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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1996
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee Required]
For the transition period from to
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Commission File number 0-25596
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SHOP AT HOME, INC.
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(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5210 Schubert Road
P.O. Box 12600
Knoxville, Tennessee 37912
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(Address of principal executive offices)
Registrant's telephone number, including area code: (423)688-0300
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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COMMON STOCK, $.0025 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the Common Stock held by non-affiliates of the
registrant on September 18,1996 was: $39,657,206.
Number of shares of Common Stock outstanding as of September 18, 1996:
10,575,255.
Documents Incorporated by Reference
The Registrant's definitive Proxy Statement in connection with the 1996
Annual Meeting of Shareholders planned to be held December 6, 1996 which will
be filed with the Securities and Exchange Commission within 120 days after the
end of the Registrant's fiscal year ended June 30, 1996 is incorporated by
reference in Part III of this Annual Report on Form 10-K.
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SHOP AT HOME, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Shop at Home, Inc. ("Company"), a Tennessee corporation, is headquartered
in Knoxville, Tennessee, and was incorporated in 1986. The Company's principal
business is the sale of merchandise and retail products through televised
programs broadcast to owners of satellite dish receivers, cable television
system subscribers, and television station viewers. The Company creates
twenty-four hours of live programming each day, and broadcasts that programming
by satellite. It is viewable by up to 35 million (estimated) households
throughout North America. This same programming (and occasionally other
programs also produced live or on tape) is provided to the Company's owned and
operated television stations in Boston and Houston, and to an "ad hoc" network
of over 50 independently owned television stations and cable systems around the
country for all or a portion of each broadcast day.
The Company's business offices, broadcast studios, inbound call center,
and fulfillment operations are headquartered in Knoxville, Tennessee. In
addition to its Tennessee office, the Company owns and operates television
stations in Boston (WMFP), and in Houston (KZJL), and manages cable affiliate
development offices in Atlanta, Georgia, and Denver, Colorado.
The Company's programming features a variety of consumer products
including, but not limited to, sports collectibles and memorabilia, collectible
coins, collectible knives and swords, fitness products, health and beauty
products, jewelry, individual gemstones and opals, and other merchandise that
appeals to collectors, catalog customers, and TV home shoppers. The Company
offers its products at competitive prices that represent enticing values to the
consumer. The Company uses show hosts to present and explain the benefits and
values of its products to its television audience, takes customer orders at its
own call center and ships customer orders through its own fulfillment center or
through its affiliated vendors.
The Company differentiates itself from its competitors in a variety of
ways including emphasis on unique collectible items and packages in sports
memorabilia, coins and other predominantly male oriented product categories.
Additionally, the Company selects and offers higher quality, higher priced
merchandise in jewelry,
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gemstones, and cosmetics. The Company has also successfully developed and
utilized proprietary products and brand names in its jewelry and cosmetic
lines.
BUSINESS STRATEGY
The Company's primary mission is to achieve positive earnings per share by
attaining accelerated revenue growth and a consistent level of profitability.
A key factor in achieving these objectives is the Company's marketing strategy
of establishing dominance in niche markets that are underserved by other TV
home shopping and retail competitors. The Company constantly strives to broaden
its niche product categories, offer unique items and improve its level of
customer service.
Management has focused internal emphasis on revenue growth, improvement in
gross margins, expense control, cable distribution growth and building its
infrastructure to maintain its fast growth pace. The Company has recently
increased the capacity of the organization in systems, finance, physical
distribution, planning, customer service, and affiliate relations. Areas of
emphasis during the upcoming fiscal year include merchandising, call center
operations, investor relations, and TV cable carriage distribution.
RECENT DEVELOPMENTS
In October 1995, the Company signed an agreement giving it the right to
acquire 49% of the ownership of Television station KLDT, in the Dallas, Texas
market. The Company is responsible for the programming of this station which
broadcasts to over 600,000 cable television households. Dallas is the
country's 8th largest market with over 1.8 million television households.
The Company recently completed its acquisition of the remaining 51%
portion of Television station KZJL, Houston, Texas, that it did not own.
Houston is the nation's 10th largest television market with approximately 1.5
million television households.
The Company recently sold the operating assets of its wholly owned
subsidiary, RF Scientific Transportables, which provided mobile uplink
services. This subsidiary had not operated profitably over the past few years,
and its closing will eliminate the continuing operating loss in excess of
$100,000.
A priority for the Company in the past four years has been the attainment
of higher gross margins. Internal programs focused on improved buying
techniques, stronger vendor partnerships, and a more favorable merchandise mix
have enabled the
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Company to improve its gross margin percentage to 38.7% from 36.1% and 34.3% in
fiscal 1996, 1995 and 1994 respectively.
The Company successfully completed two agreements with Telecommunications,
Inc. (TCI), the first of which will add at least 4 million up to 10 million,
cable households as early as November 1996 on a part time basis. The second
agreement gives the Company the right to solicit and negotiate with each of the
individual cable systems in TCI's network of over 12 million cable households.
The Company is in the initial development stage of creating an Internet
Website. Since a significant portion of the Company's revenues are derived
from the sale of collectible merchandise, especially to male consumers (who are
major users of PCs and the Internet), the Company sees this as an excellent
opportunity to extend and promote its products.
The Company expects to continue its accelerated growth rate which is
taxing the limits of its current facility in Knoxville, Tennessee.
Accordingly, the Company has retained the services of the James N. Gray
Construction Co., Inc. to advise on site location, facility requirements, and
transition planning as the Company evaluates its physical facility needs for
the next several years.
"MUST CARRY" REGULATIONS
Television station ownership allows the Company to take advantage of the
"must carry" rules of the Federal Communications Commission ("FCC") under the
Cable Act of 1992 (the "Cable Act"). Generally, the "must carry" rules require
most cable systems to use up to one-third of their channels to carry the
broadcast signals of local, full power television stations, including those
which broadcast predominantly home shopping programming.
The current strategy of the Company has been developed based on the
present status of the "must carry" provisions of the Cable Act of 1992. The
long term strategy of the Company is largely dependent on the ultimate outcome
of the lawsuit known as Turner Broadcasting System v. FCC, challenging the
validity of the must carry provisions of the Cable Act. Under the must carry
provisions, cable systems (with the exception of some small systems) are
required to set aside up to one-third of their channels for local, full power
broadcast stations that request to be carried. These signals must be carried
on a continuous, uninterrupted basis and must be placed in the same numerical
channel position as when broadcast over-the-air, or on a mutually agreeable
channel. Further, with some exceptions, the cable operator may not charge a
fee for carrying these broadcast signals.
On June 27, 1994, the United States Supreme Court issued an opinion in the
Turner case in which the Court decided that cable system operators engage in
"speech" protected by the First Amendment by virtue of their decisions
regarding the programming broadcast over their systems, and the Cable Act
constituted a governmental restriction on that speech. The Court held that
restriction would be permissible only if (i) the restriction furthers an
important governmental interest, (ii) the governmental interest is not
suppression of free expression, and (iii) the incidental restriction on the
cable system operators' free speech is not greater than is essential to the
furtherance of the government interest. The Court remanded the case to the
District Court for trial in accordance with this standard.
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On December 12, 1995, a three judge panel of the District Court issued its
decision upholding the validity of the must carry provisions of the Act. The
Court (with one judge dissenting) found that these provisions did not violate
the First Amendment in that there was substantial evidence from which the
Congress could have drawn reasonable inferences that the must carry regulations
were necessary to protect the economic health of the broadcast television
industry and the burden imposed on the cable industry was not substantial.
Since that date, the Supreme Court has agreed to review this decision, and
the matter is set for oral arguments to be made to the Court on October 7,
1996. It cannot be reasonably predicted when the resulting decision of the
Supreme Court will be issued, but a decision would be expected before the end
of the Court's annual session in early summer of 1997.
As of this date, the must carry provisions remain effective and cable
system operators must continue to adhere to them until, and unless, the Court
rules otherwise. There is no assurance that the Supreme Court will ultimately
uphold the validity of the must carry provisions of the Cable Act. In the
event the must carry requirements are not in force, the Company anticipates
that it would continue to seek carriage of its programming on commercial
television stations and directly with cable television systems by purchasing
broadcast time. These additional expenditures would significantly increase the
Company's operating costs, and there is no assurance that the Company could
readily replace the households it might lose as a result of an adverse court
decision.
OWNED AND OPERATED STATIONS
In the pursuit of its strategy to build full time distribution, the
Company purchased its first television station in February of 1995, WMFP,
Channel 62, licensed to Lawrence, Massachusetts and serving the greater Boston
area. The station broadcasts at maximum FCC allowable power from atop the 35th
floor of #1 Beacon Street, in downtown Boston. Boston is the 6th largest
television market in the country with 2,105,100 television households, and
1,571,610 cable households. Metropolitan Boston's 5,717,000 residents spend in
excess of $47 billion on total annual retail sales.
Total consideration for the purchase of WMFP was $7,000,000 comprised of
cash, long term debt, common stock, and series A preferred stock.
In fiscal 1995, the Company also purchased a 49% interest and an option to
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acquire the remaining 51% of television station KZJL, Channel 61, licensed to
Houston, Texas. On September 5, 1996, the Company acquired this 51% interest.
The station signed on the air on June 3, 1995 and broadcasts from a 1500 foot
tower in the Houston "antenna farm". Houston is the 10th largest Designated
Marketing Area with 1,561,350 television households and 834,900 cable
households. Houston is ranked 8th in the United States Buying Power Index and
has total retail sales of over $28 billion. Shop At Home programming runs
exclusively on the station for the majority of each broadcast day.
Total consideration for the 49% interest was a total of $2,500,000 in
cash, long term debt and common stock. The remaining 51% was purchased for
$1,400,000 payable over 11 years at 6%. Cost to the Company to construct the
station was approximately $2.2 million.
CABLE CARRIAGE AFFILIATIONS
The business planning of the Company for future revenue growth and the
general expansion of the opportunities for the Company center upon carriage.
Carriage is the distribution of the Company's programming into television
homes in the United States and some coverage into other North American homes.
A Company priority is to achieve an increase in the number of cable homes which
receive the programming of the Company's home shopping format.
In mid-1993, an aggressive strategy was launched to build a cable
distribution for the Company's programming. Since that time, the Company has
been successful in continuously increasing its cable distribution and increasing
its aggressiveness in building strong ties to major cable Multiple System
Operators. The Company's programming is now viewed in more than 50 cable
markets, including nine of the country's top ten Designated Market Areas.
During fiscal 1996, the Company has added over 25 new cable markets on
either a full time or part time basis. In addition, the Company has secured
coverage on superstation WWOR which gives the Company access to more than 23
million households for some portion of each week.
The Company has also entered into two carriage agreements with
Telecommunications, Inc. (TCI), one of which will add at least 4 million
households (800,000 FTE's) as early as November 1996, and can grow to a
total of 10 million households within a year of initiation of carriage. The
second agreement gives the Company the right to solicit and negotiate with
the individual cable systems in TCI's network of over 12 million cable
households.
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The Company anticipates that it will continue to be successful in securing
similar additional cable distribution during the next year and accordingly has
increased its Affiliate Relations staff.
BROADCAST OPERATIONS
The Company's programming is distributed to satellite dish owners,
television stations and cable television systems, from the Company's studios in
Knoxville, Tennessee. The programming is transmitted by means of the Company's
satellite uplink facilities to transponders leased or subleased by the Company
on domestic communications satellites. The transponders then re-transmit the
signals received from the Company to satellite dish receivers located
throughout the United States and parts of Canada and Mexico. Owners of home
satellite dish receivers, the Company's principal market of customers prior to
mid-1993, are generally able to receive programming directly from the
satellite. The signal is also received by affiliated cable television systems
and television stations who re-broadcast the Company's signal.
On December 1, 1995, the Company commenced broadcasting on transponder 4C
of AT&T's state of the art satellite 402R, thereby terminating its use of the
S3-18 transponder.
PRODUCT ASSORTMENT
The Company's programming features a variety of consumer products including
jewelry, gemstones, opals, sports cards and memorabilia, rare coins and
currency, collectible knives and swords, electronics, fitness equipment,
health and beauty products, and home related items. The Company seeks to offer
high quality products that are not readily available or are differentiated from
its competitors. From time to time, the Company also offers exceptional values
when it is able to take advantage of close-out merchandise and pricing from
selected vendors.
The Company has multiple sources of products and believes its
relationships with most of its vendors is excellent. The Company believes
certain products which it sells are readily available through multiple
suppliers. The Company also acquires unique products from a select group of
vendors (some of whom are shareholders) and believes it will be able to
continue to identify sources of specialty products. These unique products are
what the Company believes help to differentiate it from its competitors.
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The Company's programs use a show host approach whereby information is
conveyed about the products with a demonstration of the use of the products to
the television audience. The viewer may purchase any product the Company offers
at any time after such product's offering, subject to availability. Thus a
viewer is not limited to purchasing a product only during that particular
product's air time. The Company continually monitors product sales and revises
its product offerings in an effort to maintain a productive and profitable
product mix.
The Company is continuously evaluating new products and vendors as it
strives to broaden its merchandise selection.
PROGRAMMING
The Company segments most of its programming into product or theme
categories. The Company often provides multiple broadcasts (two or more) during
peak viewing times. The Company provides one full-time live broadcast and
part-time live, taped, or simulcast broadcasts on two satellite transponders
that the Company leases from ESPN. The Company has studio and broadcasting
capacity to produce two live shows simultaneously.
The Company seeks to differentiate itself from other televised home
shopping programmers by utilizing an informal, personal style of presentation
and by offering unique and more "upscale" types of products with a heavy
emphasis on sports and sports related products. Rare coins, collectible sports
items, and other limited-availability items provide viewers with alternatives
to the products offered on other home shopping programming. Specialized
products are presented and described by knowledgeable on-air hosts. The
Company believes that continued use of such "niche" programming is important to
the future growth of the Company.
CUSTOMER RELATIONS
The Company maintains its own call center and customer service operations
at its headquarters in Knoxville, Tennessee. Customers can place orders with
the Company 24 hours a day, seven days a week via the Company's toll free 800
numbers. The Company uses both Customer Sales Representatives (CSRs) and an
automated touch-tone ordering system to accept customer orders. A majority of
the Company's customers pay for their purchases by credit card and the Company
also accepts payment by money order, personal check, certified check, debit
cards and wire transfers. The Company has recently developed and implemented a
new training program to further raise its service and productivity levels.
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The Company ships customer orders as quickly as possible utilizing UPS,
Federal Express, and Parcel Post for the majority of its shipments. To
increase speed of service the Company ships both from its warehouse facility in
Knoxville and directly to the customer from selected vendors with whom it has
arranged "drop ship" agreements. The Company also operates a separate customer
service department to facilitate and handle customer inquiries about ship
dates, product, and billing information.
The Company offers a full 30 day return policy to insure customer
satisfaction and to promote the purchase of its merchandise. Mechanical,
electronic, and other items may be covered by additional manufacturer
warranties; however, the Company does not offer additional warranties on the
products it sells. The Company strives to continuously improve its customer
service and utilizes outside agencies to conduct objective comparisons with
other TV home shopping competitors. Additionally, the Company periodically
surveys and researches its customers to solicit ideas for better products,
programming, and service.
From time to time the Company conducts promotional campaigns to launch new
shows and products, increase its revenue per household, and introduce new
viewers to its programming. Multiple media are used to communicate these
events including on-air promotion, show host emphasis, package stuffers, direct
response mailers and TV commercials.
FEDERAL REGULATION AND LEGISLATION
The FCC grants licenses to construct and operate uplink equipment, which
transmits signals to satellites. These licenses are generally issued without a
hearing if suitable frequencies are available. Presently, the Company has
licenses issued by the FCC for the operation of two domestic fixed satellite
service earth stations that are renewable on a one (1) year basis. In the
event the FCC fails to renew or terminates the licenses for one or both of
these vehicles, the Company's ability to provide programming will be
significantly affected. The Company does not have any agreements for backup
transmission of its programming to satellites, but it believes it could obtain
such services, although it might incur substantial additional costs in entering
into new arrangements. In addition, the Company's ability to expand its
programming capability is limited by the requirement that it obtain licenses
for additional uplink facilities.
Each of the Company's television stations operate pusuant to a license
issued by the FCC. Television broadcast licenses are issued for a period of
five (5) years, and the license for KZJL will expire in 1998 and the license
for WMFP will expire in 1999. The Company may apply to renew these licenses,
and third parties may challenge those applications or file competing
applications. Although the Company has no reason to believe its licenses will
not be renewed in the ordinary course, there can be no assurance that the
licenses will be renewed.
The television broadcast industry is subject to extensive and changing
regulation. The Communications Act of 1934, as amended, and FCC rules require
the FCC to consent to assignments of FCC licenses or the transfer of control of
FCC licensees. There are currently under consideration new regulations
regarding a variety of matters which could have an adverse affect of the
ownership and operation of broadcast properties, or which could increase the
value of such holdings. FCC regulations also require broadcast stations to
maintain certain records for public inspection and to submit periodic reports
to the FCC, including reports concerning the ownership of the licensee, the
employment practices of the station, and other matters. While the Company has
no reason to believe that it is not in full compliance with all applicable
regulations, it is subject to periodic inspections by the FCC and there can be
no assurance of full compliance. The FCC has the power to assess monetary
penalties for violations of applicable law and regulations, and it can, in
particularly egregious cases, seek to revoke the station's license or to
decline to renew the license.
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COMPETITION
The television home shopping industry is highly competitive and is
dominated by two companies, Home Shopping Network and QVC Network. The
Company's programming competes directly with Home Shopping Network, QVC, or
other home shopping networks in almost all of the Company's markets. Home
Shopping Network and QVC are well-established and significantly better
capitalized than the Company, and each network reaches a significantly larger
percentage of U.S. television households. The Company is at a competitive
disadvantage in attracting viewers for a number of reasons, including the fact
that the Company's programming is often not carried by cable systems on a full
time basis and the Company may have less desirable television channel placement
on cable systems. The Company expects the home shopping industry to grow and
expand. As a result, the Company expects increased competition for viewers,
personnel, and television station carriage from present competitors, as well as
new entries into the market. New companies that announced or launched
competitive services during the last year were largely unsuccessful including
Global Shopping Network, Outlet Mall Network, and Hollywood Showcase.
The Company believes that there is significant value in its long (10 year)
operating history, and the fact that it is one of only four broadly distributed
electronic retailers in America.
As a seller of merchandise at retail, the Company competes for consumer
expenditures with other types of retail businesses, including department,
discount, warehouse, jewelry and specialty stores, mail order, and catalog
companies and other direct sellers.
SEASONALITY
Although the television home shopping business in general is seasonal,
with the major selling season occurring during the last quarter of the calendar
year, the Company has not experienced the usual seasonality primarily because
it has, over the past three years, significantly increased its carriage and
therefore, each quarter has
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increased over the sales of the previous quarter. The home shopping industry
is also sensitive to general economic conditions and business conditions
affecting consumer spending. The Company's product lines include jewelry,
sports cards, sports memorabilia, collectibles, and other unique items that may
make it more sensitive to economic conditions. Over the last five years, the
Company's revenues in the last quarter of the calendar year approximated 26%.
EMPLOYEES
The Company had approximately 236 paid employees as of June 30, 1996, some
of whom are part time. The Company believes its relationship with its
employees is good. Presently no collective bargaining agreements exist between
the Company and its employees.
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SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 2. PROPERTIES
The Company leases office space in Atlanta, Georgia primarily to house its
executive office and a portion of its affiliate relations department. The
Company currently leases approximately 17,000 square feet of studio, office,
and warehouse space in Knoxville, Tennessee from a corporation controlled by W.
Paul Cowell, a director. As the Company grows, it will need additional office,
studio, and warehouse space. Although no additional space is available at the
Company's current location in Knoxville, management believes the Company can
obtain suitable large facilities at other locations, if needed. The Company's
Knoxville lease is currently on a term lease with a scheduled expiration date
of June 30, 1997. The Company is in the process of extending this lease to
December 31, 1997 if needed.
In addition, the Company through its subsidiaries WMFP in Boston, MA and
KZJL in Houston, Texas leases space to house their station transmitters.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation which arises in the normal course of
its business. The Company is not currently a party to any litigation which, if
adversely determined, would have a material adverse effect on the Company, its
liquidity or its operations.
The Company is a defendant in a case filed in February, 1995 in the United
States District Court for the Southern District of California by Upper Deck
Authenticated, Ltd. The plaintiff alleges that it possesses the exclusive
right to market, sell and distribute sports memorabilia and collectibles
featuring the name, autograph, signature or likeness of certain famous
athletes. The plaintiff alleges that each of the defendants, including Shop at
Home, violated its exclusive rights by selling and marketing collectibles and
memorabilia featuring these athletes. In addition, the plaintiff alleges that
certificates of authenticity provided by the defendants, including Shop at
Home, to certain purchasers of autographed sports memorabilia and collectibles
failed to comply with the requirements of California law.
On this basis, the plaintiff asserts a right to relief based upon unfair
competition, section 43(a) of the Lanham Act, section 17200 of the California
Business and Professional Code, unjust enrichment, dilution and
misappropriation of the athletes' right of publicity. The plaintiff requests
that the court grant a preliminary and permanent injunction against each
Defendant, issue a declaratory judgment, impose a constructive trust, and grant
compensatory and punitive damages, together with attorney's fees.
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SHOP AT HOME, INC. AND SUBSIDIARIES
Shop at Home has filed its answer to the Complaint admitting that Shop at
Home has sold items featuring the athletes but denying the other allegations
made in the Complaint. Shop at Home's answer asserts, among other defenses,
the "first sale doctrine," which provides that once an item is sold in commerce
the originator of the item (in this case the athlete) loses all rights to
control the subsequent sale of the item. In addition, Shop at Home's answer
asserts that the plaintiff's "exclusive right" is not "exclusive" as other
organizations from whom Shop at Home acquires its merchandise, possess a lawful
right to the use the athletes' names, signatures, photographs or likenesses.
Further, Shop at Home asserts that its certificates of authenticity comply in
all respects with applicable law.
Recently, the plaintiff filed a motion for permission to amend its
complaint to add an additional plaintiff--Upper Deck Company--and to add
several new defendants. The Amended Complaint alleges that the plaintiffs'
rights extend not only to autographed memorabilia (the subject of the first
complaint), but also to any item that features an athlete's name, specimen
autograph, player number, likeness, biographical information or statistical
information. The Amended Complaint alleges that Shop at Home had advertised
and sold both autographed and unautographed merchandise featuring the indicia
of the athletes at issue, and that the plaintiffs have both exclusive and
nonexclusive licenses to exploit commercially the indicia of these athletes.
The Amended Complaint requests compensatory damages, restitution, punitive
damages, reasonable attorney's fees prejudgment interest and costs, all in an
unspecified amount.
As of this date, the Court has not ruled on the Plaintiff's motion. In
any event, Shop at Home believes that it has a valid defense in the action and
plans to defend the matter vigorously.
This case has not been set for trial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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SHOP AT HOME, INC. AND SUBSIDIARIES
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
In June 1995, the Company was approved by NASDAQ to be listed on the
NASDAQ SmallCap market.
The range of high and low bid quotations for the Company's Common Stock by
fiscal quarters during the two most recent years, as obtained from the National
Quotation Bureau, Inc., directly and by one of the Company's principal market
makers, is provided below.
These quotations reflect inter-dealer prices without retail markup,
markdown, or commissions and may not necessarily represent actual transactions.
Effective June 9, 1995, the Company's stock was listed on NASDAQ's SmallCap
Market and the bid prices shown after that date reflect the high-low closing
bid quote on NASDAQ.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
07/01/94 -- 09/30/94 $2.75 $2.00
10/01/94 -- 12/31/94 $2.625 $2.00
01/01/95 -- 03/31/95 $3.625 $3.00
04/01/95 -- 06/30/95 $3.50 $2.25
07/01/95 -- 09/30/95 $3.00 $2.625
10/01/95 -- 12/31/95 $5.19 $2.375
01/01/96 -- 03/31/96 $3.25 $2.00
04/01/96 -- 06/30/96 $3.875 $2.9375
</TABLE>
The approximate number of shareholders of the Company's Common Stock of
record on June 30, 1996, was 694.
Since the Company's inception in 1986, the Company has paid no dividends
with respect to its Common Stock. It is reasonable to project that the Company
intends to retain earnings to finance the growth and development of the
Company's business and does not expect to pay any cash dividends on its Common
Stock in the foreseeable future.
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SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information for the years ended June 30,
1996, 1995, 1994, 1993, and 1992 has been derived from the consolidated
financial statements of the Company and should be read in conjunction with the
financial statements, the related notes thereto, and other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
6/30/96 6/30/95 6/30/94 6/30/93 6/30/92
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current assets $ 5,273,163 $ 2,750,656 $ 3,218,623 $ 1,541,712 $ 1,950,658
Current liabilities 8,993,793 7,371,600 3,779,660 3,975,204 1,944,491
Total assets 20,286,670 18,157,431 4,770,262 3,130,104 3,556,868
Long-term debt 7,805,048 6,865,493 283,275 161,384 178,223
Redeemable
preferred stock 1,393,430 1,405,000 - 0 - - 0 - - 0 -
Stockholders' equity 2,108,399 2,520,338 707,327 (1,006,484) 1,434,154
Net revenues 40,016,114 26,787,013 21,717,344 19,878,478 21,156,903
Infomercial Income 659,461 189,048 - 0 - - 0 - - 0 -
Net loss (1,405,472) (1,281,989) (1,052,335) (2,440,638) (60,104)
Net loss per
share of common stock (.14) (.14) (.13) (.33) (.01)
Cash dividends per
common share -0- - 0 - - 0 - - 0 - - 0 -
</TABLE>
16
<PAGE> 17
SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to total revenue of certain items included in the Company's
Statements of Operations.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
NET REVENUES 100% 100% 100%
COST OF GOODS SOLD 61.3 63.9 65.7
GROSS PROFIT 38.7 36.1 34.3
OTHER OPERATING INCOME 1.7 0.7 0.0
PROMOTION AND ADVERTISING CHARGES .6 1.0 1.0
SALARIES AND WAGES 11.3 12.6 13.4
TRANSPONDER AND CABLE CHARGES 15.1 12.0 8.9
OTHER GENERAL OPERATING AND ADMINISTRATIVE
EXPENSES 13.1 13.7 13.5
DEPRECIATION AND AMORTIZATION 2.2 2.0 1.9
OTHER EXPENSE (1.9) (0.5) (0.4)
INCOME TAX EXPENSE (BENEFIT) .3 0.0 0.0
NET LOSS (3.5) (4.6) (4.8)
</TABLE>
RESULTS OF OPERATIONS
FISCAL 1996 VS. FISCAL 1995
The Company's net revenues for the fiscal year ended June 30, 1996, were
$40,016,000, an increase of $13,229,000 or 49.4% over the prior year. The
increase was primarily attributable to greater cable coverage which resulted
from the addition of approximately 2,700,000 full time equivalent households
resulting in a total of 5,400,000 full time equivalent households by the end of
June 1996. This two-fold increase in households is attributable mainly to the
combined carriage in the Boston, Houston, and Dallas markets which the Company
did not broadcast to in the prior fiscal year (approximately 60%) and the
additional part time carriage on various full power
17
<PAGE> 18
SHOP AT HOME, INC. AND SUBSIDIARIES
stations throughout the United States (approximately 40%). The sales increase
was the result of increased sales volume and not an increase in sales prices.
During the year, the Company introduced and developed new product lines in
Health & Beauty, Fitness and Collectible Knives. In addition, there was a
broadening of the Coin product line and the Company re-introduced its
"Dominator" collectible card. These new and expanded product lines helped
generate new sales to broaden the customer base.
Gross profit increased by $5,834,000 or 60.4%, primarily as a result of
increased sales related to expanded carriage throughout the United States and
increased gross margins. The Company's average gross profit margin increased to
38.7% from 36.1% in the previous year as a result of improved purchasing,
selection and development of more unique merchandise and product lines. Higher
margins were obtained throughout most product categories, particularly in the
jewelry and sports product lines.
In addition to net revenues the Company generated $659,000 in informercial
revenue from its stations WMFP in Boston and KZJL in Houston. This represented
a 248% increase over the informercial revenue of the prior year and was the
first full year of informercial revenue. The Company anticipates continued
improvement in this area.
The Company "develops" a market by broadcasting its programming over a
period of time. Consequently there is a timing difference of approximately 6 to
9 months whereby the expenses out pace future revenues. In these instances,
the Company's profitability in a specific new market will be initially
depressed until future revenue streams exceeds expenses.
Operating expenses for fiscal 1996 increased $5,920,000, or 53.8% over
1995. The major items resulting in the increase were: a) additional cable
carriage and signal distribution costs of approximately $2,798,000 or 86.7%; b)
an increase in salaries of approximately $756,200 or 22.5% related to variable
labor costs associated with the higher volume of customer calls and some
additions to management; c) an increase of $367,900 or 162.0% in legal expenses
associated with the contemplated Paxson merger and certain litigation; d) an
increase in depreciation, amortization, station management costs and utilities
of approximately $975,000 or 22.7% primarily associated with the operating
costs and acquisitions of fixed assets of the Boston and Houston television
stations, which were owned for a full year in 1996; e) the Company's operating
expenses for Houston exceeded revenues by $305,000 until January 1996 when
Houston became profitable; and f) an increase in telephone cost of $179,000 or
38.3%; credit card discounts of $354,000 or 53.5% related primarily to the
higher business revenues in 1996.
18
<PAGE> 19
SHOP AT HOME, INC. AND SUBSIDIARIES
Other expenses were negatively impacted by $610,000 or 479.1% primarily
due to increased interest expense on the additional $2,000,000 in debt secured
in August 1995 and the full year of expense from new debt incurred in fiscal
1995.
FISCAL 1995 VS. FISCAL 1994
The Company's net revenues for the fiscal year ended June 30, 1995, were
$26,787,000, an increase of $5,070,000 or 23.3% over the prior year. The
increase was primarily attributable to greater cable coverage which resulted in
the addition of approximately 700,000 full time equivalent households to a
total of 2,700,000 full time equivalent households by the end of June 1995.
The sales increase was the result of increased sales volume and not the result
of an increase in sales prices.
During the year, the Company introduced a copyrighted line of specialty
jewelry called, Bella Luce. Bella Luce is high quality gold (14K) pieces,
(rings, bracelets, earrings, necklaces, etc.) with high quality, synthetic
gemstones.
Gross profit increased by $2,227,000 or 29.9%, primarily as a result of
increased sales related to expanded carriage throughout the United States. The
Company's average gross profit margin increased to 36.1% from 34.3% in the
previous year as a result of improved purchasing, selection of more unique
merchandise and better vendor pricing. Higher margins were obtained throughout
most product categories, particularly in the jewelry and sports product lines.
The Company generated other operating income of $189,000 in fiscal 1995
from the sale of infomercial time at its new station in Boston. The Company
anticipates further increases in this type of income in the future from the
Houston station in which it has acquired an ownership interest.
Operating expenses for fiscal 1995 increased $2,616,000, or 31.1%. The
major items resulting in the increase were: a) transponder and cable costs
increases of $1,298,000 or 67.3% of which approximately $480,000 related to the
necessary duplication of transponder costs for the period of January through
June 1995 and approximately $820,000 related to the cost of acquiring increased
cable coverage; b) an increase in salaries of approximately $440,000 or 15.1%
related to variable labor costs associated with the higher volume of customer
calls and also additions to management; c) an increase in other general and
administrative expenses of $703,000 or 24.0% which includes $180,000 related to
the resolution of issues pertaining to prior years activities; and d) an
increase in depreciation and amortization related to fixed
19
<PAGE> 20
SHOP AT HOME, INC. AND SUBSIDIARIES
and intangible assets resulting from the acquisitions of WMFP in Boston and KZJL
in Houston.
The acquisition of WMFP in Boston and the partial interest in KZJL in
Houston occurred in the latter part of the fiscal year and subsequently
revenues derived from these two stations did not have a material impact on
revenues in relation to the operational costs necessary to build the
infrastructure to handle the increased level of business from these stations.
In addition, when entering a new market, it is generally necessary to
promote and develop that market in order for the viewers to become aware of the
presence of a new station. Until the awareness fully occurs, the early stages
of development expenses could outpace revenues. With respect to Houston, the
future anticipated revenues will directly relate to the actual cable coverage.
As of June 30, 1995, KZJL had no cable coverage in Houston, approximately 10%
coverage as of September 1995, and increase to approximately 65% of the
market's available cable households by December 1995.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal 1996 was a year of continuing growth for Shop at Home. The Company
continued its aggressive approach of expansion into cable markets. Fiscal 1996
was the Company's first full year of operations for its subsidiaries, WMFP in
Boston and KZJL in Houston. The first six months of operation, the Houston
station operated at a loss of $305,000 until January 1996 when it became
profitable. As these subsidiaries continue to mature they should add increasing
amounts of working capital to the company. Management believes the growing
market value of these broadcast assets and the addition of long-term, full
time, predictable coverage will significantly and positively add long term
value and revenue to the Company.
At June 30, 1996 the Company had a net working capital position of
($3,720,000), an increase of $861,000. This increase was attributable primarily
to the $400,000 cash conversion of non performing assets and the issuance of
common stock in payment of approximately $609,000 of accounts payable. By the
end of fiscal 1996, the Company had closed down R.F. Scientific Transportable,
Inc. and put in place operating efficiencies in its Houston subsidiary, the
combined effect of which should have a positive impact on carriages and cash
flow in the excess of $400,000. Much of the growth in liabilities is
reflective of the Company's increased sales volume. The Company believes that it
enjoys strong, long-term relationships with its vendors. It is common in the
retail business to have a low working capital ratio and Shop at Home
20
<PAGE> 21
SHOP AT HOME, INC. AND SUBSIDIARIES
believes that its ability to meet future vendor obligations will be adequate.
In 1996 the Company completed the installation of a new computer system
which facilitates Shop at Home's ability to meet increased sales demands. In
July 1996 the Company instituted a new credit card processing system which
provides instant sales verification and moves the point of cash receipts to the
time of shipment.
The Company believes internally generated funds from operations, together
with borrowings similar to the $2,000,000 loan consummated in August 1995, and
the sale of common stock and warrant rights, if needed, will be sufficient to
meet the Company's capital requirements during the next fiscal year.
Additionally, the Company believes that it possesses significant leverage in
its assets, particularly in its Boston and Houston television stations, which
it believes it can use for future financing possibilities, if necessary.
In March 1995, the FASB issued Statement of Accounting Standards No 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of which i) requires that long-lived assets to be held and used be
reviewed for impairment whenever events or circumstances indicate that the
carrying value of an asset may not be recoverable, ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or the
fair value less costs to sell, and iii) provides guidelines and procedures for
measuring impairment losses that are different from previously existing
guidelines and procedures. The Company adopted the provisions of Statement 121
in fiscal year 1996 and the changes did not have a material effect on the
Company's financial position or results of operations.
Additionally, in October 1995, the FASB issued Statement of Accounting
Standards No. 123. Accounting and Disclosure of Stock-Based Compensation which
encourages but does not require companies to recognize stock awards based on
their fair value at the date of grant. The Company currently follows, and
expects to continue to follow, the provisions of Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Although the Company is permitted to continue to follow
the provisions of APB 25 under Statement 123, certain pro forma disclosure will
be required beginning in 1996, as if Company had accounted for its stock
options under the Statement 123 fair value method. No such options were issued
in fiscal year 1996.
21
<PAGE> 22
SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
Page
<S> <C>
Report of Independent Auditors 23
Consolidated Balance Sheets at June 30, 1996 and June 30, 1995 24-25
Consolidated Statements of Operations for the years ended June 30, 1996,
June 30, 1995, and June 30, 1994 26
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1996, June 30, 1995, and June 30, 1994 27
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, June 30, 1995, and June 30, 1994 28-29
Notes to Consolidated Financial Statements 30-46
</TABLE>
22
<PAGE> 23
SHOP AT HOME, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Shop at Home, Inc.
We have audited the accompanying consolidated balance sheets of Shop at
Home, Inc. and Subsidiaries as of June 30, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Shop at Home,
Inc. and Subsidiaries as of June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
Knoxville, Tennessee COOPERS & LYBRAND L.L.P.
September 6, 1996
23
<PAGE> 24
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,914,759 $ 202,146
Accounts receivable - trade 380,077 507,166
Accounts receivable - related parties 7,680 -
Inventories 2,611,142 1,683,472
Prepaid expenses 279,505 159,300
Deferred tax assets 80,000 198,572
----------- -----------
Total current assets 5,273,163 2,750,656
PROPERTY & EQUIPMENT, NET 3,470,226 3,937,939
FCC LICENSES, NET 10,516,041 10,745,106
GOODWILL, NET 605,154 630,416
OTHER ASSETS 422,066 93,314
----------- -----------
TOTAL ASSETS $20,286,670 $18,157,431
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 25
SHOP AT HOME, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion - capital leases $ 109,444 $ 140,202
Current portion of long-term debt 741,262 924,720
Accounts payable - trade 3,201,320 3,463,630
Accounts payable - related party 449,550 762,809
Credits due to customers 1,100,120 617,904
Other payables and accrued expenses 1,665,806 971,998
Deferred revenue 1,512,291 495,337
----------- -----------
Total current liabilities 8,979,793 7,366,600
----------- -----------
LONG-TERM LIABILITIES
Capital leases, less current portion 53,649 146,116
Long term debt, less current portion 5,669,063 4,415,076
Deferred income taxes 2,082,336 2,304,301
REDEEMABLE PREFERRED STOCK
$10 par value, 1,000,000 shares authorized,
137,943 and 140,000 issued and outstanding in 1,393,430 1,405,000
1996 and 1995 respectively
COMMITMENTS (NOTES 6, 8, 10, AND 14)
STOCKHOLDERS' EQUITY
Common stock - $.0025 par value,
30,000,000 shares authorized,
10,575,255 and 10,144,080 shares issued in
1996 and 1995 respectively 26,438 25,360
Additional paid and capital 9,927,767 8,935,332
Accumulated deficit (7,845,826) (6,440,354)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,286,670 $18,157,431
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 26
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF JUNE 30,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 40,016,114 $ 26,787,013 $ 21,717,344
COST OF SALES 24,516,348 17,120,791 14,278,024
------------ ------------ ------------
Gross Profit 15,499,766 9,666,222 7,439,320
OTHER OPERATING INCOME 659,461 189,000 -
------------ ------------ ------------
OPERATING EXPENSES
Promotion and advertising costs 241,170 269,420 224,314
Salaries and wages 4,112,858 3,356,624 2,917,045
Transponder and cable charges 6,024,743 3,226,481 1,928,065
Other general operating and administrative expenses 5,673,540 3,639,749 2,936,338
Depreciation and amortization 877,861 517,523 399,773
------------ ------------ ------------
Total operating expenses 16,930,172 11,009,797 8,405,535
------------ ------------ ------------
LOSS FROM OPERATIONS (770,945) (1,154,576) (966,215)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest, net (794,558) (216,486) (71,935)
Miscellaneous 66,637 89,072 (14,185)
------------ ------------ ------------
Total other income (expense) (737,921) (127,414) (86,120)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,508,666) (1,281,989) (1,052,335)
INCOME TAX BENEFIT 103,394 - -
------------ ------------ ------------
NET LOSS $ (1,405,472) $ (1,281,989) $ (1,052,335)
============ ============ ============
NET LOSS PER SHARE
OF COMMON STOCK $ (0.14) $ (0.14) $ (0.13)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 10,284,085 9,436,870 $ 8,224,583
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 27
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID IN ACCUMULATED STOCK
STOCK CAPITAL DEFICIT AT COST
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance - June 30, 1993
(7,378,864 shares) $18,447 $3,121,349 $(4,106,030) $(40,250)
Issuances of common stock
(1,525,454 shares) 3,813 1,992,333 - -
Proceeds from sales of
warrants and options - 770,000 - -
Net loss - - (1,052,335) -
------- ---------- ----------- --------
Balance - June 30, 1994
(8,904,118 shares) 22,260 5,883,682 (5,158,365) (40,250)
Issuances of common stock
(389,215 shares) 973 999,027 - -
Retirement of treasury stock (115) (40,135) - 40,250
(46,000 shares)
Issuances of common stock
(896,747 shares) 2,242 2,097,758 - -
Preferred stock dividend accrued - (5,000) - -
Net loss - - (1,281,988) -
------- ---------- ----------- --------
Balance - June 30, 1995
(10,144,080 shares) 25,380 8,935,332 (6,440,364) 0
Issuance of common stock
in connection with financing
(100,000 shares) 250 249,750 - -
Issuance of common stock in
connection with conversion
of preferred stock
(2,000 shares) 5 20,565 - -
Exercise of employee stock options
(126,000 shares) 315 127,125 - -
Issuance of common stock in
payment of payable obligations
(203,175 shares) 508 609,015 - -
Preferred stock dividend accrued - (14,000) - -
Net loss - - (1,405,472) -
------- ---------- ----------- --------
Balance - June 30, 1996
(10,575,255 shares) $26,438 $9,927,787 $(7,845,826) $ 0
======= ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 28
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,405,472) $(1,281,989) $(1,052,335)
Non-cash expenses included in net loss
Depreciation and amortization 877,861 517,523 399,773
Loss on sale of equipment 19,165 13,814
Deferred income taxes (103,394) - -
Change in provision for inventory obsolescence (88,122) - -
Changes in current and non-current items
Accounts receivable 119,409 (38,135) (312,853)
Inventories (230,024) (110,577) (119,738)
Prepaid expenses and other assets (197,019) 102,563 (142,830)
Accounts payable and accrued expenses 805,455 2,759,182 41,269
Deferred revenue 1,016,954 (5,888) 236,691
----------- ----------- -----------
Net cash (used) provided by operations 814,813 1,942,679 (936,209)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITES:
Cash payments for acquisitions - (1,289,072) -
Purchase of equipment (507,494) (2,370,582) (213,952)
Proceeds from sale of equipment 400,000 - 5,076
Other assets - - (4,300)
FCC licenses (38,000) - -
----------- ----------- -----------
Net cash used by investing activities (145,494) (3,659,654) (213,176)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 127,440 - 2,450,118
Repayments of debt (985,851) (662,115) (651,351)
Additional long-term debt 2,056,380 1,620,488 625,000
Capital lease payments (154,675) (114,278) (125,267)
----------- ----------- -----------
Net cash provided by financing activities 1,043,294 844,096 2,198,800
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 1,712,613 (872,880) 1,049,115
Cash beginning of period 202,146 1,075,026 25,911
----------- ----------- -----------
Cash end of period $ 1,914,759 $ 202,146 $ 1,075,026
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 29
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994, CONTINUED
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- --------
<S> <C> <C> <C>
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Stock issued for inventory and reduction
of accounts payable $609,015 $ - $316,028
======== ========== ========
Accounts payable recorded
for acquisition costs $ - $ - $ 59,433
======== ========== ========
Cost of equipment purchased through
capital lease obligation $ 31,450 $ 290,561 $ -
======== ========== ========
Notes payable issued for acqusitions
of BCST and MFP, Inc. $ - $3,750,000 $ -
======== ========== ========
Stock issued for acquisitions
of BCST and MFP, Inc. $ - $4,500,000 $ -
======== ========== ========
Stock issued in connection
with financing $250,000 $ - $ -
======== ========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $795,125 $ 139,097 $ 77,526
======== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Shop at Home, Inc. and its 100% owned subsidiaries, RF Scientific
Transportables, Inc, Broadcast Cable and Satellite Technologies, Inc., and MFP,
Inc., (collectively the "Company"). All of the operating assets of RF
Scientific Transportables, Inc., were sold in the latter part of the year and
subsequently, RF Scientific ceased operations. RF Scientific was in the
business of providing mobile uplink services. All intercompany accounts and
transactions have been eliminated in consolidation.
OPERATIONS
The Company markets various consumer products through a televised "shop at
home" service. The programming is currently broadcast by satellite on a
twenty-four hour day, seven days a week schedule.
Broadcast Cable and Satellite Technologies, Inc.'s (BCST), principal asset
consists of ownership of 49% of the issued and outstanding shares of capital
stock of Urban Broadcasting Systems, Inc., (UBS). UBS held a construction
permit from the FCC, under which the Company constructed television station
KZJL, Channel 61, a full power television station licensed to Houston, TX.
Because of financial dependence of UBS on the Company, UBS has been
consolidated into the accompanying financial statements. See subsequent event
(Note 14).
MFP, Inc., operates a commercial television station, WMFP, Channel 62,
serving the Boston television market area. MFP, Inc. was acquired in February
1995 (Note 13).
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with original maturities of three
months or less to be cash equivalents.
30
<PAGE> 31
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories, which consist of products held for sale such as jewelry and
sports collectibles, are stated at the lower of cost or market with cost being
determined on a first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Expenditures for repairs and
maintenance are expensed as incurred, and additions and improvements that
significantly extend the life of assets are capitalized.
Depreciation is computed under straight line and accelerated methods over
the estimated useful lives of the assets as reflected in the following table:
<TABLE>
<S> <C>
Furniture and fixtures 5 - 7 years
Operating equipment 5 - 30 years
Leasehold improvements 4 years
</TABLE>
SALES RETURNS
The Company allows customers to return merchandise for full credit or
refund if they return the merchandise within 30 days from the date of
receipt. At June 30,1996 and 1995, the Company had recorded provisions of
$1,100,120 and $617,904, respectively, for estimated returns.
REVENUE RECOGNITION
The Company's principal source of revenue is retail sales to viewing
customers. Other sources of revenue include the sale of air time and prior to
the disposition of R. F. Scientific, the sale of uplink truck services. Sales
are recognized upon shipment of the merchandise to the customer. Service
revenue and air time revenue are recognized when the service has been provided
or the air time has been utilized by the user. Deferred revenue consists of
sales proceeds relative to unshipped merchandise.
INCOME TAXES
Shop at Home, Inc. files a consolidated federal income tax return with its
subsidiaries. The companies file separate state returns.
31
<PAGE> 32
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective July 1, 1993, the Company adopted Financial Accounting Standard
Board (FASB) Statement No. 109, "Accounting for Income Taxes" on a prospective
basis. Prior to that date, the Company followed the provisions of Accounting
Principles Board Opinion No. 11 in accounting for income taxes. The adoption
of FASB 109 did not materially affect the 1994 consolidated financial
statements.
LOSS PER SHARE
Loss per share was computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the respective
periods. Common stock equivalents, including options, warrants, and the
convertible preferred stock have been excluded from the computation because
they are antidilutive.
FCC LICENSES
During fiscal 1995 the Company acquired two subsidiaries who own licenses
from the Federal Communications Commission (FCC) under which they operate
television stations. The value ascribed to these FCC licenses in connection
with the acquisitions will be amortized over 40 years. Amortization of these
licenses was $268,562 in 1996 and $53,761 in 1995.
GOODWILL
Management periodically evaluates the net realizability of the carrying
amount of goodwill. Goodwill recorded in connection with the acquisition of
WMFP represents the excess purchase price over the fair value of the net
identifiable assets acquired. The goodwill is being amortized over 40 years
using the straight-line method and amounted to $15,517 for 1996. Goodwill for
R.F. Scientific Transportable, Inc. of $7,787 was written off during 1996.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
32
<PAGE> 33
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of accounts
receivable, accounts payable, accrued expenses and debt. The fair value of
these financial instruments approximate their carrying value.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the FASB issued Statement of Accounting Standards No 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of which i) requires that long-lived assets to be held and used be
reviewed for impairment whenever events or circumstances indicate that the
carrying value of an asset may not be recoverable, ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or the
fair value less costs to sell, and iii) provides guidelines and procedures for
measuring impairment losses that are different from previously existing
guidelines and procedures. The Company adopted the provisions of Statement 121
in fiscal year 1996 and the changes did not have a material effect on the
Company's financial position or results of operations.
STOCK-BASED COMPENSATION
Additionally, in October 1995, the FASB issued Statement of Accounting
Standards No. 123, Accounting and Disclosure of Stock-Based Compensation which
encourages but does not require companies to recognize stock awards based on
their fair value at the date of grant. The Company currently follows, and
expects to continue to follow, the provisions of Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Although the Company is permitted to continue to follow
the provisions of APB 25 under Statement 123, certain pro forma disclosures will
be required beginning in 1996, as if Company had accounted for its stock
options under the Statement 123 fair value method. No such options were issued
in fiscal year 1996.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified for comparative purposes to conform with the current year
presentation.
33
<PAGE> 34
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following major classifications at
June 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Leasehold improvements $ 285,074 $ 281,116
Operating equipment 4,736,119 4,983,903
Furniture and fixtures 194,651 190,783
---------- -----------
5,215,844 5,455,802
Accumulated depreciation (1,745,618) (1,517,863)
---------- -----------
Property and equipment, net $3,470,226 $3,937,939
========== ===========
</TABLE>
Depreciation expense totaled $585,995, $463,496, and $394,602 for the
fiscal years ended June 30, 1996, 1995, and 1994 respectively.
NOTE 3 - CAPITAL LEASES
The Company has acquired various equipment under the provisions of long
term leases.
Equipment held under capital leases, which is included in property and
equipment is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Operating equipment $660,032 $566,482
Less accumulated depreciation (396,267) (238,269)
-------- --------
$263,765 $328,213
======== ========
</TABLE>
Future minimum lease payments under capitalized leases are as follows at
June 30, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 $ 126,967
1998 56,184
1999 3,348
----------
Total minimum lease payments 186,499
Less amount representing interest (23,406)
Present value of minimum lease payments 163,093
Less current portion (109,444)
----------
Long term portion $ 53,649
==========
</TABLE>
34
<PAGE> 35
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long term debt consist of the following at June 30: 1996 1995
---- ----
<S> <C> <C>
Note payable to bank collateralized by uplink truck
and equipment.
This loan was paid in full on August 17, 1995. - $ 312,819
Note payable bearing interest at 8%, due in equal
monthly installments of principal of $20,833,
plus interest through June 6, 2000, collateralized
by common stock of BCST. $1,000,000 1,250,000
Notes payable due in April 2000, with interest
payable at 12% quarterly, collateralized by
certain equipment. 800,000 800,000
Note payable bearing interest at 9.5% due in
monthly installments of $26,106 with a
balloon payment due in March 2000. 2,399,858 2,480,908
Note payable to related party bearing interest
at 15% due in monthly installments of $9,700,
collateralized by certain equipment. 435,101 463,933
Note payable in monthly installments of $3,000,
including interest at 6.57% repaid in 1996. - 32,136
Note payable to related party bearing interest at
prime plus 2% (10.75% at June 30, 1996) due in monthly
installments of principal and interest totaling
$43,494 through September 1, 2000.* 1,775,366 -
Total long term debt 6,410,325 5,339,796
Less current maturities (741,262) (924,720)
---------- ----------
Long term debt less current portion $5,669,063 $4,415,076
========== ==========
</TABLE>
* This note originated in August 1995, at $2,000,000 payable to Global Network
Television, Inc. (Global), J.D. Clinton, a director of the Company is the sole
shareholder and Chairman of Global and that Corporation is an indirect
principal shareholder of the Company. The loan is collateralized by a
security interest in inventory, accounts receivable, certain equipment,
furniture and fixtures, as well as stock of MFP, Inc. and an assignment of
the proceeds of any sale of the FCC license of station WMFP. The note is
convertible into common stock of the Company at a conversion rate of $3 per
common share of principal.
35
<PAGE> 36
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate future required principal payments at June 30, 1996 for the
above liabilities are as follows:
<TABLE>
<S> <C>
1997 $ 741,262
1998 798,332
1999 862,168
2000 933,501
2001 3,072,141
----------
$6,407,404
==========
</TABLE>
NOTE 5 - REDEEMABLE PREFERRED STOCK
The following is a brief summary of the terms and conditions of Series A
of the preferred stock of the Company issued in connection with the acquisition
of MFP, Inc. This summary is qualified in its entirety by reference to the
Company's charter provisions with respect to the preferred stock.
During fiscal year 1995, the Company issued 140,000 shares of preferred
stock, $10.00 par value, in connection with a merger with MFP, Inc., a Delaware
corporation. The Series A preferred stock will rank ahead of the common stock
with respect to dividends, preferences, qualifications, limitations,
restrictions and the distribution of assets upon liquidation. Shares of Series
A preferred stock have no preemptive rights and no voting rights, except those
rights provided by statute. Each holder of Series A preferred stock will have
the option to require the Company to redeem their shares, after 5 years from
date of issuance, for $10.00 per share plus any accumulated and unpaid
dividends. Prior to redemption, Series A preferred stock is convertible into
shares of common stock at a ratio of one share of common stock for one share of
Series A preferred stock.
Holders of shares of Series A preferred stock are entitled to receive, but
only when and if declared by the Board of Directors of the Company out of funds
legally available, cash dividends at the rate of 1% per annum (i.e., $.10 per
share per annum) of par value per share.
Dividends on each share of Series A preferred stock accrue and are
cumulative from (but not including) the date of its original issuance on the
basis of an annual dividend period. For any dividend period, no dividends may
be paid or declared and set apart for payment on any common stock, or any other
series of preferred stock at the time outstanding, unless dividends properly
accumulated in respect to the Series A stock and all other series of preferred
stock senior to or on a parity therewith for all prior dividend periods shall
have been paid or declared and set apart for payment.
36
<PAGE> 37
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the event of a liquidation, dissolution and winding up of the Company,
whether voluntary or involuntary, the registered holders of shares of Series A
preferred stock then outstanding shall be entitled to receive out of the assets
of the Company, before any distributions to the holders of common stock or any
other junior stock, an amount equal to the "Liquidation Preference" with
respect to such shares of Series A preferred stock. The Liquidation Preference
for the Series A preferred stock is $10.00 per share, plus an amount equal to
all dividends thereon (whether or not declared) accrued and unpaid through the
date of final distribution. For those purposes a sale of substantially all of
the assets of the Company to a third party, or the consummation of the Company
or its shareholders of any transaction with any single purchaser whereby a
change in control of more than fifty percent (50%) of the issued and
outstanding shares of common stock of the Company occurs, will be considered a
liquidation, dissolution and winding up of the Company entitling the holders of
Series A preferred stock to payment of the Liquidation Preference.
No class of the Company's capital stock is presently outstanding that
possesses rights with respect to distributions upon liquidation, dissolution
and winding up senior to the Series A preferred stock. So long as the Series A
preferred stock remains outstanding, the Company may not issue any capital
stock, including preferred stock of any series, that ranks senior to the Series
A preferred stock with respect to liquidation, dissolution and winding up.
As of June 30, 1996 and 1995, the Company was $19,000 and $5,000
respectively, in arrears of its dividend payments due. These dividend payments
are payable only when declared by the Board of Directors.
37
<PAGE> 38
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK
In August 1995, Shop at Home, Inc. issued, to a related party, 100,000
shares of common stock in connection with the securing of $2,000,000 of long
term debt (Note 4) from the related party; in September the Company issued
2,000 shares in conversion of its Redeemable Preferred Stock (Note 5); in
October 1995 and May 1996, the Company issued a total of 126,000 shares in
connection with the exercise of employee stock options (Note 10); and during
the period of March through June 1996, Shop at Home, Inc. issued a total of
203,175 shares of common stock, of which 44,000 shares were issued as payment
of payable obligations and 159,175 shares were issued in exchange for certain
sport cards and collectibles acquired for resale (Note 8). By agreement, the
stock was valued at $3.00 per share or approximately $609,000. The Company has
19,519 additional shares remaining to be issued under this agreement.
On June 30, 1994, Shop at Home, Inc. sold 400,000 shares of its common
stock for $2.00 per share and also sold for $240,000 an option to purchase up
to 600,000 additional shares of common stock at a purchase price of $2.50 per
share. This option may be exercised at any time after December 31, 1995, but
on or before June 30, 1999. During fiscal 1994 the Company also issued 125,454
shares of Common Stock valued at $316,028 in exchange for inventory acquired
for resale and to satisfy outstanding payable obligations.
Effective June 9, 1993, an agreement was entered into between Shop at
Home, Inc., SAH Holdings, L.P. and Global Network Television, Inc., whereby
Shop at Home, Inc. agreed to sell 1,000,000 shares of its common stock to SAH
Holdings at $1.00 per share. The Company also agreed to sell to SAH Holdings a
warrant to acquire 1,300,000 shares of common stock in Shop at Home, Inc. for a
purchase price of $1.00 per share. The common stock and warrant were sold to
SAH Holdings on August 6, 1993 for $1,130,000. The warrant is exercisable
through August 6, 1997. The Company agreed to sell to SAH Holdings an
additional warrant to acquire up to 2,000,000 shares of common stock for a
purchase price of $1.00 per share. This warrant was sold for $400,000 and is
exercisable on various dates through 1997. The Company paid a transaction fee
to Media One, Inc., a related party, of $75,000 and legal fees of $44,882 for
costs associated with these transactions.
In fiscal 1995 the Company also issued shares of common and preferred
stock in connection with the acquisitions of BCST and MFP, Inc. For details
of those issuances see Notes 12 and 13.
38
<PAGE> 39
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The components of temporary differences and the approximate tax effects
that give rise to the Company's net deferred tax liability at June 30, 1996 and
1995, are as follows:
<TABLE>
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards $ 2,324,269 $ 2,110,797
Other 384,495 198,572
Valuation allowance (1,263,991) (901,850)
----------- ------------
Total deferred tax assets 1,444,773 $ 1,407,519
----------- ------------
Deferred tax liabilities:
License 3,331,736 3,369,167
Depreciation 115,373 144,081
----------- ------------
Total deferred tax liabilities 3,447,109 3,513,248
----------- ------------
Net deferred tax liabilities $ 2,002,336 $ 2,105,729
=========== ============
Current deferred tax asset $ 80,000 $ 198,572
Long-term deferred tax liabilities (2,082,336) (2,304,301)
----------- ------------
Net deferred tax liabilities $(2,002,336) $ (2,105,729)
=========== ============
</TABLE>
39
<PAGE> 40
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1996 the Company had net operating loss carry forwards which
expire as follows:
<TABLE>
<S> <C>
June 30, 2002 $ 125,164
June 30, 2003 806,757
June 30, 2004 664,610
June 30, 2008 2,331,197
June 30, 2009 819,270
June 30, 2010 754,918
June 30, 2011 614,062
----------
$6,115,978
==========
</TABLE>
Income tax benefit varies from the amount computed by applying the federal
corporate income tax rate of 34% to loss before tax benefit as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Computed "expected" income tax benefit $(499,732) $(435,876)
Increase (decrease) in income tax benefit
resulting from:
State income tax benefit, net
of federal effect (58,792) (51,280)
Change in valuation allowance 362,411 476,582
Nondeductible portion of meals
and entertainment 8,480 10,574
Other 84,239 -
--------- ---------
Actual income tax benefit $(103,394) $ 0
========= =========
</TABLE>
In connection with the acquisitions of BCST and MFP, Inc., the Company
reduced the valuation allowance for deferred tax assets by an aggregate of
$1,263,438, representing the effect of the deferred tax liabilities expected to
reverse in the net operating loss carry forward period. The reduction of the
valuation allowance was effected by reducing intangible asset balances recorded
as a result of the acquisitions.
Recognition of a deferred tax asset is based on management's belief that
it is more likely than not that the tax benefit associated with certain
temporary differences will be realized through the amortization of the license
intangible.
40
<PAGE> 41
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS
TRANSPONDER USE AGREEMENT
In December 1995, the Company's transponder lease with AT&T's 402R became
effective. This lease calls for initial monthly payments of $96,000 in the
first year and increasing to $105,000 and $115,000 in year two and three
respectively. Transponder expense was $1,379,000 in 1996, $1,281,000 in 1995,
and $812,000 in 1994.
In December 1994, the Company entered into a transponder use agreement
for one year with Broadcast International, Inc. for the use of one 36 MHZ
transponder on Satellite Spacenet 3. The agreement called for rental payments
of $80,000 per month and terminated in December 1995.
On April 1, 1993, the Company entered into a transponder use agreement
with B&P The Space connection for the use of one 36 MHZ, C-band transponder on
satellite Galaxy III. The agreement required rental payments of $40,000 per
month and terminated on December 31, 1994.
PURCHASE COMMITMENT
During 1994, the Company entered into an agreement to purchase, over a
period of 18 months, $1,750,000 of inventory, of which 50% may be paid for with
the Company's common stock. The Company also has an option to purchase an
additional $1,750,000 of this inventory. Terms on this commitment require the
Company to pay the greater of $97,222 per month or the value of the actual
inventory shipped during the month. Any amount up to one-half of the
contractual commitment may be satisfied through the issuance of Company common
stock on terms as set forth in the contract. To satisfy part of this
requirement, the Company issued 100,454 shares of its common stock to this
vendor for inventory purchased in 1994.
The Company issued stock under terms specified in the agreement valued at
$241,028 during the year ended June 30, 1994 in connection with this
transaction. Additionally, the Company sold $175,000 of the inventory back to
the stockholder for $350,000 during the year ended June 30, 1994. The
stockholder has assigned to the Company all of his rights to the license to
sell the inventory, and thus had to purchase inventory from the Company for
resale to third parties.
At June 30, 1995, the Company had purchased $624,200 of inventory under
the terms of this agreement.
41
<PAGE> 42
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1996, the Company entered into a "Restated Agreement" whereby
it was obligated to purchase the remaining balance of merchandise it had not
acquired of approximately $720,000. The payment of which was part in cash and
part in stock. (Note 6). As of June 30, 1996 the remaining obligation under
this revised agreement was approximately $57,500.
LEASE COMMITMENTS
The Company leases its Knoxville office and studio space from William and
Warren, Inc., an entity owned by a principal owner and director of the Company.
Payments under this lease totaled $143,325, $132,592, and $136,933 in fiscal
years ended June 30, 1996, 1995, and 1994, respectively.
The Company has agreements with various carriers to lease air time. The
terms of the agreements vary from week to week to one year periods.
The expenses for leased air time, primarily for cable access fees, was
$4,646,000 in 1996, $1,945,000 in 1995 and $1,118,000 in 1994.
Rental expense for the office and studio and miscellaneous equipment was
$483,059, $184,434 and $148,619, for the fiscal years ended June 30, 1996, 1995,
and 1994 respectively.
NOTE 9-RELATED PARTY TRANSACTIONS
During the fiscal years ended June 30, 1996, 1995, and 1994, the Company
engaged in significant transactions with the Company's directors, significant
stockholders, officers or interests of these parties. The following is a
summary of major transactions with these related parties not disclosed
elsewhere in the consolidated financial statements or notes thereto:
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PURCHASES - MERCHANDISE
V.J.M. (Victor Mueller) $ 795,689 $989,272 $ 578,775
Howards Sports Collectibles 2,116,088 553,462 1,389,227
Combine International, Inc. 452,348 98,843 158,005
OTHER OPERATING EXPENSES
Lakeway Container 63,978 81,827 25,370
Airbank 22,213 37,604 27,673
MediaOne - 157,567 224,359
</TABLE>
42
<PAGE> 43
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the year ended June 30, 1995, the Company contracted with MediaOne,
Inc., to provide certain consulting services to the Company. A director and
officer of MediaOne, Inc., also serves as a director of the Company. In
addition, MediaOne, Inc., acted as the commissioned broker for MFP, Inc., a
Delaware corporation, from whom the Company acquired Television Station WMFP,
Lawrence, Massachusetts. In consideration of its services, MediaOne was owed
approximately $115,000 by the Company at June 30, 1995.
NOTE 10 - STOCK OPTIONS
In 1991, the Company adopted a stock incentive plan for eligible
employees. A special administrative committee of the Board of Directors was
appointed to administer the plan. All employees of the Company are eligible
to receive stock options and/or stock appreciation rights ("SARs") under the
plan. Options granted under the plan can be either incentive stock options or
nonqualified stock options. Incentive stock options to purchase common stock
may be granted at not less than 100% of the fair market value of the common
stock on the date of the grant.
SARs generally entitle the participant to receive the excess of the fair
market value of a share of common stock on the date of exercise over the
initial value of the SAR. The initial value of the SAR is the fair market
value of a share of common stock on the date of the grant.
Options and SARs granted under the plan become exercisable immediately in
the event 80% or more of the Company's outstanding stock or substantially all
of its assets are acquired by a third party.
A maximum of 1,500,000 shares of common stock may be issued upon the
exercise of options and SARs. From its adoption through June 30, 1996, stock
options for 635,000 shares of common stock have been granted under the plan.
No option or SAR may be granted after October 15, 2001. No option that is
an incentive stock option and any corresponding SAR that related to such option
shall be exercisable after the expiration of ten years from the date such
option or SAR was granted or five years after the expiration in the case of any
such option or SAR that was granted to a 10% stockholder.
Additionally, 1,150,000 common shares (830,000 vested) were reserved for
options granted to certain executive officers, directors, employees and others
as of June 30, 1996. These options vest annually over a period of five years
and expire the earlier of five years from the date of vesting or 30 days after
termination of employment.
43
<PAGE> 44
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity and price information regarding stock options including the
option to acquire 600,000 shares of common stock discussed in Note 6 are as
follows:
<TABLE>
<CAPTION>
Shares Price Range
-------- -------------
<S> <C> <C>
Balance June 30, 1993 60,000 $1.00 - $2.37
Granted 1,400,000 $1.00 - $2.88
--------- -------------
Balance June 30, 1994 1,460,000 $1.00 - $2.88
Granted 170,000 $2.13 - $2.88
--------- -------------
Balance June 30, 1995 1,630,000 $1.00 - $2.88
Granted 325,000 $2.81 - $3.25
Exercised (126,000) $1.00 - $2.44
Canceled (44,000) $2.44 - $2.81
--------- -------------
Balance June 30, 1996 1,785,000 $1.00 - $3.25
========= =============
</TABLE>
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk include cash on deposit in a financial
institution. Management believes the financial institution holding the cash is
financially sound.
The television home shopping business in general is seasonal, with the
major selling season occurring the last quarter of the calendar year. The home
shopping industry is also sensitive to general economic conditions and business
conditions affecting consumer spending. The Company's product lines include
jewelry, sports cards, sports memorabilia, collectibles, and other unique items
that may make it more sensitive to economic conditions.
NOTE 12 - ACQUISITION OF BROADCAST CABLE & SATELLITE TECHNOLOGIES, INC.
On December 6, 1994, the Company purchased all of the issued and
outstanding capital stock of Broadcast, Cable and Satellite Technologies, Inc.,
a Texas corporation from Television Media Resources, L.C., a Texas limited
liability company. The purchase price consisted of (a) $250,000 paid in cash to
TMR, (b) the issuance to TMR of 389,215 shares of common stock, valued at $2.57
per share and (c) the delivery to TMR of the Company's promissory note in the
principal amount of $1,250,000.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of BCST have been included in the
consolidated operating results since the date of acquisition. The purchase
price, including the acquisition costs, was allocated to the net assets
acquired based on fair values at the date of acquisition as follows:
44
<PAGE> 45
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FCC License $ 2,668,846
Goodwill 993,000
Other assets 68,031
Deferred tax liability (993,000)
Accounts payable (179,740)
Debt assumed (32,137)
-----------
$ 2,525,000
===========
</TABLE>
The principal asset of BCST consists of the ownership of 49% of the issued
and outstanding shares of capital stock of Urban Broadcasting Systems, Inc.,
("UBS"). UBS held a construction permit from the FCC which was utilized to
construct Television Station KZJL, Channel 61, a full-power television station
licensed in Houston, Texas. Construction was completed and the station became
operational in June 1995. The remaining 51% of the stock of UBS is owned by
Charles E. Walker, a resident of the State of California.
During the ninety (90) day period immediately following the first
anniversary of the Houston station's commencement of regular program test
operations, BCST has the option to purchase the 51% capital stock ownership in
UBS held by Walker for the lesser of $1,400,000 or 51% of the appraised value
of UBS as of the date the option is exercised. On September 5, 1996 the Company
executed this option (Note 14).
The purchase price for Walker's 51% ownership interest in UBS is payable
by delivering to Walker a promissory note in the principal amount of the
purchase price, which note which bears interest at the rate of 6%, payable
interest only monthly for the first twelve (12) months, and thereafter
principal and interest in equal monthly payments over a period of 120 months.
The note is secured by a pledge of the stock of UBS.
BCST was organized in April 1993 and had not commenced operations at the
time of acquisition. BCST had not generated any revenues from operations and
had minimal organizational related expenses.
NOTE 13 - ACQUISITION OF MFP, INC.
On February 24, 1995, the Company purchased all of the issued and
outstanding capital stock of MFP, Inc. through a merger with SAH Merger Corp.,
a newly formed Tennessee corporation and a wholly owned subsidiary of Shop at
Home, Inc., MFP, Inc. operates a commercial television station, WMFP, Channel
62, serving the Boston television market area. Under the agreement, the
Company paid the shareholders of MFP, Inc., a total consideration of
$7,000,000.
45
<PAGE> 46
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total consideration of $7,000,000 was comprised of $1,000,000 cash and
assumption of liabilities, $2,500,000 in notes payable, the issuance of 896,747
shares of common stock valued at $2,100,000 and $1,400,000 in preferred stock.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of MFP have been included in the
consolidated operating results since the date of acquisition. The purchase
price, including the acquisition costs, was allocated to the net assets
acquired based on appraised fair values at the date of acquisition as follows:
<TABLE>
<S> <C>
FCC License $ 8,960,813
Property & equipment 615,000
Deferred tax liability (2,376,000)
-----------
$ 7,199,813
===========
</TABLE>
The unaudited consolidated pro forma operating data for the Company,
assuming the acquisition of BCST and MFP, Inc. occurred on July 1, 1993, are
set forth below. It should be noted that BCST had no revenues for the periods
prior to the acquisition as the broadcast facility had not been constructed.
Accordingly, the unaudited pro forma information does not include amortization
of the intangible assets of BCST during the 1995 period.
<TABLE>
<CAPTION>
UNAUDITED
---------
June 30, 1995 June 30, 1994
------------- -------------
<S> <C> <C>
Revenues $27,376,119 $22,567,430
Net loss 2,166,932 1,920,967
Net loss per share $ .21 $ .20
</TABLE>
The unaudited pro forma information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions been consummated as of the above date,
nor are they indicative of future operating results.
NOTE 14 - SUBSEQUENT EVENT
On September 5, 1996, the Company, through BCST, exercised its option to
acquire the remaining 51% of KZJL-Houston. The exercise price was $1,400,000
payable with 6% interest over 11 years with interest only payable in year
one (Note 12).
46
<PAGE> 47
SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information with respect to directors and executive officers of the
Company in the Company's definitive Proxy Statement for the annual Meeting of
Shareholders planned to be held December 6, 1996 (the "Proxy Statement") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Remuneration of Directors and
Officers" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to security ownership by management as set
forth in the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in the
Proxy Statement is incorporated herein by reference.
47
<PAGE> 48
SHOP AT HOME, INC. AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following financial statements are included in
Item 8 of Form 10-K:
1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Operations for the years
ended June 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994.
Notes to the Consolidated Financial Statements
2. Financial Statement Schedule Page
Independent Auditors' Report on
Financial Statement Schedule 49
Schedule II Valuation and Qualifying Accounts 50
The other schedules are omitted because the required
information is either inapplicable or has been disclosed in
the consolidated financial statements and notes thereto.
3. Exhibits
The Index to Exhibits is at page 51.
(b) Reports on Form 8-K
None
48
<PAGE> 49
INDEPENDENT AUDITORS' REPORT ON FINANCIAL
STATEMENT SCHEDULE
Our report on the consolidated financial statements of Shop at Home, Inc.
and Subsidiaries as of June 30, 1996 and 1995 and for each of the three years
in the period ended June 30, 1996 is included on page 23 of this Form 10-K.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on page 48
of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Knoxville, Tennessee COOPERS & LYBRAND L.L.P.
September 6, 1996
49
<PAGE> 50
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING RETURNS AND AT END
OF YEAR ALLOWANCES DEDUCTIONS (1) OF YEAR
---------- ----------- -------------- -------
<S> <C> <C> <C> <C>
Year ended June 30, 1994
Estimated credits
due to customers $509,956 $ 4,204,522 $4,242,600 $ 471,878
======== =========== ========== ==========
Year ended June 30, 1995
Estimated credits
due to customers $471,878 $ 4,863,486 $4,717,460 $ 617,904
======== =========== ========== ==========
Year ended June 30, 1996
Estimated credits
due to customers $617,904 $10,147,556 $9,665,340 $1,100,120
======== =========== ========== ==========
</TABLE>
(1) Merchandise returned
50
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated May 17, 1994, among
Shop at Home, Inc., SAH Merger Corp., and MFP, Inc., filed
as Exhibit 2.1 to the Company's Registration Statement on
Form S-4 filed with the Commission on October 26, 1994,
and incorporated herein by this reference.
2.2 First Amendment to Agreement and Plan of Merger, dated
November 11, 1994, among Shop at Home, Inc., SAH Merger
Corp., and MFP, Inc., filed as Exhibit 2.2 to the
Company's Registration Statement on Form S-4 filed with
the Commission on December 28, 1994, and incorporated
herein by this reference.
2.3 Articles of Merger of SAH Merger Corp. and MFP, Inc.,
recorded in Tennessee on February 24, 1995, filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed with the Commission on March 2, 1995, and
incorporated herein by this reference.
3(i).1, 4.1 Charter of the Company, filed as Exhibit 3.1 to the
Company's Annual Report Form 10-K for the fiscal year
ended June 30, 1993, and incorporated herein by this
reference.
3(i).2, 4.2 Charter amendment recorded February 17, 1995, filed as
Exhibit 4.3 to the Company's Current report on Form 8-K
filed with the Commission on March 2, 1995, and
incorporated hereby by this reference.
3(ii), 4.3 Bylaws of the Company, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K filed with the
Commission for the fiscal year ended June 30, 1993, and
incorporated herein by this reference.
4.1 Form of Trust Indenture dated February 23, 1995, filed as
Exhibit 4.5 to the Company's Current Report on Form 8-K
filed with the Commission on March 2, 1995, and
incorporated herein by this reference.
</TABLE>
51
<PAGE> 52
4.2 Form of Promissory Note of the Company issued to the
indenture trustee under the Trust Indenture dated February
23, 1995, filed as Exhibit 4.6 to the Company's Current
Report on Form 8-K filed with the Commission on March 2,
1995, and incorporated herein by this reference.
4.3 Specimen of Common Stock certificate, filed as Exhibit 4.8
to the Company's Registration Statement on Form S-4 filed
with the Commission on December 28, 1994, and incorporated
herein by this reference.
4.4 Specimen of Preferred Stock certificate, filed as Exhibit
4.9 to the Company's Amendment No. 1 to the Registration
Statement on Form S-4 filed with the Commission on January
20, 1995, and incorporated herein by this reference.
4.5 Specimen of Note Certificate, filed as Exhibit 4.10 to the
Company's Registration Statement on Form S-4 filed with
the Commission on December 28, 1995, and incorporated
herein by this reference.
10.1 Company's Omnibus Stock Option Plan, filed as Exhibit 10.3
to the Company's Annual Report on Form 10-K filed with
the Commission for the fiscal year ended June 30, 1992,
and incorporated herein by this reference.
10.2 Lease dated April 1, 1993, between Shop at Home, Inc. and
Book Ends Discount Bookstores, Inc., filed as Exhibit 10.5
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993, and incorporated herein by this
reference.
10.3 Lease dated July 1, 1994 between Shop at Home, Inc. and
William & Warren, Inc., filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-4 filed with
the Commission on December 28, 1994, and incorporated
herein by this reference.
10.4 Form of Transponder Use Agreement dated April 1, 1993
between Shop at Home, Inc. and B & P The Spaceconnection,
filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993, and
incorporated herein by this reference.
10.5 Transponder Use Agreement dated June 6, 1994, between Shop
at Home, Inc. and Broadcast International, Inc., filed
52
<PAGE> 53
as Exhibit 10.5 to the Company's Registration Statement on Form S-4
filed with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.6 Form of Transponder Lease Agreement dated December 21, 1994,
between Shop at Home, Inc. and Broadcast International, Inc., filed
as Exhibit 10.7 to the Company's Registration Statement on Form S-4
filed with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.7 Stock and Warrant Purchase Agreement dated June 9, 1993, between
Shop at Home, Inc., SAH Holdings, L.P., and Global Network
Television, Inc., filed as Exhibit B to the Statement on Schedule
13D of SAH Holdings, L.P., filed with the Commission on June 18,
1993, and incorporated herein by this reference.
10.8 First Amendment to Stock and Warrant Purchase Agreement dated July
12, 1993, between Shop at Home, Inc., SAH Holdings, L.P., and
Global Network Television, Inc., filed as Exhibit E to the
Statement on Schedule 13D of SAH Holdings, L.P., filed with the
Commission on July 27, 1993, and incorporated herein by this
reference.
10.9 Agreement dated December 8, 1993, between Richard Howard, Inc. and
Shop at Home, Inc., filed as Exhibit 10.10 to the Company's
Registrant Statement on Form S-4 filed with the Commission on
December 28, 1994, and incorporated herein by this reference.
10.10 Form of Employment Agreement between Kent E. Lillie and Shop at
Home, Inc., filed as Exhibit B to the Company's Current Report on
Form 8-K filed with the Commission on September 17, 1993, and
incorporated herein by this reference.
10.11 Form of Warrant to Purchase Shares dated September 7, 1993, between
Shop at Home, Inc. and SAH Holdings, L.P., filed as Exhibit A to
the Company's Current Report on Form 8-K filed with the Commission
on September 17, 1993, and incorporated herein by this reference.
10.12 Form of Option Agreement for options issued to employees,
executive officers and others, filed as Exhibit 10.13 to
the Company's Registrant Statement on Form S-4 filed with
the Commission on December 28, 1994, and incorporated
53
<PAGE> 54
herein by this reference.
10.13 Agreement dated June 30, 1994, between Combine
International, Inc. and Shop at Home, Inc, filed as
Exhibit 10.14 to the Company's Registrant Statement on
Form S-4 filed with the Commission on December 28, 1994,
and incorporated herein by this reference.
10.14 1994 $2.50 Common Stock Purchase Option dated June 30,
1994, issued to Combine International, Inc., filed as
Exhibit 10.15 to the Company's Registrant Statement on
Form S-4 filed with the Commission on December 28, 1994,
and incorporated herein by this reference.
10.15 Description of agreement with MediaOne, Inc. for consulting
services, filed as Exhibit 10.16 to the Company's
Registrant Statement on Form S-4 filed with the Commission
on December 28, 1994, and incorporated herein by this
reference.
10.16 Stock Purchase Agreement dated December 6, 1994, by and
between the Company and Television Media Resources, L.C.,
filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K filed with the Commission on December 20, 1994,
and incorporated herein by this reference.
10.17 Promissory Note dated December 6, 1994, in the original
principal amount of $1,250,000, the maker of which is
Registrant and the original payee of which is Television
Media Resources, L.C., filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.18 Security Agreement and Pledge Agreement dated December 6,
1994, by and between Registrant and Television Media
Resources, L.C., filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this
reference.
10.19 Letter Agreement dated December 6, 1994, by and between
Registrant and Charles E. Walker, filed as Exhibit 10.3 to
the Company's Current Report on Form 8-K filed with the
54
<PAGE> 55
Commission on December 20, 1994, and incorporated herein
by this reference.
10.20 Majority Partnership Interest and Majority Stock Purchase
Option by and among Charles E. Walker, Urban Broadcasting
Systems and Broadcast, Cable and Satellite Technologies,
Inc., filed as Exhibit 10.4 to the Company's Current
Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
10.21 Form of Majority Partnership Interest and Majority Stock
Purchase Agreement by and among Charles E. Walker, Urban
Broadcasting Systems and Broadcast, Cable and Satellite
Technologies, Inc., filed as Exhibit 10.5 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this
reference.
10.22 Minority Partnership Interest and Minority Stock Purchase
Agreement dated May 15, 1993, by and among Charles E.
Walker, Urban Broadcasting Systems and Broadcast, Cable
and Satellite Technologies, Inc., filed as Exhibit 10.6 to
the Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.23 Modification, Ratification and Consent by and among
Charles E. Walker, Urban Broadcasting Systems, Urban
Broadcasting Systems, Inc., Television Media Resources,
L.C., and Broadcast, Cable and Satellite Technologies,
Inc., filed as Exhibit 10.7 to the Company's Current Report
on Form 8-K filed with the Commission on December 20, 1994,
and incorporated herein by this reference.
10.24 Restated Majority Partnership Interest and Majority Stock
Purchase Option by and among Charles E. Walker, Urban
Broadcasting Systems and Broadcast, Cable and Satellite
Technologies, Inc. dated as of May 15, 1993, filed as
Exhibit 10.8 to the Company's Current Report on Form 8-K
filed with the Commission on December 20, 1994, and
incorporated herein by this reference.
10.25 Restated Construction Agreement dated as of May 15, 1993,
by and among Charles E. Walker, Urban
55
<PAGE> 56
Broadcasting Systems, Broadcast, Cable and Satellite
Technologies, Inc., and Spectrum Communications and
Engineering, Inc., filed as Exhibit 10.9 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this reference.
10.26 Engineering Services Agreement dated as of December 14,
1993 by and between Broadcast, Cable and Satellite
Technologies, Inc., and Spectrum Communications and
Engineering, Inc., filed as Exhibit 10.10 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this
reference.
10.27 Form of Employment Agreement by and between Urban
Broadcasting Systems, Inc. and Charles E. Walker, filed as
Exhibit 10.11 to the Company's Current Report on Form 8-K
filed with the Commission on December 20, 1994, and
incorporated herein by this reference.
10.28 Form of Time Brokerage Agreement dated December 14, 1993,
by and between Urban Broadcasting Systems and Broadcast,
Cable and Satellite Technologies, Inc., filed as Exhibit
10.12 to the Company's Current Report on Form 8-K filed
with the Commission on December 20, 1994, and incorporated
herein by this reference.
10.29 Form of Escrow Agreement by and between Registrant,
Charles E. Walker and U.S. Trust Company of Texas, N.A.,
filed as Exhibit 10.13 to the Company's Current Report on
Form 8-K filed with the Commission on December 20, 1994,
and incorporated herein by this reference.
10.30 Form of Promissory Note in the principal amount of
$750,000.00, the maker of which is Broadcast, Cable and
Satellite Technologies, Inc., payable to Charles E.
Walker, filed as Exhibit 10.14 to the Company's Current
Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
10.31 Form of Security Agreement by and between Charles E.
Walker and Broadcast, Cable and Satellite Technologies,
Inc., filed as Exhibit 10.15 to the Company's Current
Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
56
<PAGE> 57
10.32 Lease Agreement dated December 28, 1993, by and between H
& C Communications, Inc. and Broadcast, Cable and Satellite
Technologies, Inc., filed as Exhibit 10.16 to the
Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.33 Agreement dated as of December 17, 1993, by and between
Blue Ridge Tower Corporation and Broadcast, Cable and
Satellite Technologies, Inc., filed as Exhibit 10.17 to
the Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.34 Amendment to Agreement dated December 17, 1993, by and
between Blue Ridge Tower Corporation and Broadcast, Cable
and Satellite Technologies, Inc., filed as Exhibit 10.18
to the Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.35 Letter to Shop at Home, Inc., from the directors of MFP,
Inc., dated November 11, 1994, filed as Exhibit 10.36 to
the Company's Registration Statement on Form S-4 filed
with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.36 Programming Agreement between Shop at Home, Inc., and MFP,
Inc., dated November 11, 1994, filed as Exhibit 10.37 to
the Company's Registration Statement on Form S-4 filed
with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.37** Variable Rate Convertible Secured Note Due 2000 of the _____
Company dated August 16, 1995
10.38** Security Agreement dated August 16, 1995, by and between _____
the Company, MFP, Inc., and Global Network Television,
Inc.
10.39** Restated Agreement dated January 26, 1996, and the First _____
Amendment thereto dated March 7, 1996, by and between
Richard Howard, Inc., and the Company
10.40** Majority Stock Purchase Agreement dated June 3, 1996, by _____
and between Charles E. Walker, Broadcast, Cable and
57
<PAGE> 58
Satellite Technologies, Inc., and Urban Broadcasting
Systems, Inc.
10.41** Promissory Note dated September 5, 1996, made by the _____
Company and Broadcast, Cable and Satellite Technologies,
Inc., payable to Charles E. Walker.
10.42** Security Agreement dated September 5, 1996, by and between _____
Broadcast, Cable and Satellite Technologies, Inc., and
Charles E. Walker.
21.1** Subsidiaries of the Company _____
_____
27** Financial Data Schedule (for SEC use only) _____
**Filed herewith
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SHOP AT HOME, INC.
By: /s/ Date: 9/30/96
------------------------------------- -------------------
Kent E. Lillie
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Date: 9/30/96
------------------------------------- --------------------
Joseph Nawy
(Vice President-Finance)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Company and in the capacities on the dates indicated.
Date: 9/30/96 /s/
--------------------- -----------------------------------
J.D. Clinton, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
W. Paul Cowell, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
Kent E. Lillie, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
Joseph I. Overholt, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
A.E. Jolley, Director
Secretary / Treasurer
Date: 9/30/96 /s/
--------------------- -----------------------------------
Frank A. Woods, Director
59
<PAGE> 1
EXHIBIT 10.37
SHOP AT HOME, INC.
VARIABLE RATE CONVERTIBLE SECURED NOTE DUE 2000
August 16, 1995
Registered Owner: Global Network Television, Inc.
Principal Amount: $2,000,000
KNOW ALL MEN BY THESE PRESENTS: That Shop at Home, Inc., a Tennessee
corporation (the "Company"), hereby acknowledges itself to owe and for value
received promises to pay to the Registered Owner hereinabove identified, or
registered assigns as hereinafter provided, on the dates hereinafter set forth,
the Principal Amount hereinabove identified and to pay interest on such
principal amount from the date of this Note at the variable rate of interest
per annum hereinafter set forth.
Interest shall accrue on the unpaid principal balance of this Note at
a rate of interest which is two percentage points (2.0%) in excess of the Prime
Rate of interest as herein defined, as adjusted from time to time. Interest
shall be computed on a 360 day year basis.
The Prime Rate is defined to mean the Prime Rate of interest rate
published from time to time by The Wall Street Journal as such rate and shall
be computed on the daily outstanding principal balance of the indebtedness
evidenced hereby. In the event more than one rate is published as the Prime
Rate, the Prime Rate shall be the highest Prime Rate of interest published. If
at any time or from time to time the Prime Rate increases or decreases, then
the rate of interest hereunder shall be correspondingly increased or decreased,
effective on the first day such increase or decrease of the Prime Rate is
published. In the event that The Wall Street Journal, during the term hereof,
shall abolish or abandon the practice of publishing a Prime Rate, or should the
same become unascertainable, the Holder shall designate a comparable reference
rate which shall be deemed to be the Prime Rate for purposes hereof. If for any
reason the accrual of interest on this loan at the Prime Rate is voided by a
court of competent jurisdiction or if for any reason such court finds that the
interest rate is different from the rate designated by the Holder, then this
Note shall be deemed to have accrued interest from the date of execution at the
highest rate permitted by law.
Principal and interest shall be paid in 60 monthly installments
beginning October 1, 1995, and continuing on the 1st day of each succeeding
month thereafter, with the last payment being due and payable on September 1,
2000. The required installments shall be sufficient to repay the unpaid
principal balance of the indebtedness owed in full at the maturity date at the
then current interest rate in substantially equal payments. Notwithstanding the
<PAGE> 2
foregoing, there shall be added to the amount of the first monthly installment
due on October 1, 1995, an amount equal to the interest accruing on this Note
from its date through August 31, 1995. In the event the "Prime Rate" changes,
the Holder shall adjust the monthly installment payment to reflect the changed
rate. The last payment shall consist of all accrued unpaid interest and the
entire remaining unpaid balance of principal.
Interest rate changes may occur daily at any time there is a change in
the Prime Rate during the term of this Note. The sum of the then current Prime
Rate plus two percentage points (2.0%) shall be the new interest rate.
In the event any installment of interest or of principal due under
this Note is paid after the 15th day after the date when the same is due, then
the Holder shall be entitled to collect, to the extent permitted by applicable
law, a "late charge" in an amount equal to five percent (5%) of the amount of
any such installment in order to defray part of the increased cost of
collection occasioned by any such late payment as liquidated damages and not as
a penalty.
Both principal of and interest on this Note are payable in lawful
money of the United States of America at the principal corporate office of the
Registered Owner in Brownsville, Tennessee. Payment of each installment of
principal and interest shall be made to the Registered Owner hereof who shall
appear on the registration books of the Company maintained by the Company at
the close of business on the 15th day next preceding each Payment Date, and
shall be paid by check or draft of the Company mailed to such Registered Owner
at its address as it appears on such registration books or at such other
address as may be furnished in writing by such Registered Owner to the Company.
Collateral
The payment of this Note is secured by a prior perfected secured
interest in certain property of the Company, including certain furniture,
fixtures and equipment, inventory, accounts receivable, the stock of MFP, Inc.,
a Tennessee corporation, and the proceeds of any sale of the broadcast license
of Television Station WMFP, Boston, Massachusetts, as described in the Note
Purchase Agreement and Security Agreement, each dated as of August 16, 1995,
under which the Note is issued.
Prepayment of Note
The Note is subject to prepayment, in whole or in part at any time at
the option of the Company, without premium or penalty, provided any partial
prepayment shall be applied to all accrued and unpaid interest and in the
inverse order of maturity.
Conversion of Note
<PAGE> 3
This Note may, at the option of the holder thereof, at any time be
converted in whole or in part to shares of Common Stock of the Company, on the
basis of one (1) share of Common Stock for each $3.00 of the outstanding
balance of this Note at the time of holder's written election to convert. The
conversion may be accomplished by the holder delivering this Note, duly
endorsed in blank, to the Secretary of the Corporation at its office, and at
the same time notifying the Secretary in writing that it desires to convert the
Note into Common Stock pursuant to these provisions, specifying therein whether
the conversion is for all or a portion of this Note, and if for a portion, the
amount thereof. The Secretary shall deliver to such holder a certificate in due
form for the Common Stock so converted. If the conversion is for less than the
entire balance remaining on the Note, the Secretary shall return to the holder
a new Note for the remaining balance due thereunder, and specifying a repayment
schedule computed by applying the amount of the Note converted to Common Stock
as a partial prepayment of the Note as specified above. The conversion ratio
will be adjusted upon the occurrence of any (i) dividend in respect to Common
Stock that is paid in shares of Common Stock or securities convertible into
shares of Common Stock, and (ii) any expansion or contraction of the number of
outstanding common shares of Common Stock by means of any stock split, reverse
stock split or similar transaction.
Transfer of Note
The Note shall be transferable only on the registration books
maintained by the Company, upon surrender and cancellation thereof at the
principal corporate office of the Company. Upon the cancellation of the Note,
the Company shall, in exchange for the surrendered Note, execute and deliver in
the name of the transferee a new Note, of the same aggregate principal amount
and maturity and rate of interest as such surrendered Note, and the transferee
shall take such new Note subject to all of the conditions contained in the Note
Purchase Agreement and Security Agreement.
NOTWITHSTANDING THE FOREGOING, THIS SECURITY HAS NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE
REGULATORY AGENCY. THIS SECURITY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR OTHERWISE HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SECURITY UNDER ANY
APPLICABLE FEDERAL OR STATE SECURITIES LAW OR AN OPINION OF COUNSEL THAT THE
PROPOSED TRANSACTION IS EXEMPT UNDER THE APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR AS OTHERWISE IN COMPLIANCE WITH SUCH LAWS.
The Company may deem and treat the Registered Owner as the absolute
owner hereof for the purpose of receiving payment of principal hereof and
interest due hereon and for all other purposes and the Company shall not be
affected by any notice to the contrary.
<PAGE> 4
IN WITNESS WHEREOF, Shop at Home, Inc., by its Board of Directors, has
caused this Note to be executed with the duly authorized signature of its
President and attested by the duly authorized signature of its Secretary, as of
the 16th day of August, 1995.
/s/ Joseph Nawy
-----------------------
Vice President - Finance
<PAGE> 1
EXHIBIT 10.38
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated August 16, 1995, is by and between SHOP
AT HOME, INC., a Tennessee corporation ("Shop at Home"), and MFP, INC., a
Tennessee corporation ("MFP") (Shop at Home and MFP are collectively referred
to as the "Debtor"), and GLOBAL NETWORK TELEVISION, INC., a Tennessee
corporation ("Secured Party").
WITNESSETH:
WHEREAS, Secured Party has agreed to acquire from the Debtor its
$2,000,000 Variable Rate Convertible Secured Note Due 2000 (hereinafter
referred to as the "Note"), pursuant to the provisions of that certain Note
Purchase Agreement dated August 16, 1995; and
WHEREAS, Debtor has agreed to give to Secured Party certain security
for the repayment of the Note, and to secure the other indebtedness,
liabilities and obligations set forth herein.
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SECURITY INTEREST. To secure the payment of the indebtedness
and amounts hereinafter specified, Debtor hereby assigns, transfers, conveys
and sets over to Secured Party a first priority security interest in and to the
following property, and all additions, accessions, and substitutions thereto or
therefor, and proceeds thereof, including any insurance proceeds, and each and
every class thereof, to the extent the same are owned by Debtor and relate in
any way to the Debtor's business or hereafter relate to said business, all of
which are hereinafter referred to as the "Collateral:"
(a) all present and future equipment, furniture, and fixtures
located at the offices and facilities of Shop at Home located
in Knoxville, Tennessee (the "Equipment"); and
(b) all inventory of Shop at Home of every kind and
description, whether now owned or hereafter acquired and
wherever located (the "Inventory");
(c) all accounts and accounts receivable of Shop at Home of
every kind and description, whether now owned or hereafter
acquired and wherever located (the "Accounts"); and
<PAGE> 2
(d) 1,000 shares of Common Stock of MFP, Inc., a Tennessee
corporation, owned by Shop at Home (the "Securities"); and
(e) all proceeds of the sale of the Federal Communications
Commission licenses and authorizations of Television Station
WMFP, Lawrence, Massachusetts, whether now held or hereafter
acquired (the "License Proceeds").
2. LIABILITIES SECURED. The security interest herein conveyed
shall secure payment of the following: (a) the Note, and all interest thereon,
and any and all renewals, extensions or modifications thereof, in whole or
part; (b) all future loans, advances or extensions of credit, regardless of
class and whether or not presently contemplated by the parties hereto, made by
Secured Party to or for the account of Debtor, for the purpose of protecting
the Collateral or Secured Party's right to receive payments under the Note,
including, without limiting the foregoing, advances for insurance, repairs to
and maintenance of the Collateral, taxes, and discharge of any other lien,
security interest or encumbrance; and (c) all costs and expenses incurred in
the collection of any of the foregoing, including reasonable attorneys' fees.
3. LOCATION OF COLLATERAL. The Collateral shall be used solely in
connection with the ordinary course of Debtor's business and shall remain in
Debtor's possession or control at all times, with the exception of the
Securities, possession of which shall be held by Secured Party as described in
Section 10 hereof. The Equipment shall be kept on or about the Knoxville,
Tennessee, offices and facilities of the Debtor, except for repairs and
maintenance in the normal course of business, unless Debtor notifies Secured
Party in writing and Secured Party consents in writing in advance of its
removal to another location.
4. DEBTOR'S COVENANTS AND WARRANTIES. Debtor hereby warrants and
covenants as follows, all of which warranties and covenants shall continue
throughout the term of this Agreement, and Debtor shall promptly notify Secured
Party in writing of any change in any matter herein warranted:
(a) Shop at Home's principal place of business is at 5210
Schubert Road, Knoxville, Tennessee 37912, and Debtor will immediately
notify Secured Party of any change in the location of said place of
business.
(b) Shop at Home is a duly organized, validly existing
corporation formed under the laws of the State of Tennessee.
(c) MFP is a duly organized, validly existing corporation
formed under the laws of the State of Tennessee. All of the capital
stock of MFP consists of 1,000 shares of Common Stock, all of which is
owned by Shop at Home.
<PAGE> 3
(e) Each Debtor has full power and authority to (i)
conduct business in the state of its incorporation and in every other
state where qualification as a foreign corporation is required by law,
(ii) own and operate its properties and conduct its business, and (iii)
execute and deliver, and perform its obligations under this Security
Agreement.
(f) Each Debtor has by proper corporate action duly
authorized (i) the execution and delivery of, and the due performance
of its obligations under this Security Agreement, and (ii) the taking
of any and all other actions as may be required on the part of each
Debtor to carry out, give effect to and consummate the transactions
contemplated by this Security Agreement. Each Debtor will take any and
all actions necessary or appropriate to consummate the transactions
contemplated by this Security Agreement.
(g) This Security Agreement has been duly executed and
delivered by each Debtor and is, and when executed and delivered will
be, legal, valid and binding obligations of each Debtor enforceable in
accordance with its terms (assuming due authorization, execution and
delivery by any other parties thereto), subject as to enforcement of
remedies to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws in effect from time to time affecting the
rights of creditors generally and to the availability of equitable
relief.
(h) Except for the security interest granted hereby,
Debtor is the owner of the Collateral free from any other lien,
security interest or encumbrance and no security interest or interests
and no financing statement or statements, other than those listed on
EXHIBIT A attached hereto, covering the Collateral or proceeds
thereof, exists. The parties acknowledge that Franklin Federal Savings
Bank, Morristown, Tennessee, holds a security interest in a portion of
the Collateral, but that such security interest will be released by
the payment in full of the indebtedness owed such institution, from
the proceeds of the sale of the Note.
(i) Debtor will defend the Collateral against all claims
and demands of all persons at any time claiming the same or any
interest therein.
(j) All financial statements and information made or
supplied by Debtor calculated to induce this transaction are true and
correct.
(k) Debtor will pay all taxes, assessments, and other
governmental charges of every character, levied and assessed against
all or any part of the Collateral now or hereafter subject to this
Agreement when the same shall become due and payable, and will comply
with all laws, regulations and orders of any national, state or
municipal government or administra-
<PAGE> 4
tive agency exercising any power or regulation or supervision over
Debtor or any of the Collateral, the non- compliance of which will
impair the lien of this Agreement upon any of the Collateral subject
hereto.
(l) Debtor will keep accurate and complete records of all
of its business and from time to time will permit Secured Party, upon
reasonable notice to Debtor, to examine all its business records and
to make copies thereof. Further, from time to time, Debtor will
furnish Secured Party with such information regarding the Collateral
as Secured Party may request.
(m) Debtor will execute financing statements or other
documents deemed necessary by Secured Party to perfect or preserve its
security interest in the aforesaid Collateral and the proceeds
thereof, and will pay the costs and fees of filing or recording such
statements or documents pursuant to law.
(n) Debtor will pay all of the indebtedness secured
hereby to Secured Party as and when the same shall be due and payable,
whether at maturity, by acceleration or otherwise, and will perform
all terms of all notes, agreements or instruments evidencing or
securing the said indebtedness and the terms of this and any other
security agreement between Debtor and Secured Party.
(o) The execution, delivery and performance of this
Security Agreement are within Debtor's power and authority, have been
duly authorized, and are not in contravention of any law or the terms
of its charter, bylaws, or other incorporation papers or any
indenture, agreement or undertaking to which it is a party or by which
it is bound.
(p) Provided the Debtor is not in default under the Note,
the Debtor may collect its Accounts and retain the proceeds therefrom,
provided the Debtor keeps accurate and complete records of the
Accounts and from time to time will permit Secured Party to examine,
upon reasonable notice to Debtor, all its business records and to make
copies thereof.
(q) The Collateral which constitutes tangible personal
property (the "Tangible Collateral") will not be misused or abused,
wasted or allowed to deteriorate, and will be kept in good repair and
condition, except for ordinary wear and tear incurred in its intended
use. The Tangible Collateral will be held by Debtor at its risk of
loss. Debtor will maintain insurance on the Tangible Collateral for
its full replacement cost against fire (including so-called extended
coverage), theft, loss, injury and destruction and such other risks as
Secured Party may require, under policies acceptable to Secured Party,
with loss payable to Secured Party or its assigns, providing for
fifteen (15) days' minimum cancellation
<PAGE> 5
notice to Secured Party, and with duplicate policies or certificates
deposited with Secured Party. Secured Party may act as
attorney-in-fact for Debtor in obtaining, adjusting, selling and
canceling such insurance and endorsing any drafts.
5. DEFAULT IN PAYMENT OF INSURANCE AND TAXES. Should Debtor fail
to pay when due any tax, assessment or governmental charge levied or assessed
against any of the Collateral, or in the payment of any premium for insurance
required hereunder, and should Secured Party, in its sole discretion, pay any
of the aforesaid obligations of Debtor, then the amount so paid shall be added
to the indebtedness secured hereby and shall be due from Debtor to Secured
Party upon demand with interest at the maximum rate allowed by law.
6. ALIENATION OF COLLATERAL BY DEBTOR. Debtor will not sell,
offer to sell, transfer or dispose of the Collateral or any interest therein
except in the ordinary course of business, and, after notice from Secured
Party, or unless Secured Party consents in writing prior thereto with respect
to the Tangible Collateral. The Debtor will keep the Collateral free from
unpaid charges, including taxes, and from all liens, encumbrances and security
interests, except the lien of this Agreement, suffered voluntarily or
involuntarily by Debtor.
7. DIRECT PAYMENT TO SECURED PARTY. Secured Party shall have the
right to notify the obligors of the Accounts to make payments owed to Debtor
directly to Secured Party, and to take control of all proceeds thereof and
enforce any and all obligations of said obligors, which rights Secured Party
may exercise at any time, if Debtor is then in default hereunder.
Until such time as Secured Party elects to exercise such
rights by mailing to Debtor and said obligors written notice thereof, Debtor is
authorized to collect payments and enforce all rights under the Accounts. The
cost of such collection and enforcement, including attorneys' fees and
out-of-pocket expenses, shall be borne solely by Debtor, whether the same are
incurred by Secured Party or Debtor.
In order to facilitate Secured Party's rights hereunder,
Debtor does hereby irrevocably designate and appoint Secured Party (acting by
and through its chairman, president or any vice president thereof), its
successors and assigns, as their true and lawful attorney-in-fact, either in
Debtor's own name, place and stead, or otherwise, at any time, before or after
the occurrence of an Event of Default, to ask, demand, receive, receipt and
give acquittance for any and all amounts which are now or may hereafter become
due and payable to Debtor and which are part of the Accounts.
8. DEFAULT. At the option of Secured Party, Debtor shall be in
default hereunder and the indebtedness secured hereby shall become immediately
due and payable upon the happening of any of the following events or conditions
("Event of Default"):
<PAGE> 6
(a) Any failure to pay, promptly as and when due, the
principal and interest of the indebtedness secured hereby or any other
monetary obligations or indebtedness of Debtor to Secured Party;
(b) Any failure by Debtor to duly observe any material
covenant, condition or agreement of this Security Agreement, the Note
Purchase Agreement, or the Note;
(c) The insolvency or bankruptcy of Shop at Home, the
making by Shop at Home of an assignment for the benefit of creditors,
or the consent of Shop at Home to the appointment of a trustee or
receiver or other officer of the court or other tribunal;
(e) The appointment of a trustee, receiver or other
officer of the court for Shop at Home, or for a substantial part of
their properties, without its consent, where no discharge is effected
within sixty (60) days;
(f) The institution of bankruptcy, reorganization,
insolvency, or liquidation proceedings by or against Shop at Home, and
if against it, where such proceeding is consented to by it or has not
been dismissed within sixty (60) days;
(g) The entry of any judgment against Shop at Home in
excess of One Hundred Thousand Dollars ($100,000.00) or the issuance
of entry of any attachment, replevin levy or lien against the
Collateral, if not discharged, bonded or dismissed within sixty (60)
days;
(h) The giving of any statement, certificate or
representations in or pursuant to this Security Agreement proving to
be untrue in any material respect as of the time made;
(i) The assertion of any claim or priority over this
Security Agreement by title, lien or otherwise in any legal or
equitable proceeding that is not dismissed or bonded;
(j) Any material uninsured loss, theft, damage or
destruction to the Collateral occurs; or
(k) Debtor disposes of all or any part of the Collateral
other than in the ordinary course of business, or divest themselves by
sale or otherwise of the control over, or any goodwill of, its
business, or fail to carry on their business for any reason
whatsoever.
Said events shall not constitute an Event of Default unless
(i) with regard to any monetary default or failure to pay any amount of money
when due, such event, default or failure continues for a period of five (5)
days after such payment is due, and (ii) with regard to any other event stated
above for which no time limit is specified, such event continues for a period
of
<PAGE> 7
twenty (20) days after written notice to Debtor pursuant to Section 18(e)
hereof, provided, however, that said notice provisions and any other notice
provisions contained in the Note or any other document shall run concurrently
and not successively.
9. REMEDIES UPON DEFAULT.
(a) General. In the event of the occurrence of an Event
of Default under this Agreement, Secured Party shall have the rights
and remedies contained herein, in all promissory notes or other
agreements and instruments providing for, evidencing or securing any
of Debtor's obligations to Secured Party secured hereby, and the
rights and remedies provided in Article 9 of the Uniform Commercial
Code of the State of Tennessee.
(b) Assembly of Collateral. In the event of the
occurrence of an Event of Default, Debtor shall, upon request of
Secured Party, assemble the Collateral or evidence thereof and make it
available to Secured Party at Debtor's place of business.
(c) Entry of Debtor's Premises and Repossession. In the
event of the occurrence of an Event of Default, Secured Party may
enter Debtor's premises where any of the Collateral is located, and
take possession of and remove all or any portion of the Collateral or
evidence thereof therefrom for purposes of disposition pursuant to
this Security Agreement.
(d) Cash or Credit Sales. Debtor agrees that sales for
cash or on credit to a wholesaler, retailer or user of property of the
type as the Collateral or at public auction or private sale are all
commercially reasonable methods of disposition of the Collateral.
(e) Notice of Disposition. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will give to
Debtor notice of the time and place of any public sale of any of the
Collateral, or of the time after which any private sale or any other
intended disposition thereof is to be made by sending notice, pursuant
to Section 18(e) hereof, at least ten (10) days before the time of the
sale or other disposition, which provisions for notice Debtor agrees
are reasonable.
(f) Application of Proceeds. Any proceeds of any
disposition of any of the Collateral may be first applied by Secured
Party to the payment of expenses in connection with the exercise of
its rights and remedies hereunder, including reasonable attorneys'
fees and legal expenses, and any balance of such proceeds may be
applied by Secured Party toward the payment of the indebtedness
secured hereby, but in such order
<PAGE> 8
of application as Secured Party may elect in its sole discretion.
(g) Continuance of Remedies. Until all of the
indebtedness secured hereby shall have been paid in full, Secured
Party's rights and remedies regarding disposition of the Collateral,
and all other rights, powers and remedies provided to Secured Party
hereunder shall continue to exist, and may be exercised by Secured
Party irrespective of the fact that portions of the liabilities may
have been paid.
10. SPECIAL PROVISIONS RELATING TO THE SECURITIES. In addition to the
other terms and provisions hereof, the parties agree to the following with
regard to the Securities:
(a) Secured Party's security interest in the Securities shall
be perfected by Secured Party's possession thereof. Secured Party
shall also be provided with stock powers covering the Pledged
Securities executed in blank by Shop at Home.
(b) Shop at Home warrants to Secured Party the following:
(i) Shop at Home is the sole legal and equitable
owner of the Securities, and Shop at Home's absolute title
thereto is not the subject of any claim or challenge
threatened or asserted by any third party.
(ii) The Securities have been validly issued and are fully paid.
(iii) The Securities are not and will not be subject
to any restriction of transfer, "buy-sell" agreement, voting
agreement, redemption agreements, option or other agreement,
except for those restrictions and agreements, if any, that are
noted on the certificates of the Securities.
(iv) This Agreement provides Secured Party with a
valid pledge of, and a valid first priority security interest
in, the Securities.
(c) Shop at Home covenants with Secured Party as follows:
(i) Shop at Home shall deliver any stock received as
a result of ownership of the Securities immediately to Secured
Party upon receipt, and such additional stock shall become
part of the Securities hereunder upon issuance.
<PAGE> 9
(ii) Shop at Home shall not sell, transfer, or grant
or suffer the attachment of any lien or encumbrance to the
Securities.
(d) As long as there is no default under this Security
Agreement, Shop at Home shall be entitled to exercise all voting
rights arising from ownership of the Securities, except that written
approval of Secured Party shall be required for Shop at Home to vote
said stock to authorize the issuer of the Securities to liquidate,
reorganize, merge or engage in any other transactions for which
shareholder approval is required by law or by the issuers' Charter or
its By-Laws.
(e) As long as there is no default under this Security
Agreement, Debtor shall have the exclusive right to receive all
reasonable distributions of cash and other property made with respect
to the Securities.
(f) Upon the occurrence of an event of default, Secured Party
may exercise any of the following remedies:
(i) Secured Party shall have the exclusive right to
exercise all voting powers and give all consents, waivers and
ratifications relating to the Securities.
(ii) Secured Party shall have the exclusive right to
receive all distributions made with respect to the Securities.
Secured Party shall apply cash distributions to payment of the
Secured Indebtedness and hold all other types of property
distributed for sale, pursuant to the Uniform Commercial Code
as adopted in Tennessee.
(iii) Secured Party may, upon five (5) days' notice
to Debtor, sell the Securities or any part thereof at public
or private sale or at any appropriate broker's board or
securities exchange, for cash, credit or for future delivery.
(A) Secured Party may be the purchaser
of any or all of the Securities sold
at any public sale or, to the extent
permitted by law, at any private
sale.
(B) At or prior to any sale of the
Securities, Secured Party may, in
its sole discretion, restrict
prospective purchasers to persons
who will represent that they will
purchase for their own account for
investment and not with view to the
distribution or sale of any of the
Securities and who will agree that
the Securities so purchased may bear
an appropriate restrictive legend.
<PAGE> 10
(C) At or prior to any sale, Secured
Party may, in its sole discretion,
require that prospective purchasers
establish, to Secured Party's
satisfaction, that they are
investors of sufficient financial
means or business acumen to qualify
as "accredited investors" under
federal and state securities laws.
(D) At any sale, Secured Party shall
have the right to transfer to the
purchaser thereof the Securities
sold. Secured Party is hereby
appointed Debtor's attorney-in-fact
for the purpose of supplying any
endorsements necessary to effect
such transfer. Each purchaser at any
such sale (including, without
limitation, Secured Party) shall
hold the property sold free from any
claim or right of any kind,
including any equity or rights or
redemption of Debtor, which hereby
specifically waives all rights of
redemption, stay or appraisal which
Debtor has or may have under any
rule of law or statute now existing
or hereafter adopted.
(E) At any sale, the Securities may be
sold in one lot as an entirety or in
separate portions, as Secured Party
may determine.
(F) Prior to any sale, Secured Party
may, but shall not be obligated to,
have all or part of the Securities
registered for public distribution
pursuant to any applicable state or
federal law or seek assurances from
any state or federal authority that
the intended disposition of
Securities will qualify under an
exception to laws that otherwise
require registration for the sale of
stock. All expenses incurred by
Secured Party in addressing such
matters, including reasonable
attorney's fees, shall become part
of the Secured Indebtedness and bear
interest as elsewhere provided
herein.
(G) Secured Party shall not be obligated
to make any sale pursuant to any
notice given and may, without notice
or publication, adjourn any public
or private sale or cause the same to
be adjourned from time to time by
announcement at the time and place
fixed for the sale, and such
<PAGE> 11
sale may be resumed at any time and
place to which the same may be so
adjourned.
(H) In the case of any sale of all or
any part of the Securities on credit
or for future delivery, payments
made by the purchaser shall reduce
the outstanding balance of the
Secured Indebtedness as payments are
received, and the out standing
principal balance of the Secured
Indebtedness shall continue to
accrue interest over the time that
such payments are made, until the
principal and accrued interest
constituting the Secured
Indebtedness have been paid in full.
Secured Party shall not incur any
liability in case of the failure of
such purchaser to completely pay for
the Securities so sold and, in the
case of any such failure, the
Securities may again be sold
pursuant to the provisions hereof.
(g) Secured Party acknowledges and agrees that so long as MFP
is the holder of a license to operate a commercial television station
from the Federal Communications Commission, that Secured Party cannot
exercise its right to vote the Securities and cannot sell the
Securities pursuant to the above provisions without first obtaining
the prior approval of the Federal Communications Commission.
11. COVENANT TO PAY DEFICIENCY. Upon the occurrence of an Event of
Default, if the sale or other disposition of the Collateral fails to satisfy in
full all of the indebtedness secured hereby, and the costs and expenses of
retaking, holding, preparing for sale, selling and the like, including
reasonable attorneys' fees and expenses incurred by Secured Party in connection
with this Agreement or the indebtedness secured hereby, Debtor shall be liable
to and agrees to pay any such deficiency, provided, however, that Secured Party
shall not be required to proceed first against the collateral but may elect to
proceed first or solely against the Debtor or other collateral for the Loan.
12. SECURED PARTY'S RIGHT TO WAIVE. Secured Party may correct any
default without waiving its default remedy, and without waiving any other prior
or subsequent default, may retract any waiver of default that remains uncured
by giving Debtor reasonable notice that strict performance of Debtor's
obligations under this Agreement will thereafter be required, and may incur
reasonable attorneys' fees and expenses in exercising any of Secured Party's
rights and remedies after default. A waiver of any default on one occasion
shall not constitute either a waiver of such default on any future occasion or
a waiver of any other default. Secured Party shall not be deemed to have waived
any of its rights hereunder or under any other agreement, instrument or paper
signed
<PAGE> 12
by Debtor unless such waiver be in writing and signed by Secured Party. No
delay or omission on the part of Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion. All of Secured Party's rights and remedies, whether
evidenced hereby or by any other agreement, instrument or paper, shall be
cumulative and may be exercised separately or concurrently.
13. POWER OF SALE AND OTHER POWERS. The power of sale and all
other powers herein granted by Debtor shall apply to all Collateral of any kind
or description, including all monies, negotiable instruments, bonds, stocks,
and commercial paper, credit, choses in action, claims or demands of every kind
at any time during the existence of this Agreement.
14. SUBSTITUTION OR EXCHANGE OF COLLATERAL. If, with the consent
of Secured Party, Debtor shall substitute or exchange other collateral, in
place of the Collateral, then all of the rights and privileges of Secured Party
and all obligations on the part of Debtor shall be forthwith applicable to the
substituted or exchanged collateral, security or instrument, the same in all
respects as with respect to the property originally pledged and held as
Collateral hereunder.
15. INDEMNITY. Debtor will defend, indemnify and hold Secured
Party harmless of and from any and all liability, loss or damage which Secured
Party may incur by reason of this Agreement, and of and from any and all claims
and demands whatsoever which may be asserted against Secured Party by reason of
any alleged obligation or undertaking to be performed or discharged by Secured
Party under this Agreement. Should Secured Party incur any liability, loss or
damage by reason of this Agreement, or in the defense of any claims or demands
with respect thereto, Debtor will immediately, upon the demand of Secured
Party, reimburse Secured Party for the amount thereof, including all costs and
expenses and reasonable attorneys' fees incurred by Secured Party in connection
therewith; provided, however, that nothing contained in this section shall
obligate Debtor to indemnify Secured Party against loss or damage occasioned by
Secured Party's own gross negligence or willful misconduct.
16. TERMINATION. Upon payment in full of all of the principal and
interest owing on the Note secured hereby together with any extensions and
renewals thereof, and upon payment of all other indebtedness secured hereunder,
this Agreement and the security interest granted hereby shall terminate.
17. ASSIGNMENT. Debtor shall not assign its rights nor delegate
the performance of their duties hereunder without Secured Party's prior written
permission. Secured Party may assign its rights and delegate the performance of
its duties hereunder, and if
<PAGE> 13
Secured Party does so, the assignee upon notifying Debtor shall be entitled to
the performance of all Debtor's duties and to all Secured Party's rights
hereunder. Debtor shall not assert against any such assignee any claim or
defense which Debtor may have against Secured Party.
18. MISCELLANEOUS.
(a) Debtor agrees that it will, upon the request of
Secured Party, from time to time, execute and deliver to Secured Party
such further instruments and documents, including, without limitation,
financing statements, as may by Secured Party be deemed proper or
necessary for the more effectual vesting in Secured Party of its
security interest in the Collateral. Debtor shall pay all costs of
filing the same.
(b) Debtor hereby waives all notices of presentment,
demand, protest and notice of dishonor as to any instrument secured
hereby.
(c) Subject to the provisions of Section 17 hereof, all
provisions herein shall inure to and become binding upon, the heirs,
executors, administrators, successors, representatives, receivers,
trustees and assigns of the parties hereto.
(d) This Agreement and all amendments hereto, all
supplements hereof, and all acts, transactions, agreements,
certificates, assignments and transfers hereunder shall be governed by
and construed in accordance with the laws of the State of Tennessee.
(e) Any notices required or allowed hereunder shall be in
writing and shall be deemed satisfactorily given (and any time
period provided for giving such notice herein shall commence) when (i)
deposited in the United States Mail, postage prepaid, certified or
registered mail, return receipt requested, or forwarded by a
nationally recognized overnight courier service, to the addresses of
the respective parties specified above (or such other address as may
be specified in a written notice forwarded to all parties hereto as
herein specified) or, (ii) personally delivered.
(f) This Agreement is intended by the parties as a final
expression of their agreement and is intended as a complete statement
of the terms herein stated. This Agreement may not be modified,
amended or changed in any manner, nor shall any waiver of any
provision hereof be effective, except by an instrument in writing
signed by the party against whom enforcement of such modification,
amendment, change or waiver is sought.
(g) The section captions in this Agreement are for
convenience only and are not to be construed in interpreting
<PAGE> 14
this Agreement. The gender and number terms used in this Agreement are
used as a reference only and shall apply with the same effect whether
the parties are of the masculine or feminine gender, corporate or
other form, and the singular shall likewise include the plural. If
more than one person or party has executed this Agreement as Debtor,
their obligations shall be joint and several.
(h) If any term or provision of this Agreement,
application thereof to any person or circumstance, shall, to any
extent, be invalid or unenforceable, the remainder hereof, or the
application of such term or provision to persons or circumstances
other than those to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
(i) The requirements and remedies provided for herein
shall be construed to be applicable to the various items of Collateral
hereunder to the extent that said requirements and remedies are
reasonably applicable thereto.
EXECUTED on the day, month and year first above written.
SHOP AT HOME, INC.
By: /s/ Joseph Nawy
---------------------
Title: VP Finance
MFP, INC.
By: /s/ Joseph Nawy
---------------------
Title: Secretary
GLOBAL NETWORK TELEVISION, INC.
By: /s/ J.D. Clinton
---------------------
Title: Chairman
<PAGE> 15
EXHIBIT A
EXISTING SECURITY INTERESTS
SNET Credit, Inc., relating to specific studio equipment
AT&T Corporation, relating to a telephone system
Canon U.S.A., Inc., relating to all Canon photographic products sold
to Shop at Home.
Franklin Federal Savings Bank, covering furniture, fixtures, accounts
receivable, inventory, and certain equipment.
<PAGE> 1
EXHIBIT 10.39
RESTATED AGREEMENT
THIS RESTATED AGREEMENT (the "Restated Agreement"), dated effective as
of January 26, 1996, is made by and between RICHARD HOWARD, INC., an Ohio
corporation, 128 East Main Street, Leipsic, Ohio 45856 ("SELLER"), and SHOP AT
HOME, INC., a Tennessee corporation, 5210 Schubert Road, Box 12600, Knoxville,
Tennessee 37912 ("BUYER"); and restates in its entirety the Agreement among the
parties dated December 8, 1993 (the "Agreement").
WITNESSETH:
WHEREAS, SELLER engages in the purchase and sale of baseball cards,
related baseball and sports items and other collectibles; and
WHEREAS, SELLER has obtained exclusive access to the rights to the
1993 Elite Dominator baseball card product line manufactured by Leaf, Inc., as
more fully described on Exhibit A attached hereto and incorporated herein by
reference; and
WHEREAS, the parties entered into the Agreement whereby SELLER agreed
to sell and BUYER agreed to purchase a specified number of 1993 Elite Dominator
baseball cards and other baseball cards manufactured by Leaf, Inc., for resale
through its retail television marketing and distribution system; and
WHEREAS, certain disagreements have arisen between the parties
concerning the provisions of the Agreement, and SELLER has filed a complaint
against the BUYER in the Court of Common Pleas of Putnam County, Ohio, Case No.
95-CVH-199 (the "Lawsuit"), seeking the payment of certain monies from BUYER
under the Agreement; and
WHEREAS, the parties have reached an agreement to settle all claims
arising out the facts and circumstances underlying the Lawsuit including the
indebtedness of BUYER allegedly owed by SELLER under the terms of the
Agreement; and
WHEREAS, the settlement of such claims necessitates the parties
amending the terms and conditions of the Agreement; and
WHEREAS, it is the intention of the parties that this Restated
Agreement shall incorporate all of the changes in the Agreement agreed upon by
the parties, and that this Restated Agreement shall replace the Agreement in
its entirety and shall govern the relationship between the parties as of its
date set out above; and
WHEREAS, upon execution of this Restated Agreement, SELLER will
dismiss COUNTS TWO and THREE (relating to the Agreement dated December 08,
1993) of the Lawsuit with prejudice and COUNTS ONE and FOUR (relating to
ongoing regular baseball card business) of the Lawsuit without prejudice.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. RIGHTS GRANTED BY SELLER TO BUYER.
1.1. During the term of this Restated Agreement and subject to
the rights reserved by SELLER in Section 2 herein, SELLER hereby grants to
BUYER the right, to the exclusion of SELLER and all claiming under or through
SELLER, upon the terms and conditions hereinafter contained, to purchase from
SELLER and to promote and sell through its retail television marketing and
distribution system Twenty-Nine Thousand Seventy-Seven (29,077) ED Cards. For
purposes of this Restated Agreement, an "ED Card" consists of one (1) 1993
Elite Dominator baseball card and one (1) box of 1993 Donruss box of baseball
cards manufactured by Leaf, Inc. or a box of other baseball cards or other
sports cards or other sports related products of comparable or greater value to
one (1) 1993 Donruss box and a "gift box" of some assortment of baseball and/or
other sports cards or products which has some comparable value attached to it
in the baseball card market place. The "gift box" provided by SELLER will be of
a composition consistent with the "gift box" provided by SELLER to BUYER during
the re-launch of the ED Cards in June, 1995. SELLER and BUYER agree that some
enhancement items may be billed to BUYER outside this Restated Agreement.
SELLER will advise BUYER in writing or by fax of each such enhancement item and
its associated cost. BUYER will provide SELLER with written or fax approval of
each enhancement item prior to BUYER offering each such enhancement item for
sale and prior to SELLER shipping any such enhancement items to BUYER's
customers. In the event of any dispute arises between the parties regarding the
composition of the "gift box" or the separate billing of enhancement items, J.
D. Clinton and G. Richard Howard agree to meet and resolve the dispute.
1.2. During the term of this Restated Agreement, SELLER,
subject to the provisions of Section 2 herein, hereby assigns and transfers to
BUYER all of SELLER's rights, if any, in any tradenames, trademarks,
servicemarks, logos, likenesses, names, signatures, and pictures, contained in
the ED Cards. This assignment shall be limited to the rights necessary to
permit BUYER to offer for sale, and sell, advertise, promote, ship and
distribute the ED Cards as contemplated by this Restated Agreement.
2. RIGHTS RESERVED BY SELLER.
2.1. In the event BUYER commits an Event of Default uncured
within the permitted time period, all rights, if any, assigned by SELLER to
BUYER under Section 1 shall be forfeited and automatically be reassigned and
transferred back to SELLER without the need for any independent action by
SELLER.
<PAGE> 3
2.2. During the term of this Restated Agreement and after its
termination, SELLER reserves all the rights under Section 1 necessary for
SELLER to maintain and continue its services of purchasing and selling in the
after market through any marketing channels, except for the retail television
distribution channel, any and all ED Cards and individual Elite Dominator
baseball cards, alone or in conjunction with other sports related merchandise
which are offered to SELLER by third parties for purchase and resale to other
third party buyers, or for temporary or long term investment purposes, or ED
Cards and individual Elite Dominator baseball cards currently owned by SELLER
in its inventory, or the Four Thousand Five Hundred (4,500) ED Cards SELLER
will receive from BUYER upon payment of the $315,000.00 receivable on the books
of BUYER in the name of SELLER. Notwithstanding the foregoing, SELLER agrees
that it will not intentionally make any sale of the Elite Dominator baseball
cards to other third party buyers at a price or prices which would be
detrimental to the BUYER's retail television market price of the Elite
Dominator baseball cards and SELLER further agrees that it will only make any
such sales with due regard to its obligation to deal with the BUYER in good
faith so as not to engage in any sales activity or practice which might have
the effect of devaluing the ED Cards being sold to BUYER hereunder or for which
the BUYER holds a conditional option to purchase under Section 3.6 hereof.
SELLER agrees not to compete in any way with BUYER through the sale of ED Cards
in the retail television distribution channel as long as BUYER is making a good
faith effort to market the ED Cards. In the event of any dispute about either
parties' good faith efforts, J. D. Clinton and G. Richard Howard agree to meet
and resolve the dispute. In the event BUYER defaults on the terms of the
Restated Agreement and such default remains uncured within the period provided,
SELLER shall then have the option to compete in any way with BUYER through the
sale of ED Cards in the retail television distribution channel.
2.3. During the term of this Restated Agreement, BUYER agrees
to use its best efforts to promote and advertise the sale of the ED Cards.
3. TERMS OF SALE AND PAYMENT.
3.1. The parties acknowledge and agree that there exists at
the present time an outstanding account payable of the BUYER to the SELLER for
shipped regular baseball card business of One Hundred Ninety-Five Thousand Two
Hundred Eighty-Four and 40/100 Dollars ($195,284.40) on the books of the SELLER
as of close of business on Thursday, January 25, 1996, which amount is adjusted
daily as between the parties. BUYER agrees to make payment to SELLER of the
amount, as adjusted from time to time, of this payable in the normal course of
BUYER's business, and the amount, as adjusted, of such payable and its
subsequent payment are not affected by the terms of this Restated Agreement.
3.2. BUYER agrees to purchase Nine Thousand (9,000) ED Cards
at a cost of Three Hundred Fifteen Thousand Dollars
<PAGE> 4
($315,000) and shall issue a check to SELLER in that amount within ten (10)
days of the filing of an entry dismissing COUNTS TWO and THREE (relating to the
Agreement dated December 08, 1993) of the Lawsuit with prejudice and COUNTS ONE
and FOUR (relating to ongoing regular baseball card business ) of the Lawsuit
without prejudice. At the same time, SELLER agrees to pay to BUYER and to issue
BUYER a check in the amount of Three Hundred Fifteen Thousand Dollars
($315,000), which shall be credited to an account receivable currently owed by
SELLER to BUYER and shall be considered as payment in full of such account
receivable. At the time BUYER forwards BUYER's check for Three Hundred Fifteen
Thousand Dollars ($315,000) to SELLER, BUYER will also deliver to SELLER the
Four Thousand Five Hundred (4,500) ED Cards due to SELLER from the purchase
order which created the $315,000 account receivable on BUYER's books. To avoid
the cost and expense of two (2) deliveries to both parties, BUYER and SELLER
agree that the SELLER shall retain 4,500 ED Cards of the above referenced 9,000
ED Cards and shall only ship to BUYER, the net balance of 4,500 ED Cards.
3.3. The parties acknowledge that BUYER currently owns certain
old sports card inventory which BUYER believes to have a current value of
approximately Eighty Two Thousand Dollars ($82,000). SELLER agrees to accept
this inventory from BUYER at an agreed upon value of Sixty-Five Thousand
Dollars ($65,000). Within ten (10) days of the filing of the entry of the order
dismissing COUNTS TWO and THREE (relating to the Agreement dated December 08,
1993) of the Lawsuit with prejudice and COUNTS ONE and FOUR (relating to
ongoing regular baseball card business ) of the Lawsuit without prejudice,
BUYER agrees to ship such old sports card inventory to SELLER and BUYER may
then credit the $65,000 against the Seven Hundred Twenty Thousand Dollars
($720,000) Payment Obligation owed to SELLER by BUYER as referenced in Section
3.5 below.
3.4. Within ten (10) days of the filing of the entry of the
order dismissing COUNTS TWO and THREE (relating to the Agreement dated December
08, 1993) of the Lawsuit with prejudice and COUNTS ONE and FOUR (relating to
ongoing regular baseball card business) of the Lawsuit without prejudice, BUYER
agrees to issue and deliver to the SELLER, Forty-Four Thousand (44,000) shares
of BUYER's common shares (the "Shares"), which shall become the sole property
of the SELLER. SELLER understands that these shares of Common Stock will not be
registered under the Securities Act of 1933 or any applicable state securities
laws, in reliance upon available exemptions from registration. As a result, the
SELLER understands that the shares may not be transferred or resold by SELLER
unless registered under such acts or unless an exemption from registration is
available, and that the certificate representing the shares shall contained a
legend evidence such restriction on transferability. SELLER further understands
that in order to obtain such shares, the SELLER may be required to execute an
acknowledgement that such shares are being acquired by it for investment
purposes and not with a view to reselling the shares; and SELLER agrees that it
will execute such statement, and that
<PAGE> 5
such statement will be truthful when made. SELLER, and each shareholder of
SELLER, is an "accredited investor" as that term is defined in the regulations
promulgated pursuant to the Securities Act of 1933. In the event that any
proposed shareholder is not an accredited investor, SELLER shall promptly
notify BUYER of each fact.
3.5. Within ten (10) days after the filing of the entry of the
order dismissing COUNTS TWO and THREE (relating to the Agreement dated December
08, 1993) of the Lawsuit with prejudice and COUNTS ONE and FOUR (relating to
ongoing regular baseball card business) of the Lawsuit without prejudice,
BUYER agrees to pay to SELLER the total amount of Seven Hundred Twenty Thousand
Dollars ($720,000) (the "Payment Obligation") payable upon the terms and
conditions contained herein. BUYER further agrees to pay to the SELLER a
payment of One Hundred Twenty Thousand Dollars ($120,000) at the time of
BUYER's delivery of the signed Restated Agreement to be credited to the
outstanding balance on the Payment Obligation and will agree to make future
payments to the SELLER upon the terms contain therein and in this Restated
Agreement.
a. In consideration of this cash payment and the
agreement of BUYER to pay the Payment Obligation, SELLER agrees to deliver to
BUYER, in addition to the 9,000 ED Cards referred to in Section 3.2, or to
BUYER's designated customers, a total of Twenty Thousand Seventy-Seven (20,077)
ED Cards (the "Remaining ED Cards" of the first 50,000 ED Cards, calculated by
subtracting 9,000 referred to in Section 3.2 from the total referred to in
Section 1.1).
b. The parties agree that the Remaining ED Cards
shall be the property of the BUYER and subject to the Security Agreement and
UCC statement hereinafter referenced. While subject to the Security Agreement
and UCC statement, the SELLER shall retain possession of the Remaining ED Cards
until sold to customers of the BUYER, in which case and at such time, SELLER
shall deliver the Remaining ED Cards according to the BUYER's instructions; or,
until the balance remaining on the Payment Obligation is reduced to zero, in
which case the unsold Remaining ED Cards shall be delivered to the BUYER upon
BUYER's request.
c. After the payments by BUYER are made to SELLER
pursuant to the terms and provisions herein, BUYER shall pay to the SELLER
one-third (1/3) of the gross proceeds of any ED Card sales occurring on or
after the effective date of this Restated Agreement, less returns, in the form
of common shares of the BUYER, rounded to the nearest whole share at the time
of issuance and valued at Three and no/100 Dollars Per Share ($3/Sh), as
payments on the balance remaining on the Payment Obligation with such payments
in the form of issued common shares to be delivered to the SELLER monthly and
within ten (10) days of the close of the month in which the calculation was
made. Notwithstanding the foregoing, the parties agree that no payments shall
be calculated or due in the form of issuance of BUYER's common shares under
this Section
<PAGE> 6
5.6 for the one-third of the retail sale proceeds from the first One Thousand
(1,000) ED Cards sold by BUYER to its retail television customers after the
effective date of this Restated Agreement.
d. The remaining balance on the Payment Obligation
shall be paid on June 30, 1996; provided, however, if the transaction announced
on October 10, 1995, by the BUYER, whereby Paxson Communications Corporation
would acquire a controlling position in BUYER, is not consummated on or before
March 31, 1996, the date of final payment on the remaining balance on the
Payment Obligation shall be extended to March 31, 1997. To insure the remaining
balance of the Payment Obligation is paid in a timely manner, SELLER shall
retain possession of the unsold Remaining ED Cards until the same is paid and
in the event the remaining balance of the Payment Obligation is not paid in a
timely manner, SELLER shall have right to begin selling any of the undelivered
Remaining ED Cards through any marketing channel whatsoever.
e. SELLER understands that these shares of Common
Stock will not be registered under the Securities Act of 1933 or any applicable
state securities laws, in reliance upon available exemptions from registration.
As a result, the SELLER understands that the shares may not be transferred or
resold by SELLER unless registered under such acts or unless an exemption from
registration is available, and that the certificate representing the shares
shall contained a legend evidence such restriction on transferability. SELLER
further understands that in order to obtain such shares, the SELLER may be
required to execute an acknowledgement that such shares are being acquired by
it for investment purposes and not with a view to reselling the shares; and
SELLER agrees that it will execute such statement, and that such statement will
be truthful when made. SELLER, and each shareholder of SELLER, is an
"accredited investor" as that term is defined in the regulations promulgated
pursuant to the Securities Act of 1933. In the event that any proposed
shareholder is not an accredited investor, SELLER shall promptly notify BUYER
of each fact.
f. After credit for this $535,000.00 payment in
common shares of the BUYER by BUYER to SELLER, BUYER and SELLER agree that the
remaining balance on the Payment Obligation shall then be $0.00 and the Payment
Obligation shall be considered paid in full by the BUYER.
3.6. BUYER shall have the option to purchase all or a portion
of the additional 50,000 1993 Elite Dominator baseball cards only from SELLER
at a price of Thirty-Five Dollars ($35.00) for each 1993 Elite Dominator
baseball card, payable in cash, and Seller shall not sell, transfer or
encumber, except to its lender, any of such 1993 Elite Dominator baseball cards
without the written consent of BUYER as long as BUYER is making a good faith
effort to market the ED Cards. In the event of any dispute about either
parties' good faith efforts, J. D. Clinton and G. Richard Howard agree to meet
and resolve the dispute. In the event BUYER defaults
<PAGE> 7
on the terms of the Restated Agreement and such default remains uncured within
the period provided, SELLER shall then have the option to compete in any way
with BUYER through the sale of ED Cards in the retail television distribution
channel.
a. In the event SELLER utilizes any portion of the
Elite Dominator baseball cards as partial or sole collateral to secure any loan
to SELLER from any lender, SELLER agrees that any Security Agreement pertaining
thereto will permit the sale of the collateral pursuant to the terms and
conditions of this Restated Agreement free of lender's lien. SELLER agrees to
provide BUYER a written statement from any lender confirming permission of the
sale of the Elite Dominator baseball cards under this Restated Agreement.
4. DELIVERY AND RISK OF LOSS.
4.01. BUYER shall, within three (3) non-holiday business day
of the date of sale of an ED Card, provide SELLER with detailed shipping
instructions and fully completed shipping labels. All such shipments of ED
Cards will be tendered F.O.B. point of origin unless otherwise agreed in
writing by both the BUYER and the SELLER. BUYER acknowledges and understands
BUYER will be responsible for all shipping expenses and risk of loss during
shipping. BUYER acknowledges and understands that BUYER will be responsible
for all losses and claims for damages attributable to shipping instructions and
labels. Each shipment shall be packed in accordance with SELLER's standard
shipment practices, unless BUYER notifies SELLER in writing of any special
packing instructions. Any additional expense incurred by SELLER as a result of
BUYER's special packing instructions shall be borne and paid by BUYER. SELLER
shall use its best efforts to ship within three (3) non-holiday business days
of receipt of shipping instructions and labels with the first business day to
begin with the non-holiday business day following such receipt. The parties
acknowledge that BUYER may request that SELLER ship cards directly to BUYER for
BUYER to fulfill any or all of its sales orders; provided, BUYER is not in
breach of any terms of this Restated Agreement and the merchandise is shipped
C.O.D. to BUYER.
5. SELLER'S REPRESENTATIONS, INDEMNIFICATIONS AND RELEASES.
5.1. SELLER shall indemnify and hold BUYER harmless from and
against any loss, claim, or damage, including reasonable attorneys' fees,
resulting from any breach of the above-stated representations by SELLER in
connection with the ED Cards; provided, however, that BUYER shall be entitled
to the benefits of this indemnification only to the extent that prompt notice
is given to SELLER of any action, suit, or proceeding, including any investiga-
tion, concerning which BUYER expects that SELLER to indemnify BUYER.
<PAGE> 8
5.2. SELLER agrees that upon the execution of this Restated
Agreement that SELLER will cause to be prepared and immediately file the
necessary papers to cause the filing of an entry dismissing COUNTS TWO and
THREE (relating to the Agreement dated December 08, 1993) of the Lawsuit with
prejudice and COUNTS ONE and FOUR (relating to ongoing regular baseball card
business) of the Lawsuit without prejudice.
5.3. BUYER and SELLER agree that any future litigation, which
might arise out of this Restated Agreement, must be filed by either party in
the Court of Common Pleas of Putnam County in the State of Ohio, and BUYER
consents to the personal jurisdiction of such court in the State of Ohio for
that litigation, although BUYER does not waive in any respect its right to
remove any such action to a Federal District Court, provided such Federal
District Court is located in the Western District, Northern Division of the
State of Ohio, or to file a motion challenging the venue of the court.
5.4. By their execution of this Restated Agreement and the
filing of an entry dismissing COUNTS TWO and THREE (relating to the Agreement
dated December 08, 1993) of the Lawsuit with prejudice and COUNTS ONE and FOUR
(relating to ongoing regular baseball card business) of the Lawsuit without
prejudice, both parties agree that all disputes between them as to the
Agreement and the sale of the therein defined ED Cards shall be considered
settled, and neither party shall have claim against the other for any breach of
the 1993 Agreement which occurred prior to the date of the Restated Agreement.
6. TERMINATION.
6.1. SELLER may terminate this Restated Agreement at any time
upon the occurrence of any of the following events:
a. Filing by BUYER, or having filed against it, a
voluntary or involuntary petition for bankruptcy, insolvency proceeding,
liquidation, assignment for the benefit of creditors; or placement in the hand
of a receiver, liquidator or trustee, which is not dismissed within sixty (60)
days; provided, SELLER shall have no obligation to make any additional sales to
BUYER during the pendency of such proceeding, absent such security determined
to be sufficient by SELLER's attorney's in his sole discretion; or,
b. BUYER's breach of any of the terms, conditions,
covenants, obligations or duties of performance under this Restated Agreement;
provided, however, that BUYER shall have thirty (30) days from receipt of
notice of breach to cure any outstanding breaches under this provision.
6.2. Any notices and other communications required under this
Restated Agreement shall be in writing and shall be deemed given when delivered
in person or sent by ordinary or certified
<PAGE> 9
mail, return receipt requested, with proper postage affixed to the parties in
the following manner.
a. If to SELLER:
1. G. Richard Howard, President
Richard Howard, Inc.
128 East Main Street
Leipsic, OH 45856
With a copy to:
2. Robert F. Sprague, Esq.
Firmin, Sprague & Huffman Co., L.P.A.
220 West Sandusky Street
Findlay, OH 45840
b. If to BUYER:
1. Kent E. Lillie, President
Shop At Home, Inc.
5210 Schubert Road
Box 12600
Knoxville, TN 37912;
With a copy to:
2. J. D. Clinton, Chairman of the Board
Shop At Home, Inc.
Brighton 1604
8231 Bay Colony Drive
Naples, FL 33963;
With a copy to:
3. Charles W. Bone, Esq.
Wyatt, Tarrant & Combs
1500 Nashville City Center
511 Union Street
Nashville, TN 37219
7. RELATIONSHIP OF PARTIES.
7.1. The parties agree that all methods of marketing the ED
Cards by BUYER will be jointly agreed upon among the parties until the Payment
Obligation has been paid in full. SELLER agrees to provide marketing and
packaging enhancements in coordination with the total marketing efforts of
BUYER.
7.2. BUYER agrees that BUYER, its employees, agents and
representatives shall be acting as an independent contractor and shall not be
considered or deemed to be an agent, employee, joint venturer, or partner of
SELLER and shall, under no circumstances, be deemed agents or representatives
of SELLER. Neither BUYER nor
<PAGE> 10
SELLER shall have any right to enter into any contract or commitment in the
name of, or on behalf of the other, or to bind the other in any respect
whatsoever.
8. FORCE MAJEURE.
8.01. Neither party shall be liable in any manner whatsoever
to the other party hereto, its customers, distributors or any other third
parties in its privily for failure to perform its obligations under this
Restated Agreement or fulfill any accepted order, or for delay in delivery of
SELLER's products in the event that such performance or the fulfillment of any
such order, or timely delivery thereof is prevented by or pursuant to any law,
or governmental regulation or restriction, by any strike, lock-out or other
labor dispute or casualty, or any cause beyond the control of the party,
including, but not limited to, any "act of God", fire, flood, earthquake,
storm, epidemic, quarantine restriction, war, insurrection or riot, civil
unrest, freight embargo, delay, or extraordinary hardship in transportation,
unusually severe weather, or inability to obtain necessary materials, labor,
fuel, energy or manufacturing facilities due to any such causes.
9. ASSIGNMENT.
9.01. Except as hereafter provided, no right, interest,
obligation or duty of BUYER under this Restated Agreement may be assigned,
delegated or transferred without the prior written consent of SELLER.
10. CONFIDENTIALITY.
10.1. Neither BUYER nor SELLER nor any of their respective
employees, agents and representatives shall disclose to any third party, at any
time during the term of this Restated Agreement, any extension thereof, or any
time after the termination of this Restated Agreement, any trade secrets,
supply sources, prices, price policies, or any other information of the other
party which is or are learned or supplied in confidence by the other party in
relation to SELLER's products, affairs, business or methods of carrying on
business.
11. FUTURE DEALINGS.
11.1. In the event SELLER is in a position to offer any other
Elite Dominator set product and assuming BUYER is in full compliance with all
the terms and conditions of this Restated Agreement, SELLER hereby grants to
BUYER the first right to purchase said Elite Dominator set product or similar
type exclusive baseball card set product. If and when SELLER is in a position
to offer such new set product, SELLER shall notify BUYER in writing of the
terms and conditions of such proposed sale. BUYER shall have thirty (30)
calendar days in which to notify SELLER, in writing, of its desire to purchase
such new set product upon the terms and
<PAGE> 11
conditions set forth in SELLER's written notice. In the event BUYER does not so
notify SELLER within thirty (30) calendar days, BUYER's first right to purchase
the new set product shall terminate and become null and void. Provided BUYER is
in full compliance with all the terms and conditions of this Restated
Agreement; and, further provided, that BUYER is in full compliance with all the
terms and conditions of any Agreement relating to any other Diamond Dominator
set product or a similar type exclusive baseball card set product for which
BUYER has exercised BUYER's first right to purchase granted by SELLER to BUYER
under this Paragraph 11., this first right of purchase shall continue in
existence until December 31, 2000; or, until BUYER is no longer in full and
complete compliance with all the conditions precedent contained in both of the
foregoing provisos, whichever first occurs.
12. DEFAULT.
12.1. The occurrence of any of the following events shall, at
the option of the other party, be considered an Event of Default subject to the
following terms and conditions:
a. Any failure by a party to duly observe any
materials covenant, condition or agreement of this Restated Agreement;
b. The granting of a final judgment or the issuance
of an order for a preliminary injunction which precludes a party from complying
with the terms and conditions of this Restated Agreement.
c. The occurrence of any event of default under any
license agreement with Donruss, Leaf or any other party with respect to the ED
Cards or any other rights granted with respect to those sets which precludes
SELLER from shipping pursuant to the terms and conditions of this Restated
Agreement.
d. The insolvency or bankruptcy of a party, the
making by a party of an assignment for the benefit of creditors, or the consent
of a party to the appointment of a trustee or receiver or other office of the
court or other tribunal.
e. The appointment of a trustee, receiver or other
officer of the court for a party, or for a substantial part of the properties
of the party, without such party's consent, where no discharge is effected
within sixty (60) days.
f. The institution of bankruptcy, reorganization,
insolvency, or liquidation proceedings by or against a party, and if against
said party, where such proceeding is consented to by it.
g. The issuance or entry of any attachment, replevin
levy or lien against the ED Cards which precludes a party from
<PAGE> 12
complying with the terms and conditions of this Restated Agreement, if not
discharged, bonded or dismissed within thirty (30) days.
12.2. Said events shall not constitute an Event of Default
unless, for any event for which a time period is not specified above, that
event continues for a period of thirty (30) days after written notice to the
defaulting party, provided, however, that said notice provisions and any other
notice provisions contained in this agreement or any other document shall run
concurrently and not successively.
13. RIGHT OF CANCELLATION.
13.1. In the Event of Default by a party, the other party
shall have the right, at its sole option, in addition to such other rights and
remedies as it may be accorded by law or elsewhere in this Restated Agreement,
to terminate this Restated Agreement and all of its obligations hereunder, by
written notice to the defaulting party, and non-defaulting party shall
thereupon be relieved of and released from all further obligations thereafter
to accrue hereunder; but in the event of termination of this Restated Agreement
by an Event of Default, the defaulting party nevertheless shall remain liable
to the non-defaulting party hereunder, for any and all damages which
non-defaulting party may sustain by reason of defaulting party's failure to
comply with any and all of the provisions of this Restated Agreement.
14. MISCELLANEOUS.
14.1. This Restated Agreement constitutes the complete
agreement between the parties with respect to the subject matter and may not be
changed, modified, amended, or revoked except by a writing signed by the party
against which enforcement is sought to be charged.
14.2. Section headings in this Restated Agreement are for
convenience or reference only and are not intended to qualify the meaning of
any provision hereof.
14.3. Except as stated in this Restated Agreement, BUYER and
SELLER acknowledge that no representation or statement, and no understanding or
agreement, had been made, or exists, and that in entering into this Restated
Agreement it has not relied upon anything done or said or upon any presumption
in fact or in law, (i) with respect to this Restated Agreement or to the
duration, termination, or renewal of this Restated Agreement, or with respect
to the relationship between the parties, other than as expressly set forth in
this Restated Agreement; or (ii) that in any way tends to change or modify the
terms, or any of them, of this Restated Agreement or to prevent this Restated
Agreement becoming effective; or (iii) that in any way affects or relates to
the subject matter of this Restated Agreement.
<PAGE> 13
14.4. Except as expressly provided in this Restated Agreement,
waiver by either party, or failure by either party to claim a breach of any
provision of this Restated Agreement shall not be, or held to be, a waiver of
any breach or subsequent breach, or as affecting in any way the effectiveness
of such provision.
14.5. Any notices required or permitted by this Restated
Agreement, or given in connection herewith, shall be in writing and may be
given by personal delivery or by first class registered mail, postage prepaid
to the respective parties at their addresses first above listed.
14.6. If any part of this Restated Agreement shall be
determined to be illegal or unenforceable, then such offending part or portion
shall be deemed deleted from this Restated Agreement without affecting or
impairing any other part of this Restated Agreement.
15. INSURANCE.
15.1. SELLER shall, throughout the term of this Restated
Agreement, obtain and maintain at its own expense from a qualified insurance
company licensed to do business in its place of business, standard fire,
casualty loss and business interruption insurance, the form of which must be
acceptable to BUYER, naming BUYER and SELLER as co-loss payee. Such policy
shall provide protection against any and all claims, demands and causes of
action arising out of any loss by fire, water, theft or otherwise in the ED
product or any material used in connection therewith or any use thereof. The
amount of coverage shall be a minimum of Two Million Dollars ($2,000,000.00)
combined single limit, with no deductible amount, for each single occurrence
for bodily injury and/or property damage. The policy shall provide for ten (10)
days' notice to BUYER from the insurer by registered or certified mail, return
receipt requested, in the event of any modification, cancellation or
termination. SELLER agrees to furnish BUYER a certificate of insurance
evidencing same within a reasonable time after execution of this Restated
Agreement.
16. SECURITY AGREEMENT AND UCC STATEMENT.
16.1. BUYER and SELLER agree to execute a Security Agreement
in favor of SELLER and UCC Statements for filing with the appropriate Ohio and
county agencies within Ten (10) days of the filing of agreed upon dismissal
entries of the Lawsuit. The unsold balance of the first 50,000 1993 Elite
Dominator baseball cards shall secure the fulfillment of BUYER's obligations
under the Restated agreement. BUYER shall release the UCC statements of record
upon the entire payment of Payment Obligation or the delivery of the BUYER's
common shares to SELLER in payment of the Payment Obligation, whichever shall
last occur.
<PAGE> 14
IN WITNESS WHEREOF, BUYER and SELLER have caused this Restated
Agreement to be executed by their duly authorized officers effective as of the
day and year first above written.
SELLER:
WITNESSES: RICHARD HOWARD, INC.
/s/ Douglas W. Huffman By: /s/ G. Richard Howard
- ---------------------------- -------------------------
G. RICHARD HOWARD
/s/ Robert F. Sprague PRESIDENT
- ----------------------------
BUYER:
WITNESSES: SHOP AT HOME, INC.
/s/ C. Michael Norton By: /s/ Kent E. Lillie
- ---------------------------- ------------------------
KENT E. LILLIE
/s/ Charles W. Bone PRESIDENT
- ----------------------------
<PAGE> 15
FIRST AMENDMENT TO RESTATED AGREEMENT
This FIRST AMENDMENT TO RESTATED AGREEMENT, dated March 7, 1996, is by
and between RICHARD HOWARD, INC., an Ohio corporation ("Seller"), and SHOP AT
HOME, INC., a Tennessee corporation ("Buyer"), and amends that certain Restated
Agreement by and between the parties dated as of January 26, 1996 (the
"Restated Agreement").
WITNESSETH;
WHEREAS, the parties entered into the Restated Agreement for the
purpose of describing the terms and conditions of their continuing business
relationship under which Seller is selling to Buyer certain baseball card
products referred to as the 1993 Elite Dominators; and
WHEREAS, the Restated Agreement is premised on the assumption that
each ED Card (consisting of one 1993 Elite Dominator baseball card and one box
of 1993 Donruss baseball cards or other sports related product of comparable
value) will be sold by the Seller to the Buyer at a basic price of $35 per ED
Card (the "Basic Price"); and
WHEREAS, the Seller and Buyer have, since agreeing upon the terms and
conditions of the Restated Agreement, agreed that Seller will sell to the Buyer
product consisting of one 1993 Elite Dominator baseball card along with other
baseball cards with less value than a box of 1993 Donruss baseball cards at a
price of $30 (as used herein the purchase of one 1993 Elite Dominator along
with any assortment of other baseball cards or sports related material is
referred to as "ED Card Product"); and
WHEREAS, the parties wish to enter into this First Amendment for the
purpose of describing the terms and conditions of the purchase of ED Card
Product at a price at variance with the Basic Price.
NOW, THEREFORE, the parties agree as follows:
1. The parties acknowledge that under the Restated Agreement, the
Buyer has an obligation to pay to the Seller a total amount of $720,000 (the
"Payment Obligation"), which under the terms of the Restated Agreement is
partially payable in cash and partially payable in common stock of the Buyer.
2. The parties agree that if the Seller and Buyer reach an agreement
for the purchase of ED Card Product in some form or in some manner at an agreed
price (the "Changed Price") which is less or more than the Basic Price, the
difference in price (the "Price Variance") will be reflected in the amount of
the Payment Obligation. Accordingly, if the Changed Price is less than the
Basic Price, the Price Variance multiplied by the number of ED Card Product
purchased at the Changed Price shall be applied as a credit
<PAGE> 16
to the Payment Obligation. In the event the parties agree to a Changed Price
which is more that the Basic Price, the Price Variance multiplied by the number
of ED Cards purchased at the Changed Price shall be added to the Payment
Obligation.
3. The parties agree that the obligation of the Buyer to purchase
29,077 ED Cards from Seller, as described in Section 1.1 of the Restated
Agreement, shall be satisfied by the purchase of 29,077 1993 Elite Dominator
cards together with any assortment of baseball cards or sports related products
agreed upon by the parties, regardless of the price.
4. Any change from the Basic Price described in the Restated Agreement
shall be set forth in writing between the parties.
5. Except as specifically stated herein, no other terms or provisions
of the Restated Agreement are changed or altered by this First Amendment.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the day and year first above written.
[S]
RICHARD HOWARD, INC.
By: /s/ G. Richard Howard
------------------------
Title: Pres.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
------------------------
Title: Pres.
<PAGE> 1
EXHIBIT 10.40
MAJORITY STOCK PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into this 3rd day of June, 1996, is
by and between CHARLES E. WALKER (hereinafter "Seller"); URBAN BROADCAST
SYSTEMS, INC., a Texas corporation (hereinafter "Corporation"); and BROADCAST,
CABLE AND SATELLITE TECHNOLOGIES, INC., a Texas corporation (hereinafter
"Buyer").
WITNESSETH
WHEREAS, Seller is the holder of a fifty-one percent (51%) interest in
the issued and outstanding stock of the Corporation; and
WHEREAS, Buyer is the holder of a forty-nine percent (49%) interest in
the issued and outstanding stock of the Corporation; and
WHEREAS, the Corporation is the Licensee of Television Station KZJL,
Channel 61, Houston, Texas (hereinafter "Station") pursuant to authorizations
issued by the Federal Communications Commission (hereinafter "FCC"); and
WHEREAS, Buyer has exercised its option, granted pursuant to the
Majority Partnership Interests and Majority Stock Purchase Option dated the
_____ day of May, 1993, by and between Seller and Buyer, and amended and
restated by the Restated Majority Partnership Interests and Majority Stock
Purchase Option between Buyer and Seller, executed on December 14, 1993, but
made effective May 15, 1993; and as further amended by the letter agreement
between Buyer and Seller dated December 6, 1994; and
<PAGE> 2
WHEREAS, Seller and Buyer are unable to consummate Buyer's exercise of
said option without the prior written approval of the FCC.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, the parties hereto, intending to be legally bound, agree as
follows:
1. Partnership Interests and Stock Purchase. Seller agrees to
sell to Buyer, at Closing, as herein defined, all of the issued and outstanding
stock of the Corporation owned by Seller, representing fifty-one percent (51%)
of the outstanding stock of the Corporation, free and clear of all liens or
encumbrances. Said stock is and will be fully paid and non-assessable upon the
performance by the Buyer of all of its obligations contained herein.
2. Purchase Price. For Seller's common stock in the Corporation,
Buyer agrees to deliver to Seller, at Closing, a Promissory Note in the form of
that attached hereto as Annex I for the principal amount of One Million Four
Hundred Thousand Dollars ($1,400,000.00) with interest at six percent (6%) per
annum and payable as follows:
A. Beginning thirty (30) days following Closing, twelve
(12) equal monthly payments of Seven Thousand Dollars ($7,000.00) each,
representing interest only at six percent (6%) per annum on the principal of
One Million Four Hundred Thousand Dollars ($1,400,000.00); and
B. Followed by one hundred twenty (120) monthly payments
of Fifteen Thousand Five Hundred Forty-two and 87/100
<PAGE> 3
Dollars ($15,542.87) which shall include principal and interest at six percent
(6%) per annum; and.
C. The Note shall provide that the outstanding balance
under the Note shall become due and payable upon (1) the assignment of the
Station License; or (2) the sale of a majority of the stock of Corporation
owned by Buyer such that FCC consent to a transfer of control is required;
however, should the monies received at Closing upon such assignment or transfer
of control be less than twice the amount then owed to Seller, proceeds shall be
divided equally, with any future payments to be received also divided equally
between Buyer and Seller, until the Seller's Note is fully paid; except that,
Seller shall at no time receive any amount which will be less than would be
received under the payment schedule as outlined in 2.(a) and 2.(b) above.
3. FCC Application and Approval.
A. The parties agree to proceed as expeditiously as
practicable, but in any event not later than fifteen (15) days after execution
of this Agreement, to file or cause to be filed, an application requesting FCC
consent to the transaction contemplated herein. Seller and Buyer shall
prosecute said transfer application in good faith with due diligence, and shall
cooperate fully with each other and with the FCC in the prosecution of the
application. Seller and Buyer shall each bear its own legal fees and any and
all costs and expenses with respect to the sale and purchase of the stock
covered by this Agreement, but shall share equally the FCC filing fee of Six
Hundred Fifty Dollars ($650.00).
<PAGE> 4
B. If the FCC has failed to grant its written consent to
the transaction contemplated herein within nine (9) months after the date the
application is accepted for filing by the FCC, or if the FCC shall designate
the application for hearing, either Seller or Buyer may terminate this
Agreement upon ten (10) days written notice to the other. In the event of such
termination, Seller and Buyer agree to use their best efforts to pursue sale of
all of the stock of Corporation or all of the assets of Corporation to a third
party, in accordance with the provisions of paragraph 7 hereof. Termination
pursuant to this paragraph is without prejudice to the rights of the parties,
as against each other, for actions or inaction causing the FCC to fail to grant
its consent.
4. Operation Until Closing. Until the Closing pursuant to this
Agreement or until consummation of the sale of the common stock or assets of
Corporation to a third party, Corporation shall remain in control of the
Station and shall operate Station in accordance with the provisions of
paragraph 3 of the Minority Partnership Interests and Minority Stock Purchase
Agreement dated the _______ day of May, 1993.
5. Closing.
A. Closing shall take place within ten (10) days after
the grant by the FCC of its consent to the transaction contemplated herein has
become a final order, not subject to administrative or judicial review,
reconsideration or appeal, but may take place earlier upon mutual agreement
of the parties. The exact date, time and place of Closing shall be specified by
Seller upon five (5) days advance written notice to Buyer.
<PAGE> 5
B. At Closing, Seller shall deliver to Buyer properly
endorsed certificates evidencing its fifty-one percent (51%) interest in
Corporation, and the resignation of its nominees as members of the Board of
Directors and as officers of the Corporation.
C. At Closing, Buyer shall execute and deliver the
Promissory Note attached hereto as Annex I along with the Security Agreement to
Seller as set forth in paragraph 2 herein.
6. Sale to Third Party.
A. In the event of termination of this Agreement
pursuant to the provisions of paragraph 3(b) hereof, Seller and Buyer may, upon
ten (10) days written notice to each other, mutually require one another's
cooperation for the sale, upon the most favorable terms reasonably obtainable,
of all of the stock of Corporation or of all of the assets of the Corporation
to a third party. Such sale shall be subject to the prior written consent of
FCC.
B. Within fifteen (15) days after the notice given
pursuant to paragraph 6(a) hereof, Seller and Buyer shall deliver, each to the
other, a detailed itemization of all out-of-pocket disbursements and expenses
incurred by Seller or Buyer, in connection with the following:
[1] Seller's obtaining any subsequent
modifications to the Construction Permit;
[2] Seller's and the Corporation's obtaining
FCC's consent to the assignment of the Station from Seller to Buyer, and the
assignment of the Station;
<PAGE> 6
[3] Negotiating the Minority Partnership Interests
and Minority Stock Purchase Agreement dated May _____, 1993, and Majority
Partnership Interests and Majority Stock Option Agreement dated May ______,
1993 and this Majority Stock Purchase Agreement; and
[4] The execution and performance of those
documents set forth in paragraph 6(b)(iii) hereof. It is expressly agreed that
none of the aforesaid expenses shall include amounts incurred by Buyer or the
Corporation in connection with the construction, activation, and operation of
Station.
C. All proceeds from the sale of the common stock or the
assets of the Corporation to the third party, as provided herein, shall be
applied in the following manner:
[1] All outstanding indebtedness of the
Corporation, including indebtedness to Seller and Buyer, shall be paid in full,
and a sufficient allocation shall be set aside in a reserve fund to satisfy any
additional obligations of the Corporation, including any additional obligations
to Seller and to Buyer;
[2] The documented out-of-pocket disbursements
and expenses provided for in paragraph 7(b) hereof shall be reimbursed in full,
without interest;
[3] The remainder of the proceeds shall be divided
fifty-one percent (51%) to Seller and forty-nine percent (49%) to Buyer.
7. Brokers. Buyer and Seller hereby acknowledge that the services
of The Proctor Group, Inc., Communications Broker, of Woodville, Texas, has
been engaged as a broker or finder in
<PAGE> 7
connection with this transaction, and Buyer expressly agrees to pay said
broker's fee on the date of Closing. Buyer shall hold the Seller harmless
against any claim for broker's fees, finder's fee, or commissions arising in
connection with this transaction.
8. Complete Agreement. This Agreement, the Minority Partnership
Interests and Minority Stock Purchase Agreement, the Majority Partnership
Interests and Majority Stock Purchase Option, as restated and amended, and the
Construction Agreement, as amended, and the letter agreement between Buyer and
Seller dated December 6, 1994, represent the complete understanding of the
parties with respect to the subject matter hereof, and are binding upon the
parties, their heirs, successors and assigns.
9. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of Texas.
10. Headings. Headings of the sections of the Agreement are for
convenience only and do not affect the construction of this Agreement.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
/s/ Charles E. Walker
---------------------------------
Charles E. Walker,
An individual residing in the
State of Texas
URBAN BROADCASTING SYSTEMS, INC.,
A Texas corporation
<PAGE> 8
By: /s/ Charles E. Walker
--------------------------------
Charles E. Walker, President
BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC.,
A Texas corporation
By: /s/ Kent E. Lillie
--------------------------------
Kent E. Lillie, President
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the third day of June,
1996 by Charles E. Walker.
/s/ Rise M. Pointer
--------------------------------
Notary Public in and for
the State of Texas
Rise M. Pointer
--------------------------------
Printed Name
7/31/99
--------------------------------
My Commission Expires
<PAGE> 9
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the third day of June,
1996 by Charles E. Walker, President, Urban Broadcasting Systems, Inc., a Texas
corporation.
/s/ Rise M. Pointer
----------------------------
Notary Public in and for
the State of Texas
Rise M. Pointer
----------------------------
Printed Name
7/31/99
----------------------------
My Commission Expires
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on the third day of June,
1996 by Kent E. Lillie, President, Broadcast, Cable and Satellite Technologies,
Inc., a Texas corporation.
/s/ Rise M. Pointer
----------------------------
Notary Public in and for
the State of Texas
Rise M. Pointer
----------------------------
Printed Name
7/31/99
----------------------------
My Commission Expires
<PAGE> 10
ANNEX I
PROMISSORY NOTE
DATE OF NOTE: ______________________________________, 1996
AMOUNT OF NOTE: ONE MILLION FOUR HUNDRED THOUSAND DOLLARS
AND NO/100 ($1,400,000.00)
MATURITY DATE: 132 months from the date hereof
INTEREST RATE: Six Percent (6%) per annum until the Maturity Date
PREPAYMENT: The Makers hereof reserve the right to repay this
Note in whole or in part any time hereafter without
penalty.
FOR VALUE RECEIVED, the undersigned BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC., a Texas corporation (hereinafter referred to as "Maker"),
promises to pay to the order of CHARLES E. WALKER, a Texas resident, or his
heirs, successors, or assigns (hereinafter referred to as "Holder"), located at
1800 West Loop South, Suite 1850, Houston, Texas 77027, or at such other place
as the Holder may designate to the Maker in writing from time to time, in legal
tender of the United States, the Amount of the Note in the following manner:
Beginning thirty (30) days from the date of this Note, twelve
(12) monthly payments of $7,000.00 each, representing interest
only, with the first such payment due on ________________,
1996, and subsequent payments due on the same date of each
month for the following eleven (11) months; and
Followed by one hundred twenty (120) monthly payments of
$15,542.87, which shall include principal and interest, with
the first such payment due on ______________, 1997, and
subsequent payments due on the same date of each month for the
following 119 months;
provided, however, that the outstanding balance hereon shall become due and
payable upon (i) the sale of all or substantially all of the assets of the
Station (as defined in that certain Majority Stock Purchase Agreement (the
"Agreement") dated June 3, 1996, by and between Holder and Maker) and the
assignment of the Station's license, or (ii) the sale of stock issued by the
Licensee of the Station or by the corporation(s) controlling the Station's
license such that FCC consent to a transfer of control is required; provided
further, however, that should the monies received at the
<PAGE> 11
closing upon such assignment or transfer of control be less than twice the
amount then owed to Holder, proceeds shall be divided equally, with any future
payments to be received also divided equally, until this Note has been fully
paid, except that, Holder shall at no time receive any amount which will be
less than that which would be received as provided above in this Note.
All prepayments shall be applied first to interest and then any
remaining balance shall be applied to principal.
AFTER MATURITY OF THIS NOTE, WHETHER BY THE TERMS HEREOF OR BY THE
HOLDER EXERCISING ITS RIGHTS TO ACCELERATE THIS NOTE, INTEREST SHALL ACCRUE ON
THE PRINCIPAL BALANCE AT THE HIGHEST LAWFUL RATE OF INTEREST ALLOWABLE UNDER
THE LAWS OF THE STATE OF TEXAS OR, IF NO MAXIMUM RATE IS PRESCRIBED BY LAW, AT
TWENTY PERCENT (20%) PER ANNUM.
This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
Should the indebtedness represented by this Note or any part thereof
be collected at law or in equity, or in bankruptcy, receivership or any other
court proceeding (whether at the trial or appellate level), or should this Note
be placed in the hand of attorneys for collection upon default, the Maker
agrees to pay, in addition to the principal, premium and interest due and
payable thereon, all costs of collecting or attempting to collect this Note,
including attorneys' fees.
All parties to this Note, whether Maker, principal, surety, guarantor
or endorser, hereby waive presentment for payment, demand, notice, protest,
notice of protest and notice of dishonor.
Anything herein to the contrary notwithstanding, the obligations of
the Maker under this Note shall be subject to the limitation that payments of
interest shall not be required to the extent that receipt of any such payment
by the Holder would be contrary to provisions of law applicable to the Holder
limiting the maximum rate of interest which may be charged or collected by the
Holder.
The term "Maker" as used herein, in every instance shall include the
Maker's successors and assigns.
The term "Business Day" as used herein shall mean every day of the
year, with the exception of each Saturday, each Sunday, and each holiday on
which national banks are normally closed for business.
In the event any monthly payment date hereunder falls on a day other
than a Business Day, the payment shall be considered to be due and payable on
the next succeeding Business Day.
<PAGE> 12
In the event the Maker fails to make a payment hereunder on the
payment due date, this Note shall not be considered to be in default unless (i)
the Holder shall give the Maker written notice of such failure to pay on or
before 10:00 a.m., Eastern time, and the Maker shall thereafter fail to deliver
such payment to the Holder before 5:00 p.m., Houston, Texas time, on the first
Business Day after such notice is given to the Maker, or (ii) the Holder shall
give the Maker written notice of such failure to pay after 10:00 a.m., Eastern
time, and the Maker shall thereafter fail to deliver such payment to the Holder
before 5:00 p.m., Houston, Texas time, on the second Business Day after such
notice is given to the Maker. Notice shall be given by facsimile transmission
to the Chief Executive Officer and the Chief Financial Officer of the Maker at
the numbers specified on the signature page of this Note, provided such
officers may change the numbers by written notice to the Holder.
This Note is made pursuant to, and is entitled to the benefits of the
Security Agreement of even date herewith and is subject to the provisions
thereof, and is to be construed and enforced in accordance with the laws of the
State of Texas. The Security Agreement specifies various defaults upon the
happening of which all sums owing on this Note may be declared immediately due
and payable.
BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC.
A Texas corporation
By:
-----------------------------
Kent E. Lillie
President
The Maker's obligations under this Note are guaranteed by Shop at Home, Inc.,
the sole shareholder of Maker.
SHOP AT HOME, INC.
A Tennessee corporation
By:
----------------------------
Kent E. Lillie
President
Notices sent to:
Kent E. Lillie, President and CEO
Shop at Home, Inc.
<PAGE> 13
Facsimile (404) 848-7795
Joseph Nawy, Vice President of Finance
Shop at Home, inc.
Facsimile (423) 687-7165
<PAGE> 14
SECURITY AGREEMENT
THIS AGREEMENT, made this ________ day of ___________________________,
1996, by and between BROADCAST, CABLE AND SATELLITE TECHNOLOGIES, INC., a Texas
corporation (hereinafter referred to as "Debtor") and CHARLES E. WALKER, a
Texas resident, or his heirs, successors, or assigns (hereinafter referred to
as "Secured Party"), located at ____________________________, Houston, Texas
________.
W I T N E S S E T H:
WHEREAS, Debtor is indebted to the Secured party in the amount of
$1,400,000.00 plus accrued and unpaid interest as evidenced by that certain
Promissory Note of even date herewith (the "Note");
WHEREAS, Debtor acquired on the date herewith from Secured Party the
property described in Exhibit "A" attached hereto and by this reference
incorporated herein; and
WHEREAS, the Secured Party has requested and the Debtor has agreed to
grant to the Secured Party a security interest in the property purchased by
Debtor from Secured Party as hereinafter described.
NOW, THEREFORE, in consideration of the premises which shall be deemed
a part of this Agreement and not merely as recitals thereto, the parties
hereto, intending to be legally bound thereby, agree as follows:
ARTICLE 12.
GRANT OF SECURITY INTEREST
Debtor, to secure prompt payment of the indebtedness evidenced by the
Note and for other valuable consideration, receipt whereof is hereby
acknowledged, hereby pledges and assigns to Secured Party a continuing first
lien in and to all equipment, machinery, furniture, furnishings and other
personal property purchased by Debtor from Secured Party, including but not
limited to, those items listed on Exhibit "A" attached hereto and by this
reference incorporated herein and any proceeds or substitutions thereof
("Collateral").
ARTICLE 13.
COVENANTS OF THE DEBTOR
A. To further secure the payment of the indebtedness evidenced by
the Note, the Debtor agrees as follows:
[1] To pay the Notes secured by this Agreement according
to their terms;
[2] To pay prior to delinquency all taxes assessed
against the Collateral;
<PAGE> 15
[3] To execute any instrument or statement required by
law or otherwise necessary to effectuate the purposes and provisions of this
Agreement, and necessary in order to perfect, or continue the security interest
of Secured Party in the Collateral;
[4] Not to sell, transfer, assign or otherwise dispose of
any of the Collateral without the prior written consent of Secured Party;
[5] To take any and all steps required to protect the
Collateral;
[6] To take all steps necessary to protect the priority
of the security interest granted by the Debtor to the Secured Party herein;
[7] Not to cause anything to be done which may materially
impair the value of the Collateral, except for wear and tear in the normal
course of business, or the security interest intended to be granted to the
Secured Party by this Security Agreement;
[8] To promptly notify the Secured Party of any claim,
action or proceeding affecting title to the Collateral or any material part
thereof, or the security interest created under this Agreement, of which the
Debtor has knowledge or reasonably should have knowledge; and
[9] To keep the Collateral insured against fire
(including extended coverage) and other normally insurable hazards, to the
extent of the full insurable value thereof, by responsible insurance companies
authorized to do business in the State of Texas, which insurance shall be
reasonably acceptable to Secured Party.
B. Failure to Perform Covenants. Should any covenant, duty or
agreement of the Debtor fail to be performed in accordance with its terms
hereunder, the Secured Party may, but shall not be obligated to, perform or
attempt to perform such covenant, duty or agreement on behalf of the Debtor and
any amount expended by the Secured Party in performance or attempted
performance shall be paid by the Debtor of the Secured Party, payment of which
amount shall be secured by the Collateral as if such amounts were part of the
amount due and owing under the Note.
ARTICLE 14.
DEFAULT
A. Events of Default. The following shall constitute an Event of
Default under this Security Agreement.
[1] Any default under the terms and conditions of the
Note;
<PAGE> 16
[2] Failure by the Debtor to comply with and perform any
of their covenants under this Agreement within thirty (30) days of receipt of
written notice of such failure by the Secured Party to the Debtor;
[3] Commencement of any insolvency proceedings by or
against the Debtor under the Federal Bankruptcy Code or the commencement of any
proceedings by or against the Debtor under any law relating to the bankruptcy,
insolvency, reorganization or relief of or the commencement of any proceedings
for composition, extension, arrangement or adjustment of any of the debts or
obligations of the Debtor if any of such proceedings are not dismissed within
ninety (90) days of commencement;
[4] Subjection of the Collateral, or any part hereof, to
levy under a writ of execution, or a writ of replevin, or other like judicial
process; and
[5] Debtor makes an assignment for the benefit of
creditors of all or substantially all of its assets.
ARTICLE 15.
RIGHTS AND REMEDIES IN DEFAULT
A. Rights and Remedies. Upon the occurrence of any of the above
Events of Default and at any time thereafter (such default not having been
previously cured), the Secured Party in addition to all rights and remedies
available to it as secured party under the Uniform Commercial Code of the State
of Texas, which rights and remedies shall be exercisable immediately, the
Secured Party may, at its option, declare the Note secured hereby to be immedi-
ately due and payable without demand or notice of any kind whatsoever.
Notwithstanding the foregoing, in that the Collateral consists of the pledge of
stock of the licensee of Television Station KZJL, Houston, Texas, the voting
rights to such stock will remain with the Debtor, even in the event of default
hereunder or under the Note, and in the event of such a default there is a
private or public sale of such stock, prior to the exercise of any stockholder
rights by the purchaser at such a sale, the prior consent of the Federal
Communications Commission, pursuant to the requirements of 47 U.S.C. Section
310 (d) will be obtained.
B. Expenses. Upon the occurrence of any of the above Events of
Default, and upon the exercise by the Secured Party of the remedies of a
secured party under the Uniform Commercial Code of the State of Texas, the
Secured Party's reasonable attorneys' fees and the legal and other expenses for
pursuing, searching for, receiving, taking, keeping, storing, advertising, and
selling the Collateral shall be chargeable to the Debtor.
ARTICLE 16.
REPRESENTATIONS AND WARRANTIES OF DEBTOR AND COMPANIES
A. The Debtor represents and warrants as follows:
<PAGE> 17
[1] The Debtor has authority to execute and deliver this
Security Agreement;
[2] No security interest, other than the security
interests created herein, has attached or been perfected in the Collateral or
any part thereof in favor of any party other than the Secured Party and no
other security agreement covering the Collateral has been made and no financing
statement covering the Collateral has been filed with any filing officer. The
security interest of the Secured Party in the Collateral, when perfected, will
be superior to the security interest of any other party.
ARTICLE 17.
OTHER AGREEMENTS
A. The parties further agree as follows:
[1] This Agreement shall be terminated, and it shall no
longer be of any force or effect, as soon as the indebtedness evidenced by the
Note is paid in full; and thereupon, Secured Party shall promptly file the
necessary documentation to reflect a termination of its security interest in
the Collateral;
[2] No delay in the enforcement of the rights of Secured
Party under this Agreement or the Note shall constitute a waiver or prejudice
the rights of Secured Party with respect to the Collateral;
[3] This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, and
legal representatives;
[4] Neither this Agreement nor any term or provision
hereof may be changed, waived, discharged or terminated orally or in any manner
other than by an instrument in writing signed by the party against whom or
which the enforcement or the change, waiver, discharge or termination is
sought; and
[5] This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Debtor and the Secured Party have respectively
signed this Agreement as of the date first above written.
DEBTOR:
BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC.,
a Texas corporation
<PAGE> 18
By:
----------------------------
Kent E. Lillie
President
SECURED PARTY:
-------------------------------
Charles E. Walker, Individually
<PAGE> 19
EXHIBIT "A"
TO SECURITY AGREEMENT
100% of the issued and outstanding shares of common stock in Urban Broadcasting
Systems, Inc., a Texas corporation.
<PAGE> 1
EXHIBIT 10.41
PROMISSORY NOTE
DATE OF NOTE: September 5, 1996
AMOUNT OF NOTE: ONE MILLION FOUR HUNDRED THOUSAND DOLLARS AND NO/100
($1,400,000.00)
MATURITY DATE: 132 months from the date hereof
INTEREST RATE: Six Percent (6%) per annum until the Maturity Date
PREPAYMENT: The Makers hereof reserve the right to repay this
Note in whole or in part any time hereafter without
penalty.
FOR VALUE RECEIVED, the undersigned BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC., a Texas corporation, and SHOP AT HOME, INC., a Tennessee
corporation (hereinafter collectively referred to as "Maker"), jointly and
severally promise to pay to the order of CHARLES E. WALKER, a Texas resident,
or his heirs, successors, or assigns (hereinafter referred to as "Holder"),
located at 1800 West Loop South, Suite 1850, Houston, Texas 77027, or at such
other place as the Holder may designate to the Maker in writing from time to
time, in legal tender of the United States, the Amount of the Note in the
following manner:
Beginning thirty (30) days from the date of this Note, twelve
(12) monthly payments of $7,000.00 each, representing interest
only, with the first such payment due on October 5, 1996, and
subsequent payments due on the same date of each month for the
following eleven (11) months; and
Followed by one hundred twenty (120) monthly payments of
$15,542.87, which shall include principal and interest, with
the first such payment due on October 5, 1997, and subsequent
payments due on the same date of each month for the following
119 months;
provided, however, that the outstanding balance hereon shall become due and
payable upon (i) the sale of all or substantially all of the assets of the
Station (as defined in that certain Majority Stock Purchase Agreement (the
"Agreement") dated June 3, 1996, by and between Holder and Maker) and the
assignment of the Station's license, or (ii) the sale of stock issued by the
Licensee of the Station or by the corporation(s) controlling the Station's
license such that FCC consent to a transfer of control is required;
<PAGE> 2
provided further, however, that should the cash monies received at the closing
upon such assignment or transfer of control be less than twice the amount then
owed to Holder, cash proceeds shall be divided equally, with any future cash
payments to be received also divided equally, until this Note has been fully
paid, except that, Holder shall at no time receive any amount which will be
less than that which would be received as provided above in this Note. All such
cash payments shall be considered prepayments of this Note.
All prepayments shall be applied first to interest and then any
remaining balance shall be applied to principal in inverse order of maturity.
AFTER MATURITY OF THIS NOTE, WHETHER BY THE TERMS HEREOF OR BY THE
HOLDER EXERCISING ITS RIGHTS TO ACCELERATE THIS NOTE, INTEREST SHALL ACCRUE ON
THE PRINCIPAL BALANCE AT THE HIGHEST LAWFUL RATE OF INTEREST ALLOWABLE UNDER
THE LAWS OF THE STATE OF TEXAS OR, IF NO MAXIMUM RATE IS PRESCRIBED BY LAW, AT
TWENTY PERCENT (20%) PER ANNUM.
This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
Should the indebtedness represented by this Note or any part thereof
be collected at law or in equity, or in bankruptcy, receivership or any other
court proceeding (whether at the trial or appellate level), or should this Note
be placed in the hand of attorneys for collection upon default, the Maker
agrees to pay, in addition to the principal, premium and interest due and
payable thereon, all costs of collecting or attempting to collect this Note,
including attorneys' fees.
All parties to this Note, whether Maker, principal, surety, guarantor
or endorser, hereby waive presentment for payment, demand, notice, protest,
notice of protest and notice of dishonor.
Anything herein to the contrary notwithstanding, the obligations of
the Maker under this Note shall be subject to the limitation that payments of
interest shall not be required to the extent that receipt of any such payment
by the Holder would be contrary to provisions of law applicable to the Holder
limiting the maximum rate of interest which may be charged or collected by the
Holder.
The term "Maker" as used herein, in every instance shall include the
Maker's successors and assigns.
The term "Business Day" as used herein shall mean every day of the
year, with the exception of each Saturday, each Sunday, and each holiday on
which national banks are normally closed for business.
<PAGE> 3
In the event any monthly payment date hereunder falls on a day other
than a Business Day, the payment shall be considered to be due and payable on
the next succeeding Business Day.
In the event the Maker fails to make a payment hereunder on the
payment due date, this Note shall not be considered to be in default unless (i)
the Holder shall give the Maker written notice of such failure to pay on or
before 10:00 a.m., Eastern time, and the Maker shall thereafter fail to deliver
such payment to the Holder before 5:00 p.m., Houston, Texas time, on the first
Business Day after such notice is given to the Maker, or (ii) the Holder shall
give the Maker written notice of such failure to pay after 10:00 a.m., Eastern
time, and the Maker shall thereafter fail to deliver such payment to the Holder
before 5:00 p.m., Houston, Texas time, on the second Business Day after such
notice is given to the Maker. Notice shall be given by facsimile transmission
to the Chief Executive Officer and the Chief Financial Officer of the Maker at
the numbers specified on the signature page of this Note, provided such
officers may change the numbers by written notice to the Holder.
The provisions of the preceding paragraph shall not be applicable
following a sale of all or substantially all of the assets of the Station or a
transfer of control of the Station detailed on page one of this Note.
This Note is made pursuant to, and is entitled to the benefits of the
Security Agreement of even date herewith and is subject to the provisions
thereof, and is to be construed and enforced in accordance with the laws of the
State of Texas. The Security Agreement specifies various defaults upon the
happening of which all sums owing on this Note may be declared immediately due
and payable.
BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC.
A Texas corporation
By: /s/ Kent E. Lillie
---------------------------------
Kent E. Lillie
President
FAX: 404 848-7795
SHOP AT HOME, INC.
A Tennessee corporation
By: /s/ Kent E. Lillie
---------------------------------
Kent E. Lillie
President
<PAGE> 4
Joseph Nawy, V.P./Finance (CFO)
FAX: 404 687-7165
<PAGE> 1
EXHIBIT 10.42
SECURITY AGREEMENT
THIS AGREEMENT, made this 5th day of September, 1996, by and between
BROADCAST, CABLE AND SATELLITE TECHNOLOGIES, INC., a Texas corporation
(hereinafter referred to as "Debtor") and CHARLES E. WALKER, a Texas resident,
or his heirs, successors, or assigns (hereinafter referred to as "Secured
Party"), located at 1800 West Loop South, Houston, Texas 77027.
W I T N E S S E T H:
WHEREAS, Debtor is indebted to the Secured party in the amount of
$1,400,000.00 plus accrued and unpaid interest as evidenced by that certain
Promissory Note of even date herewith (the "Note");
WHEREAS, Debtor acquired on the date herewith from Secured Party the
property described in Exhibit "A" attached hereto and by this reference
incorporated herein; and
WHEREAS, the Secured Party has requested and the Debtor has agreed to
grant to the Secured Party a security interest in the property purchased by
Debtor from Secured Party as hereinafter described.
NOW, THEREFORE, in consideration of the premises which shall be deemed
a part of this Agreement and not merely as recitals thereto, the parties
hereto, intending to be legally bound thereby, agree as follows:
ARTICLE 18.
GRANT OF SECURITY INTEREST
Debtor, to secure prompt payment of the indebtedness evidenced by the
Note and for other valuable consideration, receipt whereof is hereby
acknowledged, hereby pledges and assigns to Secured Party a continuing first
lien in and to all equipment, machinery, furniture, furnishings and other
personal property purchased by Debtor from Secured Party, including but not
limited to, those items listed on Exhibit "A" attached hereto and by this
reference incorporated herein and any proceeds or substitutions thereof
("Collateral").
ARTICLE 19.
COVENANTS OF THE DEBTOR
A. To further secure the payment of the indebtedness evidenced by
the Note, the Debtor agrees as follows:
[1] To pay the Notes secured by this Agreement according
to their terms;
<PAGE> 2
[2] To pay prior to delinquency all taxes assessed
against the Collateral;
[3] To execute any instrument or statement required by
law or otherwise necessary to effectuate the purposes and provisions of this
Agreement, and necessary in order to perfect, or continue the security interest
of Secured Party in the Collateral;
[4] Not to sell, transfer, assign or otherwise dispose of
any of the Collateral without the prior written consent of Secured Party;
[5] To take any and all steps required to protect the
Collateral;
[6] To take all steps necessary to protect the priority
of the security interest granted by the Debtor to the Secured Party herein;
[7] Not to cause anything to be done which may materially
impair the value of the Collateral, except for wear and tear in the normal
course of business, or the security interest intended to be granted to the
Secured Party by this Security Agreement;
[8] To promptly notify the Secured Party of any claim,
action or proceeding affecting title to the Collateral or any material part
thereof, or the security interest created under this Agreement, of which the
Debtor has knowledge or reasonably should have knowledge; and
[9] To keep the Collateral insured against fire
(including extended coverage) and other normally insurable hazards, to the
extent of the full insurable value thereof, by responsible insurance companies
authorized to do business in the State of Texas, which insurance shall be
reasonably acceptable to Secured Party.
B. Failure to Perform Covenants. Should any covenant, duty or
agreement of the Debtor fail to be performed in accordance with its terms
hereunder, the Secured Party may, but shall not be obligated to, perform or
attempt to perform such covenant, duty or agreement on behalf of the Debtor and
any amount expended by the Secured Party in performance or attempted
performance shall be paid by the Debtor of the Secured Party, payment of which
amount shall be secured by the Collateral as if such amounts were part of the
amount due and owing under the Note.
ARTICLE 20.
DEFAULT
A. Events of Default. The following shall constitute an Event of
Default under this Security Agreement.
<PAGE> 3
[1] Any default under the terms and conditions of the
Note;
[2] Failure by the Debtor to comply with and perform any
of their covenants under this Agreement within thirty (30) days of receipt of
written notice of such failure by the Secured Party to the Debtor;
[3] Commencement of any insolvency proceedings by or
against the Debtor under the Federal Bankruptcy Code or the commencement of any
proceedings by or against the Debtor under any law relating to the bankruptcy,
insolvency, reorganization or relief of or the commencement of any proceedings
for composition, extension, arrangement or adjustment of any of the debts or
obligations of the Debtor if any of such proceedings are not dismissed within
ninety (90) days of commencement;
[4] Subjection of the Collateral, or any part hereof, to
levy under a writ of execution, or a writ of replevin, or other like judicial
process; and
[5] Debtor makes an assignment for the benefit of
creditors of all or substantially all of its assets.
ARTICLE 21.
RIGHTS AND REMEDIES IN DEFAULT
A. Rights and Remedies. Upon the occurrence of any of the above
Events of Default and at any time thereafter (such default not having been
previously cured), the Secured Party in addition to all rights and remedies
available to it as secured party under the Uniform Commercial Code of the State
of Texas, which rights and remedies shall be exercisable immediately, the
Secured Party may, at its option, declare the Note secured hereby to be immedi-
ately due and payable without demand or notice of any kind whatsoever.
Notwithstanding the foregoing, in that the Collateral consists of the pledge of
stock of the licensee of Television Station KZJL, Houston, Texas, the voting
rights to such stock will remain with the Debtor, even in the event of default
hereunder or under the Note, and in the event of such a default there is a
private or public sale of such stock, prior to the exercise of any stockholder
rights by the purchaser at such a sale, the prior consent of the Federal
Communications Commission, pursuant to the requirements of 47 U.S.C. Section
310 (d) will be obtained.
B. Expenses. Upon the occurrence of any of the above Events of
Default, and upon the exercise by the Secured Party of the remedies of a
secured party under the Uniform Commercial Code of the State of Texas, the
Secured Party's reasonable attorneys' fees and the legal and other expenses for
pursuing, searching for, receiving, taking, keeping, storing, advertising, and
selling the Collateral shall be chargeable to the Debtor.
ARTICLE 22.
<PAGE> 4
REPRESENTATIONS AND WARRANTIES OF DEBTOR AND COMPANIES
A. The Debtor represents and warrants as follows:
[1] The Debtor has authority to execute and deliver this
Security Agreement;
[2] No security interest, other than the security
interests created herein, has attached or been perfected in the Collateral or
any part thereof in favor of any party other than the Secured Party and no
other security agreement covering the Collateral has been made and no financing
statement covering the Collateral has been filed with any filing officer. The
security interest of the Secured Party in the Collateral, when perfected, will
be superior to the security interest of any other party.
ARTICLE 23.
OTHER AGREEMENTS
A. The parties further agree as follows:
[1] This Agreement shall be terminated, and it shall no
longer be of any force or effect, as soon as the indebtedness evidenced by the
Note is paid in full; and thereupon, Secured Party shall promptly file the
necessary documentation to reflect a termination of its security interest in
the Collateral;
[2] No delay in the enforcement of the rights of Secured
Party under this Agreement or the Note shall constitute a waiver or prejudice
the rights of Secured Party with respect to the Collateral;
[3] This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, and
legal representatives;
[4] Neither this Agreement nor any term or provision
hereof may be changed, waived, discharged or terminated orally or in any manner
other than by an instrument in writing signed by the party against whom or
which the enforcement or the change, waiver, discharge or termination is
sought; and
[5] This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Debtor and the Secured Party have respectively
signed this Agreement as of the date first above written.
DEBTOR:
BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC.,
<PAGE> 5
a Texas corporation
By: /s/ Kent E. Lillie
---------------------------
Kent E. Lillie
President
SECURED PARTY:
/s/ Charles E. Walker
------------------------------
Charles E. Walker, Individually
<PAGE> 6
EXHIBIT "A"
TO SECURITY AGREEMENT
100% of the issued and outstanding shares of common stock in Urban Broadcasting
Systems, Inc., a Texas corporation, consisting of the following:
Stock Certificate No. 3 for 490 shares registered to Broadcast, Cable and
Satellite Technologies, Inc.
Stock Certificate No. 4 for 510 shares registered to Broadcast, Cable and
Satellite Technologies, Inc.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company:
Name State of Incorporation
- ---- ----------------------
MFP, Inc. Tennessee
RF Scientific Transportables, Inc. Alabama
SAH Acquisition Corporation Tennessee
Broadcast, Cable and Satellite Technologies, Inc. Texas
The following corporation is a subsidiary of Broadcast, Cable and Satellite
Technologies, Inc.:
Urban Broadcasting Systems, Inc. Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHOP AT HOME, INC. FOR THE YEAR ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,914,759
<SECURITIES> 0
<RECEIVABLES> 380,077
<ALLOWANCES> 0
<INVENTORY> 2,611,142
<CURRENT-ASSETS> 5,273,163
<PP&E> 5,215,844
<DEPRECIATION> 1,745,618
<TOTAL-ASSETS> 20,286,670
<CURRENT-LIABILITIES> 8,979,793
<BONDS> 0
0
1,393,430
<COMMON> 26,438
<OTHER-SE> 2,081,961
<TOTAL-LIABILITY-AND-EQUITY> 20,286,670
<SALES> 40,016,114
<TOTAL-REVENUES> 40,732,212
<CGS> 24,516,348
<TOTAL-COSTS> 41,446,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 794,558
<INCOME-PRETAX> (1,508,866)
<INCOME-TAX> (103,394)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,405,472)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
