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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13102
THE NOSTALGIA NETWORK, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-0923659
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
650 Massachusetts Avenue, N.W. 20001
Washington, D.C. (Zip Code)
(Address of Principal Executive Office)
Registrant's Telephone Number, Including Area Code: (202) 289-6633
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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NONE
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.04 par value per share, Common Stock Purchase
Warrants and Units consisting of one share of Common Stock
and one Common Stock Purchase Warrant
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
Company as of March 10, 1998 was approximately $294,000 based upon the average
bid and asked price for the Company's Common Stock on such date. The Company had
20,274,371 shares of Common Stock and 3,250 shares of Preferred Stock
outstanding on March 10, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's Proxy Statement to be filed with the
Commission pursuant to Rule 14a-6 under the Securities Exchange Act of 1934 in
connection with the Company's 1998 Annual Meeting of Stockholders are
incorporated by reference in Part III, Items 10-13 of this Annual Report on Form
10-K.
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PART I
ITEM 1. BUSINESS
The Nostalgia Network, Inc. (the "Company" or "Nostalgia") operates a
television programming service (the "Service" or "Network") which offers a
variety of entertainment, information and lifestyle programming to a target
audience of active adult Americans who are 49 years of age or older ("Post-49").
The Company was originally incorporated in Colorado in 1983. In 1987 the Company
changed its name from Boston Investments, Inc. and reincorporated in Delaware
through a merger into its wholly-owned subsidiary, which was dissolved in 1995.
1997 Developments
During 1997 the Company focused on rebuilding and rebranding its
programming. In an effort to differentiate itself from its many competitors, and
in response to comments from cable system operators, the Network embarked on an
aggressive plan to increase original programming from two to eight hours a day.
That plan was launched in January 1997 with the premiere of More Money with the
Dolans, starring Ken and Daria Dolan, who present a daily one hour program on
money issues patterned after their daily radio show aired nationally on 155
stations. Additional new original programs were launched throughout the year.
The goal was reached in the fourth quarter of 1997 with the launch of the
Network's new fall lineup. The following are just a few of the original programs
premiering on Nostalgia during 1997. Nostalgia Ballroom DanceSport Competitions,
showcasing one of America's fastest growing sports, competition dancing,
provides exciting coverage from a wide variety of national dance competitions.
Cafe DuArt, featuring impressionist/comedian Louise DuArt as owner/hostess of a
New York cabaret club, provides comedic entertainment interspersed with a
variety of cabaret acts. The Real Me Autobiographies provides a unique insight
into the lives and significant influences of its guest hosts as they tell their
own stories in their own words.
The Network's prime time ratings for Monday through Friday 8pm to 11pm, as
measured by Nielsen Audience Composition Reports, grew from a .5 in fourth
quarter 1996 to a .8 in fourth quarter 1997, an increase of 60%. Such Prime Time
ratings rank the Network's viewership favorably in comparison to some of its
competitors who are targeting a subset of the Network's target demographics.
During the same period SciFi, The History Channel and TV Land rated a .6; and
Home & Garden Television rated a .4. Of those networks, The History Channel
experienced a 20% increase over the prior period; SciFi and Home & Garden
Television's ratings were flat compared to the prior period. TV Land was not
rated during the prior period.
As part of its branding efforts, the Network adopted the name Nostalgia
Good*tv. Management believes the name Nostalgia did not adequately portray the
contemporary aspects of its new programming; rather, it implied old programming.
Good*tv was deemed by management to be more descriptive of the Network's
emphasis on value oriented programming, free of sex and violence, and safe for
grandparents to watch with their grandchildren. Additionally, the Network
retained a new advertising agency and commenced a new advertising campaign
targeting both trade and consumers and designed to showcase its new original
programming.
In August 1997, the Network encrypted ("scrambled") its signal, requiring
both commercial and consumer customers to have an approved authorization code to
descramble the signal. Scrambling the signal provides security over unauthorized
use of the Network's programming as well as allowing the Network to deauthorize
customers for lack of payment or other reasons. Prior to scrambling, consumers
with an appropriate C-band satellite dish were able to view the Network's
programming free of charge. In anticipation of scrambling, the Network entered
into contracts with the major consumer programming packagers to include the
Network in their consumer packages sold to C-band satellite dish owners. These
contracts generated an additional 1,000,000 subscribers for the Network in 1997.
Also in August 1997, the Company entered into a Service Transmission
Agreement with National Digital Television Center for digital distribution of
the Network's signal through their Headend In The Sky ("HITS") program. HITS is
the digitally compressed distribution system developed and operated by
Telecommunications Concepts, Inc. ("TCI"), the largest multiple system operator
("MSO") in the United States. Inclusion in HITS makes the Network available in a
digital format for both TCI systems as well as non-TCI systems which contract
for digital distribution through HITS. The Company's agreement with HITS has a
20 year term and calls for the Company to make monthly payments of $12,000
starting in September 1997, escalating to $35,000 per month in June 1999 through
August, 2004. It was anticipated that the Network's initial distribution through
HITS would not be sufficient to cover its initial costs; however, management
firmly believes that future distribution is reliant upon digital delivery
capability. Clearly access
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to households serviced by TCI would be dependent upon inclusion in HITS.
Management believes that the Network must be included in the HITS system to
facilitate future growth.
The marketplace for cable system channel capacity remains extremely
competitive. In many instances where smaller cable systems are expanding
capacity, much of the new capacity is reserved for either digitally compressed
tiers or pay-per-view and other revenue generating uses. Digital compression,
which allows cable systems to expand channel capacity by up to twelve times
compared to analog channels, commenced commercial distribution in 1997, well
behind its predicted introduction date. Although available to consumers, the
digital set-top boxes required to receive the new digital tiers have not been
manufactured in sufficient quantities, nor distributed widely enough, to
significantly impact distribution trends. As such, channel capacity has not
significantly increased to accommodate previously existing or newly launched
networks. Based upon current technology, digital compression is expected to
provide the basis for future channel capacity expansion and, once digital
set-top boxes gain greater distribution, digital tiers will likely have a
significant impact on overall distribution tends.
In addition to tight channel capacity, the cable television industry
remains dominated by major programming groups which continue to launch new
networks in anticipation of future digital expansion capacity. These programming
groups enjoy a competitive advantage of being able to leverage the distribution
of their new networks off of the strength and consumer demand of their primary
networks or their affiliation with MSOs. In addition, most other programmers are
offering substantial financial incentives to launch their new networks. This
leverage has resulted in these groups experiencing significant increases in
distribution over the past few years.
Direct broadcast satellite ("DBS") services, which do not have established
customer bases, appear more receptive to consumer demand. Channel capacity for
DBS, although greater than cable, has not expanded to the level anticipated.
Additionally, DBS currently is incapable of providing local channel signals.
Accordingly, although DBS is growing, it has not reached market penetration
levels previously anticipated. The Company is actively pursuing carriage
opportunities with all DBS system operators.
These dramatic changes to the cable marketplace have adversely impacted the
Company since it is unable to match the per subscriber fees offered by many
other networks and it does not enjoy the leverage offered by strategic alliances
with large programming groups or MSO affiliations. As a result the Company's
subscriber base has declined from 7,694,000 at December 31, 1996 to 7,060,000 at
December 31, 1997. Until such time as channel capacity increases significantly,
or the Company has the resources to compete effectively in a pay-to-play
environment, it will remain vulnerable to additional subscriber declines.
Management believes that the Company's niche, Post-49 adults, is a valuable
market which currently is not being served by any other network. Government
statistics show that this demographic is the fastest growing demographic segment
and will account for 30% of the population in the year 2000. As the
technological front continues to change almost daily, management believes the
Company's best approach is to increase branding of the Network and build
consumer demand for its product. The Company is actively pursuing development of
new original programming which will be unique to the Network and specifically
targeted to Post-49 adults. Management believes investment in the Company's
product and in consumer awareness advertising will provide a greater long-term
benefit than diverting funds for short-term launch opportunities.
In undertaking the above actions to preserve its most important asset, the
Company expected that revenues would not rise quickly enough to cover the cost
of improved programming, and that substantial losses would be incurred until the
Network's ratings and subscriber base rose substantially. Thus the Company's
financial losses in 1997 were expected. The Company's strategy is to continue to
invest in programming, marketing and product branding in an attempt to increase
ratings and subscribers to a point where revenues will exceed expenditures, but
there can be no assurance that such a point will be achieved. See Part I, Item
1, Section 6, Competition. Neither can there be any assurance that the Company
will be able to obtain financing for such an investment.
Financing for needed improvements in the Service has been obtained from the
Company's majority stockholder, Concept Communications, Inc. ("Concept"), and
Concept's parent company, Crown Communications, Inc. ("Crown") (together the
"Majority Stockholders"). Crown loaned $19,500,000 to the Company during 1997.
See Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations. From January 1, 1998 through April 13, 1998 the
Company has received an additional $8,000,000 in debt financing from Crown at
8.5%. Crown has stated its ability and intent to provide up to an additional
$11,500,000 to the Company through the remainder of 1998 on similar terms.
Beginning in 1996, the Company's Board of Directors directed its Executive
Committee and management to study the question of whether the Company should
enter into, and the potential opportunities for, a strategic alliance, and to
make recommendations to the full Board regarding this proposal. The Executive
Committee and management have been actively engaged in this study. Although
numerous meetings with potential strategic partners have been held, none of
these have resulted in significant discussions. The Executive Committee and
management continue to study this alternative.
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Description of Business
The Company operates a television programming service which offers a
variety of lifestyle and entertainment programming to a target audience of
active Post-49 adult Americans. The Network's programming is telecast over a
network of cable television, wireless cable, satellite and video-dial-tone
systems (each an "Affiliate"). The Company uplinks its programming from its
facilities in Alexandria, Virginia to a satellite which then transmits the
programming to the Affiliates. The Company derives revenue primarily from the
sale of advertising time and from fees paid by Affiliates for its programming.
According to Kagan's Economics of Basic Cable Networks, 1997 Edition, there are
over 75 million basic cable subscribers in the United States and the industry
reaches approximately 77 percent of all television households. Kagan projects
that 85 percent of all TV households will have at least basic cable by the year
2000,.
1. Affiliated Cable Systems and Subscribers
The Company's programming is distributed by approximately 770 Affiliates.
The Company derives fees from arrangements with Affiliates, typically based upon
the number of monthly subscribers in each Affiliate's system. The length of an
Affiliate contract varies, but generally ranges from three to five years.
Certain of the Company's Affiliate contracts have expired and carriage is
currently provided on a month-to-month basis. Many of these Affiliates have
declined to enter into new contracts until their plans for channel expansion are
completed. In 1997 the Company derived revenues of $2,579,000 from Affiliate
fees. Two MSO's accounted for 20% and 12% of affiliate revenue in 1997.
Each Affiliate has a limited number of "channels" over which programming
can be distributed to its subscribers. The Cable Act of 1992 caused Affiliates
to increase the number of channels allocated to broadcasters and affiliates of
broadcasters, resulting in a corresponding decrease in the number of channels
available to independent networks such as Nostalgia (the must carry/
retransmission consent provisions). As a result of intense competition among
cable networks for this reduced number of channels, the per subscriber fees
received from Affiliates have declined and may continue to decline. See Part II,
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations.
2. Advertising
The Company also derives revenues from the sale of advertising time.
Nostalgia's programs average approximately 12 minutes of advertising time per
hour. Generally, under the terms of the Company's arrangements with its
Affiliates, two minutes of each hour's advertising time are reserved for the
Affiliate's local use. The Company derives revenue from the sale of the
remaining ten minutes of advertising time. In addition, the Company derives
advertising revenue from the sale of time for program length advertisements
("infomercials") and from programming sponsorship and home shopping revenue
sharing arrangements. In 1997, the Company derived revenues of $4,475,000 from
advertising.
3. Demographics and Ratings
According to Nielsen's Homevideo Index's ("NHI") Fourth Quarter 1997
Audience Composition Report, the Company was first in Viewers Per Viewing
Household for both Post-54 Adults and Post-54 Women during Total Day (Monday -
Friday 10A - 3A and Saturday/ Sunday 11A - 3A). The Company's ratings during
that time period, as measured by NHI, reflect the Company's growing share of
household viewers. The following is a summary of ratings for the last five
years:
<TABLE>
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YEAR AVERAGE HIGH
<S> <C> <C>
1993 0.1 0.2
1994 0.2 0.4
1995 0.3 0.5
1996 0.5 0.6
1997 0.7 0.8
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4. Programming
During 1997, Nostalgia Television continued to improve its programming
through creation of original programming. Following is a description of original
programs airing on Nostalgia:
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Nostalgia Ballroom DanceSport Competitions
Competition dancing has become one of the fastest growing trends in the United
States. Through its exclusive agreement with DanceSport America, the Network
covers major dance competitions, including the national championships in Miami.
This exciting program showcases not only the top champions in each class, but
also provides insight into the techniques and fine points of competition.
Cafe DuArt
Renowned impressionist/comedian Louise DuArt serves as the owner/hostess of a
New York cabaret club where a wide variety of famous guests interact with the
club's staff in comedic settings. Musical variety acts are intertwined in the
comedic setting to provide a well balanced source of entertainment.
The Real Me Autobiographies
Set in a casual atmosphere, The Real Me Autobiographies provides a unique
insight into the lives and significant influences of its guest hosts as they
tell their own stories in their own words.
The Bull & The Bear
The "Siskel and Ebert" of Wall Street, hosts Llewellyn King and Linda Gasperillo
answer viewer calls to provide unique insight into stocks and investment
opportunities.
More Money with the Dolans
Ken and Daria Dolan, "the first family of finance," present a daily one hour
program on money issues which, starting in 1998, is a televised version of their
daily radio show heard nationally on 155 stations. On More Money with the
Dolans, Nostalgia Television viewers can call in questions to Ken and Daria
about retirement plans, investment and tax strategies, saving money for college
or how to get a good buy on a new car.
Issues & Answers
Issues & Answers, hosted by former White House Press Secretary Ron Nessen, has
unique qualities that set it apart from other political talk shows. First, the
programs deal with issues which are of relevance to the Post-49 audience.
Second, none of the guests are current members of Congress or the Executive
Branch, thereby freeing them from the constraints of party and politics and
enabling them to provide insight into the important issues. Along with these
guests Issues & Answers invites knowledgeable members of the various think tanks
and journalists to bring a truly balanced approach to the topics Nostalgia
presents.
Dennis Wholey
Nostalgia commissioned the production of two programs produced by noted
television interviewer, Dennis Wholey. Dennis Wholey: America! is a four day a
week, half hour, one-on-one interview in which Dennis reflects contemporary
culture through interviews with authors.
This is America with Dennis Wholey is a weekly, hour long roundtable discussion
of a timely topic. Six interesting and influential guests from the fields of
entertainment, politics and industry contribute their thoughts on the topic of
the week.
Both programs concurrently air on a number of PBS stations and Dennis Wholey:
America! airs simultaneously on PBS stations with a 10 second ID recognizing
Nostalgia Television's sponsorship.
Flea Market Movie
The Network has added short segments to every commercial break in its movies
where its collectibles aficionado, Christopher Kent, dispenses his wit and
wisdom about all sorts of collectable items. In these short interstitials
viewers can learn about the value of various collectibles. Additionally, viewers
can call to discuss or send in pictures of items for Christopher to appraise.
Nostalgia Moments
To continue to brand the Network without having to focus on issues of age,
Nostalgia Television has created "Nostalgia Moments." In these short
interstitials, real people, who exemplify the Network's demographic, talk about
their lives. They tell why this is the best time of their lives, what advice
they have given their children, who was the most influential person in their
lives and what America means to them. These 15 second to 30 second pieces allow
the viewer to identify with the person on television as a "real" person like
them, with similar experiences, concerns, and values, thereby allowing the
viewers to identify with Nostalgia as a network for people like them.
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Acquired Programming
One of the best loved television series, The Rockford Files, starring James
Garner, premiered on Nostalgia in September 1996. The series consists of 125
hours licensed in a cable exclusive deal from Universal Television until August
1999. Other off-network series airing on Nostalgia are The Love Boat and The
Streets of San Francisco, both of which enjoy strong viewership following.
Dual Language Programming
In an effort to provide service to a broader community of viewers, Nostalgia
commenced airing dual language programming during 1997. Found on the SAP
channel, where available, Nostalgia provides Spanish language versions of The
Rockford Files and The Streets of San Francisco.
Programming for the Visually Impaired
Continuing its long standing effort to provide programming for the visually
impaired, Nostalgia has added narrative tracks to many of its movies as well as
to many of its episodes of The Streets of San Francisco. Found on the SAP
channel, where available, the Network provides descriptive narratives of the
on-screen action to allow visually impaired viewers to better understand and
account for noises and actions they can not visualize.
5. Patents, Trademarks, Licenses
The Company neither holds nor depends on any material patent, trademark,
license, franchise or concession except for its trademarks "Nostalgia Channel"
and "Nostalgia Television."
6. Competition
There is intense competition among companies providing programming services
via cable television and other video delivery systems. Nostalgia must compete
with other programmers for access to limited channel space on Affiliate systems
and must also compete with other programmers for viewers. In addition, Nostalgia
competes for advertising revenues with other cable networks, broadcast
television, radio and print media. More generally, the Service competes with
various other leisure-time activities such as home videos, movie theaters, the
internet and other forms of information and entertainment.
A number of basic networks (such as the Discovery Networks, American Movie
Classics and CNN), pay television networks (such as The Disney Channel) and
superstations (such as WOR and WGN) provide programming directed towards various
sub-groups which are included in the Company's target audience. Most of the
companies providing programming services are comprised of a group of programming
services or are affiliated with cable system operators or motion picture
studios, and thus may enjoy advantages that independent services, such as the
Company, do not enjoy. Many of Nostalgia's competitors have substantially
greater financial and other resources than Nostalgia enjoys.
Technological advances over the next five years--such as digital
compression technology, which will allow cable systems to expand channel
capacity, and the development of fiber optic cable, which has the capacity to
carry a much greater number of channels than coaxial cable,--are expected to
increase the number of available channels. Management believes that the increase
in the number of channels will reduce competition for access to channel space;
however, it will also increase the competition for viewers, although cable is
garnering an increasing share of overall viewers, ratings and ad sales revenue
over traditional broadcast networks. There can be no assurance as to when
technological advances will be commercially implemented to increase
significantly overall channel capacity.
7. Satellite Distribution
The Company transmits its programming from its facilities in Alexandria,
Virginia by means of an earth station transmitting antenna (called an "uplink")
provided to the Company by Atlantic Video, Inc. ("AVI"). Throughout 1997, 1996
and 1995 Christopher A. Cates and Dong Moon Joo were officers or directors of
AVI and directors of the Company. The AVI uplink facility transmits the
Network's programming to an orbiting communications satellite on which the
Company has a transponder, which relays the programming to the Company's
Affiliates. Under a three year agreement that was renewed in August, 1997, AVI
provides to the Company certain exclusive television production, post-production
and master control/uplink services and leases to the Company on a monthly basis
3,000 square feet of office space in AVI's Alexandria, Virginia production
facilities. This agreement provides for minimum monthly payments to AVI of
$78,000, plus payment for office space rental, videotape stock purchases and
additional production/ post-production services beyond a certain level. If the
Company does not actually purchase $78,000 of services in a month, the
differences up to a maximum of $75,000 for all months elapsed, subject to
certain limitations, can be used as credit for fees in future months.
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In the third quarter of 1997 the Company scrambled its signal, requiring
customers to request an authorization code to descramble the signal. In
anticipation of this action, the Company entered into contracts with various
program packagers ("Packagers") to include the Network in their consumer
packages sold to c-band satellite dish owners. Currently the Company has
contracts with 11 Packagers representing almost 1,000,000 subscribers.
Management believes that inclusion in these packages will put additional
competitive pressure on DBS operators to include the Network in their program
packages which, in turn, may add pressure to cable system operators, although
there can be no assurance that the Company will be added to DBS program
packages.
Also in August 1997, the Company entered into a Service Transmission
Agreement with National Digital Television Center for digital distribution of
the Network's signal through the HITS program operated by TCI, the largest MSO
in the United States. Inclusion in HITS makes the Network available in a digital
format for both TCI systems as well as non-TCI systems who contract for digital
distribution through HITS. The Company's agreement with HITS covers a 20 year
term and calls for the Company to make monthly payments of $12,000 starting in
September 1997, escalating to $35,000 per month in June 1999 through August
2004. It was anticipated that the Network's initial distribution through HITS
would not be sufficient to cover its initial costs; however, management firmly
believes that future distribution is reliant upon digital delivery capability.
Clearly access to households serviced by TCI would be dependent upon inclusion
in HITS. Management believes that the Network must be included in the HITS
system to facilitate future growth.
8. Government Regulation
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
was signed into law. Among other things, the 1996 Act repeals statutory
provisions and regulations of the Federal Communications Commission ("FCC") that
prohibited telephone companies from operating cable television or other
multichannel distribution systems in areas in which those companies offer
telephone service and restricted the ability of such telephone companies to
produce, acquire an interest in, or distribute programming in which they have an
interest. The 1996 Act limits the ability of telephone companies to purchase
existing cable systems, but otherwise imposes minimal constraints upon their
entry into multi-channel video distribution and program production. The FCC is
required to adopt regulations, similar to those imposed upon traditional cable
systems by the Cable Television Consumer Protection and Competition Act of 1992
("the 1992 Act"), designed to prevent telephone companies from favoring program
services in which they have an interest and from unreasonably denying access to
unaffiliated programmers.
The 1996 Act also significantly relaxes multiple ownership and other
restrictions imposed by FCC rules on traditional over-the-air broadcast stations
and television networks, such as CBS, NBC, ABC, and FOX. The legislation
requires the FCC to adopt rules which allow the traditional networks to operate
more than one television network, except that none of the four largest networks
are permitted to merge with any of the other four or with either of the two
"emerging networks" (Time Warner's WB Network and the United Paramount Network).
Under the statute, companies that own and operate television broadcast stations
also will be permitted to own and operate cable television systems, subject to
certain safeguards designed to prevent discrimination against unaffiliated
program service providers.
The 1996 Act also modifies, to a limited extent, the system of rate
regulation imposed upon traditional cable operators pursuant to the 1992 Act.
Under the 1996 Act, rate regulation by the FCC of the upper tiers of service
will expire on March 30, 1999; cable operators typically carry the Network on an
upper tier. Basic service, which cable operators are required to offer to all
subscribers, remains subject to rate regulation in communities in which the
cable system is not subject to "effective competition." The institution of an
alternative multi-channel video distribution system by a telephone company
serving substantially the same area as the cable system is deemed to constitute
"effective competition" under the 1996 Act.
The 1996 Act does not alter the "must-carry" and "retransmission consent"
requirements of the 1992 Act. These provisions, coupled with rate regulation,
have forced cable systems to increase the number of channels carrying broadcast
or broadcaster-affiliated channels, causing a corresponding decrease in the
number of channels available to satellite distributed networks such as
Nostalgia. In the past, the Company has lost carriage on cable systems because
the system needed to reassign the channel used by the Company either to comply
with the 1992 Act's must-carry provisions or to fulfill a contractual obligation
to a broadcaster arising out of the "retransmission consent" requirements of the
1992 Act. In 1995, the FCC adopted regulations designed to provide cable
operators with incentives to increase channel capacity and to carry fledgling
services like Nostalgia. Although initially challenged in court, the regulations
have now been affirmed.
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The Company is unable to predict what effect, if any, these legislative and
regulatory changes will have on its operations or finances. In general, the
Company believes that the relaxation of rate regulation and the introduction of
competition in the multi-channel distribution business will improve the
Company's ability to obtain carriage of the Network in markets in which the
service is not now available and will have a favorable effect on affiliate
subscriber fees earned by the Company. However, the entry of telephone companies
into the program production business and the relaxation of existing constraints
on broadcast stations and traditional broadcast networks are expected to
increase the competition the Company already faces for advertising revenues and
audiences.
9. Employees
On December 31, 1997, the Company had a total of 41 full-time, non-union
employees. The Company has experienced no work stoppage, is not a party to any
collective bargaining agreements, and believes that it enjoys good relations
with its current employees.
ITEM 2. PROPERTIES
The Company's executive offices are located at 650 Massachusetts Avenue,
N.W., Washington, D.C., where the Company leases approximately 5,100 square feet
of office space and 900 square feet of storage space from Washington Television
Center, L.P., a subsidiary of U. S. Property Development Corporation, of which
Mr. Dong Moon Joo, a director of the Company, is an officer and director. The
lease provides for a base monthly rent of $13,944 and expires in November 1999.
The Company's traffic and finance facility, consisting of approximately
3,000 square feet in Alexandria, Virginia, is leased from AVI on a
month-to-month basis at a monthly rate of $3,896. Throughout 1997, Messrs. Cates
and Joo were officers or directors of AVI and directors of the Company. The
monthly rent for that space is currently $3,896.
The Company's eastern sales office is located at 220 Commerce Drive, Ft.
Washington, Pennsylvania, where the Company occupies approximately 1,580 square
feet at a monthly rate of $2,134 under a lease that expires August 31, 1998. The
Company's western sales office is located at 7951 East Maplewood Avenue, Suite
310, Englewood, Colorado, where the Company occupies approximately 1,980 square
feet at a monthly rate of $2,413 under a lease that runs through July 14, 1999.
It is anticipated that leases expiring in 1998 will be replaced in the ordinary
course of business.
ITEM 3. LEGAL PROCEEDINGS
Roger M. Rosenberg, et al., Delaware Chancery Court, Civil Action No.
11134. On September 29, 1989, this action was filed by stockholders of the
Company against four former directors of the Company. The Company is named as a
nominal defendant for purposes of the derivative claims asserted, but as to
those claims Nostalgia has no liability as a matter of Delaware law. The Company
is required to indemnify the directors and to pay the cost of their defense.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to a vote of
security holders, through a solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages and positions with the
Company are set forth below:
Name Age Position
---- --- --------
Squire D. Rushnell 59 President, Chief Executive Officer
Martin A. Gallogly 40 Vice President, Treasurer and Chief
Financial Officer
Willard R. Nichols 51 General Counsel and Secretary
The terms of Mr. Rushnell's employment are covered by an agreement which
extends through May 12, 1999. See Notes to the Financial Statements. The
remaining executive officers serve at the pleasure of Mr. Rushnell and the Board
of Directors.
-8-
<PAGE>
SQUIRE D. RUSHNELL has served as President and Chief Executive Officer
since June of 1996 and a director since June of 1997. From 1994 to 1996 Mr.
Rushnell was President and Co-Founder of Our Time Television, Inc. a former
cable channel targeted to emerging baby boomers. Prior to 1994 Mr. Rushnell was
President of Rushnell Communications and Publishing, Inc., which produced
programming for broadcast networks and syndication. Mr. Rushnell previously
served for 20 years as a top program executive with the ABC Television Network
where he oversaw the rise of Good Morning America to dominant ratings and
profits, and became the legendary leader of the network's children's and family
programming.
MARTIN A. GALLOGLY has served as Vice President, Treasurer and Chief
Financial Officer of the Company since June of 1994. Prior to joining the
Company, Mr. Gallogly had served as Chief Financial Officer of AVI from August
1992, through June 1994, as Treasurer of Concept from April 1993, through June
1994, and as Chief Financial Officer of Potomac Television/Communications, Inc.
(a subsidiary of Concept) from August 1992 through June 1994. Mr. Gallogly
served in various positions with the Washington, D.C. office of BDO Seidman, LLP
from 1984 through July 1992, most recently as Senior Manager - Audit Division.
Mr. Gallogly is a Certified Public Accountant.
WILLARD R. NICHOLS has served as General Counsel and Secretary of the
Company since May of 1997. Prior to joining the Company he was in private
practice in the Washington D.C. metropolitan area providing consulting services
to a variety of communications and communications-related clients. In 1995 he
served as Executive Vice President and Managing Director of UTAM, Inc., a non
profit consortium of manufacturers of unlicensed personal communications
services equipment. From 1984 to 1992 he served as Vice President and General
Counsel of COMSAT Corporation and earlier served in a number of senior level
positions at the FCC including Chief of Staff to the Chairman, and Chief, Cable
Television Bureau.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During 1997 and 1996 the Company's Common Stock, Common Stock Purchase
Warrants ("the Warrants") and Units (consisting of one share of Common Stock and
one Warrant) ("the Units") are quoted on the NASDAQ OTC Bulletin Board. The
Warrants are exercisable at $4.80 per share and expire 45 days after the
effective date of the Company's registration statement, as yet not filed, for
the stock underlying such Warrants. The following table sets forth, for each
quarterly period during 1997 and 1996, the high ask and low bid quotations for
the Company's publicly-traded securities as reported on the NASDAQ Bulletin
Board. Neither the Units nor the Warrants traded on the NASDAQ Bulletin Board in
1996 or 1997. These quotations are representative of prices between dealers, do
not include retail markups, markdowns or commissions, and may not represent
actual transactions.
<TABLE>
<CAPTION>
Common Stock Units Warrants
------------ ----- --------
High Ask Low Bid High Ask Low Bid High Ask Low Bid
-------- ------- -------- ------- -------- -------
1997
----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $0.16 $0.07 N/A N/A N/A N/A
Second Quarter 0.10 0.07 N/A N/A N/A N/A
Third Quarter 0.10 0.07 N/A N/A N/A N/A
Fourth Quarter 0.10 0.05 N/A N/A N/A N/A
1996
----
First Quarter 0.41 0.22 N/A N/A N/A N/A
Second Quarter 0.81 0.25 N/A N/A N/A N/A
Third Quarter 0.41 0.19 N/A N/A N/A N/A
Fourth Quarter 0.31 0.08 N/A N/A N/A N/A
</TABLE>
1. Number of Common Stockholders
As of March 1, 1998, there were approximately 312 holders of record of the
Company's Common Stock.
2. Dividend Policy
The Company has paid no dividend since its inception and does not
anticipate paying any dividend on its Common or Preferred Stock in the
foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data for the Company for
each of the last five fiscal years.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Subscribers 7,060,000 7,694,000 8,905,000 8,927,000 11,000,000
Balance Sheet Data
Total Assets $16,997,972 $17,486,702 $23,955,541 $11,154,537 $7,089,734
Long-Term Obligations 45,989,547 28,202,711 22,881,635 3,096,540 696,896
Stockholders' Equity (Deficit) (38,352,747) (19,464,221) (7,522,733) 1,953,634 3,810,917
Income Statement Data
Affiliate Sales Revenue 2,579,376 3,850,745 4,205,324 5,014,547 5,587,856
Advertising Sales Revenue 4,474,597 5,652,938 5,812,663 7,206,501 6,261,869
Other Revenue 124,960 - 1,248,898 231,052 1,081,794
Total Operating Revenues 7,178,933 9,503,683 11,266,885 12,452,100 12,931,519
Operating Expenses 23,467,791 20,394,940 20,260,931 16,425,169 15,408,574
Loss From Operations (16,288,858) (10,891,257) (8,994,046) (3,973,069) (2,477,055)
Net Loss (18,888,526) (11,941,488) (9,476,367) (4,231,177) (3,297,725)
Net Loss Per Common Share - Basic (0.93) (0.59) (0.47) (0.22) (0.23)
Net Loss Per Common Share - Diluted (0.93) (0.59) (0.47) (0.22) (0.23)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains certain forward-looking statements which represent the
Company's expectations or beliefs, including, but not limited to, statements
concerning industry performance, regulatory environment and the Company's
operations, performance, financial condition, plans, growth and strategies. Any
statements contained in this Form 10-K which are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as "may," "will," "expect,"
"anticipate," "intent," "could," "estimate" or "continue," or the negative or
other variations thereof or comparable terminology are intended to be forward-
looking statements. These statements by their nature involve substantial risks
and uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors, many
of which are beyond the control of the Company. The following are factors to
keep in mind.
Competition: The Company must compete with other programmers for access to
limited channel space and for viewers. Over the past few years, competition
among television networks has increased dramatically. Currently such basic
networks as USA Network, American Movie Classics and Turner Network Television
provide programming directed at sub-groups included in the Company's targeted
audience. Moreover, other services targeting the Post-49 market have sought to
enter the market. Many competing services have an advantage over the Company
because they are owned by or affiliated with companies that operate cable
systems or own programming, and in general have greater financial and technical
resources than the Company. If any of these competitors were to be successful in
reaching the Company's target audience, the Company would be adversely affected.
Distribution and Channel Capacity: Few individual cable systems have channels
available to launch new services. To achieve significant growth the Company will
need to gain distribution not only with existing system operators as they expand
their systems with rebuilds or expand their system's territories through
overbuilds, but also with emerging cable competitors such as DBS services and
telephone company wired and wireless services. There can be no assurance that
such additional capacity will be built or that the Company will gain additional
distribution.
-10-
<PAGE>
Advertising Revenues: The Company's advertising revenues will increase
substantially only if it is able to improve its audience size above current
levels. Most mature cable networks have found it very difficult to achieve
significant audience growth. This growth will depend, among other things, on the
Company's ability to produce or acquire attractive programming, create consumer
awareness demand, and achieve adequate distribution. There can be no assurance
that the Company's audience size will grow or that its advertising revenues will
increase.
Access to Programming: The Company's success will depend in part on its ability
to produce or acquire attractive programming. As competition increases, the cost
of acquiring existing programming also increases. Producing new programming
typically is more expensive than acquiring existing programming, and new
programming may not attract audiences. There can be no assurance that the
Company will be able to produce or acquire existing programming or that any
programs so produced or acquired will be successful.
Financing: The Company believes that it will need significant outside financing
for the foreseeable future. There can be no assurance that it will be able to
obtain such financing.
Regulation: The Company's major customers, cable system operators, are subject
to federal, state and local regulations. Changes in such regulations could have
a material adverse effect on the Company's business.
Control by Principal Stockholder: Currently at least 70% of the votes entitled
to be cast at the annual meeting of the Company's stockholders are held by
Concept. Concept has sufficient votes to elect all members of the Board of
Directors and decided all other matters to be voted upon by the Company's
stockholders and thus to control indirectly the Company's business policies,
strategies and management.
General Comments
The Company's most important asset is its subscriber base. Substantially
all of the Company's revenues are a function of its subscriber base: affiliate
revenue is measured directly by the number of the Company's subscribers; and
advertising revenue is based on viewership, which is a product of the number of
subscribers and the Company's Nielsen ratings. Over the past few years,
competition for subscribers among television networks like the Company has
increased dramatically. In part this has been the result of technological
advances promising greatly expanded channel capacity that has been repeatedly
delayed. Technological advances have inspired the creation of many new
programming services, but the expanded capacity to carry those services is not
yet available.
Compounding the effects of this technological bottleneck was the 1992 Act,
which had the effect of allocating already scarce cable capacity to the owners
of broadcast television channels. The 1992 Act instituted the "must carry"
provisions which gave broadcasters, whose programming was of little interest to
cable subscribers, the right to demand carriage on local cable systems. In many
cases cable operators had to discontinue carriage of network services like that
provided by the Company in order to carry such broadcast channels. To those
broadcasters whose programming was of interest to cable subscribers, the 1992
Act gave the right to demand payment for their programming (the "retransmission
consent" provisions). In lieu of cash payments, the cable operators gave channel
capacity to non-broadcast programming services affiliated with these
broadcasters. In many cases services like that provided by the Company had to be
dropped to make room for affiliates of broadcasters.
In the second half of 1995 the cable industry witnessed the beginning of a
new era of competition for channel capacity which then exploded in 1996. It was
not uncommon in the past for networks to offer some form of "marketing
allowance", either in the form of local advertising and promotional events or a
nominal amount of direct cash calculated on a per subscriber basis for the
system to use as it deemed appropriate. In the past these amounts often were in
the $0.20 to $0.50 range; however, in late 1995 offers of $1.00 per subscriber
started emerging. As new programming services set their sights on increasingly
tighter channel capacity, the offers became more aggressive and cable system
operators became more hungry. Channels which had strong strategic alliances with
sister channels (e.g.: Discovery and Animal Planet; Nickelodeon and TV Land;
etc.) who already could use that affiliation and the demand for their sister
service to push for carriage of the new service were now adding significant per
subscriber fees into the mix to effectively buy their way into cable systems. In
the most notable move, Rupert Murdoch's FOX NEWS was offering from $11 to $15
per subscriber to gain carriage. Fox's deal with TCI alone bought access to
10,000,000 TCI homes at a price in excess of $110,000,000.
These dramatic changes to the cable marketplace have adversely impacted the
Company through further subscriber losses. The Company's subscriber base has
declined from 7,694,000 at December 31, 1996 to 7,060,000 at December 31, 1997.
Until such time as channel capacity increases significantly the Company will
remain vulnerable to additional subscriber declines.
-11-
<PAGE>
Management firmly believes that the Company's niche, Post-49 adults, is a
valuable market which currently is not being served by any other network.
Government statistics show that this demographic is the fastest growing
demographic segment and will account for 30% of the population in the year 2000.
As the technological front continues to change, management believes the
Company's best approach is to further brand the Network and build consumer
awareness of its product. It is actively pursuing development of new original
programming specifically targeted to Post-49 adults which will be unique to the
Network. Repeatedly in consumer market tests the Company's product has been
highly rated. Management believes investment in the Company's product and
consumer awareness will provide a greater long-term benefit than diverting funds
for short-term launch opportunities.
In undertaking these actions to preserve its most important asset, the
Company understood that revenues would not rise quickly enough to cover the cost
of the improved programming, and that substantial losses would be incurred until
increases in the Company's ratings and subscriber base rose substantially. Thus
the Company's financial losses in 1997 were not unexpected. The Company's
strategy is to continue to invest in programming in an attempt to increase
ratings and subscribers to a point where revenues will exceed expenditures, but
there can be no guarantee that such a point will be achieved. See Part I, Item
1, Section 6, Competition. Neither can there be any guarantee that the Company
will be able to obtain financing for such an investment.
Year 2000 Issues
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing a plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company presently
believes that, with conversion of one system to new software at a cost not
anticipated to exceed $50,000, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems. However, if such
conversion is not completed timely, the Year 2000 problem may have a material
impact on the operations of the Company.
Results of Operations
Fiscal year ended December 31, 1997 compared to fiscal year ended December
31, 1996
Net loss in 1997 increased $6,948,000, or 58% (from $11,941,000 to
$18,889,000). This increase was due principally to reduced revenues (a reduction
of $2,325,000); increased sales and marketing expenses (an increase of
$3,610,000); increased interest expense (an increase of $1,549,000); and
increased programming, production and transmission expenses (an increase of
$65,000); offset by decreases in finance, general and administrative expenses (a
decrease of $311,000) and decreased programming amortization expense (a decrease
of $292,000).
Revenues:
Total revenues in 1997 decreased by $2,325,000, or 24.5% (from $9,504,000
to $7,179,000). This decrease was primarily attributed to decreases in affiliate
and advertising revenues.
Affiliate revenues declined $1,271,000, or 33%, (from $3,851,000 to
$2,579,000) reflecting a loss of subscribers as a result of competition for
scarce channel capacity. Additionally, increased competition has put downward
pressure on the rates which the Company can charge its Affiliates. While
subscriber losses are immediately reflected in Affiliate revenue, the same is
not true for increases in subscribers as it is common for a new Affiliate to
receive a minimum of two years of free service as an incentive for commencing
carriage of a programming service. For these reasons, the Company expects future
increases in its subscriber base, if any, to result in less than fully
proportionate increases in Affiliate revenues. The Company anticipates Affiliate
revenues for 1998 will continue to decline as it will reflect a full year of the
1997 subscriber losses and any additional subscriber losses, if any, in 1998.
Advertising sales decreased $1,178,000, or 20.8% (from $5,653,000 to
$4,475,000) primarily as a result of decreased rates associated with the
Company's reduced subscriber base. The Company anticipates advertising revenues
for 1998 will continue to decline as it will reflect a full year of the 1997
subscriber losses and any additional subscriber losses, if any, in 1998.
Revenues from infomercials decreased $845,000, or 22.2% primarily due to a
decrease in average rate per half hour as a result of lower subscriber numbers
and market pressures. Revenues from short-format commercial advertising (two
minutes or less in length) decreased by $333,000, or 18%, due to lower
subscriber numbers and market pressures. Other revenues increased $125,000, or
100% (from $0 to $125,000) as a result of collection of amounts previously
written off as uncollectible.
-12-
<PAGE>
Operating Expenses:
Total operating expenses increased $3,073,000, or 15% (from $20,395,000 to
$23,468,000). The increase was due principally to increased sales and marketing
expenses (an increase of $3,610,000); and increased programming, production and
transmission expenses (an increase of $65,000); offset by decreases in finance,
general and administrative expenses (a decrease of $311,000) and decreased
programming amortization expense (a decrease of $292,000).
Programming, production and transmission expenses for 1997 increased
$65,000, or 1.2% (from $5,459,000 to $5,524,000). Programming costs, net of
$3,533,000 in capitalized costs, decreased by $146,000, or 6.9% (from $2,123,000
to $1,977,000) primarily as a result of costs associated with new original
programs. During 1997 the Network increased its original programming from two
hours a day to eight hours a day. Many of the new programs, such as Ballroom
DanceSport Competitions and Cafe DuArt, are long lived in nature and, as such,
their production costs were capitalized and are being amortized over the life of
the program, generally two years. Network branding costs increased $178,000,
(from $10,000 to $188,000) as a result of developing a new on-air look in
association with the Network's new name. Transmission costs increased by
$92,000, or 3.3% (from $2,765,000 to $2,857,000) as a result of costs associated
with scrambling the Network's signal. Programming costs are expected to increase
in 1998 as a result of the Network's plans to increase production of new
original programs. Transmission expenses are expected to increase in 1998 as a
result of charges associated with the Network's HITS feed and anticipated
improvements in the Network's master control operations. See Part 1, Item 1,
Section 4.
Programming amortization decreased $292,000, or 4% (from $7,183,000 to
$6,891,000). The majority of this decrease results from a different mix of
programs and related license fees for prime-time programming.
Sales and marketing expenses increased by $3,610,000, or 80% (from
$4,510,000 to $8,120,000). Advertising expenses increased by $2,317,000, or
454.7% (from $510,000 to $2,827,000) as a result of increased trade advertising,
increased consumer advertising and awareness campaigns, as well as combined
trade and consumer advertising to the satellite community in anticipation of the
planned signal scrambling in third quarter 1997. Conventions and national events
increased by $444,000, or 79% (from $565,000 to $1,009,000) as a result of
increased presence and activities at cable trade shows and other special events.
Employee related costs increased by $364,000, or 18.7% (from $1,943,000 to
$2,307,000) primarily as a result of additional advertising sales support staff,
filling vacant affiliate sales positions and increased travel and entertainment
expenses. Professional fees increased by $171,000, or 81% (from $211,000 to
$382,000) as a result of increased public relations efforts and increased
consulting in relation to satellite sales and affinity programs. Program guide
costs increased by $68,000, or 43.8% (from $155,000 to $223,000) as a result of
redesigning the guides. Sales and marketing expenses are expected to increase in
1998 as a result of the Company's plans to increase consumer awareness
advertising and other sales and marketing initiatives.
Finance, general and administrative expenses decreased by $311,000, or 9.6%
(from $3,243,000 to $2,932,000). The decrease is primarily attributable to a
$341,000 or 75.7% decrease in bad debt expense (from $450,000 to $109,000) as a
result of improved credit and collections efforts. Professional fees decreased
by $194,000, or 26.8% (from $724,000 to $530,000) principally as a result of
reduced legal fees. Personnel costs decreased by $169,000, or 13.1% (from
$1,287,000 to $1,118,000) due to additional staff and costs in 1996 associated
with transition of the chief executive's office. Rent and lease costs increased
by $76,000, or 54.8% (from $139,000 to $214,000) as a result of restructuring
departmental charges. Litigation settlement income/expense increased by
$165,000, or 110% (from $150,000 income to $15,000 expense) as a result of
litigation settlements in each of the two years.
Interest expense increased by $1,549,000, or 147.5% (from $1,050,000 to
$2,600,000) due to interest on notes payable to the Majority Stockholders.
Interest expense is expected to increase in 1998 as a result of a full year's
interest on 1997 borrowings as well as interest on additional borrowings
anticipated in 1998.
Fiscal year ended December 31, 1996 compared to fiscal year ended December
31, 1995
Net loss in 1996 increased $2,465,000, or 26% (from $9,476,000 to
$11,941,000). This increase was due principally to reduced revenues (a reduction
of $1,763,000); increased programming amortization expense (an increase of
$857,000); increased programming, production and transmission expenses (an
increase of $776,000); increased interest expense (an increase of $568,000);
offset by decreases in finance, general and administrative expenses (a decrease
of $1,351,000) and revenue from litigation settlement (an increase of $150,000).
-13-
<PAGE>
Revenues:
Total revenues in 1996 decreased by $1,763,000, or 15.6% (from $11,267,000
to $9,504,000) . This decrease was primarily attributed to decreases in other
revenue related to the Company's shopping service as well as decreases in
affiliate and advertising revenues.
Affiliate revenues declined $355,000, or 8.4% , reflecting a loss of
subscribers in the second half of 1996 due to competition for scarce channel
capacity. Additionally, increased competition has put downward pressure on the
rates which the Company can charge its Affiliates. While subscriber losses are
immediately reflected in Affiliate revenue, the same is not true for increases
in subscribers as it is common for a new Affiliate to receive up to two years of
free service as an incentive for commencing carriage of a programming service.
For these reasons, the Company expects future increases in its subscriber base,
if any, to result in less than fully proportionate increases in Affiliate
revenues.
Advertising sales decreased $160,000, or 2.7% (from $5,813,000 to
$5,653,000) primarily as a result of decreased rates associated with the
Company's reduced subscriber base.
Revenues from infomercials increased $202,000, or 5.6% primarily due to a
112% increase in time allotted to infomercials, offset by a 50% decrease in
average rate per half hour. The increase in time allotted to infomercials was
due to the change in the use of overnight hours. These time slots were devoted
to interactive home shopping in 1995 but were reverted to infomercials in 1996.
Although significantly increasing the number of hours devoted to infomercials,
the overnight block demands the lowest rates. Rate increases from 1995 were
rolled back as additional inventory absorbed the demand for time. Additionally,
market pressures resulted in further reductions in rates.
Revenues from short-format commercial advertising (two minutes or less in
length) decreased by $362,000, or 16.4%. The decrease was due to a 7.1%
reduction in commercial spots available to sell as a result of changes in
programming formats for standard commercial spot insertions. Market pressures
resulted in a 9.3% rate reduction.
Other revenues decreased $1,249,000, or 100% (from $1,249,000 to $0) as a
result of the Company canceling its interactive home shopping service provided
by Via TV! ("Via") on December 31, 1995. The hours which were devoted to
interactive home shopping are now used for infomercials. Via was to pay the
Network a commission based on net sales, subject to certain base minimums.
During 1995, a contract dispute arose and Via ceased making contractually
obligated payments. The Network continued to air Via's programming and accrued
its minimum contractual obligations; however, due to uncertainty regarding the
collectibility of amounts from Via, during the second half of 1995 management
recorded a reserve against revenue on a monthly basis. Via's contract expired
and the Network ceased airing its programming on December 31, 1995. During 1996
the Company entered into a stipulated judgment agreement against Via in excess
of the amounts recorded as receivable. Subsequent to receiving the judgment, Via
filed for bankruptcy protection. Amounts owed by Via have been reduced to their
net realizable value at December 31, 1996 based upon a settlement which occurred
in early 1997.
Operating Expenses:
Total operating expenses increased $134,000, or 0.7%, (from $20,261,000 to
$20,395,000). The increase was due principally to increased programming
amortization (an increase of $857,000); and increased programming, production
and transmission (an increase of $776,000), offset by decreased finance, general
and administrative expenses (a decrease of $1,351,000) and revenues from
litigation settlement (an increase of $150,000).
Programming, production and transmission expenses for 1996 increased
$776,000, or 16.6% (from $4,683,000 to $5,459,000). Programming costs increased
by $790,000, or 59.3% (from $1,333,000 to $2,123,000) primarily as a result of
costs associated with new original programs. New original programming in 1996
included a full year of Issues & Answers, which premiered in the Fall of 1995.
Additionally, the Network commissioned the production of two popular interview
shows Dennis Wholey: America! and This is America with Dennis Wholey. Health &
Wellness, a medical and physical health program, aired on the Network for six
months in 1996. Salaries, taxes and benefits increased by $47,000, or 14.5%
(from $324,000 to $371,000) primarily as a result of adding a staff position.
Transmission costs decreased by $82,000, or 2.9% (from $2,847,000 to $2,765,000)
as a result of 1995 amortization of certain deferred charges related to the new
transponder.
Programming amortization increased $857,000, or 13.5% (from $6,326,000 to
$7,183,000). The majority of this increase results from a different mix of
programs and related license fees for prime-time programming.
-14-
<PAGE>
Sales and marketing expenses remained relatively flat at $4,510,000 in 1996
compared to $4,508,000 in 1995. Advertising expenses increased by $151,000, or
42% (from $359,000 to $510,000) as a result of increased trade advertising to
the ad sales community as well as combined trade and consumer advertising to the
satellite community in anticipation of the planned signal scrambling in third
quarter 1997. Conventions and national events increased by $62,000, or 12.3%
(from $502,000 to $564,000) as a result of an additional show for the satellite
trade and increased presence and activities at cable trade shows and other
special events. Professional fees decreased by $80,000, or 27.7% (from $289,000
to $209,000) as a result of reduced public relations consulting. Program guide
costs decreased by $70,000, or 31.1% (from $225,000 to $155,000) as a result of
redesigning the guides as well as effecting other cost efficiencies. Sales and
marketing materials decreased by $57,000, or 18.9% (from $303,000 to $246,000)
primarily due to efforts in 1995 to redesign sales materials which did not need
to be duplicated in 1996.
Finance, general and administrative expenses decreased by $1,501,000, or
32% (from $4,744,000 to $3,243,000). The decrease is primarily attributable to a
$1,092,000 or 70.8% decrease in bad debt expense (from $1,543,000 to $450,000)
which was higher in 1995 because of losses relating to Via. Professional fees
decreased by $630,000, or 48% (from $1,310,000 to $680,000) principally as a
result of reduced legal fees associated with litigation concluded in 1995.
Offsetting these decreases are increases in salaries and benefits of $233,000,
or 24.5% (from $892,000 to $1,182,000) due to additional staff and costs
associated with transition of the chief executives office. Depreciation expense
increased by $119,000, or 68% (from $175,000 to $294,000) as a result of
increased depreciation on 1995 asset purchases. Litigation settlement
income/expense increased to $150,000 income compared to $0 in the prior year as
a result of settling prior litigation.
Interest expense increased by $568,000, or 118% (from $482,000 to
$1,050,000) due to interest on bridge loans payable to the Majority
Stockholders.
Liquidity and Capital Resources
Cash increased by $382,178 (or 27%) from $1,421,011 at December 31, 1996 to
$1,803,189 at December 31, 1997. This change is due principally to timing of
payments on accounts payable.
Working capital increased by $794,693 (or 131%) from a deficit of
($608,569) at December 31, 1996 to $186,124 at December 31, 1997, primarily as a
result of increases in current portion of programming rights and cash, offset by
increases in accounts payable.
Current assets increased by $1,407,653 (or 17%) from $8,139,643 at December
31, 1996 to $9,547,296 at December 31, 1997. Programming and cablecast rights
accounted for $1,014,000 of the increase as a result of capitalization of new
original programming offset by amortization of prime-time series. Cash increased
by $382,178 (or 27%) due principally to timing of payments on accounts payable.
Current liabilities increased by $612,960 (or 7%) from $8,748,212 at
December 31, 1996 to $9,361,172 at December 31, 1997, primarily as a result of a
$786,562 increase in accounts payable - trade due principally to timing of
payments on accounts payable .
Cash used in operating activities increased by $5,685,379 (or 195%) from
($2,915,657) to ($8,601,036) due to an increased loss of $6,947,038, and an
increase in gross reductions in accounts receivable of $1,032,094 due to
write-offs of bad debt and additional collection efforts. Offsetting these
amounts were an increase of $1,133,042 in long-term accrued interest expense; an
increase of $1,048,945 in accounts payable due to timing of payments and
increased expense volume; and a decrease of $417,000 in provision for losses on
accounts receivable as a result of reduced exposure to bad debts.
Cash used in investing activities increased by $3,286,375 (or 879%) from
($373,819) to ($3,660,194) for the years ended December 31, 1996 and 1997,
respectively, due primarily to an increase in acquisition of programming and
cablecast rights of $3,151,910.
Cash provided by financing activities increased by $8,788,660 (or 228%)
from $3,854,748 to $12,643,408 for the years ended December 31, 1996 and 1997,
respectively, due to an increase in financing by the Majority Stockholders of
$9,500,000, offset by increased payments on financing for programming and other
debt of $711,340.
In light of the Company's recurring losses, management is actively
monitoring expenses and examining operating methods to increase efficiencies.
These measures may provide short term improvement, but do not address the more
critical long term growth needs for the Network. In order to grow, the Network
needs to increase its Affiliate base which, in turn, will increase the
subscriber
-15-
<PAGE>
base and should allow the Network to increase its advertising rates as well as
Affiliate revenues. To provide for necessary future growth, management has
embarked on an aggressive Affiliate marketing campaign including consumer
awareness advertising and events, prominent presence at major trade shows and a
new trade advertising campaign. In 1998 management is investigating plans to
increase these initiative and to expand its consumer awareness advertising and
other consumer initiatives; however, there can be no assurance such additional
initiatives will be implemented or that the Affiliate and subscriber base will
be increased as a result of such initiatives.
In today's cable environment, one key element typically required for a
programming service to obtain a launch on a cable system is money. Although
programming content is important, in the final analysis, available channel
capacity is currently sold to the highest bidder. Management believes this
environment is short lived due to potential growth of digitally compressed cable
services and potential future expansion of channel capacity through
technological advances as well as the expansion of DBS markets and the potential
for DBS to add local broadcast signals to their packages. System operators are
keenly aware that they have a limited window to develop advanced digital systems
which will greatly enhance channel capacity to compete with the future of DBS.
Once the DBS services are able to provide local broadcast signals to their
systems, cable system operators will be faced with true competition. True
competition for the consumer will bring the cable system operators back to
focusing on programming content which satisfies consumer demand. Public
projections of the time frame to anticipate operators upgrading the technical
aspects of their systems, or DBS operators to offer local broadcast signals,
vary widely and can not be anticipated with any certainty.
Increased competition from networks with strong strategic alliances and
significant financial resources have reduced the Network's subscriber base and,
correspondingly, has reduced revenues from affiliates and advertising. This
competition has also increased the costs which the Company must pay for
programming. The Company anticipates improved programming and increased sales
and marketing costs will be necessary to battle increased competition. Based
upon these factors, the Company does not anticipate significant improvement in
the results if its operations until such time as the number of its subscribers
increases significantly.
Since 1990, the Company's Majority Stockholders have been the principal
source of the Company's capital. The Majority Stockholders have invested
$2,300,000 and provided $39,500,000 in financing since 1994, including
$19,500,000 loaned to the Company in 1997. Additionally, they have provided
$8,000,000 million in debt financing to the Company since January 1, 1998, and
have committed to provide up to an additional $11,500,000 million in debt
financing during the balance of the calendar year. Management believes that
these funds will be sufficient to satisfy its operating needs for 1998. In
connection with the borrowings the Company has entered into a security agreement
covering substantially all the Company's assets in favor of the Majority
Stockholders.
Beginning in 1996 the Company's Board of Directors directed its Executive
Committee and management to study the question of whether the Company should
enter into, and the potential opportunities for, a strategic alliance, and to
make recommendations to the full Board regarding this proposal. The Executive
Committee and management have been actively engaged in this study. Although
numerous meetings with potential strategic partners have been held, none of
these have resulted in significant discussions. The Executive Committee and
management continue to study this alternative.
Because of the unpredictable factors involved in the search for a strategic
alliance, and the dynamic changes taking place in the industry, there is
considerable uncertainty about what the Company's needs will be in future years.
There can be no assurance that the Company will be able to locate sufficient
financing in excess of the funds committed for 1998 by the Majority
Stockholders, nor that it will be able to achieve a strategic alliance.
Material Commitments
The Company leases transponder space and related services on a satellite at
a base monthly rental of $205,400. The lease provides for greater back-up
protection than did the Company's previous leases in the event of satellite
failure. The lease terminates with the life of the satellite, which is expected
in the year 2006, and required the Company to pay a launch protection fee of
$1,000,000 plus capitalized interest at 12% and other direct costs.
As of March 15, 1998, Nostalgia had issued and outstanding promissory notes
to Concept and Crown in an aggregate principal amount of $18.1 and $31 million,
respectively, bearing interest at 8.5% per annum and are due and payable on
February 1, 1999.
Effect of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. The Company's results of operations and financial
position will be unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements.
Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of a Business Enterprise ("SFAS 131"), establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of an enterprise
about which separate financial information is available and that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
Both SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and required comparative information
for earlier years to be restated. Management believes the impact, if any, would
not be material to the financial statement disclosures.
-16-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included herewith as a
separate section of this Report, commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Nostalgia will file a definitive proxy statement with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Form 10-K pursuant to Regulation 14A. The information called for
by this Item with respect to directors has been omitted pursuant to General
Instruction G(3). This information is incorporated by reference from the Proxy
Statement for the 1998 Annual Meeting. For information relating to the Executive
Officers of the Company, see Part I of this report. The Section 16(A) reporting
information is incorporated by reference from the Proxy Statement for the 1998
Annual Meeting.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item with respect to executive
compensation has been omitted pursuant to General Instruction G(3). This
information is incorporated by reference from the Proxy Statement for the 1998
Annual Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item with respect to security ownership
of certain beneficial owners and management has been omitted pursuant to General
Instruction G(3). This information is incorporated by reference from the Proxy
Statement for the 1998 Annual Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item with respect to certain
relationships and transactions with management and others has also been omitted
pursuant to General Instruction G(3). This information is incorporated by
reference from the Proxy Statement for the 1998 Annual Meeting.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
Reference is made to the listing on page F-1 for a list of all
financial statements and financial statement schedules filed as part
of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during 1997.
(c) Exhibits
The Exhibits that are filed with this report, or that are incorporated
herein by reference, are set forth in the Exhibit Index beginning on
page E-1.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE NOSTALGIA NETWORK, INC.
Date: April 11, 1998 By: /s/ Squire D. Rushnell
-------------------------------------
Squire D. Rushnell, President,
Chief Executive Officer and Director
Date: March 30, 1998 By: /s/ Martin A. Gallogly
-------------------------------------
Martin A. Gallogly, Vice President,
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Signature and Title Date
- ------------------- ----
/s/ Phillip Sanchez
- ---------------------------------------- March 8, 1998
Ambassador Phillip Sanchez,
Director and Chairman of the Board
/s/ Christopher A. Cates
- ---------------------------------------- April 9, 1998
Christopher A. Cates, Director
/s/ Floyd Christofferson
- ---------------------------------------- March 26, 1998
Floyd Christofferson
/s/ Diane M. Faure
- ---------------------------------------- March 24, 1998
Diane M. Faure, Director
/s/ Dong Moon Joo
- ---------------------------------------- April 13, 1998
Dong Moon Joo, Director
/s/ Masahisa Kobayashi March 25, 1998
- ----------------------------------------
Masahisa Kobayashi, Director
/s/ Frederick W. Newton
- ---------------------------------------- April 10, 1998
Frederick W. Newton, CPA, Director
/s/ Squire D. Rushnell
- ---------------------------------------- April 11, 1998
Squire D. Rushnell, Director
/s/ Robert J. Wussler March 21, 1998
- ----------------------------------------
Robert J. Wussler, Director
-18-
<PAGE>
[LOGO]
THE NOSTALGIA NETWORK, INC.
FINANCIAL STATEMENTS
AND REPORTS OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
DECEMBER 31, 1997, 1996 AND 1995
F-1
<PAGE>
THE NOSTALGIA NETWORK, INC.
CONTENTS
Page
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
BALANCE SHEETS F-4
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT) F-6
STATEMENTS OF CASH FLOWS F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-20
SCHEDULE II F-21
F-2
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
The Nostalgia Network, Inc.
We have audited the accompanying balance sheets of The Nostalgia Network,
Inc. (the "Company") as of December 31, 1997 and 1996 and the related statements
of operations, changes in stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. We have also audited schedule
II for the years ended December 31, 1997, 1996 and 1995. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Nostalgia
Network, Inc. at December 31, 1997 and 1996, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. Also, in our
opinion, schedule II presents fairly, in all material respects, the information
set forth therein for the years ended December 31, 1997, 1996 and 1995.
BDO Seidman, LLP
Washington DC
March 31, 1998
F-3
<PAGE>
THE NOSTALGIA NETWORK, INC.
BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,803,189 $1,421,011
Accounts receivable, less allowance of $467,000
and $1,154,000 for doubtful accounts 723,766 706,634
Prepaid expenses 140,341 145,998
Programming and cablecast rights 6,880,000 5,866,000
------------ ------------
Total current assets 9,547,296 8,139,643
Programming and cablecast rights, at cost - net 5,956,646 7,844,907
Property and equipment, at cost - net 1,441,290 1,484,412
Deposits 52,740 17,740
------------ ------------
Total assets $16,997,972 $17,486,702
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of:
Programming and cablecast fees $6,334,000 $6,399,000
Notes payable and long-term debt - Related parties 17,000 17,000
- Others 5,085 101,410
Accounts payable - Trade 2,010,924 1,224,362
- Related parties 343,321 131,708
Accrued expenses and other liabilities 650,842 874,732
------------ ------------
Total current liabilities 9,361,172 8,748,212
------------ ------------
LONG-TERM OBLIGATIONS, less current maturities:
Programming and cablecast fees 2,338,835 6,375,102
Notes payable and long-term debt - Related parties 41,417,194 20,320,649
Accrued interest payable - Related parties 1,876,508 1,494,995
Other 357,010 11,965
------------ ------------
Total long-term obligations 45,989,547 28,202,711
------------ ------------
Total liabilities 55,350,719 36,950,923
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, convertible: $2 par value, 125,000 shares
authorized, 3,250 shares issued and outstanding 6,500 6,500
Common stock: $.04 par value, 30,000,000
shares authorized, 20,274,371 and 20,274,371
shares issued and outstanding in 1997 and 1996, respectively 810,975 810,975
Additional paid-in capital 30,213,554 30,213,554
Deficit (69,383,776) (50,495,250)
------------ ------------
Total stockholders' equity (deficit) (38,352,747) (19,464,221)
------------ ------------
Total liabilities and stockholders' equity (deficit) $16,997,972 $17,486,702
============ ============
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-4
<PAGE>
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues:
Affiliate sales $2,579,376 $3,850,745 $4,205,324
Advertising sales 4,474,597 5,652,938 5,812,663
Other 124,960 -- 1,248,898
----------------------------------------------------------
Total operating revenues 7,178,933 9,503,683 11,266,885
----------------------------------------------------------
Operating Expenses:
Programming, production and transmission 5,524,078 5,458,931 4,682,928
Programming amortization 6,891,161 7,182,932 6,325,975
Sales and marketing 8,120,458 4,510,056 4,508,084
Finance, general and administrative 2,932,094 3,243,021 4,743,944
----------------------------------------------------------
Total operating expenses 23,467,791 20,394,940 20,260,931
----------------------------------------------------------
Loss from operations (16,288,858) (10,891,257) (8,994,046)
Interest Expense, net;
Related parties 2,689,000 1,141,000 512,000
Other (89,332) (90,769) (29,679)
----------------------------------------------------------
Net loss $(18,888,526) $(11,941,488) $(9,476,367)
==========================================================
Loss per common share - Basic and Diluted $(0.93) $(0.59) $(0.47)
==========================================================
Weighted average shares outstanding 20,274,371 20,274,371 20,267,704
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-5
<PAGE>
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Common Common
Stock Stock Stock
Shares Amount Shares Amount Subscribed
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 3,250 $ 6,500 20,241,037 $ 809,641 $ 16,000
Issuance of common stock
subscribed, 21,994 from Treasury -- -- 33,334 1,334 (16,000)
Net loss for the year -- -- -- -- --
------------ ------------ ------------ ------------ -----------
Balance at December 31, 1995 3,250 6,500 20,274,371 810,975 --
Net loss for the year -- -- -- -- --
------------ ------------ ------------ ------------ -----------
Balance at December 31, 1996 3,250 6,500 20,274,371 810,975 --
Net loss for the year -- -- -- -- --
------------ ------------ ------------ ------------ -----------
Balance at December 31, 1997 3,250 $ 6,500 20,274,371 $ 810,975 $ --
============ ============ ============ ============ ===========
<CAPTION>
Additional Common Total
Paid-In Stock-In Stockholders'
Capital Treasury Deficit Equity (Deficit)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 30,343,888 $ (145,000) $(29,077,395) $ 1,953,634
Issuance of common stock
subscribed, 21,994 from Treasury (130,334) 145,000 -- --
Net loss for the year -- -- (9,476,367) (9,476,367)
------------ ------------ ------------ ------------
Balance at December 31, 1995 30,213,554 -- (38,553,762) (7,522,733)
Net loss for the year -- -- (11,941,488) (11,941,488)
------------ ------------ ------------ ------------
Balance at December 31, 1996 30,213,554 -- (50,495,250) (19,464,221)
Net loss for the year -- -- (18,888,526) (18,888,526)
------------ ------------ ------------ ------------
Balance at December 31, 1997 $ 30,213,554 $ -- $(69,383,776) $(38,352,747)
============ ============ ============ ============
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-6
<PAGE>
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(18,888,526) $(11,941,488) $ (9,476,367)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 310,416 294,270 175,000
Programming amortization 6,891,161 7,182,931 6,325,975
Provision for losses on accounts receivable 102,000 450,000 1,541,000
Net change in operating assets and liabilities:
(Increase) decrease in accounts receivable (119,132) 147,962 (791,902)
Decrease in prepaid expenses 5,657 35,267 325,792
Increase (decrease) in accounts payable 998,175 (50,770) (743,112)
Increase in accrued expenses
and other liabilities 2,099,213 966,171 893,206
--------------------------------------------------------
Net cash used in operating activities (8,601,036) (2,915,657) (1,750,408)
--------------------------------------------------------
Cash flows from investing activities:
(Increase) decrease in deposits (35,000) (1,709) 10,727
Purchases of property and equipment (267,294) (166,120) (259,972)
Acquisition of programming and cablecast rights (3,357,900) (205,990) (2,087,067)
--------------------------------------------------------
Net cash used in investing activities (3,660,194) (373,819) (2,336,312)
--------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 19,500,000 10,000,000 7,500,000
Payments of long-term obligations (6,856,592) (6,145,252) (5,340,224)
--------------------------------------------------------
Net cash provided by financing activities 12,643,408 3,854,748 2,159,776
--------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 382,178 565,272 (1,926,944)
Cash and cash equivalents - beginning of year 1,421,011 855,739 2,782,683
--------------------------------------------------------
Cash and cash equivalents - end of year $ 1,803,189 $ 1,421,011 $ 855,739
========================================================
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-7
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Nostalgia Network, Inc. (the "Company") is engaged in the operation of
Nostalgia Good*tv (the "Network"), a television programming service
offering a variety of entertainment, lifestyle and informational
programming to a target audience of active adult Americans who are 49 years
of age or older ("Post-49") via satellite to cable television and
alternative broadcasting systems ("Affiliates") throughout the United
States.
Significant accounting policies used by the Company are described below:
Basis of Presentation
During 1995, the Company dissolved its wholly-owned subsidiary, which had
no recorded assets or liabilities and had no operations for many years.
There was no gain or loss on the dissolution. The consolidated financial
statements of prior years include the accounts of the Company and its
wholly-owned subsidiary after elimination of all significant intercompany
balances and transactions.
Revenue Recognition
Revenues from providing programming services to cable systems and sales to
advertisers are recognized on a monthly basis as the services are provided.
The Company grants credit to cable systems and advertisers throughout the
United States.
Property and Equipment
Depreciation and amortization are calculated based on estimated service
lives of depreciable assets by the straight-line method.
Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter.
Major repairs or replacements of property and equipment are capitalized.
Maintenance, repairs and minor replacements are charged to operations as
incurred.
When property or equipment are retired or otherwise disposed of, their cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in operations.
Programming and Cablecast Rights
Capitalized programming costs, film library and Cablecast rights are
recorded at the lower of unamortized costs or net realizable value.
Capitalized programming costs, film library and cablecast rights are
amortized using the straight-line method, which approximates the
anticipated revenue stream, over the estimated useful life not to exceed
eleven years or the lives of the rights agreements, respectively, in
accordance with SFAS No. 63 - Financial Reporting by Broadcasters.
Cablecast rights for programs to be amortized within the following year are
classified as current assets. The Company periodically evaluates its
programming and cablecast rights for possible changes in estimated useful
life or the possibility of impairment. If a programming or cablecast right
is considered potentially impaired, an analysis is performed consisting of
a comparison of future projected net cash flows to the carrying value of
such asset. Any excess carrying value over future projected net cash flows
is written off due to impairment.
F-8
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concluded)
Net Loss Per Common Share
Effective December 31, 1997, the Company has adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share. SFAS No. 128 replaces the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and convertible securities. Diluted earnings
per share is computed similarly to fully diluted earnings per share. All
earnings per share amounts for all periods presented have been restated to
conform to the requirements of SFAS No. 128.
The net loss per common share - basic is computed by dividing the net loss
for the period by the weighted average number of shares outstanding.
Convertable preferred stock, outstanding stock warrants and options are not
included in the diluted calculation because their effect would be
anti-dilutive.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The Company maintains its cash balances in First Union National Bank of
Washington and Correspondent Services Corporation in McLean, Virginia.
Balances at First Union National Bank are insured by the Federal Deposit
Insurance Corporation up to $100,000. Balances in First Union's overnight
investment account are insured by the SPIC up to $500,000. Balances at
Correspondent Services Corporation are insured up to $5,000,000 through a
combination of $500,000 SPIC insurance and an additional $4,500,000
insurance policy provided by Aetna. Uninsured balances approximate
$1,654,000 and $660,000 at December 31, 1997 and 1996, respectively.
Risks and Uncertainties
The Network competes with other programmers for access to limited channel
space and must also compete with other programmers for viewers. In recent
years the Company has suffered a declining subscriber base due to this
increased competition. This has resulted in a decrease in both affiliate
and advertising sales. The Company anticipates increased sales and
marketing costs as well as increased programming and production costs in
order to compete effectively in the marketplace. Based on the decline in
sales and increase in operating expenses, the Company is dependent on
outside financing from the Majority Shareholder in order to fund
operations.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain
estimates and assumptions particularly as it relates to the valuation of
accounts receivable and programming and cablecast rights and the disclosure
of contingent assets and liabilities. Actual results could differ from
those estimates.
F-9
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. MANAGEMENT STATEMENT
In light of the Company's recurring losses, management is actively
monitoring expenses and examining operating methods to increase
efficiencies. These measures are intended to address short term operating
requirements, but do not address the more critical long term growth needs
for the Network. In order to grow, the Network needs to increase its
affiliate base which, in turn, should increase the subscriber base allowing
the Network to increase its advertising rates as well as affiliate
revenues.
Management has been actively focusing its efforts to further brand the
Network as the only network targeted to the ever growing post 49 audience,
America's fastest growing demographic. During 1997 the Network launched the
Nostalgia Affinity Program ("Affinity") designed to provide Affiliates with
a nominal cost, turn-key customer appreciation program offering dining,
travel and leisure discounts for consumers and a shared revenue stream for
both the Company and its Affiliates. Additionally, the Company relaunched
its internet site, www.goodtv.com, greatly expanding both the content and
reach of its internet programming in an effort to further drive consumer
awareness and demand for the Network as well as to provide a grass roots
marketing tool allowing consumers to notify system operators of their
desire for the Network. The Network continues to promote its Nostalgia
Lifestage Marketing program ("Lifestage"), which provides affiliates with
the necessary training and tools to effectively target the post 49
demographic in their communities. Lifestage, through seminars customized
for affiliates as well as specially targeted direct mail campaigns, has
helped a number of affiliates gain subscribers that they previously had not
been able to reach. Management has continued its aggressive affiliate
marketing campaign by having a prominent presence at major trade shows and
through trade advertising. Management plans to continue to expand these
efforts in 1998.
A critical component to the Network's growth is to continually brand and
improve the quality of programming and the Network's on air look. Original
programming is a key to such branding, as it allows the consumer to
differentiate the Network from other networks. Nostalgia has continued to
produce new original programming targeted for its post 49 audience,
expanding its original programming from two hours a day to eight hours a
day. Nostalgia Ballroom DanceSport Competitions, showcasing the
increasingly popular sport of ballroom dance competitions, provides insight
and coverage of major dance competitions across the United States. Cafe
DuArt, featuring impressionist/ comedian Louise DuArt, provides cabaret
music, comedy and a humorous slice of life set in a New York cabaret club.
The Real me Autobiographies, features prominent guests telling their own
stories in their own words. The Nostalgia Variety Hour features classic
variety programs such as Tony Orlando and Dawn, Leslie Uggams, The Lennon
Sisters and others with all new wrap arounds and segments. The Bull & The
Bear provides stock market reports by a "Siskel and Ebert-type" pair of
hosts. More Money with the Dolans staring Ken and Daria Dolan, the First
Family of Finance, offers practical financial advice for everyday
Americans. Nostalgia Television Issues and Answers, a panel discussion show
hosted by Ron Nessen, continues to provide the Network's audience with
insight into the issues facing today's active adults. Dennis Wholey:
America, a talk show featuring contemporary literary artists is simulcast
over approximately 40 PBS affiliates nationwide. Management continues to
search for creative new programming ideas targeted to the Post-49 audience.
In addition to its new original programming, Nostalgia continues to offer
its viewers classic off network television series. The Network currently
airs The Rockford Files, The Love Boat, and Streets of San Francisco.. The
Network has also revised its film series through the introduction of Flea
Market Movie, wherein short segments are added to commercial breaks where
the Network's collectibles aficionado, Christopher Kent, dispenses his wit
and wisdom about all sorts of collectable items.
These improvements to the programming line up have resulted in tangible
results where ratings have risen to a .2 Total Day; a .6 Monday to Sunday
Prime Time; and a .8 Monday to Friday Prime Time.
F-10
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. MANAGEMENT STATEMENT (Concluded)
Concept Communications, Inc. ("Concept") and Crown Communications
Corporation ("Crown") (together the Company's "Majority Shareholder") have
provided $8,000,000 in debt financing to the Company since January 1, 1998,
and have also committed to provide up to an additional $11,500,000 in debt
financing during the balance of the calendar year. Management believes that
these funds will be sufficient to satisfy its operating needs for 1998.
The Executive Committee of the Board of Directors and management continue
to evaluate strategic alliance alternatives and have had preliminary
discussions with a number of potential strategic partners. These
discussions are preliminary and no definitive proposals or targeted
entities have been identified. The Executive Committee and management will
continue to actively pursue identifying potential strategic alliance
candidates.
Because of the unpredictable factors involved in the search for a strategic
alliance and the dynamic changes taking place in the industry, there is
considerable uncertainty about what the Company's needs will be in future
years. There can be no assurance that the Company will be able to locate
financing in the required amount (in excess of the funds committed by the
Majority Shareholder for 1998), or that it will be able to achieve a
strategic alliance.
2. PROPERTY AND EQUIPMENT
Major classifications of property and equipment and their respective
estimated service lives are summarized below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Transponder $ 1,427,968 $ 1,427,968 12 years
Machinery and equipment 1,360,810 1,098,194 5 to 7 years
Furniture and fixtures 299,663 294,985 5 to 7 years
Leasehold improvements 99,780 99,780 5 years
----------- ------------
3,188,221 2,920,927
Accumulated depreciation
and amortization (1,746,931) (1,436,515)
=========== ============
$ 1,441,290 $ 1,484,412
=========== ============
</TABLE>
Depreciation expense included in Finance, General and Administrative
expenses was $310,416, $294,270, and $175,000, for 1997, 1996 and 1995,
respectively.
3. PROGRAMMING AND CABLECAST RIGHTS
Prime time series consist of broadcast licenses for classic television
series and other programming acquired from various film studios or other
sources. Original programs consist of series or specials developed and
produced by the Network. Music programs include musical series or specials
both those produced by the Company and those acquired or licensed from
third parties. The film library consists of vintage feature films,
interstitial material, and other programming produced and/or owned by the
Company. Film rights include broadcast licenses for films and specialty
programming. Other programming and cablecast rights include production and
post-production costs as well as costs to duplicate and edit programs and
interstitial materials for broadcasting.
F-11
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
3. PROGRAMMING AND CABLECAST RIGHTS (Concluded)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prime time series $ 14,323,500 $ 17,879,000
Original programs 3,885,605 852,987
Music Programs 1,537,095 363,595
Film library 1,266,667 1,191,667
Film rights -- 750,000
Other 933,436 934,074
----------------------------
21,946,303 21,971,323
Less accumulated amortization (9,109,657) (8,260,416)
----------------------------
$ 12,836,646 $ 13,710,907
============================
Consisting of:
Current $ 6,880,000 $ 5,866,000
Long term 5,956,646 7,844,907
----------------------------
$ 12,836,646 $ 13,710,907
============================
</TABLE>
Estimated future amortization of programming and cablecast rights and
maturities of related long-term obligations are approximately as follows:
<TABLE>
<CAPTION>
Year 1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Amortization $6,880,000 $5,015,500 $941,000
Obligation maturities 6,334,000 2,338,835
</TABLE>
The Company acquired the following rights and materials during the years
ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Prime time series $ 1,073,500 $ -- $ 20,197,000
Original Programs 3,532,600 500,000 353,000
Music Programs 1,185,500 312,000 69,000
Other 254,700 96,500 685,600
Film rights -- -- 750,000
</TABLE>
4. NOTES PAYABLE AND LONG TERM DEBT
Notes payable consists of the following:
<TABLE>
<CAPTION>
Related Parties 1997 1996
--------------- -----------------------------
<S> <C> <C>
Note payable to Concept Communications, Inc. bearing interest
approximating 8.5% per annum, due upon the earlier of an equity
investment of not less than the amount of the Notes or February 1,
1999; however, Concept has represented that the Notes will not be
called prior to February 1, 1999 unless replaced by an
equity investment. $18,112,194 $16,500,000
</TABLE>
F-12
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
4. NOTES PAYABLE AND LONG TERM DEBT (Concluded)
<TABLE>
<CAPTION>
Related Parties 1997 1996
--------------- -----------------------------
<S> <C> <C>
Notes payable to Crown Communications Corporation bearing interest
approximating 8.5% per annum, due upon the earlier of an equity
investment of not less than the amount of the Notes or February 1,
1999; however, Crown has represented that the Notes will not be
called prior to February 1, 1999 unless replaced by an
equity investment. $23,000,000 $ 3,500,000
Subordinated note payable to Atlantic Video in the principal amount of
$305,000, bearing interest at the rate of 2.5% per quarter, compounded
quarterly, with principal and interest payable on March 31, 2002,
after which date the interest rate is increased to 3.75% per quarter,
secured by accounts receivable. The note agreement contains certain
restrictive covenants including limitations on liens, disposition
of collateral and compliance with related contracts. 305,000 305,000
Tenant improvement contribution payable to an affiliate in
60 monthly payments of $1,410, including interest at 8% 17,000 32,649
-----------------------------
41,434,194 10,373,096
Less current portion 17,000 17,000
-----------------------------
$41,417,194 $10,356,096
=============================
</TABLE>
Subsequent to December 31, 1997, the Majority Shareholder has loaned the
Company an additional $8,000,000 and extended the due dates on all related
debt to February 1, 1999. In addition, the Majority Shareholders have
extended payments on their portion of accrued interest until 1999. In
connection with the additional borrowings and extension of the due dates
the Company has entered into a security agreement covering substantially
all the Company's assets in favor of the Majority Shareholder. Current
maturities of notes payable and long-term debt to related parties is as
follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$17,000 $41,112,194 $ -- $ -- $305,000
</TABLE>
Notes payable - other relates to various vendor financing agreements.
5. STOCK OPTIONS AND WARRANTS
On July 15, 1987, the Company's Board of Directors adopted an Employee
Stock Option Plan (the "1987 Plan") which provides for discretionary grants
to employees, officers or directors employed by the Company or its parent,
as well as other individuals who perform services for the Company. The 1987
Plan was approved by the Company's shareholders on August 31, 1987. 325,000
shares of stock have been reserved for issuance pursuant to the 1987 Plan.
Data with respect to stock options under the 1987 Plan are as follows:
F-13
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
5. STOCK OPTIONS AND WARRANTS (Continued)
<TABLE>
<CAPTION>
Shares Options Price
Reserved Outstanding per Share
--------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 279,500 45,500 $.48 - 1.25
Exercised -- --
Canceled -- --
Transferred to 1996 Plan (279,500) -- $.48 - 1.25
----------------------------
Outstanding at December 31, 1996 -- 45,500 $ .48 - 1.25
Canceled -- --
----------------------------
Outstanding at December 31, 1997 -- 45,500 $ .48 - 1.25
============================
Exercisable at December 31, 1997 -- 45,500 $ .48 - 1.25
======
</TABLE>
On August 21, 1990, the Company's Board of Directors adopted an Incentive
and Nonqualified Stock Option Plan (the "1990 Plan") which provides for
discretionary grants to employees, officers and directors of the Company.
The 1990 Plan was approved by the Company's shareholders on October 2,
1990. 1,000,000 shares of stock have been reserved for issuance pursuant to
the 1990 Plan. Data with respect to stock options under the 1990 Plan are
as follows:
<TABLE>
<CAPTION>
Shares Options Price
Reserved Outstanding per Share
--------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 750,666 216,000 $ .48 - 1.57
Exercised -- --
Canceled -- --
Transferred to 1996 Plan (750,666) -- $ .48 - 1.57
----------------------------
Outstanding at December 31, 1996 -- 216,000 $ .48 - 1.57
Canceled -- --
----------------------------
Outstanding at December 31, 1997 -- 216,000 $ .48 - 1.57
============================
Exercisable at December 31, 1997 163,618 $ .48 - 1.57
=======
</TABLE>
In August 1995, the Board of Directors authorized granting options for
178,000 shares of stock to key management and employees under the 1990
plan. The options vest annually over a three year period at an exercise
price of $1.00.
In November, 1995, the Company's Board of Directors authorized registration
of Nostalgia's existing stock option plans and agreements under the
Securities Act of 1933 and the establishment of a new stock option plan
(the "1996 Plan") which will replace the two existing plans. This action
did not result in any additional shares being reserved for options.
F-14
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
5. STOCK OPTIONS AND WARRANTS (Continued)
The 1996 Plan provides for all remaining reserved shares under the 1987 and
1990 Plans to be transferred into the 1996 Plan as well as any subsequent
cancellations of any options currently outstanding in the 1987 and 1990
Plans. Additionally, the 1996 Plan provides for annual "formula" grants to
nonemployee directors of 3,000 shares which vest over three years. The 1996
Plan was approved to provide an option plan which conforms to current
securities law and was adopted by shareholder approval at the Company's
1996 Annual Meeting. Data with respect to stock options under the 1996 Plan
are as follows:
<TABLE>
<CAPTION>
Shares Options Price
Reserved Outstanding per Share
-----------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 -- --
Transferred from 1987 Plan 279,500 --
Transferred from 1990 Plan 750,666 --
Granted (30,000) 30,000 $0.27
Exercised -- --
Canceled -- --
----------------------------
Outstanding at December 31, 1996 1,000,166 30,000 $0.27
Granted (30,000) 30,000 $0.07
Canceled 9,000 (9,000) $0.27
----------------------------
Outstanding at December 31, 1997 979,166 51,000 $0.07 - 0.27
============================
Exercisable at December 31, 1997 8,000 $0.27
=====
</TABLE>
The exercise price of stock options at December 31, 1997 ranged from $1.57
to $0.07 per share with a weighted exercise price and remaining contractual
life of $0.81 and seven years, respectively.
On August 2, 1994, the Company entered into an agreement with John G. Heim
to be employed as the Company's President and Chief Executive Officer.
Under the terms of the contract the Company entered into a stock option
agreement which reserved 839,840 shares of common stock at an exercise
price of $1.174, which was equal to the fair market value at the date of
grant. Mr. Heim's contract expired June 30, 1996 and his options expired
September 30, 1996 without being exercised.
On May 13, 1996, the Company entered into an agreement with SQuire Rushnell
to be employed as the Company's President and Chief Executive Officer.
Under the terms of the contract the Company entered into a stock option
agreement which reserves 839,840 shares of common stock at an exercise
price of $0.35, which was equal to the fair market value at the date of
grant. The shares vest at a rate of 25% each nine months and the options
expire at the earliest of (a) purchase of all shares, (b) 90 days following
termination of employment, or (c) May 12, 2006. The number of shares
vesting in a given period can be accelerated and/or additional options
granted if the number of shares vesting is less than 1% of the total shares
of common stock outstanding on such date. At December 31, 1997, 419,920
shares were vested.
At December 31, 1997, there were warrants outstanding to purchase
approximately 156,000 shares of the Company's common stock at prices
ranging from $1.25 to $4.80 per share for an average price of $2.31 per
share. No options or warrants were exercised during 1996 or 1997. The
warrants will expire 45 days after the filing of a post-effective amendment
to the related registration statement, as yet unfiled.
F-15
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
5. STOCK OPTIONS AND WARRANTS (Concluded)
Total common shares reserved for issuance of subscribed stock, options,
warrants and conversion of preferred shares at December 31, 1997 were
approximately 2,287,500.
6. CAPITAL STOCK
Common Stock
On November 13, 1984, the Company completed a public offering of 12,500,000
units of stock at $.02 per unit (156,250 units at $1.60 adjusted for all
splits). Each unit originally consisted of one share of the Company's
common stock and one purchase warrant to purchase one share of common stock
at $.06 per share ($4.80 per share adjusted for all splits). The warrants
are exercisable by the holder commencing May 13, 1985 and will expire 45
days after the filing of a post-effective amendment to the related
registration statement, as yet unfiled. Shares of common stock issued for
other than cash have been assigned amounts equivalent to the fair value of
the assets received in exchange.
Preferred Stock
Each share of preferred stock is convertible into 100 shares of common
stock at the option of the holder thereof. Each preferred share is entitled
to vote as 100 shares of common stock. Preferred shareholders are entitled
to preferential rights on dividends. To date, no dividends have been
declared or paid.
7. FEDERAL INCOME TAXES
The Company has incurred net operating losses since its inception for
income tax purposes. Accordingly, since realization of benefits from these
losses is not assured, tax benefits were not recorded for financial
statement purposes.
At December 31, 1997, the Company has unused net operating loss
carryforwards which will be limited. Internal Revenue Code Section 382
provides that certain changes in ownership of the Company can limit the
amount of income that can be offset by net operating losses. The amount of
the limitation is approximately $1,700,000 per year. The net operating loss
carryforwards prior to the application of the limitations are as follows:
<TABLE>
<CAPTION>
Available for carryforward to
Year Ending December 31,
-----------------------------
<S> <C>
1998 - 2000 $ 87,000
2001 1,323,000
2002 3,493,000
2003 1,725,000
2004 2,424,000
2005 3,630,000
2006 2,786,000
2007 2,803,000
2008 2,218,000
2009 3,719,000
2010 8,787,000
2011 13,094,000
2012 19,644,000
-------------
Total $ 65,733,000
=============
</TABLE>
F-16
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
7. FEDERAL INCOME TAXES (Concluded)
Under the asset and liability approach specified by Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes",
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the currently enacted tax rates. Deferred tax expense or
benefit is the result of the changes in deferred tax assets and
liabilities.
Deferred income taxes arise from the difference between the financial
statement and income tax basis of assets and liabilities. Principal items
comprising net deferred tax assets as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Current:
Allowance for doubtful accounts $ 159,000 $ 392,000
Accrued liabilities and other 75,000 61,000
------------------------------
Total current deferred tax assets 234,000 453,000
------------------------------
Long-Term:
Net operating loss carryforwards 22,349,000 15,670,000
Accumulated depreciation and amortization (585,000) (511,000)
------------------------------
Total net long-term deferred tax assets 21,746,000 15,159,000
------------------------------
Total net deferred tax assets 21,998,000 14,706,000
Valuation allowance (21,998,000) (14,706,000)
------------------------------
Net deferred tax asset $ -- $ --
==============================
</TABLE>
Management believes that a valuation allowance is necessary due to
uncertainty regarding the timing and amount of future utilization of net
operating loss carryforwards.
8. RELATED PARTY TRANSACTIONS
Interest Expense
Interest expense to related parties was approximately $2,689,000,
$1,141,000, and $512,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Office Leases
The Company entered into a five year lease agreement commencing November,
1994, with an entity affiliated with the Company's Majority Shareholder.
The lease calls for base monthly rental payments of $12,537, plus 2% per
year escalation and pro-rata increases in operating expenses and real
estate taxes. The lease provides for three months rental abatement and a
five year renewal option at the then prevailing market rate. For financial
reporting purposes, the lease payments are being recognized on a
straight-line basis over the initial term of the lease. The Company was
required to contribute $70,000 for above building standard buildout items
to be paid in 60 monthly installments of $1,410, including 8% interest.
Rental expense under this lease was $184,600, $172,000, and $167,000, for
the years ended December 31, 1997, 1996 and 1995, respectively.
F-17
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS (Concluded)
Production and Post Production Services
During 1990, the Company entered into an agreement with Atlantic Video,
Inc., an entity of which two directors of the Company are officers and
directors, for studio, production and post production services, master
control/uplink services and office space. Under the terms of the agreement,
which were renewed in August 1997, the Company is required to purchase a
minimum number of hours of such services during each year at specified
rates. The Company has agreed to pay a minimum monthly fee of $78,000. If
the Company does not actually purchase $78,000 of services in a month, the
differences up to a maximum of $75,000 for all months elapsed, subject to
certain limitations, can be used as credit for the fees in future months.
Services rendered to the Company under this agreement amounted to
$1,525,000 $1,588,000, and $1,173,000, for the years ended December 31,
1997, 1996 and 1995, respectively.
9. COMMITMENTS AND CONTINGENCIES
Litigation
Roger M. Rosenberg, et al v. Sam Oolie, et al. On or about September 29,
1989, an action was commenced in the Delaware Court of Chancery for New
Castle County (the "Rosenberg/Cooke action"). The Company is identified as
a nominal defendant in the Rosenberg/Cooke action and, as to the purported
derivative claims, has no liability as a matter of Delaware Law. The
Company is required to advance the Directors defense costs.
Employment Agreements
On May 13, 1996, the Company entered into an employment agreement with
SQuire Rushnell pursuant to which Mr. Rushnell serves as the Company's
President and Chief Executive Officer. The agreement provides for an annual
salary of $200,000 with annual merit increases of not less than 5% of the
immediately prior base salary and a $50,000 sign on bonus. Commencing in
the second year the agreement provides for annual benchmark bonuses of
$50,000, payable quarterly upon meeting or exceeding certain budgetary
goals as well as annual bonuses based upon reducing the Company's deficit.
Leases
Transponder
The Company leases satellite transponder space and services on a 24-hour
per day basis. In connection with the Company's satellite transponder,
which launched in March, 1994, a launch protection fee of $1,000,000 was
paid and interest costs of $284,000 were capitalized along with other costs
to acquire the transponder. The basic monthly rate is $205,400 for a term
spanning the life of the satellite, which is estimated to be twelve years.
Expense for satellite transponder space and services was $2,464,800,
$2,464,800, and $2,464,800, for 1997, 1996 and 1995, respectively.
Office, Studio, and Equipment
The Company conducts operations from leased premises which include studio,
office, sales and storage facilities. The Company also leases certain
production and communication equipment including its transponder. Generally
the leases provide for renewal for various periods at stipulated rates.
Some of the leases provide that the Company pay taxes, maintenance,
insurance and other occupancy expenses applicable to leased premises.
F-18
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES (Concluded)
Lease expense for premises and equipment for 1997, 1996 and 1995, which
consisted entirely of minimum rentals, was $273,000, $234,000, $226,000,
respectively. Approximate minimum rental commitments under all
noncancellable leases, including the transponder lease having terms in
excess of a year are as follows:
<TABLE>
<CAPTION>
Year Ending Facility Transponder Total
December 31, Leases Lease
------------ -------------------------------------------
<S> <C> <C> <C>
1998 $205,000 $ 2,770,000 $ 2,975,000
1999 138,000 2,810,000 2,948,000
2000 -- 2,885,000 2,885,000
2001 -- 2,885,000 2,885,000
2002 -- 2,885,000 2,885,000
Thereafter -- 8,094,000 8,094,000
</TABLE>
Rating Service Contract
The Company has contracted with a service that provides ratings reports,
analysis reports, demographic reports and other special reports. The
agreement, commencing September, 1995, covers a minimum period of five
years, requires a monthly base charge of approximately $30,000.
Major Customers
During 1997, two major customers accounted for 20% and 12% of affiliate
revenue; during 1996, three major customers accounted for 17%, 15% and 11%
of affiliate revenues; and during 1995, one major customer accounted for
15% of affiliate revenues, respectively. Advertising sales revenues from
one agency accounted for 10% of advertising sales in 1996 and 16% of
advertising sales in 1995. Revenues from the Company's home shopping
service accounted for almost all other revenue in 1995.
10. RECLASSIFICATIONS AND FOURTH QUARTER ADJUSTMENTS
Certain prior year amounts have been reclassified to conform to the current
method of presentation.
11. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $635,000 $166,213 $233,000
Income taxes None None None
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Fiscal 1997
Programming acquisitions totaling $2,659,000 were financed through vendor
debt obligations.
Interest accrued and payable to Concept in the amount of $1,612,194 was
recapitalized into a note payable as part of a March 31, 1997 refinancing
of debt owed to the Majority Shareholder.
F-19
<PAGE>
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
11. STATEMENTS OF CASH FLOWS (Concluded)
Fiscal 1996
Programming acquisitions totaling $702,500 were financed through vendor
debt obligations.
Fiscal 1995
Programming acquisitions totaling $19,967,500 were financed through vendor
debt obligations.
The Company reissued 21,994 shares of treasury stock at a carrying cost of
$145,000 in connection with issuance of common stock subscribed at December
31, 1995.
12. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. The Company's results of operations and financial
position will be unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130") establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of a Business Enterprise ("SFAS 131"), establishes standards for
the way that public enterprises report information about operating segments
in annual financial statements and requires reporting of selected
information for disclosures regarding products and services, geographic
areas and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available and that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance.
Both SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Management believes the
impact, if any, would not be material to the financial statement
disclosures.
F-20
<PAGE>
THE NOSTALGIA NETWORK, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Description of Year Expenses Accounts (1) Year
----------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts receivable $1,291,000 $1,541,000 $ -- $ 574,000 $2,258,000
======================================================================
Year ended December 31, 1996
Allowance for doubtful accounts receivable $2,258,000 $ 450,000 $ -- $1,554,000 $1,154,000
Year ended December 31, 1997
Allowance for doubtful accounts receivable $1,154,000 $ 102,000 $ -- $ 789,000 $ 467,000
======================================================================
</TABLE>
(1) Uncollectible accounts written off.
F-21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No Description Page No.
- ---------- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Registrant's Report
on Form 10-K for the Year Ended December 31, 1994, and incorporated herein by
reference thereto)
3.2 Amended and Restated Bylaws (filed as Exhibit 3.2 to the Registrant's Report on Form
1O-K for the Year Ended December 31, 1994, and incorporated herein by reference
thereto)
4.1 Specimen Common Stock Certificate (filed as Exhibit 4(a) to the Registrant's Report on
Form 1O-K for the Year Ended December 31, 1987, and incorporated herein by reference
thereto)
4.2 Specimen Common Stock Purchase Warrant Certificate (filed as Exhibit 4(b) to the
Registrant's Report on Form 1O-K for the Year Ended December 31, 1987, and
incorporated herein by reference thereto)
4.3 Specimen Preferred Stock Certificate (filed as Exhibit 4(c) to the Registrant's Report on
Form 10-K for the Year Ended December 31, 1987, and incorporated herein by
reference thereto)
10.1 Promissory Note, dated March 31, 1997, made by the Registrant payable to Concept
Communications, Inc.
10.2 Promissory Note, dated March 31, 1997, made by Registrant payable to Crown
Communications Corporation
10.3 Promissory Note, Dated March 31, 1997, made by Registrant payable to Crown
Communications Corporation
10.4 Promissory Note, Dated July 8, 1997, made by Registrant payable to Crown
Communications Corporation
lO.5 Promissory Note, Dated September 18, 1997, made by Registrant
payable to Crown Communications Corporation
10.6 Promissory Note, Dated November 7, 1997. made by Registrant payable to Crowm
Communications Corporation
10.7 Promissory Note, Dated November 24, 1997, made by Registrant payable to Crown
Communications Corporation
10.8 Promissory Note, Dated December 31, 1997, made by Registrant payable to Crown
Communications Corporation
10.9 Promissory Note, Dated February 10, 1998, made by Registrant payable to Crown
Communications Corporation
</TABLE>
E-l
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.10 Promissory Note, Dated March 2, 1998, made by Registrant payable to Crown Communications
Corporation
10.11 Promissory Note, Dated March 24, 1998, made by Registrant payable to Crown Communications
Corporation
10.12 Security Agreement, dated January 4, 1996, between the Registrant and Concept
Communications, Inc. (filed as Exhibit 2 to the Registrant's Report on Form 8-K dated
January 19, 1996, and incorporated herein by reference thereto)
10.13 Letter Agreement, dated February 26, 1996, between the Registrant and Concept
Communications, Inc. (filed as Exhibit 10 (a) to the Registrant's Report on Form 8-K
dated March 13, 1996, and incorporated herein by reference thereto)
10.14 Agreement, dated August 1, 1997, by and between the Registrant and Atlantic Video, Inc.
10.15* 1987 Stock Option Plan (filed as Exhibit 10 (i) to the Registrant's Report on Form 10-K
for the Year Ended December 31, 1987, and incorporated herein by reference thereto)
10.16* 1990 Stock Option Plan (filed as Exhibit 10 (tt) to the Registrant's Report on Form 10-K
for the Year Ended December 31, 1990, and incorporated herein by reference thereto)
10.17* Employment Agreement, dated May 13, 1996, between The Nostalgia Network Inc., and SQuire
Rushnell (filed as Exhibit 10 (a) to the Registrant's Report on Form 8-K dated May 13,
1996, and incorporated herein by reference thereto)
10.18* Stock Option Agreement, dated May 13, 1996, between The Nostalgia Network Inc., and
SQuire Rushnell (filed as Exhibit 10 (b) to the Registrant's Report on Form 8-K dated May
13, 1996, and incorporated herein by reference thereto)
27 Financial Data Schedule as required by Item 601 (c) of Regulation S-K
</TABLE>
* Management contract or compensatory plan, contract or arrangement.
E-2
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
$18,112,193.70 Washington, D.C.
Maturity Date: February 1, 1998 March 31, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CONCEPT
COMMUNICATIONS, INC., a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of eighteen million one
hundred twelve thousand one hundred ninety three dollars and seventy cents
($18,112,193.70), together with all accrued interest on such outstanding
balance, in accordance with the terms and provisions of this Note.
1. Substitution and Replacement. This Note is given by Maker in substitution
and replacement of that certain promissory note dated December 16, 1994 in the
principal amount of $2,500,000; that certain promissory note dated March 29,
1995 in the principal amount of $4,000,000; that certain promissory note dated
July 24, 1995 in the principal amount of $1,500,000; that certain promissory
note dated October 2, 1995 in the principal amount of $2,000,000; that certain
promissory note dated January 4, 1996 in the principal amount of $1,000,000;
that certain promissory note dated February 26, 1996 in the principal amount of
$1,000,000; and that certain promissory note dated April 16, 1996 in the
principal amount of $4,500,000 (collectively, the "Old Notes"). Upon execution
of this Note to Holder, the Old Notes shall be deemed to be cancelled and of no
further force and effect.
2. Interest; Payments. Interest shall accrue on the unpaid principal balance
of this Note (as well as on all accrued and unpaid interest) from and after the
date of this Note at a per annum rate equal to the Prime Rate as published in
the Wall Street Journal on March , 1997, compounded monthly, and interest of at
least Forty Thousand Dollars ($40,000) per month shall be paid monthly on the
last day of each month commencing April 30, 1997 until January 31, 1998. The
principal balance, together with all remaining unpaid interest accrued thereon
shall be due and payable on February 1, 1998 (the "Maturity Date").
<PAGE>
3. Payments. All payments by Maker hereunder shall be applied (i) first to any
collection costs pursuant to Paragraph 9 hereof, (ii) second to the interest due
and unpaid under this Note, and (iii) thereafter, to any principal owing under
this Note.
4. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
5. Waiver Regarding Notice. Maker waives presentment, demand and presentation
for payment, protest and notice of protest, and, except as otherwise
specifically provided herein, any other notices of whatever kind or nature,
bringing of suit and diligence in taking any action to collect any sums owing
hereunder. From time to time, without in any way affecting the obligation of
Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
6. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this Note,
which failure continues for a period of ten (10) days after written notice of
such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of January 4, 1996, as
amended (the "Security Agreement");
<PAGE>
(c) The occurrence of an event of default under that certain promissory
note dated as of the date hereof by Maker payable to Crown Communications
Corporation, a Delaware corporation ("Communications");
(d) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Communications dated as of March 21, 1997;
(e) Maker's failure to perform any other obligation (other than one that
can be satisfied with the payment of money) required under this Note, and the
continuation of such failure for a period of ten (10) days after Holder gives
Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of creditors, or
the commencement by or against Maker of any case, proceeding, or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution, or
composition of Maker's debts under any law relating to bankruptcy, insolvency,
or reorganization, or relief of debtors, or seeking appointment of a receiver,
trustee, custodian, or other similar official for Maker or for all or any
substantial part of Maker's assets.
7. Acceleration. Upon the occurrence of an Event of Default, Holder shall have
the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
8. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect to the same or any
<PAGE>
other Event of Default, and no single or partial exercise of any right or remedy
shall preclude other or further exercise of the same or any other right or
remedy. Holder shall have no duty to exercise any or all of the rights and
remedies herein provided or contemplated. The acceptance by Holder of any
payment hereunder that is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of the foregoing rights or remedies at that time, or nullify any
prior exercise of any such rights or remedies without the express written
consent of Holder.
9. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
10. Governing Law. The provisions of this Note shall be governed and construed
according to the law of the District of Columbia, without giving effect to its
conflicts of laws provisions.
11. Security. Payment of the indebtedness evidenced by this Note is secured by
certain assets of Maker pledged to Holder pursuant to the Security Agreement.
12. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
13. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
<PAGE>
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
If to Holder: Concept Communications, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: General Counsel
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
14. Severability. In the event that any one or more of the provisions of this
Note shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
15. Limitations of Applicable Law. In the event the operation of any provision
of this Note results in an effective rate of interest transcending the limit of
the usury or any other law applicable to the loan evidenced hereby, all sums in
excess of those lawfully collectible as interest for the period in question
shall, without further agreement or notice by any party to this Note, be applied
to the unpaid principal balance of this Note immediately upon receipt of such
monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
<PAGE>
16. Captions. The captions herein are for convenience of reference only and in
no way define or limit the scope or content of this Note or in any way affect
its provisions.
17. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
18. Time of the Essence. It is expressly agreed that time is of the essence in
the performance of the obligations set forth in this Note.
19. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court with appropriate
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to determine the party
responsible for payment of attorneys' fees and costs; and he/she shall have the
authority only to enforce the legal and contractual rights of the parties
arising hereunder and shall not add to, modify, disregard, or refuse to enforce
any contractual rights.
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on this
31 day of March, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
/s/ Illegible By: /s/ SQuire Rushnell
Vice President Name: SQuire Rushnell
Title: President & CEO
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
$6,500,000.00 Washington, D.C.
Maturity Date: February 1, 1998 March __, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of six million five hundred
thousand dollars ($6,500,000.00), together with all accrued interest on such
outstanding balance, in accordance with the terms and provisions of this Note.
1. Substitution and Replacement. This Note is given by Maker in
substitution and replacement of that certain promissory note dated October 15,
1996 in the principal amount of $1,000,000; that certain promissory note dated
November 1, 1996 in the principal amount of $1,500,000; that certain promissory
note dated December 20, 1996 in the principal amount of $1,000,000; that certain
promissory note dated January 7, 1997 in the principal amount of $500,000; that
certain promissory note dated February 14, 1997 in the principal amount of
$500,000; and that certain promissory note dated March 12, 1997 in the principal
amount of $2,000,000 (collectively, the "Old Notes"). Upon execution of this
Note to Holder, the Old Notes shall be deemed to be cancelled and of no further
force and effect.
2. Interest; Payments. Interest shall accrue on the unpaid principal
balance of this Note (as well as on all accrued and unpaid interest) from and
after the date of this Note at a per annum rate equal to the Prime Rate as
published in the Wall Street Journal on March __, 1997, compounded monthly, and
interest of at least Twenty Thousand Dollars ($20,000) per month shall be paid
monthly on the last day of each month commencing April 30, 1997 until January
31, 1998. The principal balance, together with all remaining unpaid interest
accrued thereon shall be due and payable on February 1, 1998 (the "Maturity
Date").
3. Payments. All payments by Maker hereunder shall be applied (i) first to
any collection costs pursuant to Paragraph 9 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
4. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
<PAGE>
5. Waiver Regarding Notice. Maker waives presentment, demand and
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
6. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this
Note, which failure continues for a period of ten (10) days after written
notice of such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain
promissory note dated as of the date hereof by Maker payable to Concept
Communications, Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Concept dated as of January 4, 1996;
(e) Maker's failure to perform any other obligation (other than one
that can be satisfied with the payment of money) required under this Note,
and the continuation of such failure for a period of ten (10) days after
Holder gives Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of
creditors, or the commencement by or against Maker of any case, proceeding,
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition
- 2 -
<PAGE>
of Maker's debts under any law relating to bankruptcy, insolvency, or
reorganization, or relief of debtors, or seeking appointment of a receiver,
trustee, custodian, or other similar official for Maker or for all or any
substantial part of Maker's assets.
7. Acceleration. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
8. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect to the same or any
other Event of Default, and no single or partial exercise of any right or remedy
shall preclude other or further exercise of the same or any other right or
remedy. Holder shall have no duty to exercise any or all of the rights and
remedies herein provided or contemplated. The acceptance by Holder of any
payment hereunder that is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of the foregoing rights or remedies at that time, or nullify any
prior exercise of any such rights or remedies without the express written
consent of Holder.
9. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
10. Governing Law. The provisions of this Note shall be governed and
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
- 3 -
<PAGE>
11. Security. Payment of the indebtedness evidenced by this Note is secured
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
12. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
13. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: General Counsel
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
14. Severability. In the event that any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as
- 4 -
<PAGE>
if such invalid, illegal or unenforceable provision had never been contained
herein.
15. Limitations of Applicable Law. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
16. Captions. The captions herein are for convenience of reference only and
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
17. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
18. Time of the Essence. It is expressly agreed that time is of the essence
in the performance of the obligations set forth in this Note.
19. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court with appropriate
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to determine the party
responsible for payment of attorneys' fees and costs; and he/she shall have the
authority only to enforce the legal and contractual rights of the parties
arising hereunder and shall not add to, modify, disregard, or refuse to enforce
any contractual rights.
- 5 -
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on
this ___ day of March, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
- 6 -
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
$6,000,000.00 Washington, D.C.
Maturity Date: February 1, 1998 March ___, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of six million dollars
($6,000,000.00), together with all accrued interest on such outstanding balance,
in accordance with the terms and provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at a per annum rate
equal to the Prime Rate as published in the Wall Street Journal on March 28,
1997, compounded monthly. The principal balance, together with all remaining
unpaid interest accrued thereon shall be due and payable on February 1, 1998
(the "Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (i) first to
any collection costs pursuant to Paragraph 9 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
5. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
<PAGE>
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this
Note, which failure continues for a period of ten (10) days after written
notice of such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain
promissory note dated as of the date hereof by Maker payable to Concept
Communications, Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Concept dated as of January 4, 1996;
(e) Maker's failure to perform any other obligation (other than one
that can be satisfied with the payment of money) required under this Note,
and the continuation of such failure for a period of ten (10) days after
Holder gives Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of
creditors, or the commencement by or against Maker of any case, proceeding,
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition of Maker's debts under any law
relating to bankruptcy, insolvency, or reorganization, or relief of
debtors, or seeking appointment of a receiver, trustee, custodian, or other
similar official for Maker or for all or any substantial part of Maker's
assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect to the same or any
other Event of Default, and no single or partial exercise of any right or remedy
shall preclude other or further exercise of the same or any other right or
remedy. Holder shall have no duty to exercise any or all of the rights and
remedies herein provided or contemplated. The acceptance
- 2 -
<PAGE>
by Holder of any payment hereunder that is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing rights or remedies at that
time, or nullify any prior exercise of any such rights or remedies without the
express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is secured
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: General Counsel
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
- 3 -
<PAGE>
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only and
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the essence
in the performance of the obligations set forth in this Note.
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court of competent
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to
- 4 -
<PAGE>
determine the party responsible for payment of attorneys' fees and costs; and
he/she shall have the authority only to enforce the legal and contractual rights
of the parties arising hereunder and shall not add to, modify, disregard, or
refuse to enforce any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on
this ___ day of March, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
- 5 -
<PAGE>
EXHIBIT 10.4
PROMISSORY NOTE
$2,000,000.00 Washington, D.C.
Maturity Date: February 1, 1998 July ___, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of two million dollars
($2,000,000.00), together with all accrued interest on such outstanding balance,
in accordance with the terms and provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at a per annum rate
equal to the Prime Rate as published in the Wall Street Journal on July __,
1997, compounded monthly. The principal balance, together with all remaining
unpaid interest accrued thereon shall be due and payable on February 1, 1998
(the "Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (i) first to
any collection costs pursuant to Paragraph 9 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
5. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
<PAGE>
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this
Note, which failure continues for a period of ten (10) days after written
notice of such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain
promissory note dated as of the date hereof by Maker payable to Concept
Communications, Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Concept dated as of March 21, 1997;
(e) Maker's failure to perform any other obligation (other than one
that can be satisfied with the payment of money) required under this Note,
and the continuation of such failure for a period of ten (10) days after
Holder gives Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of
creditors, or the commencement by or against Maker of any case, proceeding,
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition of Maker's debts under any law
relating to bankruptcy, insolvency, or reorganization, or relief of
debtors, or seeking appointment of a receiver, trustee, custodian, or other
similar official for Maker or for all or any substantial part of Maker's
assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect to the same or any
other Event of Default, and no single or partial exercise of any right or remedy
shall preclude other or further exercise of the same or any other right or
remedy. Holder shall have no duty to exercise any or all of the rights and
remedies herein provided or contemplated. The acceptance
- 2 -
<PAGE>
by Holder of any payment hereunder that is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing rights or remedies at that
time, or nullify any prior exercise of any such rights or remedies without the
express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is secured
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
- 3 -
<PAGE>
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only and
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the essence
in the performance of the obligations set forth in this Note.
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court of competent
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to
- 4 -
<PAGE>
determine the party responsible for payment of attorneys' fees and costs; and
he/she shall have the authority only to enforce the legal and contractual rights
of the parties arising hereunder and shall not add to, modify, disregard, or
refuse to enforce any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on
this ___ day of July, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
- 5 -
<PAGE>
EXHIBIT 10.5
PROMISSORY NOTE
$3,000,000.00 Washington, D.C.
Maturity Date: February 1, 1998 September 18, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of three million dollars
($3,000,000.00), together with all accrued interest on such outstanding balance,
in accordance with the terms and provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at a per annum rate
equal to the Prime Rate as published in the Wall Street Journal on September __,
1997, compounded monthly. The principal balance, together with all remaining
unpaid interest accrued thereon shall be due and payable on February 1, 1998
(the "Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (i) first to
any collection costs pursuant to Paragraph 9 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
5. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
<PAGE>
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this
Note, which failure continues for a period of ten (10) days after written
notice of such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain
promissory note dated as of the date hereof by Maker payable to Concept
Communications, Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under those certain Security
Agreements by and between Maker and Concept and Crown dated as of March 21,
1997;
(e) Maker's failure to perform any other obligation (other than one
that can be satisfied with the payment of money) required under this Note,
and the continuation of such failure for a period of ten (10) days after
Holder gives Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of
creditors, or the commencement by or against Maker of any case, proceeding,
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition of Maker's debts under any law
relating to bankruptcy, insolvency, or reorganization, or relief of
debtors, or seeking appointment of a receiver, trustee, custodian, or other
similar official for Maker or for all or any substantial part of Maker's
assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect to the same or any
other Event of Default, and no single or partial exercise of any right or remedy
shall preclude other or further exercise of the same or any other right or
remedy. Holder shall have no duty to exercise any or all of the rights and
remedies herein provided or contemplated. The acceptance
- 2 -
<PAGE>
by Holder of any payment hereunder that is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing rights or remedies at that
time, or nullify any prior exercise of any such rights or remedies without the
express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is secured
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
- 3 -
<PAGE>
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only and
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the essence
in the performance of the obligations set forth in this Note.
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court of competent
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to
- 4 -
<PAGE>
determine the party responsible for payment of attorneys' fees and costs; and
he/she shall have the authority only to enforce the legal and contractual rights
of the parties arising hereunder and shall not add to, modify, disregard, or
refuse to enforce any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on
this ___ day of September, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
- 5 -
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
$2,000,000.00 Washington, D.C.
Maturity Date: February 1, 1998 November 7, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of two million dollars
($2,000,000.00), together with all accrued interest on such outstanding balance,
in accordance with the terms and provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at a per annum rate
equal to the Prime Rate as published in the Wall Street Journal on November 7,
1997, compounded monthly. The principal balance, together with all remaining
unpaid interest accrued thereon shall be due and payable on February 1, 1998
(the "Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (i) first to
any collection costs pursuant to Paragraph 8 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
<PAGE>
5. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this
Note, which failure continues for a period of ten (10) days after written
notice of such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain
promissory note dated as of the date hereof by Maker payable to Concept
Communications, Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under those certain Security
Agreements by and between Maker and Concept and Crown dated as of March 21,
1997;
(e) Maker's failure to perform any other obligation (other than one
that can be satisfied with the payment of money) required under this Note,
and the continuation of such failure for a period of ten (10) days after
Holder gives Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of
creditors, or the commencement by or against Maker of any case, proceeding,
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition of Maker's debts under any law
relating to bankruptcy, insolvency, or reorganization, or relief of
debtors, or seeking appointment of a receiver, trustee, custodian, or other
similar official for Maker or for all or any substantial part of Maker's
assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of
- 2 -
<PAGE>
the right to exercise the same or any other option at any subsequent time in
respect to the same or any other Event of Default, and no single or partial
exercise of any right or remedy shall preclude other or further exercise of the
same or any other right or remedy. Holder shall have no duty to exercise any or
all of the rights and remedies herein provided or contemplated. The acceptance
by Holder of any payment hereunder that is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing rights or remedies at that
time, or nullify any prior exercise of any such rights or remedies without the
express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including in-house and outside counsels' reasonable
attorneys' and paralegals' fees) and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is secured
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
- 3 -
<PAGE>
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only and
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the essence
in the performance of the obligations set forth in this Note.
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator
- 4 -
<PAGE>
and for engaging in discovery. However, provisional equitable relief may be
brought in a court of competent jurisdiction. Any dispute to be arbitrated as
provided hereunder shall be referred to a sole arbitrator selected by the
President of AAA with experience and expertise in the subject matter of this
Agreement. Should any party hereunder not agree to accept as sole arbitrator the
person selected by the President of AAA, then the case shall be referred to a
panel of three (3) arbitrators whereby each party shall appoint one arbitrator
and the two so appointed shall mutually agree upon the third arbitrator. The
decision of the arbitrator(s) shall be final and may be enforceable in any court
of competent jurisdiction. The arbitrator shall be authorized to determine the
party responsible for payment of attorneys' fees and costs; and he/she shall
have the authority only to enforce the legal and contractual rights of the
parties arising hereunder and shall not add to, modify, disregard, or refuse to
enforce any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on
this ___ day of November, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
- 5 -
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
$2,000,000.00 Washington, D.C.
Maturity Date: February 1, 1998 November 24, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of two million dollars
($2,000,000.00), together with all accrued interest on such outstanding balance,
in accordance with the terms and provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at a per annum rate
equal to the Prime Rate as published in the Wall Street Journal on November 24,
1997, compounded monthly. The principal balance, together with all remaining
unpaid interest accrued thereon shall be due and payable on February 1, 1998
(the "Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (I) first to
any collection costs pursuant to Paragraph 8 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
<PAGE>
5. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this
Note, which failure continues for a period of ten (10) days after written
notice of such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain
promissory note dated as of the date hereof by Maker payable to Concept
Communications, Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under those certain Security
Agreements by and between Maker and Concept and Crown dated as of March 21,
1997;
(e) Maker's failure to perform any other obligation (other than one
that can be satisfied with the payment of money) required under this Note,
and the continuation of such failure for a period of ten (10) days after
Holder gives Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of
creditors, or the commencement by or against Maker of any case, proceeding,
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition of Maker's debts under any law
relating to bankruptcy, insolvency, or reorganization, or relief of
debtors, or seeking appointment of a receiver, trustee, custodian, or other
similar official for Maker or for all or any substantial part of Maker's
assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegal' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of
- 2 -
<PAGE>
the right to exercise the same or any other option at any subsequent time in
respect to the same or any other Event of Default, and no single or partial
exercise of any right or remedy shall preclude other or further exercise of the
same or any other right or remedy. Holder shall have no duty to exercise any or
all of the rights and remedies herein provided or contemplated. The acceptance
by Holder of any payment hereunder that is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing rights or remedies at that
time, or nullify any prior exercise of any such rights or remedies without the
express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including in-house and outside counsels' reasonable
attorneys' and paralegal' fees) and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is secured
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, NW
Washington, D.C. 20001
Attn: President
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, NW
Washington, D.C. 20001
- 3 -
<PAGE>
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, NW, Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only and
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the essence
in the performance of the obligations set forth in this Note.
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator
- 4 -
<PAGE>
and for engaging in discovery. However, provisional equitable relief may be
brought in a court of competent jurisdiction. Any dispute to be arbitrated as
provided hereunder shall be referred to a sole arbitrator selected by the
President of AAA with experience and expertise in the subject matter of this
Agreement. Should any party hereunder not agree to accept as sole arbitrator the
person selected by the President of AAA, then the case shall be referred to a
panel of three (3) arbitrators whereby each party shall appoint one arbitrator
and the two so appointed shall mutually agree upon the third arbitrator. The
decision of the arbitrator(s) shall be final and may be enforceable in any court
of competent jurisdiction. The arbitrator shall be authorized to determine the
party responsible for payment of attorneys' fees and costs; and he/she shall
have the authority only to enforce the legal and contractual rights of the
parties arising hereunder and shall not add to, modify, disregard, or refuse to
enforce any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on
this 24th day of November, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
- 5 -
<PAGE>
EXHIBIT 10.8
PROMISSORY NOTE
$1,500,000.00 Washington, D.C.
Maturity Date: March 31, 1998 December 31, 1997
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of one million and five
hundred thousand dollars ($1,500,000.00), together with all accrued interest on
such outstanding balance, in accordance with the terms and provisions of this
Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at a per annum rate
equal to the Prime Rate as published in the Wall Street Journal on December 31,
1997, compounded monthly. The principal balance, together with all remaining
unpaid interest accrued thereon shall be due and payable on March 31, 1998 (the
"Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (I) first to
any collection costs pursuant to Paragraph 8 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
5. Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
<PAGE>
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this
Note, which failure continues for a period of ten (10) days after written
notice of such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain
promissory note dated as of the date hereof by Maker payable to Concept
Communications, Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under those certain Security
Agreements by and between Maker and Concept and Crown dated as of March 21,
1997;
(e) Maker's failure to perform any other obligation (other than one
that can be satisfied with the payment of money) required under this Note,
and the continuation of such failure for a period of ten (10) days after
Holder gives Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of
creditors, or the commencement by or against Maker of any case, proceeding,
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution, or composition of Maker's debts under any law
relating to bankruptcy, insolvency, or reorganization, or relief of
debtors, or seeking appointment of a receiver, trustee, custodian, or other
similar official for Maker or for all or any substantial part of Maker's
assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegal' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect to the same or any
other Event of Default, and no single or partial exercise of any right or remedy
shall preclude other or further exercise of the same or any other right or
remedy. Holder shall have no duty to exercise any or all of the rights and
remedies herein provided or contemplated. The acceptance
- 2 -
<PAGE>
by Holder of any payment hereunder that is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing rights or remedies at that
time, or nullify any prior exercise of any such rights or remedies without the
express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including in-house and outside counsels' reasonable
attorneys' and paralegal' fees) and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is secured
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by certified or registered mail, postage prepaid,
return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, NW
Washington, D.C. 20001
Attn: President
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, NW
Washington, D.C. 20001
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, NW, Suite 400
Washington, D.C. 20036
- 3 -
<PAGE>
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only and
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the essence
in the performance of the obligations set forth in this Note.
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court of competent
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall
- 4 -
<PAGE>
mutually agree upon the third arbitrator. The decision of the arbitrator(s)
shall be final and may be enforceable in any court of competent jurisdiction.
The arbitrator shall be authorized to determine the party responsible for
payment of attorneys' fees and costs; and he/she shall have the authority only
to enforce the legal and contractual rights of the parties arising hereunder and
shall not add to, modify, disregard, or refuse to enforce any contractual
rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on
this 30th day of December, 1997.
MAKER:
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
- 5 -
<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
---------------
$1,375,000.00 Washington, D.C.
Maturity Date: March 31, 1998 February 10, 1998
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of one million three
hundred seventy five thousand dollars ($1,375,000.00), together with all accrued
interest on such outstanding balance, in accordance with the terms and
provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal balance
------------------
of this Note from and after the date of this Note at a per annum rate equal to
--- -----
the Prime Rate as published in the Wall Street Journal on February 10, 1998,
-------------------
compounded monthly. The principal balance, together with all remaining unpaid
interest accrued thereon shall be due and payable on March 31, 1998 (the
"Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (i) first to
--------
any collection costs pursuant to Paragraph 8 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
----------
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
-----------------------
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
<PAGE>
5. Events of Default. Each of the following shall constitute an "Event of
-----------------
Default" hereunder:
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this Note,
which failure continues for a period of ten (10) days after written notice of
such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as amended
(the "Security Agreement");
(c) The occurrence of an event of default under that certain promissory
note dated as of the date hereof by Maker payable to Concept Communications,
Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under those certain Security
Agreements by and between Maker and Concept and Crown dated as of March 21,
1997;
(e) Maker's failure to perform any other obligation (other than one that
can be satisfied with the payment of money) required under this Note, and the
continuation of such failure for a period of ten (10) days after Holder gives
Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of creditors,
or the commencement by or against Maker of any case, proceeding, or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution, or
composition of Maker's debts under any law relating to bankruptcy, insolvency,
or reorganization, or relief of debtors, or seeking appointment of a receiver,
trustee, custodian, or other similar official for Maker or for all or any
substantial part of Maker's assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
------------
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
--------
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of
<PAGE>
the foregoing options upon the occurrence of an Event of Default shall not
constitute a waiver of the right to exercise the same or any other option at any
subsequent time in respect to the same or any other Event of Default, and no
single or partial exercise of any right or remedy shall preclude other or
further exercise of the same or any other right or remedy. Holder shall have no
duty to exercise any or all of the rights and remedies herein provided or
contemplated. The acceptance by Holder of any payment hereunder that is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of the right to exercise any of the foregoing
rights or remedies at that time, or nullify any prior exercise of any such
rights or remedies without the express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
----------------------
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
-------------
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is
--------
secured by certain assets of Maker pledged to Holder pursuant to the Security
Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure
---------
or delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
-------
(a) All notices hereunder shall be in writing and shall either be
hand delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by certified or registered mail, postage
prepaid, return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
<PAGE>
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which
notices are to be delivered to it hereunder by giving written notice to the
others as provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
------------
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
-----------------------------
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only
--------
and in no way define or limit the scope or content of this Note or in any way
affect its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed
----------------------------
for any purpose to be a partner, joint venturer or associate of Maker, it being
the sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the
-------------------
essence in the performance of the obligations set forth in this Note.
<PAGE>
18. Binding Arbitration. Arbitration shall be the exclusive procedure
-------------------
for resolving any dispute between the parties and shall be conducted in
accordance with the rules of the American Arbitration Association ("AAA"),
including the procedures for selecting an arbitrator and for engaging in
discovery. However, provisional equitable relief may be brought in a court of
competent jurisdiction. Any dispute to be arbitrated as provided hereunder shall
be referred to a sole arbitrator selected by the President of AAA with
experience and expertise in the subject matter of this Agreement. Should any
party hereunder not agree to accept as sole arbitrator the person selected by
the President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to determine the party
responsible for payment of attorneys' fees and costs; and he/she shall have the
authority only to enforce the legal and contractual rights of the parties
arising hereunder and shall not add to, modify, disregard, or refuse to enforce
any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on this
10th day of February, 1998.
MAKER:
-----
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
---------------
$1,375,000.00 Washington, D.C.
Maturity Date: March 31, 1998 March 2, 1998
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of one million three
hundred seventy five thousand dollars ($1,375,000.00), together with all accrued
interest on such outstanding balance, in accordance with the terms and
provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal balance
------------------
of this Note from and after the date of this Note at a per annum rate equal to
--- -----
the Prime Rate as published in the Wall Street Journal on March 2, 1998,
-------------------
compounded monthly. The principal balance, together with all remaining unpaid
interest accrued thereon shall be due and payable on March 31, 1998 (the
"Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (i) first to
--------
any collection costs pursuant to Paragraph 8 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
----------
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
-----------------------
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
<PAGE>
5. Events of Default. Each of the following shall constitute an "Event of
-----------------
Default" hereunder:
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this Note,
which failure continues for a period of ten (10) days after written notice of
such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as amended
(the "Security Agreement");
(c) The occurrence of an event of default under that certain promissory
note dated as of the date hereof by Maker payable to Concept Communications,
Inc., a Delaware corporation ("Concept");
(d) The occurrence of an event of default under those certain Security
Agreements by and between Maker and Concept and Crown dated as of March 21,
1997;
(e) Maker's failure to perform any other obligation (other than one that
can be satisfied with the payment of money) required under this Note, and the
continuation of such failure for a period of ten (10) days after Holder gives
Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of creditors,
or the commencement by or against Maker of any case, proceeding, or other
action seeking reorganization, arrangement, adjustment, liquidation,
dissolution, or composition of Maker's debts under any law relating to
bankruptcy, insolvency, or reorganization, or relief of debtors, or seeking
appointment of a receiver, trustee, custodian, or other similar official for
Maker or for all or any substantial part of Maker's assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
------------
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
--------
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of
<PAGE>
the foregoing options upon the occurrence of an Event of Default shall not
constitute a waiver of the right to exercise the same or any other option at any
subsequent time in respect to the same or any other Event of Default, and no
single or partial exercise of any right or remedy shall preclude other or
further exercise of the same or any other right or remedy. Holder shall have no
duty to exercise any or all of the rights and remedies herein provided or
contemplated. The acceptance by Holder of any payment hereunder that is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of the right to exercise any of the foregoing
rights or remedies at that time, or nullify any prior exercise of any such
rights or remedies without the express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
----------------------
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
-------------
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is
--------
secured by certain assets of Maker pledged to Holder pursuant to the Security
Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure
---------
or delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
-------
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by certified or registered mail, postage
prepaid, return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
<PAGE>
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to b e delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
------------
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
-----------------------------
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only
--------
and in no way define or limit the scope or content of this Note or in any way
affect its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed
----------------------------
for any purpose to be a partner, joint venturer or associate of Maker, it being
the sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the
-------------------
essence in the performance of the obligations set forth in this Note.
<PAGE>
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
-------------------
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court of competent
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to determine the party
responsible for payment of attorneys' fees and costs; and he/she shall have the
authority only to enforce the legal and contractual rights of the parties
arising hereunder and shall not add to, modify, disregard, or refuse to enforce
any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on this
2nd day of March, 1998.
MAKER:
-----
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
---------------
$1,500,000.00 Washington, D.C.
Maturity Date: March 31, 1998 March 24, 1998
FOR VALUE RECEIVED, the undersigned, THE NOSTALGIA NETWORK, INC. a Delaware
corporation ("Maker"), hereby promises to pay to the order of CROWN
COMMUNICATIONS CORPORATION, a Delaware corporation, or any subsequent holder or
holders ("Holder") of this Promissory Note (this "Note"), at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001, or at such other place as Holder may from
time to time designate in writing, the principal sum of one million five hundred
thousand dollars ($1,500,000.00), together with all accrued interest on such
outstanding balance, in accordance with the terms and provisions of this Note.
1. Interest; Payments. Interest shall accrue on the unpaid principal balance
------------------
of this Note from and after the date of this Note at a per annum rate equal to
--- -----
the Prime Rate as published in the Wall Street Journal on March 24, 1998,
-------------------
compounded monthly. The principal balance, together with all remaining unpaid
interest accrued thereon shall be due and payable on March 31, 1998 (the
"Maturity Date").
2. Payments. All payments by Maker hereunder shall be applied (i) first to
--------
any collection costs pursuant to Paragraph 8 hereof, (ii) second to the interest
due and unpaid under this Note, and (iii) thereafter, to any principal owing
under this Note.
3. Prepayment. Maker shall have the right to prepay, in part or in full,
----------
without penalty, this Note (together with all accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times.
4. Waiver Regarding Notice. Maker waives presentment, demand and
-----------------------
presentation for payment, protest and notice of protest, and, except as
otherwise specifically provided herein, any other notices of whatever kind or
nature, bringing of suit and diligence in taking any action to collect any sums
owing hereunder. From time to time, without in any way affecting the obligation
of Maker to pay the outstanding principal balance of this Note and any interest
accrued thereon and fully to observe and perform the covenants and obligations
of Maker under this Note, without giving notice to, or obtaining the consent of,
Maker, and without any liability whatsoever on the part of Holder, Holder may,
at its option, extend the time for payment of interest hereon and/or principal
of this Note, reduce the payments hereunder, release anyone liable on this Note
or accept a renewal of this Note, join in any extension or subordination, or
exercise any right or election hereunder. No one or more of such actions shall
constitute a novation or operate to release any party liable for or under this
Note, either as Maker or otherwise.
<PAGE>
5. Events of Default. Each of the following shall constitute an "Event of
-----------------
Default" hereunder:
(a) Maker's failure to make any required payment of principal and/or
interest under this Note, or any other amount due and payable under this Note,
which failure continues for a period of ten (10) days after written notice of
such failure is sent by Holder to Maker;
(b) The occurrence of an event of default under that certain Security
Agreement by and between Maker and Holder dated as of March 21, 1997, as
amended (the "Security Agreement");
(c) The occurrence of an event of default under that certain promissory
note by Maker payable to Concept Communications, Inc., a Delaware corporation
("Concept");
(d) The occurrence of an event of default under those certain Security
Agreements by and between Maker and Concept and Crown dated as of March 21,
1997;
(e) Maker's failure to perform any other obligation (other than one that
can be satisfied with the payment of money) required under this Note, and the
continuation of such failure for a period of ten (10) days after Holder gives
Maker written notice of such failure to perform; and
(f) Maker's insolvency, general assignment for the benefit of creditors,
or the commencement by or against Maker of any case, proceeding, or other
action seeking reorganization, arrangement, adjustment, liquidation,
dissolution, or composition of Maker's debts under any law relating to
bankruptcy, insolvency, or reorganization, or relief of debtors, or seeking
appointment of a receiver, trustee, custodian, or other similar official for
Maker or for all or any substantial part of Maker's assets.
6. Acceleration. Upon the occurrence of an Event of Default, Holder shall
------------
have the right to cause the entire unpaid principal balance, together with all
accrued interest thereon, reasonable attorneys' and paralegals' fees and all
fees, charges, costs and expenses, if any, owed by Maker to Holder, to become
immediately due and payable in full by giving written notice to Maker.
7. Remedies. Upon the occurrence of an Event of Default, Holder may avail
--------
itself of any legal or equitable rights which Holder may have at law or in
equity or under this Note, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Holder as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of
<PAGE>
the right to exercise the same or any other option at any subsequent time in
respect to the same or any other Event of Default, and no single or partial
exercise of any right or remedy shall preclude other or further exercise of the
same or any other right or remedy. Holder shall have no duty to exercise any or
all of the rights and remedies herein provided or contemplated. The acceptance
by Holder of any payment hereunder that is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing rights or remedies at that
time, or nullify any prior exercise of any such rights or remedies without the
express written consent of Holder.
8. Expenses of Collection. If this Note is referred to an attorney for
----------------------
collection, whether or not arbitration has been initiated or any other action
instituted or taken to enforce or collect under this Note, Maker shall pay all
of Holder's costs, fees (including reasonable attorneys' and paralegals' fees)
and expenses in connection with such referral.
9. Governing Law. The provisions of this Note shall be governed and
-------------
construed according to the law of the District of Columbia, without giving
effect to its conflicts of laws provisions.
10. Security. Payment of the indebtedness evidenced by this Note is secured
--------
by certain assets of Maker pledged to Holder pursuant to the Security Agreement.
11. No Waiver. Neither any course of dealing by Holder nor any failure or
---------
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver of any right or remedy of Holder hereunder unless said
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in said writing. A waiver as to one event shall not be
construed as a continuing waiver by Holder or as a bar to or waiver of any right
or remedy by Holder as to any subsequent event.
12. Notices.
-------
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by certified or registered mail, postage
prepaid, return receipt requested, as follows:
If to Maker: The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
<PAGE>
If to Holder: Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: Nicholas Chiaia, Esquire
with a copy to: Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Arthur E. Cirulnick, Esquire
Notices shall be effective when received; provided, however, that if any notice
sent by courier or by certified or registered mail is returned as undeliverable,
such notice shall be deemed effective when mailed or given to such courier.
(b) Any of the foregoing persons may change the address to which notices
are to be delivered to it hereunder by giving written notice to the others as
provided in this Paragraph 13(b).
13. Severability. In the event that any one or more of the provisions of
------------
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Limitations of Applicable Law. In the event the operation of any
-----------------------------
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
15. Captions. The captions herein are for convenience of reference only and
--------
in no way define or limit the scope or content of this Note or in any way affect
its provisions.
16. Debtor-Creditor Relationship. Holder shall in no event be construed for
----------------------------
any purpose to be a partner, joint venturer or associate of Maker, it being the
sole intention of the parties to establish a relationship of debtor and
creditor.
17. Time of the Essence. It is expressly agreed that time is of the essence
-------------------
in the performance of the obligations set forth in this Note.
<PAGE>
18. Binding Arbitration. Arbitration shall be the exclusive procedure for
-------------------
resolving any dispute between the parties and shall be conducted in accordance
with the rules of the American Arbitration Association ("AAA"), including the
procedures for selecting an arbitrator and for engaging in discovery. However,
provisional equitable relief may be brought in a court of competent
jurisdiction. Any dispute to be arbitrated as provided hereunder shall be
referred to a sole arbitrator selected by the President of AAA with experience
and expertise in the subject matter of this Agreement. Should any party
hereunder not agree to accept as sole arbitrator the person selected by the
President of AAA, then the case shall be referred to a panel of three (3)
arbitrators whereby each party shall appoint one arbitrator and the two so
appointed shall mutually agree upon the third arbitrator. The decision of the
arbitrator(s) shall be final and may be enforceable in any court of competent
jurisdiction. The arbitrator shall be authorized to determine the party
responsible for payment of attorneys' fees and costs; and he/she shall have the
authority only to enforce the legal and contractual rights of the parties
arising hereunder and shall not add to, modify, disregard, or refuse to enforce
any contractual rights.
IN WITNESS WHEREOF, Maker has executed this Promissory Note under seal on this
24th day of March, 1998.
MAKER:
-----
ATTEST: THE NOSTALGIA NETWORK, INC.,
a Delaware corporation
________________________ By:___________________________
Secretary Name:_________________________
Title:________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.14
This Agreement is entered into by and between The Nostalgia Network, Inc.,
a Delaware corporation ("Customer"), 650 Massachusetts Avenue, NW, Washington,
DC and Atlantic Video, Inc., ("AV"), a Delaware corporation, 650 Massachusetts
Avenue, NW Washington, DC 20001, and is to be effective as of August 1, 1997.
This Agreement provides all the terms and conditions for services rendered by AV
to Customer at all times commencing on August 1, 1997 and incorporates by
reference the appended Schedules 1 through 8.
RECITAL
WHEREAS, AV and Customer desire to enter into an agreement for the
performance by AV of professional services in connection with activities being
conducted by Customer;
WHEREAS, AV and Customer agree and acknowledge that the provision of high
quality services are of critical importance to the operations of Customer;
Now, therefore, in consideration of the foregoing and of the mutual
promises and covenants contained herein the parties hereto agree as follows:
1. TERM: The term of this Agreement shall be for three years commencing on
----
August 1, 1997 and continuing thereafter until and including July 31, 1999.
2. EXCLUSIVE SERVICE PROVIDER: This Agreement provides for two types of
--------------------------
services: (1) broadcast television standard quality production and post-
production and (2) master control and satellite uplinking. Customer shall
use AV's services and facilities for Customer's master control, production
and post-production needs for video programming produced by (but not that
produced under contract for) Customer. Notwithstanding the foregoing,
Customer may, from time to time, use other service providers for its
production and post-production needs only under any one or more of the
following conditions:
(a) If AV does not offer studio space of a size, kind, or quality,
equipment, and/or personnel necessary to perform the services required
by Customer. If Customer determines that AV does not offer studio
space of a size, kind, or quality, equipment, and/or personnel
necessary to perform the services required by Customer , it will
notify AV of that fact and of the salient characteristics (including
price) of the studio space that it seeks. AV shall have three days
from receipt of such notice to propose the terms on which it is
willing to provide studio space for the proposed Customer production
with a description of the studio or studios that it proposes to use
for this purpose. Customer shall provide timely notice to AV of its
acceptance or rejection of such proposal.
(b) If Customer concludes for reasonable business, artistic or aesthetic
purposes, that production is required to be undertaken outside of the
Washington, D.C. area; or,
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(c) If Customer orders more than 100 duplicates of a video in the same
format, it will notify AV of that fact and AV may, within 3 days of
receipt of such notice, propose a price term for supplying the
duplicates. Customer shall provide timely notice to AV of its
acceptance or rejection of such proposal.
(d) It is understood by both parties that, occasionally and in some
circumstances, AV may be able to meet Customer's requirements only
through the provision of second shift production services
availabilities. Unless for reasonable business purposes, such
scheduling shall not be a condition for using service providers other
than AV.
3. COMPARABLE PRICES: AV shall supply services to Customer at prices, terms,
-----------------
and conditions at least as favorable as those provided to any of its top
ten clients (as measured by annual revenues -- measured on a rolling 12
month basis). AV shall provide, at Customer's reasonable request, and no
more than once per year, sufficient information for Customer to identify
that the prices, terms, and conditions for its provision of services to
Customer are consistent with this Agreement. Throughout the term of this
Agreement, AV will adjust the rates charged to Customer under the AV rate
card (Schedule 1) and paragraphs 6 - 20 of this Agreement, which ever is
applicable, to assure that the Customer rates are not higher than the rates
charged in the same time period to any of the top ten clients of AV for any
service reflected on the rate card, or in paragraphs 6 - 20 of this
Agreement. The parties recognize that there shall be some circumstances
where promotional rates for services of a limited duration are offered or
reduced to obtain new customers or where personnel or equipment would be
idle, which shall not be subject to this provision.
4. PERSONNEL/PERFORMANCE REVIEW: At any time during the term of this
----------------------------
Agreement, Customer may give notice to AV that the performance of an AV
employee providing services to Customer is unsatisfactory. The notice
shall specify the factual basis for such dissatisfaction. On receipt of
-
such notice, AV shall, at its sole discretion, either cure the deficiency
by correcting the employee's deficient performance or replace that employee
with another person.
5. MINIMUM MONTHLY PAYMENTS: On the last day of each month, Customer shall
------------------------
pay AV a minimum monthly payment (the "flat fee") of the monthly fixed
master control fee (as determined pursuant to paragraph 9.d. below) plus
$50,000. In the event that Customer does not use $50,000 worth of AV
production and post-production services during any month during the term of
this Agreement, AV shall credit Customer for the unused portion of the flat
fee The flat fee credit may only be used to pay for AV fees incurred that
exceed the flat fee within 12 months from the time of issuance. The flat
fee credit shall not exceed $75,000. at any time. .
6. SPECIAL DISCOUNT: In view of the expected volume of assignments, and in
order to resolve any and all outstanding claims and disputes so as to
maximize the mutually beneficial and cooperative relationship between the
parties, AV will provide to Customer a special discount of $55,856.00.
Customer shall pay the billings for July 1997 at the old
2
<PAGE>
contract rates. The discount identified herein shall be paid by AV to
Customer divided proportionately over a period of eighteen months beginning
in August 1997.
7. SERVICE SITE: All post production, production and library services will be
------------
provided by AV to Customer at AV's facilities located at 150 So. Gordon
Street, Alexandria, Virginia 22304 or 650 Massachusetts Ave. NW,
Washington, DC 20001. Master control and uplinking services will be
provided at AV's facility located at 150 So. Gordon Street, Alexandria,
Virginia 22304.
8. SCOPE OF WORK: AV shall provide Customer with broadcast television
-------------
standard master control and uplink, production and post production services
necessary to receive, catalogue, quality check, edit, duplicate, store and
distribute audio, and video tapes for Customer as specified below.
9. MASTER CONTROL AND UPLINK:
--------------------------
(a) UPLINK: AV shall provide to Customer uplink services that shall
include a 10 meter earth station with redundant transmitters (one hot and
one standby) with UPS backup power and a back up generator. The uplink
will have video and stereo output on two channels and output to Customer's
third audio subcarrier. The uplink will be available 24 hours per day/365
days per year. This fully redundant transmission system was installed in
August of 1996 and is made up of the highest quality current state of the
art components available. The uplink will receive regular maintenance as
specified by the manufacturer. AV represents and warrants that the
redundant properties and computerized monitoring of this uplink system will
protect against any potential malfunction. In the event of malfunction
that cannot be remedied through redundancy, AV will provide immediate
engineering assistance. In the event that a signal is unavailable for five
minutes or more (a "catastrophic failure"), AV will operate in accordance
with the attached disaster recovery plan appended as Schedule 2.
(b) MASTER CONTROL: AV shall provide Customer with a master control that
is manned and operated 24 hours a day 365 days per year. AV will provide
Customer with a fully automated master control system that will utilize an
Alamar automation system linked to one 3/4" machine, two 1" machines, two
Beta SP machines and two digital Beta machines and a computer controlled
server system capable of handling all of Customer's commercial and short
program requirements. In addition, the room will be equipped with a
character generator with sizable anti-aliased fonts, a switcher with simple
digital effects, and linear keying capabilities. Master control will have
stereo output on two channels with output to Customer's third audio
subcarrier. Master control also will have equipment with the ability to
insert silent cue tones for Customer's affiliates use of local avails.
Master control will be protected from power loss by UPS and generator. The
master control equipment will receive regular maintenance as specified by
the manufacturers; however, AV shall not be responsible for maintenance of
any customer owned equipment used in conjunction with the master control
system. In the event of malfunction of an individual machine, the system
shall remain operational by the utilization of other machines. In the
event of malfunction of the
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<PAGE>
automation system, the Master Control shall continue to operate manually.
In the event of Catastrophic Failure, the disaster recovery plan procedures
appended as Schedule 2 will be put into effect.
(c) OTHER NECESSARY SERVICES, EQUIPMENT AND PHYSICAL SPACE: AV's
provision of Master Control and Uplink services shall be complete and fully
comply with the requirements of Schedule 3, VIDEOCIPHER@ II, SCRAMBLING
SYSTEM, SITE PREPARATION AND PHYSICAL REQUIREMENTS and Schedule 4,
VIDEOCIPHER@ II SECURITY REQUIREMENTS.
(d) MASTER CONTROL AND UPLINK RATES:
$43,000 per month
(1) The master control system described above will be ready for
service within six months of the execution of this Agreement or
sooner. Until that time AV will continue to provide master control
services out of the existing master control. The monthly rate for the
existing master control shall be $28,000. The Betacart will be
maintained until the server is fully functional.
10. EDITING: AV will provide Customer with post production services for
-------
promotions, editing of licensed product, special programs from existing
sources, and for original programming. AV will provide Customer with the
following analog edit suite packages.
(a) 3 - VTR EDIT:
1 - Edit Suite equipped with:
3 - VTR's 3/4", 1", D-2, Beta SP or Digital Beta
1 - Channel DVE
1 - Character Generator
1 - Still Store
(b) 4 - VTR EDIT:
1 - Edit Suite equipped with:
4 - VTR's 3/4", 1", D-2, Beta SP or Digital Beta
1 - Channel DVE
1 - Character Generator
1 - Still Store
11. EDITING RATES:
-------------
(a) Unsupervised 3 - VTR $150.00 per hour
4 - VTR $175.00 per hour
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<PAGE>
(b) NOTE: It is understood that the scheduling of unsupervised editing
sessions will be done at the discretion of AV staff. Unsupervised editing
sessions are not directed by a producer. Producers are welcome to sit in
and observe unsupervised sessions at any time. However, if the producer
begins to provide editorial direction to the editor, that portion of the
session shall be deemed supervised and charged at the applicable rate.
(c) Supervised 3 - VTR $200.00 per hour
4 - VTR $225.00 per hour
Charge for use of additional tape machines:
3/4" $25.00 each per hour
1" $40.00 each per hour
Beta SP $35.00 each per hour
D2 $50.00 each per hour
Digi Beta $50.00 per hour
When additional machines are added during an edit session in process, they
shall be billed at a one half hour minimum usage, and quarter hour
increments thereafter.
(d) In the above editing package a channel of DVE is included. Charges
for additional channels of DVE will be:
1 - Channel No charge
2 - Channels $75.00 per hour
3 - Channels $125.00 per hour
No additional charge for the use of ADAPTS will be assessed.
(e) Digital Editing $300.00 per hour for digital non-linear and 3-VTR
digital linear editing. Digital editing rates include
all necessary equipment.
(f) Avid Online Editing
1 Avid 4000 with AVR 75 or better
1 Beta SP
Editing $150.00 per hour
Digitizing $ 85.00 per hour
12. PRODUCTION SERVICES: AV will provide Customer production studio and
-------------------
equipment for the production of original shows. All production budgets
will be based upon then current rate card rates minus 35%.
13. DUPLICATION SERVICES AND TAPE STOCK: AV will provide duplication services
-----------------------------------
to Customer for the following NTSC tape formats: VHS, S-VHS, 3/4", Beta
SP, digital Beta, 1", D2, and D-1. Special duplication rates have been
established for Customer and are presented in Schedule 5. AV will provide
Customer with all audio or video tape stock
5
<PAGE>
needed for the editing of Customer programming, promotional materials, and
duplication performed at AV. Special tape stock rates have been established
for Customer and are presented in Schedule 6.
14. LIBRARY:
--------
(a) AV will provide storage space for all programming and programming
materials for Customer within Customer's two existing tape vaults. One
vault will be used to store all master and programming materials and the
other to store all air copy and air copy programming materials. All tapes
received at AV will be catalogued, bar coded, and labeled immediately upon
arrival. Once in the hands of AV, the location of the tapes will be
continually tracked. This tracking will include the internal movement of
tapes from the library, edit suites, dub areas etc. Tapes that are shipped
from AV to other locations will be tracked until such time as AV receives
confirmation that they have arrived at the proper destination.
(b) This service will be provided at no charge exclusive of shipping
costs.
(c) The cataloging and bar coding system described above will be installed
immediately upon the execution of this contract.
15. SPECIAL PERSONNEL:
------------------
(a) AV will designate a minimum of two staff positions that will have a
primary focus on the management and coordination of all services AV
provides to Customer. Although these two individuals will be AV employees,
their primary job responsibilities will be to look after the needs of
Customer. The titles and basic job responsibilities for these positions
are as follows:
(1) Project Manager
* Responsible for overall management of agreed upon services.
* Act as main contact regarding standard operating procedures
between production facility and network.
* Act as primary problem-solver for day to day issues that arise
* Meet with Customer staff on a regular basis to assess needs,
solve or prevent problems, etc.
* Coordinate special projects.
* Review all outgoing invoices.
(2) Librarian
* Maintain Customer library data base.
* Catalogue and track all tapes inside and outside the facility.
* Responsible to see that all tapes and materials are properly
labeled and that label information is complete and
accurate.
* Coordinate and Manage all shipping and receiving of tapes.
6
<PAGE>
* Provide Customer staff with current status and location
information for all tapes as needed.
(b) AV reserves the right to utilize the above employees in other
capacities, provided this does not detract from their ability to service
Customer.
(c) The personnel currently designated to perform these functions are
identified on Schedule 7.
16. OTHER SERVICE: AV will provide other services for the production of on-air
-------------
promotional materials, affiliate marketing materials, the enhancement of
third party acquired programming that is flawed or of inferior quality, and
other maintenance items for the network. These services include, but are
not limited to: digital compositing, tape to tape color correction,
digital audio sweetening, studio production, etc. The rates offered to
Customer for some of these other services are as follows:
(a) DIGITAL COMPOSITING:
(b) AV will provide state of the art digital compositing featuring the
following equipment:
Quantel Hal Express
Rate: $330.00 per hour
(b) TAPE TO TAPE COLOR CORRECTION:
(1) AV will provide state of the art digital color correction and
noise reduction featuring the following equipment:
DaVinci Renaissance Color Correction System with Killovectors
Accom Noise Reduction System
(2) RATES:
One light transfer $150.00 per hour
Unsupervised Scene to Scene $200.00 per hour
Supervised Scene to Scene $250.00 per hour
(c) DIGITAL AUDIO SWEETENING:
(1) AV will provide state of the art digital audio sweetening and
editing featuring the following equipment:
AMS/Neve Logic 3
AMSJ/Neve Audiofile+
(2) Rates:
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<PAGE>
Unsupervised loading $50.00 per hour
Unsupervised music/efx. search $50.00 per hour
Supervised music/efx. search $150.00 per hour
Sweetening/editing/lay back $150.00 per hour
Narration recording to Pix $125.00 per hour
Narration sync to Pix (ADR) $145.00 per hour
Foley $40.00 per hour
Back Up $20.00 per hour
(d) QUALITY CONTROL:
At the option of Customer, AV will provide an incoming quality control
inspection of all specified audio and video materials for adherence to
technical standards. This will include: real time, beginning to end
monitoring, measurement of audio and video levels for discrepancies and
suitability for use, verification of all label information regarding title,
show and segment durations, and the completion of a report indicating the
parameters measured for each tape.
17. QUALITY CONTROL RATES:
Beta format $75.00 per hour
1" format $75.00 per hour
D2 format $100.00 per hour
D-1 format $140.00 per hour
Digital Beta $100.00 per hour
(a) All quality control work will be billed based upon actual time
spent performing quality checks. For example, a one hour tape will
likely take one and one quarter hours to `QC.' Problematic tapes may
take longer. Quality control shall be performed by AV at no charge to
Customer on all tapes produced by AV, or on which AV has performed
post-production services.
18. NON SPECIFIED RATES: ALL post production services not listed and
specifically priced above shall be offered to Customer at a discount price of
40% off of the AV rate card (Schedule 1).
19. LEXICON DUBBING: $200.00 per hour
(Includes two VTRs of any format, edit suite and lexicon)
20. EQUIPMENT MAINTENANCE AND REPAIR: See Schedule 8.
21. WARRANTIES: The parties hereto represent and warrant to each other as
----------
follows:
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<PAGE>
(a) That it has the power to grant all rights granted herein,
including but not limited to all necessary literary, artistic, musical
and/or intellectual property rights, and is free to enter into and
fully perform this Agreement;
(b) That it has not entered and shall not enter into any arrangement
or agreement which will interfere or conflict with the rights granted
to each other hereunder;
(c) That the exercise of rights granted herein will not infringe on
any rights of any third party, including but not limited to copyright
trademark, unfair competition, contract, defamation, privacy or
publicity rights; and
(d) That, as of the date of this Agreement, it is in compliance with
all material terms of the Agreement.
22. RELEASE: In return for the agreements, duties, responsibilities,
-------
representations, and warranties embodied in this Agreement, the parties
hereby release any and all claims or possible claims against each other,
whether known or unknown, arising prior to the date of this Agreement.
23. INDEMNITY: AV and Customer, their parent and associated companies, their
---------
directors, officers, employees, and agents, the sponsor or sponsors, and
the television exhibitors, indemnify one another against any and all
liability, damages, cost or expenses (including reasonable attorneys' fees)
arising from any claims, demands or actions for libel, slander; violation
of the right of privacy, or infringement of copyright or other rights
arising out of the breach of any of the representations and warranties in
this Agreement. The indemnifying party, upon notice of a claim covered by
this indemnification shall provide a defense to that claim and shall have
the right to enter into reasonable settlement of that claim. This
indemnification shall survive the termination of this Agreement.
24. OWNERSHIP OF MATERIAL:
----------------------
(a) Any and all literary or artistic materials that Customer furnishes to
AV, or that may have been developed with AV's cooperation or contribution
in the course of the performance of AV's duties, shall remain Customer's
sole property;
(b) AV agrees and acknowledges that, for purposes of copyright law, (but
not for tax or any other purpose), that all of the works produced by it
under this Agreement are works made for hire for Customer.
(c) In the event that any work created under this Agreement is found not
to be works for hire, then AV agrees to assign and transfer the full
copyright in that work to Customer for good and valuable consideration,
receipt of which AV hereby acknowledges, and to effectuate such assignment,
AV hereby grants Customer a limited, but irrevocable, power of attorney to
perfect the conveyance of those rights.
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<PAGE>
25. NOTICES: All notices required or permitted by this Agreement shall be
-------
given in writing addressed to the parties as specified in this paragraph
24. Either party may by notice given as aforesaid specify another address
for the giving of notices. A notice given is effective on receipt:
To: The Nostalgia Network, Inc. To: Atlantic Video, Inc.
650 Massachusetts Ave., NW 650 Massachusetts Ave., NW
Washington, DC 20001 Washington, DC 20001
Attn: Willard R. Nichols Attn: Nicholas Chiaia
26. CONFIDENTIALITY:
---------------
(a) Except as directed by Customer, AV will not use, publish or otherwise
disclose either during or after any work with Customer any unpublished,
proprietary, or confidential information or secret relating to Customer;
the conduct of Customer's business and operation; the materials, apparatus,
processes, formulae, plans and methods used in the manufacture and/or
marketing of Customer's products or services; the products themselves, or
improvements or possible new uses for such products; or any proprietary
information or products of others to which AV has access in the course of
working with Customer. When AV's work with Customer ceases, AV will return
all Customer property and will not, without Customer's prior written
consent, retain, take or use any prices, formula, drawing, plan, model,
software, writing, or other record relating to the above. AV acknowledges
that any information relating to Customer's future business plans and
patent applications and the information contained therein that it may
receive are part of Customer's proprietary, confidential and secret
information and will be treated in accordance with this paragraph.
(b) Except as directed by AV, Customer will not use, publish or otherwise
disclose either during or after any work with AV any unpublished,
proprietary, or confidential information or secret relating to AV; the
conduct of AV's business and operation; the materials, apparatus,
processes, formulae, plans and methods used in the manufacture and/or
marketing of AV's products or services; the products themselves, or
improvements or possible new uses for such products; or any proprietary
information or products of others to which Customer has access in the
course of working with AV. When AV's work with Customer ceases, Customer
will return all AV property and will not, without AV's prior written
consent, retain, take or use any prices, formula, drawing, plan, model,
software, writing, or other record relating to the above. Customer
acknowledges that any information relating to AV's future business plans
and patent applications and the information contained therein that it may
receive are part of AV's proprietary, confidential and secret information
and will be treated in accordance with this paragraph.
27. ASSIGNMENT: For the purpose of engaging third party production of
----------
programming for Customer, Customer may transfer, assign, license or lend
this Agreement, all or any part of its rights hereunder, to any person;
provided, however, that such assignment shall not relieve Customer of its
obligations hereunder. This Agreement shall insure to the benefit
10
<PAGE>
of Customer, its successors and assignees. Customer shall notify AV on a
timely basis of any such transfer, assignment, license or loan of this
Agreement.
28. TERMINATION: If either party defaults in the performance of any provision
-----------
of this Agreement, then the non-defaulting party may give written notice to
the defaulting party that if the default is not cured within thirty (30)
days, the Agreement will be terminated. This notice shall serve
concurrently as the notice required under paragraph 34 of this Agreement
and shall begin the time period required to schedule a Resolution Meeting.
Said notice shall specify the provision in default. Any termination of
this Agreement shall require delivery of a signed and dated written Notice
of Termination.
29. ENTIRE AGREEMENT: This Agreement is complete and embodies the parties'
----------------
entire understanding. Neither party has made any representations,
warranties or undertaking that are not expressly set forth herein. This
Agreement supersedes and nullifies any Agreements whether written or oral
previously made by the parties.
30. SEVERABILITY: The provisions of this Agreement shall be deemed severable,
------------
and the invalidity or unenforceability of any one or more of the provisions
hereof shall not affect the validity or enforceability of the other
provisions hereof. Moreover, to the extent that the enforcement of any
provision of this Agreement may be governed by its reasonableness, if any
such provision is found unenforceable by the courts or arbitrator
interpreting such provision, such provision shall be deemed amended so as
to permit its enforcement to the extent deemed reasonable.
31. PERSONAL PROPERTY: Customer acknowledges that many AV clients, their
-----------------
agents and affiliates will be present at the facilities where services are
to be provided. Because of AV's limited control over such persons,
Customer specifically releases AV from any and all claims of lost or stolen
personal property belonging to Customer employees.
32. SUCCESSORS AND ASSIGNS: This Agreement and the covenants, agreements, and
----------------------
obligations contained within shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Any assignment shall not release the original parties from their respective
obligations hereunder.
33. FORCE MAJEURE: Neither AV nor Customer shall be liable for failure to
-------------
perform their respective obligations hereunder if such failure is by reason
of an act of God, labor dispute, fire, flood, or similar such cause beyond
its control. In the case of such force majeure, the party precluded from
performing its obligations hereunder must attempt to secure reasonable
substitute performance. In AV's case, reasonable substitute performance
would include temporarily securing reasonably comparable services for
Customer at a reasonably comparable production facility. In the case such
reasonable substitute performance cannot be obtained, this Agreement may be
terminated without further liability to either party.
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34. DISPUTE RESOLUTION:
(a) The parties to this Agreement shall use their best efforts to resolve
any disputes concerning their respective performance under this Agreement
through open and cooperative discussion in the normal course of business,
and in the spirit of comity.
(b) Arbitration shall be the final remedy for disputes arising under this
contract, and shall be conducted in accordance with the rules of the
American Arbitration Association, including the procedures for selecting an
arbitrator, provided, however, that: (i) the parties contemplate only
limited discovery, which shall be permitted only where and to the extent
the arbitrator finds it necessary to the fair resolution of the dispute;
(ii) the arbitrator shall be authorized to determine the party responsible
for payment of attorneys' fees and costs: and (iii) the arbitrator shall
have the authority only to enforce the legal and contractual rights of the
parties and shall not add to, modify, disregard, or refuse to enforce any
contractual rights. The decision of the arbitrator shall be final and may
be enforceable in any court of competent jurisdiction. Notwithstanding the
foregoing, provisional equitable relief may be sought in a court of
competent jurisdiction.
(c) A party claiming to be aggrieved under this Agreement shall furnish to
the other party notice of its intent to move to arbitration in a written
statement identifying its grievance and the relief requested or proposed at
least thirty days prior to commencement of arbitration proceedings. The
Parties acknowledge and agree that this notice shall be provided
contemporaneously to the 144 Committee of Customer's Board of Directors.
35. MISCELLANEOUS PROVISIONS:
-------------------------
35.1 Time for performance by the parties hereunder is of the essence.
35.2 Nothing contained in this Agreement shall be construed so as to
require the commission of any act contrary to law, and wherever there
is any conflict between any provision of this Agreement and any
present or future, statute, law, ordinance or regulation under which
the parties have no legal right to contract, the latter shall
prevail, but in such event the provision of this Agreement affected
shall be curtailed and limited only to the extent necessary to bring
it within the requirements of the law.
35.3 This Agreement is not subject to any terms or conditions of any
collective bargaining agreement.
35.4 This Agreement in all respects shall be subject to the laws of the
District of Columbia relating to agreements executed and wholly
performed within the territorial limits of such jurisdiction.
12
<PAGE>
35.5 This Agreement (including the attachments incorporated into it) may
be modified only by a writing signed by both parties.
35.6 The section headings herein are included for reference only and shall
not be used in interpreting the text of the sections in which they
appear.
35.7 If either party to this Agreement commences any action against the
other arising out of or in connection with this Agreement, the
prevailing party shall be entitled to attorneys' fees and costs and
expenses of said action.
35.8 Each person executing this Agreement on behalf of a party represents
and warrants that he or she is duly authorized to do so and is able
to bind such party to the terms hereof.
35.9 The provisions of this Agreement shall be enforceable notwithstanding
the existence of any claim or cause of action by one party herein
against the other whether predicated on this Agreement or otherwise.
35.10 Any conduct by the parties hereto evidencing an agreement at
variance with the express terms of this Agreement shall not
constitute a waiver of the terms expressed herein and no action
taken by a party, or any failure to act when a right to act is
available under the Agreement shall be deemed a waiver of any future
right to enforce the Agreement.
IN WITNESS WHEREOF, the parties hereby execute this Agreement.
The Nostalgia Network, Inc. Atlantic Video Inc.
650 Massachusetts Avenue NW 650 Massachusetts Avenue NW
Washington, DC 20001 Washington, DC 20001
By: ___________________________ By: ___________________________
Name: _________________________ Name: _________________________
Title: ________________________ Title: ________________________
Dated: ________________________ Dated: ________________________
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,803,189
<SECURITIES> 0
<RECEIVABLES> 1,190,766
<ALLOWANCES> 467,000
<INVENTORY> 12,836,646
<CURRENT-ASSETS> 9,547,296
<PP&E> 3,188,221
<DEPRECIATION> 1,746,931
<TOTAL-ASSETS> 16,997,972
<CURRENT-LIABILITIES> 9,361,172
<BONDS> 41,417,194
0
6,500
<COMMON> 810,975
<OTHER-SE> (39,170,222)
<TOTAL-LIABILITY-AND-EQUITY> 16,997,972
<SALES> 0
<TOTAL-REVENUES> 7,178,933
<CGS> 0
<TOTAL-COSTS> 23,467,791
<OTHER-EXPENSES> 2,599,668
<LOSS-PROVISION> 102,000
<INTEREST-EXPENSE> 2,599,668
<INCOME-PRETAX> (18,888,526)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,888,526)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,888,526)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
