights of the
Company and its Subsidiaries to exercise such voting or other consensual
rights shall cease, and all such rights shall become vested in the Collateral
Agent, which, to the extent permitted by law, shall have the sole right to
exercise such voting and other consensual rights and (b) the Collateral Agent
may sell the Collateral or any part thereof in accordance with the terms of
the Pledge Agreement. All funds distributed under the Pledge Agreement and
received by the Collateral Agent for the benefit of the Holders of the Notes
will be distributed by the Collateral Agent in accordance with the provisions
of the Indenture.
Subordination
The payment of principal of, premium (if any), and interest on the Notes
will be subordinated in right of payment, as set forth in the Indenture, to
the prior payment in full of all Senior Indebtedness, whether outstanding on
the date of the Indenture or thereafter incurred.
49
<PAGE>
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
any assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness) before
the Holders of Notes will be entitled to receive any payment with respect to
the Notes, and until all Obligations with respect to Senior Indebtedness are
paid in full, any distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Indebtedness, except that Holders of
Notes may receive payments in the form of Permitted Junior Securities and any
securities issued in exchange for such Permitted Junior Securities, payments
made from the proceeds of the Pledged Securities as described under "Security"
and payments made from the trust described under "Legal Defeasance and
Covenant Defeasance" (collectively, "Permitted Payments").
The Company is also prohibited from making any payment upon or in respect of
the Notes (except Permitted Payments) if (i) a default in the payment of the
principal of, premium (if any), or interest on Designated Senior Indebtedness
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior
Indebtedness that permits holders of the Designated Senior Indebtedness as to
which such default relates to accelerate its maturity and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from the Company or the
holders of such Designated Senior Indebtedness. Payments on the Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced unless and
until (i) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of principal,
premium (if any), and interest on the Notes that have come due have been paid
in full in cash. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee may constitute
the basis for a subsequent Payment Blockage Notice. The Indenture will further
require that the Company promptly notify holders of Senior Indebtedness if
payment of the Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness.
Optional Redemption
The Notes will not be redeemable at the Company's option prior to ,
2002. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, together with accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................... %
2003........................................................... %
2004........................................................... %
2005........................................................... %
2006 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may at its option redeem up to
35% of the then-outstanding principal amount of the Notes at any time prior to
, 2000 with the net proceeds of one or more Equity Offerings, upon not
less than 30 but not more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest thereon to the
50
<PAGE>
applicable redemption date, if redeemed during the twelve-month period
beginning on of the years indicated below; provided that not less than
$175.5 million aggregate principal amount of Notes shall remain outstanding
following any such redemption and, provided further, that such redemption
shall occur within 45 days of the date of the closing of each such Equity
Offering:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1997........................................................... %
1998........................................................... %
1999........................................................... %
</TABLE>
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or by such other method as the Trustee deems fair and appropriate;
provided that no Notes with a principal amount of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder
of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption.
Mandatory Redemption
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make any mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes pursuant to
the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the maximum
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Trustee
an amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Trustee will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 30 days following a Change of Control, the Company will
either repay all outstanding Senior Indebtedness or obtain the requisite
consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer in
the Wall Street Journal on or as soon as practicable after the Change of
Control Payment Date.
51
<PAGE>
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of that phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form
of cash; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability with respect thereto and (y) any notes or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary into cash within 90 days following such Asset Sale (to the extent
of the cash received), will be deemed to be cash for purposes of this
provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Indebtedness of the Company, (b) to reduce Senior Indebtedness of a Subsidiary
Guarantor, or (c) to an investment in a Permitted Business or assets used in a
Permitted Business or the Company may commit to apply such Net Proceeds as set
forth in this clause (c) so long as such investment is consummated within 360
days after the receipt of such Net Proceeds. Pending the final application of
any such Net Proceeds, the Company may temporarily invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the preceding
sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $25.0 million, the
Company will be required to make an offer to all Holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase, in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not so
listed, on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
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Any future credit agreements or other agreements relating to Senior
Indebtedness to which the Company becomes a party may contain provisions
prohibiting a repurchase of Notes and providing that certain change of
control events and asset dispositions by the Company will constitute a default
thereunder. In the event a Change of Control or an Asset Sale occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek
the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, likely constitute a default under any Senior
Indebtedness then outstanding. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the Holders of
Notes.
Certain Covenants
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of any
Equity Interests of the Company or any of its Restricted Subsidiaries
including, without limitation, any payment in connection with any merger or
consolidation involving the Company (other than (x) dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company and
(y) dividends or distributions payable to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company; (iii) make
any principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except at
the original final maturity thereof or in accordance with the scheduled
mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness (but not pursuant to any mandatory
offer to repurchase upon the occurrence of any event) or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock";
and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii) and (iii) of the next succeeding paragraph), is less than the
sum of (1) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, minus 100% of
such deficit), plus (2) 100% of the aggregate net cash proceeds received by
the Company as a contribution to its common equity capital or from the
issue or sale after the date of the Indenture of Equity Interests of the
Company or of debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock),
plus (3) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect
to such Restricted Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment; provided that no cash
proceeds received by the Company from the issue or sale of any Equity
Interests of
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the Company will be counted in determining the amount available for
Restricted Payments under this clause (c) to the extent such proceeds were
used to redeem, repurchase, retire or acquire any Equity Interests of the
Company pursuant to clause (ii) of the next succeeding paragraph, to
defease, redeem or repurchase any subordinated Indebtedness pursuant to
clause (iii) of the next succeeding paragraph or to repurchase, redeem or
acquire any Equity Interests of the Company pursuant to clause (iv) of the
next succeeding paragraph.
The foregoing provisions will not prohibit the following: (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at such
date of declaration such payment would have complied with the provisions of
the Indenture; (ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(2) of the preceding
paragraph; (iii) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net proceeds from an incurrence of Permitted Refinancing
Indebtedness or the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(2) of the preceding paragraph; (iv) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company held by any member of the Company's or any of
the Company's Restricted Subsidiaries' management (other than Rachamim
Anatian) pursuant to any management equity subscription agreement, stock
option agreement or similar agreement or arrangement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $500,000 in any twelve-month period plus the
aggregate cash proceeds received by the Company during such twelve-month
period from any reissuance of Equity Interests by the Company to members of
management of the Company and its Restricted Subsidiaries; provided that the
amount of any cash proceeds received by the Company from any reissuance of
Equity Interests to members of management of the Company and its Restricted
Subsidiaries that are utilized for any such repurchases, redemptions and other
acquisitions and retirements of Equity Interests pursuant to this clause (iv)
shall be excluded from clause (c)(2) of the preceding paragraph; (v) payments
in respect of Equity Interests of any Person the holders of which are entitled
to exercise statutory appraisal rights in connection with the acquisition of
such Person by the Company or any Restricted Subsidiary in an amount not to
exceed 5.0% of any class of such Equity Interests; (vi) the repurchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the Company held by an alien to the extent necessary to comply
with the Communications Act of 1934 and the rules and regulations thereunder;
and (vii) additional Restricted Payments not to exceed an aggregate of $ in
any twelve-month period.
The Board may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if (i) at the time of such designation no Default exists and such
designation would not cause a Default, (ii) such designation is approved by a
majority of the non-employee members of the Board and (iii) such Subsidiary
otherwise meets the definition of Unrestricted Subsidiary. For purposes of
making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time
of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greater of (x) the net book value of such Investments at the time of such
designation and (y) the fair market value of such Investments at the time of
such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations shall be based upon the Company's latest available financial
statements.
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Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt)
and that the Company and the Restricted Subsidiaries will not issue any
Disqualified Stock; provided, however, that the Company and the Restricted
Subsidiaries may incur Indebtedness or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued, in each case determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom) as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period, would have been at least (i) 1.25 to 1 for an
incurrence or issuance occurring on or before , 1998 [fourth full fiscal
quarter], or (ii) 1.50 to 1 for an incurrence or issuance occurring after
, 1998 and on or before , 1998 [sixth full fiscal quarter], or (iii)
1.75 to 1 for an incurrence or issuance occurring after , 1998 and on or
before , 1999 [eighth full fiscal quarter], or (iv) 2.0 to 1 for an
incurrence or issuance occurring at any time thereafter or, solely in the case
of an incurrence of Indebtedness or an issuance of Disqualified Stock on or
before , 1999 [eighth full fiscal quarter], the Fixed Charge Coverage
Ratio for the Company's most recently ended full fiscal quarter for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued, in each case determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom) as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such quarter, would have been at least 2.0 to 1.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness: (i) the incurrence
by the Company of Indebtedness under revolving credit facilities and the
issuance and creation of letters of credit and banker's acceptances thereunder
(with letters of credit and banker's acceptances being deemed to have a
principal amount equal to the face amount thereof) up to an aggregate amount
equal to the greater of (x) $50.0 million or (y) the Borrowing Base; (ii) the
incurrence by the Company of Indebtedness represented by the Notes and the
Subsidiary Guarantees; (iii) Indebtedness (including Capital Lease
Obligations) incurred by the Company or any of its Restricted Subsidiaries to
finance the purchase, lease or improvement of property (real or personal) or
equipment (whether through the direct purchase of assets or the Capital Stock
of any Person owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (together with any
Refinancing Indebtedness with respect thereto), does not exceed $10.0 million;
(iv) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including without limitation
letters of credit in respect of workers' compensation claims or self-
insurance, or similar reimbursement obligations regarding workers'
compensation claims; provided, however, that upon the drawing of such letters
of credit or the incurrence of such Indebtedness, such obligations are
reimbursed within 30 days following such drawing or incurrence; (v)
Indebtedness arising from agreements of the Company or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case incurred or assumed in connection with the
disposition of any business, assets or a Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or a Subsidiary for the purpose of financing such
acquisition; provided, however, that (i) such Indebtedness is not reflected on
the
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balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote to financial statements and not
otherwise reflected on the balance sheet will not be deemed to be reflected on
such balance sheet for purposes of this clause (i)) and (ii) the maximum
assumable liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds, including non-cash proceeds (the fair market value
of which shall be measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition; (vi) the
incurrence by the Company or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace, Indebtedness that was permitted by the
Indenture to be incurred; (vii) the incurrence by the Company or any of its
Restricted Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that (i) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted Subsidiary
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may be;
(viii) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the Indenture to
be outstanding or (2) for the purpose of fixing or hedging currently exchange
rate risk with respect to any currency exchanges; (ix) the guarantee by the
Company or any of the Subsidiary Guarantors of Indebtedness of the Company or
a Restricted Subsidiary of the Company that was permitted to be incurred by
another provision of this covenant; (x) the incurrence by the Company's
Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company; and (xi) additional
Indebtedness in an aggregate amount outstanding not to exceed $ at any
time.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
described in clauses (i) through (x) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest of the accretion of accreted value
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly create, incur,
assume or suffer to exist any Lien securing Indebtedness or trade payables on
any property or asset now owned or hereafter acquired, or on any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (i)(a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries; (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries;
or (iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) secured Senior Indebtedness permitted to be incurred
by the terms of the Indenture that limit the right of the debtor to dispose of
the assets securing such
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Indebtedness; (b) the Indenture and the Notes; (c) applicable law; (d) any
agreement or other instrument of a Person acquired by the Company or any of
its Restricted Subsidiaries, as in effect at the time of acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of an encumbrance or restriction contained in any
agreement or instrument governing Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred; (d) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices; (e) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired; (f) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced; (g) contracts for the
sale of assets, including contracts for the sale of the Capital Stock of a
Subsidiary, containing customary restrictions on the disposition of such
assets or the conduct of business of such Subsidiary pending consummation of
such sale; (h) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business; or
(i) customary provisions in joint venture agreements entered into in the
ordinary course of business.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving entity), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions to,
another corporation, Person or entity unless (i) the Company is the surviving
corporation or entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction, no Default or Event of Default exists; and
(iv) the Company or the entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction
and (B) will, at the time of such transaction after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Disqualified Stock."
Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company or any Subsidiary Guarantor may enter
into a sale and leaseback transaction if (i) the Company or such Subsidiary
Guarantor could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant entitled "Incurrence of Additional Indebtedness and Issuance of
Disqualified Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant entitled "Liens," (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors and set forth in
an Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the
proceeds of such transaction are applied in compliance with, the covenant
described above under the covenant entitled "Asset Sales."
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Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board and by a majority of the non-employee
members of the Board and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, an opinion as to the fairness to the Company or such
Restricted Subsidiary of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing; provided, however, that the following shall not be deemed Affiliate
Transactions: (a) any employment agreement or arrangement or any other
compensation plan available generally to the employees of the Company or its
Restricted Subsidiaries, in each case entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business, (b) directors'
fees and indemnification arrangements in the ordinary course of business and
consistent with the Company's past practice, (c) transactions among the
Company and its Restricted Subsidiaries, (d) Restricted Payments permitted by
the provisions of the Indenture described above under clause (iv) of the
second paragraph of the covenant entitled "Restricted Payments" or Permitted
Investments described below under clause (vii) of the definition of "Permitted
Investments," and (e) transactions effected pursuant to a written contract
approved in advance as provided above.
Anti-Layering
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Indebtedness and
senior in any respect in right of payment to the Notes, and (ii) no Subsidiary
Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to its Senior Indebtedness and senior in any respect in right of payment to
the Subsidiary Guarantees.
Subsidiary Guarantees
The Indenture will provide that the Company's payment obligations under the
Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees")
by each Subsidiary Guarantor. The Subsidiary Guarantee of each Subsidiary
Guarantor will be subordinated to the prior payment in full of all Senior
Indebtedness of such Subsidiary Guarantor on substantially the same terms as
the Notes are subordinated to the Senior Indebtedness of the Company. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will
be limited so as not to constitute a fraudulent conveyance under applicable
law.
The Indenture will provide that no Subsidiary Guarantor may consolidate with
or merge with or into another corporation, Person or entity (other than
another Subsidiary Guarantor or a Person that becomes a Subsidiary Guarantor
as a result of such transaction) unless (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation
or merger (if other than such Subsidiary Guarantor) assumes all the
obligations of such Subsidiary Guarantor under the Notes and the Indenture
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Subsidiary
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Subsidiary
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Guarantor immediately preceding the transaction and (iv) the Company would be
permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction, to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio set
forth in the covenant entitled "Incurrence of Indebtedness and Issuance of
Disqualified Stock."
The Indenture will provide that, in the event of a sale or other disposition
of all or substantially all of the assets of any Subsidiary Guarantor by way
of merger, consolidation or otherwise, or a sale or other disposition of all
of the capital stock of any Subsidiary Guarantor, then such Subsidiary
Guarantor (in the event of a sale or other disposition of all of the capital
stock of such Subsidiary Guarantor) or the entity acquiring the property of
such Subsidiary Guarantor (in the event of a sale or other disposition of all
or substantially all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "Asset
Sales."
Line of Business
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-
K if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its Restricted Subsidiaries and, with respect to the annual information only,
a report thereon by the Company's certified independent accountants and (ii)
all current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such
a filing) and make such information available to securities analysts and
prospective investors upon request.
Events of Default and Remedies
The Indenture will provide that each of the following constitutes an Event
of Default:
(i) default for 30 days in the payment when due of interest on the Notes
(whether or not prohibited by the subordination provisions of the
Indenture);
(ii) default in payment when due of principal or premium, if any, on the
Notes at maturity, upon redemption or otherwise (whether or not prohibited
by the subordination provisions of the Indenture);
(iii) failure by the Company to comply with the provisions described
under the covenants entitled "Change of Control," "Asset Sales,"
"Restricted Payments," "Incurrence of Indebtedness and Issuance of
Disqualified Stock" or "Merger, Consolidation or Sale of Assets;"
(iv) failure by the Company for 60 days after notice to comply with its
other agreements in the Indenture, the Pledge Agreement or the Notes;
(v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists or is created after the date of the Indenture, which default (a) is
caused by a failure to pay when due any principal of such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness
on the date of such default (a "Payment
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Default") or (b) results in the acceleration of such Indebtedness prior to
its scheduled maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are
not stayed within 60 days after their entry;
(vii) any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Subsidiary Guarantor, or any Person acing on behalf
of any Subsidiary Guarantor, shall deny or disaffirm its obligations under
its Subsidiary Guarantee;
(viii) the Company breaches any material representation, warranty or
agreement set forth in the Pledge Agreement, or the Pledge Agreement is
unenforceable against the Company for any reason; and
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then-outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Restricted
Subsidiary that would constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture, the
Pledge Agreement or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then-
outstanding Notes may direct the Trustee in its exercise of any trust or
power.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
, 2002 by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition
on redemption of the Notes prior to such date, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture or the Pledge Agreement, except a continuing Default or
Event of Default relating to (i) the release of any Collateral from the Lien
created by the Indenture and the Pledge Agreement, (ii) the alteration of any
of the provisions of the Pledge Agreement in a manner that adversely affects
the rights of any Holder, or (iii) the Company's obligation to make and
consummate a Change of Control Offer (which shall require 75% in aggregate
principal amount of the Notes then outstanding) or a Default or Event of
Default in the payment of interest or premium on, or principal of, the Notes
(which shall be required to be unanimous). The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal,
premium or interest) if it determines that withholding notice is in such
Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium (if any), and
interest on such Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium (if any), and interest on the outstanding
Notes on the stated maturity or on the applicable redemption date, as the case
may be, and the Company must specify whether the Notes are being defeased to
maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the Holders
of the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as certain Events of Default specified in the Indenture are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of
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preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
The registered Holder of a Note will be treated as the owner of such Note
for all purposes. A Holder may transfer or exchange Notes in accordance with
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Note selected for redemption. Also, the Company is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the
Pledge Agreement or the Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in
connection with a purchase of, or tender offer or exchange offer for Notes).
Without the consent of each Holder affected, however, an amendment or waiver
may not (with respect to any Note held by a non-consenting Holder): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Note; (iii) reduce the rate of or change the time for payment
of interest on any Notes; (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration); (v) make any Note payable in money
other than that stated in the Notes; (vi) make any change in the provisions of
the Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal, premium or interest on the Notes; or
(vii) make any change in the foregoing amendment and waiver provisions. In
addition, any amendment to the provisions of the Indenture or the Pledge
Agreement relating to subordination of the Notes, release of any Collateral or
any other change to the Pledge Agreement or the Company's obligation to make
and consummate a Change of Control Offer will require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Pledge
Agreement or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for additional Guarantors of the Notes, or the release, in
accordance with the Indenture, of any Subsidiary Guarantor, to provide for the
assumption of the Company's or any Subsidiary Guarantor's obligations to
Holders of the Notes in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
In the event that the Company pays any consideration to Holders of Notes in
connection with the solicitation of any consent, the Company shall pay such
consideration to all Holders of Notes, including Holders who withhold consent.
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Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions with the Company; however, if the Trustee
acquires any conflicting interest, it must eliminate such conflict within
90 days, apply to the Commission for permission to continue as Trustee or
resign.
The Holders of a majority in principal amount of the then-outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Company, 1740 Broadway, 17th Floor, New York,
New York 10019, Attention: Corporate Secretary.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to constitute control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above
under the covenant entitled "Change of Control" and/or the provisions
described above under the covenant entitled "Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause
(i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or
(b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing,
the following shall not be deemed Asset Sales: (i) a transfer of assets by the
Company to a Restricted Subsidiary or by a Subsidiary to the Company or to a
Restricted Subsidiary, (ii) the sale of inventory by the Company or a
Restricted Subsidiary in the ordinary course of business, (iii) the sale of
accounts receivable pursuant to factoring arrangements entered into in the
ordinary course of business, (iv) the sale of property or equipment that have
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become worn out, obsolete or damaged or otherwise unusable for use in
connection with the business of the Company or any Restricted Subsidiary, as
the case may be, (v) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (vi) a Restricted Payment that is permitted by the covenant
described above under the covenant entitled "Restricted Payments," (vii) a
disposition of Cash Equivalents in the ordinary course of business, (viii) the
disposition of all or substantially all of the assets of the Company in a
manner permitted pursuant to the provisions described above under "Merger,
Consolidation or Sale of Assets" or any disposition that constitutes a Change
in Control, (ix) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Permitted Business,
and (x) any disposition of assets pursuant to a foreclosure.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, with respect to any Person as of any date, an amount
equal to 80% of the consolidated book value of all accounts receivable of such
Person and its Restricted Subsidiaries as of such date that are not more than
90 days past due and 65% of the consolidated book value of all inventory owned
by such Person and its Restricted Subsidiaries as of such date, in each case
determined in accordance with GAAP. The determination of the Borrowing Base
shall be made on the basis of the most recent available information of such
Person as of the date of determination.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500 million, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper rated A-1
or the equivalent thereof by Moody's or S&P and in each case maturing within
one year after the date of acquisition, (vi) investment funds investing 95% of
their assets in securities of the types described in clauses (i) through (v)
above, (vii) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of
the two highest rating categories obtainable from either Moody's or S&P, and
(viii) Indebtedness or preferred stock issued by Persons with a rating of "A"
or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as defined in Section 13(d)(3) of the
Exchange Act) or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act), (ii) the adoption of a plan for the liquidation or dissolution
of the Company, (iii) the Company consolidates with, or merges with or into,
another "person" (as defined above) or sells, assigns,
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conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any "person" (as defined above) or "group" (as defined above)
in a transaction or series of related transactions in which the Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property, other than any transaction where (A) the outstanding Voting Stock of
the Company is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and/or (2)
cash, securities and other property in an amount which could be paid by the
Company as a Restricted Payment under the Indenture and (B) the "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act) of the Voting Stock
of the Company immediately prior to such transaction own, directly or
indirectly, not less than a majority of the total combined voting power of the
outstanding Voting Stock of the surviving or transferee corporation
immediately after such transaction, (iv) the consummation of any transaction
or series of related transactions (including, without limitation, by way of
merger or consolidation) the result of which is that any "person" (as defined
above) or "group" (as defined above) other than Rachamim Anatian or any Person
controlled by Rachamim Anatian becomes the "beneficial owner" (as defined
above) of Voting Stock of the Company representing 50% or more of the total
combined voting power of the Company's outstanding Voting Stock, or (v) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not, at the
date of determination, permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, and (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock).
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means any Senior Indebtedness of the
Company permitted under the Indenture the outstanding principal amount of
which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to date on which the Notes mature.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with
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an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash charges of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into or exchangeable for Capital Stock).
"Equity Offering" means a public offering by the Company of its Equity
Interests that is registered under the Securities Act.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of (i) the EBITDA of such Person for such period plus, in
the case of the Company, the principal amount of Pledged Securities held by
the Trustee as of the last day of such period to (ii) the Fixed Charges of
such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or
redeems any Indebtedness (other than revolving credit borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Fixed Charge Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee, repayment, repurchase or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Fixed Charge
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and EBITDA for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set
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forth in the definition of Consolidated Net Income, (ii) the EBITDA
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Fixed Charge
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Fixed Charge Calculation
Date, shall be excluded, but only to the extent that the obligations giving
rise to such Fixed Charges will not be obligations of the referent Person or
any of its Restricted Subsidiaries following the Fixed Charge Calculation
Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate or currency swap agreements, interest rate
cap agreements and interest rate collar agreements and (ii) other agreements
or arrangements designed to protect such person against fluctuations in
interest rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The principal amount of Indebtedness represented by letters of credit
shall be deemed to be equal to the maximum potential liability thereunder.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any
other nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively
in investments of the type described in clauses (i) and (ii) above (other than
immaterial amounts of cash held pending investment and/or distribution).
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or
other securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other
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securities by the Company for consideration consisting of Equity Interests
(other than Disqualified Stock) of the Company shall not be deemed to be an
Investment. If the Company or any Restricted Subsidiary of the Company sells
or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any
such sale or disposition, such Person is no longer a Restricted Subsidiary of
the Company, the Company shall be deemed to have made an investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or
loss, together with any related provision for taxes on such gain or loss,
realized in connection with (a) any Asset Sale or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary gain or loss, together with any
related provision for taxes on such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business 80% or more of the revenues of which
are derived from electronic or home-shopping retailing and activities
reasonably incidental thereto or representing a reasonable extension,
development or expansion thereof.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company, (ii) any Investment in Cash Equivalents
or Investment Grade Securities, (iii) any Investments by the
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Company or any Restricted Subsidiary of the Company in a Person if, as a
result of such Investment, (a) such person becomes a Subsidiary Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary of the Company, (iv) any
Investment in securities or other assets not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant entitled "Asset Sales" or any other disposition of
assets not constituting an Asset Sale, (v) any investment existing on the date
of the Indenture, (vi) any Investment acquired by the Company or any
Restricted Subsidiary (x) in exchange for any other Investment or accounts
receivable held by the Company or such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (y) as a result of foreclosure by the Company or any Restricted Subsidiary
with respect to any secured Investment or other transfer of title with respect
to any secured Investment in default, (vi) loans and advances to officers,
directors and employees for business-related travel expenses, relocation
expenses and other similar expenses, in each case incurred in the ordinary
course of business and other loans or advances to employees (other than
Rachamim Anatian) that are approved by a majority of the Company's
disinterested directors, (vii) any Investment in a Permitted Business (other
than an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (vii) that are at the time outstanding, not to exceed 10% of the
Company's total consolidated assets at the time of such Investment (without
giving effect to subsequent changes in value of such Investment), (viii)
Investments acquired solely in exchange for Equity Interests of the Company
(other than Disqualified Stock), (ix) Hedging Obligations permitted pursuant
to the covenant described above under the caption "Incurrence of Indebtedness
and Issuance of Disqualified Stock," and (x) other Investments having a fair
market value, taken together with all other Investments made pursuant to this
clause (ix) that are at the time outstanding, not to exceed $ million at the
time of such Investment (without giving effect to subsequent changes in the
value of such Investment).
"Permitted Junior Securities" means equity securities of the Company and
debt securities of the Company or any Guarantor, as the case may be, that are
subordinated at least to the same extent as the Notes to Senior Indebtedness
of the Company or the Subsidiary Guarantee of such Guarantor to the Senior
Indebtedness of such Guarantor, as the case may be.
"Permitted Liens" means (i) Liens securing Senior Indebtedness that was
permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of
the Company, (iii) Liens securing Acquired Debt permitted by the terms of the
Indenture on property of a Person existing at the time such Person is merged
with or into or consolidated with the Company or any Restricted Subsidiary of
the Company, provided, that such Liens (x) were not incurred in connection
with, or in contemplation of, such merger or consolidation and (y) do not
extend to any assets other than those of the Person merged into or
consolidated with the Company or such Restricted Subsidiary; (iv) Liens
securing Acquired Debt permitted by the Indenture on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary of the
Company; provided that such Liens were not incurred in connection with, or in
contemplation of, such acquisition and do not extend to any assets of the
Company or any of its Restricted Subsidiaries other than the property so
acquired; (v) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iii) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock"
covering only the assets acquired with such Indebtedness; (vi) Liens securing
Indebtedness incurred to refinance Indebtedness that has been secured by a
Lien permitted under the Indenture; provided that (a) any such Lien shall not
extend to or cover any assets or property not securing the Indebtedness so
refinanced and (b) the refinancing Indebtedness secured by such Lien shall
have been permitted to be incurred under the covenant entitled "Incurrence of
Indebtedness and Issuance of Disqualified Stock" and (vii) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
Restricted Subsidiary issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount
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(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to,
the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Indebtedness" means (i) with respect to the Company, any
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and (ii) with respect to any Subsidiary Guarantor, any
Indebtedness permitted to be incurred by such Subsidiary Guarantor under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that such Indebtedness is on a parity with or
subordinated in right of payment to the Subsidiary Guarantee of such
Subsidiary Guarantor. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (w) any liability for federal,
state, local or other taxes, (x) any Indebtedness of the Company or any
Subsidiary Guarantor to any Subsidiaries of the Company or other Affiliates of
the Company, (y) any trade payables or (z) any Indebtedness that is incurred
in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantor" means each future Subsidiary of the Company.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary pursuant to a Board Resolution that
included the approval of a majority of the non-employee members of the Board;
but only to the extent that such Subsidiary: (a) has no Indebtedness other
than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither
the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity
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Interests or (y) to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of operating results; and
(d) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries (other than the Notes). Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant entitled "Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant entitled
"Incurrence of Indebtedness and Issuance of Disqualified Stock," the Company
shall be in default of such covenant). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant entitled
"Incurrence of Indebtedness and Issuance of Disqualified Stock," and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
DESCRIPTION OF FACTORING ARRANGEMENTS
[To Come]
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DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offerings, the authorized capital stock of the
Company consists of (i) 45,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), (ii) 25,000,000 shares of Class B
Common Stock, par value $.01 per share (the "Class B Common Stock"), and (iii)
75,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). Immediately prior to the consummation of the Offerings, the Company
will effect the Stock Split, pursuant to which (i) each holder of Class A
Common Stock will receive 13,924.0888 shares of Class A Common Stock for each
share of Class A Common Stock then held by such holder and (ii) each holder of
Class B Common Stock will receive 13,924.0888 shares of Class B Common Stock
for each Share of Class B Common Stock then held by such holder. Upon the
closing of the Offerings, 13,106,575 shares of Class A Common Stock,
19,502,121 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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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.
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CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION RELATING TO FOREIGN
OWNERSHIP OF COMMON STOCK
The Certificate of Incorporation contains provisions designed to assist the
Company in complying with the provisions of the Communications Act regulating
the ownership of broadcasting companies by aliens. See "Business--Federal
Regulations and New Technologies." The following is a summary of those
provisions of the Certificate of Incorporation.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that is controlled, directly or indirectly, by any
other corporation more than one-fourth of whose capital stock is owned or
voted by non-U.S. citizens or their representatives, by foreign governments or
their representatives, or by non-U.S. corporations, if the FCC finds that the
public interest will be served by the refusal or revocation of such license.
The FCC has interpreted this provision to require an affirmative public
interest finding before a broadcast license may be granted to or held by any
such corporation. The FCC has rarely if ever made such an affirmative finding.
For the purpose of monitoring compliance with this provision, the Certificate
of Incorporation requires the Company, as promptly as practicable after shares
of Common Stock are first held by more than 100 holders of record, to
implement the procedures described below in this paragraph. The Certificate of
Incorporation requires the Company to maintain separate stock records for
alien stockholders and non-alien stockholders. In addition, the Certificate of
Incorporation requires the Company to place on each certificate representing
shares of stock owned, voted or otherwise controlled by an alien the legend
"Foreign Share Certificate" and to place on each other stock certificate the
legend "Domestic Share Certificate." Pursuant to the Certificate of
Incorporation, the holder of any shares of Company stock represented by a
Domestic Share Certificate is required, if such shares are owned, voted or
otherwise controlled by an alien, to deliver such certificate to the Company
to be replaced by a Foreign Share Certificate. Any holder of Foreign Share
Certificates representing shares of Common Stock that are not owned, voted or
otherwise controlled by aliens, may deliver such Foreign Share Certificates to
the Company or its agent to be replaced by Domestic Share Certificates. Any
Foreign Share Certificates delivered to the Company for replacement with
Domestic Share Certificates must be accompanied by an affidavit stating that
the shares of the Company's stock represented by the Foreign Share Certificate
are not owned, voted or otherwise controlled by an alien.
The Certificate of Incorporation provides that the Company will have the
right to determine, by vote of the Company's Board of Directors or in
conformity with regulations prescribed by the Company's Board, whether any
person is an alien, whether any shares of stock of the Company are owned,
voted or otherwise controlled by aliens and whether any affidavit described
above is false.
Outstanding shares of Common Stock held by a Disqualified Holder (as defined
below) are subject to redemption by the Company, by action of the Board of
Directors or in conformity with regulations prescribed by the Board of
Directors to the extent necessary to prevent the loss or secure the
reinstatement of any license or franchise from any governmental agency held by
the Company or any of its subsidiaries, which license or franchise is
conditioned upon some or all of the holders of the Company's stock possessing
prescribed qualifications. The Certificate of Incorporation prescribes the
following terms and conditions for any such redemption: (a) the redemption
price of the shares to be redeemed shall be equal to the lesser of (i) the
Fair Market Value (as defined below) of such shares or (ii) if such stock was
purchased by such Disqualified Holder within one year of the redemption date,
such Disqualified Holder's purchase price for such shares; (b) the redemption
price of such shares may be paid in cash, securities (valued according to a
specified method) or any combination thereof; (c) if less than all the shares
held by Disqualified Holders are to be redeemed, the shares to be redeemed
will be selected in such manner as is determined by the Board of Directors or
in conformity with regulations prescribed by the Board of Directors, which may
include selection first of the most recently purchased shares thereof,
selection by lot, selection based upon failure to comply with the provisions
described in this paragraph or selection in any other manner determined by the
Board of Directors or in conformity with regulations prescribed by the Board
of Directors; (d) at least 30 days written notice of the redemption date must
be given to the record holders of the shares selected to be redeemed (unless
waived in writing by such holder), except that the redemption date may be the
date on which written notice is given to such record holders if cash,
securities or a combination thereof sufficient to effect the redemption is
deposited in trust for the benefit of such record holders and subject to
immediate withdrawal by them upon surrender of the stock certificates for
their
74
<PAGE>
shares to be redeemed; (e) from and after the redemption date, any and all
rights of whatever nature, which may be held by the owners of shares called
for redemption (including without limitation any rights to vote or participate
in dividends declared on stock of the same class or series as such shares),
will cease and terminate and such owners will thenceforth be entitled only to
receive the cash, securities or a combination thereof payable in respect of
such redemption; and (f) such other terms and conditions as the Board of
Directors may determine.
For purposes of the foregoing provisions of the Certificate of
Incorporation, the following meanings are assigned to certain terms:
"Disqualified Holder" means any holder of capital stock whose holding of such
stock, either individually or when taken together with the holding of shares
of any class or series of stock of the Company by any other holders, may
result, in the judgment of the Board of Directors, in the loss of, or the
failure to secure the reinstatement of, any license or franchise from any
governmental agency held by the Company or any of its subsidiaries to conduct
any portion of its business. "Fair Market Value" of a share of any class or
series of stock of the Company means the average closing price for such a
share for each of the 45 most recent days on which shares of stock of such
class or series were traded preceding the fifth day prior to the day on which
notice of redemption is given, except that if shares of stock of such class or
series are not traded on any securities exchange or in the over-the-counter
market, "Fair Market Value" is any value determined by the Board of Directors
in good faith.
The Certificate of Incorporation also authorizes the Board of Directors to
adopt such other provisions as the Board of Directors may deem necessary or
desirable to avoid violation of the alien ownership provisions of the
Communications Act and to carry out the provisions of the Certificate of
Incorporation relating to alien ownership.
PREFERRED STOCK
The Company has authorized 75,000 shares of Preferred Stock. No shares of
Preferred Stock have been issued and the Company does not presently
contemplate the issuance of such shares. The Board of Directors is empowered
by the Company's Certificate of Incorporation to designate and issue from time
to time one or more classes or series of Preferred Stock without any action of
the stockholders. The Board of Directors may authorize issuance in one or more
classes or series, and may fix and determine the relative rights, preferences
and limitations of each class or series so authorized. Such action could
adversely affect the voting power of the holders of the Common Stock or could
have the effect of discouraging or making difficult any attempt by a person or
group to obtain control of the Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to such date of the Board
of Directors of the corporation approved either the business combination or
the transaction in which the person became an interested stockholder, (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation excluding shares owned by officers
or directors of the corporation and by certain employee stock plans, or (iii)
on or after such date the business combination is approved by the Board of
Directors of the corporation and by the affirmative vote of at least 66 2/3%
of the outstanding voting stock of the corporation that is not owned by the
interested stockholder. A "business combination" generally includes mergers,
asset sales and similar transactions between the corporation and the
interested stockholder, and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns 15% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and,
together with his affiliates and associates, has owned 15% or more of the
corporation's voting stock within three years.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
75
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
Friedman, Billings, Ramsey & Co., Inc. (the "Underwriter") has agreed to
purchase from the Company the Notes at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
thereunder are subject to certain conditions precedent and that the
Underwriter will purchase all of the Notes offered hereby if any of the Notes
are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Notes directly to the public initially at the price to
the public set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per Note. The
Underwriter may allow, and such dealers may reallow, discounts not in excess
of $ per Note to certain other dealers. After the Notes have been released
for sale to the public, the offering price and other selling terms may be
changed by the Underwriter.
The Notes will constitute a new class of securities with no established
trading market. The Company does not intend to list such securities on any
national securities exchange or on the Nasdaq National Market. The Underwriter
intends to make a market in the Notes on completion of the Notes Offering, as
permitted by applicable laws and regulations. The Underwriter, however, is not
obligated to make a market in the Notes, and any such market making may be
discontinued at any time at the sole discretion of the Underwriter.
The Company has agreed to pay the Underwriter a financial advisory fee of
0.5% of the total price to the public set forth on the cover page of this
Prospectus. The Company has also agreed that during the period ending 12
months after the closing of the Offerings, the Underwriter shall have the
right to act as the exclusive financial advisor and as the non-exclusive
placement agent or underwriter in connection with any non-bank debt or equity
financings by the Company.
The Company has agreed to issue to the Underwriter and to Prime Charter
Ltd., one of the representatives of the underwriters of the Common Stock
Offering, warrants to purchase an aggregate of 312,500 shares (359,375 shares
if the Over-allotment Option is exercised in full) of Class A Common Stock
(the "Representatives' Warrants"). The shares of Class A Common Stock subject
to the Representatives' Warrants will be in all respects identical to the
shares of Class A Common Stock offered to the public in the Common Stock
Offering. The Representatives' Warrants will be exercisable for a five-year
period commencing one year after the closing date of the Offerings at a per
share exercise equal to 110% of the initial public offering price in the
Common Stock Offering. Neither the Representatives' Warrants nor the
underlying shares of Class A Common Stock may be transferred, assigned, or
hypothecated for a period of one year from the closing of the Offerings,
except to the extent permitted by applicable rules of the National Association
of Securities Dealers, Inc. During the period beginning one year from the
closing of the Offerings and ending five years after such effective date, the
Company has agreed at its expense to register under the Securities Act the
shares of Class A Common Stock issued or issuable upon exercise of the
Representatives' Warrants and, for the period beginning one year from the date
of this Prospectus and ending seven years after such effective date, to
include such shares of Class A Common Stock in any appropriate registration
statement which is filed by the Company. The Representatives' Warrants will
contain anti-dilution provisions providing for appropriate adjustment of the
exercise price and number of shares that may be purchased upon the occurrence
of certain events. The Representatives' Warrants may be exercised by paying
the exercise price in cash, through the surrender of shares of Class A Common
Stock, through a reduction in the number of shares covered thereby, or by
using a combination of such methods.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter and its controlling persons against certain liabilities under the
Securities Act, or will contribute to payments that the Underwriter and its
controlling persons may be required to make in respect thereof. The Company
has been advised that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
76
<PAGE>
The Underwriter has advised the Company that the Underwriter does not intend
to confirm sales to any account over which it exercises discretionary
authority.
The Underwriter is also acting as one of the managing underwriters of the
Common Stock Offering. See "Summary--Concurrent Offering."
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.
77
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report.............................................. F-2
Combined Balance Sheets at December 31, 1996 and 1995..................... F-3
Combined Statements of Operations for the year ended December 31, 1996 and
for the period from
June 15, 1995 (date of inception) to December 31, 1995................... F-4
Combined Statements of Cash Flows for the year ended December 31, 1996 and
for the period from
June 15, 1995 (date of inception) to December 31, 1995................... F-5
Combined Statements of Stockholders' Equity for the year ended December
31, 1996 and for the period from June 15, 1995 (date of inception) to
December 31, 1995........................................................ F-6
Notes to Combined Financial Statements at December 31, 1996 and 1995...... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Global Broadcasting Systems, Inc.:
We have audited the accompanying combined balance sheets of Global
Broadcasting Systems, Inc., as of December 31, 1996 and 1995 and the related
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1996 and for the period from June 15, 1995 (date of
inception) to December 31, 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Global
Broadcasting Systems, Inc. as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the year ended December 31, 1996 and
for the period from June 15, 1995 (date of inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, NY
January 30, 1997
F-2
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 198 $ --
Funds held in escrow (note 8)....................... 4,150,000 --
Other current assets................................ 140,167 --
------------ ---------
Total current assets............................ 4,290,365 --
Property and equipment:
Software............................................ 150,000 --
Furniture and fixtures.............................. 107,770 30,764
Leasehold improvements.............................. 118,966 --
Computer equipment.................................. 149,252 23,572
Studio equipment.................................... 21,091 2,443
Less accumulated depreciation and amortization...... (34,457) (5,250)
------------ ---------
Net property and equipment...................... 512,622 51,529
Deposits and other assets............................. 474,659 48,100
------------ ---------
$ 5,277,646 $ 99,629
============ =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued in excess of bank balance............. 205,597 209
Accounts payable.................................... 228,102 --
Accrued salary and fringe benefits.................. 517,642 110,439
Other accrued expenses.............................. 540,686 --
Deferred rent....................................... 79,658 --
------------ ---------
Total liabilities............................... 1,571,685 110,648
------------ ---------
Stockholders' equity:
Preferred stock--$0.01 par value; 10,000 shares au-
thorized; no shares issued and outstanding......... -- --
Common stock:
Class A--$0.01 par value; 5,000 shares authorized;
8.529 and 3.060 shares issued and outstanding,
respectively (note 1)............................ -- --
Class B--$0.01 par value; 5,000 shares authorized;
1,144.940 and 130.815 shares issued and outstand-
ing, respectively (note 1)....................... 11 1
Additional paid-in capital.......................... 15,361,679 812,934
Accumulated deficit................................. (11,655,729) (823,954)
------------ ---------
Total stockholders' equity...................... 3,705,961 (11,019)
------------ ---------
Commitments and contingencies (notes 3 and 8)
$ 5,277,646 $ 99,629
============ =========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM JUNE 15, 1995 (DATE OF
INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 15, 1995
(DATE OF INCEPTION)
TO DECEMBER 31,
1996 1995
------------ -------------------
<S> <C> <C>
Net revenue................................. $ 198,845 $ 9,479
Cost of revenue............................. (148,046) (5,550)
------------ ---------
Gross Profit................................ 50,799 3,929
Distribution, production and transmission
expenses................................... 5,772,550 222,711
Selling, general and administrative ex-
penses..................................... 5,107,784 605,853
------------ ---------
Total operating expenses................ 10,880,334 828,564
------------ ---------
Operating loss.............................. (10,829,535) (824,635)
------------ ---------
Other income (expense)
Interest income........................... -- 681
Other income (expense).................... (2,240) --
------------ ---------
Total other income (expense)............ (2,240) 681
------------ ---------
Loss before income tax benefit.............. (10,831,775) (823,954)
Income tax benefit.......................... -- --
------------ ---------
Net loss.................................... $(10,831,775) $(823,954)
------------ ---------
Net loss per share (note 1):................ $ (7,500.37) $ (570.54)
------------ ---------
Weighted average number of common shares
outstanding (note 1)....................... 1,444.166 1,444.166
============ =========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM JUNE 15, 1995 (DATE OF
INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 15, 1995
(DATE OF
INCEPTION) TO
DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(10,831,775) $(823,954)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization.................. 29,207 5,250
Services received in exchange for common
stock......................................... 1,995,799 164,835
Changes in operating assets and liabilities:
Increase in other current assets............. (140,167) --
Increase in accounts payable................. 228,102 --
Increase in accrued expenses................. 947,889 110,439
Increase in deferred rent.................... 79,658 --
------------ ----------
Net cash used by operating activities.............. (7,691,287) (543,430)
------------ ----------
Cash flow from investing activities:
Purchases of property and equipment.............. (490,300) (56,779)
Increase in deposits and other assets............ (426,559) (48,100)
Deposits on pending acquisitions................. (4,150,000) --
------------ ----------
Net cash used by investing activities.............. (5,066,859) (104,879)
------------ ----------
Cash flow from financing activities:
Proceeds from sale of common stock and capital
contributions................................... 12,552,956 648,100
Increase in checks issued in excess of bank
balances........................................ 205,388 209
------------ ----------
Net cash provided by financing activities.......... 12,758,344 648,309
------------ ----------
Net increase in cash............................... 198 --
Cash--beginning.................................... -- --
------------ ----------
Cash--ending....................................... $ 198 $ --
============ ==========
Supplementary disclosure:
Interest paid.................................... $ -- $ --
Taxes paid....................................... 1,540 --
============ ==========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM JUNE 15, 1995 (DATE OF
INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK (NOTE 1)
------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
------------- ---------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 15,
1995................... -- $ -- -- $ -- $ -- $ -- --
----- ------ --------- ----- ---------- ----------- -----------
Issuance of common stock
and capital
contributions.......... -- 125.460 1 648,099 -- 648,100
Shares issued for
services in-kind (note
4)..................... 3.060 5.355 -- 164,835 -- 164,835
Net loss................ -- -- -- -- -- (823,954) (823,954)
----- ------ --------- ----- ---------- ----------- -----------
Balance at December 31,
1995................... 3.060 -- 130.815 1 812,934 (823,954) (11,019)
----- ------ --------- ----- ---------- ----------- -----------
Issuance of common stock
and capital
contributions.......... -- 960.735 9 12,552,947 -- 12,552,956
Shares issued for
services in-kind (note
4)..................... 5.469 53.390 1 1,995,798 -- 1,995,799
Net loss................ -- -- -- -- -- (10,831,775) (10,831,775)
----- ------ --------- ----- ---------- ----------- -----------
Balance at December 31,
1996................... 8.529 -- 1,144.940 11 15,361,679 (11,655,729) 3,705,961
===== ====== ========= ===== ========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Basis of Presentation and Nature of Business
These financial statements contain the combined financial statements of
Global Shopping Network, Inc. (GSN) and Ramcast Corporation (Ramcast). The
combined entity is hereafter referred to as the Company. GSN was incorporated
on June 15, 1995 to develop a network for the sale of electronics, jewelry,
memorabilia, health and beauty and fitness products. GSN's current
distribution is limited to transmission, via satellite, to home satellite
dishes. Ramcast Corporation was incorporated in May, 1996 to acquire broadcast
properties, principally full power Ultra High Frequency (UHF) television
stations, and to hold the related Federal Communication Commission (FCC)
license for the stations which will serve as the primary means of distribution
for GSN's products.
GSN and Ramcast are related through common ownership and control and,
pursuant to the Agreement and Plan of Merger, were merged on January 30, 1997
(Note 10). All significant intercompany transactions have been eliminated for
the purposes of this combination. This merger has been effected in the
combined statements of stockholders' equity and the stockholders' equity
portion of the combined balance sheets for all periods presented as if the
merger had taken place at the beginning of the earliest period presented.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation for financial statement purposes is computed using the straight-
line method over an estimated useful life of seven years for property,
furniture and fixtures, and production equipment and an estimated useful life
of three years for computer equipment. Leasehold improvements are amortized
over the shorter of the estimated useful life of the improvements or the life
of the lease.
Revenue Recognition
Revenue from the sale of products is recognized upon shipment of the
merchandise. An allowance is recorded to provide for sales returns based upon
return experience.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income
Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined
based upon the differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to be recovered or
settled.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
F-7
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995--(CONTINUED)
(2) EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average common
shares which would have been outstanding had the merger of GSN into Ramcast
been completed as of the beginning of the earliest period presented (note 10).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4:D, stock issued during the period preceding the date of the Company's
initial public offering has been included in the calculation of weighted
average shares of common stock as if issued at the beginning of the earliest
period presented.
(3) LEASES
The Company leases office space, studio space, and various equipment with
lease terms extending beyond one year. Additionally, the Company has entered
into a long-term agreement for the procurement of satellite transponder time.
The following is a schedule, by year, of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1996:
<TABLE>
<S> <C>
Year ending December 31:
1997..................................................... $ 2,640,551
1998..................................................... 2,693,852
1999..................................................... 2,756,976
2000..................................................... 2,635,913
2001..................................................... 2,592,165
Thereafter............................................... 6,300,000
-----------
Total minimum payments required........................ $19,619,457
===========
</TABLE>
Rental expense for the operating leases for the year ended December 31, 1996
and for the period from June 15, 1995 (date of inception) to December 31, 1995
was $1,886,904 and $44,829, respectively. The 1996 amount includes $525,000
paid under the transponder agreement.
(4) COMMON STOCK
On January 29, 1997, Ramcast amended its Certificate of Incorporation (note
10) and changed its name to Global Broadcasting Systems, Inc. As a result of
the amendment, Ramcast's common stock was converted to Global Broadcasting
Systems, Inc. Class B Common Stock and a new Global Broadcasting Systems, Inc.
Class A Common Stock, par value $ .01, was created with rights equal to those
of the new Class B Common Stock except as discussed in Note 10.
As discussed in Note 1, the Common Stock and related accounts are presented
to effect the Merger of Global Shopping Network, Inc. into Global Broadcasting
Systems, Inc.
Stock Compensation
The Company has granted 5.469 and 3.060 shares of Global Broadcasting
Systems, Inc. Class A Common Stock, 53.390 and 5.355 shares of Global
Broadcasting Systems, Inc. Class B Common Stock during the year ended December
31, 1996 and the period from June 15, 1995 (date of inception) to December 31,
1995, respectively, to employees and consultants as compensation and for rent
concessions to the landlord. The Company recorded compensation and consulting
expenses aggregating $1,835,770 and $164,835 for these periods, based upon the
estimated fair value of the shares at the date of grant. These compensation
amounts include 35.032 shares of Global Broadcasting Systems, Inc. Class A
Common Stock and 8.000 shares of Global Broadcasting Systems, Inc. Class B
Common Stock which were earned during 1996 but were not issued until January
1997.
F-8
<PAGE>
GLOBAL BROADCASTING SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995--(CONTINUED)
As part of a lease agreement for studio space, the Company issued 1% of GSN
Class B common stock to the lessor in exchange for rent concessions. An
additional 2.5% to 3.75% of the then outstanding GSN Class B common stock is
to be issued upon the earlier of (1) immediately prior to an initial public
offering by the Company or (2) July 14, 1997. The number of shares to be
issued is dependent upon actual studio usage during the lease term. The shares
shall be exchanged for voting GSN Class A shares immediately prior to an
initial public offering. The Company recognized an expense in the amount of
$160,029 for the stock issued in exchange for these concessions in the year
ended December 31, 1996.
(5) ACCUMULATED DEFICIT
The Company has commenced principal operations as of December 31, 1996 but
has not generated significant revenue from these operations as the Company is
currently using a temporary distribution channel pending the acquisition of
the television stations. Additionally, the Company has realized accumulated
losses of $11,655,729 from inception to December 31, 1996. The Company
believes it will be able to obtain sufficient working capital to meet its
current obligations, fund operations and fund the capital requirements of the
pending television station acquisitions, through an issuance of debt and
equity securities in the public markets or through other sources including
continued financial support from the principal stockholder. From the date of
inception through December 31, 1996, the principal stockholder has provided
the working capital for the Company as expenditures were made. Additionally,
pursuant to a capital contribution agreement, the principal stockholder has
committed to make additional contributions that, together with his capital
contributions and purchases of common equity to the closing date of the
proposed public offering, will amount to a minimum of $100 million on the
closing date of the proposed public offering. The ability of the Company to
continue as a going concern is dependent on the Company's ability to obtain
this additional funding. 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
Summary Financial and Operating Data..................................... 10
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 17
Capitalization........................................................... 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
The Company.............................................................. 23
Business................................................................. 24
Management............................................................... 40
Summary Compensation Table............................................... 42
Principal Stockholders................................................... 46
Certain Relationships and Related Transactions........................... 47
Description of Indebtedness and Factoring Arrangements................... 48
Description of Capital Stock............................................. 72
Underwriting............................................................. 76
Legal Matters............................................................ 77
Experts.................................................................. 77
Additional Information................................................... 77
Index to Combined Financial Statements................................... F-1
</TABLE>
UNTIL , 1997, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$270,000,0000
GLOBAL BROADCASTING SYSTEMS, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
-----------------
PROSPECTUS
-----------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 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 "GBSI."
symbol..................
- --------
(1) Does not include Class A Common Stock issuable upon conversion of the Class
B Common Stock. Each share of Class B Common Stock is convertible at the
option of the holder into one share of Class A Common Stock. Assuming full
conversion into Class A Common Stock of all Class B Common Stock and pro
forma for the Common Stock Offering, a total of 32,608,696 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..................................... 10
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 17
Dividend Policy..........................................................
Dilution.................................................................
Capitalization........................................................... 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
The Company.............................................................. 23
Business................................................................. 24
Management............................................................... 40
Summary Compensation Table............................................... 42
Principal Stockholders................................................... 46
Certain Relationships and Related Transactions........................... 47
Description of Indebtedness and Factoring Arrangements................... 48
Description of Capital Stock............................................. 72
Shares Eligible for Future Sale..........................................
Underwriting............................................................. 76
Legal Matters............................................................ 77
Experts.................................................................. 77
Additional Information................................................... 77
Index to Combined Financial Statements................................... F-1
</TABLE>
UNTIL , 1997, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDER-
WRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12,500,000 SHARES
GLOBAL BROADCASTING SYSTEMS, INC.
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
PRIME CHARTER LTD.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the securities registered
hereby, all of which expenses, except for the Commission registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market System listing application fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
Securities and Exchange Commission Registration Fee......... $151,515.16
National Association of Securities Dealers, Inc. Filing
Fee........................................................ 30,500.00
Nasdaq National Market System Listing Application Fee....... 48,750.00
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing and Engraving Fees and Expenses.................... *
Trustee Fees and Expenses................................... *
Transfer Agent Fees and Expenses............................ *
Miscellaneous Expenses...................................... *
-----------
Total..................................................... $ *
===========
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables
a corporation in its original certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director for
violations of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law (iii) pursuant to Section 174 of the DGCL
(providing for liability of directors for unlawful payments of dividends of
unlawful stock purchase or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who
is, or is threatened to be made, party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person was an officer, director, employee or
agent of such corporation or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such officer, director, employee or agent acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the corporation's
best interest and, for criminal proceedings, had no reasonable cause to
believe that his conduct was unlawful. A Delaware corporation may indemnify
any officer or director in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses that such officer or director actually and
reasonably incurred.
Article VIII of the By-laws of the Company (filed as Exhibit 3.3) provides
for indemnification of the officers and directors to the full extent permitted
by applicable law.
Rachamim Anatian, the Company's co-founder, Chairman and Chief Executive
Officer, personally guaranteed certain obligations of GSN (the "Anatian
Obligations"). In connection therewith, pursuant to an
II-1
<PAGE>
Indemnification agreement, dated 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 Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of New
York, State of New York on February 11, 1997.
Global Broadcasting Systems, Inc.
By: /s/ Rachamim Anatian
RACHAMIM ANATIAN
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities indicated on February 11, 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 IBJ Schroder Bank &
Trust Company, as Trustee with respect to Notes
4.2 Form of Notes (included in Exhibit 4.1)
**4.3 Form of Class A Common Stock Certificate
**5 Opinion of Latham & Watkins
**10.1 Employment Agreement between GBS and Mr. Anatian,
dated 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>
- --------
*Previously filed
**To be filed by amendment.
*** Portions of this exhibit have received confidential treatment pursuant to
Rule 406(b) under the Securities Act.
II-6
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
GLOBAL BROADCASTING SYSTEMS, INC.
As Issuer
____% Senior Subordinated Notes Due 2007
_________________
INDENTURE
Dated as of _______ __, 1997
_________________
_________________
IBJ SCHRODER BANK & TRUST COMPANY
As Issuer
_________________
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions..................................... 1
Section 1.02. Other Definitions............................... 1
Section 1.03. Incorporation by Reference of Trust
Indenture Act................................... 12
Section 1.04. Rules of Construction........................... 12
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating................................. 13
Section 2.02. Execution and Authentication.................... 13
Section 2.03. Registrar and Paying Agent...................... 13
Section 2.04. Paying Agent to Hold Money in Trust............. 13
Section 2.05. Holder Lists.................................... 14
Section 2.06. Transfer and Exchange........................... 14
Section 2.07. Replacement Notes............................... 14
Section 2.08. Outstanding Notes............................... 14
Section 2.09. Treasury Notes.................................. 16
Section 2.10. Temporary Notes................................. 16
Section 2.11. Cancellation.................................... 16
Section 2.12. Defaulted Interest.............................. 16
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.............................. 17
Section 3.02. Selection of Senior Notes to Be Redeemed........ 17
Section 3.03. Notice of Redemption............................ 17
Section 3.04. Effect of Notice of Redemption.................. 17
Section 3.05. Deposit of Redemption Price..................... 17
Section 3.06. Notes Redeemed in Part.......................... 18
Section 3.07. Optional Redemption............................. 19
Section 3.08. Mandatory Redemption............................ 19
Section 3.09. Offer to Purchase by Application of
Excess Proceeds................................. 19
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes................................ 19
Section 4.02. Maintenance of Office or Agency................. 20
Section 4.03. Reports......................................... 20
Section 4.04. Compliance Certificate.......................... 22
Section 4.05. Taxes........................................... 22
Section 4.06. Stay, Extension and Usury Laws.................. 22
Section 4.07. Restricted Payments............................. 23
i
<PAGE>
Section 4.08. Dividend and Other Payment Restrictions
Affecting Subsidiaries.......................... 23
Section 4.09. Incurrence of Indebtedness and Issuance of
Disqualified Stock.............................. 24
Section 4.10. Asset Sales..................................... 24
Section 4.11. Transactions with Affiliates.................... 24
Section 4.12. Liens........................................... 26
Section 4.13. Offer to Repurchase Upon Change of Control...... 27
Section 4.14. Subsidiary Guarantees........................... 28
Section 4.15. Sale and Leaseback Transactions................. 29
Section 4.16. Limitations on Layering Indebtedness............ 30
Section 4.17. Corporate Existence............................. 30
Section 4.18. Business Activities............................. 32
Section 4.19. Payments for Consent............................ 32
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of All or
Substantially All Assets........................ 32
Section 5.02. Successor Corporation Substituted............... 32
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default............................... 32
Section 6.02. Acceleration.................................... 32
Section 6.03. Other Remedies.................................. 33
Section 6.04. Waiver of Past Defaults......................... 33
Section 6.05. Control by Majority............................. 33
Section 6.06. Limitation on Suits............................. 33
Section 6.07. Rights of Holders of Notes to Receive Payment... 33
Section 6.08. Collection Suit by Trustee...................... 35
Section 6.09. Trustee May File Proofs of Claim................ 35
Section 6.10. Priorities...................................... 36
Section 6.11. Undertaking for Costs........................... 36
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee............................... 36
Section 7.02. Rights of Trustee............................... 37
Section 7.03. Individual Rights of Trustee.................... 37
Section 7.04. Trustee's Disclaimer............................ 37
Section 7.05. Notice of Defaults.............................. 38
Section 7.06. Reports by Trustee to Holders of the Notes...... 38
Section 7.07. Compensation and Indemnity...................... 38
Section 7.08. Replacement of Trustee.......................... 38
Section 7.09. Successor Trustee by Merger, etc................ 39
Section 7.10. Eligibility; Disqualification................... 40
Section 7.11. Preferential Collection of Claims
Against Company................................. 40
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<PAGE>
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance...................................... 40
Section 8.02. Legal Defeasance and Discharge.................. 40
Section 8.03. Covenant Defeasance............................. 41
Section 8.04. Conditions to Legal or Covenant Defeasance...... 41
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions... 42
Section 8.06. Repayment to Company............................ 42
Section 8.07. Reinstatement................................... 43
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes............ 43
Section 9.02. With Consent of Holders of Notes............... 43
Section 9.03. Compliance with Trust Indenture Act............ 43
Section 9.04. Revocation and Effect of Consents.............. 43
Section 9.05. Notation on or Exchange of Notes............... 44
Section 9.06. Trustee to Sign Amendments, etc................ 45
Section 10.01. Agreement to Subordinate....................... 46
Section 10.02. Liquidation; Dissolution; Bankruptcy........... 46
Section 10.03. Default on Designated Senior Indebtedness...... 46
Section 10.04. Acceleration of Notes.......................... 47
Section 10.05. When Distribution Must Be Paid Over............ 48
Section 10.06. Notice by the Company.......................... 48
Section 10.07. Subrogation.................................... 48
Section 10.08. Relative Rights................................ 49
Section 10.09. Subordination May Not Be Impaired by the
Company........................................ 49
Section 10.10. Rights of Trustee and Paying Agent............. 49
Section 10.11. Authorization to Effect Subordination.......... 50
Section 10.12. Amendments..................................... 50
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.................... 50
Section 11.02. Notices......................................... 51
Section 11.03. Communication by Holders of Notes with Other
Holders of Notes................................ 51
Section 11.04. Certificate and Opinion as to
Conditions Precedent............................ 51
Section 11.05. Statements Required in Certificate or Opinion... 51
Section 11.06. Rules by Trustee and Agents..................... 52
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders...................... 52
Section 11.08. Governing Law................................... 52
Section 11.09. No Adverse Interpretation of Other Agreements... 52
Section 11.10. Successors...................................... 52
Section 11.11. Severability.................................... 52
iii
<PAGE>
Section 11.12. Counterpart Originals........................... 53
Section 11.13. Table of Contents, Headings, etc................ 54
iv
<PAGE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B COLLATERAL PLEDGE AND SECURITY AGREEMENT
Exhibit C FORM OF SUBSIDIARY GUARANTEE
v
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1)................................................. 7.10
(a)(2)................................................. 7.10
(a)(3)................................................. N.A.
(a)(4)................................................. N.A.
(a)(5)................................................. 7.10
(b) ................................................... 7.10
(c) ................................................... N.A.
311(a) ................................................... 7.11
(b) ................................................... 7.11
(c) ................................................... N.A.
312(a).................................................... 2.05
(b).................................................... 12.03
(c) ................................................... 12.03
313(a) ................................................... 7.06
(b)(1) ................................................ 10.03
(b)(2) ................................................ 7.07
(c) ................................................... 7.06; 12.02
(d).................................................... 7.06
314(a) ................................................... 4.03; 12.02
(b) ................................................... 10.02
(c)(1)................................................. 12.04
(c)(2)................................................. 12.04
(c)(3)................................................. N.A.
(d) ................................................... 10.03-10.05
(e) .................................................. 12.05
(f).................................................... N.A.
315(a).................................................... 7.01
(b).................................................... 7.05; 12.02
(c) .................................................. 7.01
(d).................................................... 7.01
(e).................................................... 6.11
316(a)(last sentence) .................................... 2.09
(a)(1)(A).............................................. 6.05
(a)(1)(B) ............................................. 6.04
(a)(2)................................................. N.A.
(b) ................................................... 6.07
(c) ................................................... 2.12
317(a)(1)................................................. 6.08
(a)(2)................................................. 6.09
(b) ................................................... 2.04
318(a).................................................... 12.01
<PAGE>
(b).................................................... N.A.
(c).................................................... 12.01
- -----------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
INDENTURE dated as of ________ __, 1997 between Global Broadcasting
Systems, Inc., a Delaware corporation (the "Company"), and IBJ Schroder Bank
& Trust Company as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the ___% Senior
Subordinated Notes due 2007 of the Company (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of Section 4.13 and/or the provisions
of Article 5 and not by the provisions of Section 4.10), and (ii) the issue or
sale by the Company or any of its Restricted Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing, the following shall not
be deemed Asset Sales: (i) a transfer of assets by the Company to a Restricted
Subsidiary or by a Subsidiary to the Company or to a Restricted Subsidiary, (ii)
the sale of inventory by the Company or a Restricted Subsidiary in the ordinary
course of business, (iii) the sale of accounts receivable pursuant to factoring
arrangements entered into in the ordinary course of business, (iv) the sale of
property or equipment that have become worn out, obsolete or damaged or
otherwise unusable for use in connection with the business of the Company or any
Restricted Subsidiary, as the case may be, (v) an issuance of Equity Interests
by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly
Owned Restricted Subsidiary, (vi) a Restricted Payment that is permitted by the
provisions of Section 4.07, (vii) a disposition of Cash Equivalents in the
ordinary course of business, (viii) the disposition of all or substantially all
of the assets of the Company in a manner permitted pursuant to the provisions of
Article 5 or any disposition that constitutes a Change in Control, (ix) any
exchange of like property pursuant to Section 1031 of the Internal Revenue
Code of 1986, as amended, for use in a Permitted Business, and (x) any
disposition of assets pursuant to a foreclosure.
<PAGE>
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors or other governing body
charged with the ultimate management of any Person, or any authorized committee
thereof.
"Borrowing Base" means, with respect to any Person as of any date, an
amount equal to 80% of the consolidated book value of all accounts receivable of
such Person and its Restricted Subsidiaries as of such date that are not more
than 90 days past due and 65% of the consolidated book value of all inventory
owned by such Person and its Restricted Subsidiaries as of such date, in each
case determined in accordance with GAAP. The determination of the Borrowing
Base shall be made on the basis of the most recent available information of such
Person as of the date of determination.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof
by Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i) through (v) above, (vii) readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P, and (viii) Indebtedness
or preferred stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's.
2
<PAGE>
"Change of Control" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as defined in Section 13(d)(3) of the Exchange
Act) or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act), (ii) the adoption of a plan for the liquidation or dissolution of the
Company, (iii) the Company consolidates with, or merges with or into, another
"person" (as defined above) or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any "person" (as
defined above) or "group" (as defined above) in a transaction or series of
related transactions in which the Voting Stock of the Company is converted into
or exchanged for cash, securities or other property, other than any transaction
where (A) the outstanding Voting Stock of the Company is converted into or
exchanged for (1) Voting Stock (other than Disqualified Stock) of the surviving
or transferee corporation and/or (2) cash, securities and other property in an
amount which could be paid by the Company as a Restricted Payment under this
Indenture and (B) the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act) of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, not less than a majority of the total
combined voting power of the outstanding Voting Stock of the surviving or
transferee corporation immediately after such transaction, (iv) the consummation
of any transaction or series of related transactions (including, without
limitation, by way of merger or consolidation) the result of which is that any
"person" (as defined above) or "group" (as defined above) other than Rachamim
Anatian or any Person controlled by Rachamim Anatian becomes the "beneficial
owner" (as defined above) of Voting Stock of the Company representing 50% or
more of the total combined voting power of the Company's outstanding Voting
Stock, or (v) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Collateral" has the meaning assigned thereto in the Pledge Agreement.
"Commission" means the Securities and Exchange Commission.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) the Net Income of any Person that is not
a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not, at the date of
determination, permitted without any prior governmental approval (which has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock).
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was
3
<PAGE>
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means any Senior Indebtedness of the
Company permitted under this Indenture the outstanding principal amount of which
is $25.0 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date on which the Notes mature.
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with an Asset
Sale (to the extent such losses were deducted in computing such Consolidated Net
Income), plus (ii) provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income, plus
(iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation and amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into or exchangeable for Capital Stock).
"Equity Offering" means a public offering by the Company of its Equity
Interests that is registered under the Securities Act.
4
<PAGE>
"Event of Default" has the meaning set forth in Section 6.01 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and (ii)
the consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Restricted Subsidiary) on
any series of preferred stock of such Person, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of (i) the EBITDA of such Person for such period plus, in the
case of the Company, the principal amount of Pledged Securities held by the
Trustee as of the last day of such period to (ii) the Fixed Charges of such
Person for such period. In the event that the Company or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any
Indebtedness (other than revolving credit borrowings) or issues, repurchases or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but on or prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Fixed Charge Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance or redemption of preferred stock, as if the same had occurred at
the beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Fixed Charge Calculation Date shall be
deemed to have occurred on the first day of the four-quarter reference period
and EBITDA for such reference period shall be calculated without giving effect
to clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the EBITDA attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Fixed Charge Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Fixed Charge Calculation
Date, shall be excluded, but only to the extent that the obligations giving rise
to such Fixed Charges will not be obligations of the referent Person or any of
its Restricted Subsidiaries following the Fixed Charge Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other
5
<PAGE>
entity as may be approved by a significant segment of the accounting profession
of the United States, which are in effect from time to time.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate or currency swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such person against fluctuations
in interest rates.
"Holder" means a holder of any of the Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is assumed by such
Person) and, to the extent not otherwise included, the Guarantee by such Person
of any indebtedness of any other Person. The principal amount of Indebtedness
represented by letters of credit shall be deemed to be equal to the maximum
potential liability thereunder.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) above (other than
immaterial amounts of cash held pending investment and/or distribution).
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of Equity Interests (other than Disqualified
6
<PAGE>
Stock) of the Company shall not be deemed to be an Investment. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not sold
or disposed of.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary gain or loss, together with any related provision for taxes on
such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
7
<PAGE>
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 11.05 hereof.
The counsel may be an employee of or counsel to the Company or the Trustee.
"Permitted Business" means any business 80% or more of the revenues of
which are derived from electronic or home-shopping retailing and activities
reasonably incidental thereto or representing a reasonable extension,
development or expansion thereof.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company, (ii) any Investment in Cash Equivalents or
Investment Grade Securities, (iii) any Investments by the Company or any
Restricted Subsidiary of the Company in a Person if, as a result of such
Investment, (a) such person becomes a Subsidiary Guarantor or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company, (iv) any Investment in securities or other
assets not constituting cash or Cash Equivalents and received in connection with
an Asset Sale made pursuant to the provisions of the covenant entitled "Asset
Sales" or any other disposition of assets not constituting an Asset Sale, (v)
any investment existing on the date of this Indenture, (vi) any Investment
acquired by the Company or any Restricted Subsidiary (x) in exchange for any
other Investment or accounts receivable held by the Company or such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (y) as a result of foreclosure by the Company or any
Restricted Subsidiary with respect to any secured Investment or other transfer
of title with respect to any secured Investment in default, (vi) loans and
advances to officers, directors and employees for business-related travel
expenses, relocation expenses and other similar expenses, in each case incurred
in the ordinary course of business and other loans or advances to employees
(other than Rachamim Anatian) that are approved by a majority of the Company's
disinterested directors, (vii) any Investment in a Permitted Business (other
than an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (vii) that are at the time outstanding, not to exceed 10% of the
Company's total consolidated assets at the time of such Investment (without
giving effect to subsequent changes in value of such Investment), (viii)
Investments acquired solely in exchange for Equity Interests of the Company
(other than Disqualified Stock), (ix) Hedging Obligations permitted pursuant to
the covenant described above under the caption "Incurrence of Indebtedness and
Issuance of Disqualified Stock," and (x) other Investments having a fair market
value, taken together with all other Investments made pursuant to this clause
(ix) that are at the time outstanding, not to exceed $__ million at the time of
such Investment (without giving effect to subsequent changes in the value of
such Investment).
"Permitted Junior Securities" means equity securities of the Company and
debt securities of the Company or any Guarantor, as the case may be, that are
subordinated at least to the same extent as the Notes to Senior Indebtedness of
the Company or the Subsidiary Guarantee of such Guarantor to the Senior
Indebtedness of such Guarantor, as the case may be.
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"Permitted Liens" means (i) Liens securing Senior Indebtedness that was
permitted by the terms of this Indenture to be incurred; (ii) Liens in favor of
the Company, (iii) Liens securing Acquired Debt permitted by the terms of this
Indenture on property of a Person existing at the time such Person is merged
with or into or consolidated with the Company or any Restricted Subsidiary of
the Company, provided, that such Liens (x) were not incurred in connection with,
or in contemplation of, such merger or consolidation and (y) do not extend to
any assets other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary; (iv) Liens securing Acquired Debt
permitted by this Indenture on property existing at the time of acquisition
thereof by the Company or any Restricted Subsidiary of the Company; provided
that such Liens were not incurred in connection with, or in contemplation of,
such acquisition and do not extend to any assets of the Company or any of its
Restricted Subsidiaries other than the property so acquired; (v) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iii) of
the second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Disqualified Stock" covering only the assets acquired with such
Indebtedness; (vi) Liens securing Indebtedness incurred to refinance
Indebtedness that has been secured by a Lien permitted under this Indenture;
provided that (a) any such Lien shall not extend to or cover any assets or
property not securing the Indebtedness so refinanced and (b) the refinancing
Indebtedness secured by such Lien shall have been permitted to be incurred under
the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified
Stock" and (vii) Liens on assets of Unrestricted Subsidiaries that secure Non-
Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
Restricted Subsidiary issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Restricted Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Pledge Agreement" means a collateral pledge and security agreement
between the Company and the Trustee, in its capacity as collateral agent for the
Holders of Notes, in the form of Exhibit B hereto.
"Pledges Securities" means the securities pledged pursuant to the Pledge
Agreement.
"Responsible Officer," when used with respect to the Trustee, means any
Officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other Officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
Officers and also means, with respect to a particular corporate trust matter,
any other Officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
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"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means (i) with respect to the Company, any
Indebtedness permitted to be incurred by the Company under the terms of this
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and (ii) with respect to any Subsidiary Guarantor, any
Indebtedness permitted to be incurred by such Subsidiary Guarantor under the
terms of this Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that such Indebtedness is on a parity with or
subordinated in right of payment to the Subsidiary Guarantee of such Subsidiary
Guarantor. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include (w) any liability for federal, state, local or
other taxes, (x) any Indebtedness of the Company or any Subsidiary Guarantor to
any Subsidiaries of the Company or other Affiliates of the Company, (y) any
trade payables or (z) any Indebtedness that is incurred in violation of this
Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Subsidiary Guarantor" means each Subsidiary of the Company existing on
the date of this Indenture and each future Subsidiary of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board as an Unrestricted Subsidiary pursuant to a Board Resolution that
included the approval of a majority of the non-employee members of the Board;
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition
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or to cause such Person to achieve any specified levels of operating results;
and (d) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries (other than the Notes). Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant entitled "Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant entitled "Incurrence
of Indebtedness and Issuance of Disqualified Stock," the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant entitled "Incurrence of
Indebtedness and Issuance of Disqualified Stock," and (ii) no Default or Event
of Default would be in existence following such designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the total of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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<TABLE>
<CAPTION>
Section 1.02. Other Definitions.
Defined in
Term Section
<S> <C>
"Affiliate Transaction"........................ 4.11
"Asset Sale Offer"............................. 4.10
"Authentication Order"......................... 2.02
"Change of Control Offer"...................... 4.13
"Change of Control Payment".................... 4.13
"Change of Control Payment Date"............... 4.13
"Covenant Defeasance".......................... 8.03
"Custodian".................................... 6.01
"Event of Default"............................. 6.01
"Excess Proceeds".............................. 4.10
"incur"........................................ 4.09
"Legal Defeasance"............................. 8.02
"Offer Amount"................................. 3.09
"Offer Period"................................. 3.09
"Paying Agent"................................. 2.03
"Payment Blockage Date"........................ 10.03
"Payment Default".............................. 6.01
"Permitted Payment"............................ 10.02
"Purchase Date"................................ 3.09
"Registrar".................................... 2.03
"Restricted Payments".......................... 4.07
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor upon
the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
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Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement of successor sections or rules
adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes shall be substantially in the form of Exhibit A attached hereto.
The Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be issued in minimum denominations of $1,000
and integral multiples of $1,000 in excess thereof. The terms and provisions
contained in the Notes shall constitute, and are hereby expressly made, a part
of this Indenture and the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby. Notes issued in certificated form shall be substantially in
the form of Exhibit A attached hereto.
Section 2.02. Execution and Authentication.
Two Officers of the Company shall sign the Notes for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer of the Company whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual or facsimile
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon receipt of a written order of the Company signed
by two Officers of the Company (the "Authentication Order"), authenticate Notes
for original issue up to the aggregate principal amount stated in paragraph 4 of
the Notes. The aggregate principal amount of Notes outstanding at any time may
not exceed such amount except as provided in Section 2.07 hereof.
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The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company or an Affiliate of the
Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture. If the Company fails to appoint or maintain another entity
as Registrar or Paying Agent, the Trustee shall act as such. The Company or any
of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent with respect to the Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and will notify the
Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee. Upon payment over to the Trustee,
the Paying Agent (if other than the Company or a Subsidiary) shall have no
further liability for the money. If the Company or a Subsidiary acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent. Upon any bankruptcy or
reorganization proceedings relating to the Company, the Trustee shall serve as
Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least 10 Business
Days before each interest payment date and at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of the Holders of Notes and
the Company shall otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Notes. When Notes are presented by a Holder
to the Registrar with a request:
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(x) to register the transfer of the Notes; or
(y) to exchange such Notes for an equal principal amount of Notes of
other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested;
provided, however, that the Notes presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing.
(b) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Notes at the
Registrar's request.
(ii) No service charge shall be made to a Holder for any registration
of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.07, 4.10, 4.13 and
9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
(iv) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this
Indenture, as the Notes surrendered upon such registration of
transfer or exchange.
(v) The Company shall not be required:
(A) to issue, to register the transfer of or to exchange Notes
during a period beginning at the opening of business 15 days
before the day of any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of business on the
day of selection; or
(B) to register the transfer of or to exchange any Note so selected
for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note between a
record date and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat
the Person in whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving payment of
principal of and interest on such Note, and neither the Trustee,
any Agent nor the Company shall be affected by notice to the
contrary.
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(vii)The Trustee shall authenticate Notes in accordance with the provisions of
Section 2.02 hereof.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee shall authenticate a
replacement Note if the conditions for replacement set forth herein have been
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent and any authenticating
agent from any loss that any of them may suffer if a Note is replaced. The
Company and the Trustee may charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding. Except as
set forth in Section 2.09 hereof, a Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of
any thereof) holds, on a redemption date or maturity date, money sufficient to
pay Notes payable on that date, then on and after that date such Notes shall be
deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of Notes
have concurred in any direction, waiver or consent, Notes owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be considered as though
not outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes shown on the Trustee's register as being so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until Notes are ready for delivery, the Company may prepare and the Trustee
shall authenticate temporary Notes upon a written order of the Company signed by
two Officers of the Company. Temporary Notes shall be substantially in the form
of Notes but may have variations that the Company considers appropriate
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<PAGE>
for temporary Notes and as shall be reasonably acceptable to the Trustee.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall retain or
destroy, in accordance with its normal practice, cancelled Notes (subject to the
record retention requirement of the Exchange Act). If such Notes are destroyed,
certification of the destruction of all cancelled Notes shall be delivered to
the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or,
upon the written request of the Company, the Trustee in the name and at the
expense of the Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30
days (or at least 45 days if the Company requests the Trustee to give notice to
the Holders pursuant to Section 3.03 hereof) but not more than 60 days before a
redemption date, an Officers' Certificate setting forth (i) the clause of this
Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption
price.
Section 3.02. Selection of Senior Notes to Be Redeemed.
If less than all of the Notes are to be redeemed at any time, selection of
the Notes for redemption shall be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such
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method as the Trustee shall deem fair and appropriate; provided that, no
Notes of $1,000 or less shall be redeemed in part. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes not previously called
for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. If any Note is to be redeemed in part only, a new
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Note. On
and after the redemption date, unless the Company defaults in payment of the
redemption price, interest ceases to accrue on Notes or portions of them called
for redemption. Except as provided in this Section 3.02, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed, by first class mail, a notice of redemption to each Holder of Notes
to be redeemed at such Holder's registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent or the place or places where
such Notes are to be surrendered for payment;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
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At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
At least one Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and the Trustee shall authenticate for the Holder at the expense of the Company
a new Note equal in principal amount to the unredeemed portion of the Note
surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07, the Company
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to _______, 2002. Thereafter, the Company shall have the option to redeem
the Notes, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest up to but excluding the
applicable redemption date, if redeemed during the twelve-month period beginning
on _________ of each of the years indicated below:
Percentage of
Year Principal Amount
---- ----------------
2002.............................................. _______%
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2003.............................................. _______%
2004.............................................. _______%
2005.............................................. _______%
2006 and thereafter............................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at
any time prior to _______, 2000, the Company may, at its option, on any one or
more occasions, redeem up to 35.0% of the aggregate principal amount of Notes
then outstanding at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest up to but excluding
the redemption date with the net cash proceeds of one or more Equity Offerings;
provided that at least $175.5 million aggregate principal amount of Notes
remains outstanding immediately after giving effect to any such redemption; and
provided further that such redemption shall occur within 45 days of the date of
closing of each such Equity Offering.
Percentage of
Year Principal Amount
---- ----------------
1997.............................................. _______%
1998.............................................. _______%
1999.............................................. _______%
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.13 hereof, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders of Notes to purchase Notes (an
"Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
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Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders. The notice
shall contain all appropriate instructions necessary to enable such Holders to
tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be
made to all Holders. The notice, which shall govern the terms of the Asset Sale
Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest on and after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a depository,
if appointed by the Company, or a Paying Agent at the address specified in
the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company or the Paying Agent, as the case may be, receives, not later than the
expiration of the Offer Period, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes, surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company or the Paying Agent, as the case may be,
shall promptly (but in any case not later than five days after the Purchase
Date) mail or deliver to each tendering Holder an amount equal to the purchase
price of the Notes tendered by such Holder and accepted by the Company for
purchase, and the Company shall promptly issue a new Note, and the Trustee, upon
receipt of an Authentication Order, shall authenticate and mail or deliver such
new Note to such Holder, in a principal amount equal to any unpurchased portion
of the Note surrendered. Any
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Note not so accepted shall be promptly mailed or delivered by the Company to the
Holder thereof. The Company shall publicly announce the results of the Asset
Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, and premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an Affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
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Section 4.03. Reports.
Whether or not required by the rules and regulations of Commission, so long
as any Notes are outstanding, the Company will furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its Restricted
Subsidiaries and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file a
copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
the Company's regular firm of certified independent accountants on the date
hereof or a firm of established national reputation) that in making the
examination necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that the Company has
violated any provisions of Article 4 or Article 5 hereof or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
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Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Restricted Payments.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of any Equity Interests of the
Company or any of its Restricted Subsidiaries including, without limitation, any
payment in connection with any merger or consolidation involving the Company
(other than (x) dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company and (y) dividends or distributions
payable to the Company or any Wholly Owned Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company; (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes, except at the original final
maturity thereof or in accordance with the scheduled mandatory redemption or
repayment provisions set forth in the original documentation governing such
Indebtedness (but not pursuant to any mandatory offer to repurchase upon the
occurrence of any event) or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless:
(A) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(B) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in Section 4.09; and
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of this Indenture (excluding Restricted Payments permitted by
clauses (ii) and (iii) of the next succeeding paragraph), is less than the
sum of (1) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of this Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available
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at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, minus 100% of such deficit), plus (2) 100% of
the aggregate net cash proceeds received by the Company as a contribution to
its common equity capital or from the issue or sale after the date of this
Indenture of Equity Interests of the Company or of debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (3) to the extent that any
Restricted Investment that was made after the date of this Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (B) the initial amount of such Restricted
Investment; provided that no cash proceeds received by the Company from the
issue or sale of any Equity Interests of the Company will be counted in
determining the amount available for Restricted Payments under this clause
(c) to the extent such proceeds were used to redeem, repurchase, retire or
acquire any Equity Interests of the Company pursuant to clause (ii) of the
next succeeding paragraph, to defease, redeem or repurchase any subordinated
Indebtedness pursuant to clause (iii) of the next succeeding paragraph or to
repurchase, redeem or acquire any Equity Interests of the Company pursuant to
clause (iv) of the next succeeding paragraph.
(b) The foregoing provisions shall not prohibit the following: (i) the
payment of any dividend within 60 days after the date of declaration thereof, if
at such date of declaration such payment would have complied with the provisions
of this Indenture; (ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(2) of the preceding paragraph;
(iii) the defeasance, redemption or repurchase of subordinated Indebtedness with
the net proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(2) of the preceding paragraph; (iv) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the Company
held by any member of the Company's or any of the Company's Restricted
Subsidiaries' management (other than Rachamim Anatian) pursuant to any
management equity subscription agreement, stock option agreement or similar
agreement or arrangement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$500,000 in any twelve-month period plus the aggregate cash proceeds received by
the Company during such twelve-month period from any reissuance of Equity
Interests by the Company to members of management of the Company and its
Restricted Subsidiaries; provided that the amount of any cash proceeds received
by the Company from any reissuance of Equity Interests to members of management
of the Company and its Restricted Subsidiaries that are utilized for any such
repurchases, redemptions and other acquisitions and retirements of Equity
Interests pursuant to this clause (iv) shall be excluded from clause (c)(2) of
the preceding paragraph; (v) payments in respect of Equity Interests of any
Person the holders of which are entitled to exercise statutory appraisal rights
in connection with the acquisition of such Person by the Company or any
Restricted Subsidiary in an amount not to exceed 5.0% of any class of such
Equity Interests; (vi) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company held by an alien to
the extent necessary to comply with the Communications Act of 1934 and the rules
and regulations thereunder; and (vii) additional Restricted Payments not to
exceed an aggregate of $____ in any twelve-month period.
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(c) The Board may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if (i) at the time of such designation no Default exists and such
designation would not cause a Default, (ii) such designation is approved by a
majority of the non-employee members of the Board and (iii) such Subsidiary
otherwise meets the definition of Unrestricted Subsidiary. For purposes of
making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greater of (x) the
net book value of such Investments at the time of such designation and (y) the
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
(d) Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations shall be based upon the Company's latest available financial
statements.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to: (i)(a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries; (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries; or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) secured Senior
Indebtedness permitted to be incurred by the terms of this Indenture that limit
the right of the debtor to dispose of the assets securing such Indebtedness; (b)
this Indenture and the Notes; (c) applicable law; (d) any agreement or other
instrument of a Person acquired by the Company or any of its Restricted
Subsidiaries, as in effect at the time of acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, provided that, in the case of
an encumbrance or restriction contained in any agreement or instrument governing
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred; (d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices; (e) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired; (f) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced; (g) contracts for
the sale of assets, including contracts for the sale of the Capital Stock of a
Subsidiary, containing customary restrictions on the disposition of such assets
or the conduct of business of such Subsidiary pending consummation of such sale;
(h) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business; or (i)
customary provisions in joint venture agreements entered into in the ordinary
course of business.
Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Stock.
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The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and the Company and the Restricted
Subsidiaries shall not issue any Disqualified Stock; provided, however, that the
Company and the Restricted Subsidiaries may incur Indebtedness or issue shares
of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued, in each case
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom) as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period, would have been at least (i) 1.25 to 1 for an incurrence or
issuance occurring on or before _______, 1998 [fourth full fiscal quarter], or
(ii) 1.50 to 1 for an incurrence or issuance occurring after _____________, 1998
and on or before _______, 1998 [sixth full fiscal quarter], or (iii) 1.75 to 1
for an incurrence or issuance occurring after _____________, 1998 and on or
before _______, 1999 [eighth full fiscal quarter], or (iv) 2.0 to 1 for an
incurrence or issuance occurring at any time thereafter or, solely in the case
of an incurrence of Indebtedness or an issuance of Disqualified Stock on or
before _______, 1999 [eighth full fiscal quarter], the Fixed Charge Coverage
Ratio for the Company's most recently ended full fiscal quarter for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued, in each case determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom) as if the additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such quarter, would have been at least 2.0 to 1.
The provisions of the first paragraph of this covenant shall not apply to the
incurrence of any of the following items of Indebtedness: (i) the incurrence by
the Company of Indebtedness under revolving credit facilities and the issuance
and creation of letters of credit and banker's acceptances thereunder (with
letters of credit and banker's acceptances being deemed to have a principal
amount equal to the face amount thereof) up to an aggregate amount equal to the
greater of (y) $50.0 million or (z) the Borrowing Base; (ii) the incurrence by
the Company of Indebtedness represented by the Notes and the Subsidiary
Guarantees; (iii) Indebtedness (including Capital Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase, lease
or improvement of property (real or personal) or equipment (whether through the
direct purchase of assets or the Capital Stock of any Person owning such assets)
in an aggregate principal amount which, when aggregated with the principal
amount of all other Indebtedness then outstanding and incurred pursuant to this
clause (together with any Refinancing Indebtedness with respect thereto), does
not exceed $10.0 million; (iv) Indebtedness incurred by the Company or any of
its Restricted Subsidiaries constituting reimbursement obligations with respect
to letters of credit issued in the ordinary course of business, including
without limitation letters of credit in respect of workers' compensation claims
or self-insurance, or similar reimbursement obligations regarding workers'
compensation claims; provided, however, that upon the drawing of such letters of
credit or the incurrence of such Indebtedness, such obligations are reimbursed
within 30 days following such drawing or incurrence; (v) Indebtedness arising
from agreements of the Company or a Restricted Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided, however, that (A) such
Indebtedness is not reflected on the balance sheet of the Company or any
Restricted Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will not
be deemed to be reflected on such balance sheet for purposes of this clause (A))
and (B) the maximum assumable liability in respect of all such Indebtedness
shall at no time exceed the gross proceeds, including non-cash proceeds (the
fair market value of which shall be measured at the time received and without
giving effect
27
<PAGE>
to any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition; (vi) the incurrence
by the Company or any of its Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to refund,
refinance or replace, Indebtedness that was permitted by this Indenture to be
incurred; (vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided, however, that (A) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (B)(1) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than the Company or a Wholly Owned Restricted Subsidiary and (2) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be; (viii) Hedging Obligations that are
incurred in the ordinary course of business (A) for the purpose of fixing or
hedging interest rate risk with respect to any Indebtedness that is permitted by
the terms of this Indenture to be outstanding or (B) for the purpose of fixing
or hedging currently exchange rate risk with respect to any currency exchanges;
(ix) the guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant; (x) the
incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt,
provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt
of an Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company; and (xi)
additional Indebtedness in an aggregate amount outstanding not to exceed $_____
at any time.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
described in clauses (i) through (x) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company shall, in its sole
discretion, classify such item of Indebtedness in any manner that complies with
this covenant and such item of Indebtedness will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest of the accretion of accreted value will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash; provided that the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability
with respect thereto and (y) any notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 90 days
following such Asset Sale (to the extent of the cash received), will be deemed
to be cash for purposes of this provision.
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Within 270 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Indebtedness of the Company, (b) to reduce Senior Indebtedness of a Subsidiary
Guarantor, or (c) to an investment in a Permitted Business or assets used in a
Permitted Business or the Company may commit to apply such Net Proceeds as set
forth in this clause (c) so long as such investment is consummated within 360
days of the receipt of such Net Proceeds. Pending the final application of any
such Net Proceeds, the Company may temporarily invest such Net Proceeds in any
manner that is not prohibited by this Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the preceding sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $25.0 million, the Company will be
required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase, in accordance with the procedures set forth in Section 3.09. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
such Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (A) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board and by
a majority of the non-employee members of the Board and (B) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Company or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided, however, that the
following shall not be deemed Affiliate Transactions: (a) any employment
agreement or arrangement or any other compensation plan available generally to
the employees of the Company or its Restricted Subsidiaries, in each case
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business, (b) directors' fees and indemnification
arrangements in the ordinary course of business and consistent with the
Company's past practice, (c) transactions among the Company and its Restricted
Subsidiaries, (d) Restricted Payments permitted by Section 4.07(b)(iv) or
Permitted Investments described below under clause (vii) of the definition of
"Permitted Investments," and (e) transactions effected pursuant to a written
contract approved in advance as provided above.
Section 4.12. Liens.
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<PAGE>
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist
any Lien securing Indebtedness or trade payables on any property or asset now
owned or hereafter acquired, or on any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
Section 4.13. Offer to Repurchase Upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (the "Change of Control Payment").
Within 30 days following any Change of Control, the Company shall mail a notice
to each Holder and the Trustee stating: (1) that the Change of Control Offer is
being made pursuant to this Section 4.13 and that all Notes tendered shall be
accepted for payment; (2) the purchase price and the Change of Control Payment
Date; (3) that any Note not tendered shall continue to accure interest; (4)
that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (5)
that Holders electing to have any Notes purchased pursuant to a Change of
Control Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(6) that Holders shall be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date (or such later date required by
applicable law), a facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his or her election to have the Notes
purchased; and (7) that Holders whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company shall, to the maximum
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Trustee
an amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Trustee shall promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note shall be in a principal
amount of $1,000 or an integral multiple thereof. Prior to complying with the
provisions of this covenant, but in any event within 30 days following a Change
of Control, the Company shall either repay all outstanding Senior Indebtedness
or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Indebtedness to permit the repurchase of Notes required by
this Section 4.13. The Company shall publicly announce the results of the
Change of Control Offer in the Wall Street Journal on or as soon as practicable
after the Change of Control Payment Date.
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The Change of Control provisions described above shall be applicable whether
or not any other provisions of this Indenture are applicable. Except as
described above with respect to a Change of Control, nothing in this Indenture
shall be construed to permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.13 and Section 3.09 hereof and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
Section 4.14. Subsidiary Guarantees.
If the Company or any of its Subsidiaries shall acquire or create another
Subsidiary after the date of this Indenture, then such Subsidiary shall become a
Subsidiary Guarantor by executing a Guarantee in the form of Exhibit C attached
---------
hereto. Upon the creation or acquisition of any Subsidiary after the date of
this Indenture the Company shall deliver to the Trustee an Opinion of Counsel to
the effect that the provisions of this Section 4.14 have been complied with and
that the Guarantee of the Subsidiary Guarantor constitutes a legally valid and
binding obligation of such Subsidiary Guarantor, enforceable against such
Subsidiary Guarantor in accordance with its terms.
No Subsidiary Guarantor may consolidate with or merge with or into another
corporation, Person or entity (other than another Subsidiary Guarantor or a
Person that becomes a Subsidiary Guarantor as a result of such transaction)
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor
under the Notes and this Indenture pursuant to a supplemental indenture in form
and substance reasonably satisfactory to the Trustee; (ii) immediately after
giving effect to such transaction, no Default or Event of Default exists; (iii)
such Subsidiary Guarantor, or any Person formed by or surviving any such
consolidation or merger, would have Consolidated Net Worth (immediately after
giving effect to such transaction), equal to or greater than the Consolidated
Net Worth of such Subsidiary Guarantor immediately preceding the transaction and
(iv) the Company would be permitted by virtue of the Company's pro forma Fixed
Charge Coverage Ratio, immediately after giving effect to such transaction, to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio set forth in Section 4.09.
In the event of a sale or other disposition of all or substantially all of
the assets of any Subsidiary Guarantor by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or
other disposition of all of the capital stock of such Subsidiary Guarantor) or
the entity acquiring the property of such Subsidiary Guarantor (in the event of
a sale or other disposition of all or substantially all of the assets of such
Subsidiary Guarantor) shall be released and relieved of any obligations under
its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of this
Indenture.
Section 4.15. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Subsidiary Guarantor may enter into a sale
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<PAGE>
and leaseback transaction if (i) the Company or such Subsidiary Guarantor could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 4.09 and (b) incurred a Lien to secure
such Indebtedness pursuant to Section 4.12, (ii) the gross cash proceeds of such
sale and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction, and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the proceeds of such
transaction are applied in compliance with, Section 4.10.
Section 4.16. Limitations on Layering Indebtedness.
In addition to the provisions of Section 4.09 hereof, (i) The Company shall
not incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness and senior in any respect in right of payment to the Notes, and
(ii) No Subsidiary Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to its Senior Indebtedness and senior in any respect in right
of payment to the Subsidiary Guarantees.
Section 4.17. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each of its
Restricted Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses
and franchises of the Company and its Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Restricted Subsidiaries, if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Restricted Subsidiaries, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders of the Notes.
Notwithstanding the foregoing, the loss of licenses and franchises shall not be
deemed a default under this Section 4.17 provided that such loss is not adverse
in any material respect to the Holders of the Notes.
Section 4.18. Business Activities.
The Company shall not, and shall not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Section 4.19. Payments for Consent.
In the event that the Company pays any consideration to Holders of Notes in
connection with the solicitation of any consent, the Company shall pay such
consideration to all Holders of Notes, including Holders who withhold consent.
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<PAGE>
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of All or Substantially All
Assets.
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, another corporation, Person or entity unless
(i) the Company is the surviving corporation or entity or the Person formed by
or surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made assumes all
the obligations of the Company under the Notes and this Indenture pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction, no Default or Event of Default exists; and
(iv) the Company or the entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable four-
quarter period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following constitutes an Event of Default:
(1) the Company defaults in the payment when due of interest on the Notes
for a period of 30 days (whether or not prohibited by Article 10 hereof);
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<PAGE>
(2) the Company defaults in payment when due of principal or premium, if any,
on the Notes at maturity, upon redemption or otherwise (whether or not
prohibited by Article 10 hereof);
(3) the Company fails to comply with the provisions set forth under the
covenants in Sections 4.07, 4.09, 4.10, 4.13 or 5.01;
(4) the Company fails for 60 days after notice to comply with its other
agreements in this Indenture, the Pledge Agreement or the Notes;
(5) the Company defaults under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists or is created after the date of this Indenture, which default (a) is
caused by a failure to pay when due any principal of such Indebtedness prior
to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration
of such Indebtedness prior to its scheduled maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal amount
of any other such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates $10.0 million or
more;
(6) the Company or any of its Restricted Subsidiaries fails to pay final
judgments aggregating in excess of $5.0 million, which judgments are not
stayed within 60 days after their entry;
(7) any Subsidiary Guarantee is held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Subsidiary Guarantor, or any Person acting on behalf of any
Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee;
(8) the Company breaches any material representation, warranty or
agreement set forth in the Pledge Agreement, or the Pledge Agreement is
unenforceable against the Company for any reason; and
(9) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) admits in writing its inability to pay its debts as they become
due;
(10) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(a) is for relief against the Company or any Significant Subsidiary in
an involuntary case,
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(b) appoints a Custodian of the Company or any Significant Subsidiary
or for all or substantially all of the property of the Company or any
Significant Subsidiary, or
(c) orders the liquidation of the Company or any Significant
Subsidiary,
and the order or decree remains unstayed and in effect for 60 consecutive
days.
The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law. Except for a Default or an Event of
Default pursuant to Sections 6.01(1), 6.01(2) or 6.01(3) (with respect to
Section 3.09) hereof, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default unless the Trustee shall have received written
notification of such Default or Event of Default.
Section 6.02. Acceleration.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare the unpaid principal amount of, and any accrued interest on, all the
Notes to be due and payable immediately. The Holders of a majority in aggregate
principal amount of the then outstanding Notes by written notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree. Notwithstanding the foregoing, in the
case of an Event of Default specified in clause (8) or (9) of Section 6.01
hereof, with respect to the Company, any Restricted Subsidiary that is a
Significant Subsidiary, or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes shall
become due and payable immediately without further action or notice.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to Section
3.07 hereof, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the Notes. If
an Event of Default occurs prior to ______, 2002 by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding the prohibition on redemption of the Notes prior to
_______, 2002, pursuant to Section 3.07 hereof, then the premium payable for
purposes of this paragraph for each of the years beginning on _____________ __
of the years set forth below shall be as set forth in the following table
expressed as a percentage of the principal amount, plus accrued interest, if
any, to the date of payment:
<TABLE>
<CAPTION>
Percentage of
Year Principal Amount
---- ----------------
<S> <C>
1997 .................................................. _______%
1998 .................................................. _______%
1999 .................................................. _______%
</TABLE>
Section 6.03. Other Remedies.
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If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Holders of the Notes may not enforce this Indenture, the Pledge Agreement,
or the Notes except as provided in this Indenture.
Section 6.04. Waiver of Past Defaults.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under this Indenture or the Pledge Agreement except a continuing Default or
Event of Default relating to (i) the release of any Collateral from the Lien
created by this Indenture and the Pledge Agreement, (ii) the alteration of any
of the provisions of the Pledge Agreement in a manner that adversely affects the
rights of any Holder, or (iii) any change in Sections 4.10 and 4.13 (including
by way of an amendment to any of the definitions used in any such sections) that
adversely affects the rights of any Holder of Notes (which shall require 75% in
aggregate principal amount of the Notes then outstanding) or a Default or Event
of Default relating to the payment of principal of, or interest or premium, if
any, on the Notes (which shall be required to be unanimous). Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense;
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(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is
continuing, the Trustee is authorized to recover judgments in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
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Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
principal, premium, and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may conclusively
rely without independent investigation, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of this
Indenture.
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However, the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity reasonably satisfactory to it against any loss, liability
or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
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(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee security or
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) Except with respect to Sections 4.01 and 4.04 hereof, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.01(1), 6.01(2), or 6.01(3) (with respect to
Section 3.09) hereof or (ii) any Default or Event of Default of which the
Trustee shall have received written notification or obtained actual knowledge.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Company or any Affiliate of
the Company with the same rights it would have if it were not Trustee. However,
in the event that the Trustee acquires any conflicting interest (as defined in
the TIA), it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue as trustee or resign. Any Agent may do
the same with like rights and duties. The Trustee is also subject to Sections
7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs unless such Default or Event of Default has been cured. Except in the
case of a Default or Event of Default in payment of principal of, premium, if
any, or interest on, any Note, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA (S) 313(a) (but if no event described in TIA (S)
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA (S) 313(c).
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A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and (after the consummation of the Exchange
Offer) filed with the Commission and each stock exchange on which the Notes are
listed in accordance with TIA (S) 313(d). The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel whether incurred in disputes between the parties or
in disputes with third parties or otherwise.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligation hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may in its own discretion have separate counsel and the Company shall
pay the reasonable fees and expenses of such counsel. The Company need not pay
for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal, premium, if any, and
interest on Notes. Such Lien shall survive the satisfaction and discharge of
this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or 6.01(9) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Notes
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may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10,
such Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 hereof shall continue
for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $500 million
as set forth in its most recent published annual report of condition.
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This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders
of outstanding Notes to receive payments in respect of the principal of, premium
(if any), and interest on such Notes when such payments are due from the trust
fund described in Section 8.04 hereof, and as more fully set forth in such
Section, (b) the Company's obligations with respect to such Notes under Article
2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article 8. Subject to compliance with this Article 8, the Company
may exercise its option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.18, and 4.19 hereof with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with
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respect to the outstanding Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(3) through 6.01(7), hereof shall not
constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in United States
dollars, non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants provided to the Trustee,
to pay the principal of, premium, if any, and interest on the outstanding
Notes on the stated maturity or on the applicable redemption date, as the
case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Section 6.01(8) or 6.01(9) hereof is concerned, at
any time in the period ending on the 91st day after the date of deposit;
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(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company, or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Note and remaining unclaimed for two years after such principal,
premium, if any, or interest has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and
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the Holder of such Note shall thereafter, as a general creditor, look only
to the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in the New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture, the Pledge Agreement or the
Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for additional Guarantors of the Notes, or the release, in
accordance with this Indenture, of any Subsidiary Guarantor;
(d) to provide for the assumption of the Company's or any Subsidiary
Guarantor's obligations to the Holders of the Notes in the case of a merger
or consolidation pursuant to Article 5 hereof;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
rights under this Indenture or the Pledge Agreement of any Holder of the
Notes; or
(f) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA.
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Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the Trustee
may amend or supplement this Indenture, the Pledge Agreement and the Notes with
the consent of the Holders of at least a majority in aggregate principal amount
of the Notes then outstanding (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer for, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default or compliance with any provision of this Indenture, the Pledge
Agreement or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the Notes).
Notwithstanding the foregoing paragraph, without the consent of at least
75% in aggregate principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), no waiver or amendment to this Indenture or the Pledge Agreement may
make any change in Section 4.13 or Article 10 (including by way of an amendment
to any of the definitions used in any such covenants) that adversely affects the
rights of any Holder of Notes.
Notwithstanding the previous two paragraphs, without the consent of each
Holder affected, an amendment or waiver may not (with respect to any Notes held
by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal, premium, or interest on the Notes; or
(g) make any change in the foregoing amendment and waiver provisions.
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Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Company may not sign an amended or supplemental Indenture until its Board of
Directors
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approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01) shall be fully
protected in relying upon, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture and that there has been compliance
with all conditions precedent.
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees, that the
payment of principal of, and premium and interest on, the Notes is subordinated
in right of payment, to the extent and in the manner provided in this Article
10, to the prior payment in full of all Senior Indebtedness (whether outstanding
on the date hereof or hereafter created, incurred, assumed or guaranteed), and
that the subordination is for the benefit of the holders of Senior Indebtedness.
Section 10.02. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(1) holders of Senior Indebtedness of the Company shall be entitled to
receive payment in full of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness)
before the Holders of Notes shall be entitled to receive any payment with
respect to the Notes (except that Holders of Notes may receive payments in
the form of Permitted Junior Securities and any securities issued in exchange
for such Permitted Junior Securities, payments made from the proceeds of the
Pledged Securities and payments made from the trust described in Section 8.04
hereof(collectively, "Permitted Payments"); and
(2) until all Obligations with respect to Senior Indebtedness of the
Company are paid in full, any distribution to which the Holders of Notes
would be entitled but for this Article shall be made to the holders of such
Senior Indebtedness (except that Holders of Notes may receive Permitted
Payments).
Section 10.03. Default on Designated Senior Indebtedness.
The Company may not make any payment upon or in respect of the Notes and
may not offer to repurchase Notes (other than Permitted Payments) if:
(i) a default in the payment of the principal of, or premium or interest
on, or fees or other amounts owing with respect to, Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace;
or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate
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its maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior
Indebtedness.
Payments on the Notes may and shall be resumed:
(a) in the case of default referred to in Section 10.03(i), upon the date
on which such default is cured or waived, and
(b) in case of a default referred to in Section 10.03(ii), the earlier of
the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Indebtedness has been
accelerated.
No new period of payment blockage may be commenced unless and until (i)
360 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium (if any),
and interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee may constitute the basis for a subsequent
Payment Blockage Notice.
Section 10.04. Acceleration of Notes.
The Company shall promptly notify holders of Senior Indebtedness of the
receipt of an acceleration notice following an Event of Default.
Section 10.05. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Notes at a time when the Trustee or such Holder,
as applicable, has actual knowledge that such payment is prohibited by Section
10.03 hereof, such payment shall be held by the Trustee or such Holder, in trust
for the benefit of and, upon written request, shall be paid forthwith over and
delivered to, the holders of Senior Indebtedness as their interests may appear
under the indenture or other agreement (if any) pursuant to which Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all Obligations with respect to Senior
Indebtedness remaining unpaid to the extent necessary to pay such Obligations in
full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 10, and no implied covenants or obligations with
respect to the holders of Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Indebtedness, and shall not be liable to any such
holders if the Trustee shall pay over or distribute to or on behalf of Holders
or the Company or any other Person money or assets to which any holders of
Senior Indebtedness shall be entitled by virtue of this Article 10, except if
such payment is made as a result of the willful misconduct or gross negligence
of the Trustee.
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Section 10.06. Notice by the Company.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of any Obligations with
respect to the Notes to violate this Article 10, but failure to give such notice
shall not affect the subordination of the Notes to the Senior Indebtedness as
provided in this Article.
Section 10.07. Subrogation.
After all Senior Indebtedness is irrevocably paid in full in cash or cash
equivalents reasonably satisfactory to the holders thereof and until the Notes
are paid in full, Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness. A distribution made under this Article to
holders of Senior Indebtedness that otherwise would have been made to Holders is
not, as between the Company and Holders, a payment by the Company on the Notes.
Section 10.08. Relative Rights.
This Article defines the relative rights of Holders and holders of Senior
Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of and
interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the Company
other than their rights in relation to holders of Senior Indebtedness; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders
and owners of Senior Indebtedness to receive distributions and payments
otherwise payable to Holders.
If the Company fails because of this Article 10 to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
Section 10.09. Subordination May Not Be Impaired by the Company.
No right of any holder of Senior Indebtedness to enforce the subordination
of the Debt evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any Holder or by the failure of the Company or any Holder
to comply with this Indenture.
Section 10.10. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
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with respect to the Notes to violate this Article. Only the Company may give
the notice. Nothing in this Article 10 shall impair the claims of, or payments
to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee shall be entitled to rely on the delivery to it of a written
notice by a person representing himself to be a holder of Senior Indebtedness to
establish that such notice has been given by a holder of Senior Indebtedness.
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article 10, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article 10, and if such evidence is not furnished, the
Trustee may defer any payment which it may be required to make for the benefit
of such person pursuant to the terms of this Indenture pending judicial
determination as to the rights of such person to receive such payment.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
Section 10.11. Authorization to Effect Subordination.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes.
Section 10.12. Amendments.
The provisions of this Article 10 shall not be amended or modified without
the written consent of the holders of all Senior Indebtedness.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 11.02. Notices.
Any notice, request, instruction, order or other communication by the
Company or the Trustee to the other is duly given only if in writing and
delivered in person or mailed by first class mail (registered or certified,
return receipt requested), facsimile or overnight air courier guaranteeing next
day delivery, to the other's address:
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If to the Company:
Global Broadcasting Systems, Inc.
1740 Broadway, 17th Floor
New York, New York 10019
Telecopier No.: (212) 246-4463
Attention: Chief Financial Officer
With a copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, New York 10022
Attention: Kirk Davenport
Telecopier No.: (212) 751-4864
If to the Trustee:
IBJ Schroder Bank & Trust Company
Corporate Trust Division
1 State Street
New York, New York 10004
Telecopier No. (212) ___-____
With a copy to:
Helen Doo
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier No. (212) 848-7179
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage prepaid
return receipt requested, if mailed; when receipt acknowledged, if telecopied;
and the next Business Day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, requested, or by overnight air courier
guaranteeing next day delivery to its address shown on the register kept by the
Registrar. Any notice or communication shall also be so mailed to any Person
described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail
a notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.
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If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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Section 11.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, this Indenture or the Pledge Agreement for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
of Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes.
Section 11.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES.
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 11.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its respective successors. All agreements of the Trustee in this Indenture
shall bind its successors.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
SIGNATURES
Dated as of ________ __, 1997
GLOBAL BROADCASTING SYSTEMS, INC.
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Attest: By: _______________________________
Name:
Title:
_____________________________
Name:
Title:
Dated as of ______ __, 1997
IBJ SCHRODER BANK & TRUST COMPANY
Attest: By: _______________________________
Name:
Title:
_____________________________
Name:
Title:
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Exhibit A
(Face of Note)
================================================================================
CUSIP _________
No. ___ $______________
____% Senior Subordinated Notes due 2007
GLOBAL BROADCASTING SYSTEMS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars ($____________) on __________, 2007.
Interest Payment Dates: ________ and ____________
Record Dates: _________ and ___________
Dated: __________, ____
GLOBAL BROADCASTING SYSTEMS, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
This is one of the
Notes referred to
in the within-mentioned Indenture: (SEAL)
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By:__________________________________
Authorized Signatory
================================================================================
A-1
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(Back of Note)
____% Senior Subordinated Note due 2007
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below unless otherwise indicated.
1. Interest. Global Broadcasting Systems, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate of ___% per annum, which interest shall be payable in cash semi-annually on
_______ and ________ of each year, or if any such day is not a Business Day, on
the next succeeding Business Day (each an "Interest Payment Date"); provided
that the first Interest Payment Date shall be _______, 199_. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the Company shall pay
interest to the Person who is the Holder of record of this Note as of the close
of business on ________ or __________ immediately preceding such Interest
Payment Date, even if this Note is cancelled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. Principal, premium, if any, and
interest on this Note will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
Holder of this Note at its address set forth in the register of Holders of
Notes; provided, however, that all payments with respect to Notes the Holders of
which have given wire transfer instructions to the Company at least 10 Business
Days prior to the applicable payment date will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Such payment shall be in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts.
3. Paying Agent and Registrar. Initially, IBJ Schroder Bank & Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Restricted Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of
______ __, 1997 ("Indenture") between the Company and the Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. The
Notes are general unsecured obligations of the Company limited in an aggregate
principal amount at maturity to $ 270.0 million and will mature on _______,
2007.
5. Subordination. The payment of principal, premium, if any, and interest
on the Notes shall be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the date of the Indenture or thereafter incurred.
6. Optional Redemption.
(a) The Notes are not redeemable at the Company's option prior to _______,
2002. From and after ________, 2002, the Notes will be subject to redemption at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' written notice, at the redemption prices (expressed as percentages
A-2
<PAGE>
of principal amount) set forth below, plus accrued and unpaid interest up to but
excluding the applicable redemption date, if redeemed during the twelve-month
period beginning on ____________ of the years indicated below:
YEAR PERCENTAGE
---- ----------
2002......................................................... _______%
2003......................................................... _______%
2004......................................................... _______%
2005......................................................... _______%
2006 and thereafter.......................................... 100%
(b) Notwithstanding the provisions of clause (a) of this Paragraph 6, prior
to _________, 2000, the Company may, at its option, on any one or more
occasions, redeem up to 35.0% of the aggregate principal amount of Notes then
outstanding at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest up to but excluding
the redemption date with the net cash proceeds of one or more Equity Offerings;
provided that at least $175.5 million aggregate principal amount of Notes
remains outstanding immediately after giving effect to any such redemption; and
provided further that such redemption shall occur within 45 days of the date of
closing of each such Equity Offering.
Percentage of
Year Principal Amount
---- ----------------
1997......................................................... _______%
1998......................................................... _______%
1999......................................................... _______%
7. Mandatory Redemption.
Except as set forth in Paragraph 8 below, the Company shall not be required
to make mandatory redemption or sinking fund payments with respect to the Notes.
8. Repurchase at Option of Holder.
(a) Subject to certain exception, upon a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 in principal amount or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash (the "Change of Control Payment") equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid interest
to the date of repurchase. Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Restricted Subsidiary consummates any Asset Sale
permitted by the Indenture, the Company shall commence an offer to all Holders
of Notes (an "Asset Sale Offer") when the aggregate amount of Excess Proceeds
exceeds $25.0 million, pursuant to Section 3.09 of the Indenture, to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to the aggregate
principal amount thereof, plus accrued and unpaid interest as of the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that
A-3
<PAGE>
the aggregate principal amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company or such Restricted
Subsidiary, as the case may be, may use any remaining Excess Proceeds to repay
other Indebtedness of the Company (as may be designated by the Company) or any
Restricted Subsidiary outstanding, if any, or for general corporate purposes.
If the aggregate principal amount of Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis (based upon the aggregate principal amount
outstanding). Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero. Holders of Notes that are the subject of an
offer to purchase will receive an Asset Sale Offer from the Company prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of this
Note.
10. Notice of Optional Redemption. Notice of optional redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
11. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note selected for redemption. Also, it need not exchange or
register the transfer of any Notes for a period of 15 days before a selection of
Notes to be redeemed.
12. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
13. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Pledge Agreement or the Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Notes, and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture or Pledge
Agreement of any such Holder, or to comply with the requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act. Without the consent of at least 75% in aggregate
principal amount of the Notes then outstanding, no waiver or amendment to the
Indenture or the Pledge Agreement may (i) release any Collateral from the Lien
created by the Indenture and the Pledge Agreement, (ii) alter any of the
provisions of the Pledge Agreement in a manner that adversely affects the rights
of any Holder, or (iii) make any change in Section 4.10 or 4.13 or Article 10 of
the Indenture that adversely affect the rights of any Holder of Notes.
14. Defaults and Remedies. Events of Default include: (i) default in the
payment when due of interest on the Notes for a period of at least 30 days
(whether or not prohibited by Article 10 of the Indenture); (ii) default in
payment when due of the principal of, or premium, if any, on the Notes at
maturity, upon redemption or otherwise (whether or not prohibited by Article 10
of the Indenture); (iii) failure by the Company to comply
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with Section 4.07, 4.09, 4.10, 4.13, or 5.01 of the Indenture; (iv) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay when due any
principal of such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its scheduled
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more; (v) failure by the Company or any
of its Restricted Subsidiaries to pay final judgments aggregating in excess of
$5.0 million, which judgments are not stayed for a period of 60 days after their
entry; (vi) breach by the Company of any material representation, warranty or
agreement set forth in the Pledge Agreement, or the unenforceability of the
Pledge Agreement against the Company for any reason; (vii) any Subsidiary
Guarantee is held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Subsidiary
Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Significant Subsidiaries. If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
In certain cases, the Holders of a majority in aggregate principal amount of the
then outstanding Notes by written notice to the trustee, may rescind a notice of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect to
the Company, any Restricted Subsidiary that is a Significant Subsidiary, any
group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture, the Pledge Agreement or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the Notes then outstanding may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to an offer to purchase or the payment of principal) if it determines
that withholding notice is in their interest.
If an Event of Default occurs prior to the maturity of the Notes by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to maturity or the then applicable optional redemption premium, then
the premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture or the Pledge Agreement except a continuing Default or Event
of Default relating to (i) the release of any Collateral from the Lien created
by the Indenture and the Pledge Agreement, (ii) the alteration of any of the
provisions of the Pledge Agreement in a manner that adversely affects the rights
of any Holder, or (iii) any change in Sections 4.10 and 4.13 (including by way
of amendment to any definitions in any such covenants) that adversely affects
the rights of any Holder of Notes (which would require 75% in aggregate
principal amount of the Notes then outstanding) or a Default or Event of Default
relating to the payment of principal of, or interest or premium, if any, on the
Notes (which would be required to be unanimous).
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
15. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may become the owner or pledgee of Notes, and may otherwise deal
with the Company or any of their respective Affiliates, as if it were not the
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as trustee or resign.
16. No Recourse Against Others. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes, the Pledge Agreement, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
17. Authentication. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Pledge Agreement. Requests may be
made to:
Global Broadcasting Systems, Inc.
1740 Broadway, 17th Floor
New York, New York 10019
Telecopier No.: (212) 246-4463
Attention: Chief Financial Officer
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<PAGE>
Assignment Form
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
________________________________________________________________________________
(Insert assignee's Social Security or tax I.D. No.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: __________________
Your Signature: ________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:*___________________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Issuers pursuant
to Section 4.10 or 4.13 of the Indenture, check the box below:
[_] Section 4.10 [_] Section 4.13
If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased: $___________
Date: __________________ Your Signature: _______________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:_______________________
Signature Guarantee*: ________________________
- -----------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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<PAGE>
EXHIBIT B
COLLATERAL PLEDGE AND SECURITY AGREEMENT
This Collateral Pledge and Security Agreement (the "Pledge
Agreement") is made and entered into as of _______________ __, 1997 by
Global Broadcasting Systems, Inc. a Delaware corporation (the "Pledgor"),
having its principal office at 1740 Broadway, 17th Floor, New York, New
York 10019, in favor of IBJ Schroder Bank & Trust Company, a national
banking association, having an office at 1 State Street, New York, New York
10004, as collateral agent (the "Trustee") for the holders (the "Holders")
of the Notes (as defined herein) of the Pledgor.
W I T N E S S E T H
WHEREAS, the Pledgor and the trustee, have entered into the
indenture, dated as of _______________ __, 1997 (as amended, restated,
supplemented or otherwise modified from time to time, the "Indenture"),
pursuant to which the Pledgor is issuing on the date hereof up to
$270,000,000 in aggregate principal amount of ___% Senior Subordinated
Notes due 2007 (the "Notes"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings given to such terms in the
Indenture; and
WHEREAS, the Pledgor agreed, pursuant to the Indenture, to (i)
purchase securities that are direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged (the "Pledged Securities") in an amount sufficient upon receipt of
scheduled interest and principal payments in respect of Pledged Securities,
in the opinion of a nationally recognized firm of independent public
accountants selected by the Pledgor, to provide for payment in full of the
first two scheduled interest payments due on the Notes and (ii) place such
Pledged Securities in an account held by the Trustee for the benefit of
Holders of the Notes; and
WHEREAS, the Pledgor is the legal and beneficial owner of the
Pledged Securities; and
WHEREAS, to secure its obligations under the Indenture and the
Notes (the "Obligations"), the Pledgor has agreed to (i) pledge to the
Trustee for its benefit and the ratable benefit of the Holders of Notes,
and grant to the Trustee for its benefit and the ratable benefit of the
Holders of Notes, a security interest in the Pledged Securities and the
Pledge Account (as defined below) and (ii) execute and deliver this Pledge
Agreement in order to secure the payment and performance by the Pledgor of
all such Obligations.
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AGREEMENT
NOW, THEREFORE, in order to induce the Holders of Notes to
purchase the Notes, and for good and valuable consideration, the receipt of
which is hereby acknowledged, the Pledgor hereby agrees with the Trustee
for its benefit and for the ratable benefit of the Holders of Notes as
follows:
SECTION 1. Pledge and Grant of Security Interest. The Pledgor
-------------------------------------
hereby pledges to the Trustee for its benefit and for the ratable benefit
of the Holders of Notes, and grants to the Trustee for its benefit and for
the ratable benefit of the Holders of Notes, a continuing first priority
security interest in and to (a) all of Pledgor's right, title and interest
in the Pledged Securities and the Pledge Account, (b) the certificates or
other evidence of ownership representing the Pledged Securities and the
Pledge Account and (c) except as otherwise provided herein, all products
and proceeds of any of the Pledged Securities, including, without
limitation, all dividends, interest, principal payments, cash, options,
warrants, rights, instruments, subscriptions and other property or proceeds
from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged
Securities (collectively, the "Collateral").
SECTION 2. Security for Obligations. This Pledge Agreement
------------------------
secures the prompt and complete payment and performance when due (whether
at stated maturity, by acceleration or otherwise) of all Obligations.
SECTION 3. Delivery of Collateral; Pledge Account; Interest;
-------------------------------------------------
Substitution of Collateral.
--------------------------
3.1 All certificates or instruments representing or evidencing
the Collateral shall be delivered to and held by or on behalf of the
Trustee pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer
or assignment in blank, all in form and substance satisfactory to the
Trustee.
3.2 Concurrently with the execution and delivery hereof, the
Trustee shall establish an account for the deposit of the Pledged
Securities (the "Pledge Account") at its office at 1 State Street, New
York, New York 10004. Subject to the other terms and conditions of this
Pledge Agreement, all funds or other property accepted by the Trustee
pursuant to this Pledge Agreement shall be held in the Pledge Account for
the benefit of the Trustee and the ratable benefit of the Holders of Notes.
3.3 All interest earned on any Collateral shall be retained in
the Pledge Account (or reinvested, as the case may be), pending
disbursement pursuant to the terms hereof.
3.4 Pending disbursement of funds from the Pledge Account as
contemplated hereby, the Trustee may, and at the direction of the Pledgor
will, reinvest any interest payments received in respect of the Pledged
Securities in money market deposit accounts issued or offered by an
Eligible Institution, provided that any monies
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<PAGE>
so reinvested and the securities acquired thereby must be (a) held as
Collateral in the Pledge Account, (b) subject to the security interest
created hereby and (c) otherwise subject to the terms hereof.
SECTION 4. Disbursements.
-------------
4.1 Up to five (5) Business Days prior to the date of any of the
first two scheduled interest payments due on the Notes, the Pledgor may, in
writing, direct the Trustee to transfer from the Pledge Account to the
Trustee in its capacity as Paying Agent funds necessary to provide for
payment in full or any portion of the next scheduled interest payment on
the Notes. Upon receipt of such written request, the Trustee will take any
action necessary to provide for the payment of such interest payment on the
Notes directly to the Holders of Notes from proceeds of the Pledged
Securities in the Pledge Account.
4.2 If the Pledgor makes any interest payment or portion of an
interest payment for which the Pledged Securities are collateral from a
source of funds other than the Pledge Account ("Pledgor Funds"), the
Pledgor may, after payment in full of such interest payment, direct the
Trustee in writing to release to the Pledgor or at the direction of the
Pledgor an amount of funds from the Pledge Account less than or equal to
the amount of Pledgor Funds so expended. Upon receipt of a direction from
the Pledgor and any other documentation reasonably satisfactory to the
Trustee to substantiate such use of Pledgor Funds by the Pledgor (including
the certificate described in the following sentence), the Trustee will take
any action necessary to enable it to pay over to the Pledgor the requested
amount. Concurrently with any release of funds to the Pledgor pursuant to
this Section 4.2, the Pledgor will deliver to the Trustee a certificate
signed by an executive officer of the Pledgor stating that such use of
Pledgor Funds has been duly authorized by all necessary corporate action,
and does not contravene, or constitute a default under, any provision of
applicable law or regulation or of the certificate of incorporation of the
Pledgor or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Pledgor or result in the creation or imposition
of any Lien on any assets of the Pledgor.
4.3 If at any time the amount of Pledged Securities exceeds 100%
of the amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Pledgor, to provide for
payment in full of the first two scheduled interest payments due on the
Notes (or, in the event an interest payment or payments have been made, an
amount sufficient to provide for payment in full of any interest payments
then remaining, up to and including the second scheduled interest payment),
the Pledgor may direct the Trustee in writing to release any such
overfunding to it. Upon receipt of a request from the Pledgor and any
other documentation reasonably satisfactory to the Trustee to substantiate
such excess, the Trustee will pay over to the Pledgor any such overfunded
amount.
4.4 Upon payment in full of the first two scheduled interest
payments on the Notes, the security interest in the Collateral evidenced by
this Pledge Agreement will terminate and be of no further force and effect.
Furthermore, upon the release of any Collateral from the Pledge Account in
accordance with the terms of this Pledge Agreement, whether upon release of
Collateral to Holders as payment of
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<PAGE>
interest, to the Company or otherwise, the security interest evidenced by
this Pledge Agreement in the Collateral so released will terminate and be
of no further force and effect.
SECTION 5. Representations and Warranties. The Pledgor hereby
------------------------------
represents and warrants that:
(1) The execution, delivery and performance by the Pledgor
of this Pledge Agreement are within the Pledgor's corporate powers,
have been duly authorized by all necessary corporate action, and do
not contravene, or constitute a default under, any provision of
applicable law or regulation or of the certificate of incorporation of
the Pledgor or of any agreement, judgment, injunction, order, decree
or other instrument binding upon the Pledgor or result in the creation
or imposition of any Lien on any assets of the Pledgor, except for the
security interests granted under this Pledge Agreement.
(2) The Pledgor is the record and beneficial owner of the
Collateral, free and clear of any Lien or claims of any person or
entity (except for the security interests granted under this Pledge
Agreement). No financing statement covering the Pledged Securities is
on file in any public office other than the financing statements filed
pursuant to this Pledge Agreement.
(3) This Pledge Agreement has been duly executed and
delivered by the Pledgor and constitutes a valid and binding
obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except as such enforceability may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally or general principles of equity and commercial
reasonableness.
(4) Upon the delivery to the Trustee of the certificates
representing the Pledged Securities and any filing of financial
statements required by the Uniform Commercial Code (the "UCC"), the
pledge of the Collateral pursuant to this Pledge Agreement creates a
valid and perfected first priority security interest in and to the
Collateral, securing the payment of the Obligations for the benefit of
the Trustee and the ratable benefit of the Holders of Notes,
enforceable as such against all creditors of the Pledgor and any
persons purporting to purchase any of the Collateral from the Pledgor
other than as permitted by the Indenture.
(5) No consent of any other Person and no consent,
authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required
either (a) for the pledge by the Pledgor of the Collateral pursuant to
this Pledge Agreement or for the execution, delivery or performance of
this Pledge Agreement by the Pledgor (except for any filings necessary
to perfect Liens on the Collateral) or (b) for the exercise by the
Trustee of the rights provided for in this Pledge Agreement or the
remedies in respect of the Collateral pursuant to this Pledge
Agreement.
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<PAGE>
(6) No litigation, proceeding, or, to the knowledge of
Pledgor, investigation of or before any arbitrator or governmental
authority is pending or, to the knowledge of the Pledgor, threatened
by or against the Pledgor with respect to this Pledge Agreement or any
of the transactions contemplated hereby.
(7) The pledge of the Collateral pursuant to this Pledge
Agreement is not prohibited by any applicable law or governmental
regulation, release, interpretation or opinion of the Board of
Governors of the Federal Reserve System or other regulatory agency
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System).
SECTION 6. Further Assurance. The Pledgor will, promptly upon
-----------------
request by the Trustee, execute and deliver or cause to be executed and
delivered, or use its best efforts to procure, all stock powers, proxies,
assignments, instruments and other documents, all in form and substance
satisfactory to the Trustee, deliver any instruments to the Trustee and
take any other actions that are necessary or, in the reasonable opinion of
the Trustee, desirable to perfect, continue the perfection of, or protect
the first priority of the Trustee's security interest in and to the
Collateral, to protect the Collateral against the rights, claims, or
interests of third persons or to effect the purposes of this Pledge
Agreement. The Pledgor also hereby authorizes the Trustee to file any
financing or continuation statements with respect to the Collateral without
the signature of the Pledgor (to the extent permitted by applicable law).
The Pledgor will pay all costs incurred by it in connection with any of the
foregoing.
SECTION 7. Covenants. The Pledgor covenants and agrees with the
---------
Trustee and the Holders of Notes from and after the date of this Pledge
Agreement until the earlier of payment in full in cash of (A) each of the
first two scheduled interest payments due on the Notes under the terms of
the Indenture or (B) all obligations due and owing under the Indenture and
the Notes in the event such obligations become due and payable prior to the
payment of the first two scheduled interest payments on the Notes:
(1) The Pledgor agrees that it will not (a) sell or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or (b) create or permit to exist any Lien upon or with respect
to any of the Collateral (except for the lien created pursuant to this
Pledge Agreement) and at all times will be the sole beneficial owner of the
Collateral.
(2) The Pledgor agrees that it will not (a) enter into any
agreement or understanding that purports to or may restrict or inhibit the
Trustee's rights or remedies hereunder, including, without limitation, the
Trustee's right to sell or otherwise dispose of the Collateral or (b) fail
to pay or discharge any tax, assessment or levy of any nature not later
than five days prior to the date of any proposed sale under any judgement,
writ or warrant of attachment with regard to the Collateral.
SECTION 8. Power of Attorney. In addition to all of the powers
-----------------
granted to the Trustee pursuant to Article 7 of the Indenture, the Pledgor
hereby
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<PAGE>
appoints and constitutes the Trustee as the Pledgor's attorney-in-fact to
exercise to the fullest extent permitted by law all of the following powers
upon and at any time after the occurrence and during the continuance of an
Event of Default: (a) collection of proceeds of any Collateral; (b)
conveyance of any item of Collateral to any purchaser thereof; (c) giving
of any notices or recording of any Liens under Section 6 hereof; (d) making
of any payments or taking any acts under Section 9 hereof and (e) paying or
discharging taxes or Liens levied or placed upon the Collateral, the
legality or validity thereof and the amounts necessary to discharge the
same to be determined by the Trustee in its sole discretion, and such
payments made by the Trustee to become the Obligations of the Pledgor to
the Trustee, due and payable immediately upon demand. The Trustee's
authority hereunder shall include, without limitation, the authority to
endorse and negotiate any checks or instruments representing proceeds of
Collateral in the name of the Pledgor, execute and give receipt for any
certificate of ownership or any document constituting Collateral, transfer
title to any item of Collateral, sign the Pledgor's name on all financing
statements (to the extent permitted by applicable law) or any other
documents deemed necessary or appropriate by the Trustee to preserve,
protect or perfect the security interest in the Collateral and to file the
same, prepare, file and sign the Pledgor's name on any notice of Lien, and
to take any other actions arising from or incident to the powers granted to
the Trustee in this Pledge Agreement. This power of attorney is coupled
with an interest and is irrevocable by the Pledgor.
SECTION 9. Trustee May Perform. If the Pledgor fails to perform
-------------------
any agreement contained herein in accordance with the terms hereof, the
Trustee may itself perform, or cause performance of, such agreement, and
the reasonable expenses of the Trustee incurred in connection therewith
shall be payable by the Pledgor under Section 13 hereof.
SECTION 10. No Assumption of Duties; Reasonable Care. The
----------------------------------------
rights and powers granted to the Trustee hereunder are being granted in
order to preserve and protect the Trustee's and the Holders' of Notes
security interest in and to the Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on the Trustee in
connection therewith other than those imposed under applicable law. Except
as provided by applicable law, the Trustee shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially
equal to that which the Trustee accords similar property in similar
situations, it being understood that the Trustee shall not have any
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not the Trustee has or is deemed to have
knowledge of such matters or (b) taking any necessary steps to preserve
rights against any parties with respect to any Collateral.
SECTION 11. Indemnity. The Pledgor shall indemnify, hold
---------
harmless and defend the Trustee and its directors, officers, agents and
employees, from and against any and all claims, actions, obligations and
liabilities, including defense costs, investigative fees and costs, legal
fees, and claims for damages, arising from the Trustee's performance under
this Pledge Agreement, except to the extent that such claim, action,
obligation or liability is directly attributable to the bad faith, gross
negligence or willful misconduct of such indemnified person. IT IS THE
INTENT OF
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<PAGE>
THE PLEDGOR TO INDEMNIFY AND HOLD HARMLESS THE TRUSTEE FOR CLAIMS,
ACTIONS, OBLIGATIONS OR LIABILITIES ARISING FROM THE TRUSTEE'S PERFORMANCE
UNDER THIS PLEDGE AGREEMENT INCLUDING ITS OWN NEGLIGENCE.
SECTION 12. Remedies Upon Event of Default.
------------------------------
If an Event of Default under the Indenture shall have occurred
and be continuing:
(1) The Trustee and the Holders of Notes shall have, in
addition to all other rights given by law or by this Pledge Agreement
or the Indenture, all of the rights and remedies with respect to the
Collateral of a secured party under the UCC in effect in the State of
New York at that time. In addition, with respect to any Collateral
that shall then be in or shall thereafter come into the possession or
custody of the Trustee, the Trustee may sell or cause the same to be
sold at any broker's board or at a public or private sale, in one or
more sales or lots, at such price or prices as the Trustee may deem
best, for cash or on credit or for future delivery, without assumption
of any credit risk. The purchaser of any or all Collateral so sold
shall thereafter hold the same absolutely, free from any claim,
encumbrance or right of any kind whatsoever created by or through the
Pledgor. Unless any of the Collateral threatens, in the reasonable
judgment of the Trustee, to decline speedily in value or is or becomes
of a type sold on a recognized market, the Trustee will give the
Pledgor reasonable notice of the time and place of any public sale
thereof, or of the time after which any private sale or other intended
disposition is to be made. Any sale of the Collateral conducted in
conformity with reasonable commercial practices of banks, insurance
companies, commercial finance companies, or other financial
institutions disposing of property similar to the Collateral shall be
deemed to be commercially reasonable. Any requirements of reasonable
notice shall be met if such notice is mailed to the Pledgor as
provided in Section 15.1 herein, at least thirty (30) days before the
time of the sale or disposition. The Trustee or any Holder of Notes
may, in its own name or in the name of a designee or nominee, buy any
of the Collateral at any public sale and, if permitted by applicable
law, at any private sale. All expenses (including court costs and
reasonable attorneys' fees, expenses and disbursements) of, or
incident to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the
Collateral.
(2) The Pledgor further agrees to use its best efforts to do
or cause to be done all such other acts as may be necessary to make
such sale or sales of all or any portion of the Collateral pursuant to
this Section 12 valid and binding and in compliance with any and all
other applicable requirements of law. The Pledgor further agrees that
a breach of any of the covenants contained in this Section 12 will
cause irreparable injury to the Trustee and the Holders of Notes, that
the Trustee and the Holders of Notes have no adequate remedy at law in
respect of such breach and, as a consequence, that each and every
covenant contained in this Section 12 shall be specifically
enforceable
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<PAGE>
against the Pledgor, and the Pledgor hereby waives and agrees not
to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has
occurred.
SECTION 13. Expenses. The Pledgor will upon demand pay to the
--------
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee that the Trustee may incur in
connection with (a) the administration of this Pledge Agreement, (b) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (c) the exercise or enforcement of
any of the rights of the Trustee and the Holders of Notes hereunder or (d)
the failure by the Pledgor to perform or observe any of the provisions
hereof.
SECTION 14. Security Interest Absolute. All rights of the
--------------------------
Trustee and the Holders of Notes and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(1) any lack of validity or enforceability of the Indenture
or any other agreement or instrument relating thereto;
(2) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the
Indenture;
(3) any exchange, surrender, release or non-perfection of
any Liens on any other collateral for all or any of the Obligations;
or
(4) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to,
or a discharge of, the Pledgor in respect of the Obligations or of
this Pledge Agreement.
SECTION 15. Miscellaneous Provisions.
------------------------
15.1 Notices. All notices, approvals, consents or other
-------
communications required or desired to be given hereunder shall be in the
form and manner, and delivered to each of the parties hereto at their
respective addresses, as set forth or provided for in Section 11.02 of the
Indenture.
15.2 No Adverse Interpretation of Other Agreements. This Pledge
---------------------------------------------
Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge,
security or debt agreement may be used to interpret this Pledge Agreement.
15.3 Severability. The provisions of this Pledge Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity
or unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in
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<PAGE>
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Pledge Agreement in any jurisdiction.
15.4 Headings. The headings in this Pledge Agreement have been
--------
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
15.5 Counterpart Originals. This Pledge Agreement may be signed
---------------------
in two or more counterparts, each of which shall be deemed an original, but
all of which shall together constitute one and the same agreement.
15.6 Benefits of Pledge Agreement. Nothing in this Pledge
----------------------------
Agreement, express or implied, shall give to any person, other than the
parties hereto and their successors hereunder, and the Holders of Notes,
any benefit or any legal or equitable right, remedy or claim under this
Pledge Agreement.
15.7 Amendments, Waivers and Consents. Any amendment or waiver
--------------------------------
of any provision of this Pledge Agreement and any consent to any departure
by the Pledgor from any provision of this Pledge Agreement shall be
effective only if made or duly given in compliance with all of the terms
and provisions of the Indenture, and neither the Trustee nor any Holder of
Notes shall be deemed, by any act, delay, indulgence, omission or
otherwise, to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. Failure of the Trustee or any Holder of
Notes to exercise, or delay in exercising, any right, power or privilege
hereunder shall not operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Trustee or any Holder of Notes of any right
or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy that the Trustee or such Holder of Notes would
otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law.
15.8 Interpretation of Agreement. All terms not defined herein
---------------------------
or in the Indenture shall have the meaning set forth in the applicable
Uniform Commercial Code, except where the context otherwise requires. To
the extent a term or provision of this Pledge Agreement conflicts with the
Indenture, the Indenture shall control with respect to the subject matter
of such term or provision. Acceptance of or acquiescence in a course of
performance rendered under this Pledge Agreement shall not be relevant to
determine the meaning of this Pledge Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
15.9 Continuing Security Interest; Termination.
-----------------------------------------
(1) This Pledge Agreement shall create a continuing security
interest in and to the Collateral and shall, unless otherwise provided
in the Indenture or in this Pledge Agreement, remain in full force and
effect until
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<PAGE>
the earlier of payment in full in cash of (A) each of the first two
scheduled interest payments due on the Notes under the terms of the
Indenture or (B) all obligations due and owing under the Indenture and
the Notes in the event such obligations become payable prior to the
payment of the first two scheduled interest payments on the Notes.
This Pledge Agreement shall be binding upon the Pledgor, its
successors and assigns, and shall inure, together with the rights and
remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of Notes and their respective successors, transferees and
assigns.
(2) Subject to the provisions of Section 15.10 hereof, this
Pledge Agreement shall terminate upon the earlier of payment in full
in cash of (A) each of the first two scheduled interest payments due
on the Notes under the terms of the Indenture or (B) all obligations
due and owing under the Indenture and the Notes in the event such
obligations become payable prior to the payment of the first two
scheduled interest payments on the Notes. At such time, the Trustee
shall, at the written request of the Pledgor, reassign and redeliver
to the Pledgor all of the Collateral hereunder that has not been sold,
disposed of, retained or applied by the Trustee in accordance with the
terms of this Pledge Agreement and the Indenture. Such reassignment
and redelivery shall be without warranty (either express or implied)
by or recourse to the Trustee, except as to the absence of any prior
assignments by the Trustee of its interest in the Collateral, and
shall be at the expense of the Pledgor.
15.10 Survival of Provisions. All representations, warranties
----------------------
and covenants of the Pledgor contained herein shall survive the execution
and delivery of this Pledge Agreement, and shall terminate only upon the
termination of this Pledge Agreement.
15.11 Waivers. The Pledgor waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or
default with respect to any of the Obligations, and all other notices to
which the Pledgor might otherwise be entitled, except as otherwise
expressly provided herein or in the Indenture.
15.12 Authority of the Trustee.
------------------------
(1) The Trustee shall have and be entitled to exercise all
powers hereunder that are specifically granted to the Trustee by the
terms hereof, together with such powers as are reasonably incident
thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the
advice of counsel concerning all such matters. Neither the Trustee,
any director, officer, employee, attorney or agent of the Trustee nor
the Holders of Notes shall be liable to the Pledgor for any action
taken or omitted to be taken by it or them hereunder, except for its
or their own bad faith, gross negligence or willful misconduct, nor
shall the Trustee be responsible for the validity, effectiveness or
sufficiency hereof or of any document or security furnished pursuant
hereto. The Trustee and its directors, officers, employees, attorneys
and agents shall be entitled to rely on
B-11
<PAGE>
any communication, instrument or document believed by it or them to be
genuine and correct and to have been signed or sent by the proper
person or persons.
(2) The Pledgor acknowledges that the rights and responsibilities
of the Trustee under this Pledge Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of
any option, right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Pledge Agreement shall,
as between the Trustee and the Holders of Notes, be governed by the
Indenture and by such other agreements with respect thereto as may
exist from time to time among them, but, as between the Trustee and
the Pledgor, the Trustee shall be conclusively presumed to be acting
as agent for the Holders of Notes with full and valid authority so to
act or refrain from acting, and the Pledgor shall not be obligated or
entitled to make any inquiry respecting such authority.
15.13 Limitation by Law. All rights, remedies and powers
-----------------
provided herein may be exercised only to the extent that they will not
render this Pledge Agreement not entitled to be recorded, registered or
filed under provisions of any applicable law.
15.14 Final Expression. This Pledge Agreement, together with
----------------
any other agreement executed in connection herewith, is intended by the
parties as a final expression of this Pledge Agreement and is intended as a
complete and exclusive statement of the terms and conditions thereof.
15.15 Rights of Holders of Notes. No Holder of Notes shall have
--------------------------
any independent rights hereunder other than those rights granted to
individual Holders of Notes pursuant to Section 6.06 of the Indenture;
provided that nothing in this subsection shall limit any rights granted to
the Trustee under the Notes or the Indenture.
15.16 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
---------------------------------------------------------
TRIAL; WAIVER OF DAMAGES.
------------------------
(1) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF NOTES IN CONNECTION
WITH THIS PLEDGE AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY
OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF
NEW YORK.
(2) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE
RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
PLEDGOR OR ITS
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<PAGE>
PROPERTY IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND
HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR ITS PROPERTY, AS
THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH PROPERTY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE.
THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR
CROSS CLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH
PROPERTY OR TO ENFORCE A JUDGEMENT OR OTHER COURT ORDER IN FAVOR OF THE
TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSS CLAIMS WHICH, IF
NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR
ASSERTED. THE PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION
OF THE COURT IN WHICH THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN
THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(3) THE PLEDGOR AND THE TRUSTEE EACH WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS PLEDGE
AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
(4) THE PLEDGOR AGREES THAT NEITHER THE TRUSTEE NOR ANY HOLDER OF
NOTES SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS
CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE AGREEMENT, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING
ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE OR
SUCH HOLDER OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(5) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS
OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT, THE PLEDGOR WAIVES ALL RIGHTS
OF NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE TRUSTEE OR
ANY HOLDER OF NOTES OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT TO REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY,
ATTACH OR LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS.
TO THE EXTENT PERMITTED BY
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<PAGE>
APPLICABLE LAW, THE PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES IN CONNECTION WITH ANY
JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR
LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS, TO ENFORCE
ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE OR ANY
HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY
RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS PLEDGE
AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR ON THE ONE
HAND AND THE TRUSTEE AND/OR THE HOLDERS OF NOTES ON THE OTHER HAND.
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused
this Pledge Agreement to be duly executed and delivered as of the date
first above written.
Pledgor:
GLOBAL BROADCASTING SYSTEMS, INC.
a Delaware corporation
By:
-----------------------------------------
Name:
Title:
Trustee:
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
By:
-----------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT C
[Form of Subsidiary Guarantee]
This Guarantee (as the same may be amended, modified or supplemented from
time to time, this "Guarantee"), dated as of ____________, is made by
---------
____________________________ (hereinafter referred to as the "Guarantor") in
---------
favor of IBJ SCHRODER BANK & TRUST COMPANY as trustee under the Indenture
hereinafter described (the "Trustee") for the ratable benefit of the holders
-------
from time to time (the "Holders") of the Notes (as hereinafter defined).
-------
All terms not otherwise defined herein shall have for the purposes hereof
the meanings set forth in the Indenture (as hereinafter defined) unless the
context otherwise requires.
Recitals
--------
A. Global Broadcasting Systems, Inc. (the "Company") is a party to that
-------
certain indenture dated _______________ __, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Indenture") among the Company and the
---------
Trustee, pursuant to which the Company issued $270.0 million principal amount of
their ___% Notes due 2007 (the "Notes"); and
-----
B. The Guarantor is a direct or indirect Subsidiary of the Company, and
will derive both direct and indirect economic benefit from the proceeds of the
Notes and other financial accommodations made to the Company under the
Indenture.
C. The Indenture requires that the Guarantor execute and deliver this
Guaranty to guarantee the payment and performance by the Company of all of its
Obligations under the Indenture and the Notes, including, in each case, all
reasonable costs of collection and enforcement thereof and interest thereon
which would be owing by the Company or such Guarantor but for the effect of the
Bankruptcy Code, 11 U.S.C.(S) 101 et seq. (collectively, the "Guaranteed
-- --- ----------
Obligations").
- -----------
NOW, THEREFORE, for and in consideration of the foregoing and of any
financial accommodations or extensions of credit (including, without limitation,
any loan or advance by renewal, refinancing or extension of the Indenture or
otherwise) heretofore, now or hereafter made to or for the benefit of the
Company pursuant to the Indenture or any other agreement, instrument or document
executed pursuant to or in connection therewith, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
Guarantor and the Trustee agree as follows:
1. The Guarantee. The Guarantor hereby absolutely, unconditionally and
-------------
irrevocably guarantees the full and punctual payment (whether at stated
maturity, upon acceleration or otherwise) of the Guaranteed Obligations. This
Guarantee is a guarantee of payment and not of collection. All payments made by
the Guarantor under this Guarantee shall be paid at the place and in the manner
specified in the Indenture and the Notes.
2. Amendments, etc. with respect to the Guaranteed Obligations; Waiver of
----------------------------------------------------------------------
Rights. The Guarantor shall remain obligated hereunder notwithstanding that
- ------
without any reservation of rights against the Guarantor and without notice to or
further assent by the Guarantor any demand for payment of any of the Guaranteed
Obligations made by the Trustee or the Holders may be rescinded by them and any
of the Guaranteed Obligations continued, and the Guaranteed Obligations, or the
liability of any other party upon or for any part thereof, or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Trustee or the Holders, and the Indenture and any
other documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Trustee
or
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<PAGE>
the Holders may deem advisable from time to time or as provided in the
Indenture, and any guarantee or right of offset at any time held by the Trustee
for the payment of the Guaranteed Obligations may be sold, exchanged, waived,
surrendered or released.
3. Guarantee Absolute and Unconditional. The Guarantor waives any and
------------------------------------
all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Trustee or the
Holders upon this Guarantee, the Guaranteed Obligations, and any of them shall
conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon this Guarantee; and all dealings
between the Company and the Guarantor, on the one hand, and the Trustee and the
Holders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon this Guarantee. The Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Company or the Guarantor with respect to the
Guaranteed Obligations. The Guarantor understands and agrees that this
Guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity, regularity or
enforceability of the Indenture or any of the Notes, any of the Guaranteed
Obligations or guarantee or right of offset with respect thereto at any time or
from time to time held by the Trustee or the Holders, (b) any defense, set-off
or counterclaim (other than a defense of payment or performance) which may at
any time be available to or be asserted by the Company against the Trustee or
the Holders, or (c) any other circumstances whatsoever (with or without notice
to or knowledge of the Company or such Guarantor) which constitute, or might be
construed to constitute, an equitable or legal discharge of the Company for the
Guaranteed Obligations, or of the Guarantor under this Guarantee, in bankruptcy
or in any other instance. When pursuing its rights and remedies hereunder
against the Guarantor, the Trustee or the Holders may, but shall be under no
obligation to, pursue such rights and remedies as it or they may have against
the Company or any other Person or against any guarantee for the Guaranteed
Obligations or any right of offset with respect thereto, and any failure by the
Trustee or the Holders to pursue such other rights or remedies or to collect any
payments from the Company or any such other Person or to realize upon any such
guarantee or to exercise any such right of offset, or any release of the Company
or any such other Person or any such guarantee or right of offset, shall not
relieve the Guarantor of any liability hereunder, and shall not impair or affect
the rights and remedies, whether express, implied or available as a matter of
law, of the Trustee or the Holders against the Guarantor. This Guarantee shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon the Guarantor and its successors and assigns thereof,
and shall inure to the benefit of the Trustee, and its successors, indorsees,
transferees and assigns, and the Holders from time to time of the Notes until
all the Guaranteed Obligations and the obligations of the Guarantor under this
Guarantee shall have been satisfied by payment in full, notwithstanding that
from time to time during the term of the Indenture the Company may be free from
any Guaranteed Obligations.
4. Discharge Only Upon Payment In Full; Reinstatement In Certain
-------------------------------------------------------------
Circumstances. The Guarantor's obligations hereunder shall remain in full force
- -------------
and effect until the Guaranteed Obligations shall have been paid in full. If at
any time any payment of any of the Guaranteed Obligations is rescinded or must
be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, the Guarantor's obligations
hereunder with respect to such payment shall be reinstated at such time as
though such payment had been due but not made at such time.
5. Waiver by the Guarantor. The Guarantor irrevocably waives acceptance
-----------------------
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any time any action be taken by any Person
against the Company or any other Person.
6. Subrogation. Notwithstanding any payments made by the Guarantor under
-----------
this Guarantee, the Guarantor shall not be entitled to be subrogated to any of
the rights of any other Guarantor, the Trustee
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<PAGE>
or any Holder against the Company until all amounts of principal of and interest
and premium on the Notes and all other amounts payable by the Company under the
Indenture and the Notes and by the Guarantor under its Guarantee have been paid
in full. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Guaranteed Obligations shall not
have been paid in full, such amount shall be held by the Guarantor in trust for
the Trustee segregated from other funds of the Guarantor, and shall, forthwith
upon receipt by the Guarantor, be turned over to the Trustee in the exact form
received by the Guarantor (duly indorsed by the Guarantor to the Trustee, if
required), to be applied against the Guaranteed Obligations, whether matured or
unmatured, at such time and in such order as the Trustee may determine.
7. Stay of Acceleration. In the event that acceleration of the time for
--------------------
payment of any of the Guaranteed Obligations is stayed upon insolvency,
bankruptcy or reorganization of the Company, all such amounts otherwise subject
to acceleration under the terms of the Indenture and the Notes shall nonetheless
be payable by the Guarantor forthwith on demand by the Trustee.
8. Subordination.
-------------
a. Definitions. As used in this Section 8, the terms set forth below
-----------
shall have the following meanings:
"Designated Guarantor Senior Debt" shall mean (i) the guarantee by the
--------------------------------
Guarantor of Designated Senior Indebtedness.
"Guarantor Senior Debt" shall mean (i) the guarantee by the Guarantor of
---------------------
Designated Senior Indebtedness and (ii) any other Indebtedness permitted to be
incurred by the Guarantor under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to any Guarantor Senior Debt.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Debt
will not include (a) any liability for federal, state, local or other taxes owed
or owing by the Guarantor, (b) any Indebtedness of the Guarantor to any of its
Subsidiaries or other Affiliates, (c) any trade payables or (d) any Indebtedness
that is incurred in violation of the Indenture.
b. Agreement to Subordinate. The Guarantor agrees, and each Holder by
------------------------
accepting a Note agrees, that the payment of the Guaranteed Obligations is
subordinated in right of payment, to the extent and in the manner provided in
this Section 8, to the prior payment in full of all Guarantor Senior Debt
(whether outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed), and that the subordination is for the benefit of the holders of
Guarantor Senior Debt.
c. Liquidation; Dissolution; Bankruptcy. Upon any distribution to
------------------------------------
creditors of the Guarantor in a liquidation or dissolution of the Guarantor or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Guarantor or its property, an assignment for the benefit of
creditors or any marshalling of the Guarantor's assets and liabilities:
(i) holders of Guarantor Senior Debt of the Guarantor shall be entitled to
receive payment in full of all Obligations due in respect of such Guarantor
Senior Debt (including interest after the commencement of any such proceeding
at the rate specified in the applicable Guarantor Senior Debt) before the
Holders shall be entitled to receive any payment with respect to the
Guarantee (except that Holders may receive securities that are subordinated
at least to the same extent as the Guarantees to Guarantor Senior Debt and
any securities issued in exchange for Guarantor Senior Debt); and
(ii) until all Obligations with respect to Guarantor Senior Debt of the
Guarantor are paid in full, any distribution to which the Holders of Notes
would be entitled but for this Section 8 shall be made
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<PAGE>
to the holders of such Guarantor Senior Debt (except that Holders may receive
securities that are subordinated at least to the same extent as the Guarantee
to Guarantor Senior Debt and any securities issued in exchange for Guarantor
Senior Debt).
d. Default on Designated Guarantor Senior Debt. The Guarantor may not
-------------------------------------------
make any payment upon or in respect of the Guarantee (except that Holders may
receive securities that are subordinated to the same extent as the Notes to
Guarantor Senior Debt and any securities issued in exchange for Guarantor Senior
Debt) if:
(i) a default in the payment of the principal of, or premium or interest
on, or fees or other amounts owing with respect to, Designated Guarantor
Senior Debt occurs and is continuing beyond any applicable period of grace;
or
(ii) any other default occurs and is continuing with respect to Designated
Guarantor Senior Debt that permits holders of the Designated Guarantor Senior
Debt as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from
-----------------------
the Guarantor or the holders of any Designated Guarantor Senior Debt.
Payments on the Guarantee may and shall be resumed:
(y) in the case of default referred to in Section 8(d)(i), upon the date
on which such default is cured or waived, and
(z) in case of a default referred to in Section 8(d)(ii), the earlier of
the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Guarantor Senior Debt has been
accelerated.
No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
e. Acceleration of Guarantee. The Guarantor shall promptly notify holders
-------------------------
of Guarantor Senior Debt of the receipt by the Company of an acceleration notice
following an Event of Default under the Indenture.
f. When Distribution Must Be Paid Over. In the event that the Trustee or
-----------------------------------
any Holder receives any payment of any Obligations with respect to the Guarantee
at a time when the Trustee or such Holder, as applicable, has actual knowledge
that such payment is prohibited by Section 8(d) hereof, such payment shall be
held by the Trustee or such Holder, in trust for the benefit of and, upon
written request, shall be paid forthwith over and delivered to, the holders of
Guarantor Senior Debt as their interests may appear or their representative (the
"Representative") under the indenture or other agreement (if any) pursuant to
which Guarantor Senior Debt may have been issued, as their respective interests
may appear, for application to the payment of all Obligations with respect to
Guarantor Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Guarantor Senior
Debt.
With respect to the holders of Guarantor Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Section 8, and no implied covenants or
obligations with respect to the holders of Guarantor Senior Debt shall be read
into this Guarantee against
C-4
<PAGE>
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Debt, and shall not be liable to any such holders if
the Trustee shall pay over or distribute to or on behalf of Holders or the
Guarantor or any other Person money or assets to which any holders of Guarantor
Senior Debt shall be entitled by virtue of this Section 8, except if such
payment is made as a result of the willful misconduct or gross negligence of the
Trustee.
g. Notice by the Guarantor. The Guarantor shall promptly notify the
-----------------------
Trustee and the Paying Agent of any facts known to the Guarantor that would
cause a payment of any Obligations with respect to the Guarantee to violate this
Section 8, but failure to give such notice shall not affect the subordination of
the Guarantee to the Guarantor Senior Debt as provided in this Section 8.
h. Subrogation. After all Guarantor Senior Debt is irrevocably paid in
-----------
full in cash or cash equivalents reasonably satisfactory to the holders thereof
and until the Guaranteed Obligations are paid in full, Holders shall be
subrogated (equally and ratably with all other Indebtedness pari passu with the
Guarantee) to the rights of holders of Guarantor Senior Debt to receive
distributions applicable to Guarantor Senior Debt to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of Guarantor Senior Debt. A distribution made under this Section 8 to holders
of Guarantor Senior Debt that otherwise would have been made to Holders is not,
as between the Guarantor and Holders, a payment by the Guarantor on the
Guarantee.
i. Relative Rights. This Section 8(i) defines the relative rights of
---------------
Holders and holders of Guarantor Senior Debt. Nothing in this Guarantee shall:
(i) impair, as between the Guarantor and Holders, the obligation of the
Guarantor, which is absolute and unconditional, to pay the Guaranteed
Obligations in accordance with the terms of this Guarantee;
(ii) affect the relative rights of Holders and creditors of the Guarantor
other than their rights in relation to holders of Guarantor Senior Debt; or
(iii) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders
and owners of Guarantor Senior Debt to receive distributions and payments
otherwise payable to Holders.
j. Subordination May Not Be Impaired by the Guarantor. No right of any
--------------------------------------------------
holder of Guarantor Senior Debt to enforce the subordination of the Indebtedness
evidenced by the Guarantee shall be impaired by any act or failure to act by the
Guarantor or any Holder or by the failure of the Guarantor or any Holder to
comply with this Guarantee.
k. Distribution or Notice to Representative. Whenever a distribution is
----------------------------------------
to be made or a notice given to holders of Guarantor Senior Debt, the
distribution may be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Guarantor referred to in
this Section 8, the Trustee and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of Guarantor Senior Debt and other Indebtedness of the
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section 8.
C-5
<PAGE>
l. Rights of Trustee and Paying Agent. Notwithstanding the provisions of
----------------------------------
this Section 8 or any other provision of the Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts that would prohibit the
making of any payment or distribution by the Trustee, and the Trustee and the
Paying Agent may continue to make payments on the Guarantee, unless the Trustee
shall have received at its Corporate Trust Office at least five Business Days
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Guarantee to violate this Section
8. Only the Guarantor or a Representative may give the notice. Nothing in this
Section 8 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 of the Indenture.
The Trustee shall be entitled to rely on the delivery to it of a written
notice by a person representing himself to be a holder of Guarantor Senior Debt
(or a Representative of such holder) to establish that such notice has been
given by a holder of Guarantor Senior Debt (or a Representative of any such
holder). In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any person as a holder of
Guarantor Senior Debt to participate in any payment or distribution pursuant to
this Section 8, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Guarantor Senior Debt
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Section 8, and if such evidence is not furnished, the
Trustee may defer any payment which it may be required to make for the benefit
of such person pursuant to the terms of this Guarantee pending judicial
determination as to the rights of such person to receive such payment.
The Trustee in its individual or any other capacity may hold Guarantor
Senior Debt with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
m. Authorization to Effect Subordination. Each Holder of a Note by the
-------------------------------------
Holder's acceptance thereof authorizes and directs the Trustee on the Holder's
behalf to take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Section 8, and appoints the Trustee to act as
the Holder's attorney-in-fact for any and all such purposes. If the Trustee
does not file a proper proof of claim or proof of debt in the form required in
any proceeding referred to in Section 6.09 of the Indenture at least 30 days
before the expiration of the time to file such claim, the holders of Guarantor
Senior Debt (or a Representative of any such holder) are hereby authorized to
file an appropriate claim for and on behalf of the Holders.
n. Amendments. The provisions of this Section 8 shall not be amended or
----------
modified without the written consent of the holders of all Guarantor Senior
Debt.
9. Merger, Consolidation or Sale of Assets.
---------------------------------------
a. The Guarantor may not consolidate with or merge with or into (whether
or not the Guarantor is the surviving Person) another corporation, Person or
entity, whether or not affiliated with the Guarantor, unless (i) subject to the
provisions of Section 9(b), the Person formed by or surviving any such
consolidation or merger (if other than the Guarantor) assumes all the
obligations of the Guarantor, pursuant to a supplemental Guarantee in form and
substance reasonably satisfactory to the Trustee, under the Guarantee; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) the Guarantor, or any Person formed by or surviving any
such consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction) equal to or greater than the
Consolidated Net Worth of the Guarantor immediately preceding the transaction;
and (iv) the Company would be permitted by virtue of the Company's pro forma
Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in Section
C-6
<PAGE>
4.09 of the Indenture; provided, however, that the foregoing will not apply to
the consolidation or merger of the Guarantor with and into the Company or
another Guarantor.
b. In the event of a sale or other disposition of all of the assets of the
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of the Guarantor, then the Guarantor (in
the event of a sale or other disposition, by way of such a merger, consolidation
or otherwise, of all of the capital stock of the Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all of
the assets of the Guarantor) will be released and relieved of any obligations
under this Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with Section 4.10 of the Indenture. In
addition, in the event the Management Committee designates the Guarantor to be
an Unrestricted Subsidiary, then the Guarantor shall be released and relieved of
any obligations under this Guarantee; provided that such designation is
conducted in accordance with Section 4.07 of the Indenture and the definition of
"Unrestricted Subsidiary" in the Indenture.
10. Miscellaneous.
-------------
a. Benefits of Guarantee; Successors and Assigns. Nothing in this
---------------------------------------------
Guarantee, expressed or implied, shall give to any person, other than Trustee,
the Holders and their respective successors, transferees and assigns hereunder,
any benefit or any legal or equitable rights, remedy or claim under this
Guarantee. This Guarantee shall be binding upon the Guarantor, its successors
and assigns, and inure, together with the rights and remedies of Trustee
hereunder, to the benefit of Trustee, the Holders and their respective
successors, transferees and assigns. The Guarantor shall not, without the prior
written consent of Trustee, assign any rights, duties or obligations under this
Guarantee.
b. Notices. All notices, demands and other communications hereunder
-------
shall be given and shall be effective in accordance with the Indenture, except
that notices to the Guarantor shall be given to its address set forth on the
signature page hereof, or to such other address as the Guarantor may specify in
writing from time to time to the Trustee.
c. Amendments. Neither this Guarantee nor any provision hereof may be
----------
amended, modified, waived, discharged or terminated other than pursuant to the
provisions of the Indenture.
d. No Personal Liability of Directors, Officers, Employees, Partners and
---------------------------------------------------------------------
Stockholders. No past, present or future director, officer, employee,
- ------------
incorporator, partner or stockholder of the Guarantor, as such, shall have any
liability for any obligations of the Guarantor under this Guarantee or for any
claim based on, in respect of, or by reason of, this Guarantee. Each Holder by
accepting a Note has waived and released all such liability. The waiver and
release are part of the consideration for issuance of this Guarantee.
e. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
-------------
AND BE USED TO CONSTRUE THIS GUARANTEE.
f. No Adverse Interpretation of Other Agreements. This Guarantee may not
---------------------------------------------
be used to interpret any other guarantee, indenture, loan or debt agreement of
the Company, the Guarantor or their respective Subsidiaries or of any other
Person. Any such guarantee, indenture, loan or debt agreement may not be used
to interpret this Guarantee.
C-7
<PAGE>
g. Successors. All agreements of the Guarantor in this Guarantee shall
----------
bind its successors. All agreements of the Trustee in this Guarantee shall bind
its successors.
h. Severability. In case any provision in this Guarantee shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
i. Counterpart Originals. The parties may sign any number of copies of
---------------------
this Guarantee. Each signed copy shall be an original, but all of them together
represent the same agreement.
j. Headings, etc.
-------------
The headings of the sections of this Guarantee have been inserted for
convenience of reference only, are not to be considered a part of this Guarantee
and shall in no way modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the undersigned Guarantor has caused this instrument
to be duly executed and delivered to the Trustee as of the date first above
written.
[GUARANTOR]
[Address]
By: ____________________________________________
Name:
Title:
<PAGE>
Exhibit 10.6
C-4 SATELLITE PREEMPTIBLE TRANSPONDER SERVICE AND
RESTORATION
SERVICES AGREEMENT
BETWEEN
GE AMERICAN COMMUNICATIONS, INC.
AND
GLOBAL SHOPPING NETWORK
REDACTED PORTIONS OF THIS EXHIBIT ARE MARKED BY AN ***
AND HAVE RECEIVED CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406(b) UNDER THE SECURITIES ACT
Contract No. C49601
<PAGE>
C-4 SATELLITE PREEMPTIBLE TRANSPONDER SERVICE AND
-------------------------------------------------
RESTORATION SERVICES AGREEMENT
------------------------------
THIS AGREEMENT, is made and entered effective the ____ day of ________,
1996, between GE AMERICAN COMMUNICATIONS, INC., a corporation organized under
the laws of Delaware and having its principal place of business at Four Research
Way, Princeton, New Jersey, 08540-6684 ("GE Americom") and GLOBAL SHOPPING
NETWORK, INC., a corporation organized under the laws of Delaware and having its
principal place of business at 1740 Broadway, New York, New York 10019
("Customer").
WITNESSETH:
WHEREAS, GE Americom desires to provide to Customer and Customer desires to
take from GE Americom preemptible transponder service on a certain transponder
on a communications satellite designated "C-4"; and
WHEREAS, Customer desires to take and GE Americom desires to provide to
Customer certain restoration services in the event that Customer's service on
the preemptible transponder fails or is preempted; and
WHEREAS, the Parties desire to define the terms and conditions under which
the service will be provided;
NOW, THEREFORE, the Parties, in consideration of the mutual covenants
herein expressed, agree with each other as follows:
2
<PAGE>
ARTICLE 1. DEFINITIONS
As used in this Agreement:
A. "Agreement" means this C-4 Satellite Preemptible Transponder Service and
Restoration Services Agreement and the Attachments hereto.
B. "C-4" means a domestic communications spacecraft designed to have twenty-
four (24) transponders, each of which has no less than sixteen (16) watts of
power, and a spare transponder amplifier arrangement of eight (8) for six (6),
currently operated by GE Americom at the 135(degree) W.L. orbital location.
C. "Commercially Operational" means a Satellite or a transponder which is
capable of carrying video and associated audio traffic with the parameters as
described in the Transponder Performance Specifications, and which is not
Commercially Unusable.
D. "Commercially Unusable" means a condition in which the Satellite so fails
to conform to its design specifications or any Transponder so fails to conform
to the Transponder Performance Specifications as to render use of the Satellite
or Transponder, as the case may be, impractical in the exercise of reasonable
business judgment.
E. "Contract Date" means, as to each service or transponder on the Satellite,
the first date on which a binding agreement for the taking of such service or
purchase of such transponder has been executed by both the customer and GE
Americom. Notwithstanding the foregoing, any service provided to the United
States government or any department or agency thereof, whether through a prime
contract or a subcontract shall be deemed to have a prior Contract Date.
3
<PAGE>
F. "Contract Order" means (1) in order from the earliest Contract Date to the
latest Contract Date or (2) if order is to be determined among more than one
class of service, first in order from the earliest Contract Date to the latest
Contract Date among Protected Services, second in such order among
Non-Preemptible Services, and last in such order among Preemptible Services.
G. "Customer's Designees" has the meaning specified in Article 7.A.
H. "Earth Station" means the antennas and associated ground facilities
equipment used to transmit telecommunications signals via a communications
satellite in space.
I. "End-of-Life" or "EOL" means the first to occur of the following: when in
GE Americom's reasonable judgment (1) the Satellite should be taken out of
service because of lack of fuel, or (2) the Satellite has become a Failed
Satellite.
J. "Failed Satellite" or "Satellite Failure" means a satellite: (1) on which
one or more of the basic subsystems fail, rendering the satellite Commercially
Unusable or on which more than twelve (12) transponders are transponder
failures, and (2) which GE Americom has declared a failure.
K. "Failed Transponder" or "Transponder Failure" means, with respect to any
Transponder used by Customer under this Agreement, any of the following events:
1. If such Transponder fails to meet the Transponder Performance
Specifications in any material respect for any period of five (5) consecutive
days.
2. Twenty (20) or more "Outage Units" shall occur within any ninety (90)
consecutive days (an Outage Unit being an interruption of such Transponder of
fifteen (15) minutes or more,
4
<PAGE>
except that interruptions caused by double illumination of the Transponder(s)
used by Customer shall not be considered an outage unit for purposes of
determining Transponder Failure).
3. Such Transponder shall fail to meet the Transponder Performance
Specifications in any material respect for any period of time under
circumstances that make it clearly ascertainable or predictable that either
failure set forth in Paragraphs (1) or (2) will occur.
4. Any other event resulting in such Transponder being rendered
Commercially Unusable.
L. "Fully Protected Service" or "Fully Protected Transponder" means a
satellite service or transponder that, if restoration thereof is needed as a
result of a satellite failure, or as a result of a transponder failure under
circumstances in which no Protection Transponder is available, on the satellite
on which such satellite service or transponder is located, is entitled to
restoration, subject to availability of facilities and to the conditions of the
applicable contract, on another satellite.
M. "Launch Failure" means a Satellite Failure or transponder failure which
occurs after the first intentional ignition of the launch vehicle and before the
satellite becomes Commercially Operational.
N. "Interruption" or "Outage" means any period during which a Transponder
fails to meet the Transponder Performance Specifications and such circumstances
preclude the use of the Transponder for its intended purpose.
O. "Non-Preemptible Service" or "Non-Preemptible Transponder" means a
satellite service or transponder that may not be preempted to restore another
service or transponder and that is itself entitled to be restored to a
Replacement Transponder, if available, on a first needed/first served basis.
5
<PAGE>
A Non-Preemptible Service or NonPreemptible Transponder is not entitled to
preempt a Preemptible Service or Preemptible Transponder.
P. "Notice of Availability" as the meaning set forth in Article 19.D. hereof.
Q. "Party" means one of the signatories to this Agreement.
R. "Preemptible Transponder" means a transponder that may be preempted at any
time to restore (1) another transponder which is entitled to protection and
which becomes a transponder failure, (2) a Satellite Failure, or (3) other
service offerings of GE Americom, including construction; delay protection and
launch protection.
S. "Projected Termination Date" has the meaning set forth in Article 4.
hereof.
T. "Protected Service" or "Protected Transponder" means a service or
transponder which is entitled to preempt a Preemptible Service or Preemptible
Transponder. A Protected Service may be a Transponder Protected Service or a
Fully Protected Service.
U. "Replacement Transponder" means an available spare transponder amplifier
and its associated components, which is accessible for purposes of restoration
and which is capable of carrying video and associated audio traffic within the
parameters as described in the Transponder Performance Specifications and which
is not Commercially Unusable.
V. "Restoration Services" means Customer's right to be restored in accordance
with Article 8.E. hereof.
6
<PAGE>
W. "Reverse Contract Order" means in the opposite order from Contract Order.
X. "Satellite" means C-4, or in the context of restoration Services provided
to Customer under Article 8.E. either Satcom C-1 or Satcom Spacenet III. When
used in the lower case, "satellite" means a domestic communications satellite
operating in C-band (4/6 Ghz).
Y. "Termination Value" means the net present value as of the date of
termination of this Agreement of the remaining unpaid service charges payable
hereunder, computed as if this Agreement remained in effect until the Projected
Termination Date, utilizing a discount rate equal to **************************
*******************************************************************************
per annum, plus late payment charges on such amount from the date of termination
until payment in full, computed as provided in Article 3.B.
Z. "Transponder" means a radio frequency transmission channel on C-4, having a
nominal bandwidth of 36 MHz, used to provide service to Customer pursuant to the
terms of this Agreement. When used in the lower case, "transponder" means a
radio frequency transmission channel on a domestic communications satellite
operating in C-band.
A-A. "Transponder-Protected Service" or "Transponder-Protected Transponder"
means a transponder which will be restored if, at the time it becomes a
transponder failure, a Protection Transponder is available on the same
Satellite. A Transponder-Protected Transponder may not be preempted to restore
another service or transponder, but will not be restored if the Satellite on
which it resides becomes a Satellite Failure.
B-B. "Transponder Performance Specifications" means the specifications for the
performance of the Transponder set forth in Attachment A.
7
<PAGE>
C-C. "TT&C Services" or "TT&C" means tracking, telemetry and control services
for C-4 provided by GE Americom, including periodic stationkeeping and attitude
control maneuvers, power management and fuel management. TT&C Services will be
provided from GE Americom's facilities in Vernon Valley, New Jersey or South
Mountain, California, or such other locations as GE Americom may determine.
D-D. "Video Services" means video and related services that are delivered
primarily to cable television systems, satellite master antenna television
systems, multipoint multichannel distribution systems, "backyard" television
receive-only facilities and functionally similar technologies; provided,
however, that the utilization of a transponder, during the period such
transponder is being utilized for the delivery of the video and related services
described above in this definition, for the simultaneous transmission of other
signals multiplexed upon, or otherwise combined with, such video and related
services, including without limitation, additional audio or data subcarriers,
data transmission within the vertical blanking interval and subaudible tones
superimposed on audio channels, shall be permissible and considered to
constitute "Video Services."
E-E. "Users Guide" means the Commercial Operations System Users Guide attached
to this Agreement as Attachment B, as such may be amended from time to time for
technical or operational reasons upon written notice to Customer.
ARTICLE 2. SCOPE
A. GE Americom agrees to provide Preemptible Service to Customer, and Customer
agrees to take such service from GE Americom, in accordance with the terms and
conditions set forth in this Agreement, on one (1) Transponder on C-4. The
Preemptible Service will be provided on C-4, Transponder number 12. The
transponder assignment may be changed by GE Americom at any time
8
<PAGE>
to prevent interference by or to Customer's transponder service or under
circumstances involving restoration of a Failed Satellite or failed
transponder(s). In addition, GE Americom agrees to provide and Customer agrees
to take the Restoration Services set forth in Article 8.E. hereof.
B. Technical performance criteria for the C-4 Transponder are contained in the
Transponder Performance Specifications contained in Attachment A hereto.
C. The Parties recognize that authority to position and/or operate the
Satellite is needed from the FCC and that GE Americom's ability to perform is
subject to such FCC authority. GE Americom will proceed in good faith to obtain
and continue in effect all FCC and other governmental and regulatory
authorizations, approvals, licenses and permits which it requires to meet its
obligations hereunder.
ARTICLE 3. PRICE AND PAYMENT
A. Customer shall pay a monthly service charge (the "Monthly Service Charge")
of ****************************************************************************
*******************************************************************************
per month for full-time Preemptible Service on one (1) Transponder on C-4
provided hereunder, which charges include all TT&C charges, and all charges for
the Restoration Services provided by GE Americom in accordance with Article 8 E.
hereof. In the event that Customer takes Preemptible Service on one (1)
Transponder on Satcom C-1 or Satcom Spacenet III in accordance with Article 8.E.
hereof Customer shall pay the Monthly Service Charge of*************************
********************************************************************************
per month for full-time Preemptible Service, which charges include all TT&C
charges. Customer shall pay GE Americom the Monthly Recurring Charges set forth
above on the first day of each calendar month during the Service Term.
9
<PAGE>
B. GE Americom will render bills to Customer thirty (30) days prior to the due
date for payment of amounts owing from Customer to GE Americom under this
Agreement, which due date shall be the first day of the month. GE Americom will
assess a late payment charge of ************************************************
********************************************************************************
percent per month, or **********************************************************
********************************************************************************
percent per day, compounded monthly on payments not received by the payment due
date; provided, that such late payment charges shall in no event exceed the
highest rate or amount permitted by applicable law. If charges based on a
monthly rate cover a period which does not commence on the first day of a month
or end on the last day of a month, the monthly rate for the fractional part of
the month shall be calculated at a daily rate of********************************
********************************************************************************
the monthly service charge.
C. GE Americom's failure to bill or delay in billing Customer for any charge
due under this Agreement shall not relieve Customer of its obligation to pay the
same on a timely basis or of its obligation to pay interest in the event of late
payment. In addition to any other right GE Americom may have under this
Agreement, GE Americom may suspend the provision of service to Customer on
twenty-four (24) hours' notice for failure to pay any sums due GE Americom.
D. Unless otherwise agreed in writing by the Party entitled to payment, all
transfers of funds in accordance with this Agreement from one Party to the other
shall be sent by wire transfer of immediately available funds to an account
designated by the transferee, and shall be deemed to be made upon receipt. The
wire transfer instructions for payments due and owing to GE Americom under this
Agreement are as follows:
Deposit to GECC/Americom account no.: 50-232-328
c/o Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
10
<PAGE>
ABA No. 021-001-033
E. Customer shall provide GE Americom with a security deposit (the "Security
Deposit") of *******************************************************************
********************************************************************************
payable as set forth below. The first portion of the Security Deposit (the
"First Portion") shall be ******************************************************
********************************************************************************
payable in cash in accordance with Article 3.D. above, to GE Americom within
three (3) business days after delivery of the Notice of Availability from GE
Americom to Customer in accordance with Article 16.B. hereof. The second portion
of the Security Deposit (the "Second Portion")shall be ************************
********************************************************************************
,payable at Customer's option, either (i) in cash in accordance with Article
3.D. above, or (ii) by delivery of the Letter of Credit (as defined below), on
or before August 1, 1996. The letter of credit (the "Letter of Credit") shall be
irrevocable, issued in the aggregate amount of *********************************
********************************************************************************
, by a financial institution satisfactory to GE Americom, in its sole
discretion, in favor of GE Americom in the form of Attachment C hereto, have an
expiration date no earlier than the fifth anniversary of the commencement of the
Service Term under Article 4. So long as a default under or breach of this
Agreement by Customer does not exist or is not continuing, the Security Deposit
shall be applied as a credit against Monthly Service Charge due to GE Americom
from Customer as follows:
1. The First Portion shall be applied by GE Americom against the Monthly
Service Charge due and payable by Customer for the first full month of the
Service Term; and
2. **********************************************************************
*******************************************************************************
percent of the Second Portion shall be applied by GE Americom against the
Monthly Service Charge due and payable by Customer for the twenty fourth (24th)
month of the Service Term; and
3. The remainder of the Second Portion shall be applied by GE Americom
against the Monthly Service Charge due and payable by Customer for the forty
eighth (48th) month of the Service Term.
11
<PAGE>
In the event that Customer elects to pay the Second Portion of the Security
Deposit by delivery of the Letter of Credit, GE Americom shall be entitled to
draw upon the Letter of Credit and receive payment thereunder on the earliest of
(i) the due date for payment of the Monthly Service Charge for the twenty fourth
(24th) month of the Service Term; (ii) the occurrence of a breach of or default
under by Customer of any of its obligations under this Agreement; or (iii) a
termination of this Agreement by GE Americom pursuant to Article 7.C. The
Security Deposit, and the Letter of Credit, shall be nonrefundable except as
specified in Article 17.D. hereof.
ARTICLE 4. SERVICE TERM
A. The term for Preemptible Service on the Satellite (the "Service Term")
provided under this Agreement ("Service Term") shall commence on the later of
(i) November 1, 1996, or (ii) four (4) weeks after GE Americom has notified
Customer that the communications satellite designated as "GE- 1" is Commercially
Operational; provided, that the Service Term shall commence no later than
--------
January 1, 1997. The Service Term shall end on the earliest of (i) the E-O-L of
the Satellite on which Customer is then taking service, or the date on which the
Satellite that Customer is then taking service becomes a Failed Satellite; (ii)
the date the Transponder on which service is provided to Customer hereunder is
preempted or becomes a Transponder Failure and GE Americom cannot provide
Customer with the Restoration Services in accordance with Article 8.E. hereof,
unless within seven (7) days thereafter GE Americom provides service on another
Transponder on the Satellite or on alternate facilities acceptable to Customer
(provided, that if GE Americom offers and Customer accepts such alternate
facilities on terms different from those specified in this Agreement, use of
such alternate facilities by Customer shall be subject to the terms on which
such facilities are offered); or (iii) December 31, 2004 (the "Projected
Termination Date").
ARTICLE 5. TAXES
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Prices are exclusive of all taxes, duties, users fees and similar charges.
Customer shall pay directly, or reimburse GE Americom, for all taxes, duties,
users fees and similar charges, including any privilege or excise taxes based on
gross revenue, pertaining to the Transponder on which service is provided to
Customer. GE Americom shall notify Customer of any demand by any taxing
authority of which GE Americom has knowledge in connection with a tax audit or
otherwise for payment of any of the taxes, duties, users fees or similar charges
for which Customer is liable under this Article 5. Customer may participate, at
its expense, in any proceedings or tax audits brought against GE Americom by any
taxing authority in connection with Customer's Transponder, the outcome of which
may affect Customer's tax liability hereunder. Customer may pay such taxes,
duties or users fees for which it is responsible in such installments and in
such manner as would be available to GE Americom.
ARTICLE 6. SATELLITE LOCATION
C-4 is currently positioned at the 135(degree) W.L. orbital location;
Satcom C-1 is currently positioned at the 137(degree) (W.L. orbital location and
Satcom Spacenet III is currently positioned at the 87(degree) W.L. GE Americom
assumes no liability or obligation to Customer, except as expressly set forth in
this Agreement, in the event that any of C-4, Satcom C-1 and/or Satcom Spacenet
III are positioned at orbital locations other than as specified above.
ARTICLE 7. USE OF SERVICE
A. C-4 is intended to be used as a major cable television programming
satellite by cable services to distribute their programming to their affiliated
cable systems.
B. Customer agrees that it only will use the service on the Transponder on C-4
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provided under this Agreement for the transmission of the primary feed of its
principal cable programming service. If, after Customer commences use of the
service on the Transponder on C-4, Customer determines to use multiple feeds for
its principal cable programming service, e.g., separate East and West feeds, and
all such feeds are not placed on GE Americom's satellites, service on the
Transponder on C-4 shall be used for the feed serving the largest number of
cable subscribers.
C. In no event shall service on the Transponder on C-4 be used except for the
transmission of Video Services.
D. Customer shall not assign, transfer or sublease its rights or obligations
under this Agreement, in whole or in part, without first obtaining GE Americom's
written consent to such assignment, transfer, or sublease which consent shall
not be unreasonably withheld; provided, that the prospective assignee,
--------
transferee or sublessee is a cable programmer that will use the service on the
Transponder on C-4 for the transmission of a primary feed of its principal cable
programming service; and provided, further, in any event, that such assignee,
-------- -------
transferee or sublessee, as the case may be, furnishes evidence satisfactory to
GE Americom to establish its ability to meet Customer's financial commitments
and other obligations hereunder.
E. Customer hereby agrees that any other user of the a satellite on which
Customer's transponder service is provided shall be a third-party beneficiary of
the provisions of this Article 7, and shall have the right to enforce, as a
third-party beneficiary, the use restrictions contained in this Article 7,
against Customer or Customer's Designees directly or may join with GE Americom
in bringing action against Customer or Customer's Designees for violation of the
use restrictions contained in this Article 7.
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F. Customer agrees that it will not itself use GE Americom's satellites,
transponders, facilities, services or equipment, and will not authorize or
permit others, including without limitation its assignees, affiliates,
successors, subcontractors, transferees or sublessees (collectively, "Customer's
Designees"), to use GE Americom's satellites, transponders, facilities, services
or equipment for any unlawful purpose, to transmit unlawful communications of
any nature or otherwise in violation of applicable law. Any such use shall be
grounds for immediate termination of service.
G. Customer shall provide GE Americom with seven (7) days advance notice of
any third party use of the services provided hereunder and of the identity of
such third party. Should Customer resell any service provided hereunder or
otherwise permit use of such service by any third party or parties, Customer
shall be a guarantor of compliance by each such third party with all the terms
of this Agreement, including without limitation the Users Guide, and any breach
by any such third party shall be deemed to have been committed by Customer. GE
Americom reserves the right to charge Customer a fee for any technical
consultation, scheduling or other support services provided to end-users using
the service provided Customer under this Agreement.
ARTICLE 8. PREEMPTION AND RESTORATION SERVICES
A. Preemptible Transponders, including Customer's Transponder, are maintained
as protection and restoration for purposes of (i) restoring transponders
entitled to protection which become failures, (ii) restoring Satellite Failures,
(iii) protecting against Launch Failures and construction and launch delays for
satellites owned by GE Americom or by third parties; and (iv) providing
protection for other service offerings of GE Americom. Customer's service on a
Preemptible Transponder may be preempted at any time for the reasons stated in
this Article 8.
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B. Any rights Customer may have to use a Preemptible Transponder shall
immediately terminate upon notice from GE Americom stating that such Preemptible
Transponder is being preempted ("Notice of Preemption") and Customer shall
immediately cease using the service on the Preemptible Transponder. If Customer
fails to vacate the Preemptible Transponder immediately after being given Notice
of Preemption, GE Americom may, without further notice to Customer, take
appropriate action to bring down Customer's signal. In such an event, Customer
shall be responsible for any and all costs and expenses incurred by GE Americom
including without limitation any attorneys' fees and expenses, in removing
Customer's signal and recovering the transponder.
C. GE Americom, where technically and operationally feasible, will preempt
Preemptible Transponders in Reverse Contract Order.
D. Customer's service on a Preemptible Transponder shall not be entitled
to any protection or restoration service, other than the Restoration Services
specified below in this Article 8.E.
E. In the event that Customer's service on the Preemptible Transponder on
C-4 becomes a Failed Transponder, GE Americom will use all reasonable efforts,
consistent with protecting the Satellite and the need to coordinate substitution
of transponders with all of the services provided thereon, to restore Customer's
service as quickly as practicable after the occurrence of the Transponder
Failure, on a first-needed/first-served basis to provide Customer with service
on a Replacement Transponder on C-4, if one is available at the time of such
Transponder Failure. If Customer's service on the Preemptible Transponder
becomes a Failed Transponder and GE Americom cannot make a Replacement
Transponder a C-4 available, or if Customer's Preemptible Transponder is
preempted and in any case, subject to availability, Customer shall be restored
either to (i) an unassigned Transponder on Satcom C-1, or the Preemptible
Transponder designated by GE Americom for
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occasional services on Satcom C-1; or (ii) an unassigned Transponder or
Preemptible Transponder on Satcom Spacenet III, if any such transponder is
available at the time of such preemption or Transponder Failure on C-4. The
Transponder Performance Specifications for the particular transponder and
Satellite on which GE Americom provides the Restoration Services to Customer
shall be substituted at that time in place of the Transponder performance
Specifications set forth in Attachment A for C-4. Customer service once restored
on Satcom C-1 or Satcom Spacenet III shall remain Preemptible Service, and
Customer shall not be entitled to any further Restoration Services. Customer
acknowledges and agrees that the Restoration Services provided hereunder are
subject to availability and GE Americom shall have no further liability or
obligation to Customer if Restoration Services are not available at the time
that Customer's service on C-4 is preempted or becomes a Failed Transponder
other than as provided in Article 17.D. hereof.
F. In addition, in the event that the Preemptible Transponder on C-4 is
not available for Customer on January 1, 1997 because of a delay in the Launch
of or the Launch Failure of the communications satellite known as "Satcom GE-1"
to be operated by GE Americom, GE Americom shall provide Customer with
Preemptible Service on the Preemptible Transponder designated by GE Americom for
occasional service on Satcom C-1, if such transponder is then available. In the
event that GE Americom does make such service on Satcom C-1 available to
Customer, then Customer hereby acknowledges and agrees that (i) the January 1,
1997 end date for commencement of the Service Term shall not be applicable, and
(ii) Customer takes service on C-4 as described herein at such time as GE
Americom is able to provide Customer with Preemptible Service on C-4.
G. For purposes of this Agreement, the terms "transponder failure,"
"satellite failure," "construction delay," and "launch delay," when used in the
lower case, have the same meanings as apply to the particular affected
transponder.
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ARTICLE 9. SATELLITE SYSTEM AND AUTHORIZATION
A. GE Americom shall have sole and exclusive control and operation of each
of C-4, Satcom C-1 and Satcom Spacenet III. If circumstances occur which in GE
Americom's reasonable judgment pose a threat to the stable operation of any of
such Satellites, GE Americom shall have the right to take appropriate action to
protect such Satellite, including discontinuance or suspension of operation of
such Satellite, Customer's Transponder or any other transponder, without any
liability to Customer, except as expressly provided in Article 13 and Article 17
of this Agreement. GE Americom shall give Customer as much notice as possible of
any such discontinuance or suspension.
B. The orbital location and operation of each of C-4, Satcom C-1 and
Satcom Spacenet III and GE Americom's satellite system are subject to all
applicable laws and regulations, including without limitation, the
Communications Act of 1934, as amended, and the Rules and Regulations of the
FCC. Both Parties shall comply with all such applicable laws and regulations.
ARTICLE 10. OPERATING PROCEDURES
A. Customer agrees to abide by and adhere to the satellite access
procedures in the Users Guide set forth in Attachment B of this Agreement. In
the event of any failure of Customer or any of Customer's Designees to comply
with such operating procedures or operation by Customer or any of Customer's
Designees of its Transponder interferes with GE Americom's other satellite
services, or with the use of other transponders, Customer agrees to discontinue
such interfering operation immediately upon discovery of or receiving notice
from GE Americom of the interference. In the event of failure to discontinue, GE
Americom may take such action reasonable and necessary in the circumstances to
eliminate such interference, including suspending Customer's use of its
Transponder, without any liability for loss or damage whatsoever, until such
time as Customer is able to operate In a non-interfering manner.
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B. When signals are being transmitted from a Customer-provided Earth
Station, Customer shall be responsible for proper illumination of the
Transponder. Should improper operation be detected by GE Americom, Customer will
be notified of this and corrective action must be taken immediately, Customer
will pay to GE Americom, as liquidated damages, ********************************
********************************************************************************
for each minute improper operation continues after Customer has been notified by
GE Americom of the improper operation, provided that, if Customer discovers the
improper operation prior to the time GE Americom notifies Customer, the duration
of the improper operation shall be measured from the time of discovery. In
addition to the foregoing, GE Americom may terminate this Agreement pursuant to
Article 17.C.3. hereof.
C. Earth Station and other equipment furnished by Customer shall be so
constructed, maintained and operated as to work properly with GE Americom's
facilities. Customer shall provide, at its expense, the personnel, power and
space required to operate all facilities installed on the premises of Customer.
Customer shall ensure the presence of a qualified technician knowledgeable in
satellite uplinking at its transmitter locations at all times when signals are
being transmitted from any of its Earth Stations to any GE Americom satellite or
GE Americom-provided transponder. Customer at its expense shall provide GE
Americom with any descrambling or decoding devices which may be required for
signal monitoring. The foregoing shall apply to any of Customer's Designees.
D. Satellite access specifications are set forth in Attachment B. Customer
agrees to conform its uplink Earth Station transmissions to the specifications
in the Users Guide. In addition, at a mutually agreed to time, and prior to
transmitting from a Customer-provided Earth Station, Customer shall contact GE
Americom's Vernon Valley, New Jersey communications technician and demonstrate
Customer's ability to perform in accordance with the access specifications. GE
Americom may, upon reasonable notice to Customer, make such inspections of
Customer's facilities accessing or operating in conjunction with the Transponder
as may be necessary to maintain the Satellite, the Transponders
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or GE Americom's other facilities used in connection therewith, in satisfactory
operating condition. GE Americom will use reasonable efforts to schedule and
conduct such inspections so as not to disrupt the operation of Customer's
facilities.
ARTICLE 11. INDEMNIFICATION
A. Because Customer has control of the content of the communications
transmitted over the Transponder, during any period Customer accesses, any
Transponder, GE Americom, General Electric Company, each of their respective
affiliates and subsidiaries and each of their directors, officers, employees,
agents and representatives shall be indemnified and saved harmless, by Customer
from and against all loss, liability, damage and expense, including, but not
limited to reasonable counsel fees and disbursements and expert witness fees,
arising out of, related to or in connection with:
1. Claims for libel, slander, infringement of copyright or other
intellectual property rights arising from the material transmitted over any
Transponder by Customer or by Customer's Designees, by its customers or by any
third party permitted to use the Transponder by Customer; and
2. Any other claim arising from any use of the Transponder furnished by
GE Americom to Customer or Customer's Designees, by any customer of Customer or
by any third party permitted by Customer to use the Transponder.
B. Customer as the party obligated to provide indemnification pursuant to
this Article 11 (the "indemnitor") shall promptly defend any claims against the
Party entitled to indemnification from the indemnitor pursuant to this Article
11 (the "indemnitee") with counsel of the indemnitor's choosing at its own cost
and expense. The indemnitee shall cooperate with, and assist as reasonably
requested by, the indemnitor in the defense of any such claim, including the
settlement thereof on a basis stipulated by the indemnitor (with the indemnitor
being responsible for all costs and expenses of defending such
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claim or making such settlement); provided, however, that (1) the indemnitor
will not, without the indemnitee's consent, settle or compromise any claim or
consent to any entry of judgment which does not include the giving by the
claimant or the plaintiff to the indemnitee of an unconditional release from all
liability with respect to such claim, (2) the indemnitee shall be entitled to
participate at its sole expense in the defense of any such claim and to employ
counsel at its own expense to assist in the handling of such claim, and (3) the
indemnitee shall have the right to pay, settle or compromise any such claim as
to itself, provided that in such event the indemnitor shall be relieved of any
liability or obligation which would otherwise then or thereafter have existed or
arisen under this Article 11 in respect of such claim.
ARTICLE 12. LIMITATION OF LIABILITY
A. No warranties, express, implied, or statutory, including any warranty
of merchantability or fitness for a particular purpose, apply to the service
provided hereunder or the equipment and facilities used to provide such service.
As a material condition of receiving service hereunder at the price specified
herein, and in regard to any and all causes arising out of or relating to this
Agreement, including but not limited or the use or operation of any of the
Satellites, the Transponder used to provide service to Customer hereunder, or of
other satellites, transponders, facilities, services or equipment furnished to
Customer by GE Americom, including but not limited to TT&C facilities or
services, or anything done in connection therewith, regardless of whether
occasioned by GE Americom's negligence, shall be limited to a refund or waiver
as the case may be, of the applicable charges under Article 3.A, for service for
any period after the commencement of the Service Term during which service is
not provided and any other applicable refund payable pursuant to Article 17.F.
This limitation shall not, however, affect Customer's entitlement to Restoration
Services, where applicable in accordance with Article 8.E, in the event of
preemption or Transponder Failure. Credits for Interruptions shall be determined
in accordance with Article 13.A.
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B. GE Americom and its suppliers and subcontractors shall be not be
liable, in connection with this Agreement, or the arrangements contemplated
hereby, for any indirect, incidental, consequential, punitive, special or other
similar damages (whether in contract, tort, strict liability or under any other
theory of liability), including but not limited to costs 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.
C. Neither party shall be liable, in connection with this Agreement, or
the arrangements contemplated hereby, for any indirect, incidental,
consequential, special or other similar damages, whether in contract or tort,
including but not limited to damages resulting from loss of actual or
anticipated revenues or profits, or loss of business, customers or good will,
strict liability or under any other theory of liability), including but not
limited to costs 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 the Party against whom such damages are asserted has been
advised of the possibility of such damages.
D. GE Americom shall not be liable for any damages or losses due to: (1)
the fault of Customer or of any third party; or (2) the failure or
unavailability of satellites, transponders, facilities, services or equipment
furnished to Customer by any other entity which may be used in conjunction with
GE Americom's satellites, transponders, facilities, services or equipment, or
any act or omission of such other entity.
E. The Satellite or the Transponder shall not be used for an unlawful
purpose, and such unlawful use shall be grounds for immediate termination of
service.
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F. It is agreed and understood that the price paid by Customer is a
consideration in limiting GE Americom's liability.
ARTICLE 13. CREDITS FOR INTERRUPTIONS OR OUTAGES
A. Where a credit for Interruptions or Outages is provided under this
Agreement, such credit shall be computed as set out in this Article 13.
B. The length of the Interruption shall be measured from the time Customer
notifies GE Americom of the Interruption. Such notice may be given by telephone
or electronic facsimile. For the purpose of calculating the credit, a month is
considered to have thirty (30) days.
1. Interruptions of 24 Hours or Less
---------------------------------
Credit for Interruptions will be allowed as follows:
Length of Interruption Credit
---------------------- ------
Less than 15 minutes None
15 mins. up to but not including 3 hours 1/10 day
3 hrs. up to but not including 6 hours 1/5 day
6 hrs. up to but not including 9 hours 2/5 day
9 hrs. up to but not including 12 hours 3/5 day
12 hrs. up to but not including 15 hours 4/5 day
15 hrs. up to 24 hrs. inclusive One day
Two or more Interruptions of fifteen (15) minutes or more, during any
period up to but not including three (3) hours, shall be considered as one
Interruption. Interruptions Over 24 Hours
2. Interruptions Over 24 Hours
---------------------------
Credit will be allowed in one-fifth (1/5) day multiples for each three
(3) hour period of Interruption or fraction thereof, no more than one full day's
credit will be allowed for any period of twenty four (24) hours.
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C. An allowance will not be made where the Interruption is a result of, or
attributable in whole or in part, to:
(1.) Customer's negligence or willful acts, or the
negligence or willful acts of its officers, directors, agents, employees,
subsidiaries, parents, affiliates, customers and viewers, or any of them; or
(2.) The failure of local television channels or
transmission lines or equipment provided by Customer; or
(3.) The failure or nonperformance of any earth station
not provided by GE Americom; or
(4.) Any cause for which GE Americom otherwise is not
responsible under Articles 12 or 14.
ARTICLE 14. FORCE MAJEURE
A. Neither party shall be liable to the other for any failure of or delay
in performance hereunder due to causes beyond its reasonable control. These
causes include but are not limited to acts of God; fire, flood or other natural
catastrophes, the need to comply with any law or any rule, order, regulation or
direction of the United States Government, or of any other government, including
state and local governments having jurisdiction over either party, or of any
department, agency, commission, bureau, court or other instrumentality thereof,
or of any civil or military authority; national emergencies; insurrections;
riots; acts of war; quarantine restrictions; embargoes; or strikes, lockouts,
work stoppages or other labor difficulties.
B. The parties recognize that authority to position and/or operate C-4,
Satcom C-1 and Satcom Spacenet III Satellites are needed from the FCC and that
GE Americom's ability to perform is subject
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to the holding of such FCC authority. GE Americom will proceed in good faith to
continue in effect all FCC and other governmental and regulatory authorizations,
approvals, licenses and permits which it requires to meet its obligations
hereunder.
ARTICLE 15. CONFIDENTIALITY AND NONDISCLOSURE
A. Customer may issue a public announcement of its plans to use the C-4
Satellite for distribution of its programming, appropriate for release to cable
television trade publications, the specific language and date of release of
which shall be agreed to in advance with GE Americom. Except as provided in the
preceding sentence, both Parties shall hold in strict confidence and neither
Party shall disclose to third parties the prices, payment terms, schedules,
protection arrangements, restoration provisions and other material terms and
conditions of this Agreement, without the prior written consent of the other
Party. The restrictions on disclosure to third parties shall apply to each
Party's parent, subsidiaries and affiliates (including their respective
employees, agents, representatives, independent auditors and legal counsel).
B. Customer hereby acknowledges that all information provided to Customer
related to the design and performance characteristics of each the Satellites,
and any subsystems or components thereof including the Transponder, is
confidential and proprietary and is not to be disclosed to third persons,
without the prior written consent of GE Americom.
C. To the extent that either Party discloses to the other any other
information which it considers proprietary, said Party shall identify such
information as proprietary when disclosing it to the other Party by marking it
clearly and conspicuously as proprietary information. Any proprietary disclosure
to either Party, if made orally, shall be promptly confirmed in writing and
identified as proprietary information, if the disclosing Party wishes to keep
such information proprietary under this
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Agreement. Any such information disclosed under this Agreement shall be used by
the recipient thereof only in its performance under this Agreement. Neither
Party shall be liable for disclosure or use of such information marked as
proprietary information as provided above which:
1. is or becomes available to the public from a source other than the
receiving Party before or during the period of this Agreement;
2. is released without restrictions in writing by the disclosing Party;
3. is lawfully obtained by the receiving Party from a third party or
parties, not bound by an obligation of confidence;
4. is known by the receiving Party prior to such disclosure; or
5. is at any time developed by the receiving Party completely
independently of any such disclosure or disclosures from the disclosing Party.
D. Neither Party shall be liable for the inadvertent or accidental
disclosure of such information marked as proprietary, if such disclosure occurs
despite the exercising of the same degree of care as the receiving Party
normally takes to preserve and safeguard its own proprietary information;
provided that the receiving Party takes no less than reasonable care.
E. Neither Party shall be liable for the disclosure of any information which
it receives under this Agreement pursuant to judicial action or decree, or
pursuant to any requirement of any Government or any agency or department
thereof, having jurisdiction over such Party, provided that in the opinion of
counsel for such Party such disclosure is required; and provided, further that
such Party shall have given the other Party notice prior to such disclosure.
F. No license to the other Party, under any patents, is granted or implied
by conveying proprietary information or other information to that Party and none
of such information which may be
26
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transmitted or exchanged by the respective Parties shall constitute any
representation, warranty, assurance, guaranty, or inducement by either Party to
the other with respect to the infringement of patents or other rights of others.
G. Neither Party shall issue a public notice or a news release concerning
this Agreement and the transactions contemplated hereby without the prior
approval of the other, which approval shall include the right to approve the
form, content and timing of any such release.
ARTICLE 16. NOTICES
A. Notice of Interruptions or Outages, or of other technical or operational
matters requiring immediate attention, may be given by telephone. GE Americom
will designate a point or points of contact where Customer may call on a
7 day-a-week, 24 hour-a-day basis. Any notice given verbally will be confirmed
in writing as soon as practicable thereafter pursuant to the procedures set out
in Article 16.B.
B. Except as otherwise provided in Article 16.A., all necessary notices,
demands, reports, orders and requests required hereunder to be given by one
Party to the other shall be in writing and deemed to be duly given on the same
business day if sent by electronic means (i.e., telex, electronic mail or
facsimile) or delivered by hand during the receiving Party's regular business
hours, or on the date of receipt if sent by pre-paid overnight, registered or
certified mail, and addressed as follows:
If to be given to Customer:
Ms. Barbara Laurence
President
Global Shopping Network
1740 Broadway, Seventeenth Floor
New York, New York 10019
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Fax No. (212) 246-4463
Phone (212) 246-9000
If to be given to GE Americom:
Vice President, Commercial Services
GE American Communications, Inc.
Four Research Way
Princeton, NJ 08540-6684
Fax No. (609) 987-4517
Phone (609) 987-4230
with a copy to:
Director, Commercial Services
GE American Communications, Inc.
Four Research Way
Princeton, NJ 08540-6684
Fax No. (609) 987-4157
Phone (609) 987-4151
C. Each Party may, on written notice to the other, specify another address
or individual to serve as a point of contact for that Party.
ARTICLE 17. TERMINATION
A. Either Party may terminate this Agreement within ninety (90) days after
it acquires knowledge of an event listed below and upon ten (10) days' prior
written notice of intent to terminate to the other Party:
1. If the FCC denies, revokes or suspends any authorization, approval,
license or permit required to position or operate the Satellite on which
Customer is taking service, or otherwise to provide service 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 one hundred eighty (180) days of the FCC's action
becoming administratively final and not subject to further FCC review.
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2. If the other Party is unable to perform its obligations under this
Agreement as a result of its becoming insolvent or the subject of insolvency
proceedings, including, without limitation, if the other Party shall be
judicially declared bankrupt or insolvent according to law, or if any assignment
shall be made of the property of the other Party for the benefit of creditors,
or if a receiver, conservator, trustee in bankruptcy or other similar officers
shall be appointed to take charge of all or any substantial part of the other
Party's property by a court of competent jurisdiction, or if a petition shall be
filed for the reorganization of the other Party under any provisions of the
Bankruptcy 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. Customer may terminate this Agreement within ninety (90) days after
Customer acquires knowledge of the event described herein and upon ten (10)
days' prior written notice of intent to terminate to GE Americom, if Customer's
Transponder provided under this Agreement does not meet in all material respects
the Transponder Performance Specifications set forth in Attachment A on the
commencement date of the Service Term herein; provided, however, that before
Customer may terminate for reasons specified in Article 17.B., GE Americom shall
be given thirty (30) days to bring Customer's Transponder into compliance in all
material respects with the Transponder Performance Specifications.
C. GE Americom may terminate this Agreement within ninety (90) days after
GE Americom acquires knowledge of an event listed below and upon written notice
of intent to terminate to Customer:
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1. If Customer defaults in making any of the payments due to GE
Americom hereunder and does not cure such default within five (5) business days
of the date specified for such payment.
2. If Customer fails to deliver the Security Deposit in whole or in
part, and does not cure such failure within five (5) business days of the date
specified in Article 3 hereof for such delivery.
3. If Customer does not maintain the Letter of Credit in full force and
effect in accordance with Article 3.E. hereof
4. If Customer's use of any Transponder provided hereunder fails to
conform: (a) with the satellite access procedures set forth in Article 10 and
Attachment B, and such nonconforming use, in GE Americom's reasonable judgment,
harms or presents a threat of harm to the satellite, or to the use of the
satellite by others, and Customer does not, in either case, immediately upon
being notified by GE Americom of such nonconforming use, bring Customer's
operations into compliance with such satellite access procedures and the users
Guide; or (b) with the Use of Transponders specified in Article 7, and Customer
does not within five (5) business days of notice by GE Americom comply with such
Use of Transponders.
D. In the event this Agreement is terminated in accordance with Article 4,
or either Party terminates this Agreement due to causes specified in Article
17.A.1., or Customer terminates this Agreement due to causes specified in
Article 17.B., GE Americom shall refund to Customer so much of Customer's
payments under Article 3. as has not been applied to service taken before
termination.
E. In the event Customer terminates service on any Transponder provided
hereunder for reasons other than those for which termination by Customer is
provided under this Agreement, or in the event of termination of transponder
service to Customer by GE Americom due to causes specified in Article 17.A.2.
or 17.C. or Article 18., GE Americom shall be entitled to retain any amounts
previously paid
30
<PAGE>
by Customer under Article 3 as liquidated damages. In such circumstances,
Customer shall immediately cease transmissions using the service on the
Transponder. In addition, GE Americom in its sole discretion may, elect to
either (i) pursue any rights and remedies that GE Americom may have at law, in
equity or otherwise or (ii) recover from Customer the Termination Value. If GE
Americom elects to recover the Termination Value pursuant to clause (ii) of the
preceding sentence and collects from Customer the full amount of such
Termination Value, GE Americom thereafter shall pay to Customer ****************
********************************************************************************
of the gross proceeds received by GE Americom from the sale of the Transponders
to a third party, or from the provision of service to a third party using the
Transponders prior to the Projected Termination Date, up to the amount of the
Termination Value paid by Customer. Such amount of the gross proceeds shall be
remitted to Customer within sixty (60) days of receipt thereof by GE Americom.
GE Americom agrees to use reasonable efforts to obtain a qualified replacement
customer, but shall not be required to obtain a customer for the service on the
surrendered Transponder before obtaining a customer for any other unused
transponder, to obtain any particular customer or to set any particular minimum
price in connection with such service.
F. The payment of a refund to Customer under this Article 17, or the
granting of a credit under Article 13, where such a refund or credit is
provided, shall be Customer's sole and exclusive remedy under this Agreement for
the unavailability of service on the Transponder and/or the Restoration
Services.
G. The termination of this Agreement will not relieve either Party from
fulfilling any outstanding financial obligations to the other, for services
provided up to and including the date of termination, or constitute a waiver
(unless expressly provided otherwise in this Agreement) by either Party of any
other rights and remedies it may have against the other under this Agreement.
31
<PAGE>
H. If upon expiration or termination of this Agreement for any reason by
either party, GE Americom is unable to regain the use of all, or any part of,
any Transponder free and clear of any claims or liens arising as a result of the
use of such Transponder by Customer or any third party permitted by Customer to
use the service on the Transponder, including, but not limited to, claims of a
debtor in bankruptcy, then in addition to all other remedies available to GE
Americom pursuant to this Agreement, at law, in equity or otherwise, Customer
shall be obligated, without regard to any such termination or expiration of this
Agreement, to pay GE Americom service charges at the rate specified in
Article 3.A.
In addition to all other amounts payable under this Agreement, GE
Americom shall be entitled to recover from Customer (i) costs of collection of
any such amounts, including reasonable attorneys' fees and disbursements and
(ii) costs, including reasonable attorneys' fees and disbursements, incurred in
seeking to prevent use of the service contrary to the terms of this Agreement.
ARTICLE 18. CONTENT OF TRANSMITTED COMMUNICATIONS
A. Customer and Customer's Designees will not transmit communications
depicting or describing "sexually explicit conduct" as defined in 18 U.S.C. (S)
2256(2) unless the depiction or description of such conduct in a communication
is integrally related to and advances the thematic content of the communication
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
32
<PAGE>
content of such communications, other than civil proceedings for libel, slander,
or infringement of copyright or other intellectual property rights ("Article 11
Proceedings"), which shall be governed by Article 11.
C. GE Americom may terminate, prevent or restrict any communications 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 (other than Article 11 Proceedings) 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-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 communication which is the subject of the notice, and any communication 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, prevent or restrict such communications pursuant to the preceding
sentence 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.
33
<PAGE>
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 (other than an Article 11 Proceeding) is instituted against GE
Americom, any legal affiliate thereof, or any of the directors, officers, agents
or employees of GE Americom or its affiliated companies (the "Indemnified
Parties"), based upon the content of any communication which is transmitted
using the service provided hereunder, Customer shall indemnify and save harmless
the Indemnified Parties from all costs expenses (including attorney fees 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 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 19. GENERAL PROVISIONS
A. Nothing contained in this Agreement shall be deemed or construed by the
Parties or by any third party to create any rights, obligations or interests in
third parties, or to create the relationship of principal and agent, partnership
or joint venture or any other fiduciary relationship or association between the
Parties.
34
<PAGE>
B. No failure on the part of either Party to notify the other Party of any
noncompliance hereunder, and no failure on the part of either Party to exercise
its rights hereunder shall prejudice any remedy for any subsequent
noncompliance, and any waiver by either Party of any breach or noncompliance
with any term or condition of this Agreement shall be limited to the particular
instance and shall not operate or be deemed to waive any future breaches or
noncompliance with any term or condition. All remedies and rights hereunder and
those available in law or in equity shall be cumulative and the exercise by a
Party of any such right or remedy shall not preclude the exercise of any other
right or remedy available under this Agreement in law or in equity.
C. This Agreement shall be construed and enforced in accordance with the
substantive laws of the State of New Jersey, without regard to principles of
conflicts of law. The Parties hereby consent to and submit to the jurisdiction
of the federal and state 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 with appropriate jurisdiction over the subject matter established
or sitting in the State of New Jersey. The Parties shall not raise in connection
therewith, and hereby waive, any defenses based upon the venue, the
inconvenience of the forum, the lack of personal jurisdiction, the sufficiency
of service of process (as long as notice of such action or suit is furnished in
accordance with Article 16.B. hereof) or the like in any such action or suit
brought in the State of New Jersey.
EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY SUCH ACTION
OR SUIT.
D. This Agreement shall inure to the benefit of and shall be binding upon
the Parties, and subject to Article 7., their successors and assigns.
35
<PAGE>
E. All headings in this Agreement are inserted as a matter of convenience
and for reference purposes only, are of no binding effect, and in no respect
define, limit or describe the scope of this Agreement or the intent of any
article, paragraph or subparagraph hereof.
F. All attachments attached to this Agreement shall be deemed part of this
Agreement and incorporated herein as if fully set forth herein, and in the event
of a variation or inconsistency between the text of this Agreement and the
Attachments attached hereto, this Agreement shall govern.
G. This Agreement may be signed in any number of counterparts with the same
effect as if the signatures to each were upon the same Agreement.
H. Where appropriate, the use of the plural word shall include its singular
and the use of the singular word shall include its plural.
I. This Agreement is subject to all applicable laws and regulations,
including without limitation the Communications Act of 1934, as amended, and the
Rules and Regulations of the FCC.
J. Unless specifically provided otherwise herein, each party shall bear its
respective costs and expenses in connection with the preparation, execution,
delivery and performance of this Agreement.
K. This Agreement and GE Americom's performance hereunder are conditional
upon the occurrence of certain events, including the ability of GE Americom to
make the preemptible service on the Transponder on C-4 available. GE Americom
shall use all reasonable efforts to notify Customer in writing of the
availability (the "Notice of Availability") of such Transponder on or before
April 30, 1996, but in no event later than June 15, 1996. GE Americom shall have
no
36
<PAGE>
obligation or liability to Customer and this Agreement shall automatically cease
and be of no further force or effect and neither Party shall have any claim for
compensation or charges against the other Party.
L. 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.
In the event any one or more of the provisions of this Agreement shall
for any reason be held to be invalid or unenforceable, the remaining provisions
of this Agreement shall be unimpaired, and the invalid or unenforceable
provision shall be replaced by a provision which, being valid and enforceable,
comes closest to the intention of the Parties underlying the invalid or
unenforceable provisions.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, effective
on the date first above written.
GE AMERICAN COMMUNICATIONS, INC.
By: /s/ Andreas Georghiou
-----------------------------
(Signature)
Name: Andreas Georghiou
---------------------------
(Typed or printed name)
Title: VP, Satellite Services
--------------------------
Date: 3/27/96
--------------------------
37
<PAGE>
GLOBAL SHOPPING NETWORK
By: /s/ Rachamin Anatian
-----------------------------
(Signature)
Name: Rachamin Anatian
---------------------------
(Typed or printed name)
Title: C.E.O.
--------------------------
Date: 3/22/96
--------------------------
38
<PAGE>
ATTACHMENTS
Attachment A -- Transponder Performance Specifications
Attachment B -- Commercial Operations System Users Guide
Attachment C -- Letter of Credit
39
<PAGE>
ATTACHMENT A
TRANSPONDER PERFORMANCE SPECIFICATIONS
SATCOM C-3 AND C-4
40
<PAGE>
1.0 NOMINAL RF CHANNEL SPECIFICATIONS (INFORMATIONAL)
-------------------------------------------------
1.1 Channel Configuration
---------------------
The satellite shall have a frequency and polarization plan, as shown in
Figure 1. Operating RF channels will be assigned by GE Americom to the customer
in accordance with the contract.
1.2 Frequency Translation
---------------------
The satellite channel shall provide a net frequency decrease of 2225 MHz between
uplink and downlink. The net translation error including initial tolerance shall
not exceed plus/minus 10 parts in 10/6/ over the operating lifetime of the
satellite.
41
<PAGE>
(D/O Transponder Performance Specs
Attachment A)
2.0 Standards for GE Americom Operational Satellites
------------------------------------------------
The following are the standards of performance to be provided by GE Americom's
RF Channel Service at delivery of transponders:
(A) Effective Isotropic Radiated Power (EIRP): The nominal single-carrier,
saturated satellite RF channel EIRP, at transponder center frequency,
will equal or exceed the following values at the locations given at
delivery. These values will be confirmed by measurements taken at
Vernon Valley, NJ and South Mountain, CA. If spare transponders are
used to restore failed transponders, the EIRP values will be about
0.5 dB lower.
<TABLE>
<CAPTION>
Location EIRP C3/C4 @ 131(degree)W
-------- -------------------------
<S> <C>
Conus* 37.0 dBW Plus Minus 2 dB (measurement tolerance)
Fairbanks, Alaska 31.0 dBW Plus Minus 2 dB (measurement tolerance)
Hawaii 31.0 dBW Plus Minus dB (measurement tolerance)
Puerto Rico 31.0 dBW Plus Minus dB (measurement tolerance)
</TABLE>
*All locations in the contiguous U.S. excluding Maine north of
Portland, Florida south of Miami, and Texas south of Corpus Christi.
42
<PAGE>
PAGE>
(B) Saturation Flux Density (SFD): The nominal single-carrier flux density
required at the input of the satellite to saturate the RF channels, at
transponder center frequency, will not exceed the following values with
carriers transmitted from earth stations at the locations specified
below:
<TABLE>
<CAPTION>
Location SFD* C3/C4 @ 131(degree)W
-------- -------------------------
<S> <C>
Conus -86.0 dBW/m/2/ (plus)(minus) 2 dB (measurement tolerance)
Fairbanks, Alaska -86.0 dBW/m/2/ (plus)(minus) 2 dB (measurement tolerance)
Hawaii -86.0 dBW/m/2/ (plus)(minus) 2 dB (measurement tolerance)
Puerto Rico -83.0 dBW/m/2/ (plus)(minus) 2 dB (measurement tolerance)
</TABLE>
*Saturation Flux Density values shown are for a Flux Control Attenuator
(FCA) setting of 0 dB.
(C) Satellite G/T. The nominal spacecraft G/T for the RF channels provided,
at transponder center frequency, will equal or exceed the following
values at the locations specified below:
<TABLE>
<CAPTION>
Location SFD* C3/C4 @ 131(degree)W
-------- -------------------------
<S> <C>
Conus -4.0 dB/K (plus)(minus) 2 dB (measurement tolerance)
Fairbanks, Alaska -4.0 dB/K (plus)(minus) 2 dB (measurement tolerance)
Hawaii -4.0 dB/K (plus)(minus) 2 dB (measurement tolerance)
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
Puerto Rico -6.0 dB/K plus/minus 2 dB (measurement tolerance)
</TABLE>
The RF channel shall be deemed to have failed, as follows:
(D) The RF channel shall be deemed to have failed if the nominal
performance characteristics specified in subparagraph (A), (B) or (C)
are degraded by 3.0dB (measurement tolerance plus/minus 2dB) and the
Buyer ceases to use the RF channel.
44
<PAGE>
FIGURE 1
FREQUENCY ALLOCATION PLAN
DOWNLINK
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3720 3760 3800 3840 3880 3920 3960 4000 4040 4080 4120 4160 4199.5
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
POL A 1 3 5 7 9 11 13 15 17 19 21 23
TLM
3700.5 3740 3780 3820 3860 3900 3940 3980 4020 4060 4100 4140 4180
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
POL B 2 4 6 8 10 12 14 16 18 20 22 24
TLM
UPLINK
5945 5985 6025 6065 6105 6145 6185 6225 6265 6305 6345 6385 6423.5
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
POL B 1 3 5 7 9 11 13 15 17 19 21 23
CMD
5965 6005 6045 6085 6125 6165 6205 6245 6245 6285 6365 6405
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
POL A 2 4 6 8 10 12 14 16 18 20 22 24
</TABLE>
CENTER FREQUENCIES (MHZ)
TLM = TELEMETRY BEACON
CMD = COMMAND UPLINK
POL = POLARIZATION
NOTE: 1) POLARIZATIONS ARE SWITCHABLE BETWEEN HORIZONTAL AND VERTICAL
2) NUMBER BELOW CHANNEL CENTER FREQUENCY REFERS TO TRANSPONDER IDENTITY
45
<PAGE>
GE American Communications
COMMERCIAL OPERATIONS
SYSTEMS USERS GUIDE
JUNE 1995
46
<PAGE>
GE AMERICAN COMMUNICATIONS
COMMERCIAL OPERATIONS
SYSTEMS USERS GUIDE
JUNE 1995
----------------------------------------------------
This guide supersedes
COMMERCIAL OPERATIONS SYSTEM USERS GUIDE
OCTOBER 1993
----------------------------------------------------
47
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Scope 1
2. Applicable Documents 1
3. Business Interface 1
4. Technical Operations Interface 1
5. Technical Operation Parameters 2
6. Earth Station Requirements 2
7. Box Centers and Antenna Alignments 4
8. Spacecraft Performance 4
9. Spacecraft Access 4
10. Single Channel Per Carrier (SCPC) Traffic 6
11. Spacecraft Reconfiguration 7
12. Good Nights 8
13. Trouble Reporting 7
Appendix A - GE Americom Transmission Standards 9
Table 1A - C-Band Frequency Plan 10
Table 1B - K-1/K-2 Frequency Plan 11
Table 2 - Full Transponder Video Transmission Parameters 12
Table 3 - Ku-band Half Transponder Video Transmission Parameters 13
Appendix B - Spacenet and GSTAR Transmission Standards 14
Table 1 - Spacenet 2, 3 Frequency Plan 15
Table 2 - Spacenet 4 Frequency Plan 16
Table 3 - GSTAR Frequency Plan 17
Table 4 - Spacenet 2, 3, 4 Video Transmission Parameters 18
GE Americom Summary 19
</TABLE>
1. Scope
-----
This document outlines the technical requirements and procedures for
use of the spacecraft operated by GE Americom. This GE Spacecraft offer
excellent performance; however, the users must adhere to Americom
technical standards in order to insure optimum performance for
themselves and other users.
2. Applicable Documents
--------------------
The document listed below forms a part of this document to the extent
specified herein:
FCC Rules and Regulations, Part 25, Satellite Communication,
paragraph #209, "Antenna Performance Standards."
48
<PAGE>
3. Business Interface
------------------
Arrangements for full-time service on or purchase of full or partial
transponders on Americom's satellites should be made through
GE Americom's Headquarters in Princeton, New Jersey:
. Broadcast, Cable and Business Services (609) 987-4230
. Government Services (609) 987-4088
Arrangements for Video transmission on a part-time or occasional use
can be made through the Video Services Office also located at
GE Americom's Headquarters:
. Nationwide (800) 752-7755
. Facsimile (609) 987-4445
. Telex 239811
. Princeton, New Jersey (609) 987-4144
4. Technical Operations Interface
------------------------------
The primary technical operations interface for spacecraft users is the
GE Americom Technical Operations Center (TOC) located in Vernon Valley,
New Jersey:
. Nationwide (800) 255-6122
. Vernon Valley, New Jersey (201) 827-9400
. Facsimile (201) 827-8584
Checking of cross-polarization isolation and transmission parameters
will be conducted by either the Vernon Valley TOC or GE Americom's
South Mountain Earth Station after access is cleared.
The acquisition of the GSTAR and Spacenet fleet has provided GE
Americom with additional spacecraft resources and additional TOC
facilities. The Vernon Valley TOC will remain as the primary technical
operations center for spacecraft users. For those users on GSTAR 1, 2,
3, 4 and Spacenet 3 or 4, spacecraft access should be coordinated
through GE Americom's TOC located in Woodbine, Maryland:
. Nationwide (800) 772-2363
. Woodbine, Maryland (410) 549-4381
. Facsimile (410) 549-4388
5. Technical Operation Parameters
------------------------------
Appendix A contains the standard parameters for video and audio
transmission using the Satcom spacecraft. Appendix B contains the
standard parameters for using the Spacenet and GSTAR spacecraft. If a
customer requires transmission parameters other than those specified in
Appendix A or Appendix B, approval must be obtained from GE Americom.
The proposed transmission parameters will be reviewed to assure that
they will not cause
49
<PAGE>
unacceptable degradation or interference to other traffic on the
spacecraft or on other spacecraft.
6. Earth Station Requirements
--------------------------
Earth stations accessing the GE Americom spacecraft shall meet the
requirements contained in the following subparagraphs. GE Americom
reserves the right to physically inspect the earth station site to
insure compliance with these requirements.
a) The earth station shall be under the control of trained
technicians at all times. The telephone number of the control
point for the earth station shall be on file with GE
Americom's TOC. This control point shall have the ability and
the authority without reference to other management to cease
transmission at any time if directed by GE Americom.
b) The earth station antenna shall conform to the FCC sidelobe
pattern of:
I(degree)(less than) 0 (less than or equal to
7(degree), 29 - 25 log 0, dBi
7(degree)(less than) 0 (less than) 9.2(degree), + 8 dBi
9.2(degree)(less than) 0 (less than or equal to) 48(degree),
32 - 25 log 0 dBi
48(degree)(less than) 0 (less than or equal to) 180(degree),
-10 dBi
c) Antennas not meeting this pattern shall be identified to the
TOC and conditionally accepted on a case-by-case basis.
The system polarization isolation as measured by GE Americom
shall be -29 dB (transmit antenna, spacecraft, receive
antenna) or better. The uplink facilities shall be capable of
maintaining this minimum isolation at all times. Periodic
checks will be made by GE Americom to insure compliance.
d) The maximum uplink power from a customer's earth station shall
be monitored and approved by GE Americom. Only sufficient
power to saturate the TWTA transponders or establish the
optimum operating point for SSPA transponders shall be used.
This may be 77 dBW or less, but in no event greater than 84
dBW in the contiguous 48 states for nine meter or larger
antennas, and no more than 26.5 dBW into the feed for antennas
smaller than 9 meters for C-band and 27 dBW into the feed for
Ku-band antennas smaller than 5 meters.
e) For Ku-band transponders, saturation shall only be determined
with the transponder in LINEAR mode. For Ku-band half
transponder operation, the optimum backed-off operating point
must be accurately determined to insure equal power sharing
between customers and an acceptable level of intermodulation
products. Section 9 contains the method for determining the
operating point for half transponder operation. Once
determined, half transponder customers shall not adjust power
without coordination with the TOC.
50
<PAGE>
f) The TOC will assist the customer in assuring correct power
settings. Once determined, the customer shall keep a record in
the station log of the power settings for each transponder and
type of service. If the station configuration is changed in
any way that affects uplink EIRP, the TOC shall be contacted
and arrangements made for GE Americom to work with the
customer and reestablish operating parameters.
g) An Energy Dispersal Frequency (EDF) shall be applied to TV
carriers so that a 30 Hz triangular baseband waveform causes a
1 MHz peak RF deviation when no video baseband signal is
present.
h) Modulators with offset center frequencies which result in an
asymmetrical distribution of power around the assigned center
frequency shall not be used in the GE Americom system; i.e.
SA7550 Exciter in SYNC REF AFC MODE.
i) GE Americom recommends that all customers transmitting
television programming include Vertical Interval Test Signals
(VITS) as part of their transmissions. It is recommended that
an FCC or NTC Combination and an FCC or NTC Composite be
transmitted. This allows GE Americom to assist customers in
the event of transmission problems. The TOC has video and
audio measurement capability on all transponders in the GE
Americom system.
j) The TOC requires the capability to monitor unscrambled video
of all GE Americom customers. For occasional or short-term
customers, the TOC will provide the address to be authorized
by the customer for either VideoCipher or B-MAC descramblers.
For Occasional Video "Until Further Notice" (UFN) customers
transmitting more than 20 hours a week in the GE Americom
system, it is recommended that the customer shall supply a
descrambler to the TOC at no cost to GE Americom.
k) Customers having transportable earth stations must meet all of
the requirements noted above. In addition, the customer must
supply to the TOC the station FCC authorization ID, date of
grant and antenna model and manufacturer.
l) In accordance with Section 25.308 of FCC Rules, all satellite
video uplink transmissions must be equipped with an automatic
transmitter identification system (ATIS). Uplink equipment
----------------
manufactured on or after March 1, 1991 shall use the FCC-
--------------------------------------
specified subcarrier based ATIS approach. The ATIS signal
shall be a separate subcarrier which is automatically
activated whenever any RF emissions occur. The encoder shall
be integrated into the uplink transmitter chain in a method
that cannot easily be defeated. Uplink equipment manufactured
-----------------------------
before March 1, 1991 will be permitted to use either the FCC
--------------------
subcarrier based ATIS or the SID-AMOL vertical blanking
interval ATIS used by some uplinkers prior to March 1, 1991.
Video uplink transmissions not having automatic transmitter
identification will be reported to the FCC.
7. Box Centers and Antenna Alignments
----------------------------------
51
<PAGE>
All geosynchronous spacecraft move about in latitude, longitude and
altitude within their defined stationkeeping box. GE Americom maintains
its C-band spacecraft within plus or minus 0.1(degree) (+/-45 miles) in
latitude and longitude and the Ku-band spacecraft within plus or minus
0.05(degree). In practice, they are actually maintained much closer
than this. Periodically, the spacecraft is exactly (+/-.005(degree)) in
the center of the box. The dates and times of these box centers are
announced on a recording:
* Nationwide (800) 526-4214
These box center opportunities should be utilized to align non-tracking
earth station antennas on a particular spacecraft in azimuth, elevation
and polarization. A spectrum analyzer or other device responding to
signal levels can be used to peak up the antenna. This assures optimum
system performance no matter where the spacecraft is in the box. Once
correctly adjusted and tightened down, the antenna should not have to
be adjusted again in azimuth and elevation unless it is moved or
damaged. Polarization may have to be optimized by the TOC when a
carrier is first transmitted.
8. Spacecraft Performance
----------------------
Each of the Satcom spacecraft have slightly different geographical
coverage and uplink and downlink performance. For information on
specific transponder performance (EIRP/FTOP) or geographic coverage
information, contact GE Americom's Manager, Customer and Technical
Services at (609) 987-4191.
9. Spacecraft Access
-----------------
Access to a GE Americom satellite transponder is arranged by calling
the Technical Operations Center (TOC). The TOC must determine that the
request is valid and authorized.
The validation process will be expedited for Occasional Video Service
by using the Confirmation Number. For Occasional Video Services the
Confirmation Number is provided by the Video Services Office at the
time the order for service is placed. The Confirmation Number, which is
also used for billing purposes, can be obtained by calling Video
Services at (800) 752-7755.
The procedure for accessing a GE Americom spacecraft is as follows:
a) The earth station shall be aligned on the spacecraft and the
uplink equipment aligned on the correct frequency and
polarization in accordance with the requirements of Appendix A
or Appendix B.
b) The customer earth station shall call the TOC, identify their
company name and transmit city location and request access to
the particular spacecraft and transponder. The TOC will
determine that the request is valid for the customer.
c) The TOC will monitor the downlink of the transponder being
accessed and direct the customer to transmit a CW clean (no
modulation) carrier. When the carrier is up, the
52
<PAGE>
TOC will verify the power operating point and polarization
isolation. If they are not correct, the TOC will assist the
customer earth station in optimizing the transmission. When
optimized, the TOC will direct that modulation be applied and
will check for correct deviation. If all parameters are within
spec, the customer will be notified that the transmission is
acceptable, the technicians will exchange initials and both
activities will log the event. If the earth station cannot
meet transmission requirements, the TOC will direct the
carrier to be taken down until the problem can be corrected.
d) For half transponder video, the procedure is similar to that
in 9.c. above, except that it will vary depending on whether
another carrier is operating in the transponder.
e) If there is not another carrier in the transponder, the TOC
will direct the customer to bring up his CW carrier and raise
power until saturation is achieved. The carrier power will
then be backed-off to achieve 3 dB output backoff as measured
in downlink EIRP. This will equate to approximately an 8 dB
reduction in uplink power. If the customer does not have
enough power to saturate the transponder, special arrangements
can be made to provide a saturated CW reference carrier. This
will allow the customer to establish the proper power
operating point. Special requests such as this must be made in
advance during the initial contact with the TOC.
f) If the customer is the second station accessing the
transponder, he will be asked to bring up a CW carrier slowly
until the signal matches the downlink EIRP of the first
carrier as measured on the spectrum analyzer in 3 MHz
resolution BW mode with a 1 MHz video filter. When both uplink
carriers are equal in power, each of the downlink carriers
will be approximately 5 dB below a single saturated carrier.
g) In all cases, after the operating point is determined,
modulation will be applied to the carrier and the transmitter
power settings should be noted and entered in the user's
station log. If possible, a power meter on the transmitter
output coupler should be used for higher accuracy because
front panel meters may vary, particularly at the lower power
levels.
h) Some customers sequentially time-share transponders and
transition by an uplink hot switch. The two customers shall
coordinate the exact time of the hot switch in advance. The
uplink preparing to transmit shall coordinate access through
the TOC prior to the switch time and shall be on-line with GE
Americom at the time of the switch.
i) The customer may continue to operate his carrier within the
previously agreed schedule as long as the carrier remains
within the technical requirements. If the carrier exceeds
tolerances or is causing interference to other users of the
spacecraft or to other spacecraft, the TOC shall direct that
the transmission cease immediately. The customer shall insure
that duty staff have standing authorization to respond to such
requests without referral to other authorities. The customer
shall cease transmission until the problem is corrected.
Before resuming transmission, the customer must contact the
TOC to verify that the problem has been resolved.
53
<PAGE>
10. Single Channel Per Carrier (SCPC) Traffic
-----------------------------------------
Special considerations must be observed for SCPC traffic in addition to
those contained in the access procedures in Paragraph 9. Since a large
number of carriers share the available bandwidth and power of the
transponder, any change to assigned allocations can affect all traffic
in the transponder. When an order is accepted by GE Americom for SCPC
service, the allowable power and bandwidth that may be used by the
customer is precisely specified. It is very important that SCPC power
level, center frequency and deviation must not be made by the user
without coordination with GE Americom's TOC. Uncoordinated adjustment
of carrier parameters can cause interference and degradation of service
to other communications in the transponder.
Some customers are given a percent of total transponder power and
bandwidth or are assigned a specific power level to be used within a
specific frequency range. These customers are responsible for insuring
that their individual carriers do not exceed their contracted
allocations or cause interference to other customers. GE Americom will
conduct sweeps of the transponder to check power and bandwidth
assignments.
As an aid to setting and checking SCPC power levels, there are 10 dBW
unimodulated reference carriers transmitted by GE Americom on the
following transponders with their respective frequencies:
<TABLE>
<CAPTION>
Transmit Receive
-------- -------
<S> <C> <C>
Satcom K-1, transponder 1 14012.20 MHz 11712.20 MHz
Satcom K-2, transponder 2 14058.55 MHz 11758.55 MHz
Satcom C-5, transponder 3 5985.00 MHz 3760.00 MHz
Satcom C-5, transponder 21 6346.00 MHz 4121.00 MHz
When using these reference carriers for comparison, the carrier under test must
be unmodulated.
11. Spacecraft Reconfiguration
--------------------------
Some spacecraft have the capability to be reconfigured for different
input attenuation, operation in LINEAR or LIMITER mode and/or downlink
beam switching. The procedure for spacecraft reconfiguration is as
follows:
-- The customer shall supply to the TOC a written list of the persons
in their organization authorized to request the reconfigurations
allowed in their contract.
-- These persons may contact the TOC and request a reconfiguration.
The TOC will validate the request and pass it on to the TT&C
controlling the spacecraft. Depending on other critical operations
in progress, the TT&C will accomplish the reconfiguration as soon
as possible and notify the TOC who will in turn notify the
customer.
54
<PAGE>
-- Changes from LINEAR to LIMITER or vice versa or changes to input
attenuators may be requested at any time. Reconfiguration of
downlink beams must be coordinated with GE Americom Headquarters
and will normally only be done during weekdays between 8:00 a.m.
and 4:30 p.m. Eastern time when a GE Americom Spacecraft Analyst
is on station. Switching input attenuators to 3 dB or less
requires approval from GE Americom's Spacecraft Engineering
department.
12. Good Nights
-----------
All customers are requested to notify GE Americom's Technical
Operations Center (TOC) when they have completed transmission to a
spacecraft. For Occasional Services, the transmission should be
completed by the firm Good Night time contained in the order for
service. This is especially important since billing is based on the
Start and Good Night times specified in the order for the Occasional
Services.
If an Occasional Service transmission is not completed by the scheduled
Good Night time, the TOC will contact the uplinker and request that the
transmission immediately cease. If no other user is scheduled for
transmission following the previously scheduled Good Night time, the
TOC will allow the uplinker to authorize a change to the ordered Good
Night time to allow continued transmission. The customer will then be
billed according to the revised Good Night Time.
In the event of a schedule conflict, GE Americom's policy is to give
transmission priority to the user who has scheduled a Start time rather
than the prior user who has not completed transmission by the scheduled
Good Night time. Thus, Occasional Service users must use care when
defining the Good Night time for a particular event.
13. Trouble Reporting
-----------------
Customers should immediately report any instances of interference to
their transmissions to the TOC. The TOC will assist in trying to
identify the source of interference and will contact any likely
potential interferers. It should be recognized, however, that it is
sometimes very difficult to identify the source of interference. The
TOC has a video tape recorder on-line ready to record any interference
whether for investigative purposes or criminal prosecution. The TOC
routinely reports all interference incidents to the FCC.
Suspected degradation or outages in the space segment shall be reported
to the TOC, which will coordinate investigation of the problem and
testing. Suspected degradation of transponder performance may require
the customer to release the transponder at a mutually acceptable time
to allow GE Americom time for performance testing.
Please note that for purposes of billing credit for service outages,
the length of the interruption is measured from the time the customer
notifies the TOC of the interruption to the time when the customer is
notified of the return to service by the TOC.
55
<PAGE>
In the event it becomes necessary to escalate service problems beyond
the primary level, the customer is afforded the opportunity to contact
GE Americom managerial personnel for assistance in resolving any
problem:
Second Level: Lead TOC Technician Supervisor of Operations
------------ (Vernon Valley) (Woodbine)
Jeff Watts Luis Jimenez
(201) 827-9400 (410) 549-4382
Third Level: Manager, Customer Service and Operations
----------- Bud Warner
(609) 987-4186
Fourth Level: Director, Terrestrial Systems
------------ Michael Noon
(609) 987-4335
Fifth Level: Vice President, Government & Technical Operations
----------- Walter Braun
(609) 987-4172
56
<PAGE>
APPENDIX A
AMERICOM TRANSMISSION STANDARDS
-------------------------------
Frequency and Polarization Plans
- --------------------------------
The frequency and polarization plans used on the Satcom C- and Ku-band
spacecraft are shown in Tables 1A and 1B. The 54 MHz Ku-band half transponder
center transmission frequencies are +/- 12 MHz above and below the transponder
center frequencies. The lower half transponder is designated A and the upper
half B, thus a half transponder transmission in the upper half of Transponder 10
would be 10B.
Video/Audio Modulation Parameters
- ---------------------------------
Full Transponder - Full transponder standard parameters are contained in
Table 2. Parameters are for C-band and are optional for
Ku-band.
Half Transponder - Half transponder parameters for 54 MHz Ku-band
transponders are contained in Table 3.
57
<PAGE>
</TABLE>
<TABLE>
TABLE 1A
C-BAND FREQUENCY PLAN*
----------------------
Uplink Downlink
---------------------------- ---------------------
Transponder Center Center
No. Frequency Pol. Frequency Pol.
----------- ------------ ---- --------- ----
<S> <C> <C> <C> <C>
1 5945 H 3720 V
2 5965 V 3740 H
3 5985 H 3760 V
4 6005 V 3780 H
5 6025 H 3800 V
6 6045 V 3820 H
7 6065 H 3840 V
8 6085 V 3860 H
9 6105 H 3880 V
10 6125 V 3900 H
11 6145 H 3920 V
12 6165 V 3940 H
13 6185 H 3960 V
14 6205 V 3980 H
15 6225 H 4000 V
16 6245 V 4020 H
17 6265 H 4040 V
18 6285 V 4060 H
19 6305 H 4080 V
20 6325 V 4100 H
21 6345 H 4120 V
22 6365 V 4140 H
23 6385 H 4160 V
24 6405 V 4180 H
</TABLE>
*This frequency plan applies to all current GE Americom Satcom C-band satellites
EXCEPT for Satcom C-1 located at 137(degree) W.L. Satcom C-1 has the opposite
- ------ --------
polarity from our other satellites. For example, Transponder 1 on Satcom C-1 has
a center frequency of 5945 MHz and V polarization on the uplink and a center
frequency of 3720 MHz and H polarization on the downlink.
All C-band transponders have 36 MHz bandwidth.
When GE-1 is launched into the 103(degree) W.L. orbital location, its C-band
plan will be indentical to Satcom C-1, i.e. Transponder 1 is H polarization on
the downlink.
58
<PAGE>
<TABLE>
<CAPTION>
TABLE 1B
K-1/K-2 FREQUENCY PLAN*
----------------------
Uplink Downlink
------------------------------------------------ -------------------------------------------------
Xpdr Ctr. Ctr.
No. Freq. A B Pol. Freq. A B Pol.
----- ----- - - ---- ----- - - ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 14029 14017 14041 V 11729 11717 11741 H
2 14058.5 14046.5 14070.5 H 11758.5 11746.5 11770.5 V
3 14088 14076 14100 V 11788 11776 11800 H
4 14117.5 14105.5 14129.5 H 11817.5 11805.5 11829.5 V
5 14147 14135 14159 V 11847 11835 11859 H
6 14176.5 14164.5 14188.5 H 11876.5 11864.5 11888.5 V
7 14206 14194 14218 V 11906 11894 11918 H
8 14235.5 14223.5 14247.5 H 11935.5 11923.5 11947.5 V
9 14265 14253 14277 V 11965 11953 11977 H
10 14294.5 14282.5 14306.5 H 11994.5 11982.5 12006.5 V
11 14324 14312 14336 V 12024 12012 12036 H
12 14353.5 14341.5 14365.5 H 12053.5 12041.5 12065.5 V
13 14383 14371 14395 V 12083 12071 12095 H
14 14412.5 14400.5 14424.5 H 12112.5 12100.5 12124.5 V
15 14442 14430 14454 V 12142 12130 12154 H
16 14471.5 14459.5 14483.5 H 12171.5 12159.5 12183.5 V
</TABLE>
NOTE:
- ----
A. All transponders are 45 watts and 54 MHz bandwith.
59
<PAGE>
TABLE 2
FULL TRANSPONDER VIDEO TRANSMISSION PARAMETERS
----------------------------------------------
<TABLE>
<S> <C> <C> <C>
Video Test Tone Frequency [SYMBOL APPEARS HERE] = 761.6 KHz
Video Test Tone Peak Deviation [SYMBOL APPEARS HERE] = 10.75 MHz
Video Test Tone Level for Bessel Null [SYMBOL APPEARS HERE] = -13.15 dBm
Video Test Tone Level for Test (1 Vp-p) [SYMBOL APPEARS HERE] = 2.2 dBM
Energy Dispersal Frequency [SYMBOL APPEARS HERE] = 30 Hz
Energy Dispersal Peak Deviation [SYMBOL APPEARS HERE] = 1 MHz
Energy Dispersal Level [SYMBOL APPEARS HERE] = -18.41 dBm
Nominal Program Audio Subcarrier Frequency [SYMBOL APPEARS HERE] = 6.8 MHz
Subcarrier Peak Deviation on Main Carrier [SYMBOL APPEARS HERE] = 2 MHz
Audio Test Tone Frequency [SYMBOL APPEARS HERE] = 1 KHz
Audio Test Tone Level at Input to Exciter
(APL across 600 Ohms) [SYMBOL APPEARS HERE] = 0.0.dBM
Audio Test Tone Peak Deviation for Average Program
Level (APL) [SYMBOL APPEARS HERE] = 75 KHz
Audio Test Tone Peak Program Level (PPL) [SYMBOL APPEARS HERE] = +10.0 dBM
Audio Peak Deviation at PPL [SYMBOL APPEARS HERE] = 237 KHz
Audio Test Tone Level (1 KHz) for First Bessel Null
(to result in [SYMBOL] F\at\) [SYMBOL APPEARS HERE] = -29.88 dBM
</TABLE>
NOTE:
- ----
A. Exciters shall have a 36 MHz (maximum) IF filter to limit transmit
spectrum.
60
<PAGE>
TABLE 3
54 MHz Ku-BAND HALF TRANSPONDER VIDEO TRANSMISSION PARAMETERS
-------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Video Test Tone Frequency [SYMBOL APPEARS HERE] = 761.6 KHz
Video Test Tone Peak Deviation [SYMBOL APPEARS HERE] = 9.1 MHz
Video Test Tone Level for Bessel Null [SYMBOL APPEARS HERE] = -11.71 dBm
Video Test Tone Level for Test (1 Vp-p) [SYMBOL APPEARS HERE] = 2.22 dBM
Energy Dispersal Frequency [SYMBOL APPEARS HERE] = 30 Hz
Energy Dispersal Peak Deviation [SYMBOL APPEARS HERE] = 1.0 MHz
Energy Dispersal Level [SYMBOL APPEARS HERE] = -16.96 dBm
Subcarrier Frequency [SYMBOL APPEARS HERE] = 6.2 MHz
Subcarrier Peak Deviation on Main Carrier [SYMBOL APPEARS HERE] = 1.25 MHz
Audio Test Tone Frequency [SYMBOL APPEARS HERE] = 1 KHz
Audio Test Tone Level at Input to Exciter 0.0.dBM
(APL across 600 Ohms) [SYMBOL APPEARS HERE] =
Audio Test Tone Peak Deviation for Average Program 60.0 KHz
Level (APL) [SYMBOL APPEARS HERE] =
Audio Test Tone Peak Program Level (PPL) [SYMBOL APPEARS HERE] = +10.0 dBM
Audio Peak Deviation at PPL [SYMBOL APPEARS HERE] = 189.7 KHz
Audio Test Tone Level (1 KHz) for First Bessel Null -28 dBM
(to result in [SYMBOL APPEARS HERE]) [SYMBOL APPEARS HERE] =
</TABLE>
NOTE:
A. All exciters shall have a Ku-band 2:1 Video 25 MHz (Intelsat Mask) IF
bandwidth filter.
61
<PAGE>
APPENDIX B
SPACENET AND GSTAR TRANSMISSION STANDARDS
-----------------------------------------
Frequency and Polarization Plans
- --------------------------------
The frequency and polarization plans used on the Spacenet spacecraft are shown
in Tables 1 and 2. The frequency and polarization plans for the GSTAR spacecraft
are shown in Table 3. The half transponder center transmission frequencies for
the C-band 72 MHz and Ku- band 72 MHz transponders are plus/minus 20 MHz above
and below the transponder center frequencies. The half transponder center
frequencies for the 54 MHz GSTAR transponders are plus/minus 12 MHz above and
below the transponder center frequencies.
Video/Audio Modulation Parameters
- ---------------------------------
Spacenet transponders-Table 2 contains the standard parameters for full and half
transponder transmissions.
GSTAR transponders-Use K-1/K-2 parameters found in Appendix A, Tables 2 and 3.
62
<PAGE>
TABLE 1
SPACENET 2, 3 FREQUENCY PLAN
----------------------------
<TABLE>
<CAPTION>
Uplink Downlink
--------------------- ---------------------
Transponder No. Ctr. Freq. Pol. Ctr. Freq. Pol.
---------- ---- ---------- ----
C-Band/36 MHz/8.5 Watts
<S> <C> <C> <C> <C>
1 5945 V 3720 H
2 5985 V 3760 H
3 6025 V 3800 H
4 6065 V 3840 H
5 6105 V 3880 H
6 6145 V 3920 H
7 6185 V 3960 H
8 6225 V 4000 H
9 6265 V 4040 H
10 6305 V 4080 H
11 6345 V 4120 H
12 6385 V 4160 H
C-Band/72 MHz/16 Watts
13 5985 H 3760 V
14 6065 H 3840 V
15 6145 H 3920 V
16 6225 H 4000 V
17 6305 H 4080 V
18 6385 H 4160 V
Ku-Band/72 MHz
19 14040 V 11740 H
20 14120 V 11820 H
21 14200 V 11900 H
22 14280 V 11980 H
23 14360 V 12060 H
24 14440 V 12140 H
</TABLE>
63
<PAGE>
TABLE 2
SPACENET 4 FREQUENCY PLAN
-------------------------
<TABLE>
<CAPTION>
Uplink Downlink
--------------------- ---------------------
Transponder No. Ctr. Freq. Pol. Ctr. Freq. Pol.
--------------- ---------- ---- ---------- ----
C-Band/36 MHz/8.5 Watts
<S> <C> <C> <C> <C>
1 5945 H 3720 V
2 5985 H 3760 V
3 6025 H 3800 V
4 6065 H 3840 V
5 6105 H 3880 V
6 6145 H 3920 V
7 5965 V 3740 H
8 6005 V 3780 H
9 6045 V 3820 H
10 6085 V 3860 H
11 6125 V 3900 H
12 6165 V 3940 H
C-Band/72 MHz/16 Watts
13 6205 H 3980 V
14 6285 H 4060 V
15 6365 H 4140 V
16 6225 V 4000 H
17 6305 V 4080 H
18 6385 V 4160 H
Ku-Band/72 MHz
19 14040 V 11740 H
20 14120 V 11820 H
21 14200 V 11900 H
22 14280 V 11980 H
23 14360 V 12060 H
24 14440 V 12140 H
</TABLE>
64
<PAGE>
TABLE 3
GSTAR FREQUENCY PLAN
--------------------
<TABLE>
<CAPTION>
Uplink Downlink
------------------------ ------------------------
Transponder No. Ctr. Freq. Pol. Ctr. Freq. Pol.
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
1 14030 V 11730 H
2 14091 V 11791 H
3 14152 V 11852 H
4 14213 V 11913 H
5 14274 V 11974 H
6 14335 V 12035 H
7 14396 V 12096 H
8 14457 V 12157 H
9 14044 H 11744 V
10 14105 H 11805 V
11 14166 H 11866 V
12 14227 H 11927 V
13 14288 H 11988 V
14 14349 H 12049 V
15 14410 H 12110 V
16 14471 H 12171 V
</TABLE>
All transponders are 54 MHz bandwidth.
65
<PAGE>
TABLE 4
SPACENET 2, 3, 4, VIDEO TRANSMISSION PARAMETERS
-----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Video Test Tone Frequency [SYMBOL APPEARS HERE] = 761.5 KHz
Video Test Tone Peak Deviation [SYMBOL APPEARS HERE] = 10.75 MHz
Video Test Tone Level for Bessel Null [SYMBOL APPEARS HERE] = -13.15 dBm
Video Test Tone Level for Test (1 V) [SYMBOL APPEARS HERE] = 2.2 dBM
Energy Dispersal Frequency [SYMBOL APPEARS HERE] = 30 Hz
Energy Dispersal Peak Deviation [SYMBOL APPEARS HERE] = 1 MHz
Energy Dispersal Level [SYMBOL APPEARS HERE] = -18.41 dBm
Nominal Program Audio Subcarrier Frequency [SYMBOL APPEARS HERE] = 6.8 MHz
Subcarrier Peak Deviation on Main Carrier [SYMBOL APPEARS HERE] = 2 MHz
Audio Test Tone Frequency [SYMBOL APPEARS HERE] = 1 KHz
Audio Test Tone Level at Input to Exciter
(APL across 600 Ohms) [SYMBOL APPEARS HERE] = 0.0.dBM
Audio Test Tone Peak Deviation for Average Program
Level (APL) [SYMBOL APPEARS HERE] = 75 KHz
Audio Test Tone Peak Program Level (PPL) [SYMBOL APPEARS HERE] = +10.0 dBM
Audio Peak Deviation at PPL [SYMBOL APPEARS HERE] = 237 KHz
Audio Test Tone Level (1 KHz) for First Bessel Null
(to result in F) [SYMBOL APPEARS HERE] = -29.88 dBM
</TABLE>
NOTE:
- ----
A. All exciters shall have a 36 MHz (maximum) IF filter to limit transmit
spectrum.
66
<PAGE>
Attachment C
[LETTERHEAD OF ISSUING BANK]
IRREVOCABLE LETTER OF CREDIT
TO GE American Communications, Inc. DATE:
Four Research Way
Princeton, NJ 08540
Attn: Vice President-Finance
NUMBER:______________________
GENTLEMEN:
WE HEREBY OPEN OUR IRREVOCABLE LETTER OF CREDIT IN YOUR FAVOR FOR THE ACCOUNT OF
GLOBAL SHOPPING NETWORK ("CUSTOMER") UP TO AN AGGREGATE AMOUNT OF
*********************************** AVAILABLE IN ONE OR MORE DRAWINGS UPON
PRESENTATION TO US OF YOUR DRAFT(S) AT SIGHT ON US ACCOMPANIED BY THE DOCUMENTS
SPECIFIED BELOW:
EITHER:
1) A statement in writing signed by an officer of GE American
Communications, Inc. ("GE Americom") stating that a) GLOBAL SHOPPING NETWORK
("Customer") under an agreement dated as of _______________, 1996 between
Customer and GE Americom (the "Agreement"), Customer owes the monthly service
charge for the [twenty-fourth] [forty- eighth] month of the Service Term and b)
the amount of the draft being presented does not exceed the aggregate amount due
and payable to GE Americom under the Agreement.
OR:
2) A statement in writing signed by an officer of GE Americom
Communications, Inc. ("GE Americom") stating that a) GLOBAL SHOPPING NETWORK
("Customer") has defaulted under an agreement dated as of ______________, 1996
between Customer and GE Americom (the "Agreement") and b) the amount of the
draft being presented does not exceed the aggregate amount due and payable to GE
Americom under the Agreement.
OR:
3) A statement in writing signed by an officer of GE American
Communications, Inc. ("GE Americom") stating that GLOBAL SHOPPING NETWORK
("Customer") under an agreement dated as of ____________, 1996 between Customer
and GE Americom (the "Agreement"), has failed to deliver to GE Americom an
extension of the Letter of Credit as required under the Agreement dated
__________, 1996 between Customer and GE Americom.
DRAFTS MUST BE PRESENTED AT THIS BANK ON OR BEFORE [DATE AT LEAST FIVE YEARS
FROM DATE OF ISSUANCE].
67
<PAGE>
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONA FIDE HOLDERS OF DRAFTS
DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF CREDIT THAT SUCH
DRAFTS SHALL BE DULY HONORED ON PRESENTATION AND DELIVERY OF DOCUMENTS AS
SPECIFIED.
THIS CREDIT IS SUBJECT TO "UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS
(1983 REVISION) INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 400."
[NAME OF ISSUING BANK]
By:
-------------------
Name:
-----------------
Title:
----------------
68
<PAGE>
EXHIBIT 10.16
Capital Contribution Agreement
------------------------------
This Capital Contribution Agreement (the "Agreement"), dated as of January
30, 1997, is entered into between Rachamim Anatian (the "Contributor") and
Global Broadcasting Systems, Inc., a Delaware corporation (the "Company").
1.
(a) On the date of the closing (the "Closing Date") of any initial public
offering of the Class A Common Stock of the Company that occurs on or prior to
July 31, 1997, the Contributor hereby agrees to contribute (the "Capital
Contribution") to the common equity of the Company an amount in cash equal to
(i) $100 million (or any amount up to $150 million if the disinterested members
of the Board of Directors of the Company determine that the Capital Contribution
should be increased in order to fund the Company's anticipated cash
requirements) less (ii) the amount in cash that the Contributor has contributed
to the common equity of the Company or its predecessors, through the purchase of
common equity securities or contributions to common equity, prior to the Closing
Date (the "Prior Capital Contribution").
(b) For purposes of the calculation described in clause 1(a) above, the
amount of the Prior Capital Contribution will be calculated based upon the most
recently available internal financial statements of the Company and, with
respect to any interim period for which such financial statements are not
available, the good faith estimate of the Contributor regarding his cash
contributions to the Company since the most recently available internal
financial statements. If the Capital Contribution is calculated based on the
good faith estimate of the Contributor with respect to any interim period as set
forth in the preceding sentence, within a reasonable time following the date on
which internal financial statements including the relevant interim period become
available, the Company shall recalculate the amount of the Capital Contribution
based on such internal financial statements (adjusted upward or downward, as
appropriate) to reflect the actual amount of cash contributed to the Company by
the Contributor during such interim period. If any additional amounts become
payable by the Contributor as a result of any recalculation pursuant to the
preceding sentence, such additional payment shall be made within 30 days after
written notice thereof by the Company to the Contributor. If any additional
amounts become refundable by the Company to the Contributor as a result of any
adjustment pursuant to this paragraph, the Company shall refund such amount to
the Contributor within 15 days after the relevant internal financial statements
become available.
2. Notwithstanding paragraph 1 hereof, the Contributor hereby agrees to
contribute to the common equity of the Company all amounts necessary to fund the
Company's cash requirements until July 31, 1998, including all costs associated
with the termination of any agreement of the Company to acquire television
stations. All amounts contributed pursuant to this paragraph shall constitute
part of the Prior Capital Contribution for purposes of paragraph 1.
<PAGE>
3.
(a) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof 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.
(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.
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Company have caused this
Agreement to be executed as of January 30, 1997.
Date: By: /s/ Rachamim Anatian
-------------------------
Rachamim Anatian
GLOBAL BROADCASTING SYSTEMS, INC.
Date: By: /s/ Barbara Laurence
-------------------------
Name: Barbara Laurence
<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
February 11, 1997
<PAGE>
EXHIBIT 25
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)__
-------------------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Barbara McCluskey, Vice President
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
GLOBAL BROADCASTING SYSTEMS, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3895162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1740 Broadway, 17th Floor
New York, New York 10019
(Address of principal executive offices) (Zip code)
--------------------
___% Senior Subordinated Notes due 2007
(Title of indenture securities)
- --------------------------------------------------------------------------------
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department
Two Rector Street, New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None
<PAGE>
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the indenture, state
whether there has been a default under any such indenture or series,
identify the indenture or series affected, and explain the nature of any
such default.
None
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
Not Applicable
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the indenture, state
whether there has been a default under any such indenture or series,
identify the indenture or series affected, and explain the nature of any
such default.
Not Applicable
Item 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460).
<PAGE>
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the authorization of the trustee to exercise corporate
trust powers, as amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission
File No. 22-19146).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
<PAGE>
NOTE
----
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its directors or
officers, the trustee has relied upon information furnished to it by the
obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2
and 16 of this form since to the best knowledge of the trustee, the obligor
is not in default under any indenture under which the applicant is trustee.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 7th day of February, 1997.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
---------------------
Barbara McCluskey
Vice President
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the issue by Global Broadcasting
Systems, Inc. of its Senior Subordinated Notes due 2007, we hereby consent
that reports of examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
--------------------------------
Barbara McCluskey
Vice President
Dated: February 7, 1997
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN THOUSANDS
------ --------------
<S> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin... $ 34,228
Interest-bearing balances............................ $ 229,175
Securities: Held-to-maturity securities................. $ 174,707
Available-for-sale securities............... $ 36,168
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold................................... $ 15,062
Securities purchased under agreements to resell...... $ -0-
Loans and lease financing receivables:
Loans and leases, net of unearned income...$1,780,278
LESS: Allowance for loan and lease losses..$ 56,976
LESS: Allocated transfer risk reserve......$ -0-
Loans and leases, net of unearned
income, allowance, and reserve....................... $1,723,302
Trading assets held in trading accounts.................. $ 622
Premises and fixed assets (including capitalized leases). $ 4,264
Other real estate owned.................................. $ 397
Investments in unconsolidated subsidiaries and associate
companies............................................... $ -0-
Customers' liability to this bank on acceptances
outstanding............................................. $ 105
Intangible assets........................................ $ -0-
Other assets............................................. $ 153,290
TOTAL ASSETS............................................. $2,371,320
</TABLE>
<PAGE>
LIABILITIES
-----------
<TABLE>
<S> <C>
Deposits:
In domestic offices............................................ $ 671,747
Noninterest-bearing................................$224,231
Interest-bearing...................................$447,516
In foreign offices, Edge and Agreement subsidiaries, and IBFs.. $ 856,540
Noninterest-bearing................................$ 17,313
Interest-bearing...................................$839,227
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased........................................ $ 430,500
Securities sold under agreements to repurchase................. $ -0-
Demand notes issued to the U.S. Treasury........................... $ 50,000
Trading Liabilities................................................ $ 539
Other borrowed money:
a) With a remaining maturity of one year or less............... $ 61,090
b) With a remaining maturity of more than one year............. $ 7,647
Mortgage indebtedness and obligations under capitalized leases..... $ -0-
Bank's liability on acceptances executed and outstanding........... $ 105
Subordinated notes and debentures.................................. $ -0-
Other liabilities.................................................. $ 77,289
TOTAL LIABILITIES.................................................. $2,155,457
Limited-life preferred stock and related surplus................... $ -0-
EQUITY CAPITAL
Perpetual preferred stock and related surplus...................... $ -0-
Common stock....................................................... $ 29,649
Surplus (exclude all surplus related to preferred stock)........... $ 217,008
Undivided profits and capital reserves............................. $ (30,795)
Net unrealized gains (losses) on available-for-sale securities..... $ 1
Cumulative foreign currency translation adjustments................ $ -0-
TOTAL EQUITY CAPITAL............................................... $ 215,863
TOTAL LIABILITIES AND EQUITY CAPITAL............................... $2,371,320
</TABLE>
