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SCHEDULE 14A INFORMATION
AMENDMENT
NO. 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party Other than the Registrant [ ]
Check the appropriate Box:
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[X] Preliminary Proxy Statement [ ] Confidential, for use of Commission only
[ ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
THE NOSTALGIA NETWORK, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
CALCULATION OF FILING FEE
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AGGREGATE NUMBER OF
SECURITIES TO WHICH PER UNIT PRICE OR OTHER PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TRANSACTION UNDERLYING VALUE OF AGGREGATE VALUE OF
TO WHICH FILING TRANSACTION APPLIES(1)(2) APPLIES(1) TRANSACTION(1) TRANSACTION(1) AMOUNT
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<S> <C> <C> <C> <C>
Common Stock....................................... 20,275,370 $0.07 $1,419,275.90 $283.86
Preferred Stock.................................... 3,250 $7.00 $ 22,750.00 $ 4.55
Total.............................................. -- -- $1,441,958.77 $288.41
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(1) Estimated solely for the purpose of computing the amount of the filing fee
pursuant to Rule 0-11 under the Securities Exchange Act of 1934, as amended.
(2) The fee was computed in accordance with Rule 0-11(c)(1)(i) based upon the
cash consideration to be paid to security holders.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
THE NOSTALGIA NETWORK, INC.
650 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20001
------------------
NOTICE OF SPECIAL MEETING TO BE HELD ON
, 2000
------------------
To the Stockholders of
The Nostalgia Network, Inc.:
We will hold a special meeting of stockholders on , 2000, 11:00
a.m., local time, at 650 Massachusetts Avenue, N.W., Washington, D.C., for the
following purposes:
1. to approve the merger of NNI Acquisition Corporation, a Delaware
corporation, with and into Nostalgia pursuant to an Agreement and Plan of
Merger dated as of January 11, 2000, between Nostalgia and NNI Acquisition;
and
2. to transact such other business as may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
The proposed merger is more fully described in the accompanying proxy
statement and its appendices, which are part of this notice.
Nostalgia's Board of Directors has fixed the close of business on
, 2000 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the special meeting or any adjournments
or postponements of the special meeting. Only stockholders of record on
, 2000 will be entitled to notice of, and to vote at, the special
meeting or any adjournments or postponements of the special meeting. A list of
stockholders of record as of , 2000 will be available for
inspection at Nostalgia's offices at 650 Massachusetts Avenue, N.W., Washington,
D.C. at least ten days prior to the special meeting.
Pursuant to Section 262 of the Delaware General Corporation Law,
stockholders of Nostalgia are entitled to appraisal rights in connection with
the proposed merger.
If you plan to attend the special meeting, please notify the undersigned so
that identification can be prepared for you. Whether or not you plan to attend
the special meeting, please execute, date and promptly return the enclosed
proxy. A return envelope is enclosed for your convenience and requires no
postage for mailing in the United States. If you attend the special meeting, you
may withdraw your proxy and vote in person.
By Order of the Board of Directors,
/s/ WILLARD R. NICHOLS
--------------------------------------
Vice President, General Counsel and
Secretary
, 2000
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE.
<PAGE> 3
THE NOSTALGIA NETWORK, INC.
650 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20001
(202) 289-6633
SPECIAL MEETING OF STOCKHOLDERS
, 2000
PROXY STATEMENT
------------------
This proxy statement is being provided to stockholders of The Nostalgia
Network, Inc. in connection with the solicitation of proxies by Nostalgia's
Board of Directors for use at a special meeting of stockholders on ,
2000 at 11:00 a.m., local time, at 650 Massachusetts Avenue, N.W., Washington,
D.C., and any adjournments or postponements of the special meeting.
At the special meeting, common and preferred stockholders of record of
Nostalgia as of the close of business on , 2000 will be asked to
consider and vote upon a proposed merger which, if completed, will result in
common stockholders receiving $0.07 for each share of common stock and preferred
stockholders receiving $7.00 for each share of preferred stock. The merger
constitutes a going private transaction within the meaning of Section 13(e)(3)
of the United States Securities Exchange Act of 1934. After the merger,
Nostalgia will be privately owned by Crown Communications Corp. and Concept
Communications, Inc. and no longer will be a public company, the common stock
will no longer be traded on the Nasdaq OTC Bulletin Board and the unaffiliated
common and preferred stockholders of Nostalgia no longer will have any interest
in any of Nostalgia's future earnings or growth.
Concept is an affiliate of Nostalgia and majority-owned by Crown. Crown is
an affiliate of Nostalgia and a wholly-owned subsidiary of Crown Capital
Corporation. Capital, Crown and Concept are the beneficial owners of 69.9% of
the common stock and 76.9% of the preferred stock.
PURSUANT TO THE DELAWARE GENERAL CORPORATION LAW, STOCKHOLDERS OF NOSTALGIA
ARE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER. FOR A DETAILED
DISCUSSION OF THESE APPRAISAL RIGHTS, INCLUDING HOW THEY ARE EXERCISED, SEE
"-- APPRAISAL RIGHTS," BEGINNING ON PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE PROPOSED MERGER, PASSED UPON THE
MERITS OR FAIRNESS OF THE TRANSACTION, OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THIS PROXY STATEMENT, AND ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Because the merger involves affiliates of Nostalgia, and a member of the
Board of Directors may have interests in connection with the merger that are in
addition to, or conflict with, those of Nostalgia and its stockholders, the
terms of the merger and the merger agreement were negotiated on behalf of
Nostalgia by a special committee of the Board of Directors consisting entirely
of independent directors of Nostalgia. See "-- Interests of Certain Persons in
the Merger," beginning on page .
The common stock is listed for quotation on the Nasdaq OTC Bulletin Board
under the symbol "NNET". On , 2000, the last reported sale price for
the common stock on the Bulletin Board was $ per share.
------------------
THIS PROXY STATEMENT AND THE ACCOMPANYING PROXY CARD ARE FIRST BEING MAILED
OR DELIVERED TO THE STOCKHOLDERS OF NOSTALGIA ON OR ABOUT , 2000.
------------------
THE DATE OF THIS PROXY STATEMENT IS , 2000.
<PAGE> 4
TABLE OF CONTENTS
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SUMMARY TERM SHEET.......................................... 4
The Companies............................................. 4
The Merger................................................ 4
Vote Required............................................. 4
Proxies................................................... 5
Consequences of the Merger................................ 5
Recommendations of the Special Committee and Nostalgia's
Board of Directors..................................... 6
Interests of Certain Persons in the Merger................ 6
Conditions to the Merger.................................. 7
Termination of the Merger Agreement....................... 7
Reasons for the Merger.................................... 7
Valuation Analysis of Daniels and Associates, L.P......... 8
Fairness Opinion of Chatsworth Securities, LLC............ 9
Appraisal Rights.......................................... 9
Federal Income Tax Consequences........................... 9
Accounting Treatment...................................... 9
Procedures for Receipt of Merger Consideration............ 9
Questions About the Merger................................ 9
SPECIAL FACTORS............................................. 10
Background................................................ 10
Recommendation of the Board of Directors.................. 11
Reasons for the Merger; Fairness Considerations........... 11
Effect of the Merger on the Rights of Existing
Stockholders........................................... 15
Effect of the Merger on Nostalgia and the Concept Group... 15
Federal Income Tax Considerations......................... 15
Vote Required............................................. 16
Report of the Financial Advisor to Crown.................. 16
Opinion of the Financial Advisor to the Special
Committee.............................................. 19
Nostalgia Stock Price and Trading Volume.................. 22
Determination of Fairness................................. 22
Use of Forecasts and Projections.......................... 27
WHERE YOU CAN FIND MORE INFORMATION......................... 28
FORWARD LOOKING STATEMENTS.................................. 28
COMPARATIVE PER SHARE MARKET INFORMATION.................... 29
THE SPECIAL MEETING......................................... 30
General................................................... 30
Matters to Be Considered.................................. 30
Recommendation of the Board of Directors.................. 30
Record Date; Shares Entitled to Vote; Quorum.............. 30
Proxies; Proxy Solicitation............................... 30
Effects of Abstentions and Broker Non-Votes............... 31
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS.................................................... 32
Interests of Certain Persons in the Merger................ 32
Regulatory Approval....................................... 33
Appraisal Rights.......................................... 33
Accounting Treatment...................................... 36
Financing, Expenses and Fees.............................. 36
THE MERGER AGREEMENT........................................ 38
Terms of the Merger....................................... 38
Indemnification........................................... 38
Effective Time of the Merger.............................. 39
Representations and Warranties............................ 39
Covenants................................................. 40
Conditions to the Merger.................................. 41
Amendment; Waiver; Termination............................ 41
CERTAIN TRANSACTIONS AND RELATIONSHIPS...................... 43
THE CONCEPT GROUP........................................... 45
BUSINESS OF NOSTALGIA....................................... 46
Overview.................................................. 46
Description of Business................................... 46
Affiliated Cable Systems and Subscribers.................. 46
Advertising............................................... 47
Programming............................................... 47
Financial Information..................................... 49
Patents, Trademarks, Licenses............................. 49
Competition............................................... 49
Government Regulation..................................... 50
Employees................................................. 51
Properties................................................ 51
Legal Proceedings......................................... 52
SELECTED FINANCIAL DATA..................................... 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 54
Material Commitments...................................... 61
INDEPENDENT ACCOUNTANTS..................................... 63
OTHER MATTERS............................................... 63
ANNUAL REPORT AND FORM 10-K................................. 64
STOCKHOLDER PROPOSAL FOR 2000 ANNUAL MEETING................ 65
INDEX TO FINANCIAL STATEMENTS............................... F-1
MERGER AGREEMENT (AND ATTACHED EXHIBITS).................... A-1
FAIRNESS OPINION OF CHATSWORTH SECURITIES, LLC.............. B-1
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW......... C-1
REPORTS OF DANIELS & ASSOCIATES, L.P. ...................... D(1)-1
</TABLE>
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<PAGE> 6
SUMMARY TERM SHEET
This summary term sheet highlights important information from this proxy
statement relating to the proposed merger. This summary term sheet may not
contain all of the information you should consider before voting on the proposed
merger. To more fully understand the proposed merger, you should read carefully
this entire proxy statement and all of its appendices before voting on the
merger proposal. We have included page references parenthetically in this
summary term sheet to direct you to more complete descriptions of the topics
presented in this summary term sheet.
THE COMPANIES (pp. to )
Nostalgia
- Nostalgia operates GoodLife TV Network, a television programming service,
which offers a variety of entertainment, information and lifestyle
programming exemplifying traditional American culture, values and a sense
of community. This programming mix targets the most neglected audience on
television, America's Baby Boomers and over audience.
- Nostalgia's principal executive office is located at 650 Massachusetts
Avenue, N.W., Washington, D.C. 20001. The telephone number is (202)
289-6633.
The Concept Group
The Concept Group consists of Capital, Crown, Concept and NNI Acquisition
Corporation. The principal business address for Capital, Crown, Concept and NNI
Acquisition is 650 Massachusetts Avenue, N.W., Washington, D.C. 20001. The
telephone number is (202) 789-2124.
- Concept has diverse interests in the communications and
telecommunications industries with ownership interests in firms
principally involved in video newsgathering and transmission services,
corporate video communication and program production and post-production.
Crown owns a majority of the capital stock of Concept.
- Crown has diverse interests in the communications and telecommunications
industries through operation of a satellite up-linking business and its
majority ownership interest in Concept. The sole stockholder of Crown is
Capital.
- Capital is a Delaware non-stock corporation, which indirectly owns
interests in firms involved in the communications and telecommunications
industries through its ownership of Crown.
- NNI Acquisition is a Delaware corporation formed to own the common stock
and preferred stock and to facilitate the merger. All of the shares of
stock of NNI Acquisition are owned by Crown and Concept. If and when the
merger takes place, NNI Acquisition will be merged with and into
Nostalgia and Nostalgia will be wholly-owned by Crown and Concept.
THE MERGER (pp. to )
Upon completion of the merger, NNI Acquisition will be merged with and into
Nostalgia and Nostalgia will continue as the surviving corporation. The merger
will occur according to the terms and conditions of a January 11, 2000 Agreement
and Plan of Merger which is described in and attached as Appendix A to this
proxy statement. You should read the description of the merger agreement
contained in this proxy statement under the heading "THE MERGER AGREEMENT" and
the attached merger agreement carefully. We expect the merger to be completed in
the quarter of 2000.
VOTE REQUIRED (pp. to )
- Under Delaware law, the proposed merger must be approved by a majority of
the outstanding shares of capital stock entitled to be voted on the
merger proposal (including the preferred stock voted with 100 votes for
each share of preferred stock). As of , 2000, 20,275,370 shares of common
stock and 3,250
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<PAGE> 7
shares of preferred stock were issued and outstanding. The vote of a
majority of the shares of preferred stock, voting as a separate class,
also is required to approve the merger proposal.
- The transaction is not structured so that approval of at least a majority
of the unaffiliated stockholders is required.
- NNI Acquisition, which owns 14,180,427 shares of common stock and 2,500
shares of preferred stock has informed Nostalgia that it intends to vote
all of its shares of common stock and preferred stock "FOR" the merger
proposal. NNI Acquisition owns a sufficient number of shares of common
stock and preferred stock to ensure approval of the merger proposal.
PROXIES (pp. to )
- Shares of common stock represented by properly executed proxies received
at or prior to the special meeting that have not been revoked will be
voted at the special meeting in accordance with the instructions
indicated on the proxies. Shares of common stock represented by properly
executed proxies for which no instruction is given will be voted "FOR"
the merger proposal.
- Your proxy may be revoked at any time before it is voted. You may revoke
your proxy by:
- filing with the Secretary of Nostalgia, at or before the taking of the
vote at the special meeting, a written notice of revocation bearing a
later date than the proxy;
- executing a later dated proxy relating to the same shares of common
stock and delivering it to the Secretary of Nostalgia before the
taking of the vote at the special meeting; or
- attending the special meeting and voting in person (although
attendance at the special meeting will not, in and of itself, revoke a
proxy).
- You should send any written revocation or subsequent proxy to The
Nostalgia Network, Inc., 650 Massachusetts Avenue, N.W. Washington, D.C.
20001, Attention: Corporate Secretary at or before the taking of the vote
at the special meeting.
- If the special meeting is postponed or adjourned, at any subsequent
reconvening of the special meeting your proxy will be voted in the same
manner as it would have been voted at the original convening of the
special meeting (except if you have previously revoked or effectively
withdrawn your proxy).
- If your shares are held in "street name" by your broker, your broker will
not have the power to vote your shares. Your broker will vote your shares
only if you provide your broker with voting instructions. Any failure to
instruct your broker on how to vote will have the effect of a vote
"AGAINST" the proposed merger.
CONSEQUENCES OF THE MERGER (p. )
If the merger is completed:
- You will receive $0.07 in cash for each of your shares of common stock.
Holders of preferred stock will receive $7.00 in cash for each share of
preferred stock;
- NNI Acquisition will be merged with and into Nostalgia, the shares of
common stock and preferred stock owned by NNI Acquisition will be
cancelled and the shares of NNI Acquisition, all of which are owned by
Crown and Concept, will be converted into shares of common stock;
- There will be no change in the Board of Directors or executive officers
of Nostalgia. It is anticipated that, following the merger, the business
and operations of Nostalgia will be continued substantially as currently
conducted for the immediate future;
- Nostalgia will no longer be a public company;
- The common stock will no longer be traded on the Nasdaq OTC Bulletin
Board;
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- You no longer will have an interest in any of Nostalgia's future earnings
or growth; and
- Crown and Concept will be Nostalgia's only stockholders.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND NOSTALGIA'S BOARD OF DIRECTORS (pp.
to )
- Since the merger is among affiliates, and Mr. Dong Moon Joo, a member of
Nostalgia's Board of Directors may have interests in connection with the
merger that are in addition to, or conflict with, those of Nostalgia and
its stockholders, the terms of the merger and the merger agreement were
negotiated on behalf of Nostalgia by a special committee consisting
entirely of independent directors of Nostalgia who are not members of
management or employees of Nostalgia, Capital, Crown, Concept, NNI
Acquisition or their affiliates. The special committee is a standing
committee of the Board of Directors, consisting of Robert J. Wussler and
S. Robert Lichter, which addresses matters involving potential conflicts
of interest among Nostalgia, its officers, directors and/or stockholders.
In considering the recommendations of the special committee, you should
be aware of these conflicts of interest. For a more detailed discussion
of these interests, see "Interests of Certain Persons in the Merger"
beginning on page .
- The special committee retained Chatsworth Securities, LLC, an independent
financial advisor, to assist it in considering the merger. Chatsworth
provided to the special committee its written opinion that the terms of
the merger are fair, from a financial point of view, to Nostalgia's
unaffiliated stockholders. For a more detailed discussion of Chatsworth's
opinion, see "SPECIAL FACTORS -- Opinion of the Financial Advisor to the
Special Committee" beginning on page .
- Based upon all of the factors it considered, including the written
fairness opinion of Chatsworth, the special committee concluded that the
merger is fair to, and in the best interests of, Nostalgia and
Nostalgia's unaffiliated stockholders and recommended to Nostalgia's
Board of Directors that the merger be approved.
- Based upon the recommendation of the special committee, Nostalgia's Board
of Directors, with Dong Moon Joo, the interested director, not
participating in any meetings concerning, or voting on, the merger,
unanimously has approved the merger as fair to and in the best interests
of Nostalgia and Nostalgia's unaffiliated stockholders and recommends
that you approve the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (pp. to )
- Dong Moon Joo, a member of Nostalgia's board of directors, is also a
director and President of Capital, Crown, Concept and NNI Acquisition.
Mr. Joo is also Chairman of the Board of Directors of Crown. Because of
these positions, Mr. Joo may have interests in connection with the merger
that are in addition to, or conflict with, the interests of Nostalgia and
its stockholders. Because of these potential conflicts of interest, Mr.
Joo did not attend meetings of Nostalgia's Board of Directors at which
the merger was discussed and he did not vote on the merger or the merger
agreement.
- A special committee consisting of two independent directors of Nostalgia
who are not members of management or employees of Nostalgia retained
Chatsworth Securities to determine whether the consideration to be paid
to Nostalgia's stockholders in the merger was fair from a financial point
of view. Nostalgia's other non-employee and non-management directors did
not retain an unaffiliated representative to act solely on behalf of
unaffiliated security holders for purposes of negotiating the terms of
the merger proposal.
For a more detailed discussion of these interests, see " -- Interests of
Certain Persons in the Merger," beginning on page .
6
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CONDITIONS TO THE MERGER (pp. to )
The obligations of Nostalgia and NNI Acquisition to complete the merger are
subject to several conditions, including:
- The merger agreement must be approved by a majority of the outstanding
shares of capital stock entitled to be voted on the merger proposal and a
majority of the preferred stock, voting as a separate class.
- Nostalgia's and NNI Acquisition's representations and warranties in the
merger agreement must be accurate and complete in all material respects.
- The holders of not more than 5.0% of the common stock and preferred stock
shall have exercised appraisal rights.
Nostalgia and/or NNI Acquisition, as applicable, may waive the foregoing
conditions.
TERMINATION OF THE MERGER AGREEMENT (pp. to )
- The merger agreement may be terminated at any time prior to the time the
merger is effective. This termination may occur either before or after
approval of the merger by Nostalgia's stockholders, by mutual written
consent of Nostalgia and NNI Acquisition. The merger agreement also may
be terminated by Nostalgia or NNI Acquisition under certain circumstances
described in the merger agreement, including if the stockholders do not
approve the merger or if the merger is not effective on or before
.
REASONS FOR THE MERGER; FAIRNESS CONSIDERATIONS (pp. to )
In reaching its conclusion to approve and recommend the merger, the special
committee considered, among other factors, the following:
- The fairness opinion of Chatsworth;
- the premium to be paid to Nostalgia's stockholders as compared to the
historic price of the common stock from January 1, 1998 to the date of
the announcement of the merger;
- the financial condition and results of operations of Nostalgia, including
its aggregate operating losses of approximately $44.2 million since
January 1, 1998;
- the inability of Nostalgia to raise equity and debt capital from
conventional sources and Nostalgia's resulting reliance on Crown and
Concept to provide working capital; and
- the lack of any assurance that Crown or Concept would continue to provide
such working capital to Nostalgia under current circumstances.
The special committee also considered certain factors which could, as a
result of the merger, negatively affect Nostalgia and its stockholders,
including:
- the loss of Nostalgia's status as a publicly traded corporation and the
corresponding loss of a market for the common stock;
- the potential recognition of taxable income/gain to the stockholders of
Nostalgia upon completion of the merger; and
- that minority stockholders will not participate in any future growth in
the value of Nostalgia, if any.
For a more detailed discussion of these reasons, see "SPECIAL
FACTORS -- Reasons for the Merger; Fairness Considerations" and
" -- Recommendation of the Board of Directors," beginning on page .
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<PAGE> 10
Capital, Crown, Concept and NNI Acquisition decided to pursue the merger for the
purpose of more adequately protecting their interests in Nostalgia. They
consider the need to protect their interests in Nostalgia at this time to be
especially critical given that:
- Nostalgia's aggregate financial losses of approximately $89.0 million
since January 1, 1995, as a result of which Nostalgia continues to remain
unable to raise equity and debt capital from conventional sources and
remains dependant on Crown and Concept for its working capital;
- As a public company, Nostalgia's stock has historically traded at low
volumes and market prices; and
- The burden and expense of maintaining Nostalgia as a publicly held entity
In reaching their conclusion that the consideration to be paid to the
unaffiliated stockholders of Nostalgia is fair, Capital, Crown, Concept and NNI
Acquisition considered that:
- The consideration being offered in the merger of $0.07 per share of
common stock of Nostalgia represents a substantial premium over the
market prices of Nostalgia common stock in the weeks prior to the
announcement of the merger. It also represents a substantial premium over
Nostalgia's recent stock prices, which averaged $ for the 30
trading days prior to , 2000.
- The consideration being offered in the merger also represents a
substantial premium over Nostalgia's net book value per share and the
liquidation value, both of which are negative values for the year ended
March 31, 2000.
- Nostalgia's substantial financial losses in the last few years and its
lack of prospects for becoming profitable in the foreseeable future;
- If, as an alternative to the merger, Nostalgia's outstanding indebtedness
to Crown and Concept were converted to equity, it would result in a
significant dilution to Nostalgia's minority stockholders;
- The report of Daniels which indicates that the equity value per share of
Nostalgia is no more than $0.08 per share (and depending on the
methodology used for the valuation, may even be a negative value per
share);
- To the knowledge of Capital, Crown, Concept and NNI Acquisition, since
Nostalgia announced the merger in October 1999, no prospective buyer has
offered to complete a similar transaction with Nostalgia for a price of
more than $0.07 per share; and
- The terms of the merger and the merger agreement were negotiated on
behalf of Nostalgia by the special committee which, in turn, hired its
own financial advisor to evaluate the merger consideration and its own
legal counsel to negotiate the terms of the merger agreement.
Capital, Crown, Concept and NNI Acquisition believe that each of the above
factors supports their conclusion that the merger price is fair to the
unaffiliated stockholders.
The fact that the price of Nostalgia stock rose above $0.07 per share at
certain times following the announcement of the merger does not necessarily
support Capital's, Crown's, Concept's and NNI Acquisition's conclusion that the
merger price is fair to the unaffiliated stockholders. However, this factor was
outweighed by Capital, Crown, Concept and NNI because they believe that the rise
in market prices was speculative.
For a more detailed discussion of these reasons, see "SPECIAL
FACTORS -- Reasons for the Merger; Fairness Considerations" beginning on page
.
VALUATION ANALYSIS OF DANIELS AND ASSOCIATES, L.P. (pp. to )
- Daniels and Associates, L.P. has delivered to Crown two reports analyzing
the equity value of Nostalgia. Daniels issued its original report to
Crown on October 7, 1999 and updated it on April 20, 2000. In both of
these reports, Daniels concluded that, based on its analysis, the equity
value per share of Nostalgia was no more than $0.08 per share and could
even be a negative value depending on the
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<PAGE> 11
methodology used. The full text of the Daniels reports is attached as
Appendices D(1) and D(2) of the proxy statement. We encourage you to read
these reports carefully and in their entirety. The reports of Daniels are
directed only to the matters described in the reports and do not
constitute a recommendation as to how you should vote at the special
meeting.
FAIRNESS OPINION OF CHATSWORTH SECURITIES, LLC (p. to )
- Chatsworth Securities, LLC has delivered to the Board of Directors its
written opinion, dated October 18, 1999 and reconfirmed as of December
31, 1999, to the effect that, as of these dates and subject to certain
assumptions, qualifications and limitations stated in the opinion, the
consideration to be paid to the unaffiliated stockholders of Nostalgia in
consideration of the merger is fair from a financial point of view.
Chatsworth has informed Nostalgia that it will reconfirm its opinion [as
of the date of the special meeting.] The full text of Chatsworth's
October 18, 1999 opinion is attached to this proxy statement as Appendix
B. We encourage you to read this opinion carefully and in its entirety.
The opinion of Chatsworth is directed only to the matters described in
the opinion and does not constitute a recommendation as to how you should
vote at the special meeting.
APPRAISAL RIGHTS (p. to )
- If you do not wish to accept the $0.07 merger consideration and you do
not vote in favor of the merger, you have the right under Delaware law to
seek a judicial appraisal of your shares to determine their "fair value"
if the merger is completed. For a detailed discussion of these appraisal
rights, see " -- Appraisal Rights," beginning on page .
FEDERAL INCOME TAX CONSEQUENCES (p. to )
- Stockholders will be taxed on receipt of the $0.07 per share of common
stock and/or $7.00 per share of preferred stock if, and to the extent
that, the amount received exceeds their tax basis in such stock.
Determining the tax consequences of the merger can be complicated and you
should consult your tax advisor to understand fully the tax effects of
the merger. For a more detailed discussion of the tax consequences of the
merger, see "SPECIAL FACTORS -- Federal Income Tax Considerations,"
beginning on page .
ACCOUNTING TREATMENT (p. )
- The merger will be accounted for under the purchase method of accounting
in accordance with generally accepted accounting principles (GAAP).
PROCEDURES FOR RECEIPT OF MERGER CONSIDERATION
- You should not send your share certificates to us now. Shortly after the
merger is completed, we will send you written instructions explaining how
to exchange your Nostalgia certificates for cash.
QUESTIONS ABOUT THE MERGER
- If you have more questions about the merger or if you would like
additional copies of this proxy statement, you should contact:
The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
(202) 289-6633
contact person:
9
<PAGE> 12
SPECIAL FACTORS
BACKGROUND
On June 28, 1999, Capital, Crown and Concept, informed Nostalgia of the
possible intention to seek a transaction with Nostalgia which would either
result in the conversion to equity of Nostalgia's debt to Crown and Concept or
Nostalgia becoming wholly-owned by Crown and Concept in a going-private
transaction.
In August 1999, prior to the receipt of the merger proposal, a
representative of Crown initiated preliminary discussions with a representative
of the special committee concerning the possible conversion to equity of
Nostalgia's indebtedness to Crown and Concept or the acquisition of Nostalgia.
The special committee met with the representative of Crown on September 8, 1999,
September 24, 1999 and October 7, 1999.
At a regular meeting of the Board of Directors on September 8, 1999, the
special committee reported to the Board of Directors concerning its discussions
with Crown. Based upon the report of the special committee, which included the
potential valuation range of any potential transaction, the Board of Directors
authorized the special committee to retain an independent financial advisor and
legal counsel. Pursuant to this authorization, the special committee retained
Chatsworth as its financial advisor to evaluate a possible going-private
transaction. The special committee retained Caplan, Buckner, Rohrbaugh &
Kostecka as its legal counsel.
On October 5, 1999, Chatsworth delivered to the special committee its
written analysis of a possible going-private transaction.
On October 8, 1999, Crown delivered to the special committee and the other
directors correspondence setting forth the basic terms of the merger proposal.
The merger proposal was referred to the special committee for further
consideration.
On October 13, 1999, the special committee determined that the merger
proposal was in the best interests of, and fair to, Nostalgia and its
stockholders. The special committee recommended that the Board of Directors
approve the merger proposal and submit it to the stockholders for approval,
subject to receipt by the Board of Directors of a written opinion from
Chatsworth that the consideration to be paid to Nostalgia's stockholders in the
merger is fair to the stockholders from a financial point of view.
As the merger proposal required approval by Nostalgia by October 18, 1999,
the Board of Directors met on October 14, 1999, with Mr. Joo not attending, to
discuss the merger proposal. Following this discussion, a vote on the merger
proposal was postponed due to the unavailability of several directors. Due to
the inability of the Board of Directors to meet again prior to the deadline for
approval of the merger proposal, Nostalgia requested, and was granted, an
extension until October 21, 1999 to approve the merger proposal.
On October 18, 1999, Chatsworth delivered to the special committee its
written opinion that, subject to the various assumptions, qualifications and
limitations expressed therein, the consideration to be paid to Nostalgia's
stockholders in the merger is fair to Nostalgia's unaffiliated stockholders from
a financial point of view.
On October 21, 1999, at a special meeting of the Board of Directors, the
special committee delivered to the Board of Directors its recommendation that
the merger proposal was fair to, and in the best interests of, Nostalgia and its
unaffiliated stockholders. The Board of Directors determined that the merger
proposal was in the best interests of Nostalgia and its unaffiliated
stockholders and approved the merger proposal subject to the negotiation of
mutually satisfactory definitive documentation. At this meeting, the Board of
Directors also requested that Chatsworth supplement the analysis it had
delivered previously to the special committee by identifying additional
valuation methodologies which it had utilized but not described. Mr. Joo did not
attend this meeting of the Board of Directors or vote on this matter.
On October 26, 1999, Chatsworth delivered to the special committee the
supplemental information with respect to its analyses which had been requested
by the Board of Directors.
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<PAGE> 13
On December 20, 1999, counsel to Crown and Concept circulated an initial
draft of the proposed merger agreement. There ensued over the next fifteen days
a series of conference calls and negotiations followed by numerous revisions and
recirculations of drafts of the proposed merger agreement.
Subsequent to December 20, 1999, and prior to the meeting of the Board of
Directors on January 4, 2000, the special committee had multiple discussions
regarding the proposed merger and the terms of the merger agreement. After an
extensive discussion and considering such factors as the fairness of the merger
consideration from a financial point of view, and the terms of the merger
agreement, the special committee determined that the merger agreement is in the
best interests of Nostalgia and its unaffiliated stockholders and recommended
that the Board of Directors approve the merger agreement.
On January 4, 2000, the Board of Directors met and determined that the
merger is in the best interests of Nostalgia and its unaffiliated stockholders
and is on terms that are fair and reasonable to Nostalgia and its unaffiliated
stockholders and approved the merger agreement. Mr. Joo did not attend this
meeting of the Board of Directors or vote on this matter.
The merger agreement was executed by Nostalgia on January 7, 2000 and by
NNI Acquisition on January 11, 2000.
On January 27, 2000, Chatsworth reconfirmed its fairness opinion to the
Board of Directors based upon financial information as of December 31, 1999.
Nostalgia recommended the consideration to paid in the proposed merger and
requested that Chatsworth determine whether the amount of consideration
recommended by Nostalgia was fair to the unaffiliated stockholders.
Since the approval by the special committee and the Board of Directors,
work on the merger on behalf of Nostalgia has been primarily performed by
Nostalgia's general counsel and corporate counsel with assistance from
Nostalgia's finance department. Work on the merger on behalf of Capital, Crown,
Concept and NNI Acquisition has been primarily performed by general counsel and
corporate counsel to Capital, Crown, Concept and NNI Acquisition with assistance
from their finance department.
Daniels and Associates, L.P. acted as financial advisor to Capital, Crown,
Concept and NNI Acquisition, negotiated with Chatsworth as to the value and
terms of the merger and assisted and advised Capital, Crown, Concept and NNI
Acquisition in their negotiations with the special committee. Daniels will be
compensated by Crown for its services.
None of Capital, Crown, Concept or NNI Acquisition is aware of, and
Nostalgia did not receive, any firm offers in the last two years for a merger or
consolidation of Nostalgia, the sale or other transfer of all or any substantial
part of the assets of Nostalgia or a purchase of Nostalgia's securities that
would enable a purchaser of the securities to exercise control of Nostalgia.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Upon the recommendation of the special committee, the Board of Directors
(with Mr. Joo not participating in any meetings concerning, or voting on, the
merger) has unanimously approved the merger and the merger agreement, having
concluded that the merger and the merger agreement are fair to, and in the best
interests of, Nostalgia and its unaffiliated stockholders and unanimously
recommends that stockholders of Nostalgia vote "FOR" the merger proposal. Dong
Moon Joo, a member of Nostalgia's board of directors, is also a director and
President of Capital, Crown, Concept and NNI Acquisition. Mr. Joo is also
Chairman of the Board of Directors of Crown. Because of these positions, Mr. Joo
may have interests in connection with the merger that are in addition to, or
conflict with, the interests of Nostalgia and its stockholders. Because of these
potential conflicts of interest, Mr. Joo did not attend meetings of Nostalgia's
Board of Directors at which the merger was discussed and he did not vote on the
merger or the merger agreement.
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<PAGE> 14
REASONS FOR THE MERGER; FAIRNESS CONSIDERATIONS
Capital, Crown, Concept and NNI Acquisition. As the owners of a majority
of the stock of Nostalgia, and the source of substantially all of its working
capital, Capital, Crown, Concept and NNI Acquisition have decided to pursue the
merger to protect more adequately their interests in Nostalgia (including
Nostalgia's outstanding debt of over $93.0 million to Crown and Concept).
Capital, Crown, Concept and NNI Acquisition consider the need to protect their
interests in Nostalgia at this time to be especially critical given the
following factors:
- Nostalgia has incurred an aggregate loss of over $89.0 million since
January 1, 1995 (including a loss of approximately $21.0 million in the
year ended December 31, 1999 and approximately $5.0 million in the
quarter ended March 31, 2000). As a result, Nostalgia continues to remain
unable to raise equity and debt capital from conventional sources and
remains dependant on Crown and Concept for its working capital;
- As a public company, Nostalgia's stock has historically traded at low
volumes and market prices; and
- The burden and expense of maintaining Nostalgia as a publicly-held
entity, including the burden and expense of filing periodic reports under
the Securities Exchange Act and compliance with the various rules and
regulations of the SEC, outweighs any benefits of the extremely limited
public market for the common stock.
In reaching their conclusion that the consideration to be paid to the
unaffiliated stockholders of Nostalgia is fair, Capital, Crown, Concept and NNI
Acquisition considered the following factors:
- The merger consideration of $0.07 per share of common stock represents a
substantial premium over both the market prices of the common stock in
the weeks prior to the announcement of the merger and a substantial
premium over Nostalgia's recent stock prices, which averaged $
for the 30 trading days prior to , 2000. Capital, Crown,
Concept and NNI Acquisition have considered that, at certain times after
the engagement of Daniels in January 1999 and after the announcement of
the merger in October 1999, the price of common stock rose up to a
maximum of $0.25 per share. However, given the thin trading volume of
common stock in the last two years and the absence of any fundamental
improvement in Nostalgia's operating results or earnings prospects in the
foreseeable future, Capital, Crown, Concept and NNI Acquisition consider
the higher price levels to be speculative and not relevant to determining
the fairness of the merger consideration;
- The merger consideration also represents a substantial premium over
Nostalgia's net book value per share and the liquidation value, both of
which are negative for the year ended March 31, 2000. Capital, Crown,
Concept and NNI Acquisition do not believe the going concern value per
share to be relevant in determining the fairness of the merger
consideration because, based on the Daniels reports, this value is
irrelevant given Nostalgia's operating losses for the last several years;
- Prior to the announcement of the merger, Nostalgia incurred a net loss of
over $15.0 million ($0.78 per share) for the nine months ended September
30, 1999. Nostalgia incurred a net loss of over $21.0 million ($1.05 per
share) for the year ended December 31, 1999 and a net loss of almost $5.0
million ($0.25 per share) for the quarter ended March 31, 2000. Capital,
Crown, Concept and NNI Acquisition believe the merger consideration to be
very favorable given these losses and Nostalgia's lack of prospects for
becoming profitable in the foreseeable future;
- If, as an alternative to the merger, Nostalgia's outstanding indebtedness
to Crown and Concept were converted to equity, it would result in
significant dilution to Nostalgia's minority stockholders;
- The report of Daniels dated October 7, 1999 and updated on April 20,
2000, which indicates that the equity value per share of Nostalgia is no
more than $0.08 per share (and depending on the valuation methodology,
may be negative);
12
<PAGE> 15
- To the knowledge of Capital, Crown, Concept and NNI Acquisition, since
Nostalgia announced the proposed merger, on October 21, 2000, no
prospective buyer has offered to complete a similar transaction with
Nostalgia for a price of or exceeding $0.07 per share of common stock;
- Under Delaware law, in the context of merger agreements between two
companies, it is not advisable for a board of a target company to
contractually give up its right to consider third party proposals if so
required in light of its fiduciary duties. However, Delaware courts have
upheld the acquiring company's right to impose a termination fee or to
require reimbursement for expenses or missed opportunities where the
target company pursues such a third party proposal instead of a proposed
merger. In light of the applicable law, Capital, Crown, Concept and NNI
Acquisition consider the terms of the merger agreement to be favorable to
the interests of the unaffiliated stockholders in that they permit the
board of Nostalgia to consider and consummate any unsolicited proposal by
a third party, without penalty, if, after consultation with its legal
counsel, the board determines that it should consider the proposal in
light of its fiduciary duties under applicable law; and
- The terms of the merger and the merger agreement were negotiated on
behalf of Nostalgia by the special committee which consisted entirely of
independent directors of Nostalgia who are not members of management or
employees of Nostalgia, Capital, Crown, Concept or NNI Acquisition, or
their affiliates. The special committee retained Chatsworth as its
financial advisor and Caplan, Buckner, Rohrbaugh & Kostecka, Chtd. as its
legal counsel to advise it in connection with its consideration of the
merger and to negotiate the terms of the merger agreement.
Capital, Crown, Concept and NNI Acquisition believe that each of the above
factors supports their conclusion that the merger price is fair to the
unaffiliated stockholders.
Capital, Crown, Concept and NNI Acquisition do not believe that the
approval by a majority of the unaffiliated stockholders of Nostalgia would
further ensure the fairness of the merger to the unaffiliated stockholders given
(a) the report of Daniels to the effect that the equity value per share of
common stock is in the range of $0.06 to $0.08 per share and may be negative
depending on the methodology used, and (b) the negotiation and approval of the
terms of the merger by the independent, non-employee directors comprising the
special committee.
For the reasons stated above, Capital, Crown, Concept and NNI Acquisition
also do not believe that the appointment by Nostalgia's directors of a
representative to act solely on behalf of the unaffiliated stockholders would
further ensure the fairness of the merger to the unaffiliated stockholders. In
light of Nostalgia's weak financial condition, any marginal benefits of hiring
such a representative would be outweighed by the additional expense to be borne
by Nostalgia to cover the representative's fees.
In view of the wide variety of factors considered, as well as the fact that
Daniels has consistently determined that the equity value per share of the
common stock is in the range of $0.06 to $0.08 per share (and may be negative),
Capital, Crown, Concept and NNI Acquisition did not find it practicable to, and
did not independently quantify or otherwise assign relative weights to the
individual factors considered in reaching their determination of the fairness of
the merger.
In 1998, as an alternative to the merger, Crown and Concept sought a
strategic alliance for Nostalgia. They engaged the services of Daniels and
Associates, L.P., an investment banking firm with experience in providing
financial services to the media, Internet and telecommunication industries to
assist them in seeking a strategic partner for Nostalgia. However, given
Nostalgia's weak financial condition and operating losses, the parties were
unsuccessful in attracting such a strategic partner.
In 1998 and 1999, Crown and Concept also considered as an alternative to
the merger the conversion of Nostalgia's debt to each of them into equity.
However, Capital, Crown and Concept prefer to structure the transaction as a
merger because they believe that the likelihood of attracting a strategic
alliance for Nostalgia will increase if it is privately-held. Furthermore,
converting Nostalgia's debt to Crown and Concept into equity would have
significantly diluted the interests of the unaffiliated stockholders.
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<PAGE> 16
Capital, Crown and Concept believe the merger and consideration to be paid
to Nostalgia's unaffiliated stockholders is fair based upon the foregoing
reasons, the available alternatives to the merger, including the benefits and
risks to Nostalgia's stockholders of Nostalgia continuing to be publicly held,
and the advice of Daniels with respect to the fairness of the merger. In
considering the above factors, Capital, Crown and Concept did not assign
relative weights to any particular factor or determine that any factor was more
significant than another. Rather, Capital, Crown and Concept viewed their
positions and recommendations as being based on the totality of the information
presented to and considered by them.
Special Committee. In reaching its recommendation that the Board of
Directors approve the merger, the special committee considered a number of
factors, including the following:
- the terms and conditions of the merger agreement, including the
consideration to be paid in the merger;
- historical and recent market prices of the common stock and the premium
represented by the consideration over the historical prices for the
common stock since January 1, 1998;
- the financial condition and results of operations of Nostalgia, including
an aggregate of approximately $44.2 million in operating losses since
January 1, 1998;
- the debt structure of Nostalgia and its effect on Nostalgia's ability to
obtain additional capital;
- the inability of Nostalgia to raise equity or debt capital from
conventional sources, the resulting reliance of Nostalgia on Crown and
Concept to provide working capital necessary for continued operations and
the lack of any assurance that Crown and Concept will continue to provide
such capital under current circumstances;
- alternatives to the merger, including continuing to operate Nostalgia as
a publicly traded company, the possible benefits and risks of such
alternatives and the timing and likelihood of increasing stockholder
value beyond the value of the consideration; and
- the valuation analysis performed by Chatsworth and its opinion provided
to the special committee on October 18, 1999 and reconfirmed as of
December 31, 1999, that, as of those dates, and subject to certain
assumptions, qualifications and limitations stated therein, the
consideration to be paid in the merger is fair to Nostalgia's
stockholders from a financial point of view.
The special committee also considered certain factors which could, as a
result of the merger, negatively affect Nostalgia and its stockholders. These
factors included the following:
- loss of Nostalgia's status as a publicly traded corporation and the
corresponding loss of a market for the common stock;
- potential recognition of taxable income/gain to Nostalgia's stockholders;
and
- that minority stockholders would not participate in any future growth in
the value of Nostalgia, if any.
The special committee unanimously determined that, based upon all the
factors it considered, the merger is fair to, and in the best interests of,
Nostalgia and its stockholders and that the consideration to be paid to
Nostalgia's unaffiliated stockholders is fair from a financial point of view.
Accordingly, the special committee unanimously recommended that the Board of
Directors approve the merger. In view of the variety of factors and the amount
of information considered, the special committee did not find it practicable to,
and did not specifically make assessments of, quantify or otherwise assign
relative weights to all of the various factors and analyses considered. The
special committee gave special consideration to the premium represented by the
consideration over the historical price for the common stock since January 1998
and the opinion of Chatsworth that the consideration to be paid in the merger is
fair to Nostalgia's unaffiliated stockholders from a financial point of view.
Board of Directors. The Board of Directors (with Mr. Joo not attending
Board of Directors meetings where the merger was discussed or voting on the
proposed merger) has determined that the merger is fair to, and in the best
interests of, Nostalgia's stockholders and that the consideration to be paid to
Nostalgia's unaffiliated stockholders is fair from a financial point of view
based on the analyses and conclusions of the
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<PAGE> 17
special committee (which were adopted by the Board of Directors), and on the
negotiations between Nostalgia, as directed by the special committee, and NNI
Acquisition, and on the opinion of Chatsworth delivered to the special
committee. The Board of Directors did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. The
Board of Directors did not consider any alternatives to the merger. The Board of
Directors (with Mr. Joo, the interested director, not attending Board of
Directors meetings where the merger was discussed or voting on the proposed
merger or the merger agreement) has unanimously approved the merger and
recommends that Nostalgia's stockholders vote "FOR" approval of the merger.
Nostalgia's Board of Directors may have interests that are in addition to, or
conflict with, the interests of Nostalgia and its unaffiliated stockholders.
These additional interests may arise from, among other things, relationships
between directors of Nostalgia and affiliates of Nostalgia and/or Capital, Crown
and Concept. For a more detailed discussion of these interests see "SPECIAL
FACTORS--Interests of Certain Persons in the Merger."
EFFECT OF THE MERGER ON THE RIGHTS OF EXISTING STOCKHOLDERS
Holders of common stock, other than NNI Acquisition and stockholders who
have exercised their appraisal rights, will receive $0.07 per share and holders
of preferred stock, other than NNI Acquisition and stockholders who have
exercised their appraisal rights, will receive $7.00 per share. The shares of
common stock and preferred stock owned by NNI Acquisition will be cancelled and
each issued and outstanding share of NNI Acquisition common stock (all of which
are owned by Crown and Concept) will be converted into one share of common
stock. As a result of the merger:
- Nostalgia will no longer be a public company;
- the common stock no longer will be traded on the Nasdaq OTC Bulletin
Board;
- Nostalgia's stockholders (other than Crown and Concept) no longer will
have an interest in any of Nostalgia's future earnings or growth; and
- Crown and Concept will be Nostalgia's only stockholders.
The termination of Nostalgia's Exchange Act registration will relieve
Nostalgia of its periodic and other Exchange Act reporting obligations and also
will relieve Nostalgia's officers, directors and principal stockholders of
certain reporting and other obligations under the Exchange Act.
EFFECT OF THE MERGER ON NOSTALGIA AND THE CONCEPT GROUP
The proposed merger will have no effect on Nostalgia's net book value or
net earnings.
The proposed merger will result in additional losses of approximately $1.4
million or 28.8% to Crown, Concept and Capital for their accumulated losses as
of March 31, 2000 and net loss for the three months then ended.
<TABLE>
<CAPTION>
NET BOOK VALUE
------------------------------------------------------------------------
PRE MERGER POST MERGER
--------------------------- --------------------------- CHANGE IN
STOCK NET BOOK STOCK NET BOOK NET BOOK
OWNERSHIP(2) VALUE(1) OWNERSHIP(2) VALUE(1) VALUE
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Public shareholders............... 28.8% $(25,248,091) 0.0% $ -- $ 25,248,091
The Concept Group(3).............. 71.2% $(62,334,352) 100.0% $(87,582,443) $(25,248,091)
Total............................. 100.0% $(87,582,443) 100.0% $(87,582,443) $ --
<CAPTION>
NET EARNINGS IMPACT
---------------------------------------------------------------------
PRE MERGER POST MERGER
-------------------------- -------------------------- CHANGE IN
STOCK NET STOCK NET NET
OWNERSHIP(2) EARNINGS(1) OWNERSHIP(2) EARNINGS(1) EARNINGS
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Public shareholders............... 28.8% $(1,437,402) 0.0% $ -- $ 1,437,402
The Concept Group(3).............. 71.2% $(3,548,763) 100.0% $(4,986,165) $(1,437,402)
Total............................. 100.0% $(4,986,165) 100.0% $(4,986,165) $ --
</TABLE>
---------------
(1) As of March 31, 2000 Nostalgia had a negative book value of negative
($87,582,443) and negative earnings of ($4,986,165)
(2) As of March 31, 2000 20,275,370 shares of common stock were outstanding.
(3) As of March 31, 2000, the Concept Group, which consists of Capital, Crown,
Concept and NNI Acquisition, held 14,430,427 shares.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes material federal income tax
considerations of the merger to Nostalgia and its stockholders. This discussion
does not address the tax consequences to NNI Acquisition or
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<PAGE> 18
its stockholders arising from the merger. This discussion is general in nature
and is not tax advice. Each stockholder should consult his or her own tax
advisor with respect to the stockholder's unique tax position.
The exchange of common stock or preferred stock for cash by a stockholder
in the merger will be a taxable transaction under the Internal Revenue Code of
1986, as amended. In general, a stockholder will recognize gain or loss equal to
the difference between the tax basis of his or her common stock or preferred
stock and the amount of cash received in exchange therefor. Such gain or loss
will be capital gain or loss if the common stock or preferred stock is a capital
asset in the hands of the stockholder and will be long-term gain or loss if the
stockholder has held common stock or preferred stock for more than one year as
of the effective time of the merger. These rules may not apply to stockholders
who acquired common stock or preferred stock pursuant to the exercise of stock
options or other compensation arrangements with Nostalgia or to stockholders who
are not citizens or residents of the United States or who are otherwise subject
to special tax treatment under the Internal Revenue Code.
Nostalgia will not recognize gain or loss for federal income tax purposes
as a result of the merger.
VOTE REQUIRED
Under Delaware law, Nostalgia is required to submit the merger proposal to
the stockholders for approval. In accordance with Delaware law and Nostalgia's
certificate of incorporation, the standard for approving the merger proposal is
the affirmative vote of a majority of the outstanding shares of capital stock
entitled to be voted on the merger proposal. The affirmative vote of
shares of common stock and preferred stock (with preferred stock having 100
votes per share) and of 1,626 shares of preferred stock voting separately as a
class is required for approval of the merger proposal. If the stockholders
approve the merger and the transaction subsequently is challenged, Nostalgia may
be entitled under Delaware law to assert stockholder approval as a defense. As
of , 2000 there are issued and outstanding 20,275,370 shares of common
stock and 3,250 shares of preferred stock. NNI Acquisition, which is the record
owner of 14,180,427 shares (69.9%) of common stock and 2,500 shares (76.9%)of
preferred stock, has informed Nostalgia that it intends to vote all of its
shares of common stock and preferred stock "FOR" the merger proposal. Approval
by a majority of unaffiliated security holders is not required. Therefore, the
affirmative vote of the shares of common stock and preferred stock owned by NNI
Acquisition will be sufficient to ensure approval of the merger proposal.
Phillip Sanchez is the only director or officer who owns shares of common
stock. Mr. Sanchez has informed Nostalgia that he intends to vote all of his
shares in favor of the merger.
REPORT OF THE FINANCIAL ADVISOR TO CROWN
In connection with the merger, Crown engaged Daniels and Associates, L.P.
to issue a written report analyzing the equity value of Nostalgia. Daniels
issued its original report to Crown on October 7, 1999 and updated it on April
20, 2000. In both of these reports, Daniels concluded that, based on its
analysis, the equity value per share of common stock was no more than $0.08 per
share and could be negative depending on the methodology used. No limitations
were imposed by Crown on the scope of Daniels' investigation or the procedures
followed by Daniels in rendering its report.
Daniels is an investment banking firm which provides financial services in
connection with mergers and acquisitions, private equity and debt financings and
financial advisory engagements. Crown had initially engaged Daniels in December
1998 as its exclusive representative for the purpose of assisting Crown in its
efforts to identify a strategic partner or a strategic alliance with respect to
its loans to and equity investments in Nostalgia. For this engagement, Crown had
considered two firms: Communications Equity Associates and Daniels. Crown
selected Daniels based on Daniels' experience with the media, Internet and
telecommunications industries. Crown engaged Daniels again in 1999 in connection
with the merger because of its familiarity with Nostalgia based on the prior
engagement. Crown has paid Daniels a fee of $250,000 for its efforts to find a
strategic partner. For its valuation analysis of October 1999 and April 2000,
Crown has agreed to pay Daniels a total of $125,000, half of which has already
been paid to Daniels with the other half to be paid following the consummation
of the merger. Finally, Crown plans to continue to engage Daniels following the
closing of the
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<PAGE> 19
merger for the purpose of locating a strategic partner for Nostalgia. Crown and
Daniels understand that if Daniels succeeds in finding a strategic partner, it
will receive 1.5% to 3.0% of the proceeds of the strategic alliance as
commission. The amounts of Daniels' fees were jointly negotiated by Crown and
Daniels.
The full text of the Daniels' written reports is provided as Appendices
D(1) and D(2) to this proxy statement. Stockholders should read Daniels' reports
for a discussion of assumptions made, matters considered and limitations of the
review undertaken by Daniels in rendering its opinion.
For purposes of its reports, Daniels:
- Reviewed certain publicly available financial statements and other
information of Nostalgia;
- Reviewed historical and current reported prices and trading activity for
the common stock; and
- Compared the financial performance of Nostalgia with that of certain
other comparable publicly-traded companies.
The following is a summary of certain financial and comparative analyses
performed by Daniels in October 1999 and April 2000 in connection with the
valuation of Nostalgia. The methodologies used were:
- Net Asset Value Analysis
- Market Price Analysis
- Going Concern Value Analysis
- Acquisition Value Analysis
- Discounted Cash Flow Analysis
Net Asset Value Analysis
Daniels performed a net asset value analysis to determine the value that
would be garnered from Nostalgia's assets if it were to terminate its operations
without selling its subscriber base.
For its October report, Daniels used Nostalgia's balance sheet as of August
31, 1999, which showed that Nostalgia had $8,944,487 in total assets and
$91,199,003 in total liabilities. Using the figures on this balance sheet,
Daniels arrived at a net asset value of ($82,254,516) or ($4.04) per share. It
arrived at a net asset value of ($773,704) or ($0.04) per share after excluding
Nostalgia's long term debt and non-current liabilities from the calculation.
For its April report, Daniels used Nostalgia's balance sheet as of December
31, 1999, which showed that Nostalgia had $12,723,094 in total assets and
$95,319,372 in total liabilities. Using the figures on this balance sheet,
Daniels arrived at a net asset value of ($82,596,278) or ($4.05) per share. It
arrived at a net asset value of ($5,955,249) or ($0.29) per share after
excluding Nostalgia's long term debt and non-current liabilities from the
calculation.
Based on its analysis, Daniels concluded in both October 1999 and April
2000 that Nostalgia had a negative equity value per share.
Market Price Analysis
In its market price analysis, Daniels examined Nostalgia's historic and
then-current market trading prices.
Daniels observed in its reports that, since 1994 Nostalgia had not traded
above $1.00 per share. Since 1997, it had traded for the most part, below $0.08
per share. Nostalgia's stock price has been as low as $0.01 per share. In
January 1999, after Crown had retained Daniels to pursue strategic options, the
share price began to increase to a maximum of approximately $0.25 per share. The
share price gravitated around $0.11 before retreating to its current price of
around $0.06 per share in April 2000.
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<PAGE> 20
Daniels noted that public markets are often considered the most efficient
determinant of equity value and as such the more recent value of $0.06 in
October and $0.08 in April were pertinent value parameters. In its April report,
because of the absence of any fundamental improvement in Nostalgia's operating
results, Daniels discounted the year-to-date (January 1, 2000 through April 20,
2000) average of $0.096 as reflecting investor hopes for a recapitalization
event.
In both October and April, Daniels concluded that the market price analysis
implied an equity value per share in the range of $0.06 to $0.08 per share.
Going Concern Value Analysis
According to Daniels, under this analysis, cable networks tend to trade in
the range of 12 to 18 times their earnings before interest, taxes, depreciation
and amortization (EBITDA). Daniels determined that this analysis would be
irrelevant in evaluating Nostalgia since Nostalgia has a negative EBITDA.
Acquisition Value Analysis
The acquisition value analysis applies the historical transaction values
paid by other purchasers for other networks to Nostalgia. The appropriate
metrics for this analysis are EBITDA multiples and per subscriber values. Since
Nostalgia has negative EBITDA, Daniels focused mainly on per subscriber values.
The limitations posed by this type of analysis are that (a) information with
regard to such comparable transactions is limited and factors that are not
apparent may have affected the transaction values, and (b) the analysis is based
on full time equivalent (FTE) subscribers, which includes 24-hour analog and
digital subscribers plus part time, satellite, tier and other subscribers
converted to 24-hour equivalents, and these assumptions are likely to make the
FTE measure imperfect.
For its October report Daniels examined 25 transactions involving purchases
of media interests that took place between June 1993 and November 1998 and
determined that its analysis of these historical transactions implied an average
of $12.00 per cable network subscriber. For its April report Daniels examined an
additional transaction involving the purchase of media interests that occurred
in July 1999 and determined that the historical acquisition analysis implied an
average of approximately $12.50 per cable network subscriber.
Daniels believes that Nostalgia would be valued in a range of $12.00 to
$14.00 per cable network subscriber. Applying this range to Nostalgia's
subscriber base, Daniels reached a net equity value per share of $0.02 to $0.08.
Discounted Cash Flow Analysis
The discounted cash flow analysis method forecasts the revenue and cash
flows of a company for a ten year period, applies a terminal value to the
company in year ten and then discounts this value and the annual cash flows back
to the present at an applied discount rate. While warning that this type of
analysis is highly speculative, Daniels examined two scenarios with regard to
Nostalgia:
- In the first scenario, Daniels assumed that Nostalgia aggressively grows
its subscriber base through the acquisition of subscribers. This would
require a significant capital commitment, the source of which is
uncertain. In its October report (using Nostalgia's budget numbers for
1999), Daniels arrived at a value per share of $1.07. In its April report
(using Nostalgia's actual numbers for 1999), Daniels arrived at a value
per share of $0.91.
- In the second scenario, Daniels assumes that Nostalgia does not grow its
subscriber base through the acquisition of subscribers and relies purely
on internal growth. This does not entail the capital commitments as
described in the first scenario but involves significant annual negative
cash flows. In this analysis, Nostalgia does not reach breakeven in the
ten year time period. This scenario creates no value for Nostalgia
shareholders. In its October report (using Nostalgia's budget numbers for
1999), under this scenario, Daniels arrived at a value per share of
($6.15). In its April report (using Nostalgia's actual numbers for 1999),
Daniels arrived at a value per share of ($6.28).
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<PAGE> 21
Conclusion
In reviewing all of the valuation methodologies and the relative
assumptions, Daniels believes that the most appropriate analyses are the market
price and acquisition value analyses. A summary of Daniels' conclusions by
methodology is listed below:
<TABLE>
<CAPTION>
ANALYSIS EQUITY VALUE PER SHARE
-------- -------------------------------------
<S> <C>
Net Asset Value negative
Market Price $0.06 to $0.08
Going Concern not meaningful
Acquisition Value $0.02 to $0.08
Discounted Cash Flow speculative; value created
in proportion to capital commitments
</TABLE>
Based on its review of the available information for Nostalgia, the cable
network industry and a review of appropriate financial metrics, Daniels believes
that the common stock should be valued at $0.06 to $0.08 per share.
OPINION OF THE FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Chatsworth is an investment banking firm which, among other things,
provides financial advisory services in connection with mergers and
acquisitions. Chatsworth was selected by the special committee based upon its
expertise and prior experience with Mr. Wussler. Chatsworth was the only firm
considered by the special committee. Chatsworth delivered its written opinion to
the Board of Directors on October 18, 1999 stating that the consideration to be
paid to Nostalgia's stockholders in the merger is fair from a financial point of
view to Nostalgia's unaffiliated stockholders.
On January 27, 2000, Chatsworth reconfirmed its fairness opinion to the
special committee and Chatsworth has informed Nostalgia that it will reconfirm
its opinion as of the date of the special meeting. Chatsworth has consented to
the use of its opinion in this proxy statement. The following summary of
Chatsworth's opinion has been revised with financial information as of December
31, 1999.
The full text of Chatsworth's written opinion is attached as Appendix B to
this proxy statement. Stockholders should read Chatsworth's opinion for a
discussion of assumptions made, matters considered and limitations of the review
undertaken by Chatsworth in rendering its opinion. To fully understand
Chatsworth's analysis, stockholders should read carefully the full text of
Chatsworth's opinion attached as Appendix B to this proxy statement.
No limitations were imposed by Nostalgia on the scope of Chatsworth's
investigation or the procedures followed by Chatsworth in rendering its opinion.
Chatsworth's opinion is for the use and benefit of the special committee and
Board of Directors and was rendered to the special committee in connection with
its consideration of the merger. Chatsworth's opinion is not intended to be, and
does not constitute, a recommendation to any stockholder as to how such
stockholder should vote with respect to the merger. Chatsworth was not requested
to opine as to, and its opinion does not address, Nostalgia's underlying
business decision to proceed with, or effect, the merger.
In connection with the preparation and delivery of its opinion to the
special committee, Chatsworth performed a variety of financial and comparative
analyses which are summarized below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. In arriving at its opinion, Chatsworth did
not attribute any particular weight to any analysis or factor considered by it,
but rather, made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Chatsworth's analyses must be considered
as a whole and considering any portion of such analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying Chatsworth's opinion. In its analyses, Chatsworth
made numerous assumptions with respect to industry performance,
19
<PAGE> 22
general business and economic conditions and other matters, many of which are
beyond the control of Nostalgia. Any estimates or projections contained in
Chatsworth's analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein.
For purposes of its opinion Chatsworth:
- reviewed certain publicly available financial statements and other
information of Nostalgia;
- reviewed certain internal financial and operating data concerning
Nostalgia prepared by management of Nostalgia;
- discussed the past and current operations and financial condition
and the prospects of Nostalgia, including information relating to certain
strategic, financial and operational issues, with senior management of
Nostalgia;
- reviewed the reported prices and trading activity for the common
stock; and
- compared the financial performance of Nostalgia and prices and
trading activity of the common stock with that of certain other comparable
publicly-traded companies and their securities.
Chatsworth assumed and relied upon, without independent verification, the
accuracy and completeness of the information provided to it for the purposes of
its opinion. With respect to the internal financial statements and other
financial and operating data, including forecasts, and discussions relating to
the strategic, financial and operational benefits anticipated from the merger,
Chatsworth assumed that such materials were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the prospects
of Crown and Nostalgia. Chatsworth also has relied upon, without independent
verification, the assessment by management of Crown and Nostalgia of the
strategic and other benefits expected to result from the merger. Chatsworth has
not made any independent valuation or appraisal of the assets or liabilities of
Crown or Nostalgia nor has it been furnished with any such appraisals.
Chatsworth's opinion is based on financial, economic, market and other
conditions as in effect on, and the information made available to it as of the
date of its opinion and its opinion is for the use and benefit of the special
committee and the Board of Directors. Chatsworth's opinion does not address the
merits of the underlying decision by Crown to engage in the merger and does not
constitute a recommendation to any stockholder of Nostalgia with respect to the
merger proposal.
The following is a summary of the material financial and comparative
analyses performed by Chatsworth and presented to the special committee and the
Board of Directors. Certain of the analyses include information presented in
tabular format. In order to fully understand the financial analyses used, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses. The
methodologies used for the valuation were the following:
- Market Comparable Valuation Analysis
- Financial Condition
- Stock Price Trading History and Analysis
- Valuation per Subscriber Analysis
20
<PAGE> 23
Financial Condition
FINANCIAL CONDITION
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1Q 2000 FY 1999 FY 1998 FY 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income Statement Profile
Total Operating Revenues................................. $ 1.58 $ 5.42 $ 5.53 $ 7.18
Affiliated Revenue.................................... .55 2.09 2.53 2.58
Advertising Revenue................................... .83 3.29 2.97 4.48
Other................................................. .20 .04 .03 .12
------ ------ ------ ------
1.58 5.42 5.53 7.18
Total Operating Expenses................................. (4.7) (20.7) (24.1) (23.5)
Net Loss................................................. (5.0) (21.2) (23.1) (18.9)
Balance Sheet Profile
Total Assets............................................. 11.4 12.7 13.0 17.0
Long Term Debt........................................... 89.8 88.6 66.7 46.0
Stockholders Deficit..................................... (87.6) (82.6) (61.4) (38.4)
Book Value per share..................................... (4.32) (4.07) (3.03) (1.89)
Operating Profile
Subscribers (in millions)................................ 9.6 9.2 7.7 7.0
Net Ad Revenue per Subscribers (in dollars).............. N.A .14 .16 .22
</TABLE>
Nostalgia's market capitalization is $810,000 (as of June 1, 2000). For the
past three fiscal years, Nostalgia has been incurring net losses per annum of
approximately $20.0 million per year. Total Stockholders Deficit is $87.6
million (as of March 31, 2000).
Nostalgia's ability to continue to operate is entirely dependent on the
financial support provided by its affiliates, Crown and Concept. Since 1990,
Crown and Concept have been the principal source of Nostalgia's capital; and
since 1994, they have provided over $90.0 million of debt and equity financing
for Nostalgia.
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<PAGE> 24
Nostalgia's most important asset is it subscriber base. Substantially all
of Nostalgia's revenues are a function of its subscriber base. Affiliate revenue
is measured directly by the number of Nostalgia's subscribers and its net ad
revenue per subscriber. From fiscal year 1997 to fiscal year 1999, total
subscribers increased 31.0% while net ad revenue decreased 57.0% from $0.22 in
fiscal year 1997 to $0.14 in fiscal year 1999.
NOSTALGIA STOCK PRICE AND TRADING VOLUME
Nostalgia's stock trades on the Nasdaq OTC Bulletin Board. The stock is
presently quoted at $.04 per share (as of June 1, 2000). For the month of May
2000, the stock has traded at an average price of $.05-.06 per share. Total
trading volume for the month was 58,700 shares representing total dollar volume
activity for the month of $3,230.
DETERMINATION OF FAIRNESS
The following factors were considered by Chatsworth to determine the
fairness of the proposed merger to unaffiliated security holders:
Nostalgia's financial condition remains weak. Given the negative net book
value per share of $ (4.32) and the continuing losses of approximately $20.0
million per annum, Nostalgia is not a viable going concern without the deficit
financing provided by its affiliates, Crown and Concept. In addition, the
section on Liquidation Valuation provides an analysis that shows the stock price
per share would at most be worth approximately negative $(.44) per share on a
liquidation basis.
Chatsworth analyzed Nostalgia's stock price trading history (see Section on
Stock Price Trading History and Analysis) for the past two years. Chatsworth
noted that the stock is presently quoted at $.04 per share (as of June 1, 2000).
For the month of May 2000, the stock traded at an average price of $.05 - $.06
per share. Total trading volume for the month was 58,700 shares representing
total dollar volume activity for the month of $3,230. Nostalgia's stock is
illiquid. Frequently, the stock will not trade for several consecutive days and
typically when it does trade, volume is light. In 1999 and 2000, speculative
trading spikes briefly occurred in each year representing abnormally high prices
and trading volumes. Although, trading spikes do occur from time to time, the
stock does not consistently maintain a price above $.05 - $.06 per share nor
dollar trading volume in excess of $5,000 to $10,000 per week.
Nostalgia has sought a strategic partner during the past two years in an
effort to increase market share in a cost-effective manner. It is believed that
a strategic partner would enable Nostalgia to grow while at the same time
achieving economies of scale. Accordingly, it is expected that a strategic
alliance would result in an improvement in financial and operating ratios. As of
the date hereof, Nostalgia has not concluded a strategic partnership agreement.
For purposes of determining the fairness of the offer to unaffiliated
shareholders, Chatsworth gave the strongest weight to the financial condition of
Nostalgia given the high negative net book value per share and negative
liquidation value. Chatsworth also gave a strong weight to the financial and
operating ratios in relationship to the industry average. This information shows
that Nostalgia will have difficulty developing into a viable going concern given
the present ratios which are not competitive with the industry. Nostalgia's
stock is illiquid and is subject to periodic speculative activity. As a
consequence, Nostalgia's stock market price does not represent a meaningful
valuation criteria on a fundamental basis given the present financial condition
of Nostalgia.
Nostalgia is incurring increasing net losses annually. Nostalgia is able to
continue operations solely because of the substantial deficit financing provided
by its affiliates, Crown and Concept. Given the present negative book value per
share of $ (4.32), Crown and Concept's offer of $.07 per share to shareholders
is a fair offer.
Market Comparable Valuation Analysis
Market Comparable Valuation Analysis is of limited value given the illiquid
nature of the common stock. In addition, the most common criteria used for
comparative valuation analysis are EBITDA, Net Income and
22
<PAGE> 25
Book Value, which are all negative for Nostalgia. However, Chatsworth believes
the following ratios provide some basis for comparison with Nostalgia's peer
group.
Chatsworth analyzed audited financial statements, Nostalgia's filings with
the SEC and financial and market information from comparable "peer group"
companies. Comparable "peer group" companies are those companies that have a
similar business and financial profile. In the cable TV industry, there are few
public companies that are comparable to Nostalgia. Therefore, the following
section on Market Comparable Valuation Analysis includes both recent
acquisitions as well as publicly traded companies for the purpose of the peer
group analysis. The most commonly used valuation multiples are enterprise value
(EV) relative to sales, operating cash flow (EBITDA), net income, book value and
total debt. Chatsworth's analysis shows that none of Nostalgia's ratios except
"Enterprise Value/Subscribers" are comparable to similar companies in the
market. This is reflected in the low stock price and market capitalization of
Nostalgia. Enterprise value is defined as market capitalization (current market
price times the number of shares of common stock outstanding) plus short and
long term debt plus preferred stock less cash and cash equivalents.
As Nostalgia has negative EBITDA, net income and book value, ratio analysis
for these multiples was not considered meaningful by Chatsworth. However,
Chatsworth believes the following ratios provide a basis for comparison with
Nostalgia's peer group:
EV/Sales: Nostalgia's ratio of 15.6x is substantially
higher than the 3.1x for the peer group. This
reflects below average revenue given
Nostalgia's level of debt.
Total Debt/EV: Nostalgia's ratio of 1.0x versus .18x also
reflects a significantly greater level of debt
versus its current market capitalization.
EV/Subscribers: Nostalgia's EV/subscriber ratio is 10.4x
compared to 12.1x for the peer group shown
below (excluding ValueVision*). This indicates
that the common stock is reasonably valued at
current levels and the offer price of $0.07 per
share is fair compared to Nostalgia's current
stock price of $0.05 on June 1, 2000.
---------------
(*) ValueVision's stock price appreciated significantly after its announcements
concerning:
- ValueVision's agreement with IBM to implement ValueVision's TV/Internet
convergence strategy,
- ValueVision's investment with General Electric and NBC in Telocity to
accelerate the use of high-speed Internet access, and
- ValueVision's investment with NBC in ROXY.com for multifaceted agreements
covering television and Internet programming and marketing.
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<PAGE> 26
MARKET COMPARABLES(1)
(All Figures are in Millions, and Per Share)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS PUBLICLY TRADED
--------------------------------------------------- ---------------------------
BTV(2) SPZE(3) E!(4) CMT(4) FAM(4) TFN(4) SATH VVTV NNET(5)
------ ------- ----- ------ ------ ------ ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Price Per Share
(6/5/00)............. NA NA 4 5/8 30 1/8 0.05
52 Wk High........... 63 1/16 7 3/32 14 3/4 62 0.23
52 Wk Low............ 38 3/4 4 1/2 3 15/16 15 1/4 0.03
Shares Outstanding
(millions)........... 10.1 3.4 30.9 38.2 20.3
Market Cap............. $634.5 $ 94.1 $142.8 $1,150.5 $ 1.0
ST Debt + LT Debt...... $48.0 $ 12.3 $113.4 $ 58.3 $ 99.0
Cash & Equivalents..... $ 9.8 $ 1.7 $ 8.1 $ 138.2 $ 1.1
Preferred Stock........ $ -- $ -- $ 1.0 $ 41.6 $ 0.0
Minority Interest...... $ -- $ -- $ -- $ -- $ --
Enterprise Value
(EV)................. $672.8 $104.7 $249.0 $1,112.2 $ 98.9
Sales.................. $166.2 $ 30.9 $194.5 $ 302.8 $ 6.3
CashFlow............... $47.7 $ 2.5 $ -- $ --
Book Value............. $113.3 $ 13.2 $85.8 $ 413.5
Subscribers (mm)....... 56.7 22.1 58.4 33.1 9.6
EV/Market Cap(6)....... 1.06x 1.11x 1.74x 0.97x 97.57x
EV/Sales(6)............ 4.05x 3.39x 1.28x 3.67x 15.61x
EV/Book Value(6)....... 5.94x 7.91x 2.90x 2.69x NA
Total Debt/ EV......... 0.07x 0.12x 0.46x 0.05x 1.00x
Market Cap/Book Value.. 5.60x 7.11x 1.66x 2.78x NA
EV/Cash Flow(6)........ 14.11x 42.39x NA NA NA
Market
Cap/Subscriber....... 11.2x 4.3x 2.4x 34.8x 0.1x
EV/SUBSCRIBERS(6)...... 11.9X 4.7X 13.0X 14.5X 26.5X 9.5X 4.3X 33.6X 10.3X
</TABLE>
---------------
(1) BTV (Black Entertainment), SPZE (Spice), E!(Entertainment), CMT (Country
Music Channel), FAM (Family Channel), TFN (TV Food Network), SATH (Shop at
Home), VVTV(ValueVison), NNET (GoodLife).
(2) Acquired for $63 per share effective 8/3/98.
(3) Acquired on March 16, 1999 for $105 million in cash, stock in Playboy Class
B and Directrix and assumption of debt. Approximate value is $27.8 per
share.
(4) Only "EV/Subscriber" is available as these companies were private at the
time of acquisition.
(5) Price per share is based on the average of the actual trading prices over
the prior ten trading days.
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<PAGE> 27
(6) EV is Enterprise Value which is defined as market capitalization plus
preferred stock plus long and short term debt minus cash and cash
equivalents.
Stock Price Trading History and Analysis
The common stock volume and trading history was analyzed to determine
liquidity, the frequency of trading, the average size stock trade, the average
price for stock trades within the past twelve months and the premium represented
by the merger consideration in relation to the current bid price.
Chatsworth concluded that the most significant activity during 1999
occurred on January 6, 7 and 8, 1999 as the apparent result of speculation by
day traders in response to the announcement that Crown was seeking a strategic
partner for Nostalgia. The speculative trading activity that occurred in early
January 1999 has been excluded from Chatsworth's analysis since Chatsworth
concluded it does not reflect normal trading activity.
To conduct its analysis, Chatsworth developed a model showing the
cumulative trading volume for each respective price from $.01 to $.18 during the
12 month period ended December 31, 1999 to show whether an offer of $.07 per
share would represent a price higher than 83.0% of all normal stock trades
during the preceding year.
For the month of December 1999, the average closing price of the common
stock was $0.0476 per share. The cash price offered of $0.07 pursuant to the
merger proposal represents approximately a 50.0% premium over the average
closing price of $0.0476 per share of the common stock. The offer price by an
acquiror for the public stock of an acquiree will normally be at a premium of
20.0-30.0% above the current market price of the acquiree's stock price.
Accordingly, Chatsworth believes that the offer price, at the time of its
opinion, for a 50.0% premium above the current market price, represents a fair
offer to the unaffiliated stockholders of Nostalgia. On June 1, 2000,
Nostalgia's stock price was $0.05 per share for the previous ten trading days.
Thus, the offer price presently represents a 40.0% premium over the current
stock price.
PRICE/VOLUME TABLE(1)
<TABLE>
<CAPTION>
PERCENT OF
PRICE VOLUME TOTAL VOLUME
----- ------- ------------
<S> <C> <C> <C> <C>
$0.010 228,400 9.6%
$0.015 214,000 18.6%
$0.020 75,000 21.8%
$0.030 205,500 30.5%
$0.035 258,400 41.4%
$0.050 326,900 55.1%
$0.055 239,000 65.2%
$0.060 301,300 77.9%
$0.065 33,200 79.3%
PRICE FOR MERGER $0.070 87,400 83.0%
-----------------------------------------------------------------------------------
$0.080 99,200 87.2%
$0.090 2,300 87.3%
$0.094 35,000 88.8%
$0.095 74,600 91.9%
$0.100 123,900 97.1%
$0.110 11,600 97.6%
$0.120 56,800 100.0%
$0.130 -- 100.0%
$0.180 -- 100.0%
</TABLE>
---------------
(1) Represents volume trading at each respective price during 1999 except the
volume which occurred during January 7, 1999 through January 11, 1999.
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<PAGE> 28
Valuation per Subscriber Analysis
The basis for comparison was the price paid per subscriber which is
calculated by dividing the value of the transaction by the number of
subscribers.
Comparable Transactions
The following sets forth certain merger and acquisition transactions for
basic cable networks:
<TABLE>
<CAPTION>
DATE NETWORK VALUE SUBS PER SUB
-------- ------------------------------------- ------- ----- -------
($ MIL) (MIL) ($)
<S> <C> <C> <C> <C>
11/01/98 Odyssey Channel...................... 222 30 7.40
11/01/98 ZDTV................................. 162 9 18.00
12/01/98 Eye on People........................ 100 11 9.10
02/01/99 The Travel Channel................... 176 20 8.80
-----
Weighted Average (excluding ZDTV)................ 8.20
</TABLE>
---------------
Source: Paul Kagan Associates, Inc.
Chatsworth does not consider ZDTV to be a comparable transaction and
excluded it from the calculation of the weighted average "Per Sub" valuation.
ZDTV is the Internet cable channel purchased by Ziff-Davis from Softbank. Paul
Allen's Vulcan Ventures also announced a $54.0 million investment for one-third
ownership simultaneous with the purchase by Ziff-Davis. Advertisers on ZDTV
include 3Com, America Online, Barnes & Noble, Canon, Charles Schwab, Comdisco,
Dell, Earthlink, Egghead, IBM, Intel, Hewlett Packard, Micron, Microsoft, NEC,
Packard Bell, PSI Net, Siebel Systems, Sprint, Sun Microsystems and ONSALE.
The weighted average value "Per Sub" for the above transactions, excluding
ZDTV, is $8.20. This includes the value of $8.80 per subscriber for The Travel
Channel transaction which closed on February 1, 1999. Chatsworth noted that
three separate equity investments in The Travel Channel which closed from June
1997 to September 1997 ranged from $1.43 to $3.75 "Per Sub". Chatsworth also
noted that while $8.20 was used for purposes of presenting a conservative
valuation methodology, Chatsworth does not believe that it represents
Nostalgia's true value per subscriber which is lower for the following reasons:
- Only 60.0% of Nostalgia's subscribers are full-time (see "Nostalgia's
Subscribers");
- Nostalgia does not have a high concentration of subscribers in urban
markets;
- Nostalgia is not able to carry national advertising given the present
size and demographic profile of its subscriber base; and
- Nostalgia's programming is not being carried by the highest profile
networks.
Liquidation Valuation Analysis
Nostalgia had 9,604,178 total subscribers as of March 31, 2000. As
described above, only 60.0% of Nostaglia's total subscribers are full-time;
however, to be conservative, all subscribers including part-time subscribers are
considered to be full-time subscribers for purposes of Chatsworth's valuation.
The total subscribers of Nostalgia valued at $8.20 per subscriber gives an
implied value for the sale of Nostaglia's subscriber base of $78,754,259.
Nostaglia's balance sheet as of March 31, 2000 shows total liabilities of
$98,957,023 and total assets of $11,374,580 for a net asset value of
$(87,582,443). The subscriber base has an implied liquidation value of
$78,754,259. This liquidation value less the net asset value of $(87,582,443)
gives a valuation for Nostalgia of $(8,828,184) or $(0.44) per share of common
stock.
Conclusion
On the basis of and subject to the foregoing, Chatsworth concluded that the
cash consideration of $0.07 per share to be paid to Nostalgia stockholders in
the merger (including the holders of preferred stock, the
26
<PAGE> 29
consideration for which was determined on an as converted basis) is fair from a
financial point of view. On January 27, 2000, Chatsworth confirmed its fairness
opinion to the Board of Directors.
Pursuant to an August 27, 1999 engagement letter, Nostalgia agreed to pay
Chatsworth for acting as financial advisor to the special committee a financial
advisory fee of $50,000, (which has been paid); to reimburse Chatsworth for all
reasonable expenses incurred as the special committee's financial advisor; and
to indemnify Chatsworth against certain liabilities relating to, or arising out
of, its engagement. Pursuant to a September 23, 1999 letter agreement, Nostalgia
agreed to pay Chatsworth an additional $50,000 (which has been paid) for its
fairness opinion. Nostalgia also has agreed to pay Chatsworth an additional
$25,000 for reconfirming its fairness opinion to the special committee based on
information as of December 31, 1999. Prior to acting as financial advisor to the
special committee, Chatsworth had not provided any services to Nostalgia, NNI
Acquisition, Capital, Crown or Concept.
Nostalgia's Board of Directors and the special committee have adopted
Chatsworth's analysis as to the fairness of the merger transaction.
USE OF FORECASTS AND PROJECTIONS
Nostalgia does not prepare three or five year financial forecasts. However,
at the time Chatsworth made its presentation to Nostalgia's Board of Directors,
Nostalgia had a draft budget for the fiscal year 2000. This draft budget was
subsequently approved by Nostalgia's Board of Directors. Chatsworth used these
budget forecasts in reaching its fairness determination. Chatsworth concluded
that, since Nostalgia did not forecast a material improvement in its financial
results during the fiscal year 2000, the offer price of $0.07 per share to the
unaffiliated stockholders is fair given the financial condition of Nostalgia.
The Special Committee relied upon the opinion of Chatsworth in making its
fairness determination.
Other than those provided by Daniels in their reports, none of Capital,
Crown, Concept and NNI Acquisition considered any financial forecasts or other
material projections in making their determination with regard to the fairness
of the merger. After reviewing Daniels' analysis, Capital, Crown, Concept and
NNI Acquisition have adopted the conclusions of Daniels as their own.
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<PAGE> 30
WHERE YOU CAN FIND MORE INFORMATION
Nostalgia is subject to the informational requirements of the Securities
Exchange Act of 1934, pursuant to which it files reports and other information
with the United States Securities and Exchange Commission. Such reports and
other information may be inspected and copied at public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices at 13th Floor, 7 World
Trade Center, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at
prescribed rates from the Public Reference Section of the SEC at its principal
office in Washington, D.C. The SEC also maintains an internet web site that
contains periodic and other reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC,
including Nostalgia. The address of the SEC's web site is http://www.sec.gov.
None of NNI Acquisition, Capital, Concept or Crown is subject to the
reporting requirements of Section 13 or Section 15 of the Exchange Act.
All information concerning Nostalgia contained in this proxy statement has
been furnished by Nostalgia, and certain information concerning Capital, Crown,
Concept and NNI Acquisition contained in this proxy statement has been furnished
by Capital, Crown, Concept or NNI Acquisition, respectively. No person is
authorized to make any representation with respect to the matters described in
this proxy statement other than those contained in this proxy statement, and if
given or made, must not be relied upon as having been authorized by Nostalgia,
Capital, Crown, Concept, NNI Acquisition or any other person.
We have not authorized anyone to give any information or make any
representation about the merger, our company, Crown, Concept, Capital or NNI
Acquisition that is different from, or in addition to, that contained in this
proxy statement or in any of the materials that we have incorporated into this
document. Therefore, if anyone does give you information of this sort, you
should not rely on it. This proxy statement is dated , 2000. You
should not assume that the information contained in this document is accurate as
of any other date unless the information specifically indicates that another
date applies.
FORWARD LOOKING STATEMENTS
This proxy statement contains certain forward-looking statements which
represent Nostalgia's expectations or beliefs, including, but not limited to,
statements concerning industry performance, regulatory environment and
Nostalgia's operations, performance, financial condition, plans, growth and
strategies. Any statements contained in this proxy statement 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," "intend," "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 Nostalgia's
control, and actual results may differ materially depending on a variety of
important factors, many of which are beyond Nostalgia's control.
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<PAGE> 31
COMPARATIVE PER SHARE MARKET INFORMATION
During 1999, the common stock was traded on the Nasdaq OTC Bulletin Board.
The following table sets forth, for each quarter during 1999 and 1998, the high
bid and low bid quotations for the common stock as reported on the Bulletin
Board. 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
-------------------
HIGH BID LOW BID
-------- -------
1999
----
<S> <C> <C>
First Quarter............................................... $0.24 $0.01
Second Quarter.............................................. 0.10 0.05
Third Quarter............................................... 0.08 0.05
Fourth Quarter.............................................. 0.08 0.03
<CAPTION>
1998
----
<S> <C> <C>
First Quarter............................................... 0.05 0.04
Second Quarter.............................................. 0.04 0.03
Third Quarter............................................... 0.03 0.02
Fourth Quarter.............................................. 0.02 0.01
</TABLE>
As of , 2000, there were approximately record
holders of common stock.
Nostalgia has not paid a dividend since its inception and does not
anticipate paying a dividend on its common stock or preferred stock in the
foreseeable future.
On October 20, 1999, the last full trading day prior to announcement of the
proposed merger, the last reported sale price per share of common stock on the
Bulletin Board was $0.05. On , 2000 the last reported sale price
per share of common stock on the Bulletin Board was $ .
As of December 31, 1999, the book value per share of Nostalgia was $(4.07).
29
<PAGE> 32
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to holders of common stock and
preferred stock in connection with the solicitation of proxies by the Board of
Directors for use at the special meeting to be held on 2000,
11:00 a.m., local time, at 650 Massachusetts Avenue, N.W., Washington, D.C., and
at any adjournments or postponements of the special meeting. This proxy
statement, the attached notice of the special meeting and the accompanying proxy
card are first being mailed to stockholders of Nostalgia on or about
, 2000.
MATTERS TO BE CONSIDERED
At the special meeting, holders of record of common stock and preferred
stock on , 2000 will consider and vote upon:
- the merger of NNI Acquisition with and into Nostalgia pursuant to which
Nostalgia will become wholly-owned by Crown and Concept; and
- such other business as may properly come before the special meeting or
any adjournments or postponements of the special meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Upon the recommendation of the special committee, the Board of Directors
(with Mr. Joo, not participating in any meetings concerning, or voting on, the
merger) has unanimously approved the merger and the merger agreement, having
concluded that the merger and the merger agreement are fair to, and in the best
interests of, Nostalgia and its stockholders. The Board of Directors (with Mr.
Joo not participating in any meetings concerning, or voting on, the merger)
unanimously recommends that stockholders of Nostalgia vote "FOR" the merger
proposal. See "SPECIAL FACTORS -- Recommendation of the Board of Directors; --
Reasons for the Merger; Fairness Considerations."
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The Board of Directors has fixed the close of business on ,
2000 as the record date for determining the holders of shares of common stock
and preferred stock who are entitled to notice of, and to vote at, the special
meeting. As of the record date, 20,275,370 shares of common stock and 3,250
shares of preferred stock were issued and outstanding and held of record by
approximately stockholders. The holders of record on
, 2000 of shares of common stock are entitled to one vote per share of common
stock. The holders of record on , 2000 of shares of preferred stock
are entitled to vote with the common stockholders and to 100 votes for each
share of preferred stock. In addition to being entitled to be voted with shares
of common stock, pursuant to Nostalgia's certificate of incorporation, approval
of the merger requires the affirmative vote of a majority of the issued and
outstanding shares of preferred stock voting separately as a class. Nostalgia
has determined that pursuant to the DGCL and Nostalgia's bylaws, the presence of
holders of shares representing a majority of the outstanding shares of common
stock and preferred stock entitled to be voted, whether in person or by properly
executed proxy, is necessary to constitute a quorum for the transaction of
business at the special meeting. Under the DGCL, abstentions and "broker
non-votes" (i.e., proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owner or other persons
entitled to vote shares as to a matter with respect to which the brokers or
nominees do not have discretionary power to vote) will be treated as present for
purposes of determining the presence of a quorum.
PROXIES; PROXY SOLICITATION
Shares of common stock represented by properly executed proxies received at
or prior to the special meeting that have not been revoked will be voted at the
special meeting in accordance with the instructions
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<PAGE> 33
indicated on the proxies. Shares of common stock represented by properly
executed proxies for which no instruction is given will be voted "FOR" the
merger proposal. Stockholders are requested to complete, sign, date and promptly
return the enclosed proxy card in the postage-prepaid envelope provided for this
purpose to ensure that their shares are voted.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of Nostalgia, at or before the taking of the
vote at the special meeting, a written notice of revocation bearing a
later date than the proxy;
- executing a later dated proxy relating to the same shares of common stock
and delivering it to the Secretary of Nostalgia before the taking of the
vote at the special meeting; or
- attending the special meeting and voting in person (although attendance
at the special meeting will not, in and of itself, revoke a proxy).
Any written revocation or subsequent proxy should be sent so as to be delivered
to The Nostalgia Network, Inc., 650 Massachusetts Avenue, N.W. Washington, D.C.
20001, Attention: Corporate Secretary, or hand delivered to the Secretary of
Nostalgia or his representative at or before the taking of the vote at the
special meeting.
If the special meeting is postponed or adjourned, at any subsequent
reconvening of the special meeting all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the special
meeting (except for any proxies that previously have been revoked or withdrawn
effectively), notwithstanding that they may have been effectively voted on the
same or any other matter at a previous meeting.
Nostalgia will bear the cost of soliciting proxies from its stockholders.
EFFECTS OF ABSTENTIONS AND BROKER NON-VOTES
For purposes of determining approval of the merger proposal and any other
proposal to be presented at the special meeting, abstentions will have the same
legal effect as a vote "against" a matter presented at the meeting. Broker
non-votes will have the same effect as a vote "against" the merger proposal.
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<PAGE> 34
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of December 31, 1999, the number of
shares of common stock and preferred stock beneficially owned by each of
Nostalgia's executive officers and directors, by all executive officers and
directors as a group and by each person known by Nostalgia to own beneficially
more than 5.0% of the outstanding shares of common stock or preferred stock.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------- ------------------------
PERCENT OF PERCENT OF
NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING
NAME SHARES SHARES SHARES SHARES
---- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS
SQuire D. Rushnell(1)...................... 839,840(2) 4.1% 0 *
----
Willard R. Nichols......................... 0 * 0 *
Diane C. Fuller............................ 6,000(2) * 0 *
DIRECTORS
Christopher A. Cates....................... 26,000(2) * 0 *
Floyd Christofferson....................... 6,000(2) * 0 *
Dianne M. Faure............................ 6,000(2) * 0 *
Hiroshi Goto............................... 1,000(2) * 0 *
Dong Moon Joo.............................. 6,000(2) * 0 *
Dr. S. Robert Lichter...................... 1,000(2) * 0 *
Frederick W. Newton........................ 1,000(2) * 0 *
Phillip Sanchez............................ 6,000(3) * 0 *
Robert J. Wussler.......................... 6,000(2) * 0 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP...................................... 903,840 4.5% 0 *
----
Concept Group(4)........................... 14,430,427(5) 70.0% 2,500 76.9%
---------- ----
Charles Potter............................. 75,000(6) * 750 23.1%
</TABLE>
---------------
* Less than one percent.
(1) Mr. Rushnell also is a director of Nostalgia.
(2) Consists entirely of shares of common stock subject to acquisition pursuant
to options, all of which options have vested.
(3) Consists of 1,000 shares of common stock and options to purchase 5,000
shares of common stock, all of which options have vested.
(4) The Concept Group consists of Capital, Crown, Concept and NNI Acquisition,
which constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act. NNI Acquisition, Concept, Crown and Capital have informed
Nostalgia that they share voting and dispositive power with respect to all
shares as to which NNI Acquisition is the owner.
(5) Includes 14,180,427 shares of common stock, and 250,000 shares of common
stock issuable upon conversion of 2,500 shares of preferred stock, all of
which are held of record by NNI Acquisition.
(6) Includes 75,000 shares of common stock issuable upon conversion of 750
shares of preferred stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the special committee, stockholders
should be aware that some of Nostalgia's officers and directors have interests
in the proposed merger or have relationships, including those referred to below,
that present actual or potential conflicts of interest in connection with the
merger. The special committee was aware of these actual or potential conflicts
of interest and considered them along with
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<PAGE> 35
other matters which have been described in this proxy statement under the
headings "SPECIAL FACTORS -- Recommendations of the Board of Directors" and
"-- Reasons for the Merger; Fairness Considerations."
Certain Relationships of Directors with Affiliates of Crown, Concept and
Capital
Mr. Dong Moon Joo, a director of Nostalgia, is the President and a director
of each of Capital, Crown, Concept and NNI Acquisition (for which he serves as
chairman of the Board of Directors), and may have interests in connection with
the merger that are in addition to, or conflict with, those of Nostalgia and its
stockholders. Because of his positions with Capital, Crown, Concept and NNI
Acquisition, and as a result of possible conflicts of interest, Mr. Joo did not
participate in meetings of the Board of Directors relating to, or vote on, the
merger and the merger agreement. NNI Acquisition, which is wholly-owned by Crown
and Concept, is the record owner of 14,180,427 shares of common stock and 2,500
shares of preferred stock. Capital, Crown, Concept and NNI Acquisition are the
beneficial owners of 14,430,427 shares of common stock (including 250,000 shares
of common stock subject to acquisition upon conversion of 2,500 shares of
preferred stock). Concept is majority-owned by Crown. Crown is a wholly-owned
subsidiary of Capital. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and "CERTAIN TRANSACTIONS AND RELATIONSHIPS."
Christopher A. Cates, a director of Nostalgia, was an officer of Pyramid
Video, Inc. until January 1998. Pyramid Video is a subsidiary of Concept and an
affiliate of Crown and Capital.
Floyd Christofferson, a director of Nostalgia, was an officer of Potomac
Television Communications, Inc. until October 1999. Potomac Television is an
affiliate of Capital, Crown and Concept.
Continued Employment By Nostalgia
As of the date of this proxy statement, Capital, Crown and Concept intend
that the current officers of Nostalgia will continue to provide services to
Nostalgia, the surviving corporation, following the merger.
REGULATORY APPROVAL
Nostalgia and NNI Acquisition are not aware of any material approval or
other action by any state, federal or foreign governmental agency that is
required prior to the consummation of the merger in order to effect the merger
or of any license or regulatory permit that is material to the businesses of
Nostalgia or NNI Acquisition which is likely to be adversely affected by the
consummation of the merger.
APPRAISAL RIGHTS
If the merger is consummated, stockholders who do not vote "FOR" the merger
proposal, who hold shares of common stock or preferred stock of record on the
date of making a written demand for appraisal as described below and who
otherwise comply fully with Section 262 of the DGCL will be entitled to a
judicial determination of the fair value of their shares of common stock and
preferred stock in accordance with the provisions of Section 262 and to receive
from Nostalgia payment of such fair value in cash together with a fair rate of
interest, if any, as determined by such court. Stockholders who properly perfect
their appraisal rights will not be entitled to surrender their shares of common
stock and preferred stock for payment in the manner provided in the merger
agreement and described in this proxy statement. The merger agreement provides
that the obligation of NNI Acquisition to consummate the merger is conditioned
upon stockholders of Nostalgia owning not more than 5.0% of the issued and
outstanding shares of common stock (which, for purposes of determining whether
this condition has been satisfied, includes 325,000 shares of common stock
issuable upon conversion of preferred stock) exercising appraisal rights. This
condition may be waived by NNI Acquisition.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the special
meeting, not less than 20 calendar days prior to the meeting, a constituent
corporation in the merger must notify each of the holders of its stock who was
such on the record date for the meeting that such appraisal rights are available
and include in each such notice, a copy of
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<PAGE> 36
Section 262. This proxy statement constitutes such notice to the holders of
record of common stock and preferred stock.
The following is a summary of the procedures to be followed under Section
262, the full text of which is attached as Appendix C to this proxy statement.
Stockholders should read carefully the full text of Section 262 because failure
to follow any Section 262 procedures may result in the loss of appraisal rights.
Stockholders should assume that Nostalgia will take no action to perfect any
appraisal rights of any stockholder. Any stockholder who desires to exercise
appraisal rights should review carefully Section 262 and is urged to consult a
legal advisor before electing or attempting to exercise appraisal rights.
Holders of record of shares of common stock or preferred stock who desire
to exercise appraisal rights must not vote in favor of the merger proposal or
consent to the merger in writing (including by returning a signed proxy without
indicating any voting instructions as to the proposal) and must deliver a
separate written demand for appraisal of such shares to Nostalgia prior to the
taking of the vote on the merger proposal. A holder of shares of common stock or
preferred stock wishing to exercise appraisal rights must hold of record such
shares on the date the written demand for appraisal is made and must continue to
hold such shares through the effective time of the merger. The demand for
appraisal will be sufficient if it reasonably informs Nostalgia of the identity
of the stockholder and that the stockholder intends to demand an appraisal of
the fair value of shares of common stock or preferred stock.
If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand must be executed by or for the record
owner, and if the shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand must be made by or for all owners
of record. An authorized agent, including an agent for one or more joint owners,
may execute the demand for appraisal for a holder of record provided the agent
identifies the record owner or owners and expressly discloses in such demand
that the agent is acting as agent for the record owner or owners of such shares.
A record holder, such as a broker, who holds shares of common stock or
preferred stock as a nominee for beneficial owners, some or all of whom desire
to demand appraisal, must exercise appraisal rights on behalf of such beneficial
owners with respect to the shares held for such beneficial owners. In such case,
the written demand for appraisal should set forth the number of shares covered
by such demand. Unless a demand for appraisal specifies a number of shares, the
demand will be presumed to be applicable to all shares outstanding in the name
of such record owner. If a stockholder holds shares of common stock or preferred
stock through a broker which in turn holds the shares through a central
securities depository nominee such as Cede & Co., a demand for appraisal of such
shares must be made by or on behalf of the depository nominee and must identify
the depository nominee as record holder. BENEFICIAL OWNERS WHO ARE NOT RECORD
OWNERS AND WHO INTEND TO EXERCISE APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD
OWNER TO COMPLY STRICTLY WITH THE STATUTORY REQUIREMENTS WITH RESPECT TO THE
DELIVERY OF WRITTEN DEMAND FOR APPRAISAL . A DEMAND FOR APPRAISAL SUBMITTED BY A
BENEFICIAL OWNER WHO IS NOT THE RECORD OWNER WILL NOT BE HONORED.
A proxy or vote against the merger agreement will not constitute a demand
for appraisal. Stockholders should not expect to receive any additional notice
with respect to the deadline for demanding appraisal rights.
Any stockholder who elects to exercise appraisal rights must mail or
deliver the written demand for appraisal prior to the taking of the vote on the
merger proposal. All demands for appraisal should be addressed to The Nostalgia
Network, Inc., 650 Massachusetts Avenue, N.W. Washington, D.C. 20001, Attention:
Corporate Secretary.
If the merger is approved, then within ten days after the effective time of
the merger, Nostalgia will provide notice of the effective time of the merger to
all stockholders who have complied with Section 262.
A stockholder may withdraw a demand for appraisal within 60 days after the
effective time of the merger and accept the terms of the merger. Thereafter, the
approval of Nostalgia will be needed for such a withdrawal.
Within 120 days after the effective time of the merger, in compliance with
Section 262, any stockholder who has properly demanded an appraisal and who has
not withdrawn his or her demand as provided above and
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<PAGE> 37
Nostalgia each has the right to file in the Delaware Court of Chancery a
petition, with a copy served on Nostalgia in the case of a petition filed by a
dissenting stockholder, demanding a determination of the fair value of the
shares held by all dissenting stockholders. If, within the 120-day period
following the effective time of the merger, no petition shall have been filed as
provided above, all rights to appraisal will cease and all dissenting
stockholders who owned shares of common stock or preferred stock will become
entitled to receive for each share of common stock or preferred stock the
applicable consideration, as if such stockholder had initially voted to approve
and adopt the merger proposal. Nostalgia is not obligated, and does not
currently intend, to file such a petition.
Any dissenting stockholder is entitled, within the 120-day period following
the effective time of the merger and upon written request to Nostalgia, to
receive from Nostalgia a statement setting forth:
- the aggregate number of shares of common stock or preferred stock which
have not voted to adopt and approve the merger proposal and with respect
to which demands for appraisal have been received; and
- the aggregate number of dissenting stockholders.
Such statement must be mailed within ten days after a written request for
such statement has been received by Nostalgia, or within ten days after the
expiration of the period for delivery of demands, as described above, whichever
is later.
Upon the filing of a petition, the Delaware court may order a hearing and
that notice of the time and place fixed for the hearing on the petition be
mailed to Nostalgia and all dissenting stockholders. Notice will also be
published at least one week before the day of the hearing in a newspaper of
general circulation published in the City of Wilmington, Delaware or in another
publication deemed advisable by the Delaware court. The costs relating to these
notices will be borne by Nostalgia.
If a hearing on the petition is held, the Delaware court is empowered to
determine which dissenting stockholders have complied with the provisions of
Section 262 and are entitled to an appraisal of their shares. The Delaware court
may require that dissenting stockholders submit their share certificates for
notation thereon of the pendency of the appraisal proceedings and the Delaware
court may dismiss the proceedings as to any dissenting stockholder who does not
comply with such requirement.
The Delaware court will appraise shares of common stock and preferred stock
owned by the dissenting stockholders, determining the fair value of such shares
exclusive of any element of value arising from the accomplishment or expectation
of the merger. In determining the fair value, the Delaware court is to take into
account all relevant factors. In WEINBERGER V. UOP, INC., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered and that "[f]air" price
obviously requires consideration of all relevant factors involving the value of
a company. The Delaware Supreme Court has stated, that in making this
determination of fair value, the Delaware courts must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other factors which could be ascertained as of the date of the merger and which
"throw any light on future prospects of the merged corporation." The Delaware
Supreme Court noted that Section 262 provides that fair value is to be
determined "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In CEDE & CO. V. TECHNICOLOR, INC., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value" but which applies only to the speculative
elements of value arising from such accomplishment or expectation. In
WEINBERGER, the Delaware Supreme Court held that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered."
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined by the Delaware court under Section 262 could
be more than, the same as, or less than the consideration payable pursuant to
the merger agreement. Nostalgia does not anticipate offering more than the
consideration payable pursuant to the merger agreement to any dissenting
stockholder and reserves the right to assert in any
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<PAGE> 38
appraisal proceedings, that, for purposes of Section 262, the "fair value" of a
share of common stock or preferred stock is less than the consideration payable
pursuant to the merger agreement.
The Delaware court may also:
- determine a fair rate of interest, if any, to be paid to dissenting
stockholders in addition to the fair value of the shares;
- determine the costs of the proceeding and tax such costs against the
parties as the Delaware court deems equitable (however, costs do not
include attorneys' and expert witnesses' fees); and
- upon application of a dissenting stockholder, order all or a portion of
the expenses incurred by any dissenting stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable
attorney's fees and fees and expenses of experts, to be charged pro rata
against the value of all shares entitled to appraisal.
No appraisal proceedings in the Delaware court will be dismissed as to any
dissenting stockholder without the approval of the Delaware court, and this
approval may be conditioned upon terms which the Delaware court deems just.
From and after the effective time of the merger, dissenting stockholders
will not be entitled to vote (or consent by written action) any shares subject
to demand for appraisal for any purpose and will not be entitled to receive
payment of dividends or other distributions payable to stockholders of record
except dividends or distributions declared prior to the effective time of the
merger.
Failure to take any required step in connection with appraisal rights may
result in the loss of such rights. Any stockholder who loses such rights will
only be entitled to receive the consideration offered in the merger.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting in
accordance with GAAP, whereby the value of the consideration paid in the merger
will be allocated based upon the estimated fair values of the assets acquired
and liabilities assumed at the effective date of the merger.
Pro forma financial information has not been included in this proxy
solicitation because the stockholders, other than NNI Acquisition, are receiving
cash consideration only and will not retain or receive a continuing interest in
Nostalgia's business after the merger.
FINANCING, EXPENSES AND FEES
Capital, Crown, Concept and NNI Acquisition estimate that the total amount
of funds to be used in connection with the merger (including the funds to be
paid by NNI Acquisition to the holders (other than NNI Acquisition) of common
stock and preferred stock, and the funds necessary for NNI Acquisition and
Nostalgia to consummate the merger) will amount to approximately $ . Of
this amount, the funds to be used by NNI Acquisition to consummate the merger
will amount to $ and will be loaned to NNI Acquisition by Crown. At
the current time, there is no written agreement evidencing this lending
arrangement between Crown and NNI Acquisition. NNI Acquisition does not have any
specific plans in place for the repayment of the funds it will borrow pursuant
to this lending arrangement.
The funds loaned by Crown to NNI Acquisition will be loaned to Crown by
Atlantic Video, Inc., a Delaware corporation, pursuant to a promissory note
dated July 21, 1993, as amended, between Crown and Atlantic Video. This
promissory note entitles Crown to borrow up to $126.0 million at an annual
interest rate of 6.0% and is payable upon demand made by Atlantic Video. As
collateral for the promissory note, Crown has pledged to Atlantic Video, 430
shares of Concept owned by Crown (representing a minority interest in Concept)
under a restated security agreement dated as of December 30, 1993 by and between
Crown and Atlantic Video. At the current time, Crown does not have any specific
plans in place for the repayment of funds it borrows pursuant to the promissory
note.
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<PAGE> 39
Each of Capital, Crown, Concept and NNI Acquisition understand that, if
necessary, Atlantic Video may borrow these funds from its parent, One Up
Enterprises, a Delaware corporation, which will in turn borrow the funds from
its parent, Unification Church International, Inc., a District of Columbia
non-stock, non-profit corporation. However, to the knowledge of Capital, Crown,
Concept and NNI Acquisition (a) there are no written commitments evidencing the
lending arrangement between Atlantic Video and One Up Enterprises, or One Up
Enterprises and Unification Church International relating to funds which might
be loaned for the merger, and (b) Atlantic Video and One Up Enterprises do not
have any specific plans in place for the repayment of the funds they may borrow
in connection with this transaction.
Capital, Crown, Concept and NNI Acquisition do not have any alternative
plans or financing arrangements in the event the lending arrangement described
above is not effectuated.
Each party will bear its own expenses incurred in connection with the
merger. Nostalgia will bear expenses arising out of or incurred in connection
with the preparation of this proxy statement and the special meeting including
printing, mailing, solicitation, accounting and other fees and expenses related
thereto. Nostalgia and Capital, Crown and Concept estimate their respective
expenses to be incurred in connection with the merger as follows:
<TABLE>
<S> <C>
Nostalgia
Legal..................................................... $175,000
Accounting................................................ $ 12,000
Financial Advisors........................................ $135,000
Filing.................................................... $ 290
Transfer Agent............................................ $ 5,000
Printing.................................................. $ 60,000
Capital, Crown and Concept
Legal..................................................... $200,000
Financial Advisors........................................ $125,000
Disbursement Agent........................................ $ 10,000
</TABLE>
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THE MERGER AGREEMENT
The following is a description of the material terms of the merger
agreement. To fully understand the terms of the merger agreement, stockholders
should read carefully the full text of the merger agreement, a copy of which is
attached as Appendix A to this proxy statement.
TERMS OF THE MERGER
The Merger. Subject to the terms and conditions of the merger agreement,
NNI Acquisition will merge with and into Nostalgia which will result in
Nostalgia becoming wholly-owned by Crown and Concept and the separate corporate
existence of NNI Acquisition will cease. Nostalgia will continue to exist
following the merger and its internal corporate affairs will continue to be
governed by Delaware law. Crown and Concept, as the only stockholders of
Nostalgia following the merger, will have sole power and authority to control
all aspects of the internal corporate and business affairs of Nostalgia
following the merger. NNI Acquisition is wholly-owned by Crown and Concept.
Concept is majority owned by Crown. Crown is a wholly-owned subsidiary of
Capital.
Certificate of Incorporation and Bylaws. The merger agreement provides
that at the effective time of the merger and without any further action on the
part of Nostalgia or NNI Acquisition:
- Nostalgia's certificate of incorporation will be amended and restated
substantially as set forth in Exhibit A to the merger agreement and, from
and after the effective time of the merger, Nostalgia's certificate of
incorporation, as so amended and restated, will be the certificate of
incorporation of Nostalgia; and
- the bylaws of NNI Acquisition, as in effect at the effective time of the
merger, shall be the bylaws of Nostalgia.
Pursuant to the amendment to the certificate of incorporation, among other
things, Nostalgia will have authorized 1,000 shares of common stock, par value
$.01 per share.
Conversion of Common Stock and Preferred Stock. At the effective time of
the merger:
- each issued and outstanding share of common stock, other than shares of
common stock owned by NNI Acquisition or for which appraisal rights have
been exercised, will be converted into the right to receive $0.07;
- each issued and outstanding share of preferred stock, other than shares
of preferred stock owned by NNI Acquisition or for which appraisal rights
have been exercised, will be converted into the right to receive $7.00;
- the issued and outstanding shares of common stock owned by NNI
Acquisition will be cancelled; and
- each share of NNI Acquisition common stock will be converted into a share
of Nostalgia common stock.
Options. Prior to the effective time of the merger, Nostalgia will:
- take all steps necessary to terminate all stock option plans, to the
extent permitted by their terms, without prejudice to the rights of the
holders of options under such plans; and
- grant no additional options.
Nostalgia will use its best efforts to take all actions necessary to cause each
outstanding stock option, whether or not exercisable or vested, to be cancelled,
as of the effective time of the merger and to obtain the consent of each holder
of an option (whether or not then exercisable) to the cancellation of the
option. In exchange for the cancellation of options, Nostalgia may make payments
to, or enter into other agreements with, the option holders in consideration of
the termination of the options.
Directors and Officers. There will be no change to the directors and
executive officers of Nostalgia as a result of the merger, and each director and
executive officer of Nostalgia will continue to serve in that capacity
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until his or her successor has been duly elected or appointed and qualified or
until his or her earlier death, resignation or removal.
INDEMNIFICATION
From and after the effective time of the merger, Nostalgia will continue to
indemnify each present and former officer, director, employee and agent of
Nostalgia against any and all claims, losses, damages, liabilities, costs,
judgments, amounts paid in settlement and expenses (including reasonable
attorneys' fees) in connection with any threatened, pending or completed action,
suit, claim, proceeding or investigation arising out of, or pertaining to, any
act or omission prior to the effective time to the fullest extent permitted
under Nostalgia's bylaws and Delaware law. Nostalgia has agreed to use its best
efforts to provide to those officers and directors of Nostalgia as of October
21, 1999 who also are officers or directors of Nostalgia immediately following
the effective time of the merger with officers' and directors' liability
insurance comparable to that maintained by Nostalgia as of October 21, 1999,
subject only to certain limitations with respect to the cost of such insurance.
Pursuant to the terms of the merger agreement, this liability insurance will
remain in effect until the third anniversary of the merger.
EFFECTIVE TIME OF THE MERGER
Promptly following the satisfaction or waiver (where permissible) of the
conditions to the merger, the merger will be consummated and become effective on
the date and at the time the required certificate of merger is filed with the
Secretary of State of Delaware.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of NNI Acquisition. The merger agreement
includes representations and warranties of NNI Acquisition as to the following
material issues:
- the due authorization of the merger agreement and the transactions
contemplated thereby by the Board of Directors and the stockholders of
NNI Acquisition, and the enforceability of the merger agreement;
- that NNI Acquisition has received commitments for the funding necessary
to complete the transactions contemplated by the merger; and
- the accuracy of information provided by NNI Acquisition for use in this
proxy statement.
Representations and Warranties of Nostalgia. The merger agreement includes
representations and warranties of Nostalgia as to the following material issues:
- the due authorization and approval of the merger agreement and the
transactions contemplated by the merger agreement by the Board of
Directors of Nostalgia, and the enforceability of the merger agreement
subject to approval by Nostalgia's stockholders;
- the capitalization of Nostalgia, the validity of the common stock and the
preferred stock and the absence of any undisclosed options, warrants or
other similar rights with respect to the common stock or the preferred
stock;
- the absence of any undisclosed material liabilities other than those
incurred in the ordinary course of the business of Nostalgia consistent
with past practice and liabilities incurred in connection with the
merger;
- that the execution or delivery of the merger agreement or the
consummation of the merger will not violate Nostalgia's certificate of
incorporation or bylaws or result in a breach of any material contract,
agreement, order, law, rule or regulation to which Nostalgia is subject;
and
- the accuracy in all material respects of this proxy statement, except for
the information provided by NNI Acquisition, and the conformity of this
proxy statement to the requirements of the Exchange Act and the rules
promulgated under the Exchange Act.
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COVENANTS
The merger agreement contains a number of customary and
transaction-specific covenants. The following is a summary of the material
covenants.
Business of Nostalgia. Nostalgia has agreed, except as contemplated by the
merger agreement, from the date of the merger agreement to the effective time of
the merger, not to take any action that adversely affects its ability to pursue
its business in the ordinary course, to seek to preserve its current business
organization, to keep available the services of its current officers and
employees, and to use its best efforts to preserve its relationships with
customers, suppliers and others having business dealings with it. Nostalgia also
has agreed that before the effective time, except as expressly permitted by the
merger agreement or by NNI Acquisition, it will not:
- split, combine or reclassify any shares of its capital stock, declare,
pay or set aside for payment any dividend or other distribution in
respect of its capital stock or directly or indirectly redeem, purchase
or otherwise acquire any shares of its capital stock or other securities;
- authorize for issuance, issue, sell, pledge, dispose of or encumber,
deliver or agree or commit to issue, sell, pledge or deliver (whether
through the issuance or granting of any options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class of
Nostalgia or any securities convertible into or exercisable or
exchangeable for shares of stock of any class of Nostalgia, other than
the issuance of shares pursuant to the exercise of options outstanding as
of the date of the merger agreement;
- except in the ordinary and usual course of business and consistent with
past practice, incur any material liability, obligation or indebtedness,
issue any debt securities or assume, guarantee, endorse or otherwise
become responsible for, the obligations of any other individual or
entity;
- acquire any other business or make any material investment;
- change in any material respect its accounting methods, principles or
practices except as in accordance with GAAP, consistently applied;
- file for voluntary bankruptcy or become subject to involuntary bankruptcy
proceedings;
- take any action or course of action inconsistent with any of the
covenants and agreements contained in the merger agreement; and
- take or agree to commit to take any action that would make any
representation or warranty of Nostalgia in the merger agreement
inaccurate in any material respect at the effective time of the merger or
omit to take any action necessary to prevent any such representation or
warranty from being inaccurate in any material respect at such time.
Deposit of Funds. Not less than 10 days prior to the special meeting, NNI
Acquisition will deposit or cause to be deposited with an agent retained for
purposes of facilitating the payment of the consideration in exchange for common
stock and preferred stock, immediately available funds in an amount equal to
$0.07 for each issued and outstanding share of common stock and $7.00 for each
issued and outstanding share of preferred stock, excluding shares of common
stock and preferred stock owned by NNI Acquisition which will be cancelled.
Best Efforts. Each of Nostalgia and NNI Acquisition have agreed to utilize
its best efforts to cause the merger, and all transactions contemplated by the
merger agreement, to be completed.
No Solicitation. Nostalgia will not, and will use its best efforts to
ensure that its officers, directors, representatives or agents do not, directly
or indirectly, solicit or initiate (including by way of furnishing any
non-public information concerning Nostalgia's business, properties or assets)
negotiations with and, subject to the exercise of their fiduciary
responsibilities on advice of counsel, participate in any negotiations leading
to any proposals or enter into any agreement with any corporation, partnership,
person or other entity or group (other than NNI Acquisition) concerning any
tender offer, exchange offer, merger, consolidation, sale of
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<PAGE> 43
substantial assets or of a significant amount of assets, sale of securities,
liquidation, dissolution or similar transactions involving Nostalgia.
Nostalgia will promptly inform NNI Acquisition of any inquiry (including
the terms thereof and the identity of the third party making such inquiry) that
it receives with respect to any proposal to acquire all or a substantial portion
of the stock or assets of Nostalgia and will furnish to NNI Acquisition a copy
of any such inquiry.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of Nostalgia and NNI Acquisition are subject to the
following material conditions:
- the merger shall have been duly approved by Nostalgia's stockholders; and
- Chatsworth shall have delivered to Nostalgia its written opinion that the
consideration is fair to Nostalgia's stockholders from a financial point
of view.
Conditions to the Obligations of NNI Acquisition. The obligations of NNI
Acquisition to effect the merger also are subject to satisfaction or waiver of
the following material conditions:
- the accuracy and completeness in all material respects of the
representations and warranties of Nostalgia in the merger agreement;
- the performance by Nostalgia in all material respects of its obligations
under the merger agreement which are required to be performed at or prior
to the effective time of the merger; and
- holders of not more than 5.0% of the common stock and the preferred stock
(calculated on an "as converted" basis to common stock at the ratio of
100 shares of common stock for each share of preferred stock) shall have
exercised appraisal rights;
NNI Acquisition may waive any of the foregoing or other such conditions to the
merger.
Conditions to the Obligations of Nostalgia. The obligation of Nostalgia to
effect the merger also is subject to satisfaction or waiver of the following
conditions:
- the accuracy and completeness in all material respects of the
representations and warranties of NNI Acquisition in the merger
agreement; and
- the performance by NNI Acquisition in all material respects of its
obligations under the merger agreement which are required to be performed
at or prior to the effective time.
Nostalgia may waive either or both of the foregoing conditions.
AMENDMENT; WAIVER; TERMINATION
Amendment. The merger agreement may be amended at any time by written
agreement of Nostalgia and NNI Acquisition (prior to the effective time of the
merger), as applicable. An amendment to the merger agreement subsequent to
adoption by stockholders of Nostalgia may not alter or change the amount or kind
of consideration to be received in exchange for, or on conversion of, the common
stock or the preferred stock without the approval of the holders thereof.
Waiver. Either party to the merger agreement may extend the time for the
performance of any of the obligations or other acts of the other party thereto,
or waive compliance with any of the agreements or any condition to the
obligations thereunder of the other party thereto, to the extent that such
obligations, agreements and conditions are intended for its benefit.
Termination. The merger may be abandoned and the merger agreement may be
terminated prior to the effective time of the merger, before or after approval
by the stockholders of Nostalgia, by the mutual written consent of Nostalgia and
NNI Acquisition or by either party if:
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- there has been a material failure by the other party to perform any of
its covenants, obligations, agreements or conditions or the other party
has breached any of the representations or warranties of the merger
agreement;
- there shall be in effect any permanent injunction or action preventing
the consummation of the merger; or
- if the effective time of the merger shall not have occurred by June 30,
2000.
Upon termination of the merger agreement pursuant to its terms, the merger
agreement shall become void and no longer be of any force and effect and there
shall be no liability of either party to the other party to the merger
agreement.
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CERTAIN TRANSACTIONS AND RELATIONSHIPS
The following are descriptions of material transactions and relationships
between Nostalgia and any of its affiliates and Capital, Crown, Concept and NNI
Acquisition or their respective affiliates. See "The Merger -- Conflicts of
Interest."
Concept and Crown. Since 1990, Crown and Concept have been the principal
source of Nostalgia's capital. Crown and Concept have invested approximately
$2.1 million and provided approximately $85.5 million in financing since 1994,
including $15.0 million loaned by Crown to Nostalgia during the year ended
December 31, 1999. Of the $85.5 million, approximately $64.0 million consists of
loans from Crown and approximately $21.5 million consists of loans from Concept.
On December 30, 1999, Nostalgia entered into a new promissory note with each of
Crown and Concept to refinance the entire amounts of their respective loans at
an annual interest rate of 8.5% and to mature on January 1, 2001. Under the
terms of the new notes, Nostalgia makes monthly interest payments of $55,000 to
Crown and $5,000 to Concept. The promissory notes to Crown and Concept are
secured by all of the assets (other than real property, if any) of Nostalgia.
Additionally, as of June 13, 2000, Nostalgia had issued and outstanding
promissory notes to Crown in the aggregate principal amount of $7.5 million,
bearing interest of approximately 8.5% to 9.5% per annum, for financing provided
to Nostalgia between January 1, 2000 and June 13, 2000. The promissory notes
mature on January 1, 2001. On March 22, 2000, Crown delivered to Nostalgia's
outside accountants a letter representing Crown's ability and intention to
provide financial support to Nostalgia throughout the remainder of 2000. Subject
to the conditions set forth in the letter, Crown has agreed to provide
continuing financial support to Nostalgia up to a total amount of $15.0 million
(including the $7.5 million already provided) for the year 2000. The financial
support will be provided on an as needed basis and may be in the form of debt or
equity. To the extent that it is in the form of debt, it will not mature prior
to January 1, 2001.
During 1998, Nostalgia paid interest to Crown and Concept of $400,000 and
$320,000, respectively. During 1999, Nostalgia paid interest to Crown and
Concept of $655,000 and $125,000, respectively. No principal was paid by
Nostalgia to either Crown or Concept during 1998 or 1999. During 1998,
$1,310,005.61 and $1,105,673.69 of accrued and unpaid interest owed by Nostalgia
to Crown and Concept, respectively, was recapitalized. During 1999,
$5,687,286.40 and $2,371,242.83 of accrued and unpaid interest owed by Nostalgia
to Crown and Concept, respectively, was recapitalized.
Mr. Joo, a director of Nostalgia, is the President and a director of each
of Capital, Crown, Concept and NNI Acquisition (for which he serves as chairman
of the Board of Directors). Christopher A. Cates and Floyd Christofferson,
directors of Nostalgia, were officers of Concept subsidiaries until January 26,
1999 and October 27, 1999, respectively.
On July 1, 1999, Nostalgia entered into a one year employment agreement
with SQuire D. Rushnell, a director of Nostalgia, which provided that Mr.
Rushnell would hold the offices of President and Chief Executive Officer and
that Nostalgia would pay Mr. Rushnell an annual base salary of $270,000. This
employment agreement replaces the previous employment agreement between
Nostalgia and Mr. Rushnell, which expired on May 12, 1999. The employment
agreement will automatically renew for one year periods unless certain
notification requirements are met by either Nostalgia or Mr. Rushnell. Mr.
Rushnell's annual base salary will increase by 20.0% for each renewal period.
Under the employment agreement, Mr. Rushnell is entitled to receive a benchmark
bonus of up to $80,000, payable quarterly, if Nostalgia attains or exceeds its
business plan. Mr. Rushnell received a benchmark bonus of $33,030 for 1999. The
benchmark bonus increases to $100,000 for each renewal period. The employment
agreement also provides for alternative benchmark bonuses under certain
circumstances where some, but not all, criteria applicable to the benchmark
bonus have been met. Nostalgia also has provided Mr. Rushnell with a monthly
stipend of $600 for obtaining and maintaining an automobile. Mr. Rushnell is
entitled to receive a severance payment of $135,000 if Nostalgia does not renew
his employment agreement. The terms of Mr. Rushnell's employment agreement will
continue in full force and effect if the proposed merger is completed.
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Mr. Cates was an officer of Pyramid Video, Inc., a subsidiary of Concept,
until January 1998. Mr. Christofferson was an officer of Potomac Television
Communications, Inc. until October 1999. Potomac Television is an affiliate of
Nostalgia.
Pursuant to a letter agreement dated March 29, 1995 between Concept and
Nostalgia that was signed in anticipation of a possible conversion of
Nostalgia's indebtedness to Concept into equity, which debt conversion has not
occurred, as of the date of such letter agreement, Nostalgia agreed to:
- sell at least 2,000 shares of preferred stock to Concept pursuant to the
conversion;
- not to issue additional shares of preferred stock until Concept and
Nostalgia reached mutual agreement as to the price per share of the debt
conversion;
- granted to Concept the right of first refusal with regard to the sale of
in excess of 500,000 shares of common stock or 500 shares of preferred
stock in the aggregate; and
- agreed to issue additional shares of common stock to Concept in the event
of future sales of capital stock by Nostalgia to third parties at a price
per share less than that agreed upon by Concept and Nostalgia for the
debt conversion.
Nostalgia leases equipment from Pyramid Video, Inc., which is a
majority-owned subsidiary of Concept, at the monthly rate of $2,440 and expended
approximately $24,440 for the leased equipment during the year ended December
31, 1999. Mr. Joo is a director of Pyramid Video.
On January 7, 2000, Crown and Concept transferred to NNI Acquisition all of
their respective shares of common stock and preferred stock in exchange for
1,000 shares of the NNI Acquisition common stock.
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THE CONCEPT GROUP
The Concept Group consists of Capital, Crown, Concept and NNI Acquisition.
None of Capital, Crown Concept or NNI Acquisition is an affiliate of Atlantic
Video, One Up Enterprises or Unification Church International. The following is
a brief description of the business conducted by each of Capital, Crown, Concept
and NNI Acquisition and identifies each of their respective executive officers
and directors.
NNI Acquisition is a Delaware corporation formed to own the common stock
and preferred stock and to facilitate the merger. Upon consummation of the
merger, NNI Acquisition will be merged with and into Nostalgia and Nostalgia
will be wholly-owned by Concept and Crown. The directors and executive officers
of NNI Acquisition are Mr. Joo (President) and Werner Seubert (Vice President).
Concept has diverse interests in the communications and telecommunications
industries with ownership interests in firms principally involved in video
newsgathering and transmission services, corporate video communication and
program production and post-production. Messrs. Joo and Seubert and Max Hugel
are the directors of Concept, and Messrs. Joo and Seubert are the President and
Vice President, respectively, of Concept.
Crown owns a majority of the capital stock of Concept. Crown has diverse
interests in the communications and telecommunications industries through
operation of a satellite up-linking business and its majority ownership interest
in Concept. Mr. Joo, Theodore Agres, Robert Morton, Pauline Eby and Peter Gogan
are the directors of Crown, and Messrs. Joo (President) and Seubert (Vice
President) are the executive officers of Crown.
The sole stockholder of Crown is Capital. Capital is a Delaware non-stock
corporation, which indirectly owns interests in firms involved in the
communications and telecommunications industries through its ownership of Crown.
Mr. Joo, Neil A. Salonen, Thomas Ward, Anthony Guerra and Michael McDevitt are
the members of Capital. Mr. Joo, Keith Cooperrider and Mr. Gogan are the
directors of Capital. Messrs. Joo (President) and Seubert (Vice President) are
the executive officers of Capital.
The principal business address for Concept, Crown, Capital and NNI
Acquisition is 650 Massachusetts Avenue, N.W., Washington, D.C. 20001 and the
telephone number is (202) 789-2124.
For the last five years, Mr. Joo also has been President of Concept and
President of The Washington Times Corporation and News World Communications,
Inc. The Washington Times and News World publish numerous newspapers and
periodicals. Mr. Joo's business address is 650 Massachusetts Avenue, N.W., Suite
200, Washington, D.C. 20001. Mr. Joo is a citizen of South Korea.
Mr. Hugel is Chairman of the Board of Rockingham Venture, Inc., which is
engaged in the operation of a racetrack. The principal offices of Rockingham
Venture are located at Rockingham Park Boulevard, P.O. Box 45, Salem, New
Hampshire 03079, which is Mr. Hugel's business address. Mr. Hugel is a citizen
of the United States.
For the last five years, Mr. Seubert also has been Vice President and
Controller of Atlantic Video. Atlantic Video is engaged in the production and
recording of videotapes, the provision of postproduction services and related
activities. Mr. Seubert's business address is 650 Massachusetts Avenue, N.W.,
Suite 200, Washington, D.C. 20001. Mr. Seubert is a citizen of the Federal
Republic of Germany.
Messrs. Morton, Gogan, Agres and Cooperrider (for the last five years), and
Ms. Eby (for the last three years), also have been principally employed by the
Washington Times. For the two years prior to her employment with the Washington
Times, Ms. Eby was principally employed by Atlantic Video. The business address
of each of the above officers and the principal offices of the Washington Times
is 3600 New York Avenue, N.E., Washington, D.C. 20002. For the past five years,
Mr. Cooperrider has been employed as Treasurer of the Washington Times. Mr.
Morton serves as Assistant Managing Editor, Mr. Gogan serves as Special
Assistant to the President, Ms. Eby serves as Executive Assistant to the
President and Mr. Agres is the Deputy Managing Editor of The Washington Times
newspaper. Messrs. Morton, Gogan, Agres and Cooperrider and Ms. Eby are citizens
of the United States.
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Mr. Salonen is President of International Cultural Foundation, which is a
nonprofit, tax-exempt foundation with the purpose of promoting academic,
scientific, religious and cultural exchange among the countries of the world.
The principal offices of International Cultural Foundation are located at 51
Monroe Street, Suite 1201, Rockville, Maryland 20850, which is Mr. Salonen's
business address. He is also President of the University of Bridgeport which is
located at 271 Park Avenue, Bridgeport, Connecticut. Mr. Salonen is a citizen of
the United States.
For the last five years, Messrs. Ward and Guerra have been principally
employed by the University of Bridgeport for which the address is 271 Park
Avenue, Bridgeport, Connecticut 06601. Mr. Ward serves as Special Assistant to
the President for New Initiatives, and Mr. Guerra serves as the Dean of College
Graduate and Undergraduate Studies. Messrs. Ward and Guerra are citizens of the
United States.
For the last five years, Mr. McDevitt has been Director of Security at
Belvedere Estates, which operates a group of properties in Westchester County,
New York. The principal offices of Belvedere Estates are located at 723 South
Broadway, Tarrytown, New York 10591, which is the business address of Mr.
McDevitt. Mr. McDevitt is a citizen of the United States.
To the knowledge of each of Capital, Crown, Concept and NNI Acquisition,
during the last five years, none of Nostalgia, Concept, Crown, Capital, NNI
Acquisition, Ms. Eby or Messrs. Joo, Hugel, Gogan, Seubert, Agres, Cooperrider,
Morton, Salonen, Ward, Guerra and McDevitt have been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and, as a result of such proceeding, was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, Federal or state securities laws or finding
any violation with respect to such laws.
BUSINESS OF NOSTALGIA
OVERVIEW
Nostalgia operates a television programming service, GoodLife TV Network,
which offers a variety of entertainment, information and lifestyle programming
exemplifying traditional American culture, values and a sense of community. This
programming mix targets the most neglected audience on television, America's
Boomers and over audience. Nostalgia was originally incorporated in Colorado in
1983. In 1987, Nostalgia changed its name from Boston Investments, Inc., and
reincorporated in Delaware through a merger into a wholly-owned subsidiary.
DESCRIPTION OF BUSINESS
The Network's programming is telecast over a network of cable television,
wireless cable, satellite and video-dial-tone systems which are commonly
referred to as "affiliates." Nostalgia uplinks its programming from facilities
in Alexandria, Virginia to a satellite which then transmits the programming to
the affiliates. Nostalgia derives revenue primarily from the sale of advertising
time and from fees paid by affiliates for its programming.
AFFILIATED CABLE SYSTEMS AND SUBSCRIBERS
The Network's programming is distributed by approximately 1,425 affiliates,
from which Nostalgia derives fees, typically based upon the number of monthly
subscribers in each affiliate's system. As of December 31, 1999, the Network had
9,232,523 subscribers, an increase of 19.6% from December 31, 1998, when the
Network had 7,718,053 subscribers. The length of each affiliate contract varies,
but generally ranges from three to five years. Certain of the Network'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. During 1999,
Nostalgia had revenues of approximately $2,089,466 from affiliate fees. Three
multiple system operator affiliates accounted for approximately 18.0%, 16.0% and
10.0% of affiliate revenue for the year ended December 31, 1999. These multiple
system operators are Time Warner Cable, NCTC -- National Cable Television
Cooperative and AT&T Bis, respectively.
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Nostalgia currently does not have long-term contracts with these three
affiliates. Marketplace condition trends are resulting in a smaller number of
multiple systems operators. Nostalgia does not believe that the consolidation of
cable operators has a direct effect on day to day operations. As cable systems
are acquired, any existing agreements verbal or written would remain in effect.
Each affiliate has a limited number of "channels" over which programming
can be distributed to its subscribers. The must carry/retransmission consent
provisions of 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 the Network. As a result of intense competition among cable
networks for this reduced number of channels, Nostalgia's per subscriber fees
from affiliates have declined and may continue to decline as small networks, and
particularly those unaffiliated with the major multiple system cable operators,
such as the Network, now are required to make payments to the cable operators
and waive or not require per subscriber fees to be paid to them to obtain
carriage.
ADVERTISING
Nostalgia also derives revenues from the sale of advertising receiving fees
for approximately, on average, 10 minutes of advertising time per hour of
programming, with an additional two minutes of each hour of programming reserved
for the use of affiliates. Nostalgia also derives advertising revenue from the
sale of time for infomercials, which are program length advertisements, and from
programming sponsorship and home shopping revenue sharing arrangements. In 1999,
Nostalgia redirected its focus from national spot advertising to direct response
and infomercial advertising, and, accordingly, has reduced its reliance on and
use of Nielsen ratings. Since direct response and infomercial advertising rates
are based on per inquiry or response performance rather than audience ratings,
from a business and financial perspective, continued reliance on and payment for
such rating service is not necessary. During 1999, Nostalgia derived revenues of
$3,288,663 from advertising.
PROGRAMMING
The Network has continued to expand and improve its original programming.
The following are descriptions of programs aired on the Network during 1999.
GTV DanceSport (Original)
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 champions in each class, but
also provides insight into the techniques and fine points of competition.
Cafe DuArt (Original)
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 (Original)
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.
American Couples (Original Pilot)
Hosted by Nancy Glass, American Couples is an hour long show which
celebrates the family values, love, commitment and partnership of famous
couples.
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Heroes & Sheroes (Original Pilot)
Heroes & Sheroes profiles ordinary men and women who have performed heroic
tasks for the benefit of their fellow man.
American Families (Original Elements began airing in January 2000)
American Families spotlights regular families discussing contemporary
solutions to issues raised in episodes of classic family programs of Ozzie &
Harriet and Make Room for Daddy.
Cookbook Cooking with Christopher Kent (Original)
This program features the Network's Flea Market Movie host, Christopher
Kent, who also is an accomplished chef, preparing dishes from famous cookbooks.
The Bull & The Bear (Original)
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 (Original)
Ken and Daria Dolan, "the first family of finance," present a one hour
televised version of their nationally syndicated daily radio program on money
issues. On More Money with The Dolans, Network viewers can call in questions to
Ken and Daria about retirement plans, investment and tax strategies, saving
money for college and how to get a good buy on a new car.
Flea Market Movie (Original Elements)
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.
American Soldier (Original Elements)
Interviews with veterans, focusing on their wartime experiences, are
wrapped around three classic dramatic television shows. The shows, which the
Network has licensed for two years, are Combat!, Twelve O'clock High and
Garrison's Gorillas. The programs and their wrap around elements are part of a
weekday and weekend block entitled American Soldier.
GTV Variety Hour
The GTV Variety Hour features classic variety programs such as Tony Orlando
and Dawn, Leslie Uggams and Dean Jones which were purchased by the Network.
Acquired Programming
Off-network series airing on the Network include The Love Boat and Bonanza.
Dual Language Programming
In an effort to provide service to a broader community of viewers, the
Network commenced airing dual language programming during 1997. Found on the SAP
channel, where available, the Network provides Spanish language versions of The
Love Boat.
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Programming for the Visually Impaired
The Company has had a significant and mutually beneficial relationship with
the Narrative Television Network (NTN). Found on the SAP channel, where
available, these narrative tracks of certain Network programming provide
descriptive narratives of the on-screen action to allow visually impaired
viewers to better understand and account for noises and actions they cannot see.
FINANCIAL INFORMATION
During 1999, the Network continued to focus 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, Nostalgia continued its
efforts to increase original programming.
Nostalgia also continued its efforts to grow its subscriber base. As of
December 31, 1999 the Network had 9,232,523 subscribers, compared to 7,718,053
subscribers at December 31, 1998. The Service Transmission Agreement between
Nostalgia and National Digital Television Center providing for digital
distribution of the Network's signal through the Headend in the Sky program
(HITS) contributed significantly to Nostalgia's increase in subscribers. As the
cable industry has moved to upgrade its local existing plant and facilities with
digital distribution technology, nationwide digital distribution such as HITS is
increasingly important to and the basis for most of the potential growth in
subscribers available to the Network.
Nostalgia also continued in its analysis of, and efforts to seek, a
strategic alliance. Nostalgia has had contact with several possible strategic
partners, but no serious discussions have occurred. There can be no assurance
that Nostalgia will be able to obtain a strategic partner, or that any strategic
partner will be willing to invest the sums required by Nostalgia in order to
continue to grow the Network's subscriber base. It is anticipated that following
the merger, the business and operations of Nostalgia will be continued
substantially as currently conducted for the immediate future. Crown and Concept
have informed Nostalgia that they intend to reevaluate the business and
operations of Nostalgia following the merger and take such actions with respect
to the future business and operations of Nostalgia as they deem appropriate.
Although there are no definitive plans or agreements in place, Crown and Concept
may cause Nostalgia to enter into joint ventures or other agreements with other
business entities after the merger.
In March 1999, to more closely align its sales and marketing activities,
Nostalgia determined to consolidate these efforts at its headquarters in
Washington, D.C. and closed its Englewood, Colorado and Ft. Washington,
Pennsylvania offices, resulting in a reduction of its staffing levels by eleven
positions.
For a description of the revenue obtained by Nostalgia from external
customers and Nostalgia's loss and total assets, see Nostalgia's audited
financial statements for the fiscal year ended December 31, 1999 and the Notes
to the financial statements which are included in this proxy statement.
Financing for the Network has previously been provided by Concept and
Crown. Crown loaned to Nostalgia $15.0 million in 1999.
PATENTS, TRADEMARKS, LICENSES
Nostalgia neither holds nor depends on any material patent, trademark,
license, franchise or concession except for its trademarks "Nostalgia Channel"
and "Nostalgia Television." In 1998, Nostalgia licensed the right to use
"GoodLife TV Network" from Scripps Howard Broadcasting Company for ten years.
COMPETITION
There is intense competition among providers of programming via cable
television, direct broadcast satellite (DBS) and other video delivery systems.
The Network competes with other programmers for access to limited channel space
on affiliates and viewers; for advertising revenues with other cable networks,
broadcast television, radio and print media; and more generally, with various
other leisure-time activities such as home video, movies, the internet and other
forms of information and entertainment.
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A number of basic networks (such as USA Network, American Movie Classics
and Turner Network Television), 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 Network's target audience.
Most providers of these programming services are comprised of a group of
programming services or are affiliated with cable system operators or motion
picture studios, and may enjoy advantages that independent services, such as the
Network, do not. Many of the Network's competitors have substantially greater
financial and other resources than the Network.
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. Nostalgia believes that the increase
in the number of channels will both reduce competition for access to channel
space and increase competition for viewers. There can be no assurance as to when
technological advances will be commercially implemented to increase
significantly overall channel capacity.
Many of Nostalgia's competitors pay cable systems, DBS and other video
delivery systems a significant upfront "per subscriber" fee. This fee may act as
an incentive to a system to carry a certain network because it will receive fees
based upon the number of subscribers to that system. Nostalgia pays some
competitive, upfront fees, but only in circumstances judged to be most
beneficial in terms of launch opportunities. Nostalgia has relied more on waiver
of future fees to be paid to the Network by its affiliates, and on quality
original programming and other branding efforts to distinguish the Network from
its competitors and, thereby, provide a substantive reason for cable systems to
choose the Network for carriage. While this determination may have, in the short
term, an adverse impact on the Network's ability to gain carriage, Nostalgia
believes it is the most appropriate way to maximize the value and impact of
Nostalgia's financial resources. Nostalgia also is actively engaged in efforts
to review and identify potential strategic alliance partners that could provide
support to Nostalgia's efforts to increase its subscriber base. By obtaining
strategic alliances with one or more cable system operators, the Network could
recognize an immediate increase in the subscriber base, thus in turn increasing
both affiliate and advertising revenues.
GOVERNMENT REGULATION
The Telecommunications Act of 1996, among other things, repealed statutory
provisions and regulations of the Federal Communications Commission (FCC) that
prohibited telephone companies from operating cable television or other
multi-channel 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 Telecommunications Act of 1996 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. Pursuant to the Telecommunications Act of 1996, the FCC has extended
to common carriers the regulations imposed upon traditional cable systems by the
Cable Television Consumer Protection and Competition Act of 1992. These
regulations are intended to prevent telephone companies from favoring program
services in which they have an interest and from unreasonably denying access to
unaffiliated programmers.
The Telecommunications Act of 1996 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 Telecommunications Act of 1996 requires the FCC to adopt rules
which allow the traditional networks to operate more than one television
network, except that, absent rulemaking by the FCC, 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
networks 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 Telecommunications Act of 1996 also modified, to a limited extent, the
system of rate regulation imposed upon traditional cable operators pursuant to
the Cable Television Act of 1992. Under the
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Telecommunications Act of 1996, rate regulation by the FCC of the upper tiers of
service (where the Network typically is carried) expired on March 31, 1999.
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 Telecommunications Act of 1996.
The Telecommunications Act of 1996 does not alter the "must carry" and
"retransmission consent" requirements of the Cable Television Act of 1992. 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 the Network. In the past, the Network has
lost carriage on cable systems because the system needed to reassign the channel
used by the Network either to comply with the Cable Television Act of 1992 must
carry provisions or to fulfill a contractual obligation to a broadcaster arising
out of the "retransmission consent" requirements of the Cable Television Act of
1992. Broadcasters are urging the FCC to apply "must carry" obligations to
broadcasters' transmission of digital television signals on a second assigned
channel. While the FCC thus far has declined to act on these requests, the
imposition of additional "must carry" obligations could significantly restrict
the availability of channels for cable services, including the Network.
Similarly, cable companies' decision to allocate limited cable capacity to
Internet and other data services could adversely affect channel availability,
particularly if cable operators should be obliged by law or regulation to offer
"open access" to their cable capacity for competing providers of Internet/data
services. On the other hand, the construction of higher capacity systems to
permit the offering of Internet/data services greatly expands the cable capacity
and may aid the Network's ability to gain access to such rebuilt cable systems.
In addition, the end of upper tier rate regulations on March 31, 1999 removed a
significant constraint on cable company revenues which may further encourage
cable operators to invest in new facilities that will accommodate additional
programming to the benefit of the Network.
Nostalgia is unable to predict what effect, if any, these legislative and
regulatory changes will have on its operations or finances. In general,
Nostalgia believes that the relaxation of rate regulation and the introduction
of competition in the multi-channel distribution business will improve
Nostalgia'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 Network. 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 Network already faces for advertising revenues and
audiences.
EMPLOYEES
On December 31, 1999, Nostalgia had a total of 27 full-time, non-union
employees. On March 2, 1999, Nostalgia announced its determination to
consolidate the Network's sales and marketing staffs at its headquarters in
Washington, DC, resulting in a reduction of its staffing levels by eleven
positions. Nostalgia 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.
DIRECTORS AND EXECUTIVE OFFICERS
Directors
Christopher Cates is currently President and Chief Executive Officer of
MediaComm, a teleproduction facility located in Charlotte, N.C. From February
1998 to February 1999, Mr. Cates served as Senior Vice President of Corporate
Development of Atlantic Video, which is engaged in the production and recording
of videotapes, the provision of post-production services and related activities.
Mr. Cates served as Vice President/General Manager of Atlantic Video from July
1989 to January 1998. From March 1992 to January 1998, he also served as
President of Pyramid Video, which is engaged in satellite transmission services,
the production and recording of videotapes, the provision of post-production
services and related
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activities. Mr. Cate's business address is 9700 Southern Pines Boulevard,
Charlotte, North Carolina 28273. Mr. Cates is a citizen of the United States.
Floyd Christofferson has served as President and Chief Executive Officer of
Potomac Television Communications, Inc. since April 1997. From November 1994 to
April 1997, Mr. Christofferson served as President of Manhattan Center Studios,
a multimedia group. Mr. Christofferson's business address is 245 Henbree Park
Drive, Suite 100, Roswell, Georgia 30076. Mr. Christofferson is a citizen of the
United States.
Dianne M. Faure is an attorney in private practice and, since October 1989,
has worked in the areas of health care, insurance and contract law. During this
time, she also has served as a board member to numerous civic and nonprofit
associations. Ms. Faure's business address is 15100 Candytuft Lane, Rockville,
Maryland 20853. Ms. Faure is a citizen of the United States.
Hiroshi Goto has served as the budget director of The Washington Times
Corporation since August 1997. From September 1986 through July 1997, Mr. Goto
served in various capacities at Washington Times, including finance manager,
assistant finance manager and internal auditor. Mr. Goto's business address is
3600 New York Avenue, N.E., Washington, D.C. 20002. Mr. Goto is a citizen of
Japan.
Dong Moon Joo has served President of Concept since April 1993. Mr. Joo has
been President and Chief Executive Officer of Washington Times and News World
Communications, since September 1992. Mr. Joo's business address is 650
Massachusetts Avenue, N.W. Suite 200, Washington, D.C. 20001. Mr. Joo is a
citizen of South Korea.
Since 1985, S. Robert Lichter has served as President of the Center for
Media and Public Affairs, a nonpartisan, nonprofit research organization that
analyzes how news and entertainment media treat social and political issues, and
Statistical Assessment Service, a nonprofit research organization. Dr. Lichter
is currently an adjunct professor of government at Georgetown University. Dr.
Lichter's business address is 2100 L Street, NW, Suite 300, Washington, D.C.
20037. Dr. Lichter is a citizen of the United States.
Since 1987, Frederick W. Newton has served as President of Corporate
Recovery Inc., which provides consulting services to area corporations. Mr.
Newton has served as President of Stellar Printing Inc., since 1989, and as
President of Freestate Publishing Inc., which publishes a community newspaper,
since 1993. Mr. Newton's business address is 10 Dale Drive, Rockville, Maryland
20850. Mr. Newton is a citizen of the United States.
Since June 1996, SQuire D. Rushnell has served as Nostalgia's President and
Chief Executive Officer. From August 1995 to December 1995, Mr. Rushnell was
President and Co-Founder of Our Time Television, Inc., a cable television
network targeted to emerging baby boomers. From January 1990 to March 1996, Mr.
Rushnell served as President of Rushnell Communications and Publishing, Inc.,
producing programming for broadcast networks and syndication. Mr. Rushnell's
business address is 650 Massachusetts Avenue, N.W. Suite 200, Washington, D.C.
20001. Mr. Rushnell is a citizen of the United States.
Ambassador Phillip Sanchez has served since February 1987 as Vice President
of News World Communications, which publishes numerous newspapers and
periodicals. Ambassador Sanchez currently is the Publisher of Noticias Del
Mundo, a national Spanish-language daily newspaper, and Tiempos del Mundo, a
Spanish-language weekly newspaper published throughout the western hemisphere.
Ambassador Sanchez is the Chairman of the Board of Trustees of the National
Hispanic University (San Jose, California), and serves on the Board of Trustees
of the Educational Foundation of the Americas, and of the University of
Bridgeport (Bridgeport, Connecticut). Ambassador Sanchez's business address is
3600 New York Avenue, N.E., Washington, D.C. 20002. Ambassador Sanchez is a
citizen of the United States.
Since June 1995, Robert J. Wussler has served as President and Chief
Executive Officer of Affiliate Enterprises, Inc., a television syndication
company. Mr. Wussler also has served as Chairman of the Board of Directors and
Chief Executive Officer of U.S. Digital Communications, Inc., which specializes
in internet broadcasting services and satellite technology, since May 1998, and
as President and Chief Executive Officer of The Wussler Group, a worldwide
media-consulting group, since February 1992. Mr. Wussler's business
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address is 2 Wisconsin Circle, Suite 700, Chevy Chase, Maryland 20815. Mr.
Wussler is a citizen of the United States.
Executive Officers
Willard R. Nichols currently serves as Vice President, General Counsel and
Secretary of Nostalgia. Mr. Nichols served as General Counsel and Secretary from
May 1997 to June 1998. He has served as a Vice President of Nostalgia since his
election by the Board of Directors to that position in June 1998. Prior to his
service with Nostalgia, Mr. Nichols was an attorney in private practice engaged
in domestic and international telecommunications consulting. He also served for
the calendar year 1995 as Executive Vice President and Managing Director of
UTAM, Inc. Mr. Nichols' business address is 650 Massachusetts Avenue, N.W. Suite
200, Washington, D.C. 20001. Mr. Nichols is a citizen of the United States.
Diane C. Fuller currently serves as Chief Financial Officer and Treasurer
of Nostalgia. Ms. Fuller has served as Treasurer of Nostalgia since her election
to that position by the Board of Directors in March 1999. She has served as
Chief Financial Officer of Nostalgia since December 1999. From July 1990 to
February 1999, Ms. Fuller served in various capacities with Nostalgia, including
assistant controller. Ms. Fuller's business address is 650 Massachusetts Avenue,
N.W. Suite 200, Washington, D.C. 20001. Ms. Fuller is a citizen of the United
States.
To the knowledge of Nostalgia, during the last five years, none of Messrs.
Cates, Christofferson, Goto, Joo, Newton, Rushnell, Wussler or Nichols, or Dr.
Lichter, Ambassador Sanchez, Ms. Faure or Ms. Fuller has been convicted in a
criminal proceeding (excluding traffic violations and similar misdemeanors) or
has been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and, as a result of such proceeding, was or is subject to
a judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, Federal or state securities laws or finding
any violation with respect to such laws.
PROPERTIES
Nostalgia's executive offices are located at 650 Massachusetts Avenue,
N.W., Washington, D.C., where Nostalgia leases, on a month-to-month basis at a
monthly rate of $16,900, approximately 5,100 square feet of office space and 900
square feet of storage space from Washington Television Center Limited
Partnership, a subsidiary of U.S. Property Development Corporation, of which Mr.
Joo, a director of Nostalgia, is an officer. See "Certain Relationships and
Transactions."
Nostalgia's traffic and finance facility, consisting of approximately 4,300
square feet in Alexandria, Virginia, was leased on a month-to-month basis at a
monthly rate of $3,896 from Atlantic Video. As of May 31, 2000, the traffic and
finance departments were relocated from the Atlantic Video production facilities
to Nostalgia's corporate offices in the District of Columbia. Consequently, the
monthly lease payments of $3,896 have ceased. A build-out of the corporate
offices is planned to facilitate the finance department's relocation and a
completion date is scheduled for December 2000. At that time, lease payments for
this additional space will commence at a rate of approximately $5,000 per month.
Mr. Cates was an officer of Atlantic Video until January 26, 1999, and Mr. Joo
is an officer and Chairman of Atlantic Video. See "CERTAIN TRANSACTIONS AND
RELATIONSHIPS."
LEGAL PROCEEDINGS
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. Nostalgia was a nominal defendant for purposes of the derivative claims
asserted. The claim alleged that certain former directors of Nostalgia breached
their fiduciary duties to Nostalgia and its stockholders in connection with the
consideration and negotiation of several proposals by third parties to purchase
some or all of Nostalgia's common stock. On June 23, 1997 the Delaware court of
Chancery granted summary judgment in favor of the defendants, including
Nostalgia, on all but one class claim. On May 24, 2000 the Court of Chancery
granted summary
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judgment on the remaining claim. Nostalgia is required to indemnify those former
directors of Nostalgia and to pay their costs of defense.
The Marlin Entertainment Group, Ltd. v. The Nostalgia Network, Inc. and Jay
Garfinkel. On February 8, 2000, a complaint was filed in the United States
District Court for the Southern District of New York making claims against
Nostalgia for breach of contract, interference with contractual relations,
business disparagement and injurious falsehood. Nostalgia believes the
allegations of the complaint are without merit and intends to vigorously defend
all claims and has filed a counterclaim for damages against the plaintiff.
Nostalgia does not believe that this matter will have a material adverse effect
on Nostalgia's financial condition or results of operations.
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SELECTED FINANCIAL DATA
The following is a summary of selected financial data for Nostalgia for
each of the last five fiscal years.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Number of Subscribers............ 9,232,523 7,718,000 7,060,000 7,694,000 8,905,000
BALANCE SHEET DATA
Total Assets............ $ 12,723,094 $ 12,979,711 $ 16,997,972 $ 17,486,702 $23,955,541
Long Term Obligations............ 88,551,527 66,664,879 45,989,547 28,202,711 22,881,635
Stockholders' Deficit............ (82,596,278) (61,403,423) (38,352,747) (19,464,221) (7,522,733)
INCOME STATEMENT DATA
Affiliate Sales Revenue.......... 2,089,466 2,530,714 2,579,376 3,850,745 4,205,324
Advertising Sales Revenue........ 3,288,663 2,965,896 4,474,597 5,652,938 5,812,663
Other Revenue.................... 41,648 34,750 124,960 1,248,898
Total Operating
Revenues.............. 5,419,777 5,531,360 7,178,933 9,503,683 11,266,885
Operating Expenses............... 20,694,728 24,058,635 23,467,791 20,394,940 20,260,931
Loss From Operations............. (15,274,951) (18,527,275) (16,288,858) (10,891,257) (8,994,046)
Net Loss......................... (21,192,925) (23,050,676) (18,888,526) (11,941,488) (9,476,367)
Net Loss Per Common Share --
Basic and Diluted.............. (1.05) (1.14) (0.93) (0.59) (0.47)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Comments
Nostalgia's most important asset is its subscriber base. Substantially all
of Nostalgia's revenues are a function of its subscriber base. Affiliate revenue
is measured directly by the number of Nostalgia's subscribers. Advertising
revenue is based on viewership, which is a product of the number of subscribers.
Over the past few years, competition for subscribers among television networks
like the Network 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 Cable Television Consumer Protection and Competition Act of 1992, which
had the effect of allocating already scarce cable capacity to the owners of
broadcast television channels. The Cable Act of 1992 instituted the "must carry"
provisions which gave broadcasters, some of 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 Nostalgia in order to carry such broadcast
channels. To those broadcasters whose programming was of interest to cable
subscribers, the Cable Act of 1992 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 Nostalgia were dropped to make room for affiliates of broadcasters. Despite
these changes, Nostalgia's subscriber base increased from 7,718,053 at December
31, 1998 to 9,232,523 at December 31, 1999, although the subscriber base is
still below 1993 levels. Until such time as channel capacity increases
significantly, Nostalgia will remain vulnerable to subscriber declines.
Nostalgia believes that baby boomer and older adults are 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 30.0% of the population in 2000. As the technological front
continues to change, Nostalgia believes that its best approach is to brand
further the Network and build consumer awareness of the Network. In furtherance
of this goal, Nostalgia is actively pursuing development of new original
programming specifically targeted to Boomers and over which will be unique to
the Network. Nostalgia believes that investment in the Network's programming and
consumer awareness will provide a greater long-term benefit than diverting funds
for short-term launch opportunities. Nostalgia's revenues, ratings and
subscriber base have not risen in proportion to the costs of production of
Nostalgia's original programming. Nostalgia will continue to invest in original
programming in an attempt to increase subscribers to a point where revenues will
exceed expenditures, but there can be no assurance that such a point will be
achieved or that Nostalgia will be able to obtain financing for such
expenditures.
Three months ended March 31, 2000 compared to three months ended March 31,
1999
Revenues
Total revenues increased by $244,960, or 18.3% (from $1,339,636 to
$1,584,596) for the three months ended March 31, 2000 (the "2000 Quarter")
compared to the three months ended March 31, 1999 (the "1999 Quarter"). The
increase resulted principally from the sale of available radio spot airtime,
which originally was acquired in 1999.
Overall advertising sales revenues increased $38,786, or 4.9% (from
$791,421 to $830,207). Infomercial sales decreased $217,828, or 55.1% (from
$395,278 to $177,450). The decrease in infomercial revenue was due to
Nostalgia's decision to shift from selling infomercial time during the overnight
block to selling Nested programs, which combine all of the available time during
the overnights and allow Nostalgia to sell it as a block of time which has been
designated as Nested programs. Nested programs amounted to $325,350, for the
2000 Quarter. Revenues from national spot ads decreased $157,463 or 100.0% (from
$157,463 to $0). This was primarily as a result of Nostalgia's decision to
discontinue the sale of national spot advertising and expand the inventory of
advertising hours for Infomercial and direct response advertising. Other revenue
increased by
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$203,084, or 100.0% (from $0 to $203,084) primarily as a result of the sale of
available radio spot airtime, which originally was acquired in 1999.
Affiliate revenues increased by $3,090, or 0.6% (from $548,215 to
$551,305), primarily as a result of some c-band customers that became billable
during the 2000 Quarter. The length of each contract varies, but generally
ranges from three to five years. Certain of Nostalgia'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. As a result of intense competition among cable
networks for this reduced number of channels, Nostalgia's per subscriber fees
from affiliates may decline.
Operating Expenses
Operating expenses, net of $674,582 in capitalized programming costs in the
2000 Quarter, compared to $280,164 in the 1999 Quarter, decreased by $632,808,
or 11.8% (from $5,371,769 to $4,738,961). This decrease was primarily a result
of a decrease of $465,525, or 47.0% (from $989,667 to $524,142) in sales and
marketing costs, a decrease of $186,023, or 17.5% (from $1,061,575 to $875,552)
in finance, general and administrative costs, a decrease of $20,224, or 1.7%
(from $1,201,507 to $1,181,283) in programming, production and transmission
costs, offset by an increase in programming amortization of $38,980, or 1.8%
(from $2,119,020 to $2,158,000).
Sales and marketing costs decreased by $465,525, or 47.0% (from $989,667 to
$524,142). Salaries and wages decreased by $179,928, or 46.9% (from $383,447 to
$203,519). Travel and entertainment expenses decreased by $15,705, or 31.4%
(from $50,055 to $34,350). These decreases were primarily due to the departure
of personnel from positions, which have not yet been replaced. Convention
expenses increased by $38,538, or 287.9% (from $13,387 to $51,925). Advertising
expenditures increased by $2,972, or 21.8% (from $13,638 to $16,610). Both of
these increases were due to Nostalgia's efforts to build consumer awareness of
the Network. Professional fees decreased by $82,935 or 56.7% (from $146,385 to
$63,450) primarily as a result of reduced expenditures on the Network's affinity
and new media efforts, as well as bringing the Network's public relations
operations in house.
Programming, production and transmission costs, net of $674,582 in
capitalized programming costs in the 2000 Quarter compared to $280,164 in the
1999 Quarter, decreased by $20,224, or 1.7% (from $1,201,507 to $1,181,283)
primarily as a result of a combination of decreased costs in net programming
costs of $53,212, or 20.7% (from $256,235 to $203,023), decreased programming,
production and traffic costs of $11,340 or 9.0% (from $126,132 to $114,792),
offset by increased transmission costs of $44,329 or 5.4% (from $819,139 to
$863,468).
Programming amortization costs increased by $38,980, or 1.8% (from
$2,119,020 to $2,158,000) primarily as a result of higher overall accumulated
costs for original programming incurred in prior years. Nostalgia expects to
incur additional increases in future programming and studio production costs as
a consequence of upgrading the Network's programming and the creation of new
original programs. These additional future expenditures will adversely impact
Nostalgia's results of operations in the short-term, but management believes
they are critical to Nostalgia's long-term survival and growth.
Finance, general and administrative costs decreased by $186,023, or 17.5%
(from $1,061,575 to $875,552). This decrease primarily was a result of decreases
in legal and professional fees of $54,421, or 37.3% (from $145,915 to $91,494),
decreases in bad debt expenses of $51,980, or 29.9% (from $174,000 to $122,020),
decreases in consolidation and retention costs of $106,861, or 55.2% (from
$193,762 to $86,901) and decreases in travel and entertainment costs of $4,383,
or 20.3% (from $21,547 to $25,930). These decreases were partially offset by
increases in rent and lease expense of $14,850, or 26.8% (from $55,290 to
$70,140), and salaries, taxes and benefits of $34,655, or 14.9% (from $232,614
to $267,269). These decreases resulted from Nostalgia's decision in March 1999
to more closely align its sales and marketing activities by consolidating these
efforts at Nostalgia's headquarters in Washington, D.C.
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As a result of increased revenues, decreased programming, production, and
transmission costs, decreased sales and marketing costs, decreased finance,
general and administration costs, offset partially by increased programming
amortization costs, Nostalgia's loss from operations decreased $632,792, or
11.8% (from $5,371,769 to $4,738,977). Other income (expense) increased
$491,479, or 36.7% (from ($1,340,305) to ($1,831,784)) primarily as a result of
interest on additional borrowings. As a result of decreased loss from operations
and increased other expense, net loss decreased by $386,373, or 7.2% (from
$5,372,438 to $4,986,165).
Liquidity and Capital Resources
Cash increased from $674,177 at December 31, 1999 to $1,070,601 at March
31, 2000, principally due to $3,750,000 in financing received in the 2000
Quarter, offset by cash outlays to cover increased operating losses and
repayments of certain debts. Working capital decreased from $1,952,296 at
December 31, 1999 to $1,639,994 at March 31, 2000, principally as a result of a
decrease in current programming and cablecast rights. Cablecast rights have
decreased by $1,483,418, or 14.7%, since December 31, 1999 as a result of
amortization of the Network's investment in its primetime line-up. Total
liabilities increased primarily due to $3,750,000 in additional financing.
Cash used in operating activities decreased $1,573,240, or 59.2% (from
$2,658,107 to $1,084,867) for the 2000 Quarter compared to the 1999 Quarter,
principally as a result of decreases in accounts payable and improved
collections on accounts receivable.
Cash used in investing activities increased $405,463, or 144.7% (from
$280,164 to $685,627) principally due to an increase in the purchase of
programming and cablecast rights of $394,418.
Cash flows from financing activities decreased $4,516,368, or 67.6% (from
$6,683,286 to $2,166,918) due principally to decreased financing of $4,250,000,
or 53.1% (from $8,000,000 to $3,750,000), offset by increased repayment of
long-term obligations of $266,368, or 20.2% (from $1,316,714 to $1,583,082).
In light of Nostalgia'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 base and should allow the Network to increase its advertising rates
as well as affiliate revenues. To provide for necessary future growth,
management continued its focus on planning an aggressive affiliate marketing
campaign over the next three to five years. This campaign will include consumer
awareness advertising and events, prominent presence at major trade shows and
new trade advertising.
Since 1990, Crown and Concept have been the principal source of Nostalgia's
capital. Crown and Concept have invested $2,300,000 and provided $85,781,000 in
financing since 1994, including $15,000,000 loaned by Crown to Nostalgia in
1999. Additionally, between January 1, 2000 and May 5, 2000, Crown has provided
$5,000,000 in debt financing to Nostalgia, and has committed to advance, as
needed, an additional $10,000,000 in debt or equity financing during the balance
of the calendar year. Nostalgia believes that these funds will be sufficient to
satisfy its operating needs for 2000. In connection with the borrowings,
Nostalgia has entered into a security agreement pledging substantially all
Nostalgia's assets as security for its indebtedness to Crown and Concept.
Fiscal year ended December 31, 1999 compared to fiscal year ended December 31,
1998
Results of Operations
Net loss in 1999 decreased $1,858,000, or 8.1% (from $23,051,000 to
$21,193,000). This decrease was due primarily to reduced expenses in sales and
marketing (a decrease of $4,027,000); decreased programming, production and
transmission expenses (a decrease of $728,000); offset in part by a reduction in
revenues (a reduction of $112,000); increased programming amortization expenses
(an increase of $982,000); increased finance, general and administration
expenses (an increase of $409,000) and increased interest expenses (an increase
of $1,405,000).
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Revenues
Total revenues in 1999 decreased by $111,000, or 2.0% (from $5,531,000 to
$5,420,000). This decrease was primarily attributed to a decrease in affiliate
revenues, offset by increases in advertising revenue.
Affiliate revenues declined $442,000, or 17.5% (from $2,531,000 to
$2,089,000). The length of each affiliate contract varies, but generally ranges
from three to five years. Certain of Nostalgia'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. As a result of intense competition among cable
networks for this reduced number of channels, Nostalgia's per subscriber fees
from affiliates have declined and may continue to decline as small networks,
particularly those unaffiliated with the major multiple system cable operators,
such as the Network, now are required to make payments to the cable operators
and waive or not require per subscriber fees to be paid to them to obtain
carriage.
Advertising revenues increased $323,000, or 10.9% (from $2,966,000 to
$3,289,000), primarily as a result of increased rates associated with
Nostalgia's national spot ads and direct response (short format commercial
advertising of two minutes or less in length) advertising. Revenues from
national spot ads increased $188,000, or 63.1% (from $298,000 to $486,000) and
is due to increases in the average rate per spot. Revenues from direct response
increased $221,000, or 24.9% (from $886,000 to $1,107,000) and is due to
increases in the average rate per spot. Revenues from infomercials decreased
$777,000, or 43.6% (from $1,781,000 to $1,004,000), primarily due to Nostalgia's
decision in July 1999 to shift from selling infomercial time during the
overnight block and begin selling nested or sponsored programs. Nested or
sponsored programs combines all of the available time during the overnights and
allows Nostalgia to sell it as a solid block of time. As a result, revenue
generated from nested programs amounted to $693,000 for 1999. Other revenues
increased approximately $7,000, or 20.0% (from $35,000 to $42,000) and is due to
the sale of books and GTV DanceSport video tapes.
Operating Expenses
Total operating expenses decreased $3,364,000, or 14.0% (from $24,059,000
to $20,695,000). The decrease was due principally to decreased sales and
marketing expenses (a decrease of $4,027,000); decreased programming, production
and transmission expenses (a decrease of $728,000); offset by increased
programming amortization expenses (an increase of $982,000); increased finance,
general and administrative expenses (an increase of $409,000).
Programming expenses for 1999 decreased $728,000, or 12.9% (from $5,660,000
to $4,932,000). Programming costs, net of $2,403,000 in capitalized costs,
decreased by $959,000, or 46.9% (from $2,045,000 to $1,086,000) primarily as a
result of costs associated with new original programs. Transmission costs
increased by $301,000, or 9.8% (from $3,073,000 to $3,374,000) primarily as a
result of incurring HITS transport fees, which allow Nostalgia to transmit its
signal digitally, as well as incurring higher master control and uplink charges
for the year. Program, production and traffic expenses decreased $70,000, or
12.9% (from $542,000 to $472,000) primarily as a result of reduced Network
branding costs for the current year.
Programming amortization increased $982,000, or 12.7% (from $7,758,000 to
$8,740,000). The majority of this increase results from a shorter amortization
period for original programming, which comprises the bulk of capitalized costs
and for newly acquired series.
Sales expenses and marketing costs decreased by $4,027,000, or 54.6% (from
$7,374,000 to $3,347,000) primarily as a result of management's decision in
March 1999 to more closely align its sales and marketing activities by
consolidating these efforts at its headquarters in Washington, DC. Salaries,
wages and benefits decreased by $564,000, or 32.9% (from $1,716,000 to
$1,152,000). Travel and entertainment decreased by $293,000, or 65.6% from
($447,000 to $154,000). Other employee costs decreased by $20,278, or 38.9%
(from $52,145 to $31,867). These decreases were primarily due to the departure
of personnel who have not been replaced. Convention expense decreased by
$1,231,000, or 93.0% (from $1,324,000 to $93,000). Advertising expenditures
decreased by $1,062,000, or 83.5% (from $1,271,000 to $209,000). Sales and
marketing materials decreased by $140,000, or 66.0% (from $212,000 to $72,000).
Premium expenditures decreased by
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$102,000, or 87.9% (from $116,000 to $14,000). These decreases were also due to
Nostalgia's efforts to reduce marketing costs. Professional fees decreased by
$437,000, or 75.7% (from $577,000 to $140,000) primarily as a result of reduced
expenditures on Nostalgia's affinity and new media efforts, as well as bringing
Nostalgia's public relations operations in house. These decreases were offset by
increases in part by an increase in marketing allowance costs of $167,000, or
49.4% (from $338,000 to $505,000).
Finance, general and administrative costs increased by $409,000, or 12.5%
(from $3,267,000 to $3,676,000). This increase was primarily a result of an
increase on consolidation and retention costs by $661,000, or 100.0% and rent
expense increases by $15,000, or 6.7%. These increases were offset by decreases
in salaries and wages of $110,000, or 9.2% (from $1,192,000 to $1,082,000).
Legal and professional fees decreased by $21,000, or 4.3% (from $489,000 to
$468,000). Office expenses decreased by $53,000, or 30.6% (from $173,000 to
$120,000).
As a result of decreased revenue ($112,000), increased programming
amortization costs ($982,000), increased finance, general and administrative
costs ($409,000), and increased interest expense of ($1,405,000) which were
offset by decreases in programming, production and transmission costs
($728,000), and decreased sales and marketing costs ($4,027,000) Nostalgia's net
loss decreased $1,858,000, or 8.1% for the year ended 1999.
Other expense increased by $1,395,000, or 30.8% (from $4,523,000 to
$5,918,000) primarily as a result of interest on outstanding debt.
Fiscal year ended December 31, 1998 compared to fiscal year ended December 31,
1997
Net loss in 1998 increased $4,162,000, or 22.0% (from $18,889,000 to
$23,051,000). This increase was due principally to reduced revenues (a reduction
of $1,648,000); increased interest expenses (an increase of $1,924,000);
increased program amortization expenses (an increase of $867,000); increased
finance, general and administrative expenses (an increase of $335,000); and
increased programming, production and transmission expenses (an increase of
$136,000); offset by decreased sales and marketing expenses (a decrease of
$746,000).
Revenues:
Total revenues in 1998 decreased by $1,648,000, or 23.0% (from $7,179,000
to $5,531,000). This decrease was primarily attributed to advertising revenues.
Affiliate revenues declined $48,000, or 1.9% (from $2,579,000 to
$2,531,000), reflecting earlier losses of subscribers as a result of competition
for scarce channel capacity. Additionally, increased competition has put
downward pressure on the rates which Nostalgia 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, Nostalgia expects future
increases in its subscriber base, if any, to result in less than fully
proportionate increases in affiliate revenues.
Advertising revenues decreased $1,509,000, or 33.7% (from $4,475,000 to
$2,966,000), primarily as a result of decreased rates associated with
Nostalgia's reduced subscriber base from past years. Revenues from infomercials
decreased approximately $1,182,000, or 39.9%, primarily due to a decrease in
average rate per half hour which was primarily the result of market pressures as
well as a 10.0% decrease from 1997 with respect to the amount of time devoted to
this format. Revenues from short-format commercial advertising (two minutes or
less in length) decreased by approximately $327,000, or 21.6%, due to a 26.3%
decrease in the average rate charged per spot. This decrease was due to market
pressures and make goods to certain advertisers. Other revenues decreased
approximately $90,000, or 72.2% (from $125,000 to $35,000) due to extraordinary
collections of previously written-off affiliate fees in the prior year.
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Operating Expenses:
Total operating expenses increased $591,000, or 2.5% (from $23,468,000 to
$24,059,000). The increase was due principally to increased program amortization
expenses (an increase of $867,000); increased finance, general and
administrative expenses (an increase of $335,000); and increased programming,
production and transmission expenses (an increase of $136,000); offset by
decreased sales and marketing expenses (a decrease of $746,000).
Programming expenses for 1998 increased $136,000, or 2.5% (from $5,524,000
to $5,660,000). Programming costs, net of $4,179,000 in capitalized costs,
increased by $68,000, or 3.4% (from $1,977,000 to $2,045,000) primarily as a
result of costs associated with new original programs. Transmission costs
increased by $216,000, or 7.6% (from $2,857,000 to $3,073,000) primarily as a
result of incurring HITS transport fees, which allow Nostalgia to transmit its
signal digitally, as well as incurring higher master control and uplink charges
for the year. Program, production and traffic expenses decreased $149,000, or
21.6% (from $691,000 to $542,000) primarily as a result of reduced Network
branding costs for the current year.
Programming amortization increased $867,000, or 12.6% (from $6,891,000 to
$7,758,000). The majority of this increase results from a shorter amortization
period for original programming, which comprises the bulk of capitalized costs.
Sales expenses and marketing costs decreased by $746,000, or 9.2% (from
$8,120,000 to $7,374,000) primarily as a result of the following: advertising
expenses decreased by $1,556,000, or 55.0% (from $2,827,000 to $1,271,000) as a
result of not incurring satellite, ad sale and special programming advertising
costs within the current year; conventions and national events increased by
$318,000, or 31.5% (from $1,009,000 to $1,327,000) as a result of increased
presence and activities at cable trade shows and other special events;
professional fees increased by $123,000, or 27.2% (from $452,000 to $575,000) as
a result of increased public relations efforts and increased consulting in
relation to satellite sales and affinity programs; program guide costs increased
by $97,000, or 43.5% (from $223,000 to $320,000) as a result of associated costs
with redesigning the guides; employee related costs decreased by $93,000, or
4.0% (from $2,307,000 to $2,214,000) primarily as a result of decreased travel
and entertainment expenses within the affiliate sales and marketing areas.
Finance, general and administrative expenses increased by $335,000, or
11.4% (from $2,932,000 to $3,267,000). The increase was attributable to a
$432,000 or 423.5% increase in bad debt expense (from $102,000 to $534,000), due
primarily to an increase in affiliate write-offs during the year as well as any
reserves for certain advertising revenues that were placed in litigation.
Nostalgia entered into affiliate agreements with C-Band customers whereby
certain of these customers were granted free carriage for periods up to eighteen
months. The contracts specified a fee per subscriber that would be payable to
Nostalgia on a monthly basis following the free carriage period. Subsequent to
the free carriage period, certain customers threatened to drop Nostalgia's
programming unless a reduced fee for carriage was negotiated. Ultimately, a
reduced fee was negotiated with these customers and any amounts included in
accounts receivable in excess of the renegotiated rates were written off.
Nostalgia has modified its collection procedures to more effectively collect
account receivables. This modification allows for strict adherence to internal
credit policies, which further ensures constant review and maintenance of
accounts. Write-offs have decreased because potential past due clients are being
recognized early on, which allows Nostalgia's collections department greater
ability to recover what would have been written off. These changes have
significantly lowered the accounts receivable turnover.
Following the commencement of litigation with a former advertising
customer, Nostalgia determined to reserve an amount of $109,480 against
outstanding accounts receivable that had not been paid for advertising that had
been run on the Network. In conjunction with settlement of this litigation, the
outstanding accounts receivable were forgiven.
Personnel costs increased by $74,000, or 6.6% (from $1,118,000 to
$1,192,000) due to the addition of staff within the accounting department.
Professional fees decreased $73,000, or 13.0% (from $562,000 to
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$489,000) principally as a result of reduced consulting and legal fees. Other
expenses decreased by $42,000, or 10.3% (from $406,000 to $364,000) primarily
due to a reduction in directors' fees, shareholders' expenses, repairs and
maintenance expenses and dues and subscriptions expenses. These were offset by
increases in insurance expenses that were related to increases in various policy
coverages. Office expenses decreased by $38,000, or 18.0% (from $211,000 to
$173,000), primarily due to lower general expenditures.
Net interest expense increased by $1,923,000, or 74.0% (from $2,600,000 to
$4,523,000) due to increased principal on the notes payable to Crown. Interest
expense is expected to increase in 1999 as a result of a full year's interest on
1998 borrowings as well as interest on additional borrowings anticipated in
1999.
Liquidity and Capital Resources
Fiscal year ended December 31, 1999 compared to fiscal year ended December 31,
1998
Working capital increased $727,000, (59.3%) from $1,225,000 at December 31,
1998 to $1,952,000 at December 31, 1999. The increase is primarily a result of a
reduction in trade payables as a result of paying down existing debt.
Cash used in operating activities decreased $3,889,000 (33.2%) from
($11,724,000) to ($7,835,000), due to an increase in programming amortization
and accrued interest.
Cash used in investing activities decreased $1,647,000 (39.0%) from
($4,216,000) to ($2,569,000), due primarily to decreases in acquisition of
programming and cablecast rights of $1,665,000.
Cash provided by financing activities decreased $4,141,000 (28.2%) from
$14,680,000 to $10,539,000, due primarily to decreases in financing from Crown
of $4,000,000.
Fiscal year ended December 31, 1998 compared to fiscal year ended December 31,
1997
Working capital increased $1,039,000, or 558.6% (from $186,000 to
$1,225,000). The increase is primarily a result of increases in current portion
of programming rights, offset by increases in accounts payable.
Cash used in operating activities increased $3,123,000, or 36.3% (from
($8,601,000) to ($11,724,000)), due to an increased loss of $4,162,000, offset
by an increase in programming amortization and accrued interest.
Cash used in investing activities increased $560,000, or 15.3% (from
($3,660,000) to ($4,220,000)), due primarily to an increase in acquisition of
programming and cablecast rights of $821,000, offset by a decrease in the
acquisition of property and equipment of $231,000.
Cash provided by financing activities increased $2,037,000, or 16.1% (from
$12,643,000 to $14,680,000), due primarily to decreased payments on financing
for programming and other debt of $2,536,000, offset by a decrease in financing
by Crown of $500,000.
In light of Nostalgia'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 base and should allow the Network to increase its advertising rates
as well as affiliate revenues. To provide for necessary future growth,
management continued its focus on planning an aggressive affiliate marketing
campaign over the next three to five years. This campaign will include consumer
awareness advertising and events, prominent presence at major trade shows and
new trade advertising.
Increased competition from networks with strong strategic alliances and
significant financial resources continue to significantly effect Nostalgia's
ability to increase its subscriber base and, correspondingly, has reduced
revenues from affiliates and advertising. This competition also has increased
the costs, which Nostalgia must pay for programming. Nostalgia does not
anticipate significant improvement in the results of its operations until such
time as the number of its subscribers increases significantly.
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Since 1990, Crown and Concept have been the principal source of Nostalgia's
capital. Crown and Concept have invested $2,300,000 and provided $85,781,000 in
financing since 1994, including $15,000,000 loaned by Crown to Nostalgia in
1999. Additionally, between January 1, 2000 and March 20, 2000, Crown has
provided $3,750,000 in debt financing to Nostalgia, and has committed to advance
as needed an additional $11,250,000 in debt or equity financing during the
balance of the calendar year. Nostalgia believes that these funds will be
sufficient to satisfy its operating needs for 2000. In connection with the
borrowings, Nostalgia has entered into a security agreement pledging
substantially all Nostalgia's assets as security for its indebtedness to Crown
and Concept.
In October 1999, Nostalgia announced that it had received and accepted an
offer from Crown to enter into a cash merger which, if consummated, would result
in the elimination of Nostalgia's publicly-held common stock and constitute a
going-private transaction within the meaning of Section 13(e)(3) of the
Securities Exchange Act of 1934. Crown and Concept, in the aggregate, are the
beneficial owners of 70.3% of Nostalgia's issued and outstanding shares of
common stock.
Upon receipt, Crown's offer was referred to and reviewed by a committee of
Nostalgia's independent directors which recommended that the offer be accepted.
Nostalgia's Board of Directors voted to accept Crown's offer and to authorize
the negotiation of definitive documentation for the merger. Consummation of the
merger remains contingent upon, among other things, the approval of Nostalgia's
stockholders. Crown has indicated that it and its affiliates will vote in favor
of the merger.
Nostalgia continued to pursue identification of potential strategic
alliance candidates. Nostalgia also continued in its analysis of and efforts to
seek a strategic alliance. Nostalgia has engaged in active discussions with
several possible strategic partners, but no serious discussions have occurred.
There can be no assurance that Nostalgia will be able to obtain a strategic
partner, or that any strategic partner will be willing to invest the sums
required by Nostalgia in order to continue to grow the Network's subscriber
base. It is anticipated that following the merger, the business and operations
will be continued substantially as currently conducted for the immediate future.
Crown and Concept have informed Nostalgia that they intend to re-evaluate the
business with respect to the future business and operations of Nostalgia, as
they deem appropriate. Although there are no definitive plans or agreements in
place, Crown and Concept intend to continue to seek material transactions and/or
relationships such as joint ventures, strategic partnerships, mergers or other
forms of business combinations with third parties following the merger.
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 Nostalgia's future needs. There can be no
assurance that Nostalgia will be able to locate sufficient financing in excess
of that committed from Crown, nor that it will be able to achieve a strategic
alliance.
MATERIAL COMMITMENTS
Nostalgia 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 Nostalgia'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 Nostalgia was required to pay a launch protection fee of
$1,000,000 plus capitalized interest at 12.0% and other direct costs.
As of March 20, 2000, Nostalgia had issued and outstanding promissory notes
to Concept and Crown in the aggregate principal amount of $21,783,608 and
$67,747,292, respectively, bearing interest of approximately 8.50% to 8.75% per
annum which are due and payable on January 1, 2001.
Atlantic Video. Nostalgia and Atlantic Video are parties to an agreement
pursuant to which Atlantic Video provides to Nostalgia certain exclusive
television production, post-production and master control/uplink services and
equipment and leased to Nostalgia 4,300 square feet of office space in Atlantic
Video's Alexandria, Virginia production facilities at a monthly rate of $3,896.
As of May 31, 2000, the traffic and finance departments were relocated from
Atlantic Video production facilities to Nostalgia's corporate offices in the
District of Columbia. Consequently, the monthly lease payments of $3,896 have
ceased. A build-out of
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the corporate offices is planned to facilitate the finance department's
relocation and a completion date is scheduled for December 2000. At that time,
lease payments for this additional space will commence at a rate of
approximately $5,000 per month. Under the terms of the agreement with Atlantic
Video, Nostalgia is required to purchase a minimum number of hours of such
services during each year at specified rates. Nostalgia has agreed to pay a
minimum monthly fee of $93,000 to Atlantic Video. If Nostalgia does not actually
purchase $50,000 of services in a month from Atlantic Video, the difference, up
to an aggregate maximum of $75,000, subject to certain limitations, may be used
as a credit against future fees. The net amount payable to Atlantic Video for
these additional services with respect to 1999 was approximately $1,126,000.
Crown and Concept. Since 1990, Crown and Concept have been the principal
source of Nostalgia's capital. Crown and Concept have invested $2,300,000 and
provided $85,781,000 in financing since 1994, including $15,000,000 loaned by
Crown to Nostalgia in 1999. Additionally, between January 1, 2000 and June 13,
2000, Crown has provided $7.5 million in debt financing to Nostalgia and has
committed to advance, as needed, an additional $7.5 million in debt or equity
financing through December 31, 2000. Nostalgia believes that these funds will be
sufficient to satisfy its operating needs through December 31, 2000. In
connection with the borrowings, Nostalgia has entered into a security agreement
pledging substantially all Nostalgia's assets as security for its indebtedness
to Crown and Concept.
On December 30, 1999, Nostalgia issued two substitution and replacement
notes to Crown and Concept in the amounts of $63,997,292 and $21,783,608,
respectively. These notes bear interest at 8.5% and require aggregate minimum
monthly interest payments of $60,000, with principal and unpaid interest due on
January 1, 2001. These notes replace all previously issued notes plus unpaid
interest as of December 30, 1999 and are collateralized by substantially all of
Nostalgia's assets. As of March 20, 2000, Crown made additional loans totaling
$3,750,000 to Nostalgia bearing interest at 8.50% to 8.75%. Principal and unpaid
interest on these notes are due on January 1, 2001.
Transponder Lease. Nostalgia leases satellite transponder space and
services on a 24-hour per day basis. In connection with Nostalgia's satellite
transponder, which launched March 1994, a launch protection fee of $1,000,000
was paid and other direct costs were capitalized. The basic monthly rate is
$205,400 for a term spanning the life of the satellite, which is estimated to be
12 years. Expense for satellite transponder space and services was $2,404,800,
for 1999, 1998 and 1997. Lease expense for premises and equipment for 1999, 1998
and 1997, which consisted entirely of minimum rentals, was $274,000, $280,000
and $273,000, respectively. Approximate minimum rental commitments under all
non-cancelable leases, including the transponder lease, having terms in excess
of a year are as follows:
<TABLE>
<CAPTION>
FACILITY TRANSMISSION
YEAR ENDING DECEMBER 31, LEASES LEASES TOTAL
------------------------ -------- ------------ ----------
<S> <C> <C> <C>
2000....................................... 29,000 2,913,000 2,942,000
2001....................................... 29,000 2,892,000 2,921,000
2002....................................... 30,000 2,885,000 2,915,000
2003....................................... 21,000 2,885,000 2,906,000
2004....................................... 2,885,000 2,885,000
Thereafter................................. -- 10,426,000 10,426,000
-------- ---------- ----------
$109,000 24,866,000 24,995,000
======== ========== ==========
</TABLE>
Office Studio and Equipment. Nostalgia had a long term lease agreement
with an affiliate of Crown and Concept. The lease agreement terminated as of
November 30, 1999. Effective December 1999, Nostalgia is renting the office
space on a month to month basis. Rental expense under this lease was $215,000,
$194,000 and $184,600 for the years ended December 31, 1999, 1998 and 1997,
respectively. Nostalgia is in negotiations to commence a five-year lease.
Up until May 31, 2000, Nostalgia leased office space from Atlantic Video on
a month-to-month basis. Rent expense under this lease for the years ended
December 31, 1999, 1998 and 1997 was approximately $47,000.
64
<PAGE> 67
Rating Service Contract. In 1995, Nostalgia contracted with a service that
provides ratings reports, analysis reports, demographic reports and other
special reports. The agreement covered a minimum period of five years and
required a monthly base charge of approximately $40,000. In November 1999,
Nostalgia renegotiated the service agreement to receive partial services
throughout the remaining contract term at approximately $9,000 per month.
Cablecast Rights Payable. Prime-time series consist of broadcast licenses
for classic television series and other programming acquired from various film
studios or other sources and include:
- American Soldier Block. Interviews with veterans, focusing on their
wartime experiences, are wrapped around three classic dramatic television
shows. The programs and their wrap around elements are part of a weekday
and weekend block entitled American Soldier. The shows, which the Network
has licensed for two years, are Combat!, Garrison's Gorillas and Twelve
O'clock High. Combat! and Garrisons Gorilla's have quarterly license fees
of $15,625 and $16,250, respectively, and run through June 2000. Twelve
O'clock High has a monthly license fee of $27,153 and runs through
February 2000.
- American Families Block. This block spotlights regular families
discussing contemporary solutions to issues raised in episodes of classic
family programs of Ozzie & Harriet and Make Room for Daddy. Ozzie &
Harriet and Make Room for Daddy were acquired in September 1999 and have
monthly license fees of $16,250 and $48,750, respectively. Ozzie &
Harriet runs through August 2002 and Make Room for Daddy runs through
August 2001
- Bonanza. This program was acquired September 1999 and has monthly
license fees of $178,125 which runs through August 2001.
- The GTV Variety Hour. The GTV Variety Hour features classic variety
programs such as Tony Orlando and Dawn, Leslie Uggams and Dean Jones,
which were purchased by the Network. These shows, other than Tony Orlando
and Dawn, have a final annual payment of $195,000 due January 1, 2001.
Monthly payments of approximately $4,000 are due each month and the
balance is $47,812.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and financial statement schedules of
Nostalgia for the year ended December 31, 1999 included in this proxy statement
have been audited by Grant Thornton, LLP. The financial statements and financial
statement schedules for the two-year period ended December 31, 1998 included in
this proxy statement have been audited by BDO Seidman, LLP.
As reported on Nostalgia's Form 8-K, filed with the SEC on April 5, 1999,
BDO Seidman notified Nostalgia on April 1, 1999 that the auditor-client
relationship between Nostalgia and BDO Seidman had terminated and that it would
decline to stand for re-election. BDO Seidman's report on the financial
statements for the past two years contained no adverse opinion or disclaimer of
opinion, nor was the report qualified or modified as to uncertainty, audit
scope, or accounting principles. During the last two fiscal years and through
the subsequent interim period, there were no disagreements with BDO Seidman on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. Nostalgia engaged Grant Thornton LLP
as Nostalgia's independent accountant on April 2, 1999. Grant Thornton was
ratified as Nostalgia's independent accountants at Nostalgia's 1999 Annual
Meeting of Stockholders.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at the
special meeting. If other matters properly come before the meeting in accordance
with the bylaws, the persons named as proxies will vote on them in accordance
with their best judgment.
65
<PAGE> 68
ANNUAL REPORT AND FORM 10-K
Nostalgia's annual report on Form 10-K for the fiscal year ended December
31, 1999 was filed with the SEC on March 30, 2000. A list of the Exhibits
included in the Form 10-K and the exhibits may be obtained by writing to
investor relations, The Nostalgia Network, Inc. 650 Massachusetts Avenue, N.W.,
Washington, D.C. 20001.
66
<PAGE> 69
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
The deadline for submission of stockholder proposals intended for inclusion
in Nostalgia's proxy statement for the 2000 Annual Meeting of Stockholders was
December 31, 1999. Upon completion of the merger, Crown and Concept will be the
only stockholders of Nostalgia and Nostalgia will terminate its Exchange Act
registration.
You are urged to complete, date, sign and return your proxy card promptly
to make certain your shares will be voted at the special meeting, even if you
plan to attend the meeting in person. If you desire to vote your shares in
person at the meeting, your proxy may be revoked. For your convenience in
returning the proxy card, a pre-addressed and postage paid envelope has been
enclosed.
YOUR PROXY IS IMPORTANT
WHETHER YOU OWN FEW OR MANY SHARES
Please date, sign and mail the enclosed proxy card today.
By Order of the Board of Directors
/s/ WILLARD R. NICHOLS
--------------------------------------
Vice President, General Counsel and
Secretary
67
<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
THE NOSTALGIA NETWORK, INC.
Reports of Independent Certified Public Accountants......... F-2-3
Balance Sheets as of March 31, 2000 and December 31, 1999
and 1998.................................................. F-4
Statements of Operations for the Three Months Ended March
31, 2000 and 1999, and the Years Ended December 31, 1999,
1998 and 1997............................................. F-5
Statements of Changes in Stockholders' Equity (Deficit) for
the Years Ended December 31, 1999, 1998 and 1997 and the
Three Months Ended March 31, 2000......................... F-6
Statements of Cash Flows for the Three Months Ended March
31, 2000 and 1999, and the Years Ended December 31, 1999,
1998 and 1997............................................. F-7
Notes to Financial Statements............................... F-8-19
Report of Independent Certified Public Accountants on
Schedule II............................................... F-20
Schedule II................................................. F-21
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
The Nostalgia Network, Inc.
We have audited the accompanying balance sheet of The Nostalgia Network,
Inc. (the "Company") as of December 31, 1999, and the related statements of
operations, changes in stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present
fairly, in all material respects, the financial position of The Nostalgia
Network, Inc. at December 31, 1999, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Grant Thornton, LLP
Vienna, Virginia
March 3, 2000 (Except for Notes 1 and 4 as to which the date is March 21, 2000)
F-2
<PAGE> 72
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
The Nostalgia Network, Inc.
We have audited the accompanying balance sheet of The Nostalgia Network,
Inc. (the "Company") as of December 31 1998 and the related statements of
operations, changes in stockholders' deficit and cash flows for the years ended
December 31, 1998 and 1997. We have also audited Schedule II for the years ended
December 31, 1998 and 1997. 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, 1998, and the results of its operations and cash flows for the
years then ended December 31, 1998 and 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, 1998 and 1997.
BDO SEIDMAN, LLP
Washington DC
March 23, 1999
F-3
<PAGE> 73
THE NOSTALGIA NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
MARCH 31, 2000 1999 1998
-------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 1,070,601 $ 674,177 $ 539,371
Accounts receivable, less allowance of
$161,000 and $302,000 for doubtful
accounts................................. 669,882 826,588 935,230
Prepaid expenses............................ 68,002 114,096 168,362
Programming and cablecast rights............ 5,524,589 7,105,280 7,300,000
------------- ------------- ------------
Total current assets................ 7,333,074 8,720,141 8,942,963
Programming and cablecast rights, at
cost -- net.............................. 3,078,689 2,981,416 2,788,129
Property and equipment, at cost -- net...... 913,387 972,107 1,191,879
Deposits.................................... 49,431 49,430 56,740
------------- ------------- ------------
Total assets........................ $ 11,374,580 $ 12,723,094 $ 12,979,711
============= ============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of programming and
cablecast fees........................... $ 3,957,117 $ 4,810,822 $ 5,068,000
Accounts payable -- Trade................... 1,097,010 1,172,475 1,948,725
-- Related parties......... 35,142 32,191 278,919
Accrued expenses and other liabilities...... 396,367 531,341 395,081
Unearned income............................. 207,444 221,016 27,530
------------- ------------- ------------
Total current liabilities........... 5,693,080 6,767,845 7,718,255
------------- ------------- ------------
LONG-TERM OBLIGATIONS, LESS CURRENT
MATURITIES:
Programming and cablecast fees.............. 1,405,787 2,135,164 114,465
Notes payable to related parties............ 89,835,900 86,085,900 62,832,873
Accrued interest payable -- Related
parties.................................. 2,022,256 330,463 3,382,125
Other....................................... -- -- 335,416
------------- ------------- ------------
Total Long-term obligations......... 93,296,943 88,551,527 66,664,879
------------- ------------- ------------
Total liabilities................... 98,957,023 95,319,372 74,383,134
------------- ------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, convertible: $2 par value,
125,000 shares authorized, 3,250 shares
issued and outstanding................... 6,500 6,500 6,500
Common stock: $.04 par value, 30,000,000
shares authorized, 20,275,370 shares
issued and outstanding at March 31, 2000
and December 31, 1999, and 20,274,370
issued and outstanding in 1998........... 811,015 811,015 810,975
Additional paid-in capital.................. 30,213,584 30,213,584 30,213,554
Deficit..................................... (118,613,542) (113,627,377) (92,434,452)
------------- ------------- ------------
Total stockholders' deficit......... (87,582,443) (82,596,278) (61,403,423)
------------- ------------- ------------
Total liabilities and stockholders'
deficit........................... $ 11,374,580 $ 12,723,094 $ 12,979,711
============= ============= ============
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-4
<PAGE> 74
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------------- --------------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Affiliate revenues....................... $ 551,305 $ 548,215 $ 2,089,466 $ 2,530,714 $ 2,579,376
Advertising revenues..................... 830,207 791,421 3,288,663 2,965,896 4,474,597
Other.................................... 203,084 -- 41,648 34,750 124,960
----------- ----------- ------------ ------------ ------------
Total operating revenues........... 1,584,596 1,339,636 5,419,777 5,531,360 7,178,933
----------- ----------- ------------ ------------ ------------
OPERATING EXPENSES:
Programming, production and
transmission........................... 1,181,283 1,201,507 4,931,769 5,659,937 5,524,078
Programming amortization................. 2,158,000 2,119,020 8,740,105 7,757,637 6,891,161
Sales and marketing...................... 524,142 989,667 3,346,909 7,373,867 8,120,458
Finance, general and administrative...... 875,552 1,061,575 3,675,945 3,267,194 2,932,094
----------- ----------- ------------ ------------ ------------
Total operating expenses........... 4,738,977 5,371,769 20,694,728 24,058,635 23,467,791
----------- ----------- ------------ ------------ ------------
Loss from operations............... (3,154,381) (4,032,133) (15,274,951) (18,527,275) (16,288,858)
OTHER (EXPENSE) INCOME:
Interest expense -- related parties...... (1,871,794) (1,355,343) (5,986,480) (4,581,460) (2,689,000)
Other income............................. $ 40,010 15,038 68,506 58,059 89,332
----------- ----------- ------------ ------------ ------------
Net loss........................... $(4,986,165) $(5,372,438) $(21,192,925) $(23,050,676) $(18,888,526)
=========== =========== ============ ============ ============
LOSS PER COMMON SHARE -- BASIC AND
DILUTED.................................. $ (0.25) $ (0.26) $ (1.05) $ (1.14) $ (0.93)
=========== =========== ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING........ 20,275,370 20,274,371 20,274,839 20,274,370 20,274,370
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-5
<PAGE> 75
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS ENDED MARCH 31, 2000 AND THE YEARS ENDED DECEMBER 31, 1999, 1998
AND 1997
<TABLE>
<CAPTION>
PREFERRED COMMON ADDITIONAL TOTAL
STOCK STOCK PAID-IN STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- ------ ---------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997............. 3,250 $6,500 20,274,370 $810,975 $30,213,554 $ (50,495,250) $(19,464,221)
Net loss............................... -- -- -- -- -- (18,888,526) (18,888,526)
----- ------ ---------- -------- ----------- ------------- ------------
BALANCE AT DECEMBER 31, 1997........... 3,250 6,500 20,274,370 810,975 30,213,554 (69,383,776) (38,352,747)
Net loss............................... -- -- -- -- -- (23,050,676) (23,050,676)
----- ------ ---------- -------- ----------- ------------- ------------
BALANCE AT DECEMBER 31, 1998........... 3,250 6,500 20,274,370 810,975 30,213,554 (92,434,452) (61,403,423)
Common stock issued.................... -- -- 1,000 40 30 -- 70
Net loss............................... -- -- -- -- -- (21,192,925) (21,192,925)
----- ------ ---------- -------- ----------- ------------- ------------
BALANCE AT DECEMBER 31, 1999........... 3,250 6,500 20,275,370 811,015 30,213,584 (113,627,377) (82,596,278)
Net loss............................... -- -- -- -- -- (4,986,165) (4,986,165)
----- ------ ---------- -------- ----------- ------------- ------------
BALANCE AT MARCH 31, 2000
(UNAUDITED).......................... 3,250 $6,500 20,275,370 $811,015 $30,213,584 $(118,613,542) $(87,582,443)
===== ====== ========== ======== =========== ============= ============
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-6
<PAGE> 76
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------------- --------------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $(4,986,165) $(5,372,439) $(21,192,925) $(23,050,676) $(18,888,526)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation........................... 69,315 71,400 275,548 286,159 310,416
Programming amortization............... 2,158,000 2,119,019 8,740,105 7,757,637 6,891,161
Provision for losses on accounts
receivable........................... 122,020 174,000 522,554 534,000 102,000
Loss on disposition of property and
equipment............................ 450 -- -- -- --
Net change in operating assets and
liabilities:
Decrease (increase) in accounts
receivable........................... 34,686 (206,758) (413,912) (745,464) (119,132)
Decrease (increase) in prepaid
expenses............................. 46,094 40,082 53,590 (28,021) 5,657
Decrease (increase) in deposits........ -- -- 7,310 (4,000) (35,000)
(Decrease) increase in accounts
payable.............................. (72,514) (661,356) (1,022,978) (93,989) 998,175
(Decrease) increase in accrued expenses
and other liabilities................ (134,975) 62,601 (199,155) (299,440) 121,155
Increase in accrued interest........... 1,691,794 1,115,344 5,201,364 3,921,296 1,978,058
Increase (decrease) in unearned
income............................... (13,572) -- 193,486 (5,082) 0
----------- ----------- ------------ ------------ ------------
Net cash used in operating
activities....................... (1,084,867) (2,658,107) (7,835,013) (11,727,580) (8,636,036)
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (11,045) -- (55,100) (36,748) (267,294)
Acquisition of programming and cablecast
rights................................. (674,582) (280,164) (2,513,672) (4,179,120) (3,357,900)
----------- ----------- ------------ ------------ ------------
Net cash used in investing
activities....................... (685,627) (280,164) (2,568,773) (4,215,868) (3,625,194)
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.............. 3,750,000 8,000,000 15,000,000 19,000,000 19,500,000
Payments of long-term cablecast rights
obligations............................ (1,583,082) (1,316,714) (4,461,479) (4,320,370) (6,856,592)
Proceeds from issuance of common stock... -- -- 70 0 0
----------- ----------- ------------ ------------ ------------
Net cash provided by financing
activities....................... 2,166,918 6,183,286 10,538,591 14,679,630 12,643,408
----------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 396,424 3,745,015 134,806 (1,263,818) 382,178
CASH AND CASH EQUIVALENTS -- BEGINNING OF
YEAR..................................... 674,177 539,371 539,371 1,803,189 1,421,011
----------- ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS -- END OF YEAR... $ 1,070,601 $ 4,284,386 $ 674,177 $ 539,371 $ 1,803,189
=========== =========== ============ ============ ============
</TABLE>
The accompanying summary of accounting policies and notes are an integral part
of these financial statements.
F-7
<PAGE> 77
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Nostalgia Network, Inc. is engaged in the operation of GoodLife TV
Network, a television programming service offering a variety of entertainment,
lifestyle and informational programming to a target audience of "Boomers and
over" via satellite to cable television and alternative broadcasting systems
(Affiliates) throughout the United States.
Significant accounting policies used by Nostalgia are described below:
Interim Reporting
The accompanying financial information as of March 31, 2000, and for the
three months ended March 31, 2000 and 1999, is unaudited. In the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, considered necessary for a fair presentation have been included.
Operating results for any interim period are not necessarily indicative of the
results for any other interim period or for an entire year.
Revenue Recognition
Revenue from providing programming services to cable systems is recognized
on a monthly basis as the services are provided. Revenue from sales to
advertisers is recognized as the advertisements are aired. Fees received in
advance for services to be provided in the future are recorded as unearned
revenue.
Nostalgia grants credit to cable systems and advertisers upon evaluation of
credit worthiness. Management periodically reviews customer account balances and
establishes reserves to state such amounts at their net realizable values.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over estimated useful lives ranging
from 4-7 years. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term or the related estimated useful lives of the
improvement.
Maintenance and repairs of property and equipment are charged to
operations, and major improvements extending the useful life are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts, and any gain or
loss is included in the operations.
Programming and Cablecast Rights
Original programming costs, which include direct labor, fees paid to hosts
and special guests, and production fees paid to third parties are capitalized on
a program-by-program basis and are amortized on a straight-line basis over the
estimated life of the programs since the programs are available to be aired for
an unlimited number of showings.
Film library and cablecast rights are recorded at the lower of unamortized
costs or estimated net realizable value and are amortized using the
straight-line method, which approximates the anticipated revenue stream, over
the estimated useful life or the lives of the rights agreements. The estimated
lives of original programming, film library and cablecast rights range from 2 to
11 years.
Cablecast rights for programs to be amortized within the following year are
classified as current assets. Nostalgia periodically evaluates its programming
and cablecast rights for possible changes in estimated useful
F-8
<PAGE> 78
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
life or the possibility of impairment. In the event a programming or cablecast
right is considered impaired, the carrying amount of such right is adjusted to
its net realizable value.
Advertising Costs
Advertising and promotional costs are charged to operating expenses as
incurred and amounted to $182,000, $1,279,000, and $2,828,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Stock Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages but does not require companies to record
stock-based employee compensation plans at their fair value. Nostalgia has
elected to account for stock-based employee compensation using the intrinsic-
value method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for employee stock options is measured as the
excess, if any, of the quoted market price of Nostalgia's stock at the date of
grant over the exercise price an employee must pay to acquire the stock.
Fair Value on Financial Instruments
The carrying amounts reflected in the balance sheets for cash, accounts
receivable, notes payable and accounts payable approximate fair value due to the
short maturities of these instruments.
Earnings Per Share
Earnings per share is based on the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding. Basic earnings
per share is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity.
The net loss per common share -- basic and diluted is computed by dividing
the net loss for the period by the weighted average number of shares
outstanding. Convertible 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, Nostalgia considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. Certain cash balances are in excess of insured amounts.
Risks and Uncertainties
The Network competes with other programmers for access to limited channel
space and must also compete with other programmers for viewers. Based on the
decline of sales, resulting primarily from providing free carriage to
affiliates, and increases in operating expenses, Nostalgia is dependent on
financing from Crown and Concept or other outside sources to fund operations.
Use of Estimates
In preparing financial statements in accordance with generally accepted
accounting principles, management is required to make estimates and assumptions
that effect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
F-9
<PAGE> 79
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 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 investment by owners and distributions to owners. Among other
disclosures, SFAS No. 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. Nostalgia adopted SFAS No. 130 during
the first quarter of 1998 and has no items of comprehensive income to report for
the years ended December 31, 1999 and 1998.
Segment Reporting
Statement of Financial Accounting Standards No 131 (SFAS 131), "Disclosure
about Segments of a Business Enterprise" requires companies to report
information about operating segments. SFAS 131 also requires disclosures
regarding products and services, geographic areas and major customers. Nostalgia
is engaged in one line of business, the operation of GoodLife TV Network, and
therefore reports as one operating segment.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In 1999, the
required implementation date of SFAS No. 133 was delayed to fiscal years
beginning after June 15, 2000. SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The adoption of
SFAS 133 is not expected to have a significant effect on Nostalgia's results of
operations or its financial position.
Reclassifications
Certain 1998 and 1997 amounts have been reclassified to conform to the
current presentation.
1. MANAGEMENT STATEMENT
In light of Nostalgia'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 continued its efforts to further brand the Network as the
only network targeted to the ever growing Boomer and over audience, America's
fastest growing demographic. In June 1998, the Network began operating under the
"GoodLife TV Network" name. Management believes that this designation more
accurately captures and reflects the Network's mission and has been a
significant help in presenting the Network to potential customers.
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. The Network has continued to
produce new original programming reflecting the American culture and traditional
values of its Boomer and over audience. The Network reflects the "good life
state of mind" of its audience in its mix of entertainment and information
programs. GTV DanceSport showcases the sport of ballroom dance competitions, a
dance form popular with
F-10
<PAGE> 80
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. MANAGEMENT STATEMENT -- (CONTINUED)
past generations that has become all the rage with today's generation. The
Network covers major dance competitions, including the national championship in
Miami. This exciting program showcases not only the champion in each class, but
also provides insight into the techniques and fine points of competition. Cafe
DuArt, features impressionist/comedian Louise Duart, providing cabaret music,
comedy and a humorous slice of life set in a New York cabaret club. The Real Me
Autobiographies, features prominent guests recounting their life's stories in
their own words, surrounded by friends and family. Cookbook Cooking with
Christopher Kent, features the Network's Flea Market Movie host, Christopher
Kent, who also is an accomplished chef, preparing dishes from famous cookbooks.
The Bull & The Bear provides stock market reports by a "Siskel and Ebert-type"
pair of hosts. More Money with The Dolans starring Ken and Daria Dolan, the
First Family of Finance, offers practical financial advice for everyday
Americans. The Network, in searching for creative, new original programming for
prime time in the year 2000 produced a number of pilots. One of these pilots is
Heroes & Sheroes, which profile ordinary people who manage to do the
extraordinary and transform the lives of the people they touch. The other pilot,
American Couples, hosted by esteemed television journalist Nancy Glass, is an
hour-long show which celebrates the family values, love, commitment and
partnership of famous couples.
In addition to its new original programming, the Network continues to offer
its viewers classic off network television series. The Network currently airs,
Bonanza, The Love Boat, Make Room for Daddy and The Adventures of Ozzie and
Harriet. The Adventures of Ozzie & Harriet and Make Room for Daddy are being
telecast each weekday evening under the umbrella title of American Families.
Hosted by Nancy Glass, this unique series juxtaposes members of contemporary
families against the classic TV families; we see how today's parents and
children deal with age-old issues that Ozzie Nelson and Danny Thomas wrestled
with. In Flea Market Movie, 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. The GTV Variety Hour features
classic variety programs such as Tony Orlando and Dawn, Leslie Uggams, The
Lennon Sisters and others. American Soldier features interviews with veterans,
focusing on their wartime experiences, which are wrapped around three classic
dramatic television shows: Combat!, Twelve O'clock High and Garrison's Gorillas.
Since 1990, Crown and Concept have been the principal source of Nostalgia's
capital. Crown and Concept have invested $2,300,000 and provided $85,781,000 in
financing since 1994, including $15,000,000 loaned by Crown to Nostalgia in
1999. Additionally, Crown has provided $3,750,000 in debt financing to Nostalgia
since January 1, 2000 and also has committed to provide, as needed, an
additional $11,250,000 in debt or equity financing during the balance of the
calendar year. Nostalgia believes that these funds will be sufficient to satisfy
its operating needs for 2000.
In October 1999, Nostalgia announced that it had received and accepted an
offer from Crown to enter into a cash merger which, if consummated, would result
in the elimination of Nostalgia's publicly-held shares of Nostalgia common stock
and constitute a going-private transaction within the meaning of Section
13(e)(3) of the Securities Exchange Act of 1934. Crown and Concept, which is
majority-owned by Crown, in the aggregate are the beneficial owners of 70.3% of
Nostalgia's issued and outstanding shares of Nostalgia common stock.
Upon receipt, Crown's offer was referred to and reviewed by a committee of
Nostalgia's independent directors which recommended that the offer be accepted.
Nostalgia's Board of Directors voted to accept Crown's offer and to authorize
the negotiation of definitive documentation for the merger. Consummation of the
merger remains contingent upon, among other things, the approval of Nostalgia's
stockholders. Crown has indicated that it and its affiliates will vote in favor
of the merger.
F-11
<PAGE> 81
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. MANAGEMENT STATEMENT -- (CONTINUED)
Nostalgia also continued in its analysis of, and efforts to seek a
strategic alliance. Nostalgia has had contact with several possible strategic
partners, but no serious discussions have occurred. There can be no assurance
that Nostalgia will be able to obtain a strategic partner, or that any strategic
partner will be willing to invest the sums required by Nostalgia in order to
continue to grow the Network's subscriber base. It is anticipated that following
the Merger, the business and operations of Nostalgia will be continued
substantially as currently conducted for the immediate future. Crown and Concept
have informed Nostalgia that they intend to reevaluate the business and
operations of Nostalgia following the merger and take such actions with respect
to the future business and operations of Nostalgia as they deem appropriate.
Although there are no definitive plans or agreements in place, Crown and Concept
may cause Nostalgia to enter into joint venture or other agreements with other
business entities after the merger.
2. PROPERTY AND EQUIPMENT
Major classifications of property and equipment and their respective
estimated service lives are summarized below:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C> <C>
Transponder................................... $ 1,427,968 $ 1,427,968 12 years
Machinery and equipment....................... 1,450,011 1,397,333 5 to 7 years
Furniture and fixtures........................ 289,460 299,890 5 to 7 years
Leasehold improvements........................ 99,780 99,780 5 years
----------- -----------
3,267,219 3,224,971
Accumulated depreciation and amortization..... (2,295,112) (2,033,092)
----------- -----------
$ 972,107 $ 1,191,879
=========== ===========
</TABLE>
Depreciation expense included in Finance, General and Administrative
expenses was approximately $276,000, $286,000 and $310,000 for 1999, 1998 and
1997, 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 consists of series or specials developed and produced
by the Network. Music programs include musical series or specials both those
produced by the Network 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 Network. Film rights included broadcast
licenses for films and specialty programming. Other programming and cablecast
rights include
F-12
<PAGE> 82
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROGRAMMING AND CABLECAST RIGHTS -- (CONCLUDED)
productions and post-production costs as well as costs to duplicate and edit
programs and interstitial materials for broadcasting.
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Prime time series:....................................... $ 20,803,500 $ 14,578,500
Original programs........................................ 10,436,229 8,047,753
Music programs........................................... 1,551,207 1,537,095
Film library............................................. 1,266,667 1,266,667
Other.................................................... 1,636,492 1,525,409
------------ ------------
35,694,095 26,955,424
Less accumulated amortization............................ (25,607,399) (16,867,295)
------------ ------------
$ 10,086,696 $ 10,088,129
============ ============
Consisting of:
Current................................................ $ 7,105,280 $ 7,300,000
Long term.............................................. 2,981,416 2,788,129
------------ ------------
$ 10,086,696 $ 10,088,129
============ ============
</TABLE>
Estimated future amortization of programming and cablecast rights and
maturities of related long-term obligations are approximately as follows:
<TABLE>
<CAPTION>
YEAR 2000 2001 2002
---- ---------- ---------- --------
<S> <C> <C> <C>
Amortization..................................... $7,105,280 $2,836,973 $144,443
Obligation maturities............................ $4,810,822 $2,005,164 $130,000
</TABLE>
Nostalgia acquired or produced the following rights and materials during
the years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Prime time series............................... $6,225,000 $ 255,000 $1,073,500
Original programs............................... 2,388,476 4,162,100 3,532,600
Music programs.................................. 14,112 -- 1,185,500
Other........................................... 111,083 592,000 254,700
Film rights..................................... -- -- --
---------- ---------- ----------
$8,738,671 $5,009,100 $6,046,300
========== ========== ==========
</TABLE>
4. NOTES PAYABLE TO RELATED PARTIES
Notes payable consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Notes payable to Crown Communications Corporation bearing
interest at 8.50% per annum, compounded monthly, and
minimum monthly interest payment of $55,000 payable
commencing on January 31, 2000 through December 31, 2000.
The principal balance with remaining unpaid interest is
due on January 1, 2001................................... $63,997,292 $ --
</TABLE>
F-13
<PAGE> 83
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE TO RELATED PARTIES -- (CONCLUDED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Notes payable to Concept Communications, Inc. bearing
interest at 8.50% per annum, compounded monthly, and
minimum monthly interest payment of $5,000 payable
commencing on January 31, 2000 through December 31, 2000.
The principal balance with remaining unpaid interest is
due on January 1, 2001................................... 21,783,608 --
Notes payable to Concept Communications, Inc. bearing
interest approximating 7.75% per annum, due upon the
earlier of an equity investment of not less than the
amount of the Notes or January 1, 2000................... -- 19,217,867
Notes payable to Crown Communications Corporation bearing
interest approximating 7.75% per annum, due upon the
earlier of an equity investment of not less than the
amount of the Notes or January 1, 2000................... -- 43,310,006
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. The
note agreement contains certain restrictive covenants
including limitations on liens, disposition of collateral
and compliance with related contracts.................... 305,000 305,000
----------- -----------
$86,085,900 $62,832,873
=========== ===========
</TABLE>
On December 30, 1999, Nostalgia issued two substitution and replacement
notes to Crown and Concept in the amounts of $63,997,292 and $21,783,608,
respectively. These notes bear interest at 8.5% and require aggregate minimum
monthly interest payments of $60,000 with principal and unpaid interest due on
January 1, 2001. These notes replace all previously issued notes plus unpaid
interests as of December 30, 1999 and are collateralized by substantially all of
Nostalgia's assets.
As of March 20, 2000, Crown made additional loans totaling $3,750,000 to
Nostalgia bearing interest at 8.50% to 8.75%. Principal and unpaid interest on
these notes are due on January 1, 2001. These loans are also secured by
substantially all of Nostalgia's assets.
5. STOCK OPTIONS
In 1987, Nostalgia's Board of Directors adopted an Employee Stock Option
Plan (the "1987 Plan") which provided for discretionary grants to employees,
officers or directors employed by Nostalgia or its Parent, as well as other
individuals who perform services for Nostalgia. The 1987 Plan has been replaced
and no further options may be granted under this Plan. A total of 12,000 options
were cancelled during 1998 reducing the total outstanding options from 45,000 at
December 31, 1997 to 33,500 at December 31, 1998 with option prices ranging from
$0.48 to $1.25 per share. There was no activity during 1999 under this Plan.
In 1990 Nostalgia's Board of Directors adopted an Incentive and
Non-qualified Stock Option Plan (the "1990 Plan") which provides for
discretionary grants to employees, officers or directors of Nostalgia. The 1990
Plan has been replaced and no further option may be granted under this Plan. As
of the years ended December 31, 1999, 1998, and 1997, 175,000 options were
outstanding at exercise price of $0.48 to $1.57.
F-14
<PAGE> 84
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK OPTIONS -- (CONCLUDED)
In November 1995, Nostalgia'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
replaced the two existing plans. This action did not result in any additional
shares being reserved for options.
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 non-employee
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 Nostalgia'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 January 1, 1998................... 1,053,166 48,000 $0.07 - 0.27
Granted.......................................... (27,000) 27,000 0.07 - 0.2
Canceled......................................... 12,000 (12,000) 0.07 - 0.2
Expired from 1987 Plan........................... 12,000
--------- -------
Outstanding at December 31, 1998................. 1,050,166 63,000 $0.07 - 0.27
Exercised........................................ (1,000) 0.07
Granted.......................................... (27,000) 27,000 0.07
--------- -------
Outstanding at December 31, 1999................. 1,023,166 89,000 $0.07 - 0.27
========= =======
Exercisable at December 31, 1999................. 39,000 $0.07 - 0.27
=======
</TABLE>
The exercise price of stock options at December 31, 1999 ranged from $1.57
to $0.07 per share with a weighted exercise price and remaining contractual life
of $0.25 and 9 years, respectively.
On May 13, 1996, Nostalgia entered into an agreement with SQuire Rushnell
to be employed as Nostalgia's President and Chief Executive Officer. Under the
terms of the agreement, Nostalgia entered into a stock option agreement which
reserves 839,840 shares of Nostalgia 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 25.0% 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. At December 31, 1999, 839,840 shares were vested.
The effects of SFAS 123 are not material to the financial statements for
all years presented.
On January 4, 2000, the Board of Directors approved an agreement and plan
of merger with Crown. Such transaction is subject to shareholder approval. Upon
consummation of this transaction, Nostalgia will take necessary actions to
terminate all outstanding stock options.
6. CAPITAL STRUCTURE
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 stockholders are entitled to
preferential rights on dividends. To date, no dividend have been declared or
paid.
F-15
<PAGE> 85
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. FEDERAL INCOME TAXES
Nostalgia 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, 1999, Nostalgia has unused net operating loss carryforwards
which will be limited. In accordance with the Internal Revenue Code Section 382,
the amount of income that can be offset by net operating losses is limited due
to the change in ownership of Nostalgia in 1993. The amount of the limitation is
approximately $1,700,000 per year for losses incurred prior to the change of
ownership. The net operating loss carryforwards prior to the application of the
limitations are as follows:
<TABLE>
<S> <C>
1999-2000............................................. 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
2018.................................................. 22,482,000
2019.................................................. 22,724,000
------------
Total................................................. $110,939,000
</TABLE>
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.
F-16
<PAGE> 86
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. FEDERAL INCOME TAXES -- (CONCLUDED)
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, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current:
Allowance for doubtful accounts........................ $ 61,000 $ 103,000
Accrued liabilities and other.......................... 75,000 81,000
------------ ------------
Total current deferred tax assets................... 136,000 184,000
------------ ------------
Long-Term:
Net operating loss carryforwards....................... 42,157,000 22,993,000
Accumulated depreciation and amortization.............. (450,000) (397,000)
------------ ------------
Total net long-term deferred tax assets............. 41,707,000 29,596,000
------------ ------------
Total net deferred tax assets....................... 41,843,000 29,780,000
Valuation allowance................................. (41,843,000) (29,780,000)
------------ ------------
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
Office Leases
Nostalgia had a long term lease agreement with an affiliate of Crown and
Concept. The lease agreement terminated as of November 30, 1999 and the parties
have not yet re-negotiated to extend the lease. Effective December 1999,
Nostalgia is renting the office space on a month to month basis. Rental expense
under this lease was $215,000, $194,000 and $184,600 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Nostalgia leases office space from Atlantic Video on a month to month
basis. Rent expense under this lease for the years ended December 31, 1999, 1998
and 1997 was approximately $47,000.
Production and Post Production Services
During 1997, Nostalgia renewed its agreement with Atlantic Video, an entity
of which two directors of Nostalgia were officers and directors, including one
serving as chairman, during 1999, for studio, production and post-production
services. Under the terms of the agreement, Nostalgia is required to purchase a
minimum number of hours of such services during each year at specified rates.
Nostalgia has agreed to pay a minimum monthly flat fee of $50,000. If Nostalgia
does not actually purchase $50,000 of services in a month, the differences can
be used as credits for future months when actual expenses exceed the $50,000.
Such credit can be applied within the next twelve consecutive months from the
month of its origination. The aggregate balance of the credits may not exceed
$75,000 at any time. This agreement also provides for master control and uplink
services for a flat rate of $43,000 per month. Services rendered to Nostalgia
under this agreement amount to $1,126,000, $1,397,000 and $1,525,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
F-17
<PAGE> 87
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Litigation
On or about September 29, 1989, an action was commenced in the Delaware
Court of Chancery for New Castle County. Nostalgia is named as a nominal
defendant for purposes of the derivative claims asserted. However, Nostalgia has
no liability, and a summary judgment has been entered dismissing all counts in
which Nostalgia had been named, although counts against the other individual
defendants continue. Nostalgia is required to indemnify the directors and to pay
the cost of their defense.
On February 8, 2000, a law suit was filed in the United States District
Court for the Southern District of New York making claims against Nostalgia for
breach of contract, interference with contractual relations and business
disparagement and injurious falsehood. Nostalgia intends to vigorously defend
all claims and file counter suit for damages against the plaintiff. The outcome
and the extent of potential liability are unknown at this time.
Employment Agreements
On July 1, 1999, Nostalgia entered into an employment agreement with its
President for one year with an automatic renewal for one year unless terminated
by either party. The agreement provides for an annual salary of $270,000,
increasing at a rate of 20.0% for the renewal term. The agreement also provides
for annual benchmark bonuses of $80,000 ($100,000 in any renewal term), payable
quarterly upon meeting or exceeding certain budgetary goals. The agreement also
provides for alternative benchmark bonuses under certain circumstances where
some, but not all, criteria applicable to the benchmark bonus have been met.
Leases
Transponder
Nostalgia leases satellite transponder space and services on a 24-hour per
day basis. At the inception of the lease, Nostalgia was required to pay a
$1,000,000 launch protection fee for backup services in the event of delivery
failure. The launch protection fee, plus other direct costs associated with
obtaining the transponder lease were necessary costs to secure the transmission
of Nostalgia's programming. As such, these costs were capitalized and included
in property and equipment and are being amortized on a straight-line basis over
the life of the agreement. The unamortized balance of these costs at December
31, 1999 was approximately $718,000. The basic monthly rate for transponder
services is $205,400 and is for a term spanning the life of the satellite, which
is estimated to be 12 years. Expense for satellite transponder space and
services was $2,404,800, for 1999, 1998 and 1997. Nostalgia accounts for the
lease of transponder services as an operating lease in accordance with SFAS 13.
Office, Studio, and Equipment
Nostalgia conducts operations from leased premises which include studio,
office, sales and storage facilities. Nostalgia also leases certain production
and communication equipment. Generally, the leases provide for renewal for
various periods at stipulated rates. Some of the leases provide that Nostalgia
pay taxes, maintenance, insurance and other occupancy expenses applicable to the
leased premises.
Lease expense for premises and equipment for 1999, 1998 and 1997, which
consisted entirely of minimum rentals, was $274,000, $280,000 and $273,000,
respectively. Approximate minimum rental commit-
F-18
<PAGE> 88
THE NOSTALGIA NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES -- (CONCLUDED)
ments under all non-cancelable leases, including the transponder lease having
terms in excess of a year are as follows:
<TABLE>
<CAPTION>
FACILITY TRANSMISSION
YEAR ENDING DECEMBER 31, LEASES LEASES TOTAL
------------------------ -------- ------------ ----------
<S> <C> <C> <C>
2000............................................. 29,000 2,913,000 2,942,000
2001............................................. 29,000 2,892,000 2,921,000
2002............................................. 30,000 2,885,000 2,915,000
2003............................................. 21,000 2,885,000 2,906,000
2004............................................. 2,885,000 2,885,000
Thereafter....................................... -- 10,426,000 10,426,000
-------- ---------- ----------
$109,000 24,866,000 24,995,000
======== ========== ==========
</TABLE>
Rating Service Contract
In 1995, Nostalgia contracted with a service that provides ratings,
reports, analysis reports, demographic reports and other special reports. The
agreement covered a minimum period of 5 years and required a monthly base charge
of approximately $40,000. In November 1999, Nostalgia renegotiated the service
agreement to receive partial services throughout the remaining contract term at
approximately $9,000 per month.
Major Customers
During 1999, 1998, and 1997, three major customers accounted for
approximately 35.0%, 28.0%, and 10.0%, respectively, of total revenues.
10. STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
CASH PAID DURING THE YEAR FOR: 1999 1998 1997
------------------------------ -------- -------- --------
<S> <C> <C> <C>
Interest............................................. $720,000 $660,000 $635,000
Income taxes......................................... None None None
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Fiscal 1999
Programming acquisition totaling $6,225,000 were financed through vendor
debt obligation.
Interest accrued and payable to Concept and Crown in the amounts of
$2,565,740 and $5,687,286, respectively, were re-capitalized into notes payable
as part of February 1, 1999, March 27, 1999 and December 30, 1999 re-financings
of debt owed to Crown and Concept.
Fiscal 1998
Programming acquisitions totaling $830,000 were financed through vendor
debt obligations.
Interest accrued and payable to Concept and Crown in the amounts of
$1,105,673 and $1,310,006, respectively, were re-capitalized into notes payable
as part of a March 31, 1998 re-financing of debt owed to Crown and Concept.
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
re-capitalized into a note payable as part of a March 31, 1997 refinancing of
debt owed to Crown and Concept.
F-19
<PAGE> 89
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II
Board of Directors of The Nostalgia Network, Inc.
In connection with our audit of the financial statements of The Nostalgia
Network, Inc. in our report dated March 3, 2000, (Except for Notes 1 and 4 as to
which the date is March 21, 2000) which is included in Form 10-K for the year
ended December 31, 1999, we have also audited Schedule II for the year then
ended. In our opinion, this schedule presents fairly, in all material respects,
the information required to be set forth therein.
/s/ GRANT THORNTON LLP
Vienna, Virginia
March 3, 2000 (Except for Notes 1 and 4 as to which the date is March 21, 2000)
F-20
<PAGE> 90
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, 1997
Allowance for doubtful accounts receivable............. $1,154,000 $102,000 $-- $789,000 $467,000
========== ======== == ======== ========
Year ended December 31, 1998
Allowance for doubtful accounts receivable............. $ 467,000 $534,000 $-- $699,000 $302,000
========== ======== == ======== ========
Year ended December 31, 1999
Allowance for doubtful accounts receivable............. $ 302,000 $523,000 $-- $664,000 $161,000
========== ======== == ======== ========
</TABLE>
---------------
(1) Uncollectible accounts written off.
F-21
<PAGE> 91
AGREEMENT AND PLAN OF MERGER
<PAGE> 92
TABLE OF CONTENTS
ARTICLE I
MERGER
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.1 The Merger............................................. 1
1.2 Surviving Corporation; Effects of the Merger........... 1
1.3 Effective Time......................................... 1
1.4 Certificate of Incorporation of the Surviving
Corporation............................................ 1
1.5 Bylaws of the Surviving Corporation.................... 1
1.6 Board of Directors and Officers of the Surviving
Corporation............................................ 1
1.7 Conversion of Shares................................... 2
1.8 Dissenting Shares...................................... 2
1.9 Payment for Shares..................................... 2
1.10 No Further Rights or Transfers......................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Corporate Organization................................. 3
2.2 Authorization.......................................... 4
2.3 Capitalization of the Company.......................... 4
2.4 Certain Fees........................................... 4
2.5 SEC Filings............................................ 4
2.6 Consents and Approvals; No Violations.................. 4
2.7 No Undisclosed Material Liabilities.................... 5
2.8 Proxy Statement; Other Information..................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NAC
3.1 Corporate Organization................................. 5
3.2 Authorization.......................................... 5
3.3 Commitments for the Financing.......................... 5
3.4 Consents and Approvals; No Violations.................. 5
3.5 Proxy Statement; Other Information..................... 6
ARTICLE IV
COVENANTS
4.1 Conduct of Business of the Company..................... 6
4.2 No Solicitation........................................ 8
4.3 Access to Information.................................. 8
4.4 Best Efforts........................................... 9
4.5 Public Announcements................................... 9
4.6 Supplemental Information............................... 9
4.7 Schedule 13E-3 and Proxy Material; Stockholders'
Meeting................................................ 9
4.8 Agreement to Defend and Indemnify...................... 10
4.9 Option Plans........................................... 10
4.10 Deposit of Funds....................................... 11
</TABLE>
i
<PAGE> 93
ARTICLE V
CONDITIONS TO THE MERGER
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.1 Conditions to Each Party's Obligation to Effect the
Merger................................................. 11
5.2 Conditions to the Obligation of NAC to Effect the
Merger................................................. 11
5.3 Conditions to the Obligations of the Company to Effect
the Merger............................................. 12
ARTICLE VI
CLOSING
6.1 Time and Place......................................... 12
6.2 Deliveries at the Closing.............................. 12
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1 Termination............................................ 12
7.2 Procedure and Effect of Termination.................... 13
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations, Warranties, Covenants and
Agreements............................................. 13
8.2 Amendment, Modification and Waiver..................... 13
8.3 Waiver of Compliance; Consents......................... 13
8.4 Severability........................................... 13
8.5 Fees and Expenses...................................... 13
8.6 No Third Party Beneficiaries........................... 14
8.7 Additional Agreements.................................. 14
8.8 Notices................................................ 14
8.9 Governing Law.......................................... 14
8.10 Counterparts........................................... 14
8.11 Headings............................................... 15
8.12 Entire Agreement....................................... 15
</TABLE>
EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE NOSTALGIA
NETWORK, INC.
ii
<PAGE> 94
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made as of the
11th day of January, 2000 by and between (i) THE NOSTALGIA NETWORK, INC., a
Delaware corporation (the "Company"), and (ii) NNI ACQUISITION CORPORATION, a
Delaware corporation ("NAC").
WHEREAS, the Boards of Directors of the Company and NAC deem it advisable
and in the best interests of the stockholders of such corporations to effect the
merger of NAC with and into the Company (the "Merger"), to be consummated upon
the terms and conditions set forth in this Agreement and in accordance with the
applicable laws of the State of Delaware, whereby the outstanding shares of
Common Stock, Four Cents ($0.04) par value, of the Company (the "Common
Shares"), and the outstanding shares of Preferred Stock, Two Dollars ($2.00) par
value, of the Company (the "Preferred Shares"), other than Common Shares and
Preferred Shares held by NAC and other than Dissenting Shares (as defined in
Section 1.8 hereof), be converted upon the Merger into the right to receive cash
as provided in this Agreement.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3 hereof),
and subject to the terms and conditions of this Agreement and the General
Corporation Law of the State of Delaware (the "DGCL"), NAC shall be merged with
and into the Company, the separate corporate existence of NAC shall thereupon
cease, and the Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation").
1.2 Surviving Corporation; Effects of the Merger. At the Effective Time,
the Surviving Corporation shall continue its corporate existence under the laws
of the State of Delaware. The Merger shall have the effects specified in Section
259 of the DGCL. The name of the Surviving Corporation shall be The Nostalgia
Network, Inc.
1.3 Effective Time. As soon as practicable following the Closing (as
defined in Section 6.1 hereof), the parties hereto shall effect the Merger by
filing with the Delaware Secretary of State a certificate of merger (the
"Certificate of Merger") in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL (the time of such filing
being herein referred to as the "Effective Time").
1.4 Certificate of Incorporation of the Surviving Corporation. At the
Effective Time and without any further action on the part of the Company or NAC,
the Certificate of Incorporation of the Company shall be amended and restated to
read substantially as set forth in Exhibit A to this Agreement. From and after
the Effective Time, the Certificate of Incorporation of the Company, as so
amended and restated, shall be the Certificate of Incorporation of the Surviving
Corporation, subject to the right of the Surviving Corporation to amend its
Certificate of Incorporation after the Merger in accordance with the DGCL.
1.5 Bylaws of the Surviving Corporation. At the Effective Time and without
any further action on the part of the Company or NAC, the Bylaws of NAC, as in
effect at the Effective Time, shall be the Bylaws of the Surviving Corporation.
1.6 Board of Directors and Officers of the Surviving Corporation. At the
Effective Time, the directors of the Company immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each of such directors
to hold office, subject to the applicable provisions of the Certificate of
Incorporation and Bylaws of the Surviving Corporation, until the next annual
shareholders' meeting of the Surviving Corporation and until their successors
shall be duly elected or appointed and qualified. The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation until their successors are duly elected or appointed and qualified.
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1.7 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holders thereof:
(a) Each Common Share that is issued and outstanding immediately prior
to the Effective Time (other than Common Shares which are Dissenting Shares
as defined in Section 1.8 hereof, and any Common Shares which are held by
NAC or are held in the treasury of the Company) shall be converted into and
represent the right to receive Seven Cents ($0.07) (the "Common Stock
Merger Consideration"), in cash payable to the holder thereof, without
interest thereon, upon surrender of the certificate representing such
Common Share.
(b) Each Preferred Share that is issued and outstanding immediately
prior to the Effective Time (other than Preferred Shares which are
Dissenting Shares as defined in Section 1.8 hereof, and any Preferred
Shares which are held by NAC or are held in the treasury of the Company)
shall be converted into and represent the right to receive Seven Dollars
($7.00) (the "Preferred Stock Merger Consideration"), in cash payable to
the holder thereof, without interest thereon, upon surrender of the
certificate representing such Preferred Share.
(c) Each share of Common Share of NAC that is issued and outstanding
immediately prior to the Effective Time shall be converted into and
represent the right to receive one fully paid and non-assessable share of
Common Share, par value $0.01 per share, of the Surviving Corporation, and
such shares of Common Share of the Surviving Corporation shall constitute
the only issued shares of the Surviving Corporation.
(d) Each Common Share and Preferred Share owned by NAC, or held in the
treasury of the Company, immediately prior to the Effective Time shall be
cancelled and cease to exist at and after the Effective Time and no
consideration shall be paid with respect thereto.
1.8 Dissenting Shares. Notwithstanding the provisions of Section 1.7
hereof, or any other provision of this Agreement to the contrary, Common Shares
or Preferred Shares which are issued and outstanding immediately prior to the
Effective Time and which are held by stockholders who have not voted such Common
Shares or Preferred Shares in favor of the Merger and who shall have delivered a
written demand for appraisal of such Common Shares or Preferred Shares in the
manner provided in Section 262 of the DGCL (the "Dissenting Shares") shall not
be converted into the right to receive cash at or after the Effective Time,
unless and until the holder of such Dissenting Shares shall have failed to
perfect or shall have effectively withdrawn or lost such right to appraisal and
payment under the DGCL. If a holder of Dissenting Shares shall have so failed to
perfect or shall have effectively withdrawn or lost such right to appraisal and
payment, then, as of the Effective Time or the occurrence of such event,
whichever last occurs, such holder's Dissenting Shares shall automatically be
converted into and represent the right to receive cash, without any interest
thereon, as provided in Section 1.7(a) or 1.7(b) hereof, as the case may be.
1.9 Payment for Shares.
(a) Prior to the Effective Time, NAC shall deposit, or cause to be
deposited in trust for the benefit of the Company's stockholders, in immediately
available funds with a disbursing agent selected by NAC and reasonably
satisfactory to the Company (the "Exchange Agent"), an amount (the "Fund") equal
to the sum of (i) the product obtained by multiplying (A) the number of Common
Shares issued and outstanding immediately prior to the Effective Time (other
than Common Shares which are registered in the name of NAC or held in the
treasury of the Company and other than Common Shares which are Dissenting
Shares) as reflected on the stock transfer books of the Company immediately
prior to the Effective Time by (B) the Common Stock Merger Consideration plus
(ii) the product obtained by multiplying (A) the number of Preferred Shares
issued and outstanding immediately prior to the Effective Time (other than
Preferred Shares which are registered in the name of NAC or held in the treasury
of the Company and other than Preferred Shares which are Dissenting Shares) as
reflected on the stock transfer books of the Company immediately prior to the
Effective Time by (B) the Preferred Stock Merger Consideration. Out of the fund,
the Exchange Agent shall, pursuant to irrevocable instructions, make the
payments referred to in Sections 1.7(a) and 1.7(b) hereof.
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<PAGE> 96
(b) As soon as practicable after the Effective Time, the Exchange Agent,
pursuant to irrevocable instructions, shall mail to each holder of record (other
than NAC) of a certificate or certificates which immediately prior to the
Effective Time represented issued and outstanding Common Shares or Preferred
Shares (the "Certificates"), a notice of effectiveness of the Merger, a form
letter of transmittal (the "Letter of Transmittal") for return to the Exchange
Agent, and instructions for use in effecting the surrender of the Certificates
and to receive cash for each of such holder's Common Shares and Preferred
Shares. The notice, Letter of Transmittal and instructions shall be in forms
reasonably approved by counsel to the Company. The Letter of Transmittal shall
specify that delivery shall be effected and risk of loss and title shall pass,
only upon proper delivery to and receipt of such Certificate or Certificates by
the Exchange Agent. The Exchange Agent, promptly following receipt of any such
Certificate or Certificates, together with the Letter of Transmittal, duly
executed, and any other items specified by the Letter of Transmittal, shall pay,
by check or draft, to the holders of Certificates an amount equal to the sum of
(i) the product obtained by multiplying (A) the number of Common Shares
represented by the Certificate or Certificates so surrendered by (B) Seven Cents
($0.07) plus (ii) the product obtained by multiplying (A) the number of
Preferred Shares represented by the Certificate or Certificates so surrendered
by (B) Seven Dollars ($7.00). No interest will be paid or accrued on the cash
payable upon the surrender of a Certificate or Certificates.
(c) Any portion of the Fund which remains unclaimed for six (6) months
after the Effective Time shall be paid to the Surviving Corporation upon demand,
subject to any applicable escheat and other similar laws. Any holders of
Certificates who have not theretofore complied with 1.9(b) hereof shall
thereafter look only to the Surviving Corporation for payment of their claim for
the consideration set forth in Section 1.7 hereof, without any interest thereon,
but shall have no greater rights against the Surviving Corporation than may be
accorded to general creditors of the Surviving Corporation under Delaware law.
1.10 No Further Rights or Transfers.
At and after the Effective Time of the Merger, (i) each holder of a
Certificate or Certificates that represented issued and outstanding Common
Shares or Preferred Shares immediately prior to the Effective Time shall cease
to have any rights as a stockholder of the Company, except for the right to
surrender his or her Certificate or Certificates in exchange for the payment
provided pursuant to Sections 1.7 and 1.9 hereof, or to perfect his or her right
to receive payment for his or her Common Shares or Preferred Shares pursuant to
Section 262 of the DGCL and Section 1.8 hereof, if such holder has validly
exercised and perfected and not withdrawn his or her right to receive payment
for his or her Common Shares or Preferred Shares, and (ii) no transfer of Common
Shares or Preferred Shares outstanding prior to the Effective Time shall be made
on the stock transfer books of the Surviving Corporation. If, after the
Effective Time, Certificates formerly representing Common Shares or Preferred
Shares are presented to the Surviving Corporation, they shall be cancelled and
exchanged for the consideration set forth in Section 1.7 hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to NAC that:
2.1 Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with all requisite power and authority to own, operate and lease
its properties and to carry on its business as now being conducted. To the best
knowledge of the executive officers of the Company, the Company is duly
qualified or licensed as a foreign corporation in good standing in each
jurisdiction in which the character of its properties or nature of its business
activities requires such qualification, except to the extent that the failure to
be so qualified or licensed would not have a material adverse effect upon the
business, operations or the financial condition, of the Company. There are no
corporations, limited liability companies, partnerships, joint venture
associations or other entities of which the Company, directly or indirectly,
owns or controls more than 10% of the voting securities or other voting
interests ("Subsidiary").
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<PAGE> 97
2.2 Authorization. The Company has the necessary corporate power and
authority to enter into this Agreement. The execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by the Company's Board of Directors
and no other corporate proceeding on the part of the Company is necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than the approval of this Agreement by the requisite vote of the
stockholders of the Company). This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery hereof by NAC, is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
2.3 Capitalization of the Company. As of the date hereof, the authorized
capital stock of the Company consists of thirty million (30,000,000) shares of
Common Stock, Four Cents ($0.04) par value, and one hundred twenty-five thousand
(125,000) shares of Preferred Stock, Two Dollars ($2.00) par value. As of the
date hereof, there are twenty million two hundred seventy-four thousand four
hundred eleven (20,274,411) Common Shares issued and outstanding and three
thousand two hundred fifty (3,250) Preferred Shares issued and outstanding. As
of the date hereof, there are no Common Shares or Preferred Shares held in the
Company's treasury. All of the outstanding Common Shares and Preferred Shares
have been validly issued, and are fully paid, nonassessable and free of
preemptive rights with no personal liability attaching to the ownership thereof.
As of the date hereof, two million (2,000,000) Common Shares and no Preferred
Shares are issuable upon exercise of options (the "Company Options") under stock
option plans of the Company (collectively, the "Option Plans"). A description of
the Option Plans and a list of all outstanding options, including the exercise
price and other terms thereof, is set forth on Disclosure Schedule 2.3 attached
hereto and made a part of hereof. Except as set forth above, as of the date
hereof, there are no outstanding options, warrants, subscriptions, conversion or
other rights, agreements or commitments obligating the Company to issue any
additional shares of the capital stock or any other securities convertible into,
exchangeable for, or evidencing the right to subscribe for any shares of the
capital stock of the Company.
2.4 Certain Fees. With the exception of a fee payable to Chatsworth
Securities LLC, which has acted as financial advisor to the Company's Board of
Directors (including its disinterested directors) pursuant to a letter agreement
which has been delivered to NAC, the Company has not employed any broker or
finder or incurred any liability for any financial advisory, brokerage or
finders' fees or commissions in connection with the transactions contemplated
hereby.
2.5 SEC Filings. To the best knowledge of the executive officers of the
Company, the Company has timely made all of its filings required by the
Securities and Exchange Commission (the "Commission"). All such filings are true
and complete in all material respects.
2.6 Consents and Approvals; No Violations.
(a) To the best knowledge of the executive officers of the Company, the
Company is not in violation of any applicable law, statute, order, rule or
regulation promulgated or judgment entered by any federal, state, local or
foreign court or governmental authority relating to or affecting the operation,
conduct or ownership of the property or business of the Company, which violation
or violations would have a material adverse effect on the business, operations
or financial condition of the Company.
(b) Except for (i) applicable requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"), (ii) the filing and recordation of the Certificate of Merger as required
by the DGCL and (iii) applicable requirements of state blue sky laws, no filing
or registration with, no notice to and no permit, authorization, consent or
approval of any public or governmental body or authority is necessary for the
consummation by the Company of the transactions contemplated by this Agreement
or to enable the Company to continue to conduct its business after the Effective
Time in a manner which is in all material respects consistent with that in which
they are presently conducted, except where the failure to make such filing or to
obtain such permit, authorization, consent or approval will not have a material
adverse effect on the business, operations or financial condition of the
Company. Neither the execution and delivery of this Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with
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<PAGE> 98
or result in any breach of any provision of the Certificate of Incorporation or
Bylaws of the Company, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which the Company is a party or
by which the Company or any of its properties or assets may be bound or (iii) to
the best knowledge of the executive officers of the Company, violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company
or any of its properties or assets, excluding from the foregoing clauses (ii)
and (iii) violations, breaches or defaults which in the aggregate would not have
a material adverse effect on the business, operations or financial condition of
the Company.
2.7 No Undisclosed Material Liabilities. Except for intercompany loans
made by Crown Communications Corporation, a Delaware corporation, and except as
and to the extent set forth on the audited consolidated balance sheet of the
Company at December 31, 1998, including the notes thereto (the "Balance Sheet"),
the Company had, at December 31, 1998, no liabilities or obligations material to
the Company. Since the date of the Balance Sheet, the Company has not incurred
any liabilities material to the Company except (a) liabilities incurred in the
ordinary and usual course of business and consistent with past practice and (b)
liabilities incurred in connection with this Agreement and the transactions
contemplated herein.
2.8 Proxy Statement; Other Information. None of the information supplied
by the Company included in the letter to stockholders, notice of meeting, proxy
statement and form of proxy to be distributed to stockholders of the Company in
connection with the Merger (collectively, the "Proxy Statement") or any
schedules, including a Schedule 13E-3, required to be filed with the Commission
in connection therewith (the "Schedules"), will, as of the date the Proxy
Statement is first mailed to such stockholders, and on the date of the special
meeting of the Company's stockholders and the date of any adjournment thereof,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. The Proxy Statement and Schedules will comply as to form
in all material respects with all applicable provisions of the Exchange Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NAC
NAC hereby represents and warrants to the Company that:
3.1 Corporate Organization. NAC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted.
3.2 Authorization. NAC has the necessary, corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement by NAC, the performance by NAC, its
obligations hereunder and the consummation by NAC of the transactions
contemplated hereby, have been duly and validly authorized by the Board of
Directors of NAC, and will have been duly and validly approved by the
stockholders of NAC prior to the Effective Time, and no other corporate
proceeding on the part of NAC is necessary for the execution and delivery of
this Agreement by NAC, the performance of its obligations hereunder and the
consummation by NAC of the transactions contemplated hereby. This Agreement has
been executed and delivered by NAC and, assuming the due authorization,
execution and delivery hereof by the Company, is a legal, valid and binding
obligation of NAC, enforceable against NAC in accordance with its terms.
3.3 Commitments for the Financing. NAC, or its respective associates or
affiliates, has heretofore received commitments to provide sufficient funds to
complete the transactions contemplated by this Agreement.
3.4 Consents and Approvals; No Violations.
(a) NAC is not in violation of any applicable law, statute, order, rule or
regulation promulgated or judgment entered by any federal, state, local or
foreign court or governmental authority relating to or affecting
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<PAGE> 99
the operation, conduct or ownership of the property or business of NAC, which
violation or violations would have a material adverse effect on the business,
operations or financial condition of NAC.
(b) Except for applicable requirements of the Exchange Act, state blue sky
laws and the filing and recordation of the Certificate of Merger as required by
the DGCL, no filing or registration with, no notice to and no permit,
authorization, consent or approval of any public or governmental body or
authority is necessary for the consummation by NAC of the transactions
contemplated by this Agreement or to enable the Surviving Corporation to
continue to conduct its business after the Effective Time, except where the
failure to make such filing, or to obtain such permit, authorization, consent or
approval will not have a material adverse effect on the business, operations, or
financial condition of NAC. Neither the execution and delivery of this Agreement
by NAC nor the consummation by NAC of the transactions contemplated hereby nor
compliance by NAC with any of the provisions hereof will (i) conflict with or
result in any breach of any provision of the Certificate of Incorporation or
Bylaws of NAC, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which NAC is a party or by which
it or any of its properties or assets may be bound or (iii) to the best
knowledge of the executive officers of NAC, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to NAC, excluding from the
foregoing clauses (ii) and (iii) violations, breaches or defaults which in the
aggregate would not have a material adverse effect on the business, operations
or financial condition of NAC.
3.5 Proxy Statement; Other Information. None of the information supplied
by NAC included in the Proxy Statement or any Schedule, or in any amendments or
supplements thereto, required to be filed with the Commission in connection
therewith, will, as of the date the Proxy Statement is first mailed to
stockholders of the Company, and on the date of the meeting of the Company's
stockholders and the date of any adjournment thereof, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The Proxy Statement and Schedules will comply as to form in all
material respects with all applicable provisions of the Exchange Act.
ARTICLE IV
COVENANTS
4.1 Conduct of Business of the Company. Except as expressly contemplated
by this Agreement, including cancellation of Company Options in accordance with
Section 4.9(a) hereof, during the period from the date of this Agreement to the
Effective Time, the Company will conduct its operations only in, and the Company
shall not take any action except in, the ordinary and usual course of business
and consistent with prior practice, and the Company shall use its best efforts
to preserve substantially intact its business organization, goodwill, assets,
permits and licenses, to keep available the services of its current officers and
employees and to maintain satisfactory relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it; to comply in all material respects with all laws,
statutes, ordinances, rules and regulations applicable to the Company; and,
prior to the Effective Time, the Company covenants and agrees that it will not,
without the prior consent of NAC:
(a) split, combine or reclassify any shares of its capital stock,
declare, pay or set aside for payment any dividend or other distribution in
respect of its capital stock, or directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or other securities;
(b) authorize for issuance, issue, sell, pledge, dispose of or
encumber, deliver or agree or commit to issue, sell, pledge or deliver
(whether through the issuance or granting of any options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class of the Company or any securities convertible into or exercisable
or exchangeable for shares of stock of any class of the Company, other than
the issuance of shares pursuant to the exercise of Company Options
outstanding as of the date hereof;
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(c) except as set forth in Section 4.9 and except in the ordinary and
usual course of business and consistent with past practice, incur any
material liability or obligation, issue any debt securities or assume,
guarantee, endorse or otherwise as an accommodation become responsible for,
the obligations of any other individual or entity;
(d) except as set forth in Section 4.9, adopt or amend any bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust,
plan, fund or other arrangement (collectively, "Compensation Plans"), or
grant, or become obligated to grant, any general increase in the
compensation of officers or employees (including any such increase pursuant
to any Compensation Plan) or any increase in the compensation payable or to
become payable to any officer, institute any new employee benefit, welfare
program or Compensation Plan, make any change in any Compensation Plan or
other employee welfare or benefit arrangement or enter into any employment
or similar agreement or arrangement with any employee;
(e) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or make any material investment, either by purchase of
stock or securities, contributions to capital, property transfer, or
purchase of any material amount of properties or assets of any other
individual or entity;
(f) amend the Certificate of Incorporation or Bylaws of the Company;
(g) except in the ordinary course of business, and except for
settlements made by insurers, enter into any compromise or settlement of
any litigation, proceeding or governmental investigation relating to the
Company or its properties;
(h) change in any material respect its accounting methods, principles
or practices except as in accordance with United States generally accepted
accounting principles, consistently applied ("GAAP");
(i) revalue any of its assets, including, without limitation, writing
off notes or accounts receivable, other than in the ordinary course of
business consistent with prior practice;
(j) create, incur, assume, maintain or permit to exist any lien,
pledge, mortgage, security interest, assessment, claim, lease, charge,
option, right of first refusal, imperfection of title, easement, transfer
restriction under any shareholder or similar agreement, encumbrance or any
other restriction or limitation of any kind whatsoever ("Encumbrances") on
any real, personal or mixed property, tangible or intangible, including
without limitation, any leased property ("Property") of the Company, other
than liens for federal, state or local taxes and assessments not yet
payable ("Permitted Encumbrances");
(k) create, incur or assume any indebtedness for borrowed money,
including obligations in respect of capital leases, or guarantee any
indebtedness for borrowed money or any other obligation of any individual,
corporation, partnership, limited liability company, firm, joint venture,
association, joint stock company, trust, unincorporated organization,
governmental or regulatory authority or other entity ("Person");
(l) pay or discharge any material claim, liability or Encumbrance
(whether absolute, accrued, contingent or otherwise), or waive any right,
other than in the ordinary course of business consistent with past practice
or pursuant to binding contractual obligations of the Company in existence
on the date hereof;
(m) hire any new employees, agents, independent contractors or
consultants, except for those earning less than Fifty Thousand Dollars
($50,000) per annum who are hired in the ordinary course of business
consistent with past practice and the then applicable Board of Directors',
approved budget;
(n) authorize or make any capital expenditure inconsistent with the
then applicable Board of Directors' approved budget;
(o) issue or agree to issue any shares of its capital stock or
securities exchangeable for or convertible into such capital stock;
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(p) become a party to any agreement, amend or terminate any other
agreement, contracts, leases, subleases, licenses, obligations, instruments
or other legally binding commitments, arrangements or undertakings of any
kind ("Contract"), other than in the ordinary course of business and
consistent with past practice and the then applicable Board of Directors'
approved budget;
(q) make any investments in noninvestment grade securities;
(r) make any loan, advance or capital contribution to or investment by
the Company in any Person, except in the ordinary course of business and
consistent with past practice;
(s) file for voluntary bankruptcy or become subject to involuntary
bankruptcy proceedings;
(t) consider or adopt a plan of complete or partial liquidation,
dissolution, rehabilitation, restructuring, recapitalization,
re-domestication or other reorganization;
(u) enter into any joint venture, partnership, managing general agency
or similar arrangement with any Person;
(v) take any action or course of action inconsistent with its
compliance with the covenants and agreements contained in this Agreement;
and
(w) take or agree to commit to take any action that would make any
representation or warranty of the Company contained herein inaccurate in
any material respect at the Effective Time or omit to take any action
necessary to prevent any such representation or warranty from being
inaccurate in any material respect at such time.
4.2 No Solicitation. The Company will not, and will use its best efforts
to ensure that its officers, directors, representatives or agents shall not,
directly or indirectly (i) solicit or initiate (including by way of furnishing
any non-public information concerning the Company's business, properties or
assets) negotiations with and (ii) subject to the exercise of their fiduciary
responsibilities on advice of counsel, participate in any negotiations leading
to any proposals or enter into any agreement with any corporation, partnership,
person or other entity or group (other than NAC) (the "Third Party") concerning
any tender offer, exchange offer, merger, consolidation, sale of substantial
assets or of a significant amount of assets, sale of securities, liquidation,
dissolution or similar transactions involving the Company (such proposals,
announcements or transactions being referred to herein as "Acquisition
Proposals"). The Company will promptly inform NAC of any inquiry (including the
terms thereof and the identity of the Third Party making such inquiry) which it
may receive in respect of an Acquisition Proposal and furnish to NAC a copy of
any such inquiry. Nothing contained herein shall be construed to prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a)(2) or (3) promulgated under the Exchange Act or from making
such other disclosure to stockholders which, in the judgment of the Board of
Directors, on advice of counsel, may be required by law.
4.3 Access to Information.
(a) Between the date of this Agreement and the Effective Time, the Company
will give NAC and its authorized representatives access during normal business
hours to all personnel, offices and other facilities of the Company and to all
books and records of the Company and will permit NAC to make such inspections as
it may reasonably request and will cause its officers to furnish NAC with such
financial and operating data and other information with respect to the business
and properties of the Company as NAC may from time to time reasonably request.
(b) NAC will hold and will cause its representatives (and its affiliates)
to hold in strict confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of its counsel, by other requirements
of law, all documents and information concerning the Company furnished to NAC
(or its affiliates) in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been
(i) known by NAC or its affiliates (other than affiliates who are directors,
officers or employees of the Company) prior to its disclosure to NAC or its
affiliates by the Company, (ii) in the public domain through no fault of NAC or
its affiliates or (iii) later lawfully acquired by
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NAC or its affiliates from other sources) and will not release or disclose such
information to any other person, except in connection with this Agreement on a
confidential basis to (A) its auditors, attorneys, financial advisors, other
consultants and advisors and (B) responsible financial institutions,
corporations, partnerships and individuals in connection with the Merger. If the
transactions contemplated by this Agreement are not consummated, such confidence
shall be maintained except to the extent such information can be shown to have
been (i) previously known by NAC or its affiliates (other than affiliates who
are directors, officers or employees of the Company) prior to its disclosure to
NAC or its affiliates by the Company, (ii) in the public domain through no fault
of NAC (or its affiliates) or (iii) later lawfully acquired by NAC (or its
affiliates) from other sources, and, if requested by the Company, NAC (or its
affiliates) will destroy or return to the Company all copies of written
information furnished by the Company to NAC or to NAC's affiliates, agents,
representatives or advisors. No investigation or access to information pursuant
to this Section 4.3 shall affect any representation or warranty made by the
Company.
4.4 Best Efforts. Upon the terms and subject to the conditions hereof, NAC
and the Company agree to use their respective best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including providing information necessary for
inclusion in the Proxy Statement and Schedules, and shall use their respective
best efforts to obtain all waivers, permits, consents and approvals and to
effect all registrations, filings and notices with or to third parties or
governmental or public bodies or authorities which are in the opinion of NAC or
the Company necessary or desirable in connection with the transactions
contemplated by this Agreement, including, without limitation, filings to the
extent required under the Exchange Act. If at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers or directors of NAC, the Company and the
Surviving Corporation shall take such action.
4.5 Public Announcements. NAC and the Company will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the Merger and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
4.6 Supplemental Information. From time to time prior to the Effective
Time, each party hereto will promptly disclose in writing to the other any
matter hereafter arising which, if existing, occurring or known at the date of
this Agreement, would have been required to be disclosed to such other party.
4.7 Schedule 13E-3 and Proxy Material; Stockholders' Meeting. NAC and the
Company will prepare and file with the Commission the documents, Schedules and
amendments and supplements thereto required to be filed with respect to the
transactions contemplated by this Agreement. The Company, acting through its
Board of Directors, shall cause a meeting of its stockholders to be duly called,
give notice of, convene and hold such meeting as soon as practicable for the
purpose, inter alia, of approving this Agreement and all actions contemplated
hereby which require the approval of the Company's stockholders. The Company
will use its best efforts to obtain and furnish the information required to be
included by it in any required Proxy Statement and, after consultation with NAC,
respond promptly to any comments of the Commission relating to any preliminary
proxy material or regarding the transactions contemplated by this Agreement and
to cause the Proxy Statement relating to the transactions contemplated by this
Agreement to be mailed to its stockholders, all at the earliest practicable
time. Whenever any event occurs which should be set forth in an amendment or
supplement to the Proxy Statement, Schedules or any other filing required to be
made with the Commission, each party will promptly inform the other and
cooperate in filing with the Commission and/or mailing to stockholders such
amendment or supplement. The Proxy Statement, Schedules and all amendments and
supplements thereto shall comply with applicable law and be in form and
substance satisfactory to NAC and the Company. The Board of Directors of the
Company, subject to the exercise of its fiduciary obligations, shall include in
the Proxy Statement its recommendation that stockholders of the Company vote in
favor of the approval and adoption of the Agreement and take such further
actions as NAC may reasonably request in order to secure such approval and
adoption. NAC shall cause to be present for the purpose of obtaining a quorum
and shall vote, or cause to be voted, all of the Common Shares and Preferred
Shares then owned by NAC or its affiliates in favor of the Merger at any meeting
of the stockholders of the Company.
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4.8 Agreement to Defend and Indemnify.
(a) In the event any action, suit, proceeding or investigation relating to
the Merger, this Agreement or the transactions contemplated hereby or thereby is
commenced, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their best efforts to defend against and respond thereto.
It is understood and agreed that the Company shall indemnify and hold harmless,
and, after the Effective Time, the Surviving Corporation shall indemnify and
hold harmless, each present and former director, officer, employee and agent of
the Company (the "Indemnified Parties") against losses, claims, damages,
liabilities, costs, expenses (including attorneys' fees), judgments and amounts
paid in settlement in connection with any threatened, pending or completed
action, suit, claim, proceeding or investigation arising out of or pertaining to
any action or omission occurring at or prior to the Effective Time (including,
without limitation, any which arise out of or relate to the transactions
contemplated by this Agreement) to the full extent permitted or required under
Delaware law and the Company's Bylaws (and the Company or the Surviving
Corporation, as the case may be, will advance expenses to each such person to
the full extent so permitted). Neither the Company, the Surviving Corporation
nor NAC shall be liable for any settlement effected by such Indemnified Party
(or group of Indemnified Parties) unless the Company, the Surviving Corporation
or NAC, respectively, have approved such settlement in writing. Any Indemnified
Party wishing to claim indemnification under this Section 4.8, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify, in
writing, the Company or the Surviving Corporation and NAC thereof; provided,
however, that any failure to so notify the Company or the Surviving Corporation
and NAC shall not relieve the Company or the Surviving Corporation and NAC of
any obligation to indemnify such Indemnified Party or of any other obligation
imposed by this Section 4.8 unless and to the extent such failure to so notify
shall prejudice the position of the Company or the Surviving Corporation.
(b) From the date of this Agreement, the Company or the Surviving
Corporation, as the case may be, shall use its best efforts to provide officers'
and directors' liability insurance covering the Indemnified Parties who were
covered by the Company's officers' and directors' liability insurance on October
21, 1999 or who become officers or directors of the Company after such date and
prior to the Effective Time with respect to actions and omissions occurring
prior to the Effective Time upon terms no less favorable to the Indemnified
Parties than such insurance maintained in effect by the Company on October 21,
1999 in terms of coverage and amounts, subject to the availability of such
insurance at a cost not in excess of $82,000 per year, and if the amount of such
insurance available for $82,000 per year is less than the amount in effect as of
October 21, 1999, the amount of coverage provided will be the maximum amount
available for $82,000 per year. The Surviving Corporation shall advise the
Indemnified Parties at least annually as to the amount and coverage of such
insurance then in effect. Such officers' and directors' liability insurance
shall remain in full force and effect until the third anniversary of the
Effective Time.
(c) The covenants contained in this Section 4.8 shall survive the Closing,
shall continue without time limit and are intended to benefit the Company and
each of the Indemnified Parties. Subject to the requirements of the DGCL, the
Certificate of Incorporation and Bylaws of the Company and the Surviving
Corporation shall not be amended in a manner which adversely affects the rights
of the Indemnified Parties under this Section 4.8.
4.9 Option Plans. The Company shall take all steps necessary to (a)
terminate, to the extent permitted by the terms thereof, the Option Plans
immediately prior to the Effective Time, without prejudice to the rights of the
holders of Company Options and (b) grant no additional Company Options under the
Option Plans. Except as set forth below in this Section 4.9, the Company shall
use its best efforts to take all actions necessary as soon a practicable after
the date hereof (i) to cause each outstanding Company Option, whether or not
exercisable or vested, to be cancelled, as of the Effective Time and (ii) to
obtain the consent of each holder of a Company Option (whether or not then
exercisable) to the cancellation thereof, to take effect as of the Effective
Time. In exchange for the cancellation of each such Company Option, the Company
may pay in respect thereof an amount to be mutually agreed upon by NAC and the
holders of such Company Options or enter into other arrangements mutually
acceptable to NAC and the holders of such Company Options.
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4.10 Deposit of Funds. Not less than ten days prior to the meeting of the
Company's stockholders at which this Agreement will be voted upon, NAC shall
cause to have deposited with a depository acceptable to the Company funds
sufficient to make the payments required by Section 1.9(a) hereof.
ARTICLE V
CONDITIONS TO THE MERGER
5.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to consummate the Merger
shall be subject to the following conditions, which may not be waived:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote or consent, if any, of the stockholders of the
Company required by the Company's Certificate of Incorporation and the
DGCL;
(b) No order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been enacted, entered, issued,
promulgated or enforced by any court or governmental authority which
prohibits or restricts the consummation of the Merger; and
(c) Chatsworth Securities LLC ("Chatsworth") shall have delivered to
the Company a written fairness opinion for inclusion in the Proxy
Statement, relating to the transactions contemplated by this Agreement.
5.2 Conditions to the Obligation of NAC to Effect the Merger. The
obligations of NAC to effect the merger shall be further subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
one or more of which may be waived by NAC:
(a) The Company shall have performed and complied in all material
respects with the agreements and obligations contained in this Agreement
required to be performed and complied with by it at or prior to the
Effective Time;
(b) The representations and warranties of the Company contained in
this Agreement shall be true and correct as of the date hereof and shall be
deemed to have been made again at and as of the Effective Time and shall
then be true and correct in all material respects;
(c) All licenses, permits, consents or approvals of governmental
authorities or agencies necessary to consummate the Merger and to permit
the continuance of operations of the Company by the Surviving Corporation
thereafter shall have been received and shall be in full force and effect;
(d) The terms of the Merger shall have been approved by a majority of
the Company's disinterested directors;
(e) The terms of the Merger shall have been approved and recommended
by a majority of the Company's Board of Directors;
(f) The terms of the Merger shall have been approved by a majority of
Company's stockholders;
(g) Stockholders of the Company owning not more than five percent (5%)
of the Company's issued and outstanding shares (on an as converted basis)
shall have exercised dissenters' rights;
(h) The Company shall have obtained and provided NAC a written opinion
from Chatsworth that the terms of the Merger are fair to the Company's
stockholders; and
(i) The Company shall have obtained any and all regulatory approvals
for the consummation of the Merger, and there shall have been no
outstanding order of a court of competent jurisdiction enjoining the
consummation of the Merger.
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5.3 Conditions to the Obligations of the Company to Effect the Merger. The
obligations of the Company to effect the Merger shall be further subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
one or more of which may be waived by the Company:
(a) NAC shall have performed and complied in all material respects
with the agreements and obligations contained in this Agreement required to
be performed and complied with by it at or prior to the Effective Time; and
(b) The representations and warranties of NAC contained in this
Agreement shall be true as of the date hereof, and shall be deemed to have
been made again at and as of the Effective Time and shall then be true and
correct in all material respects.
ARTICLE VI
CLOSING
6.1 Time and Place. Subject to the provisions of Articles V and VII
hereof, the closing (the "Closing") of the transactions contemplated hereby
shall take place at the offices of Tucker Flyer, 1615 L Street, N.W., Suite 400,
Washington, D.C. 20036, at 10:00 A.M., local time, as soon as practicable after
the meeting of stockholders referred to in Section 4.7 hereof (the "Closing
Date") or at such other place or at such other time as NAC and the Company may
mutually agree upon for the Closing to take place.
6.2 Deliveries at the Closing. At the Closing, the Company and NAC shall
cause the Certificate of Merger to be filed and recorded in accordance with the
applicable provisions of the DGCL and shall take any and all other lawful
actions necessary to cause the Merger to become effective.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether before or after approval of the Merger by the stockholders of the
Company:
(a) By mutual consent of the Boards of Directors of NAC and the
Company;
(b) If NAC and the Company shall mutually agree that there shall be
threatened, instituted or pending any action, proceeding or counterclaim by
or before any court of competent jurisdiction or governmental
administrative or regulatory agency or commission which, in the mutual
agreement of NAC and the Company, might permanently restrain, enjoin or
otherwise prohibit the transactions contemplated by this Agreement;
(c) By either NAC or the Company:
(i) If the Effective Time shall not have occurred by June 30, 2000;
(ii) If a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action which has not been
lifted (which order, decree or ruling the parties hereto shall use their
best efforts to lift), in each case permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this
Agreement;
(iii) If there has been a material failure to perform or comply
with any of the covenants, obligations, agreements or conditions
required in this Agreement to be performed or complied with by the other
party and such nonperformance or noncompliance shall not have been cured
or eliminated promptly or by its nature cannot be cured or eliminated
promptly; or
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(iv) By either party if the other shall have breached any of its
representations or warranties contained in this Agreement, which breach
(A) is incapable of being cured by the breaching party or (B) would give
rise to failure of the conditions set forth in Article V.
7.2 Procedure and Effect of Termination. In the event of termination and
abandonment of the Merger by the Company or NAC or both pursuant to Section 7.1
hereof, written notice thereof shall forthwith be given to the other and this
Agreement shall terminate and the Merger shall be abandoned, without further
action by any of the parties hereto. If this Agreement is terminated as provided
herein:
(a) Upon request therefor, each party will redeliver any and all
documents, work papers and other material of any other party relating to
the transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same; and
(b) No party hereto shall have any liability or further obligation to
any other party to this Agreement except that the provisions of this
Section 7.2 and Sections 4.3(b) and 4.8 hereof, shall remain in full force
and effect.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations, Warranties, Covenants and Agreements. The
respective representations, warranties, covenants and agreements of the parties
hereto, other than those contained in Sections 1.8, 1.9, 4.3(b) and 4.8 hereof,
shall not survive the Effective Time.
8.2 Amendment, Modification and Waiver. Subject to applicable law, this
Agreement may not be amended except by written agreement with the approval of
the Boards of Directors of NAC and the Company, before or after the meeting of
stockholders of the Company, at any time prior to the Effective Time with
respect to any of the terms contained herein, except that the price per Common
Share or Preferred Share to be paid pursuant to this Agreement to the holders of
Common Shares or Preferred Shares shall in no event be decreased and the form of
consideration to be received by the holders of such Common Shares or Preferred
Shares in the Merger shall in no event be altered without the approval of such
holders. The waiver of any term or condition in this Agreement shall only be
effective if in writing and shall not be construed as a waiver of any subsequent
breach or waiver of the same term or condition, or a waiver of any other term or
condition of this Agreement. Any failure or delay on the part of either party in
exercising any power or right hereunder shall not operate as a waiver thereof,
nor shall any single or partial exercise of any other right or power hereunder.
8.3 Waiver of Compliance; Consents. Any failure of NAC, on the one hand,
or the Company, on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived in writing by the Company or NAC,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of either party hereto,
such consent shall be given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this Section 8.3.
8.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
either party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
8.5 Fees and Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby will be paid by the party incurring such
expenses.
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8.6 No Third Party Beneficiaries. Except for the provisions of this
Agreement relating to Indemnified Parties, this Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their permitted
successors, and nothing in this Agreement, express or implied, is intended to
confer upon any other person or entity any legal or equitable rights benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
8.7 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each corporation which is a party to this Agreement shall take all
such necessary action.
8.8 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given or made as of (i) the date delivered
personally against written receipt or (ii) five days after mailing if mailed by
registered or certified mail (return receipt requested); to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to NAC:
NNI Acquisition Corporation
c/o Crown Communications Corporation
650 Massachusetts Avenue, N.W.
Washington, DC 20001
Attn: President
Facsimile: (202) 408-8496
with a copy under separate cover to:
Arthur E. Cirulnick, Esquire
Venable, Baetjer, Howard & Civiletti, LLP
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Facsimile: (202) 429-3231
(b) if to the Company:
The Nostalgia Network, Inc.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attn: President
Facsimile: (202) 289-6632
with a copy under separate cover to:
Robert Kostecka, Esquire
Caplan, Buckner, Rohrbaugh & Kostecka Chtd.
3 Bethesda Metro, Suite 430
Bethesda, MD 20814
Facsimile: (301) 718-8358
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the conflict
of laws rules thereof.
8.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
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8.11 Headings. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
8.12 Entire Agreement. This Agreement, including the exhibits hereto and
the documents and instruments referred to herein, constitutes the entire
agreement of the parties hereto in respect of the subject matter contained
herein. There are no agreements, restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as of the date first written above on its behalf by its duly
authorized officers.
The Nostalgia Network, Inc.
By: /s/ SQUIRE D. RUSHNELL
------------------------------------
Name: SQuire D. Rushnell
Title: President and Chief Executive
Officer
NNI ACQUISITION CORPORATION
By: /s/ DONG MOON JOO
------------------------------------
Name: Dong Moon Joo
Title: President
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EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
THE NOSTALGIA NETWORK, INC.
The Nostalgia Network, Inc., a corporation existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the corporation is THE NOSTALGIA NETWORK, INC.
2. The original Certificate of Incorporation of this corporation was
filed with the Secretary of State of the State of Delaware on July 15,
1987. Certificate of Ownership and Merger was filed with the Secretary of
State of the State of Delaware on October 9, 1987 and Certificates of
Amendment of the Certificate of Incorporation of this corporation were
filed with the Secretary of State of the State of Delaware on October 25,
1990 and June 15, 1992.
3. This Restated Certificate of Incorporation restates and integrates
and further amends the provisions of the Certificate of Incorporation of
the Corporation (as previously amended) and has been adopted pursuant to
the provisions of Sections 242 and 245 of the General Corporation Law of
the State of Delaware.
4. The Certificate of Incorporation of the corporation is hereby
further amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is THE NOSTALGIA NETWORK, INC.
SECOND: The name of the registered agent and the address of the
registered office of the Corporation in the State of Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 N. Orange
Street, Wilmington, Delaware 19801, County of New Castle.
THIRD: The purposes of the Corporation are to engage in, promote,
conduct and carry on any lawful acts or activities for which
corporations may be organized under the Delaware General Corporate Law
of the State of Delaware, as amended (the "DGCL").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is Ten Thousand (10,000) shares of Common
Stock, par value One Cent ($0.01) per share.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property or assets of the stockholders of the
Corporation shall not to any extent whatsoever be subject to the payment
of the debts of the Corporation.
SEVENTH: Elections of directors need not be by written ballot
unless otherwise provided in the Bylaws of the Corporation.
EIGHTH: The number of directors of the Corporation shall be such
number as from time to time shall be fixed by, or in the manner provided
in, the Bylaws of the Corporation. None of the directors need be a
stockholder or a resident of the State of Delaware.
NINTH: No director shall be personally liable to the Corporation
or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing
sentence, a director shall be liable to the extent provided by
applicable law (i) for breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal
benefit. All references in this paragraph to a director shall also be
deemed to refer to any other person who, pursuant to a provision of the
certificate of incorporation in accordance with Section 141 subsection
(a) of the DGCL, exercises or performs any of the powers or duties
otherwise conferred or imposed upon the board of directors by the DGCL.
No amendment
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to or repeal of this Article NINTH shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring
prior to such amendment.
TENTH: In furtherance and not in limitation of the rights, powers,
privileges and discretionary authority granted or conferred by DGCL or
other statutes or laws of the State of Delaware, the Board of Directors
is expressly authorized:
A. To make, amend, alter or repeal the Bylaws of the
Corporation;
B. To authorize and cause to be executed mortgages and liens
upon the real and personal property of the Corporation;
C. To set apart out of any funds of the Corporation available
for dividends, a reserve or reserves for any proper purpose and to
reduce any such reserve in the manner in which it was created; and
D. To adopt from time to time Bylaw provisions with respect to
indemnification of directors, officers, employees, agents and other
persons as it shall deem expedient and in the best interests of the
Corporation and to the extent permitted by law.
ELEVENTH: The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at
such place or places as may be designated from time to time by the Board
of Directors or in the Bylaws of the Corporation.
TWELFTH: The Corporation reserves the right to amend, alter,
change or repeal any provisions herein contained, in the manner now or
hereafter prescribed by statute, and all rights, powers, privileges and
discretionary authority granted or conferred herein upon stockholders or
directors are granted subject to this reservation.
5. This Amended and Restated Certificate of Incorporation has been
duly approved and adopted by the Board of Directors of this Corporation.
6. This Amended and Restated Certificate of Incorporation has been
duly adopted of the stockholders of the Corporation in accordance with the
provisions of Sections 228, 242 and 245 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed and executed in its corporate name by
SQuire D. Rushnell, its President and CEO, and affirmed and acknowledged by
Willard R. Nichols, its Secretary, this day of , .
THE NOSTALGIA NETWORK, INC.
By:
------------------------------------
Name: SQuire D. Rushnell
Its: President and CEO
ATTEST:
---------------------------------------------------------
Willard R. Nichols, Secretary
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THE NOSTALGIA NETWORK, INC.
1996 STOCK OPTION PLAN
(AS ADOPTED JUNE 5, 1996)
<PAGE> 112
THE NOSTALGIA NETWORK, INC.
1996 STOCK OPTION PLAN
1. PURPOSE AND EFFECT ON FORMER PLANS.
The purpose of this Plan is to strengthen The Nostalgia Network, Inc. (the
"Company"), by providing an incentive to its employees, officers, and directors
and thereby encouraging them to devote their abilities and industry to the
success of the Company's business enterprise. It is intended that this purpose
be achieved by extending to employees, officers, and directors of the Company
and its Subsidiaries an added long-term incentive for high levels of performance
and unusual efforts through the grant of Incentive Stock Options and
Nonqualified Stock Options. After the Effective Date of this Plan, no further
awards shall be made under The Nostalgia Network, Inc. 1987 Stock Option Plan or
The Nostalgia Network, Inc. Incentive and Nonqualified Stock Option Plan (1990)
(collectively, the "Former Plans"). Each award outstanding under a Former Plan
as of the Effective Date of this Plan shall remain outstanding and continue to
be subject to the terms of the Former Plan and the award agreement under which
such award was granted. Each Share that is available for the granting of new
awards under either of the Former Plans as of the Effective Date of this Plan
and each Share that is the subject of an award under either of the Former Plans
but is not issued prior to the time that such award expires or otherwise
terminates shall, after the Effective Date of this Plan, not be available for
the granting of awards under either of the Former Plans, but shall instead be
available for the granting of Options under this Plan.
2. DEFINITIONS.
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to holders of the
Shares in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (ii) the highest Fair Market Value of a Share during
the ninety (90) day period ending on the date of a Change in Control.
2.2 "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means:
(a) for purposes of Section 6.4, the commission of an act of fraud or
intentional misrepresentation or an act of embezzlement, misappropriation
or conversion of assets or opportunities of the Company or any Subsidiary,
and
(b) for all other purposes, unless otherwise defined in the Agreement
evidencing a particular Option, an Eligible Individual's (i) intentional
failure to perform reasonably assigned duties, (ii) dishonesty or willful
misconduct in the performance of duties, (iii) involvement in a transaction
in connection with the performance of duties to the Company or any of its
Subsidiaries thereof which transaction is adverse to the interests of the
Company or any of its Subsidiaries and which is engaged in for personal
profit or (iv) willful violation of any law, rule or regulation in
connection with the performance of duties (other than traffic violations or
similar offenses).
2.5 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure or otherwise.
<PAGE> 113
2.6 A "Change in Control" shall mean the occurrence during the term of the
Plan of:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other
than Concept Communications Corp. or any of its affiliates, collectively,
"Concept"), immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
(i) thirty percent (30%) or more of the combined voting power of the
Company's then outstanding Voting Securities and (ii) a number of Voting
Securities greater than the aggregate number of Voting Securities then
Beneficially Owned by Concept; provided, however, in determining whether a
Change in Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan (or
a trust forming a part thereof) maintained by (A) the Company or (B) any
corporation or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this definition, a
"Subsidiary") (ii) the Company or its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of June 5, 1996 are members of the Board
(the "Incumbent Board"), cease for any reason to constitute at least a
majority of the members of the Board; provided, however, that if the
election, or nomination for election by the Company's common stockholders,
of any new director was approved by a vote of at least a majority of the
Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided further, however,
that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-l 1 promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization of the Company where:
(A) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization,
at least seventy percent (70%) of the combined voting power of the
outstanding voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger,
consolidation or reorganization,
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least a
majority of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or indirectly
owning a majority of the Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company, (ii) any Subsidiary,
(iii) any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation, or any
Subsidiary, or (iv) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of thirty
percent (30%) or more of the then outstanding Voting Securities), has
Beneficial Ownership of thirty percent (30%) or more of the combined
voting power of the Surviving Corporation's then outstanding voting
securities.
(ii) A complete liquidation or dissolution of the Company; or
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(iii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than
a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities then outstanding, increases
the proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Committee" means a committee, as described in Section 3.1, appointed
by the Board to administer the Plan and to perform the functions set forth
herein.
2.9 "Company" means The Nostalgia Network, Inc.
2.10 "Director Option" means an Option granted pursuant to Section 6.
2.11 "Disability" means a physical or mental infirmity which impairs the
Optionee's ability to perform substantially his or her duties for a period of
one hundred eighty (180) consecutive days.
2.12 "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule 16b-3 under the Exchange Act.
2.13 "Effective Date" means the effective date of the Plan as determined
by the Board pursuant to Section 19.
2.14 "Eligible Individual" means any director (other than a Nonemployee
Director), officer or employee of the Company or a Subsidiary, or any consultant
or advisor who is receiving cash compensation from the Company or a Subsidiary,
designated by the Committee as eligible to receive Options subject to the
conditions set forth herein.
2.15 "Employee Option" means an Option granted pursuant to Section 5.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.17 "Fair Market Value" on any date means the average of the high and low
sales prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if such
Shares are not so listed or admitted to trading, the arithmetic mean of the per
Share highest bid price and per Share lowest asked price on such date as quoted
on the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Board in good faith
and, in the case of an Incentive Stock Option, in accordance with Section 422 of
the Code.
2.18 "Former Plans" means The Nostalgia Network, Inc. 1987 Stock Option
Plan and The Nostalgia Network, Inc. Incentive and Nonqualified Stock Option
Plan (1990), collectively.
2.19 "Incentive Stock Option" means an Option satisfying the requirements
of Section 422 of the Code and designated by the Committee as an Incentive Stock
Option.
2.20 "Nonemployee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
2.21 "Nonqualified Stock Option" means an Option which is not an Incentive
Stock Option.
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2.22 "Option" means a Nonqualified Stock Option, an Incentive Stock
Option, a Director Option, or any or all of them.
2.23 "Optionee" means a person to whom an Option has been granted under
the Plan.
2.24 "Parent" means any corporation which is a parent corporation (within
the meaning of Section 424(e) of the Code) with respect to the Company.
2.25 "Plan" means The Nostalgia Network, Inc. 1995 Stock Option Plan.
2.26 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.27 "Shares" means the common stock, par value $.04 per share of the
Company.
2.28 "Subsidiary" means any corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) with respect to the Company.
2.29 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.30 "Ten-Percent Stockholder" means an Eligible Individual, who, at the
time an Incentive Stock Option is to be granted to him or her, owns (within the
meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company,
or of a Parent or a Subsidiary.
3. ADMINISTRATION.
3.1 The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of a majority of the members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members of the Committee shall be as fully
effective as if made by a majority vote at a meeting duly called and held. The
Committee shall consist of at least two (2) directors of the Company each of
whom shall be a Disinterested Director. No member of the Committee shall be
liable for any action, failure to act, determination or interpretation made in
good faith with respect to this Plan or any transaction hereunder, except for
liability arising from his or her own willful misfeasance, gross negligence or
reckless disregard of his or her duties. The Company hereby agrees to indemnify
each member of the Committee for all costs and expenses and, to the extent
permitted by applicable law, any liability incurred in connection with defending
against, responding to, negotiating for the settlement of or otherwise dealing
with any claim, cause of action or dispute of any kind arising in connection
with any actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
3.2 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Employee Options
shall be granted under the Plan and the number of such Employee Options to
be granted and to prescribe the terms and conditions (which need not be
identical) of each such Employee Option, including the purchase price per
Share subject to each Employee Option, and make any amendment or
modification to any Option Agreement consistent with the terms of the Plan;
(b) to construe and interpret the Plan and the Options granted
hereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any
defect or supplying any omission, or reconciling any inconsistency in the
Plan or in any Agreement, in the manner and to the extent it shall deem
necessary or advisable so that the Plan complies with applicable law
including Rule 16b-3 under the Exchange Act and the Code to the extent
applicable, and otherwise to make the Plan fully effective. All decisions
and determinations by the
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Committee in the exercise of this power shall be final, binding and
conclusive upon the Company, its Subsidiaries, the Optionees, and all other
persons having any interest therein;
(c) to determine the duration and purposes for leaves of absence which
may be granted to an Optionee on an individual basis without constituting a
termination of employment or service for purposes of the Plan;
(d) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(e) generally, to exercise such powers and to perform such acts as are
deemed necessary or advisable to promote the best interests of the Company
with respect to the Plan.
4. Stock Subject to the Plan.
4.1 The maximum number of Shares that may be made the subject of Options
granted under this Plan is the aggregate number of Shares that would have been
available for new awards under the Former Plans after the Effective Date of this
Plan (but for the prospective termination of the Former Plans), including the
Shares that were available for new grants under each of the Former Plans as of
the Effective Date of this Plan and the Shares that are subject to awards
granted under either of the Former Plans which Shares are not issued prior to
the expiration or other termination of such awards (including Shares subject to
awards that expire or terminate after the expiration of the term of a Former
Plan). Upon a Change in Capitalization the maximum number of Shares shall be
adjusted in number and kind pursuant to Section 9. The Company shall reserve for
the purposes of the Plan, out of its authorized but unissued Shares or out of
Shares held in the Company's treasury, or partly out of each, such number of
Shares as shall be determined by the Board.
4.2 Upon the granting of an Option, the number of Shares available under
Section 4.1 for the granting of further Options shall be reduced by the number
of Shares subject to such Option.
4.3 Whenever any outstanding Option or portion thereof expires, is
canceled or is otherwise terminated for any reason without having been exercised
or payment having been made in respect of the entire Option (including any
outstanding Options under either of the Former Plans), the Shares allocable to
the expired, canceled or otherwise terminated portion of the Option may again be
the subject of Options granted hereunder.
4.4 Notwithstanding anything contained in this Section 4, the number of
Shares available for Options at any time under the Plan shall be reduced to such
lesser amount as may be required pursuant to the methods of calculation
necessary so that the exemptions provided pursuant to Rule 16b-3 under the
Exchange Act will continue to be available for transactions involving all
current and future Options. In addition, during the period that any Options
remain outstanding under the Plan, the Committee may make good faith adjustments
with respect to the number of Shares attributable to such Options for purposes
of calculating the maximum number of Shares available for the granting of future
Options under the Plan, provided that following such adjustments the exemptions
provided pursuant to Rule 16b-3 under the Exchange Act will continue to be
available for transactions involving all current and future Options.
5. Option Grants for Eligible Individuals.
5.1 Authority of Committee. Subject to the provisions of the Plan, the
Committee shall have full and final authority to select those Eligible
Individuals who will receive Employee Options, the terms and conditions of which
shall be set forth in an Agreement.
5.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Employee Option shall
be determined by the Committee and set forth in the Agreement; provided,
however, that the purchase price per Share under each Incentive Stock Option
shall not be less than 100% of the Fair Market Value of a Share on the date the
Incentive Stock Option is granted (110% in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder).
5.3 Maximum Duration. Employee Options granted hereunder shall be for
such term as the Committee shall determine, provided that an Incentive Stock
Option shall not be exercisable after the
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expiration of ten (10) years from the date it is granted (five (5) years in the
case of an Incentive Stock Option granted to a Ten-Percent Stockholder) and a
Nonqualified Stock Option shall not be exercisable after the expiration of ten
(10) years from the date it is granted. The Committee may, subsequent to the
granting of any Employee Option, extend the term thereof but in no event shall
the term as so extended exceed the maximum term provided for in the preceding
sentence.
5.4 Vesting. Subject to Section 7.4, each Employee Option shall become
exercisable in such installments (which need not be equal) and at such times as
may be designated by the Committee and set forth in the Agreement. To the extent
not exercised, installments shall accumulate and be exercisable, in whole or in
part, at any time after becoming exercisable, but not later than the date the
Employee Option expires. The Committee may accelerate the exerciseability of any
Employee Option or portion thereof at any time.
5.5 Modification. No modification of an Employee Option shall adversely
alter or impair any rights or obligations under the Employee Option without the
Optionee's consent.
6. Option Grants for Nonemployee Directors.
6.1 Grant. Director Options shall be granted to each Nonemployee Director
on the first business day of August of each year that the Plan is in effect.
Each Director Option granted shall be in respect of 3,000 Shares. Such Options
shall be evidenced by an Agreement containing such other terms and conditions
not inconsistent with the provisions of this Plan as determined by the Board;
provided, however, that such terms shall not vary the price, amount or timing of
Director Options provided under this Section 6, including provisions dealing
with vesting, forfeiture and termination of such Director Options.
6.2 Purchase Price. The purchase price for Shares under each Director
Option shall be equal to 100% of the Fair Market Value of such Shares on the
date immediately preceding the date of grant.
6.3 Vesting. Subject to Sections 6.4 and 7.4, each Director Option shall
become exercisable with respect to 33 1/3% of the Shares subject thereto
effective as of each of the first, second, and third anniversaries of the grant
date; provided, however, that the Optionee continues to serve as a Director as
of such dates. If an Optionee ceases to serve as a Director for any reason, the
Optionee shall have no rights with respect to that portion of a Director Option
which has not then vested pursuant to the preceding sentence and the Optionee
shall automatically forfeit that portion of the Director Option which remains
unvested.
6.4 Duration. Each Director Option shall terminate on the date which is
the tenth anniversary of the grant date, unless terminated earlier as follows:
(a) If an Optionee's service as a Director terminates for any reason
other than Disability, death or Cause, the Optionee may for a period of
three (3) months after such termination exercise his or her Option to the
extent, and only to the extent, that such Option or portion thereof was
vested and exercisable as of the date the Optionee's service as a Director
terminated, after which time the Option shall automatically terminate in
full.
(b) If an Optionee's service as a Director terminates by reason of the
Optionee's resignation or removal from the Board due to Disability, the
Optionee may, for a period of one (1) year after such termination, exercise
his or her Option to the extent, and only to the extent, that such Option
or portion thereof was vested and exercisable, as of the date the
Optionee's service as Director terminated, after which time the Option
shall automatically terminate in full.
(c) If an Optionee's service as a Director terminates for Cause, the
Option granted to the Optionee hereunder shall immediately terminate in
full and no rights thereunder may be exercised.
(d) If an Optionee dies while a Director or within three (3) months
after termination of service as a Director as described in clause (a) of
this Section 6.4 or within twelve (12) months after termination of service
as a Director as described in clause (b) of this Section 6.4, the Option
granted to the Optionee may be exercised at any time within twelve (12)
months after the Optionee's death by the person or persons to whom such
rights under the Option shall pass by will, or by the laws of descent or
distribution,
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after which time the Option shall terminate in full; provided, however,
that an Option may be exercised to the extent, and only to the extent, that
the Option or portion thereof was exercisable on the date of death or
earlier termination of the Optionee's services as a Director.
6.5 Limitations on Amendment. The provisions in this Section 6 shall not
be amended more than once every six months, other than to comport with changes
in the Code or the rules and regulations thereunder.
7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.
7.1 Non-Transferability. No Option granted hereunder shall be
transferable by the Optionee to whom granted except by will or the laws of
descent and distribution, and an Option may be exercised during the lifetime of
such Optionee only by the Optionee or his or her guardian or legal
representative. The terms of such Option shall be final, binding and conclusive
upon the beneficiaries, executors, administrators, heirs and successors of the
Optionee.
7.2 Method of Exercise. The exercise of an Option shall be made only by a
written notice delivered in person or by mail to the Secretary of the Company at
the Company's principal executive office, specifying the number of shares to be
purchased and accompanied by payment therefor and otherwise in accordance with
the Agreement pursuant to which the Option was granted. The purchase price for
any Shares purchased pursuant to the exercise of an Option shall be paid in full
in cash upon such exercise. Notwithstanding the foregoing, the Committee shall
have discretion to determine at the time of grant of each Employee Option or at
any later date (up to and including the date of exercise) that the form of
payment acceptable in respect of the exercise of such Employee Option may
consist of either of the following (or any combination thereof): (i) cash or
(ii) the transfer of Shares to the Company upon such terms and conditions as
determined by the Committee. Any Shares transferred to the Company as payment of
the purchase price under an Option shall be valued at their Fair Market Value on
the day preceding the date of exercise of such Option. In addition, both
Employee Options and Director Options may be exercised through a registered
broker-dealer pursuant to such cashless exercise procedures (other than Share
withholding) which are, from time to time, deemed acceptable by the Committee.
The Optionee shall deliver the Agreement evidencing the Option to the Secretary
of the Company who shall endorse thereon a notation of such exercise and return
such Agreement to the Optionee. No fractional Shares (or cash in lieu thereof)
shall be issued upon exercise of an Option and the number of Shares that may be
purchased upon exercise shall be rounded to the nearest number of whole Shares.
7.3 Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any Shares subject to any Option unless and until (i) the Option
shall have been exercised pursuant to the terms thereof, (ii) the Company shall
have issued and delivered Shares to the Optionee and (iii) the Optionee's name
shall have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend, and other ownership
rights with respect to such Shares, subject to such terms and conditions as may
be set forth in the applicable Agreement.
7.4 Effect of Change in Control. In the event of a Change in Control, all
Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable. In addition, to the extent set forth in an
Agreement evidencing the grant of an Employee Option, an Optionee will be
permitted to surrender for cancellation within sixty (60) days after such Change
in Control any Employee Option or portion of an Employee Option to the extent
not yet exercised and the Optionee will be entitled to receive a cash payment in
an amount equal to the excess, if any, of (x) (A) in the case of a Nonqualified
Stock Option, the greater of (1) the Fair Market Value, on the date preceding
the date of surrender, of the Shares subject to the Employee Option or portion
thereof surrendered or (2) the Adjusted Fair Market Value of the Shares subject
to the Employee Option or portion thereof surrendered or (B) in the case of an
Incentive Stock Option, the Fair Market Value, on the date preceding the date of
surrender, of the Shares subject to the Employee Option or portion thereof
surrendered, over (y) the aggregate purchase price for such Shares under the
Employee Option or portion thereof surrendered; provided, however, that in the
case of an Employee Option granted within six (6) months prior to the Change in
Control to any Optionee who may be subject to liability under Section 16(b) of
the Exchange Act, such Optionee shall be entitled to surrender for cancellation
his or her Employee Option during the sixty (60) day period commencing upon the
expiration of six (6) months from the date of grant of any such Employee Option.
In the event an Optionee's employment
7
<PAGE> 119
with, or service as a Director of, the Company is terminated by the Company
following a Change in Control each Option held by the Optionee that was
exercisable as of the date of termination of the Optionee's employment or
service shall remain exercisable for a period ending not before the earlier of
the first anniversary of the termination of the Optionee's employment or service
or the expiration of the stated term of the Option.
8. EFFECT OF A TERMINATION OF EMPLOYMENT.
The Agreement evidencing the grant of each Option shall set forth the terms
and conditions applicable to such Option upon a termination or change in the
status of the employment of the Optionee by the Company, a Subsidiary or a
Division (including a termination or change by reason of the sale of a
Subsidiary or a Division), which, except for Director Options, shall be as the
Committee may, in its discretion, determine at the time the Option is granted or
thereafter.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
9.1 In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to the (i) maximum
number and class of Shares or other stock or securities with respect to which
Options may be granted under the Plan, (ii) maximum number and class of Shares
or other stock or securities with respect to which Options may be granted to any
Eligible Individual during the term of the Plan, (iii) the number and class of
Shares or other stock or securities which are subject to outstanding Options
granted under the Plan and the purchase price therefor, if applicable, and (iv)
the number and class of Shares or other securities in respect of which Director
Options are to be granted under Section 6.
9.2 Any such adjustment in the Shares or other stock or securities subject
to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
9.3 If, by reason of a Change in Capitalization, or an Optionee shall be
entitled to exercise an Option with respect to new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions, restrictions and performance
criteria which were applicable to the Shares subject to the Option prior to such
Change in Capitalization.
10. EFFECT OF CERTAIN TRANSACTIONS. Subject to Sections 7.4 or as
otherwise provided in an Agreement, in the event of (i) the liquidation or
dissolution of the Company or (ii) a merger or consolidation of the Company (a
"Transaction"), the Plan and the Options issued hereunder shall continue in
effect in accordance with their respective terms, except that following a
Transaction each Optionee shall be entitled to receive in respect of each Share
subject to any outstanding Options, as the case may be, upon exercise of any
such Option, the same number and kind of stock, securities, cash, property, or
other consideration that each holder of a Share was entitled to receive in the
Transaction in respect of a Share; provided, however, that such stock,
securities, cash, property, or other consideration shall remain subject to all
of the conditions, restrictions and performance criteria which were applicable
to the Options prior to such Transaction.
11. INTERPRETATION.
11.1 The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Committee shall interpret and administer the provisions of
the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
11.2 The Director Options described in Section 6 are intended to qualify
as formula awards under Rule 16b-3 promulgated under the Exchange Act (thereby
preserving the disinterested status of Nonemployee Directors receiving such
awards) and the Committee shall interpret and administer the provisions of the
Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with the foregoing intent shall be inoperative and shall not affect
the validity of the Plan.
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<PAGE> 120
12. POOLING TRANSACTIONS.
Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a Change in Control which is also intended to
constitute a Pooling Transaction, the Committee shall take such actions, if any,
which are specifically recommended by an independent accounting firm retained by
the Company to the extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including but not limited to (i)
deferring the vesting, exercise, payment or settlement with respect to any
Option, (ii) providing that the payment or settlement in respect of any Option
be made in the form of cash, Shares or securities of a successor or acquirer of
the Company, or a combination of the foregoing and (iii) providing for the
extension of the term of any Option to the extent necessary to accommodate the
foregoing, but not beyond the maximum term permitted for any Option.
13. TERMINATION AND AMENDMENT OF THE PLAN.
The Plan shall terminate on the day preceding the tenth anniversary of the
date of its adoption by the Board and no Option may be granted thereafter.
Subject to Section 6.5, the Board may sooner terminate the Plan and the Board
may at any time and from time to time amend, modify or suspend the Plan;
provided, however, that:
(a) No such amendment, modification, suspension or termination shall
impair or adversely alter any Options theretofore granted under the Plan,
except with the consent of the Optionee, nor shall any amendment,
modification, suspension or termination deprive any Optionee of any Shares
which he or she may have acquired through or as a result of the Plan; and
(b) To the extent necessary under Section 16(b) of the Exchange Act
and the rules and regulations promulgated thereunder or other applicable
law, no amendment shall be effective unless approved by the stockholders of
the Company in accordance with applicable law and regulations.
14. NON-EXCLUSIVITY OF THE PLAN.
The adoption of the Plan by the Board shall not be construed as amending,
modifying or rescinding any previously approved incentive arrangement or as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such arrangements
may be either applicable generally or only in specific cases.
15. LIMITATION OF LIABILITY.
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(i) give any person any right to be granted an Option other than at
the sole discretion of the Committee (except to the extent provided in
Section 6 hereof);
(ii) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate the
employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
16. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
16.1 Except as to matters of federal law, this Plan and the rights of all
persons claiming hereunder shall be construed and determined in accordance with
the laws of the State of Delaware without giving effect to conflicts of laws
principles thereof.
16.2 The obligation of the Company to sell or deliver Shares with respect
to Options granted under the Plan shall be subject to all applicable laws, rules
and regulations, including all applicable federal and state
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<PAGE> 121
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
16.3 The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority, or to obtain
for Eligible Individuals granted Incentive Stock Options the tax benefits under
the applicable provisions of the Code and regulations promulgated thereunder.
16.4 Each Option is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions as acceptable to the Committee.
16.5 Notwithstanding anything contained in the Plan or any Agreement to
the contrary, in the event that the disposition of Shares acquired pursuant to
the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Committee may require any individual receiving Shares pursuant
to an Option granted under the Plan, as a condition precedent to receipt of such
Shares, to represent and warrant to the Company in writing that the Shares
acquired by such individual are acquired without a view to any distribution
thereof and will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable under
the Securities Act or the rules and regulations promulgated thereunder. The
certificates evidencing any of such Shares shall be appropriately legended to
reflect their status as restricted securities as aforesaid.
17. MULTIPLE AGREEMENTS.
The terms of each Option may differ from other Options granted under the
Plan at the same time, or at some other time. The Committee may also grant more
than one Option to a given Eligible Individual during the term of the Plan,
either in addition to, or in substitution for, one or more Options previously
granted to that Eligible Individual.
18. WITHHOLDING OF TAXES.
18.1 At such times as an Optionee recognizes taxable income in connection
with the receipt of Shares or cash hereunder (a "Taxable Event"), the Optionee
shall pay to the Company an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld by the Company
in connection with the Taxable Event (the "Withholding Taxes") prior to the
issuance, or release from escrow, of such Shares or the payment of such cash.
The Company shall have the right to deduct from any payment of cash to an
Optionee an amount equal to the Withholding Taxes in satisfaction of the
obligation to pay Withholding Taxes. In satisfaction of the obligation to pay
Withholding Taxes to the Company, the Optionee may make a written election (the
"Tax Election"), which may be accepted or rejected in the discretion of the
Committee to have withheld a portion of the Shares then issuable to him or her
having an aggregate Fair Market Value, on the date preceding the date of such
issuance, equal to the Withholding Taxes, provided that in respect of an
Optionee who may be subject to liability under Section 16(b) of the Exchange Act
either: (i) (A) the Tax Election is made at least six (6) months prior to the
date of the Taxable Event and (B) the Tax Election is irrevocable with respect
to all Taxable Events of a similar nature occurring prior to the expiration of
six (6) months following a revocation of the Tax Election; or (ii) (A) the
Optionee makes the Tax Election at least six (6) months after the date the
Option was granted, (B) the Option is exercised during the ten (10) day period
beginning on the third business day and ending on the twelfth business day
following the release for publication of the Company's quarterly or annual
statement of sales and earnings (a "Window Period") and (C) the Tax Election is
made during the Window Period in which the related Option is exercised or prior
to such Window Period and subsequent to the immediately preceding Window Period.
Notwithstanding the foregoing, the Committee may, by the adoption of rules or
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<PAGE> 122
otherwise, (i) modify the provisions of this Section 18.1 (other than as regards
Director Options) or impose such other restrictions or limitations on Tax
Elections as may be necessary to ensure that the Tax Elections will be exempt
transactions under Section 16(b) of the Exchange Act, and (ii) permit Tax
Elections to be made at such other times and subject to such other conditions as
the Committee determines will constitute exempt transactions under Section 16(b)
of the Exchange Act.
18.2 If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office.
19. EFFECTIVE DATE
The effective date of the Plan shall be as determined by the Board, subject
only to the approval by the affirmative vote of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of stockholders duly held in accordance with the applicable laws of the
State of Delaware within twelve (12) months of the adoption of the Plan by the
Board.
THE NOSTALGIA NETWORK, INC.
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made as of the
day of , 1998, by and between The Nostalgia Network,
Inc. (the "Company"), a Delaware corporation, and, , a member of
the Company's Board of Directors (the "Director").
W I T N E S S E T H:
A. The Board of Directors of the Company (the "Board") has adopted The
Nostalgia Network, Inc. 1996 Stock Option Plan (the "Plan") for the purpose of
providing an incentive to selected directors, officers and employees of the
Company and encouraging them to devote their abilities and industries to the
success of the Company. Unless otherwise defined herein, capitalized terms shall
have the same meaning as in the Plan.
B. The Plan provides for the grant of an option to Director as provided
herein.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms, conditions and
restrictions set forth in this Agreement and the Plan, a copy of which is
attached hereto, the Company hereby grants to Director, as of the Grant Date, an
option (the "Option") to purchase up to 3,000 shares (the "Shares") of the
common stock, par value $.04 per share, of the Company from time to time during
the Option Term (as defined in Section 3 hereof) at the Exercise Price provided
for herein.
2. EXERCISE PRICE. The price at which Director shall be entitled to
purchase Shares upon the exercise of this Option shall be $ per share.
3. OPTION TERM. The term of the Option (the "Option Term") shall commence
on (the "Grant Date") and, unless earlier terminated in
accordance with the terms of the Plan or this Agreement, shall terminate at 5:00
p.m., Washington, D.C. time, on (the "Expiration Date"). Upon the
Expiration Date or earlier termination of this Option as provided herein, the
Option shall expire, cease to be exercisable and be of no further force or
effect except as may be expressly provided herein.
4. OPTION NONTRANSFERABLE. Neither this Agreement nor Director's rights
hereunder shall be transferable nor assignable by Director other than by will or
by the laws of descent and distribution, and the Option may be exercised, during
Director's lifetime, only by Director.
11
<PAGE> 123
5. EXERCISE. Unless otherwise provided in this Agreement or the Plan, the
Option shall entitle Director to purchase in whole at any time or in part from
time to time, 1,000 of the Shares beginning on , an additional
1,000 of the Shares beginning on and an additional 1,000 of the
Shares beginning on . Each such right of purchase shall be
cumulative and shall continue, unless sooner exercised or terminated as herein
provided, during the remainder of the Option Term. Exercisable installments may
be exercised in whole or in part and, to the extent not exercised, shall be
exercisable at any time on or before the Expiration Date or earlier termination
of the Option Term. This Option shall be subject in all respects to the Plan.
6. TERMINATION. The Option shall terminate prior to the Expiration Date as
follows:
(a) If the Director ceases to be a member of the Board (a
"Termination") and the Termination is for any reason other than Disability,
death or Cause, the Director may, for a period of three (3) months after
the Termination, exercise the Option provided, and only to the extent that,
the Option or portion thereof is vested and exercisable as of the date of
the Termination after which time the Option shall terminate in full.
(b) If the Termination is by resignation or removal due to Disability,
the Director may, for a period of one (1) year after the Termination,
exercise the Option provided, and only to the extent that, the Option or
portion thereof is vested and exercisable, as of the date of the
Termination, after which time the Option shall terminate in full.
(c) If the Termination is for Cause, the Option shall terminate
immediately in full.
(d) If Termination is the result of death while a Director or within
three (3) months after Termination other than for Disability or Cause or
within twelve (12) months after Termination by reason of the Director's
resignation or removal from the Board due to Disability, the Option may be
exercised at any time within twelve (12) months after the Director's death
by Director's legal representative provided, and only to the extent that,
the Option or portion thereof is vested and exercisable on the date of
Termination.
7. MANNER OF EXERCISE.
To exercise this Option with respect to all or any part of the Shares for
which this Option is then exercisable, Director must take the following actions
(in addition to any specified in the Plan):
(a) Provide the Secretary of the Company with ten (10) days written
notice of such exercise, by providing to the Company a fully completed and
executed Option Exercise Form a copy of which is attached hereto;
(b) Furnish to the Company appropriate documentation that the person
exercising the Option, if other than Director, has the right to exercise
this Option on behalf of and for Director;
(c) If requested, deliver to the Company a signed statement, in a form
satisfactory to the Company, confirming that each of the representations,
warranties, acknowledgments and agreements contained in paragraph 15 hereof
is true as to Director as of the date of exercise;
(d) Furnish to the Company such additional agreements, undertakings,
documents or information as the Company or its counsel may reasonably
request.
8. LIABILITY OF COMPANY. The inability of the Company to obtain approval,
after the Company exercises its reasonable efforts to obtain such approval, from
any regulatory body having authority deemed by the Company to be necessary to
the lawful issuance and sale of any Shares pursuant to this Option shall relieve
the Company of any liability in respect of its failure to deliver and sell the
Shares as to which such approval shall not have been obtained.
9. SUCCESSORS AND ASSIGNS. Subject to the terms of the Plan, the
provisions of this Agreement shall inure to the benefit of, and be binding upon,
the successors, administrators, heirs, devisees, legal representatives and
assigns of Director, and the successors and assigns of the Company.
12
<PAGE> 124
10. CONSTRUCTION. This Agreement and this Option are made and granted
pursuant to the Plan and are in all respects limited by and subject to the
express terms and provisions of the Plan.
11. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of Delaware.
12. STOCKHOLDER RIGHTS. Neither the Director, nor any person who succeeds
to the Option by will or by the laws of descent and distribution, shall have any
rights of a stockholder of the Company with respect to any Shares to be
delivered upon exercise of the Option unless, and only to the extent that, the
Option shall have been duly and lawfully exercised in accordance with all
requirements for exercise of the Option pursuant to its terms, this Agreement
and/or the Plan.
13. NOTICES. Except as otherwise provided herein, all notices to the
Company shall be addressed to the Secretary of the Company at the principal
office of the Company, and all notices to Director shall be addressed to
Director at the address of Director on file with the Company or its
Subsidiaries, or to such other address as either party may designate to the
other in writing. A notice shall be deemed to be given if and when enclosed in a
properly addressed sealed envelope deposited, first class postage prepaid, with
the United States Postal Service. In lieu of giving notice by mail, written
notices under this Agreement may be given by personal delivery to Director or to
the Secretary of the Company (as the case may be) or by facsimile at the last
known facsimile number designated by either party. Notices given by facsimile
shall be deemed given upon receipt of facsimile confirmation.
14. SEVERABILITY. In the event any provision of this Agreement (or any
part thereof) is, or is for any reason adjudged to be, void, unlawful,
unenforceable or invalid, then disregarding such provision or provisions (or any
void, unlawful, unenforceable or invalid part thereof), the remaining provisions
hereof shall be valid and be carried into full force and effect.
15. REPRESENTATIONS AND WARRANTIES OF DIRECTOR.
Director hereby represents, warrants and acknowledges to the Company as
follows:
(a) As of the Grant Date, Director does not own, directly or
indirectly, more than ten percent (10%) of the total combined voting power
or value of all classes of voting stock of the Company.
(b) Director will acquire and hold the Shares purchased on exercise of
this Option for his or her own account and not with the view to the resale
or distribution thereof, except for resales or distributions in accordance
with federal and state securities laws, and that Director will not directly
or indirectly transfer all, any portion of, or any interest in, any Shares
acquired pursuant to the exercise of this Option (or solicit an offer to
transfer all or any portion thereof), except pursuant to either (i) an
effective and current registration statement (a "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), or (ii) an
applicable exemption from the registration requirements of the Act the
availability of which exemption shall, at the option of the Company, be
confirmed by an opinion of counsel for the Director in form and substance
satisfactory to the Company and its counsel.
(c) Director acknowledges that (i) this Option may not be exercised
unless the Shares are the subject of a Registration Statement or an
exemption from registration under the Act is available; (ii) the Shares
must be held indefinitely unless registered or an exemption from
registration is available under the Act and any applicable state securities
laws; (iii) the Company is under no obligation to register the Shares or to
comply with any exemption from registration, including those portions of
Rule 144 under the Act ("Rule 144") to be complied with by the transferor
of the Shares; (iv) if Rule 144 is available for sales of the Shares (and
there is no assurance that Director will be able to sell under Rule 144),
such sales in reliance upon Rule 144 may be made only after the Shares have
been held for the requisite holding period and may also be subject to the
volume limitations of Rule 144; and (v) Director must continue to bear the
economic risk of an investment in the Shares for an indefinite period of
time after the exercise of this Option.
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<PAGE> 125
(d) Director acknowledges that all certificates representing shares
transferred pursuant to this Agreement, unless subject to a Registration
Statement, will bear the following restrictive legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
transferred or hypothecated without prior registration under said Act or
any exemption therefrom established to the satisfaction of the issuer."
(e) Director acknowledges that if counsel advises the Company that
registration of the Shares under the Act or that listing of the Shares on
any exchange is required prior to delivery thereof, the Company shall not
be required to deliver the Shares unless and until the Company is advised
by its counsel that registration and/or listing has been completed and is
effective. Director understands that the Company is under no obligation to
effectuate such registration or listing and may issue stop transfer
instructions to its transfer agent with respect to the Shares delivered
upon exercise of this Option.
17. MISCELLANEOUS. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof, subject to the provisions of the
Plan. Any prior agreements, promises, understandings, representations or
warranties relating to the subject matter hereof are of no force or effect.
Paragraph headings in this Agreement are for convenience and are not a part of
the agreement of the parties, and shall not be used in the construction hereof.
Whenever the context of this Agreement requires, references to the singular
shall be deemed to include the plural and the plural the singular, and the
masculine the feminine, and the feminine the masculine.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and Director has also
executed this Agreement in duplicate, all as of the day and year first above
written.
THE NOSTALGIA NETWORK, INC.
By:
--------------------------------------
Its
--------------------------------------
DIRECTOR
--------------------------------------
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<PAGE> 126
THE NOSTALGIA NETWORK, INC.
1996, 1990, 1987 STOCK OPTION PLANS
<TABLE>
<CAPTION>
VESTING OPTIONS OPTIONS
STATUS OF DATE OF EXPIRATION EXERCISE PERIOD OPTIONS EXPIRED OR CURRENTLY
RECIPIENT EMPLOY. GRANT DATE SHARES PRICE (YEARS) EXERCISED CANCELLED OUTSTANDING
--------- --------- -------- ---------- ------- -------- ------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Employee A............. A 08/16/95 8/16/2005 15,000 $1.00 3 15,000
Employee A............. A 10/08/92 2,000 $1.57 3 0 0 2,000
Employee A............. A 09/13/90 1,000 $0.63 3 0 0 1,000
Employee B............. A 08/16/95 8/16/2005 29,000 $1.00 3 29,000
Employee B............. A 10/08/92 4,000 $1.57 3 0 0 4,000
Employee B............. A 09/13/90 1,000 $0.63 3 0 0 1,000
Employee C............. A 08/16/95 8/16/2005 29,000 $1.00 3 29,000
Employee C............. A 10/08/92 10,000 $1.57 3 0 0 10,000
Employee C............. A 09/13/90 30,000 $0.63 3 0 0 30,000
Employee C............. A 09/23/88 12,000 $1.25 3 0 12,000 0
Employee D............. A 08/16/95 8/16/2005 4,000 $1.00 3 4,000
Employee D............. A 10/08/92 1,000 $1.57 3 0 0 1,000
Employee D............. A 09/04/91 500 $0.48 3 0 0 500
Employee D............. A 09/13/90 500 $0.63 3 0 0 500
Employee E............. A 08/16/95 8/16/2005 4,000 $1.00 3 4,000
Employee F............. 08/16/95 8/16/2005 29,000 $1.00 3 29,000
(deceased)
-------
172,000
=======
</TABLE>
<PAGE> 127
THE NOSTALGIA NETWORK, INC.
DIRECTORS' STOCK OPTIONS SCHEDULE
<TABLE>
<CAPTION>
PRIOR PLAN 8/1/96 8/1/97 8/3/98 8/2/99
----------------- ------------------ ----------------- ----------------- -----------------
VESTED UNVESTED VESTED UNVESTED VESTED UNVESTED VESTED UNVESTED VESTED UNVESTED
------ -------- ------- -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Christopher Cates......... 20,000 -- 3,000 2,000 1,000 1,000 2,000 -- 3,000
Floyd Christofferson...... -- -- 3,000 2,000 1,000 1,000 2,000 -- 3,000
Diane M. Faure............ -- -- 3,000 2,000 1,000 1,000 2,000 -- 3,000
Dong Moon Joo............. -- -- 3,000 2,000 1,000 1,000 2,000 -- 3,000
Hiroshi Goto.............. -- -- -- -- -- -- 1,000 2,000 -- 3,000
Dr. S. Robert Lichter..... -- -- -- -- -- -- 1,000 2,000 -- 3,000
Frederick W. Newton....... -- -- -- -- -- -- 1,000 2,000 -- 3,000
Phillip Sanchez -- -- 2,000 2,000 1,000 1,000 2,000 -- 3,000
(Chrman)................
Robert J. Wussler......... -- -- 3,000 2,000 1,000 1,000 2,000 -- 3,000
SQuire D. Rushnell Stk
Option Agreement
As of 5-13-96........... 629,880 209,960
<CAPTION>
TOTAL
VESTED
-------
<S> <C>
Christopher Cates......... 26,000
Floyd Christofferson...... 6,000
Diane M. Faure............ 6,000
Dong Moon Joo............. 6,000
Hiroshi Goto.............. 1,000
Dr. S. Robert Lichter..... 1,000
Frederick W. Newton....... 1,000
Phillip Sanchez 5,000
(Chrman)................
Robert J. Wussler......... 6,000
SQuire D. Rushnell Stk
Option Agreement
As of 5-13-96........... 629,880
</TABLE>
<PAGE> 128
CHATSWORTH SECURITIES LLC
October 18, 1999
The 144 Committee
The Nostalgia Network, Inc.
650 Massachusetts Avenue, NW
Washington, D.C. 20001
Gentlemen:
We understand that Crown Communications Corporation ("Crown"), a Delaware
corporation, desires to enter into a merger transaction with The Nostalgia
Network, Inc. ("Nostalgia"), a Delaware corporation, pursuant to which Nostalgia
and a subsidiary of Crown will merge (the "Merger"). As part of the Merger, all
of the stockholders of Nostalgia will receive cash for their shares of Nostalgia
Common Stock at a price of $0.07 per share (including the holders of shares of
Nostalgia's Preferred Stock, who will receive consideration for their shares on
an as converted Basis). Upon consummation of the Merger, Crown and its
affiliates will be the sole stockholders of Nostalgia, and Nostalgia shall cease
to be an SEC reporting company.
You have asked for our opinion as to whether the offer price for the Merger
is fair from a financial point of view to the minority holders of shares of
Nostalgia.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Nostalgia;
(ii) reviewed certain internal financial and operating data concerning
Nostalgia prepared by the management of Nostalgia;
(iii) discussed the past and current operations and financial condition and
the prospects of Nostalgia, including information relating to certain
strategic, financial and operational issues, with senior executives
of Nostalgia;
(iv) reviewed the reported prices and trading activity for the Nostalgia
Common Stock;
(v) compared the financial performance of Nostalgia and prices and trading
activity of Nostalgia Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vi) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information received by us for the purposes of
this opinion. With respect to the internal financial statements and other
financial and operating data, including forecasts, and discussions relating to
the strategic, financial and operational benefits anticipated from the Merger,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the prospects of Crown and
Nostalgia. We have also relied upon, without independent verification, the
assessment by the management of Crown and Nostalgia of the strategic and other
benefits expected to result from the Merger. We have not made any independent
valuation or appraisal of the assets or liabilities of Crown or Nostalgia nor
have we been furnished with any such appraisals. Our opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof. This opinion is for
the use and benefit of The 144 Committee and the Board of Directors of The
Nostalgia Network, Inc. Our opinion does not address the merits of the
underlying decision by Crown to engage in the Merger and does not constitute a
recommendation to any stockholder of Nostalgia.
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<PAGE> 129
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the cash offer price to all shareholders of Nostalgia for
their shares of Nostalgia Common Stock at a price of $0.07 per share (including
the holders of shares of Nostalgia's Preferred Stock, who will receive
consideration for their shares on an as converted basis) is fair from a
financial point of view to the holders of Nostalgia Common Stock.
Very truly yours,
CHATSWORTH SECURITIES LLC
/s/ CHATSWORTH SECURITIES LLC
B-2
<PAGE> 130
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251(other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
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provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the
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effective date of the merger or consolidation, any stockholder shall have the
right to withdraw such stockholder's demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate number
of shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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<PAGE> 133
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
(8 Del. C. 1953, Section 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, Section
24; 57 Del. Laws, c. 148, Sections 27-29; 59 Del. Laws, c. 106, Section 12; 60
Del. Laws, c. 371, Sections 3-12; 63 Del. Laws, c. 25, Section 14; 63 Del. Laws,
c. 152, Sections 1, 2; 64 Del. Laws, c. 112, Sections 46-54; 66 Del. Laws, c.
136, Sections 30-32; 66 Del. Laws, c. 352, Section 9; 67 Del. Laws, c. 376,
Sections 19, 20; 68 Del. Laws, c. 337, Sections 3, 4; 69 Del. Laws, c. 61,
Section 10; 69 Del. Laws, c. 262, Sections 1-9; 70 Del. Laws, c. 79, Section 16;
70 Del. Laws, c. 186, Section 1; 70 Del. Laws, c. 299, Sections 2, 3; 70 Del.
Laws, c. 349, Section 22; 71 Del. Laws, c. 120, Section 15; 71 Del. Laws, c.
339, Sections 49-52.)
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<PAGE> 134
APPENDIX D(1)
[DANIELS & ASSOCIATES LETTERHEAD]
MEMORANDUM
<TABLE>
<S> <C>
TO: NICK CHIAIA
CROWN COMMUNICATIONS
FROM: GREG AINSWORTH
CHRISTOPHER DOWNIE
DATE: 4/17/00
SUBJECT: GOODLIFE VALUATION DISCUSSION
(UPDATE OF 10/7/99 MEMORANDUM)
</TABLE>
As per your request, we have prepared the following discussion and analyses
to provide you with what we believe are the critical and appropriate factors in
ascribing an equity value to The Nostalgia Network, Inc., dba GoodLife
Television (herein referred to as GoodLife). We understand that you are pursuing
the acquisition of the approximately 30% of GoodLife that is held by public
shareholders and, in doing so, effectively take GoodLife private. We are
prepared to discuss the following analysis with you in greater detail at your
convenience. Please note that while we have had access to significant
information with regards to GoodLife and its operations, we have not performed a
comprehensive diligence effort.
While not an exact science, the valuation process for any public or private
company is based on several relatively standard valuation methodologies. These
methodologies include the following:
I. NET ASSET VALUE ANALYSIS, which includes:
-- Value of assets in use, potentially discounted for time, risks,
costs and ability to obtain asset value
-- Liquidation Value
II. MARKET PRICE ANALYSIS, which includes:
-- Current and historical pricing analysis
-- Corporate or insider transaction history
-- Any third party transactions with respect to GoodLife
III. GOING CONCERN VALUE ANALYSIS, which includes:
-- Multiple of Operating Statistics, such as EBITDA, EBIT,
earnings, free cash flow
-- Review of selected publicly traded comparable companies
IV. ACQUISITION VALUE ANALYSIS, which includes:
-- Comparable historical acquisition analysis of comparable
companies, taking into account minority or non-controlling
interests
V. DISCOUNTED CASH FLOW ANALYSIS, which includes:
-- A ten year cash flow projection and terminal valuation,
discounted to the present
All of these different valuation methodologies should be considered in your
determination of an equity value for GoodLife and its shareholders. The
following pages will review each analysis and provide a conclusion based on the
analysis provided. We have concluded this Memorandum with a summary conclusion
D(1)-1
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of our thoughts with regards to an appropriate equity valuation for GoodLife,
subject to the information available to us at this time.
NET ASSET VALUE ANALYSIS -- The following table provides a summary analysis
that primarily focuses on GoodLife's balance sheet as of December 31, 1999. We
have assumed that there is no material difference from December 31, 1999 to the
date of this memorandum.
GOODLIFE NET ASSET VALUE ANALYSIS
<TABLE>
<S> <C>
ASSETS
Current assets
Cash & cash equivalents................................... $ 674,177
Net accounts receivables............................... $ 826,588
Prepaid Expenses....................................... $ 114,096
Current portion progamming............................. $ 7,105,280
Total current assets.............................. $ 8,720,141
------------
Other assets
Film & film rights, net................................... $ 2,981,416
Net PP&E.................................................. $ 972,107
Deposits.................................................. $ 49,430
------------
TOTAL ASSETS...................................... $ 12,723,094
------------
LIABILITIES
Current Liabilities
Accounts payable.......................................... $ 1,204,666
Accrued liabilities & Other............................... $ 752,357
Cablecast rights payable.................................. $ 4,810,822
------------
Total Current Liabilities......................... $ 6,767,845
Other liabilities
Long term debt............................................ $ 2,135,164
Non-current liabilities................................... $ 86,416,363
------------
TOTAL LIABILITIES................................. $ 95,319,372
------------
NET ASSET VALUE............................................. $(82,596,278)
NET ASSET VALUE PER SHARE................................... $ (4.05)
------------
SHARES OUTSTANDING.......................................... 20,374,371
------------
NET ASSET VALUE (EXCL. LTD)................................. $ 5,955,249
$ 0.29
------------
</TABLE>
This analysis is essentially a liquidation scenario analysis. In theory it
assumes that if you were to shut down operations tomorrow this value is what
would you be able to garner from the assets. This assumes no sale of the
subscriber base. It is important to note that no liquidation discounts (i.e.
probability of achieving full book value for assets) are factored into this
analysis, which would likely serve to lower the liquidation value.
CONCLUSION: This Net Asset Value analysis implies that GoodLife has a
negative equity value per share.
D(1)-2
<PAGE> 136
MARKET PRICE ANALYSIS -- The following table and discussion provide a
review of GoodLife's historical public market trading history. We have provided
comments where appropriate.
<TABLE>
<CAPTION>
TRADING PRICES PER SHARE
<S> <C> <C>
Current Price............................ $0.060
52 Week High............................. $0.230
52 Week Low.............................. $0.030
Last 30 days avg......................... $0.113
Last 60 days avg......................... $0.101
Last 90 days avg......................... $0.097
Last 180 days avg........................ $0.085
Last 365 days avg........................ $0.082
1994 Average............................. $1.090
1995 Average............................. $0.509
1996 Average............................. $0.285
1997 Average............................. $0.079
1998 Average............................. $0.027
1999 Average............................. $0.074 Daniels Engagement for Strategic Options Public --12/98
1/1/00 to date Average................... $0.096
</TABLE>
Since 1994, GoodLife has not traded above $1.00 per share. Since 1997,
GoodLife has traded, for the most part, below $0.08 per share. GoodLife's share
price has been as low as $0.01. In December 1998, Crown Communications retained
Daniels to pursue strategic options at which point the share price increased to
a maximum of approximately $0.25 per share. The share price gravitated around
$0.11 per share before retreating to its current price of $0.06.
It is often argued that the public markets are the most efficient
determinant of equity value and as such the more recent range of GoodLife's
share value in the $0.08 is a pertinent value parameter. However, given the
increase in perceived value since the announcement of the engagement of Daniels,
the annual year-to-date average of $0.096 is probably a better gage of potential
value.
CONCLUSION: While imperfect, this Market Price Analysis implies an equity
value per share in the $0.06 to $0.08 range. Using the current shares
outstanding, this implies GoodLife has a current equity value of $1.2 million to
$1.6 million, and a market capitalization (adding back net debt and payables of
$90.7 million) of approximately $91.9 million to $92.3 million.
GOING CONCERN VALUE ANALYSIS -- In valuing cable programming network assets
in general, comparable public company analysis is not a very effective measure.
Many of the cable networks are either private or are consolidated into much
larger media companies, such as cable or other media companies. In other
situations, such as with Liberty Media, cable network assets are combined for
reporting purposes with other internet or other media assets. In general, this
makes the traditional measures of EBITDA, earnings, etc. very difficult to
determine. We have thus ignored this analysis for the purposes of valuing
GoodLife.
Historically, cable networks tended to trade in the 12.0 to 18.0 times
EBITDA range. Since, GoodLife has no positive EBITDA, this measure would again
be irrelevant. Such multiples, however, are applicable in the Discounted Cash
Flow analysis to be discussed later.
ACQUISITION VALUE ANALYSIS -- This analysis is perhaps one of the more
useful with regards to determining an equity value for GoodLife. This analysis
applies the historical transaction values paid by purchasers for other networks
to GoodLife. The appropriate metrics for this analysis are EBITDA multiples and
Per Subscriber values. Again, since GoodLife has no EBITDA, we have focussed
primarily on Per Subscriber values. It should be noted that information on most
of these transactions is limited and may involve
D(1)-3
<PAGE> 137
other factors that are not apparent that have affected the transaction values.
The historical acquisition activity in the cable network industry is as follows:
SELECTED CABLE NETWORK PROGRAMMING TRANSACTIONS (3)
($ IN MILLIONS)
<TABLE>
<CAPTION>
% EST./IMPLIED
DATE SELLER BUYER PRICE PURCHASED NETWORK VALUE
---- ------ ----- ----- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jul-99 Fox/Liberty News Corp $4,260 100.0% Fox Sports Net, FX $4,260
Nov-98 CBS Discovery Comm $ 100 100.0% Eye on the People $ 100
Nov-98 Ziff-Davis Inc Vulcan Ventures $ 54 33.0% ZDTV $ 164
Nov-98 Liberty/Nat. Interfaith Hallmark/Jim Henson $ 100 45.0% Odyssey Channel $ 222
Apr-98 Liberty Media Cox/MediaOne/Comcast $ 95 33.0% Speedvision/Outdoor Life $ 288
Mar-98 TW, NBC, Liberty Discovery Communications $ 350 100.0% CourtTV $ 350
Mar-98 BTV Holdings Liberty/Bob Johnson $ 288 36.0% Black Entertainment TV $ 800
Oct-97 Viacom Seagram/Universal $1,700 50.0% USA & Sci-Fi (1) $3,400
Oct-97 Seagram HSN Inc $3,285 100.0% USA & Sci-Fi (1) $3,285
Sep-97 Paxson Communications Discovery Comm $ 20 70.0% The Travel Channel $ 29
Sep-97 Classic Sports Network ESPN $ 175 100.0% Classic Sports Network $ 175
Jun-97 Landmark Communications Paxson Communications $ 75 100.0% The Travel Channel $ 75
Jun-97 Int. Family Entertainment News Corp. (Fox Kids WW) $1,430 100.0% Family Channel $1,430
Feb-97 Gaylord Entertainment Westinghouse (CBS) $1,485 100.0% TNN and Country Music TV $1,485
Feb-97 Time Warner Inc Steve Brill (founder) $ 78 20.0% CourtTV $ 390
Jan-97 Time Warner Inc Walt Disney Co./Comcast $ 321 58.0% CourtTV $ 550
Aug-96 Fox News Corp The Golf Channel $ 50 33.3% The Golf Channel $ 150
Aug-96 Liberty Media Inc Silver King Communications $1,104 100.0% Home Shopping Network $1,104
May-96 AH Belo EW Scripps $ 125 56.0% TV Food Network $ 223
Dec-95 NBC Microsoft $ 220 50.0% America's Talking $ 440
Network
Oct-95 News Corp Liberty Media $ 200 50.0% FX $ 400
Jul-95 CapCities ABC Walt Disney Co $2,904 80.0% ESPN $3,630
Jul-94 QVC Network Comcast/Liberty $1,420 62.0% QVC $2,290
Mar-94 Viacom/Paramount Hearst/Cap Cities ABC $ 318 33.3% Lifetime $ 953
Sep-93 Liberty Media Cablevision Systems $ 170 50.0% American Movie Classic $ 340
Jun-93 n/a Radio City Music Hall Productions $ 50 13.0% A&E $ 400
------------
High
Low
Avg
Median
Avg. Since
1990
<CAPTION>
FTE VALUE/
DATE SUBSCRIBERS SUB
---- ----------- ------
<S> <C> <C>
Jul-99 101,000 $42.18
Nov-98 11,000 $ 9.09
Nov-98 9,000 $18.18
Nov-98 30,000 $ 7.41
Apr-98 28,000 $10.28
Mar-98 33,600 $10.42(4)
Mar-98 53,800 $14.87
Oct-97 71,100 $47.82(1)
Oct-97 118,400 $27.74(1)
Sep-97 20,000 $ 1.43
Sep-97 10,400 $16.83
Jun-97 20,000 $ 3.75
Jun-97 69,200 $20.67
Feb-97 106,000 $14.01
Feb-97 29,500 $13.22
Jan-97 42,700 $12.87
Aug-96 3,800 $39.47
Aug-96 69,400 $15.91
May-96 25,800 $ 8.65
Dec-95 20,000 $22.00
Oct-95 25,000 $16.00
Jul-95 61,400 $59.11
Jul-94 100,000 $22.90
Mar-94 59,000 $16.15
Sep-93 46,000 $ 7.39
Jun-93 56,300 $ 7.10
--------------------
High $59.11
Low $ 1.43
Avg $18.67
Median $15.39
Avg. $12.50
Since
1990
</TABLE>
---------------
Source: Paul Kagan Associates, Inc.
(1) SciFi valued at $15/sub
(2) As reported by Paul Kagan, May 15, 1998
(3) Excludes sports-related networks and transactions where terms were
unavailable.
(4) Transaction not completed.
The historical acquisition/transaction history implies an average of
approximately $12.50 per cable network subscriber. It is important to note that
this analysis is based on Full Time Equivalent (FTE) subscribers, which includes
24-hour analog subscribers plus other part time, satellite, tier and other
subscribers converted to 24-hour equivalents. This FTE measure is most likely
imperfect.
We believe that in a sale transaction, GoodLife would be valued in a range
of $12.00 to $14.00 per subscriber. This is the lower end of the range based on
the following factors:
-- GoodLife is comparatively one of the smaller networks at
approximately 9,200 subscribers;
-- GoodLife is not generating positive cash flow;
-- Breakeven for most cable networks is at least a critical point of
20 million subscribers, implying that GoodLife would require
significant cash infusion to reach this point.
-- GoodLife's subscriber base is heavily weighted towards subscribers
other than full-time analog carriage.
D(1)-4
<PAGE> 138
In order to apply the analysis on the prior page to GoodLife, we must first
determine the appropriate FTE subscriber figure for GoodLife. We understand that
GoodLife has approximately 4,600,000 full-time basic analog subscribers and
approximately 9,200,000 total subscribers, including digital, full-time and
part-time tier, C-Band and other. We have applied a 50% conversion factor to the
remaining 4,600,000 subscribers and thus computed a FTE subscriber count for
GoodLife of approximately 6,900,000 FTE subscribers. While many networks tend to
inflate their FTE figures for reporting purposes, we believe that in a sale
process the FTE subscriber count will be scrutinized and rationalized
appropriately.
Based on this FTE, we applied a range of potential subscriber values to GoodLife
to achieve an effective gross enterprise value and a net equity value. This is
presented below.
ENTERPRISE VALUATION OF GOODLIFE BASED ON 100% SALE
-FOR DISCUSSION PURPOSES ONLY -
<TABLE>
<S> <C> <C> <C> <C> <C>
GOODLIFE EQUIVALENT
SUBSCRIBER
BASE(1)............ 6,900,000 6,900,000 6,900,000 6,900,000 6,900,000
IMPLIED VALUE PER
SUBSCRIBER......... $12.00 $12.50 $13.00 $13.50 $14.00
GROSS ENTERPRISE
VALUE.............. $82,800,000 $86,250,000 $89,700,000 $93,150,000 $96,600,000
Less Notes Payable... ($88,551,527) ($88,551,527) ($88,551,527) ($88,551,527) ($88,551,527)
Less Other Long Term
Debt............... $0 $0 $0 $0 $0
Less Accounts Payable
& Other............ ($1,957,023) ($1,957,023) ($1,957,023) ($1,957,023) ($1,957,023)
Less Cablecast Rights
Payable............ ($4,810,822) ($4,810,822) ($4,810,822) ($4,810,822) ($4,810,822)
Plus Accounts
Receivable &
Other.............. $3,922,100 $3,922,100 $3,922,100 $3,922,100 $3,922,100
Plus Cash &
Equivalents........ $674,177 $674,177 $674,177 $674,177 $674,177
Total...... ($90,723,095) ($90,723,095) ($90,723,095) ($90,723,095) ($90,723,095)
NET EQUITY VALUE..... ($7,923,095) ($4,473,095) ($1,023,095) $2,426,905 $5,876,905
SHARES OUTSTANDING... 20,374,271 20,374,271 20,374,271 20,374,271 20,374,271
VALUE PER SHARE...... ($0.39) ($0.22) ($0.05) $0.12 $0.29
CROWN/CONCEPT
SHARES(3).......... 14,432,417 14,432,417 14,432,417 14,432,417 14,432,417
CROWN/CONCEPT SHARE
VALUE.............. ($5,612,442) ($3,168,583) ($724,725) $1,719,134 $4,162,993
MINORITY SHARE
VALUE.............. ($2,310,653) ($1,304,512) ($298,370) $707,771 $1,713,912
</TABLE>
---------------
(1) Assumes Subscribers are considered full-time equivalents.
(2) Includes Accrued Interest.
(3) Ownership as per Proxy statement.
As depicted in the chart above, the value for GoodLife ranges from a negative
value per share to $0.29 per share. We believe the mid-point at $13.00 is the
most appropriate focus point, implying a $(0.05) per share value. For
comparative purposes, the $0.06 per share value determined in the Market Price
Analysis, implies a 13.32x per subscriber value, while the $0.08 per share price
implies a 13.38x per subscriber value.
In case it is argued that the FTE subscriber count should be the 9,200,000
number (which we would strongly disagree with), the analysis would provide the
results on the following page.
D(1)-5
<PAGE> 139
ENTERPRISE VALUATION OF GOODLIFE BASED ON 100% SALE
-FOR DISCUSSION PURPOSES ONLY -
<TABLE>
<S> <C> <C> <C> <C> <C>
GOODLIFE EQUIVALENT
SUBSCRIBER BASE(1)..... 9,200,000 9,200,000 9,200,000 9,200,000 9,200,000
IMPLIED VALUE PER
SUBSCRIBER............. $12.00 $12.50 $13.00 $13.50 $14.00
GROSS ENTERPRISE VALUE... $110,400,000 $115,000,000 $119,600,000 $124,200,000 $128,800,000
Less Notes Payable....... ($88,551,527) ($88,551,527) ($88,551,527) ($88,551,527) ($88,551,527)
Less Other Long Term
Debt................... $0 $0 $0 $0 $0
Less Accounts Payable &
Other.................. ($1,957,023) ($1,957,023) ($1,957,023) ($1,957,023) ($1,957,023)
Less Cablecast Rights
Payable................ ($4,810,822) ($4,810,822) ($4,810,822) ($4,810,822) ($4,810,822)
Plus Accounts Receivable
& Other................ $3,922,100 $3,922,100 $3,922,100 $3,922,100 $3,922,100
Plus Cash &
Equivalents............ $674,177 $674,177 $674,177 $674,177 $674,177
Total.......... ($90,723,095) ($90,723,095) ($90,723,095) ($90,723,095) ($90,723,095)
NET EQUITY VALUE......... $19,676,905 $24,276,905 $28,876,905 $33,476,905 $38,076,905
SHARES OUTSTANDING....... 20,374,271 20,374,271 20,374,271 20,374,271 20,374,271
VALUE PER SHARE.......... $0.97 $1.19 $1.42 $1.64 $1.87
CROWN/CONCEPT SHARES(3).. 14,432,417 14,432,417 14,432,417 14,432,417 14,432,417
CROWN/CONCEPT SHARE
VALUE.................. $13,938,427 $17,196,906 $20,455,384 $23,713,862 $26,972,340
MINORITY SHARE VALUE..... $5,738,478 $7,079,999 $8,421,521 $9,763,043 $11,104,565
</TABLE>
---------------
(1) Assumes Subscribers are considered full-time equivalents.
(2) Includes Accrued Interest.
(3) Ownership as per Proxy statement.
Again, we believe that any valuation of GoodLife's subscribers that does not
recognize the "FTE" quality of these customers is inappropriate and potentially
leads to unsupportable valuations.
CONCLUSION: We believe that this analysis supports an equity valuation range
per share of $0.02 to $0.08 per share
DISCOUNTED CASH FLOW ANALYSIS -- This valuation methodology is perhaps the most
speculative of all of the aforementioned valuation methods, however, it has also
received wide adoption on Wall Street as the most effective method to value
companies. This analysis forecasts the revenue and cash flows of the company for
a ten year period, applies a terminal value to the Company in year ten and then
discounts this value and the annual cash flows back to the present at an applied
discount rate. We have created two scenarios, which are outlined on the next two
pages. The critical assumptions are detailed as appropriate.
Again, this analysis is highly speculative.
-- SCENARIO 1 assumes that GoodLife aggressively grows its subscriber base
through the acquisition of subscribers (20 million at $5 per subscriber).
This generates a capital commitment of $100 million in addition to the
annual negative cash flow until breakeven. Obviously, the source of these
funds is uncertain. It is important to note that the equity value generated
in Scenario 1 is dependent upon these significant capital contributions.
-- SCENARIO 2 assumes that GoodLife does not grow its subscriber base through
the acquisition of subscribers and relies purely on internal growth. This
does not entail the capital commitments as described in Scenario 1 but does
involve significant annual negative cash flows. In this analysis, GoodLife
does not reach breakeven in the ten year time period. Obviously, again, the
source of these funds is uncertain. This scenario creates no value for
GoodLife shareholders.
D(1)-6
<PAGE> 140
SUMMARY DCF MODEL FOR GOODLIFE
ASSUMES ACQUISITION OF SUBSCRIBERS
1) Moderate Internal Growth in Subscribers
2) Cash-for-Carriage Deals at $5/sub, no affiliate fees for five years (ex.
Comcast/Adelphia/Cox)
3) Affiliate Revenues Increase 5% per year
4) Advertising Revenue/Subscriber Growth Moderate Until 25/30 million Subs
Achieved
5) Programming Expenditures as per GoodLife; Scales Up Based on Industry Metrics
6) Operating Expenditures as per GoodLife; Scaled Based on Industry Metrics
7) Breakeven Achieved in Year 4
<TABLE>
<CAPTION>
PROJECTIONS
ACTUAL ---------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING SUBSCRIBERS............................ 8,095 9,200 14,660 20,393 26,413 32,733 34,370
Internal Growth (5% of beginning base)......... 1,105 460 733 1,020 1,321 1,637 1,718
Acquired Subscribers (5 yr free, $0.05/sub/mo.
thereafter).................................. -- 5,000 5,000 5,000 5,000 -- --
-------- -------- -------- -------- -------- ------- -------
ENDING SUBSCRIBERS............................... 9,200 14,660 20,393 26,413 32,733 34,370 36,088
Price for Purchased Subscribers (see cash for
carriage worksheet)............................ $ 0.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (5% per annum, except acq.
Subs).......................................... $ 2,089 $ 2,194 $ 2,304 $ 2,419 $ 2,540 $ 5,667 $11,950
Advertising Per Avg. Subscriber.................. $ 0.36 $ 0.50 $ 0.65 $ 0.80 $ 1.00 $ 1.10 $ 1.15
Advertising Revenue.............................. $ 3,330 $ 5,965 $ 11,392 $ 18,722 $ 29,573 $36,907 $40,514
TOTAL REVENUES........................... $ 5,420 $ 8,159 $ 13,696 $ 21,141 $ 32,113 $42,574 $52,464
Less Programming Costs......................... 13,672 15,000 15,750 16,538 17,364 19,158 23,084
252% 184% 115% 78% 54% 45% 44%
Less Operating Costs........................... 7,023 7,234 7,451 7,674 8,028 10,218 12,067
130% 89% 54% 36% 25% 24% 23%
OPERATING CASH FLOW.............................. $(15,275) $(14,075) $ (9,505) $ (3,070) $ 6,720 $13,198 $17,313
CASH FLOW MARGIN............................. 20.9% 31.0% 33.0%
Subscriber Cash for Carriage................... -- 25,000 25,000 25,000 25,000 -- --
FREE CASH FLOW................................... $(15,275) $(39,075) $(34,505) $(28,070) $(18,280) $13,198 $17,313
TERMINAL MULTIPLE OF EBITDA....................
ENTERPRISE VALUE...............................
FREE CASH FLOW TO DISCOUNT....................... $(15,275) $(39,075) $(34,505) $(28,070) $(18,280) $13,198 $17,313
<CAPTION>
PROJECTIONS
-----------------------------------------
2006 2007 2008 2009
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BEGINNING SUBSCRIBERS............................ 36,088 37,893 39,788 41,777
Internal Growth (5% of beginning base)......... 1,804 1,895 1,989 2,089
Acquired Subscribers (5 yr free, $0.05/sub/mo.
thereafter).................................. -- -- -- --
------- ------- ------- --------
ENDING SUBSCRIBERS............................... 37,893 39,788 41,777 43,866
Price for Purchased Subscribers (see cash for
carriage worksheet)............................ $ 0.00 $ 0.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (5% per annum, except acq.
Subs).......................................... $21,548 $34,625 $36,356 $ 38,174
Advertising Per Avg. Subscriber.................. $ 1.20 $ 1.25 $ 1.30 $ 1.35
Advertising Revenue.............................. $44,389 $48,550 $53,017 $ 57,809
TOTAL REVENUES........................... $65,936 $83,175 $89,373 $ 95,983
Less Programming Costs......................... 28,353 34,934 36,643 38,393
43% 42% 41% 40%
Less Operating Costs........................... 14,506 17,467 17,875 18,237
22% 21% 20% 19%
OPERATING CASH FLOW.............................. $23,078 $30,775 $34,855 $ 39,353
CASH FLOW MARGIN............................. 35.0% 37.0% 39.0% 41.0%
Subscriber Cash for Carriage................... -- -- -- --
FREE CASH FLOW................................... $23,078 $30,775 $34,855 $ 39,353
TERMINAL MULTIPLE OF EBITDA.................... 15.00
ENTERPRISE VALUE............................... $590,294
FREE CASH FLOW TO DISCOUNT....................... $23,078 $30,775 $34,855 $629,647
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT
RATE
----------
<S> <C> <C>
NET PRESENT VALUE...................... 15.0% $109,353
LESS DEBT.............................. $(90,723)
--------
$ 18,630
VALUE PER SHARE........................ 20,374,271 $ 0.91 per share
</TABLE>
<TABLE>
<CAPTION>
EXIT MULTIPLE SENSITIVITY ANALYSIS
-----------------------------------------------------------------------
12.00 13.00 14.00 15.00 16.00 17.00 18.00
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE $(0.52) $(0.04) $0.44 $0.91 $1.39 $1.87 $2.25
</TABLE>
D(1)-7
<PAGE> 141
SUMMARY DCF MODEL FOR GOODLIFE
ASSUMES NO ACQUISITION OF SUBSCRIBERS
1) Moderate Internal Growth in Subscribers
2) No Cash-for-Carriage Deals
3) Affiliate Revenues Increase 5% per year
4) Moderate Growth in Advertising Revenue/Subscriber
5) Programming Expenditures as per GoodLife; Scale at 5% per year
6) Operating Expenditures as per GoodLife; Scale at 3% per year
7) No Breakeven Achieved
<TABLE>
<CAPTION>
PROJECTIONS
ACTUAL --------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING SUBSCRIBERS....................... 8,095 9,200 9,660 10,143 10,650 11,183 11,742 12,329
Internal Growth (5% of beginning base).... 1,105 460 483 507 533 559 587 616
Acquired Subscribers...................... -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
ENDING SUBSCRIBERS.......................... 9,200 9,660 10,143 10,650 11,183 11,742 12,329 12,945
Price for Purchased Subscribers............. $ 0.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 0.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (99 Budget+5% per
annum).................................... $ 2,143 $ 2,250 $ 2,363 $ 2,481 $ 2,605 $ 2,735 $ 2,872 $ 3,015
Advertising Per Avg. Subscriber............. $ 0.36 $ 0.45 $ 0.65 $ 0.65 $ 0.65 $ 0.65 $ 0.65 $ 0.65
Advertising Revenue......................... $ 3,277 $ 4,244 $ 6,436 $ 6,758 $ 7,096 $ 7,450 $ 7,823 $ 8,214
TOTAL REVENUES...................... $ 5,420 $ 6,494 $ 8,799 $ 9,239 $ 9,700 $ 10,186 $ 10,695 $ 11,230
Less Programming Costs.................... 13,167 15,000 15,750 16,538 17,364 18,233 19,144 20,101
243% 231% 179% 179% 179% 179% 179% 179%
Less Operating Costs...................... 6,700 6,901 7,108 7,322 7,541 7,768 8,001 8,241
124% 106% 81% 79% 78% 77% 76% 75%
OPERATING CASH FLOW......................... $(14,448) $(15,408) $(14,060) $(14,621) $(15,205) $(15,815) $(16,450) $(17,112)
CASH FLOW MARGIN........................ -156.7% -155.3% -153.8% -152.4%
Subsciber Cash for Carriage............... -- -- -- -- -- -- -- --
FREE CASH FLOW.............................. $(14,448) $(15,408) $(14,060) $(14,621) $(15,205) $(15,815) $(16,450) $(17,112)
Per Sub.
TERMINAL MULTIPLE OF EBITDA...............
ENTEPRISE VALUE...........................
FREE CASH FLOW TO DISCOUNT.................. $(14,448) $(15,408) $(14,060) $(14,621) $(15,205) $(15,815) $(16,450) $(17,112)
<CAPTION>
PROJECTIONS
------------------------------
2007 2008 2009
-------- -------- --------
<S> <C> <C> <C>
BEGINNING SUBSCRIBERS....................... 12,945 13,593 14,272
Internal Growth (5% of beginning base).... 647 680 714
Acquired Subscribers...................... -- -- --
-------- -------- --------
ENDING SUBSCRIBERS.......................... 13,593 14,272 14,986
Price for Purchased Subscribers............. $ 0.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (99 Budget+5% per
annum).................................... $ 3,166 $ 3,324 $ 3,491
Advertising Per Avg. Subscriber............. $ 0.65 $ 0.65 $ 0.65
Advertising Revenue......................... $ 8,625 $ 9,056 $ 9,509
TOTAL REVENUES...................... $ 11,791 $ 12,381 $ 13,000
Less Programming Costs.................... 21,107 22,162 23,270
179% 179% 179%
Less Operating Costs...................... 8,488 8,742 9,005
74% 73% 72%
OPERATING CASH FLOW......................... $(17,803) $(18,524) $(19,275)
CASH FLOW MARGIN........................ -151.0% -149.6% -148.3%
Subsciber Cash for Carriage............... -- -- --
FREE CASH FLOW.............................. $(17,803) $(18,524) $(19,275)
TERMINAL MULTIPLE OF EBITDA............... (Neg. EBITDA) $ 12.00
ENTEPRISE VALUE........................... $179,830
FREE CASH FLOW TO DISCOUNT.................. $(17,803) $(18,524) $160,555
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT
RATE
----------
<S> <C> <C> <C>
NET PRESENT VALUE........................ 15.0% $ (37,327)
LESS DEBT................................ $ (90,723)
---------
$(128,050)
VALUE PER SHARE.......................... 20,374,271 $ (6.28) per share
</TABLE>
<TABLE>
<CAPTION>
PER SUB. VALUE EXIT MULTIPLE SENSITIVITY ANALYSIS
------------------------------------------------------------------------------
10.00 11.00 12.00 13.00 14.00 15.00 16.00
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(6.65) $(6.47) $(6.28) $(6.10) $(5.92) $(5.74) $(5.56)
</TABLE>
D(1)-8
<PAGE> 142
NET PRESENT VALUE 15.0% ($35,142)
LESS DEBT ($90,723)
($125,866)
VALUE PER SHARE 20,374,271 ($6.18) PER SHARE PER SUB. VALUE EXIT
SENSITIVITY ANALYSIS
($6) 10.00 11.00 12.00 13.00 14.00 15.00 16.00
($6.54) ($6.36) ($6.18) ($6.00) ($5.81) ($5.63) ($5.45)
CABLE NETWORK CASH-FOR-CARRIAGE BENCHMARKS
<TABLE>
<CAPTION>
YEAR NETWORK PRICE/SUB
---- ------- ---------
<S> <C> <C>
1990 CNBC $3.00
1994 Q2 $5.00
1994 S $9.00
1996 Fox News $11.00
1997 Animal Planet $7.00
1997 Eye on People $6.00
1998 Great American $5.00
1998 Style $6.00
1998 Travel Channel $6.00
1998 Paxson $10.00
1998 ZDTV 10 Year No License Fee
1998 Access Entertainment Network $1.50 Reverse Fee/Sub/Year
</TABLE>
---------------
Source: Paul Kagan Associates, Inc.
D(1)-9
<PAGE> 143
SUMMARY CONCLUSION
In reviewing all of the valuation methodologies and the relative
assumptions, we believe the most appropriate analyses are the Market Price and
Acquisition Value Analyses. A summary of all the analyses and our conclusion for
each is provided below:
<TABLE>
<CAPTION>
ANALYSIS EQUITY VALUE PER SHARE
-------- ----------------------
<S> <C>
Net Asset Value Negative
Market Price $0.06 to $0.08
Going-Concern Not Meaningful
Acquisition Value $0.02 to $0.08
Discounted Cash Flow Speculative; Value created in
proportion to capital commitments
</TABLE>
Based on our review of the available information for GoodLife, the cable
network industry and a review of appropriate financial metrics, we believe that
GoodLife should be valued at between $0.06 to $0.08 per share. The following
table provides a review of the effective value that Crown would need to pay for
the public shareholder interest at various values per share.
MINORITY SHAREHOLDER PURCHASE PRICE ANALYSIS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Shares Outstanding
(000s) 20,374 20,374 20,374 20,374 20,374 20,374 20,374 20,374 20,374 20,374
Crown/Concept Shares
(000s) 14,432 14,432 14,432 14,432 14,432 14,432 14,432 14,432 14,432 14,432
Minority Shares (000s) 5,942 5,942 5,942 5,942 5,942 5,942 5,942 5,942 5,942 5,942
Value per Share $0.02 $0.03 $0.04 $0.05 $0.06 $0.07 $0.08 $0.09 $0.10 $0.11
Crown/Concept Purchase
Price $118,837 $178,256 $237,674 $297,093 $356,511 $415,930 $475,348 $534,767 $594,185 $653,604
<S> <C> <C> <C> <C>
Total Shares Outstanding
(000s) 20,374 20,374 20,374 20,374
Crown/Concept Shares
(000s) 14,432 14,432 14,432 14,432
Minority Shares (000s) 5,942 5,942 5,942 5,942
Value per Share $0.12 $0.13 $0.14 $0.15
Crown/Concept Purchase
Price $713,022 $772,441 $831,860 $891,278
</TABLE>
D(1)-10
<PAGE> 144
APPENDIX D(2)
[DANIELS & ASSOCIATES LETTERHEAD]
MEMORANDUM
<TABLE>
<S> <C>
TO: NICK CHIAIA
CROWN COMMUNICATIONS
FROM: GREG AINSWORTH
CHRISTOPHER DOWNIE
DATE: 10/7/99
SUBJECT: GOODLIFE VALUATION DISCUSSION
</TABLE>
As per your request, we have prepared the following discussion and analyses
to provide you with what we believe are the critical and appropriate factors in
ascribing an equity value to The Nostalgia Network, Inc., dba GoodLife
Television (herein referred to as GoodLife). We understand that you are
potentially interested in acquiring the approximately 30% of GoodLife that is
held by public shareholders and, in doing so, effectively take GoodLife private.
We are prepared to discuss the following analysis with you in greater detail at
your convenience. Please note that while we have had access to significant
information with regards to GoodLife and its operations, we have not performed a
comprehensive diligence effort.
While not an exact science, the valuation process for any public or private
company is based on several relatively standard valuation methodologies. These
methodologies include the following:
I. NET ASSET VALUE ANALYSIS, which includes:
-- Value of assets in use, potentially discounted for time, risks,
costs and ability to obtain asset value
-- Liquidation Value
II. MARKET PRICE ANALYSIS, which includes:
-- Current and historical pricing analysis
-- Corporate or insider transaction history
-- Any third party transactions with respect to GoodLife
III. GOING CONCERN VALUE ANALYSIS, which includes:
-- Multiple of Operating Statistics, such as EBITDA, EBIT,
earnings, free cash flow
-- Review of selected publicly traded comparable companies
IV. ACQUISITION VALUE ANALYSIS, which includes:
-- Comparable historical acquisition analysis of comparable
companies, taking into account minority or non-controlling
interests
V. DISCOUNTED CASH FLOW ANALYSIS, which includes:
-- A ten year cash flow projection and terminal valuation,
discounted to the present
All of these different valuation methodologies should be considered in your
determination of an equity value for GoodLife and its shareholders. The
following pages will review each analysis and provide a conclusion based on the
analysis provided. We have concluded this Memorandum with a summary conclusion
of our thoughts with regards to an appropriate equity valuation for GoodLife,
subject to the information available to us at this time.
D(2)-1
<PAGE> 145
NET ASSET VALUE ANALYSIS -- The following table provides a summary analysis
that primarily focuses on GoodLife's balance sheet as of August 31, 1999. We
have assumed that there is no material difference from August 31, 1999 to the
date of this memorandum.
GOODLIFE NET ASSET VALUE ANALYSIS
<TABLE>
<S> <C>
ASSETS
Current assets
Cash & cash equivalents................................... $ 901,729
Net accounts receivables.................................. $ 823,043
Prepaid Expenses.......................................... $ 241,480
Current portion programming............................... $ 5,189,696
------------
Total current assets.............................. $ 7,155,948
Other assets
Film & film rights, net................................... $ 681,883
Net PP&E.................................................. $ 296,664
Trademark & Other Intangibles............................. $ 757,252
Deposits.................................................. $ 52,740
------------
TOTAL ASSETS...................................... $ 8,944,487
------------
LIABILITIES
Current Liabilities
Accounts payable.......................................... $ 2,021,753
Accrued liabilities....................................... $ 466,642
Cablecast rights payable.................................. $ 7,229,796
------------
Total Current Liabilities......................... $ 9,718,191
Other liabilities
Long term debt............................................ $ 6,875,957
Non-current liabilities................................... $ 74,604,855
------------
TOTAL LIABILITIES................................. $ 91,199,003
NET ASSET VALUE............................................. $(82,254,516)
NET ASSET VALUE PER SHARE................................... $ (4.04)
------------
SHARES OUTSTANDING.......................................... 20,374,371
------------
NET ASSET VALUE (EXCL. LTD)................................. $ (773,704)
$ (0.04)
------------
</TABLE>
This analysis is essentially a liquidation scenario analysis, in that if
you were to shut down operations tomorrow what would you be able to garner from
the assets. This assumes no sale of the subscriber base. It is important to note
that no liquidation discounts (i.e. probability of achieving full book value for
assets) are factored into this analysis, which would likely serve to lower the
liquidation value.
CONCLUSION: This Net Asset Value analysis implies that GoodLife has a
negative equity value per share.
D(2)-2
<PAGE> 146
MARKET PRICE ANALYSIS -- The following table and discussion provide a
review of GoodLife's historical public market trading history. We have provided
comments where appropriate.
<TABLE>
<CAPTION>
TRADING PRICES PER SHARE
<S> <C> <C>
Current Price............................ $0.060
52 Week High............................. $0.250
52 Week Low.............................. $0.010
Last 30 days avg......................... $0.058
Last 60 days avg......................... $0.060
Last 90 days avg......................... $0.067
Last 180 days avg........................ $0.076
Last 365 days avg........................ $0.066
1994 Average............................. $1.090
1995 Average............................. $0.509
1996 Average............................. $0.285
1997 Average............................. $0.079
1998 Average............................. $0.027
1/1/99 to date Average................... $0.082 Daniels Engagement for Strategic Options Public --12/98
</TABLE>
Since 1994, GoodLife has not traded above $1.00 per share. Since 1997,
GoodLife has traded, for the most part, below $0.08 per share. GoodLife's share
price has been as low as $0.01. In December, 1998, Crown Communications retained
Daniels to pursue strategic options at which point the share price increased to
a maximum of approximately $0.25 per share. The share price gravitated around
$0.11 per share before retreating to its current price of $0.06.
It is often argued that the public markets are the most efficient
determinant of equity value and as such the more recent range of GoodLife's
share value in the $0.06 is a pertinent value parameter. However, given the
increase in perceived value since the announcement of the engagement of Daniels,
the annual year-to-date average of $0.082 is probably a better gage of potential
value.
CONCLUSION: While imperfect, this Market Price Analysis implies an equity
value per share in the $0.06 to $0.08 range. Using the current shares
outstanding, this implies GoodLife has a current equity value of $1,222,460 to
$1,629,950, and a market capitalization (assuming net debt of $84 million) of
approximately $85,200,000 to $85,600,000.
GOING CONCERN VALUE ANALYSIS -- In valuing cable programming network assets
in general, comparable public company analysis is not a very effective measure.
Many of the cable networks are either private or are consolidated into much
larger media companies, such as cable or other media companies. In other
situations, such as with Liberty Media, cable network assets are combined for
reporting purposes with other internet or other media assets. In general, this
makes the traditional measures of EBITDA, earnings, etc. very difficult to
determine. We have thus ignored this analysis for the purposes of valuing
GoodLife.
Historically, cable networks tended to trade in the 12.0 to 18.0 times
EBITDA range. Since, GoodLife has no positive EBITDA, this measure would again
be irrelevant. Such multiples, however, are applicable in the Discounted Cash
Flow analysis to be discussed later.
ACQUISITION VALUE ANALYSIS -- This analysis is perhaps one of the more
useful with regards to determining an equity value for GoodLife. This analysis
applies the historical transaction values paid by purchasers for other networks
to GoodLife. The appropriate metrics for this analysis are EBITDA multiples and
Per Subscriber values. Again, since GoodLife has no EBITDA, we have focussed
primarily on Per Subscriber values. It should be noted that information on most
of these transactions is limited and may involve other factors that are not
apparent that have affected the transaction values. The historical acquisition
activity in the cable network industry is as follows:
D(2)-3
<PAGE> 147
SELECTED CABLE NETWORK PROGRAMMING TRANSACTIONS (3)
($ IN MILLIONS)
<TABLE>
<CAPTION>
% EST./IMPLIED
DATE SELLER BUYER PRICE PURCHASED NETWORK VALUE
---- ------ ----- ----- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nov-98 CBS Discovery Comm $ 100 100.0% Eye on the People $ 100
Nov-98 Ziff-Davis Inc Vulcan Ventures $ 54 33.0% ZDTV $ 164
Nov-98 Liberty/Nat. Interfaith Hallmark/Jim Henson $ 100 45.0% Odyssey Channel $ 222
Apr-98 Liberty Media Cox/MediaOne/Comcast $ 95 33.0% Speedvision/Outdoor Life $ 288
Mar-98 TW, NBC, Liberty Discovery Communications $ 350 100.0% CourtTV $ 350
Mar-98 BTV Holdings Liberty/Bob Johnson $ 288 36.0% Black Entertainment TV $ 800
Oct-97 Viacom Seagram/Universal $1,700 50.0% USA & Sci-Fi (1) $3,400
Oct-97 Seagram HSN Inc $3,285 100.0% USA & Sci-Fi (1) $3,285
Sep-97 Paxson Communications Discovery Comm $ 20 70.0% The Travel Channel $ 29
Sep-97 Classic Sports Network ESPN $ 175 100.0% Classic Sports Network $ 175
Jun-97 Landmark Communications Paxson Communications $ 75 100.0% The Travel Channel $ 75
Jun-97 Int. Family News Corp. (Fox Kids WW) $1,430 100.0% Family Channel $1,430
Entertainment
Feb-97 Gaylord Entertainment Westinghouse (CBS) $1,485 100.0% TNN and Country Music TV $1,485
Feb-97 Time Warner Inc Steve Brill (founder) $ 78 20.0% CourtTV $ 390
Jan-97 Time Warner Inc Walt Disney Co./Comcast $ 321 58.0% CourtTV $ 550
Aug-96 Fox News Corp The Golf Channel $ 50 33.3% The Golf Channel $ 150
Aug-96 Liberty Media Inc Silver King Communications $1,104 100.0% Home Shopping Network $1,104
May-96 AH Belo EW Scripps $ 125 56.0% TV Food Network $ 223
Dec-95 NBC Microsoft $ 220 50.0% America's Talking $ 440
Network
Oct-95 News Corp Liberty Media $ 200 50.0% FX $ 400
Jul-95 CapCities ABC Walt Disney Co $2,904 80.0% ESPN $3,630
Jul-94 QVC Network Comcast/Liberty $1,420 62.0% QVC $2,290
Mar-94 Viacom/Paramount Hearst/Cap Cities ABC $ 318 33.3% Lifetime $ 953
Sep-93 Liberty Media Cablevision Systems $ 170 50.0% American Movie Classic $ 340
Jun-93 n/a Radio City Music Hall Productions $ 50 13.0% A&E $ 400
------------
HIGH
LOW
AVG.
MEDIAN
AVG. SINCE
1990
<CAPTION>
FTE VALUE/
DATE SUBSCRIBERS SUB
---- ----------- ------
<S> <C> <C>
Nov-98 11,000 $ 9.09
Nov-98 9,000 $18.18
Nov-98 30,000 $ 7.41
Apr-98 28,000 $10.28
Mar-98 33,600 $10.42(4)
Mar-98 53,800 $14.87
Oct-97 71,100 $47.82(1)
Oct-97 118,400 $27.74(1)
Sep-97 20,000 $ 1.43
Sep-97 10,400 $16.83
Jun-97 20,000 $ 3.75
Jun-97 69,200 $20.67
Feb-97 106,000 $14.01
Feb-97 29,500 $13.22
Jan-97 42,700 $12.87
Aug-96 3,800 $39.47
Aug-96 69,400 $15.91
May-96 25,800 $ 8.65
Dec-95 20,000 $22.00
Oct-95 25,000 $16.00
Jul-95 61,400 $59.11
Jul-94 100,000 $22.90
Mar-94 59,000 $16.15
Sep-93 46,000 $ 7.39
Jun-93 56,300 $ 7.10
--------------------
HIGH $59.11
LOW $ 1.43
AVG. $17.73
MEDIAN $14.87
AVG. $12.35(2)
SINCE
1990
</TABLE>
---------------
Source: Paul Kagan Associates, Inc.
(1) SciFi valued at $15/sub
(2) As reported by Paul Kagan, May 15, 1998
(3) Excludes sports-related networks and transactions where terms were
unavailable.
(4) Transaction not completed.
The historical acquisition/transaction history implies an average of
approximately $12.00 per cable network subscriber. It is important to note that
this analysis is based on Full Time Equivalent (FTE) subscribers, which includes
24-hour analog subscribers plus other part time, satellite, tier and other
subscribers converted to 24-hour equivalents. This FTE measure is most likely
imperfect.
We believe that in a sale transaction, GoodLife would be valued in a range
of $12.00 to $14.00 per subscriber. This is the lower end of the range based on
the following factors:
-- GoodLife is comparatively one of the smaller networks at
approximately 8,500 subscribers;
-- GoodLife is not generating positive cash flow;
-- Breakeven for most cable networks is at least a critical point of
20 million subscribers, implying that GoodLife would require
significant cash infusion to reach this point.
In order to apply the analysis on the prior page to GoodLife, we must first
determine the appropriate FTE subscriber figure for GoodLife. We understand that
GoodLife has approximately 4,500,000 24-hour analog subscribers. We have applied
a 50% conversion factor to the remaining 4,000,000 subscribers and thus computed
a FTE subscriber count for GoodLife of approximately 6,500,000 FTE subscribers.
While many networks tend to inflate their FTE figures for reporting purposes, we
believe that in a sale process the FTE subscriber count will be scrutinized and
rationalized appropriately.
Based on this FTE, we applied a range of potential subscriber values to
GoodLife to achieve an effective gross enterprise value and a net equity value.
This is presented below.
D(2)-4
<PAGE> 148
ENTERPRISE VALUATION OF GOODLIFE BASED ON 100% SALE
FOR DISCUSSION PURPOSES ONLY
<TABLE>
<S> <C> <C> <C> <C> <C>
GOODLIFE EQUIVALENT SUBSCRIBER
BASE(1)........................ 6,500,000 6,500,000 6,500,000 6,500,000 6,500,000
IMPLIED VALUE PER SUBSCRIBER..... $ 12.00 $ 12.50 $ 13.00 $ 13.50 $ 14.00
GROSS ENTERPRISE VALUE........... $ 78,000,000 $ 81,250,000 $ 84,500,000 $ 87,750,000 $ 91,000,000
Less Notes Payable (as of
8/31/99)....................... $(81,480,812) $(81,480,812) $(81,480,812) $(81,480,812) $(81,480,812)
Less Other Long Term Debt........ $ 0 $ 0 $ 0 $ 0 $ 0
Less Accounts Payable & Other.... $ (2,488,395) $ (2,488,395) $ (2,488,395) $ (2,488,395) $ (2,488,395)
Less Cablecast Rights Payable.... $ (7,229,796) $ (7,229,796) $ (7,229,796) $ (7,229,796) $ (7,229,796)
Plus Accounts Receivable &
Other.......................... $ 6,254,219 $ 6,254,219 $ 6,254,219 $ 6,254,219 $ 6,254,219
Plus Cash & Equivalents.......... $ 901,729 $ 901,729 $ 901,729 $ 901,729 $ 901,729
------------ ------------ ------------ ------------ ------------
Total........................ $(84,043,055) $(84,043,055) $(84,043,055) $(84,043,055) $(84,043,055)
NET EQUITY VALUE................. $ (6,043,055) $ (2,793,055) $ 456,945 $ 3,706,945 $ 6,956,945
SHARES OUTSTANDING............... 20,374,271 20,374,271 20,374,271 20,374,271 20,374,271
VALUE PER SHARE.................. $ (0.30) $ (0.14) $ 0.02 $ 0.18 $ 0.34
CROWN/CONCEPT SHARES(3).......... 14,432,417 14,432,417 14,432,417 14,432,417 14,432,417
CROWN/CONCEPT SHARE VALUE........ $ (4,280,688) $ (1,978,502) $ 323,684 $ 2,625,869 $ 4,928,055
MINORITY SHARE VALUE............. $ (1,762,367) $ (814,553) $ 133,261 $ 1,081,076 $ 2,028,890
</TABLE>
---------------
(1) Assumes Subscribers are considered full-time equivalents.
(2) Includes Accrued Interest.
(3) Ownership as per Proxy statement.
As depicted in the chart above, the value for GoodLife ranges from a
negative value per share to $0.34 per share. We believe the mid-point at $13.00
is the most appropriate focus point, implying a $0.02 per share value. For
comparative purposes, the $0.06 per share value determined in the Market Price
Analysis, implies a 13.10x per subscriber value, while the $0.08 per share price
implies a 13.17x per subscriber value.
In case it is argued that the FTE subscriber count should be the 8,500,000
number (which we would strongly disagree with), the analysis would provide the
results on the following page.
D(2)-5
<PAGE> 149
ENTERPRISE VALUATION OF GOODLIFE BASED ON 100% SALE
FOR DISCUSSION PURPOSES ONLY
<TABLE>
<S> <C> <C> <C> <C> <C>
GOODLIFE EQUIVALENT SUBSCRIBER
BASE(1)........................ 8,500,000 8,500,000 8,500,000 8,500,000 8,500,000
IMPLIED VALUE PER SUBSCRIBER..... $ 12.00 $ 12.50 $ 13.00 $ 13.50 $ 14.00
GROSS ENTERPRISE VALUE........... $102,000,000 $106,250,000 $110,500,000 $114,750,000 $119,000,000
Less Notes Payable (as of
8/31/99)....................... $(81,480,812) $(81,480,812) $(81,480,812) $(81,480,812) $(81,480,812)
Less Other Long Term Debt........ $ 0 $ 0 $ 0 $ 0 $ 0
Less Accounts Payable & Other.... $ (2,488,395) $ (2,488,395) $ (2,488,395) $ (2,488,395) $ (2,488,395)
Less Cablecast Rights Payable.... $ (7,229,796) $ (7,229,796) $ (7,229,796) $ (7,229,796) $ (7,229,796)
Plus Accounts Receivable &
Other.......................... $ 6,254,219 $ 6,254,219 $ 6,254,219 $ 6,254,219 $ 6,254,219
Plus Cash & Equivalents.......... $ 901,729 $ 901,729 $ 901,729 $ 901,729 $ 901,729
------------ ------------ ------------ ------------ ------------
Total........................ $(84,043,055) $(84,043,055) $(84,043,055) $(84,043,055) $(84,043,055)
NET EQUITY VALUE................. $ 17,956,945 $ 22,206,945 $ 26,456,945 $ 30,706,945 $ 34,956,945
SHARES OUTSTANDING............... 20,374,271 20,374,271 20,374,271 20,374,271 20,374,271
VALUE PER SHARE.................. $ 0.88 $ 1.09 $ 1.30 $ 1.51 $ 1.72
CROWN/CONCEPT SHARES(3).......... 14,432,417 14,432,417 14,432,417 14,432,417 14,432,417
CROWN/CONCEPT SHARE VALUE........ $ 12,720,068 $ 15,730,619 $ 18,741,169 $ 21,751,720 $ 24,762,270
MINORITY SHARE VALUE............. $ 5,236,877 $ 6,476,326 $ 7,715,776 $ 8,955,225 $ 10,194,675
</TABLE>
---------------
(1) Assumes Subscribers are considered full-time equivalents.
(2) Includes Accrued Interest.
(3) Ownership as per Proxy statement.
Again, we believe that this analysis and its conclusions are false.
CONCLUSION: We believe that this analysis supports an equity valuation
range per share of $0.02 to $0.08 per share.
DISCOUNTED CASH FLOW ANALYSIS--This valuation methodology is perhaps the
most speculative of all of the aforementioned valuation methods, however, it has
also received wide adoption on Wall Street as the most effective method to value
companies. This analysis forecasts the revenue and cash flows of the company for
a ten year period, applies a terminal value to the company in year ten and then
discounts this value and the annual cash flows back to the present at an applied
discount rate. We have created two scenarios, which are outlined on the next two
pages. The critical assumptions are detailed as appropriate.
Again, this analysis is highly speculative.
-- SCENARIO 1 assumes that GoodLife aggressively grows its subscriber
base through the acquisition of subscribers (20 million at $5 per
subscriber). This generates a capital commitment of $100 million in
addition to the annual negative cash flow until breakeven.
Obviously, the source of these funds is uncertain. It is important
to note that the equity value generated in Scenario 1 is dependent
upon these significant capital contributions.
-- SCENARIO 2 assumes that GoodLife does not grow its subscriber base
through the acquisition of subscribers and relies purely on
internal growth. This does not entail the capital commitments as
described in Scenario 1 but does involve significant annual
negative cash flows. In this analysis, GoodLife does not reach
breakeven in the ten year time period. Obviously, again, the source
of these funds is uncertain. This scenario creates no value for
GoodLife shareholders.
D(2)-6
<PAGE> 150
SUMMARY DCF MODEL FOR GOODLIFE
ASSUMES ACQUISITION OF SUBSCRIBERS
1) Moderate Internal Growth in Subscribers
2) Cash-for-Carriage Deals at $5/sub, no affiliate fees for five years (ex.
Comcast/Adelphia/Cox)
3) Affiliate Revenues Increase 5% per year
4) Advertising Revenue/Subscriber Growth Moderate Until 25/30 million Subs
Achieved
5) Programming Expenditures as per GoodLife; Scales Up Anased on Industry
Metrics
6) Operating Expenditures as per GoodLife; Scaled Based on Industry Metrics
7) Breakeven Achieved in Year 4
<TABLE>
<CAPTION>
PROJECTIONS
BUDGET ---------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING SUBSCRIBERS............................ 8,095 8,500 13,925 19,621 25,602 31,882 33,476
Internal Growth (5% of beginning base)......... 405 425 696 981 1,280 1,594 1,674
Acquired Subscribers (5 yr free, $0.05/sub/mo.
thereafter).................................. -- 5,000 5,000 5,000 5,000 -- --
-------- -------- -------- -------- -------- ------- -------
ENDING SUBSCRIBERS............................... 8,500 13,925 19,621 25,602 31,882 33,476 35,150
Price for Purchased Subscribers (see cash for
carriage worksheet)............................ $ 0.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (5% per annum, except acq.
Subs).......................................... $ 2,143 $ 2,250 $ 2,363 $ 2,481 $ 2,605 $ 5,735 $12,022
Advertising Per Avg. Subscriber.................. $ 0.39 $ 0.50 $ 0.65 $ 0.80 $ 1.00 $ 1.10 $ 1.15
Advertising Revenue.............................. $ 3,277 $ 5,606 $ 10,902 $ 18,089 $ 28,742 $35,947 $39,460
TOTAL REVENUES........................... $ 5,420 $ 7,856 $ 13,265 $ 20,570 $ 31,347 $41,682 $51,482
Less Programming Costs......................... 13,167 15,000 15,750 16,538 17,364 18,757 22,652
243% 191% 119% 80% 55% 45% 44%
Less Operating Costs........................... 6,700 6,901 7,108 7,322 7,837 10,004 11,841
124% 88% 54% 36% 25% 24% 23%
OPERATING CASH FLOW.............................. $(14,448) $(14,045) $ (9,593) $ (3,289) $ 6,146 $12,921 $16,989
CASH FLOW MARGIN............................. 19.6% 31.0% 33.0%
Subsciber Cash for Carriage.................... -- 25,000 25,000 25,000 25,000 -- --
FREE CASH FLOW................................... $(14,448) $(39,045) $(34,593) $(28,289) $(18,854) $12,921 $16,989
TERMINAL MULTIPLE OF EBITDA....................
ENTEPRISE VALUE................................
FREE CASH FLOW TO DISCOUNT....................... $(14,448) $(39,045) $(34,593) $(28,289) $(18,854) $12,921 $16,989
<CAPTION>
PROJECTIONS
-----------------------------------------
2006 2007 2008 2009
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BEGINNING SUBSCRIBERS............................ 35,150 36,908 38,753 40,691
Internal Growth (5% of beginning base)......... 1,758 1,845 1,938 2,035
Acquired Subscribers (5 yr free, $0.05/sub/mo.
thereafter).................................. -- -- -- --
------- ------- ------- --------
ENDING SUBSCRIBERS............................... 36,908 38,753 40,691 42,725
Price for Purchased Subscribers (see cash for
carriage worksheet)............................ $ 0.00 $ 0.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (5% per annum, except acq.
Subs).......................................... $21,623 $34,704 $36,439 $ 38,261
Advertising Per Avg. Subscriber.................. $ 1.20 $ 1.25 $ 1.30 $ 1.35
Advertising Revenue.............................. $43,235 $47,288 $51,638 $ 56,306
TOTAL REVENUES........................... $64,857 $81,992 $88,078 $ 94,567
Less Programming Costs......................... 27,889 34,437 36,112 37,827
43% 42% 41% 40%
Less Operating Costs........................... 14,269 17,218 17,616 17,968
22% 21% 20% 19%
OPERATING CASH FLOW.............................. $22,700 $30,337 $34,350 $ 38,772
CASH FLOW MARGIN............................. 35.0% 37.0% 39.0% 41.0%
Subsciber Cash for Carriage.................... -- -- -- --
FREE CASH FLOW................................... $22,700 $30,337 $34,350 $ 38,772
TERMINAL MULTIPLE OF EBITDA.................... 15.00x
ENTEPRISE VALUE................................ $581,586
FREE CASH FLOW TO DISCOUNT....................... $22,700 $30,337 $34,350 $620,358
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT RATE
-------------
<S> <C> <C>
NET PRESENT VALUE.............. 15.0% $105,837
LESS DEBT...................... $(84,043)
--------
$ 21,794
VALUE PER SHARE................ 20,374,271 $ 1.07 per share
</TABLE>
<TABLE>
<CAPTION>
EXIT MULTIPLE SENSITIVITY ANALYSIS
--------------------------------------------------------------------------
12.00 13.00 14.00 15.00 16.00 17.00 18.00
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE $(0.34) $0.13 $0.60 $1.07 $1.54 $2.01 $2.48
</TABLE>
D(2)-7
<PAGE> 151
SUMMARY DCF MODEL FOR GOODLIFE
ASSUMES NO ACQUISITION OF SUBSCRIBERS
1) Moderate Internal Growth in Subscribers
2) No Cash-for-Carriage Deals
3) Affiliate Revenues Increase 5% per year
4) Moderate Growth in Advertising Revenue/Subscriber
5) Programming Expenditures as per GoodLife; Scale at 5% per year
6) Operating Expenditures as per GoodLife; Scale at 3% per year
7) No Breakeven Achieved
<TABLE>
<CAPTION>
PROJECTIONS
BUDGET --------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING SUBSCRIBERS...................... 8,095 8,500 8,925 9,371 9,840 10,331 10,848 11,390
Internal Growth (5% of beginning base)... 405 425 446 469 492 517 542 570
-------- -------- -------- -------- -------- -------- -------- --------
Acquired Subscribers..................... -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
ENDING SUBSCRIBERS......................... 8,500 8,925 9,371 9,840 10,331 10,848 11,390 11,960
Price for Purchased Subscribers............ $ 0.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 0.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (99 Budget+5% per
annum)................................... $ 2,143 $ 2,250 $ 2,363 $ 2,481 $ 2,605 $ 2,735 $ 2,872 $ 3,015
Advertising Per Avg. Subscriber............ $ 0.39 $ 0.45 $ 0.65 $ 0.65 $ 0.65 $ 0.65 $ 0.65 $ 0.65
Advertising Revenue........................ $ 3,277 $ 3,921 $ 5,946 $ 6,243 $ 6,556 $ 6,883 $ 7,228 $ 7,589
TOTAL REVENUES..................... $ 5,420 $ 6,171 $ 8,309 $ 8,724 $ 9,160 $ 9,618 $ 10,099 $ 10,604
Less Programming Costs................... 13,167 15,000 15,750 16,538 17,364 18,233 19,144 20,101
243% 243% 190% 190% 190% 190% 190% 190%
Less Operating Costs..................... 6,700 6,901 7,108 7,322 7,541 7,768 8,001 8,241
124% 112% 86% 84% 82% 81% 80% 79%
OPERATING CASH FLOW........................ $(14,448) $(15,731) $(14,550) $(15,135) $(15,745) $(16,382) $(17,045) $(17,738)
CASH FLOW MARGIN....................... (171.9)% (170.3)% (168.8)% (167.3)%
Subsciber Cash for Carriage.............. -- -- -- -- -- -- -- --
FREE CASH FLOW............................. $(14,448) $(15,731) $(14,550) $(15,135) $(15,745) $(16,382) $(17,045) $(17,738)
TERMINAL MULTIPLE OF EBITDA.............. Per Sub.
ENTEPRISE VALUE..........................
FREE CASH FLOW TO DISCOUNT................. $(14,448) $(15,731) $(14,550) $(15,135) $(15,745) $(16,382) $(17,045) $(17,738)
<CAPTION>
PROJECTIONS
-------------------------------
2007 2008 2009
--------- -------- --------
<S> <C> <C> <C>
BEGINNING SUBSCRIBERS...................... 11,960 12,558 13,186
Internal Growth (5% of beginning base)... 598 628 659
--------- -------- --------
Acquired Subscribers..................... -- -- --
--------- -------- --------
ENDING SUBSCRIBERS......................... 12,558 13,186 13,845
Price for Purchased Subscribers............ $ 0.00 $ 0.00 $ 0.00
REVENUES ASSUMPTIONS
Affiliate Revenue (99 Budget+5% per
annum)................................... $ 3,166 $ 3,324 $ 3,491
Advertising Per Avg. Subscriber............ $ 0.65 $ 0.65 $ 0.65
Advertising Revenue........................ $ 7,968 $ 8,367 $ 8,785
TOTAL REVENUES..................... $ 11,135 $ 11,691 $ 12,276
Less Programming Costs................... 21,107 22,162 23,270
190% 190% 190%
Less Operating Costs..................... 8,488 8,742 9,005
78% 77% 76%
OPERATING CASH FLOW........................ $ (18,460) $(19,213) $(19,999)
CASH FLOW MARGIN....................... (165.8)% (164.3)% (162.9)%
Subsciber Cash for Carriage.............. -- -- --
FREE CASH FLOW............................. $ (18,460) $(19,213) $(19,999)
TERMINAL MULTIPLE OF EBITDA.............. (Neg. EBITDA) $ 12.00
ENTEPRISE VALUE.......................... $166,142
FREE CASH FLOW TO DISCOUNT................. $ (18,460) $(19,213) $146,144
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT RATE
-------------
<S> <C> <C>
NET PRESENT VALUE.............. 15.0% $ (41,188)
LESS DEBT...................... $ (84,043)
---------
$(125,231)
VALUE PER SHARE................ 20,374,271 $ (6.15) per share
</TABLE>
<TABLE>
<CAPTION>
PER SUB. VALUE EXIT SENSITIVITY ANALYSIS
--------------------------------------------------------------------------
10.00 11.00 12.00 13.00 14.00 15.00 16.00
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$(6.48) $(6.31) $(6.15) $(5.98) $(5.81) $(5.64) $(5.47)
</TABLE>
D(2)-8
<PAGE> 152
CABLE NETWORK CASH-FOR-CARRIAGE BENCHMARK
<TABLE>
<CAPTION>
YEAR NETWORK PRICE/SUB
---- ------- ---------
<S> <C> <C>
1990 CNBC $3.00
1994 Q2 $5.00
1994 S $9.00
1996 Fox News $11.00
1997 Animal Planet $7.00
1997 Eye on People $6.00
1998 Great American $5.00
1998 Style $6.00
1998 Travel Channel $6.00
1998 Paxson $10.00
1998 ZDTV 10 Year No License Fee
1998 Access Entertainment Network $1.50 Reverse Fee/Sub/Year
</TABLE>
---------------
Source: Paul Kagan Associates, Inc.
D(2)-9
<PAGE> 153
SUMMARY CONCLUSION
In reviewing all of the valuation methodologies and the relative
assumptions, we believe the most appropriate analyses are the Market Price and
Acquisition Value Analyses. A summary of all the analyses and our conclusion for
each is provided below:
<TABLE>
<CAPTION>
ANALYSIS EQUITY VALUE PER SHARE
-------- ----------------------
<S> <C>
Net Asset Value Negative
Market Price $0.06 to $0.08
Going-Concern Not Meaningful
Acquisition Value $0.02 to $0.08
Discounted Cash Flow Speculative; Value created in proportion to capital
commitments
</TABLE>
Based on our review of the available information for GoodLife, the cable
network industry and a review of appropriate financial metrics, we believe that
GoodLife should be valued at between $0.06 to $0.08 per share. The following
table provides a review of the effective value that Crown would need to pay for
the public shareholder interest at various values per share.
D(2)-10
<PAGE> 154
MINORITY SHAREHOLDER PURCHASE PRICE ANALYSIS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Shares Outstanding
(000s) 20,374 20,374 20,374 20,374 20,374 20,374 20,374 20,374 20,374 20,374
Crown/Concept Shares (000s) 14,432 14,432 14,432 14,432 14,432 14,432 14,432 14,432 14,432 14,432
Minority Shares (000s) 5,942 5,942 5,942 5,942 5,942 5,942 5,942 5,942 5,942 5,942
Value per Share $0.02 $0.03 $0.04 $0.05 $0.06 $0.07 $0.08 $0.09 $0.10 $0.11
Crown/Concept Purchase Price $118,837 $178,256 $237,674 $297,093 $356,511 $415,930 $475,348 $534,767 $594,185 $653,604
<S> <C> <C> <C> <C>
Total Shares Outstanding
(000s) 20,374 20,374 20,374 20,374
Crown/Concept Shares (000s) 14,432 14,432 14,432 14,432
Minority Shares (000s) 5,942 5,942 5,942 5,942
Value per Share $0.12 $0.13 $0.14 $0.15
Crown/Concept Purchase Price $713,022 $772,441 $831,860 $891,278
</TABLE>
D(2)-11
<PAGE> 155
THE NOSTALGIA NETWORK, INC.
650 Massachusetts Avenue, N.W.
Washington, D.C. 20001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE NOSTALGIA NETWORK, INC. FOR USE ONLY AT THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON , 2000 AND ANY ADJOURNMENTS THEREOF.
The undersigned, being a stockholder of the Nostalgia Network, Inc.
("Nostalgia"), hereby authorizes Diane Fuller and Daniel P. Collins, and each of
them, as proxies, with the full power of substitution, to represent the
undersigned at the Special Meeting of Stockholders of Nostalgia to be held at
650 Massachusetts Avenue, N.W. Washington, D.C. on , 2000 at 11:00 a.m.,
local time, and at any adjournments or postponements thereof, and at the
meeting to act with respect to all votes that the undersigned would be entitled
to cast, if then personally present, as appears on the reverse side of this
proxy.
In their discretion, the proxies are authorized to vote with respect to matters
incident to the conduct of the meeting and upon such other matters as may
properly come before the meeting. This proxy may be revoked at any time before
it is exercised.
Shares of the Common Stock of Nostalgia will be voted as specified. If no
specification is made, shares will be voted FOR the matters set forth on the
reverse side and IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES as to any
other matter which may properly come before the Meeting.
SEE REVERSE
SIDE
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<PAGE> 156
/ x / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
<TABLE>
<S> <C>
FOR AGAINST ABSTAIN
THE NOSTALGIA NETWORK, INC. 1. MERGER OF NNI ACQUISITION CORPORATION WITH / / / / / /
AND INTO THE NOSTALGIA NETWORK, INC.
The Special Meeting of Stockholders of The
Nostalgia Network, Inc. will be held
, at 11:00 a.m.,
at 650 Massachusetts Avenue, N.W., Washington,
D.C.
The undersigned hereby acknowledges receipt
of a Notice of Special Meeting of Stockholders
of The Nostalgia Network, Inc. called for
, 2000, and a Proxy Statement for the
Meeting prior to the signing of this proxy.
Signature(s)__________________________________ DATED:______________,2000
</TABLE>
NOTE: Please sign exactly as your name(s) appear(s) on this proxy. When signing
in a representative capacity, please give title.
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