cc: Information Network Radio, Inc.
Hollander, Lumer & Co. LLP
As filed with the Securities and Exchange Commission on July 16, 1999
CIK: 0001084718
Registration No. 333-77691
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
PRE-EFFECTIVE AMENDMENT No. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
Information Network Radio, Inc.
(Name of small business issuer in its charter)
California 4832 94-3323226
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
114 Sansome Street, Suite 1410
San Francisco, California 94104
415.434.1220
(Address and telephone number of principal executive
offices and principal place of business)
N. John Douglas, Chairman/Chief Executive Officer
Information Network Radio, Inc.
114 Sansome Street, Suite 1410
San Francisco, California 94104
415.434.1220
(Name, address and telephone of agent for service)
---------------------
Copies to:
Drew Field
534 Pacific Avenue
San Francisco, CA 94133
415.296.9795
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
---------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
==============================================================================================================
Title of each Dollar Proposed maximum Proposed maximum
class of securities Amount to be offering price aggregate offering Amount of
to be registered registered per share price registration fee
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value $8,000,000 $100.00 $8,000,000
==============================================================================================================
</TABLE>
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.
3
<PAGE>
If any of the securities 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: X
---
================================================================================
<TABLE>
INFORMATION NETWORK RADIO, INC.
Cross-reference Sheet Showing Location in Prospectus of:
PART I -- INFORMATION REQUIRED IN PROSPECTUS
<CAPTION>
Form SB-2 Item Number and Caption Caption in Prospectus
--------------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus......... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus....................... Inside Front Cover Page of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Plan of Distribution -- Determination of Offering Price
6. Dilution.................................... Dilution
7. Selling Security Holders.................... Not applicable
8. Plan of Distribution........................ Plan of Distribution
9. Legal Proceedings........................... Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons....................... Management
11. Security Ownership of Certain Beneficial
Owners and Management..................... Principal Shareholders
12. Description of Securities................... Description of Common Stock
13. Interest of Named Experts and Counsel....... Not applicable
14. Disclosure of Commission Position on Management -- Indemnification of
Indemnification for Securities Act ....... Officers and Directors
15. Organization Within Last Five Years......... Organization of the Company
16. Description of Business..................... Prospectus Summary; Risk Factors;
Business; Certain Transactions
17. Management's Discussion and Analysis
or Plan of Operation ..................... Management's Plan of Operations
18. Description of Property................... Business - Properties/Facilities
19. Certain Relationships and Related
Transactions.............................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters Risk Factors; Shares Eligible
for Future Resale
21. Executive Compensation...................... Management: Executive Compensation
22. Financial Statements........................ Index to Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure...................... None
</TABLE>
4
<PAGE>
80,000 SHARES
[logo, consisting of block letters "IN," with a globe on top of the I,
with "RADIO" on one side of the block letters and "Information Network
Radio" on the other side]
IN Radio
COMMON STOCK
---------
Information Network Radio, Inc. is offering these 80,000 shares of common
stock directly to investors, through designated executive officers who will
register as sales representatives, where required, and will not receive any
commission. There has been no public trading market for the shares and we do not
expect there to be one after this offering. Our management has determined this
initial public offering price. The terms "IN Radio," "we" or "our" all mean the
corporation, Information Network Radio, Inc, its subsidiaries and its
predecessor, Information Network Radio, LLC.
This offering will end when all the shares have been purchased or an
earlier date, if we decide to close the offering. The minimum purchase for each
investor is 250 shares. We reserve the right to reject any share order form in
full or in part.
---------
This offering involves a high degree of risk. See "Risk
Factors" beginning on page 4.
---------
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the shares or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
================================================================================
Public Underwriting
Offering Discounts and Proceeds to
Price Commissions IN Radio
- --------------------------------------------------------------------------------
Per Share $100.00 None $100.00
- --------------------------------------------------------------------------------
Total $8,000,000 None $8,000,000
================================================================================
---------
The date of this Prospectus is___________, 1999
5
<PAGE>
We have not authorized anyone to give you any information or make any
representation that is not in this prospectus. The information in this
prospectus is current and correct only as of the date of this prospectus,
regardless of the time of its delivery or of any sale of the shares. We are
offering to sell, and seeking offers to buy the shares only in jurisdictions
where offers and sales are permitted.
-----------------------
TABLE OF CONTENTS
Page Page
---- ----
Prospectus Summary.................. 3 Certain Transactions............... 19
Risk Factors........................ 4 Principal Shareowners.............. 20
Use of Proceeds..................... 5 Description of Capital Stock....... 20
Dilution............................ 6 Shares Eligible for Future Resale.. 21
Management's Plan of Operation...... 7 Plan of Distribution............... 21
Business............................ 8 Experts............................ 22
Management.......................... 17 Additional Information............. 22
Index to Financial Statements...... 22
---------------------
Until , 1999 (90 days after the date of this Prospectus), all dealers that
buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
-----------------------
6
<PAGE>
PROSPECTUS SUMMARY
This is a brief overview of the key aspects of the offering:
Our business:
o IN Radio's business is designing and originating talk-formatted
programming for satellite radio broadcasting.
o We have contracts with the two companies licensed to provide digital
satellite transmission directly to vehicles and homes.
o Satellite radio will provide a new generation of radio service, with
signal coverage throughout the continental United States and compact
disc quality programming.
o We are to provide seven channels of talk-formatted programming 24
hours a day, seven days a week.
o Our revenues will come primarily from selling commercial advertising
messages and sponsored programs.
Our development plan:
o We will build and equip our San Francisco studio, hire and train
employees and create programming content.
o Our contracts require us to send a test signal to the satellite radio
companies by June 2000.
o We are to begin operations in October 2000, after satellites are to
have been launched and tested.
How to communicate with us:
Our office is at 114 Sansome Street, Suite 1410, San Francisco, California
94104. Our telephone number is 415.434.1220, the fax number is 415.434.1280 and
our email address is [email protected].
How to become a shareowner:
We are offering shares of our common stock directly to selected investors,
for a minimum investment of 250 shares at $100 per share, or $25,000. You may
become a shareowner by filling out the share order form and returning it with
your check for the amount of your investment. When your order has been accepted,
we will return a signed copy to you, with an acknowledgment letter. Within a few
weeks, you will receive a certificate for your shares. You are invited to call
or write John Douglas with any questions.
7
<PAGE>
RISK FACTORS
We need the funds from this offering to start the business on time.
Cost overruns or failure to sell sufficient shares in this offering, or to
secure other equity or debt financing on a timely basis could cause us not to be
ready when the radio satellites are launched. This would violate our agreements
with the satellite radio companies. There is no minimum amount required to be
sold in this offering. It could close with less than all $8 million having been
sold. We estimate that $4.2 million will be needed to commence commercial
operation by the end of 2000.
We expect to have losses and negative cash flow for at least the next four
years.
Our business is in an early development stage. We do not expect to begin
generating revenues from operations until late 2000. We expect that positive
cash flow from operations will not occur before 2002. The satellite radio
companies may never commence operations. Even if they do, we may never achieve
or sustain profitability. Financial statements in this prospectus have been
prepared assuming that we will continue as a going concern.
We may need more money to operate until we reach breakeven. It could be
unavailable or costly.
Additional funding may be necessary to reach the point when we would be
generating positive cash flow from operations. We could be unable to raise
additional capital. Payments of interest and principal on any additional debt or
lease financing could delay the time when we are generating positive cash flow.
Our estimates of cash flow are based upon assumptions, particularly when
satellite radio service will begin and how quickly it is accepted in the market.
Actual results may be very different from our assumptions. Whether and how much
money we may need will depend upon the actual timing of satellite launches and
consumer subscriptions to the satellite services. Your investment depends upon
CD Radio and XM Satellite Radio, companies that have not commenced operations,
and our agreements with them.
IN Radio's success is dependent upon the financial strength and ability of CD
Radio and XM Satellite Radio to commence and maintain satellite radio service.
No one else has the FCC authority to operate a similar service. We have
five-year agreements with CD Radio and with XM Satellite Radio. Each agreement
has options to extend but extension is not totally within our control and may
not be granted. They also have conditions which could cause early termination.
Our business could be destroyed or severely harmed by termination of or
significant change in these agreements.
Delay in the start of satellite radio operations would increase your risk of
loss.
A significant delay in the commencement of operations by CD Radio or XM
Satellite Radio would have a material adverse effect on IN Radio. CD Radio
announced in February 1999 that its projected start of operations was postponed
from April 2000 to the fourth quarter of 2000 because of a shortage in launch
vehicles for the satellites, as well as delays and cost increases for the
integrated circuits used in its customers' receivers. Further delays could
result from any one or more of many causes, such as unanticipated delays
associated with obtaining additional FCC authorizations, coordinating use of
radio spectrum with Canada and Mexico, inability of the satellite radio
companies to obtain necessary financing in a timely manner, delays in or
modifications to the design, development, construction or testing of radio
satellites, the national broadcast studios or other aspects of the satellite
radio system, changes of technical specifications, delay in commercial
availability of radio cards, S-band radios or miniature satellite dish antennas,
failure of the satellite radio's vendors to perform as anticipated or a delayed
or unsuccessful satellite launch or deployment.
If satellite radio technology fails, you will lose your investment.
Satellite radio is designed to be broadcast from two or three satellites in
geosynchronous or elliptical orbits that transmit identical signals to radio
cards or S-band radios through miniature satellite dish antennas. This design
involves new applications of existing technology and the satellite radio system
may not work as planned. The necessary radio cards, S-band radios and miniature
satellite dish antennas are not currently available in production quantities.
Signals from both satellites will be blocked and satellite radio reception will
diminish in areas with high concentrations of tall buildings and other
obstructions, such as in large urban areas, or in tunnels. In urban areas, the
satellite radio companies plan to install terrestrial repeating transmitters to
rebroadcast the satellite radio signal. Certain areas with impediments to
satellite line-of-sight may still experience "dead zones." However, parts of the
technologies to be employed by these companies have been used successfully in
direct satellite television broadcasting and cable radio. One or more of the
technologies to be used by satellite radio companies may become obsolete or
their services may not be in demand at the time they are offered. More advanced
satellite radio technologies, or broadcast technologies other than satellite
radio may be used by media competitors.
<PAGE>
Our operating results could be harmed if the initial satellites fail, or have
significantly shorter useful lives than 15 years, and if the satellite radio
companies have not launched replacement satellites.
Random failure of satellite components could result in damage to or loss of a
satellite. In rare cases, satellites could also be damaged or destroyed by
electrostatic storms or collisions with other objects in space. If the satellite
radio company is required to launch a spare satellite, due to failure of the
launch or in-orbit failure of one of the operational satellites, its operational
timetable would be delayed for approximately six months or more. The launch or
in-orbit failure of two satellites would require the satellite radio company to
arrange for additional satellites to be built and could delay the commencement
or continuation of the satellite radio's operations for three years or more. The
satellites are designed to have useful lives of approximately 15 years, after
which their performance is expected to deteriorate. A number of factors will
affect the useful lives of the satellites, including the quality of
construction, the expected gradual environmental degradation of solar panels,
the amount of fuel on board and the durability of component parts.
Radio cards, S-band radios or miniature satellite dish antennas may not be
available, delaying our flow of revenue.
The satellite radio companies' business strategies require that subscribers to
the service purchase radio cards or S-band radios as well as the associated
miniature satellite dish antennas in order to receive the signal. Our revenues
could be delayed by a failure to have those products available in sufficient
quantities, in a timely manner and at an affordable price. These products are
not now available in production quantities, although major consumer electronics
manufacturers have contracted to manufacture them for retail sale in the United
States. The FCC satellite radio licenses are conditioned upon receivers being
available which will operate on both of the significantly different transmission
technologies planned by the two satellite radio companies.
There may not be enough demand for satellite radio to make us profitable.
The consumer demand for satellite radio service may not be sufficient for IN
Radio to achieve significant revenues or positive cash flow or profitable
operations. There is currently no satellite radio service in commercial
operation for consumers in the United States. As a result, the extent of the
potential demand for such a service and the degree to which the proposed service
will meet the demand is difficult to estimate. Factors beyond our control will
affect the success of satellite radio in gaining market acceptance, including
the willingness of consumers to pay subscription fees to obtain satellite radio
broadcast; the cost, availability and consumer acceptance of radio cards, S-band
radios and miniature satellite dish antennas; the marketing and pricing
strategies of audio media competitors; the development of alternative
technologies or services and general economic conditions.
Development and operation of the business are highly dependent on the services
of N. John Douglas, with whom we have no employment contract.
N. John Douglas, Chairman and Chief Executive Officer, is responsible for IN
Radio's overall direction and strategic planning. The loss of the services of
Mr. Douglas would have a material adverse effect upon our business and
prospects. Mr. Douglas does not have an employment agreement with IN Radio and
we have no insurance on his life. He is the major shareowner.
Satellite radio could be subject to signal theft, which could harm our business.
The satellite radio signal, like all broadcasts, is subject to piracy. Signal
theft, if widespread, could be commercially harmful to the satellite radio
companies and IN Radio. The satellite radio companies plan to use
state-of-the-art encryption technology to mitigate signal theft. They do not
believe that this technology is infallible.
USE OF PROCEEDS
The net proceeds to IN Radio from this offering are estimated to be
approximately $7.85 million after deducting estimated expenses of $150,000 for
registration fees, legal and accounting fees, costs of printing, copying and
postage and other offering costs. We plan to use these proceeds to pay for
pre-operational development expenses, working capital and to cover expected net
cash outflow from the date our operations begin through our projected 2002
breakeven point and self-supporting positive cash flow. If less than all the
shares offered are sold, these areour planned allocations:
9
<PAGE>
<TABLE>
<CAPTION>
Planned Use of Proceeds Allocation if These Percentages of the Offering are Sold
----------------------- --------------------------------------------------------
25% 50% 75% 100%
--- --- --- ----
<S> <C> <C> <C> <C>
Pre-operational development expenses $1,500,000 $1,500,000 $1,500,000 $1,500,000
Working Capital 350,000 500,000 500,000 500,000
Net operating cash outflow to breakeven --- 1,850,000 3,850,000 5,850,000
</TABLE>
The components of our pre-operational development expenses are: employee
compensation - 73%, rent - 10%, leased equipment - 5%, advertising -1% and other
expenses - 11%. Working capital includes rent deposits - 20%, advances on leases
- - 60% and miscellaneous items and reserves - 20%. The components of the expected
net operating cash outflow to breakeven, and the percentages of proceeds (and
any other financing that may be used) are: employee compensation - 69%, rent -
4%, leased equipment - 4%, advertising - 10% and other expenses -13%. If less
than 100% of this offering is sold, or if our cash outflows are higher than our
estimate, we plan to fund the shortfall by a further share offering or by debt.
DILUTION
The public offering price per share is substantially higher than the
net tangible book value per share of our common stock. Purchasers of shares in
this offering will experience immediate and substantial dilution in the pro
forma net tangible book value per share. The issuance of additional equity
securities could also cause substantial dilution of the ownership interest of
purchasers of the shares offered by this prospectus.
On March 31, 1999 IN Radio had a net tangible book value of ($23,749) or
($.20) per share. The net tangible book value per share is equal to its total
tangible assets, less its total liabilities and divided by its total number of
shares of common stock outstanding. We have computed a pro forma net tangible
book value on the same date, by giving effect to the sale of all the shares in
this offering and the application of the estimated net offering proceeds. That
pro forma net tangible book value would have been $7,826,251, or $39.17 per
share. This represents an immediate increase in net tangible book value of
$39.37 per share to existing shareowners and an immediate dilution of $60.83 per
share to new shareowners in this offering. The following table illustrates this
dilution to new shareowners:
Public offering price per share...................... $100.00
Net tangible book value per share (0.20)
Increase in net tangible book value per share
attributed to new investors................... 39.37
-------
Pro forma net tangible book value per share
after this offering............................. 39.17
-------
Net tangible book value dilution per share
to new investors................................ $ 60.83
=======
<TABLE>
The following table shows, on a pro forma basis as of March 31, 1999, the
difference between existing shareowners and new shareowners in this offering,
with respect to the number of shares purchased, the total consideration paid and
the average price paid per share: <CAPTION>
Shares Purchased Total Consideration
------------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
----------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareowners...... 119,825 60.00 $ 10,000 0.12% $ 0.08
New Shareowners........... 80,000 40.00 8,000,000 99.88 100.00
----------- ------------ ---------- ----------- ---------
Total.................. 199,825 100.00% $8,010,000 100.00%
=========== ============ ========== ===========
</TABLE>
The calculations in these tables include our issuance of shares for intangible
assets and services. The effect of this was to increase the number of shares
held by existing shareowners, with no change in the amount of net tangible
assets. This increased the dilution to new shareowners by nearly $.02 per share.
10
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
Our plan of operation is linked to the schedules of the satellite radio
companies. We are planning to be ready for transmitting a test signal to them by
June 2000 and programming by October 2000, when CD Radio has projected its
service will begin. XM Satellite Radio is forecasted to commence no later than
six months after CD Radio's initial satellite broadcast service.
Development of the Business Up to Now. We began as a limited liability company
on September 18, 1998 and incorporated the business March 9, 1999. The financial
statements in this Prospectus are for the period from September 18, 1998 through
March 31, 1999. Our development during that time has primarily included creating
the working relationships with XM Satellite Radio, CD Radio and
Nightingale-Conant and completing the agreements with them. We have also been
working with a marketing consultant and others in planning, locating studio
facilities and equipment, formulating programs and identifying prospective
employees and suppliers.
Plan for Development Until we Begin Operations. We must be ready to deliver
programming when the satellite radio companies begin operations, or our
agreements with them terminate. CD Radio currently expects that to be October 1,
2000 and XM Satellite Radio in early 2001. Our agreement with Nightingale-Conant
will terminate if we do not begin broadcasting by June 30, 2001. Our development
from now until we are scheduled to begin operations will focus on designing and
constructing the studio facility, hiring and training about 165 employees,
designing the programming schedules, creating and acquiring programming content,
contracting with numerous suppliers and testing all parts of the proposed
operation. We need to go from no employees or facilities to a full complement
for operating seven channels of radio broadcasting 24 hours a day, seven days a
week.
Our Cash Requirements. Proceeds from sale of all the shares in this offering
would satisfy our expected cash requirements during our pre-operational period
and also fund the business until 2002, when we plan to be receiving more cash
from operations than we are paying. We would not need to raise additional funds
to meet our commitments. If the proceeds from this offering are less than
$2,000,000, we would need money from another source to begin operations on time.
Proceeds from this offering of more than $2,000,000, but less than the full
$8,000,000 would require us to raise additional capital to cover net cash
outflow during the first two years of operations. Our Chief Executive Officer
and Chief Financial Officer have committed to providing any funding necessary
during the next twelve months, to the extent it is not available from this
offering or other sources. We currently plan a second public offering of common
stock after operations commence. Our financial statements are presented as a
going concern on the basis that funding will be available.
<TABLE>
The following table describes our estimated uses of funds through 2002,
when we project reaching positive cash flow from operations. This projection is
forward-looking and could vary, perhaps substantially, from actual results, due
to events outside our control, including unexpected costs and unforeseen delays.
<CAPTION>
Uses of Funds (in millions)
From this Total uses
Offering of funds
-------- -----------
<S> <C> <C>
Leasehold capital improvements and equipment $ 2.20(a)
Estimated costs of this offering $0.15 0.15
Working capital 0.50 0.50
Operating expenses until operations commence 1.50 1.50
Losses until there is positive cash flow from operations 5.85(b) 5.85(b)
---- -----
Total uses $8.00 $10.20
==== =====
<FN>
(a) We expect to finance these through debt and/or lease financing. (b) This
includes our estimate of funds needed to cover negative cash flow until
the projected breakeven in 2002.
</FN>
</TABLE>
11
<PAGE>
BUSINESS
IN Radio is a satellite radio network programming company. We will
provide talk-formatted programming to a new multi-channel radio service that
broadcasts directly from satellites to vehicles and homes.
IN Radio was formed September 18, 1998 as Information Network Radio,
LLC, a Delaware limited liability company. Information Network Radio, Inc. was
incorporated under California law on March 9, 1999 and is the successor to
Information Network Radio, LLC. IN Radio has two wholly-owned subsidiaries,
Personal Achievement Live, LLC, formed as a Delaware limited liability company
March 4, 1998 and AsiaOne Network, LLC, formed as a Delaware limited liability
company August 10, 1998.
In October 1997, two companies were granted licenses from the Federal
Communication Commission after an auction process to build, launch and operate
national satellite radio broadcast systems. The FCC licenses cost CD Radio $83
million and XM Satellite Radio $89 million. Each company plans to have up to 100
channels of which 50 channels will be commercial-free, compact disc quality
music programming and up to 50 will be advertiser-supported channels of
non-music programming including news, sports, and talk. <TABLE>
We have agreements to broadcast five channels on CD Radio and two
channels on XM Satellite Radio. (The agreement for two channels with CD Radio
was initially with our subsidiary, Personal Achievement Live, LLC and the
agreement with XM Satellite Radio was initially with our subsidiary, AsiaOne,
LLC. These subsidiaries have had no activity and the agreements have been
assigned to the parent company, with required consents.) We plan to develop and
offer the following wide range of informational talk programming on a 24-hour,
7-day/week basis:
<CAPTION>
- --------------------------------------------- -------------------------------- ------------------------------
Programming Format Target Demographics Satellite Operator
- --------------------------------------------- -------------------------------- ------------------------------
<S> <C> <C>
BEST 25 - 54 CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Cruisin'(And Having Fun) 45+ CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
China Wave Chinese Americans XM Satellite Radio
- --------------------------------------------- -------------------------------- ------------------------------
Especially Women... Women, 25 - 54 CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Information First!
(Success Tools For African Americans) African Americans CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Personal Achievement Live 25 - 54 CD Radio
- --------------------------------------------- -------------------------------- ------------------------------
Taj Radio Network
(Home Away From Home) Asian Indians XM Satellite Radio
- --------------------------------------------- -------------------------------- ------------------------------
</TABLE>
IN Radio will have multiple state-of-the-art radio production studios in our San
Francisco national broadcast facility. We will be able to create, edit, store,
and transmit high-quality, digital programming to either the CD Radio (New York
City) or XM Satellite Radio (Washington, D.C.) national studios. We will also
have eight regional "micro" studios in New York, Washington D.C., Atlanta,
Chicago, Dallas, Detroit, Los Angeles, and Denver for regional/national sales
departments, local/regional news bureaus and talk interview studios.
The Satellite Radio Opportunity
The last major advance in radio technology was the introduction of FM
broadcasts and FM multiplexed sound in the 1940's and 1950's. Television
technology has meanwhile advanced steadily, from black and white to color, from
broadcast to cable, and from ordinary to high-definition television. Satellite
radio could provide a new generation of radio service, offering a wide variety
of music formats available on demand, nearly seamless signal coverage throughout
the United States and commercial-free, compact disc quality music programming.
In addition, this service will provide a wide variety of targeted talk formats
that may not be economically viable in local markets, yet could have a strong
national following. The satellite radio industry's planned multiplicity of
formats is currently not available in any market within the United States.
CD Radio's service is primarily for motorists and XM Satellite Radio's
service is primarily for radios in
12
<PAGE>
homes or other buildings. The Yankee Group, a Boston-based market research
organization, estimates that there will be approximately 200 million registered
private motor vehicles in the United States by the end of 2000, when CD Radio
expects to commence broadcasting. At present, approximately 89% of all private
vehicles have a radio that could easily receive satellite radio type broadcasts,
according to a Bear Stearns & Co., Inc. Equity Research Report, "CD Radio,
Inc.," dated September 2, 1998. CD Radio, in its November 20, 1997 common stock
prospectus, targeted a number of demographic groups among the drivers of these
vehicles. The group included 110 million commuters, 34 million of whom spend
between one and two hours commuting daily, three million truck drivers and three
million owners of recreational vehicles. This Prospectus also stated that almost
all vehicles contain either a cassette or a compact disc player, but 87% of
automobile commuters still listened to the radio an average of 50 minutes a day
while commuting. Between 95% and 98% of all Americans age 12 and up listen to
radio every week, and 75% listen on a daily basis, according to The Arbitron
Company, a New York City broadcast industry ratings organization, as reported in
an October 10, 1998 press release from XM Satellite Radio. A typical listener
spends three hours and 20 minutes each day listening to the radio, which is more
than 22 hours a week and more than 1,200 hours a year, according to the Radio
Advertising Bureau, and there are about 104 million listeners outside of radio's
top 50 markets. That includes markets like Dayton, Ohio (#54 with 28 stations),
Richmond, Virginia (#56 with 26 stations) and Tucson, Arizona (#61 with 28
stations) according to the third edition of BIA Research's publication,
"Investing in Radio Market Report, 1998."
We expect that the satellite radio industry's wide choice of
programming will appeal to a large number of currently underserved listeners.
The economics of the existing advertiser-supported local radio industry dictate
that radio stations generally program for the greatest potential audience in
their limited geographic range. Even in the largest metropolitan areas, station
formats are limited. According to Item 1 of CD Radio's 1998 Form 10-K, filed
with the SEC:
o Nearly half of all commercial radio stations in the United States offer
one of only three formats: country, adult contemporary and news/talk,
and the next three most prevalent formats account for another 30% of
all stations.
o Approximately 30% of sales of recorded music in 1996 were in niche
music categories such as classical, jazz, rap, gospel, oldies,
soundtracks, new age and children's. Those formats are generally
unavailable on existing radio stations.
According to XM Satellite Radio, based on Nashville's M Street Radio Directory
Data, over half of the 30 most popular music formats are not even available in
New York City, the largest radio market in the United States.
Due to the limited coverage area of conventional radio broadcasting,
listeners often travel beyond the range of any single station. Conventional FM
stations have an average range of only approximately 30 miles before reception
fades. Satellite radio's signal is designed to cover the entire continental
United States, enabling listeners almost always to remain within its broadcast
range. Delivery systems are designed to permit satellite radio to be received by
motorists in all outdoor locations where a vehicle has an unobstructed
line-of-sight with one of the satellites or are within range of one of the
terrestrial repeating transmitters located in major markets.
The satellite radio industry will also be able to serve underserved
geographic radio markets. According to CD Radio's 1998 Form 10-K, there are more
than 45 million people in the United States aged 12 and over living in areas
with such limited radio station coverage that the areas are not monitored by
Arbitron. CD Radio believes that approximately 22 million people receive five or
fewer FM stations, 1.6 million receive only one FM station and at least one
million people receive no FM stations. This segment of the population also has a
limited choice of radio music formats and is one of the satellite radio
industry's primary target markets.
The Satellite Radio Service
The satellite radio industry will offer consumers: (i) a wide range of
finely focused music and talk programs in digital form; (ii) nearly seamless
signal coverage throughout the continental United States; (iii) commercial-free
or very low commercial inventory music programming; and (iv) plug and play
convenience and/or replacement radios. The following description of the service
is summarized from the 1998 Form 10-K filed with the SEC by CD Radio.
Wide Choice of Programming. Both CD Radio and XM Satellite Radio will have 50
music channels, each with distinctive formats, such as opera, reggae, classic
jazz, and children's entertainment, intended to cater to specific subscriber
tastes. The talk channels will also have a wide range of programming. In most
markets, radio broadcasters target their programming to broad audience segments.
Even in the largest metropolitan markets the
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<PAGE>
variety of station formats generally is limited, and many of the satellite radio
industry's planned formats are not available.
"Seamless" Signal Coverage. The satellite radio service will be available
throughout the continental United States, enabling listeners almost always to be
within its broadcast range. We expect that its nearly seamless signal will
appeal to motorists who frequently travel long distances, including truck
drivers and recreational vehicle owners, as well as commuters and others who
outdrive the range of their FM signals. Satellite radio broadcasts are expected
to appeal to the 45 million consumers who live in areas that currently receive
only a small number of FM stations. Even in dense, urban cores with skyscraper
buildings, satellite radio, with digital signals and terrestrial repeaters, will
probably outperform local stations which often suffer from "ghosting" and
"shadowing" effects.
Commercial-Free Music Programming. CD Radio and probably XM Satellite Radio will
provide commercial-free music programming. A principal complaint of radio
listeners concerning conventional broadcast radio is the frequency of
commercials. Satellite radios, unlike most commercial AM and FM stations, will
probably be on a subscription of about $9.95/month and not an
advertiser-supported service. Music channels will most likely not contain
commercials. Talk channels will include commercials. The success models for this
concept are the premium services on satellite television and cable that are
commercial free, but subscriber based.
The Receivers. Subscribers will receive satellite radio programming initially by
purchasing specially designed radio receivers for their existing vehicles and
later through a new generation of three-band radios installed in new vehicles by
major automotive manufacturers. In the automotive aftermarket, subscribers will
initially have the choice of one of three different receiving devices for their
cars -- an FM modulated receiver, a three-band receiver and a radio card. All
these receivers will visually display the channel and format selected, as well
as the title, recording artist and album title of the musical selection being
played.
o FM Modulated Receivers. The FM modulated receiver will be usable in all
vehicles which have an FM radio, or approximately 95% of all U.S.
vehicles. Each FM modulated receiver will operate with a downlink
processor, or 'DLP,' that will be approximately the size of a 35mm
camera, and will be mounted either in the vehicle's trunk, behind the
dashboard or under a seat. The retail price of this FM modulated
receiver (including the DLP), with a hard-wired satellite antenna and
professional installation, will be approximately $299.
o Three-Band Receivers. A receiver capable of receiving AM, FM and
satellite radio broadcasts is expected to be available. In appearance,
this three-band receiver will be nearly identical to existing
aftermarket car stereos and will permit the user to listen to AM, FM,
or satellite radio with the push of a button. Like existing
conventional radios, a number of these three-band receivers may also
incorporate cassette or compact disc players. The retail price of these
receivers, including the DLP, antenna and professional installation, is
expected to be approximately $150 more than similar receivers which are
not capable of receiving satellite radio broadcasts.
o Radio Cards. CD Radio's wireless adapter, or radio card, will not
require professional installation and will be usable by all vehicles in
the United States equipped with a cassette player, which represent
approximately 65% of all vehicles on the road. Each radio card will
include two components -- the radio card adapter, which will insert
into existing cassette slots, and a wireless version of the satellite
radio antenna. The radio card will be designed so that it can be
removed by pushing the cassette player's 'eject' button. We expect the
radio card, including the wireless satellite antenna, will be sold
though electronics superstores, mass merchant stores and direct
marketing channels, such as the Internet, for approximately $199.
XM Satellite Radio has announced that Sharp Corp., Pioneer Electronics
Corp., and Alpine Electronics, Inc. will build the receiver units for its
service. CD Radio has Delphi Electronics Systems (Delco brand) and Recoton Corp.
(Jensen, Advent, AR/Acoustic Research and Interact brands) as suppliers of their
receiver units. XM Satellite Radio and CD Radio have both recently announced
exclusive agreements with General Motors and Ford brands, respectively, for
installing the three-band receivers in new cards and trucks as early as the
first quarter of 2001.
The Satellite Radio Delivery System
XM Satellite Radio and CD Radio have designed delivery systems to transmit
an identical signal from two satellites placed in geosynchronous and low
attitude, elliptical orbits, respectively. In the case of CD Radio, a third
satellite will also be in a low altitude, elliptical orbit, but only two of the
three satellites will have a "footprint" of the continental United States at any
one time. The two-satellite systems will permit both operators to provide
"seamless" signal coverage throughout the continental United States. This means
that listeners will almost always
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<PAGE>
be within the broadcast range of satellite radio, unlike current FM and AM radio
broadcasts, which have a limited range. The systems are designed to provide
clear reception in most areas despite variations in terrain, buildings and other
obstructions. The systems are designed to enable motorists to receive satellite
radio in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the satellites or is within range of one of the
terrestrial repeating transmitters. These broadcast repeaters will supplement
the satellites with a terrestrial network that will fill in gaps in satellite
coverage caused by tall buildings and other obstructions in urban areas.
The portion of the S-band located between 2320 MHz and 2345 MHz has
been allocated by the FCC exclusively for national satellite radio broadcasts.
This portion of the spectrum was selected because there are virtually no other
users of this frequency band in the United States, thus minimizing potential
signal interference. In addition, this frequency band is relatively immune to
weather-related attenuation, which is not the case with higher frequencies. XM
Satellite Radio's three satellites (two for launch and one spare) will be built
by Hughes Space & Communications and Alcatel Espace, while CD Radio's four
satellites (three for launch and one spare) will be built by Loral Space &
Communications. CD Radio has contracted with Lucent Technologies to design and
build the microchips for its satellite radio system, while XM Satellite Radio
will be using STMicroelectronics.
The Satellite Radio Programming Service
CD Radio and XM Satellite Radio will each have 50 music channels. Each channel
will be operated as a "separate radio station" with a distinct format. Certain
music channels will offer continuous music while others will have program hosts,
depending on the type of music programming. CD Radio will offer a wide range of
music categories, such as:
- --------------------------------------------------------------------------------
50 MUSIC CHANNELS
- --------------------------------------------------------------------------------
o Symphonic o Tropical
- ---------------------------------------- ---------------------------------------
o Chamber Music o Latin Contemporary
- ---------------------------------------- ---------------------------------------
o Opera/Classical Voices o Merengue
- ---------------------------------------- ---------------------------------------
o Top of the Charts o Boleros
- ---------------------------------------- ---------------------------------------
o 50's Hits o Mexicana
- ---------------------------------------- ---------------------------------------
o 60'S Hits o Rock en Espanol
- ---------------------------------------- ---------------------------------------
o 70's Hits o Tex Mex
- ---------------------------------------- ---------------------------------------
o 80's Hits o Cumbia
- ---------------------------------------- ---------------------------------------
o 90's Hits o Latin Jazz
- ---------------------------------------- ---------------------------------------
o Soft Rock o Today's Country
- ---------------------------------------- ---------------------------------------
o Love Songs o Country Gold
- ---------------------------------------- ---------------------------------------
o Singers & Songs o Traditional Country
- ---------------------------------------- ---------------------------------------
o Beautiful Instrumentals o Folk Rock
- ---------------------------------------- ---------------------------------------
o Broadway's Best o Alternative Rock I
- ---------------------------------------- ---------------------------------------
o Big Band/Swing o Alternative Rock II
- ---------------------------------------- ---------------------------------------
o Classic Jazz o Classic Rock I
- ---------------------------------------- ---------------------------------------
o Contemporary Jazz o Classic Rock II
- ---------------------------------------- ---------------------------------------
o NAC Jazz o Album Rock
- ---------------------------------------- ---------------------------------------
o New Age o Hard Rock/Metal
- ---------------------------------------- ---------------------------------------
o Soul Ballads o Blues
- ---------------------------------------- ---------------------------------------
o Classic Soul Hits o Reggae
- ---------------------------------------- ---------------------------------------
o R&B Oldies o World Beat
- ---------------------------------------- ---------------------------------------
o Urban Contemporary o Gospel
- ---------------------------------------- ---------------------------------------
o Rap/Hip Hop o Contemporary Christian
- ---------------------------------------- ---------------------------------------
o Dance o Children
- ----------------------------------------- --------------------------------------
Information Network Radio's Programming Channels
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There will be 50 non-music formats on CD Radio and 20 to 50 on XM Satellite
Radio. We will have five of those channels on CD Radio and two on XM Satellite
Radio. This is a description of our planned programming formats for these
satellite radio channels:
Especially Women...
This format is aimed at women (25-54), who constitute as a whole
approximately 52% of the total population. According to the Small Business
Administration, the number of women-owned businesses increased 89% between 1987
and 1997. They increased revenues by 209% and increased their total number of
employees by 262%.
The programming will be directed at women in a similar manner as cable
TV's Lifetime Channel. Subjects of particular interest to women will be
programmed through a talk format. IN Radio anticipates creating alliances with a
cross section of the nation's most successful magazine publishers and women's
Internet sites, such as women.com.
Personal Achievement Live (PAL)
PAL is primarily targeted at adults aged 25 to 54. The format will be
talk with subject matter aimed at positive thinking, self-help, motivation,
improving success and business skills, and healthy lifestyles. Speakers on the
air will be well-known, national motivational speakers in different segments,
ranging from health to wealth. In addition, PAL has the exclusive satellite
radio rights to Nightingale-Conant's library of audio tape material, as
described under "Programming Content Agreements." Nightingale-Conant, located in
Niles, Illinois, has been the leader in the development and syndication of
personal development audio tapes for decades, as reported in Marketdata
Enterprises, Inc. February 1997 research report, "The U.S. Market for
Self-Improvement Products and Services."
Information First! (Success Tools for African Americans)
This format is aimed at upwardly mobile African Americans.
Approximately 12% of the U.S. population is African American. Approximately 41%
of African Americans have an annual income over $35,000. The programming format
of Information First! will be talk. The content is anticipated to include topics
ranging from relationships, business, money management, careers, investment
strategies, politics, education, history, entertainment and the arts. The format
will program an array of features aimed at African Americans. IN Radio plans to
form a strategic relationship with NetNoir Online, the leading African American
web site, which is partially owned by America Online, and with Black Enterprise
Magazine.
Cruisin' (And Having Fun)
Cruisin' is primarily aimed at the 45 plus age group and particularly
the baby boomers who started to turn fifty in 1996. "Seniors," usually defined
as over 50, is a growing demographic group that will control more spending power
than any other group in the near future. There are currently 93 million seniors
in the U.S. and 76 million baby boomers will join this group between 1996 -
2002. Approximately 77% of all assets in the U.S. belong to people over the age
of 55.
The programming on Cruisin' will include a wide variety of formats:
talk, lectures, debates, call-ins, entertainment, sports, etc. The content is
expected to include politics, estate planning, travel, health, and books.
However, throughout the programming the focus will be on the viewpoint of the
targeted age group. IN Radio plans to form strategic alliances with key
organizations, magazines, and Internet providers.
BEST
"BEST." This channel will be formatted with sponsored programming only.
The programs will range from special events to live business broadcasts.
Taj Radio Network (Home Away From Home)
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This channel will be programmed in English and Hindi targeting listeners in the
United States with ties to India. They are highly educated, with 52% of Asian
Indians having college degrees, and their leading professions are medicine,
research, technology, and academia. There are over one million Asian Indians in
the U.S. and this population figure grew by 126% between 1980 and 1990. This
demographic group has a median household income more than 22% above the general
population with strong values on education and entrepreneurship. IN Radio will
have Cyrus Bharucha, former President of TV Asia, to head the channel and plan
the programming content.
China Wave
China Wave will program a wide variety of talk and music subjects programmed
primarily in Mandarin. The format will be specially tailored to the interest and
needs of the Chinese population of the U.S. The largest segment of the Asian
American population is of Chinese descent. The only larger ethnic groups are
Hispanic and African American. In 1990, according to the U.S. Census, the
population numbered more than 1.6 million, an increase of 104% from 1980. The
current level is estimated to be greater than 3 million. In 91% of Chinese
American households, a language other than English was spoken at home. IN Radio
has targeted Jay "Stone" Shih, a leading producer and syndicator of Chinese
American programming to China, to head this channel.
Other Talk Format Programmers
CD Radio and XM Satellite Radio have signed lease agreements with other
companies to program other non-music channels. A selection of these programming
agreements are:
o USA TODAY, the nation's largest-selling daily newspaper, will provide,
exclusively for XM Satellite Radio, its expertise for a news and
information channel.
o Salem Communications, the nation's premier Christian broadcaster, will
create three distinctive, high-quality channels exclusively for XM
Satellite Radio, including contemporary general interest Christian talk
focusing on current events and traditional Christian themes.
o Bloomberg L.P. entered into agreements in which both CD Radio and XM
Satellite Radio will carry Bloomberg's 24-hour news and information
service on one of its broadcast channels and Bloomberg will
custom-design a second channel for CD Radio.
o CD Radio also signed an agreement with C-SPAN in which CD Radio will
carry C-SPAN 24-hours on one of its channels. C-SPAN currently provides
video-programming services related to national, literary, cultural and
international affairs.
o Classic Radio, recently acquired by Audio Books, also entered into an
agreement with CD Radio. Classic Radio will provide 24-hour programming
of exclusively old time radio programs such as "The Shadow", "Dragnet",
"Gunsmoke", and many others.
o CD Radio entered an agreement with Sports Byline USA. Sports Byline USA
will program national sports programming, including live talk shows,
interviews and features 24 hours a day.
o Hispanic Radio Network will program on two of CD Radio's channels. La
Red Hispana and the Hispanic Radio Network will also be carried 24
hours a day.
o National Public Radio will have up to four channels on CD Radio, on an
exclusive basis.
o CD Radio and Public Radio International have signed an agreement to
develop exclusive programming.
<TABLE>
This is a description of the talk and some music formats that will be programmed
by third party sources:
<CAPTION>
- ---------------- ---------------------------------------------- -------------------------- --------------------------
# of
Channels Programmer Format Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
5 IN Radio Various Talk CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 IN Radio (Asia One Network) Asian XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 USA Today News XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 Fox/Liberty Networks; Cox Communications; Speedvision/Outdoor
Comcast and MediaOne Life CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
5 Heftel Broadcasting Spanish Music XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 Bloomberg News Radio Business News CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Bloomberg News Radio Business News XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
3 Salem Communications Religion (includes 2 XM Satellite Radio
music channels)
- ---------------- ---------------------------------------------- -------------------------- --------------------------
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- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 C-SPAN Radio Public Affairs XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 C-SPAN Radio Public Affairs CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 World Radio Network World News World News CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
4 BET/Radio One African American Talk XM Satellite Radio
(includes 3 music
channels)
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 One-on-One Sports Sports XM Satellite Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
3 Time Warner CNN (Sports Illustrated) XM Satellite Radio
CNN fn (Financial)
CNN en Espanol
- ---------------- ---------------------------------------------- -------------------------- --------------------------
2 Hispanic Radio Network Spanish CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Sports Byline U.S.A. Sports CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Audio Books Classical Radio CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
4 National Public Radio Talk CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
1 Public Radio International Talk CD Radio
- ---------------- ---------------------------------------------- -------------------------- --------------------------
Total - 43
- ---------------- ---------------------------------------------- -------------------------- --------------------------
</TABLE>
Essential Contracts
Our business is developing and producing audio programming for digital
satellite transmission. We have signed contracts with each of the two companies
licensed by the FCC for satellite radio transmission. We also have signed
contracts with certain suppliers of program content.
Broadcast Contracts. CD Radio has licensed programming from us for five of its
50 channels of news, sports and talk channels. (CD Radio's other 50 channels are
commercial-free music formats, which CD Radio will produce itself.) XM Satellite
Radio and IN Radio have a "Programming Partner Agreement" for two of their
channels (they may transmit as many as 100 channels, including 50 music
channels.)
<TABLE>
This is a brief description of the contracts we have with both CD Radio
and XM Satellite Radio:
<CAPTION>
Subject CD Radio XM Satellite Radio
- --------- --------------------------------------- -----------------------------
<S> <C> <C>
Length Five years from when service Five years from when service begins,
of begins, with automatic two-year with two one-year renewals, if XM's
contract* renewals, unless either terminates revenue share meets agreed levels
Cost CD Radio gets time for com- XM gets a percentage of net adver-
to mercials, increasing to 50% tising revenues, increasing to 50%
IN Radio of all commercial inventory in the third, fourth and fifth years
in year 5
</TABLE>
*All these contracts may be terminated earlier by a failure to perform, such as
our ceasing to furnish programming or changing the programming format without
their consent. The agreements may also be terminated by us if the necessary
regulatory approvals are not available for operating the satellite radio
service.
CD Radio. Our agreements with CD Radio have us providing formatting for five
channels of satellite radio broadcasting, 24 hours a day, seven days a week. We
pay CD Radio in broadcasting time allocated for commercials. They can either
sell that commercial time or use it internally for promotional purposes. The
amount of commercial time graduates from one minute per hour in the first and
second years of operations, to three in the third, four in the fourth, five in
the fifth and to half of all commercial time after the fifth year.
CD Radio was incorporated in 1990 as Satellite CD Radio, Inc. and
changed to its current name in 1992. It is publicly traded on the NASDAQ
National Market System under the symbol CDRD. On May 18, 1999, CD Radio
announced the closing of a $200 million debt offering, which brought its total
pre-operational funding to $1 billion. On June 15, 1999, CD Radio and Ford Motor
Company issued a news release announcing a "partnership" to have
factory-installed satellite radio receivers in all Ford, Lincoln, Mercury,
Mazda, Jaguar, Aston
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<PAGE>
Martin and Volvo cars and trucks. Additional information is in CD Radio's June
15, 1999 Form 8-K, filed with the SEC.
XM Satellite Radio. We have one agreement with XM Satellite Radio to broadcast
two formats, China Wave and Taj Radio Network (Asian Indian). The contract has a
five-year term commencing the day XM Satellite Radio starts broadcasting. We
have all rights to advertising and sponsorship and may have a maximum twelve
minutes per hour of advertising.
XM Satellite Radio is based in Washington, D.C. and was founded in 1992 as
American Mobile Radio corporation. XM Satellite Radio is owned by American
Mobile Satellite Corp. (publicly traded on the NASDAQ National Market System
under the symbol SKYC). On June 8, 1999, XM Satellite Radio issued a press
release, announcing a combined investment commitment of $250 million from Clear
Channel Communications Inc.; DIRECTTV, Inc., a unit of Hughes Electronics
Corporation; General Motors Corporation and a private investment group comprised
of Columbia Capital, Telcom Ventures L.L.C. and Madison Dearborn Partners. XM
Satellite also announced a long-term distribution agreement, which will factory
install receivers manufactured by XM Satellite Radio's consumer electronics
partners, in GM cars and trucks. Additional information is in American Mobile
Satellite Corp.'s June 9, 1999 Form 8-K, filed with the SEC and in the
description of XM Satellite in its Form 10-K for 1998.
Programming Content Agreements. Most of the programming for the seven satellite
radio channels will be created by our own staff. In addition, we expect to have
agreements from time to time with the owners of audio and other media content
that fits within our formats.
We have an exclusive agreement for programming content with
Nightingale-Conant, the leading publisher of sound recordings on personal
achievement subjects such as success, health, inner self, wealth and business.
(As reported by Marketdata Enterprises, Inc., Tampa, Florida, in its February
1997 "The U.S. Market for Self-Improvement Products and Services.") The
agreement's initial term is for seven years, provided we begin broadcasting by
June 30, 2001. They will make available to us, for satellite radio broadcasting,
at least 3,800 audio segments of their program archive. They will also provide
other programs for which they have broadcast rights. We have rights and
obligations to sell Nightingale-Conant recordings, handling purchases through an
800 number call-in. In return for providing this content, Nightingale-Conant was
issued 12,500 shares of our common stock.
Management Services Agreement. We have contracted with MDW, an independent
management consultant based in Lake Buff, Illinois., for assistance in
developing, recording, editing and delivering our programming to the satellite
radio companies. We will pay consulting fees and commissions on certain
promotion sales. They have been paid 625 shares of our common stock.
Competition
IN Radio will be seeking market acceptance of its proposed service in a
new, untested market and will compete with established conventional radio
stations, which do not charge subscription fees or require the purchase of radio
cards or S-band radios and associated miniature satellite dish antennas to
receive their services. Many radio stations also carry information programming
of a local nature such as local news or traffic reports which we will not be
able to offer. We expect that, prior to the commercial launch of satellite
radio, some traditional FM and/or AM radio broadcasting stations could begin to
transmit digital, compact disc quality signals. In addition, the FCC could grant
new licenses which would enable further competition to broadcast satellite
radio. New media such as Internet broadcasts could cut into our market. There
are many portions of the electromagnetic spectrum that are currently licensed
for other uses and certain other portions for which licenses have been granted
by the FCC without restriction as to use. These portions of the spectrum could
be used for satellite radio broadcasting in the future. The number of
competitors in the satellite radio industry could increase in the future and
someone may design a satellite radio broadcast system that is superior to the
current systems.
Employees
We have no employees now, other than John Douglas, the Chairman and Chief
Executive Officer. Upon closing this offering, we intend to employ the other
executives shown under "Management." We have identified experienced people in
several of the needed areas. We plan to have 165 employees immediately after we
commence digital satellite broadcasting operations. We need to hire a broad
range of employees to program our broadcast service, manage operations and
engineering, handle sales and promotions, marketing efforts and perform finance,
administrative and accounting functions. We expect significant and rapid growth
in the scope and complexity of the
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<PAGE>
business as we proceed with the satellite radio system and the commencement of
broadcasting.
Properties/Facilities
We are currently located in a temporary facility that has a lease expiring
December 31, 1999 (with options to extend.) Our plan is to secure a 18,000 to
20,000 square foot location in San Francisco.
Legal Proceedings
IN Radio is not currently involved in any material litigation or legal
proceedings and is not aware of any material litigation or proceeding pending or
threatened against it.
Government Regulation
We do not require any FCC license or other regulatory authority to
operate our business as planned. However, the satellite radio companies were
required to obtain a license from the FCC to launch and operate their
satellites. If they have any serious regulatory difficulties with the FCC, it
would probably hurt our business. The term of the FCC License with respect to
each satellite is eight years, commencing from the date each satellite is
declared operational after having been inserted into orbit. Upon the expiration
of the term with respect to each satellite, the satellite radio companies will
be required to apply for a license renewal. The satellite radio companies
believe that the FCC will grant renewals absent significant misconduct on their
part. Our business will also be affected by the results of other FCC actions.
FCC authorization is necessary for the satellite radio companies to install
terrestrial repeating transmitters to rebroadcast the signal in certain urban
and other areas where signals from the satellites will be blocked and reception
will be adversely affected. The satellite radio companies also need to obtain
the rights to use the roofs of certain structures and other strategically
positioned towers where the repeating transmitters will be installed. The FCC
has also required that the satellite radio companies complete frequency
coordination with Canada and Mexico before starting service. The FCC has
indicated that it may in the future impose public service obligations on
satellite radio licensees, such as channel set-asides for educational
programming. Changes in law, FCC regulations or international agreements
relating to communications policy generally or to matters relating specifically
to the services to be offered by satellite radio could affect their ability to
retain the FCC Licenses or the manner in which satellite radio would be offered
or regulated.
Forward-Looking Statements
This prospectus contains forward-looking statements, based on our current
expectations. Our actual results could differ materially from those anticipated
in these forward-looking statements, as a result of various factors, including
the risks described in this prospectus.
MANAGEMENT
Directors and Executive Officers
20
<PAGE>
<TABLE>
Our executive officers and directors and their ages and positions with
IN Radio are:
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Divakar R. Kamath.............................. 51 Board of Directors
J. Peter Thompson.............................. 56 Board of Directors
Edgar W. Hirst................................. 56 Board of Directors
Suzanne M. Lopez............................... 49 Board of Directors
N. John Douglas................................ 60 Board of Directors, Chairman
and Chief Executive Officer
Gregory J. Douglas............................. 28 Board of Directors, President
and Chief Operating Officer
C. Andrew Whatley.............................. 46 Executive Vice President-
Sales and Marketing
Walter E. Thill................................ 62 Vice President Finance and
Chief Financial and
Administrative Officer
William E. Green............................... 62 Vice President, General
Counsel and Secretary
</TABLE>
The term of office for all directors is until the annual meeting of
shareholders in 2000. John Douglas and Gregory Douglas have served as directors
since the March 9, 1999 incorporation and the other four have served as
directors since April 20, 1999. The independent directors and William Green are
expected to attend four meetings a year and be available as advisors on request.
Members of the audit committee will have one additional meeting a year. From now
on, the other officers will devote these percentages of their productive time to
IN Radio's business: John Douglas - 90% from now on; Gregory Douglas and Andrew
Whatley - 80% from now to the end of this year and 95% from the beginning of
2000; Walter Thill - 70% from now to the end of this year and 80% after that.
Background of Directors and Executive Officers
Divakar Kamath is Executive Vice President of Mesbic Ventures Holding Company.
He is a Co-founder and Managing Director of Pacesetter Growth Fund and of two
specialized investment companies which have combined assets under management of
$56 million. He has 18 years of venture capital experience. Before joining
Mesbic Ventures in 1995, Mr. Kamath held various leadership positions with
Equico Capital Corporation and Fulcrum Venture Capital Corporation. Mr. Kamath
is a former Chairman of the Board of Directors of the National Association of
Investment Companies. He received a B. Tech. in Metallurgical Engineering from
the Indian Institute of Technology in Bombay, India in 1970, an M.S. in
Materials Science from Stanford University in 1971, and an M.B.A. in Finance and
General Management from the Graduate School of Management at UCLA in 1973.
Peter Thompson, President of Opportunity Capital Corporation, is a Venture
Capitalist with over 25 years of experience in providing investment financing to
various start-up and later-stage companies. He began as Vice President of
Opportunity Capital at its inception in 1971 and has been its President since
1979. He served as a member of the Board of Directors of several of its
portfolio companies, of the National Association of Investment Companies, the
Bay Area's Small Business Development Corporation and as a member of the Board
of Trustees of the Entrepreneurial Growth and Investment Institute. He has an
undergraduate degree from Hampton University and an MBA from Wharton School of
Business.
Edgar Hirst, is Vice President - Production of Illusion, Inc., which develops
and markets interactive extreme sports and other customized attractions for the
entertainment industry. Until he accepted that position, he was a consultant to
the electronic media industry, from 1995 to 1997, and before that he was with
ABC Television for over twenty years as a senior-level executive in television
program production, operations, and administration. He was Vice
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<PAGE>
President - Production for ABC Daytime and Entertainment responsible for the
management of such programs as Good Morning America, General Hospital, The
Academy Awards, America's Funniest Home Videos, Primetime Emmy Awards, American
Music Awards, Comedy Awards, and American Bandstand. Previously, he was
Executive-In-Charge of Production for Paramount Domestic Television. In
addition, he was the Director, Olympic Operations and Production Control for the
1994 Summer Olympics on ABC Sports and Unit Manager of Broadcast Operations &
Engineering in the ABC News Bureau. Mr. Hirst has a B.A. degree from Dartmouth
College and a M.S. degree in Business from Columbia University and is a graduate
of the Executive Entrepreneur Institute Program.
Suzanne Lopez, Director of the Institute for Unlimited Human Potential since
1985, is a talk show host, guest, columnist, author, lecturer and professor
involved in such subjects as relationships, work, family, personal growth,
children, and women's issues. She has appeared as a guest expert in a wide range
of national shows, such as NBC-TV, Lifetime, ABC-TV, Hard Copy, Leeza, Ricki
Lake, Montel Williams, Jenny Jones, Geraldo, Donahue, Sally Jesse Raphael and
Gordon Elliot shows. In addition, she is the author of a recently released book
by Putnam Books and has been in private practice for almost 20 years. She has a
B.F.A. degree from the University of California at Santa Cruz and a M.S. degree
in Psychology from California State University at Los Angeles.
John Douglas is the Founder and Chairman/CEO of Information Network Radio, Inc.
He has been the Chairman/CEO of OIA, LLC, which includes KBZS-AM (Palo Alto),
since 1997. From 1988 to 1998, he was President/CEO of Douglas Broadcasting/PAR
Holding, Inc., the 24th largest radio broadcast group in the U.S. in 1997, with
19 stations primarily in major markets. This group included the production and
broadcast of the Personal Achievement Radio programming syndicated nationally by
ABC Radio Network. He also created AsiaOne Network, the largest group of radio
stations broadcasting in Asian languages outside of Asia. Mr. Douglas was also
the Founder and Chairman of National Group Television, licensee of KSTS-TV (San
Francisco TV market). He was the Creator and News Director of "Business Today",
the Nation's first nationally syndicated morning business news TV show and the
Executive Producer of "Front Page", a daily, 2-minute news highlight broadcast
by the Black Entertainment Television, a major cable programming company. He has
37 years of experience in broadcasting, finance, communications, strategic
planning, and technology. Mr. Douglas has served as a member on several boards,
including California Broadcasters Association and Z-Spanish Media. He is
currently a board member for Radio Advertising Bureau, Comerica Bank California,
and Broadcast Music Industries ("BMI"). He was a Trustee of Bates College until
this year. Mr. Douglas has a B.S. degree and M.S. degree in Physics from Bates
College and Howard University respectively, and is a graduate of the Executive
Program of Darden Graduate School of Business Administration, University of
Virginia.
Gregory Douglas is the President/COO of Information Network Radio Inc. Since
1998, he has been President/COO of OIA, LLC and a Partner of Q2 Broadcast,
syndicator of Personal Achievement Radio. From 1996 to 1998, he was the Director
of Network Operations for Personal Achievement Radio in Los Angeles responsible
for the production, operation and distribution of the PAR format. In 1996, he
was the General Manager of the two-station Seattle operations of Douglas
Broadcasting, Inc. and Station Manager at WBPS - AM in Boston from 1994 to 1996.
He was also the Management Information System Manager for DBI, responsible for
the traffic/business computer functions as well as the computer networking of
DBI/PAR radio outlets. Mr. Douglas has been involved in almost all areas of
broadcasting, including traffic, talk-format programming, network automation
systems, business, engineering, promotion, production, syndication, marketing,
and sales. He has sixteen years of experience in radio, television and
computer-related areas. He has a B.A. degree from the University of California
at Berkeley, California. He is the son of John Douglas.
Andy Whatley is the Executive Vice President - Marketing and Sales of
Information Network Radio, Inc. He is also Partner of Q2 Broadcast (since 1998)
and Vice President of OIA, LLC (beginning January, 1999.) He was the General
Manager of KYPA-AM in Los Angeles from 1996 to 1998. He has more than 25 years
of media experience including radio, television, print and media brokerage,
including 19 years of broadcast management experience, and 15 years of radio
ownership. He established a joint venture media group (Great Electric Media
Group) and was its Vice President and General Manager from 1987 to 1996. It
included four radio stations, a weekly television program and a visitor market
publication. He attended the University of Texas at El Paso majoring in Mass
Communications/Radio and Television and holds a Bachelor of Arts Degree.
Walter Thill is the Vice President - Finance and Administration and CFO of
Information Network Radio, Inc. Since 1997, he has been controller of Ally
Capital and consultant to NationsBanc Montgomery Securities LLC and its
predecessor. He was the Vice President of Operations and Finance and also
General Manager of Healthcare for the California College of Podiatric Medicine
from 1995 to 1997. He also acted as the interim General Manager at
22
<PAGE>
Serrano Irrigation District. In addition, he was an Independent Management
Consultant to companies in the mergers and acquisitions, distressed situations,
and leveraged buyouts areas. During that time, he also served as interim CFO for
six other companies. Mr. Thill was Director of Strategic Planning at Castle &
Cooke, Inc. (now Dole Foods), a NYSE company, responsible for the review of the
food industry for acquisitions and strategic planning for the company's food and
other businesses. He was also the former President of the Corporate Planners
Association. Mr. Thill has an AB from Cornell University and a MBA from the
University of Michigan and he earned his CPA while in Michigan.
William Green is the Vice President, General Counsel and Secretary for
Information Network Radio, Inc. Since 1974, he has had a private law practice,
William Green & Associates, located in Palo Alto, California. He was the
Corporate Secretary and Legal Counsel for Douglas Broadcasting, Inc. and
Personal Achievement Radio. Formerly, he was the Assistant General Counsel for
Boise Cascade Corp. He was also Associate Counsel and Associate Patent Counsel
of Sybron Corp., a Fortune 500 Company, representing the Corporation in its
general legal affairs, mergers and acquisitions activity and patent and
trademark matters. He was also employed as a patent coordinator at the Applied
Research Laboratories of United States Steel Corp. He is a former member on the
Executive and Audit Committees of the National Board of Governors of the
American Red Cross and Mr. Green was also on the Executive Committee of the
Board of Governors of United Way of America. He is a graduate of the University
of Pittsburgh with a B.S. degree in Chemistry. He has a L.L.B. degree from
Duquesne University School of Law and was Managing Editor of the Law Review. Mr.
Green passed the Bar in California, Pennsylvania and New York. He is a member of
the Charles Houston, State of California, American, and National Patent Law Bar
Associations. He is a Director of the Williams Companies, A NYSE and Fortune 500
Company.
Indemnification of Directors and Officers
Our Articles of Incorporation provide that the liability of the directors
for monetary damages shall be eliminated to the fullest extent permissible under
California law. We have been advised that, in the opinion of the Securities and
Exchange Commission, permitting indemnification to directors, officers and
controlling persons for liabilities arising under the federal securities laws is
against public policy and unenforceable.
Board Committees
An audit committee of nonemployee directors meets with our independent
public accountants and reviews our internal accounting procedures. Divakar R.
Kamath and J. Peter Thompson currently constitute the audit committee.
Director Compensation
We do not currently compensate directors for their services, except to
reimburse them for their travel expenses in attending board and committee
meetings. After we begin satellite radio service, each director who is not a
full-time employee of IN Radio will receive options to purchase shares under the
stock incentive compensation plan to be adopted, as well as quarterly payments.
Executive Compensation
No compensation has yet been paid to any of our executives. We expect to
pay a $100,000 salary to John Douglas in 1999. We intend to hire the other
executive officers upon closing of this offering, each one at a salary not to
exceed $100,000 a year. We have planned no other forms of compensation, such as
bonuses or stock options, to be paid to executives in 1999.
Stock Option Plan
The Board of Directors has reserved shares equal to 10% of our outstanding
common stock for issuance to employees, officers, directors and consultants
pursuant to a stock incentive option plan they expect to adopt.
CERTAIN TRANSACTIONS
106,700 of the shares outstanding before this offering were issued in
exchange for ownership in the predeccessor limited liability company and in
Personal Achievement Live, LLC and AsiaOne Network, LLC, which are both now
completely owned by IN Radio. Each of the persons to whom the shares were issued
are officers and are listed in the "Principal Shareholders" table in this
prospectus.
It is our policy that all material related party transactions will be on
terms that are no less favorable to IN Radio than those that can be obtained
from unaffiliated third parties and must be approved by a majority of our
independent, disinterested directors.
PRINCIPAL SHAREHOLDERS
23
<PAGE>
The founding executive officers and directors of IN Radio will own 106,700
shares, or approximately 53.4% of its outstanding common stock, after sale of
all the shares in this offering. They will be able to control election of a
majority of the board of directors and other corporate action. Such a
concentration of ownership may have the effect of delaying or preventing a
change of control. <TABLE>
The following table shows the beneficial ownership of IN Radio's common
stock immediately prior to this offering, and as adjusted to reflect the sale of
the shares being offered, for shares owned by (i) each of IN Radio's directors
and executive officers , (ii) each shareowner we know to own beneficially 5% or
more of the outstanding shares of our common stock and (iii) all directors and
officers as a group. We believe that the beneficial owners of the common stock
listed below, based on information they furnished, have sole investment and
voting power over their shares, subject to community property laws where
applicable. <CAPTION>
Name and Address of Owner Number of Percentage of Total Common Stock Beneficially Owned
Shares
Beneficially
Owned
Before Offering After Offering
<S> <C> <C> <C>
N. John Douglas 89,500 74.7% 44.8%
114 Sansome Street, Suite 1410
San Francisco, CA 94104
Gregory J. Douglas 7,700 3.9 6.4
114 Sansome Street, Suite 1410
San Francisco, CA 94104
C. Andrew Whatley 7,700 6.4 3.9
114 Sansome Street, Suite 1410
San Francisco, CA 94104
Walter E. Thill 1,500 1.3 0.8
114 Sansome Street, Suite 1410
San Francisco, CA 94104
William E. Green 300 0.2 0.2
550 Hamilton Avenue
Palo Alto, CA 94301
Nightingale-Conant 12,500 10.4 6.3
7300 Lehigh Avenue
Niles, IL 60714
All directors and executive 106,700 89.0 53.4
officers as a group (5 Persons)
<FN>
* Does not include any additional dilution from shares issued in additional
financings or upon exercise of any options issued under the proposed stock
incentive option plan.
</FN>
</TABLE>
DESCRIPTION OF COMMON STOCK
IN Radio has authorized 10,000,000 shares of common stock, without par
value. There were 119,825 shares of common stock outstanding immediately prior
to this offering, which were held of record by seven shareowners. Owners of
common stock are entitled to one vote for each share held of record on all
matters to be voted on by shareowners, except that, upon giving the legally
required notice, shareowners may cumulate their votes in the election of
directors. The shareowners are entitled to receive dividends when, as and if
declared by the board of directors out of funds legally available. Our board of
directors does not currently anticipate paying any dividends. Any debt or
preferred stock financing we may use would probably restrict dividend payments.
In the event of
24
<PAGE>
liquidation, dissolution or winding up of the corporation, the shareowners are
entitled to share ratably in all assets remaining which are available for
distribution to them after payment of liabilities. Shareowners, as such, have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to the common stock. All of the outstanding shares of
common stock, and the shares issued in this offering, will be fully paid and
nonassessable. The transfer agent and registrar for our common stock is American
Securities Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE RESALE
Legal ability to sell. The shares sold in this offering will be freely
tradable without restriction or registration under federal securities laws.
Sales of shares to residents of certain states or jurisdictions may require
registration or an applicable exemption from registration provisions of the
shares in those states or jurisdictions. The 119,825 shares of common stock
previously issued are "restricted securities" and may not be sold in a public
distribution except in compliance with those securities laws. After those shares
have been held for more than a year, they could, under applicable securities
laws, be offered for sale through any trading market, if reporting and other
requirements were met. They could also be sold in a transaction negotiated
directly with a buyer. This ability to sell could have the effect of keeping any
investor demand from increasing the price at which shares may be sold after this
offering is over. All of the executive officers have agreed not to sell any of
their 106,700 shares for a year after completion of this offering. In return, IN
Radio has agreed to include, in any registered public offering we make, any of
their shares they ask to be included, and to pay the costs of registration and
sale (except any commissions or underwriting fees.)
Absence of any trading market. Investors in this offering should be
prepared for there being no liquid trading market or other mechanics for
converting their shares back into cash. We have no plans to apply for exchange
listing or interdealer market making immediately after this offering. The number
of shareowners after this offering will probably be too limited to attract any
securities dealers into creating a trading market. We plan a second public
offering after the launch of broadcasting on satellite radio. We expect there
would be a trading market after that, but any further offering and trading
market may be delayed or may not happen. Shareholders would have to arrange
their own private sale of shares, until a trading market existed or there was
another way to convert their shares back into cash. Acquisitions of or by IN
Radio, or some other event, could also result in cash payment to shareowners or
in a trading market.
Tax effects of selling "Small Business Stock." Individuals buying shares in
this offering, and holding them for at least five years, would pay a maximum 14%
effective tax rate on any gain from their sale, under existing tax laws. Or, no
tax at all would be payable on the sales proceeds "rolled over" into the
purchase of other "small business stock," within 60 days of the sale. This
favorable tax treatment could be changed. Various conditions and limitations
apply. Shareholders will want to consult their own tax advisor if this tax
effect is important in their investment decision.
PLAN OF DISTRIBUTION
General
Announcements of this offering will be communicated to persons selected by
our officers and directors. A copy of this prospectus will be delivered to those
who request it, together with the share purchase order. All shares will be sold
at the public offering price of $100.00 per share and a minimum purchase of 250
shares is required. We reserve the right to reject any share purchase order in
full or in part.
IN Radio will only effect offers and sales of shares through N. John
Douglas, its Chairman and Chief Executive Officer, or Walter E. Thill, its Vice
President Finance and Chief Financial and Administrative Officer. Only Messrs.
Douglas or Thill will sign share purchase orders on our behalf and they will be
the only individuals who will conduct activities that involve making oral
solicitations or approval of written communications. They will not receive,
directly or indirectly, any commissions or other remuneration based either
directly or indirectly on transactions in securities. Their activities are
intended to be within Rule 3a4-1 of the federal Securities Exchange Act of 1934
and the securities regulations of certain states. Some states may require Mr.
Douglas or Mr. Thill to be registered or licensed as an issuer representative or
sales agent.
This direct offering by IN Radio differs from a "firm commitment
underwriting," in which one or more registered securities dealers either
purchase all of the shares, for resale to their customers, or no shares are sold
at all. In our direct offering, we may not sell all of the shares offered. That
means that we may receive only a portion
25
<PAGE>
of the offering proceeds that we intend to use for development of our business
and operation until we reach positive cash flow from operations. When a
securities dealer acts as an underwriter, it assumes certain legal
responsibilities under the federal securities laws. To create a defense against
potential liability to persons who buy shares in the underwriting, the dealer
may perform a "due diligence" investigation of the business issuing shares. In
this direct offering, there is no securities dealer performing that
investigation.
Determination of Offering Price
Prior to this offering there has been no market for our shares of common
stock. Our Board of Directors has determined the public offering price. Among
factors considered in determining the public offering price were IN Radio's
future prospects, the state of the markets for its services, the experience of
management and the economics of the industry in general.
EXPERTS
IN Radio's Financial Statements as of and for the period ended March 31,
1999, audited by Hollander, Lumer & Co. LLP, independent auditors, have been
included in this Prospectus in reliance upon their report, which is also
included in this Prospectus.
AVAILABLE INFORMATION
This prospectus is part of a registration statement on Form SB-2 filed
under the Securities Act of 1933. This prospectus does not contain all of the
information in the Registration Statement and its exhibits. Statements in this
prospectus about any contract or other document are just summaries. You may be
able to read the complete document as an exhibit to the Registration Statement.
IN Radio will have to file reports under the Securities Exchange Act of
1934. You may read and copy the Registration Statement and our reports at the
Commission's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549, Seven World Trade Center, 13th Floor, New York, New York 10048, and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. (You may
telephone the Commission's Public Reference Branch at 800-SEC-0330.) Our
Registration Statement and reports are also available on the Commission's
Internet site at http://www.sec.gov.
We intend to furnish our shareowners with annual reports containing
financial statements audited by an independent public accounting firm after the
end of each fiscal year.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Stockholders' Deficiency F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Information Network Radio, Inc.
San Francisco, California
We have audited the accompanying balance sheet of Information Network Radio,
Inc. (A Development Stage Company), a successor to Information Network Radio,
LLC, as of March 31, 1999, and the related statements of operations,
stockholders' deficiency, and cash flows for the period from September 18, 1998
(inception) through March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Information Network Radio, Inc.
as of March 31, 1999, and the results of its operations and its cash flows for
the initial period then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, there is a substantial doubt about the ability of the
Company to continue as a going concern. The Company is a development stage
company that has incurred a net loss for the initial period ended March 31,
1999. The Company has significant capital requirements to continue with its
development plan. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
HOLLANDER, LUMER & CO. LLP
Los Angeles, California
April 6, 1999
F-1
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BALANCE SHEET
MARCH 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 3,651
Deferred offering costs 12,000
--------------
TOTAL CURRENT ASSETS 15,651
--------------
TOTAL ASSETS $ 15,651
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 1,400
Loans payable 26,000
--------------
TOTAL CURRENT LIABILITIES 27,400
STOCKHOLDERS' DEFICIENCY
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding - 106,700 shares 10,000
Deficit accumulated during the development stage (21,749)
--------------
TOTAL STOCKHOLDERS' DEFICIENCY (11,749)
==============
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 15,651
==============
See accompanying Notes to Financial Statements
F-2
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 18, 1998 (INCEPTION) TO MARCH 31, 1999
REVENUES $ -
OPERATING EXPENSES 21,749
--------------------
NET LOSS $ (21,749)
====================
LOSS PER SHARE $ (0.18)
====================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 123,785
====================
See accompanying Notes to Financial Statements
F-3
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM SEPTEMBER 18, 1998 (INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During The
------------------------------- Development
Shares Amount Stage Total
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Common stock issued 106,700 $ 10,000 $ - $ 10,000
Net loss incurred during the period - - (21,749) (21,749)
-------------- --------------- ---------------- ---------------
Balance, March 31, 1999 106,700 $ 10,000 $ (21,749) $ (11,749)
============== =============== ================ ===============
</TABLE>
See accompanying Notes to Financial Statements
F-4
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 18, 1998 (INCEPTION) TO MARCH 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (21,749)
Adjustments to reconcile net loss to net
cash used in operating activities:
Increase in accounts payable 1,400
------------
NET CASH USED IN OPERATING ACTIVITIES (20,349)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred offering costs (12,000)
Proceeds from loans payable 26,000
Capital contributions 10,000
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,000
------------
CASH AT END OF PERIOD $ 3,651
============
See accompanying Notes to Financial Statements
F-5
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Information Network Radio, Inc. (the "Company") was incorporated in
California on March 9, 1999. On March 10, 1999, the Company issued
106,700 shares of common stock to the members of Information
Network Radio, LLC, its predecessor, pursuant to an Agreement of
Merger. Information Network Radio, LLC was a Delaware Limited
Liability Company formed on September 18, 1998. The accompanying
financial statements include the results of operations of the
Company's predecessor for the period from inception to March 9,
1999.
The Company is involved in developing and producing unique
talk-formatted audio programming for a new service providing
digital satellite transmission directly to vehicles and homes.
Revenues are projected to begin on October 1, 2000 when the
satellites are to have been launched. Revenues will come primarily
from selling up to 12 minutes an hour of commercial advertising
messages and company-sponsored programs.
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As
shown in the financial statements, from inception through March 31,
1999, the Company incurred net loss of $21,749, which was funded by
the initial capital contributions and advances from the principal
stockholder. Management is currently preparing for a direct public
offering of the Company's common stock to obtain additional funds
so that the Company can meet its obligations and sustain its
development activities. If the Company is unable to successfully
complete an offering or obtain funding from other sources, the
Company will not be able to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to
continue as a going concern.
Deferred Offering Costs
The Company records incremental costs directly attributable to the
proposed offering of securities as deferred offering costs. These
costs will be charged against the gross proceeds of the offering,
upon its completion. If the offering is not completed, these costs
will be expensed.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference
to various market data and other valuation techniques as
appropriate. Considerable judgment is required to develop estimates
of fair values; therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid
in a current market exchange. The effect of using different market
assumptions and/or estimation methodologies may be material to the
estimated fair value amounts. The Company estimates that the fair
value of its financial instruments approximates their carrying
value.
F-6
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
Broadcast Rights
The Company owns the right to utilize a satellite network over an
agree-upon license period. The Company capitalizes certain costs to
acquire these rights. The Company's policy is to amortize the cost
of these rights on a straight-line basis over the term of the
contract.
Income Taxes
The Company elected to be taxed as a partnership for federal income
tax purposes for the period from inception through March 9, 1999.
Accordingly, the members, in their individual tax returns, report
any tax on income of the Company.
Effective March 10, 1999, the Company is subject to corporate tax
rates. The Company utilizes the asset and liability method for
income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings (Loss) Per Share
Effective March 31, 1999, the Company adopted Statement of
Financial Accounting Standards No.128 ("SFAS No. 128"), Earnings
Per Share ("EPS") which established simplified standards for
computing and presenting earnings per share information. Basic
earnings (loss) per common share is based upon the net earnings
(loss) applicable to common shares after preferred dividend
requirements and upon the weighted average number of common shares
outstanding during the period. Diluted earnings per common share
adjusts for the effect of convertible securities, stock options and
warrants only in the periods presented in which such effect would
have been dilutive.
Staff Accounting Bulletin No. 98 ("SAB 98") describes the
Securities and Exchange Commission ("SEC") staff's interpretations
and practices on EPS computations in an initial public offering. In
applying the requirements of SFAS No. 128, the staff believes that
nominal issuances are recapitalizations in substance. In computing
basic EPS for the periods covered by income statements included in
the registration statement and in subsequent filings with the SEC,
nominal issuances of common stock should be reflected in a manner
similar to a stock split or stock dividend for which retroactive
treatment is required by paragraph 54 of SFAS No. 128. In computing
diluted EPS for such periods, nominal issuances of common stock and
potential common stock should be reflected in a manner similar to a
stock split or stock dividend.
Pursuant to SAB 98, the Company accounted for the subsequent
issuance of 17,085 shares of common stock as outstanding for the
historical period presented.
NOTE 2 - COMMITMENTS
On January 28, 1999, the Company entered into an agreement for
legal and related services for its direct public offering of common
stock. The agreement requires sixteen semi-monthly payments of
$3,000 each followed by one payment of $2,000. Consulting fees paid
during the period ended March 31, 1999 totaled $12,000. Upon
completion of the contemplated public offering, for at least any
minimum amount offered, the agreement also requires a payment of
$25,000, of which half would be in the Company's shares of common
stock, at the public offering price.
F-7
<PAGE>
INFORMATION NETWORK RADIO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
During the period ended March 31, 1999, the Company entered into
contracts with providers of satellite radio transmission granting
them a license to transmit the Company's programming. The contracts
expire five years after service begins and have provisions for
renewals. The contracts allow the licensees the right to use, or to
dispose of the right to use, commercial time beginning with one
minute per hour in the first year of the contract and increasing to
50% of the net commercial time available (however no less than five
minutes) per each hour. Modifications to these agreements are
currently being negotiated.
NOTE 3 - RELATED PARTY TRANSACTIONS
The majority stockholder made advances to the Company, bearing
interest at 6.00% and payable on demand. At March 31, 1999,
aggregate advances were $26,000.
The Company's principal stockholder and companies owned and/or
controlled by him have provided corporate services at no cost to
the Company.
NOTE 4 - SUBSEQUENT EVENTS
The Company issued 17,085 shares to certain companies for
management consulting services, programming content and for
extension of satellite radio transmission contracts. These
additional shares were valued at $1,708,500 based on the public
offering price of $100 per share.
<TABLE>
Pro forma unaudited financial information of the Company is as
follows:
<CAPTION>
Pro Forma
Balance Sheet: ----------------------------------
Historical Adjustments Pro Forma
-------------------------------------------------
<S> <C> <C>
Total Current Assets $ 15,651 $ 15,651
Intangible Assets $ 1,646,000 (1) $ 1,646,000
Total Assets $ 15,651 $ 1,646,000 (1) $ 1,661,651
Total Liabilities $ 27,400 $ 27,400
Stockholders' Equity (Deficiency) $ (11,749) $ 1,646,000 (1) $ 1,634,251
Statement of Operations:
Net loss $ (21,749) $ (62,500)(2) $ (84,249)
Loss per share $ (0.18) (.50) $ (0.68)
Weighted average number of common shares
outstanding $ 123,785 $ 123,785
Pro forma adjustments are as follows:
<FN>
1. Issuance of 16,460 shares of common stock for programming and
satellite broadcast rights.
2. Issuance of 625 shares of common stock for marketing services.
</FN>
</TABLE>
F-8
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation, Article V, and Bylaws, Article
VI, provide that the Registrant shall indemnify any officer, director or former
officer or director, to the fullest extent permitted by California law.
We have been advised that, in the opinion of the Securities and Exchange
Commission, permitting indemnification to directors, officers and controlling
persons for liabilities arising under the federal securities laws is against
public policy and unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered are estimated as follows, assuming the
Maximum offering amount is sold:
Securities and Exchange Commission filing fee................. $ 2,224
Blue sky fees and expenses.................................... 3,000
Accountant's fees and expenses................................ 12,000
Special Counsel's fees and expenses........................... 75,000
General Counsel's fees and expenses........................... 15,000
Printing and Edgar filer ..................................... 5,000
Postage and other delivery media.............................. 1,000
Marketing expenses, including travel.......................... 10,000
Miscellaneous................................................. 26,776
----------
Total.................................................... $ 150,000
==========
(The Registrant will bear all these expenses.)
Item 26. Recent Sales of Unregistered Securities.
(a) The following information is given for all securities that the Registrant
sold within the past three years without registering the securities under the
Securities Act.
Date Title Amount
---- ------ ------
(1) March 22, 1999 common stock 106,700 shares
(2) June 24, 1999 common stock 12,500 shares
(3) June 24, 1999 common stock 625 shares
(b) No underwriters were used in connection with any of the issuances of shares.
The classes of persons to whom the Registrant issued shares were:
(1) The five founding officers of the Registrant
(2) Nightingale Conant, a major contractor of content for Registrant's
programming.
(3) MDW, a management, marketing, sales and product fulfillment
consultant.
(c) There were no underwriting discounts or commissions. The transactions and
the types and amounts of consideration received by the Registrant were:
(1) Transfer of contractual rights and development, as owners of
Information Network Radio, LLC.
(2) Agreement to provide programming content for Registrant's PAL
satellite radio channels.
(3) Agreement to consult on Registrant's marketing, sales and product
fulfillment.
(d) The sections of the Securities Act under which the Registrant claims
exemption from registration and the facts relied upon to make the exemption
available are:
35
<PAGE>
(1) Section 4(2). This was a transaction between the Registrant and its
founding officers, who continue to own all the shares.
(2) Section 4(2). The transaction was between the Registrant and its
major provider to date of content for the Registrant's digital
satellite radio programming.
(3) Section 4(2). The transaction was between the Registrant and its
management consulting firm.
Item 27. Exhibits
The exhibits listed below are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B.
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation of the Registrant, dated March 9, 1999
3.2 By-laws of the Registrant
4.1 Article II, pages 2-15, of the By-laws (Reference is made to Exhibit 3.2)
4.2 Form of common stock certificate
5 Opinion and consent of counsel with respect to the legality of the shares
being registered
10.1 Radio License Agreement with CD Radio Inc.
*10.2 Programming Partner Agreement with XM Satellite
10.3 Programming Services and Equity Agreement with Nightingale-Conant
Corporation
21 List of Registrant's subsidiaries, states of organization and names under
which they do business.
23.1 Consent of Hollander, Lumer & Co. LLP.
23.2 Consent of counsel (Reference is made to Exhibit 5.)
24 Power of Attorney
27 Financial Data Schedule
99.1 Share Purchase Order
99.2 Agreement Not to Sell Shares
- ---------------------------
* Filed with this Pre-Effective Amendment No. 3.
Item 28. Undertakings.
(a) The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(e) The registrant has been advised that, in the opinion of the Securities
and Exchange Commission, indemnification to directors, officers and
controlling persons of the registrant for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
36
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this Pre-Effective
Amendment No. 3 to Registration Statement to be signed on its behalf by the
undersigned, in San Francisco, California, on July 16, 1999.
INFORMATION NETWORK RADIO, INC. (Issuer)
By S/N. John Douglas
----------------------------------------
N. John Douglas, Chief Executive Officer
<TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 3 to registration statement was signed by the
following persons in the capacities and on the dates stated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
S/N. John Douglas Chief Executive Officer and July 16, 1999
- -------------------------------------------- Chairman of the Board of Directors
N. John Douglas
S/Gregory D. Douglas* President, Chief Operating Officer July 16, 1999
- -------------------------------------------- and Director
Gregory D. Douglas
S/Walter E. Thill* Vice President Finance and Chief July 16, 1999
- -------------------------------------------- Financial and Administrative Officer
Walter E. Thill (Principal financial and accounting officer)
S/Divakar R. Kamath* Director July 16, 1999
- --------------------------------------------
Divakar R. Kamath
S/J. Peter Thompson* Director July 16, 1999
- --------------------------------------------
J. Peter Thompson
S/Edgar W. Hirst* Director July 16, 1999
- --------------------------------------------
Edgar W. Hirst
S/Suzanne M. Lopez* Director July 16, 1999
- --------------------------------------------
Suzanne M. Lopez
* S/N. John Douglas July 16, 1999
- --------------------------------------------
N. John Douglas
Attorney-in-fact
</TABLE>
PROGRAMMING PARTNER AGREEMENT
THIS PROGRAMMING PARTNER AGREEMENT ("Agreement") is made as of this 18th
day of August 1998, by and between American Mobile Radio Corporation ("AMRC"'),
a Delaware corporation having its principal place of business at 1250 23rd
Street, NW, Washington, D.C. 20037, and AsiaOne Network, L L.C. ("Programmer"),
a Delaware limited liability company having its principal place of business at
114 Sansome Street, Suite 1410, San Francisco, California 94104.
W I T N E S S E T H:
WHEREAS, AMRC is implementing a system (the "System") to provide a
digital audio radio service in the continental United States (the "DARS")
pursuant to authorizations issued by the Federal Communications Commission (the
"FCC"); and
WHEREAS, Programmer represents that it is expert in the development,
production, supply and marketing of audio programming, and desires to develop,
produce and supply to AMRC certain programming as described in Appendix A hereto
(the "Programming") to be distributed over one or more audio channels of the
System (the System, the DARS and the Programming hereinafter being referred to
collectively as, the "Service") as well as market the Service, all on the terms
and conditions set forth herein; and
WHEREAS, AMRC desires to carry such Programming on the System, subject to
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
contained herein, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE ONE
TERM
1.1 Term. Subject to earlier termination in accordance with the terms of
this Agreement, the term of this Agreement (the "Term") shall be for the period
commencing as of the date set forth above and continuing to, and including, the
date set forth in Appendix B hereto. The Term shall include any and all renewals
and extensions of the original term of this Agreement.
ARTICLE TWO
PROGRAMMING
2.1 Program Supply and Carriage. Programmer shall develop, produce and
supply the Programming to AMRC as provided in this Agreement. AMRC shall carry
such Programming on the System as specified in Appendix C hereto. AMRC shall
have complete and sole authority over the System, including the right to
control, designate and modify the Channel(s) (as defined in Appendix C hereto)
over which the Programming is to be carried on the System.
2.2 Grant of Rights to AMRC.
(a) Programmer hereby grants to AMRC and its agents and contractors
during the Term the exclusive right and license to transmit, use and distribute
the Programming by satellite and/or any other means of distribution, including
without limitation terrestrial repeaters and microwave facilities, in connection
with AMRC's provision of the Service. The scope of rights granted to AMRC herein
shall also include any right(s) and license(s) described in Appendix D hereto.
-1-
<PAGE>
(b) Programmer hereby also grants to AMRC and its agents and
contractors during the Term the non-exclusive right and license to advertise,
publicize, exploit, use and promote the Programming or any portion thereof in
any manner and by any means or media in connection with AMRC's provision of the
Service, marketing and promotion thereof and advertising thereon. In connection
therewith, Programmer hereby grants to AMRC a non exclusive, royalty-free,
license to use all trade names, trademarks, service marks, trade dress, logos,
designs and other identifying marks of Programmer or the Programming
(collectively, the "Marks") in connection with the provision of the Service,
marketing and promotion thereof and advertising thereon, including any
marketing, promotional or other advertising materials, subject to adherence by
AMRC to Programmer's standards for use and display of such Marks and to AMRC's
identification of Programmer as the owner of such Marks. AMRC acknowledges that
the Marks are the exclusive property of the Programmer, and that AMRC has not
and will not acquire any proprietary rights therein by reason of this Agreement.
2.3 Program Development. Production and Content Requirements.
(a) Programmer shall, at its own cost and expense, develop, produce
and supply to AMRC sufficient Programming throughout the Term to enable AMRC to
transmit the Programming continuously, 24 hours per day, seven days a week on
each Channel as contemplated in Appendix C hereto.
(b) Programmer shall conform the Programming to the description in,
and meet or exceed the standards set forth in, Appendix A hereto for such
Programming. Any change in the nature, content or quality of the Programming
shall be subject to the prior written approval of AMRC in its sole discretion.
During the Term, Programmer shall consult with AMRC on a regular basis, as
determined by AMRC, regarding the nature, content and quality of the
Programming, and AMRC shall have full authority and control over decisions
regarding the nature, content and quality of the Programming, subject to AMRC's
recognition of Programmer's desire to optimize advertising revenues and to
attract listeners. Programmer shall furnish AMRC with programming logs
(containing at least, where applicable, program titles, names of talent, music
titles, artists' names and special features) from time to time upon AMRC's
request. Programmer shall also give AMRC seven (7) days prior written notice of
any special programming or features, as well as any changes in program
scheduling or on-air talent. AMRC shall have sole authority to determine service
tier-packaging.
(c) The name branding of the Channel(s) and any related slogans
(collectively, the "Channel BrandName") shall be subject to the prior written
approval of AMRC. Unless Programmer owns or holds an existing trademark in such
Channel Brand Name, as identified in Appendix F hereto, AMRC shall own all
right, title and interest in the Channel Brand Name. Programmer does hereby
assign to AMRC all right, title and interest of Programmer in and to the
trademark, together with the goodwill associated therewith. Programmer shall
execute all further instruments as may be necessary to effectuate and/or confirm
such assignments. In no event shall Programmer use such Channel Brand Name used
in connection with the Programming on any other DARS system or the equivalent
which provides service to any portion of the continental United States.
(d) AMRC may preempt (in accordance with current FCC standards and
policies applicable to terrestrial broadcast stations or the equivalent for DARS
systems) the Programming or any portion thereof and cause Programmer to insert
AMRC's own programming material in such manner as AMRC may determine in its good
faith, sole discretion. AMRC may also delay, defer, reschedule and interrupt the
Programming or any portion thereof as AMRC deems necessary in its good faith,
sole discretion. One 1 5-second spot each shall be reserved for AMRC's use at
both the top and the bottom of each clock hour for purposes of airing AMRC
identifications and promotional announcements relating to the Service and/or the
Programming. In addition, in the event of any unsold commercial availabilities
(and Programmer is not airing per inquiry and/or public service announcements in
such spots), AMRC may air, at its discretion, promotional announcements during
such unused spots. AMRC may also air an additional 30 second promotional spot
per hour, provided that it does not preempt any paid advertising, per inquiry or
public service announcements. AMRC shall furnish Programmer with these
promotional announcements at least three (3) days in advance, and Programmer
shall include the announcements within the Programming.
-2-
<PAGE>
Programmer shall only identify the System, the Programming and the Channel(s)
consistent with AMRC's own standards as developed and modified from time to
time.
(e) If, for any reason, including without limitation, causes beyond
the control of Programmer, AMRC determines, in good faith, that the Programming
does not include programming of at least the quantity, nature, content and
quality as required by Section 2.3(b) or as referenced in Appendix A hereto,
AMRC shall give Programmer written notice of such deficiency. If Programmer has
not cured such deficiency within thirty (30) days after its receipt of notice,
AMRC may, at its option, and in addition to any other remedies available to AMRC
hereunder, in law or in equity, discontinue carriage of the Programming, or any
portion thereof, effective upon notice to Programmer, and/or terminate this
Agreement.
2.4 Delivery of Programming.
(a) During the Term, Programmer shall, at its own cost and expense:
(i) cause the Programming to be received in digital signal(s) via satellite (or
other means acceptable to AMRC) at a satellite uplink facility identified in
writing by AMRC from time to time ("Uplink Faciligv"); and (ii) fully encrypt
the signal utilizing an encryption technology acceptable to AMRC. The signal(s)
and facilities used in connection with the delivery of the Programming to the
Uplink Facility shall fully comply with all applicable technical and other
requirements of AMRC and the FCC, including without limitation the technical
specifications set forth in Appendix E hereto (collectively, the "AMRC
Requirements"). AMRC reserves the right to change such requirements from time to
time, upon reasonable notice to Programmer. Programmer shall, at its own cost
and expense, secure all licenses, permits, rights-of-way, approvals, and any
other arrangements necessary or appropriate for receipt of the Programming via
satellite at the Uplink Facility.
(b) The specifications and quality of Programmer's signal(s), and
mode of delivery, shall be subject to AMRC's approval. If Programmer fails, for
any reason, to comply with the AMRC Requirements, Programmer shall immediately
take all actions necessary to correct the deficiency. In circumstances of a
failure to meet the AMRC Requirements, Programmer shall bear all reasonable
expenses of AMRC relating to its monitoring of Programmer's signal(s).
ARTICLE THREE
MARKETING AND PROMOTION OF SERVICE
3.1 Marketing and Promotion. AMRC shall have sole authority and
discretion to determine and control all aspects of marketing and promotion of,
and advertising on, the Service, including the Programming. All marketing,
promotional and advertising materials furnished by Programmer shall conform with
all applicable laws, and shall be submitted to AMRC in advance for its written
approval, which shall not be unreasonably withheld. Such written approval shall
not relieve Programmer of responsibility for ensuring the compliance of such
marketing, promotional and advertising materials with all applicable laws.
Programmer acknowledges and agrees that it has no right to use AMRC's trade
names, trademarks, service marks, trade dress, logos, designs and other
identifying marks without the prior written consent of AMRC, and that Programmer
has not and will not acquire any proprietary rights therein by reason of this
Agreement.
3.2 Programmer's Marketing and Promotion Obligations. Programmer shall
use all commercially reasonable best efforts in accordance with this Agreement
to market and promote an awareness of the Service, including the Programming,
among potential subscribers. To assist AMRC in promoting the Service, Programmer
shall provide the marketing and promotional support described in Appendix G
hereto.
3.3 Market Research. Programmer may not undertake marketing tests,
surveysg rating polls and/or other research in connection with the Programming
or the Service (collectively, the "Market Research") without AMRC's prior
written consent, which consent shall not be unreasonably withheld. If AMRC does
approve of the Marketing Research, Programmer shall furnish AMRC with copies of
all Market Research and results immediately following Programmer's receipt
thereof. AMRC acknowledges that the Marketing Research and results are highly
proprietary to Programmer, and both AMRC and Programmer shall keep the Marketing
Research and results confidential under the provisions of Section 9.2 hereof;
provided,
-3-
<PAGE>
however, that AMRC agrees that Programmer may repackage such market research in
its advertising sales materials for distribution to advertisers and agencies in
connection with its marketing and sales activities. AMRC shall furnish
Programmer with any Market Research and results conducted by or on behalf of
AMRC insofar as such research relates specifically to the Channel(s).
ARTICLE FOUR
SALE OF ADVERTISING/PROGRAM TIME
4.1 Sale of Advertising/Program Time.
(a) In consideration of Programmer's full performance of its
obligations hereunder, Programmer shall be entitled to retain a percentage of
Net Advertising Revenues (as defined in Appendix H hereto) derived from its sale
of (i) commercial advertising included within or adjacent to the Programming,
and (ii) program time, on each Channel (collectively, the "Advertising"),
subject to the terms and conditions of this Section. Programmer acknowledges
that it shall not have any right, title or interest in or to any Advertising or
any Net Advertising Revenues other than those which it is expressly entitled to
retain hereunder.
(b) Programmer shall use all commercially reasonable best efforts
to sell commercial advertising time and program time on each Channel as
specified in Appendix A hereto. The Advertising shall conform to the standards
of lawful advertising, and AMRC reserves the right, in its sole discretion, to
refuse to accept any advertising deemed by AMRC to be unlawful, contrary to
public policy, unsuitable, objectionable or otherwise in violation of the
standards contained in Appendix A hereto, as determined by AMRC from time to
time in its sole discretion. Nothing herein shall be deemed to preclude
Programmer from pursuing its available remedies in the event it believes that
AMRC has wrongfully refused to accept such advertising. Notwithstanding anything
contained herein to the contrary, AMRC's exercise of its authority, control and
discretion shall be reasonably exercised, and shall not unreasonably diminish
Programmer's ability to market and promote the Programming, sell advertising and
sign up new subscribers for the Service.
(c) Programmer shall have the right to designate the times during
each clock hour at which the Advertising may be transmitted.
(d) Programmer hereby assumes the responsibility and cost for
selling the Advertising on the Channel(s); provided, however, that Programmer's
selection and use of a national advertising sales representation firm (and any
subsequent change thereof) shall be subject to AMRC's prior written approval,
which shall not be unreasonably withheld.
(e) The percentage of Net Advertising Revenues to which Programmer
shall be entitled, together with terms and conditions governing Programmer's
sale of Advertising, are set forth in Appendix H hereto.
4.2 Subscriber Commissions. In addition to the consideration set forth in
Section 4.1, AMRC shall pay to Programmer the amount set forth in Appendix I
hereto ("Subcom Fee") for each New Subscriber (as defined herein) whom
Programmer is responsible for signing up for the Service at subscription rates
set by AMRC, as the same may be changed by AMRC from time to time. Programmer
shall strictly follow all sales policies established by AMRC. For purposes of
this paragraph, a "New Subscriber" means a subscriber who has fulfilled all of
his or her Service subscription obligations to AMRC (including payment
obligations) for three months, and a Subcom Fee shall become due and payable to
Programmer only after the New Subscriber has fulfilled such obligations. Except
for the Subcom Fee, Programmer shall not be entitled to any activation fee or
any other type of fees paid by New Subscribers. Programmer acknowledges that any
increase in the subscription fees during the Term shall not affect the Subcom
Fee set forth above. In addition, if AMRC reduces subscription fees for the
Service generally, the Subcom Fee shall be reduced on a proportionate basis,
provided that if AMRC stops charging subscription fees for the Service
generally, AMRC shall be relieved of any obligation to pay any future Subcom Fee
and Programmer's obligations under the remainder of this Agreement shall not be
affected thereby. Programmer expressly acknowledges and agrees that AMRC's sole
obligation herein shall be to pay a single Subcom Fee per subscriber, and that
in the event a New Subscriber identifies more than one referral source (and each
source is eligible to earn a Subcom Fee), the Subcom Fee may be split equally
among the referral sources in the sole discretion of AMRC.
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<PAGE>
ARTICLE FIVE
TERMINATION
5.1 Termination Upon Default. Either party may terminate this Agreement
(the "Terminating Party") if the other party (the "Defaulting Party") is in
breach of or default under the provisions of this Agreement. For purposes of
this Section 5.1, a default shall be any of the following:
(a) the Defaulting Party fails to pay any amount due hereunder
within fifteen ( 15) business days after written notice is given by the other
party that the same is overdue (or shall be delinquent in such payment on more
than five occasions during the Term);
(b) the Defaulting Party fails to perform any of its covenants or
obligations hereunder in all material respects or makes any material
misrepresentation hereunder, which failure or misrepresentation is not cured
within fifteen (15) business days after written notice thereof is given by the
other party;
(c) the Defaulting Party dissolves or liquidates, or transfers all
or substantially all of its assets to another person or entity otherwise than as
permitted under Section 9.3 of this Agreement; or
(d) the Defaulting Party becomes the subject of voluntary or
involuntary bankruptcy, insolvency, reorganization or liquidation proceedings,
makes an assignment for the benefit of creditors, or admits in writing its
inability to pay its debts as they mature, or a receiver is appointed or any of
its assets or properties, and the same is not dismissed, vacated, or stayed
within ninety (90) days.
Termination under this Section 5.1 shall be effective immediately on the
date on which the Defaulting Party is given written notice of default or at the
end of any applicable cure period.
5.2 Other Remedies. If this Agreement is terminated in accordance with
the provisions set forth in Section 5.1 above, the Terminating Party shall be
entitled to exercise all remedies which may be available to it, either at law or
in equity, or both. Notwithstanding any limitation set forth in Section 5.6
hereof, in connection with the Terminating Party's recovery of actual damages
incurred as a result of the Defaulting Party's breach, the parties agree that
such actual damages shall be deemed to include (but shall not be limited to) an
amount equal to the Net Advertising Revenues received by the Terminating Party
during the 6-month period preceding the date on which the breach occurred. In
the case where AMRC is the Terminating Party, this amount shall equal at least
50% of the applicable minimum payment due to AMRC for the year in which the
breach occurred, as described in Appendix H hereto.
5.3 Regulatory approvals. If: (a) AMRC fails, for any reason, to obtain
and maintain all material FCC authorizations or other government approvals for
the provision of the Service; or (b) a final order of the FCC, or other
government agency having jurisdiction, revoking or denying renewal of the DARS
authorization(s) granted to AMRC is issued and becomes effective, this Agreement
shall terminate immediately, upon written notice to Programmer.
5.4 System Launch Failure: Business Cessation.
(a) Either party may terminate this Agreement without liability in
the event that the Commercial Operations Date does not occur, for any reason, by
December 31, 2001.
(b) AMRC may terminate this Agreement in the event it ceases, for
any reason, providing the Service altogether.
5.5 Early Termination. During the 30-day period immediately following
each of the third and fourth anniversaries of the Commercial Operations Date
(each, an "Early Termination Period"), the parties may terminate this Agreement
as provided in Appendix J hereto.
-5-
<PAGE>
5.6 Limitation of Liability. In no event shall either party be liable for
any indirect, consequential, or special damages, or for any lost profits, even
if advised of the possibility of the same.
ARTICLE SIX
REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Programmer's Representations. Warranties and Covenants. Programmer
represents, warrants and covenants to AMRC, as of the date hereof and throughout
the Term, as follows:
(a) Programmer is a limited liability company duly organized and
validly existing under the laws of the State of Delaware. Programmer has full
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and the performance of
Programmer's obligations hereunder have been duly and validly authorized by
Programmer and no other proceedings on the part of Programmer are necessary to
authorize this Agreement or to perform its obligations hereunder. This Agreement
has been duly and validly executed and delivered by Programmer and constitutes
the legal, valid and binding obligation of Programmer enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other laws
affecting generally the enforcement of creditors' rights or the application of
principles of equity. The individual executing this Agreement on behalf of
Programmer has the authority to do so. The execution, delivery and performance
of this Agreement by Programmer will not result in the breach or termination of,
or constitute a default under or conflict with any of the terms, conditions or
provisions of, any agreement or other instrument to which Programmer is a party
or by which it is bound.
(b) Programmer has the full power and authority and has obtained
all necessary rights and/or permission to grant the licenses contemplated in
Section 2.2 above. Without limiting the generality of the foregoing, Programmer
has secured all necessary rights from third parties in order to grant AMRC the
exclusive license to use the Programming as described in Section 2.2 above, and
upon request of AMRC, Programmer shall furnish appropriate documentation
evidencing such rights. The Programming, in the form delivered by Programmer to
AMRC from time to time and when used for the purpose and in the manner
contemplated by this Agreement, does not and will not infringe upon any United
States or foreign patent, copyright, trade name, trademark, service mark, trade
secret, literary or dramatic right or other proprietary right of any third
person (including the right of privacy and publicity) and will not violate the
terms of any music performance rights license of AMRC (compulsory or otherwise).
(c) The receipt, transmission and use of the Programming by AMRC,
as contemplated by this Agreement, will not cause AMRC or any of its affiliates,
agents or employees to violate any domestic or foreign law, rule, regulation,
court or administrative decree. The Programming shall comply with all applicable
governmental and international laws, conventions, treaties and regulations,
including laws regarding defamatory, obscene or pornographic materials or
communications.
(d) Programmer shall maintain, at its own cost and expense,
insurance with a carrier satisfactory to AMRC concerning and covering any and
all of Programmer's obligations under this Agreement. Such insurance shall name
AMRC as an additional insured and shall include, without limitation,
comprehensive general liability (including a contractual liability endorsement),
with limits of at least one million dollars ($1,000,000.00), and errors and
omissions coverage, including intellectual property infringement liability, with
limits of at least three million dollars ($3,000,000.00). Such insurance shall
remain in force at all times during the Term hereof and for a period of five
years thereafter. At periodic intervals determined by AMRC, AMRC may require
Programmer to increase these coverage limits by a reasonable amount as AMRC may
determine is necessary in good faith. Programmer shall provide AMRC with a
certificate of insurance evidencing this coverage upon the execution hereof. At
least thirty (30) days prior to the expiration of such policy, Programmer shall
provide AMRC with appropriate proof of issuance of a policy continuing in force
and effect the insurance coverage of the insurance so expiring. Programmer shall
provide AMRC with thirty (30) days written notice of any changes in such policy;
provided, however, that Programmer shall not make any revisions to such policy
which could adversely affect AMRC's rights without AMRC's prior written consent.
-6-
<PAGE>
(e) Programmer shall be solely responsible for the content of the
Programming and for any advertising that it sells for distribution via the
Service. To the extent that the Programming or Advertising is not in the English
language, upon AMRC's request, Programmer shall provide to AMRC a translation
into the English language of any of the same and/or a translator to enable AMRC
to monitor such Programming. The cost of such translation shall be shared
equally by the parties.
(f) During the Term hereof, Programmer shall not, directly or
indirectly, transmit, distribute, commercially exploit or otherwise authorize,
within the areas in which AMRC is authorized by the FCC to provide service, the
reception of all or any portion of the Programming furnished to AMRC hereunder,
including the Channel Brand Name, via other distribution technologies (e.g.,
audio cable, wireless cable, Internet or other interactive and/or computer
applications), except as otherwise specifically authorized in Appendix K hereto.
(g) Programmer shall not take any action that is intended or
designed to have the effect of discouraging any licensor, subscriber, supplier
or other business associate of AMRC from maintaining the same business
relationship with AMRC. In that regard, Programmer shall not directly or
indirectly: (i) induce or attempt to influence any present or future Service
subscriber to cancel his or her subscription to the Service; or (ii) induce or
attempt to influence any employee of AMRC (including talent) to terminate his or
her employment. Programmer's obligations under this subparagraph (h) shall
survive the expiration or termination of this Agreement.
6.2 AMRC's Representations. Warranties and Covenants. AMRC represents,
warrants and covenants to Programmer AMRC, as of the date hereof and throughout
the Term, as follows:
(a) AMRC is a corporation duly organized and validly existing under
the laws of the State of Delaware. AMRC has full power and authority to enter
into this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the performance of AMRC's obligations hereunder
have been duly and validly authorized by AMRC and no other proceedings on the
part of AMRC are necessary to authorize this Agreement or to perform its
obligations hereunder. This Agreement has been duly and validly executed and
delivered by AMRC and constitutes the legal, valid and binding obligation of
AMRC enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other laws affecting generally the enforcement of
creditors' rights or the application of principles of equity. The individual
executing this Agreement on behalf of AMRC has the authority to-do so. The
execution, delivery and performance of this Agreement by AMRC will not result in
the breach or termination of, or constitute a default under or conflict with any
of the terms, conditions or provisions of, any agreement or other instrument to
which AMRC is a party or by which it is bound.
(b) EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, AMRC MAKES NO
WARRANTY REGARDING THE PROVISION OF THE SERVICE, INCLUDING WITHOUT LIMITATION,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.3 Joint Covenants.
(a) AMRC and Programmer shall each refrain from doing anything that
would tend to discredit, dishonor, reflect adversely upon, or in any manner
injure, the reputation of the other or the Service, or adversely affect the
other or the Service, or, in the case of AMRC, adversely affect AMRC's status as
a licensed DARS provider, except that a party's enforcement of its rights and
performance of its duties and obligations contained herein shall not be deemed a
violation of the provisions of this Section 6.3(a). Each party shall be governed
in all its dealings under this Agreement by the highest standards of honesty,
integrity, and fair dealing.
(b) At the request of AMRC, the parties shall jointly prepare a
plan for developing and producing the Programming, for delivering the
Programming to AMRC, for marketing and promoting the Service and
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for testing and implementing the Service ("Implementation Plan"). The
Implementation Plan shall address, at a minimum, the following:
(i) Development and production of the Programming;
(ii) Delivery of the Programming to AMRC;
(iii) Marketing and promoting the Service;
(iv) Sale of Advertising; and
(v) Testing and implementation of the Service:
(1) The schedule for implementation of the Channel(s) by
Programmer;
(2) Installation and testing of Programmer equipment
located at, and integration with, AMRC's facilities
and services;
(3) Integration of and testing of AMRC's facilities with
Programmer's means of transmitting the Programming to
the AMRC facility; and
(4) The processes and procedures for maintenance and repair.
ARTICLE SEVEN
INDEMNIFICATION
7.1 Breach or Default. AMRC and Programmer shall each indemnify, defend
and forever hold harmless the other and the other's affiliated companies and
each of the other's (and the other's affiliated companies') respective present
and former officers, shareholders, directors, employees, partners and agents,
from and against any and all losses, liabilities, claims, costs, damages,
expenses, including without limitation, fines, forfeitures, attorneys' fees,
disbursements and court and/or administrative costs (collectively, "Loss and
Expense"), arising out of the breach of or default under any term, warranty,
covenant, representation or other provision contained herein.
7.2 Program Related. Without limiting the provisions of Section 7.1
hereof, Programmer shall indemnify, defend and forever hold harmless AMRC and
AMRC's affiliated companies and each of AMRC's (and its affiliated companies')
respective present and former officers, shareholders, directors, employees,
partners and agents, from and against all Loss and Expense arising directly or
indirectly out of: (i) the development, production, supply, delivery or content
of the Programming or the marketing, promotion, transmission or use of the
Programming hereunder and any Advertising included therein or adjacent thereto;
or (ii) any alleged or proven libel, slander, defamation, invasion of the right
of privacy or publicity, violation, infringement or misappropriation of any
performance right, patent, copyright, trade name, trademark, trade secret,
literary or dramatic right, or obscenity or indecency based in whole or in part
upon the Programming and/or AMRC' s use thereof and any sponsorship, promotional
and advertising spots contained therein (provided that AMRC shall, to like
extent, indemnify Prograrnmer for any deletion or addition of material by AMRC
to the Programming which deletion from, or addition to, the Programming gives
rise to any Loss or Expense, unless such deletion or addition was required to
comply with applicable law; or (iii) the negligent or willful acts or omissions
of Programmer or its equipment and/or service vendors.
7.3 System Related. Without limiting the provisions of Section 7.1
hereof, AMRC shall indemnify, defend and forever hold harmless Programmer and
Programmer's affiliated companies and each of Programmer's (and its affiliated
companies') respective present and former officers, shareholders, directors,
employees, partners and agents, from and against all
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Loss and Expense arising directly or indirectly out of (i) the operation of the
System, or (ii) the negligent or willful acts or omissions of AMRC.
7.4 Indemnification Procedures. Each party seeking indemnity hereunder
(the "Indemnified Party") shall give prompt written notice to the other party
(the "Indemnifying Party") of any circumstances which may give rise to any Loss
or Expense under this Article 7 as soon as the Indemnified Party knows of such
circumstances; provided, however, that the failure to give such notice shall not
relieve the Indemnifying Party of its obligation to indemnify the Indemnified
Party under this Article 7. The Indemnifying Party shall, at its own cost and
expense and using counsel acceptable to the Indemnified Party, contest and
assume responsibility for the defense of such litigation, provided that the
Indemnified Party may, at the Indemnifying Party's own cost and expense,
participate in the defense of any such claim, action or suit. The Indemnifying
Party shall have the right to control the defense and any settlement of such
claim, action or suit. The Indemnifying Party shall pay all expenses and satisfy
all judgments, including reasonable attorneys' fees and litigation expenses,
which may be incurred by or rendered against the Indemnified Party in connection
therewith.
The indemnification obligations of the parties under this Article 7 shall
survive the expiration or termination of this Agreement.
ARTICLE EIGHT
FORCE MAJEURE
8.1 Force Majeure. Neither AMRC nor Programmer shall have any rights
against the other for any failure of performance due to causes beyond its
control, including without limitation, failure of the System facilities
(including general satellite or transponder failure), acts of God, fires, floods
or other catastrophes; national emergencies, insurrections, riots or wars;
strikes, lockouts, work stoppages or other labor difficulties; and any law,
order, regulation or other action of any governing authority or agency thereof.
8.2 Emergency Preemption.
(a) The carriage of Programming on the System may, in AMRC's sole
discretion, be preempted, interrupted or suspended due to unusual, abnormal or
other unforeseen situations, or conditions or for reasons beyond AMRC's control,
including without limitation, maintenance requirements or emergency conditions
experienced by AMRC; or to protect AMRC's System, personnel, facilities or
services (collectively, "Emergency Preemption").
(b) Upon notice of or otherwise becoming aware of an Emergency
Preemption, Programmer shall, upon the request of AMRC, immediately cease
transmissions of the Programming. AMRC may cause such Emergency Preemption to
occur in its sole discretion without liability to Programmer; provided, however,
that AMRC shall, to the extent possible, give reasonable notice thereof and use
all commercially reasonable best efforts to restore full carriage as soon as
practicable.
ARTICLE NINE
MISCELLANEOUS
9.1 Noncompetition Covenant:
(a) Programmer hereby covenants and agrees that it shall not,
during the Term, provide any programming or services or furnish any materials
to, or enter into any relationship with other DARS provider or any entity which
is affiliated in any manner with such provider which provides service to any
portion of the continental United States. Programmer acknowledges and agrees
that its breach of the foregoing prohibition will cause irreparable harm to AMRC
for which there is no adequate remedy at law. Accordingly, Programmer hereby
agrees that specific performance, including in the form of a mandatory
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injunction, is and will be an appropriate remedy and that AMRC shall not be
required to post a bond or other security to file for or obtain such remedy.
(b) If Programmer desires to grant, or offer, to any other third
party the right to distribute, transmit and/or authorize the reception of any
type of Asian language programming in the United States by any means (other than
the Programming included within the formats listed in Appendix A hereto, which
Programmer acknowledges shall not be offered or licensed, during the Term
hereof, to any other DARS provider which provides service to any portion of the
continental United States), Programmer shall, prior to the grant, or offer, of
such right, give AMRC written notice thereof. As part of such notice, Programmer
shall disclose to AMRC the material terms and conditions of any proposed offer
and the identity of the third party to whom Programmer is proposing to grant, or
offer, such right. Upon receipt of such notice, AMRC may offer to acquire such
programming from Programmer, whereupon Programmer may accept or reject such
offer as it may decide in its sole discretion; provided, however, that nothing
contained herein shall be deemed to restrict, hinder or otherwise delay
Programmer's absolute right to grant or offer such right to a third party at any
time following Programmer's notice thereof to AMRC.
(c) Programmer's rights, if any, to provide programming to AMRC for
transmission on other Channels is set forth in Appendix L hereto.
9.2 Confidentiality. AMRC and Programmer shall hold in confidence all
information contained in this Agreement, and any information related hereto,
including all information pertaining to pricing, Marketing Research and
subscriber lists. Such information shall not be disclosed to any third party by
either party without the prior written consent of the other party, except as
otherwise permitted in Section 3.3 hereof. Without limiting the generality of
the foregoing, neither party shall, without the written approval of the other
party, make any press release or other public announcement concerning the
parties' negotiation or execution of this Agreement or the terms hereof, except
as and to the extent that such party shall be so obligated by law, in which case
such party shall give advance notice to the other and the parties shall use
their best efforts to cause a mutually agreeable press release or announcement
to be issued.
The parties' obligations under this Section 9.2 shall survive the
expiration or termination of this Agreement.
9.3 Assignment.
(a) AMRC shall have the right to assign this Agreement, including
its rights and obligations under this Agreement, without the consent of
Programmer, to such person or entity who shall from time to time hold the FCC
authorizations pursuant to which the Service is authorized by the FCC. AMRC
shall also have the unrestricted right to assign this Agreement, or any of its
rights hereunder, upon written notice to Programmer, to any lender as collateral
security in connection with any financing arrangement of AMRC; provided, that
AMRC shall remain responsible for performance of its responsibilities hereunder.
(b) Programmer shall not assign any of its rights and/or
obligations under this Agreement to any other legal or natural person or entity
without the prior written consent of AMRC, which consent shall not be
unreasonably withheld. Any purported assignment by Programmer without AMRC's
consent shall be null and void. AMRC agrees that Programmer may collaterally
assign its rights and obligations under this Agreement to any financial
institution providing financing to Programmer as security for such loan
obligation. Programmer shall give AMRC sixty (60) days prior written notice of
any change in Control (as defined herein) of Programmer. Within thirty (30) days
of its receipt of such notice, AMRC may, at its option and in its sole
discretion, terminate this Agreement without any liability or further obligation
to Programmer or any third party, by giving Programmer written notice thereof.
Such termination shall become effective thirty (30) days after the date of
AMRC's termination notice unless Programmer has abandoned such transfer of
Control and given AMRC written notice thereof during such 30-day period. For
purposes of this paragraph, the term "Control" shall mean the power to direct
the management and policies of an entity, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
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9.4 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their permitted assigns.
9.5 No Third Party Beneficiaries. The provisions of this Agreement are
for the exclusive benefit of the parties hereto and their permitted assigns.
Nothing contained in this Agreement will be deemed to create any third party
beneficiaries or confer any benefit or rights on or to any person not a party
hereto, and no person not a party hereto (including without limitation
customers, vendors, or creditors of Programmer) shall be entitled to enforce any
provisions hereof or exercise any rights hereunder; provided, however, that AMRC
shall be deemed to be a third party beneficiary under any arrangement under
which Programmer receives programming and/or rights thereto for the Programming.
9.6 Relationship Between the Parties. Neither AMRC nor Programmer shall
be, or hold itself out as, the agent of the other under this Agreement. Nothing
contained herein shall be deemed to create, and the parties do not intend to
create, any partnership, association, joint venture, fiduciary or agency
relationship between AMRC and Programmer, and neither party is authorized to or
shall act toward third parties or the public in any manner which would indicate
any such relationship with the other.
9.7 Notices.
(a) All notices and other communications hereunder shall be given
in writing and shall be deemed to have been duly given and effective (i) upon
receipt if delivered in person or by facsimile, (ii) one (1) day after deposit
prepaid with a national overnight express delivery service; or (iii) three (3)
days after deposit in the United States certified mail, postage prepaid. return
receipt requested:
If to AMRC:
American Mobile Radio Corporation
1250 23rd Street, NW
Washington, D.C. 20037
Attention: Mr. Lee Abrams
Senior Vice President, Content and Programming
Phone: (202) 969-7051
Facsimile: (202) 969-7101
With a copy to:
General Counsel
American Mobile Radio Corporation
1250 23rd Street, NW
Washington, D.C. 20037
Phone: (202) 969-7100
Facsimile: (202) 969-7050
If to Programmer:
AsiaOne Network, L.L.C.
499 Hamilton Avenue, Suite 140
Palo Alto, CA 94301
Attention: Mr. N. John Douglas, Chairman/CEO
Phone: (650) 324-5888
Facsimile: (650) 688-1166
With a copy to:
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William E. Green, Esq.
William Green & Associates
550 Hamilton Avenue, Suite 301
Palo Alto, CA 94301
Phone: (650) 321-9992
Facsimile: (650) 325-4205
(b) Each party may designate by notice, delivered as described in
paragraph (a) of this Section 9.7, a new address (or substitute or additional
persons) to which any notice, demand, request or communication may thereafter be
so given, served or sent.
9.8 Applicable law: Dispute Resolution.
(a) This Agreement, and the rights and obligations of the parties
hereunder. are subject to all applicable federal, state and local laws, rules
and regulations (including without limitation, the Communications Act of 1934,
as amended, and the rules and regulations of the FCC) and shall be construed in
accordance with and shall be governed by the laws of the State of New York,
without giving effect to the principles of conflict of laws thereof.
(b) In case of any controversy or claim arising out of or related
to this Agreement, the parties agree to meet to resolve such dispute in good
faith. Should such a resolution not be reached, the parties further agree that
the matter shall be settled by arbitration administered by JAMS/Endispute (or
such other alternative dispute resolution service provider as may be mutually
agreed upon by the parties) in accordance with such entity's expedited
arbitration rules, and judgment on the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. The arbitration shall be
conducted in Washington, D.C. unless another location is agreed upon by the
parties.
9.9 Waiver and Severability.
(a) Neither the waiver by either of the parties hereto of a breach
of, or a default under, any of the provisions of this Agreement, nor the failure
of either of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder
shall thereafter be construed as a waiver of any preceding or subsequent breach
or default of the same or any other obligation, or as a waiver of any provision,
right, or privilege hereunder. Any waiver under this Agreement must be in
writing.
(b) In the event that any one or more of the provisions of this
Agreement shall be held by a court of competent jurisdiction to be invalid or
unenforceable in any respect, such invalidity and unenforceability shall not
affect any other provision of this Agreement, and the Agreement shall be
construed as though such invalid and/or unenforceable provision(s) had never
been contained herein.
9.10 Modification. No amendment of or modification to this Agreement
shall be valid unless made in writing and signed by the authorized
representative(s) of the parties. As to AMRC, the "authorized representatives"
means both AMRC's President or any Vice President and its General Counsel.
9.11 Headings. The headings and numbering of paragraphs in this Agreement
are for convenience only and shall not be construed to define or limit any of
the terms herein or affect the meaning or interpretation hereof.
9.12 Entire agreement. This Agreement, including all appendices hereto,
constitutes the entire agreement between the parties hereto and supersedes all
prior oral or written agreements, representations, statements, negotiations,
understandings, proposals, and undertakings with respect to the subject matter
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hereof. All appendices hereto are expressly incorporated herein by reference and
made a material part of this Agreement.
9.13 Attorneys' Fees. If any suit, appeal, or other action is commenced
by a party to establish, maintain, or enforce any right or remedy arising from
this Agreement, the prevailing party shall be entitled to reimbursement from the
other party of its reasonable attorneys' fees and litigation or appeal expenses
incurred therein.
9.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first above written.
AMERICAN MOBILE RADIO CORPORATION
ASIAONE NETWORK, L.L.C.
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Appendix A
Description of Programming
The Programming shall solely consist of distinctive, high quality (in terms of
sound, content and talent, as well as music rotation, where applicable), foreign
language news, talk and variety formatted audio programming (including sports),
targeted to persons within the United States from the following countries, in
the primary native language(s) of those countries:
First Channel: China
Second Channel: India
The Programming shall conform with the standards attached hereto as Schedule
A-1, together with such other reasonable standards as may be established by AMRC
from time to time during the Term.
SCHEDULE A-1
PROGRAM AND OPERATING STANDARDS
Programmer shall observe the following policies and standards in its
preparation and production of the Programming:
1. Respectful of Faiths. The subject of religion and references to
particular faiths and tenets shall be treated with respect at all times.
2. Donation Solicitation. Requests for donations in the form of a
specific amount shall not be made if there is any suggestion that such donation
will result in miracles, physical cures or life-long prosperity. However,
statements generally requesting donations to support a broadcast or church are
permitted.
3. Treatment of Parapsychology. The advertising or promotion of fortune
telling, occultism, astrology, phrenology, palm reading, numerology,
mind-reading, character readings or subjects of the like nature
("Parapsychology") will not be broadcast unless such Parapsychology is an
integral part of the culture targeted by the Programming. Any advertising or
promotion of Parapsychology is subject to Sections 2.3(b) of the Agreement and
the remaining sections of Appendix A.
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4. No Ministerial Solicitations. No invitations by a minister or other
individual appearing on a program to have listeners come and visit him or her
for consultation or the like shall be made if such invitation implies that the
listeners will receive consideration, monetary gain, or physical cures for
illness.
5. No Vending of Miracles. Any exhortation to listeners to bring money to
a church affair or service containing any suggestion that miracles, physical
cures or prosperity will result will not be broadcast.
6. Sale of Religious Artifacts. The offering for sale of religious
artifacts or other items for which listeners would send money is prohibited
unless such items are: (a) normally available in ordinary commerce; (b) part of
particular cultural or religious celebrations; or (c) clearly sold for proper
fund-raising purposes.
7. No Miracle Solicitation. Any invitation to listeners to meet at places
other than a church and/or to attend other than regular services of a church is
prohibited if the invitation, meeting or service contains any claim that
miracles, physical cures or prosperity will result.
8. No Plugola or Payola. The mention of any business activity or "plug"
for any commercial, professional or other related endeavor, except where
appropriate identification of the sponsorship is made or where contained in an
actual commercial message of a sponsor, or is otherwise lawful, is prohibited.
No commercial messages or "plugs" shall be contained in the Programming
presented over the System which refer to any business venture, profit-making
activity or other interest (other than non-commercial announcements for bona
fide charities, church activities or other public service activities) in which
Programmer or its employees is or are directly or indirectly interested without
the same having been approved in advance by AMRC or such message being announced
and logged as sponsored.
9. No Gambling. References to "dream books," the "straight line," or
other direct or indirect descriptions or solicitations relative to the "numbers
game," or the "policy game" or any other form of illegal gambling are
prohibited.
10. No Numbers Games. References to chapter and verse paragraphs,
paragraph numbers or song numbers, which involve three digits should be avoided
and, when used, must reasonably relate to a non-gambling activity.
11. Election Procedures. At least fifteen (15) days before the start of
any primary or regular election campaign, Programmer will set the rates for time
to be sold to candidates for public office and/or their supporters to make
certain that the rates charged are in conformance with applicable law and
existing AMRC policy.
12. No Illegal Announcements. No announcement or promotion prohibited by
federal or state law or regulation of any lottery or game shall be made over the
System.
13. AMRC Discretion Paramount. In accordance with AMRC's responsibility
under the Communications Act of 1934, as amended, and the rules and regulations
of the FCC, AMRC reserves the right to reject or terminate any Advertising or
Programming being presented over the System which is in conflict with AMRC
policy or which in AMRC's sole but reasonable judgment would not serve the
public interest.
14. Programming Prohibitions. Programmer shall not knowingly broadcast
any of the following programs or announcement:
(a) False Claims. False or unwarranted claims for any product or
service.
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(b) Unfair Imitation. Infringements of another advertiser's rights
through plagiarism or unfair imitation of either program ideas or copy, or any
other unfair competition.
(c) Commercial Disparagement. Any unfair disparagement of
competitors or competitive goods.
(d) Defamation, Profanity, Obscenity, Indecency. Any programs or
announcements that are defamatory, obscene, indecent, profane or vulgar
according to applicable FCC regulations or policies, either in theme or
treatment.
(e) Unauthenticated Testimonials. Any testimonials which cannot be
authenticated.
(f) Descriptions of Bodily Functions. Any presentation which
describes in an obscene or indecent manner bodily functions.
(g) Advertising. Any advertising matter or announcement which may,
in the opinion of AMRC, be materially injurious or prejudicial to the interests
of the public or the System, or to honest advertising and reputable business in
general.
(h) Contests. Any contests or promotions which are in any way
misleading or constitute a public nuisance or are likely to lead to injury to
persons or property.
(i) Telephone Conversations. Any programming in material violation
of any statute, regulation or policy, including without limitation Section
73.1206 of the FCC's rules, or any successor regulation, dealing with the taping
and/or broadcast of telephone conversations.
AMRC may waive, in writing, any of the foregoing policies in specific
instances in its sole discretion.
In any case where obvious questions of policy or interpretation arise,
Programmer will attempt in good faith to notify AMRC of the same before making
any commitments in connection therewith.
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Appendix B
Term
As used herein, the term "Commercial Operations Date" means the date
specified by AMRC in writing to Programmer, on which AMRC commences transmission
of the Service to subscribers generally. The Term of this Agreement shall end on
the fifth anniversary of the Commercial Operations Date without further action
or notice by either party; provided, this Agreement shall automatically renew
for a one year renewal term ("Renewal Term"): (1) on the fifth anniversary of
the Commercial Operation Date if, on the fourth anniversary of the Commercial
Operations Date, AMRC's share of Net Advertising Revenue for the preceding year
was at least $ 1,750,000.00; and (2) on the sixth anniversary of the Commercial
Operations Igate if, on the fifth anniversary of the Commercial Operations Date,
AMRC's share of Net Advertising Revenue for the preceding year was at least
$2,500,000.00. Upon the expiration of the Term or any Renewal Term, the
Agreement may be renewed on such terms as may be mutually agreed upon by the
parties in their sole discretion.
<PAGE>
Appendix C
Channels
AMRC will make available two (2) full-time channels on the System to
carry the Programming (each, a "Channel"). Each Channel shall provide digital
quality for a talk format, which shall be of a quality equal to or better than
that currently provided by a Class 1 terrestrial AM radio broadcast station.
AMRC shall determine the bandwidth of each Channel in its sole discretion, as
the same may be changed from time to time by AMRC.
<PAGE>
Appendix D
Additional Rights
Subject to mutual agreement between the parties regarding the
compensation paid to Programmer, AMRC shall also receive an exclusive license
to: (i) transmit, distribute, authorize the reception of, and otherwise exploit
the Programming via alternative distribution channels (e.g., audio cable,
wireless cable, Internet and other multimedia, interactive and/or computer
applications); and (ii) exploit any and all so-called "ancillary" rights in and
to the Programming during the term hereof, including without limitation, all
merchandising and commercial tie-up and tie-in rights and all rights relating to
the sale and distribution of compact discs, digital audio tapes and other
similar mediums containing portions of the Programming. AMRC acknowledges that
Programmer does not have any obligation to grant AMRC the rights set forth in
the preceding sentence.
<PAGE>
Appendix E
Technical Specifications
[To be supplied by AMRC technical people]
Programmer may change the satellite or transponder used to deliver
Programmer's signal(s) to the Uplink Facility upon ninety (90) days prior
written notice to AMRC, provided that such new mode of delivery shall conform
with the AMRC Requirements.
<PAGE>
Appendix F
Programmer Trademarks
AsiaOne
Taj Radio Network
<PAGE>
Appendix G
Marketing and Promotion
Programmer shall expend at least a total of $250,000 during the Term
hereof, and not less than $25,000 per calendar year, for marketing and promoting
the Service over radio (other than Programmer's own terrestrial facilities) and
television broadcast stations, on DBS and cable television systems, and in
billboard, busboard, newspaper, classified advertising, promotional events,
fairs, direct mail, shopper advertising media, and other appropriate media
outlets. Upon the request of AMRC, Programmer shall furnish AMRC with vendor
invoices and other applicable documentation to substantiate the nature, extent
and cost of its marketing and promotional efforts. Subject to AMRC approval of
advertising copy and applicable media outlet, AMRC shall co-op 50% of
Programmer's required marketing and promotional expenditures (not to exceed
aggregate payments of $125,000 during the Term). Co-op payments shall be
conditioned on AMRC's receipt of appropriate affidavits of performance, ad copy
and/or such other documentation as may be reasonably required by AMRC to
substantiate the co-op advertising.
To promote the Service, Programmer shall use commercially reasonable best
efforts to air a minimum of two 30-second spots per day on each of the
terrestrial radio broadcast stations which it owns and/or operates. The spots
shall be aired ROS on a commercial availability basis. AMRC shall furnish
Programmer with these promotional announcements from time to time during the
Term.
<PAGE>
Appendix H
Revenue Sharing
1. Programmer shall use all commercially reasonable best efforts to sell:
(i) a maximum amount of commercial advertising time not to exceed twelve (12)
minutes per clock hour (combination of 30- and 60-second spots) on each Channel,
provided that AMRC may increase this limit on the number of commercial
advertising minutes upon notice to Programmer; and (ii) program time on each
Channel. All advertising/program time shall be sold at a rate not less than a
minimum rate determined by Programmer from time to time. In accordance with
Section 9.7, Programmer shall notify AMRC of the rate and any changes thereto
for all advertising/program time. Programmer shall be solely responsible for
sales, billing, collection and ad trafficking, and for furnishing appropriate
affidavits of performance, as necessary. Programmer shall provide copies of all
commercial advertising and program contract to AMRC on monthly basis, and all
commercial advertising logs to AMRC on a weekly basis.
2. Programmer shall, on a monthly basis, remit to AMRC by wire transfer
the percentages of Net Advertising Revenues set forth in the chart below for
each Channel, but no less than the annual minimum amounts set forth therein for
each Channel (on a calendar year basis). As used herein, the term "Net
Advertising Revenues" shall mean gross billings from Programmer's sale of
program time, advertising and sponsorships included in the Programming, together
with any other gross revenues generated by Programmer (on an accrual basis) from
the transmission of the Programming on the System, less agency and
representative fees and third party sales commissions, Performing Rights License
Fees, sales taxes, and any other mutually agreed upon expense items, all of
which expenses shall be paid by Programmer, or reimbursed to AMRC if paid by
AMRC. The computation of Net Advertising Revenues shall also be subject to bad
debt allowance of 0.5% to the extent funds are not collected. All payments
remitted to AMRC shall be in U.S. Dollars. As used herein, the term "Performing
Rights License Fees" means each Channel's fair allocable share of all fees,
payments and other charges attributable to music rights licenses obtained by
AMRC in any of the copyrighted musical compositions and/or sound recordings
included in the Programming, whether resulting from negotiations or otherwise.
Revenue Share 2000/2001 2002 2003 2004 2005/2006*
Programmer Revenue 85% 65% 50% 50% 50%
AMRC Revenue 15% 35% 50% 50% 50%
Minimum to AMRC $ 125k* * $500k $ l ,000k $ l ,000k $ l ,000k* *
per Channel
* Minimum payment for 2006 shall apply, on a pro rata basis, if the Commercial
Operations Date commences in 2001.
** Pro rata, as applicable.
Minimum payments to AMRC shall be reconciled on a calendar quarter basis (with
the first and last year's payments prorated). Accordingly, if the Net
Advertising Revenues remitted to AMRC during any given calendar quarter is less
than 25% of the minimum annual payment set forth in the chart above, Programmer
shall remit the payment shortfall to AMRC with the next monthly payment due in
the first month of the succeeding calendar quarter.
3. On or prior to the twenty-fifth (25th) day of each calendar month,
Programmer shall remit to AMRC its share of Net Advertising Revenues generated
during the prior month, and deliver to AMRC a statement itemizing the
calculation of Net Advertising Revenues (together with invoices, billing
statements and other supporting documentation reasonably requested by AMRC) and
a list of the then currently outstanding accounts receivable by payee and amount
due. Any reserves proposed by Programmer to meet future cost obligations shall
be subject to AMRC's approval.
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<PAGE>
4. Programmer shall keep and maintain accurate books and records of all
matters relating to the performance of its sales activities hereunder in
accordance with generally accepted accounting principles. During the Term of
this Agreement and for a period of three (3) years after the last remittance is
due to AMRC, Programmer shall make its books and records available for
inspection and audit by AMRC, its employees and agents, at Programmer's offices
upon reasonable advance notice to Programmer. Notwithstanding the foregoing, in
the event an audit of Programmer's books and records reveals an underpayment to
AMRC, Programmer shall pay to AMRC the amount of such underpayment and reimburse
AMRC for all expenses incurred in connection with the audit.
5. Programmer acknowledges that AMRC may market and sell special multiple
channel, bulk advertising packages at such rates as AMRC may determine in its
sole discretion. Programmer agrees to include such advertising spots within the
Programming as part of the twelve minutes of advertising to be sold hereunder at
the times specified by AMRC, subject to inventory availability. AMRC shall be
responsible for billing and collections related to such advertising, and AMRC
will remit the Net Advertising Revenues derived from such advertising to
Programmer in accordance with the percentages and procedures set forth above.
6. Programmer shall not advertise, or include in the Programming any
advertisements for, "800," "900," or "976" telephone services, or other
telephone services or similar services, which bill a caller for placing or
confirming a call that relate directly or indirectly to gambling, sexual or
romantic activities or other adult-only services, or that are directed at
children.
7. Any payment due from Programmer to AMRC that is not received by AMRC
on the date it is due shall be subject to a finance charge at a rate equal to
the lesser of one and one half percent (1 l/2%) per month or the highest rate
permitted by law, which amount shall accrue daily from the date payment was due
until the date the outstanding balance is paid in full.
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<PAGE>
Appendix I
Subcom Fee
Twenty-Five Dollars ($25).
<PAGE>
Appendix J
Early Termination
(a) After the third anniversary of the Commercial Operations Date, the
parties may, upon written notice given during the Early Termination Period,
terminate the Agreement as follows:
(i) AMRC may terminate the Agreement upon written notice to
Programmer given during the Early Termination Period if the total
Net Advertising Revenues generated during the twelve-month period
preceding the third anniversary of the Commercial Operations Date
does not exceed $ 1,000,000 for each Channel.
(ii) Programmer may terminate the Agreement upon 180 days' prior
written notice to AMRC given during the Early Termination Period
if AMRC shall have failed to achieve a minimum of at least
2,000,000 subscribers at any time during the twelve-month period
preceding the third anniversary of the Commercial Operations
Date.
(b) After the fourth anniversary of the Commercial Operations Date, the
parties may, upon written notice given during the Early Termination Period,
terminate the Agreement as follows:
(i) AMRC may terminate the Agreement upon written notice to
Programmer given during the Early Termination Period if the total
Net Advertising Revenues generated during the twelve-month period
preceding the fourth anniversary of the Commercial Operations
Date does not exceed $1,750,000 for each Channel.
(ii) Programmer may terminate the Agreement upon 180 days' prior
written notice to AMRC given during the Early Termination Period
if AMRC shall have failed to achieve a minimum of at least
2,750,000 subscribers at any time during the twelve-month period
preceding the fourth anniversary of the Commercial Operations
Date.
<PAGE>
Appendix K
Reservation of Rights
[NONE]
<PAGE>
Appendix L
Right of First Offer
If, at any time during the Term hereof, AMRC desires to (i) enter into an
agreement, written or oral, with a third-party programmer to acquire additional
programming for one or more Asian-language format channels, or (ii) develop such
programming internally, AMRC shall give Programmer written notice (the "AMRC
Notice") that it desires to acquire or develop such programming and disclose to
Programmer the terms and conditions of the proposed third party offer or
development project, including the program format of the proposed channel(s) and
the nature and quality of the program content.
Within thirty (30) days after receipt of the AMRC Notice, Programmer may
give AMRC written notice of an offer (the "Programmer Offer") to provide to AMRC
the same or similar programming. AMRC acknowledges and agrees that it shall not
enter into any agreement with a third-party programmer to acquire such
programming or develop such programming internally until after it has received
the Programmer Offer, or until after the 30th day following the date of the AMRC
Notice if no Programmer Offer is given by Programmer during that 30 day period.
ln the event that AMRC does not accept the Programmer Offer and elects
instead to acquire such additional programming from a third-party programmer or
otherwise elects to develop such programming internally, the parties agree that
Programmer shall thereafter have no further obligation to pay AMRC the minimum
per channel payments set forth in the table in Appendix H.
