<PAGE> 1
------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _______
Commission File Number 0-15445
VIDEO JUKEBOX NETWORK, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 59-2605267
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1221 Collins Avenue, Miami Beach, Florida 33139
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(305)-674-5000
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
on November 12, 1996
<S> <C>
Common Stock, Par Value $.001 Per Share 24,001,781
Transitional Small Business Disclosure Format: Yes No X
--- ---
</TABLE>
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<PAGE> 2
VIDEO JUKEBOX NETWORK, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheet at September 30,
1996 (Unaudited) 3
Consolidated Statements of Operations for the
Three Months and Nine Months ended September
30,1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1996 and
1995 (Unaudited) 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis or
Plan of Operation 10
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security
Holders 24
Item 5 Other Information 25
Item 6 Exhibits 28
SIGNATURES 29
</TABLE>
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<PAGE> 3
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER, 30,
1996
--------------
<S> <C>
ASSETS:
- -------
CURRENT ASSETS
Cash and cash equivalents $ 1,888,570
Accounts receivable, less allowances for chargebacks
and doubtful accounts of $1,126,580 1,586,244
Receivable from officer 7,178
Prepaid expenses and other 608,236
------------
TOTAL CURRENT ASSETS 4,090,228
------------
RECEIVABLE FROM OFFICER - LONG TERM 101,462
PROPERTY AND EQUIPMENT, NET 5,812,101
DEFERRED COSTS AND OTHER ASSETS, NET 1,277,935
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED SUBSIDIARIES 635,421
------------
TOTAL ASSETS $ 11,917,147
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,320,727
Accrued expenses 2,391,830
------------
TOTAL CURRENT LIABILITIES 3,712,557
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
8% Cumulative convertible preferred
stock, $1.00 par value, 200,000 shares
authorized, none issued -
Common stock, $.001 par value,
40,000,000 shares authorized, 24,001,781
shares issued and outstanding 24,002
Additional paid in capital 30,238,761
Accumulated deficit (22,011,298)
Cumulative foreign currency translation loss (46,875)
------------
TOTAL STOCKHOLDERS' EQUITY 8,204,590
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 11,917,147
============
</TABLE>
See Notes to Financial Statements
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<PAGE> 4
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER, 30, SEPTEMBER, 30, SEPTEMBER, 30, SEPTEMBER, 30,
1996 1995 1996 1995
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
REVENUES
Net viewer revenues $ 2,332,352 $ 2,989,477 $ 7,788,713 $ 9,225,995
Advertising and other revenues 2,612,612 2,973,827 7,608,018 6,387,261
------------ ----------- ------------ -----------
4,944,964 5,963,304 15,396,731 15,613,256
Gain on sale of interest in subsidiary 0 22,823 0 1,376,899
Interest income 58,095 166,919 252,252 388,050
------------ ----------- ------------ -----------
5,003,059 6,153,046 15,648,983 17,378,205
------------ ----------- ------------ -----------
COSTS AND EXPENSES
Affiliate fees, site costs and
telephone service 1,721,268 1,512,867 4,754,438 4,619,861
Distribution, general and
administrative 3,827,125 3,398,339 12,012,866 10,062,326
Satellite transponder, rent and management
fees paid to related parties 125,190 480,373 620,570 1,492,432
Depreciation and amortization 379,913 237,307 944,282 976,028
Stock and warrant compensation 0 67,305 0 201,914
Interest 0 0 0 1,677
------------ ----------- ------------ -----------
6,053,496 5,696,191 18,332,156 17,354,238
------------ ----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME
TAXES AND INTEREST IN LOSS
OF UNCONSOLIDATED SUBSIDIARIES (1,050,437) 456,855 (2,683,173) 23,967
INCOME TAX EXPENSE (15,424) 0 (15,424) 0
------------ ----------- ------------ -----------
INCOME (LOSS) BEFORE INTEREST IN LOSS OF
UNCONSOLIDATED SUBSIDIARIES (1,035,013) 456,855 (2,667,749) 23,967
INTEREST IN LOSS OF UNCONSOLIDATED
SUBSIDIARIES (41,033) (42,130) (495,368) (42,130)
------------ ----------- ------------ -----------
NET INCOME (LOSS) $ (1,076,046) $ 414,725 $ (3,163,117) $ (18,163)
============ =========== ============ ===========
Net income (loss) per common share $ (0.04) $0.02 $ (0.13) $ (0.00)
============ =========== ============ ===========
Weighted average number of
common shares outstanding 24,001,129 23,903,748 23,967,566 23,751,628
============ =========== ============ ===========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 5
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER, 30, SEPTEMBER, 30,
1996 1995
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,163,117) $ (18,163)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 944,282 976,028
Gain on sale of interest in subsidiary 0 (1,376,899)
Interest in loss of unconsolidated subsidiary 495,368 (42,130)
Provision for bad debts and estimated chargebacks 45,037 0
Stock and warrant compensation and amortization 0 201,914
Change in assets and liabilities:
Decrease (increase) in accounts receivable 1,085,842 (639,507)
(Increase) decrease in prepaid expenses, deferred costs and
other assets (615,693) 25,696
Increase (decrease) in accounts payable and accrued expenses 448,708 (191,662)
Decrease in amount due from subsidiaries 0 (16,784)
Minority interest in loss of subsidiary 0 84,670
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (759,573) (996,837)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash received from sale of interest in subsidiary 0 1,630,398
Capital expenditures (3,654,392) (1,964,680)
Disposal of fixed assets 99,177 0
Increase in investment in and advances to unconsolidated subsidiaries (479,937) (24,245)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (4,035,152) (358,527)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 7,500 45,332
Payments of short-term borrowings 0 (865)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,500 44,467
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (36,607) 79,087
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,823,832) (1,231,810)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,712,402 8,018,010
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,888,570 $ 6,786,200
============ ============
Stock issued for purchase of minority interest in subsidiary $ 0 $ 267,188
============ ============
</TABLE>
See Notes to Financial Statements
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<PAGE> 6
VIDEO JUKEBOX NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. The financial information included herein is submitted pursuant to the
requirements of Form 10-QSB and does not include all disclosures
required by generally accepted accounting principles. It is suggested
that these unaudited financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995. The accompanying interim financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods
presented. The results of operations for interim periods are not
necessarily indicative of the results to be obtained for the entire
year.
2. Net income and net loss per share computations are based on the
weighted average shares of common stock outstanding during the
quarter. Common stock equivalents were not considered in the
computation of net income or loss per share as their effect was
immaterial to net income per share or resulted in a decrease in net
loss per share.
3. The consolidated financial statements include the balance sheet and
operating results of the Company's wholly-owned subsidiaries, VJN
LPTV CORP.(incorporated in February, 1994), The Box Worldwide Europe,
B.V., (incorporated in August, 1995), Video Jukebox Network Europe,
Ltd.(incorporated in January, 1996), and The Box Worldwide-Latin
America, Inc. (incorporated in January, 1996); and include the
operating results of Video Jukebox Network International, Limited
("VJNIL") for the first six months of 1995. Effective July 1, 1995,
the Company's interest in VJNIL was reduced to 50% and the Company
began to account for VJNIL on the equity method. The Company also
accounts for its 50% owned subsidiary, The Box Holland (incorporated
in October, 1995), on the equity method of accounting. All
significant consolidating and eliminating entries have been included.
Unconsolidated Subsidiaries
VJNIL --- In September 1991, Video Jukebox Network International
Limited ("VJNIL"), which began operations in 1992, was founded in the
United Kingdom to develop and launch a United Kingdom version of the
Company's music video television programming. The Company had
beneficially owned 91% of the outstanding common stock of VJNIL from
inception through June 29, 1995. On June 30, 1995, the Company
purchased the remaining nine percent of VJNIL from its minority
shareholder in exchange for 225,000 shares of the Company's common
stock, which were valued at $267,187 on that day. Also on June 30,
1995, the
-6-
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. (CONTINUED)
Company completed the sale of a 50 percent equity interest in VJNIL to
a wholly-owned subsidiary of Ticketmaster Corporation ("Ticketmaster")
for $2,225,000 in cash. Legal and investment banking expenses related
to this transaction totaled approximately $429,000. As part of such
transaction, Ticketmaster loaned to VJNIL $1,500,000 which
approximated the aggregate amount of the advances that had been made
from time to time by the Company to VJNIL. Such loan from
Ticketmaster and advances by the Company were secured by all of the
assets of VJNIL and accrued interest at the rate of prime plus one
percent. Simultaneously, an administrative services agreement was
executed among the Company, VJNIL and Ticketmaster through which
Ticketmaster purchased a portion of its 50 percent equity interest in
VJNIL by issuing to VJNIL a promissory note payable in the amount of
625,400 pounds sterling (the equivalent of U.S. $1 million). This
administrative services agreement, which was to expire June 30, 2000,
required Ticketmaster to provide VJNIL with strategic and marketing
related services, particularly with respect to sponsorship and
promotional opportunities, advertising sales, merchandising and other
home shopping projects undertaken by VJNIL. Principal amounts due
under the promissory note did not accrue interest and monthly payments
of principal were forgiven in full while Ticketmaster provided
services to VJNIL under the administrative agreement.
The Company's remaining investment in VJNIL has been accounted for on
the equity method of accounting effective June 30, 1995. Prior to
June 30, 1995, the subsidiary's assets, liabilities and operations had
been consolidated with the Company. The Company's remaining
investment in and advances to VJNIL reflect its remaining interest in
VJNIL's losses recognized through September 30, 1996.
The following is a summary of VJNIL's balance sheet as of September
30, 1996 and operating results for the third quarter and the nine
months ended September 30, 1996, respectively, during which period the
Company's share of these results were accounted for on the equity
method by the Company:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30,1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Current assets $2,024,435
Noncurrent assets 972,072
----------
$2,996,507
==========
Current liabilities 1,055,940
Noncurrent liabilities 0
Equity, advances and notes
payable to shareholders 1,940,567
----------
$2,996,507
==========
Net revenues $ 842,287 $1,910,200
=========== ==========
Net operating income (loss) $ (70,759) $ (565,216)
=========== ==========
</TABLE>
The difference between the Company's recorded net investment in and
advances
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<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. (CONTINUED)
to VJNIL at September 30, 1996 and the underlying equity in VJNIL's
net assets relates primarily to previously recognized net losses
prior to the sale of 50% of its interest in VJNIL. The Company
recorded interest income of approximately $38,000 and $113,000 for
the quarter and nine months ended September 30, 1996, respectively,
related to $1,500,000 loan outstanding with VJNIL during the period.
On October 30, 1996, the Company completed the sale of its remaining
50% equity interest in VJNIL to EMAP plc, a United Kingdom media and
entertainment company. EMAP paid VJN $4,550,000 in cash for VJN's
50% remaining investment, plus reimbursed VJN $1,500,000 for the
Company's outstanding loan to VJNIL plus approximately $200,000 in
accrued interest related to the loan. The Company also received a
one-time $100,000 licensing payment for trademark and other
intellectual property rights in the United Kingdom and Ireland. The
Company paid approximately $400,000 in investment fees and legal
fees related to this transaction.
Other --- The following is a summary of the balance sheet as of
September 30, 1996 and operating results of the other unconsolidated
subsidiary, The Box Holland, for the quarter and nine months ended
September 30, 1996, respectively:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Current assets $ 179,405
Noncurrent assets 775,448
-----------
$ 954,853
===========
Current liabilities $ 135,330
Equity, advances and notes
payable to shareholders 819,523
-----------
$ 954,853
===========
Net revenues $ 87,298 $ 178,722
========== ===========
Net operating loss $ (112,307) $ (480,505)
========== ===========
</TABLE>
CONSOLIDATED INTERNATIONAL SUBSIDIARIES
The following is a summary of operating results for the three
international consolidating subsidiaries which are included in the
Company's consolidated financial statements:
-8-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. (CONTINUED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net viewer revenues $ 90,249 $ 0 $ 115,795 $ 645,420
Advertising and other revenues 13,200 0 $ 27,500 $ 138,439
--------- -------- --------- ----------
103,449 0 $ 143,295 $ 783,859
--------- -------- --------- ----------
Affiliate fees, site costs, and
telephone services $ 83,091 $ 0 $ 110,619 $ 293,168
Distribution, general and
administrative $ 249,733 $ 0 $ 613,200 $ 811,806
Depreciation and amortization 28,125 0 62,252 144,831
Interest expense 0 0 0 41,057
--------- -------- --------- ----------
$ 860,949 $ 0 $ 786,071 $1,290,862
--------- -------- --------- ----------
Net Loss $(257,500) $ 0 $(642,776) $ (507,003)
========= ======== ========= ==========
</TABLE>
Note - The three new subsidiaries were not yet active in the third
quarter of 1995. The results for the nine months ended September 30, 1995
includes six months of consolidated activity for VJNIL, the United Kingdom
majority subsidiary during that period.
4. SUBSEQUENT EVENTS:
In addition to the sale of the Company's remaining 50% of its United Kingdom
and Ireland operations, VJNIL, on October 30, 1996, as discussed above in
footnote 3, on October 30, 1996, EMAP plc, a United Kingdom based media and
entertainment company, also agreed to make an investment in the Company through
the purchase of 1,666,667 shares of newly authorized and issued 6% Convertible
Redeemable Preferred Stock at the price of $1.50 per share. The money is
currently held in escrow pending the release of an Information Statement to the
shareholders of VJN regarding the Amendment to the Company's Articles of
Incorporation to authorize the issuance of the Preferred Shares. These
Preferred Shares will be convertible at a rate of one share of the Company's
common stock for each share of the Preferred Stock. Any accrued and unpaid
dividends would also be converted into shares of common stock at the rate of
one share for each $1.50 of accrued and unpaid dividends.
The escrowed funds would be released upon the Company filing the Amendment to
the Articles of Incorporation with the Florida Department of State which is
expected to be around December 2, 1996. The escrow agreement provides that
EMAP may terminate the purchase of the shares prior to the closing if (a) there
is a material breach by the Company of a representation and warranty in the
Preferred Stock Purchase Agreement which has not been cured by the Company by
the date that the Company submits the Amendment of the Articles of
Incorporation to the Florida Department of State and the Amendment is accepted
for filing or (b) the average of the closing bid and asked prices of the common
stock as reported on the Nasdaq Small-Cap market during all of the trading days
of the escrow period is less than $.25 per share.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995.
For the quarter ended September 30, 1996, the Company realized a consolidated
net loss of ($1,076,046) compared to consolidated net income of $414,725 for
the quarter ended September 30, 1995. Domestic net loss exclusive of
international developmental costs and charges for any international operations
for the quarter ended September 30, 1996 was approximately ($588,000) as
compared with a domestic net income of $579,000 for the same prior year period.
In the consolidated financial statements for the quarter ended September 30,
1996, the Company recognized ($488,000) in losses from corporate international
departmental expenditures and subsidiary international operations ($447,000 in
consolidated operations and $41,000 in losses recognized under the equity
method), while the Company recognized a loss of approximately ($164,000) from
international operations (all consolidated) for the same prior year period.
During this third quarter of 1996, the Company realized consolidated financial
results from the domestic operations, plus Argentina and Venezuela, whereas
only domestic operations existed in the same prior year quarter. Under the
equity method of accounting, the Company realized financial results from the
United Kingdom and Holland in both the third quarter of 1996 and the third
quarter of 1995.
All viewer, advertising and other call revenues resulted from the distribution
of THE BOX. Net viewer revenues decreased $657,000 from $2,989,000 to
$2,332,000 or 22.0% for the three months ended September 30, 1996 as compared
with the same prior year period. The majority of this decrease resulted from
the loss of ten boxes in the New York City market which occurred on January 2,
1996 when a large cable company elected to discontinue its affiliation with the
Company's programming service. The Company had installed 10 box units to serve
that cable system, which totaled approximately 904,000 cable subscribers. The
New York City system produced approximately $330,000 in gross viewer revenues
and a gross margin contribution after affiliate fees and direct costs
associated with operating the 10 boxes of approximately $109,000 for the
quarter ended September 30, 1995. In February 1996, in order to compensate for
the lost cable subscribers, the Company began additional transmission of its
programming by adding a third low power broadcast station in the New York City
area to the two that were already broadcasting the Company's programming. The
Company believes that the three low power television stations reach
approximately 3.8 million households in the New York City area. Unless the
Company is able to renew its affiliation with the New York City cable system,
or the system is replaced with comparable levels of subscribers at other
systems, the annualized loss of gross margin contribution after affiliate fees
and direct costs in 1996 from these New York City cable systems is anticipated
to be approximately $617,000. The Company additionally delaunched four boxes
(approximately 126,000 cable subscribers) in the Detroit market on June 3, 1996
when another cable company elected to discontinue its affiliation with the
Company's programming service. The Detroit system produced approximately
$207,000 in gross viewer revenues and a gross margin contribution after
affiliate fees and direct costs associated with operating the 4 boxes of
approximately $129,000 for the quarter ended September 30, 1995. Unless the
Company is able to
-10-
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
renew its affiliation with the Detroit cable system, the expected annualized
loss of gross margin contribution after affiliate fees and direct costs in 1996
is expected to be approximately $296,000, unless the system is replaced with
comparable subscribers at other systems.
Excluding the New York and Detroit boxes, all other domestic boxes produced
approximately $318,000 less in gross viewer revenues during third quarter of
1996 as compared with the same prior year quarter. The domestic gross viewer
revenues generated per box from the boxes excluding New York and Detroit has
decreased from a monthly average of $9,918 per box in the quarter ended
September 30, 1995 to a monthly average of $8,873 per box in the quarter ended
September 30, 1996, a 10.5% decrease. Management believes that the decreased
revenues per box are due to actions taken by the Company to improve the
programming look of the network through emulation of music videos when no
videos are in queue, elimination of certain controversial videos and the
limited amount of new music product distributed in the third quarter of 1996.
As part of the Company's business plan, increasing viewership and thereby
advertising revenues have continued to be a priority. While a certain
percentage of The Box viewers will interactively participate in the programming
through video purchases, others will passively participate through viewing the
videos only. In order to keep these viewers interested and increase the number
of overall viewers, management believes the boxes need to play music regularly,
so for many boxes, the computer system within the boxes have been emulating
video orders and playing music videos automatically. In past emulation tests,
it has been determined that video emulation usually reduces the number of
consumer purchased videos, however, viewership numbers are increased which
would allow the advertising sales efforts to benefit. Further, since part of
the cable operator explanations for discontinuing service in New York and
Detroit were content related, the Company has made a concerted effort to reject
airing videos with unacceptable or excessive sexual and violence content.
These more controversial videos have resulted in high revenues in the past and
therefore, with their deletion have reduced revenues achieved in all boxes.
Finally, due to limited new music product during the third quarter and the
Company's history of 75 percent of its caller revenue from music less than
four weeks old, viewer revenues have been impacted.
Separately, $90,000 of viewer revenues were generated from consolidated
international operations in Argentina and Venezuela from the five boxes which
were launched in 1996, with no comparable revenue in the third quarter of 1995.
The final element of the decrease in net revenues is due to the change in
chargebacks. Viewer revenues are adversely affected by customers who deny
having made music video requests on THE BOX, which result in chargebacks of
such calls to the Company from the Company's telephone service providers. In
an effort to reduce chargebacks from telephone companies due to such customers,
the Company is in the second year of implementation of call blocking for
previous non-paying customers and credit limitations for all participants in
the Company's interactive process. The information necessary to
-11-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
institute these procedures had not been previously available from the Company's
telephone service provider. Chargebacks remained essentially flat in the third
quarter of 1996 ($410,000) as compared to the same prior year period
($413,000). Since customers may request such credits several months subsequent
to the music video request, chargebacks lag behind the viewer revenue to which
they relate as well. The Company maintains a reserve for anticipated future
chargebacks against current viewer revenue. To further reduce chargebacks and
decrease telecommunications charges, beginning in January 1996 the Company
introduced a new program to allow customers to directly purchase on a prepaid
basis. In addition to generating additional viewer revenues from customers
since they may then exceed the monthly credit limits, this program has also
been designed to eliminate customer chargebacks and billing charges from
service providers, as well as reduce transport costs. $336,000 in revenue was
generated from this program for the quarter ended September 30, 1996. Revenues
from this program are recognized only as videos are selected, while prepaid
customer account balances are included in current liabilities.
Advertising sales and other revenues decreased by $361,000 from $2,974,000 for
the third quarter of 1995 to $2,613,000 for the same current year period. The
decrease resulted from mixed performance in most categories of advertising:
national sales were down 3.6% for third quarter of 1996 as compared with the
same prior year period and direct response advertising increased by 27.1% from
1995 to 1996 due to the addition of one sales person devoted solely to this
market. Advertising sales from the record industry and radio sponsorships were
down 49.0% for the third quarter of 1996 as compared to the same prior year
period. Management believes the lower advertising by certain labels was due to
delayed releases on new music product and the Company's concentration on
obtaining advertising from rock, pop and alternative music label sources as
opposed to the urban dominance in prior periods. While it cannot be assured
that all advertising booked will result in revenue to the Company, over $2.5
million in advance bookings have been committed for fourth quarter 1996 at this
date and over $1.9 million has already been committed for 1997. Other revenues
for the third quarter of 1996 totaled approximately $129,000 which consisted of
contests and promotions sponsorship revenue ($73,000); merchandise revenues
from the Company's retail store location in Miami Beach ($23,000); plus license
fees related to the Company's United Kingdom operations, affiliate programming
fees paid by certain operators to the Company and other miscellaneous revenue
($33,000). Miscellaneous income for the same period for 1995 totaled $20,000.
Consolidated international operations contributed $13,000 in miscellaneous
revenue in the current quarter, with no comparable prior year amount.
Expenses for affiliate fees, site costs and telephone services were 73.8% and
50.6% of net viewer revenue for the quarters ended September 30, 1996 and 1995,
respectively. The increase in expenses between the quarters ended September
30, 1996 and 1995 was
-12-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
approximately $208,000. The Company experienced a decrease in domestic cable
affiliation fees of $196,000 due to the loss of carriage by the New York and
Detroit systems, while low power television affiliation and site cost fees
increased approximately $168,000 due to new launches of LPTV affiliated boxes.
Telephone services increased by $26,000, due mostly to costs associated with
implementation in the second quarter of 1996 of a VSAT communication system
intended to be used as the primary communication method associated with the
rollout of the new digital box technology which were offset by lower variable
charges related to reduced viewer revenues. Once fully rolled out, this system
of communication will reduce telephone services costs as a percentage of net
viewer revenues. The results from the third quarter of 1996 also include
$128,000 for satellite uplink charges paid to a non-related third party. There
is no similar item included in this expense line in 1995, as this service was
provided by a related party and was classified as such in the financials.
International expenses for affiliate fees, site costs and telephone services
from Argentina and Venezuela operations were $82,000 for the third quarter of
1996, with no comparable amount included for the same period in the prior year.
Distribution, general and administrative expenses for the quarter ended
September 30, 1996 increased by approximately $429,000 from $3,398,000 for the
third quarter of 1995 to $3,827,000 for the third quarter of 1996. A majority
of the increase, $243,000, resulted from additional staffing for affiliate
sales, advertising sales, marketing (both consumer and radio affiliation),
production and operations. In order to develop additional transactional and
advertising revenues, personnel who could produce sales, develop marketing and
promotional tie-ins, create the related programming requirements and support
expanded programming distribution were added in late 1995 and first quarter
1996. Additionally, staff has been added for development and implementation of
the Company's digital box technology.
In order to increase industry awareness of the Company's programming, industry
trade event participation has been increased. At the same time, efforts to
control overhead expenses have resulted in decreases in travel and
entertainment, related sales premiums, marketing materials production, and
on-air promotions and other marketing expenditures. These costs decreased by a
net effect of approximately $79,000 in the third quarter of 1996 as compared
with the same prior year period. Investment spending for the development of
international operations for the quarter ended September 30, 1996 was $294,000
with no comparable amount included for the same period last year.
The increased direct response advertising sales revenues for the third quarter
of 1996 as compared with 1995 resulted in higher advertising agency commissions
of approximately $16,000 in the current year period, while the overall decrease
in advertising and net viewer revenues resulted in a reduction in music
licensing costs of $30,000. Other administrative expenses which have increased
in the third quarter of 1996 as compared with 1995 include telecommunications,
due mostly to certain credits in the prior year period ($84,000), and costs
related to merchandise sold at the Company's retail store and the producer fees
for
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
the CD's and videos marketed under the Company's Box Tunes music label
($24,000). The Company experienced a net increase of $91,000 in rent and
related costs for office space in New York and Los Angeles, which are
non-related party leases, plus additional office space in Miami Beach, which is
also leased from a non-related third party.
Costs related to production and disc and tape preparation were lower in the
third quarter of 1996 as compared with 1995 by approximately $24,000 due to
lower production expenditures for on-air contests and promotions during the
current year. Due to the partial rollout of new digital box technology in the
field, repairs and maintenance costs were lower by $41,000 for the third
quarter of 1996 as compared with the same prior year period. Savings were also
achieved in auditing costs ($23,000), state and local taxes ($23,000), and
general office overhead due to greater efficiencies ($33,000) from the third
quarter of 1996 to the current year period. Expenditures for affiliate
marketing support decreased by $46,000, in accordance with the terms of the
renegotiated and all new affiliation agreements which do not provide for such
monthly payments. Consulting expense decreased by $24,000 due to less special
demographics research during the third quarter of 1996 as compared to the same
prior year quarter.
Expenditures for satellite transponder, rent and management fees paid to
related parties decreased to approximately $125,000 for the third quarter of
1996 as compared to $480,000 for the third quarter of 1995, a reduction of
$355,000. The major part of the reduction relates to $220,000 in lower
expenditures for the satellite transponder and service fees paid to transmit
the Company's satellite programming service. Beginning May 1, 1995 through
mid-April 1996, the Company paid $73,500 per month for transponder and uplink
services. The Company terminated its satellite agreement with its related
party, StarNet, Inc., effective April 1996. A month-to-month transitional
agreement has been signed with WTCI, a subsidiary of Tele-Communications, Inc.
The Company, beginning in April 1996, has broadcasted from Hughes Satellite's
Galaxy 7, transponder 13 at a transponder and uplink service charge of $42,500
per month. A long term agreement is under negotiation with WTCI with monthly
charges which approximate what the Company is currently paying.
Consulting fees of approximately $86,500 were incurred in the third quarter
1995 related to payments made to one of the Company's principal shareholders
for reimbursement of the salary and benefits of an Island Trading Company, Inc.
("Island") employee utilized by the Company. This employee was hired directly
by the Company in October 1995, so no comparable expense for third quarter 1996
exists. During the third quarter of 1996, a reduction of $48,500 in related
party rent expense was recognized as the Company incurred rental expense
payable to Island for its new corporate headquarters of approximately $125,000
in third quarter 1996, as compared to $173,500 recorded in the third quarter of
1995.
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization expenses for the quarter ended September 30, 1996
increased by approximately $143,000 from the comparable prior year period due
to a significant amount of new acquisitions during second and third quarters
1996 related to the rollout of the digital box technology and the investment in
equipment for international expansion.
Stock and warrant compensation, a non-cash expenditure, decreased by
approximately $67,000 for the quarter ended September 30, 1996 as compared to
the same prior year period. This decrease was due to no new issuance of stock
options at an exercise price lower than the market price on the date of grant.
-15-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995.
For the nine months ended September 30, 1996, the Company realized a
consolidated net loss of ($ 3,163,117) compared to a consolidated net loss of
($18,163) for the nine months ended September 30, 1995. Domestic net loss
exclusive of international developmental costs and charges for any
international operations for the nine months ended September 30, 1996 was
approximately ($1,281,000) as compared with a domestic net loss of ($453,000)
for the same prior year period. In the consolidated financial statements for
the nine months ended September 30, 1996, the Company recognized ($1,882,500)
in losses from corporate international departmental expenditures and subsidiary
international operations ($1,387,500) in consolidated international operations
and $495,000 in losses recognized through the equity method from the Company's
interest in operations in the United Kingdom and Holland), while the Company
recognized $435,000 in income from international operations (all consolidated)
for the same prior year period. This prior year period included a gain of
approximately $1,377,000 recognized from the sale of 50% of its original
interest in VJNIL, the Company's United Kingdom subsidiary.
All viewer, advertising and other call revenues resulted from the distribution
of THE BOX. Net viewer revenues decreased $1,437,000 from $9,226,000 to
$7,789,000 or 15.6% for the nine months ended September 30, 1996 as compared
with the same prior year period. The majority of this decrease resulted from
the loss of ten boxes in the New York City market which occurred on January 2,
1996 when a large cable company elected to discontinue its affiliation with the
Company's programming service. The Company had installed 10 box units to serve
that market, which totaled approximately 904,000 cable subscribers. The New
York City systems produced approximately $1,020,000 in gross viewer revenues
and a gross margin contribution after affiliate fees and direct costs
associated with operating the 10 boxes of approximately $463,000 for the nine
months ended September 30, 1995. In February 1996, in order to compensate for
the delaunched cable subscribers, the Company began additional transmission of
its programming by adding a third low power broadcast station in the New York
City area to the two that were already broadcasting the Company's programming.
Unless the Company is able to renew its affiliation with the New York City
cable system, or replace these delaunched subscribers with new subscribers at
comparable cable systems, the annualized loss of gross margin contribution
after affiliate fees and direct costs in 1996 from these New York cable systems
is anticipated to be approximately $617,000. The Company additionally removed
four boxes (approximately 126,000 cable subscribers) in the Detroit market on
June 3, 1996 when another cable company elected to discontinue its affiliation
with the Company's programming service. The financial impact for the first
nine months of the year was a decrease of $216,000 in gross viewer revenues and
a decrease in gross margin of $163,000. Unless the Company is able to renew
its affiliation with the Detroit cable system, or replace the delaunched cable
subscribers with new cable systems, the annualized loss of gross margin
contribution after affiliate fees and direct costs in 1996 is anticipated to be
approximately $296,000.
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Excluding the New York and Detroit boxes, all other domestic boxes produced
approximately $141,000 less in gross viewer revenues during the nine months
ended September 30, 1996 as compared with the same prior year period. The
domestic gross viewer revenues generated per box from the boxes excluding New
York and Detroit cable boxes has increased slightly from a monthly average of
$9,424 per box for the nine months ended September 30, 1995 to a monthly
average of $9,468 per box for the nine months ended September 30, 1996, a 0.5%
decrease. Management believes that the flat revenues per box, which are down
in average revenues from prior quarters, are due to actions taken by the
Company to improve the programming look of the network through emulation of
music videos when no videos are in queue, elimination of certain controversial
videos and the limited amount of new music product distributed in the third
quarter of 1996. As part of the Company's business plan, increasing viewership
and thereby advertising revenues have continued to be a priority. While a
certain percentage of The Box viewers will interactively participate in the
programming through video purchases, others will passively participate through
viewing the videos only. In order to keep these viewers interested and
increase the number of overall viewers, for improved advertising rates,
management believes the boxes need to play music regularly, so for many boxes,
the computer system within the boxes have been emulating video orders and
playing music videos automatically. In past emulation tests, it has been
determined that video emulation usually reduces the number of consumer
purchased videos, however, viewership numbers are increased which would allow
the advertising sales efforts to benefit. Further, since part of the cable
operator explanations for discontinuing service in New York and Detroit was
content related, the Company has made a concerted effort to reject airing
videos with unacceptable or excessive sexual and violence content. These more
controversial videos have resulted in high revenues in the past and therefore,
with their deletion have reduced revenues achieved in all boxes. Finally, due
to limited new music product during the third quarter and the Company's history
of seventy five percent of its caller revenue from music less than four weeks
old, viewer revenues have been impacted.
A further factor in the decrease in net viewer revenues results from gross
viewer revenues generated in the United Kingdom which were consolidated for
only the first half of 1995, during the period the United Kingdom subsidiary
was majority owned. When the Company became a 50% owner of this United Kingdom
subsidiary on June 30, 1995, it began to account for all financial results from
United Kingdom operations utilizing the equity method of accounting. As a
result, United Kingdom viewer revenues included in the Company's net viewer
revenues for the six months ended June 30, 1995 totaled $645,000, while for the
nine months ended September 30, 1996, international viewer revenues of
$116,000, which related from Argentinian and Venezuelan operations only, were
included in the Company's consolidated net viewer revenues.
The final element of the net revenues decrease is the change in viewer
chargebacks. Viewer revenues are adversely affected by customers who deny
having made music video
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<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
requests on THE BOX. In an effort to reduce chargebacks from telephone
companies due to such customers, the Company is in the second year of
implementation of call blocking for previous non-paying customers and credit
limitations for all participants in the Company's interactive process. The
information necessary to institute these procedures had not been previously
available from the Company's telephone service provider. With implementation
for nearly two years of these procedures, the Company has seen the amount of
chargebacks reduced by $286,000, from $1,547,000 for the nine months ended
September 30, 1995 to $1,261,000 for the nine months ended September 30, 1996.
To further reduce chargebacks and decrease telecommunications charges, beginning
in January 1996 the Company introduced a new program to allow customers to
establish a prepaid account for the selection of videos. In addition to
generating additional viewer revenue from customers who would have previously
been blocked due to credit limits, this program has been designed to eliminate
customer chargebacks and billing charges from service providers, as well as
reduce transport costs. The Company generated $929,000 in revenue from this
program for the nine months ended September 30, 1996. Revenues from this
program are recognized only as videos are selected, while prepaid account
balances are included in current liabilities.
Advertising sales and other revenues increased from $6,387,000 for the nine
months ended September 30, 1995 to $7,608,000 for the same current year period,
an increase of $1,221,000, or 19.1%. The increase resulted from improved
performance in most categories of advertising: national sales were up 67.9% for
the first nine months of 1996 as compared with the same prior year period and
direct response advertising increased by 54.4% from 1995 to 1996. Advertising
sales from the record industry and radio sponsorships were down 36.1% for the
first nine months of 1996 as compared to the same prior year period.
Management believes the lower advertising by certain labels was due to delays
in new product releases and due to concentrated efforts by the Company's
advertising sales staff to improve advertising participation by non-urban
labels. Advertising revenue generated from the United Kingdom in the amount of
$138,000 is included in the first half of 1995 (when it was consolidated),
while no amount is included for the same period in the current year (accounted
for on the equity method). Other revenues for the first nine months of 1996
totaled approximately $416,000 which consisted of contests and promotions
sponsorship revenue ($202,000), merchandise revenues from the Company's retail
store location in Miami Beach ($85,000), and license fees related to the
Company's United Kingdom and Latin American operations, affiliate programming
fees paid by certain operators to the Company, and other miscellaneous revenue
($129,000). Other revenues for the same period for 1995 totaled $147,000,
including approximately $87,000 of income recognized on the sale of certain
LPTV assets and no revenue related to promotions or merchandise.
Expenses for affiliate fees, site costs and telephone services were 61.0% and
50.1% of net viewer revenues for the nine months ended September 30, 1996 and
1995, respectively.
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<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The net increase in expenses between the nine months ended September 30, 1996
and 1995 was approximately $134,000. This increase was primarily due to
reduced domestic cable affiliation fees of approximately $426,000 from the
first nine months of 1995 to the same period in 1996 which was the result of
the net effect of lower affiliation fees in 1996 due to the carriage loss of a
cable company's New York systems, which was offset by an adjustment in 1995 to
recognize the effects of renegotiation of the cable agreements for the
Company's two largest multiple system operators. The Company also experienced
an increase in low power television affiliation and site cost fees of
approximately $383,000 due to new launches of LPTV affiliated boxes, with fees
totaling $285,000 for the new LPTV station in New York City for the first nine
months of 1996. Telephone services increased by $105,000, due mostly to
implementation in the second quarter of 1996 of a VSAT communication system
intended to be used as the primary communication method associated with the
rollout of the new digital box technology. Once fully rolled out, this system
of communication will reduce telephone services costs as a percentage of net
viewer revenue. The first nine months of 1996 also includes $255,000 for
satellite uplink was paid to a non-related third party. There is no similar
item included in this expense category in 1995, when this service was provided
by a related party and was included in the related party expenditures.
International expenses for affiliate fees, site costs and telephone services
was $182,000 lower for the first nine months of 1996 as compared to the first
half of 1995 due to new international operations expense for Argentina,
Venezuela and general international development in 1996 of $111,000, as offset
by $293,000 from consolidated United Kingdom operations expenditures in the
first half of 1995, with no comparable amount included for the same period in
the current year (accounted for on the equity method).
The Company has developed its own voice recognition system and intends to
process its 900 number calls internally without the use of an outside service
bureau, which is expected to result in significant savings in future periods.
In order to terminate the service bureau contract with TelVue, Inc.,
("TelVue"), the Company has agreed to reimburse TelVue for the costs incurred
by them for software development and hardware conversion of equipment
originally purchased to service the Company. A principal shareholder of TelVue
is also a principal shareholder of the Company. The Company agreed to pay
these costs, which total $284,619, only upon receipt of future financing funds.
Once the Company has completed the preferred share transaction which is
discussed in ITEM 5, OTHER INFORMATION, Subsequent Event, the Company will pay
TelVue the reimbursement. This payment will result in a significant one-time
service fee expense during the fourth quarter of 1996.
Distribution, general and administrative expenses for the nine months ended
September 30, 1996 increased by approximately $1,951,000 from $10,062,000 for
the first nine months of 1995 to $12,013,000 for the first nine months of 1996.
A majority of the increase, $1,094,000, resulted from additional staffing for
affiliate sales, advertising sales,
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<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
marketing (both consumer and radio affiliation), production and operations. In
order to develop additional transactional and advertising revenues, personnel
who could produce sales, develop marketing and promotional tie-ins, create the
related programming requirements and support expanded programming distribution
were added in late 1995 and first half 1996. Additionally, staff has been
added for development and implementation of the digital box technology. In
order to increase industry awareness of the Company's programming, industry
trade event participation and related sales calls have been increased,
resulting in increased travel and entertainment expenses. Further, related
sales premiums and materials production and on-air promotions and marketing
expenditures were undertaken to increase consumer viewing levels, actions which
increased these costs by approximately $360,000 in the first nine months of
1996 as compared with the same prior year period.
The increased national and direct response advertising sales revenues for the
first nine months of 1996 as compared with 1995 resulted in higher advertising
agency commissions of approximately $315,000 in the current year period. In
line with the decrease in net viewer revenues, music costs were lower by
$20,000. Other administrative expenses which have increased in the first nine
months of 1996 as compared with 1995 include: fees for an investor relations
firm ($33,000), higher legal expenses due to expenses incurred with the
uncompleted Liberty transaction ($9,000), higher insurance costs related to
increased equipment levels and the Company's South Beach office location
($41,000), and costs related to merchandise sold at the Company's retail store
and producer's fees related to distribution of the Company's Box Tunes label
($40,000). The Company experienced a net increase of $191,000 in rent paid to
non-related parties for changes in office space at our headquarter and
satellite locations for the nine months ended September 30, 1996 as compared
with the same prior year period.
Investment spending for the development of international operations for the
nine months ended September 30, 1996 was $942,000 higher than the same prior
year period, while United Kingdom distribution, general and administrative
expenses of $772,000 were included in the nine months ended September 30, 1995
(consolidated), while no comparable amount is included for the same period in
the current year (accounted for on the equity method).
Savings were realized in auditing costs ($20,000), consulting expense
($38,000), and general administration overhead due to less third-party projects
and greater efficiencies ($43,000). Expenditures for affiliate marketing
support decreased by $149,000 for the first nine months of 1996 in accordance
with terms of new and renegotiated affiliation agreements. As a result of the
partial rollout of the digital box technology, repairs and maintenance expense
was $32,000 lower for the nine months ended September 30, 1996.
Expenditures for satellite transponder, rent and management fees paid to
related parties decreased to approximately $621,000 for the first half of 1996
as compared to $1,492,000
-20-
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
for the first nine months of 1995, a reduction of $871,000. The major part of
the reduction relates to $698,000 in lower expenditures for the satellite
transponder and service fees paid to transmit the Company's satellite
programming service. During February 1995, the Company switched its satellite
signal from analog to digital, thereby reducing the monthly charge from
$200,000 for January 1995 to $155,000 for February and $110,000 for March 1995.
Then, beginning May 1, 1995, the Company paid $73,500 per month for transponder
and uplink services. The Company terminated its satellite agreement with the
related party, StarNet, Inc., effective April 1996. A new three-month
transitional agreement was signed with WTCI, a subsidiary of
Tele-Communications, Inc., and has continued on a month-to-month basis since it
expired on July 1, 1996. The Company, beginning in April 1996, has broadcasted
from Hughes Satellite's Galaxy 7, transponder 13 at a transponder and uplink
service charge of $42,500 per month. A long term agreement is under
negotiation with WTCI which is anticipated to result in monthly transponder and
uplink charges at approximately the same monthly fee.
Consulting fees of approximately $166,000 were incurred in the first half of
1995 related to payments made to one of the Company's principal shareholders
for reimbursement of the salary and benefits of an Island Trading Company, Inc.
("Island") employee utilized by the Company. This employee was hired directly
by the Company in October 1995, so no comparable expense for the first nine
months of 1996 exists. During the first nine months of 1996, a decrease of
$8,000 in related party rent expense was realized, as the Company incurred
rental expense payable to Island for its new corporate headquarters of
approximately $376,000 for the first nine months of 1996 as compared to
$384,000 recorded in the first nine months of 1995.
Depreciation and amortization expenses for the nine months ended September 30,
1996 decreased by approximately $31,000 from the comparable prior year period
due to the amount of equipment which became fully depreciated in the first half
of 1996.
Stock and warrant compensation, a non-cash expenditure, decreased by
approximately $202,000 for the nine months ended September 30, 1996 as compared
to the same prior year period. This decrease was due to no new issuance of
stock options at an exercise price lower than the market price on the date of
grant.
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<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 1.10 to
1.00 at September 30, 1996 as compared to 3.32 to 1.00 at September 30, 1995.
At September 30, 1996, the Company's current assets exceeded its current
liabilities by approximately $378,000. The Company's current assets exceeded
its current liabilities by approximately $6,770,000 at September 30, 1995.
The Company has utilized a significant amount of cash during the fourth quarter
of 1995 and the first nine months of 1996, with approximately $4.0 million used
for capital expenditures, equipment and software related mainly to the initial
wave of development and installation of the Company's digital box technology,
including base digital support equipment and enhancement to its in-house
computer system during the past twelve months, plus costs associated with
expanding the Company's office space in New York and Miami Beach. The Company
believes that the newly developed technology known as the digital box is a
critical element of the Company's future. The marketing advantages provided by
the digital box will allow enhanced localized programming and advertising plus
programming improvements through enhanced audio and video quality, superior
graphic quality, consumer friendly responsiveness (such as nearly immediate
video play), and the operational efficiencies such as reduction of expenses
associated with the manual process of tapes, discs, weekly change outs of music
product and limited availability for advertising, all move the Company towards
deploying the digital box in replacement of all boxes. The Company plans to
replace all remaining analog boxes in the field with the digital box with the
exception of certain low performing boxes, which will be switched to our
satellite signal at a cost of approximately $2,500 per location. It is
expected that completion of this deployment will cost the Company approximately
$2.5 million in further expenditures. There can be no assurance that this new
technology will result in additional distribution, additional advertising sales
or higher viewership. Going forward, a digital rather than analog box will be
deployed at new domestic affiliate locations. Analog box equipment taken out
of domestic service will then be available for deployment internationally,
reducing the Company's cash requirements for expansion in new and existing
international markets.
Nearly $1.1 million was spent in advances of operating expenses for the
Company's international operations, specifically Holland, Venezuela, Chile and
Peru and another $1.5 million for corporate international development expenses.
On October 30, 1996, the Company completed the sale of its remaining 50% equity
interest in VJNIL to EMAP plc, a United Kingdom based media group with
interests in consumer magazines, business communications and radio.
Simultaneous with its purchase from VJN, EMAP acquired the remaining 50%
interest in VJNIL from Ticketmaster Corporation. EMAP paid VJN $4,550,000 in
cash for VJN's equity interest in VJNIL and $1,500,000 plus $200,000 in accrued
interest to reimburse VJN for a loan previously made to VJNIL. The Company has
realized a gain in excess of $5 million related to this transaction. Subject
to certain conditions, EMAP has agreed to invest an additional $2.5 million in
VJN through the purchase of 1,666,667 shares of Preferred Stock
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<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
at $1.50 per share, which may be converted into an equal number of shares of
VJN's common stock.
The Company plans to use these funds to: (i) fully implement the digital box,
replacing virtually all analog boxes in the field with a digital box or a
conversion to satellite service; (ii) expand the distribution of the Company's
programming by constructing and installing additional box units with the new
digital technology; (iii) advertise, market and promote the Company's
programming including the staffing of a larger cable affiliate sales staff;
(iv) research, develop, maintain and improve the Company's software and
equipment including the continued development of the digital box; (v) fund
working capital; and (vi) fund certain international programming ventures, such
as The Box - Italy which is expected to launch by early February 1997 and
according to the Company's initial projections will require nearly $1.2 million
in cash and equipment contributions within its first eighteen months of
operation. Although there can be no assurances, management believes that
expansion of the distribution of the Company's programming will lead to
increased advertising and viewer revenues and will enable the Company to more
efficiently utilize fixed cost expenditures.
Management has and will continue to undertake several operational measures in
an effort to continue to improve the Company's liquidity and cash flow
position. Upon full implementation of the digital box, the Company will save
approximately $82,000 in operating costs per month, or annual savings of
$984,000. In 1995, the Company completed the renegotiation of affiliation
agreements with the two largest multiple system operators. While considerable
savings have resulted from the renegotiation of these agreements and all new
agreements are signed at these similar reduced monthly guaranteed affiliation
payments, it is not known if the Company may be required to incur additional
costs in order to renew affiliation with the delaunched New York City and
Detroit systems.
Chargebacks of the Company's phone call revenue have been significantly reduced
by blocking requests of viewers who have a history of denying having made music
video requests and applying credit limits on customer accounts. As the Company
obtains additional information about its customer base and improves upon the
time taken by the Company's phone provider to report denied payments, the
Company believes it will be able to continue to reduce chargebacks further.
With the implementation of the new prepaid video program, the Company also
anticipates reduced chargebacks, reduced transportation and telecommunications
expenses as well as elimination of the eight percent billing fee imposed on all
gross transactional revenue handled by the Company's current telephone service
provider. The Company is also reviewing the use of other telephone service
providers as well as the possibility of handling all transactional calls
through its own telephone system. While exact cost savings are not known, and
cannot be assured, significant savings would be expected if such a complete
transfer were to occur.
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<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
Advertising revenues have been increasing every year over the previous year
since the Company's sales efforts began. To continue this trend, the Company
has continued using record label promotions and national advertising account
value added promotions such as the 96 Dayz of Summer fourteen week promotion.
With increased distribution and the overall impact of the Company's
programming, rates for all time segments, including prime time, have increased
as a response to demand.
During the nine months ended September 30, 1996, the Company spent
approximately $3,654,000 on the development of the digital box, enhancements
to its in-house computer system, furniture and tenant improvements for the
additional new corporate office location, and digital box equipment. The
Company believes that the newly developed technology known as the digital box
is a critical element of the Company's future. Accordingly, the Company plans
to replace all remaining analog boxes in the field with the digital box with
the exception of certain low performing boxes, which will be switched to our
satellite signal at a nominal additional cost per location. It is expected
that this deployment will cost the Company approximately $2.5 million. There
can be no assurance that this new technology will result in additional
distribution, additional advertising sales or higher viewership. Going
forward, a digital rather than analog box will be deployed at new domestic
affiliates. Analog box equipment taken out of domestic service will then be
available for deployment internationally, reducing the Company's cash
requirements for expansion in new and existing international markets.
In February 1996, the Company entered into a five-year agreement with an
unaffiliated party to purchase satellite receiving equipment and satellite
transponder time for sending digitized video segments from the Company's
headquarters to the various box unit locations at cable head end and broadcast
station sites. The minimum cash commitment of the Company under this agreement
is approximately $1.9 million, of which $573,000 has already been paid.
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on September 20, 1996.
At the meeting, the following persons were elected to serve as directors of the
Company until the next annual meeting of stockholders and until a successor is
elected and qualified or until the earlier resignation, removal, death or
incapacity of the director: H.F. Lenfest (by a vote of 17,480,615 in favor,
251,147 withheld and with no abstentions and no broker non-votes): Alan McGlade
(by a vote of 17,695,145 in favor, 36,617 withheld and with no abstentions and
no broker non-votes); Chris Blackwell (by a vote of 17,480,615 in favor,
251,147
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<PAGE> 25
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(CONTINUED)
withheld and with no abstentions and no broker non-votes); David Burns (by a
vote of 17,480,615 in favor, 251,615 withheld and with no abstentions and no
broker non-votes); J. Patrick Michaels, Jr. (by a vote of 17,479,980 in favor,
251,982 withheld and no abstentions and no broker non-votes); Leonard J.
Sokolow (by a vote of 17,479,815 in favor, 251,947 withheld and with no
abstentions and no broker non-votes); Joel S. Rudich (by a vote of 17,479,180
in favor, 252,582 withheld and with no abstentions and no broker non-votes);
Stanley H. Greene (by a vote of 17,479,815 in favor, 261,947 withheld and with
no abstentions and no broker non-votes); Robert J. Puck (by a vote of
17,479,980 in favor, 251,782 withheld and with no abstentions and no broker
non-votes); Louis Wolfson, III (by a vote of 17,479,815 in favor, 261,947
withheld and with no abstentions and no broker non-votes).
Also at the meeting, approval was given for an amendment to the 1988 Stock
Option Plan to increase the total options available for issue under the plan
from 1,000,000 to 1,500,000 (by a vote of 16,984,207 in favor, 87,648 withheld
and with 229,429 abstentions and with no broker non-votes).
ITEM 5: OTHER INFORMATION
SUBSEQUENT EVENT:
The Board of Directors of the Company has unanimously approved an amendment to
the Company's Articles of Incorporation, and StarNet/CEA II Partners, the
holder of a majority of the outstanding shares of the Company's Common Stock,
has executed a written shareholder consent approving such amendment as follows:
An amendment (the "Amendment") to Article III of the Company's Articles of
Incorporation to authorize the issuance of up to 1,800,000 shares of 6%
Convertible Redeemable Preferred Stock, par value $.15 per share.
The purpose of the Amendment is to enable the Company to consummate the Stock
Purchase Agreement (the "Preferred Stock Purchase Agreement"), dated October
30, 1996, between the Company and EMAP plc, a United Kingdom media and
entertainment company. Pursuant to the Preferred Stock Purchase Agreement,
EMAP has agreed to acquire 1,666,667 shares (the "Shares") of Preferred Stock
for an aggregrate consideration of $2,500,000 or $1.50 per share. The
following items summarize the key rights, preferences and limitations:
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<PAGE> 26
ITEM 5: OTHER INFORMATION
SUBSEQUENT EVENT (CONTINUED)
(1) Voting. The holders of shares of Preferred Stock
will be entitled to cast one vote per share at all stockholders meeting for all
purposes. Except as otherwise required by the Florida Business Corporation
Act, the shares of Preferred Stock will vote with the shares of Common Stock as
one voting class.
(2) Conversion. Each share of Preferred Stock will be
convertible, at the election of the holder thereof, into one share of Common
Stock. In the event that there are any accrued and unpaid dividends due on the
Preferred Stock at the time of conversion, then the accrued and unpaid
dividends will automatically be converted into shares of Common Stock at a rate
of one share of Common Stock for each U.S.$1.50 of accrued and unpaid
dividends. Subject to the provisions for redemption discussed below, the right
of conversion will be available at any time.
(3) Dividends. The holders of the shares of Preferred
Stock will be entitled to receive cumulative dividends, which will accrue at
the rate of $.09 per share of the Preferred Stock per annum. No cash dividends
may be declared or paid on any security of the Company until all accrued and
unpaid dividends are paid on the shares of Preferred Stock. All dividends on
the Preferred Stock will cease to accrue on the Election Date, as such term is
defined below under the caption "Redemption."
(4) Liquidation. Upon the liquidation, dissolution or
winding up of the Company, the holders of the shares of Preferred Stock will be
entitled to receive payment equal to $1.50 per share of the outstanding shares
of Preferred Stock plus all accrued and unpaid dividends thereon before any
payment will be made to the holders of the Common Stock. The holders of the
shares of Preferred Stock will not be entitled to participate further in the
distribution of the assets of the Company.
(5) Redemption. Five years after the date of issuance of
the Preferred Stock (the "Election Date"), each share of Preferred Stock will,
at the election of each holder thereof, either be redeemed for cash or
converted into shares of Common Stock (as discussed above). If a holder elects
to redeem the Preferred Stock, such holder will be entitled to receive a cash
payment equal to $1.50 per share of Preferred Stock, together with the amount,
as of the Election Date, of all accrued and unpaid dividends. No right of
redemption will exist prior to the Election Date or if the Company is then
insolvent or would become insolvent as a result of such redemption. Each
holder of Preferred Stock must give written notice to the Company of its
election to either have the Preferred Stock redeemed for cash or converted into
shares of Common Stock within 30 days of the Election Date. If the Company
does not timely receive such notice from any holder of the
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<PAGE> 27
ITEM 5: OTHER INFORMATION
SUBSEQUENT EVENT (CONTINUED)
Preferred Stock, the Company will have the right to determine whether such
Preferred Stock is redeemed or converted into shares of Common Stock.
The closing (the "Closing") of the Preferred Stock Purchase Agreement is
subject to, among other things, the Company amending its Articles of
Incorporation to authorize the issuance of the Preferred Stock. Pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission"), the Company intends to amend the Articles of Incorporation with
the Florida Department of State as soon as possible after the expiration of a
twenty day period following the mailing of this Information Statement to
stockholders, which mailing is to occur on or about November 15, 1996, and
immediately thereafter schedule the Closing. In the interim, EMAP has placed
the purchase price for the Shares in escrow pursuant to an Escrow Agreement,
dated October 30, 1996, among the Company, EMAP, and an appointed escrow agent.
The Escrow Agreement provides for the release of the $2,500,000 of escrowed
funds (and any interest thereon) to the Company as soon as practicable after
the Amendment to the Articles of Incorporation has been filed with the Florida
Department of State. The Escrow Agreement further provides that EMAP may
terminate the purchase of the Shares prior to the Closing if (a) there is a
material breach by the Company of a representation and warranty in the
Preferred Stock Purchase Agreement which has not been cured by the Company by
the date that the Company submits the Amendment to the Florida Department of
State and the Amendment is accepted for filing or (b) the average of the
closing bid and asked prices of Common Stock as reported on the Nasdaq
Small-Cap market during all of the trading days of the escrow period is less
than $.25 per share. On November 11, 1996, the average of such closing bid and
asked prices from October 30, 1996 through such date was $.84.
The securities of the Company to be acquired by EMAP under the Preferred Stock
Purchase Agreement will be granted certain demand registration rights and
preemptive rights. Pursuant to the demand registration rights, EMAP may cause
the Company at its expense to register with the Commission the shares of Common
Stock that EMAP may acquire upon the conversion of the Preferred Stock.
Pursuant to the preemptive rights, EMAP may purchase its pro rata share of
securities issued by the Company (with certain exceptions) during the five year
period after the Closing. Upon purchasing the Preferred Stock at the Closing,
EMAP may appoint one person to the Company's Board of Directors.
Simultaneous with the execution of the Preferred Stock Purchase Agreement, the
Company consummated a second Stock Purchase Agreement with EMAP for the sale of
the Company's fifty percent interest in Video Jukebox Network International
Limited ("VJNIL"), a subsidiary of the Company operating the Company's music
video channel,
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<PAGE> 28
ITEM 5: OTHER INFORMATION
SUBSEQUENT EVENT (CONTINUED)
THE BOX, in the United Kingdom and Republic of Ireland. In exchange for the
sale of the Company's fifty percent interest in VJNIL, EMAP paid the Company
U.S.$4,550,000. EMAP also paid the Company an additional $1,500,000 (plus
accrued interest of approximately $200,000) to reimburse the Company for a loan
it had previously made to VJNIL. Concurrent with the purchase of the Company's
fifty percent interest of VJNIL, EMAP acquired the remaining fifty percent
interest in VJNIL from Ticketmaster Corporation Pursuant to an Intellectual
Property Rights Agreement entered into among the Company, VJNIL and EMAP on
October 30, 1996, the Company has agreed to assign certain trademarks and share
certain technology with VJNIL.
The issuance of the Shares to EMAP is subject to the preemptive rights of
Liberty VJN, Inc. ("Liberty VJN") pursuant to an agreement, dated November 21,
1990, between the Company and TCI Liberty, Inc. In the event that Liberty VJN
elects to exercise its preemptive rights, the Company will issue approximately
83,333 shares of Preferred Stock to Liberty VJN for an aggregate consideration
of $125,000 or $1.50 per share. The Company has no plans to issue any
additional shares of Preferred Stock at this time.
ITEM 6. EXHIBITS
Exhibit 10.1 - Stock Purchase Agreement, dated October 30,1996, between the
Company and EMAP.
Exhibit 10.2 - Registration Rights Agreement, dated October 30, 1996, between
the Company and EMAP.
Exhibit 10.3 - Escrow Agreement, dated October 30, 1996, among the Company,
EMAP and Denton Hall.
Exhibit 27 - Financial Data Schedule (for SEC use only)
-28-
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIDEO JUKEBOX NETWORK, INC.
-----------------------------------------
(REGISTRANT)
Date: November 12, 1996 By: /s/Alan McGlade
------------------------------------
Alan McGlade
President and Chief Executive Officer
Date: November 12, 1996 By: /s/Luann M. Hoffman
-------------------------------------
Luann M. Hoffman
Chief Financial and
Administrative Officer
-29-
<PAGE> 1
STOCK PURCHASE AGREEMENT
BETWEEN
VIDEO JUKEBOX NETWORK, INC.,
AS SELLER,
AND
EMAP PLC.
AS PURCHASER
OCTOBER 30, 1996
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated October 30, 1996
between VIDEO JUKEBOX NETWORK, INC., a Florida corporation ("VJN"), and EMAP
PLC., an English company ("EMAP").
RECITALS:
A. VJN wishes to amend its Articles of Incorporation to authorize
the creation of 6% convertible redeemable preferred shares (the "Shares"), par
value $.15 per Share, the terms of which are as set forth in Exhibit "A"
hereto; and
B. VJN wishes to issue 1,666,667 Shares to EMAP, and EMAP wishes
to purchase such Shares from VJN, in exchange for US$2,500,000.50 (the
"Purchase Price");
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 "Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. "Control" (including the terms "controlling," "controlled by" and
"under common control with"), with respect to the relationship between or among
two or more Persons, means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs of
such Person.
1.2 "Bankruptcy" means: (a) an adjudication of bankruptcy under
the U.S. Bankruptcy Reform Act of 1978, as amended, or any successor statute;
(b) the specified Person stops payment of, is deemed unable (under Section 123
of the Insolvency Act of 1986 of the U.K. (the "Insolvency Act")) or otherwise
admits inability to pay, its debts or becomes or is deemed to be insolvent; (c)
the presentation of a petition for or the making of a winding up or
administration order in respect of the specified Person; (d) an assignment for
the benefit of creditors; (e) the specified Person either does, resolves to do
or commences negotiations with a view to doing any of the following: (i) makes
a general or special arrangement or composition (whether voluntary or
compulsory) with its creditors or any class of creditors, (ii) declares or
agrees to a moratorium, (iii) issues a notice convening a meeting to resolve to
do any of the foregoing (other than for the purpose of a solvent amalgamation
or reconstruction), or (iv) makes a proposal for a voluntary arrangement under
Section 1 of the Insolvency Act to be made in respect of the specified Person;
<PAGE> 3
(f) the filing of a voluntary petition in bankruptcy, winding-up or
reorganization or the passing of a resolution for voluntary liquidation,
reconstruction or winding up (other than for the purpose of a solvent
amalgamation or reconstruction); or (g) the failure to vacate the appointment
of a receiver, trustee, provisional liquidator or administrative receiver for
any part or all of the assets or property of a party within 60 days from the
date of such appointment.
1.3 "Board" means the Board of Directors of VJN.
1.4 "Business" means the television, cable and similar programming
and broadcasting services (interactive or non-interactive), marketing,
advertising, sales, concert and related music promotions, merchandising and
home shopping projects and all other promotions and ventures in which VJN is
engaged.
1.5 "Business Day" means any day that is not a Saturday or a
Sunday and on which banks are open for the conduct of normal banking business
in the city of Miami, Florida.
1.6 "Confidential Information"of any party means all data,
reports, interpretations, forecasts and records containing or otherwise
reflecting information concerning the transactions contemplated hereby which is
of a confidential nature, not available to the general public and which such
party provides or has previously provided to the other party at any time
pursuant to or in connection with this Agreement. "Confidential Information"
includes any information obtained by a meeting with personnel or representative
of a party or its subsidiaries, together with analyses, compilations, studies
or other documents prepared by the party obtaining the information, which
contain the Confidential Information. However, "Confidential Information" does
not include any information which: (a) at the time of disclosure or thereafter
is available to the public (other than as a result of a disclosure by a party
or its Representative in violation of the terms of this Agreement); or (b) was
or becomes available to a party or its Representatives (collectively, the
"Informed Party") from a source other than the other party, unless the Informed
Party knows that the source is bound by the terms of a confidentiality
agreement with the other party.
1.7 "Conversion Shares" means the shares of VJN's common stock,
par value $0.001 per share, into which the Shares are convertible.
1.8 "Encumbrance" means any security interest, pledge, mortgage,
lien (including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, option, preferential arrangement or restriction of
any kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
1.9 "Escrow Agreement" shall have the meaning set forth in Section
2.3 hereof.
1.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2
<PAGE> 4
1.11 "Governmental Authority" means any federal, state or local, or
foreign government, governmental, regulatory or administrative authority (or
subdivision thereof) and any agency or commission or any court, tribunal or
judicial or arbitral body that has jurisdiction over EMAP, the Business, VJN or
their respective assets.
1.12 "Governmental Order" means any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
1.13 "Intellectual Property" means: (a) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications; (b) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications; (c) national and multinational statutory invention registrations,
patents, patent registrations and patent applications (including all reissues,
divisions, continuations, continuations-in-part, extensions and reexaminations)
and all rights therein provided by international treaties or conventions and
all improvements to the inventions disclosed in each such registration, patent
or application; (d) trademarks, service marks, trade dress, logos, trade names
and corporate and partnership names, whether or not registered, including all
common law rights, and registrations and applications for registration thereof;
(e) copyrights (registered or otherwise) and registrations and applications for
registration thereof, and all rights therein provided by international treaties
or conventions; (f) moral rights (including, without limitation, rights of
paternity and integrity), and waivers of such rights by others; (g) trade
secrets and confidential, technical and business information; (h) copies and
tangible embodiments of all the foregoing, in whatever form or medium; (i) all
rights to obtain and rights to apply for patents, and to register trademarks
and copyrights; (j) all rights to sue or recover and retain damages and costs
and attorneys' fees for present and past infringement of any of the foregoing;
and (k) all goodwill associated with the foregoing.
1.14 "Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law
issued by any Governmental Authority.
1.15 "Material Adverse Effect" means any circumstance, change in,
or effect on the business of any party hereto that could reasonably be expected
to have a materially adverse effect on the business, operations, assets or
liabilities, results of operations or the financial condition of such party.
1.16 "Person" means any individual, partnership, firm, corporation,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
1.17 "Purchase Price" shall have the meaning set forth in Recital
B hereof.
3
<PAGE> 5
1.18 "Representative" means, with respect to a party hereto, such
party's directors, officers, employees or attorneys, accountants and other
agents and representatives who have need to know Confidential Information of
the other party hereto, in order to perform their duties or services.
1.19 "Rights" means any options, warrants or other agreements for
the purchase of Voting Stock.
1.20 "SEC" means the United States Securities and Exchange
Commission.
1.21 "SEC Reports" means the following forms which were filed with
the SEC by VJN: (a) VJN's Form 10-KSB for the fiscal year ended December 31,
1995; (b) VJN's Form 10-QSBs for the quarters ended March 31, 1996 and June 30,
1996; and (c) VJN's Proxy Statement, dated August 30, 1996, regarding VJN's
1996 annual meeting of stockholders.
1.22 "Securities Act" means the Securities Act of 1933, as amended.
1.23 "Shares" shall have the meaning set forth in Recital A hereof.
1.24 "Tax" or "Taxes" means any and all taxes, stamp duties, fees,
levies, duties, tariffs, imposts, and other charges of any kind (together with
any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any Governmental Authority or taxing
authority, including, without limitation: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value added, or gains taxes; license, registration and documentation fees; and
customs duties, tariffs, and similar charges.
1.25 "VJNIL" means Video Jukebox Network International Limited, an
English company.
1.26 "Voting Stock" means any class of capital stock of VJN with
general voting rights for the election of directors.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Except as otherwise agreed upon in writing by VJN
and EMAP, the closing of the purchase and sale of the Shares (the "Closing")
shall take place at the offices of VJN as soon as reasonably practicable after
the end of the Escrow Period, as such term is defined in the Escrow Agreement
(the "Closing Date").
4
<PAGE> 6
2.2 Purchase and Sale. Subject to fulfillment of the conditions
precedent, and based upon the representations and warranties, set forth herein,
at the Closing EMAP shall purchase from VJN, and VJN shall sell and issue to
EMAP, the Shares free and clear of any and all Encumbrances other than those
restrictions imposed by this Agreement or by applicable United States federal
and state securities laws. In consideration of and in full payment for the
Shares, EMAP, at Closing shall pay the Purchase Price to VJN, by wire transfer
of immediately available funds.
2.3 Escrow of Purchase Price. Following the execution of this
Agreement by the parties hereto and as promptly as practicable after the
satisfaction of the conditions specified in Sections 6.2 (c) and (d) hereof,
EMAP shall deposit the full Purchase Price by wire transfer of immediately
available funds into an escrow account controlled by Denton Hall (the Escrow
Agent"), pursuant to an Escrow Agreement (the "Escrow Agreement") substantially
in the form of Exhibit "B" attached hereto, which shall be duly and validly
executed by VJN, EMAP and the Escrow Agent on or prior to the date of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF VJN
As of the date hereof and as of the Closing Date, VJN represents and
warrants to EMAP as follows:
3.1 Organization, Qualification, Etc. of VJN. VJN is a duly
organized and validly existing corporation under the Laws of the State of
Florida and has all necessary corporate power and authority to own, operate or
lease the properties and assets now owned, operated or leased by it and to
carry on its business as it has been, is currently and is anticipated to be
conducted. VJN is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing does
not have a Material Adverse Effect. All material corporate actions taken by
VJN have been duly authorized and VJN has not taken any action that in any
respect conflicts with, constitutes a default under or results in a violation
of any provision of its Articles of Incorporation or Bylaws (collectively, the
"Articles of Incorporation").
3.2 Authority of VJN. Except for the stockholder approval
referred to in Section 6.3(b) hereof, VJN has all necessary power and authority
to enter into this Agreement, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by VJN and (assuming due authorization, execution and
delivery by EMAP) constitutes the legal, valid and binding obligation of VJN,
enforceable against VJN in accordance with its terms, except as such
enforcement may be subject to (a) Bankruptcy or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
5
<PAGE> 7
3.3 No Conflict. Except as set forth on Schedule 3.3, the
execution, delivery and performance of this Agreement by VJN and the
consummation of the transactions contemplated hereby do not and will not: (a)
conflict with or violate any Law or Governmental Order applicable to VJN, which
violation or conflict would, individually or in the aggregate, have a Material
Adverse Effect on VJN, the Business or on the transactions contemplated hereby;
or (b) conflict with, result in any breach of, constitute a default (or an
event which with the giving of notice or lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation
of, or result in the creation of any Encumbrance on any of the assets or
properties of VJN or the Business pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument, agreement or arrangement to which VJN is a party or by which
any of such assets or properties is bound or affected, which conflict or
violation would, individually or in the aggregate, have a Material Adverse
Effect on the ability of VJN to consummate the transactions contemplated hereby
or on the Business.
3.4 The Shares. All of the Shares delivered to EMAP are duly
authorized and validly issued, fully paid, non-assessable, with all documentary
stamp taxes of any kind prepaid and free and clear of all Encumbrances, other
than those restrictions imposed by this Agreement or by applicable United
States federal and state securities laws. All of the Conversion Shares are
duly authorized and, when issued, shall be fully paid, non-assessable, with all
documentary stamp taxes of any kind prepaid and free and clear of all
Encumbrances, other than those restrictions imposed by this Agreement or by
applicable United States federal and state securities laws.
3.5 Registration of Shares. Assuming that EMAP's representations
and warranties contained herein are true and correct, the offering, issuance,
sale and delivery of the Shares and the Conversion Shares are and shall be
exempt from the registration requirements of the Securities Act.
3.6 Consents and Approvals. Except as set forth on Schedule 3.6,
the execution, delivery and performance of this Agreement by VJN do not and
will not require any consent, approval, authorization or other order of, action
by, filing with or notification to any Governmental Authority or any third
party.
3.7 Securities and Exchange Commission Filings.
(a) The SEC Reports (i) were prepared in accordance with
the requirements of the Securities Act and the Exchange Act, as the case may
be, and the rules and regulations thereunder and (ii) did not at the time they
were filed, and presently do not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each
case, any notes thereto) contained in the SEC Reports was prepared in
accordance with generally accepted accounting
6
<PAGE> 8
principles applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each fairly presented the
consolidated financial position, results of operations and cash flows of VJN
and the consolidated VJN subsidiaries, as the case may be, as at the respective
dates thereof and for the respective periods indicated therein (subject, in the
case of unaudited statements, to normal and recurring year-end adjustments
which were not and are not expected, individually or in the aggregate, to be
material in amount).
(c) Except as and to the extent set forth in this
Agreement and the SEC Reports, VJN and VJN's subsidiaries do not have any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) other than liabilities and obligations arising in the ordinary
course of business or which would not, individually or in the aggregate, have a
Material Adverse Effect.
3.8 Litigation. No claims or proceedings are pending or, to the
knowledge of VJN, threatened by or against VJN which, if adversely determined,
could reasonably be expected to have a Material Adverse Effect or could
reasonably be expected to affect the legality, validity or enforceability of
this Agreement or the consummation of the transactions contemplated hereby.
3.9 Property Title. VJN has good and marketable title to, and
valid and enforceable leasehold estates in, all items of real and personal
property, tangible or intangible, that are material to the conduct of the
Business. All such properties are free and clear of all Encumbrances, other
than those Encumbrances that do not have a Material Adverse Effect.
3.10 Taxes.
(a) All returns and reports (the "Returns") in respect of
all Taxes required to be filed with respect to VJN or the Business have been
timely filed and all Taxes required to be shown on the Returns have been timely
paid. All Returns are true, correct and complete and no adjustment relating to
the Returns has been proposed by any tax authority and no basis exists for any
such adjustment. There are no pending or threatened actions or proceedings for
the assessment or collection of Taxes against VJN. All Taxes required to be
withheld, collected or deposited by or with respect to VJN or the Business have
been timely withheld, collected or deposited, as the case may be, and, to the
extent required, have been paid to the relevant taxing authority.
(b) There are no: (i) outstanding waivers or agreements
extending the statute of limitations for any period with respect to any Tax to
which VJN may be subject; and (ii) no proposed reassessments of any property
owned by VJN or other proposals that could increase the amount of any Tax to
which VJN would be subject. VJN has not granted a power of attorney that is
currently in force, with respect to any matter relating to Taxes that could
affect VJN.
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3.11 Intellectual Property.
(a) VJN has full ownership of all of the Intellectual
Property used in the Business, or the right to use all such rights, in each
case except to the extent heretofore disclosed in writing to EMAP, and VJN has
no knowledge that the conduct of the Business as now operated, conflicts with,
misappropriates or infringes, or has been alleged to infringe, any Intellectual
Property rights or franchises of any person (including patents, trade secrets
or other proprietary rights of any third party).
(b) To VJN's knowledge, none of the Intellectual Property
owned by VJN is being infringed by any Person.
3.12 Compliance with Laws. Except for such noncompliance as would
not have a Material Adverse Effect, VJN has conducted and continues to conduct
its business in all material respects in accordance with all Laws and all
Governmental Orders entered by or with any Governmental Authorities, and VJN is
in compliance with all such Laws or Governmental Orders.
3.13 Conduct of Business in the Ordinary Course. Since June 30,
1996, VJN has conducted the Business only in the ordinary course and consistent
with past practice.
3.14 Approval of Stockholders. As soon as reasonably practicable
after the signing hereof, VJN shall attempt to obtain the approval by the
holders of a majority of VJN's common stock, par value $0.001 per share, of
the amendment to the Articles of Incorporation of VJN to permit the issuance of
the Shares.
3.15 Appointment to Board of Directors. At the Closing, the Board
shall appoint a designated person (the "Designated Person") to the Board. VJN
makes no warranty or representation that VJN's stockholders will reelect the
Designated Person to the Board at the next annual meeting of VJN's
stockholders.
3.16 Full Disclosure. No representation or warranty with respect
to VJN contained in this Agreement contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
3.17 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of VJN, except an aggregate of $125,000 payable by VJN to
Communications Equity Associates, Inc., which $125,000 shall be paid at the
Closing solely by VJN.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EMAP
As of the date hereof and as of the Closing Date, EMAP represents and
warrants to VJN as follows:
4.1 Organization, Qualification, Etc. of EMAP. EMAP is a duly
organized and validly existing company under the Laws of England and Wales and
has all necessary corporate power and authority to own, operate or lease the
properties and assets now owned, operated or leased by it and to carry on its
business as it has been, is currently and is anticipated to be conducted. EMAP
is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, except where the
failure to be so licensed, qualified or in good standing does not have, or
could not reasonably be expected to have, a Material Adverse Effect.
4.2 Authority of EMAP. EMAP has all necessary corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by EMAP, the performance by EMAP of its obligations
hereunder and the consummation by EMAP of the transactions contemplated hereby
have been duly authorized by all requisite corporate action on the part of
EMAP. This Agreement has been duly executed and delivered by EMAP and
(assuming due authorization, execution and delivery by VJN) constitutes the
legal, valid and binding obligation of EMAP, enforceable against EMAP in
accordance with its terms, except as such enforcement may be subject to: (a)
Bankruptcy or other similar laws now or hereafter in effect relating to
creditors' rights generally; and (b) general principles of equity (regardless
of whether such enforcement is considered in a proceeding in equity or at law).
4.3 No Conflict. Assuming the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to herein, the execution, delivery and performance of this Agreement
by EMAP and the consummation of the transactions contemplated hereby do not and
will not: (a) violate, conflict with or result in the breach of any provision
of EMAP's Memorandum or Articles of Association; or (b) conflict with or
violate any Law or Governmental Order applicable to EMAP, which violation or
conflict could, individually or in the aggregate, have a Material Adverse
Effect on EMAP.
4.4 Consents and Approvals. The execution, delivery and
performance of this Agreement by EMAP do not and will not require any consent,
approval, authorization or other order of, action by, filing with, or
notification to, any Governmental Authority or any third party.
4.5 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of EMAP.
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4.6 Investor Status. EMAP is a sophisticated investor and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of an investment in VJN represented
by the Shares and the Conversion Shares. EMAP is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4.7 Investment Intent and Restriction on Transfer. EMAP is
acquiring the Shares and when and if issued, the Conversion Shares for its own
account and for investment and not with a view towards, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the Shares or, if applicable, the Conversion Shares.
However, VJN understands that the disposition of any of EMAP's property is
within its discretion.
4.8 Due Diligence. EMAP has received and examined the SEC Reports.
4.9 Access to Information. EMAP will, prior to Closing, be
afforded an opportunity to discuss the Business and VJN's management and
financial affairs with VJN's management and will have an opportunity to ask
questions of and receive answers from VJN's officers relating to the subject
matter of this Agreement.
4.12 Non U.S. Person. EMAP is not a U.S Person ("U.S. Person"), as
such term is defined in Rule 902(o) under Regulation S promulgated under the
Securities Act.
4.13 Offshore Transaction. No offer of the Shares was made to EMAP
in the United States. At the time the offer for the Shares was made, EMAP was
located outside the United States.
4.14 Restrictions on Transfer. EMAP understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
During the period commencing on the Closing Date and terminating on the day 40
days after the Closing Date (the "Restricted Period"), EMAP shall not offer or
sell the Shares or the Conversion Shares in the United States, to a U.S. Person
or for the account or benefit of a U.S. Person. After the expiration of the
Restricted Period, EMAP may offer, sell, pledge or otherwise transfer the
Shares and the Conversion Shares only if registered under the Securities Act or
if, in the opinion of counsel reasonably satisfactory to the Company, an
exemption from registration is available.
4.15 No Scheme to Avoid Registration. The transactions
contemplated by this Agreement: (i) have not been pre-arranged with a purchaser
that is located in the United States or is a U.S. Person; and (ii) are not part
of a plan or scheme to evade the registration provisions of the Securities Act.
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ARTICLE V
LEGEND ON SHARES; REGISTRATION AND PREEMPTIVE RIGHTS
5.1 Legend on Shares. EMAP understands that a legend, in
substantially the following form, will be placed on the certificate
representing the Shares and the Conversion Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). PRIOR TO THE
EXPIRATION OF THE FORTY (40) DAY RESTRICTED PERIOD (AS DEFINED BY RULE
902(m) ADOPTED UNDER REGULATION S OF THE ACT), THESE SECURITIES CANNOT
BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED
BY RULE 902(o) ADOPTED UNDER REGULATION S OF THE ACT), UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT, OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE. PRIOR TO THE
EXPIRATION OF THE FORTY (40) DAY RESTRICTED PERIOD, THE PURCHASER OF
THE SECURITIES (WHO IS NOT A DISTRIBUTOR, DEALER, OR SUBUNDERWRITER)
MAY RESELL THE SHARES ONLY IN A TRANSACTION EFFECTED OUTSIDE OF THE
UNITED STATES AND PROVIDED THE PURCHASER DOES NOT SOLICIT PURCHASERS
IN THE UNITED STATES OR OTHERWISE ENGAGE IN SELLING EFFORTS IN THE
UNITED STATES. AFTER THE FORTY (40) DAY RESTRICTED PERIOD EXPIRES,
THE SECURITIES CAN BE SOLD IN THE UNITED STATES ONLY IF REGISTERED OR
IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY,
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
5.2 Registration Rights. EMAP shall have demand registration
rights regarding the Conversion Shares under the terms of that certain
Registration Rights Agreement (the "Registration Agreement") between EMAP and
VJN of even date herewith, a copy of which is attached hereto as Exhibit 5.2.
5.3 Preemptive Rights.
(a) Grant of Right. If, at any time after the Closing
and prior to the fifth anniversary of the issuance of the Shares, VJN proposes
to and does issue (the "Third Party Issuance") additional shares of Voting
Stock or any Rights to acquire Voting Stock, to a Person, other than EMAP, its
Affiliates or any director, officer, employee or consultant of VJN, then EMAP
shall have the right (the "Preemptive Right") to purchase shares of Voting
Stock or Rights, as the case may be, so that, immediately after such purchase
and the Third Party Issuance, EMAP shall own the same percentage of shares of
VJN's issued and outstanding Voting Stock (or the right to own such
percentage), as it had owned prior to the proposed Third Party Issuance.
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(b) Procedure. VJN shall give EMAP ten (10) Business
Day's prior written notice of any proposed issuance of Voting Stock or Rights
which would entitle EMAP to exercise the Preemptive Right. Upon receipt of
such notice, EMAP shall have five (5) Business Days (the "Exercise Period") to
exercise the Preemptive Right. If by the expiration of the Exercise Period,
EMAP notifies VJN that it does not wish to exercise the Preemptive Right or has
failed to give a notice to VJN, then the Company may continue with the proposed
Third Party Issuance. If EMAP chooses to exercise the Preemptive Right during
the Exercise Period, VJN shall take all actions reasonably necessary to issue
such Voting Shares or Rights to EMAP in accordance with this Section.
(c) Exercise Price. In connection with the exercise of
the Preemptive Right: (i) the exercise price shall be the same price at which
the shares of Voting Stock or Rights are being issued pursuant to the Third
Party Issuance; and (ii) the terms and conditions of the purchase shall be, as
nearly as reasonably practicable, the same as the terms and conditions of the
third party issuance. If all or part of the Third Party Issuance offering
price consists of any consideration other than cash, then the per share, or per
Right, price at which EMAP shall be offered the Preemptive Right shall be the
amount determined by dividing the total number of Voting Stock or Rights which
are the subject of the Third Party Issuance into the sum of (i) the aggregate
amount of cash, if any, proposed to be paid for such securities; and (ii) the
aggregate fair market value of the non-cash consideration proposed to be paid
for such securities (taking into account, in determining such fair market
value, any liabilities associated with such non-cash consideration).
(d) Exceptions.
(i) Debt/Equity Financing. If the Third Party
Issuance involves the borrowing of money from the proposed purchaser, then EMAP
shall not have the Preemptive Right with regard to such Third Party Issuance
unless EMAP agrees to participate in such debt financing, on a pro rata basis
and pursuant to the same terms and conditions.
(ii) Existing Rights. EMAP shall not have a
Preemptive Right to purchase Voting Stock which is to be issued to satisfy
Rights which were previously issued and as to which Rights, EMAP had the right
and opportunity to exercise a Preemptive Right.
(iii) Threshold Ownership. The Preemptive Right
granted hereunder shall terminate if EMAP ceases to own less than 1% of all
issued and outstanding Voting Stock, after giving effect to all exercised
Preemptive Rights.
ARTICLE VI
DELIVERIES AND CONDITIONS
6.1 Deliveries by EMAP. On or prior to the Closing, EMAP shall
execute (where necessary) and deliver or cause to be delivered to VJN the
following documents, certificates and agreements:
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(a) Purchase Price. The Escrow Agent shall pay to VJN
the Purchase Price and all accrued interest thereon by wire transfer of
immediately available funds to a bank account specified in writing by VJN; and
(b) Registration Agreement. The Registration Agreement,
executed by a duly authorized officer of EMAP.
6.2 Deliveries by VJN. On or prior to the Closing, VJN shall
execute or cause to be executed and deliver or cause to be delivered to EMAP
the following documents, certificates and agreements:
(a) Stock Certificate. A certificate representing all of
the Shares, together with stock transfer forms duly executed to effect transfer
of the Shares to EMAP on the books and records of VJN;
(b) Representations and Warranties. A certificate
executed by a duly authorized officer of VJN certifying that the
representations and warranties relating to VJN contained in this Agreement are
true and correct in all material respects as of the Closing, except for any
representations or warranties that relate solely to an earlier date (in which
case such representations and warranties were true and correct as of such
earlier date);
(c) Legal Opinion. A legal opinion of the law firm of
Lucio, Mandler, Croland, Bronstein & Garbett, P.A., in the form agreed upon by
the parties hereto;
(d) Resolutions of VJN. A true and complete copy,
certified by the President of VJN, of the resolutions duly and validly adopted
by the Board evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby;
(e) Incumbency Certificate of VJN. A certificate of the
Secretary of VJN certifying the names and signatures of the officers of VJN
authorized to sign this Agreement and the other documents to be delivered
hereunder on behalf of VJN; and
(f) Registration Agreement. The Registration Agreement,
executed by a duly authorized officer of VJN.
6.3 Conditions Precedent to the Parties' Obligations to Close.
The obligations of each of VJN and EMAP hereunder to consummate the
transactions contemplated hereby are subject to the satisfaction or, in each
party's sole discretion, waiver on or before the Closing of each of the
following conditions:
(a) Deliveries. Receipt by the appropriate parties of
the items enumerated in Sections 6.1 and 6.2 hereof.
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(b) Stockholder Approval. The holders of a majority of
VJN's common stock shall have approved this Agreement and the transactions
contemplated hereby.
(c) Amendment of VJN Articles of Incorporation. VJN's
Articles of Incorporation shall have been amended so as to authorize the
issuance of the Shares.
(d) No Proceeding or Litigation. No action, proceeding
or litigation shall have been commenced or threatened by any Governmental
Authority seeking to restrain or materially alter the transaction contemplated
hereby which, in the reasonable good faith determination of VJN or EMAP, is
likely to render it impossible or unlawful, or otherwise render inadvisable the
parties' intent, to consummate the transactions contemplated hereby.
ARTICLE VII
INDEMNIFICATION
7.1 Survival. All representations and warranties contained herein
and made in writing by or on behalf of the parties hereto in connection with
the transactions contemplated hereby shall survive the execution and delivery
of this Agreement and the Closing for a period of twelve (12) months following
the Closing Date, regardless of any investigation made at any time with respect
to any of the foregoing or any information the parties may have in respect
thereto.
7.2 EMAP's Right to Indemnification. Subject to the provisions of
this Article VII and in addition to any other rights and remedies available to
EMAP under applicable law, VJN shall indemnify and hold harmless EMAP and any
of its officers, directors, shareholders, employees, agents, representatives,
attorneys, successors, predecessors and assigns from and against: (a) any and
all losses, obligations, liabilities, damages, claims, deficiencies, costs and
expenses (including, but not limited to, the amount of any settlement entered
into pursuant hereto and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of the matter)
(collectively "Claims"), which may be asserted against or sustained or incurred
by EMAP in connection with, arising out of, or relating to (i) any breach of
any, or any false, incorrect or misleading, representation or warranty that is
made by VJN herein or in any Exhibit, Schedule, certificate or other document
delivered to EMAP by VJN in connection with this Agreement, or (ii) any breach
of any agreements and covenants made by VJN herein or in any Exhibit, Schedule,
certificate or other document delivered to EMAP by VJN in connection with this
Agreement; and (b) any and all costs and expenses incurred by EMAP in
connection with the enforcement of its rights under this Agreement. However,
VJN shall not be liable for any Claims that result solely from a decline in the
value of the Shares below the Purchase Price if such decline is not directly
related to and does not directly result from the fact, event or circumstance
giving rise to any inaccuracy in or breach of any of the representations and
warranties, covenants or agreements made by VJN herein. Furthermore, the
aggregate liability of VJN to EMAP under this Article VII shall not exceed the
Purchase Price.
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7.3 VJN's Right to Indemnification. Subject to the provisions of
this Article VII and in addition to any other rights and remedies that may be
available to VJN under applicable law, EMAP shall indemnify and hold harmless
VJN and any of its officers, directors, shareholders, employees, agents,
representatives, attorneys, successors, predecessors and assigns from and
against: (a) Claims which may be asserted against or sustained or incurred by
VJN in connection with, arising out of, or relating to (i) any breach of any,
or any false, incorrect or misleading, representation or warranty that is made
by EMAP herein or in any Exhibit, Schedule, certificate or other document
delivered to VJN by EMAP in connection with this Agreement, or (ii) any breach
of any agreements and covenants made by EMAP herein or in any Exhibit,
Schedule, certificate or other document delivered to VJN by EMAP in connection
with this Agreement; and (b) any and all costs and expenses incurred by VJN in
connection with the enforcement of its rights under this Agreement. However,
EMAP's aggregate liability under this Article VII shall not exceed the Purchase
Price.
7.4 Procedure for Claims.
(a) Notice of Claim. Promptly, but in any event within
30 days after obtaining knowledge of any claim or demand which may give rise
to, or could reasonably give rise to, a claim for indemnification hereunder
(any such claim an "Indemnification Claim"), the party or parties entitled to
indemnification hereunder (the "Indemnified Party") shall give written notice
to the party or parties subject to indemnification obligations therefor (the
"Indemnifying Party") of such Indemnification Claim (a "Notice of Claim"). A
Notice of Claim shall be given with respect to all Indemnification Claims.
However, the failure to timely give a Notice of Claim to the Indemnifying Party
shall not relieve the Indemnifying Party from any liability that it may have to
the Indemnified Party hereunder to the extent that the Indemnifying Party is
not prejudiced by such failure. Subject to Section 7.1, no Indemnified Party
shall be entitled to give a Notice of Claim with respect to any representation
and warranty after the first anniversary of the Closing Date. The Notice of
Claim shall set forth the amount (or a reasonable estimate) of the loss, damage
or expense suffered, or which may be suffered, by the Indemnified Party as a
result of such Indemnification Claim and a brief description of the facts
giving rise to such Indemnification Claim. The Indemnified Party shall furnish
to the Indemnifying Party such information (in reasonable detail) as the
Indemnified Party may have with respect to such Indemnification Claim
(including copies of any summons, complaint or other pleading which may have
been served on it and any written claim, demand, invoice, billing or other
document evidencing or asserting the same).
(b) Third Party Claims.
(i) If the claim or demand set forth in
the Notice of Claim is a claim or demand asserted by a third party (a "Third
Party Claim"), the Indemnifying Party shall have 15 days (or such shorter
period if an answer or other response or filing with respect to the pleadings
served by the third party is required prior to the 15th day) after the date of
receipt by the Indemnifying Party of the Notice of Claim (the "Notice Date") to
notify the Indemnified Party
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in writing of the election by the Indemnifying Party to defend the Third Party
Claim on behalf of the Indemnified Party.
(ii) If the Indemnifying Party elects to
defend a Third Party Claim on behalf of the Indemnified Party, the Indemnified
Party shall make available to the Indemnifying Party and its agents and
representatives all records and other materials in its possession which are
reasonably required in the defense of the Third Party Claim and the
Indemnifying Party shall pay any expenses payable in connection with the
defense of the Third Party Claim as they are incurred (whether incurred by the
Indemnified Party or Indemnifying Party).
(iii) In no event may the Indemnifying
Party settle or compromise any Third Party Claim without the Indemnified
Party's consent, which shall not be unreasonably withheld.
(iv) If the Indemnifying Party elects to
defend a Third Party Claim, the Indemnified Party shall have the right to
participate in the defense of the Third Party Claim, at the Indemnified Party's
expense (and without the right to indemnification for such expense under this
Agreement). However, the reasonable fees and expenses of counsel retained by
the Indemnified Party shall be at the expense of the Indemnifying Party if: (A)
the use of the counsel chosen by the Indemnifying Party to represent the
Indemnified Party would present such counsel with a conflict of interest; (B)
the parties to such proceeding include both the Indemnified Party and the
Indemnifying Party and there may be legal defenses available to the Indemnified
Party which are different from or additional to those available to the
Indemnifying Party; (C) within 10 days after being advised by the Indemnifying
Party of the identity of counsel to be retained to represent the Indemnified
Party, the Indemnified Party objects to the retention of such counsel for valid
reasons (which shall be stated in a written notice to Indemnifying Party), and
the Indemnifying Party does not retain different counsel reasonably
satisfactory to the Indemnified Party; or (D) the Indemnifying Party authorizes
the Indemnified Party to retain separate counsel at the expense of the
Indemnifying Party.
(v) If the Indemnifying Party does elect
to defend a Third Party Claim, or does not defend a Third Party Claim in good
faith, the Indemnified Party may, in addition to any other right or remedy it
may have hereunder, at the sole and exclusive expense of the Indemnifying
Party, defend such Third Party Claim. However, such expenses shall be payable
by the Indemnifying Party only if and when such Third Party Claim becomes
payable.
(vi) To the extent that an Indemnified
Party recovers on a Third Party Claim, the amount of such recovery (after
deduction of all costs and expenses incurred in connection with such Third
Party Claim) shall reduce, dollar-for-dollar, the indemnification obligation
otherwise owing by the Indemnifying Party.
(c) Cooperation in Defense. The Indemnified Party shall
cooperate with the Indemnifying Party in the defense of a Third Party Claim.
Subject to the foregoing, (i) the
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Indemnified Party shall not have any obligation to participate in the defense
of or to defend any Third Party Claim, and (ii) the Indemnified Party's defense
of or its participation in the defense of any Third Party Claim shall not in
any way diminish or lessen its right to indemnification as provided in this
Agreement.
ARTICLE VIII
CONFIDENTIAL INFORMATION
8.1 Each party shall keep confidential all Confidential
Information obtained from the other party hereto in connection with the
negotiation of this Agreement and the transactions contemplated hereby. Except
as expressly permitted by VJN in writing, neither EMAP nor any of its
Affiliates shall use VJN's Confidential Information to develop or operate a
programming service which is directly competitive with the Business as operated
by VJN or any of its Affiliates.
8.2 Notwithstanding the restrictions of Section 8.1, any party
(the "Disclosing Party") may disclose the other party's Confidential
Information: (a) to the Disclosing Party's Representatives so long as the
Representatives are informed of the confidential nature of the Confidential
Information; (b) if in the opinion of the Disclosing Party's legal counsel,
disclosure is required pursuant to any applicable Law, including the
Securities Act and the Exchange Act; (c) if legally compelled by Governmental
Order, judicial or administrative order, deposition, interrogatory, request for
documents, subpoena, investigative demand or other discovery process. However,
in the case of the foregoing clause (c), the Disclosing Party shall use its
reasonable best efforts to prevent disclosure of the Confidential Information
by legal means including, if applicable, attempting to obtain a protective
order.
8.3 If this Agreement is terminated, the parties shall, and shall
cause their Representatives to, return the other party's Confidential
Information (and all copies thereof) to the other party.
8.4 Each party shall be responsible for a breach of this Article
VIII by its Representatives.
ARTICLE IX
TERMINATION
9.1 Grounds for Termination. This Agreement may be terminated at
any time prior to Closing:
(a) upon the written mutual consent of VJN and EMAP;
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(b) immediately, by VJN if EMAP breaches any material
representation, warranty or covenant contained herein and such breach has not
been cured prior to the Closing Date, after giving written notice by VJN to
EMAP;
(c) immediately, by EMAP if VJN breaches any material
representation, warranty or covenant contained herein and such breach has not
been cured prior to the Closing Date, after giving written notice by EMAP to
VJN;
(d) by either VJN or EMAP if the conditions contained in
Section 6.3 hereof have not been satisfied or waived by the Closing Date.
9.2 Effect of Termination. If this Agreement is terminated
pursuant to this Article IX:
(a) this Agreement shall become void, except for the
terms and conditions of Article VIII hereof, which shall survive such
termination;
(b) neither party shall have any liability unless such
party breached a material representation, warranty or covenant contained
herein, which breach resulted in reasonable, quantifiable and verifiable
damages to the other party hereto.
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements
of counsel, financial advisors and accountants, incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses.
10.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made) upon the earliest to occur of
(a) receipt, if made by personal service, (b) three days after dispatch, if
made by reputable overnight courier service, (c) upon the delivering party's
receipt of a written confirmation of a transmission made by cable, by telecopy,
by telegram, or by telex or (d) seven days after being mailed by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.2):
(a) if to EMAP:
1 Lincoln Court
Lincoln
Peterborough PE1 2RF
Attention: The Company Secretary
Telecopy: (01733) 312115
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(b) if to VJN:
1221 Collins Ave.
Miami Beach, Florida 33139
Attention: Chief Financial Officer
Telecopy: (305) 535-8520
with a copy to:
Lucio, Mandler, Croland, Bronstein &
Garbett, P.A.
701 Brickell Avenue, Suite 2000
Miami, Florida 33131
Attention: Leslie J. Croland, Esq.
Telecopy: (305) 375-8075
10.3 Public Announcements. Except as required by Law or any
applicable Governmental Authority, no party to this Agreement shall make, or
cause to be made, any press release or public announcement in respect of this
Agreement or the transactions contemplated hereby or otherwise communicate with
any news media without the prior written consent of the other party. Except to
the extent prohibited by applicable law, the parties shall cooperate as to the
timing and contents of any such press release or public announcement.
10.4 Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms 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
materially adverse to any party.
10.6 Entire Agreement. This Agreement, including all of the
Exhibits and Schedules attached hereto which are incorporated herein by this
reference, constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and thereof and supersedes all prior agreements
and undertakings, both written and oral, between VJN and EMAP with respect to
the subject matter hereof and thereof.
10.7 Assignment. This Agreement and the rights and duties
hereunder may not be assigned or assumed by operation of law or otherwise
without the express prior written consent of the other parties hereto (which
consent may be granted or withheld in the sole discretion of such other
parties, as applicable).
10.8 Amendment; Waiver. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each
party hereto. Each party to this Agreement may: (a) extend the time for the
performance of any of the obligations or other acts
19
<PAGE> 21
of the other parties; (b) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document delivered
by the other party pursuant hereto; or (c) waive compliance with any of the
agreements or conditions of the other parties contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by all of the other parties to be bound thereby. Any waiver of
any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any
other term or condition, of this Agreement. The failure of any party to assert
any of its rights hereunder shall not constitute a waiver of any of such rights.
10.9 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida (without regard
to its principles regarding conflicts of law).
10.10 Choice of Forum. All actions or proceedings initiated by any
party hereto and arising directly or indirectly out of this Agreement which are
brought to judicial proceedings shall be litigated in the United States
District Court for the Southern District of Florida or, if such court cannot
or will not exercise jurisdiction, in the Florida State Circuit Court sitting
in Dade County, Florida. Each of the parties hereto expressly submits to the
exclusive jurisdiction of the above-referenced courts.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
10.12 Attorneys' Fees. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
10.13 Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable Law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement.
20
<PAGE> 22
IN WITNESS WHEREOF, VJN and EMAP have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
VIDEO JUKEBOX NETWORK, INC. EMAP PLC.
By: /s/ Alan McGlade By: /s/ Chris Innis
------------------------------- -------------------------------------
Name: Name:
------------------------------ -----------------------------------
Title: Title:
----------------------------- ----------------------------------
21
<PAGE> 23
SCHEDULE 3.3
No Conflict
Pursuant to the terms of a Stock Purchase Agreement, dated as of
November 21, 1990, between VJN and TCI Liberty, Inc. ("TCI"), TCI or its
assigns have preemptive rights regarding any original issuance of VJN stock.
On October 17, 1996, VJN notified TCI's present assignee, Liberty VJN, Inc.
("Liberty") of the proposed issuance of the Shares to EMAP. In doing so, VJN
requested that Liberty waive any preemptive rights which it may have with
respect to the issuance of the Shares and the Conversion Shares. As of the
date of this Agreement, Liberty has not advised VJN whether it will waive such
preemptive rights.
<PAGE> 24
SCHEDULE 3.6
Consents and Approvals
Pursuant to Section 14c-2 of the Exchange Act, VJN must file an
Information Statement with the SEC with respect to the amendment to VJN's
Articles of Incorporation to be approved by the written consent of the holders
of at least a majority of VJN's shares of common stock, par value $0.001 per
share. Upon the later of ten days after the filing of the Information
Statement with the SEC or the completion by the staff of the SEC of its review
of the Information Statement, VJN is required to mail a copy of the Information
Statement to its stockholders. The amendment to the Articles of Incorporation
may not be effectuated with the State of Florida until 20 calendar days after
the Information Statement is first distributed to VJN's stockholders.
<PAGE> 25
EXHIBIT "A"
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
VIDEO JUKEBOX NETWORK, INC.
Pursuant to the provisions of Sections 607.1006 and 607.1007 of the
Florida Business Corporation Act, the undersigned corporation adopts: (i) the
amendment to its Third Amended and Restated Articles of Incorporation; and (ii)
the Fourth Amended and Restated Articles of Incorporation set forth below.
(a) The name of the corporation is Video Jukebox Network, Inc.
(the "Corporation").
(b) The amendment to the Third Amended and Restated Articles of
Incorporation set forth in paragraphs 3 and 4 below: (i) was duly adopted by
the Board of Directors of the Corporation on October 30, 1996; (ii) was
approved by written consent by stockholders of the Corporation holding a
sufficient number of voting shares to approve the amendment; and (iii) shall be
effective upon acceptance for filing by the Florida Department of State.
(c) Article III of the Third Amended and Restated Articles of
Incorporation is amended in its entirety to read as follows:
SECTION 1. Authorized Stock. The maximum number of
shares of stock which this Corporation is authorized to have at any time is:
(a) 40,000,000 shares of common stock, having a par value
of $.001 per share (the "Common Stock");
(b) 200,000 shares of 8% convertible preferred stock,
having a par value of $1.00 per share (the "8% Preferred Stock"); and
(c) 1,800,000 shares of 6% convertible redeemable
preferred stock, having a par value of $.15 per share (the "6% Preferred
Stock").
SECTION 2. Voting. The holders of shares of Common Stock, the 8%
Preferred Stock and the 6% Preferred Stock are entitled to cast one vote per
share at all stockholders meetings for all purposes. Except as otherwise
required by the Florida Business Corporation Act, the shares of 6% Preferred
Stock and the shares of 8% Preferred Stock (collectively, the "Preferred
Stock") shall vote with the shares of Common Stock as one voting class.
SECTION 3. Conversion. The holders of shares of Preferred Stock shall
have the following rights of conversion:
(a) Each share of 8% Preferred Stock shall be
convertible, at the election of the holder thereof, into three shares of Common
Stock.
(b) Each share of 6% Preferred Stock shall be convertible, at
the election of the holder thereof, into one share of Common Stock. In the
event that there are any accrued and
<PAGE> 26
unpaid dividends due on the 6% Preferred Stock at the time of conversion, then
the accrued and unpaid dividends shall automatically be converted into shares
of Common Stock at a rate of one share of Common Stock for each $1.50 of
accrued and unpaid dividends, rounded to the nearest whole share. Subject to
the provisions of Section 6 of this Article III, the right of conversion shall
be available at any time.
SECTION 4. Dividends. The holders of shares of Preferred Stock shall
be entitled to the following dividends:
(a) The holders of the shares of 8% Preferred Stock shall
be entitled to receive cumulative cash dividends, which shall accrue at the
rate of 8% per annum of the aggregate par value of the outstanding shares of 8%
Preferred Stock. No cash dividends shall be declared or paid on any shares of
Common Stock until all accrued and unpaid cash dividends are paid on the shares
of 8% Preferred Stock.
(b) The holders of the shares of 6% Preferred Stock shall
be entitled to receive cumulative cash dividends, which shall accrue at the
rate of $.09 per share of 6% Preferred Stock per annum. No cash dividends
shall be declared or paid on any shares of Common Stock or the 8% Preferred
Stock until all accrued and unpaid dividends are paid on the shares of 6%
Preferred Stock. All dividends on the 6% Preferred Stock shall cease to accrue
on the Election Date, as such term is defined in Section 6 of this Article III.
SECTION 5. Liquidation. Upon the liquidation, dissolution or winding
up of the Corporation, the holders of shares of Preferred Stock shall be
entitled to the following rights:
(a) the holders of the shares of 6% Preferred Stock shall
be entitled upon liquidation, dissolution or winding up to receive a payment
equal to $1.50 per share of 6% Preferred Stock, plus all accrued and unpaid
dividends thereon before any payment shall be made to the holders of the 8%
Preferred Stock or the Common Stock. The holders of the shares of 6% Preferred
Stock shall not be entitled to any further distribution of the assets of the
Corporation.
(b) the holders of the shares of 8% Preferred Stock shall
be entitled upon liquidation, dissolution or winding up to receive all accrued
and unpaid dividends before any distribution of payment to the holders of
Common Stock, which distribution or payment would then be made on a pro rata
basis between holders of the shares of 8% Preferred Stock and the Common Stock.
SECTION 6. Redemption. Five years after the date of issuance of the
6% Preferred Stock (the "Election Date"), each share of 6% Preferred Stock
shall, at the election of each holder thereof, either be redeemed for cash in
accordance with this Section 6 or converted into shares of Common Stock in
accordance with Section 3 of this Article III. If a holder elects to redeem
the 6% Preferred Stock, such holder shall be entitled to receive a cash payment
equal to $1.50 per share of 6% Preferred Stock, together with the amount, as of
the Election Date, of all accrued and unpaid dividends. No right of redemption
shall exist prior to the Election Date or if the Corporation is then insolvent
or would become insolvent as a result of such redemption. Each holder of 6%
Preferred Stock shall give written notice, via facsimile and reputable
overnight courier service, to the Secretary of the Corporation of its election
to either have the 6% Preferred Stock redeemed for cash or converted into
shares of Common Stock within 30 days of the
<PAGE> 27
Election Date. If the Corporation does not timely receive such notice from any
holder of the 6% Preferred Stock, the Corporation shall have the right to
determine whether such 6% Preferred Stock is redeemed in accordance with this
Section 6 or converted into shares of Common Stock in accordance with Section 3
of this Article III.
SECTION 7. Other Rights. Except as otherwise expressly
stated herein, the consideration for the issuance of the Common Stock and
Preferred Stock of this Corporation, and the dividends, the voting rights, the
rights of redemption and the relative rights and preferences of such stock are
to be established by the Board of Directors.
4. Article V of the Third Amended and Restated Articles of
Incorporation is amended in its entirety to read as follows:
ARTICLE V
The post office address of the principal office of the Corporation
shall be 1221 Collins Avenue, Miami Beach, Florida 33139, but other offices for
the transaction of business may be located wherever the Board of Directors may
deem necessary or appropriate.
5. The Fourth Amended and Restated Articles of Incorporation
adopted is as follows:
FOURTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VIDEO JUKEBOX NETWORK, INC.
ARTICLE I
The name of this Corporation is VIDEO JUKEBOX NETWORK, INC.
ARTICLE II
This Corporation is organized for the purpose of transacting any or
all lawful business for which corporations may be organized under the laws of
the United States and the Florida Business Corporation Act, except a commercial
banking, safe deposit, trust, insurance, surety, express, railroad, canal,
telegraph, telephone or cemetery company, a building and loan association,
mutual fire insurance association, cooperative association, fraternal benefit
society, state fair or exposition, unless prior regulatory approval is
obtained, and to engage in any business or transaction deemed necessary,
convenient or incidental to carrying out any such business within or without
the United States.
3
<PAGE> 28
ARTICLE III
SECTION 1. Authorized Stock. The maximum number of shares of
stock which this Corporation is authorized to have at any time is:
(a) 40,000,000 shares of common stock, having a par value
of $.001 per share (the "Common Stock");
(b) 200,000 shares of 8% convertible preferred stock,
having a par value of $1.00 per share (the "8% Preferred Stock"); and
(c) 1,800,000 shares of 6% convertible redeemable
preferred stock, having a par value of $.15 per share (the "6% Preferred
Stock").
SECTION 2. Voting. The holders of shares of Common Stock, the 8%
Preferred Stock and the 6% Preferred Stock are entitled to cast one vote per
share at all stockholders meetings for all purposes. Except as otherwise
required by the Florida Business Corporation Act, the shares of 6% Preferred
Stock and the shares of 8% Preferred Stock (collectively, the "Preferred
Stock") shall vote with the shares of Common Stock as one voting class.
SECTION 3. Conversion. The holders of shares of Preferred Stock shall
have the following rights of conversion:
(a) Each share of 8% Preferred Stock shall be convertible, at
the election of the holder thereof, into three shares of Common Stock.
(b) Each share of 6% Preferred Stock shall be convertible, at
the election of the holder thereof, into one share of Common Stock. In the
event that there are any accrued and unpaid dividends due on the 6% Preferred
Stock at the time of conversion, then the accrued and unpaid dividends shall
automatically be converted into shares of Common Stock at a rate of one share
of Common Stock for each $1.50 of accrued and unpaid dividends, rounded to the
nearest whole share. Subject to the provisions of Section 6 of Article III
hereof, the right of conversion shall be available at any time.
SECTION 4. Dividends. The holders of shares of Preferred Stock shall
be entitled to the following dividends:
(a) The holders of the shares of 8% Preferred Stock shall
be entitled to receive cumulative cash dividends, which shall accrue at the
rate of 8% per annum of the aggregate par value of the outstanding shares of 8%
Preferred Stock. No cash dividends shall be declared or paid on any shares of
Common Stock until all accrued and unpaid cash dividends are paid on the shares
of 8% Preferred Stock.
(b) The holders of the shares of 6% Preferred Stock shall
be entitled to receive cumulative cash dividends, which shall accrue at the
rate of $.09 per share of 6% Preferred Stock
4
<PAGE> 29
per annum. No cash dividends shall be declared or paid on any shares of Common
Stock or the 8% Preferred Stock until all accrued and unpaid dividends are paid
on the shares of 6% Preferred Stock. All dividends on the 6% Preferred Stock
shall cease to accrue on the Election Date, as such term is defined in Section
6 of this Article III.
SECTION 5. Liquidation. Upon the liquidation, dissolution or winding
up of the Corporation, the holders of shares of Preferred Stock shall be
entitled to the following rights:
(a) the holders of the shares of 6% Preferred Stock shall
be entitled upon liquidation, dissolution or winding up to receive a payment
equal to $1.50 per share of 6% Preferred Stock, plus all accrued and unpaid
dividends thereon before any payment shall be made to the holders of the 8%
Preferred Stock or the Common Stock. The holders of the shares of 6% Preferred
Stock shall not be entitled to any further distribution of the assets of the
Corporation.
(b) the holders of the shares of 8% Preferred Stock shall
be entitled upon liquidation, dissolution or winding up to receive all accrued
and unpaid dividends before any distribution of payment to the holders of
Common Stock, which distribution or payment would then be made on a pro rata
basis between holders of the shares of 8% Preferred Stock and the Common Stock.
SECTION 6. Redemption. Five years after the date of issuance of the
6% Preferred Stock (the "Election Date"), each share of 6% Preferred Stock
shall, at the election of each holder thereof, either be redeemed for cash in
accordance with this Section 6 or converted into shares of Common Stock in
accordance with Section 3 of this Article III. If a holder elects to redeem
the 6% Preferred Stock, such holder shall be entitled to receive a cash payment
equal to $1.50 per share of 6% Preferred Stock, together with the amount, as of
the Election Date, of all accrued and unpaid dividends. No right of redemption
shall exist prior to the Election Date or if the Corporation is then insolvent
or would become insolvent as a result of such redemption. Each holder of 6%
Preferred Stock shall give written notice, via facsimile and reputable
overnight courier service, to the Secretary of the Corporation of its election
to either have the 6% Preferred Stock redeemed for cash or converted into
shares of Common Stock within 30 days of the Election Date. If the Corporation
does not timely receive such notice from any holder of the 6% Preferred Stock,
the Corporation shall have the right to determine whether such 6% Preferred
Stock is redeemed in accordance with this Section 6 or converted into shares of
Common Stock in accordance with Section 3 of this Article III.
SECTION 7. Other Rights. Except as otherwise expressly stated herein,
the consideration for the issuance of the Common Stock and Preferred Stock of
this Corporation, and the dividends, the voting rights, the rights of
redemption and the relative rights and preferences of such stock are to be
established by the Board of Directors.
5
<PAGE> 30
ARTICLE IV
This Corporation shall have permanent and perpetual existence.
ARTICLE V
The post office address of the principal office of the Corporation
shall be 1221 Collins Avenue, Miami Beach, Florida 33139, but other offices for
the transaction of business may be located wherever the Board of Directors may
deem necessary or appropriate.
ARTICLE VI
SECTION 1. Number, Election and Term of Office. The business of the
Corporation shall be managed by a Board of Directors who need not be
stockholders of the Corporation. The number of directors shall be at least
three (3), which number may be increased or decreased from time to time by
resolution of the majority of the Board of Directors, but shall not be less
than three (3) nor more than fifteen (15).
SECTION 2. Removal. Any director or the entire Board of Directors may
be removed; however, such removal must be for cause and must be approved as set
forth in this Section. Except as may otherwise be provided by law, cause for
removal shall be construed to exist only if: (1) the director whose removal is
proposed has been convicted of a felony by a court of competent jurisdiction;
or (2) such director has been adjudicated by a court of competent jurisdiction
to be liable for negligence or misconduct in the performance of his duty to the
Corporation in a matter of substantial importance to the Corporation and such
adjudication is no longer subject to direct appeal.
Removal for cause, as defined in (1) and (2) above,
must be approved by at least a majority of the shares of the Corporation then
entitled to vote at an election for that director or by at least a majority of
the total number of directors. Any action for the removal of a director must
be brought within one year of such conviction or adjudication.
SECTION 3. Vacancies. Any vacancies in the Board of Directors
resulting from death, resignation, retirement, removal from office, the
creation of a new directorship by an increase in the authorized number of
directors, or otherwise shall be filled by a majority vote of the directors
then in office, though less than a quorum of the entire Board of Directors.
Directors so chosen to fill any vacancy shall hold office for a term expiring
at the Annual Meeting of Stockholders at which the term of the class to which
they have been elected expires.
SECTION 4. Amendment, Alteration, Repeal, Etc.. Notwithstanding
anything contained in these Articles of Incorporation to the contrary, the
affirmative vote of the holders of at least 67% of the shares of the
Corporation then entitled to vote in the election of directors
6
<PAGE> 31
shall be required to amend, alter or repeal, or to adopt any provision
inconsistent with, this Article VI.
ARTICLE VII
No stockholders of the Corporation shall, because of his ownership of
stock, have a preemptive or other right to purchase, subscribe for, or take any
part of any stock or any part of the notes, debentures, bonds, or other
securities convertible into or carrying options or warrants to purchase stock
of the Corporation issued, optioned, or sold by it after its incorporation.
Any part of the capital stock and any part of the notes, debentures, bonds or
other securities convertible into or carrying options or warrants to purchase
stock of the Corporation authorized by these Articles of Incorporation, or by
amended articles duly filed, may at any time be issued, optioned for sale, and
sold or disposed of by the Corporation pursuant to resolution of the Board of
Directors to such persons and upon such terms as may to such Board seem proper
without first offering such stock or securities or any part thereof to existing
stockholders.
ARTICLE VIII
The fiscal year of this Corporation shall be based on the calendar
year ending on the 31st day of December of each year.
ARTICLE IX
In addition to any affirmative note required by law or these Articles
of Incorporation:
(1) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions) by the
Corporation of all or substantially all of its assets,
(2) the adoption of any plan or proposal for the
liquidation, dissolution or winding up of the Corporation, or
(3) any reclassification of securities or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation, shall require the affirmative vote of the holders of at least
seventy-five (75%) of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
Notwithstanding anything contained in these Articles of Incorporation
to the contrary, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares of the Corporation then entitled to vote in the
election of directors shall be required to amend, alter or repeal, or to adopt
any provision inconsistent with, this Article IX.
7
<PAGE> 32
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment and Restatement as of the ____ day of _________, 1996.
VIDEO JUKEBOX NETWORK, INC.
By:
-------------------------------------
STATE OF )
)
COUNTY OF )
The foregoing instrument was acknowledged before me this ___ day of
_________, 1996 by ____________________________ of _________________________, a
Florida corporation, on behalf of the corporation. He is personally known to
me or has produced _________________ as identification and did take an oath.
----------------------------------------
NOTARY PUBLIC
----------------------------------------
Type or Print Name
8
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
BETWEEN
EMAP PLC
AND
VIDEO JUKEBOX NETWORK, INC.
DATED: OCTOBER 30, 1996
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated the 30th day of October, 1996
between EMAP PLC., an English company (the "Purchaser"), and VIDEO JUKEBOX
NETWORK, INC., a Florida corporation (the "Company").
RECITALS:
A. The Company and the Purchaser have entered into a Stock
Purchase Agreement, dated as of October 30, 1996 (the "Stock Purchase
Agreement"), pursuant to which the Purchaser has agreed to purchase 1,666,667
shares (the "Preferred Shares") of the Company's 6% convertible redeemable
preferred shares, par value $0.15 per share.
B. Pursuant to the terms of the Stock Purchase Agreement, the
Preferred Shares are convertible into shares (the "Conversion Shares") of the
Company's common stock, par value $.001 per share ("Common Stock").
C. As an inducement to the Purchaser to purchase and acquire the
Preferred Shares, the Company has agreed to grant the rights set forth herein
for all "Demand Registrable Securities" of the Purchaser (as such terms are
defined in Article I below).
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have following meanings
and include the plural as well as the singular:
1.1 "Affiliate" means with respect to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with, such Person. For the purpose of this definition, "control"
(including the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
1.2 "Commission" means the United States Securities and Exchange
Commission.
1.3 "Common Stock" shall have the meaning set forth in Recital B
hereof.
1.4 "Conversion Shares" shall have the meaning set forth in
Recital B hereof.
<PAGE> 3
1.5 "Demand Registrable Securities" means, the Conversion Shares
resulting from the Purchaser's exercising its conversion rights under the terms
of the Preferred Shares. However, any such shares shall be "Demand Registrable
Securities" only so long as they are "Restricted Securities". Any share or
other security shall be deemed a "Restricted Security" until such time as such
share or other security: (a) has been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering it to a Person who is eligible to resell such share or other security
under Section 4(1) of the Securities Act (or any similar provision then in
force) without compliance with Rule 144 (or any similar rule then in effect) or
any other rule under the Securities Act; or (b) has been sold pursuant to Rule
144 (or any similar provision then in force) under the Securities Act to a
Person who is eligible to resell such share or other security under Section
4(1) of the Securities Act (or any similar provision then in force) without
compliance with Rule 144 (or any similar rule then in effect) or any other rule
under the Securities Act.
1.6 "Demand Registration" shall have the meaning set forth in
Section 2.1 hereof.
1.7 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.8 "Island" means Island Trading Company, Inc. a New York
corporation.
1.9 "Island Stock Purchase Agreement" means that certain Stock
Purchase Agreement, dated as of April 21, 1994, by and between the Company and
Island.
1.10 "Person" means any individual, partnership, firm, corporation,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Exchange Act.
1.11 "Piggyback Registrable Securities" means any securities which
are eligible for piggyback registration rights under the TCIL Stock Purchase
Agreement, the Island Stock Purchase Agreement and the StarNet/CEA Stock
Purchase Agreement.
1.12 "Piggyback Registration" means a registration statement used
for the registration of Piggyback Registrable Securities.
1.13 "Preferred Shares" shall have the meaning set forth in Recital
A hereof.
1.14 "Registration Expenses" shall have the meaning set forth in
Section 4.3 hereof.
1.15 "Securities Act" means the Securities Act of 1933, as amended.
1.16 "StarNet/CEA" means StarNet /CEA II Partners, a Delaware
general partnership.
2
<PAGE> 4
1.17 "StarNet/CEA Stock Purchase Agreement" means that certain
Stock and Note Purchase Agreement, dated as of August 24, 1993, by and between
the Company and StarNet/CEA.
1.18 "Stock Purchase Agreement" shall have the meaning set forth in
Recital A hereof.
1.19 "TCIL Stockholder(s)" means TCI Liberty, Inc., a Delaware
corporation ("TCIL") and any other person who, from time to time may be and at
the time of such determination, is a "Stockholder" as defined in the TCIL Stock
Purchase Agreement.
1.20 "TCIL Stock Purchase Agreement" means that certain Stock
Purchase Agreement, dated as of November 21, 1990, by and between the Company
and TCIL.
ARTICLE II
DEMAND REGISTRATION RIGHTS.
2.1 Requests for Registration. Subject to the limitations set
forth in Section 2.5 hereof, the Purchaser may request registration under the
Securities Act of all or part of their Demand Registrable Securities on Form
S-1 or any other registration form available for use by the Company (a "Demand
Registration"). The request for a Demand Registration shall specify the number
of Demand Registrable Securities requested to be registered and the anticipated
per share price range for such offering. However, (a) the Company shall not be
required to effectuate the Demand Registration if the Company promptly delivers
to the Purchaser an unqualified written opinion, addressed to Purchaser, of the
Company's legal counsel to the effect that the Purchaser could immediately sell
all of the Demand Registrable Securities requested to be included in such
Demand Registration, under Rule 144 promulgated under the Securities Act; (b)
the Company may postpone, for a reasonable period of time not to exceed 90 days
(but in any event not to extend beyond the date of public disclosure of the
information, or the date of abandonment or termination of the transactions or
negotiations, hereinafter referred to), the filing of a registration statement
otherwise required to be prepared and filed by it pursuant to this subsection
2.1 if: (i) at the time the Company receives a registration request, the
Company's Board of Directors determines, in good faith and in its reasonable
business judgment, that (A) such Demand Registration would require the public
disclosure of material non-public information concerning any pending or ongoing
material transaction or negotiations involving the Company which, in the
opinion of the Company's outside legal counsel, is not yet required to be
publicly disclosed, and (B) such disclosure would materially interfere with
such transaction or negotiations or have a material adverse effect on the
Company, and (ii) the Company diligently and in good faith continues to pursue
such transaction or negotiations throughout the period of such postponement.
2.2 Priority on Demand Registration. If the Demand Registration
is for, or includes, an underwritten public offering and if the managing
underwriter or underwriters of such offering advise the Company in writing
that, in its or their reasonable opinion, the number of Demand Registrable
Securities proposed to be sold in such public offering exceeds the number which
can be sold in such public offering, the Company will include in such
registration for such public
3
<PAGE> 5
offering, as the case may be, only the number of Demand Registrable Securities
which, in the opinion of such underwriter or underwriters, can be sold in such
offering or distributed by such method as follows: (i) first, the securities
requested to be included in such offering by the TCIL Stockholders, pursuant to
the TCIL Stock Purchase Agreement; (ii) second, the securities requested to be
included in such offering by Island pursuant to the Island Stock Purchase
Agreement; (iii) third, the Demand Registrable Securities held by the Purchaser
requested to be included in such offering; and (iii) fourth, the securities
requested to be included in such offering and which are held by any Person
other than the TCIL Stockholders, Island and the Purchaser.
2.3 Selection of Underwriters. If the Demand Registration is for
or includes an underwritten offering, the Purchaser shall select the managing
underwriter or underwriters to administer such offering, who shall be
reasonably satisfactory to the Company.
2.4 Demand Expenses. Subject to the limitations set forth in
Section 2.5 hereof, the Company shall pay for all Registration Expenses
relating to the Demand Registration.
2.5 Limitations on Demand Rights. The Purchaser may only request
two (2) Demand Registrations. A registration will not count as the permitted
Demand Registration: (a) until it has become effective; and (b) unless the
Purchaser is able to register and sell at least 75% of the Demand Registrable
Securities requested to be included in such registration. After the Demand
Registrable Securities have been registered, the Purchaser shall have no
obligation to sell any or all of such securities. The Purchaser may not
request the Demand Registration after the fifth anniversary (the "Fifth
Anniversary") of the issuance of the Preferred Shares. However, if the Company
fails to give notice of the expiration of the Demand Registration rights (the
"Termination Notice") to the Purchaser, at least six months prior to the Fifth
Anniversary, then the Purchaser may exercise the Demand Registration rights at
any time up to six months after receiving the Termination Notice from the
Company (whenever received).
ARTICLE III
REGISTRATION PROCEDURES
3.1 Procedure. With respect to any Demand Registration, the
Company, subject to Article II above, shall use its best efforts to effect the
registration of all the Demand Registrable Securities, which Purchaser has
requested to be included therein, as quickly as practicable. In connection
with any such request, the Company shall do the following as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement on any form for which the Company then qualifies and which is
available for the registration of the Demand Registrable Securities requested
to be registered;
(b) include in the registration on such form all the
Demand Registrable Securities requested to be included and use its best efforts
to cause such registration statement to become effective; provided, however,
that at least ten days before filing such registration
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<PAGE> 6
statement or any prospectus or any amendment or supplement thereto, including
documents to be incorporated by reference upon or after the initial filing of
such registration statement, the Company will furnish to the Purchaser copies
of all such documents proposed to be filed (including documents to be
incorporated by reference therein), which documents will be subject to the
reasonable review and comments of the Purchaser;
(c) unless the Company qualifies to use a Form S-3
registration statement or any similar form then in effect, prepare and file
with the Commission such amendments and post-effective amendments and
supplements to the registration statement or any prospectus as may be necessary
to keep the registration statement effective for a period of not more than
ninety (90) days and comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all the Demand
Registrable Securities covered by such registration statement or any supplement
to any such prospectus;
(d) if the Company qualifies to use a Form S-3
registration statement or any similar form then in effect and if the Company
receives a request for a Demand Registration, prepare and file with the
Commission such registration statement to permit the offering of the Demand
Registrable Securities to be made on a continuous basis pursuant to Rule 415
(or any similar rule that may be adopted by the Commission) under the
Securities Act (a "Shelf Registration") and keep the Shelf Registration current
and continuously effective until the Purchaser can sell the Demand Registrable
Securities without registration under the Securities Act in accordance with
Rule 144 under the Securities Act, as such Rule may be amended from time to
time;
(e) furnish to Purchaser such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement and such other documents as Purchaser
may reasonably request;
(f) use its best efforts to register or qualify such
Demand Registrable Securities under such other securities or blue sky laws of
such jurisdiction as Purchaser reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
Purchaser to consummate the disposition in such jurisdiction (provided that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);
(g) notify Purchaser at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of Purchaser, the Company will prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to subsequent purchasers of
such Demand Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
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<PAGE> 7
(h) cause all such Demand Registrable Securities, to be
listed on each securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be listed on the NASD
automated quotation system ("NASDAQ");
(i) provide a transfer agent and registrar for all such
Demand Registrable Securities, not later than the effective date of such
registration statement;
(j) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
Purchaser or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Demand Registrable Securities,
(including, without limitation, effecting a stock split or a combination of
shares);
(k) make available for inspection by Purchaser, any
underwriter participating in any distribution pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") to the
extent reasonably necessary to enable such person to exercise their due
diligence responsibilities and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement. Records and other information
which the Company determines, in good faith, to be confidential and of which
determination the Purchaser is notified shall not be disclosed by the Purchaser
unless (i) the disclosure of such Records or other information, in the opinion
of counsel reasonably acceptable to the Company, is necessary to avoid or
correct a misstatement or omission in the registration statement, any
preliminary prospectus, any prospectus or prospectus supplement, or (ii) the
release of such Records or other information is ordered pursuant to subpoena,
court order or request by a governmental authority or otherwise is required by
applicable law or (iii) the information in such Records or such other
information is generally available to the public. Purchaser shall, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction or by governmental authority, give notice to the Company and allow
the Company, at the expense of the Company, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
(l) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration statement for
sale in any jurisdiction, use its reasonable best efforts promptly to obtain
the withdrawal of such order;
(m) use its best efforts to obtain a "cold comfort"
letter from the independent public accountants of the Company which is
addressed to the Purchaser and any underwriters and contains such matters of
the type customarily covered by "cold comfort" letters; and
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<PAGE> 8
(n) use its best efforts to obtain an opinion from
counsel for the Company which is addressed to the Purchaser and contains such
matters of the type customarily covered by counsel for the issuer of
securities.
3.2 Affidavits of Purchaser. With respect to any Demand
Registration, the Purchaser shall furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with the registration of the Demand Registrable Securities.
ARTICLE IV
RESTRICTIONS ON PUBLIC SALE; REGISTRATION EXPENSES
4.1 Public Sale by Purchaser. Purchaser shall not effect any
public sale or distribution of Demand Registrable Securities, of any class or
series being registered in a Demand Registration or Piggyback Registration for
offering to the public, any similar security issued by the issuer of such class
or series or any security exchangeable or exercisable for or convertible into
any such class or series of any such Demand Registrable Securities or any such
similar security, including a sale pursuant to Rule 144 (or any similar rule
then in force) under the Securities Act, during, in the case of a Piggyback
Registration, the fourteen (14) days prior to, and during the ninety (90) day
period beginning on, the effective date of the Piggyback Registration (except
as part of such registration or pursuant to registrations on Form S-4 or S-8 or
any successor form to either such form) and, in the case of any Demand
Registration, the period commencing on the date of filing the Demand
Registration and ending on the 120th day following the effective date of the
Demand Registration (except as part of such Demand Registration), if and to the
extent requested by the Company, in the case of a non-underwritten public
offering, or if and to the extent requested by the managing underwriter or
underwriters, in the case of an underwritten public offering.
4.2 Public Sale by the Company and Others. Neither the Company
nor any of its Affiliates (other than Purchaser, if deemed to be an Affiliate)
will effect any public sale or distribution of any securities of any class or
series being registered in a Piggyback Registration or Demand Registration for
offering to the public, any similar security issued by the issuer of such class
or series or any security convertible into or exchangeable or exercisable for
any such security during, in the case of a Piggyback Registration, the fourteen
(14) days prior to, and during the ninety (90) day period beginning on, the
effective date of the Piggyback Registration (except as part of such
registration or pursuant to registrations on Form S-4 or S-8 or any successor
form to either such form) and, in the case of any Demand Registration, the
period commencing on the date of filing the Demand Registration and ending on
the 120th day following the effective date of the Demand Registration.
4.3 Registration Expenses. The Company shall pay for all costs
and expenses ("Registration Expenses") of each registration hereunder,
including, but not limited to, the following: (i) registration and filing fees,
(ii) fees and expenses relating to the Company's compliance with securities or
blue sky laws (including reasonable fees and disbursements of
7
<PAGE> 9
counsel in connection with blue sky qualifications), (iii) expenses incident to
the preparation, printing and filing of the registration statement, each
preliminary prospectus and definitive prospectus and each amendment or
supplement to any of the foregoing and copies thereof, (iv) internal expenses
(including, without limitation, all salaries and expenses of officers and
employees of the Company performing legal or accounting duties), (v) fees and
expenses incurred in connection with the listing of the Demand Registrable
Securities, (vi) fees and disbursements of counsel for the Company and fees and
expenses of independent certified public accountants retained by the Company,
(vii) fees and expenses of any special experts retained by the Company in
connection with such registration, (viii) fees and expenses associated with any
filings with or submission to the NASD (including, if applicable, the fees and
expenses of any "qualified independent underwriters," as such term is defined
in Schedule E of the By-laws of the NASD, and its counsel), and (ix) fees of
each investment banking firm required to be retained or consulted pursuant to
the terms of this Registration Rights Agreement. The Company shall not have
any obligation to pay any underwriting fees, discounts or commissions
attributable to the sale of Demand Registrable Securities, as the case may be,
by the Purchaser, or, except as otherwise provided in the immediately
preceding sentence, any out-of-pocket expenses of the Purchaser (or any agents
who manage their accounts) or fees and disbursements of any counsel for the
Purchaser.
ARTICLE V
INDEMNIFICATION AND CONTRIBUTION
5.1 Indemnification by the Company. The Company shall indemnify
the Purchaser, its officers and directors and each Person who controls
Purchaser (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged
untrue statement of material fact contained in any registration statement,
preliminary prospectus or definitive prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by Purchaser specifically for
use in the preparation thereof or by Purchaser's failure, if required, to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished Purchaser with a sufficient
number of copies of the same. In connection with an underwritten offering, the
Company will indemnify such underwriters, their officers and directors and each
Person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification
of the Purchaser.
5.2 Indemnification by the Purchaser. In connection with any
registration statement in which the Purchaser is participating, the Purchaser
shall indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, preliminary prospectus or definitive prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make
8
<PAGE> 10
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information furnished by the Purchaser to
the Company specifically for use in the preparation of such registration
statement or prospectus.
5.3 Procedure. Any Person entitled to indemnification hereunder
will: (a) give prompt written notice to the indemnifying party of any claim
with respect to which it seeks indemnification, provided that the failure of
any indemnified party to give notice shall not relieve the indemnifying party
of its obligations hereunder except to the extent the indemnifying party is
actually prejudiced by such failure; and (b) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim.
5.4 Survival. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the transfer of
securities.
5.5 Contribution. If the indemnification provided for in this
Article V from the indemnifying party is unavailable to the indemnified party,
then the indemnifying party, instead of indemnifying the indemnified party,
shall contribute to and pay the amount paid or payable by such indemnified
party as a result of the loss, claim, damage, liability or expenses
(collectively, the "Claim") giving rise to indemnification hereunder in such
proportion as is appropriate to reflect the relative fault of the indemnifying
and indemnified party in connection with the actions which gave rise to the
Claim. The relative fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the action in
question has been made by, or relates to, information supplied by such
indemnifying party or indemnified party, and the parties' relevant intent,
knowledge, access to information and opportunity to correct or prevent such
action. The Company and the Purchaser agree that it would not be just and
equitable if contribution and payment pursuant to this Section 5.5 were
determined by pro rata allocation or by any other allocation method which does
not take into account the equitable considerations referred to in the preceding
sentence. The amount paid or payable as a result of a Claim shall include any
legal or other fees and expenses reasonably incurred by such party in
connection with such Claim. However, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contributions and payment from any Person who was not
guilty of such fraudulent misrepresentation.
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<PAGE> 11
ARTICLE VI
CERTAIN COVENANTS; AMENDMENTS
6.1 Participation in Underwritten Registrations. No Person may
participate in any underwritten registration hereunder unless such Person: (a)
agrees to sell its securities on the basis provided in any underwriting
arrangements reasonably approved by the Persons entitled hereunder to approve
such arrangements; and (b) accurately completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents customarily required under the terms of such underwriting
arrangements.
6.2 Rule 144. The Company shall file, on a timely basis, any
reports required to be filed by it under the Securities Act and the Exchange
Act so as to enable Purchaser to sell the Demand Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by: (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time; or (b) any similar rule adopted by the Commission.
6.3 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given, unless approved in writing by the Company and the
Purchaser.
ARTICLE VII
MISCELLANEOUS
7.1 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made) upon the earliest to occur of
(a) receipt, if made by personal service, (b) three days after dispatch, if
made by reputable overnight courier service, (c) upon the delivering party's
receipt of a written confirmation of a transmission made by cable, by telecopy,
by telegram, or by telex or (d) seven days after being mailed by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 7.1):
(a) if to EMAP:
1 Lincoln Court
Lincoln
Peterborough PE1 2RF
Attention: The Company Secretary
Telecopy: (01733) 312115
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<PAGE> 12
(b) if to VJN:
1221 Collins Ave.
Miami Beach, Florida 33139
Attention: Chief Financial Officer
Telecopy: (305) 535-8520
with a copy to:
Lucio, Mandler, Croland, Bronstein &
Garbett, P.A.
701 Brickell Avenue, Suite 2000
Miami, Florida 33131
Attention: Leslie J. Croland, Esq.
Telecopy: (305) 375-8075
7.2 Entire Agreement. This Agreement constitutes the final
written expression of all of the agreements between the parties as to the
subject matter hereof.
7.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida as such laws are
applied by Florida courts to agreements entered into and to be performed in
Florida by and between residents of Florida.
7.4 Headings. Headings of the Sections of this Agreement are for
the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
7.5 Severability. If for any reason whatsoever, any one or more
of the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases,
such circumstances shall not have the effect of rendering such provision
invalid in any other case or of rendering any of the other provisions of this
Agreement inoperative, unenforceable or invalid.
7.6 Assignability. This Agreement and the rights and duties
hereunder may not be assigned or assumed by operation of law or otherwise
without the express prior written consent of the other parties hereto (which
consent may be granted or withheld in the sole discretion of such other
parties, as applicable).
7.7 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or its breach which is not settled between the
parties, shall be settled by arbitration in accordance with the then governing
rules of the American Arbitration Association, with proceedings to take place
in Miami, Florida. Judgment upon any arbitration award may be entered and
enforced in any court of competent jurisdiction. An arbitration award may
cover all costs, legal fees and other charges reasonably incurred by the
prevailing party in such proceedings.
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7.8 Binding Effect; Benefits. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators or permitted assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMAP plc
By: /s/ Chris Innis
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------------
VIDEO JUKEBOX NETWORK, INC.
By: /s/ Alan McGlade
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------------
12
<PAGE> 1
ESCROW AGREEMENT
This Escrow Agreement (the "Escrow Agreement") is entered into on
October 30, 1996 among Video Jukebox Network, Inc., a Florida corporation
("VJN"), EMAP PLC., an English company ("EMAP"), and Denton Hall, as escrow
agent (the "Escrow Agent").
Any term used herein which is defined in the Stock Purchase Agreement,
dated as of October 30, 1996 (the "Agreement"), between VJN and EMAP and not
specifically defined herein has the meaning specified in the Agreement, unless
the context herein should otherwise require.
RECITALS:
A. VJN and EMAP have entered into the Agreement relating to the
purchase by EMAP of the Shares; and
B. VJN and EMAP have agreed that the Purchase Price and all
accrued interest thereon (the "Escrowed Funds") will be held in escrow by the
Escrow Agent pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants herein contained and in order to carry out the escrow
arrangement contemplated by the Agreement, the parties hereby agree as follows:
1. Following the execution of this Escrow Agreement by the
parties hereto and as promptly as practicable after the satisfaction of the
conditions specified in Sections 6.2 (c) and (d) of the Agreement, EMAP shall
deliver the Purchase Price to the Escrow Agent, and the Escrow Agent shall
promptly provide written confirmation of receipt of the Escrowed Funds to VJN.
The Escrow Agent shall invest the Purchase Price in an interest bearing account
with a bank in London, England or as otherwise directed by written notice
signed by both EMAP and VJN. The Escrow Agent shall have no liability to VJN
or EMAP in the event of the financial failure of such bank or any other
financial institution chosen by EMAP and VJN to hold the Escrowed Funds.
2. The Escrowed Funds shall remain in escrow until the earlier to
occur of: (a) the date and time that VJN submits the Fourth Amended and
Restated Articles of Incorporation (the "Articles"), attached as Exhibit "A" to
the Agreement, to the Florida Department of State (the "Department") and the
Articles are accepted for filing by the Department (the "Escrow Period"), or
(b) receipt by the Escrow Agent of a written
<PAGE> 2
notice from EMAP (with a copy of such notice contemporaneously sent by EMAP to
VJN, stating that: (i) the average of the closing bid and asked prices of VJN's
common stock, par value $.001 per share, as reported on the Nasdaq Small-Cap
Market during all of the trading days of the Escrow Period was less than $0.25
per share, or (ii) there is a material breach by VJN of a representation and
warranty set forth in the Agreement which has not been cured by VJN by the end
of the Escrow Period, it being understood and agreed by EMAP that it shall
promptly provide written notice to VJN when EMAP becomes aware of a material
breach by VJN of such a representation and warranty.
3. If the Escrow Agent does not receive a written notice from
EMAP during the Escrow Period pursuant to Section 2(b) hereof, the Escrow Agent
shall promptly after the end of the Escrow Period wire transfer the Escrowed
Funds to VJN in accordance with the wire instructions attached hereto as
Exhibit "A." However, subject to Section 4 hereof, if the Escrow Agent
receives a written notice from EMAP pursuant to Section 2(b) hereof, the Escrow
Agent shall release the Escrowed Funds to EMAP in accordance with EMAP's
written instructions.
4. If the Escrow Agent shall be uncertain as to its duties or
rights hereunder, shall receive any notice, advice, direction, or other
document from any other party with respect to the Escrowed Funds hereunder
which, in its opinion, is in conflict with any of the provisions of this Escrow
Agreement, or should be advised that a dispute has arisen with respect to the
payment, ownership, or right of possession of the Escrowed Funds or any part
thereof (or as to the delivery, non-delivery, or content of any notice, advice,
direction or other document), then the Escrow Agent shall not deliver the
Escrowed Funds (or any part thereof) to VJN or EMAP or to take any action
unless and until required to do so in: (a) a written notice signed by both
EMAP and VJN; or (b) a final order of a court of competent jurisdiction arising
out of a dispute between the parties hereto with respect to the Escrowed Funds.
The Escrow Agent shall also have the right to institute an interpleader action
or proceeding in any court of competent jurisdiction located in Dade County,
Florida to determine the rights of the parties hereto.
5. The Escrow Agent hereby undertakes to and shall perform only
such duties as are expressly set forth herein, and is entitled to rely upon the
direction or notice from the parties or a party, as the case may be, pursuant
to Sections 1, 2(b) or 4(a) hereof. No implied duties or obligations shall be
read into this Escrow Agreement against the Escrow Agent.
2
<PAGE> 3
6. EMAP and VJN hereby agree jointly and severally to indemnify
the Escrow Agent against and to hold it harmless from any and all claims,
liabilities, losses, actions, suits or proceedings at law or in equity, or any
other expense, fee or charge of any character or nature, which the Escrow Agent
may incur or with which the Escrow Agent may be threatened by reason of its
acting as escrow agent under this Escrow Agreement, and, in connection
therewith, to indemnify the Escrow Agent against any and all expenses,
including reasonable attorneys' fees and costs of defending any action, suit
or proceeding or resisting any claim, arising herefrom or relating hereto.
7. Upon execution of this Escrow Agreement, VJN and EMAP shall
each pay the Escrow Agent, as compensation for all of its services hereunder, a
fee of Thirty U.S. Dollars (U.S.$30.00). The Escrow Agent shall be reimbursed
equally by VJN and EMAP for all reasonable documented out-of-pocket costs and
expenses incurred by the Escrow Agent for all of its services hereunder.
8. EMAP and VJN agree that the Escrow Agent shall not be liable
to any party or person for misdelivery of the monies subject to this Escrow
Agreement, unless such misdelivery shall be due to the willful breach or gross
negligence of the Escrow Agent.
9. This Escrow Agreement shall be governed by, and construed and
enforced in accordance with, the laws of England and Wales without regard to
principles of conflict of laws thereof. By the execution and delivery of this
Escrow Agreement, each of the parties hereto irrevocably and unconditionally
submits to the jurisdiction of any court of competent jurisdiction located in
London, England, and hereby irrevocably and unconditionally waives: (a) any
objection a party may now or hereafter have to venue in a proceeding in any
such court involving a dispute between EMAP and VJN with respect to the
Escrowed Funds, and (b) any claim that any action or proceeding brought in such
court has been brought in an inconvenient or improper forum.
10. All notices hereunder shall be in writing and shall be deemed
to have been duly given if: (a) personally delivered, (b) made by reputable
overnight courier service, (c) sent by telecopier and the sending party
receives a written confirmation made by telecopier, or (d) delivered by
registered or certified mail, return receipt requested, as follows (or to such
other addresses as the parties may designate in writing pursuant hereto):
3
<PAGE> 4
To EMAP: 1 Lincoln Court
Lincoln
Peterborough PE1 2RF
Attention: The Company Secretary
Telecopy: (01733) 312115
To VJN: Video Jukebox Network, Inc.
1221 Collins Avenue
Miami Beach, Florida 33129
Attn: Chief Executive Officer
Telecopier: (305) 674-4906
With a copy to:
Leslie J. Croland, Esq.
Lucio, Mandler, Croland, Bronstein & Garbett, P.A.
701 Brickell Avenue, Suite 2000
Miami, Florida 33131
Telecopier: (305) 375-8075
To the Escrow Agent:
Denton Hall
Five Chancery Lane
Clifford's Inn
London, EC4A 1BU
Attn: Tony Grant
Telecopier: 001-441-71-404-0087
11. 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 instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement on the date first above written.
EMAP PLC.
By: /s/ Chris Innis
------------------------------------
Authorized Representative
VIDEO JUKEBOX NETWORK, INC.
By: /s/ Alan McGlade
------------------------------------
Authorized Representative
DENTON HALL
By: /s/ Tony Grant
------------------------------------
Authorized Representative
5
<PAGE> 6
EXHIBIT "A"
Bank Name: SunTrust
Account Name: Video Jukebox Network, Inc.
Account Number: 0189001156423
ABA Number: 066000604
Branch: 1111 Lincoln Road Mall
Miami Beach, Fla. 33139
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIDEO JUKEBOX NETWORK, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,888,570
<SECURITIES> 0
<RECEIVABLES> 2,712,824
<ALLOWANCES> 1,126,580
<INVENTORY> 0
<CURRENT-ASSETS> 4,090,228
<PP&E> 14,395,406
<DEPRECIATION> 8,583,305
<TOTAL-ASSETS> 11,917,147
<CURRENT-LIABILITIES> 3,712,557
<BONDS> 0
0
0
<COMMON> 24,002
<OTHER-SE> 8,180,588
<TOTAL-LIABILITY-AND-EQUITY> 11,917,147
<SALES> 0
<TOTAL-REVENUES> 15,648,983
<CGS> 4,754,438
<TOTAL-COSTS> 13,577,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 45,037
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,178,541)
<INCOME-TAX> (15,424)
<INCOME-CONTINUING> (3,163,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,163,117)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
