<PAGE> 1
As filed with the Securities and Exchange Commission on March 21, 1998
Registration No. 333-44251
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Tennessee 5861 62-1282758
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Identification No.)
</TABLE>
5210 Schubert Road
P.O. Box 12600
Knoxville, Tennessee 37912
(423) 688-0300
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
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<S> <C> <C>
Agent for Service: Kent E. Lillie, President Copy to: C. Michael Norton, Esq.
Shop at Home, Inc. Wyatt, Tarrant & Combs
3100 West End Ave. Nashville City Center
Suite 880 511 Union Street, Suite 1500
Nashville, Tennessee 37203 Nashville, Tennessee 37219
(615) 263-8000 (615) 244-0020
Copy to: Andy Lynch, Esq.
Jenkins & Gilchrist
1919 Pennsylvania Ave. N.W.
Suite 600
Washington, D.C. 20006
(202)326-1521
</TABLE>
(Name and address, including ZIP Code, and telephone number, including area
code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering of ___% Secured Notes
due 2005 of Shop at Home, Inc. (the "Note Prospectus") and one to be used in a
concurrent underwritten public offering of Common Stock of Shop at Home, Inc.
(the "Common Stock Prospectus"). The Note Prospectus and the Common Stock
Prospectus are identical except for the front, back and inside front cover pages
and the sections entitled "Summary--The Offering," "Summary--Concurrent
Offering," "Risk Factors" and "Underwriting." The form of the Note Prospectus is
included herein and is followed by the alternate pages to be used in the Common
Stock Prospectus. The alternate pages for the Common Stock Prospectus included
herein are labeled "Alternate Page for Common Stock Prospectus." Final forms of
each prospectus will be filed with the Securities and Exchange Commission under
Rule 424(b) under the Securities Act of 1933, as amended.
PRELIMINARY PROSPECTUS LEGEND
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 2, 1998
PROSPECTUS
[SHOP AT HOME LOGO]
$75,000,000
SHOP AT HOME, INC.
% SENIOR SECURED NOTES DUE 2005
---------------------
Shop at Home, Inc. (the "Company"), is offering hereby (the "Notes
Offering") $75,000,000 in aggregate principal amount of its % Senior Secured
Notes Due 2005 (the "Notes"). The Notes will mature on , 2005 unless
previously redeemed. Interest on the Notes will be payable semiannually on
and of each year, commencing , 1998. The Notes are
not redeemable at any time prior to , 2002. On or after , 2002,
the Notes will be redeemable at the option of the Company, in whole or in part,
at the redemption prices set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. Upon the occurrence of a Change of Control (as
defined herein), Holders (as defined herein) of the Notes will have the right to
require the Company to repurchase their Notes, in whole or in part, at a
purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
The Notes will be secured by a first priority lien on the capital stock and
certain assets of SAH Acquisition Corporation II, a wholly-owned subsidiary of
the Company ("SAH Acquisition II") and a junior lien on the capital stock of the
Other Broadcast Subsidiaries (as defined herein) of the Company. In addition,
the obligations of the Company under the Notes will be jointly and severally
guaranteed on a senior unsecured basis by each of the Company's Restricted
Subsidiaries (as defined herein), including all of its subsidiaries as of the
date hereof. Pursuant to the Indenture, the Company has the right to incur
additional indebtedness, including without limitation, a Senior Credit Facility
in a principal amount of up to $20,000,000, which may be secured by a first
priority lien on certain of the Company's assets, including the Company's
accounts receivable and inventory and a first priority lien on the capital stock
and other assets of the Other Broadcast Subsidiaries. There is no established
trading market for the Notes, and the Company does not intend to apply for a
listing of the Notes on any national securities exchange.
Concurrent with the Notes Offering, the Company is offering 10,000,000
shares of voting Common Stock, par value $0.0025 per share (the "Common Stock")
of the Company by a separate prospectus (the "Common Stock Offering" and
together with the Notes Offering, the "Offerings"). The Notes Offering is
contingent upon the completion of the Common Stock Offering, and the Common
Stock Offering is contingent upon the completion of the Notes Offering.
THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND ARE SPECULATIVE
SECURITIES. SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREOF FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE PURCHASERS OF
THE NOTES OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
========================================================================================================================
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................. % % %
Total..................................... $ $ $
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(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters (as defined herein)
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended, See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $1,000,000.
---------------------
The Notes are offered by the several Underwriters named herein, subject to
receipt and acceptance by the Underwriters, and subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offers and to
reject any order in whole or in part. It is expected that delivery of the Notes
will be made on or about , 1998 in book-entry form through the
facilities of The Depository Trust Company, against payment therefor.
---------------------
NationsBanc Montgomery Securities LLC Friedman, Billings, Ramsey & Co., Inc.
The date of this Prospectus is , 1998
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SUITABILITY REQUIREMENTS
Notice to Residents of the States of Tennessee and Washington: Residents
of the State of Tennessee or Washington may only purchase Notes from the
Company, pursuant to the Notes Offering, if such residents meet the definition
of "accredited investors" under Rule 501 of the Securities and Exchange
Commission. Generally, an accredited investor includes (i) any natural person
with a net worth, or joint net worth with that person's spouse, at the time of
his purchase in excess of $1,000,000; (ii) any natural person with individual
income in excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income level in the
current year; (iii) any entity owned entirely by Accredited Investors; (iv) any
trust, with total assets in excess of $5,000,000 not formed for the specific
purpose of acquiring the securities offered, whose purchase is directed by a
sophisticated person as described in the regulation; and (v) any organization
described in Section 501(c)(3) of the Internal Revenue Code, a corporation,
Massachusetts or similar business trust, or partnership, not formed for the
specific purpose of acquiring the securities offered, with total assets in
excess of $5,000,000. Any prospective purchaser who is a resident of Tennessee
or Washington will be required to establish to the satisfaction of the Company
that the purchaser meets one of these requirements prior to the purchase of any
of the Notes by such person.
Notice to Ohio Residents: Residents of the State of Ohio may only purchase
Notes from the Company pursuant to this Offering if such residents meet certain
suitability requirements, as follows: (i) the purchaser must have a minimum
annual gross income of $45,000 and a minimum net worth (exclusive of home, home
furnishings and automobiles) of $45,000, or a minimum net worth of $150,000;
(ii) the purchaser can reasonably benefit from the Notes based upon the
prospective purchaser's overall investment objectives and portfolio structure;
(iii) the purchaser is able to bear the economic risk of the investment based on
the purchaser's overall financial situation; and (iv) the apparent understanding
by the purchaser of the fundamental risks of the investment, the risk that the
purchaser may lose the entire investment, the lack of liquidity of the Notes,
and the background and qualifications of the persons responsible for managing
the Company. Any prospective purchaser who is a resident of Ohio will be
required to complete a subscription agreement which will permit the Company to
fulfill its responsibility of making a reasonable effort to determine that the
purchase of the Notes is a suitable and appropriate investment for the
prospective purchaser.
Notice to New Hampshire Residents: Residents of the State of New Hampshire
may only purchase Notes from the Company pursuant to the Notes Offering if such
residents meet certain suitability requirements, as follows: (i) the purchaser
must have a net worth, exclusive of home, home furnishings, and automobiles of
$250,000, or (ii) the purchaser must have a net worth, exclusive of home, home
furnishings, and automobiles of $125,000, and $50,000 of taxable income. Any
prospective purchaser who is a resident of New Hampshire will be required to
establish to the satisfaction of the Company that the purchaser meets one of
these requirements prior to the purchase of any of the Notes by such person.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the Notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in such forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus. See "Description of Notes -- Certain
Definitions" for the meanings of certain capitalized terms.
THE COMPANY
The Company sells and distributes consumer products through live, customer
interactive retail sales programming that is transmitted via satellite to cable
television systems, television broadcast stations and satellite dish receivers.
Founded in 1986, the Company is one of the fastest growing competitors in the
over $3 billion home shopping industry. Upon the completion of its pending
acquisition of the three UHF television stations described below, the Company
will own and operate five UHF television stations. These stations broadcast in
the San Francisco, Boston, Houston, Cleveland and Raleigh markets, four of which
are among the top 13 television markets in the United States.
The Company's programming is provided on its owned and operated television
stations, and to a "network" of over 80 independently owned television stations
and cable systems throughout the country, located in over 100 television
markets, for all or a portion of each broadcast day. As of December 31, 1997,
the Company's programming was viewable during all or part of the day by
approximately 48.9 million cable households throughout North America, of which
approximately 4.4 million cable households could have viewed the programming on
essentially a full-time basis (20 or more hours per day) and approximately 44.5
million cable households received it on a part-time basis. For households that
received the Company's programming on a part-time basis, the average duration of
viewable programming per day was 4.9 hours.
The Company sells a variety of consumer products, including sports
collectibles and sports related products, rare coins, collectible cutlery,
electronics, jewelry, and health and beauty, personal care, household and
lifestyle products, and other select merchandise and collectibles such as dolls
and figurines. The Company believes that it occupies a unique market niche in
the home shopping industry because its product mix and marketing strategy target
men and feature higher price point products with an emphasis on limited
availability merchandise such as sports memorabilia, rare coins and collectible
knives and cutlery. An independent study commissioned by the Company in June
1997 determined that approximately 55% of the purchasers of the Company's
products are male and that approximately 57% of the Company's customers have
incomes above $45,000 (as compared to 44% as reported in a national database).
The Company's average price per unit sold in fiscal year 1997 was approximately
$150, which the Company believes is substantially above the industry average.
Since Chief Executive Officer Kent Lillie joined the Company in 1993, total
revenues (including merchandise revenues, infomercial revenues and other
revenues) have increased from $20.0 million in fiscal year 1993 to $69.1 million
in fiscal year 1997, a compounded annual growth rate of 36.4%. During the same
period, earnings before interest, taxes, depreciation and amortization
("EBITDA") grew from $(1.8 million) to $3.6 million. Total revenues and EBITDA
for the quarter ended December 31, 1997 were $23.1 million and $1.9 million,
respectively. The Company had a merchandise return percentage of approximately
20.6% for the six months ended December 31, 1997, which the Company believes
compares favorably with those of industry competitors. In addition, Mr. Lillie
has recently strengthened the Company's management team by appointing a Chief
Operating Officer and a Chief Financial Officer.
The Company plans to expand the distribution of its programming and will
seek to acquire additional television broadcast stations. To facilitate its
growth, the Company is moving its operations to a larger, state-of-the-art
facility in Nashville, Tennessee in September 1998. The new 74,000 square foot
facility will provide the Company with additional studio space, more advanced
studio and broadcasting equipment and substantially more call center capacity.
The Company believes that its new facility will further enhance growth by
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enabling the Company to reach new market segments through digital programming,
increased product diversity and by improved processing of customer calls and
product orders. The Company plans to use approximately $4 million of the
proceeds of the Offerings to install new equipment to increase the power and
quality of the broadcast signals at the acquired stations. The Company expects
the increase in the power and quality of the acquired stations to further
increase the number of cable households reached.
The Company is incorporated in Tennessee and its principal place of
business and executive offices are located at 5210 Schubert Road, Knoxville,
Tennessee 37912, and its telephone number in Knoxville is (423) 688-0300.
STRATEGY
The Company's business objective is to increase revenue and cash flow by
implementing the following strategy:
- INCREASE DISTRIBUTION THROUGH THE ACQUISITION OF TELEVISION BROADCAST
STATIONS AND AFFILIATE CARRIAGE AGREEMENTS. The Company plans to
continue to increase the number of television viewers of its
programming by acquiring broadcast television stations in major
markets. Once the Company completes its pending acquisition of the
three television stations, it intends to upgrade the broadcasting
equipment in the San Francisco and Raleigh stations in order to expand
each station's broadcast coverage. By owning and operating stations in
select markets, the Company can broadcast full time programming in
those markets and thereby increase brand awareness and reach more
market segments. In addition, owning stations in select markets
enables the Company to increase its viewership by exercising "must
carry" rights with cable system operators in those markets. See
"Business -- Distribution of Programming." The Company also plans to
increase its programming distribution through additional carriage
agreements with cable systems and broadcast television stations owned
by third parties.
- INCREASE REVENUE PER HOUSEHOLD REACHED. The Company intends to improve
its average revenue per household reached by broadening the types of
products it offers, obtaining more attractive hours of programming and
enhancing customer service. The Company's new facility in Nashville
will provide, among other things, additional studio and programming
capability. In addition, the new facility will substantially improve
picture quality through the utilization of high quality digital
equipment. The Company intends to leverage these additional operating
capabilities to reach additional market segments by offering more
diverse products and programming. The Company believes that it can
better utilize its daytime hours by selectively offering more
programming dedicated to women and women's products. For example, one
of the studios in the new facility will contain a working kitchen that
can be used to air cooking programs and sell kitchen products.
Moreover, the new facility will contain more than one studio, enabling
the Company to multicast different programming simultaneously into
different markets.
- CONTINUE TO OFFER HIGH QUALITY, DIFFERENTIATED PRODUCT MIX. The
Company plans to continue to implement a strategy of selling niche
products such as sports memorabilia, rare coins and other collectibles
that the Company believes are not readily available through other
television home shopping and retail competitors. The Company believes
that its emphasis on targeting male customers and selling higher price
point merchandise enhances the Company's ability to attract carriage
from cable systems and television broadcasters that value the
Company's unique market niche and the appealing demographics of its
customer base.
- UTILIZE EXPANDED CALL CENTER CAPACITY. The new facility in Nashville
will contain an expanded call center. This additional capacity will
enable the Company to process a greater volume of customer calls and
provide enhanced customer services. The Company believes that revenue
growth in recent years has been constrained by its limited capacity to
process customer calls and orders.
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- CONTINUE TO IMPROVE MARGINS. The Company plans to improve profit
margins by taking advantage of its purchasing power to negotiate
lower wholesale prices with its vendors, and spreading its fixed
costs over increased households served.
- CONTINUE TO MINIMIZE INVENTORY RISK AND COSTS. The Company will
continue to utilize drop shipping arrangements and a "just in time"
inventory policy. This strategy permits the Company to operate
without incurring significant working capital costs associated with
the warehousing, distributing, financing and managing of inventory.
- LEVERAGE CUSTOMER DATABASE. The Company has a database of the
purchasing habits of its approximately 1 million customers, nearly
412,000 of whom have ordered a product within the last 18 months.
This database is an invaluable tool for evaluating historical
purchasing preferences, enabling management to refine its
merchandising decisions and maximize viewer interest and sales.
- DEVELOP STRATEGIC REVENUE SOURCES. The Company believes that it has
several opportunities to establish complementary sources of
revenue, including: (i) expansion of its newly developed Internet
site as another avenue for product sales, (ii) establishment of
direct mail and package insert programs, (iii) increasing sales of
broadcast time on the Company's stations to producers of
infomercials, (iv) introduction of periodic paid commercial
advertising in the Company's programming, and (v) introduction of
an outbound telemarketing program to the Company's customers.
RECENT DEVELOPMENT
SAH Acquisition Corporation II, a Tennessee corporation and a wholly owned
subsidiary of the Company ("SAH Acquisition II"), entered into an Asset Purchase
Agreement dated as of September 23, 1997 (the "Asset Purchase Agreement") with
Global Broadcasting Systems, Inc., a Delaware corporation, and its affiliate,
under which SAH Acquisition II agreed to acquire certain broadcast television
assets (the "Acquisition"). Global Broadcasting Systems, Inc. and its affiliate
are currently subject to a proceeding (the "Bankruptcy Proceeding") under
Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") (as debtors
in the Bankruptcy Proceeding, Global Broadcasting Systems, Inc. and its
affiliate are referred to as "Global").
Under the Asset Purchase Agreement, SAH Acquisition II has agreed to
acquire two broadcast television stations owned by Global, KCNS(TV) located in
San Francisco, California ("KCNS"), and WRAY(TV) located in the Raleigh-Durham,
North Carolina market ("WRAY"). Under the Asset Purchase Agreement, SAH
Acquisition II has agreed to assume the legal right and obligation of Global
under an executory purchase contract (the "Executory Contract") to acquire an
additional broadcast television station, WOAC(TV) in the Cleveland, Ohio market
("WOAC"). The Company has guaranteed the performance of SAH Acquisition II under
the Asset Purchase Agreement. An order of the Bankruptcy Court approved the
Asset Purchase Agreement on November 20, 1997.
The total purchase price payable by SAH Acquisition II to Global in
connection with the Acquisition is $52,350,000 (the "Global Purchase Price"), of
which the Company has paid a total of $4,863,750 into an escrow account held by
the trustee appointed to manage Global by the Bankruptcy Court (the "Bankruptcy
Trustee") and which will be applied to the Global Purchase Price at the closing.
The balance of $47,486,250 is payable by the Company to Global at the closing of
the Acquisition. In connection with the assignment of the Executory Contract,
SAH Acquisition II is obligated to purchase WOAC for a total purchase price of
$23,500,000. SAH Acquisition II is entitled to a credit for an escrow deposit
previously paid by Global to the sellers of WOAC in the amount of $2,350,000 and
will make a cash payment of $21,150,000 in connection with the closing of the
purchase of WOAC.
The net proceeds of the Acquisition paid to Global will constitute assets
of the bankruptcy estate of Global, subject to the resolution of the Bankruptcy
Proceeding. Friedman, Billings, Ramsey & Co., Inc. ("FBR"), one of the
Underwriters, has filed a proof of claim in the Bankruptcy Proceeding in the
approximate
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amount of $2.0 million. The claim relates to unpaid placement agent fees and
expenses in connection with a bridge loan facility provided to Global prior to
its bankruptcy. FBR has also filed a proof of claim for an acquisition fee to be
owed by the bankruptcy estate to FBR in the amount of 1.75% of the proceeds of
the sale under the Asset Purchase Agreement if the sale is completed. The
lenders who advanced the bridge loan are also creditors in the Bankruptcy
Proceeding and have filed proofs of claim in the aggregate amount of
approximately $35 million for unpaid principal plus accrued interest, fees and
penalties. In connection with the resolution of the Bankruptcy Proceeding, FBR
and the bridge lenders may be paid in whole or in part on their claims against
Global.
The obligations of the parties under the Asset Purchase Agreement and the
Executory Contract are subject to receipt of the approval of the Federal
Communications Commission ("FCC") of the Applications for Consent to Assignment
of Broadcast Station Licenses (collectively, the "Applications") filed with
respect to the broadcast licenses to be transferred to SAH Acquisition II. The
FCC published public notice of its approval of the Applications for KCNS and
WRAY on December 15, 1997, and such approval became a final order on January 25,
1998. The FCC published public notice of its approval of the Application for
WOAC on January 29, 1998, and such approval became a final order on March 10,
1998.
The primary use of the proceeds of the Offerings will be to provide funds
necessary to close the Acquisition and the Executory Contract. These closings
will occur contemporaneously with the consummation of the Offerings. A complete
description of the use of proceeds of the Offerings is set forth under "Use of
Proceeds."
As a result of the Acquisition (and prior to planned upgrades to the
acquired stations and the purchase of WOAC), the Company estimates that
households that could have viewed the Company's programming on a full-time basis
(20 or more hours) will increase to approximately 5.2 million cable households
from approximately 4.4 million cable households, while cable households
receiving the Company's programming on a part-time basis will decrease by
approximately 1.1 million.
6
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THE OFFERING
SECURITIES OFFERED......... $75,000,000 aggregate principal amount of %
Senior Secured Notes due 2005.
Maturity Date.............. , 2005.
Interest Payment Dates..... and , commencing
, 1998.
Optional Redemption........ On or after , 2002, the Company may
redeem the Notes, in whole or in part, at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption.
Mandatory Redemption....... None.
Ranking.................... The Notes will be senior secured indebtedness of
the Company and the Subsidiary Guarantors, ranking
in pari passu with any other senior indebtedness of
the Company and the Subsidiary Guarantors and
senior to any subordinated indebtedness of such
entities. Pro forma for the Offering and the
application of the proceeds thereof, there would
have been approximately $0.6 million of
indebtedness of the Company and its Subsidiaries
outstanding (other than the Notes), all of which
would have been under capitalized leases. The
Indenture will permit the Company and certain
Subsidiary Guarantors to incur up to $20 million of
indebtedness under a Senior Credit Facility. See
"Description of the Notes."
Security................... The Notes will be secured by a lien on all of the
issued and outstanding capital stock of SAH
Acquisition II and the assets of SAH Acquisition
II, other than the FCC licenses held by it. The
Notes will also be secured by a junior lien on all
of the issued and outstanding capital stock of MFP,
Inc., the owner and operator of WMFP(TV) in Boston
and Urban Broadcasting Systems, Inc., the owner and
operator of KZJL(TV) in Houston (the "Other
Broadcast Subsidiaries"). The Senior Credit
Facility is expected to be secured by first
priority liens on the capital stock of the Other
Broadcast Subsidiaries, the assets of the Other
Broadcast Subsidiaries of the Company and/or the
accounts receivable, inventory and general
intangibles of the Company (excluding from general
intangibles any collaterial for the Notes). See
"Description of Notes -- Security."
Guarantees................. The Notes will be guaranteed on a senior unsecured
basis (the "Subsidiary Guarantees") by each of the
existing and future Restricted Subsidiaries of the
Company (each a "Subsidiary Guarantor" and,
collectively, the "Guarantors"). See "Description
of Notes -- Subsidiary Guarantees."
Change of Control.......... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
repurchase all outstanding Notes at 101% of the
principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase.
Covenants.................. The Indenture restricts, among other things, the
Company's and its Restricted Subsidiaries' ability
to incur additional indebtedness, issue preferred
stock, incur liens, pay dividends, make certain
other restricted payments, apply net proceeds from
certain asset sales, enter into certain
transactions with affiliates, merge or consolidate
with any other person, issue or sell stock of
Restricted Subsidiaries or sell, assign, transfer,
lease, convey or otherwise dispose of substantially
all of the assets of the
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Company or encumber the assets of the Company or
its Restricted Subsidiaries. See "Description of
Notes -- Certain Covenants."
Absence of a Public Market
for the Notes............ The Notes are a new issue of securities with no
established market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the Notes. NationsBanc Montgomery
Securities LLC and Friedman, Billings, Ramsey &
Co., Inc. (the "Underwriters") have advised the
Company that they each currently intend to make a
market in the Notes. However, the Underwriters are
not obligated to do so, and any market making with
respect to the Notes may be discontinued at any
time without notice. The Company does not intend to
apply for listing of the Notes on a securities
exchange. See "Risk Factors -- Absence of a Public
Market for the Notes." Each of the Underwriters is
a registered broker/dealer and member of the
National Association of Securities Dealers, Inc.
Use of Proceeds............ The Company intends to use the net proceeds from
the Notes Offering, together with the net proceeds
from the Common Stock Offering, in the following
manner: (i) to pay the purchase price to Global
under the Asset Purchase Agreement and the purchase
price to close the Executory Contract for WOAC (See
"Business -- Recent Development"), (ii) to purchase
the real estate and building for the Company's new
main offices and studios in Nashville, Tennessee
(the "Facility"), (iii) to purchase equipment for
the Facility, (iv) to complete interior renovation
of the Facility, (v) to acquire equipment necessary
to upgrade and improve the broadcast television
stations acquired through the Acquisition, (vi) to
repay substantially all of the currently existing
indebtedness of the Company, (vii) as working
capital of the Company, which may be used to
acquire additional television stations that may be
available in the future, and (viii) to pay
transaction fees and expenses. The closings of the
Acquisition and the Executory Contract will occur
contemporaneously with the consummation of the
Offerings. See "Use of Proceeds."
CONCURRENT OFFERING OF COMMON STOCK
Concurrent with the Notes Offering, the Company is offering 10,000,000
shares of Common Stock (plus up to an additional 1,500,000 shares to cover
over-allotments, if any (the "Over-allotment Option")) by a separate prospectus
in the Common Stock Offering. The Notes Offering is contingent upon the
completion of the Common Stock Offering, and the Common Stock Offering is
contingent upon the completion of the Notes Offering. The Common Stock of the
Company is currently quoted on the Nasdaq SmallCap Market under the symbol
"SATH."
RISK FACTORS
Investment in the Notes involves a high degree of risk. Each prospective
investor should carefully consider all of the matters described herein under
"Risk Factors."
8
<PAGE> 10
SUMMARY FINANCIAL DATA
The summary financial information set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Net sales............................... $19,878 $21,717 $26,787 $40,016 $67,817 $29,796 $43,421
Cost of sales........................... 15,010 14,278 17,121 24,516 40,626 18,146 25,244
------- ------- ------- ------- ------- ------- -------
Gross profit............................ 4,868 7,439 9,666 15,500 27,191 11,650 18,177
Other operating income.................. -- -- 189 659 1,014 457 564
Operating expenses...................... 7,327 8,406 11,010 16,930 25,882 11,170 16,940
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........... (2,459) (967) (1,155) (771) 2,323 937 1,801
Other income (expense).................. 18 (85) (127) (738) (847) (321) 24
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes....... (2,441) (1,052) (1,282) (1,509) 1,476 616 1,825
Income tax expense (benefit)............ -- -- -- (104) (80) (10) 702
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $(2,441) $(1,052) $(1,282) $(1,405) $ 1,556 $ 626 $ 1,123
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares -- basic....................... 7,379 8,225 9,437 10,284 10,651 10,597 11,283
Weighted average equivalent shares --
dilutive.............................. 7,379 8,225 9,437 10,284 14,268 14,382 14,739
Basic earnings per share(1)............. $ (0.33) $ (0.13) $ (0.14) $ (0.14) $ 0.14 $ 0.06 $ 0.10
Diluted earnings per share(1)........... $ (0.33) $ (0.13) $ (0.14) $ (0.14) $ 0.12 $ 0.05 $ 0.08
Cash dividends per share of common
stock................................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00
OTHER DATA:
EBITDA(2)............................... (1,837) (581) (548) 164 3,612 1,420 3,060
Cash flow from operations............... (201) (936) 1,943 815 6,245 2,348 (1,418)
Ratio of earnings to fixed charges(3)... -- -- -- -- 2.37x 2.58x 5.01x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(4)
-----------------
JUNE 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
------------- ----------------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $(4,641) $(5,127) $ 3,692
Total assets............................................ 34,410 38,973 135,793
Current liabilities..................................... 18,078 18,336 16,303
Long-term debt and capital leases, less current
portion............................................... 9,054 8,592 75,396
Redeemable preferred stock.............................. 1,393 1,393 1,393
Stockholders' equity.................................... 3,804 6,738 38,788
</TABLE>
- ---------------
(1) For details of the calculation of basic and dilutive earnings per share see
Note 12 to the Consolidated Financial Statements included elsewhere in this
Prospectus.
(2) EBITDA consists of earnings before interest, income taxes, and depreciation
and amortization expense. While EBITDA should not be construed as an
alternative to operating income or net income or as an indicator of
operating performance or liquidity, it is a measure that the Company
believes is used commonly to evaluate a company's ability to service debt.
EBITDA is not calculated under generally accepted accounting principles and,
therefore, is not necessarily comparable to similarly titled measures of
other companies.
(3) For purposes of calculating these ratios, earnings represent earnings before
income taxes plus (or in the case of a loss, minus) fixed charges. Fixed
charges consist of interest, amortization of debt issuance costs, and the
portion of rental and lease expense, if any, that management believes is
representative of the interest component of rental and lease expense.
Earnings were inadequate to cover fixed charges for Fiscal 1993, Fiscal
1994, Fiscal 1995 and Fiscal 1996 by $(2.5 million), $(1.1 million), $(1.5
million) and $(2.3 million), respectively.
(4) The pro forma balance sheet data has been calculated giving effect to the
Offerings and the application of the net proceeds therefrom as described in
"Use of Proceeds" as if each occurred on December 31, 1997. No financial
statements with respect to the operation of Global prior to the Acquisition
or pro forma financial information with respect thereto is presented herein
in that the Company will account for the Acquisition as the purchase of
assets rather than the acquisition of a business. This is due to the fact
that, with the exception of a de minimis period of time, none of the
acquired stations have been historically operated as a broadcast outlet for
home shopping programming of Global or the predecessor in title, and the
Company has concluded that there is no continuity of revenues from those
stations from which relevant historical information could be derived.
9
<PAGE> 11
- --------------------------------------------------------------------------------
CORPORATE STRUCTURE OF THE COMPANY
The following chart illustrates where significant Company assets
and rights are, or are expected to be, held, as well as any Subsidiary
Guarantees or security interests granted for the benefit of the Notes:
[Graphic showing corporate organization of Shop at Home, Inc., showing
Broadcast, Cable and Satellite Technologies, Inc., MFP, Inc., and SAH
Acquisition Corporation II as subsidiaries of Shop at Home, Inc.; Showing Urban
Broadcasting Systems, Inc. as a subsidiary of Broadcast, Cable and Satellite
Technologies, Inc., and Collector's Edge of Tennessee, Inc., as a subsidiary of
Urban Broadcasting System, Inc., containing the text set out below.]
SHOP AT HOME, INC.
Issuer of the Notes
- --------------------------------------------------------------------------------
BROADCAST, CABLE AND
SATELLITE TECHNOLOGIES, INC.
-- Guarantor of the Notes
URBAN BROADCASTING
SYSTEMS, INC.
-- Guarantor of the Notes
-- Junior Lien on
Capital Stock
-------------------------------------------------------------------------------
- KZJL-Houston
COLLECTOR'S EDGE
OF TENNESSEE, INC.
-- Guarantor of the Notes
MFP, INC.
-- Guarantor of the Notes
-- Junior Lien on
Capital Stock
-------------------------------------------------------------------------------
- WMFP-Boston
SAH ACQUISITION
CORPORATION II
-- Guarantor of the Notes
-- First Priority Lien on Assets other than FCC Licenses
-- First Priority Lien
on Capital Stock
-------------------------------------------------------------------------------
- KCNS-San Francisco(1)
- WRAY-Raleigh-Durham(1)
- WOAC-Cleveland(1)
(1) The acquisitions of KCNS, WRAY, and WOAC are subject to approval by the FCC
and typical closing conditions. See "Business -- Recent Development."
- --------------------------------------------------------------------------------
10
<PAGE> 12
RISK FACTORS
Prior to making an investment decision with regard to the Company,
prospective investors should carefully consider the following Risk Factors in
addition to the other information and financial data presented in the various
filings made by the Company with the Securities and Exchange Commission. Many of
the statements in this Prospectus are forward-looking in nature and,
accordingly, whether or not they prove to be accurate is subject to many risks
and uncertainties. The actual results that the Company achieves may differ
materially from any forward-looking statements in this Prospectus. Factors that
could cause or contribute to such difference include, but are not limited to,
those discussed below and those contained elsewhere in this Prospectus.
SIGNIFICANT LEVEL OF INDEBTEDNESS
Following the Offerings, the Company will have a significant level of
indebtedness. As of December 31, 1997, on a pro forma basis, after giving effect
to the Offerings and the application of the net proceeds therefrom as described
in "Use of Proceeds," the Company's consolidated indebtedness and capitalized
lease obligations would have been approximately $75.6 million, including the
Notes. Subject to the restrictions on indebtedness contained in the Indenture,
the Company may incur additional indebtedness, including under a Senior Credit
Facility, for capital expenditures or for other purposes.
The level of the Company's indebtedness following the Offerings could have
material consequences for the Company and the holders of the Company's
securities, including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for acquisitions, working
capital, capital expenditures, general corporate or other purposes may be
impaired, (ii) a substantial portion of the Company's cash flow from operations,
if any, will be dedicated to the payment of the principal and interest on its
indebtedness and will not be available for other purposes, (iii) the Company's
ability to react to changes in its industry or economic conditions could be
limited, and (iv) certain of the Company's borrowings may be at variable rates
of interest, which could result in higher interest expense in the event of
increases in interest rates.
The Company's ability to service its indebtedness, including the Notes,
will depend upon its future operating performance, which will be affected by
prevailing economic conditions and financial, business, and other factors,
certain of which are beyond its control, as well as the availability of
borrowings under a Senior Credit Facility. As of December 31, 1997, the Company
had an accumulated deficit of approximately $(5.2 million). The Company will
require substantial amounts of cash to fund scheduled payments of principal and
interest on its outstanding indebtedness, including the Notes, as well as future
capital expenditures and any working capital requirements, which will increase
as a result of the Acquisitions. If the Company is unable to meet its cash
requirements out of cash flow from operations and its available borrowings,
there can be no assurance that it will be able to obtain alternative financing
or that it will be permitted to do so under the terms of a Senior Credit
Facility, the Indenture or its other indebtedness. In the absence of such
financing, the Company's ability to respond to changing business and economic
conditions, to make future acquisitions, to absorb adverse operating results, to
fund capital expenditures or to pay interest on the Notes may be adversely
affected. If the Company does not generate sufficient increases in cash flow
from operations to repay its indebtedness at maturity, including the Notes, it
could attempt to refinance such indebtedness; however, no assurance can be given
that such refinancing would be available on terms acceptable to the Company, if
at all.
MANAGEMENT OF GROWTH AND RELATED EXPENSES
The Company has experienced rapid growth in net sales in recent years. For
the Company's fiscal years ended June 30, 1994, June 30, 1995, June 30, 1996 and
June 30, 1997, net sales of the Company increased by 9%, 23%, 49% and 69%,
respectively, over net sales for the prior fiscal year. Almost all of the growth
in net sales has resulted from expanded carriage of the Company's programming on
cable systems and broadcast television stations. In connection with the expanded
carriage of its programming, the amounts payable to cable systems and television
broadcasters for the carriage of the Company's programming have increased
substantially. The Company has also incurred other increased expenses associated
with its growth, including increased
11
<PAGE> 13
personnel costs. The Company must effectively control expenses in order to
operate profitably and the failure to effectively control expenses could have an
adverse impact on the Company's financial condition and results of operations.
COST OF ACQUISITION
As a result of the Notes Offering, the Company is incurring a substantial
debt service obligation. In the event that the increased revenues associated
with increased broadcast television carriage of the Company's programming do not
exceed the additional costs and expenses associated with the Acquisition, the
purchase of WOAC and the Company's expansion, including interest payable on the
Notes, the Company's profitability will be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
NET LOSSES; ACCUMULATED DEFICIT
For its fiscal years ended June 30, 1993, 1994, 1995, and 1996, the Company
had net losses of approximately $(2.4 million), $(1.1 million), $(1.3 million)
and $(1.4 million), respectively. For the fiscal year ended June 30, 1997 and
for the six month period ended December 31, 1997, the Company had net income of
approximately $1.6 million and $1.1 million, respectively. As of December 31,
1997, the Company had an accumulated deficit of approximately $(5.2 million). At
June 30, 1997 and at December 31, 1997, the Company had negative working capital
of approximately $(4.6 million) and $(5.1 million), respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" for a discussion of working capital and
liquidity.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company and
its Restricted Subsidiaries to incur additional indebtedness, pay dividends,
make certain other restricted payments, incur liens, issue or sell stock of
Restricted Subsidiaries, apply net proceeds from certain asset sales, merge or
consolidate with any other person, sell, assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of the Company, enter into
certain transactions with affiliates or encumber the assets of the Company or
its Restricted Subsidiaries.
The loan agreements relating to any other indebtedness of the Company or
any of its Subsidiaries, including a Senior Credit Facility, may contain
extensive restrictive covenants and may require the Company to maintain
specified financial ratios and to satisfy certain financial condition tests. The
Company's ability to meet financial ratios and tests can be affected by events
beyond its control, and there can be no assurance that the Company will meet
those ratios or tests. In addition, the Company's operating and financial
flexibility will be limited by covenants that, among other things, restrict the
ability of the Company and its subsidiaries to incur additional indebtedness,
pay dividends or make distributions to its stockholders or make certain other
restricted payments, create certain liens upon assets, apply the proceeds from
the dispositions of certain assets or enter into certain transactions with
affiliates. There can be no assurance that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interests of the
Company. Upon the occurrence of an event of default under the other indebtedness
of the Company or any of its Subsidiaries, the lenders could elect to declare
all amounts outstanding thereunder, including accrued interest or other
obligations, to be immediately due and payable or proceed against the collateral
granted to them to secure that indebtedness. If any other indebtedness of the
Company or any of its Subsidiaries were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, including the
Notes.
As a result of these covenants, the ability of the Company to respond to
changing business and economic conditions and to secure additional financing, if
needed, may be significantly restricted, and the Company may be prevented from
engaging in transactions that might otherwise be considered beneficial to the
Company. See "Description of Notes -- Certain Covenants."
12
<PAGE> 14
OTHER SECURED CREDITORS; SENIOR CREDIT FACILITY
The Indenture provides the Company the right to incur up to $20.0 million
of indebtedness under a Senior Credit Facility secured by the Company's accounts
receivable, inventory and general intangibles (excluding from general
intangibles any collateral for the Notes) and a first priority lien on the
capital stock and other assets of the Other Broadcast Subsidiaries. Accordingly,
the Company's accounts receivable, inventory and general intangibles and the
capital stock and other assets of the Other Broadcast Subsidiaries will not be
available to Noteholders in the event of bankruptcy, liquidation or a similar
transaction, until the indebtedness under a Senior Credit Facility (up to $20.0
million) is paid in full. The accounts receivable and inventory represented
approximately $5.9 million and $4.1 million, respectively, at December 31, 1997,
and are among the most liquid assets of the Company and its Subsidiaries.
RISK OF INABILITY TO EFFECTIVELY REALIZE UPON SECURITY
The Notes will be secured by (i) a first priority lien on the capital stock
of SAH Acquisition II, (ii) a first priority lien on the assets of SAH
Acquisition II (other than the FCC licenses) and (iii) a junior lien on the
capital stock of the Other Broadcast Subsidiaries. The lien on the capital stock
and other assets of the Other Broadcast Subsidiaries will be junior to a first
priority lien in favor of a Senior Credit Facility. Accordingly, up to $20.0
million of indebtedness under a Senior Credit Facility will be entitled to be
paid out of the proceeds from the capital stock and other assets of the Other
Broadcast Subsidiaries in the event of bankruptcy, liquidation or reorganization
of the Company prior to the payment of the Notes from the proceeds of such
collateral. See "Description of Notes -- Security."
In addition, the security agreements relating to the capital stock of the
Subsidiaries that is pledged to the Trustee to secure the Notes will contain
provisions stating that the Trustee will not exercise voting rights with respect
to the stock of any Subsidiary that controls an FCC broadcast license, and will
not transfer control of such pledged stock without the prior approval of the
FCC. There can be no assurance that FCC approval can be readily obtained, and
the requirement of FCC consent is likely to cause a delay in the realization of
the value of the pledged stock in the event of a default under the Notes. See
"Description of Notes -- Security."
RISK OF INSUFFICIENT VALUE OF SECURITY
The assets of SAH Acquisition II were purchased for approximately $74.0
million. However, these assets, as well as the assets of the Other Broadcast
Subsidiaries are not liquid and the value thereof to other parties may be
substantially less than the value thereof to the Company. In addition, the value
of the collateral for the Notes may decline over time. Accordingly, no
assurances can be given as to the value of the collateral for the Notes or as to
the amount of proceeds that could be realized upon the sale, disposition or
liquidation of the collateral for the Notes. See "Description of
Notes -- Security."
POTENTIAL INABILITY TO SATISFY A CHANGE OF CONTROL OFFER
The Indenture provides that, upon the occurrence of a Change of Control (as
defined herein), the holders of the Notes will have the right to require the
Company to repurchase the Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required repurchases
of Notes tendered. The Company's failure to make a required repurchase of the
Notes in the event of a Change of Control would create an Event of Default under
the Indenture. Moreover, restrictions under the Funded Indebtedness may prohibit
the Company from making such required repurchases; consequently, any such
repurchases could constitute an event of default under the Funded Indebtedness.
These conditions may result in the Company being unable to perform its
agreements under the Indenture relating to a Change of Control. See "Description
of Notes -- Repurchase at the Option of Holders."
13
<PAGE> 15
FRAUDULENT CONVEYANCES AND PREFERENTIAL TRANSFERS
The ability of the holders of the Notes or the Trustee to enforce the
Notes, the Security and Pledge Agreement or the Subsidiary Guarantees may be
limited by certain fraudulent conveyance and similar laws. Various fraudulent
conveyance and similar laws have been enacted for the protection of creditors
and may be utilized by a court of competent jurisdiction to avoid the Subsidiary
Guarantees or to subordinate the obligations of the Company under the Notes and
the Security and Pledge Agreement or to avoid or subordinate the obligations of
any Subsidiary Guarantor under its Subsidiary Guarantee. The requirements for
establishing a fraudulent conveyance vary depending on the law of the
jurisdiction which is being applied. Generally, if in a bankruptcy,
reorganization, rehabilitation or similar proceeding in respect of the Company
or a Subsidiary Guarantor, or in a lawsuit by or on behalf of creditors against
the Company or a Subsidiary Guarantor, a court were to find that (i) the Company
or a Subsidiary Guarantor, as the case may be, incurred indebtedness in
connection with the Notes (including the Subsidiary Guarantees) with the intent
of hindering, delaying or defrauding current or future creditors of the Company
or the Subsidiary Guarantor, as the case may be, or (ii) the Company or a
Subsidiary Guarantor, as the case may be, received less than reasonably
equivalent value or fair consideration for incurring such indebtedness, as the
case may be, and either (a) was insolvent at the time it incurred such
indebtedness, (b) was rendered insolvent by reason of incurring such
indebtedness, (c) was at such time engaged or about to engage in a business or
transaction for which its assets constituted unreasonably small capital or (d)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, such court could, with respect to the Company or
the Subsidiary Guarantor, as the case may be, declare void in whole or in part
the obligations of the Company or such Subsidiary Guarantor in connection with
the Notes (including the Stock Pledges and the Subsidiary Guarantees) and/or
subordinate claims with respect to the Notes to all other debts of the Company
or the Subsidiary Guarantors, as applicable. If the obligations of the Company
or the Subsidiary Guarantors were subordinated, there can be no assurance that
after payment of the other debts of the Company or the Subsidiary Guarantors,
there would be sufficient assets to pay such subordinated claims with respect to
the Notes and the Subsidiary Guarantees.
Generally, for purposes of the foregoing, an entity will be considered
insolvent if the sum of its debts is greater than the fair saleable value of all
of its property at a fair valuation or if the present fair saleable value of its
assets is less than the amount that will be required to pay its probable
liability on its existing debts, as they become absolute and mature.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against the
Company or any Subsidiary Guarantor within 90 days after any payment by the
Company or such Subsidiary Guarantor with respect to the Notes or a Subsidiary
Guarantee, respectively, or the incurrence of a Subsidiary Guarantee or if the
Company or such Subsidiary Guarantor anticipated becoming insolvent at the time
of such payment or incurrence, all or a portion of such payment or guarantee
could be avoided as a preferential transfer and the recipient of such payment
could be required to return such payment.
POTENTIAL CONFLICT BETWEEN DEBT AND EQUITY HOLDERS
Certain decisions concerning the operations or financial structure of the
Company may present conflicts between the owners of the Company's capital stock
and the holders of the Notes. For example, if the Company encounters financial
difficulties, or is unable to pay its debts as they mature, the interest of the
Company's equity owners might conflict with those of the holders of the Notes.
In addition, the equity owners may have an interest in pursuing acquisitions,
divestitures, financings or other transactions that could enhance their equity
investment, even though such transactions might adversely affect the ability of
the Company to pay principal and interest on the Notes.
RELOCATION OF PRINCIPAL FACILITY
The Company is in the process of relocating its principal facility,
including its offices and studios from Knoxville, Tennessee to Nashville,
Tennessee. The Company anticipates that the expense of the relocation,
14
<PAGE> 16
including the costs of acquiring the real estate and building, completing the
interior buildout and equipping the new Facility, will be approximately $13.4
million, but there can be no assurance that the actual expense will not exceed
such amount. In addition, certain other transitional matters related to the
relocation could negatively impact the operations and earnings of the Company,
including the transition of the programming origination to the Facility, the
possible transition of telephone call center operations to the Facility, the
possible loss of personnel and lost productivity due to management resources
devoted to the relocation. See "Business -- Properties."
RISK OF INABILITY TO INCREASE DISTRIBUTION OF THE COMPANY'S PROGRAMMING
The Company's strategy involves continued growth through increased
distribution of its programming. Increasing distribution of the Company's
programming may require that the Company raise additional debt or equity capital
subsequent to the Offerings. There can be no assurance, however, that any such
capital would be available to the Company on acceptable terms, if at all. In
addition to the Acquisition and the purchase of WOAC, the Company's strategy
involves the acquisition of additional broadcast television stations. There can
be no assurances that the Company will be successful in acquiring additional
broadcast stations. If the Company is unable to raise additional capital or is
unable to consummate additional acquisitions, the Company may be unable to
increase distribution of its programming. See "Business -- Business Strategy."
NEED FOR CAPITAL EXPENDITURES RELATED TO THE ASSETS ACQUIRED IN THE ACQUISITION
The Company plans certain capital expenditures to acquire and to install
equipment at KCNS and WRAY. Such capital expenditures are required in order for
the broadcast television stations to operate at full power in accordance with
their respective FCC licenses. In particular, WRAY is currently operating under
a construction permit, and a full license for the station has not been obtained
due to the operation of the station at a power level substantially below that
authorized by the FCC. The Company expects to incur capital expenditures of
approximately $4 million for the acquisition and installation of new equipment,
but there can be no assurance that the actual expenditures will not exceed that
amount. See "Business -- Recent Development."
CONTROL BY PRINCIPAL SHAREHOLDER; CHANGE IN CONTROL
J.D. Clinton is the beneficial owner, directly and indirectly, of 3,227,700
shares of the Common Stock representing approximately 27.4% of the outstanding
shares of Common Stock as of December 31, 1997. In addition, Mr. Clinton and his
affiliates hold options and warrants for the right to acquire additional shares
of Common Stock of the Company. On a fully diluted basis after the exercise of
all options and warrants held and after giving effect to the Common Stock
Offering (assuming an issuance of 10,000,000 shares), Mr. Clinton would own,
directly or indirectly, 5,435,200 shares of the Common Stock representing
approximately 22.7% (21.4% if the Over-allotment Option is exercised) of the
shares of Common Stock of the Company. Mr. Clinton's ownership is substantially
greater than that of any other shareholder, and his ownership could give him de
facto control over any shareholder vote, including a vote for election of all of
the members of the Company's Board of Directors, a vote for the adoption of
amendments to the Company's charter and bylaws and a vote for the approval of a
merger, consolidation, asset sale or other corporate transaction requiring
approval of the shareholders of the Company. The concentration of ownership
could have the effect of delaying or preventing a change in control of the
Company, even when a change of control would be in the best interests of the
Company's other shareholders. See "Security Ownership of Certain Beneficial
Owners."
The Company currently has an employment agreement with Kent E. Lillie, who
is the Company's President and Chief Executive Officer. In the event of a change
of control of the Company (as defined in the employment agreement) the
employment agreement grants Mr. Lillie certain rights, including the right to
resign at any time during the 12 months following the occurrence of the change
of control, and the right to receive an amount equal to his base salary and
monthly allowances for the 12 months preceding such resignation. In addition,
any options to purchase stock not yet vested will automatically vest on the date
of his
15
<PAGE> 17
resignation. The provisions of Mr. Lillie's employment agreement may have the
effect of discouraging a change in control of the Company. See
"Management -- Employment Agreements."
The provisions of the Indenture that give the holders of the Notes the
right to require the Company to repurchase their Notes upon a Change of Control
(as defined in the Indenture) may discourage, delay or prevent a Change in
Control of the Company that shareholders might consider to be in the Company's
best interests. See "-- Potential Inability to Satisfy a Change of Control
Offer" above.
The Company's Board of Directors, without shareholder approval, can issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the rights of the holders of Common Stock. The
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company that
shareholders might consider to be in the Company's best interests. See
"Description of Capital Stock -- Preferred Stock."
DEPENDENCE ON AFFILIATION AGREEMENTS
The Company's business is dependent upon affiliation agreements and time
brokerage agreements with television broadcast stations and cable system
operators. A significant number of the Company's customers are reached through
the broadcasting of the Company's programming pursuant to such agreements. These
agreements contain various provisions, including agreements to carry the
Company's programming for a number of hours daily or to carry the programming on
substantially a full-time basis. These agreements are subject to renegotiation
and renewal from time to time. Certain agreements provide the station or cable
system operator with the right to terminate the agreement at any time or to
preempt the Company's programming in certain events.
The failure of the Company to maintain distribution of its programming in
particular markets could have a material adverse effect on the Company. The
ability of the Company to maintain these agreements is dependent on the
Company's ability to negotiate renewals of these agreements. There can be no
assurance, however, that any such agreements can be renewed on acceptable terms,
if at all. The home shopping market is highly competitive and there can be no
assurance that the Company can match the prices its competitors may be willing
to pay for broadcast time. See "Business -- Affiliations."
In recent years, consumers have increasingly begun to subscribe to direct
satellite broadcast systems ("DBS") as an alternative to subscription to a local
cable system. DBS is expected to continue to attract new customers in the
future. To date the Company has not secured carriage of its programming by a DBS
system. There can be no assurance that such carriage can be obtained on
acceptable terms, if at all.
DEPENDENCE ON KEY PERSONNEL
The business of the Company depends upon the ability and expertise of
certain key employees, including Kent E. Lillie, its President and Chief
Executive Officer. If the Company loses the services of one or more key
employees of the Company through death, disability or termination of employment,
the Company's operations could be adversely affected. Mr. Lillie is employed
pursuant to an employment and non-compete agreement that expires in June 2002
and certain other key executive officers are employed pursuant to employment or
non-compete agreements. While the Company has endeavored to recruit and to
retain certain key employees through employment agreements, there can be no
assurance that one or more key employees will not resign from employment with
the Company. See "Management -- Executive Officers and Directors" and
"-- Employment Agreements." The Company is the beneficiary of a $5 million key
man life insurance policy on Mr. Lillie.
DEPENDENCE ON ECONOMIC FACTORS
Because the Company derives substantially all of its revenues from the sale
of merchandise, its revenues may be adversely affected by economic conditions
which impact potential customers and suppliers. In particular, operating results
in individual geographic markets will generally be adversely affected by local
or
16
<PAGE> 18
regional economic downturns. Such economic downturns could have an adverse
impact on the Company's financial condition and results of operations.
DEPENDENCE ON PRODUCT VENDORS
The Company has endeavored to position itself in the home shopping market
as the seller of certain unique products, including sports memorabilia. The
Company depends upon a limited number of product suppliers for such products.
The Company believes that there are sufficient product suppliers to allow the
Company to continue to offer such products consistently, but such supply cannot
be assured. If the Company is not able to obtain certain products currently
offered to customers, such event could have an adverse impact on the Company's
financial condition and results of operations. See "Business -- Products and
Customers."
AUTHENTICITY AND PRICING OF COLLECTIBLE PRODUCTS
A portion of the products sold by the Company consists of collectibles and
memorabilia, including sports related products, the price of which is dependent
upon their unique nature and authenticity. The Company endeavors to take
precautions necessary to insure the authenticity of these products; however, the
Company's ability to sell collectible products could be impaired as a result of
real or perceived customer concern about the authenticity of such products. In
addition, the market price of collectible products depends upon a number of
factors, many of which are not within the control of the Company. A reduction in
the amount of collectibles sold by the Company or a reduction in the
desirability of collectibles could have an adverse impact on the Company's
financial condition and results of operations.
SATELLITE TRANSPONDER ARRANGEMENTS
The Company's business depends upon the availability of transponder time or
satellite capacity. An interruption or termination of transponder service could
have a material adverse effect on the Company. The Company's programming is
transmitted via Telstar 402R, a preemptible satellite transponder, under an
agreement with B&P The SpaceConnection, Inc. ("Services Agreement"), expiring on
November 30, 1998. Currently, the Company's right to use the transponder may be
preempted at any time to restore (i) another failed transponder that is entitled
to protection, (ii) a satellite failure, or (iii) other service offerings of the
operator of the transponder. The Services Agreement may be terminated by B&P The
SpaceConnection upon the occurrence of certain defaults specified therein. The
Company has recently accepted an offer to extend the terms of the Services
Agreement for the life of the transponder (estimated to be eight years) and to
make the service non-preemptible. The extension of the Services Agreement is
subject to the completion of documentation. See "Business -- Distribution of
Programming -- Programming Origination."
LITIGATION
The Company is a party to a lawsuit in an Illinois Federal District Court
concerning the competing claims of the Company and another firm to use the name
"Shop at Home." The Company is also a defendant in a lawsuit filed in a Florida
Federal District Court in which an affiliate of the National Basketball
Association has filed suit against a number of defendants, including the
Company, alleging the sale by the defendants of basketball trading cards that
were not authentic and that infringed on certain NBA trademarks. The Company is
party to a lawsuit in a Tennessee Chancery Court filed by an insurance company
for the Company seeking a judgment that the insurance company is not liable for
certain attorneys fees and expenses in connection with previously settled
litigation involving the Company. While the Company does not believe that any of
these lawsuits will result in a judgment or settlement that is materially
adverse to the Company, the results of litigation are difficult to predict and
could be materially adverse to the Company. See "Business -- Legal Proceedings."
COMPETITION
The Company operates in an industry dominated by two established
competitors, the Home Shopping Network and the QVC Network, both of which have
substantially more television and cable carriage than the Company, as well as
greater financial, distribution, and marketing resources. The Company also must
compete
17
<PAGE> 19
with store and catalogue retailers, many of whom have substantially greater
financial, distribution and marketing resources. In addition, the Company
competes with new media businesses, such as computer on-line shopping services.
See "Business -- Competition."
COMPETITION IN THE TELEVISION INDUSTRY; IMPACT OF NEW TECHNOLOGIES
The television broadcasting industry has become increasingly competitive in
recent years, as television stations compete for viewers and advertising
revenues with other broadcast television stations, as well as other media,
including cable television, satellite dishes, multichannel multipoint
distribution systems, pay-per-view programs and the proliferation of video
recorders and video movie rentals. Furthermore, new television networks such as
the United Paramount Network and the Warner Brothers Network have created
additional competition. These changes have fractionalized television viewing
audiences. Through technological developments, such as direct broadcast
satellite, video compression and programming delivered through fiber optic
telephone lines, this trend toward fractionalization will likely continue,
putting additional competitive pressures on the Company.
Additionally, the FCC has adopted rules for implementing digital (including
high-definition) television ("DTV") service in the United States. The FCC also
has adopted a table of allotments for DTV, which will provide eligible existing
broadcasters with a second channel on which to provide DTV service. Television
broadcasters will be allowed to use their channels according to their best
business judgment. Such uses can include multiple standard-definition program
channels, data transfer, subscription video, interactive materials, and audio
signals, although broadcasters will be required to provide a free digital video
programming service that is at least comparable to today's analog service.
Broadcasters will not be required to air "high-definition" programming or,
initially, to simulcast their analog programming on the digital channel. All
commercial broadcasters must be on the air with a digital signal by May 1, 2002.
Implementation of DTV is expected to improve the technical quality of
television. Under certain circumstances, however, conversion to DTV operations
may reduce a station's geographical coverage area or provide a competitive
advantage to one or more competing stations in the market. In connection with
the conversion to DTV, the Company will incur expenses which cannot be
quantified at this date, but which may be substantial, and the Company cannot
predict the extent or timing of consumer demand for any such DTV services.
REGULATORY MATTERS
The Company's television operations are subject to significant regulation
by the FCC under the Communications Act of 1934, as amended (the "Communications
Act") and most recently amended by the Telecommunications Act of 1996 (the
"Telecommunications Act"). The Communications Act permits the operation of
television broadcast stations only in accordance with a license issued by the
FCC. The Communications Act empowers the FCC, among other things: to determine
the frequencies, location and power of broadcast stations; to issue, modify,
renew and revoke station licenses; to approve the assignment or transfer of
control of broadcast licenses; to regulate the equipment used by stations; to
impose penalties for violations of the Communications Act or FCC regulations;
and, to some extent, to regulate a licensee's programming content. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including monetary forfeitures or, for particularly egregious
violations, the revocation of a license. The Company's business will be
dependent upon its continuing ability to hold television broadcasting licenses
from the FCC.
FCC television licenses are generally granted or renewed for terms of eight
years, although licenses may be renewed for a shorter period. The Company must
apply for renewal of each broadcast license. At the time an application is made
for renewal of a license, parties in interest may file petitions to deny the
renewal, and such parties, as well as members of the public, may comment upon
the service the station has provided during the preceding license term and urge
denial of the application. While broadcast licenses are typically renewed by the
FCC, even when petitions to deny are filed against renewal applications, there
can be no assurance that the licenses for the Company's stations will be renewed
at their expiration dates or, if renewed, that the renewal terms will be for the
maximum eight-year period. The non-renewal or revocation of one or more of the
Company's primary FCC licenses could have a material adverse effect on the
Company's operations.
18
<PAGE> 20
The U.S. Congress and the FCC currently have under consideration, and may
in the future adopt, new laws, regulations and policies regarding a wide variety
of matters which could, directly or indirectly, affect the operation and
ownership of the Company's broadcast properties. Such matters include, for
example: changes in the FCC's multiple ownership restrictions; spectrum use
fees; political advertising rates; free political time; potential restrictions
on the advertising of alcoholic beverages; the rules and policies to be applied
in enforcing the FCC's equal opportunity regulations; the standards to govern
the evaluation of television programming directed toward children, and violent
and indecent programming. The Company is unable to predict the outcome of future
federal legislation or the impact of any such laws or regulations on the
Company's operations.
The 1992 Cable Act includes signal carriage or "must carry" provisions that
require cable operators to carry the signals of local commercial television
stations. A cable system is generally required to devote up to one-third of its
aggregate activated channel capacity for the mandatory carriage of local
commercial television stations without charge. The 1992 Cable Act also includes
a retransmission consent provision that prohibits cable operators and other
multi-channel video programming distributors from carrying the signal of
commercial broadcast stations and certain low power stations without obtaining
their consent in certain circumstances. In March 1997, the United States Supreme
Court upheld the constitutionality of the "must carry" requirements. The current
strategy of the Company with respect to the broadcast of its programming by
television broadcast stations has been developed based on the present status of
the "must carry" provisions. While no serious efforts appear to be developing to
change these provisions, there is always a possibility that Congress might elect
to do so. Under the Communications Act, for purposes of the "must carry"
provisions, a broadcast station's market is determined by the FCC using
commercial publications which delineate television markets based on viewing
patterns. The FCC may, however, consider, on a case by case basis and acting on
specific written requests, changes in the station's market areas (currently
defined by the ADI, Arbitron's Area of Dominant Influence, to which the station
has been designated), including the exclusion of communities from a television
station's market. In considering requests for a change in a station's market
area, the FCC takes into account a number of factors including whether or not
the station in question provides coverage to the community and evidence of the
viewing patterns in cable and non-cable households in that community. In recent
months, the FCC has ruled on several such requests and in many of these cases
has excluded particular communities from an ADI. The Company is unable to
predict the impact of any future rulings of the FCC with respect to the
exclusion of the carriage of the Company's broadcast stations from any
particular cable systems in its markets. See "Business -- Regulatory Matters."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes are a new issue of securities, have no established trading market
and may not be widely distributed. The Company does not intend to list the Notes
on any national securities exchange or to seek the admission thereof to trading
in the National Association of Securities Dealers Automated Quotation System.
The Company has been advised by the Underwriters that they presently intend to
make a market in the Notes. However, the Underwriters are not obligated to do so
and any market making activities with respect to the Notes may be discontinued
at any time without notice. In addition, such market making activity will be
subject to the limitations imposed by the Securities Exchange Act of 1934. No
assurance can be given that an active public or other market will develop for
the Notes or as to the liquidity of or the trading market for the Notes. If a
trading market does not develop or is not maintained, holders of the Notes may
experience difficulty in reselling the Notes or may be unable to sell them at
all. If a market for the Notes develops, any such market may be discontinued at
any time. If a public trading market develops for the Notes, future trading
prices of the Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other facts, including the financial condition of the
Company, the Notes may trade at a discount from their principal amount.
LIMITED LIABILITY OF DIRECTORS
The Company's charter expressly limits the liability of directors for
monetary damages to the Company and its shareholders arising as a result of
errors in judgment or any acts or omissions if the directors acted in good
faith.
19
<PAGE> 21
USE OF PROCEEDS
The gross proceeds to the Company from the Notes Offering will be
approximately $75.0 million before deducting underwriters' discounts and
commissions and estimated expenses of the Offering. The gross proceeds to the
Company from the Common Stock Offering, before deducting underwriting discounts
and commissions of the Common Stock Offering, are estimated to be approximately
$35.0 million ($40.3 million if the Underwriters of the Common Stock Offering
exercise their Over-allotment Option in full).
The Company intends to apply these net proceeds (i) to pay the purchase
price to Global under the Asset Purchase Agreement and the purchase price to
close the Executory Contract for WOAC (See "Business -- Recent Development"),
(ii) to purchase the real estate and building for the Company's new main offices
and studios in Nashville, Tennessee (the "Facility"), (iii) to purchase
equipment for the Facility, (iv) to complete interior renovations of the
Facility, (v) to acquire equipment necessary to upgrade and improve the
broadcast television stations acquired through the Acquisition, (vi) to repay
substantially all of the currently existing indebtedness of the Company, (vii)
as working capital of the Company, which may be used to acquire additional
television stations that may be available in the future, and (viii) to pay
transaction fees and expenses. The closings of the Acquisition and the WOAC
Executory Contract will occur contemporaneously with the consummation of the
Offerings.
The following table summarizes the anticipated use of the proceeds from the
Offerings (in thousands):
<TABLE>
<S> <C> <C>
Sources:
Proceeds of the Notes Offering............................ $ 75,000 68.2%
Proceeds of the Common Stock Offering(1).................. 35,000 31.8
-------- -----
Total............................................. $110,000 100.0%
======== =====
Uses:
Closing of Asset Purchase Agreement....................... $ 47,486 43.3%
Closing of the Executory Contract (WOAC).................. 21,150 19.2
Equipment to upgrade new television stations.............. 4,000 3.6
Acquire land and building for the Facility(2)............. 6,400 5.8
Complete interior renovation of the Facility.............. 3,000 2.7
Equipment and furnishings for the Facility................ 4,000 3.6
Repay existing indebtedness(3)............................ 10,229 9.3
General corporate purposes(1)............................. 6,785 6.2
Estimated transaction fees and expenses (including
underwriting discounts and commissions)................ 6,950 6.3
-------- -----
Total............................................. $110,000 100.0%
======== =====
</TABLE>
- ---------------
(1) Assumes that the Underwriters do not exercise their Over-allotment Option.
If that option is fully exercised, the gross proceeds of the Common Stock
Offering will be approximately $40,250,000, and the additional amount of
approximately $5,250,000 (in each case, before deducting Underwriting
discounts and commissions), if received by the Company, would be added to
working capital of the Company.
(2) The real estate and building will be acquired from Partners-SATH, L.L.C. See
"Business -- Properties;" "Certain Relationships and Related Transactions."
(3) This amount represents the repayment of substantially all of the currently
existing indebtedness of the Company for borrowed funds, other than certain
capitalized leases. See "Consolidated Financial Statements -- Note 5. Long
Term Indebtedness" and "Description of the Notes -- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock."
One of the loans being repaid is held by a corporation, a principal of which
is related to J.D. Clinton, a director and principal shareholder of the
Company. At December 31, 1997, the principal balance of that loan was
$349,700. See "Certain Relationships and Related Transactions."
20
<PAGE> 22
Notwithstanding the increase in the interest expense resulting from the
Offerings, the Company believes that funds necessary to meet the Company's
capital requirements for a period of at least 12 months will be available from
the proceeds of the Offerings, funds from operations and additional financings,
if necessary or desirable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
CAPITALIZATION
The following table sets forth the capitalization of the Company on an
actual basis as of December 31, 1997, and on a pro forma basis as adjusted to
give effect to the Offerings and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds." This information should be read
in conjunction with "Use of Proceeds," "Selected Historical and Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and capital leases, including current
portion(1)................................................ $ 2,265 $ 231
======= ===========
Long-term debt and capital leases, less current
portion(1)................................................ $ 8,592 $ 396
% Senior Secured Notes due 2005........................... -- 75,000
------- -----------
Total long-term debt.............................. 8,592 75,396
------- -----------
Redeemable Preferred Stock, $10 par value; 1,000,000 shares
authorized; 137,943 issued and outstanding................ 1,393 1,393
Common Stock, $.0025 par value; 30,000,000 Shares
authorized; 11,742,991 Shares issued and outstanding
(21,742,991 as adjusted for the Common Stock
Offering)(2).............................................. 29 54
Additional paid in capital.................................. 11,875 43,900
Accumulated deficit......................................... (5,166) (5,166)
------- -----------
Total stockholders' equity........................ 6,738 38,788
------- -----------
Total capitalization.............................. $16,723 $ 115,577
======= ===========
</TABLE>
- ---------------
(1) Assumes and gives effect to the issuance of Notes in the principal amount of
$75.0 million pursuant to the Notes Offering and the repayment of
approximately $10.2 million of current and long-term debt.
(2) Assumes and gives effect to the issuance of 10,000,000 shares of Common
Stock at $3.50 per share, net of estimated offering expenses of $500,000 and
underwriting discount of $2.45 million, pursuant to the Common Stock
Offering. See "Description of Certain Indebtedness."
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<PAGE> 23
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The consolidated balance sheets
and consolidated statements of operations set forth below as of and for each of
the five years in the period ended June 30, 1997 and as of and for the six month
period ended December 31, 1997, are derived from the audited financial
statements of the Company. The consolidated balance sheet and consolidated
statement of operations as of and for the six month period ended December 31,
1996 are derived from the unaudited condensed consolidated financial statements
of the Company. The pro forma financial data assumes and gives effect to the
Offerings and the application of the net proceeds therefrom as described in "Use
of Proceeds."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Net sales........................................... $19,878 $21,717 $26,787 $40,016 $67,817 $29,796 $43,421
Cost of sales....................................... 15,010 14,278 17,121 24,516 40,626 18,146 25,244
------- ------- ------- ------- ------- ------- -------
Gross profit........................................ 4,868 7,439 9,666 15,500 27,191 11,650 18,177
Other operating income.............................. -- -- 189 659 1,014 457 564
Operating expenses.................................. 7,327 8,406 11,010 16,930 25,882 11,170 16,940
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations....................... (2,459) (967) (1,155) (771) 2,323 937 1,801
Other income (expense).............................. 18 (85) (127) (738) (847) (321) 24
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes................... (2,441) (1,052) (1,282) (1,509) 1,476 616 1,825
Income tax expense (benefit)........................ -- -- -- (104) (80) (10) 702
------- ------- ------- ------- ------- ------- -------
Net income (loss)................................... $(2,441) $(1,052) $(1,282) $(1,405) $ 1,556 $ 626 $ 1,123
======= ======= ======= ======= ======= ======= =======
Weighted average common shares -- basic............. 7,379 8,225 9,437 10,284 10,651 10,597 11,283
Weighted average equivalent shares -- dilutive...... 7,379 8,225 9,437 10,284 14,268 14,382 14,739
Basic earnings per share(1)......................... $ (0.33) $ (0.13) $ (0.14) $ (0.14) $ 0.14 $ 0.06 $ 0.10
Diluted earnings per share(1)....................... $ (0.33) $ (0.13) $ (0.14) $ (0.14) $ 0.12 $ 0.05 $ 0.08
Cash dividends per share of common stock............ 0.00 0.00 0.00 0.00 0.00 0.00 0.00
OTHER DATA:
EBITDA(2)........................................... (1,837) (581) (548) 164 3,612 1,420 3,060
Cash flow from operations........................... (201) (936) 1,943 815 6,245 2,348 (1,418)
Ratio of earnings to fixed charges(3)............... -- -- -- -- 2.37x 2.58x 5.01x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(4)
-----------------
JUNE 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
------------- ----------------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $(4,641) $(5,127) $ 3,692
Total assets................................................ 34,410 38,973 135,793
Current liabilities......................................... 18,078 18,336 16,303
Long-term debt and capital leases, less current portion..... 9,054 8,592 75,396
Redeemable preferred stock.................................. 1,393 1,393 1,393
Stockholders' equity........................................ 3,804 6,738 38,788
</TABLE>
- ---------------
(1) For details of the calculation of basic and dilutive earnings per share see
Note 12 to the Consolidated Financial Statements included elsewhere in this
Prospectus.
(2) EBITDA consists of earnings before interest, income taxes, and depreciation
and amortization expense. While EBITDA should not be construed as an
alternative to operating income or net income or as an indicator of
operating performance or liquidity, it is a measure that the Company
believes is used commonly to evaluate a company's ability to service debt.
EBITDA is not calculated under generally accepted accounting principals and,
therefore, is not necessarily comparable to similarly titled measures of
other companies.
22
<PAGE> 24
(3) For purposes of calculating these ratios, earnings represent earnings before
income taxes plus (or in the case of a loss, minus) fixed charges. Fixed
charges consist of interest, amortization of debt issuance costs, and the
portion of rental and lease expense, if any, that management believes is
representative of the interest component of rental and lease expense.
Earnings were inadequate to cover fixed charges for Fiscal 1993, Fiscal
1994, Fiscal 1995 and Fiscal 1996 by $2.5 million, $1.1 million, $1.5
million and $2.3 million, respectively.
(4) The pro forma balance sheet data has been calculated giving effect to the
Offerings and the application of the net proceeds therefrom as described in
"Use of Proceeds" as if each occurred on December 31, 1997. No financial
statements with respect to the operation of Global prior to the Acquisition
or pro forma financial information with respect thereto is presented herein
in that the Company will account for the Acquisition as the purchase of
assets rather than the acquisition of a business. This is due to the fact
that, with the exception of a de minimis period of time, none of the
acquired stations have been historically operated as a broadcast outlet for
home shopping programming of Global or the predecessor in title, and the
Company has concluded that there is no continuity of revenues from those
stations from which relevant historical information could be derived.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company is qualified in its entirety by the more detailed information and
financial data, including the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
GENERAL
The Company, founded in 1986, is a nationally televised home shopping
retailer offering high-quality merchandise, at prices below those generally
available from traditional retailers and catalogues, as well as unique
merchandise and memorabilia that may be unavailable or have limited availability
elsewhere. The Company derives revenues primarily from the sale of merchandise
marketed through its home shopping programming carried by television stations
owned by the Company, by television stations with which the Company has entered
into agreements to purchase broadcast time, by the carriage of those television
broadcasts on cable television systems under the "must carry" or retransmission
consent provisions of federal law, by direct carriage on cable television
systems under agreements with cable system operators, and by direct reception of
the Company satellite transmission by individuals who own satellite downlink
equipment. Beginning in 1997, another source of revenues has been provided by
the Company's manufacturing subsidiary, Collector's Edge of Tennessee, Inc.
("Collector's Edge"), a wholly-owned subsidiary that engages in the business of
manufacturing and sales of sports trading cards under license with National
Football League Properties, Inc. and National Football Players, Incorporated.
Collector's Edge was organized in March 1997 and acquired the assets of an
existing company that had been engaged in the same business for approximately
four years. The Company also receives some revenues from the sale of broadcast
time on its owned television stations for the broadcast of infomercials.
As of December 31, 1997, the Company's programming was viewable during all
or a part of each day by approximately 48.9 million cable households, of which
approximately 4.4 million cable households could have viewed the programming on
essentially a full-time basis (20 or more hours per day) and the remaining 44.5
million cable households received it on a part-time basis. In order to measure
its performance in a manner that reflects both the growth of the Company and the
part-time nature of its access to cable households, the Company utilizes a cable
household full-time equivalent method to measure the reach of the Company's
programming which accounts for both the quantity and quality of time available
to the Company. To derive this full-time equivalent cable household base ("FTE
Cable Household"), the Company has developed a methodology to assign a relative
value of each daypart to the Company's overall sales based on sales in markets
where the programming is carried on a full-time basis. While the weighting of
each daypart has a subjective element, the Company believes that changes in the
number of FTE Cable Households provide a measure of the growth of the Company
and applies this methodology to all affiliation agreements. Accordingly, the
Company utilizes the revenue per average FTE Cable Household as a measure of
pricing new affiliation agreements and estimating their anticipated revenue
performance.
Principal elements in the Company's cost structure are (i) cost of goods
sold, (ii) transponder and cable costs, and (iii) salaries and wages. The
Company's costs of goods sold as a percentage of sales, have decreased in recent
periods resulting in a corresponding increase in gross margins. This trend is
primarily a result of the Company's strategy to have its product mix include
merchandise with higher product margins. The improvement in gross margin also
reflects the Company's success in negotiating more favorable prices with its
vendors. Transponder and cable costs include expenses related to carriage under
affiliation and transponder agreements. Carriage costs have increased both on an
absolute basis and relative to sales in recent years. This trend is attributable
in part to higher market prices for carriage driven by increased demand from
other home shopping retailers, infomercial companies and advertisers against
whom the Company competes for carriage. The Company's increased carriage costs
relative to revenues is also attributable to the lag time between the initiation
of the Company's programming in a new market (at which time carriage costs begin
to be incurred) and the time viewers become acquainted with the Company's
programming and purchase merchandise. The Company expects this trend will
continue as the Company enters new markets.
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<PAGE> 26
OVERVIEW OF 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
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
--------------------------------------------------- ---------------------------------
1995 1996 1997 1996 1997
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $26,787 100.0 $40,016 100.0 $67,817 100.0 $29,796 100.0 $43,421 100.0
Cost of goods sold........... 17,121 63.9 24,516 61.3 40,626 59.9 18,146 60.9 25,244 58.1
------- ------- ------- ------- -------
Gross profit............... 9,666 36.1 15,500 38.7 27,191 40.1 11,650 39.1 18,177 41.9
------- ------- ------- ------- -------
Infomercial income........... 189 0.7 659 1.6 1,014 1.5 457 1.5 564 1.3
------- ------- ------- ------- -------
Salaries and wages........... 3,357 12.5 4,113 10.3 5,564 8.2 2,701 9.1 3,522 8.1
Transponder and cable
costs...................... 3,226 12.0 6,025 15.1 12,118 17.9 5,027 16.9 8,082 18.6
Other general operating and
administrative expenses.... 3,909 14.7 5,915 14.7 7,144 10.5 3,027 10.1 4,556 10.6
Depreciation and
amortization............... 518 1.9 878 2.2 1,056 1.6 415 1.4 780 1.8
------- ------- ------- ------- -------
Total operating expenses... 11,010 41.1 16,930 42.3 25,882 38.2 11,170 37.5 16,940 39.1
------- ------- ------- ------- -------
Operating income (loss).... (1,155) (4.3) (771) (1.9) 2,323 3.4 937 3.1 1,801 4.1
------- ------- ------- ------- -------
Interest -- net.............. (216) (0.8) (795) (2.0) (1,080) (1.6) (389) (1.3) (455) (1.0)
Miscellaneous................ 89 0.3 57 0.1 233 0.3 68 0.3 479 1.1
------- ------- ------- ------- -------
Total other expenses,
net...................... (127) (0.5) (738) (1.8) (847) (1.3) (321) (1.0) 24 0.1
------- ------- ------- ------- -------
Income (loss) before income
taxes.................... (1,282) (4.8) (1,509) (3.8) 1,476 2.2 616 2.1 1,825 4.2
Income tax (benefit)
expense.................... 0 0 (104) (.3) (80) (.1) (10) -- 702 1.6
------- ------- ------- ------- -------
Net income (loss).......... $(1,282) (4.8) $(1,405) (3.5) $ 1,556 2.3 $ 626 2.1 $ 1,123 2.6
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996 VS. SIX MONTHS ENDED DECEMBER 31, 1997.
Net Sales. The Company's net sales for the six months ended December 31,
1997 were $43,421,000, an increase of 45.7% from net sales of $29,796,000 for
the six months ended December 31, 1996. The core business of the shopping
network accounted for 78% of the increase in net sales based on an average of
9.3 million FTE Cable Households in the six months ended December 31, 1997
compared to an average of 6.2 million FTE Cable Households in the same period in
1996. In the six months ended December 31, 1997, the Company generated sales per
FTE Cable Household of approximately $9.51 compared with approximately $9.87 per
FTE Cable Household for the same period of the prior year. The major reason for
the decrease in sales per household is due to the addition of 3.1 million
average FTE Cable Households during the six months ended December 31,1997
compared to the same period in 1996, representing a 50% increase. These
additional households have not yet reached their full sales potential as mature
households. The remaining 22% of the 1997 increase in net sales resulted from
approximately $3,045,000 in sales from Collector's Edge, which was acquired in
February 1997 and, therefore, its operations were not included in the 1996
results. Although the broadcast network sales continued to grow through the
addition of more households, sales per FTE Cable Household in the 1997 period
were somewhat lower than expected due to the UPS strike and also the media
coverage of the death of Princess Diana.
Gross Profits. As a result of management's continuing focus on improving
margins, the gross profit margin for the six months ended December 31, 1997 was
41.9% compared to 39.1% for the same period in 1996. This increase represents a
continuation of a favorable trend of increasing gross margins and has been
accomplished through improved buying power as the Company has grown and
emphasized product lines with higher gross margins such as sports memorabilia,
ceremonial cutlery and coins.
Other Operating Income. The Company had infomercial income generated by its
broadcast operations in Boston and Houston of $564,000 compared to $457,000 in
the comparable 1996 six month period, representing a 23.4% increase.
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<PAGE> 27
Salaries and Wages. Salaries and wages for the six months ended December
31, 1997 were $3,522,000, an increase of 30.4% compared to the six months ended
December 31, 1996. Salaries and wages as a percent of sales, however, decreased
to 8.1% from 9.1%. This decrease is attributable to the Company's investment in
prior years in management and operating personnel to build an infrastructure to
support growth and expansion. Salaries and wages expressed as a percentage of
sales have declined since 1995.
Transponder and Cable. Transponder and cable costs for the six months ended
December 31, 1997 were $8,082,000, an increase of $3,055,000 or 60.8% compared
to the six months ended December 31, 1996. Carriage costs increased as a
percentage of sales from 16.9% to 18.6%. Carriage costs as a percentage of sales
initially tend to be higher in periods during which the Company enters a new
market and/or adds a significant number of new households. Due to the fixed
nature of this expense, however, its relationship usually decreases as revenues
develop and the audience matures. The Company's ultimate goal is for carriage
costs to stabilize in mature markets at approximately 15% of revenues. As a
market matures, if carriage costs do not move down toward the target, management
generally attempts to renegotiate the carriage contract.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the six months ended December 31, 1997
were $4,556,000, an increase of $1,529,000 or 50.6% compared to the six months
ended December 31, 1996. This constituted an increase as a percentage of sales
from 10.1% in 1996 to 10.6% in 1997 and is attributable to a number of factors,
including legal expenses and credit card discounts.
Depreciation and Amortization. Depreciation and amortization for the six
months ended December 31, 1997 was $780,000, an increase of $365,000 or 88.0%
compared to the six months ended December 31, 1996, and is attributable to the
acquisition of additional fixed assets and the amortization of the licenses by
Collector's Edge.
Interest. Interest expense for the six months ended December 31, 1997 was
$455,000, an increase of $66,000 or 17.0% compared to the six months ended
December 31, 1996. The increase was the result of borrowing $2,919,000 by
Collector's Edge to provide working capital and $3,000,000 of additional bank
debt incurred by the Company in connection with the deposit on the Global
stations.
Other Income. The Company sold approximately $309,000 of broadcast time to
certain vendors during the 1997 period. As a result, other income increased to
$479,000 for the six months ended December 31, 1997 from $68,000 for the same
period in 1996, representing a 604.4% increase.
Income Tax (Benefit) Expense. Income tax expense for the six months ended
December 31, 1997 was $702,000, an increase of $712,000 compared to the six
months ended December 31, 1996. For the six month period ended December 31,
1996, income tax expense was lower due to the reversal of a portion of the
valuation allowance on deferred tax assets.
Net Income. As a result of the above revenues and expenses, the Company
generated net income of $1,123,000 for the six months ended December 31, 1997,
compared to net income of $626,000 for the six months ended December 31, 1996,
an increase of 79.4%.
FISCAL 1996 VS. FISCAL 1997
Net Sales. The Company's net sales for the year ended June 30, 1997 were
$67,817,000, an increase of $27,801,000 or 69.5% over the year ended June 30,
1996. The increase was primarily attributable to the addition of approximately
2.6 million FTE Cable Households over the year resulting in a total of 8.3
million FTE Cable Households at the end of June 1997. For the year ended June
30, 1997, the Company generated sales per FTE Cable Household of approximately
$10.25 on an average of 6.6 million FTE Cable Households compared with sales of
approximately $9.50 per FTE Cable Household on an average of 4.2 million FTE
Cable Households in fiscal 1996. This increase in households is attributable
mainly to the expanded coverage through the addition of approximately 1.6
million full power television station FTE Cable Households and approximately 0.6
million FTE Cable Households through an affiliation agreement with
Tele-Communications, Inc. ("TCI").
26
<PAGE> 28
Gross Profit. Gross profit for the year ended June 30, 1997 increased by
$11,691,000 or 75.4% compared to the year ended June 30, 1996, primarily as a
result of increased sales related to expanded carriage throughout the United
States and increased gross margins. The Company's gross profit margin increased
to 40.1% from 38.7% in the previous year as a result of improved purchasing
power, and an emphasis on product lines with a generally higher profit margin.
Higher margins were obtained throughout most product categories, particularly in
the sports product lines.
Infomercial Income. The Company generated $1,014,000 in infomercial revenue
from WMFP in Boston and KZJL in Houston for the year ended June 30, 1997. This
represented a 53.9% increase over the infomercial revenue of the year ended June
30, 1996, and is attributable to an increase in the sale of infomercial time at
KZJL.
Salaries and Wages. Salaries and wages for the year ended June 30, 1997
were $5,564,000, an increase of $1,451,000 or 35.3% over the year ended June 30,
1996, which was attributable primarily to variable labor costs associated with
the higher volume of customer calls and some additions to management. Salaries
and wages decreased significantly as a percentage of sales (8.2% from 10.3%).
This was attributable to escalating sales volumes which outpaced the added
salaries.
Transponder and Cable. Transponder and cable costs for the year ended June
30, 1997 were $12,118,000, an increase of $6,093,000 or 101.1% over year ended
June 30, 1996. Carriage costs increased as a percentage of sales from 15.1% to
17.9%. This is a continuation of a trend that began in 1994 when management made
a strategic decision to use higher cost cable distribution as a means to
increase carriage. Carriage costs as a percentage of sales initially tend to be
higher in periods during which the Company enters a new market. Due to the fixed
nature of this expense, however, its relationship usually decreases as revenues
develop and the audience is cultivated. As a market matures, if carriage costs
do not migrate down toward the target, management attempts to renegotiate the
carriage contract.
Other General Operating and Administrative Expenses. Other general
operating and administrative expenses for the year ended June 30, 1997 were
$7,144,000, an increase of $1,229,000 or 20.8% over the year ended June 30,
1996, the principal elements of which were increases in telephone expenses of
$255,000 and credit card discounts of $490,000, both of which are related to
increased business. While these expenses increased in absolute dollars, they
decreased significantly as a percentage of sales due to escalating sales volumes
which outpaced these added variable expenses.
Depreciation and Amortization. Depreciation and amortization expenses for
the year ended June 30, 1997 were $1,056,000, an increase of $178,000 or 20.3%
over the year ended June 30, 1996. This increase is a combination of a $237,000
increase in amortization related to the added license cost for KZJL in Houston
and the amortization of Collector's Edge's NFL licenses, net of an overall
reduction in depreciation of $59,000.
Interest. Interest expense for the year ended June 30, 1997 was $1,080,000,
an increase of $285,000 or 35.8% over the year ended June 30, 1996, which was
the result of indebtedness of $1.4 million incurred in September 1996, in
connection with the acquisition of the final 51% interest in KZJL, Houston,
Texas, and indebtedness incurred and assumed in connection with the acquisition
of Collector's Edge.
Income Tax (Benefit) Expense. Income tax benefit for the year ended June
30, 1997 was $80,000, a decline of $24,000 compared to the tax benefit for the
year ended June 30, 1996. Income tax benefit for the year ended June 30, 1997
was less than the "expected" expense derived by applying the federal corporate
tax rate to pre-tax earnings primarily because the deferred tax valuation
allowance of $1,042,816 was eliminated in 1997 as management determined that the
ability to realize deferred tax assets was more likely than not.
Net Income. As a result of the above revenues and expenses, the Company
generated net income of $1,556,000 for the year ended June 30, 1996 compared to
a net loss of $1,405,000 for the year ended June 30, 1996.
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<PAGE> 29
FISCAL 1995 VS. FISCAL 1996
Net Sales. The Company's net sales for the year ended June 30, 1996 were
$40,016,000, an increase of $13,229,000 or 49.4% over the year ended June 30,
1995. The increase was primarily attributable to greater cable coverage which
resulted from the addition of approximately 2.7 million FTE Cable Households
resulting in a total of 5.4 million FTE Cable Households by the end of June
1996. This two-fold increase in households is attributable mainly to the
combined coverage in the Boston, Houston, and Dallas markets to which the
Company did not broadcast in the prior fiscal year (approximately 60%) and the
additional part-time carriage on various full power stations throughout the
United States (approximately 40%). The increase in sales was the result of sales
volume and not an increase in sales prices. For the year ended June 30, 1996,
the Company generated sales per household of $9.48 on an average of 4.2 million
FTE Cable Households compared.
During fiscal 1996, the Company introduced and developed new product lines
in health and beauty, fitness, and collectible knives. In addition, there was a
broadening of the coin product line, and the Company re-introduced its
"Dominator" collectible baseball card. These new and expanded product lines
helped generate new sales and to broaden the customer base.
Gross Profit. Gross profit for the year ended June 30, 1996 increased by
$5,834,000 or 60.4% over the year ended June 30, 1995, primarily as a result of
increased sales related to expanded carriage throughout the United States and
increased gross margins. The Company's gross profit margin increased to 38.7%
from 36.1% in the previous year as a result of improved purchasing, selection of
higher margin goods and development of unique merchandise and product lines.
Higher margins were obtained throughout most product categories, particularly in
the jewelry and sports product lines.
Infomercial Income. Infomercial income for the year ended June 30, 1996
increased by $470,000 or 248.7% over the year ended June 30, 1995. The Company
generated this income from WMFP in Boston and KZJL in Houston and fiscal 1996
was the first full year of infomercial revenue for the Company.
Salaries and Wages. Salaries and wages for the year ended June 30, 1996
were $4,113,000, an increase of $756,000 or 22.5% compared to the year ended
June 30, 1995, which was attributable to variable labor costs associated with
the higher volume of customer calls and some additions to management.
Transponder and Cable. Transponder and cable costs for the year ended June
30, 1996 were $6,025,000, an increase of $2,799,000 or 86.8% compared to the
year ended June 30,1995, and was attributable to the Company's decision to
pursue a strategy of rapidly expanding cable carriage of the Company's
programming. During this period the Company continued to acquire time on
television and cable systems in a number of markets.
Other General Operating and Administrative Expenses. Other general
operating and administrative expenses for the year ended June 30, 1996 were
$5,915,000, an increase of $2,006,000 or 51.3% over the year ended June 30,
1995. This increase was attributable to an increase in legal expenses associated
with certain litigation, operational expenses for KZJL in Houston which exceeded
revenues during the period of its initial operation, and an increase in
telephone costs and credit card discounts associated with a growth in the
Company's business.
Depreciation and Amortization. Depreciation and amortization expenses for
the year ended June 30, 1996 were $878,000, an increase of $360,000 or 69.5%
compared to the year ended June 30, 1995, which was primarily attributable to
the acquisition of fixed assets of the Boston and Houston television stations,
which were owned for a full year in 1996.
Interest Expense. Interest expense for the year ended June 30, 1996 was
$795,000, an increase of $579,000 or 268.1% compared to the year ended June 30,
1995, which was primarily due to increased interest expense on the additional
$2,000,000 in debt secured in August 1995, the proceeds of which were used to
replace working capital used to construct KZJL in Houston, and the full year of
expense from new debt incurred in fiscal year 1995 in connection with the
acquisitions of KZJL and WMFP.
Income Tax (Benefit) Expense. Income tax benefit in the year ended June 30,
1996 was $104,000 compared to no income tax benefit or expense for the year
ended June 30, 1995. Income tax benefit for the
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<PAGE> 30
year ended June 30, 1995 was less than the "expected" benefit derived by
applying the federal corporate tax benefit rate of 34% to pre-tax loss primarily
because the valuation allowance increased $476,582. Management could not
establish at June 30, 1995 that deferred tax assets arising from net operating
loss carryforwards were more likely than not to be realized, accordingly the
valuation allowance was established to adjust the net carrying amount to amounts
expected to be realized.
Net Loss. As a result of the above revenues and expenses, the Company
generated a net loss of $1,405,000 for year ended June 30, 1996 compared to a
net loss of $1,282,000 for the year ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's historical capital sources have included an initial public
offering of Common Stock, proceeds from the private placement of Common Stock
and the private placement of convertible notes, proceeds from the exercise of
warrants, bank lines of credit, funds from operations, and long-term debt
incurred in connection with acquisitions.
The Company had a total of $2,799,000 and $2,613,000 of debt as of December
31, 1997 that was incurred in the acquisition of television stations KZJL in
Houston and WMFP in Boston, respectively. These amounts include seller financing
of $1,999,000 and $2,263,000 for Houston and Boston at an annual interest rate
of 8.9% and 9.8%, respectively. The Company also has outstanding additional debt
of $1,817,000 in connection with its acquisition of Collector's Edge. Other debt
totalling $627,558 as of December 31, 1997, relates primarily to fixed asset
leases on new equipment purchased within the past two years. The total monthly
payments of principal and interest on all debt is approximately $163,000 per
month. In October 1997, a note payable of the Company in the amount of
$1,190,000 was converted into 444,177 shares of Common Stock based on the
conversion terms contained in the original 1995 note. The Company has paid a
total of $4,863,000 as a good faith deposit in connection with the Acquisition,
the first $1,000,000 of which was paid from the cash flow of the Company,
$2,963,000 was obtained from the proceeds of a $3,000,000 loan from a commercial
bank in November 1997, and $900,000 was obtained from the proceeds of the
assignment of the purchase agreement for WPMC (TV). The $3,000,000 was repaid in
February 1998 with proceeds from a working capital facility of the Company.
As of December 31, 1997, the Company had total current assets of
$13,209,000 and total current liabilities of $18,336,000 for negative working
capital of ($5,127,000). The Company's negative working capital position is
primarily attributable to: (i) the deposit with the bankruptcy trustee for the
Acquisition, (ii) increase in accounts receivable due to the Company's
introduction of "stretch pay" terms of sale on higher priced goods, and (iii)
the provision of working capital to Collector's Edge.
The Company expects to incur capital expenditures of approximately
$15,700,000 during the 1998 fiscal year and $3,200,000 in the 1999 fiscal year.
The 1998 expenditures are expected to include (i) $4,000,000 to upgrade the
equipment at the stations acquired in the Acquisition to increase the power and
quality of the broadcast signals of the stations, (ii) $6,400,000 to purchase
the Company's new Facility, (iii) $2,400,000 to equip the Facility, (iv)
$1,800,000 for renovation and improvements at the Facility, and (v) $1,100,000
for normal recurring capital expenditures. The 1999 expenditures are expected to
include an additional (i) $1,600,000 to equip the Facility, (ii) $1,200,000 for
renovation and improvements at the Facility, and (iii) $400,000 for normal
recurring capital expenditures. Of these expenditures, the Company expects the
$17,400,000 to upgrade the stations acquired in the Acquisition and to purchase,
equip and renovate the new Facility will be funded from the proceeds of the
Offerings.
The Company expects that the Offerings and the Acquisition and the
resulting discontinuation of the recently commenced time brokerage agreements
with KCNS and WRAY (See "Business -- Distribution of Programming -- General")
will impact the results of operations as follows: (i) an increase in households
reached due to expanded signal coverage area and enforcing the Company's "must
carry" rights, (ii) costs of carriage will decrease due to the termination of
the time brokerage agreements, (iii) costs related to station operation will
increase, (iv) depreciation and amortization will increase as a result of the
Acquisition, (v) interest expense will increase as a result of the Offerings and
any other additional indebtedness incurred, and (vi) infomercial income will
increase. Notwithstanding the increase in the interest expense resulting from
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<PAGE> 31
the Offerings, the Company believes that funds necessary to meet the Company's
capital requirements for a period of at least 12 months will be available from
the proceeds of the offerings, funds from operations (after giving effect to the
items listed in (i) through (vi) above) and additional financings, if necessary
or desirable. The Indenture permits the Company, subject to satisfaction of
certain conditions, to incur Indebtedness which may be used for future capital
needs of the Company, including the acquisition of additional broadcast
properties subject to satisfaction of certain conditions. See "Description of
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock."
Upon the acquisition of WMFP (TV) in Boston by a subsidiary of the Company
in February 1995, the Company concluded that it was not legally obligated to
collect and remit to the state, sales and use tax on sales to residents of
Massachusetts. The Company requested a ruling from the Massachusetts state
taxing authority that such taxes do not apply to the Company. The ruling request
is currently pending and no decision has been made by the taxing authority. As a
defensive strategy, the Company collects sales and use tax on all sales made
into Massachusetts. The Company intends to pay these collected amounts to the
taxing authority if a determination is made that taxes are due or to refund
these amounts to its customers if not due as taxes. Through December 31, 1997,
the Company had collected approximately $833,000 with respect to sales tax
amounts.
YEAR 2000 COMPLIANCE
The Company's computer systems are programmed to consider the start of the
new century. Accordingly, the Company does not expect that any material
expenditures related to year 2000 compliance will be incurred in future years.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1997, the Company implemented Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about Capital
Structure." The Statement consolidates disclosures required by several existing
pronouncements regarding an entity's capital structure. The Company's
disclosures are already in compliance with such pronouncements and, accordingly,
SFAS No. 129 does not require any change to existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company currently has no
items that would be classified as other comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement will
become effective for the Company's June 30, 1998 fiscal year financial
statements and will impact interim reporting beginning with the quarter ending
December 31, 1998. The Company is evaluating SFAS No. 131 to determine the
impact, if any, on its reporting and disclosure requirements.
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<PAGE> 32
BUSINESS
COMPANY
The Company sells and distributes consumer products through live, customer
interactive retail sales programming that is transmitted via satellite to cable
television systems, television broadcast stations and satellite dish receivers.
Founded in 1986, the Company is one of the fastest growing competitors in the
over $3 billion home shopping industry. Upon the completion of its pending
acquisition of the three UHF television stations described below, the Company
will own and operate five UHF television stations. These stations broadcast in
the San Francisco, Boston, Houston, Cleveland and Raleigh markets, four of which
are among the top 13 television markets in the United States.
The Company's programming is provided on its owned and operated television
stations, and to a "network" of over 80 independently owned television stations
and cable systems throughout the country, located in over 100 television
markets, for all or a portion of each broadcast day. As of December 31, 1997,
the Company's programming was viewable during all or part of the day by
approximately 48.9 million cable households throughout North America, of which
approximately 4.4 million cable households could have viewed the programming on
essentially a full-time basis (20 or more hours per day) and approximately 44.5
million cable households received it on a part-time basis. For households that
received the Company's programming on a part-time basis, the average duration of
viewable programming per day is 4.9 hours.
The Company sells a variety of consumer products, including sports
collectibles and sports related products, rare coins, collectible cutlery,
electronics, jewelry, and health and beauty, personal care, household and
lifestyle products, and other select merchandise and collectibles such as dolls
and figurines. The Company believes that it occupies a unique market niche in
the home shopping industry because its product mix and marketing strategy target
men and feature higher price point products with an emphasis on limited
availability merchandise such as sports memorabilia, rare coins and collectible
knives and cutlery. An independent study commissioned by the Company in June
1997 determined that approximately 55% of the purchasers of the Company's
products are male and that approximately 57% of the Company's customers have
incomes above $45,000 (as compared to 44% as reported in a national database).
The Company's average price per unit sold in fiscal year 1997 was approximately
$150, which the Company believes is substantially above the industry average.
Prior to 1993, the Company's programming was primarily received by
individuals who owned satellite television dishes. Commencing in 1993, the
Company began to distribute its programming through broadcast television
stations and cable television. The Company is a party to numerous affiliation
agreements with cable television systems and time purchase agreements with
broadcast television stations pursuant to which its programming is carried. See
"Business -- Affiliations." In 1995 the Company acquired two independent full
power UHF broadcast television stations. See "Business -- Owned and Operated
Stations." Upon the consummation of the Acquisition and the closing of the
Executory Contract, the Company will have acquired three additional independent
full power UHF broadcast television stations. See "Business -- Recent
Development."
INDUSTRY OVERVIEW
HOME SHOPPING. Home shopping involves the sale of merchandise through
dedicated television channels and blocks of television programming that reach
consumers via broadcast television, cable television or satellite dish. The home
shopping industry has experienced strong growth since its inception in 1982 and
aggregate revenues for the industry have grown steadily from approximately $4
million in 1983 to over $3 billion in 1996, representing a compounded annual
growth rate of approximately 66%. Today, the industry is dominated by two
competitors, the Home Shopping Network and the QVC Network, whose combined sales
represented approximately 95% of the industry's 1996 revenues.
U.S. TELEVISION INDUSTRY; UHF TELEVISION. Commercial television
broadcasting began in the United States on a regular basis in the 1940's over
channels in the very high frequency ("VHF") broadcast band (Channels 2-13).
Television channels were later allocated by the FCC in the ultra high frequency
("UHF")
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broadcast band (Channels 14-83). In subsequent actions, the FCC reallocated
Channels 70-83 to nonbroadcast services.
Although VHF and UHF stations are located in the same market, UHF
television stations have suffered competitive disadvantages in the past. These
disadvantages stemmed from the lack of any regulatory requirement prior to 1962
that television receivers have the capacity to receive Channels 14-83. As a
result, there was insufficient quality programming available for UHF stations.
The Company believes that certain of these historical disadvantages have been
ameliorated by advances in technology, liberalization of government regulation
and increased availability of network programming. However, many UHF stations
continue to broadcast a signal inferior to VHF because of the increased power
that would be necessary to achieve a signal quality equivalent to that of a VHF
station.
The requirement that television tuners receive UHF signals, coupled with
improvements in the capacity of television receiver designs, has removed many of
the technical impediments to consumers receiving over-the-air UHF station
broadcast signals. The recent increase in programming available for UHF
television stations, particularly through the new Fox Television Network, the
United Paramount Network and the Warner Brothers Network, also has enhanced the
commercial viability of UHF stations. Further, the carriage of UHF stations on
cable systems (through exercise of a station's "must carry" rights or
retransmission consent) has reduced the impact of weaker UHF television
stations' broadcast signals.
The relaxation of government regulation also has improved the competitive
position of UHF television stations and has made the Company's acquisition
strategy possible. First, in 1984, the FCC deregulated the level of commercial
matter permissible on UHF television stations. As a result, broadcast television
stations are now able to broadcast home shopping formats that are almost
entirely commercial matter. Second, under the recently enacted
Telecommunications Act, it is now permissible for a group UHF owner to have
stations that reach as much as 70% of the national audience. This was
accomplished by Congress' elimination of the restriction on the number of
television stations that any single party could own, operate, control or
otherwise have an interest in throughout the country. Furthermore, the
Telecommunications Act eliminated the FCC rule that limited the national
audience reach of any single broadcaster to 25% and replaced it with a national
audience reach standard of 35%. The Telecommunications Act did not change the
FCC rule that discounts the audience reach of UHF television stations by 50%
(thus, permitting UHF group owners to reach up to 70% of the national audience).
The FCC has stated that it will review the UHF discount in its biennial review
of ownership rules in 1998. The Telecommunications Act also authorized the FCC
to consider relaxing its current prohibition against owning more than one
television station in a market (the "duopoly rule"). The FCC is currently
considering whether to eliminate the duopoly rule.
All television stations in the United States are grouped by Nielsen, a
national audience measuring service, into approximately 210 generally recognized
television markets that are ranked in size according to various formulae based
upon actual or potential audience. Each designated market area under these
rankings ("DMA") is an exclusive geographic area consisting of all counties in
which the home-market commercial stations receive the greatest percentage of
total viewing hours.
BUSINESS STRATEGY
The Company's business objective is to increase revenue and cash flow by
implementing the following strategy:
- INCREASE DISTRIBUTION THROUGH THE ACQUISITION OF TELEVISION BROADCAST
STATIONS AND AFFILIATE CARRIAGE AGREEMENTS. The Company plans to continue
to increase the number of television viewers of its programming by
acquiring broadcast television stations in major markets. Once the Company
completes its pending acquisition of the three television stations, it
intends to upgrade the broadcasting equipment in the San Francisco and
Raleigh stations in order to expand each station's broadcast coverage. By
owning and operating stations in select markets, the Company can broadcast
full time programming in those markets and thereby increase brand
awareness and reach more market segments. In addition, owning stations in
select markets enables the Company to increase its viewership by
exercising "must carry" rights with cable system operators in those
markets. See
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<PAGE> 34
"Business -- Distribution of Programming." The Company also plans to
increase its programming distribution through additional carriage
agreements with cable systems and broadcast television stations owned by
third parties.
- INCREASE REVENUE PER HOUSEHOLD REACHED. The Company intends to improve
its average revenue per household reached by broadening the types of
products it offers, obtaining more attractive hours of programming and
enhancing customer service. The Company's new facility in Nashville will
provide, among other things, additional studio and programming capability.
In addition, the new facility will substantially improve picture quality
through the utilization of high quality digital equipment. The Company
intends to utilize these additional operating capabilities to reach
additional market segments by offering more diverse products and
programming. The Company believes that it can better leverage its daytime
hours by selectively offering more programming dedicated to women and
women's products. For example, one of the studios in the new facility will
contain a working kitchen that can be used to air cooking programs and
sell kitchen products. Moreover, the new facility will contain more than
one studio, enabling the Company to multicast different programming
simultaneously into different markets.
- CONTINUE TO OFFER HIGH QUALITY, DIFFERENTIATED PRODUCT MIX. The Company
plans to continue to implement a strategy of selling niche products such
as sports memorabilia, rare coins and other collectibles that the Company
believes are not readily available through other television home shopping
and retail competitors. The Company believes that its emphasis on
targeting male customers and selling higher price point merchandise
enhances the Company's ability to attract carriage from cable systems and
television broadcasters that value the Company's unique market niche and
the appealing demographics of its customer base.
- UTILIZE EXPANDED CALL CENTER CAPACITY. The new facility in Nashville will
contain an expanded call center. This additional capacity will enable the
Company to process a greater volume of customer calls and provide enhanced
customer services. The Company believes that revenue growth in recent
years has been constrained by its limited capacity to process customer
calls and orders.
- CONTINUE TO IMPROVE MARGINS. The Company plans to improve profit margins
by taking advantage of its purchasing power to negotiate lower wholesale
prices with its vendors, and spreading its fixed costs over increased
households served.
- CONTINUE TO MINIMIZE INVENTORY RISK AND COSTS. The Company will continue
to utilize drop shipping arrangements and a "just in time" inventory
policy. This strategy permits the Company to operate without incurring
significant working capital costs associated with the warehousing,
distributing, financing and managing of inventory.
- LEVERAGE CUSTOMER DATABASE. The Company has a database of the purchasing
habits of its approximately 1 million customers, nearly 412,000 of whom
have ordered a product within the last 18 months. This database is an
invaluable tool for evaluating historical purchasing preferences, enabling
management to refine its merchandising decisions and maximize viewer
interest and sales.
- DEVELOP STRATEGIC REVENUE SOURCES. The Company believes that it has
several opportunities to establish complementary sources of revenue,
including: (i) expansion of its newly developed Internet site as another
avenue for product sales, (ii) establishment of direct mail and package
insert programs, (iii) increasing sales of broadcast time on the Company's
stations to producers of infomercials, (iv) introduction of periodic paid
commercial advertising in the Company's programming, and (v) introduction
of an outbound telemarketing program to the Company's customers.
RECENT DEVELOPMENT
In September 1997, SAH Acquisition II entered into the Asset Purchase
Agreement with Global. Global is subject to the Bankruptcy Proceeding in the
Bankruptcy Court. Under the Asset Purchase Agreement, SAH Acquisition II has
agreed to acquire two broadcast television stations owned by Global, KCNS
located in San Francisco, California and WRAY located in the Raleigh-Durham,
North Carolina market. Under the
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<PAGE> 35
Asset Purchase Agreement, SAH Acquisition II has agreed to assume the legal
right and obligation of Global under the Executory Contract to acquire an
additional broadcast television station, WOAC in the Cleveland, Ohio market. The
Company has guaranteed the performance of SAH Acquisition II under the Asset
Purchase Agreement. An order of the Bankruptcy Court approved the Asset Purchase
Agreement on November 20, 1997.
The total purchase price payable by SAH Acquisition II to Global in
connection with the Acquisition is $52,350,000, of which the Company has paid a
total of $4,863,750 into an escrow account held by the Bankruptcy Trustee and
which will be applied to the Global Purchase Price at the closing. The balance
of $47,486,250 is payable by the Company to Global at the closing of the
Acquisition. In connection with the assignment of the Executory Contract, SAH
Acquisition II is obligated to purchase WOAC for a total purchase price of
$23,500,000. SAH Acquisition II is entitled to a credit for an escrow deposit
previously paid by Global to the sellers of WOAC in the amount of $2,350,000 and
will make a cash payment of $21,150,000 in connection with the closing of the
purchase of WOAC.
Pursuant to the Asset Purchase Agreement, SAH Acquisition II also will
acquire the right to acquire WPMC(TV) in the Knoxville, Tennessee market. SAH
Acquisition II has assigned the right to purchase WPMC to a third party in
consideration of a payment by the third party to the Bankruptcy Trustee of
$500,000 and a payment of $900,000 to the Company. Under the terms of the
transaction, the Bankruptcy Trustee agreed to reduce the original purchase price
of the Acquisition from $52,850,000 to $52,350,000 upon receipt of the $500,000
payment. The Company agreed to pay the $900,000 into the escrow account held by
the Bankruptcy Trustee, thereby increasing the amount of the escrow deposit from
$3,963,750 (the amount agreed upon in the Asset Purchase Agreement) to
$4,863,750. The amount of this escrow deposit will be retained by the Bankruptcy
Trustee at the closing as a credit to the purchase price of $52,350,000, thereby
leaving a net amount due from the Company of $47,486,250.
The obligations of the parties under the Asset Purchase Agreement and the
Executory Contract are subject to receipt of the approval of the FCC of the
Applications for Consent to Assignment of Broadcast Station Licenses filed with
respect to the broadcast licenses to be transferred to SAH Acquisition II. The
FCC published public notice of its approval of the Applications for KCNS and
WRAY on December 15, 1997 and such approval became a final order on January 25,
1998. The FCC published public notice of its approval of the Application for
WOAC on January 29, 1998 and such approval became a final order on March 10,
1998.
The net proceeds of the Acquisition paid to Global will constitute assets
of the bankruptcy estate of Global, subject to the resolution of the Bankruptcy
Proceeding. FBR, one of the Underwriters, has filed a proof of claim in the
Bankruptcy Proceeding in the approximate amount of $2.0 million. The claim
relates to unpaid placement agent fees and expenses in connection with a bridge
loan facility provided to Global prior to its bankruptcy. FBR has also filed a
proof of claim for an acquisition fee to be owed by the bankruptcy estate to FBR
in the amount of 1.75% of the proceeds of the sale under the Asset Purchase
Agreement if the sale is completed. The lenders who advanced the bridge loan are
also creditors in the Bankruptcy Proceeding and have filed proofs of claim in
the aggregate amount of approximately $35 million for unpaid principal plus
accrued interest, fees and penalties. In connection with the resolution of the
Bankruptcy Proceeding, FBR and the bridge lenders may be paid in whole or in
part on their claims against Global.
DISTRIBUTION OF PROGRAMMING
GENERAL. The Company's programming is carried by television stations owned
by the Company, by television stations with which the Company has entered into
agreements to purchase broadcast time, by the carriage of those television
broadcasts by cable television systems under the "must carry" or retransmission
consent provisions of federal law, by direct carriage on cable television
systems under agreements with cable system operators, and by the direct
reception of the Company satellite transmission by individuals who own satellite
downlink equipment.
Prior to 1993, the Company's programming was primarily received by
individuals who owned satellite television dishes. Commencing in 1993, the
Company began to distribute its programming through broadcast
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<PAGE> 36
television stations and cable television. The Company is party to numerous
affiliation agreements with cable television systems and time purchase
agreements with broadcast television stations pursuant to which agreements its
programming is carried. See "-- Affiliations." In 1995 the Company acquired two
independent full power UHF broadcast television stations. Upon the consummation
of the Acquisition and the closing of the Executory Contract, the Company will
have acquired three additional full power UHF broadcast television stations. See
"-- Owned and Operated Stations."
Currently, the programming of the Company is viewable during all or a part
of each day by approximately 48.9 million cable households throughout North
America, of which approximately 4.4 million cable households could have viewed
the programming on essentially a full-time basis (20 or more hours per day) and
approximately 44.5 million cable households received it on a part-time basis.
For households that received the Company's programming on a part-time basis, the
average duration of viewable programming per day is 4.9 hours, most of which is
between the hours of midnight and 7:00 a.m. Currently, the Company estimates its
programming is carried in approximately 10.4 million FTE Cable Households. The
Company's full-time programming consists primarily of viewers in the Boston and
Houston markets that receive the programming from the Company's owned and
operated stations and viewers in San Francisco and Raleigh-Durham that currently
receive the programming through the broadcast of the programming over KCNS and
WRAY pursuant to time purchase agreements between the Company and Global
negotiated and executed in June 1997 (which time purchase agreements will
terminate upon the closing of the Acquisition).
The following table sets forth certain information with respect to the
Company's programming distribution to television cable households at December
31, 1997:
<TABLE>
<CAPTION>
NUMBER OF HOURS OF PROGRAMMING AVAILABLE TO
HOUSEHOLD PER DAY
--------------------------------------------------------
0 TO 3 3+ TO 6 6+ TO 9 9+ TO 12 OVER 12 TOTAL
------ ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Number of Households (in
Thousands)...................... 1,327 37,973 3,336 653 5,652 48,941
</TABLE>
As a result of the Acquisition (and prior to planned upgrades to the
acquired stations), the Company estimates that households that could have viewed
the Company's programming on a full-time basis (20 or more hours) will increase
to approximately 5.2 million cable households from approximately 4.4 million
cable households, while cable households receiving the Company's programming on
a part-time basis will decrease by approximately 1.1 million. As a result, the
Company estimates that its programming will be available during all or part of
each day to approximately 48.6 million cable households, of which approximately
5.2 million cable households could view it on a full-time basis (20 or more
hours per day) and approximately 43.4 million cable households could view it on
a part-time basis. Following the Acquisition (and prior to planned upgrades to
the acquired stations), the Company estimates its programming will be carried in
approximately 11.1 million FTE Cable Households.
The Company plans to use approximately $4 million of the proceeds of the
Offerings to install new equipment to increase the power and quality of the
broadcast signal at the acquired stations, including new transmitters and
antennas for KCNS and WRAY. The Company expects the increase in the power and
quality of the acquired stations to result in a further increase in the number
of FTE Cable Households and the Company estimates its programming will be
carried in approximately 11.4 million FTE Cable Households after the Acquisition
and the capital improvements.
The Company's programming is currently distributed through KCNS and WRAY
pursuant to the time purchase agreements between the Company and Global
negotiated and executed in June 1997.
PROGRAMMING ORIGINATION. The Company's programming is originated from the
Company's studios and transmitted by means of the Company's satellite uplink
facilities to transponders leased or subleased by the Company on domestic
communications satellites. The satellites retransmit the signal received from
the Company to (i) satellite dish receivers, (ii) affiliated cable television
systems, and (iii) broadcast television stations located throughout the United
States and parts of Canada and Mexico.
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<PAGE> 37
The Company's programming is transmitted via Telstar 402R, a preemptible
satellite transponder, under a Services Agreement with B&P The SpaceConnection,
Inc., expiring on November 30, 1998. The Company's right to use the transponder
may be preempted at any time to restore (i) another failed transponder that is
entitled to protection, (ii) a satellite failure, or (iii) other service
offerings of the operator of the transponder. The Services Agreement may be
terminated by B&P The SpaceConnection upon the occurrence of certain defaults
specified therein. The Company has recently accepted an offer to extend the term
of the Services Agreement for the life of the transponder (estimated to be eight
years) and to make the service non-preemptible, on pricing terms the Company
considers to be favorable. Subject to the completion of the documentation for
the extension, the new arrangement would mitigate any potential adverse effect
on the Company from an interruption in transponder service. In the event the
extension is not concluded, and although the availability of replacement
transponder time or agreement for satellite capacity is dependent on a number of
factors, the Company believes the supply thereof is, and will be in the future,
satisfactory to provide for the Company's needs on commercially reasonable
terms.
Owned and Operated Stations. The following table sets forth certain
information regarding each of the broadcast stations that will be owned by the
Company (through its Subsidiaries) following the consummation of the
Acquisition:
<TABLE>
<CAPTION>
COMPANY CABLE
RANK HOUSEHOLDS AFTER
OF TELEVISION CABLE THE
CALL SIGN CHANNEL DMA MARKET DMA HOUSEHOLDS(1) HOUSEHOLDS(1) ACQUISITION(2)
--------- ------- -------------- ---- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
KCNS................. 38 San Francisco 5 2,278,480 1,620,000 1,229,000
WMFP................. 62 Boston 6 2,150,110 1,664,610 1,400,000
KZJL................. 61 Houston 11 1,595,350 894,120 675,000
WOAC................. 67 Cleveland 13 1,461,410 1,000,800 800,000
WRAY................. 30 Raleigh-Durham 29 814,730 504,600 328,000
</TABLE>
- ---------------
(1) Total number of television and cable households in the DMA market in 1997
according to Nielsen Media Research.
(2) Estimated number of cable households in which the Company's programming will
be viewable following the Acquisition (and prior to the planned upgrades of
the acquired stations).
WMFP. In February 1995, the Company acquired its first broadcast television
station, WMFP, Channel 62, licensed to Lawrence, Massachusetts and serving the
greater Boston area. The station broadcasts at maximum FCC allowable power from
atop a 35 floor building in downtown Boston. The Company's programming runs on
the station for the majority of each broadcast day. The purchase price of WMFP
was $7.0 million. The FCC license for WMFP expires in April 1999, subject to the
Company's right to apply for a renewal of the license.
KZJL. In fiscal year 1995, the Company also acquired a 49% interest and an
option to acquire the remaining 51% of broadcast television station KZJL,
Channel 61, licensed to Houston, Texas. On September 5, 1996, the Company
acquired the remaining 51% interest. The station signed on the air on June 3,
1995 and broadcasts from a 1,500 foot tower. The Company's programming runs on
the station for the majority of each broadcast day. The purchase price for KZJL
was $3.9 million and the Company incurred capital expenditures of approximately
$2.2 million in connection with upgrades to the station. The FCC license for
KZJL expires in August 1998, subject to the Company's right to apply for a
renewal of the license.
KCNS. KCNS is a full-power broadcast television station broadcasting on
Channel 38 that began broadcast operations in 1986. The station is licensed to
San Francisco, California. The station is licensed to transmit with an effective
radiated power of 5,000 kilowatts; however, it presently operates below that
level due to equipment limitations. The Company plans to purchase new equipment
for the station in order to allow the station to broadcast at its maximum
authorized power. The FCC license for KCNS expires in December 1998, subject to
the Company's right to apply for a renewal of the license.
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<PAGE> 38
WRAY. WRAY is a full-power broadcast television station broadcasting on
Channel 30 that began broadcast operations in 1995. The station is licensed to
Wilson, North Carolina, which is located inside the Raleigh-Durham DMA. The
station currently operates pursuant to a construction permit issued by the FCC
and is authorized to transmit at a power of 1,830 kilohertz. The station,
however, has been unable to achieve that power with its current equipment and is
operating currently under a special temporary authority issued by the FCC at
1,230 kilohertz, which special temporary authority expires on May 7, 1998. An
application has been filed for a full term license for the station, but the
application has not been granted due to the station's operation at reduced
power. The Company plans to purchase new equipment for the station in order to
allow the station to broadcast at its maximum authorized power. The Company
believes that the special temporary authority can be continued as long as
necessary to accomplish the improvements to the station and that the Company
will obtain issuance of the full term license from the FCC.
WOAC. WOAC is a full-power broadcast television station on Channel 67 that
began operations in 1982. The station is licensed to Canton, Ohio, which is
located inside the Cleveland DMA. The station currently operates from a
transmitter facility with an effective power of 5,000 kilowatts. The FCC license
for WOAC expires in October 2005, subject to the Company's right to apply for a
renewal of the license.
Following the closing of the Acquisition and the purchase of WOAC, the
Company's owned and operated stations will operate in markets that have
approximately 8.3 million television households.
The Acquisition of KCNS and WRAY and the purchase of WOAC are consistent
with the Company's strategy of increasing distribution of the Company's
programming and the Company's evaluation of the underlying asset value of
broadcast television properties.
AFFILIATIONS. In 1993, the Company commenced efforts to build cable
distribution for the Company's programming. Since that time, the Company has
been successful in significantly increasing its cable distribution and in
building relationships with certain owners of multiple cable systems. The
Company's programming is now viewed in more than 80 cable markets, including all
of the country's top ten DMA's. In fiscal year 1997, the Company added over 25
new cable markets on either a full-time or part-time basis. In addition, the
Company secured coverage on WWOR, New York, which gives the Company access to
more than 7 million households for a portion of each day.
The Company has successfully negotiated carriage with TCI that has added
approximately 4.9 million part-time households to the Company's distribution.
The Company is currently negotiating with TCI to reach an agreement pursuant to
which TCI would carry the Company's programming on certain of TCI's cable
systems on a full-time basis. There can be no assurance, however, that such an
agreement will be obtained.
The Company's affiliation agreements typically have a term of one year and
can be canceled upon a thirty day notice by either party. The Company's
experience has been that most of the affiliation agreements are renewed beyond
their original terms. The time purchased under these agreements is usually
preemptible, and the Company generally pays a fixed rate for the hours its
programming is actually carried. In the event that the Company is not operating
profitably in a market under a carriage agreement, the Company will generally
renegotiate the carriage rate or terminate or not renew the agreement.
INTERNET SITE. The Company has recently created a transactional Internet
site, which can be found on the World Wide Web at www.ishopathome.com. At the
present time the costs to the Company of maintaining the web site are in excess
of the net sales attributable to the site. For the six months ended December 31,
1997, total net sales made through the web site were approximately $95,000, and
the Company incurred a loss of approximately $62,000 associated with its
Internet site. At this time, the Company does not intend to make substantial
cash expenditures for infrastructure or advertising of the web site. The Company
believes that the Internet may be an economic distribution path for the
Company's sales programming and that Internet commerce may constitute an aspect
of the Company's business that will become more important in the future.
PRODUCTS AND CUSTOMERS
PRODUCTS AND MERCHANDISE. The Company offers a variety of consumer products
including jewelry, gemstones, sports cards and memorabilia, rare coins and
currency, collectible knives and swords, electronics,
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<PAGE> 39
fitness equipment, health and beauty products, and home-related items. The
Company seeks to offer high quality products that are not readily available
through its competitors. From time to time, the Company also offers exceptional
values consisting of close-out merchandise from selected vendors.
The Company buys from numerous vendors and believes its relationships with
most of its vendors are excellent. Certain products sold by the Company are
available through multiple suppliers. The Company also acquires unique products
from a select group of vendors (some of whom are shareholders of the Company)
and believes it will be able to continue to identify sources of specialty
products. The Company believes offering unique products helps differentiate the
Company from its competitors.
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 seeks to broaden its merchandise selection.
The following table sets forth certain information about the types of
products sold by the Company:
<TABLE>
<CAPTION>
AVERAGE PRICE AGGREGATE PERCENTAGE
PER UNIT OF AMOUNT OF OF NET
TYPE OF PRODUCT PRODUCT SOLD(1) NET SALES(2) SALES(2)
- --------------- --------------- ------------ ------------
<S> <C> <C> <C>
Sports Products................................ $159 $30,539 45.0%
Collectible Cutlery............................ 117 10,132 14.9
Coins and Currency............................. 223 9,255 13.7
Jewelry and Gemstones.......................... 164 10,009 14.7
Health and Beauty Products..................... 70 2,900 4.3
Electronics.................................... 223 1,910 2.8
Other Items.................................... 96 3,072 4.6
---- ------- -----
Total.......................................... $150 $67,817 100.0%
==== ======= =====
</TABLE>
- ---------------
(1) Based on gross sales for the twelve month period ended December 31, 1997.
(2) For the fiscal year ended June 30, 1997.
PRESENTATION OF MERCHANDISE AND PROGRAMMING. The Company segments most of
its programming into product or theme categories. The Company has the studio and
broadcasting capacity to produce two live shows simultaneously. The Company
occasionally provides multiple broadcasts (two or more) to differing viewer
groups 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 the ESPN Network.
The Company seeks to differentiate itself from other televised home
shopping programmers by utilizing an informal, personal style of presentation
and by offering certain unique and high end types of products with a heavy
emphasis on sports and sports related products. The Company's sale of rare
coins, collectible sports items, and other limited-availability items provides
its 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 CHARACTERISTICS. In June 1997, the Company obtained an independent
study of the Company's customer base. The independent consultant that performed
the study compared approximately 7,000 of the Company's customers to a national
database. The study indicated that approximately 55% of the purchasers of the
Company's products are male. In addition, the study indicated that approximately
57% of the Company's customers have incomes above $45,000 as compared to 44% in
the national database. The study also indicated
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<PAGE> 40
that a significant percentage of customers of the Company are in the 45-54 age
bracket (28% as compared to 20%).
REPEAT CUSTOMERS. The Company places an emphasis on the development of
customers who make multiple purchases from the Company. The Company has
developed its "Elite Program" for persons who have purchased more than $10,000
of merchandise and provides certain benefits to these persons under the program.
These benefits include special coupons and offers and priority access to the
Company's call center for placing orders and customer service.
The Company estimates that since July 1, 1996, a total of approximately
412,000 persons have made purchases from the Company. Of this number of
customers, the Company estimates that approximately 27% have made purchases on
more than one occasion.
RETURNS OF PRODUCTS AND MERCHANDISE
The Company offers its customers a full refund on merchandise returned
within 30 days of the date of purchase. During the year ended June 30, 1997,
these returns were 22.2% of total revenues, compared to 20.1% for the year ended
June 30, 1996 and 20.1% for 1995. For the six months ended December 31, 1997,
returns were approximately 20.6% of total revenues compared to approximately
20.3% for the comparable six months in the previous year. The Company's return
percentage compares favorably with those of its competitors in the industry,
although the recent percentage of returns has been somewhat higher due to the
nature of certain special promotions of sports products and the return of
products involved in the litigation with NBA Properties. See "Business -- Legal
Proceedings."
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 number. The Company uses both customer sales
representatives 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 or electronic check, 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 an in-house training program designed to
improve the productivity, proficiency, product knowledge and customer service of
the Company's call center operators.
The Company ships customer orders as promptly as possible after receipt,
primarily by UPS, Federal Express, or parcel post. The Company ships from its
warehouse facility in Knoxville or directly from selected vendors with which the
Company has "drop ship" agreements. The Company maintains its customer service
department to address customer inquiries about ship dates, product, and billing
information.
The Company offers a 30 day return policy to maintain customer satisfaction
and the purchase of its merchandise. Mechanical, electronic, and other items may
be covered by 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 or products, increase the Company's revenue per household, and introduce
new viewers to its programming. The Company utilizes a number of media for these
promotions, including on-air promotion, show host emphasis, package stuffers,
direct response mailers and cable commercials.
COLLECTOR'S EDGE. In March 1997, Collector's Edge was organized as an
indirect wholly-owned subsidiary of the Company. Collector's Edge manufactures
and sells sports trading cards, principally football cards, and its principal
assets are licenses from National Football League Properties, Inc. ("NFL
Properties") and National Football League Players, Incorporated ("NFL Players").
Collector's Edge is one of eight companies that are known by the Company to have
licensing agreements with NFL Properties and NFL Players to produce and sell
football trading cards. Collector's Edge specializes in the production of these
cards using plastic rather than normal paper stock. Collector's Edge acquired
the assets of a business that previously held
39
<PAGE> 41
the NFL licensing agreements and produced these cards for a period of four
years. For the six months ended December 31, 1997, Collector's Edge had net
sales of approximately $3.4 million.
The licensing agreement with NFL Properties gives Collector's Edge the
right to use the logos and trademarks of NFL teams on its trading cards, and the
current agreement expires on March 31, 1998. The licensing agreement with NFL
Players gives Collector's Edge the right to use the likenesses of NFL players on
its trading cards, and the current agreement expires on February 28, 1999. While
Collector's Edge has no reason to believe that the licensing agreements will not
be renewed, such renewals are not assured. The failure of NFL Players to renew
its license agreement would effectively terminate the Company's ability to
manufacture and sell football trading cards. The failure of NFL Properties to
renew its license agreement would terminate the ability of Collector's Edge to
use NFL logos and trademarks, but not the use of player likenesses, which could
have an adverse effect on its business but would not terminate its ability to
produce football trading cards.
Collector's Edge produces football cards generally during the professional
football season (October to January), but it sells the cards on a year-round
basis and its sales are not typically seasonal. As is normal for the industry,
Collector's Edge permits its purchasers to return unsold trading cards for full
credit upon a notice from Collector's Edge that it will accept return, which
notice is typically given.
COMPETITION
The television home shopping industry is highly competitive and is
dominated by two companies, The Home Shopping Network and the 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 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 position on cable
systems. The Company expects the home shopping industry to continue to grow and
expects increased competition for viewers, personnel, and television station
carriage from present competitors, as well as new entries into the market.
However, the Company believes there are substantial barriers to entry into its
business, including limited ability to obtain distribution for programming.
Several significant new companies that announced or launched competitive
services during 1997 were largely unsuccessful including Global Shopping
Network, Outlet Mall Network and Hollywood Showcase.
The Company believes that there is substantial value in its 11 year
operating history and the fact that the Company is one of only four broadly
distributed electronic retailers in the U.S.
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 companies, and
catalogue companies and other direct sellers.
EMPLOYEES
The Company had approximately 300 employees as of December 31, 1997, most
of whom are full-time employees. Of its employees, approximately 140 are
involved in sales and approximately 160 are involved in administration. The
Company believes its relationship with its employees is good. Presently no
collective bargaining agreements exist between the Company and its employees.
PROPERTIES
The Company's business offices, broadcast studios, inbound call center, and
fulfillment operations are currently located in Knoxville, Tennessee. The
Company leases approximately 17,000 square feet of space in Knoxville, Tennessee
from a corporation controlled by a director. See "-- Certain Relationships and
Related Transactions." The Company also leases approximately 5,000 of additional
warehouse space in Knoxville. Prior to August 1997, the Company leased office
space in Atlanta, Georgia to house its investor and affiliate
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relations departments. The Company now maintains its corporate and investor
relations office in Nashville, Tennessee. The Company also maintains a cable
affiliate development office in Denver, Colorado.
During calendar year 1998, the Company plans to relocate its offices and
studios to the new Facility located in Nashville, Tennessee. The Facility has
been acquired by a limited liability company (the "Initial Purchaser"),
organized at the request of the Company, for a total purchase price of
approximately $4.0 million. The Initial Purchaser has entered into a loan
transaction with a commercial bank under which it may borrow up to $6.4 million
to be used for the payment of the purchase price and to be drawn as needed to be
applied to renovations of the Facility. The loan is secured by a mortgage deed
of trust on the Facility, by the guaranty of the Company, and the personal
guaranty of J.D. Clinton. When completed, the Facility will have approximately
74,000 square feet of usable space and will be renovated to the specifications
of the Company. Following the closing of the Offerings, the Company will acquire
the Facility for a total purchase price of approximately $6.4 million, made up
of the price paid by the Initial Purchaser for the Facility, and the outstanding
balance on the loan for the renovation of the Facility. The Initial Purchaser is
owned by two individuals who are related to the Chairman of the Company. In
addition to the total purchase approximately $6.4 million, the Company plans to
use approximately $3.0 million of the proceeds of the Offerings to complete the
interior structure of the Facility and to also use approximately $4.0 million of
the proceeds of the Offerings to equip the Facility. See "Use of Proceeds."
The Company, through its subsidiaries, leases space to house the
transmitters for WMFP in Boston and KZJL in Houston. Collector's Edge leases a
10,000 square foot facility in Denver which it uses for offices, production and
warehousing. In connection with the acquisition of KCNS and WRAY, the Company
will assume lease obligations with respect to studio and transmitter locations.
In connection with the acquisition of WOAC, the Company will assume the lease of
a transmitter location and will enter into an agreement for the studio
operations of the station to be conducted at the location of another television
station in the Cleveland market.
TECHNOLOGY
The Company's operations, including customer ordering and inventory
control, are fully computerized on two IBM RS600 computers operating on a UNIX
operating system. Many of the Company's vendors are connected on-line with the
Company through an electronic data interchange program, which embraces the
Company's strategy of having products drop-shipped by vendors where possible.
The Company also uses a network of desktop computers with intranet, word
processing, spreadsheet, and similar capabilities. These systems are considered
adequate for at least the next year, with normal and customary additions and
upgrades.
In January 1997, the Company completed the installation of an Aspect Call
center telephone system, which increased the Company's ability to meet higher
sales volumes while reducing operator and telephone costs. The system integrates
the Company's database with caller ID capability and reduces the time necessary
to process calls. In July 1996, the Company instituted a new credit card
processing system, which provides instant credit card verification at the time
of sale. These improvements were consistent with management's goal to invest in
current technology to reduce the costs that support sales.
LEGAL PROCEEDINGS
The Company is occasionally a party to litigation arising out of the
conduct of its business.
In May 1997, Signature Financial/Marketing, Inc. ("Signature") filed a
Complaint for Declaratory Judgment in the U.S. District Court for the Northern
District of Illinois seeking a judgment of non-violation of the Lanham Act (the
federal law governing trademarks) with respect to Signature's use of the
designation "SHOP AT HOME" in connection with the promotion and sale of goods.
The case was precipitated by letters from the Company to Signature asserting
that the use of the "SHOP AT HOME" mark by Signature in connection with
catalogue sales and sales on the Internet infringed on the Company's right to
that designation and created confusion in the marketplace. In response to the
filing of the declaratory judgment action, the Company has filed an answer and
counterclaim alleging that the use of the name "SHOP AT HOME" by Signature
infringes on the trademark of the Company and requesting compensatory and
injunctive relief.
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Signature has filed an amendment to its original complaint alleging that the use
of the name by the Company infringes on the trademark of Signature and
requesting compensatory and injunctive relief. Counsel to the Company has
indicated that based upon its initial review of the matter, the likelihood of
Signature preventing the Company from using the designation of "SHOP AT HOME"
for its television programming or of Signature recovering damages for such use,
is remote.
In July 1997, NBA Properties, Inc., the licensing affiliate of the National
Basketball Association, filed a complaint in the U.S. District Court for the
Southern District of Florida, alleging that a number of defendants, including
the Company, have committed trademark infringement and counterfeiting, false
designation of origin, dilution and unfair competition, in connection with
alleging fraudulent manufacture, promotion, distribution and sale of unlicensed
basketball trading cards depicting NBA Properties' trademarks. NBA Properties is
seeking injunctive relief, an accounting of profits, compensatory damages,
treble damages, punitive damages, statutory damages, interest, costs and fees in
the amount of $1,000,000 from each defendant. According to the complaint filed
by NBA Properties, one of the named defendants that previously had a licensing
agreement with NBA Properties caused trading cards to be printed so as to appear
to have been issued during the period of time the licensing agreement was
effective, but which in fact were issued with false dates and thereby infringed
on the NBA's marks. NBA Properties alleges that the Company acquired and sold
some of these false cards. The cards sold by the Company were not acquired from
the named defendant who allegedly created the false cards, but from the
Company's regular suppliers of sports cards, and the Company had no knowledge
that any of the cards were false or infringed upon any trademarks.
At the present time, the Company has agreed to a temporary injunction with
the plaintiff whereby the Company will not sell any additional cards of that
series of trading cards pending the resolution of the case. If the trading cards
were in fact counterfeit, it is probable that the Company can assert a
successful cross-claim against other defendants who produced the cards or who
sold them to the Company. The Company may be able to recover a portion or all of
any loss from the insurance carriers for the Company, and the Company has
notified its carriers of this litigation. Of the two insurance carriers in
question, one has confirmed coverage in an amount of up to $2,000,000, and the
other insurance carrier is providing legal counsel for the Company's defense but
has reserved its rights to deny coverage at a later date.
In July 1996, one of the Company's liability insurance carriers filed a
lawsuit against the Company in the Chancery Court of Knox County, Tennessee,
seeking a declaratory action that the Company does not have coverage with the
insurance company with respect to certain costs and expenses incurred by the
Company in a lawsuit filed against the Company by Upper Deck Authenticated, Ltd.
("Upper Deck"), in the State of California. The Upper Deck suit has been settled
and dismissed. The current litigation involves the liability of the insurance
company to pay a portion of the legal expenses and costs incurred by the Company
in the Upper Deck suit. The insurance carrier alleges that the Company failed to
properly disclose the existence of the litigation to the carrier and violated
the terms of the insurance policy by failing to give timely notice of the
existence of a claim and that the claims are not within the coverage extended by
the insurance policy. The amount at issue is estimated by the Company to be less
than $150,000. The Company plans to vigorously defend the action at trial and on
appeal, if necessary.
REGULATORY MATTERS
EXISTING REGULATION. The Company's television operations are subject to
significant regulation by the FCC under the Communications Act of 1934, as
amended (the "Communications Act") most recently amended by the
Telecommunications Act of 1996 (the "Telecommunications Act"). The
Communications Act permits the operation of television broadcast stations only
in accordance with a license issued by the FCC upon a finding that the grant of
such license would serve the public "interest, convenience and necessity."
The Communications Act empowers the FCC, among other things: to determine
the frequencies, location and power of broadcast stations; to issue, modify,
renew and revoke station licenses; to approve the assignment or transfer of
control of broadcast licenses; to regulate the equipment used by stations; to
impose penalties for violations of the Communications Act or FCC regulations;
and, to some extent, to regulate a licensee's programming content, including for
example, the broadcast of obscene or indecent material. The
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FCC has also adopted new children's programming regulations for television
broadcasters that require the broadcast of at least three hours per week of
programming designed to meet the educational and informational needs of children
age 16 and younger. Failure to observe these or other rules and policies can
result in the imposition of various sanctions, including monetary forfeitures
or, for particularly egregious violations, the revocation of a license. The
Company's business will be dependent upon its continuing ability to hold
television broadcasting licenses from the FCC.
LICENSE GRANT AND RENEWAL. FCC licenses are generally granted or renewed
for terms of eight years, though licenses may be renewed for a shorter period
upon a finding by the FCC that the public "interest, convenience and necessity"
would be served thereby. The Company must apply for renewal of each broadcast
license. At the time an application is made for renewal of a license, parties in
interest may file petitions to deny such application, and such parties, as well
as members of the public, may comment upon the service the station has provided
during the preceding license term and urge denial of the application. While
broadcast licenses are typically renewed by the FCC, even when petitions to deny
are filed against renewal applications, there can be no assurance that the
licenses for the Company's stations will be renewed at their expiration dates
or, if renewed, that the renewal terms will be for the maximum eight-year
period. The non-renewal or revocation of one or more of the Company's primary
FCC licenses could have a material adverse effect on the Company's operations.
The Company's station licenses of KZJL and WMFP will expire in August 1998, and
April 1999, respectively. The station licenses of KCNS and WOAC will expire in
December 1998, and October 2005, respectively. WRAY is authorized to operate but
has not yet received a license. The station is currently operating at less than
authorized power pursuant to a special temporary authorization. The Company
expects that WRAY will receive its license once the station commences full power
operations. This license is expected to be valid through December 2004, the
standard expiration date for TV stations located in North Carolina.
MULTIPLE OWNERSHIP RESTRICTIONS. The FCC has promulgated rules that limit
the ability of individuals and entities to own or have an ownership interest
above a certain level (known as an "attributable" interest, defined more fully
below), in broadcast television stations and certain other media entities. These
rules include limits on the number of radio and television stations in which an
entity may have an "attributable" interest both on a local and on a national
basis. In the case of corporations holding broadcast licenses, all officers and
directors of a licensee, and stockholders who, directly or indirectly, have the
right to vote 5% or more of the outstanding voting stock of a licensee, are
generally deemed to have an "attributable" interest. Certain institutional
investors who exert no control or influence over a licensee may own up to 10% of
such outstanding voting stock before attribution occurs. Under FCC regulations,
debt instruments, non-voting stock and certain limited partnership interests and
voting stock held by non-minority stockholders (in cases in which there is a
single majority stockholder) are generally not subject to attribution.
On a local basis, FCC rules generally prohibit an entity from holding an
attributable interest in more than one television station with overlapping
service areas. Additionally, the FCC's cross-ownership rules limit combined
local ownership of: (1) a radio station and a television station; (2) a daily
newspaper and a broadcast station; and (3) of a cable television system and a
television station. If an acquisition results in the acquiring entity having a
conflict with the multiple ownership rules, divestiture of one of the media
interests is generally required. The FCC, in certain cases, may grant permanent
waivers of such common ownership. More commonly, the FCC, grants the acquiring
entity temporary waivers of common ownership in order to afford that entity a
reasonable period of time following the consummation of the acquisition to
comply with the applicable law and regulations through disposition of one of the
common interests. A rulemaking proceeding currently pending before the FCC
proposes to liberalize the local ownership limits on television ownership and to
relax the rules prohibiting cross-ownership of radio and television stations in
the same market. There can be no assurance that these rules will be changed.
On a national basis, the FCC generally prohibits an entity from holding an
attributable interest in television stations collectively reaching more than 35%
of all U.S. television households, subject to a 50% discount for UHF television
stations (thus permitting UHF group owners to reach up to 70% of the national
audience). The FCC will review the UHF discount as part of a Congressionally
mandated biennial
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review of ownership rules in 1998. Expansion of the Company's broadcast
operations will continue to be subject to the FCC's ownership rules and any
changes the agency may adopt.
The FCC's cross-interest policy, which precludes an individual or entity
from having a "meaningful" but not "attributable" interest in one media property
and an "attributable" interest in a broadcast, cable or newspaper property in
the same area, may be invoked by the FCC in certain circumstances to reach
interests not expressly covered by the multiple ownership rules.
In a rulemaking proceeding currently pending before the FCC regarding the
attribution rules, the FCC is considering: (1) making non-voting stock
attributable in some instances; (2) how to treat limited liability companies for
purposes of attribution; (3) whether to raise certain attribution thresholds;
(4) whether to change the insulation standards for non-attribution of limited
partnership interests; (5) extending the cross-ownership rules to cover
aggregated equity and(or) debt interests exceeding 33% in a second media outlet
in the same market; and (6) deeming attributable certain television local
marketing agreements (LMAs), which would then preclude LMAs where the programmer
owns or has an attributable interest in another television station in the same
market. There can be no assurance that these rules will be changed, and the
expansion of the Company's broadcast operations will continue to be subject to
the FCC's attribution rules and any changes the agency may adopt.
ALIEN OWNERSHIP RESTRICTIONS. The Communications Act restricts the ability
of foreign entities to own or hold interests in broadcast licensees. Foreign
governments, representatives of foreign governments, non-citizens,
representatives of non-citizens and corporations or partnerships organized under
the laws of a foreign nation are barred from holding broadcast licenses.
Non-citizens, collectively, may directly or indirectly own up to 20% of the
capital stock of a licensee. In addition, a broadcast license may not be granted
to or held by any corporation that is controlled, directly or indirectly, by any
other corporation of which more than one-fourth of its capital stock is owned or
voted by non-citizens or their representatives, by foreign governments of their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license.
Restrictions on alien ownership also apply, in modified form, to other types of
business organizations, including partnerships.
PROPOSED LEGISLATION AND REGULATION. The U.S. Congress and the FCC
currently have under consideration, and may in the future adopt, new laws,
regulations and policies regarding a wide variety of matters which could,
directly or indirectly, affect the operation and ownership of the Company's
broadcast properties. In addition to the proposed changes noted above, such
matters include, for example: spectrum use fees; political advertising rates;
free political time; potential restrictions on the advertising of certain
products such as cigarettes and certain other tobacco products, as well as beer,
wine and other alcoholic beverages; the rules and policies to be applied in
enforcing the FCC's equal opportunity regulations; reinstitution of the Fairness
Doctrine; the standards to govern the evaluation of television programming
directed toward children, and violent and indecent programming. The Company is
unable to predict the outcome of future federal legislation or the impact of any
such laws or regulations on the Company's operations.
FCC INQUIRY ON BROADCAST COMMERCIAL MATTER. The FCC also has initiated a
notice of inquiry seeking comment on whether the public interest would be served
by establishing time limits on the amount of commercial matter broadcast by
television stations. No prediction can be made at this time as to whether the
FCC will propose any limits on commercial advertising at the conclusion of its
deliberation or the effect the imposition of limits on the commercial matter
broadcast by television stations would have upon the Company's operations.
IMPLEMENTATION OF THE 1992 CABLE ACT. The Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") included certain
statutory provisions, such as signal carriage, retransmission consent and equal
employment opportunity requirements that directly and indirectly effect
television broadcasting.
The 1992 Cable Act includes signal carriage or "must carry" provisions that
require cable operators to carry the signals of local commercial television
stations. A cable system is generally required to devote up to one-third of its
aggregate activated channel capacity for the mandatory carriage of local
commercial television
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stations. The 1992 Cable Act also includes a retransmission consent provision
that prohibits cable operators and other multi-channel video programming
distributors from carrying the signal of commercial broadcast stations and
certain low power stations without obtaining their consent in certain
circumstances. In addition, cable systems are not allowed to carry distant
commercial television stations (other than certain satellite-delivered
"superstations") or distant or local radio stations without obtaining
retransmission consent. The "must carry" and retransmission consent provisions
are related in that a television broadcaster, on a cable system-by-cable system
basis, must elect once every three years to either require a cable system to
carry the station subject to certain exceptions, or whether to waive that right
to mandatory, but uncompensated, carriage and instead to negotiate a grant of
retransmission consent to permit the cable system to carry the station's signal,
in most cases in exchange for some form of consideration from the cable
operator. In March 1997, the Supreme Court upheld the constitutionality of the
"must carry" requirements. The current strategy of the Company with respect to
the broadcast of its programming by television broadcast stations has been
developed based on the present status of the "must carry" provisions. While no
serious efforts appear to be developing to change these provisions, there is
always a possibility that Congress might elect to do so.
Under the Communications Act, for purposes of the "must carry" provisions,
a broadcast station's market is determined by the FCC using commercial
publications which delineate television markets based on viewing patterns. The
FCC may, however, consider on a case by case basis and acting on specific
written requests, changes in the station's market areas (currently defined by
the ADI, Arbitron's Area of Dominant Influence, to which the station has been
designated), including the exclusion of communities from a television station's
market. In considering requests for a change in a station's market area, the FCC
takes into account a number of factors including whether or not the station in
question provides coverage to the community and evidence of the viewing patterns
in cable and non-cable households in that community. In recent months, the FCC
has ruled on several such requests and in many of these cases has excluded
particular communities from an ADI. To the Company's knowledge, there are no
requests pending at the FCC seeking to exclude any station carrying the
Company's programming from any designated ADI, which would have a material
adverse affect on the Company and its owned and operated stations. Pursuant to
the Telecommunications Act, the FCC has ruled that for the election period
commencing January 1, 2000 a station's market will be defined by the Nielsen
Designated Market Area (DMA) to which it has been designated.
The 1992 Cable Act also codified the FCC's basic equal employment
opportunity ("EEO") rules and the use of certain EEO reporting forms currently
filed by television broadcast stations. In addition, pursuant to the Act's
requirements, the FCC has adopted new rules providing for a review of the EEO
performance of each television station at the mid-point in its license term (in
addition to at renewal time). Such a review will give the FCC an opportunity to
evaluate whether the license is in compliance with the FCC's processing criteria
and to notify the licensee of any deficiencies in its employment profile.
NON-FCC REGULATION. Television and radio broadcast stations also may be
subject to a number of other federal, state and local regulations, including:
those of the Federal Aviation Administration affecting tower height and marking;
federal, state and local environmental and land use restrictions; general
business regulation; and a variety of local regulatory concerns.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following information relates to the executive officers and directors
of the Company as of the date of this Prospectus. Directors are elected for
one-year terms. Under Tennessee law, members of the Board of Directors may be
removed by a vote of the shareholders with or without cause. With the exception
of the President and Chief Executive Officer, who has an employment agreement
with a term of five (5) years, and Mr. Nawy and Mr. Gratteau, each of whom has
an employment agreement, the remaining executive officers serve at the
discretion of the Board:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kent E. Lillie............................ 51 President, Chief Executive Officer, Director
James Bauchiero........................... 50 Executive Vice President and Chief Financial
Officer
T. M. Engle, III.......................... 35 Executive Vice President and Chief Operating
Officer
Joseph Nawy............................... 55 Vice President of Finance
George J. Phillips........................ 36 Vice President, General Counsel and Secretary
H. Wayne Lambert.......................... 47 Vice President of Information Technologies
Everit Herter............................. 56 Vice President of Affiliate Relations
Henry I. Shapiro.......................... 51 Vice President of Merchandise
Kent H. Gratteau, Jr...................... 54 Vice President of Broadcasting & Engineering
Linda O. Ford............................. 33 Vice President of Human Resources
Sandra B. Emery........................... 52 Vice President of Customer Relations
William M. Anderson....................... 52 Vice President of Sports Operations
Shannon S. McGuffin....................... 27 Vice President of Sales and Marketing
Teresa M. McDowell........................ 45 Vice President of Call Center Operations
J.D. Clinton.............................. 53 Director, Chairman of the Board
W. Paul Cowell............................ 54 Director
A.E. Jolley............................... 58 Director
Joseph I. Overholt........................ 48 Director
Frank A. Woods............................ 55 Director
J. Daniel Sullivan........................ 46 Director
Patricia E. Mitchell...................... 54 Director
</TABLE>
Kent E. Lillie, President and Chief Executive Officer and Director. Mr.
Lillie joined the Company as President and Chief Executive Officer in September
1993 and has been a Director since such date. Prior to joining the Company, Mr.
Lillie was Vice President and General Manager, WATL-TV, Atlanta, Georgia,
1992-1993, and was Vice President and General Manager, WPTY-TV, Memphis,
Tennessee, 1987-1992. Mr. Lillie is a graduate of Sacramento City College.
James Bauchiero, Executive Vice President and Chief Financial Officer. Mr.
Bauchiero has served as Executive Vice President and Chief Financial Officer
since January 1, 1998. Prior to joining the Company, Mr. Bauchiero was Vice
President and Chief Financial Officer of Orchid International Group, an
automation and robotics designer and fabricator for heavy manufacturing
facilities and manufacturer of metal stamped products. Prior to joining Orchid
in 1996, Mr. Bauchiero was Vice President and Chief Financial Officer of
National Auto/Truckstops, a franchisor of full-service truckstops. Mr. Bauchiero
holds a BS degree in finance and business economics and an MBA from the
University of Southern California.
Joseph Nawy, Vice President of Finance. Mr. Nawy has served as Vice
President of Finance since September 1994. Mr. Nawy has experience in direct
mail, computer operations and distribution, and prior to joining the Company was
involved in business turnaround situations. From 1990 to 1993 Mr. Nawy was the
Chief Operating Officer and Chief Financial Officer of LP Music Group, a
manufacturer and importer of percussion musical instruments. From 1987 to 1990,
Mr. Nawy was the Chief Financial Officer of American Direct Industries, Inc., a
direct mail retailer. Prior to that, Mr. Nawy served in a variety of corporate
positions,
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and also started his career in public accounting with the firm of Ernst & Young.
Mr. Nawy is a certified public accountant and holds an accounting degree from
New York University.
T.M. Engle, III, Executive Vice President and Chief Operating Officer. Mr.
Engle joined the Company in January 1998. Between 1995 and joining the Company,
Mr. Engle was the Chief Operating Officer of HLC, Inc., a national credit card
marketing company. Between 1985 and 1995, Mr. Engle was employed by IBM
Corporation, initially as a financial analyst, and during his tenure was
promoted to accounting and planning management, Product Pricing Manager, and
finally as Controller for Tennessee Marketing. Mr. Engle holds a degree in
accounting from the University of Tennessee and is a Certified Management
Accountant.
George J. Phillips, Vice President, General Counsel and Secretary. Mr.
Phillips joined the Company in November 1997. Prior to his employment with the
Company, Phillips was counselor to the Assistant Attorney General of the Civil
Division of the United States Department of Justice from 1993 through 1997,
where he oversaw the Office of Consumer Litigation. Prior to joining the Justice
Department, Mr. Phillips was in private practice with Baker, Worthington,
Crossley, Stansberry & Woolf in Nashville, Tennessee, from 1989 to 1993. Mr.
Phillips received his undergraduate degree from Duke University and his law
degree from the University of Tennessee.
H. Wayne Lambert, Vice President of Information Technologies. Mr. Lambert
has served as Vice President of Operations for the Company since March 1992.
Immediately before joining the Company, he served as Operations Officer for
National Book Warehouses, Inc., Knoxville, Tennessee. Prior to that employment,
he served as Assistant Controller for the Knoxville News-Sentinel, Knoxville,
Tennessee. Mr. Lambert is a retired Captain of the Tennessee Air National Guard
and a Base Budget Officer. He is a graduate of the University of Tennessee.
Henry I. Shapiro, Vice President of Merchandise. Mr. Shapiro has served as
the Vice President of Merchandise for the Company since January 1994. Prior to
joining the Company, Mr. Shapiro designed and manufactured jewelry for leading
jewelry retailers, Home Shopping Network and QVC from 1983 through 1993. Mr.
Shapiro attended the Fashion Institute of Technology and Maryland University. He
has served as a consultant for jewelry manufacturers with special emphasis on
the television markets in Thailand, Czechoslovakia, Hong Kong, Switzerland and
Italy.
Kent Gratteau, Jr., Vice President of Broadcasting and Engineering. Mr.
Gratteau joined the Company in August 1995, and before that, he served for ten
years as Engineering Manager for KWGN(TV), Denver, Colorado. He is member of the
Society of Motion Picture and Television Engineers and has served that
organization as Section Chairman and on the Board of Managers for the Rocky
Mountain Section. Mr. Gratteau attended the University of Utah and Florida State
University.
Linda O. Ford, Vice President of Human Resources. Ms. Ford has served as
the Vice President of Human Resources for the Company since May 1996.
Immediately prior to joining the Company, Ms. Ford served as a Human Resources
Consultant for Phillips & Phillips Associates, Inc. From 1993 to 1995, she was
the Manager of Human Resources for National Auto/Truckstops, Inc. From 1989 to
the time she joined National Auto/Truckstops, Inc., Ms. Ford was a Human
Resources Manager for Union Oil Company of California.
Sandra B. Emery, Vice President of Customer Service. Ms. Emery has served
as Vice President of Customer Service for the Company since June 1994. From 1992
until 1994, she served as Operations Manager of Order Entry and Customer Service
for the Company. Prior to that time, she served as Operations Director for
National Book Warehouse, Inc. Her other experience includes positions with
Jostens' Printing and Publishing Company, R.V. Emery Company and Carousel of
Curios.
Everit A. Herter, Vice President of Affiliate Relations. Mr. Herter has
served as Vice President of Affiliate Relations since July 1997. Since 1994, Mr.
Herter has served the Company as Director of Affiliate Relations and as a
consultant. Prior to joining the Company, Mr. Herter was a Senior Vice President
of J. Walter Thompson Co.
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Teresa M. McDowell, Vice President of Call Center Operations. Ms. McDowell
has served as Vice President of Call Center Operations since November 1996. From
1994 to 1996, Ms. McDowell served as Director of Customer Service for Mark
Group, Inc., a catalogue sales company. From 1993 until 1994, Ms. McDowell
served as Manager of Customer Relations at the Customer Service Center of
Bedford Fair Industries, Ltd., also a catalogue sales company. From 1988 to
1993, Ms. McDowell was Manager of Administration and Planning for the Atlanta,
Georgia office of Spring Corporation.
William M. Anderson, Vice President of Sports Operations. Mr. Anderson has
served as Vice President of Sports Operations since August 1997. Prior to that
time, he provided periodic consulting services to the Company and was a
self-employed consultant from 1995 to 1997, primarily providing real estate
acquisition, retail site selection and marketing services. From 1993 to 1995,
Mr. Anderson was President of Beaty Title Company, and from 1990 to 1993 was
President of Interior Logic, a commercial office furniture sales and
installation business. In 1994, Mr. Anderson filed a voluntary Chapter 7
bankruptcy proceeding and received a discharge.
Shannon S. McGuffin, Vice President -- Sales and Marketing. Ms. McGuffin
joined the Company in July 1997 as Program Development Manager and assumed her
present duties in January 1998. From May until August 1996, Ms. McGuffin was an
Account Service Summer Intern with Carden & Cherry, an advertising agency,
during the time she was working toward her M.B.A. degree in Marketing/Management
at the University of Tennessee. From March 1994 until August 1995, Ms. McGuffin
was an account executive selling advertising time for WIS(TV), Columbia, South
Carolina. From November 1992 until March 1994, Ms. McGuffin was employed by J.
Walter Thompson, an advertising agency, doing media negotiation. Ms. McGuffin
has a B.A. in advertising from Southern Methodist University in addition to her
M.B.A. degree.
J.D. Clinton, Director and Chairman of the Board. Mr. Clinton has been a
Director and Chairman of the Board since 1993. Mr. Clinton is Chairman,
President and Chief Executive Officer, Independent Southern Bancshares, Inc.,
Brownsville, Tennessee, a diversified financial institutions holding company.
Mr. Clinton is Chairman and Director of INSOUTH Bank, Brownsville, Tennessee.
Mr. Clinton is a Director, Union Savings Bank, Covington, Tennessee. Mr. Clinton
is a Director, Southern Financial, Inc. Nashville, Tennessee. Mr. Clinton is a
graduate of the University of Memphis.
W. Paul Cowell, Director. Mr. Cowell has been a Director since 1988. Mr.
Cowell was Chairman of the Board of the Company from 1990 through 1993. Mr.
Cowell has been President and Chief Executive Officer, Warren & William, Inc.
(formerly National Book Warehouse, Inc.) a real estate management and holding
company since 1989. Mr. Cowell has been President and Owner, Book Ends Discount
Book Stores, Inc., since 1987. Mr. Cowell is a Director, Global Christian
Ministries, Inc.
A.E. Jolley, Director. Mr. Jolley has been Director since 1986. Mr. Jolley
has been President, Lakeway Containers, Inc., Morristown, Tennessee, a
corrugated container manufacturer, since 1975. Mr. Jolley is a Director, Union
Planters Bank. Mr. Jolley is a Director, Kingwood School, Morristown, Tennessee,
and Commissioner, Morristown City Planning Commission. Mr. Jolley is a Member,
Board of Trustees, Walters State Community College.
Joseph I. Overholt, Director. Mr. Overholt has been a Director since 1986.
Mr. Overholt has been President and Owner of Planet Systems, Inc. a computer
software development company engaged in the satellite delivery of computer data,
since 1992. Mr. Overholt has been President and Owner of Skylink Communications
since 1989. Mr. Overholt was a Vice President of the Company from 1986 through
August 1993. Mr. Overholt is a graduate of the University of Tennessee.
Frank A. Woods, Director. Mr. Woods has been a Director since 1993. Mr.
Woods has been Chairman of the Board and Director of MediaUSA, Inc., Nashville,
Tennessee, a merchant banking firm since 1991. Mr. Woods is a Principal, The
Woods Group, Nashville, Tennessee, a diversified merchant banking firm. Mr.
Woods is a graduate of Vanderbilt University and Vanderbilt University School of
Law.
J. Daniel Sullivan, Director. Mr. Sullivan joined the Company as a Director
in March 1998. Since 1995, Mr. Sullivan has served as the President and CEO of
Sullivan Broadcasting Company, a television
48
<PAGE> 50
broadcasting company. Prior to that time, from 1987 until 1995, Mr. Sullivan was
President of Clear Channel TV, a subsidiary of Clear Channel Communication,
Inc., a broadcasting company.
Patricia E. Mitchell, Director. Ms. Mitchell joined the Company as a
Director in March 1998. Since 1995, Ms. Mitchell has served as the President of
Turner Original Productions, a motion picture production company and an
affiliate of Time, Inc. From 1992 to 1995, Ms. Mitchell was employed by Turner
Broadcasting System, Inc. as a senior vice president and executive vice
president of TBS productions, and has extensive experience in television
production. Ms. Mitchell serves on the advisory board of the Schlesinger Library
on the History of Women at Radcliffe College, the Board of Trustees of the
Sundance Institute, the Advisory Board of the School of Communications at the
University of California at Santa Barbara, the Atlanta TMCA and the High Museum
of Atlanta.
The principal business activity of each of the above persons has been
disclosed above for at least the last five years. In some cases, the individual
also has been employed by a predecessor organization or has undertaken greater
responsibilities within the same employer, a parent company or a successor
organization.
EMPLOYMENT AGREEMENTS
KENT E. LILLIE. On September 25, 1993, the Company executed an employment
agreement with Kent E. Lillie whereby Mr. Lillie commenced employment as the
Company's President and Chief Executive Officer. Under that agreement, Mr.
Lillie was granted options to purchase up to 600,000 shares of Common Stock at
an exercise price of $1.00 per share during the term of the agreement. Of those
options, options to purchase 100,000 shares vested immediately, and additional
options to purchase 100,000 shares vested on each anniversary date of the
agreement. The options expire on the earlier to occur of (i) five years after
the date of vesting or (ii) thirty days after termination of Mr. Lillie's
employment with the Company. In the event of a "change of control" of the
Company, as defined in the agreement, the agreement granted Mr. Lillie certain
rights, including the right to resign at any time during the twelve months
following the occurrence of the change of control, and in the event of such
resignation any options to purchase stock not yet vested would automatically
vest on the date of resignation.
On July 1, 1996, the Board of Directors granted to Mr. Lillie options to
purchase an additional 500,000 shares of the Company's Common Stock at a price
of $3.75 per share. Options to purchase 100,000 shares vested on January 1,
1997, and options to purchase a total of 100,000 shares will vest on January 1
of each year thereafter for another four years. Effective June 19, 1997, these
options were replaced with options having the same terms and conditions, except
for the exercise price which was reduced to $2.87.
Effective July 1, 1997, the Company executed a new employment agreement
with Mr. Lillie to continue his employment as President and Chief Executive
Officer. Under the terms of the agreement, Mr. Lillie will be employed for an
initial term of five years with a base salary of $190,000 per year. The
agreement is automatically renewable for successive two year terms unless either
party terminates the agreement prior to the commencement of the renewal term. In
addition to the base salary, the agreement also provides for a quarterly bonus
of the greater of (i) 10% of the increase in the Company's net operating profit
after taxes over the same quarter of the previous fiscal year, or (ii) 5% of the
"Total Cash Flow" for the quarter. "Total Cash Flow" means the net operating
profit, after taxes, plus depreciation accrued by the Company for its broadcast
station properties. Under the agreement, Mr. Lillie receives an automobile
allowance and other fringe benefits and allowances. The agreement provides that
Mr. Lillie will be granted options to purchase up to 50,000 shares of the
Company's Common Stock at an exercise price of $2.875 per share. These options
will vest on June 30, 2001 and expire on June 30, 2006. In the event of a
"change of control" of the Company, as defined in the agreement, the agreement
grants Mr. Lillie certain rights, including the right to resign at any time
during the 12 months following the occurrence of the event, and the right to
receive an amount equal to his base salary and monthly allowances for the 12
months preceding such resignation. In addition, any options to purchase stock
not yet vested shall automatically vest on the date of such resignation. The
Company has agreed to pay or reimburse Mr. Lillie for the relocation of his
primary residence from Atlanta, Georgia, to Nashville, Tennessee, the Company's
new headquarters location. The Company also agreed to make Mr. Lillie a loan in
the amount of $800,000 in connection with the relocation of his residence. All
of these loan
49
<PAGE> 51
proceeds have been advanced to Mr. Lillie. The loan matures on the earlier of
(i) the date of Mr. Lillie's termination from the Company, or (ii) June 30,
2002. Until maturity, payments equal to 10% of payments made to Mr. Lillie in
addition to his base salary are required to be used to repay the loan. The loan
does not bear interest. The agreement also provides that Mr. Lillie will not
compete with the Company for two years following the termination of his
employment. The loan to Mr. Lillie was made in connection with his relocation to
Nashville, Tennessee, and the loan was approved by a majority of the independent
members of the Board of Directors who did not have an interest in the
transaction and who had access, at the Company's expense, to the Company's or
independent legal counsel.
JOSEPH NAWY. The Company and Mr. Nawy entered into a written employment
agreement on August 24, 1994. The agreement established Mr. Nawy's basic
compensation at $96,000 with a structured bonus, and further provides that the
compensation will be reviewed annually and adjusted by mutual consent. The
agreement also provided that Mr. Nawy would be granted options to purchase
60,000 shares of the Company's Common Stock, with 12,000 shares of this total
vesting after one year and an additional 12,000 shares vested on each
anniversary date until fully vested. The agreement also provides that if Mr.
Nawy's employment is terminated for any reason other than "for cause," he will
receive his normal compensation for a period of 180 days.
COMPENSATION OF DIRECTORS
The Company has not historically paid remuneration to its non-employee
directors for their service as directors. In June 1997, each director was
granted an option to purchase 10,000 shares of the Common Stock of the Company
at a price of $2.875 per share. These options expire in June 2002 if not
exercised prior to such date. Beginning in 1998, the Company expects to pay each
director $500 for each meeting attended in person (or $200 if attended by
telephone), along with the director's expenses associated with attending the
meeting. The Company granted to each director an option to purchase 5,000 shares
of the Company's Common Stock on January 1, 1998, with an exercise price of
$3.75 per share.
REMUNERATION OF DIRECTORS AND OFFICERS
The following table shows compensation earned during the three fiscal years
ended June 30, 1997, by (i) the Chief Executive Officer and (ii) the Company's
four other most highly compensated individuals who were serving as officers on
June 30, 1997 and whose salary exceeded $100,000 for the year ended June 30,
1997 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
SALARY BONUS COMPENSATION /SAR COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)
- ----------------------------- ---- -------- -------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kent E. Lillie............... 1997 $188,654 $155,605 $12,000 510,000 --
President/CEO 1996 120,000 -- 12,000 -- --
1995 120,000 50,000 12,000 -- $18,000(2)
Joseph Nawy,................. 1997 114,393 15,560 6,000 20,000 --
Vice President 1996 96,000 -- 3,500 -- 7,423(3)
Finance(4) 1995 76,431 -- -- 60,000 --
Thomas C. Sutula,............ 1997 122,866 -- 5,000 10,000 --
Executive Vice 1996 101,539 -- -- 100,000 --
President/COO(5)
</TABLE>
- ---------------
(1) Other Annual Compensation consists of an automobile allowance.
(2) Other Compensation consists of a housing allowance.
(3) Other Compensation consists of a relocation allowance.
50
<PAGE> 52
(4) Mr. Nawy's employment began in September 1994.
(5) Mr. Sutula's employment began in July 1995 and terminated in March 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock option
and stock appreciation right ("SAR") grants to any Named Executive Officer who
was granted a stock option during the 1997 fiscal year of the Company.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------
% OF TOTAL
OPTIONS/SARS EXERCISE POTENTIAL REALIZABLE VALUE AT
OPTIONS/SARS GRANTED TO OR BASE ASSUMED ANNUAL RATES OF
GRANTED EMPLOYEES IN PRICE EXPIRATION STOCK PRICE APPRECIATION FOR
NAME (#)(1) FISCAL YEAR ($/SH) DATE OPTION TERMS
---- ------------ ------------ -------- ---------- ------------------------------
5%($) 10%($)
------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Kent E. Lillie.......... 500,000 77.0% $2.87 (1) $588,990 $1,386,877
Kent E. Lillie.......... 10,000 1.5 2.87 6/19/02 7,929 17,522
Joseph Nawy............. 20,000 3.1 2.87 (2) 23,560 55,475
</TABLE>
- ---------------
(1) Options to acquire 500,000 shares of Common Stock of the Company were issued
July 1, 1996, of which options to purchase 100,000 shares became exercisable
on January 1, 1997, with options to acquire 100,000 shares to become
exercisable on January 1, 1998, 1999, 2000 and 2001. The options expire on
the earlier of 30 days after the termination of employment or five years
from the date the options became exercisable. These options were originally
granted at an exercise price of $3.75, but were reissued on June 19, 1997,
at an exercise price of $2.87.
(2) Options to acquire 20,000 shares of Common Stock of Registrant were issued
July 1, 1996, of which options to purchase 4,000 shares became exercisable
on July 1, 1997, with options to acquire 4,000 shares to become exercisable
on July 1, 1998, 1999, 2000, and 2001. The options expire on the earlier of
30 days after the termination of employment or five years from the date the
options become exercisable. These options were originally granted at an
exercise price of $3.75, but were reissued on June 19, 1997, at an exercise
price of $2.87.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to options
exercised by any Named Executive Officer during the 1997 fiscal year of the
Company, and with respect to unexercised options to purchase shares held by such
officers as of the end of the 1997 fiscal year.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS THE-MONEY OPTIONS/SARS
AT JUNE 30, 1997 AT JUNE 30, 1997
SHARES ACQUIRED --------------------- ------------------------
ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) VALUE REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- --------------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
Kent E. Lillie....... None N/A 410,000/600,000 $543,900/$362,600
Joseph Nawy.......... None N/A 24,000/56,000 16,512/24,768
</TABLE>
- ---------------
(1) The market value of underlying securities at June 30, 1997, was $2.813 per
share based upon the Nasdaq SmallCap Market closing price. "In-the-Money"
options are ones in which the fair market value of the underlying securities
exceeds the exercise price of the options.
51
<PAGE> 53
REPORT ON REPRICING OF OPTIONS
At the meeting of the Company's Board of Directors on June 19, 1997, the
Board voted to reprice all of the options to purchase shares of its Common Stock
granted to its employees during 1996 to a new option price of $2.87, the market
price of the stock as of the close of business on June 19, 1997, according to
the Nasdaq SmallCap Market. The options eligible to be repriced had been issued
to a total of approximately 43 employees for a total of 682,500 shares. Among
the employees holding options subject to repricing, six (6) of the employees
were executive officers whose options subject to repricing totaled 585,000 of
the shares. The Board determined that because of the decline in the market price
of the stock from 1996 to 1997, the options were not achieving the goal of
providing an employment incentive to the effected employees.
This repricing of employee stock options is the only repricing of options
ever carried out by the Company. The following table sets out information
concerning the repricing of options held by executive officers of the Company:
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES ORIGINAL
UNDERLYING MARKET PRICE OPTION TERM
OPTIONS/ OF STOCK AT EXERCISE PRICE REMAINING AT
SARS TIME OF AT TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
---- ------------- ----------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kent E. Lillie......... June 19, 1997 100,000 $2.87 $3.75 $2.87 54 mos.*
Kent E. Lillie......... June 19, 1997 100,000 2.87 3.75 2.87 66
Kent E. Lillie......... June 19, 1997 100,000 2.87 3.75 2.87 78
Kent E. Lillie......... June 19, 1997 100,000 2.87 3.75 2.87 90
Kent E. Lillie......... June 19, 1997 100,000 2.87 3.75 2.87 102
Joseph Nawy............ June 19, 1997 4,000 2.87 3.75 2.87 60
Joseph Nawy............ June 19, 1997 4,000 2.87 3.75 2.87 72
Joseph Nawy............ June 19, 1997 4,000 2.87 3.75 2.87 84
Joseph Nawy............ June 19, 1997 4,000 2.87 3.75 2.87 96
Joseph Nawy............ June 19, 1997 4,000 2.87 3.75 2.87 108
Henry I. Shapiro....... June 19, 1997 2,000 2.87 3.75 2.87 60
Henry I. Shapiro....... June 19, 1997 2,000 2.87 3.75 2.87 72
Henry I. Shapiro....... June 19, 1997 2,000 2.87 3.75 2.87 84
Henry I. Shapiro....... June 19, 1997 2,000 2.87 3.75 2.87 96
Henry I. Shapiro....... June 19, 1997 2,000 2.87 3.75 2.87 108
Kent H. Gratteau, Jr. . June 19, 1997 1,000 2.87 3.75 2.87 60
Kent H. Gratteau, Jr. . June 19, 1997 1,000 2.87 3.75 2.87 72
Kent H. Gratteau, Jr. . June 19, 1997 1,000 2.87 3.75 2.87 84
Kent H. Gratteau, Jr. . June 19, 1997 1,000 2.87 3.75 2.87 96
Kent H. Gratteau, Jr. . June 19, 1997 1,000 2.87 3.75 2.87 108
Linda O. Ford.......... June 19, 1997 5,000 2.87 3.56 2.87 58
Linda O. Ford.......... June 19, 1997 5,000 2.87 3.56 2.87 70
Linda O. Ford.......... June 19, 1997 5,000 2.87 3.56 2.87 82
Linda O. Ford.......... June 19, 1997 5,000 2.87 3.56 2.87 94
Linda O. Ford.......... June 19, 1997 5,000 2.87 3.56 2.87 106
Teresa McDowell........ June 19, 1997 5,000 2.87 2.94 2.87 65
Teresa McDowell........ June 19, 1997 5,000 2.87 2.94 2.87 77
Teresa McDowell........ June 19, 1997 5,000 2.87 2.94 2.87 89
Teresa McDowell........ June 19, 1997 5,000 2.87 2.94 2.87 101
Teresa McDowell........ June 19, 1997 5,000 2.87 2.94 2.87 113
</TABLE>
- ---------------
* rounded to the nearest month
52
<PAGE> 54
OMNIBUS STOCK INCENTIVE PLAN
The Company's Omnibus Stock Incentive Plan (the "Plan") was adopted by the
Company's Board of Directors on October 15, 1991, and approved by the Company's
shareholders at the 1991 Annual Meeting of Shareholders. The Plan was amended at
the 1996 Annual Meeting of Shareholders to make certain technical changes in the
Plan. A maximum of 1,500,000 shares of Common Stock may be issued upon the
exercise of options and SARs. No option or SAR may be granted after October 15,
2001.
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 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 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.
No option that is an incentive stock option, or any corresponding SAR
relating to such option, shall be exercisable after the expiration of 10 years
from the date such option or SAR was granted or after the expiration of five
years in the case of any such option or SAR that was granted to a 10%
shareholder.
As of December 31, 1997, stock options for 638,100 shares of Common Stock
have been granted under the Plan and were outstanding and unexercised. A total
of 130,400 shares of Common Stock of the Company have been previously issued
upon exercise of stock options issued under the Plan. Mr. Lillie's options were
not granted by the Company pursuant to the Plan. The Company has never issued
any SARs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company does not have a Compensation
Committee. All directors of the Company participate in executive compensation
decisions. The members of the Board of Directors during the fiscal year ended
June 30, 1997, were J.D. Clinton, W. Paul Cowell, A.E. Jolley, Joseph I.
Overholt, Frank A. Woods, and Kent E. Lillie.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its Knoxville office and studio space from William and
Warren, Inc., an entity owned by W. Paul Cowell, a director, and paid total
lease payments of approximately $139,800 during the fiscal year ended June 30,
1997. Management of the Company determined that these terms and conditions were
competitive with comparable commercial space being leased in the Knoxville
market.
On August 16, 1995, the Company issued its $2,000,000 Variable Rate
Convertible Secured Note Due 2000 to a corporation wholly-owned by J.D. Clinton,
a director of the Company. See "Security Ownership of Certain Beneficial
Owners." The loan carried interest at the prime rate plus 2%, and was payable in
60 monthly installments. The loan was secured by a security interest in the
inventory, accounts receivable, and certain equipment, furniture and fixtures of
the Company, as well as the stock of MFP, Inc., a subsidiary of the Company, and
an assignment of the proceeds of any sale of the Federal Communications
Commission license of Television Station WMFP, Lawrence, Massachusetts. The note
was convertible to Common Stock of the Company based upon one share of stock for
each $3.00 of the principal balance of the note. Based upon the Company's
knowledge of the commercial lending market, the interest rate and terms of the
note were considered to be at arm's length. On October 1, 1997, the holder sold
the note to FBR Private Equity Fund, L.P., which party immediately converted the
note to 444,177 shares of Common Stock of the Company. FBR Private Equity Fund,
L.P. is an affiliate of FBR.
The Company requested that Partners -- SATH, L.L.C., a Tennessee limited
liability company (the "Initial Purchaser") acquire the land and building which
the Company plans to use as its new Facility in Nashville, Tennessee. The sole
members of the Initial Purchaser are Steve Sanders and James P. Clinton,
53
<PAGE> 55
both of whom are related to J.D. Clinton. The Initial Purchaser acquired the
Facility for a total purchase price of approximately $4 million. The Initial
Purchaser has entered into a loan transaction with a commercial bank under which
it may borrow up to $6.4 million to be used for the payment of the purchase
price and to be drawn as needed to be applied to renovations of the Facility.
The loan is secured by a mortgage deed of trust on the Facility, by the guaranty
of the Company, and the personal guaranty of J.D. Clinton. The Company agreed to
pay an annual fee equal to 1% of the outstanding balance of the Facility loan in
consideration for Mr. Clinton's guaranty, which amount is payable in cash or
stock of the Company. Following the closing of the Offerings, the Company will
acquire the Facility for a total purchase price of approximately $6.4 million,
consisting of the price paid by the Initial Purchaser for the Facility and the
outstanding balance on the loan for the renovation of the Facility, which will
be paid in full. Such payment will terminate the obligations of the Company to
pay the 1% fee to Mr. Clinton. The Company expects to pay a development fee to
the development company owned by Mr. Sanders in the amount of approximately
$150,000. This fee was negotiated in an arm's length transaction and is
considered a standard and normal fee for such services.
In connection with the relocation of Kent E. Lillie's primary residence
from Atlanta, Georgia, to Nashville, Tennessee, the Company has made an
interest-free loan to Mr. Lillie in the principal amount of $800,000. See
"Management -- Employment Agreements -- Kent E. Lillie" herein.
In February 1995, the Company leased the transmitter for WMFP(TV) from
Brownsville Auto Leasing Corporation. The transaction is a financing lease with
monthly principal payments of $9,700 and an effective interest rate of 15%. The
outstanding balance on the lease was approximately $349,700 at December 31,
1997. James P. Clinton, the brother of J.D. Clinton, is the President and a
principal shareholder of Brownsville Auto Leasing Corporation. The Company
believes that the terms of the lease transaction, when originated, were as
favorable to the Company as those generally available from unaffiliated third
parties.
All of the above transactions were approved by the Company's Board of
Directors, which at the date of such approval had at least two independent
directors who were not interested in the transaction, and a majority of the
independent directors approved each transaction. Any future loans or forgiveness
of loans by the Company to, and any future material transactions between, the
Company and any of its affiliates will be subject to approval by a majority of
the independent disinterested members of the Board of Directors who will have
access, at the Company's expense, to the Company's legal counsel or independent
legal counsel, or by a majority of the shareholders of the Company, other than
any interested shareholders, and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
The bylaws of the Company provide that (i) the Company will always have at
least two independent directors and that those directors will have access, at
the Company's expense, to the Company's or independent legal counsel, (ii) prior
to entering into any material transaction with an affiliate of the Company, the
transaction must be approved by a majority of the independent directors who are
disinterested in the transaction, and (iii) no transaction with an affiliate may
be approved if the Company has less than two independent directors who are
disinterested in the transaction. In addition, Section 4.11 of the Indenture
prohibits the Company from entering into certain transactions with any affiliate
of the Company, unless certain specific criteria are met. See "Description of
the Notes -- Certain Covenants -- Transaction with Affiliates."
54
<PAGE> 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of January 20, 1998, information with
respect to the beneficial ownership of the Common Stock of the Company by (i)
each person known by the Company to be the beneficial owner of more than five
percent (5%) of the Common Stock of the Company, (ii) each director and director
nominee of the Company, (iii) each of the Named Executive Officers, and (iv) all
directors, director nominees and executive officers of the Company as a group.
Unless otherwise noted, the Company believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common Stock
of the Company beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
---------------------
AMOUNT AND NATURE AFTER
OF BENEFICIAL BEFORE OFFERINGS
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP OFFERINGS (11)
--------------------------------------- -------------------- --------- ---------
<S> <C> <C> <C>
J.D. Clinton and SAH Holdings, L.P.(2)................... 5,435,200 38.96% 22.69%
W. Paul Cowell(3)........................................ 563,400 4.79 2.59
Frank A. Woods(4)........................................ 15,000 .13 .06
Kent E. Lillie(5)........................................ 735,000 6.10 3.33
A.E. Jolley(6)........................................... 516,092 4.39 2.37
Joseph I. Overholt(7).................................... 524,200 4.46 2.41
Joseph Nawy(8)........................................... 45,000 .38 .21
J. Daniel Sullivan(9).................................... 0 0 0
Patricia E. Mitchell(10)................................. 0 0 0
All executive officers and directors as a group (21
persons)............................................... 8,049,442 55.62 32.89
</TABLE>
- ---------------
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options and warrants. Each beneficial owner's
percentage ownership is determined by assuming that options and warrants
that are held by such person (but not those held by any other person) and
that are exercisable within 60 days from the date of this Prospectus have
been exercised.
(2) Mr. Clinton's address is 400 Fifth Avenue South, Suite 205, Naples, Florida
34102. The address of SAH Holdings, L.P. ("SAH") is 111 South Washington,
Brownsville, Tennessee 38012. SAH is a Tennessee limited partnership with
Gatehouse Equity Management Corporation, a Tennessee corporation ("GMC"),
as its sole general partner. Mr. Clinton is chairman, a director and the
sole shareholder of GMC. SAH currently owns 2,867,900 shares of Common
Stock. Clinton Investments, L.P., a limited partnership for which GMC is
the sole general partner, owns 332,500 shares and holds warrants to
purchase an additional 542,500 shares of Common Stock. Mr. Clinton holds an
option to purchase 15,000 shares of stock from the Company. Mr. Clinton's
wife owns, individually, 6,800 shares of Common Stock. Two trusts, the
beneficiaries of whom are members of Mr. Clinton's immediate family, own
20,500 shares. SAH holds warrants to purchase up to 1,650,000 shares of
Common Stock.
(3) Mr. Cowell's address is 8205 Walker Road, Knoxville, Tennessee 37938. Mr.
Cowell presently owns 413,456 shares of Common Stock in his individual
name. Mr. Cowell holds an option to purchase 15,000 shares of Common Stock
from the Company. In addition, Mr. Cowell is the income beneficiary and has
a limited right to name the beneficiary of the trust which owns 134,944
shares.
(4) Mr. Wood's address is 631 2nd Avenue South, Nashville, Tennessee 37210. Mr.
Woods holds an option to acquire 15,000 shares of Common Stock from the
Company.
(5) Mr. Lillie's address is 102 Woodmont Boulevard, Suite 200-228, Nashville,
Tennessee 37205. Mr. Lillie presently owns 414,000 shares of Common Stock,
and holds options currently exercisable to purchase an additional 315,000
shares of Common Stock from the Company. Mr. Lillie also holds 6,000 shares
in a retirement account. Mr. Lillie's retirement account is also a limited
partner of SAH Holdings, L.P., and holds a 1.57% equity interest in SAH;
however, Mr. Lillie is not considered the beneficial owner of any shares
held by SAH.
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<PAGE> 57
(6) Mr. Jolley's address is 5715 Superior Drive, Morristown, Tennessee 37814.
Includes options for 15,000 shares issued by the Company.
(7) Mr. Overholt's address is 213 Abbey Road, Newport, Tennessee 37821.
Includes options for 15,000 shares issued by the Company.
(8) Mr. Nawy's address is 5210 Schubert Road, Knoxville, Tennessee 37219.
Includes options for 40,000 shares issued by the Company.
(9) Mr. Sullivan's address is 4431 Dyke Bennett Road, Franklin, Tennessee
37064.
(10) Ms. Mitchell's address is 1050 Techwood Drive NW, Atlanta, Georgia 30818.
(11) Assumes the issuance of 10,000,000 shares pursuant to the Common Stock
Offering.
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<PAGE> 58
DESCRIPTION OF NOTES
GENERAL
The Notes offered hereby will be issued under an indenture to be dated as
of , 1998 (the "Indenture") among the Company, as issuer, each of the
Company's Restricted Subsidiaries (the "Subsidiary Guarantors"), as Subsidiary
Guarantors, and PNC Bank, National Association, trustee (the "Trustee"), a copy
of the form of which will be made available to prospective purchasers of the
Notes upon request. The Indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of the material provisions of the Indenture does not purport to be
complete and is subject to, and qualified in its entirety by, reference to the
provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act. For definitions of certain capitalized terms used in the
following summary, see "Certain Definitions" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on , 2005, will be initially limited in
aggregate principal amount to $75.0 million and will be senior secured
obligations of the Company. Interest on the Notes will accrue at the rate of
% per annum and will be payable semiannually on each and
, commencing , 1998, to the Holders of record on the
immediately preceding and . Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the original date of issuance (the "Issue Date").
Interest will be computed on the basis of a 360-day year comprising twelve
30-day months. Subject to compliance with the covenants in the Indenture, the
Company may issue additional Notes under the Indenture. If issued, such Notes
would be treated as the same class of Notes offered hereby for all purposes
under the Indenture.
The principal of and premium, if any, and interest on the Notes will be
payable and the Notes will be exchangeable and transferable, at the office or
agency of the Company in the City of New York maintained for such purposes (or,
at the option of the Company, payment of interest may be paid by check mailed to
the address of the person entitled thereto as such address appears in the
security register; provided that all payments with respect to Global Notes and
Certificated Notes (as such terms are defined below under the caption "-- Book
Entry, Delivery and Form") the holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
The Notes will be issued only in registered form without coupons and only in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange or redemption of
Notes, but the Company may require payment in certain circumstances of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith.
The Notes will not be entitled to the benefit of any sinking fund.
SUBSIDIARY GUARANTEES
Payment of the principal of (and premium, if any) and interest on the
Notes, when and as the same become due and payable, will be guaranteed, jointly
and severally, on a senior unsecured basis (the "Subsidiary Guarantees") by the
Subsidiary Guarantors. At the Closing Date, each of the Company's Restricted
Subsidiaries will be a Subsidiary Guarantor. In addition, if the Company or any
of its Restricted Subsidiaries shall acquire or create another Restricted
Subsidiary, then such Restricted Subsidiary shall be required to execute a
Subsidiary Guarantee, in accordance with the terms of the Indenture. See
"Certain Covenants -- Issuance of Guarantees by New Restricted Subsidiaries."
The obligations of the Subsidiary Guarantors under the Subsidiary Guarantees
will be limited so as not to constitute a fraudulent conveyance under applicable
law. See "Risk Factors -- Fraudulent Conveyance Considerations."
The Indenture provides that upon a sale or other disposition to a Person
not an Affiliate of the Company of all or substantially all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or
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<PAGE> 59
otherwise, or a sale or other disposition to a Person not an Affiliate of the
Company of all of the Capital Stock of any Subsidiary Guarantor, by way of
merger, consolidation or otherwise, which transaction is carried out in
accordance with the covenants described below under the captions "Repurchase at
the Option of Holders -- Asset Sales," or in the event that a Subsidiary
Guarantor is, in compliance with the provisions of the Indenture, designated as
an Unrestricted Subsidiary, so long as (a) no Default or Event of Default shall
have occurred and be continuing at the time of, or would occur after giving
effect on a pro forma basis to, such release, (b) the Company could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the first paragraph of "Certain Covenants -- Incurrence of
Indebtedness and Issuance of Disqualified Stock" on the date on which such
release occurs, such Subsidiary Guarantor will be deemed automatically and
unconditionally released and discharged from all of its obligations under its
Subsidiary Guarantee without any further action on the part of the Trustee or
any holder of the Notes; provided that any such termination shall occur only if
all obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure any,
other Indebtedness of the Company shall also terminate upon such sale,
disposition or release.
RANKING
The Notes and Subsidiary Guarantees will be senior obligations of the
respective obligors and will rank pari passu in right of payment with all other
existing and future senior obligations of the Company and the Subsidiary
Guarantors, respectively. Indebtedness under a Senior Credit Facility may be
secured by a first priority pledge of the capital stock of the Other Broadcast
Subsidiaries, the assets of the Other Broadcast Subsidiaries, the accounts
receivable, inventory and general intangibles of the Company (excluding from
general intangibles any collateral for the Notes). Accordingly, the Notes and
the Subsidiary Guarantees will be effectively subordinated to Indebtedness under
a Senior Credit Facility to the extent of the value of the assets securing such
loans and guarantees. As of December 31, 1997, on a pro forma basis after giving
effect to this Offering and the use of proceeds therefrom, the Company would
have had approximately $0.6 million of consolidated Indebtedness other than the
Notes, all of which would have been under capitalized leases. Subject to certain
limitations, the Company and its Restricted Subsidiaries may incur additional
Indebtedness in the future.
SECURITY
Pursuant to current FCC regulations, a licensee of a television broadcast
station may not directly pledge the FCC license. Accordingly, the Company and
the Trustee will enter into the Security and Pledge Agreement pursuant to which
the Notes will be secured by, (i) a first priority pledge of all of the issued
and outstanding capital stock of SAH Acquisition II (which will own KCNS and
WRAY and WOAC subsequent to the Acquisition and the purchase of WOAC and will
hold the FCC licenses of such stations), (ii) a second and junior pledge of all
of the issued and outstanding capital stock of the Other Broadcast Subsidiaries,
which own KZJL and WMFP, (such pledged stock referred to in clauses (i) and
(ii), the ("Pledged Stock")) and (iii) a first priority Lien on all assets owned
by SAH Acquisition II, other than any FCC licenses owned by SAH Acquisition II,
(the "Pledged Assets"), together with profits and proceeds therefrom and
property received with respect to the Pledged Stock in addition thereto, in
exchange for or in substitution therefor (all of the foregoing being referred to
herein collectively as the "Collateral"). So long as no Event of Default has
occurred and is continuing, the Company will be entitled to receive and retain
cash dividends and other cash distributions on any of the Pledged Stock and will
be entitled to vote the Pledged Stock. Upon the occurrence of an Event of
Default, the Indenture will provide that the Trustee can vote the Pledged Stock.
In addition, upon an Event of Default, the Indenture will provide that the
Trustee can realize upon and sell or otherwise dispose of all or any part of the
Collateral and will apply the proceeds of any sale or disposition, first to the
payment of costs and expenses of sale, second to amounts due to the Trustee,
third to the payment in full of all amounts due and unpaid on the Notes and,
finally, any surplus to the Company or the applicable pledgor or to whomever may
be lawfully entitled to receive such surplus. The Notes will not be secured by
any lien on, or other security interest in, any other properties or assets of
the Company or any other properties or assets of any Restricted Subsidiary. The
right of the Trustee to vote the Pledged Stock or to transfer the Pledged Stock
is subject to the Trustee obtaining the prior consent of the FCC. For a
description of risks regarding the value of,
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<PAGE> 60
and inability to realize upon, the Collateral, see "Risk Factors -- Risk of
Insufficient Value of Collateral" and "-- Risk of Inability to Effectively
Realize upon Security."
The Indenture will provide that the Company and SAH Acquisition II must
maintain the condition of all Collateral (other than the Pledged Securities) in
good working order, ordinary wear and tear excepted. In the event that any such
Collateral becomes obsolete or worn out, the Company shall cause a similar piece
of collateral (having a value at least equal to the obsolete or worn out
Collateral) to be acquired for, and transferred to, SAH Acquisition II. SAH
Acquisition II shall grant a first priority lien on such asset to the Trustee.
In addition, the Indenture will provide that the Company will not permit
SAH Acquisition II or any of the Other Broadcast Subsidiaries to transfer any of
its assets (other than pursuant to an Asset Sale), unless SAH Acquisition II or
such Other Broadcast Subsidiary receives fair market value therefor.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to ,
2002. Thereafter, the Notes will be redeemable, at the option of the Company, as
a whole or from time to time in part, on not less than 30 nor more than 60 days'
prior notice to the Holders at the following Redemption Prices (expressed as
percentages of principal amount) together with accrued and unpaid interest, if
any, to the date of redemption (subject to the right of holders of record in the
relevant record date to receive interest due on an interest payment date), if
redeemed during the 12-month period beginning on , of the years
indicated below.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002........................................................ %
2003........................................................
2004 and thereafter......................................... 100%
</TABLE>
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by such method as the Trustee deems fair and appropriate, provided
that no Note of $1,000 in principal amount at maturity or less shall be redeemed
in part.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs at any time, then each Holder will have the
right to require that the Company purchase such Holder's Notes in whole or in
part in integral multiples of $1,000, at a purchase price in cash equal to 101%
of the principal amount of such Notes, plus accrued and unpaid interest, if any,
to the date of purchase, pursuant to the offer described below (the "Change of
Control Offer") and the other procedures set forth in the Indenture.
Within 10 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each Holder
of Notes by first-class mail, postage prepaid, at its address appearing in the
security register, stating, among other things: (i) the purchase price and the
purchase date of the Change of Control Offer, which will be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed;
(ii) that any Note not tendered will continue to accrue interest; (iii) that,
unless the Company defaults in the payment of the purchase price, any Notes
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control purchase date; and (iv) certain
other procedures that a Holder must follow to accept a Change of Control Offer
or to withdraw such acceptance.
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<PAGE> 61
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be tendered by Holders of Notes seeking to accept the
Change of Control Offer. The failure of the Company to make or consummate the
Change of Control Offer or pay the applicable Change of Control purchase price
when due would result in an Event of Default and would give the Trustee and the
Holders of Notes the rights described under "Events of Default and Remedies."
A Senior Credit Facility may provide that certain change of control events
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, may constitute a default
under a Senior Credit Facility.
One of the events that constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event of a substantial asset disposition, if the Holders of Notes seek to
require the Company to purchase the Notes and the Company disputes that it is
required to do so there can be no assurance as to how a court interpreting New
York law would resolve the dispute.
The existence of a Holder's right to require the Company to purchase such
Holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford Holders of Notes the right to
require the Company to repurchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect Holders, if such transaction is not a transaction defined as a Change of
Control. See "Certain Definitions" below for the definition of "Change of
Control." A transaction involving the Company's management or its affiliates, or
a transaction involving a recapitalization of the Company, would result in a
Change of Control only if it is the type of transaction specified in such
definition.
The Company will comply with the applicable tender offer rules including
Rule-14e under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Restricted Subsidiary to,
create any restriction (other than restrictions existing under Indebtedness as
in effect on the Closing Date or in refinancings of such Indebtedness) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes tendered for purchase.
Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any Asset Sale unless (i) the consideration received by the Company or
such Restricted Subsidiary for such Asset Sale is not less than the fair market
value of the assets sold, as evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee and (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 85% cash or cash equivalents;
provided, however, that in the case of any Asset Sale that involves Collateral,
(i) the consideration received by the Company or the relevant Restricted
Subsidiary in respect thereof shall be all cash or cash equivalents in which the
Trustee shall be granted a security interest of the same priority as the
priority of the security interest
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<PAGE> 62
held by the Trustee in the asset subject to the Asset Sale, (ii) no Default or
Event of Default shall have occurred and be continuing on the date of such
proposed Asset Sale or would result as a consequence of such Asset Sale, and
(iii) such Asset Sale will not materially adversely affect or materially impair
the value of the remaining Collateral or materially interfere with the Trustee's
ability to realize such value and will not materially impair the maintenance and
operation of the remaining Collateral.
If the Company or any Restricted Subsidiary engages in an Asset Sale not
involving Collateral, the Company may, at its option, within 365 days after such
Asset Sale, (i) apply all or a portion of the Net Cash Proceeds to the permanent
reduction of Indebtedness under a Senior Credit Facility or to the permanent
reduction of other senior Indebtedness of the Company or a Restricted Subsidiary
or (ii) invest (or enter into a legally binding agreement to invest) all or a
portion of such Net Cash Proceeds in assets (other than current assets) to
replace the properties and assets that were the subject of the Asset Sale or in
assets (other than current assets) that will be used in a Permitted Line of
Business. Notwithstanding the foregoing, in the event the Asset Sale involves
Collateral or upon the receipt by the Company or any Restricted Subsidiary of
any Insurance Proceeds or Condemnation Proceeds, as the case may be, resulting
from a Loss Event, within 365 days of consummation of such Asset Sale or the
receipt of such Insurance Proceeds or Condemnation Proceeds, as the case may be,
the Company or the relevant Restricted Subsidiary shall invest (or enter into a
legally binding agreement to invest) all or a portion of such Net Cash Proceeds,
Insurance Proceeds or Condemnation Proceeds in properties and long-term assets
to replace the properties and long-term assets that were the subject of the
Asset Sale or Loss Event or in assets (other than current assets) assets that
will be used in a Permitted Line of Business, in which assets the Trustee shall
have a security interest of the same priority as the priority of the security
interest held by the Trustee in the Collateral subject to such Asset Sale or
Loss Event. If any legally binding agreement to invest Net Cash Proceeds,
Insurance Proceeds or Condemnation Proceeds referred to above in this paragraph
is terminated, the Company may, within 90 days of such termination or within 365
days of such Asset Sale or Loss Event, whichever is later, invest such Net Cash
Proceeds as provided above (without regard to the parenthetical relating to the
legally binding agreement to invest). The amount of such Net Cash Proceeds,
Insurance Proceeds or Condemnation Proceeds not so used as set forth above in
this paragraph constitutes "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5 million, the
Company will, within 30 days thereafter, make an offer to purchase (an "Excess
Proceeds Offer") from all Holders of Notes on a pro rata basis, in accordance
with the procedures set forth in the Indenture, the maximum principal amount
(expressed as an integral multiple of $1,000) of Notes that may be purchased
with the Excess Proceeds, at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued interest, if any, to the date such offer
to purchase is consummated. To the extent that the aggregate principal amount of
Notes tendered pursuant to such offer to purchase is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes;
provided, however, that any Excess Proceeds which represent Net Cash Proceeds of
Asset Sales involving Collateral or Insurance Proceeds or Condemnation Proceeds
involving Collateral shall continue to remain subject to the security interest
of the Trustee and Collateral for the Notes and may be invested by the Company
in assets (other than current assets) that will be used in a Permitted Line of
Business, the Capital Stock, or properties and assets, of which the Trustee
shall have a first priority security interest in. If the aggregate principal
amount of Notes validly tendered and not withdrawn by holders thereof exceeds
the Excess Proceeds, the Notes to be purchased will be selected on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
will be reset to zero.
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<PAGE> 63
Release and Substitution of Collateral
(a) Notwithstanding the provisions of "Repurchase at the Option of
Holders -- Assets Sales," the Company may transfer any Collateral consisting of
100% of the Capital Stock of a subsidiary owning licenses for a broadcast
television station or assets used thereby (the "Replaced Collateral") in
exchange for Capital Stock of a subsidiary owning licenses for a broadcast
television station, related assets and/or cash ("Replacement Collateral") (such
exchange, a "Substitution Transaction") if:
(i) no Default shall have occurred and be continuing;
(ii) the Company shall have complied with the other provisions of the
Indenture, if any, applicable to such Substitution Transaction;
(iii) if the Replaced Collateral consists of Capital Stock of a
subsidiary owning licenses for a broadcast television station, the
Replacement Collateral consists of 100% of assets or equity interests in
one or more broadcast television stations;
(iv) unless the Replaced Collateral has a value not in excess of
$250,000 (as determined by the Company and set forth in an Officer's
Certificate delivered to the Trustee), the Company delivers a written
opinion of an investment banking firm of national standing or an appraisal
firm with expertise in the valuation of broadcast television stations,
stating that the value to the Company of the Replacement Collateral is at
least equal to the value to the Company of the Replaced Collateral;
(v) the Company (or the relevant Restricted Subsidiary) executes a
supplemental indenture subjecting the Replacement Collateral to the Lien in
favor of the Trustee on behalf of Noteholders under the Indenture; and
(vi) the Company delivers an Opinion of Counsel satisfactory to the
Trustee stating that the Replacement Securities are subject to a valid,
perfected Lien in favor of the Trustee having the same priority as the lien
on the Replaced Collateral on behalf of the Noteholders.
(b) The Company will also be entitled to release Collateral (other than the
Pledged Securities) from the Lien in favor of the Noteholders provided that it
delivers to the Trustee an Officer's Certificate stating that the Collateral so
released, since the Closing Date and giving pro forma effect to the proposed
release, has a fair market value not in excess of $100,000.
(c) Consideration received in a Substitution Transaction shall be subject
to the provisions of "-- Asset Sales."
CERTAIN COVENANTS
Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, take any of the following actions:
(a) declare or pay any dividend on, or make any distribution to holders of,
any shares of the Capital Stock of the Company or any Restricted Subsidiary
(including, without limitation, any payment to stockholders of the Company in
connection with a merger or consolidation involving the Company), other than (i)
dividends or distributions payable solely in Qualified Equity Interests, or (ii)
dividends or distributions by a Restricted Subsidiary payable to the Company or
another Restricted Subsidiary.
(b) purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any shares of Capital Stock, or any options, warrants or other
rights to acquire such shares of Capital Stock, of the Company, any Restricted
Subsidiary or any Affiliate of the Company (other than, in either case, any such
Capital Stock owned by the Company or any of its Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, decease or
otherwise acquire or retire for value, prior to the related scheduled principal
payment, sinking fund payment or final maturity, any Subordinated Indebtedness;
and
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<PAGE> 64
(d) make any Investment (other than a Permitted Investment) in any Person
(such payments or other actions described in (but not excluded from) clauses (a)
through (d) being referred to as "Restricted Payments"), unless at the time of,
and immediately after giving effect to, the proposed Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the first
paragraph of the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock," and
(iii) the aggregate amount of all Restricted Payments made after the
Closing Date does not exceed the sum of:
(A) cumulative Consolidated EBITDA of the Company (or, if the
cumulative Consolidated EBITDA for such period is a deficit, less 100%
of such deficit) less 1.5 times cumulative Consolidated Interest Expense
of the Company, in each case for the period (taken as one accounting
period) commencing on the first day of the fiscal quarter beginning
after the date of the Indenture and ending on the last day of the most
recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to
the date of such determination; plus
(B) 100% of the aggregate net cash proceeds received and retained
by the Company from the issue or sale since the date of the Indenture of
Qualified Equity Interests of the Company or of debt securities of the
Company that have been converted into such Qualified Equity Interests
(other than (i) Qualified Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company, (ii) Disqualified Stock
or debt securities that have been converted into Disqualified Stock and
(iii) Qualified Equity Interests sold in the Common Stock Offering).
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take the following actions, so long as no Default or Event of Default has
occurred and is continuing or would occur:
(a) the payment of any dividend in cash or Qualified Equity Interests
of the Company within 60 days after the date of declaration thereof, if at
the declaration date such payment would not have been prohibited by the
foregoing provisions;
(b) the repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of, Qualified Equity Interests of the
Company;
(c) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of, shares of Qualified Equity Interests
of the Company;
(d) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance or sale
(other than to a Subsidiary) of Subordinated Indebtedness, so long as the
Company or a Restricted Subsidiary would be permitted to refinance such
original Subordinated Indebtedness with such new Subordinated Indebtedness
pursuant to clause (iv) of the definition of Permitted Indebtedness;
(e) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options on
any such shares or related stock appreciation rights or similar securities
held by officers or employees or former officers or employees (or their
estates or beneficiaries under their estates) or by any employee benefit
plan, upon death, disability, retirement or termination of employment or
pursuant to the terms of any employee benefit plan or any other agreement
under which such shares of stock or related rights were issued; provided
that the aggregate cash consideration paid for
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such purchase, redemption, acquisition, cancellation or other retirement of
such shares of Capital Stock after the Closing Date does not exceed $1.0
million in any fiscal year; or
(f) the making of any Investment (other than a Permitted Investment)
in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Restricted Subsidiary) of Qualified Equity Interests
of the Company (other than Qualified Equity Interests sold in the Common
Stock Offering); or
(g) Restricted Payments in an aggregate amount not to exceed $5.0
million since the date of the Indenture (measured as of the date made and
without giving effect to subsequent changes in value).
The actions described in clauses (b), (c), (e), (f) and (g) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph but will reduce the amount that would otherwise
be available for Restricted Payments under clause (iii) of the first paragraph
of this covenant and the actions described in clauses (a) and (d) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph and will not reduce the amount that would
otherwise be available for Restricted Payments under clause (iii) of the first
paragraph of this covenant.
For the purpose of making any calculations under the Indenture (i) if a
Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company will
be deemed to have made an Investment in an amount equal to the greater of the
fair market value or net book value of the net assets of such Restricted
Subsidiary at the time of such designation as determined by the Board of
Directors of the Company, and (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at fair market value at the time of such
transfer, as determined by the Board of Directors of the Company. The amount of
any Restricted Payment (other than cash) shall be the fair market value on the
date of the Restricted Payment of the asset(s) or securities proposed to be
transferred or issued by the Company or such Restricted Subsidiary, as the case
may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by a nationally
recognized investment banking firm if such fair market value exceeds $1.0
million. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required under "Certain Covenants -- Restricted Payments" were
computed, together with a copy of any opinion or appraisal required by the
Indenture.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other Person that thereafter becomes a Restricted Subsidiary, the aggregate
amount of all Restricted Payments calculated under the foregoing provision will
be reduced by the lesser of (x) the fair market value of such Unrestricted
Subsidiary or other Person at the time it becomes a Restricted Subsidiary and
(y) the initial amount of such Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise, other than the redesignation of an Unrestricted
Subsidiary or other Person as a Restricted Subsidiary), to the extent such net
reduction is not included in the Company's Consolidated Net Income; provided
that the total amount by which the aggregate amount of all Restricted Payments
may be reduced may not exceed the lesser of (x) the cash proceeds received by
the Company and its Restricted Subsidiaries in connection with such net
reduction and (y) the initial amount of such Investment.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Company will not, and will not permit any Restricted Subsidiary to,
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur (collectively, "incur"), any
Indebtedness (including Acquired Indebtedness and the issuance of Disqualified
Stock), except that the Company may incur Indebtedness and a Subsidiary
Guarantor (other than SAH Acquisition II and
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its Restricted Subsidiaries) may incur Indebtedness, in each case if, after
giving effect to such event, the Indebtedness to EBITDA Ratio would be less than
(i) 6.5 to 1.0, for any incurrence occurring through March 15, 2000, (ii) 6.25
to 1.0, for any incurrence occurring after March 15, 2000 and prior to March 15,
2002, or (iii) 6.0 to 1.0, for any incurrence occurring on March 15, 2002 or
thereafter.
Notwithstanding the foregoing, the Company may, and may permit its
Restricted Subsidiaries (except as specified below) to, incur the following
Indebtedness ("Permitted Indebtedness"):
(i) Indebtedness of the Company or any Subsidiary Guarantor (other
than SAH Acquisition II and its Restricted Subsidiaries) under a Senior
Credit Facility in an aggregate principal amount (or accredited value, as
applicable) at any time outstanding not to exceed $20.0 million less the
aggregate amount of all Net Cash Proceeds for Assets Sales applied to
permanently reduce such Indebtedness pursuant to the provisions of the
covenant described under the caption "-- Repurchase at the Option of
Holders -- Asset Sales;"
(ii) Indebtedness represented by the Notes and the Subsidiary
Guarantees;
(iii) Existing Indebtedness (other than Indebtedness referred to in
clauses (i) and (ii) above);
(iv) the incurrence of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance or replace,
any Indebtedness that is permitted to be incurred under clause (ii) or
(iii) above;
(v) Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary or owed by any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary (provided that such Indebtedness is held by the
Company or such Restricted Subsidiary); provided, however, that any
Indebtedness of the Company owing to any such Restricted Subsidiary is
unsecured and subordinated in right of payment from and after such time as
the Notes shall become due and payable (whether at Stated Maturity,
acceleration, or otherwise) to the payment and performance of the Company's
obligations under the Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business; or
(vii) the incurrence by the Company or any of the Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations
(whether or not incurred pursuant to Sale and Leaseback Transactions),
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing or refinancing all or any part of the purchase
price or cost of construction and improvement of property used in the
business of the Company or such Restricted Subsidiary or any Permitted
Refinancing Indebtedness in respect thereof, in an aggregate amount not to
exceed $3.0 million at any one time outstanding.
Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind (other than Permitted Liens) on or with respect to any of its property or
assets, including any shares of stock or indebtedness of any Restricted
Subsidiary, whether owned at the Closing Date or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any right
to receive income thereon, unless (i) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (ii) in the case
of any other Lien, the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer secured
by a Lien; provided, however, that no Lien shall at any time exist on any
Collateral, other than (i) the Lien of the Trustee, for the benefit of the
holder of Notes and (ii) a Lien in favor of the lenders under a Senior Credit
Facility on the Capital Stock of the Other Broadcast Subsidiaries to secure
Indebtedness under a Senior Credit Facility that is permitted under clause (i)
of Permitted Indebtedness.
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SAH Acquisition II
The Indenture and the articles of incorporation of SAH Acquisition II and
each Subsidiary thereof will provide that, so long as any Note is outstanding
(i) SAH Acquisition II shall be a special purpose corporation, organized solely
in order to acquire and own the assets of KCNS, WRAY and WOAC, including the FCC
licenses, (ii) SAH Acquisition II and each Subsidiary thereof will not own any
other assets or conduct any other business other than the business of KCNS, WRAY
and WOAC and assets related to the business thereof, (iii) SAH Acquisition II
and each Subsidiary thereof will not, directly or indirectly, incur any
Indebtedness except in respect of the Notes, (iv) SAH Acquisition II and each
Subsidiary thereof will not create, incur, assume or suffer to exist any Lien
securing Indebtedness on any asset of SAH Acquisition II or any Subsidiary
thereof except Liens in favor of the Trustee, for the benefit of the holders of
Notes, and (v) SAH Acquisition II and each Subsidiary thereof will not be
permitted to file for bankruptcy or similar provisions under state law. There
can be no assurance regarding the enforceability of the provision described in
clause (v) above.
Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans or advances to the Company or any other Restricted Subsidiary or (d)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of:
(i) applicable law;
(ii) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary;
(iii) the refinancing or successive refinancing of Indebtedness
incurred under the agreements in effect on the Closing Date, so long as
such encumbrances or restrictions are no more restrictive than those
contained in such agreement in effect on the Closing Date;
(iv) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired; and
(v) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (d) above on the property so acquired.
Line of Business
The Company will not, and will not permit any Restricted Subsidiary to,
conduct a business other than a Permitted Line of Business.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Leaseback Transaction, provided that the Company or any
Restricted Subsidiary may enter into a Sale and Leaseback Transaction if (i) the
Company or such Restricted Subsidiary could have incurred (a) Indebtedness in an
amount equal to the Attributable Debt relating to such Sale and Leaseback
Transaction under "-- Incurrence of Indebtedness and Issuance of Disqualified
Stock" and (b) a Lien to secure such Indebtedness pursuant to "-- Liens," (ii)
the aggregate rent payable by the Company or such Restricted Subsidiary in
respect of such Sale and Leaseback Transaction for the duration of the lease is
not in excess of the fair market rental value of the property of assets leased
pursuant to such Sale and Leaseback Transaction for the duration of the lease,
and (iii) such Sale and Leaseback Transaction is treated as an Asset
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Sale and the Company and the relevant Restricted Subsidiaries comply with
"Repurchase at the Option of Holders -- Asset Sales."
Merger, Consolidation or Sale of Assets
The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (whether or not the Company is
the surviving corporation), or directly and/or indirectly through its
Subsidiaries, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole) in one or more
related transactions to, another Person or entity unless:
(a) either (i) the Company is the surviving corporation or (ii) the
entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (the
"Surviving Entity") is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Columbia and
assumes all the obligations of the Company under the Notes, the Indenture
and the Security and Pledge Agreement pursuant to a supplemental indenture
and an addendum to the Security and Pledge Agreement in a form reasonably
satisfactory to the Trustee;
(b) immediately after giving effect to such transaction, and treating
any obligation of the Company in connection with or as a result of such
transaction as having been incurred as of the time of such transaction, no
Default or Event of Default has occurred and is continuing;
(c) the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of "-- Incurrence
of Indebtedness and Issuance of Disqualified Stock;"
(d) each Subsidiary Guarantor, unless it is the other party to the
transaction described above, has by supplemental indenture confirmed that
its Subsidiary Guarantee applies to the Surviving Entity's obligations
under the Indenture and the Notes;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the covenant described above under the caption "-- Liens" are
complied with;
(f) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or of the Surviving
Entity if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; and
(g) the Company delivers, or causes to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Indenture.
The Indenture will provide that no Subsidiary Guarantor may consolidate
with or merge with or into any other Person or convey, sell, assign, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any other Person (other than the Company or another Subsidiary
Guarantor) unless: (a) the Person formed by or surviving such consolidation or
merger (if other than such Subsidiary Guarantor) or to which such properties and
assets are transferred assumes all of the obligations of such Subsidiary
Guarantor under the Indenture and its respective Subsidiary Guarantee, pursuant
to a supplemental indenture in form and substance satisfactory to the Trustee,
(b) immediately after giving effect to such transaction, no Default or Event of
Default has occurred and is continuing and (c) the Subsidiary Guarantor
delivers, or causes to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each stating that such transaction complies with the requirements of
the Indenture.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Indenture, the Surviving Entity will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and thereafter the Company will, except in the
case of a lease, be discharged from all its obligations and covenants under the
Indenture and Notes.
Transactions with Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction with, or
for the benefit of, any Affiliate of the Company ("Interested Persons"), unless
(a) such transaction is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's-length transaction with third parties who are not
Interested Persons and (b) the Company delivers to the Trustee (i) with respect
to any transaction or series of related transactions entered into after the
Closing Date involving aggregate payments in excess of $500,000, a resolution of
the Board of Directors of the Company set forth in an officers' certificate
certifying that such transaction or transactions complies with clause (a) above
and that such transaction or transactions have been approved by the Board of
Directors (including a majority of the Disinterested Directors) of the Company
and (ii) with respect to a transaction or series of related transactions
involving aggregate payments equal to or greater than $1.0 million (except in
the case of the SATH Transaction), a written opinion as to the fairness to the
Company or such Restricted Subsidiary of such transaction or series of
transactions from a financial point of view issued by a nationally recognized
investment banking firm.
The foregoing covenant will not restrict:
(A) transactions among the Company and/or its Restricted Subsidiaries;
(B) the Company from paying reasonable and customary regular
compensation, fees and indemnification to directors of the Company or any
wholly owned Restricted Subsidiary who are not employees of the Company or
any Restricted Subsidiary;
(C) loans or advances to employees in the ordinary course of business;
and
(D) Restricted Payments not prohibited by the covenant described under
the caption "Certain Covenants -- Restricted Payments."
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
The Company (a) will not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) will not, and will not permit any Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); provided, however, that this covenant will not prohibit
(i) the sale or other disposition of all, but not less than all, of the issued
and outstanding Capital Stock of a Restricted Subsidiary owned by the Company
and its Restricted Subsidiaries in compliance with the other provisions of the
Indenture, or (ii) the ownership by directors of director's qualifying shares or
the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law. The Indenture will provide
for the execution of the Security and Pledge Agreement, pursuant to which the
Capital Stock of Restricted Subsidiaries shall be pledged to secure the Notes.
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Payments for Consent
The Indenture will provide that neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly participate in the
amendment of the Indenture, if there is paid any consideration, whether by way
of interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Notes, unless such consideration is offered to be paid or is paid to all
Holders that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Issuances of Guarantees by New Restricted Subsidiaries
The Company will provide to the Trustee, on the date that any Person
becomes a Restricted Subsidiary, a supplemental indenture to the Indenture,
executed by such new Restricted Subsidiary, providing for a guarantee on a
senior basis by such new Restricted Subsidiary of the Company's obligations
under the Notes and the Indenture to the same extent as that set forth in the
Indenture, provided that in the case of any new Restricted Subsidiary that
becomes a Restricted Subsidiary through the acquisition of a majority of its
voting Capital Stock by the Company or any other Restricted Subsidiary, such
guarantee may be subordinated to the extent required by the obligations of such
new Restricted Subsidiary existing on the date of such acquisition that were not
incurred in contemplation of such acquisition. The obligations of the Subsidiary
Guarantors under the Subsidiary Guarantees will be limited so as not to
constitute a fraudulent conveyance under applicable law.
Unrestricted Subsidiaries
(a) The Board of Directors of the Company may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is
directly or indirectly liable for any Indebtedness of such Subsidiary, (ii) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity, (iii) any Investment in such Subsidiary made as a result of
designating such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the covenant described under the caption "-- Restricted Payments,"
(iv) neither the Company nor any Restricted Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from Persons who are not Affiliates of the Company, (v) neither the Company
nor any Restricted Subsidiary has any obligation to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results, and (vi) such
Unrestricted Subsidiary has at least one director on its Board of Directors that
is not a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is an executive officer
of the Company or any of its Restricted Subsidiaries. Notwithstanding the
foregoing, the Company may not designate any of its Subsidiaries existing as of
the Closing Date or any successor to any of them as an Unrestricted Subsidiary
and may not sell, transfer or otherwise dispose of any properties or assets of
any such Subsidiary to an Unrestricted Subsidiary, other than in the ordinary
course of business.
(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; provided that (i) no Default or Event of
Default has occurred and is continuing following such designation and (ii) the
Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of the covenant
described under the caption "-- Incurrence of Indebtedness and Issuance of
Disqualified Stock" (treating any Indebtedness of such Unrestricted Subsidiary
as the incurrence of Indebtedness by a Restricted Subsidiary).
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Reports
Whether or not the Company is required to file reports with the Commission,
the Company will file all such annual reports, quarterly reports and other
documents that the Company would be required to file if it were subject to
Section 13(a) or 15(d) under the Exchange Act. The Company will also be required
(a) to supply to the Trustee and each Holder, or supply to the Trustee for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company were
so required and (b) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, to
supply at the Company's cost copies of such reports and documents to any
prospective Holder promptly upon written request.
EVENTS OF DEFAULT AND REMEDIES
The following will be "Events of Default" under the Indenture:
(a) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any,
on) any Note when due;
(c) failure to perform or comply with the Indenture provisions
described under the captions "-- Repurchase at the Option of
Holders -- Change of Control," "-- Repurchase at the Option of
Holders -- Asset Sales," "-- Certain Covenants -- Restricted Payments,"
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock,"
"-- Liens," "-- Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries" or "-- Merger, Consolidation or Sale of Assets;"
(d) default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in the
Indenture or in any Subsidiary Guarantee (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere herein), and continuance of such default or breach for
a period of 30 days after written notice has been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least
25% in aggregate principal amount of the Notes then outstanding;
(e) (i) an event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of
Indebtedness of the Company or any Restricted Subsidiary, which issue
individually or in the aggregate has an aggregate outstanding principal
amount of not less than $5.0 million, and such default has resulted in such
Indebtedness becoming, whether by declaration or otherwise, due and payable
prior to the date on which it would otherwise become due and payable or
(ii) a default in any payment when due at final maturity of any such
Indebtedness;
(f) failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $5.0 million, which judgment or judgments are not paid,
discharged or stayed for a period of 60 days;
(g) any Subsidiary Guarantee ceases to be in full force and effect or
is declared null and void or any such Subsidiary Guarantor denies that it
has any further liability under any Subsidiary Guarantee, or gives notice
to such effect (other than by reason of the termination of the Indenture or
the release of any such Subsidiary Guarantee in accordance with the
Indenture);
(h) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Subsidiary; or
(i) the Security and Pledge Agreement shall cease to be in full force
and effect or enforceable in accordance with its terms other than in
accordance with its terms, or the Company denies or disaffirms its
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obligations under the Security and Pledge Agreement or the obligations
under the Security and Pledge Agreement cease to be secured by a perfected
first priority security interest in that portion of the Collateral
purported to be pledged as a first priority pledge under the Security and
Pledge Agreement and a perfected second priority security interest in that
portion of the Collateral purported to be pledged as a second priority
pledge under the Security and Pledge Agreement (other than in accordance
with its terms).
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such Holders will, declare the principal of, and accrued interest on,
all of the outstanding Notes immediately due and payable and the Trustee may
(subject to FCC regulations, see "Risk Factors -- Risk of Inability to
Effectively Realize Upon Security") enforce its Liens on any Collateral for the
Notes pursuant to the Pledge Agreement or any other security document.
If an Event of Default specified in clause (h) above occurs and is
continuing, then the principal of and accrued interest on all of the outstanding
Notes will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if: (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes,
(B) all unpaid principal of (and premium, if any, on) any outstanding Notes that
has become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, (C) to the extent that payment of such
interest is lawful, interest upon overdue interest and overdue principal at the
rate borne by the Notes and (D) all sums paid or advanced by the Trustee under
the Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and (ii) all Events of Default,
other than the non-payment of amounts of principal of (or premium, if any, on)
or interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived. No such rescission will affect any
subsequent default or impair any right consequent thereon.
No Holder has any right to institute any proceeding with respect to the
Indenture or any remedy thereunder, unless the Holders of at least 25% in
aggregate principal amount of the outstanding Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding
within 60 days after receipt of such notice and the Trustee, within such 60-day
period, has not received directions inconsistent with such written request by
Holders of a majority in aggregate principal amount of the outstanding Notes.
Such limitations do not apply, however, to a suit instituted by a Holder for the
enforcement of the payment of the principal of, premium, if any, or interest on
such Note on or after the respective due dates expressed in such Note.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the Holders of all of the Notes, waive
any past defaults under the Indenture, except a default in the payment of the
principal of (and premium, if any) or interest on any Note, or in respect of a
covenant or provision that under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each Holder notice of the Default or
Event of Default within 90 days after the occurrence thereof. Except in the case
of a Default or an Event of Default in payment of principal of (and premium, if
any, on) or interest on any Notes, the Trustee may withhold the notice to the
Holders if a committee of its trust officers in good faith determines that
withholding such notice is in the interests of the Holders.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Subsidiary Guarantors of their
obligations under the Indenture and as to any default in such performance. The
Company is also required to notify the Trustee within five days of any Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company or the Subsidiary Guarantors under
the Notes, the Indenture or the Subsidiary Guarantees, as applicable, or any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, terminate the obligations
of the Company and the Subsidiary Guarantors with respect to the outstanding
Notes ("legal defeasance"). Such legal defeasance means that the Company will be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of (and premium, if any, on) and
interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or
agency for payments in respect of the Notes and segregate and hold such payments
in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee
and (iv) the legal defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to terminate the obligations
of the Company and any Subsidiary Guarantor with respect to certain covenants
forth in the Indenture and described under "Certain Covenants" above, and any
omission to comply with such obligations would not constitute a Default or an
Event of Default with respect to the Notes ("covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance: (a)
the Company must irrevocably deposit or cause to be deposited with the Trustee,
as trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders, money in an amount, or U.S. Government
Obligations (as defined in the Indenture) that through the scheduled payment of
principal and interest thereon will provide money in an amount, or a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Notes at maturity (or upon
redemption, if applicable) of such principal or installment of interest; (b) no
Default or Event of Default has occurred and is continuing on the date of such
deposit or, insofar as an event of bankruptcy under clause (h) of "Events of
Default" above is concerned, at any time during the period ending on the 91st
day after the date of such deposit; (c) such legal defeasance or covenant
defeasance may not result in a breach or violation of, or constitute a default
under, the Indenture or any material agreement or instrument to which the
Company or any Subsidiary Guarantor is a party or by which it is bound; (d) in
the case of legal defeasance, the Company must deliver to the Trustee an opinion
of counsel stating that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or since the date hereof,
there has been a change in applicable federal income tax law, to the effect, and
based thereon such opinion must confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such legal defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such legal defeasance had not occurred; (e) in the case of covenant
defeasance, the Company must have delivered to the Trustee an opinion of counsel
to the effect that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; and (f) the Company must have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to either the
legal defeasance or the covenant defeasance, as the case may be, have been
complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer document and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note for a
period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Modifications and amendments of the Indenture and any Subsidiary Guarantee
may be made by the Company, any affected Subsidiary Guarantor and the Trustee
with the consent of the Holders of a majority in aggregate outstanding principal
amount of the Notes; provided, however, that no such modification or amendment
may, without the consent of the Holder of each outstanding Note affected
thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the coin or currency in which any Note or any premium or
the interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment after the Stated Maturity thereof (or,
in the case of redemption, on or after the redemption date);
(b) amend, change or modify the obligation of the Company to make and
consummate an Excess Proceeds Offer with respect to any Asset Sale in
accordance with the covenant described under the covenant entitled
"Repurchase at the Option of the Holders -- Asset Sales" or the obligation
of the Company to make and consummate a Change of Control offer in the
event of a Change of Control in accordance with the covenant entitled
"Repurchase at the Option of the Holders -- Change of Control," including,
in each case, amending, changing or modifying any definition relating
thereto;
(c) reduce the percentage in principal amount of outstanding Notes,
the consent of whose Holders is required for any waiver of compliance with
certain provisions of, or certain defaults and their consequences provided
for under, the Indenture;
(d) waive a default in the payment of principal of, or premium, if
any, or interest on the Notes or reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose Holders is
necessary for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults;
(e) modify the ranking or priority of the Notes or the Subsidiary
Guarantee of any Subsidiary Guarantor;
(f) release any Subsidiary Guarantor from any of its obligations under
its Subsidiary Guarantee or the Indenture other than in accordance with the
terms of the Indenture; or
(g) release any Collateral from the Lien created by the Security and
Pledge Agreement except in accordance with the terms thereof and the terms
of the Indenture.
The Holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture and the Pledge Agreement.
Without the consent of any Holders, the Company and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
to the Indenture for any of the following purposes: (1) to evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the Holders, or to
surrender any right or power herein conferred upon the Company; or (3) to add
additional Events of Defaults; or (4) to provide for uncertificated Notes in
addition to or in place of the certificated Notes; or (5) to evidence and
provide for the acceptance of appointment under the Indenture by a successor
Trustee; or (6) to further secure the Notes; or (7) to cure any ambiguity, to
correct or
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supplement any provision in the Indenture that may be defective or inconsistent
with any other provision in the Indenture, or to make any other provisions with
respect to matters or questions arising under the Indenture, provided that such
actions pursuant to this clause do not adversely affect the interests of the
Holders in any material respect; or (8) to comply with any requirements of the
Commission in order to effect and maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
PNC Bank, National Association, the Trustee under the Indenture, will be
the initial paying agent and registrar for the Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. Under the Indenture, the Holders of a majority in outstanding
principal amount of the Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein, contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that, if it acquires any conflicting
interest (as defined), it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the third succeeding paragraph, the Notes to be
resold as set forth herein will initially be issued in the form of one or more
global notes. The global notes will be deposited on the Closing Date with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Notes and (ii) ownership of the Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to own, transfer or pledge Notes evidenced
by the Global Notes will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Notice to Investors."
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So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Notes in accordance with the normal procedures of DTC and in
accordance with the procedures set forth in the Indenture.
Certificated Notes
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture then, upon surrender by
the Global Note Holder of the Global Notes, Certificated Notes will be issued to
each person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture will require that payments in respect of the Notes
represented by the Global Notes (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any, and
interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. Secondary trading in long-term
notes and debentures of corporate issues is generally settled in clearinghouse
or next-day funds. In contrast, Notes represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Senior Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
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Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear or Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
and/or the Security and Pledge Agreement without charge by writing to Shop at
Home, Inc., 3100 West End Avenue, Suite 880, Nashville, Tennessee 37203,
Attention: George J. Phillips.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person is merged with or into the Company or becomes a Subsidiary or
(b) assumed in connection with the acquisition of assets from such Person.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of merger, consolidation or
similar arrangement) (collectively, a "transfer") by the Company or any
Restricted Subsidiary other than in the ordinary course of business and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Shares of
Capital Stock of any of the Company's Restricted Subsidiaries (which shall be
deemed to include the sale, grant or conveyance of any interest in the income,
profits or proceeds therefrom), in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (x) that
have a fair market value in excess of $1.0 million or (y) for Net Cash Proceeds
in excess of $1.0 million. For the purposes of this definition, the term "Asset
Sale" does not include any transfer of properties or assets (i) that is governed
by the provisions of the Indenture described under "-- Certain
Covenants -- Consolidation, Merger and Sale of Assets," (ii) between or among
the Company and its Restricted Subsidiaries pursuant to transactions that do not
violate any other provision of the Indenture, (iii) representing obsolete or
permanently retired equipment and facilities or transfers or other dispositions
of assets in which the Company or a Subsidiary Guarantor receives assets that
(A) are used or useful in a Permitted Line of Business and (B) have a value
equal to the value of the assets so transferred or disposed of.
"Attributable Debt" means, in respect of a Sale and Leaseback Transaction,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Authority" means any federal, state, municipal or local government or
quasi-governmental agency or authority.
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
"Capital Stock" of any Person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
designated) of such Person's equity interest (however designated), whether now
outstanding or issued after the Closing Date.
"Capitalized Lease Obligation" means, with respect to any Person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease.
"Casualty," with respect to any Collateral, means loss of, damage to or
destruction of all or any part of such Collateral.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
more than 50% of the voting power of all classes of Voting Stock of the
Company;
(b) the Company, either individually or in conjunction with one or
more Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties of the
Company and the Subsidiaries, taken as a whole (either in one transaction
or a series of related transactions), including Capital Stock of the
Subsidiaries, to any person (other than the Company or a Restricted
Subsidiary);
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Common Stock Offering" means the public offering of Common Stock of the
Company scheduled to close on the Closing Date.
"Condemnation" means any taking of the Collateral or any part thereof, in
or by condemnation, expropriation or similar proceedings, eminent domain
proceedings, seizure or forfeiture, pursuant to any law, general or special, or
by reason of the temporary requisition of the use or occupancy of the
Collateral, or any part thereof, by any Authority.
"Condemnation Proceeds" means any awards, proceeds, payment or other
compensation arising out of a Condemnation.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Net Income for such period, plus (or, in the case of
clause (d) below, plus or minus) the following items to the extent included in
computing Consolidated Net Income for such period (a) Consolidated Interest
Expense for such period, plus (b) the provision for federal, state, local and
foreign income taxes of the Company and its Restricted Subsidiaries for such
period, plus (c) the aggregate depreciation and amortization expense of the
Company and its Restricted Subsidiaries for such period, plus (d) any other
non-cash charges for such period, and minus non-cash credits for such period,
other than non-cash charges or credits resulting from changes in prepaid assets
or accrued liabilities in the ordinary course of business; provided that fixed
charges, income tax expense, depreciation and amortization expense and non-cash
charges and credits of a Restricted Subsidiary will be included in Consolidated
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income for such
period.
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"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the amount that, in conformity with GAAP, would be set forth
opposite the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for such
period, including, without limitation, (i) amortization of debt discount, (ii)
the net cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) amortization
of debt issuance costs, and (v) the interest component of Capitalized Lease
Obligations, plus (b) cash dividends paid on Preferred Stock and Disqualified
Stock by the Company and any Restricted Subsidiary (to any Person other than the
Company and its Restricted Subsidiaries), computed on a tax effected basis, plus
(c) all interest on any Indebtedness of any Person guaranteed by the Company or
any of its Restricted Subsidiaries or secured by a lien on the assets of the
Company or any of its Restricted Subsidiaries; provided, however, that
Consolidated Interest Expense will not include (i) any gain or loss from
extinguishment of debt, including the write-off of debt issuance costs, and (ii)
the Consolidated Interest Expense of a Restricted Subsidiary to the extent (and
in the same proportion) that the net income of such Subsidiary was excluded in
calculating Consolidated Net Income pursuant to clause (e) of the definition
thereof for such period.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash during such period, (d) the net income (or loss) of any
Person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination and
(e) the net income (but not the net loss) of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is at the date of determination restricted, directly
or indirectly, except to the extent that such net income is actually paid to the
Company or a Restricted Subsidiary thereof by loans, advances, intercompany
transfers, principal repayments or otherwise.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity of the Company and its Restricted Subsidiaries as set forth on the most
recently available quarterly or annual consolidated balance sheet of the Company
and its Restricted Subsidiaries, less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for Indebtedness,
the cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries and less to the extent included in calculating such
stockholders' equity of the Company and its Restricted Subsidiaries, the
stockholders' equity attributable to Unrestricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors, to make a finding or otherwise
take action under the Indenture, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capit of any security
into which it is convertible or exchangeable or by contract or otherwise (i) is
or upon the happening of an event or passage of time would be, required to be
redeemed prior to the date that is six months after the final Stated Maturity of
the Notes, (ii) is redeemable at the option of the Holder thereof, at any time
prior to such date or (iii) at the option of the Holder thereof is convertible
into or exchangeable for debt securities at any time prior to such date;
provided that any Capital Stock that would not constitute Disqualified Stock but
for provisions therein giving Holders
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thereof the right to cause the issuer thereof to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes will not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the Holders of such
Capital Stock than the provisions contained in the covenants described under the
captions "Repurchase at the Option of Holders -- Change of Control" and
"-- Asset Sales" described herein and such Capital Stock specifically provides
that the issuer will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to the provisions contained in the covenants described
under the captions "Repurchase at the Option of Holders -- Change of Control"
and "-- Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means the Indebtedness of the Company and its
Restricted Subsidiaries (other than the Notes, the Subsidiary Guarantees or
Indebtedness under a Senior Credit Facility) outstanding on the Closing Date,
until such amounts are repaid.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the Closing Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person entered into in the ordinary course of business under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and other similar financial agreements or arrangements designed to
protect such Person against, or manage the exposure of such Person to,
fluctuations in interest rates, and (ii) forward exchange agreements, currency
swap, currency option and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in foreign currency exchange rates.
"Holder" means the Person in whose name a Note is, at the time of
determination, registered on the Registrar's books.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed, (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (d) every obligation of such Person issued or
assumed as the deferred purchase price of property or services, (e) the
attributable value of every Capitalized Lease Obligation of such Person, (f) all
Disqualified Stock of such Person valued at its maximum fixed repurchase price,
plus accrued and unpaid dividends, (g) all obligations of such Person under or
in respect of Hedging Obligations, and (h) every obligation of the type referred
to in clauses (a) through (g) of another Person and all dividends of another
Person the payment of which, in either case, such Person has guaranteed. For
purposes of this definition, the "maximum fixed repurchase price" of any
Disqualified Stock that does not have a fixed repurchase price will be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness is required
to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Stock, such fair market
value will be determined in good faith by the board of directors of the issuer
of such Disqualified Stock. Notwithstanding the foregoing, trade accounts
payable and accrued liabilities arising in the ordinary course of business and
any liability for federal, state or local taxes or other taxes owed by such
Person will not be considered Indebtedness for purposes of this definition.
"Indebtedness to EBITDA Ratio" means, with respect to any date, the ratio
of (a) the aggregate principal amount of all outstanding Indebtedness of the
Company and its Subsidiaries as of such date on a consolidated basis, plus the
aggregate liquidation preference or redemption amount of all outstanding
Disqualified Stock of the Company and its Subsidiaries as of such date
(excluding any such Disqualified Stock
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held by the Company of a Wholly Owned Subsidiary), to (b) Consolidated EBITDA
for the four most recent full fiscal quarters ending immediately prior to such
date for which financial statements have been made publicly available (but in no
event ending more than 135 days prior to the date of determination), determined
on a pro forma basis after giving effect to each acquisition or disposition of
assets made by the Company and its Subsidiaries, outside of the ordinary course
of business, from the beginning of such four-quarter period through such date as
if such acquisition or disposition had occurred at the beginning of such
four-quarter period.
"Insurance Proceeds" mean any payment, proceeds or other amounts received
at any time under any insurance policy as compensation in respect of a Casualty
provided, that business interruption insurance proceeds shall not constitute
Insurance Proceeds.
"Investment" in any Person means, (i) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to such Person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such Person, the acquisition (by purchase or otherwise) of
all or substantially all of the business or assets of such Person, or the making
of any investment in such Person, (ii) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (iii) the fair market value of the
Capital Stock (or any other Investment), held by the Company or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary. Investments exclude (i) extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices and (ii)
acquisitions of assets, equity interests or other securities of other Persons
for consideration consisting solely of Common Stock of the Company.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon, or with respect to, any
property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired. A Person will be deemed to own subject to a Lien any
property that such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Loss Event" means a Condemnation or Casualty involving an actual or
constructive total loss or agreed or compromised actual or constructive total
loss of all or substantially all of any Collateral, except where the Company
reasonably concludes that restoration of such Collateral can be made in
accordance with this Indenture and elects to do so in an Officers' Certificate
delivered to the Trustee within 90 days of the relevant Condemnation or
Casualty.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (a) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (b) provisions for all taxes payable as a result of
such Asset Sale, (c) payments made to retire Indebtedness where such
Indebtedness is secured by the assets that are the subject of such Asset Sale,
(d) amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets that are
subject to the Asset Sale and (e) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the seller after such Asset Sale, including pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Other Broadcast Subsidiaries" means MFP, Inc., the owner and operator of
WMFP(TV) in Boston and Urban Broadcasting Systems, Inc., the owner and operator
of KZJL(TV) in Houston.
"Other Subsidiaries" means any Subsidiary of the Company other than SAH
Acquisition II.
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"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of one year or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii) U.S.
dollar denominated (or fully hedged foreign currency) time deposits,
certificates of deposit, Eurodollar time deposits or Eurodollar
certificates of deposit or acceptances with a maturity of one year or less
of any financial institution that is a member of the Federal Reserve System
having combined capital and surplus of not less than $500,000,000 or any
bank (an "Approved Lender") whose short term commercial paper rating from
Standard & Poor's Ratings Group is at least A-1 or the equivalent thereof
or from Moody's Investors Service, Inc. is at least P-1 or the equivalent
thereof; (iii) any shares of money market mutual or similar funds having
assets in excess of $500,000,000 which are invested in instruments of the
kind described in clauses (i), (ii) and (iv) hereof; and (iv) commercial
paper with a maturity of one year or less issued by an Approved Lender that
not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and having a rating
(A) from Moody's Investors Service, Inc. of at least P-2 or (B) from
Standard & Poor's Ratings Group of at least A-2;
(b) Investments by the Company or any Wholly Owned Restricted
Subsidiary in another Person, if as a result of such Investment (i) such
other Person becomes a Restricted Subsidiary that is a Subsidiary Guarantor
or (ii) such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary that is a Subsidiary Guarantor;
(c) Investments by the Company or a Restricted Subsidiary in the
Company or a Restricted Subsidiary;
(d) Investments in existence on the Closing Date; and
(e) promissory notes or other evidence of Indebtedness received as a
result of Asset Sales permitted under the covenant entitled "Repurchase at
the Option of Holders -- Asset Sales."
"Permitted Liens" means (i) Liens on the Capital Stock of the Other
Broadcast Subsidiaries and the accounts receivable, inventory and general
intangibles of the Company (excluding any Collateral for the Notes), of the
Company securing Indebtedness under a Senior Credit Facility in principal amount
not to exceed $20.0 million at any one time outstanding; (ii) Liens on any
property or assets of a Restricted Subsidiary granted in favor of the Company or
a Wholly-Owned Restricted Subsidiary; (iii) Liens securing the Notes or any
Subsidiary Guarantee; (iv) Liens on property of a Person existing at the time
such Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (v) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition and do
not extend to any other assets; (vi) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vii)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
clause (vii) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Disqualified Stock" covering only the assets
financed with such Indebtedness; (viii) Liens existing on the date of the
Indenture; and (ix) any extension, renewal or replacement, in whole or in part,
of any Lien described in the foregoing clauses (i), (iv) and (v), provided that
any such extension, renewal or replacement is no more restrictive in any
material respect than the Lien so extended, renewed or replaced and does not
extend to any additional property or assets.
"Permitted Line of Business" means the businesses of: (i) the selling of
goods and merchandise by electronic media, including television broadcasting,
use of the internet and by telephone, (ii) the operation of commercial broadcast
television stations and the sale of broadcast time thereon; (iii) the selling of
goods and merchandise by means of printed media, such as magazines and
catalogues; (iv) the manufacture, production
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and sale of sports trading cards; and (v) the private branding or contract
manufacture of products sold by the Company by means of any of the foregoing.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accredit value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accredit value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded plus the lesser of the amount of any
premium required to be paid in connection with such refinancings pursuant to the
terms of such indebtedness or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary of the Company that is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participation, rights in or other equivalents
(however designated) of such Person's preferred or preference stock, whether now
outstanding or issued after the Closing Date, and including, without limitation,
all classes and series of preferred or preference stock of such Person.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital Stock of such
Person, other than Disqualified Stock.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which a person sells or transfers any property or asset
in connection with the leasing, or the resale against installment payments, of
such property or asset to the seller or transferor.
"Security and Pledge Agreement" means the agreement, dated the Closing
Date, among the Company, certain Subsidiary Guarantors and the Trustee, relating
to the Collateral.
"SATH Transaction" means the acquisition of the Company's new headquarters
facility in exchange for payments to Partner-SATH, L.L.C. or members thereof in
an amount not to exceed $6.5 million.
"Senior Credit Facility" means any senior credit facility of the Company or
any Restricted Subsidiary with one or more banks or other commercial financial
institutions, and any amendments, renewals, replacements or modifications
thereof.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or any installment of interest
thereon is due and payable.
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"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment to the Notes or
the Subsidiary Guarantees issued by such Subsidiary Guarantor, as the case may
be.
"Subsidiary" means any Person if Voting Stock representing a majority of
the voting power of the Voting Stock of such Person is at the time owned,
directly or indirectly, by the Company and/or one or more other Subsidiaries of
the Company.
"Subsidiary Guarantors" means, collectively, all Restricted Subsidiaries
that are incorporated in the United States or a State thereof or the District of
Columbia; provided that any Person that becomes an Unrestricted Subsidiary in
compliance with the "Restricted Payments" covenant shall not be included in
"Subsidiary Guarantors" after becoming an Unrestricted Subsidiary.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary in
accordance with the "Unrestricted Subsidiaries" covenant and (b) any Subsidiary
of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the Holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Indebtedness or Disqualified Stock, the quotient obtained by dividing (a)
the sum of the products of (i) the number of years from the date of
determination to the date or dates of each successive scheduled principal or
liquidation value payment of such Indebtedness or Disqualified Stock,
respectively, multiplied by (ii) the amount of each such principal or
liquidation value payment by (b) the sum of all such principal or liquidation
value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all
of the outstanding voting securities (other than directors' qualifying shares or
shares of Foreign Subsidiaries required to be owned by foreign nationals
pursuant to applicable law) of which are owned, directly or indirectly, by the
Company.
DESCRIPTION OF SENIOR CREDIT FACILITY
The Indenture permits the Company to incur indebtedness under one or more
Senior Credit Facilities up to an aggregate principal amount of $20.0 million.
The Company and one of its Restricted Subsidiaries, MFP, Inc., are parties
to a working capital facility with a commercial bank pursuant to which MFP, Inc.
may borrow up to $5.0 million. The Company has guaranteed the indebtedness of
MFP, Inc. The working capital facility constitutes a portion of the Senior
Credit Facility permitted under the Indenture. The working capital facility is
secured by a first priority lien on substantially all of the assets of MFP,
Inc., the capital stock of MFP, Inc. and the accounts receivable, inventory and
general intangibles of the Company (excluding from general intangibles any
Collateral for the Notes). The current outstanding principal balance of the
working capital facility is approximately $3.0 million, which amount will be
repaid with the proceeds of the Offering.
The working capital facility contains certain covenants and agreements of
the Company and MFP, Inc., including without limitation, financial covenants,
limits on incurrence of additional indebtedness, limits on liens, limits on
acquisitions, asset sales, sale leasebacks, mergers or consolidations, limits on
acquisitions, limits on repayments or prepayments of other indebtedness, limits
on changes of control and other covenants and agreements. Certain of the
covenants and agreements contained in the working capital facility are more
restrictive than those of the Indenture. The Company may enter into one or more
Senior Credit Facilities subsequent to the Closing Date for the Notes, which
facilities may contain covenants and agreements similar, or in addition, to
those of the current working capital facility, including covenants more
restrictive than those of the Indenture.
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DESCRIPTION OF CAPITAL STOCK
The Company's charter currently authorizes the issuance of 30,000,000
shares of Common Stock, par value $.0025 per share ("Common Stock"), 30,000,000
shares of Non-Voting Common Stock, par value $.0025 per share, and 1,000,000
shares of preferred stock, par value $10.00 ("Preferred Stock").
COMMON STOCK
As of December 31, 1997, 11,742,991 shares of the Company's Common Stock
were outstanding and held of record by approximately 688 shareholders. Shares of
Common Stock may be issued at such time or times and for such consideration (but
not less than par value) as the Board of Directors of the Company deems
advisable, subject to limitations set forth in the laws of the State of
Tennessee, or the Company's charter or bylaws. Holders of Common Stock are not
entitled to preemptive or other subscription rights, and are not subject to
assessment or further call. Each share of Common Stock is entitled to one vote
on all matters on which holders of common stock are entitled to vote. Holders of
Common Stock are not entitled to convert the shares to any other securities of
the Company. Holders of the Common Stock are entitled to receive such dividends
as may be declared, from time to time, by the Board of Directors of the Company
out of funds legally available therefor. The Company has the right to, and may
from time to time, enter into borrowing arrangements or issue other debt
instruments, the provisions of which may contain restrictions on payment of
dividends and other distributions on the Common Stock. In the event of the
voluntary or involuntary liquidation, dissolution, distribution of assets or
winding-up of the Company, holders of Common Stock are entitled to receive
ratably in proportion to the number of shares held, those amounts or assets
available after payment or provision for payment of amounts due to holders of
any outstanding Preferred Stock and of all indebtedness or other liabilities to
any other person.
On March 6, 1998, an amendment to the charter of the Company to authorize
the issuance of 30,000,000 shares of Non-Voting Common Stock, par value $.0025
per share was approved by the Company's shareholders. The shares of Non-Voting
Common Stock have the same preferences, limitations and relative rights as the
Company's voting Common Stock, except that the shares of Non-Voting Common Stock
have no voting rights, unless indefeasibly granted by statute. The Board of
Directors has no current plans to issue shares of Non-Voting Common Stock, and
the charter amendment is intended to provide flexibility to the Company with
respect to its consideration in the future of the issuance of additional capital
stock.
PREFERRED STOCK
Under the terms of the Company's charter, the Company's Board of Directors
has the authority to issue shares of Preferred Stock in one or more series, and
to fix the number, designation, preferences, limitations and relative rights of
the shares of such series, without the further vote or action of the
shareholders. The Company's Board of Directors, without shareholder approval,
can issue Preferred Stock with voting and conversion rights that could adversely
affect the voting power of holders of Common Stock. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company will not offer shares of Preferred Stock to
any of its affiliates except on the same terms as it is offered to all other
existing and new shareholders, unless the issuance is approved by a majority of
the Company's disinterested independent directors who have access, at the
Company's expense, to the Company's legal counsel or independent legal counsel.
The bylaws of the Company provide that the Company will not offer Preferred
Stock to affiliates of the Company except on the same terms as the Preferred
Stock is offered to all other existing shareholders or new shareholders, unless
the issuance is approved by a majority of the Company's disinterested
independent directors who have access, at the Company's expense, to the
Company's legal counsel or independent legal counsel.
At December 31, 1997, there were 137,943 shares of Series A Preferred Stock
("Series A Preferred Stock"), par value $10.00 per share, outstanding and held
by approximately 37 shareholders of record. The Series A Preferred Stock ranks
ahead of the Common Stock with respect to dividends, preferences,
qualifications, limitations, restrictions and the distribution of assets upon
liquidation. Holders of shares of
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Series A Preferred Stock are not entitled to preemptive rights with respect to
any shares or other securities of the Company which may be issued, and such
shares are not subject to assessment.
Holders of Series A Preferred Stock are entitled to receive, but only when,
as and if declared by the Board of Directors of the Company, cash dividends at
the rate of 1% per annum of par value per share (i.e., $.10 per share per
annum). Dividends on each share of Series A Preferred Stock accrue and are
cumulative. No dividends may be paid or declared 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 Preferred 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. In
the event that full cumulative dividends on the Series A Preferred Stock shall
not have been declared and paid when due, or set apart for payment, then, until
such aggregate deficiency shall have been declared and paid, or set apart for
payment, the Company may not (A) declare or pay any dividends or make other
distributions on the Common Stock other than (i) dividends payable in shares of
Common Stock or other stock of the Company junior to the Series A Preferred
Stock ("Junior Stock") or (ii) options, warrants or rights to subscribe for or
purchase shares of Common Stock or Junior Stock or (B) purchase, redeem or
otherwise acquire (i) any share of Common Stock or Junior Stock or (ii) any
other shares of capital stock of the Company ranking on a parity with the Series
A Preferred Stock, except by conversion into or exchange for Common Stock or
Junior Stock.
In the event of a liquidation, dissolution and winding up of the Company,
whether voluntary or involuntary, the holders of shares of Series A Preferred
Stock shall be entitled to receive out of the assets of the Company, before any
distributions to the holders of Common Stock or any Junior Stock, an amount
equal to $10.00 per share, plus dividends accrued and unpaid. After receipt of
this amount, the holders of shares of Series A Preferred Stock will not be
entitled to any further participation in any distributions of the assets of the
Company. For these purposes, a sale of substantially all of the assets of the
Company to a third party, or the consummation by the Company or its shareholders
of any transaction with any single purchaser whereby a change in control of more
than fifty (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 such payment.
So long as 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. At any time after February 28, 2000, any holder of any shares of
Series A Preferred Stock may require the Company to redeem all or any portion of
the Series A Preferred Stock, for a redemption price per share of $10.00 plus
accrued and unpaid dividends. The Series A Preferred Stock is convertible at any
time into shares of Common Stock at a ratio of 1.00 share of Common Stock for
1.00 share of Series A Preferred Stock.
Except as provided in the following sentence or as expressly required by
applicable law, the holders of Series A Preferred Stock are not entitled to
vote. So long as any shares of Series A Preferred Stock remain outstanding, the
affirmative consent of the holders of a majority of the shares of Series A
Preferred Stock outstanding (voting separately as a class) shall be necessary to
permit (i) the authorization, creation or issuance of a new class of capital
stock or series of Preferred Stock having rights, preferences or privileges
senior to the Series A Preferred Stock, or any increase in the number of
authorized shares of any class of capital stock or series of Preferred Stock
having rights, preferences or privileges senior to the Series A Preferred Stock,
or (ii) the amendment of any provision of the Company's charter which would
materially and adversely affect any right, preference, privilege or voting power
of the Series A Preferred Stock.
OPTIONS AND WARRANTS
As of February 18, 1998, the Company had issued and outstanding options and
warrants to the following persons:
- Kent E. Lillie, President and CEO of the Company, currently holds options
to purchase 765,000 shares of Common Stock, of which options for 315,000
shares are currently exercisable. Of these
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315,000 shares, 100,000 may be purchased at $1.00 per share, 210,000 at
$2.875 per share, and 5,000 at $3.75 per share.
- Other employees of the Company have been issued options for a total of
958,100 shares of Common Stock, of which options for 174,100 shares are
currently exercisable. Each of these options was issued at the market
price of the Common Stock on the date the option was issued or repriced.
- Directors of the Company, not including Mr. Lillie, have been issued
options to purchase 75,000 shares of Common Stock, all of which are
currently exercisable. Of these 75,000 shares, 50,000 are exercisable at
$2.875 per share and 25,000 at $3.75 per share.
- A vendor of the Company has been issued an option to purchase 600,000
shares of Common Stock, all of which are currently exercisable at a price
of $2.50 per share.
- A consultant for the Company has been issued an option to purchase 30,000
shares, of which 20,000 shares are currently exercisable at a price of
$1.00 per share.
- The Company has issued warrants to purchase a total of 3,000,000 shares
of Common Stock at a price of $1.135 per share, all of which are
currently exercisable. The exercise price of these warrants increases by
13.5% per annum for each year that they are not exercised. Of the
warrants, J.D. Clinton and his affiliates hold warrants to purchase a
total of 2,192,500 shares.
The exercise of all of the above options and warrants would result in the
issuance of a total of 5,428,100 shares of Common Stock, of which a total of
4,184,100 shares could be issued under rights that are currently exercisable. In
addition, of these rights to acquire 4,184,100 shares of Common Stock, options
and warrants for a total of 4,154,100 shares are currently exercisable at prices
below $3.50.
Of the total number of options issued to employees, options for a total of
758,100 shares were issued as qualified incentive options under the Company's
Omnibus Stock Incentive Plan. Assuming the exercise of all options and warrants,
but excluding from the calculation the qualified options, and assuming the
issuance of 10,000,000 shares as a result of the Common Stock Offering, the
remaining options and warrants, if fully exercised, would represent 17.1% of the
issued and outstanding shares of the Company (16.3% if the Over-allotment Option
is fully exercised).
Of the foregoing options and warrants, options and warrants to purchase a
total of 3,950,000 shares of Common Stock may have exercise prices that were
less than 85% of the fair market value of the Company's underlying shares of
Common Stock on the date of grant. These options and warrants include an option
issued to Kent E. Lillie at the date of his employment with the Company in
September 1993 for 500,000 shares at $1.00 per share, and an option issued to
another executive officer of the Company in October 1993 for 100,000 shares at
$1.00 per share. In addition, the Company issued warrants between June and
October 1993 for 3,300,000 shares having an exercise price of $1.00 per share.
In June 1994, the Company issued an option to a consultant for 50,000 shares
issued $1.00 per share. Of the foregoing, warrants and options to purchase an
aggregate of 700,000 shares of Common Stock have been exercised.
Beginning in June 1995, the Common Stock of the Company has been reported
on the Nasdaq SmallCap Market. Prior to that date, the Common Stock was traded
in the over-the-counter market. Although the above options and warrants were
issued at less than 85% of the then published bid and ask quotations for the
Common Stock, given the amount of Common Stock involved, the size, financial
condition and lack of profitable operations of the Company at the time and the
fact that the transactions were private issuances of unregistered securities,
the actual fair market value of the Common Stock is difficult to ascertain with
any degree of certainty, and the exercise prices of these warrants and options
may have exceeded the actual fair market value of the Common Stock.
The bylaws of the Company now provide that the Board of Directors will not
issue any additional warrants or options having an exercise price of less than
85% of the fair market value of the underlying securities on the date of grant.
86
<PAGE> 88
As a condition to the registration of the Stock Offering with the State of
Tennessee, the Company has committed that its outstanding options and warrants
during the one year period after the closing of the Stock Offering, expressed as
a percentage of the outstanding shares of Common Stock, will not exceed 12%.
Under the definition of outstanding options and warrants applied by the State of
Tennessee, the warrants for 3,000,000 shares of Common Stock listed above are
not included since the warrants were issued in 1993 as a part of the acquisition
of a controlling interest in the Company. For purposes of computing the total
outstanding shares, the Company will include the shares issued pursuant to the
Stock Offering and will also assume that all outstanding warrants and options,
subject to the calculation, have been exercised. Under this calculation method,
the total number of shares subject to options and warrants is 2,428,100, and the
total number of outstanding shares is 21,762,991 (made up of 11,762,991 shares
currently outstanding and 10,000,000 shares proposed to be issued pursuant to
the Stock Offering), yielding a current percentage of options and warrants to
outstanding shares of 11.1%.
APPLICATION OF CERTAIN TENNESSEE TAKEOVER STATUTES
Under the Tennessee Business Combination Act, T.C.A. Sections 48-103-201 et
seq., Tennessee "resident domestic corporations" may not enter into a "business
combination" with an "interested shareholder" until the expiration of a
five-year period after the person becomes an interested shareholder. Under the
definitions set out in the statute, the Company is a "resident domestic
corporation." "Business combination" generally refers to a merger, share
exchange, sale of substantially all of the assets of a corporation, certain
issuances of securities, adoption of a plan of liquidation, and certain loan
transactions. An "interested shareholder" is generally defined to include a
person who owns, directly or indirectly, 10% or more of the stock of the
corporation. The five-year limitation is not applicable if the shareholder's
becoming an interested shareholder is approved by the board of directors of the
resident domestic corporation prior to the stock acquisition date or a specific
exemption is applicable. One of the exemptions provides that the shareholders of
the corporation can vote to provide that the statute is not applicable to the
corporation, but the action is not effective until two years after the
shareholder vote.
In 1989, the United States Court of Appeals in Tyson Foods, Inc. v.
McReynolds, ruled that this statute was unconstitutional when applied to a
corporation not organized under Tennessee law, but which had substantial nexus
to Tennessee.
The Department of Corporations of the State of California (the
"Department") has advised the Company that the provisions of the above statute
are inconsistent with the Department's shareholder democracy standards. As a
condition to the registration of the securities covered by the Offerings in
California, the Department has requested that the Company take whatever actions
are necessary to no longer be subject to the above law. The Board of Directors
of the Company has voted to conform with the request of the State of California
by submitting to the Company's shareholders at the next annual meeting a
proposal that the statute be made inapplicable to the Company. The Board intends
to recommend that the shareholders approve such action.
The Tennessee Control Share Act, T.C.A. Sections 48-103-301 et seq.,
generally provides that any person who acquires control shares of a corporation
may have voting rights only if such rights are approved by the shareholders at
an annual or special meeting. "Control shares," for purposes of the statute,
include various thresholds of ownership, beginning at 20%. This statute,
however, is not applicable to a corporation unless its charter or bylaws contain
an express declaration that control shares are governed by the statute. The
Company's charter and bylaws do not contain such a declaration. The Department
has indicated that it also considers this statute to be inconsistent with its
shareholder democracy standards.
87
<PAGE> 89
MARKET INFORMATION
The Common Stock is currently listed on the Nasdaq SmallCap Market under
the trading symbol "SATH." The range of high and low bid quotations for the
Company's Common Stock reported by fiscal quarters during the two most recent
fiscal years and for the quarter ended December 31, 1997, reported by the Nasdaq
SmallCap Market is shown below.
<TABLE>
<CAPTION>
PERIOD HIGH BID LOW BID
- ------ -------- -------
<S> <C> <C>
07/01/95 -- 09/30/95........................................ $3.00 $2.63
10/01/95 -- 12/31/95........................................ 5.19 2.38
01/01/96 -- 03/31/96........................................ 3.25 2.00
04/01/96 -- 06/30/96........................................ 3.88 2.94
07/01/96 -- 09/30/96........................................ 4.06 3.25
10/01/96 -- 12/31/96........................................ 3.75 2.50
01/01/97 -- 03/31/97........................................ 3.38 2.38
04/01/97 -- 06/30/97........................................ 3.56 2.25
07/01/97 -- 09/30/97........................................ 4.12 2.50
10/01/97 -- 12/31/97........................................ 4.69 3.63
</TABLE>
PAYMENT OF DIVIDENDS
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.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, Denver, Colorado.
88
<PAGE> 90
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated March , 1998 (the "Underwriting Agreement") between the Company and the
Underwriters, the Company has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase, the following respective aggregate
principal amounts of the Notes at the public offering price, less underwriting
discounts and commissions, set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
----------- ---------
<S> <C>
NationsBanc Montgomery Securities LLC....................... $
Friedman, Billings, Ramsey & Co., Inc. .....................
--------
Total............................................. $
========
</TABLE>
The Underwriting Agreement provides that, subject to the terms and
conditions set forth therein, the Underwriters are to purchase all of the Notes
if any are purchased. The Company and the Underwriters have also entered into a
separate underwriting agreement that provides that, subject to the terms and
conditions set forth therein, the Underwriters are obligated to purchase all of
the shares of Common Stock in the Common Stock Offering if any are purchased.
The Underwriters propose to offer the Notes directly to the public at the
initial public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of % of
the principal amount of the Notes. The Underwriters may allow, and such dealers
may re-allow, a concession not in excess of % of the principal amount of
the Notes on sales to certain other dealers. The offering of the Notes is made
for delivery when, as and if accepted by the Underwriters and is subject to
prior sale and to withdrawal, cancellation or modification of the offer without
notice. The Underwriters reserve the right to reject any offer for the purchase
of the Notes. After the initial public offering of the Notes, the public
offering price and other selling terms may be changed by the Underwriters.
There currently is no existing trading market for the Notes, and although
the Underwriters have advised the Company that they currently intend to make a
market in the Notes, they are not obligated to do so and any such market making
may be discontinued at any time, without notice, in the sole discretion of the
Underwriters. Accordingly, there can be no assurance as to the development or
liquidity of any market that may develop for the Notes. The Senior Secured Notes
are not listed on a national securities exchange or authorized for trading on
the Nasdaq Stock Market. Accordingly, no assurance can be given as to the
liquidity of, or the existence of trading markets for, the Senior Secured Notes.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, or announce an offering of, any debt
securities issued or guaranteed by the Company (other than the Senior Notes) for
a period of 180 days from the consummation of the Offering without the prior
written consent of the Underwriters.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
FBR has filed a proof of claim in the Bankruptcy Proceeding of Global in
the approximate amount of $2.0 million. The claim relates to unpaid placement
agent fees and expenses in connection with a bridge loan facility provided to
Global prior to its bankruptcy. FBR has also filed a proof of claim for an
acquisition fee to be owed by the bankruptcy estate to FBR in the amount of
1.75% of the proceeds of the sale under the Asset Purchase Agreement if the sale
is completed. The lenders who advanced the bridge loan are also creditors in the
Bankruptcy Proceeding and have filed proofs of claim in the aggregate amount of
approximately $35 million in unpaid principal plus accrued interest, fees and
penalties. In connection with the resolution of the Bankruptcy Proceeding, FBR
and the bridge lenders may be paid in whole or in part on their claims against
Global. See "Business -- Recent Development."
89
<PAGE> 91
On August 16, 1995, the Company issued its $2,000,000 Variable Rate
Convertible Secured Note Due 2000 to a corporation wholly-owned by J.D. Clinton,
a director of the Company. See "Security Ownership of Certain Beneficial
Owners." The loan carried interest at the prime rate plus 2%, and was payable in
60 monthly installments. The loan was secured by a security interest in the
inventory, accounts receivable, and certain equipment, furniture and fixtures of
the Company, as well as the stock of MFP, Inc., a subsidiary of the Company, and
an assignment of the proceeds of any sale of the Federal Communications
Commission license of Television Station WMFP, Lawrence, Massachusetts. The note
was convertible to Common Stock of the Company based upon one share of stock for
each $3.00 of the principal balance of the note. Based upon the Company's
knowledge of the commercial lending market, the interest rate and terms of the
note were considered to be at arm's length. On October 1, 1997, the holder sold
the note to FBR Private Equity Fund, L.P., which party immediately converted the
note to 444,177 shares of Common Stock of the Company. FBR Private Equity Fund,
L.P. is an affiliate of FBR.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the federal securities laws, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The legality of the Notes Offering will be passed upon for the Company by
Wyatt, Tarrant & Combs, Nashville, Tennessee. Charles W. Bone, a partner of
Wyatt, Tarrant & Combs, is the beneficial owner of warrants issued by the
Company under which he has the right to purchase a total of 82,500 shares of
Common Stock of the Company at a current exercise price of $1.135. Certain legal
matters relating to the Notes Offering will be passed upon for the Underwriters
by Jenkens & Gilchrist, a Professional Corporation, Washington, D.C.
EXPERTS
The consolidated balance sheets as of June 30, 1996 and 1997 and December
31, 1997 and the consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1997, and
the six months ended December 31, 1997, included in this Prospectus have been
included herein in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
90
<PAGE> 92
ADDITIONAL INFORMATION
The Company has filed with the SEC, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the Offerings.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Offerings, reference is made to
the Registration Statement and the exhibits and schedules filed as part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document are not necessarily complete, and, in each instance, if such
contract or documents is filed as an exhibit, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified an all respects by such reference to such
exhibit. In addition, the Company is subject to the informational requirements
of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, is required to file periodic reports, proxy statements and other
information with the SEC relating to its business, financial condition and other
matters.
All such information referred to above is available for inspection at the
public reference facilities of the SEC at 450 Fifth Street, NW, Washington, DC
20549, and at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of such information are
obtainable, by mail, upon payment of the SEC's customary charges, by writing to
the SEC's principal office at 450 Fifth Street, NW, Washington, DC 20549. Such
material is also available for inspection at the library of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. The SEC maintains a World
Wide Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants such as the Company that
file documents electronically with the SEC. The Registration Statement,
including all exhibits thereto and amendments thereof, is available on this
World Wide Web site. The Common Stock is listed and traded on the Nasdaq
SmallCap Market under the symbol "SATH."
91
<PAGE> 93
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets at June 30, 1996 and 1997 and
December 31, 1997......................................... F-3
Consolidated Statements of Operations for the years ended
June 30, 1995, 1996 and 1997 and the six months ended
December 31, 1996 (unaudited) and 1997.................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1995, 1996 and 1997 and the six
months ended December 31, 1997............................ F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997 and the six months ended
December 31, 1996 (unaudited) and 1997.................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
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 1997 and December 31, 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1997 and the
six months ended December 31, 1997. 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 1997 and December 31, 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1997 and the six months ended
December 31, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 18, 1998
F-2
<PAGE> 95
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 1,914,759 $ 5,077,641 $ 532,463
Accounts receivable -- trade.......................... 380,077 3,292,925 5,857,554
Accounts receivable -- related parties................ 7,680 3,000 --
Inventories........................................... 2,611,142 3,262,080 4,105,171
Prepaid expenses...................................... 279,505 458,243 1,363,696
Deferred tax assets................................... 80,000 1,342,450 1,350,747
----------- ----------- -----------
Total current assets.......................... 5,273,163 13,436,339 13,209,631
Note receivable -- related party, net of unamortized
discount of $160,000.................................. -- -- 640,000
Property and equipment, net............................. 3,470,226 4,433,767 4,748,097
FCC and NFL licenses, net............................... 10,516,041 13,423,182 13,042,102
Goodwill, net........................................... 605,154 1,989,529 2,590,023
Deposit on proposed acquisition......................... -- -- 3,963,750
Other assets............................................ 422,086 1,127,493 779,043
----------- ----------- -----------
Total assets.................................. $20,286,670 $34,410,310 $38,972,646
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion -- capital leases..................... $ 109,444 $ 171,498 $ 231,122
Current portion of long-term debt..................... 741,262 2,279,833 2,033,564
Accounts payable -- trade............................. 3,201,320 6,821,654 9,068,642
Accounts payable -- related party..................... 449,550 631,621 518,167
Credit due to customers............................... 1,100,120 3,121,503 2,743,530
Other payables and accrued expenses................... 1,865,806 4,944,050 3,674,037
Deferred revenue...................................... 1,512,291 107,619 67,114
----------- ----------- -----------
Total current liabilities..................... 8,979,793 18,077,778 18,336,176
Long-term liabilities:
Capital leases, less current portion.................. 53,649 305,666 396,436
Long-term debt, less current portion.................. 5,669,063 7,216,465 8,195,768
Deferred income taxes................................. 2,082,336 3,613,410 3,913,329
Redeemable preferred stock; $10 par value, 1,000,000
shares authorized, 137,943 issued and outstanding in
1996 and 1997, respectively........................... 1,393,430 1,393,430 1,393,430
COMMITMENTS (Notes 5, 6, 9, 11, 17 and 21)
Stockholders' equity:
Common stock; $.0025 par value, 30,000,000 shares
authorized, 10,575,255 and 10,714,414 shares issued
at June 30, 1996 and 1997, respectively; 11,742,991
at December 31, 1997............................... 26,438 26,786 29,357
Additional paid-in capital............................ 9,927,787 10,066,555 11,874,499
Accumulated deficit................................... (7,845,826) (6,289,780) (5,166,349)
----------- ----------- -----------
Total liabilities and stockholders' equity.... $20,286,670 $34,410,310 $38,972,646
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 96
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $26,787,013 $40,016,114 $67,817,460 $29,796,266 $43,421,074
Cost of sales................... 17,120,791 24,516,348 40,626,134 18,146,218 25,244,184
----------- ----------- ----------- ----------- -----------
Gross profit.......... 9,666,222 15,499,766 27,191,326 11,650,048 18,176,890
----------- ----------- ----------- ----------- -----------
Other operating income.......... 189,000 659,461 1,014,888 456,819 563,585
----------- ----------- ----------- ----------- -----------
Operating expenses:
Promotion and advertising
costs...................... 269,420 241,170 468,255 223,631 316,396
Salaries and wages............ 3,356,624 4,112,858 5,564,089 2,701,381 3,521,648
Transponder and cable
charges.................... 3,226,481 6,024,743 12,118,305 5,027,469 8,082,360
Other general operating and
administrative expenses.... 3,639,749 5,673,540 6,675,322 2,802,015 4,239,133
Depreciation and
amortization............... 517,523 877,861 1,056,492 415,396 779,696
----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 11,009,797 16,930,172 25,882,463 11,169,892 16,939,233
----------- ----------- ----------- ----------- -----------
Income (loss) from operations... (1,154,575) (770,945) 2,323,751 936,975 1,801,242
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest, net................. (216,486) (794,558) (1,079,529) (388,504) (454,985)
Miscellaneous................. 89,072 56,637 231,824 67,958 478,767
----------- ----------- ----------- ----------- -----------
Total other income
(expense)........... (127,414) (737,921) (847,705) (320,546) 23,782
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... (1,281,989) (1,508,866) 1,476,046 616,429 1,825,024
Income tax expense (benefit).... -- (103,394) (80,000) (10,000) 701,593
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $(1,281,989) $(1,405,472) $ 1,556,046 $ 626,429 $ 1,123,431
=========== =========== =========== =========== ===========
Basic earnings (loss) per
share......................... $ (0.14) $ (0.14) $ 0.14 $ 0.06 $ 0.10
=========== =========== =========== =========== ===========
Diluted earnings (loss) per
share......................... $ (0.14) $ (0.14) $ 0.12 $ 0.05 $ 0.08
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 97
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT
------- ----------- -----------
<S> <C> <C> <C>
Balance, June 30, 1994 (8,904,118 shares).................. $22,260 $ 5,883,682 $(5,158,365)
Issuance of common stock (389,215 shares)................ 973 999,027 --
Retirement of treasury stock............................. (115) (40,135) --
Issuance of common stock (896,747 shares)................ 2,242 2,097,758 --
Preferred stock dividend accrued (46,000 shares)......... -- (5,000) --
Net loss................................................. -- -- (1,281,989)
------- ----------- -----------
Balance, June 30, 1995 (10,144,080 shares)................. 25,360 8,935,332 (6,440,354)
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)
Exercise of stock options (100,000 shares)............... 250 99,750 --
Exercise of employee stock options (20,000 shares)....... 50 19,950 --
Issuance of common stock in payment of payable
obligations (19,159 shares)........................... 48 33,068 --
Preferred stock dividend accrued......................... -- (14,000) --
Net income............................................... -- -- 1,556,046
------- ----------- -----------
Balance, June 30, 1997 (10,714,414 shares)................. 26,786 10,066,555 (6,289,780)
Exercise of stock warrants (200,000 shares).............. 500 226,500 --
Exercise of employee stock options (384,400 shares)...... 961 391,689 --
Issuance of common stock in payment of a note (444,177
shares)............................................... 1,110 1,189,755 --
Net income............................................... -- -- 1,123,431
------- ----------- -----------
Balance, December 31, 1997 (11,742,991 shares)............. $29,357 $11,874,499 $(5,166,349)
======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 98
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $(1,281,989) $(1,405,472) $ 1,556,046 $ 626,429 $ 1,123,431
Noncash expenses included in net income
(loss):
Depreciation and amortization............... 517,523 877,861 1,056,492 415,396 779,690
Loss on sale of equipment................... -- 19,165 3,053 -- --
Deferred income taxes....................... -- (103,394) (80,000) (10,000) 291,622
Change in provision for inventory
obsolescence.............................. -- (88,122) -- -- --
Provision for bad debt...................... -- -- 18,800 -- 230,826
Changes in current and noncurrent items:
Accounts receivable....................... (38,135) 119,409 (2,926,968) (156,389) (3,073,022)
Inventories............................... (110,577) (230,024) (650,938) (287,941) (1,011,737)
Prepaid expenses and other assets......... 102,563 (197,019) (241,321) (79,153) (204,217)
Accounts payable and accrued expenses..... 2,759,182 805,455 8,914,889 3,277,295 485,549
Deferred revenue.......................... (5,888) 1,016,954 (1,404,672) (1,437,436) (40,505)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by operations.... 1,942,679 814,813 6,245,381 2,348,201 (1,418,363)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Related party note receivable................. -- -- -- -- (800,000)
Cash payment for acquisitions................. (1,289,072) -- (1,838,360) -- (50,702)
Purchase of equipment......................... (2,370,582) (507,494) (1,056,581) (534,139) (487,610)
Proceeds from sale of equipment............... -- 400,000 -- -- --
Other assets.................................. -- -- (1,856,744) (84,071) (334,452)
Payment of deposit on proposed acquisition.... -- -- -- -- (3,963,750)
FCC licenses.................................. -- (38,000) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities..... (3,659,654) (145,494) (4,751,685) (618,210) (5,636,514)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Payment of dividends.......................... -- -- (13,742) -- --
Exercise of stock options and warrants........ -- 127,440 120,000 20,000 619,650
Repayments of debt............................ (662,115) (985,851) (1,233,467) (420,689) (1,109,951)
Additional long-term debt..................... 1,620,488 2,056,380 2,919,440 -- 3,000,000
Capital lease payments........................ (114,278) (154,675) (123,045) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by financing
activities.............................. 844,095 1,043,294 1,669,186 (400,689) 2,509,699
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash................. (872,880) 1,712,613 3,162,882 1,329,302 (4,545,178)
Cash beginning of period........................ 1,075,026 202,146 1,914,759 1,914,759 5,077,641
----------- ----------- ----------- ----------- -----------
Cash end of period.............................. $ 202,146 $ 1,914,759 $ 5,077,641 $ 3,244,061 $ 532,463
=========== =========== =========== =========== ===========
Schedule of noncash financing activities:
Stock issued for inventory and reduction of
accounts payable............................ $ -- $ 609,523 $ 33,116 $ 33,116 $ --
=========== =========== =========== =========== ===========
Cost of equipment purchased through capital
lease obligations........................... $ 290,561 $ 31,450 $ 437,116 $ -- $ 149,099
=========== =========== =========== =========== ===========
Notes payable issued for acquisitions of BCST
and MFP, Inc................................ $ 3,750,000 $ -- $ 1,400,000 $ 1,400,000 $ --
=========== =========== =========== =========== ===========
Common and preferred stock issued for
acquisitions of BCST and MFP, Inc........... $ 4,500,000 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
Conversion of note payable into shares of
common stock................................ $ -- $ -- $ -- $ -- $ 1,190,865
=========== =========== =========== =========== ===========
Stock issued in connection with financing..... $ -- $ 250,000 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest.................................... $ 139,097 $ 795,125 $ 997,671 $ 363,504 $ 486,335
=========== =========== =========== =========== ===========
Taxes....................................... $ 27,000 $ 30,000 $ 140,000 $ 70,000 $ 107,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 99
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include December 31, 1996 financial information which is unaudited; however, in
the opinion of management such information reflects all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
results of operations and cash flows of the interim period.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Shop at Home, Inc. and its 100% owned
subsidiaries, MFP, Inc. ("MFP"), Broadcast Cable Satellite Technologies, Inc.
("BCST"), Urban Broadcasting Systems, Inc. ("UBS"), Collector's Edge of
Tennessee, Inc. ("Collector's"), RF Scientific Transportables, Inc. ("RFS"), and
SAH Acquisition Corporation II ("SAH Acquisition II") (collectively the
"Company"). All of the operating assets of RFS were sold in the latter part of
fiscal 1995 and RFS subsequently ceased operations. RFS was in the business of
providing mobile uplink services. SAH Acquisition II currently has no
operations. All material intercompany balances 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.
BCST's principal asset consists of ownership of the outstanding shares of
capital stock of UBS. UBS holds the FCC license for television station KZJL,
Channel 61, a full power television station licensed to Houston, Texas. BCST was
acquired in December 1994 (Note 15).
MFP, Inc., operates a commercial television station, WMFP, Channel 62,
serving the Boston television market area. MFP, Inc. was acquired in February
1995 (Note 16).
Collector's Edge of Tennessee, Inc. ("Collector's"), formed in February
1997, is a trading card manufacturer whose main assets are licenses from
National Football League Properties, Inc. and NFL Players, Inc. (Note 17).
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.
Inventories. Inventories, which consist primarily 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.
Valuation allowances are provided for carrying costs in excess of estimated
market value.
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>
FCC Licenses. During fiscal 1995, the Company acquired two subsidiaries
who own licenses from the Federal Communications Commission under which they
operate television stations. The value ascribed to these FCC licenses in
connection with the acquisitions is being amortized over 40 years. Amortization
of these licenses was $53,761, $268,562 and $306,918 for the fiscal years ended
June 30, 1995, 1996 and 1997, respectively, and $147,500 and $159,419 for the
six months ended December 31, 1996 and 1997, respectively.
F-7
<PAGE> 100
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NFL Licenses. During fiscal year 1997, the Company acquired Collector's
Edge of Tennessee, Inc. a wholly owned subsidiary engaged in the business of
manufacturing and selling sports trading cards under license with National
Football League Players, Inc. and National Football League Properties, Inc. The
value ascribed to these licenses in connection with the acquisition is being
amortized over the remaining life of 3 years. Amortization of these licenses was
$161,667 for the fiscal year ended June 30, 1997 and $221,664 for the six months
ended December 31, 1997.
Goodwill. Management periodically evaluates the net realizability of the
carrying amount of goodwill. Goodwill is amortized over 40 years, using the
straight-line method. Goodwill recorded in connection with the acquisitions of
WMFP and BCST represents the excess purchase price over the fair value of the
net identifiable assets acquired. The goodwill amortization amounted to $532,
$15,517 and $60,803 for fiscal years ended June 30, 1995, 1996 and 1997,
respectively, and $7,759 and $53,878 for the six months ended December 31, 1996
and 1997, respectively.
Sales Returns. The Company allows customers to return merchandise for full
credit or refund within 30 days from the date of receipt. Collector's sells to
wholesalers and retailers; terms of sale and return privileges are negotiated on
an individual basis. At June 30, 1995, 1996 and 1997, and December 31, 1996 and
1997, the Company had recorded credits due to customers of $618,000, $1,100,000,
$3,122,000, $1,587,000 and $1,752,000, 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 on its owned stations (infomercials), the sale of uplink truck services
(fiscal 1995 and 1996) and miscellaneous income consisting of list rental,
credit card fees and commissions. Product 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.
Deferred revenue consists of sales proceeds relative to unshipped merchandise.
Income Taxes. The Company files a consolidated federal income tax return
with its subsidiaries. The companies file separate state returns. The Company
determines deferred tax assets and liabilities based on the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
Accounts Receivable -- Trade. The Company has reduced accounts receivable
to the net realizable value through recording allowances for doubtful accounts
and returns. At June 30, 1996 and 1997 and December 31, 1997, the Company had
recorded allowances of $0, $191,250 and $702,643, respectively.
Earnings (Loss) Per Share. Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share.
The standard replaces the presentation of primary EPS with a presentation of
basic EPS and replaces the presentation of fully diluted EPS with diluted EPS.
Basic income per share is computed by dividing net income available for common
shareholders by the weighted average number of shares of common stock
outstanding. Diluted income per share is computed by dividing adjusted net
income by the weighted average number of shares of common stock and, assumed
conversions of dilutive securities outstanding during the respective periods.
Dilutive securities represented by options, warrants, redeemable preferred stock
and convertible debt outstanding have been included in the computation. The
Company uses the treasury stock method for calculating the dilutive effect of
options and warrants and the if converted method with respect to the effect of
convertible securities.
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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-8
<PAGE> 101
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets. The Company follows Statement of
Financial 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.
Stock-Based Compensation. The Company follows 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. Certain pro forma disclosures as required by
Statement of Financial Accounting Standards No. 123, Accounting and Disclosure
of Stock-Based Compensation, are included in Footnote 11.
Recent Accounting Pronouncements. Effective December 31, 1997, the Company
implemented Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure. The Statement consolidates disclosures
required by several existing pronouncements regarding an entity's capital
structure. The Company's disclosures are already in compliance with such
pronouncements and, accordingly, SFAS No. 129 does not require any change to
existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement is
effective for fiscal years beginning after December 31, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. The Company is evaluating SFAS No. 131 to determine the impact, if
any, on its reporting and disclosure requirements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company currently has no
items that would be classified as other comprehensive income.
Reclassifications. Certain amounts in the prior years' consolidated
financial statements have been reclassified for comparative purposes to conform
with the current year presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following major classifications:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Leasehold improvements.......................... $ 285,074 $ 318,416 $ 345,219
Operating equipment............................. 4,736,119 5,819,654 6,444,535
Furniture and fixtures.......................... 194,651 190,656 198,034
----------- ----------- -----------
5,215,844 6,328,726 6,987,788
Accumulated depreciation........................ (1,745,618) (1,894,959) (2,239,691)
----------- ----------- -----------
Property and equipment, net .................... $ 3,470,226 $ 4,433,767 $ 4,748,097
=========== =========== ===========
</TABLE>
F-9
<PAGE> 102
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense totaled $463,496, $585,995 and $527,103 for the fiscal
years ended June 30, 1995, 1996 and 1997, respectively, and $260,137 and
$344,734 for the six months ended December 31, 1996 and 1997.
3. INVENTORY
The components of inventory at June 30, 1996 and 1997 and December 31,
1997, are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
<S> <C> <C> <C>
Work in process................................... $ -- $ 389,159 $ 362,014
Finished goods.................................... 2,699,265 3,570,855 4,286,154
---------- ---------- ----------
2,699,265 3,960,014 4,648,168
Allowance......................................... (88,123) (697,934) (542,997)
---------- ---------- ----------
Total................................... $2,611,142 $3,262,080 $4,105,171
========== ========== ==========
</TABLE>
4. 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>
JUNE 30,
--------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
<S> <C> <C> <C>
Operating equipment................................ $ 660,032 $ 660,032 $ 836,843
Less accumulated depreciation...................... (396,267) (551,074) (636,106)
--------- --------- ---------
$ 263,765 $ 108,958 $ 200,737
========= ========= =========
</TABLE>
Future minimum lease payments under capitalized leases are as follows at
December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 297,230
1999........................................................ 271,949
2000........................................................ 175,537
---------
Total minimum lease payments................................ 744,716
Less amount representing interest........................... (117,158)
---------
Present value of minimum lease payments..................... 627,558
Less current portion........................................ (231,122)
---------
Long-term portion........................................... $ 396,436
=========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1996 1997 1997
---------- ----------- ------------
<S> <C> <C> <C>
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 $ 750,000 $ 625,000
</TABLE>
F-10
<PAGE> 103
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1996 1997 1997
---------- ----------- ------------
<S> <C> <C> <C>
Notes payable due in April 2000, with interest
payable at 12% quarterly, collateralized by
certain equipment.............................. $ 800,000 $ 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 2,310,763 2,262,952
Note payable bearing interest at 15% due in
monthly installments of $9,700, collateralized
by certain equipment........................... 435,101 380,302 349,682
Note payable to related party bearing interest at
10.75%, converted into 444,177 shares of common
stock in October 1997.......................... 1,775,366 1,425,077 --
Note payable bearing interest at 6%. The first
twelve payments consist of interest only while
the remainder of the payments consist of
principal and interest totaling $15,543. The
final payment is scheduled for September
2007........................................... -- 1,400,000 1,374,243
Assumption note payable to financial institution
bearing interest at 1.75% plus prime (8.5% at
12/31/97) due in equal monthly installments of
principal of $75,047 plus interest through
March 1999..................................... -- 1,575,992 1,171,624
Term note payable to financial institution
bearing interest at 10% due in equal monthly
installments of principal of $41,667 (with the
exception of first and last payment) plus
interest through February 1999................. -- 854,164 645,831
Note payable to financial institution bearing
interest at .75% over prime (8.5% at 12/31/97).
Interest only is due monthly starting January
1, 1998 through September 1, 2003. Principal is
due in equal monthly installments of $50,000
starting September 1, 1998 through September 1,
2003........................................... -- -- 3,000,000
---------- ----------- -----------
Total long-term debt............................. 6,410,325 9,496,298 10,229,332
Less current maturities.......................... (741,262) (2,279,833) (2,033,564)
---------- ----------- -----------
Long-term debt less current portion.............. $5,669,063 $ 7,216,465 $ 8,195,768
========== =========== ===========
</TABLE>
The aggregate future required principal payments at December 31, 1997, for
the above liabilities are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2,033,564
1999........................................................ 1,668,062
2000........................................................ 1,861,985
2001........................................................ 971,579
2002 and beyond............................................. 3,694,142
-----------
$10,229,332
===========
</TABLE>
F-11
<PAGE> 104
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The $3,000,000 note contains restrictive covenants that require, among
other things, the Company maintain a EBITDA ratio less than 3.5 to 1 at the end
of each fiscal year, loan proceeds are restricted for only the purchase of
assets in the proposed acquisition, and payment of dividends is restricted to
only the required 1% on preferred stock.
6. REDEEMABLE PREFERRED STOCK
The following is a brief summary of the terms and conditions of the Series
A 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.
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 by 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 1997 and December 31, 1997, the Company was $14,000
in arrears of its dividend payments due. These dividend payments are payable
only when declared by the Board of Directors.
F-12
<PAGE> 105
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMON STOCK
In August 1995, the Company issued 100,000 shares of common stock valued at
$250,000 in connection with the securing of $2,000,000 of long-term debt (Note
5); in September the Company issued 2,000 shares in conversion of its Redeemable
Preferred Stock (Note 6); 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 11); and during the period of March through June 1996, the Company
issued a total of 203,175 shares of common stock, of which 44,000 shares of
common stock were issued as payment of payable obligations and 159,175 shares of
common stock were issued in exchange for certain sport cards and collectibles
acquired for resale. By agreement, the stock was valued at $3.00 per share or
$477,525.
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 15 and 16. In October 1997, the Company issued 444,177 shares of common
stock in connection with the conversion of a 10.75% note payable in the amount
of $1,190,865. This note was being amortized in monthly installments of $43,494
and was due September 2000. The conversion of this note will reduce interest
expense by approximately $75,000 in the fiscal year ending June 30, 1998.
8. 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
1997 and December 31, 1997, are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards and AMT
credits.................................... $ 2,324,269 $ 389,126 $ 95,000
Accruals...................................... 384,495 1,342,450 1,350,747
Valuation allowance........................... (1,263,991) -- --
----------- ----------- -----------
Total deferred tax assets.................. 1,444,773 1,731,576 1,445,747
----------- ----------- -----------
Deferred tax liabilities:
Licenses...................................... 3,331,736 3,726,985 3,685,138
Depreciation.................................. 115,373 275,551 323,191
----------- ----------- -----------
Total deferred tax liabilities............. 3,447,109 4,002,536 4,008,329
----------- ----------- -----------
Net deferred tax liabilities............... $(2,002,336) $(2,270,960) $(2,562,582)
=========== =========== ===========
Current deferred tax asset...................... $ 80,000 $ 1,342,450 $ 1,350,747
Long-term deferred tax liabilities.............. (2,082,336) (3,613,410) (3,913,329)
----------- ----------- -----------
Net deferred tax liabilities.................... $(2,002,336) $(2,270,960) $(2,562,582)
=========== =========== ===========
</TABLE>
At December 31, 1997, the Company had $95,000 of AMT credits available for
use in future periods.
F-13
<PAGE> 106
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) varies from the amount computed by applying
the federal corporate income tax rate of 34% to income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------------- ----------------------
1995 1996 1997 1996 1997
--------- --------- ----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" income tax
expense (benefit)............ $(435,876) $(499,732) $ 501,855 $ 209,586 $620,508
Increase (decrease) in income
taxes resulting from:
State income tax expense
(benefit), net of federal
effect.................... (51,279) (58,792) 74,102 24,657 73,001
Change in valuation
allowance................. 476,582 362,411 (1,042,816) (428,713) --
Nondeductible portion of
meals and entertainment... 11,794 8,480 16,529 8,265 13,243
Other........................ (1,221) 84,239 370,330 176,205 (5,159)
--------- --------- ----------- --------- --------
Actual income tax expense
(benefit).................... $ -- $(103,394) $ (80,000) $ (10,000) $701,593
========= ========= =========== ========= ========
</TABLE>
The components of income tax expense (benefit) for the years ended June 30,
1995, 1996 and 1997 and the six months ended December 31, 1996 and 1997, are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------- ----------------------
1995 1996 1997 1996 1997
------- --------- --------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
State........................... $ -- $ -- $ -- $ -- $ 50,000
Federal......................... -- -- -- -- 359,971
------- --------- --------- -------- --------
-- -- -- -- 409,971
------- --------- --------- -------- --------
Deferred:
State........................... -- (58,792) 74,102 24,657 30,697
Federal......................... -- (44,602) (154,102) (34,657) 260,925
------- --------- --------- -------- --------
-- (103,394) (80,000) (10,000) 291,622
------- --------- --------- -------- --------
Total expense
(benefit)............. $ -- $(103,394) $ (80,000) $(10,000) $701,593
======= ========= ========= ======== ========
</TABLE>
In connection with the acquisitions of BCST and MFP, Inc. in 1994, 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. In connection with
the remaining acquisition of BCST in 1997, the Company reduced the valuation
allowance for deferred tax assets by $221,175, 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.
F-14
<PAGE> 107
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. 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 increasing to $105,000 and $115,000 in
years two and three, respectively. Transponder expense was $1,281,000,
$1,379,000 and $1,330,000 in the fiscal years ended June 30, 1995, 1996 and
1997, respectively, and $697,000 for the six months ended December 31, 1997.
Purchase Commitments. Collector's Edge of Tennessee, Inc. had original
minimum contractual commitments to NFL Players, Inc. and NFL Properties, Inc. of
$2.2 million. Commitments remaining at December 31, 1997, include $1.2 million
in fiscal year 1998 and $0.7 million in fiscal year 1999.
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 $132,592, $143,325
and $139,763, in the fiscal years ended June 30, 1995, 1996 and 1997,
respectively, and $69,881 and $73,456 for the six months ended December 31, 1996
and 1997.
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
$1,945,000, $4,646,000 and $10,789,000 for fiscal years ended June 30, 1995,
1996 and 1997, respectively, and $5,395,000 and $7,385,000 for the six months
ended December 31, 1996 and 1997.
Rental expense for the office and studio and miscellaneous equipment
inclusive of the Knoxville office and studio expense of $73,456 referred to
above, was $184,434, $483,059 and $529,484 for the fiscal years ended June 30,
1995, 1996 and 1997, respectively, and $264,742 and $317,327 for the six months
ended December 31, 1996 and 1997.
10. RELATED PARTY TRANSACTIONS
During the fiscal years ended June 30, 1995, 1996 and 1997 and the six
months ended December 31, 1997, 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>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
---------------------------------- ----------------------
1995 1996 1997 1996 1997
-------- ---------- ---------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Purchases -- merchandise:
V.J.M. (Victor Mueller)....... $989,272 $ 795,689 $1,077,925 $ 468,389 $650,381
Howards Sports Collectibles... 553,462 2,116,088 3,136,470 1,517,665 748,000
Combine International, Inc.... 98,843 452,348 706,674 106,634 164,755
Other operating expenses:
Lakeway Container............. 81,827 63,978 5,559 4,249 7,786
Airbank....................... 27,673 37,604 22,213 4,798 30,126
MediaOne...................... 224,359 157,567 -- -- --
</TABLE>
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.
F-15
<PAGE> 108
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1997, $300,000 of a total commitment of $800,000 was loaned to an
officer of the Company in accordance with the officer's employment agreement.
This note is noninterest bearing and is repayable at 10% of any additional
compensation above the officer's base salary. Any unpaid amount becomes due on
the earlier of termination of employment or June 30, 2002. In October 1997, the
Company advanced the additional $500,000 to this officer under the terms of this
agreement. Interest has been imputed at a rate of 5.6%, resulting in a discount
of $160,000. Interest income recognized for the six months ended December 31,
1997, was $27,000. The compensation expense related to the discount will be
recognized over the life of the note.
11. STOCK OPTIONS AND WARRANTS
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.
No options or SAR's may be granted after October 15, 2001. No option that
is an incentive stock option and any corresponding SAR that is 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. A maximum of 1,500,000
shares of common stock may be issued under the plan upon the exercise of options
and SARs. No SAR's have been issued under the plan.
No compensation expense has been recognized for options granted under the
plan. Had compensation expense for the Company's plan been determined based on
the fair value at the grant dates for awards under the plan consistent with the
method of SFAS 123, the Company's net income (loss) and net income (loss) per
share would have been adjusted to the pro forma amounts indicated in the
following table.
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------------------------
1995 1996 1997
------------------------- ------------------------- -----------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss).... $(1,281,989) $(1,292,259) $(1,405,472) $(1,431,467) $1,556,046 $1,466,058
Basic earnings (loss)
per share........... (0.14) (0.14) (0.14) (0.14) 0.14 0.14
Diluted earnings
(loss) per share.... (0.14) (0.14) (0.14) (0.14) 0.12 0.11
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
----------------------------------------------
1996 1997
-------------------- -----------------------
AS AS
REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss).... $626,429 $581,435 $1,123,431 $1,070,176
Basic earnings (loss)
per share........... 0.06 0.06 0.10 0.10
Diluted earnings
(loss) per share.... 0.05 0.04 0.08 0.07
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants in the year ended June 30, 1997 and the six
months ended December 31, 1997, respectively: dividend yield of 0%; expected
volatility of 65%; risk-free interest rate of 6% and 6.47%; and expected life of
7.5 years.
F-16
<PAGE> 109
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's options as of June 30, 1995, 1996
and 1997 and December 31, 1996 and 1997, and changes during the periods ending
on those dates is presented below:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 1,460,000 $1.69 1,630,000 $1.77 1,785,000 $2.01
Granted................. 170,000 2.44 325,000 2.84 639,500 2.88
Exercised............... -- -- (126,000) 1.00 (120,000) 1.00
Forfeited............... -- -- (44,000) 2.44 (112,000) 2.81
--------- ----- --------- ----- --------- -----
Outstanding at end of
period................ 1,630,000 $1.77 1,785,000 $2.01 2,192,500 $2.20
========= ========= =========
Options exercisable at
period end............ 943,000 1,012,000 1,493,500
========= ========= =========
Weighted-average fair
value of options
granted during the
year.................. $ 1.72 $ 2.02 $ 2.04
========= ========= =========
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
-------------------------------------------
1996 1997
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at beginning
of period............. 1,785,000 $2.01 2,192,500 $2.20
Granted................. 634,500 2.88 328,000 3.38
Exercised............... (120,000) 1.00 (384,400) 1.02
Forfeited............... (112,000) 2.81 (48,000) 2.88
--------- ----- --------- -----
Outstanding at end of
period................ 2,187,500 $2.20 2,088,100 $2.53
========= =========
Options exercisable at
period end............ 1,498,500 1,064,100
========= =========
Weighted-average fair
value of options
granted during the
year.................. $ 2.04 $ 2.36
========= =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.99 250,000 8 years $1.00 240,000 $1.00
$2.00 - $2.99 1,717,100 7 years 2.70 824,100 2.56
$3.00 - $4.99 121,000 10 years 3.90 --
----------- -----------
2,088,100 1,064,100
=========== ===========
</TABLE>
During the period ended December 31, 1997, 60,000 options were granted to
directors. The compensation expense related to these grants were $2,040 for the
six months ended December 31, 1997.
At December 31, 1997, warrants to purchase 3,000,000 shares of common stock
at $1.13 per share are outstanding. These warrants expire June 30, 2001.
12. EARNINGS PER SHARE
The following table sets forth for the periods indicated the calculation of
net earnings (loss) per share included in the Company's Consolidated Statements
of Operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)............... $(1,281,989) $(1,405,472) $ 1,556,046 $ 626,429 $ 1,123,431
Preferred stock dividends....... (4,598) (13,794) (13,794) (6,897) (6,897)
----------- ----------- ----------- ----------- -----------
Numerator for basic earnings per
share -- income available to
common stockholders........... (1,286,587) (1,419,266) 1,542,252 619,532 1,116,534
Effect of dilutive securities:
Preferred stock dividends..... 4,598 13,794 13,794 6,897 6,897
Interest on convertible
debt........................ -- -- 174,555 92,185 49,750
----------- ----------- ----------- ----------- -----------
</TABLE>
F-17
<PAGE> 110
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator for diluted earnings
per share -- income available
to common stockholders after
assumed conversions........... $(1,281,989) $(1,405,472) $ 1,730,601 $ 718,614 $ 1,173,181
=========== =========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per share -- weighted-average
shares........................ 9,436,870 10,284,085 10,651,472 10,596,621 11,283,237
Effect of dilutive securities:
Employee stock options........ -- -- 528,463 537,485 565,667
Non employee options.......... -- -- 149,677 192,570 191,465
Warrants...................... -- -- 2,268,020 2,326,118 2,322,981
Convertible preferred stock... -- -- 137,943 137,943 137,943
Convertible debt.............. -- -- 532,920 590,815 237,513
----------- ----------- ----------- ----------- -----------
Denominator for diluted earnings
per share -- adjusted
weighted-average shares and
assumed conversions............. 9,436,870 10,284,085 14,268,495 14,381,552 14,738,806
=========== =========== =========== =========== ===========
Basic earnings per share.......... $ (0.14) $ (0.14) $ 0.14 $ .06 $ .10
=========== =========== =========== =========== ===========
Diluted earnings per share........ $ (0.14) $ (0.14) $ 0.12 $ .05 $ .08
=========== =========== =========== =========== ===========
</TABLE>
13. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all full-time
employees who have one year of service and are age twenty-one or older.
Participants are permitted to make contributions in an amount equal to 1% to 15%
of their compensation actually paid or received. Employer contributions are
discretionary and allocated to each eligible employee in proportion to his or
her compensation as a percentage of the compensation of all eligible employees.
During 1996 and 1997, the Company did not make contributions to the plan.
14. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk include cash on deposit in financial
institutions and accounts receivable. Receivables are due from credit card
companies and ultimate customers. The Company maintains reserves which
management believes are adequate to provide for losses. Management believes the
financial institutions holding the cash to be financially sound.
The home shopping industry is 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. Collector's
products include various sports cards and memorabilia, some of which are sold
through Shop At Home, Inc.
15. 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.
(BCST), 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.
F-18
<PAGE> 111
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<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.
In September 1996, the Company, through its subsidiary, Broadcast, Cable
and Satellite Technologies, Inc. (BCST), entered into a $1,400,000 Promissory
Note for the acquisition of the remaining 51% interest in Urban Broadcast
Systems, Inc. The note bears interest at 6% interest only in the first year,
principal and interest payable thereafter; and is payable in 132 monthly
installments. The note is collateralized by a pledge of the capital stock of
Urban Broadcast Systems, Inc. The additional purchase price was added to the
amount of FCC License originally recorded.
16. 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 the Company.
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.
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 and equipment...................................... 615,000
Deferred tax liability...................................... (2,376,000)
-----------
$ 7,199,813
===========
</TABLE>
17. ACQUISITION OF COLLECTOR'S EDGE OF TENNESSEE, INC.
On February 25, 1997, Collector's Edge of Tennessee, Inc. was formed to
acquire the assets of a former trading card manufacturer. Collector's is a
trading card manufacturer whose principal assets are licenses from National
Football League Properties, Inc. and National Football League Players, Inc.
F-19
<PAGE> 112
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Collector's was initially funded through the purchase by the Company of
$750,000 of preferred stock and a working capital loan of $400,000. The
preferred stock was subsequently converted into common stock of Collector's. In
addition, Collector's assumed a term note in the amount of $1.9 million, and
borrowed an additional $1.0 million from a financial institution. The note is
guaranteed by the Company and collateralized by BCST.
The acquisition of Collector's has been accounted for under the purchase
method. Accordingly, the operating results of Collector's have been included in
the consolidated operating results since the date of acquisition. The purchase
price of $1,150,000 has been allocated to the net assets acquired based on
appraised fair values at the date of acquisition as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 3,324,000
Licensing costs............................................. 1,455,000
Property and equipment...................................... 340,000
Goodwill.................................................... 1,185,000
Accounts payable and accrued liabilities.................... (2,235,000)
Notes payable............................................... (2,919,000)
-----------
$ 1,150,000
===========
</TABLE>
The unaudited consolidated pro forma operating data for the Company,
assuming the acquisition of the former trading card manufacturer by Collector's,
occurred on the first day of each year presented are set forth below.
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.................................................... $50,666,000 $74,987,000
Net income (loss)........................................... (1,432,000) 1,178,000
Net income (loss) per share:
Basic..................................................... $ (.14) $ .11
Diluted................................................... $ (.14) $ .08
</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.
18. CONTINGENCIES
The Company is subject to claims in the ordinary course of business.
Management does not believe the resolution of any such claims will result in a
material adverse effect on the future financial condition, results of
operations, or cash flows of the Company.
F-20
<PAGE> 113
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. INDUSTRY SEGMENTS
As a result of the acquisition of Collector's Edge of Tennessee, Inc.
discussed in Note 17, the Company operates principally in two segments;
retailing and manufacturing. The retailing segment consists of home shopping,
which primarily includes the sale of merchandise through electronic retailing.
The manufacturing segment includes the operations of Collector's Edge of
Tennessee, Inc. which manufacturers and sells sports trading cards to
unaffiliated customers. The Company operates almost exclusively in the United
States.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1997 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Revenue:
Retailing................................................. $66,857,751 $40,376,212
Manufacturing............................................. 959,709 3,044,862
Other..................................................... 1,014,888 563,585
----------- -----------
$68,832,348 $43,984,659
=========== ===========
Operating profit:
Retailing................................................. $ 2,304,643 $ 1,498,900
Manufacturing............................................. 19,108 302,342
----------- -----------
$ 2,323,751 $ 1,801,242
=========== ===========
Assets:
Retailing................................................. $29,772,304 $31,538,091
Manufacturing............................................. 4,638,006 7,434,555
----------- -----------
$34,410,310 $38,972,646
=========== ===========
Depreciation and amortization:
Retailing................................................. $ 819,356 $ 462,152
Manufacturing............................................. 237,136 317,538
----------- -----------
$ 1,056,492 $ 779,690
=========== ===========
Capital expenditures:
Retailing................................................. $ 1,046,326 $ 636,709
Manufacturing............................................. 10,255 --
----------- -----------
$ 1,056,581 $ 636,709
=========== ===========
</TABLE>
F-21
<PAGE> 114
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In contemplation of the proposed offering of Secured Notes, the following
is summarized condensed consolidating financial information for the Company,
segregating the Parent from the guarantor subsidiaries. The guarantor
subsidiaries are direct or indirect wholly owned subsidiaries of the Company and
guarantees are full, unconditional, joint and several.
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
----------------------------------------- -----------------------------------------
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash................. $ 1,863,286 $ 51,473 $ 1,914,759 $ 4,757,083 $ 320,558 $ 5,077,641
Accounts
receivable.......... 3,353,708 878 387,757 7,937,696 243,902 3,295,925
Inventories.......... 2,611,142 -- 2,611,142 2,777,635 484,445 3,262,080
Prepaid expenses..... 265,074 14,431 279,505 384,406 73,837 458,243
Deferred tax
assets.............. 80,000 -- 80,000 1,342,450 -- 1,342,450
----------- ----------- ----------- ----------- ----------- -----------
Total current
assets.............. 8,173,210 66,782 5,273,163 17,199,270 1,122,742 13,436,339
Notes receivable..... -- -- -- 400,000 -- --
Property and
equipment, net...... 745,960 2,724,226 3,470,226 1,321,289 3,112,478 4,433,767
FCC and NFL licenses,
net................. 1,726,335 8,789,706 10,516,041 161,782 13,261,400 13,423,182
Goodwill, net........ 605,154 -- 605,154 589,638 254,002 1,989,529
Other assets......... 320,876 101,210 422,086 438,453 1,834,929 1,127,493
Investment in
subsidiaries........ 9,609,813 -- -- 10,359,813 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total assets......... $21,181,348 $11,681,924 $20,286,670 $30,470,245 $19,585,551 $34,410,310
=========== =========== =========== =========== =========== ===========
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------
<S> <C> <C> <C>
Assets:
Cash................. $ 389,018 $ 143,445 $ 532,463
Accounts
receivable.......... 9,917,257 2,160,588 5,857,554
Inventories.......... 3,041,921 1,063,250 4,105,171
Prepaid expenses..... 499,504 864,192 1,363,696
Deferred tax
assets.............. 1,350,747 -- 1,350,747
----------- ----------- -----------
Total current
assets.............. 15,198,447 4,231,475 13,209,631
Notes receivable..... 1,200,000 -- 800,000
Property and
equipment, net...... 1,711,182 3,036,915 4,748,097
FCC and NFL licenses,
net................. 159,654 12,882,448 13,042,102
Goodwill, net........ 581,879 2,008,144 2,590,023
Other assets......... 4,578,330 4,463 4,582,793
Investment in
subsidiaries........ 10,359,813 -- --
----------- ----------- -----------
Total assets......... $33,789,305 $22,163,445 $38,972,646
=========== =========== ===========
</TABLE>
NOTE: Intercompany balances have been eliminated in the consolidated totals.
F-22
<PAGE> 115
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Liabilities and
Stockholders'
Equity:
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts payable and
accrued expenses.... $ 6,556,347 $ 3,027,277 $ 6,616,796 $14,338,744 $ 6,065,657 $15,518,828 $13,385,232
Current portion --
capital leases and
long-term debt...... 850,706 -- 850,706 849,531 1,601,800 2,451,331 787,193
Deferred revenue..... 1,491,782 20,509 1,512,291 87,926 19,693 107,619 53,719
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities......... 8,898,835 3,047,786 8,979,793 15,276,201 7,687,150 18,077,778 14,226,144
Long-term debt....... 5,722,712 -- 5,722,712 5,293,773 2,628,358 7,522,131 6,753,864
Deferred income
taxes............... -- 2,082,336 2,082,336 -- 3,613,411 3,613,410 3,544,704
Redeemable preferred
stock............... 1,393,430 -- 1,393,430 1,393,430 750,000 1,393,430 1,393,430
Common stock......... 26,438 1,065 26,438 26,786 1,165 26,786 29,357
Additional paid-in
capital............. 9,927,787 9,608,748 9,927,787 10,066,555 9,608,748 10,066,555 11,874,499
Accumulated
deficit............. (4,787,854) (3,058,011) (7,845,826) (1,586,500) (4,703,281) (6,289,780) (4,032,693)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders'
equity.............. $21,181,348 $11,681,924 $20,286,670 $30,470,245 $19,585,551 $34,410,310 $33,789,305
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
Liabilities and
Stockholders'
Equity:
<S> <C> <C>
Accounts payable and
accrued expenses.... $ 8,839,336 $16,004,376
Current portion --
capital leases and
long-term debt...... 1,477,493 2,264,686
Deferred revenue..... 13,395 67,114
----------- -----------
Total current
liabilities......... 10,330,224 18,336,176
Long-term debt....... 2,238,340 8,592,204
Deferred income
taxes............... 368,625 3,913,329
Redeemable preferred
stock............... 750,000 1,393,430
Common stock......... 1,165 29,357
Additional paid-in
capital............. 9,608,748 11,874,499
Accumulated
deficit............. (1,133,657) (5,166,349)
----------- -----------
Total liabilities and
stockholders'
equity.............. $22,163,445 $38,972,646
=========== ===========
</TABLE>
NOTE: Intercompany balances have been eliminated in the consolidated totals.
F-23
<PAGE> 116
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1997
----------------------------------------- ----------------------------------------- -----------
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED PARENT
----------- ------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... $26,787,013 $ -- $26,787,013 $40,016,114 $ -- $40,016,114 $66,857,751
Cost of sales........ 17,120,791 -- 17,120,791 24,516,348 -- 24,516,348 40,327,908
Other operating
income.............. -- 488,952 189,000 -- 2,317,481 659,461 --
Operating expenses... 10,971,182 469,417 11,009,797 17,127,961 2,510,787 16,930,172 24,943,748
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations.......... (1,304,960) 19,535 (1,154,575) (1,628,195) (193,306) (770,945) 1,586,095
Interest expense,
net................. (216,486) -- (216,486) (793,648) (910) (794,558) (929,568)
Other income......... 219,922 -- 89,072 1,106,632 561 56,637 1,282,380
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
taxes............... (1,301,524) 19,535 (1,281,989) (1,315,211) (193,655) (1,508,866) 1,938,907
Income tax expense
(benefit)........... -- -- -- (103,394) -- (103,394) (100,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss).... $(1,301,524) $ 19,535 $(1,281,989) $(1,211,817) $ (193,655) $(1,405,472) $ 2,038,907
=========== =========== =========== =========== =========== =========== ===========
CASH FLOWS
Cash provided (used) by
operations.......... $ 1,537,042 $ 405,637 $ 1,942,679 $(1,158,506) $ 1,973,319 $ 814,813 $ 2,926,057
Cash provided (used)
by investing
activities.......... 6,378,736 (10,038,390) (3,659,654) 1,753,411 (1,898,905) (145,494) 2,514,970
Cash provided (used)
by financing
activities.......... (8,797,854) 9,641,949 844,095 1,075,430 (32,136) 1,043,294 (2,547,230)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease)
in cash............. (882,076) 9,196 (872,880) 1,670,335 42,278 1,712,613 2,893,797
Cash at beginning of
period.............. 1,075,026 -- 1,075,026 192,951 9,195 202,146 1,863,286
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cash at end of
period.............. $ 192,950 $ 9,196 $ 202,146 $ 1,863,286 $ 51,473 $ 1,914,759 $ 4,757,083
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
JUNE 30, 1997
---------------------------
GUARANTOR
SUBSIDIARIES CONSOLIDATED
------------ ------------
<S> <C> <C>
Net revenues......... $ 959,709 $67,817,460
Cost of sales........ 298,226 40,626,134
Other operating
income.............. 2,017,728 1,014,888
Operating expenses... 2,992,111 25,882,463
----------- -----------
Income (loss) from
operations.......... (312,900) 2,323,751
Interest expense,
net................. (149,961) (1,079,529)
Other income......... -- 231,824
----------- -----------
Income (loss) before
taxes............... (462,861) 1,476,046
Income tax expense
(benefit)........... 20,000 (80,000)
----------- -----------
Net income (loss).... $ (482,861) $ 1,556,046
=========== ===========
CASH FLOWS
Cash provided (used) by
operations.......... $ 3,319,324 $ 6,245,381
Cash provided (used)
by investing
activities.......... (8,016,755) (4,751,685)
Cash provided (used)
by financing
activities.......... 4,966,516 1,669,186
----------- -----------
Increase (decrease)
in cash............. 269,085 3,162,882
Cash at beginning of
period.............. 51,473 1,914,759
----------- -----------
Cash at end of
period.............. $ 320,558 $ 5,077,641
=========== ===========
</TABLE>
NOTE: Intercompany balances have been eliminated in the consolidated totals.
F-24
<PAGE> 117
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1997
----------------------------------------- -----------------------------------------
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net revenues................... $29,796,265 $ -- $29,796,266 $40,376,212 $3,397,445 $43,421,074
Cost of sales.................. 18,146,218 -- 18,146,218 23,506,538 2,090,228 25,244,184
Other operating income......... -- 1,285,829 456,819 -- 1,400,159 563,585
Operating expenses............. 11,334,294 1,189,886 11,169,892 15,297,146 1,642,086 16,939,233
----------- ---------- ----------- ----------- ---------- -----------
Income (loss) from
operations................... 315,753 95,943 936,975 1,572,528 1,065,290 1,801,242
Interest expense (net)......... (367,171) (21,331) (388,504) (282,424) (172,561) (454,985)
Other income (expense)......... 593,235 -- 67,958 190,072 (547,881) 478,767
----------- ---------- ----------- ----------- ---------- -----------
Income before taxes............ 541,817 74,612 616,429 1,480,176 344,848 1,825,024
Income tax expense (benefit)... (50,000) 40,000 (10,000) 681,589 20,004 701,593
----------- ---------- ----------- ----------- ---------- -----------
Net income..................... $ 591,817 $ 34,612 $ 626,429 $ 798,587 $ 324,844 $ 1,123,431
=========== ========== =========== =========== ========== ===========
CASH FLOWS
Cash provided by (used in)
operations................... $ 2,038,696 $ 309,505 $ 2,348,201 $(2,011,905) $ 593,542 $(1,418,363)
Cash provided by (used in)
investing activities......... (335,947) (282,263) (618,210) (5,557,000) (79,514) $(5,636,514)
Cash provided by (used in)
financing activities......... (367,601) (33,088) (400,689) 3,200,840 (691,141) 2,509,699
----------- ---------- ----------- ----------- ---------- -----------
Increase (decrease) in cash.... 1,335,148 (5,846) 1,329,302 (4,368,065) (177,113) (4,545,178)
Cash at beginning of period.... 1,863,286 51,473 1,914,759 4,757,083 320,558 5,077,641
----------- ---------- ----------- ----------- ---------- -----------
Cash at end of period.......... $ 3,198,434 $ 45,627 $ 3,244,061 $ 389,018 $ 143,445 $ 532,463
=========== ========== =========== =========== ========== ===========
</TABLE>
NOTE: Intercompany balances have been eliminated in the consolidated totals.
21. PENDING TRANSACTIONS
Proposed Asset Purchase. SAH Acquisition II entered into an Asset Purchase
Agreement dated as of September 23, 1997 (the "Asset Purchase Agreement") with
Global Broadcasting Systems, Inc., a Delaware corporation, under which SAH
Acquisition II agreed to acquire certain broadcast television assets (the
"Acquisition"). Global Broadcasting Systems, Inc. and its affiliate are
currently subject to a proceeding (the "Bankruptcy Proceeding") under Chapter 11
of Title 11 of the United States Code in the United States Bankruptcy Court for
the Southern District of New York (the "Bankruptcy Court") (as debtors in the
Bankruptcy Proceeding, Global Broadcasting Systems, Inc. and its affiliate are
referred to as "Global").
Under the Asset Purchase Agreement, SAH Acquisition II has agreed to
acquire two broadcast television stations owned by Global, KCNS (TV) located in
San Francisco, California ("KCNS"), and WRAY (TV) located in the Raleigh-Durham,
North Carolina market ("WRAY"). Under the Asset Purchase Agreement, SAH
Acquisition II has agreed to assume the legal right and obligation of Global
under executory purchase contracts (the "Executory Contracts") to acquire two
additional broadcast television stations, WOAC (TV) in the Cleveland, Ohio
market ("WOAC") and WPMC (TV) in the Knoxville, Tennessee market ("WPMC"). The
Company contemplates a sale of the right to acquire WPMC to an unaffiliated
entity. The Company has guaranteed the performance of SAH Acquisition II under
the Asset Purchase Agreement. An order of the Bankruptcy Court approved the
Asset Purchase Agreement on November 20, 1997.
The total purchase price payable by SAH Acquisition II to Global in
connection with the Acquisition is $52,350,000 (the "Global Purchase Price"), of
which the Company has paid a total of $3,963,750 into an escrow account held by
the Bankruptcy Trustee and which will be applied to the Global Purchase Price at
the closing. The escrow payment was funded through $1,000,000 of internal funds
and a $3,000,000 borrowing.
F-25
<PAGE> 118
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The balance of $48,886,250 is payable by the Company to Global at the closing.
In connection with the assignment of the Executory Contract for WOAC, SAH
Acquisition II is obligated to purchase WOAC for a total purchase price of
$23,500,000. SAH Acquisition II is entitled to a credit for an escrow deposit
previously paid by Global to the sellers of WOAC in the amount of $2,350,000 and
will make a cash payment of $21,150,000 in connection with the closing of the
purchase of WOAC.
The Company will account for the Acquisition as a purchase of assets rather
than the acquisition of a business because, with the exception of a de minimus
period of time, these stations were operated as commercial broadcast stations
and not as broadcast outlets for home shopping programming. The Company has
concluded that because there is not continuity of revenues from these stations
from which to derive relevant historical operation information, pro forma
financial information is not meaningful and has not been provided.
The obligations of the parties under the Asset Purchase Agreement and the
Executory Contract for WOAC are subject to receipt of the approval of the
Federal Communications Commission ("FCC") of the Applications for Consent to
Assignment of Broadcast Station Licenses (collectively, the "Applications")
filed with respect to the broadcast licenses to be transferred to SAH
Acquisition II. The FCC published public notice of its approval of the
Applications for KCNS and WRAY on December 15, 1997, and such approval became a
final order on January 25, 1998. The FCC published public notice of its approval
of the Application for WOAC on January 29, 1998, and such approval is expected
to become a final order March 10, 1998, assuming no party files a timely
objection thereto.
The Company plans to use proceeds from public offerings of debt and equity
securities to fund the obligations under the Asset Purchase Agreement and the
Executory Contracts.
In the event the Company is unable to close the Acquisition, under certain
conditions, the escrow account balance could be forfeited.
Other Matters. The Company's Board of Directors has approved the
authorization of 30,000,000 shares of nonvoting common stock which is pending
approval by shareholders at the Annual Meeting to be held March 6, 1998.
On January 7, 1998, the Company guaranteed a note made by a related party
to a financial institution for the purchase of land and a building in Nashville,
Tennessee. Upon completion of the pending debt and equity offering, the Company
intends to purchase the building at the amount invested by the related party,
and retire the related indebtedness.
F-26
<PAGE> 119
======================================================
No dealer, salesman or other person is authorized in connection with any
offering made hereby to give any information or to make any representations not
contained in this Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or by the Underwriters. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any security other than the securities offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances create an implication that the information contained herein is
correct as of any date subsequent to the date hereof.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
Use of Proceeds....................... 20
Capitalization........................ 21
Selected Historical and Pro Forma
Financial Data...................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 31
Management............................ 46
Certain Relationships and Related
Transactions........................ 53
Security Ownership of Certain
Beneficial Owners................... 55
Description of Notes.................. 57
Description of Senior Credit
Facility............................ 83
Description of Capital Stock.......... 84
Underwriting.......................... 89
Legal Matters......................... 90
Experts............................... 90
Additional Information................ 90
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
[SHOP AT HOME LOGO]
SHOP AT HOME, INC.
$75,000,000
% SENIOR
SECURED NOTES
DUE 2005
--------------------
PROSPECTUS
--------------------
NationsBanc Montgomery
Securities LLC
Friedman, Billings,
Ramsey & Co., Inc.
, 1998
======================================================
<PAGE> 120
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 2, 1998
PROSPECTUS
[SHOP AT HOME LOGO]
10,000,000 SHARES
SHOP AT HOME, INC.
COMMON STOCK
---------------------
All of the 10,000,000 shares of voting Common Stock, par value $0.0025 per
share (the "Common Stock"), offered hereby (the "Common Stock Offering") are
being sold by Shop at Home, Inc. (the "Company"). Concurrent with the Common
Stock Offering, the Company is offering $75,000,000 in aggregate principal
amount of its % Senior Secured Notes due 2005 (the "Notes") by a separate
prospectus (the "Notes Offering" and together with the Common Stock Offering,
the "Offerings"). The Common Stock Offering is contingent upon the completion of
the Notes Offering, and the Notes Offering is contingent upon the completion of
the Common Stock Offering.
See "Underwriting" for information relating to the factors considered in
determining the public offering price.
The Common Stock is quoted on the Nasdaq SmallCap Market ("Nasdaq") under
the symbol "SATH." On February 27, 1998 the last reported sale of the Common
Stock was $3.50 per share. See "Description of Capital Stock -- Market
Information."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
ARE SPECULATIVE SECURITIES. SEE "RISK FACTORS" BEGINNING ON PAGE 10 HEREOF FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
==================================================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total(3)............................... $ $ $
==================================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,500,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about ,
1998.
---------------------
NationsBanc Montgomery Securities LLC Friedman, Billings, Ramsey & Co., Inc.
The date of this Prospectus is , 1998
ALT-1
<PAGE> 121
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
[Graphic showing a television set with two handles configured to make the
television appear to be a shopping bag with the words "Shop At Home" appearing
above the graphic and the words "Watch. Call. Buy." below it]
[Graphic showing a map of United States with five stars marked at Boston,
Cleveland, Raleigh, Houston, and San Francisco, and approximately 150 black dots
marked at various locations around the country, and containing a logo reading:
"[dot] Cable Affiliates"; [star] "Owned & Operated Stations."]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALT-2
<PAGE> 122
THE OFFERING
COMMON STOCK OFFERED
HEREBY..................... 10,000,000 shares
COMMON STOCK TO BE
OUTSTANDING AFTER THE
COMMON STOCK OFFERING...... 21,762,991 shares(1)(2)
USE OF PROCEEDS............ The Company intends to use the net proceeds from
the Common Stock Offering, together with the net
proceeds from the Notes Offering in the following
manner: (i) to pay the purchase price to Global
under the Asset Purchase Agreement and the purchase
price to close the Executory Contract for WOAC (See
"Business -- Recent Development"), (ii) to purchase
the real estate and building for the Company's new
main offices and studios in Nashville, Tennessee
(the "Facility"), (iii) to purchase equipment for
the Facility, (iv) to complete interior renovation
of the Facility, (v) to acquire equipment necessary
to upgrade and improve the broadcast television
stations acquired through the Acquisition, (vi) to
repay substantially all of the currently existing
indebtedness of the Company, (vii) as working
capital of the Company, which may be used to
acquire additional television stations that may be
available in the future, and (viii) to pay
transaction fees and expenses. The closings of the
Acquisition and the Executory Contract will occur
contemporaneously with the consummation of the
Offerings. See "Use of Proceeds."
NASDAQ SYMBOL.............. "SATH"
- ---------------
(1) Does not include (i) 1,500,000 shares of Common Stock reserved for issuance
pursuant to options granted or to be granted under the Company's Omnibus
Stock Incentive Plan, (ii) 137,943 shares of Common Stock issuable upon
conversion of outstanding shares of Series A Preferred Stock, or (iii)
4,658,100 shares of Common Stock issuable upon exercise of other
outstanding options and warrants. As of December 31, 1997, options to
purchase a total of 638,100 shares of Common Stock were outstanding under
the Omnibus Stock Incentive Plan.
(2) If the Over-allotment Option is exercised, 11,500,000 shares of Common Stock
will be sold in the Common Stock Offering and 23,262,991 shares of Common
Stock will be outstanding after the Common Stock Offering.
CONCURRENT OFFERING
Concurrently with the Common Stock Offering, the Company is offering
$75,000,000 in aggregate principal amount of its % Senior Secured Notes due
2005 to the public. The Common Stock Offering is contingent upon the completion
of the Notes Offering, and the Notes Offering is contingent upon the completion
of the Common Stock Offering.
RISK FACTORS
Investments in the Common Stock involve a high degree of risk. Prior to
making an investment in the Common Stock offered hereby, prospective purchasers
should carefully review the information set forth under the caption "Risk
Factors" as well as other information set forth in this Prospectus.
ALT-3
<PAGE> 123
RISK FACTORS
Prior to making an investment decision with regard to the Company,
prospective investors should carefully consider the following Risk Factors in
addition to the other information and financial data presented in the various
filings made by the Company with the Securities and Exchange Commission. Many of
the statements in this Prospectus are forward-looking in nature and,
accordingly, whether or not they prove to be accurate is subject to many risks
and uncertainties. The actual results that the Company achieves may differ
materially from any forward-looking statements in this Prospectus. Factors that
could cause or contribute to such difference include, but are not limited to,
those discussed below and those contained elsewhere in this Prospectus.
SIGNIFICANT LEVEL OF INDEBTEDNESS
Following the Offerings, the Company will have a significant level of
indebtedness. As of December 31, 1997, on a pro forma basis, after giving effect
to the Offerings and the application of the net proceeds therefrom as described
in "Use of Proceeds," the Company's consolidated debt and capitalized lease
obligations would have been approximately $75.6 million, including the Notes.
Subject to the restrictions on indebtedness contained in the Indenture, the
Company may incur additional indebtedness, including under a Senior Credit
Facility, for capital expenditures or for other purposes.
The level of the Company's indebtedness following the Offerings could have
material consequences to the Company and the holders of the Company's
securities, including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for acquisitions, working
capital, capital expenditures, general corporate or other purposes may be
impaired, (ii) a substantial portion of the Company's cash flow from operations,
if any, will be dedicated to the payment of the principal and interest on its
indebtedness and will not be available for other purposes, (iii) the Company's
ability to react to changes in its industry or economic conditions could be
limited, and (iv) certain of the Company's borrowings may be at variable rates
of interest, which could result in higher interest expense in the event of
increases in interest rates.
The Company's ability to service its indebtedness, including the Notes,
will depend upon its future operating performance, which will be affected by
prevailing economic conditions and financial, business, and other factors,
certain of which are beyond its control, as well as the availability of
borrowings under a Senior Credit Facility. As of December 31, 1997, the Company
had an accumulated deficit of approximately $(5.2 million). The Company will
require substantial amounts of cash to fund scheduled payments of principal and
interest on its outstanding indebtedness, including the Notes, as well as future
capital expenditures and any working capital requirements, which will increase
as a result of the Acquisitions. If the Company is unable to meet its cash
requirements out of cash flow from operations and its available borrowings,
there can be no assurance that it will be able to obtain alternative financing
or that it will be permitted to do so under the terms of a Senior Credit
Facility, the Indenture or its other indebtedness. In the absence of such
financing, the Company's ability to respond to changing business and economic
conditions, to make future acquisitions, to absorb adverse operating results, to
fund capital expenditures or to pay interest on the Notes may be adversely
affected. If the Company does not generate sufficient increases in cash flow
from operations to repay its indebtedness at maturity, including the Notes, it
could attempt to refinance such indebtedness; however, no assurance can be given
that such refinancing would be available on terms acceptable to the Company, if
at all.
MANAGEMENT OF GROWTH AND RELATED EXPENSES
The Company has experienced rapid growth in net sales in recent years. For
the Company's fiscal years ended June 30, 1994, June 30, 1995, June 30, 1996 and
June 30, 1997, net sales of the Company increased by 9%, 23%, 49% and 69%,
respectively, over net sales for the prior fiscal year. Almost all of the growth
in net sales has resulted from expanded carriage of the Company's programming on
cable systems and broadcast television stations. In connection with the expanded
carriage of its programming, the amounts payable to cable systems and television
broadcasters for the carriage of the Company's programming have increased
substantially. The Company has also incurred other increased expenses associated
with its growth, including increased
ALT-4
<PAGE> 124
personnel costs. The Company must effectively control expenses in order to
operate profitably and the failure to effectively control expenses could have an
adverse impact on the Company's financial condition and results of operations.
COST OF ACQUISITION
As a result of the Notes Offering, the Company is incurring a substantial
debt service obligation. In the event that the increased revenues associated
with increased broadcast television carriage of the Company's programming do not
exceed the additional costs and expenses associated with the Acquisition, the
purchase of WOAC and the Company's expansion, including interest payable on the
Notes, the Company's profitability will be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations."
NET LOSSES; ACCUMULATED DEFICIT
For its fiscal years ended June 30, 1993, 1994, 1995, and 1996, the Company
had net losses of approximately $(2.4 million), $(1.1 million), $(1.3 million)
and $(1.4 million), respectively. For the fiscal year ended June 30, 1997 and
for the six month period ended December 31, 1997, the Company had net income of
approximately $1.6 million and $1.1 million, respectively. As of December 31,
1997, the Company had an accumulated deficit of approximately $(5.2 million). At
June 30, 1997 and at December 31, 1997, the Company had negative working capital
of approximately $(4.6 million) and $(5.1 million), respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" for a discussion of working capital and
liquidity.
RELOCATION OF PRINCIPAL FACILITY
The Company is in the process of relocating its principal facility,
including its offices and studios from Knoxville, Tennessee to Nashville,
Tennessee. The Company anticipates that the expense of the relocation, including
the costs of acquiring the real estate and building, completing the interior
buildout and equipping the new Facility, will be approximately $13.4 million,
but there can be no assurance that the actual expense will not exceed such
amount. In addition, certain other transitional matters related to the
relocation could negatively impact the operations and earnings of the Company,
including the transition of the programming origination to the Facility, the
possible transition of telephone call center operations to the Facility, the
possible loss of personnel and lost productivity due to management resources
devoted to the relocation. See "Business -- Properties."
RISK OF INABILITY TO INCREASE DISTRIBUTION OF THE COMPANY'S PROGRAMMING
The Company's strategy involves continued growth through increased
distribution of its programming. Increasing distribution of the Company's
programming may require that the Company raise additional debt or equity capital
subsequent to the Offerings. There can be no assurance, however, that any such
capital would be available to the Company on acceptable terms, if at all. In
addition to the Acquisition and the purchase of WOAC, the Company's strategy
involves the acquisition of additional broadcast television stations. There can
be no assurances that the Company will be successful in acquiring additional
broadcast stations. If the Company is unable to raise additional capital or is
unable to consummate additional acquisitions, the Company may be unable to
increase distribution of its programming. See "Business -- Business Strategy."
NEED FOR CAPITAL EXPENDITURES RELATED TO THE ASSETS ACQUIRED IN THE ACQUISITION
The Company plans certain capital expenditures to acquire and to install
equipment at KCNS and WRAY. Such capital expenditures are required in order for
the broadcast television stations to operate at full power in accordance with
their respective FCC licenses. In particular, WRAY is currently operating under
a construction permit and a full license for the station has not been obtained
due to the operation of the station at a power level substantially below that
authorized by the FCC. The Company expects to incur capital expenditures of
approximately $4 million for the acquisition and installation of new equipment,
but there can
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be no assurance that the actual expenditures will not exceed that amount. See
"Business -- Recent Development."
CONTROL BY PRINCIPAL SHAREHOLDER; CHANGE IN CONTROL
J.D. Clinton is the beneficial owner, directly and indirectly, of 3,227,700
shares of the Common Stock representing approximately 27.4% of the outstanding
shares of Common Stock as of December 31, 1997. In addition, Mr. Clinton and his
affiliates hold options and warrants for the right to acquire additional shares
of Common Stock of the Company. On a fully diluted basis after the exercise of
all options and warrants held and after giving effect to the Common Stock
Offering (assuming an issuance of 10,000,000 shares), Mr. Clinton would own,
directly or indirectly, 5,435,200 shares of the Common Stock representing
approximately 22.7% (21.4% if the Over-allotment is exercised) of the shares of
Common Stock of the Company. Mr. Clinton's ownership is substantially greater
than that of any other shareholder, and his ownership could give him de facto
control over any shareholder vote, including a vote for election of all of the
members of the Company's Board of Directors, a vote for the adoption of
amendments to the Company's charter and bylaws and a vote for the approval of a
merger, consolidation, asset sale or other corporate transaction requiring
approval of the shareholders of the Company. The concentration of ownership
could have the effect of delaying or preventing a change in control of the
Company, even when a change of control would be in the best interests of the
Company's other shareholders. See "Security Ownership of Certain Beneficial
Owners."
The Company currently has an employment agreement with Kent E. Lillie, who
is the Company's President and Chief Executive Officer. In the event of a change
of control of the Company (as defined in the employment agreement), the
employment agreement grants Mr. Lillie certain rights, including the right to
resign at any time during the 12 months following the occurrence of the change
of control, and the right to receive an amount equal to his base salary and
monthly allowances for the 12 months preceding such resignation. In addition,
any options to purchase stock not yet vested will automatically vest on the date
of his resignation. The provisions of Mr. Lillie's employment agreement may have
the effect of discouraging a change in control of the Company. See "Management
- -- Employment Agreements."
The provisions of the Indenture that give the holders of the Notes the
right to require the Company to repurchase their Notes upon a Change of Control
(as defined in the Indenture) may discourage, delay or prevent a Change in
Control of the Company that shareholders might consider to be in the Company's
best interests.
The Company's Board of Directors, without shareholder approval, can issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the rights of the holders of Common Stock. The
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company that
shareholders might consider to be in the Company's best interests. See
"Description of Capital Stock -- Preferred Stock."
DEPENDENCE ON AFFILIATION AGREEMENTS
The Company's business is dependent upon affiliation agreements and time
brokerage agreements with television broadcast stations and cable system
operators. A significant number of the Company's customers are reached through
the broadcasting of the Company's programming pursuant to such agreements. These
agreements contain various provisions, including agreements to carry the
Company's programming for a number of hours daily or to carry the programming on
substantially a full-time basis. These agreements are subject to renegotiation
and renewal from time to time. Certain agreements provide the station or cable
system operator with the right to terminate the agreement at any time or to
preempt the Company's programming in certain events.
The failure of the Company to maintain distribution of its programming in
particular markets could have a material adverse effect on the Company. The
ability of the Company to maintain these agreements is dependent on the
Company's ability to negotiate renewals of these agreements. There can be no
assurance, however, that any such agreements can be renewed on acceptable terms,
if at all. The home shopping market
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is highly competitive and there can be no assurance that the Company can match
the prices its competitors may be willing to pay for broadcast time. See
"Business -- Affiliations."
In recent years, consumers have increasingly begun to subscribe to direct
satellite broadcast systems ("DBS") as an alternative to subscription to a local
cable system. DBS is expected to continue to attract new customers in the
future. To date the Company has not secured carriage of its programming by a DBS
system. There can be no assurance that such carriage can be obtained on
acceptable terms, if at all.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company and
its Restricted Subsidiaries to incur additional indebtedness, pay dividends,
make certain other restricted payments, incur liens, issue or sell stock of
Restricted Subsidiaries, apply net proceeds from certain asset sales, merge or
consolidate with any other person, sell, assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of the Company, enter into
certain transactions with affiliates or encumber the assets of the Company or
its Restricted Subsidiaries.
The loan agreements relating to any other indebtedness of the Company or
any of its Subsidiaries, including a Senior Credit Facility, may contain
extensive restrictive covenants and may require the Company to maintain
specified financial ratios and to satisfy certain financial condition tests. The
Company's ability to meet financial ratios and tests can be affected by events
beyond its control, and there can be no assurance that the Company will meet
those ratios or tests. In addition, the Company's operating and financial
flexibility will be limited by covenants that, among other things, restrict the
ability of the Company and its subsidiaries to incur additional indebtedness,
pay dividends or make distributions to its stockholders or make certain other
restricted payments, create certain liens upon assets, apply the proceeds from
the dispositions of certain assets or enter into certain transactions with
affiliates. There can be no assurance that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interests of the
Company. Upon the occurrence of an event of default under the other indebtedness
of the Company or any of its Subsidiaries , the lenders could elect to declare
all amounts outstanding thereunder, including accrued interest or other
obligations, to be immediately due and payable or proceed against the collateral
granted to them to secure that indebtedness. If any other indebtedness of the
Company or any of its Subsidiaries were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, including the
Notes.
As a result of these covenants, the ability of the Company to respond to
changing business and economic conditions and to secure additional financing, if
needed, may be significantly restricted, and the Company may be prevented from
engaging in transactions that might otherwise be considered beneficial to the
Company. See "Description of Notes -- Certain Covenants."
RISKS RELATED TO THE NOTES OFFERING AND SENIOR CREDIT FACILITY
The ability of the Company to make payments of interest and principal on
the Notes and a Senior Credit Facility will depend on the cash reserves and
other liquid assets held by the Company and any proceeds from any future
financings. If the Company were unable to make such payments, it would result in
a default under the Indenture or a Senior Credit Facility, as well as a default
under certain of the Company's other agreements, which would have a material
adverse effect on the Company's financial condition. The Indenture restricts,
and a Senior Credit Facility may restrict, among other things, the ability of
the Company and its Subsidiaries to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur liens, sell stock of
subsidiaries, apply net proceeds from certain asset sales, merge or consolidate
with any other person, sell, assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of the Company, enter into certain
transactions with affiliates, or encumber substantially all of the assets of the
Company. If the Company does not comply with these covenants, the holders of the
Notes and a Senior Credit Facility will be entitled, under certain
circumstances, to declare the Notes or a Senior Credit Facility, as the case may
be, immediately due and payable, which would have a material adverse effect on
the
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Company's financial condition. In addition, the Indenture provides that, upon
certain events constituting a Change of Control of the Company, the holders of
the Notes would be entitled to require the Company to repurchase up to all of
the outstanding Notes, plus accrued and unpaid interest, if any, to the date of
repurchase. The Company's failure to repurchase the Notes would result in a
default under the Indenture, which would have a material adverse effect on the
Company's financial condition.
RISK OF ENFORCEMENT AGAINST SECURITY
The Notes will be secured by a lien on all of the issued and outstanding
capital stock and assets of SAH Acquisition II and the capital stock of the
Other Broadcast Subsidiaries, which shall be pledged to the Trustee, for the
benefit of the Noteholders. In the event of a default under the Notes, the
Trustee may enforce the lien against the capital stock or assets of SAH
Acquisition II and capital stock of the Other Broadcast Subsidiaries. In the
event of such enforcement, one or more of such entities could be sold and the
proceeds applied to payment of the Notes. Such an event would result in the
Company ceasing to own (through a Subsidiary) one or more broadcast television
stations and failing to retain important distribution of the Company's
programming, which would have a material adverse effect on the Company's
financial condition. See "Description of Notes -- Security."
DEPENDENCE ON KEY PERSONNEL
The business of the Company depends upon the ability and expertise of
certain key employees, including Kent E. Lillie, its President and Chief
Executive Officer. If the Company loses the services of one or more key
employees of the Company through death, disability or termination of employment,
the Company's operations could be adversely affected. Mr. Lillie is employed
pursuant to an employment and non-compete agreement that expires in June 2002
and certain other key executive officers are employed pursuant to employment or
non-compete agreements. While the Company has endeavored to recruit and to
retain certain key employees through employment agreements, there can be no
assurance that one or more key employees will not resign from employment with
the Company. See "Management -- Executive Officers and Directors" and "--
Employment Agreements." The Company is the beneficiary of a $5 million key man
life insurance policy on Mr. Lillie.
DEPENDENCE ON ECONOMIC FACTORS
Because the Company derives substantially all of its revenues from the sale
of merchandise, its revenues may be adversely affected by economic conditions
which impact potential customers and suppliers. In particular, operating results
in individual geographic markets will generally be adversely affected by local
or regional economic downturns. Such economic downturns could have an adverse
impact on the Company's financial condition and results of operations.
DEPENDENCE ON PRODUCT VENDORS
The Company has endeavored to position itself in the home shopping market
as the seller of certain unique products, including sports memorabilia. The
Company depends upon a limited number of product suppliers for such products.
The Company believes that there are sufficient product suppliers to allow the
Company to continue to offer such products consistently, but such supply cannot
be assured. If the Company is not able to obtain certain products currently
offered to customers, such event could have an adverse impact on the Company's
financial condition and results of operations. See "Business -- Products and
Customers."
AUTHENTICITY AND PRICING OF COLLECTIBLE PRODUCTS
A portion of the products sold by the Company consists of collectibles and
memorabilia, including sports related products, the price of which is dependent
upon their unique nature and authenticity. The Company endeavors to take
precautions necessary to insure the authenticity of these products; however, the
Company's ability to sell collectible products could be impaired as a result of
real or perceived customer concern about the authenticity of such products. In
addition, the market price of collectible products depends upon a number of
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factors, many of which are not within the control of the Company. A reduction in
the amount of collectibles sold by the Company or a reduction in the
desirability of collectibles could have an adverse impact on the Company's
financial condition and results of operations.
SATELLITE TRANSPONDER ARRANGEMENTS
The Company's business depends upon the availability of transponder time or
satellite capacity. An interruption or termination of transponder service could
have a material adverse effect on the Company. The Company's programming is
transmitted via Telstar 402R, a preemptible satellite transponder, under an
agreement with B&P The SpaceConnection, Inc. ("Services Agreement"), expiring on
November 30, 1998. Currently, the Company's right to use the transponder may be
preempted at any time to restore (i) another failed transponder that is entitled
to protection, (ii) a satellite failure, or (iii) other service offerings of the
operator of the transponder. The Services Agreement may be terminated by B&P The
SpaceConnection upon the occurrence of certain defaults specified therein. The
Company has recently accepted an offer to extend the terms of the Services
Agreement for the life of the transponder (estimated to be eight years) and to
make the service non-preemptible. The extension of the Services Agreement is
subject to the completion of documentation. See "Business -- Distribution of
Programming -- Programming Origination."
LITIGATION
The Company is a party to a lawsuit in an Illinois Federal District Court
concerning the competing claims of the Company and another firm to use the name
"Shop at Home." The Company is also a defendant in a lawsuit filed in a Florida
Federal District Court in which an affiliate of the National Basketball
Association has filed suit against a number of defendants, including the
Company, alleging the sale by the defendants of basketball trading cards that
were not authentic and that infringed on certain NBA trademarks. The Company is
party to a lawsuit in a Tennessee Chancery Court filed by an insurance company
for the Company seeking a judgment that the insurance company is not liable for
certain attorneys fees and expenses in connection with previously settled
litigation involving the Company. While the Company does not believe that any of
these lawsuits will result in a judgment or settlement that is materially
adverse to the Company, the results of litigation are difficult to predict and
could be materially adverse to the Company. See "Business -- Legal Proceedings."
COMPETITION
The Company operates in an industry dominated by two established
competitors, the Home Shopping Network and the QVC Network, both of which have
substantially more television and cable carriage than the Company, as well as
greater financial, distribution, and marketing resources. The Company also must
compete with store and catalogue retailers, many of whom have substantially
greater financial, distribution and marketing resources. In addition, the
Company competes with new media businesses, such as computer on-line shopping
services. See "Business -- Competition."
COMPETITION IN THE TELEVISION INDUSTRY; IMPACT OF NEW TECHNOLOGIES
The television broadcasting industry has become increasingly competitive in
recent years, as television stations compete for viewers and advertising
revenues with other broadcast television stations, as well as other media,
including cable television, satellite dishes, multichannel multipoint
distribution systems, pay-per-view programs and the proliferation of video
recorders and video movie rentals. Furthermore, new television networks such as
the United Paramount Network and the Warner Brothers Network have created
additional competition. These changes have fractionalized television viewing
audiences. Through technological developments, such as direct broadcast
satellite, video compression and programming delivered through fiber optic
telephone lines, this trend toward fractionalization will likely continue,
putting additional competitive pressures on the Company.
Additionally, the FCC has adopted rules for implementing digital (including
high-definition) television ("DTV") service in the United States. The FCC also
has adopted a table of allotments for DTV, which will
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provide eligible existing broadcasters with a second channel on which to provide
DTV service. Television broadcasters will be allowed to use their channels
according to their best business judgment. Such uses can include multiple
standard definition program channels, data transfer, subscription video,
interactive materials, and audio signals, although broadcasters will be required
to provide a free digital video programming service that is at least comparable
to today's analog service. Broadcasters will not be required to air "high
definition" programming or, initially, to simulcast their analog programming on
the digital channel. All commercial broadcasters must be on the air with a
digital signal by May 1, 2002. Implementation of DTV is expected to improve the
technical quality of television. Under certain circumstances, however,
conversion to DTV operations may reduce a station's geographical coverage area
or provide a competitive advantage to one or more competing stations in the
market. In connection with the conversion to DTV, the Company will incur
expenses which cannot be quantified at this date, but which may be substantial,
and the Company cannot predict the extent or timing of consumer demand for any
such DTV services.
REGULATORY MATTERS
The Company's television operations are subject to significant regulation
by the FCC under the Communications Act of 1934, as amended (the "Communications
Act") and most recently amended by the Telecommunications Act of 1996 (the
"Telecommunications Act"). The Communications Act permits the operation of
television broadcast stations only in accordance with a license issued by the
FCC. The Communications Act empowers the FCC, among other things: to determine
the frequencies, location and power of broadcast stations; to issue, modify,
renew and revoke station licenses; to approve the assignment or transfer of
control of broadcast licenses; to regulate the equipment used by stations; to
impose penalties for violations of the Communications Act or FCC regulations;
and, to some extent, to regulate a licensee's programming content. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including monetary forfeitures or, for particularly egregious
violations, the revocation of a license. The Company's business will be
dependent upon its continuing ability to hold television broadcasting licenses
from the FCC.
FCC television licenses are generally granted or renewed for terms of eight
years, although licenses may be renewed for a shorter period. The Company must
apply for renewal of each broadcast license. At the time an application is made
for renewal of a license, parties in interest may file petitions to deny the
renewal, and such parties, as well as members of the public, may comment upon
the service the station has provided during the preceding license term and urge
denial of the application. While broadcast licenses are typically renewed by the
FCC, even when petitions to deny are filed against renewal applications, there
can be no assurance that the licenses for the Company's stations will be renewed
at their expiration dates or, if renewed, that the renewal terms will be for the
maximum eight-year period. The non-renewal or revocation of one or more of the
Company's primary FCC licenses could have a material adverse effect on the
Company's operations.
The U.S. Congress and the FCC currently have under consideration, and may
in the future adopt, new laws, regulations and policies regarding a wide variety
of matters which could, directly or indirectly, affect the operation and
ownership of the Company's broadcast properties. Such matters include, for
example: changes in the FCC's multiple ownership restrictions; spectrum use
fees; political advertising rates; free political time; potential restrictions
on the advertising of alcoholic beverages; the rules and policies to be applied
in enforcing the FCC's equal opportunity regulations; the standards to govern
the evaluation of television programming directed toward children, and violent
and indecent programming. The Company is unable to predict the outcome of future
federal legislation or the impact of any such laws or regulations on the
Company's operations.
The 1992 Cable Act includes signal carriage or "must carry" provisions that
require cable operators to carry the signals of local commercial television
stations. A cable system is generally required to devote up to one-third of its
aggregate activated channel capacity for the mandatory carriage of local
commercial television stations without charge. The 1992 Cable Act also includes
a retransmission consent provision that prohibits cable operators and other
multi-channel video programming distributors from carrying the signal of
commercial broadcast stations and certain low power stations without obtaining
their consent in certain circumstances. In March 1997, the United States Supreme
Court upheld the constitutionality of the "must
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carry" requirements. The current strategy of the Company with respect to the
broadcast of its programming by television broadcast stations has been developed
based on the present status of the "must carry" provisions. While no serious
efforts appear to be developing to change these provisions, there is always a
possibility that Congress might elect to do so. Under the Communications Act,
for purposes of the "must carry" provisions, a broadcast station's market is
determined by the FCC using commercial publications which delineate television
markets based on viewing patterns. The FCC may, however, consider, on a case by
case basis and acting on specific written requests, changes in the station's
market areas (currently defined by the ADI, Arbitron's Area of Dominant
Influence, to which the station has been designated), including the exclusion of
communities from a television station's market. In considering requests for a
change in a station's market area, the FCC takes into account a number of
factors including whether or not the station in question provides coverage to
the community and evidence of the viewing patterns in cable and non-cable
households in that community. In recent months, the FCC has ruled on several
such requests and in many of these cases has excluded particular communities
from an ADI. The Company is unable to predict the impact of any future rulings
of the FCC with respect to the exclusion of the carriage of the Company's
broadcast stations from any particular cable systems in its markets. See
"Business -- Regulatory Matters."
POTENTIAL CONFLICT BETWEEN DEBT AND EQUITY HOLDERS
Certain decisions concerning the operations or financial structure of the
Company may present conflicts between the owners of the Company's capital stock
and the holders of the Notes. For example, if the Company encounters financial
difficulties, or is unable to pay its debts as they mature, the interest of the
Company's equity owners might conflict with those of the holders of the Notes.
In addition, the equity owners may have an interest in pursuing acquisitions,
divestitures, financings or other transactions that could enhance their equity
investment, even though such transactions might adversely affect the ability of
the Company to pay principal and interest on the Notes.
SUBSTANTIAL DILUTION
Purchasers of Common Stock will experience substantial dilution in pro
forma net tangible book value per share of Common Stock from the offering price.
As of December 31, 1997, the Company had a net tangible book value per share of
$0.25, the net pro forma tangible book value would have been $1.61 assuming
completion of the Offerings on that date. The new shareholders in the Common
Stock Offering would be diluted by $1.89 per share, or 54.0%, from the public
offering price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following consummation of the Offerings, assuming 10,000,000
shares of Common Stock are issued at an offering price of $3.50 per share, there
will be outstanding 21,762,991 shares of Common Stock (23,262,991 shares if the
Over-allotment Option is exercised in full). The 10,000,000 shares of Common
Stock offered hereby (11,500,000 shares if the Over-allotment Option is
exercised in full) will be freely tradeable without restriction or registration
under the Securities Act by persons other than "affiliates" (as defined in the
Securities Act) of the Company. The remaining 11,762,991 shares of Common Stock
to be outstanding immediately following the Common Stock Offering are also
freely transferable without restriction or registration under the Act, except
for those shares which have been issued by the Company without registration
within the past two years or those which are held by "affiliates" of the
Company. Affiliates of the Company are persons which control, are controlled by
or are under common control with the Company, and generally include executive
officers, directors and principal shareholders of the Company. Shares which have
been issued without registration within the past two years or which are held by
affiliates are restricted and may only be sold in the public market if such
shares are registered under the Act or sold in accordance with Rule 144
promulgated under the Act. As of January 20, 1998, the Company had outstanding
5,316,892 shares of Common Stock beneficially owned by persons who might be
deemed to be "affiliates" of the Company and 1,066,511 shares of Common Stock
that were issued by the Company during the two-year period prior to that date
without registration (of which 400,000 shares were issued to persons who may be
deemed to be affiliates of the Company). These shares may only be sold in the
public through a registered offering under the Act or
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through a transaction complying with Rule 144. Certain of the Company's
directors, executive officers and other stockholders who beneficially own
5,206,391 outstanding shares of Common Stock have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock that they own or may acquire for
a period of 180 days after the closing of the Offerings without the prior
written consent of the Underwriters. See "Shares Eligible For Future Sale." No
prediction can be made as to the effect, if any, that future sales of shares of
Common Stock or the availability of shares for future sale will have on the
market price of shares of Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock (including shares issuable upon the exercise
of stock options), or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock.
LISTING MAINTENANCE CRITERIA FOR SECURITIES; PENNY STOCK RULES
The Company's Common Stock is quoted on the Nasdaq SmallCap Market. There
can be no assurance that the Company in the future will meet the requirements
for continued listing on the Nasdaq SmallCap Market with respect to the Common
Stock. If the Common Stock fails to maintain such listing, the market value of
the Common Stock likely would decline and purchasers in this offering likely
would find it more difficult to dispose of, or to obtain accurate quotations as
to the market value of the Common Stock.
In addition, if the Company fails to maintain a Nasdaq SmallCap Market
listing for its securities, and no other exclusion from the definition of a
"penny stock" under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is available, then any broker engaging in a transaction in the
Company's equity securities, including the Common Stock, would be required to
provide any customer with a risk disclosure document, disclosure of market
quotations, if any, disclosure of the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market values of the Company's equity securities held in the customer's
accounts. The bid and offer quotation and compensation information must be
provided prior to effecting the transaction and must be contained on the
customer's confirmation. If brokers become subject to the "penny stock" rules
when engaging in transactions in the Common Stock, they would become less
willing to engage in such transactions, thereby making it more difficult for
purchasers in the Common Stock Offering to dispose of the Common Stock. See
"Index to Consolidated Financial Statements."
POSSIBLE FLUCTUATIONS OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations in response to the Company's operating results and other factors.
In addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of individual companies. Such fluctuations, and general
economic and market conditions, may adversely affect the market price of the
Common Stock. See "Description of Capital Stock -- Market Information."
LIMITED LIABILITY OF DIRECTORS
The Company's charter expressly limits the liability of directors for
monetary damages to the Company and its shareholders arising as a result of
errors in judgment or any acts or omissions if the directors acted in good
faith.
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DILUTION
As of December 31, 1997, the net tangible book value of the Company was
$2.9 million in the aggregate, or $0.25 per share of Common Stock. "Net tangible
book value per share" represents the amount of total tangible assets of the
Company reduced by the amount of total liabilities and divided by the number of
shares of Common Stock outstanding. After giving effect to the sale of the
shares of Common Stock offered hereby, at an offering price of $3.50 per share,
net of Underwriters' discount and estimated offering expenses aggregating
$2,950,000, the net pro forma tangible book value of the Common Stock as of
December 31, 1997 would have been $35.0 million in the aggregate, or $1.61 per
share. This represents an immediate increase in net tangible book value of $1.36
per share of Common Stock to existing stockholders as a result of the Common
Stock Offering and an immediate dilution of $1.89 per share to new stockholders
purchasing shares of Common Stock in the Common Stock Offering. "Dilution per
share" represents the difference between the price per share to be paid by new
stockholders for the shares of Common Stock issued in the Common Stock Offering
and the net pro forma tangible book value per share as of December 31, 1997. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $3.50
Net tangible book value per share before the Common Stock
Offering(1)............................................... 0.25
Increase per share attributable to the Common Stock
Offering............................................... 1.36
-----
Net tangible book value per share as adjusted to reflect the
Common Stock Offering(1).................................. 1.61
-----
Dilution per share to new shareholders...................... $1.89
=====
Percentage Dilution......................................... 54.0%
=====
</TABLE>
- ---------------
(1) Neither the net tangible book value per share before the Common Stock
Offering nor the net tangible book value per share as adjusted to reflect
the Common Stock Offering give effect to the Notes Offering. Giving effect
thereto, net tangible book value per share before the Common Stock Offering
and net tangible book value per share as adjusted to reflect the Notes
Offering would have been $(.09) and $1.43, respectively.
DIVIDEND POLICY
The Company currently intends to retain all earnings and other cash
resources, if any, to fund the development and growth of its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. In addition, the Indenture contains significant restrictions on the
Company's ability to declare and pay dividends.
ALT-13
<PAGE> 133
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Common Stock Offering, assuming 10,000,000 shares
of Common Stock are issued at an offering price of $3.50 per share, the Company
will have 21,762,991 shares of Common Stock outstanding (23,262,991 shares if
the Over-allotment Option is exercised in full). Of those shares, the 10,000,000
shares sold in the Common Stock Offering (11,500,000 shares if the
Over-allotment Option is exercised in full) will be freely transferable without
restriction or registration under the Act, unless purchased by persons deemed to
be "affiliates" of the Company (as that term is defined under the Act). The
remaining 11,762,991 shares of Common Stock to be outstanding immediately
following the Common Stock Offering are also freely transferable without
restriction or registration under the Act, except for those shares that have
been issued by the Company without registration or those which are held by
"affiliates" of the Company. Affiliates of the Company are persons which
control, are controlled by or are under common control with the Company, and
generally include executive officers, directors and principal shareholders of
the Company. Shares issued without registration or which are held by affiliates
are restricted and may only be sold in the public market if such shares sold in
a registered offering under the Act or sold in accordance with Rule 144
promulgated under the Act.
In general, for shares issued without registration by the Company, a period
of one year must elapse since the date of the later of the acquisition of the
shares from the Company or its "affiliate" before the shares may be resold under
Rule 144. If the one-year test is satisfied, a person (or persons whose shares
are aggregated), including a person who may be deemed an "affiliate" of the
Company, may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 217,629 shares immediately after
the Common Stock Offering or 232,630 shares if the Over-allotment Option is
exercised in full) or (ii) the average weekly trading volume in the Common Stock
in the Nasdaq market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain limitations on the manner of sale,
notice requirements and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is deemed not to
have been an "affiliate" of the Company at any time during the 90 days preceding
a sale by such person and who has beneficially owned his shares for at least two
years, may sell such shares in the public market under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, notice requirements
or availability of current information referred to above. Restricted shares
properly sold in reliance upon Rule 144 are thereafter freely tradeable without
restrictions or registration under the Act, unless thereafter held by an
"affiliate" of the Company.
Messrs. Clinton, Cowell, Lillie, Jolley and Overholt, SAH Holdings, L.P.
and certain other stockholders have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of or transfer any shares of Common Stock that they
own or may acquire for a period of 180 days after the closing of the Offering
without the prior written consent of the Underwriters. These persons
beneficially own 5,206,392 outstanding shares of Common Stock and options and
warrants pursuant to which they may acquire 2,567,500 shares of Common Stock.
As of January 20, 1998, the Company had outstanding 5,316,892 shares of
Common Stock beneficially owned by persons who might be deemed to be
"affiliates" of the Company and 1,066,511 shares of Common Stock that were
issued by the Company during the two-year period prior to that date without
registration (of which 400,000 were issued to persons who may be deemed to be
affiliates of the Company). These shares may only be sold in the public market
through a registered offering under the Act or through a transaction complying
with Rule 144.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares for future sale will have
on the market price of shares of Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock (including shares issuable upon the
exercise of stock options), or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock.
ALT-14
<PAGE> 134
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated March , 1998 (the "Underwriting Agreement") between the Company and the
Underwriters, the Company has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase, the following respective numbers of shares
of Common Stock, at the public offering price, less underwriting discounts and
commissions, set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
Friedman, Billings, Ramsey & Co., Inc.......................
-----------
Total..................................................
===========
</TABLE>
The Underwriting Agreement provides that, subject to the terms and
conditions set forth therein, the Underwriters are obligated to purchase all of
the shares of Common Stock if any are purchased.
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock to the public on the terms set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to other dealers. After the initial offering, the public offering price and such
concessions may be changed. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted the Over-allotment Option, exercisable within 30
days after the date of this Prospectus, to purchase up to 1,500,000 additional
shares of Common Stock at the public offering price, less the underwriting
discounts and commissions, set forth on the cover page of this Prospectus. The
Underwriters may exercise this option only to cover over-allotments, if any. To
the extent that the Underwriters exercise this option, the Underwriters will
have a firm commitment, subject to certain conditions, to purchase such
additional shares. If purchased, the Underwriters will offer such additional
shares on the same terms as those on which all shares are being offered in the
Common Stock Offering.
Certain directors, executive officers and other stockholders who, at
January 20, 1998, beneficially owned 5,206,392 outstanding shares of Common
Stock have agreed not to offer, sell, contract to sell, pledge or otherwise
dispose of or transfer any shares of Common Stock that they own or may acquire
for a period of 180 days after the closing of the Offering without the prior
written consent of the Underwriters. See "Shares Eligible for Future Sale."
In connection with the Common Stock Offering, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. The Underwriters also may create a short position by selling
more Common Stock in connection with the Common Stock Offering than they are
committed to purchase from the Company and in such case may purchase Common
Stock in the open market following completion of the Common Stock Offering to
cover all or a portion of such short position. The Underwriters may also cover
all or a portion of such short position by exercising the Underwriters'
Over-allotment Option referred to above. The transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. The
Underwriters have no obligation to engage in such transactions and such
transactions, if commenced, may be discontinued with out notice and at any time.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
FBR has filed a proof of claim in the Bankruptcy Proceeding of Global in
the approximate amount of $2.0 million. The claim relates to unpaid placement
agent fees and expenses in connection with a bridge loan facility provided to
Global prior to its bankruptcy. FBR has also filed a proof of claim for an
acquisition fee to be owed by the bankruptcy estate to FBR in the amount of
1.75% of the proceeds of the sale under the Asset Purchase Agreement if the sale
is completed. The lenders who advanced the bridge loan are also creditors in the
Bankruptcy Proceeding and have filed proofs of claim in the aggregate amount of
approximately
ALT-15
<PAGE> 135
$35 million in unpaid principal plus accrued interest, fees and penalties. In
connection with the resolution of the Bankruptcy Proceeding, FBR and the bridge
lenders may be paid in whole or in part on their claims against Global. See
"Business -- Recent Development."
On August 16, 1995, the Company issued its $2,000,000 Variable Rate
Convertible Secured Note Due 2000 to a corporation wholly-owned by J.D. Clinton,
a director of the Company. See ""Security Ownership of Certain Beneficial
Owners.'' The loan carried interest at the prime rate plus 2%, and was payable
in 60 monthly installments. The loan was secured by a security interest in
the inventory, accounts receivable, and certain equipment, furniture and
fixtures of the Company, as well as the stock of MFP, Inc., a subsidiary of the
Company, and an assignment of the proceeds of any sale of the Federal
Communications Commission license of Television Station WMFP, Lawrence,
Massachusetts. The note was convertible to Common Stock of the Company based
upon one share of stock for each $3.00 of the principal balance of the note.
Based upon the Company's knowledge of the commercial lending market, the
interest rate and terms of the note were considered to be at arm's length. On
October 1, 1997, the holder sold the note to FBR Private Equity Fund, L.P.,
which party immediately converted the note to 444,177 shares of Common Stock
of the Company. FBR Private Equity Fund, L.P. is an affiliate of FBR.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the federal securities laws, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
The initial public offering price for the Common Stock has been determined
by negotiations between the Company and the Underwriters. The primary factor
considered in such negotiations was the recent trading price history for the
Common Stock on the Nasdaq SmallCap Market. Other factors considered by the
parties in determining the price were the history and prospects of the Company,
the present state of the Company's development and the industry in which it
competes, an assessment of the Company's management and prevailing market
conditions.
LEGAL MATTERS
The legality of the Common Stock Offering will be passed upon for the
Company by Wyatt, Tarrant & Combs, Nashville, Tennessee. Charles W. Bone, a
partner of Wyatt, Tarrant & Combs, is the beneficial owner of warrants issued by
the Company under which he has the right to purchase a total of 82,500 shares of
Common Stock of the Company at a current exercise price of $1.135. Certain legal
matters relating to the Common Stock Offering will be passed upon for the
Underwriters by Jenkens & Gilchrist, a Professional Corporation, Washington,
D.C.
EXPERTS
The consolidated balance sheets as of June 30, 1996 and 1997 and December
31, 1997 and the consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1997, and
the six months ended December 31, 1997, included in this Prospectus have been
included herein in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ALT-16
<PAGE> 136
======================================================
No dealer, salesman or other person is authorized in connection with any
offering made hereby to give any information or to make any representations not
contained in this Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or by the Underwriters. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any security other than the securities offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances create an implication that the information contained herein is
correct as of any date subsequent to the date hereof.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 19
Dilution.............................. 20
Dividend Policy....................... 20
Capitalization........................ 21
Selected Historical and Pro Forma
Financial Data...................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 31
Management............................ 46
Certain Relationships and Related
Transactions........................ 53
Security Ownership of Certain
Beneficial Owners................... 55
Description of Notes.................. 56
Description of Senior Credit
Facility............................ 83
Description of Capital Stock.......... 83
Shares Eligible for Future Sale....... 87
Underwriting.......................... 89
Legal Matters......................... 90
Experts............................... 90
Additional Information................ 90
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
10,000,000 SHARES
(LOGO)
SHOP AT HOME, INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
NationsBanc Montgomery
Securities LLC
Friedman, Billings,
Ramsey & Co., Inc.
, 1998
======================================================
ALT-17
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The Registrant estimates that expenses in connection with the offerings
described in this registration statement will be as follows:
<TABLE>
<CAPTION>
Description Amount
<S> <C>
Securities and Exchange Commission registration fee.................................................... $ 33,030
Printing expenses...................................................................................... 100,000
Accounting fees and expenses........................................................................... 75,000
Legal fees and expenses................................................................................ 400,000
Blue sky registration fees............................................................................. 60,000
NASD and Nasdaq filing and listing fees................................................................ 80,000
Transfer agent's fees and expenses..................................................................... 10,000
Indenture Trustee fees................................................................................. 11,000
Travel expenses........................................................................................ 150,000
Rating agency fees..................................................................................... 25,000
Brokerage fee for acquisition.......................................................................... 290,000
Miscellaneous.......................................................................................... 265,970
------------------------------------------------------------------------------------------------------------------
Total $1,500,000
</TABLE>
* To be filed by amendment.
All amounts except the Securities and Exchange Commission registration
fee are estimated.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
A list of the exhibits included as part of this Registration Statement
is set forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated by reference.
(b) Financial Statement Schedules.
<TABLE>
<S> <C>
Independent Accountants' Report on Financial Statement Schedule Page S-1
Schedule II Valuation and Qualifying Accounts Page S-2
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required, are inapplicable or the required
information has already been provided elsewhere in the Registration Statement.
II-1
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Nashville,
State of Tennessee, on March 20, 1998.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
----------------------------------------
Kent E. Lillie,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
J. D. Clinton* Chairman of the Board March 20, 1998
Paul Cowell* Director March 20, 1998
A.E. Jolley* Director March 20, 1998
Joseph I. Overholt* Director March 20, 1998
Frank A. Woods* Director March 20, 1998
*By
/s/ Kent E. Lillie, Attorney-in-Fact President and March 20, 1998
- ------------------------------------ Chief Executive Officer
Kent E. Lillie
/s/ James Bauchiero Executive Vice President and March 20, 1998
- ------------------------------------ Chief Financial Officer
James Bauchiero (principal financial officer)
/s/ Joseph Nawy
- ------------------------------------ Vice President-Finance March 20, 1998
Joseph Nawy (principal accounting officer)
</TABLE>
II-2
<PAGE> 139
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 1997 and December 31, 1997, and
for each of the three years in the period ended June 30, 1997 and the six months
ended December 31, 1997, is included on page F-2 of this Registration
Statement. In connection with our audits of such financial statements, we have
also audited the related financial statement schedule listed in the index on
page II-1 of this Registration Statement.
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 18, 1997
S-1
<PAGE> 140
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BALANCE AT OTHER BALANCE
BEGINNING CHARGED ADDITIONS AT END
OF PERIOD T0 EXPENSES DEDUCTIONS OF PERIOD
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1995:
Estimated credits due to customers $ 471,878 $ 4,863,486 $ (4,717,400)(1) $ 617,904
========== =========== ============ ==========
Allowance for bad debt $ 0 $ 0 $ 0 $ 0
========== =========== ============ ==========
Allowance for inventory obsolescence $ 0 $ 0 $ 0 $ 0
========== =========== ============ ==========
Year ended June 30, 1996:
Estimated credits due to customers $ 617,904 $10,147,556 $ (9,665,340)(1) $1,100,120
========== =========== ============ ==========
Allowance for bad debt $ 0 $ 0 $ 0 $ 0
========== =========== ============ ==========
Allowance for inventory obsolescence $ 0 $ 88,123 $ 0 $ 88,123
========== =========== ============ ==========
Year ended June 30, 1997:
Estimated credits due to customers $1,100,120 $19,503,181 $(17,481,798)(1) $3,121,503
========== =========== ============ ==========
Allowance for bad debt $ 0 $ 18,800 $ 172,450 (2) $ 191,250
========== =========== ============ ==========
Allowance for inventory obsolescence $ 88,123 $ 591,877 $ 17,934 (2) $ 697,934
========== =========== ============ ==========
Period ended December 31, 1997:
Estimated credits due to customers $3,121,503 $11,370,434 $ 12,448,408 $2,043,529
========== =========== ============ ==========
Allowance for bad debt $ 191,250 $ 230,826 $ 280,567 $ 702,643
========== =========== ============ ==========
Allowance for inventory obsolescence $ 697,934 $ 0 $ (154,937)(3) $ 542,997
========== =========== ============ ==========
</TABLE>
(1) Merchandise returned
(2) Addition through purchase accounting
(3) Write off of inventory
S-2
<PAGE> 141
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement between NationsBanc Montgomery Securities LLC
and Friedman, Billings, Ramsey & Co., Inc., the Company covering the Notes
Offering.
1.2* Form of Underwriting Agreement between NationsBanc Montgomery Securities
LLC and Friedman, Billings, Ramsey & Co., Inc., the Company concerning
the Common Stock Offering.
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 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 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 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)** Bylaws of the Company, as amended.
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>
<PAGE> 142
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------- ------------
<S> <C> <C>
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.
4.6* Form of Trust Indenture with PNC Bank, N.A., as Trustee with
regard to the Notes, containing specimen of the Note.
4.7* Form of Security and Pledge Agreement.
5** Opinion of Wyatt, Tarrant & Combs.
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.
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------------- ------------
<S> <C> <C>
10.5 Transponder Use Agreement dated June 6, 1994, between Shop at
Home, Inc. and Broadcast International, Inc., filed 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.
10.5 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 herein by this
reference.
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------- ------------
<S> <C> <C>
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 Commission on December 20, 1994,
and incorporated herein by this reference.
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------- ------------
<S> <C> <C>
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 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.
</TABLE>
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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.
10.32 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.
</TABLE>
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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, filed as Exhibit 10.37 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1996 and filed with the Commission on September 30, 1996, and
incorporated herein by this reference.
10.38 Security Agreement dated August 16, 1995, by and between the
Company, MFP, Inc., and Global Network Television, Inc., filed as
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996 and filed with the Commission on
September 30, 1996, and incorporated herein by this reference.
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, filed as Exhibit 10.39 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 and filed with the Commission on September 30,
1996, and incorporated herein by this reference.
10.40 Majority Stock Purchase Agreement dated June 3, 1996, by and
between Charles E. Walker, Broadcast, Cable and Satellite
Technologies, Inc., and Urban Broadcasting Systems, Inc., filed
as Exhibit 10.40 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996 and filed with the Commission
on September 30, 1996, and incorporated herein by this reference.
</TABLE>
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10.41 Promissory Note dated September 5, 1996, made by the Company and
Broadcast, Cable and Satellite Technologies, Inc., payable to Charles E.
Walker, filed as Exhibit 10.41 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996 and filed with the
Commission on September 30, 1996, and incorporated herein by this
reference.
10.42 Security Agreement dated September 5, 1996, by and between
Broadcast, Cable and Satellite Technologies, Inc., and Charles E.
Walker, filed as Exhibit 10.42 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and filed with
the Commission on September 30, 1996, and incorporated herein by
this reference.
10.43 Employment Agreement between Kent E. Lillie and Shop at Home,
Inc. dated July 1, 1997, filed as Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1997 and filed with the Commission on September 29, 1997, and
incorporated herein by this reference.
10.44 Asset Purchase Agreement dated September 23, 1997, between SAH
Acquisition Corporation II, Global Broadcasting Systems, Inc., and
Global Broadcasting Systems License Corp., filed as Exhibit 10.44 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997 and filed with the Commission on November 14,
1997, and incorporated herein by this reference.
10.45** Bill of Sale dated February 24, 1997 from Norwest Credit, Inc.,
to Collector's Edge of Tennessee, Inc.
10.46** Credit and Security Agreement dated as of February 24, 1997,
between Norwest Credit, Inc., and Collector's Edge of Tennessee,
Inc.
10.47** Loan Agreement dated November 28, 1997, between the Company and
NationsBank of Tennessee, N.A.
10.48** Loan Note dated November 28, 1997 made by the Company payable to
NationsBank of Tennessee, N.A.
10.49 Amendment No.1 to Company's Omnibus Stock Option Plan filed as
Appendix A to the Company's Proxy Statement on Schedule 14A for
the fiscal year ended June 30, 1996, and filed with the
Commission on November 18, 1996, and incorporated herein by this
reference.
10.50** Form of options issued to directors dated June 19, 1997.
</TABLE>
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10.51** Form of Transponder Use Agreement dated June 25, 1995, between the
Company and B&P The SpaceConnection.
11 Schedule of Computation of Net Income Per Share (in Note 12 to
Consolidated Financial Statements of the Company for the period
ended December 31, 1997, included herein)
12** Statements regarding computation of ratios.
21** Subsidiaries of the Company.
23.1 Consent of Wyatt, Tarrant & Combs, included as a part of Exhibit 5.
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of J. Daniel Sullivan (person about to become a director)
23.4* Consent of Patricia E. Mitchell (person about to become a director)
24** Powers of attorney (included on signature pages).
25** Statement of eligibility of trustee.
27.1** Financial Data Schedule. (For SEC Use Only)
27.2** Financial Data Schedule. (For SEC Use Only)
</TABLE>
* Filed herewith
** Previously filed
<PAGE> 1
EXHIBIT 1.1
NATIONSBANC MONTGOMERY SECURITIES LLC
UNDERWRITING AGREEMENT
$75,000,000 IN ___% SENIOR SECURED NOTES DUE 2005
SHOP AT HOME, INC.
____% SENIOR SECURED NOTES DUE 2005
UNDERWRITING AGREEMENT
DATED MARCH __, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Section 1. Representations and Warranties...................................................................... 2
(a) Compliance with Registration Requirements..................................................... 2
(b) Offering Materials Furnished to Underwriters.................................................. 2
(c) Distribution of Offering Material By the Company.............................................. 2
(d) The Underwriting Agreement.................................................................... 2
(e) The Notes..................................................................................... 2
(f) The Indenture and Asset Purchase Agreement.................................................... 2
(g) No Applicable Registration or Other Similar Rights............................................ 3
(h) No Material Adverse Change.................................................................... 3
(i) Independent Accountants....................................................................... 3
(j) Preparation of the Financial Statements....................................................... 3
(k) Incorporation and Good Standing of the Company and its Subsidiaries........................... 3
(l) Notes and Indenture........................................................................... 4
(m) Non-Contravention of Existing Instruments; No Further Authorizations or
Approvals Required............................................................................ 4
(n) No Material Actions or Proceedings............................................................ 4
(o) Intellectual Property Rights.................................................................. 4
(p) All Necessary Permits, etc.................................................................... 4
(q) Title to Properties........................................................................... 5
(r) Tax Law Compliance............................................................................ 5
(s) Company Not an "Investment Company"........................................................... 5
(t) Insurance..................................................................................... 5
(u) Related Party Transactions.................................................................... 5
(v) Certificates.................................................................................. 5
(w) No Unlawful Contributions or Other Payments................................................... 5
(x) Company's Accounting System................................................................... 5
(y) Compliance with Environmental Laws............................................................ 6
(z) Periodic Review of Costs of Environmental Compliance.......................................... 6
(aa) ERISA Compliance.............................................................................. 6
(bb) Conditions Precedent.......................................................................... 7
Section 2. Purchase, Sale and Delivery of the Notes............................................................ 7
The Notes.............................................................................................. 7
The Closing Date....................................................................................... 7
Public Offering of the Notes........................................................................... 7
Payment for the Notes.................................................................................. 7
Delivery of the Notes.................................................................................. 7
Delivery of Prospectus to the Underwriters............................................................. 7
Section 3. Additional Covenants................................................................................ 7
(a) Representatives' Review of Proposed Amendments and Supplements................................ 7
(b) Securities Act Compliance..................................................................... 8
(c) Amendments and Supplements to the Prospectus and Other Securities Act Matters................. 8
(d) Copies of any Amendments and Supplements to the Prospectus.................................... 8
(e) Blue Sky Compliance........................................................................... 8
(f) Use of Proceeds............................................................................... 8
(g) Earnings Statement............................................................................ 8
(h) Periodic Reporting Obligations................................................................ 9
(i) Future Reports to the Representatives......................................................... 9
</TABLE>
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<TABLE>
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Section 4. Payment of Expenses.................................................................................. 9
Section 5. Conditions of the Obligations of the Underwriters.................................................... 9
(a) Accountants' Comfort Letter.................................................................... 9
(b) Compliance with Registration Requirements; No Stop Order; No Objection from NASD............... 9
(c) No Material Adverse Change or Ratings Agency Change............................................ 10
(d) Opinion of Counsel for the Company............................................................. 10
(e) Opinion of Counsel for the Underwriters........................................................ 10
(f) Officers' Certificate.......................................................................... 10
(g) Bring-down Comfort Letter...................................................................... 10
(h) Additional Documents........................................................................... 11
(i) The Firm Common Shares......................................................................... 11
(j) Consummation of Other Transactions............................................................. 11
Section 6. Reimbursement of Underwriters' Expenses.............................................................. 11
Section 7. Effectiveness of this Agreement...................................................................... 11
Section 8. Indemnification...................................................................................... 12
(a) Indemnification of the Underwriters............................................................ 12
(b) Indemnification of the Company, its Directors and Officers..................................... 12
(c) Notifications and Other Indemnification Procedures............................................. 13
(d) Settlements.................................................................................... 13
Section 9. Contribution......................................................................................... 14
Section 10. Default of One or More of the Several Underwriters.................................................. 14
Section 11. Termination of this Agreement....................................................................... 15
Section 12. Representations and Indemnities to Survive Delivery................................................. 15
Section 13. Notices............................................................................................. 15
Section 14. Successors.......................................................................................... 16
Section 15. Partial Unenforceability............................................................................ 16
Section 16. Governing Law Provisions............................................................................ 16
(a) Governing Law.................................................................................. 16
(b) Consent to Jurisdiction........................................................................ 16
Section 17. General Provisions.................................................................................. 17
</TABLE>
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UNDERWRITING AGREEMENT
March __, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Shop at Home, Inc., a Tennessee corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of $75,000,000 in total principal
amount of ____% Senior Secured Notes due 2005 of the Company (the "Notes"). The
Notes will be issued pursuant to an Indenture (the "Indenture") dated as of
_____________, 1998 between the Company and PNC Bank, National Association, as
trustee (the "Trustee"). NationsBanc Montgomery Securities LLC ("NMS") and
Friedman, Billings, Ramsey & Co., Inc. ("FBR") have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Notes.
Concurrent with the public offering of the Notes, the
Representatives and certain other underwriters, including some of the
Underwriters, propose to make a public offering of 10,000,000 shares (the "Firm
Common Shares") and up to 1,500,000 additional shares pursuant to the
underwriters' over-allotment option (the "Optional Common Shares") of Common
Stock, par value $0.0025 per share of the Company (the "Common Stock"), pursuant
to the terms of an underwriting agreement of even date between the Company and
the Representatives (the "Shares Underwriting Agreement"). The Firm Common
Shares and, if and to the extent such option is exercised, the Optional Common
Shares are collectively called the "Common Shares".
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-44251), which contains a form of prospectus to be used in
connection with the public offering and sale of the Notes. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Notes, is called the "Prospectus";
provided, however, if the Company has, with the consent of NMS, elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated March 2, 1998 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
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<PAGE> 5
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the
Underwriters as follows:
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<PAGE> 6
SECTION 1. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act") and the
rules and regulations thereunder, and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy
thereof delivered to the Underwriters for use in connection with the
offer and sale of the Notes. Each of the Registration Statement, any
Rule 462(b) Registration Statement and any post-effective amendment
thereto, at the time it became effective and at all subsequent times,
complied and will comply in all material respects with the Securities
Act and the Trust Indenture Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, as amended or supplemented, as
of its date and at all subsequent times, did not and will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments
or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not
been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to each Representative one complete manually signed copy
of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the
Registration Statement (without exhibits) and preliminary prospectuses
and the Prospectus, as amended or supplemented, in such quantities and
at such places as the Representatives have reasonably requested for
each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later
of the Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Notes, any offering material in
connection with the offering and sale of the Notes other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(e) The Notes. The issuance of the Notes has been duly
authorized by the Company, and when executed by the Company,
authenticated by the Trustee and delivered against payment
3
<PAGE> 7
therefor as contemplated by this Agreement, the Notes will constitute
valid and binding obligations of the Company enforceable in accordance
with their terms and entitled to the benefits of the Indenture, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights and remedies
of creditors or by general equitable principles.
(f) The Indenture and Asset Purchase Agreement. The Indenture
and that certain asset purchase agreement, dated September 23, 1997,
between the Company's subsidiary and Global Broadcasting Systems, Inc.
and its affiliate (the "Asset Purchase Agreement"), have been duly
authorized, executed and delivered by, and are valid and binding
agreements of the Company, enforceable in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(g) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement
except for such rights as have been duly waived.
(h) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects,
whether or not arising from transactions in the ordinary course of
business, of the Company and its subsidiaries, considered as one entity
(any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not
incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of
business; and (iii) there has been no dividend or distribution of any
kind declared, paid or made by the Company or, except for dividends
paid to the Company or other subsidiaries, any of its subsidiaries on
any class of capital stock or repurchase or redemption by the Company
or any of its subsidiaries of any class of capital stock.
(i) Independent Accountants. Coopers & Lybrand L.L.P., who
have expressed their opinion with respect to the financial statements
(which term as used in this Agreement includes the related notes
thereto) filed with the Commission as a part of the Registration
Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act.
(j) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the
consolidated financial position of the Company and its subsidiaries as
of and at the dates indicated and the results of their operations and
cash flows for the periods specified. Such financial statements have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial
data set forth in the Prospectus under the captions "Prospectus Summary
-- Summary Financial Data", "Selected Historical and Pro Forma
Financial Data" and "Capitalization" fairly present the information set
forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement. The pro forma
consolidated financial statements of the Company and its subsidiaries
and the related notes thereto included under the caption "Prospectus
Summary -- Summary Financial Data", "Selected Historical and Pro Forma
Financial Data" and elsewhere in the Prospectus and in the Registration
Statement present fairly the information contained therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
presented on the bases described therein, and the assumptions
4
<PAGE> 8
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein. The Company's ratios of earnings to
fixed charges set forth in the Prospectus under the caption "Selected
Historical and Pro Forma Financial Data" and in Exhibit 12 to the
Registration Statement have been calculated in compliance with Item
503(d) of Regulation S-K under the Securities Act.
(k) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and, in the
case of the Company, to enter into and perform its obligations under
this Agreement, the Indenture and the other agreements described in the
Prospectus, and the material contracts of the Company, including but
not limited to the Asset Purchase Agreement, and to consummate the
transactions described in each such agreement. Each of the Company and
each subsidiary is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material
Adverse Change. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid
and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim (other than liens being released on
the First Closing Date (as defined below) or liens permitted pursuant
to the Indenture). The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 to the Registration Statement.
(l) Notes and Indenture. The Notes and the Indenture conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of
its subsidiaries is in violation of its charter or by-laws or is in
default (or, with the giving of notice or lapse of time, would be in
default) ("Default") under any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject (each, an
"Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
The Company's execution, delivery and performance of this Agreement,
the Indenture and the Asset Purchase Agreement, the issuance of the
Notes and consummation of the transactions contemplated hereby and
thereby and by the Prospectus (i) have been duly authorized by all
necessary corporate action and will not result in any violation of the
provisions of the charter or by-laws of the Company or any subsidiary,
(ii) will not conflict with or constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to,
any Existing Instrument, except for such conflicts, breaches, Defaults,
liens, charges or encumbrances as would not, individually or in the
aggregate, result in a Material Adverse Change and (iii) will not
result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any
subsidiary. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's
execution, delivery and performance of this Agreement, the Indenture
and the Asset Purchase Agreement and consummation of the transactions
contemplated hereby and thereby and by the Prospectus, except such as
have been obtained or made by the Company and are in full force and
effect under the Securities Act, the Trust Indenture Act, applicable
state securities or blue sky laws and from the National Association of
Securities Dealers, Inc. (the "NASD").
5
<PAGE> 9
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened (i) against or affecting the
Company or any of its subsidiaries, (ii) which has as the subject
thereof any officer or director of, or property owned or leased by, the
Company or any of its subsidiaries or (iii) relating to environmental
or discrimination matters, where in any such case (A) there is a
reasonable possibility that such action, suit or proceeding might be
determined adversely to the Company or such subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would
reasonably be expected to result in a Material Adverse Change or
adversely affect the consummation of the transactions contemplated by
this Agreement. No material labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the best of the
Company's knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company and its
subsidiaries own or possess sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals, trade secrets and other
similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct their businesses as now conducted; and
the expected expiration of any of such Intellectual Property Rights
would not result in a Material Adverse Change. Neither the Company nor
any of its subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each
subsidiary possess such valid and current certificates, authorizations
or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(q) Title to Properties. Except as otherwise disclosed in the
Prospectus, the Company and each of its subsidiaries has good and
marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(j) above (or
elsewhere in the Prospectus), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely
affect the value of such property or the security for the Notes and do
not materially interfere with the use made or proposed to be made of
such property by the Company or such subsidiary and except for liens
being released on the First Closing Date or liens permitted pursuant to
the Indenture. The real property, improvements, equipment and personal
property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed
to be made of such real property, improvements, equipment or personal
property by the Company or such subsidiary.
(r) Tax Law Compliance. The Company and its consolidated
subsidiaries have filed all necessary federal, state and foreign income
and franchise tax returns and have paid all taxes required to be paid
by any of them and, if due and payable, any related or similar
assessment, fine or penalty levied against any of them; provided, that
the Company may have certain unpaid tax liability to the State of
Massachusetts, as described in the Prospectus. The Company has made
adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(j) above in respect of all federal,
state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its consolidated
subsidiaries has not been finally determined.
(s) Company Not an "Investment Company". The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not,
and after receipt of payment for the Notes will not be, an
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<PAGE> 10
"investment company" within the meaning of the Investment Company Act
and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries are
insured by recognized, financially sound and reputable institutions
with policies in such amounts and with such deductibles and covering
such risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and
personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and earthquakes.
The Company has no reason to believe that it or any subsidiary will not
be able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business
as now conducted and at a cost that would not result in a Material
Adverse Change. Neither the Company nor any subsidiary has been denied
any insurance coverage which it has sought or for which it has applied.
(u) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or
any subsidiary or any other person required to be described in the
Prospectus which have not been described as required.
(v) Certificates. Any certificate signed by an officer of the
Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the
Company to each Underwriter as to the matters set forth therein.
(w) No Unlawful Contributions or Other Payments. Neither the
Company nor any of its subsidiaries nor, to the best of the Company's
knowledge, any employee or agent of the Company or any subsidiary, has
made any contribution or other payment to any official of, or candidate
for, any federal, state or foreign office in violation of any law or of
the character required to be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a
system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change
(i) neither the Company nor any of its subsidiaries is in violation of
any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum and petroleum
products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which
violation includes, but is not limited to, noncompliance with any
permits or other governmental authorizations required for the operation
of the business of the Company or its subsidiaries under applicable
Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has the Company or any of its subsidiaries received any
written communication, whether from a governmental authority, citizens
group, employee or otherwise, that alleges that the Company or any of
its subsidiaries is in violation of any Environmental Law; (ii) there
is no claim, action or cause of action filed with a court or
governmental authority, no investigation with respect to which the
Company has received written
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notice, and no written notice by any person or entity alleging
potential liability for investigatory costs, cleanup costs,
governmental responses costs, natural resources damages, property
damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from the presence, or release into the
environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company or any of its subsidiaries,
now or in the past (collectively, "Environmental Claims"), pending or,
to the best of the Company's knowledge, threatened against the Company
or any of its subsidiaries or any person or entity whose liability for
any Environmental Claim the Company or any of its subsidiaries has
retained or assumed either contractually or by operation of law; and
(iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental
Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim
against the Company or any of its subsidiaries or against any person or
entity whose liability for any Environmental Claim the Company or any
of its subsidiaries has retained or assumed either contractually or by
operation of law.
(z) Periodic Review of Costs of Environmental Compliance. In
the ordinary course of its business, the Company conducts a periodic
review of the effect of Environmental Laws on the business, operations
and properties of the Company and its subsidiaries, in the course of
which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its
established reserves, the Company has reasonably concluded that such
associated costs and liabilities would not, individually or in the
aggregate, result in a Material Adverse Change.
(aa) ERISA Compliance. The Company and its subsidiaries and
any "employee benefit plan" (as defined under the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company, its subsidiaries or their
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue
Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates, if such "employee benefit plan" were
terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, its subsidiaries nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "employee benefit plan" or (ii) Sections 412,
4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of
their ERISA Affiliates that is intended to be qualified under Section
401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, which would cause the loss of such
qualification.
(bb) Conditions Precedent. All conditions precedent to the
closings of the Asset Purchase Agreement and the Executory Contract as
defined in Section 5(j) have been satisfied to the satisfaction of the
Representatives and the Company has no knowledge of any default by any
party in respect of the Asset Purchase Agreement or the Executory
Contract.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE NOTES.
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<PAGE> 12
The Notes. The Company agrees to issue and sell to the several
Underwriters the Notes upon the terms herein set forth. On the basis of the
representations, warranties and agreements herein contained, and upon the terms
but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective aggregate
amount of Notes set forth opposite their names on Schedule A, in each case at a
purchase price of ____% of the principal amount thereof plus accrued interest,
if any, from __________, 1998 to the Closing Date (as defined below).
The Closing Date. Delivery of certificates for the Notes to be
purchased by the Underwriters and payment therefor shall be made at the offices
of NMS, 600 Montgomery Street, San Francisco, California (or such other place as
may be agreed to by the Company and the Representatives) at 6:00 a.m. San
Francisco time, on [___], or such other time and date not later than 10:30 a.m.
San Francisco time, on [___] as the Representatives shall designate by notice to
the Company (the time and date of such closing are called the "Closing Date").
Public Offering of the Notes. The Representatives hereby
advise the Company that the Underwriters intend to offer for sale to the public,
as described in the Prospectus, their respective portions of the Notes as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
Payment for the Notes. Payment for the Notes shall be made at
the Closing Date by wire transfer of immediately available funds to the order of
the Company.
It is understood that NMS has been authorized, for its own
account and the accounts of the several Underwriters, to accept delivery of and
receipt for, and make payment of the purchase price for, the Notes the
Underwriters have agreed to purchase. NMS, individually and not as the
Representative of the Underwriters, may (but shall not be obligated to) make
payment for any Notes to be purchased by any Underwriter whose funds shall not
have been received by NMS by the Closing Date for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
Delivery of the Notes. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Notes at the Closing Date, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The certificates for the Notes shall be
in definitive form and registered in such names and denominations as the
Representatives shall have requested at least two full business days prior to
the Closing Date and shall be made available for inspection on the business day
preceding the Closing Date at a location in New York City as the Representatives
may designate. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
Delivery of Prospectus to the Underwriters. Not later than
12:00 p.m. on the second business day following the date the Notes are released
by the Underwriters for sale to the public, the Company shall deliver or cause
to be delivered copies of the Prospectus in such quantities and at such places
as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS. The Company further covenants
and agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending
on the later of the Closing Date or such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by
law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus Delivery Period"), prior to amending or
supplementing the Registration Statement (including any registration
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<PAGE> 13
statement filed under Rule 462(b) under the Securities Act) or the
Prospectus, including any amendment or supplement through incorporation
by reference of any report filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment
or supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of
the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date
that any post-effective amendment to the Registration Statement becomes
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any proceedings to remove, suspend or terminate from listing or
quotation the Common Stock from any securities exchange upon which it
is listed for trading or included or designated for quotation, or of
the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of
such order at the earliest possible moment. Additionally, the Company
agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its
reasonable efforts to confirm that any filings made by the Company
under such Rule 424(b) were received in a timely manner by the
Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
opinion of the Representatives or counsel for the Underwriters it is
otherwise necessary to amend or supplement the Prospectus to comply
with law, the Company agrees to promptly prepare (subject to Section
3(a) hereof), file with the Commission and furnish at its own expense
to the Underwriters and to dealers, amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto as the
Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register
the Notes for sale under (or obtain exemptions from the application of)
the state securities or blue sky laws or Canadian provincial Securities
laws of those jurisdictions designated by the Representatives, shall
comply with such laws and shall continue such qualifications,
registrations and exemptions in effect so long as required for the
distribution of the Notes. The Company shall not be required to qualify
as a foreign corporation or to take any action that would subject it to
general service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or
any such exemption relating to) the Notes for offering, sale or trading
in any jurisdiction or any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the Company
shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
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(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Notes sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited)
covering the twelve-month period ending June 30, 1999 that satisfies
the provisions of Section 11(a) of the Securities Act.
(h) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission all reports and documents required to be filed under the
Exchange Act.
(i) Future Reports to the Representatives. During the period
of five years hereafter the Company will furnish to the Representatives
(i) as soon as practicable after the end of each fiscal year, copies of
the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed
by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital
stock.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all
costs, fees and expenses incurred in connection with the performance of its
obligations hereunder and under the Indenture and in connection with the
transactions contemplated hereby, including without limitation (i) all expenses
incident to the issuance and delivery of the Notes (including all printing and
engraving costs), (ii) all fees and expenses of the Trustee of the Notes, (iii)
all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Notes to the Underwriters, (iv) all fees and expenses
of the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with the offering of the Notes, including, without limitation, in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Notes for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada, and, if requested by the Representatives, preparing and printing
a "Blue Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Notes, and
(viii) all other fees, costs and expenses referred to in Item 13 of Part II of
the Registration Statement.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the Notes as
provided herein on the Closing Date shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the Closing Date as though then made, to
the timely performance by the Company of its covenants and other obligations
under this Agreement and the Indenture, and to each of the following additional
conditions:
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(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Coopers & Lybrand L.L.P.,
independent public or certified public accountants for the Company, a
letter dated the date hereof addressed to the Underwriters, in form and
substance satisfactory to the Representatives, containing statements
and information of the type ordinarily included in accountant's
"comfort letters" to underwriters, delivered according to Statement of
Auditing Standards No. 72 (or any successor bulletin), with respect to
the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and the Representatives shall have received a sufficient number of
additional conformed copies of such accountants' letter for each of the
several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of
this Agreement and prior to the Closing Date:
(i) the Company shall have filed the Prospectus
with the Commission (including the information required by
Rule 430A under the Securities Act) in the manner and within
the time period required by Rule 424(b) under the Securities
Act; or the Company shall have filed a post-effective
amendment to the Registration Statement containing the
information required by such Rule 430A, and such
post-effective amendment shall have become effective; or, if
the Company elected to rely upon Rule 434 under the Securities
Act and obtained the Representatives' consent thereto, the
Company shall have filed a Term Sheet with the Commission in
the manner and within the time period required by such Rule
424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and no proceedings for such
purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For
the period from and after the date of this Agreement and prior to the
Closing Date:
(i) in the judgment of the Representatives there
shall not have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical
rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On the Closing Date
the Representatives shall have received the favorable opinion of Wyatt,
Tarrant & Combs, counsel for the Company, dated as of the Closing Date,
the form of which is attached as Exhibit A (and the Representatives
shall have received a sufficient number of additional conformed copies
of such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On the Closing
Date the Representatives shall have received the favorable opinion of
Jenkens & Gilchrist, a Professional Corporation, counsel for the
Underwriters, dated as of the Closing Date, as to customary matters and
in form satisfactory to the Representatives (and the Representatives
shall have received a sufficient number of additional conformed copies
of such counsel's legal opinion for each of the several Underwriters).
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(f) Officers' Certificate. On the Closing Date the
Representatives shall have received a written certificate executed by
the Chairman of the Board, Chief Executive Officer or President of the
Company and the Chief Financial Officer or Chief Accounting Officer of
the Company, dated as of the Closing Date, to the effect set forth in
subsections (b)(ii) and (c)(ii) of this Section 5, and further to the
effect that:
(i) for the period from and after the date of this
Agreement and prior to the Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants
of the Company set forth in Section 1 of this Agreement are
true and correct with the same force and effect as though
expressly made on and as of the Closing Date; and
(iii) the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date.
(g) Bring-down Comfort Letter. On the Closing Date the
Representatives shall have received from Coopers & Lybrand L.L.P.,
independent public or certified public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made
in the letter furnished by them pursuant to subsection (a) of this
Section 5, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days
prior to the Closing Date (and the Representatives shall have received
a sufficient number of additional conformed copies of such accountants'
letter for each of the several Underwriters).
(h) Additional Documents. On or before the Closing Date, the
Representatives and counsel for the Underwriters shall have received
such information, documents and opinions as they may reasonably require
for the purposes of enabling them to pass upon the issuance and sale of
the Notes as contemplated herein, or in order to evidence the accuracy
of any of the representations and warranties, or the satisfaction of
any of the conditions or agreements, herein contained, including a
letter of Wiley, Rein & Fielding regarding the statements made with
respect to WRAY (TV) at pages [___] of the Prospectus.
(i) The Firm Common Shares. The purchase and sale of the Firm
Common Shares pursuant to the Shares Underwriting Agreement shall be
consummated contemporaneously with the consummation of the purchase and
sale of the Notes under this Agreement, and, on or before the Closing
Date, all conditions to the obligations of the underwriters under the
Shares Underwriting Agreement to purchase the Firm Common Shares shall
have been satisfied in all material respects, and the Company shall be
prepared in all respects to consummate the sale of such Firm Common
Shares.
(j) Consummation of Other Transactions. The purchase and sale
of the assets to be acquired by the Company's subsidiary, SAH
Acquisition Corporation II ("SAH"), under (i) the Asset Purchase
Agreement, including without limitation broadcast television stations
KCNS located in San Francisco, California and WRAY located in the
Raleigh-Durham, North Carolina market, and (ii) an executory purchase
contract (the "Executory Contract") to be assigned to and assumed by
SAH under the Asset Purchase Agreement to purchase broadcast television
station WOAC (TV) in the Cleveland, Ohio market, shall be consummated
contemporaneously with the consummation of the purchase and sale of the
Notes under this Agreement, and, on or before the Closing Date, all
conditions to the obligations of SAH and the sellers under the Asset
Purchase Agreement and the Executory Contract to purchase and sell such
assets shall have been satisfied or waived, and SAH and such sellers
shall be prepared in all respects to consummate such purchase and sale
transactions.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time
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on or prior to the Closing Date, which termination shall be without liability on
the part of any party to any other party, except that Section 4, Section 6,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. The
Company agrees to reimburse the Representatives and the other Underwriters (or
such Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Representatives and the Underwriters in connection
with the proposed purchase and the offering and sale of the Notes, including but
not limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges. The reimbursement obligation
set forth herein shall be in effect in the event this Agreement is terminated by
the Representatives pursuant to Section 5, Section 7, Section 10 or Section 11,
or if the sale to the Underwriters of the Notes on the Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement
shall not become effective until the later of (i) the execution of this
Agreement by the parties hereto and (ii) notification by the Commission to the
Company and the Representatives of the effectiveness of the Registration
Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) of any Underwriter to the Company, or (c) of any party hereto to
any other party except that the provisions of Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act and the Exchange Act against any
loss, claim, damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of the Company), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule
434 under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
or (iii) in whole or in part upon any inaccuracy in the representations
and warranties of the Company contained herein; or (iv) in whole or in
part upon any failure of the Company to perform its obligations
hereunder or under law; or (v) any act or failure to act or any alleged
act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based
upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the
14
<PAGE> 18
extent that a court of competent jurisdiction shall have determined by
a final judgment that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or
willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by the Representatives) as such
expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any
preliminary prospectus, the foregoing indemnity agreement shall not
inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Notes, or any
person controlling such Underwriter, if copies of the Prospectus were
timely delivered to the Underwriter pursuant to Section 2 and a copy of
the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required
by law so to have been delivered, at or prior to the written
confirmation of the sale of the Notes to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 8(a) shall be in addition
to any liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and
Officers. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of the Securities Act
or the Exchange Act, against any loss, claim, damage, liability or
expense, as incurred, to which the Company, or any such director,
officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises
out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto),
or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
the Registration Statement, any preliminary prospectus, the Prospectus
(or any amendment or supplement thereto), in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the
Company, or any such director, officer or controlling person for any
legal and other expense reasonably incurred by the Company, or any such
director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. The Company hereby
acknowledges that the only information that the Underwriters have
furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) are the statements set forth (A) as
the last paragraph on the inside front cover page of the Prospectus
concerning stabilization by the Underwriters and (B) in the table in
the first paragraph and in the second, third, fourth, sixth and seventh
paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
15
<PAGE> 19
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing of
the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it
is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that a conflict may arise between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel
(together with local counsel), approved by the indemnifying party (the
Representatives in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or
consent to the entry of judgment in any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for
in Section 8 is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
indemnifying party shall
16
<PAGE> 20
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, from the offering of the Notes pursuant to this
Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Notes pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Notes pursuant to
this Agreement (before deducting expenses) received by the Company, and the
total underwriting discount received by the Underwriters, in each case as set
forth on the front cover page of the Prospectus (or, if Rule 434 under the
Securities Act is used, the corresponding location on the Term Sheet) bear to
the aggregate initial public offering price of the Notes as set forth on such
cover. The relative fault of the Company, on the one hand, and the Underwriters,
on the other hand, shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact or any such inaccurate or
alleged inaccurate representation or warranty relates to information supplied by
the Company, on the one hand, or the Underwriters, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Notes underwritten by it and distributed to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several, and not joint, in proportion
to their respective underwriting commitments as set forth opposite their names
in Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS. If, on the Closing Date, any one or more of the several
Underwriters shall fail or refuse to purchase Notes that it or they have agreed
to purchase hereunder on such date, and the aggregate principal amount of Notes
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase does not exceed 10% of the aggregate principal amount of Notes to be
purchased on such date, the other Underwriters shall be obligated, severally, in
the proportions that the principal amount of Notes set forth opposite their
respective names on
17
<PAGE> 21
Schedule A bears to the aggregate principal amount of Notes set forth opposite
the names of all such non-defaulting Underwriters, or in such other proportions
as may be specified by the Representatives with the consent of the
non-defaulting Underwriters, to purchase the Notes which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the Closing Date, any one or more of the Underwriters shall fail or
refuse to purchase Notes and the aggregate principal amount of Notes with
respect to which such default occurs exceeds 10% of the aggregate principal
amount of Notes to be purchased on such date, and arrangements satisfactory to
the Representatives and the Company for the purchase of such Notes are not made
within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, Section 8 and Section 9 shall at all times be effective and shall survive
such termination. In any such case either the Representatives or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the
Closing Date this Agreement may be terminated by the Representatives by notice
given to the Company if at any time (i) trading or quotation in any of the
Company's securities shall have been suspended or limited by the Commission or
by the Nasdaq Stock Market, or trading in securities generally on either the
Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Notes in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the judgment of the Representatives there shall have occurred any
Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representatives may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company to any Underwriter, except
that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b)
any Underwriter to the Company, or (c) of any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Notes sold hereunder and any termination of this
Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to NMS:
18
<PAGE> 22
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to FBR:
Friedman, Billings, Ramsey & Co., Inc.
1001 19th Street North
Arlington, Virginia 22209
Facsimile: (703) 312-9655
Attention: Syndicate Department
If to the Company:
Shop at Home, Inc.
3100 West End Avenue
Suite 880
Nashvillee, Tennessee 37203
Facsimile:
-----------------
Attention:
-----------------
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10 hereof, and to the benefit of the employees,
officers and directors and controlling persons referred to in Section 8 and
Section 9, and in each case their respective successors, and personal
representatives, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Notes as
such from any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
19
<PAGE> 23
(b) Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby ("Related Proceedings") may be
instituted in the federal courts of the United States of America
located in the City and County of San Francisco or the courts of the
State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party
irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of
any such court (a "Related Judgment"), as to which such jurisdiction is
non-exclusive) of such courts in any such suit, action or proceeding.
Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process
for any suit, action or other proceeding brought in any such court. The
parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such suit, action or
other proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
SHOP AT HOME, INC.
By:
--------------------------------
[TITLE]
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives in San Francisco, California and Arlington,
Virginia, respectively, as of the date first above written.
20
<PAGE> 24
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:
-----------------------------------------
Richard A. Smith, Managing Director
21
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AMOUNT OF NOTES
UNDERWRITER TO BE PURCHASED
<S> <C>
NationsBanc Montgomery Securities LLC....................... [___]
Friedman, Billings, Ramsey & Co., Inc....................... [___]
Total:............................................. $75,000,000
</TABLE>
22
<PAGE> 26
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Tennessee.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement, the Asset Purchase
Agreement, the Indenture, to issue the Notes and to consummate the
transactions described in each such agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405
under the Securities Act) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, to the best knowledge of such counsel,
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each
such significant subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or, to the best knowledge
of such counsel, any pending or threatened claim; provided, that the
Company may have certain unpaid tax liability to the State of
Massachusetts, as described in the Prospectus.
(vi) The Notes and the Indenture conform to the descriptions
thereof set forth in the Prospectus. The form of certificate used to
evidence the Notes is in due and proper form and complies with all
applicable requirements of the Indenture, the charter and by-laws of
the Company and the General Corporation Law of the State of Tennessee.
(vii) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Tennessee or (ii) to the best knowledge
of such counsel, otherwise.
A-1
<PAGE> 27
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(ix) The Indenture and the Asset Purchase Agreement have
been duly authorized, executed and delivered by, and are valid and
binding agreements of, the Company, enforceable in accordance with
their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(x) The issuance of the Notes has been duly authorized by
the Company, and when executed by the Company, authenticated by the
Trustee and delivered against payment therefor as contemplated by this
Agreement, the Notes will constitute valid and binding obligations of
the Company enforceable in accordance with their terms and entitled to
the benefits of the Indenture, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(xi) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if
any, has been issued under the Securities Act and no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
and has been made in the manner and within the time period required by
such Rule 424(b).
(xii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or
supplement to the Registration Statement and the Prospectus, as of
their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or in exhibits to
or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the
applicable requirements of the Securities Act, the Trust Indenture Act
and the Exchange Act.
(xiii) The statements (i) in the Prospectus under the
captions "Risk Factors -- Control by Principal Shareholders", " --
Change in Control", " -- Litigation", "Description of Notes",
"Description of Capital Stock", "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources", "Business -- Legal Proceedings", "Certain
Relationships and Related Transactions", and "Underwriting" and (ii) in
Item 14 and Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, documents or legal proceedings,
or legal conclusions, have been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred
to therein.
(xiv) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or
threatened which are required to be disclosed in the Registration
Statement, other than those disclosed therein.
A-2
<PAGE> 28
(xv) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed or incorporated by
reference as exhibits thereto; and the descriptions thereof and
references thereto are correct in all material respects.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the Underwriting Agreement, the Indenture and the
Asset Purchase Agreement, and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under
the Securities Act, the Trust Indenture Act, applicable state
securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting
Agreement, the Indenture, the Notes and the Asset Purchase Agreement by
the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations
under the indemnification section of the Underwriting Agreement, as to
which no opinion need be rendered) (i) have been duly authorized by all
necessary corporate action on the part of the Company; (ii) will not
result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary; (iii) will not constitute a breach of,
or Default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
of its subsidiaries pursuant to the Notes or to the best knowledge of
such counsel, any other material Existing Instrument; or (iv) to the
best knowledge of such counsel, will not result in any violation of any
law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for
the Notes will not be, an "investment company" within the meaning of
Investment Company Act.
(xix) Except as disclosed in the Prospectus, to the best
knowledge of such counsel, there are no persons with registration or
other similar rights to have any equity or debt securities registered
for sale under the Registration Statement or included in the offering
contemplated by the Underwriting Agreement, except for such rights as
have been duly waived.
(xx) To the best knowledge of such counsel, neither the
Company nor any subsidiary is in violation of its charter or by-laws or
any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary or is in Default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each
such case for such violations or Defaults as would not, individually or
in the aggregate, result in a Material Adverse Change; provided, that
the Company may have certain unpaid tax liability to the State of
Massachusetts, as described in the Prospectus.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public or certified
public accountants for the Company and with representatives of the
Underwriters at which the contents of the Registration Statement and
the Prospectus, and any supplements or amendments thereto, and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come
to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the
Registration Statement or such amendments became effective,
A-3
<PAGE> 29
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its
date or at the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such
counsel need express no belief as to the financial statements or
schedules or other financial or statistical data derived therefrom,
included in the Registration Statement or the Prospectus or any
amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
laws of the State of Tennessee or the federal law of the United States, to the
extent they deem proper and specified in such opinion, upon the opinion (which
shall be dated the Closing Date, shall be satisfactory in form and substance to
the Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Representatives) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials.
A-4
<PAGE> 1
EXHIBIT 1.2
NATIONSBANC MONTGOMERY SECURITIES LLC
UNDERWRITING AGREEMENT
10,000,000 SHARES
SHOP AT HOME, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED MARCH __, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1. Representations and Warranties.................................................................... 2
(a) Compliance with Registration Requirements..................................................... 2
(b) Offering Materials Furnished to Underwriters.................................................. 2
(c) Distribution of Offering Material By the Company.............................................. 2
(d) The Underwriting Agreement.................................................................... 2
(e) The Asset Purchase Agreement.................................................................. 2
(f) Authorization of the Common Shares............................................................ 2
(g) No Applicable Registration or Other Similar Rights............................................ 3
(h) No Material Adverse Change.................................................................... 3
(i) Independent Accountants....................................................................... 3
(j) Preparation of the Financial Statements....................................................... 3
(k) Incorporation and Good Standing of the Company and its Subsidiaries........................... 3
(l) Capitalization and Other Capital Stock Matters................................................ 4
(m) Stock Exchange Listing........................................................................ 4
(n) Non-Contravention of Existing Instruments; No Further Authorizations or
Approvals Required............................................................................ 4
(o) No Material Actions or Proceedings............................................................ 4
(p) Intellectual Property Rights.................................................................. 4
(q) All Necessary Permits, etc.................................................................... 5
(r) Title to Properties........................................................................... 5
(s) Tax Law Compliance............................................................................ 5
(t) Company Not an "Investment Company"........................................................... 5
(u) Insurance..................................................................................... 5
(v) No Price Stabilization or Manipulation........................................................ 5
(w) Related Party Transactions.................................................................... 5
(x) Certificates.................................................................................. 6
(y) No Unlawful Contributions or Other Payments................................................... 6
(z) Company's Accounting System................................................................... 6
(aa) Compliance with Environmental Laws............................................................ 6
(bb) Periodic Review of Costs of Environmental Compliance.......................................... 6
(cc) ERISA Compliance.............................................................................. 6
(dd) Conditions Precedent.......................................................................... 7
Section 2. Purchase, Sale and Delivery of the Common Shares.................................................. 7
The Firm Common Shares................................................................................. 7
The First Closing Date................................................................................. 7
The Optional Common Shares; the Second Closing Date.................................................... 7
Public Offering of the Common Shares................................................................... 8
Payment for the Common Shares.......................................................................... 8
Delivery of the Common Shares.......................................................................... 8
Delivery of Prospectus to the Underwriters............................................................. 8
Section 3. Additional Covenants.............................................................................. 8
(a) Representatives' Review of Proposed Amendments and Supplements................................ 8
(b) Securities Act Compliance..................................................................... 8
(c) Amendments and Supplements to the Prospectus and Other Securities Act Matters................. 9
(d) Copies of any Amendments and Supplements to the Prospectus.................................... 9
(e) Blue Sky Compliance........................................................................... 9
(f) Use of Proceeds............................................................................... 9
(g) Transfer Agent............................................................................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
(h) Earnings Statement........................................................................... 9
(i) Nasdaq SmallCap Market....................................................................... 9
(j) Periodic Reporting Obligations............................................................... 9
(k) Agreement Not To Offer or Sell Additional Securities......................................... 10
(l) Future Reports to the Representatives........................................................ 10
Section 4. Payment of Expenses.............................................................................. 10
Section 5. Conditions of the Obligations of the Underwriters................................................ 10
(a) Accountants' Comfort Letter.................................................................. 11
(b) Compliance with Registration Requirements; No Stop Order; No Objection from NASD............. 11
(c) No Material Adverse Change or Ratings Agency Change.......................................... 11
(d) Opinion of Counsel for the Company........................................................... 11
(e) Opinion of Counsel for the Underwriters...................................................... 11
(f) Officers' Certificate........................................................................ 11
(g) Bring-down Comfort Letter.................................................................... 12
(h) Lock-Up Agreement............................................................................ 12
(i) Additional Documents......................................................................... 12
(j) The Notes.................................................................................... 12
(k) Consummation of Other Transactions........................................................... 12
Section 6. Reimbursement of Underwriters' Expenses.......................................................... 13
Section 7. Effectiveness of this Agreement.................................................................. 13
Section 8. Indemnification.................................................................................. 13
(a) Indemnification of the Underwriters.......................................................... 13
(b) Indemnification of the Company, its Directors and Officers................................... 14
(c) Notifications and Other Indemnification Procedures........................................... 14
(d) Settlements.................................................................................. 15
Section 9. Contribution..................................................................................... 15
Section 10. Default of One or More of the Several Underwriters................................................ 16
Section 11. Termination of this Agreement..................................................................... 16
Section 12. Representations and Indemnities to Survive Delivery............................................... 17
Section 13. Notices........................................................................................... 17
Section 14. Successors........................................................................................ 17
Section 15. Partial Unenforceability.......................................................................... 18
Section 16. Governing Law Provisions.......................................................................... 18
(a) Governing Law................................................................................ 18
(b) Consent to Jurisdiction...................................................................... 18
Section 17. General Provisions................................................................................ 18
</TABLE>
ii
<PAGE> 4
UNDERWRITING AGREEMENT
March __, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Shop at Home, Inc., a Tennessee corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 10,000,000 shares (the "Firm
Common Shares") of its Common Stock, par value $0.0025 per share (the "Common
Stock"). In addition, the Company has granted to the Underwriters an option to
purchase up to an additional 1,500,000 shares (the "Optional Common Shares") of
Common Stock, as provided in Section 2. The Firm Common Shares and, if and to
the extent such option is exercised, the Optional Common Shares are collectively
called the "Common Shares". NationsBanc Montgomery Securities LLC ("NMS") and
Friedman, Billings, Ramsey & Co., Inc. ("FBR") have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
Concurrent with the public offering of the Common Shares, the
Representatives and certain other underwriters, including some of the
Underwriters, propose to make a public offering of $75,000,000 in total
principal amount of ____% Senior Secured Notes due 2005 of the Company (the
"Notes"), pursuant to the terms of an underwriting agreement of even date
between the Company and the Representatives (the "Notes Underwriting
Agreement").
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-44251), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of NMS, elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated March 2, 1998 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include
1
<PAGE> 5
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the
Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to EDGAR (except as may be
permitted by Regulation S-T under the Securities Act), was identical to
the copy thereof delivered to the Underwriters for use in connection
with the offer and sale of the Common Shares. Each of the Registration
Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and
at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, as amended or supplemented, as
of its date and at all subsequent times, did not and will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments
or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not
been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to each Representative one complete manually signed copy
of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the
Registration Statement (without exhibits) and preliminary prospectuses
and the Prospectus, as amended or supplemented, in such quantities and
at such places as the Representatives have reasonably requested for
each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material
in connection with the offering and sale of the Common Shares other
than a preliminary prospectus, the Prospectus or the Registration
Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
2
<PAGE> 6
(e) The Asset Purchase Agreement. The Asset Purchase
Agreement, dated September 23, 1997, between the Company's Subsidiary
and Global Broadcasting Systems, Inc. and its affiliate (the "Asset
Purchase Agreement"), has been duly authorized, executed and delivered
by, and is a valid and binding agreement of, the Company, enforceable
in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of
creditors or by general equitable principles.
(f) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
(g) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement
except for such rights as have been duly waived.
(h) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects,
whether or not arising from transactions in the ordinary course of
business, of the Company and its subsidiaries, considered as one entity
(any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not
incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of
business; and (iii) there has been no dividend or distribution of any
kind declared, paid or made by the Company or, except for dividends
paid to the Company or other subsidiaries, any of its subsidiaries on
any class of capital stock or repurchase or redemption by the Company
or any of its subsidiaries of any class of capital stock.
(i) Independent Accountants. Coopers & Lybrand L.L.P., who
have expressed their opinion with respect to the financial statements
(which term as used in this Agreement includes the related notes
thereto) filed with the Commission as a part of the Registration
Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act.
(j) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the
consolidated financial position of the Company and its subsidiaries as
of and at the dates indicated and the results of their operations and
cash flows for the periods specified. Such financial statements have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial
data set forth in the Prospectus under the captions "Prospectus Summary
-- Summary Financial Data", "Selected Historical and Pro Forma
Financial Data" and "Capitalization" fairly present the information set
forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement. The pro forma
consolidated financial statements of the Company and its subsidiaries
and the related notes thereto included under the caption "Prospectus
Summary -- Summary Financial Data", "Selected Historical and Pro Forma
Financial Data" and elsewhere in the Prospectus and in the Registration
Statement present fairly the information contained therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
presented on the bases described therein, and the assumptions
3
<PAGE> 7
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein. The Company's ratios of earnings to
fixed charges set forth in the Prospectus under the caption "Selected
Historical and Pro Forma Financial Data" and in Exhibit 12 to the
Registration Statement have been calculated in compliance with Item
503(d) of Regulation S-K under the Securities Act.
(k) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and, in the
case of the Company, to enter into and perform its obligations under
this Agreement, the Indenture dated March ___, 1998, between the
Company and PNC Bank, National Association, as Trustee (the
"Indenture") and the other agreements described in the Prospectus, and
the material contracts of the Company, including but not limited
to the Asset Purchase Agreement, and to consummate the transactions
described in such agreement. Each of the Company and each subsidiary is
duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change. All of the
issued and outstanding capital stock of each subsidiary has been duly
authorized and validly issued, is fully paid and nonassessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance or claim
(other than liens being released on the First Closing Date (as defined
below) or liens permitted pursuant to the Indenture). The Company does
not own or control, directly or indirectly, any corporation,
association or other entity other than the subsidiaries listed in
Exhibit 21 to the Registration Statement.
(l) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" (other
than for subsequent issuances, if any, pursuant to employee benefit
plans described in the Prospectus or upon exercise of outstanding
options or warrants described in the Prospectus or upon conversion of
the preferred stock described in the Prospectus). The Common Stock
(including the Common Shares) conforms in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued
in compliance with federal and state securities laws. None of the
outstanding shares of Common Stock were issued in violation of any
preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights
of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any
capital stock of the Company or any of its subsidiaries other than
those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set
forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options
and rights.
(m) Stock Exchange Listing. The Common Shares have been
approved for quotation on the Nasdaq SmallCap Market, subject only to
official notice of issuance.
(n) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of
its subsidiaries is in violation of its charter or by-laws or is in
default (or, with the giving of notice or lapse of time, would be in
default) ("Default") under any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject (each, an
"Existing Instrument"), except for such Defaults as would not,
individually or
4
<PAGE> 8
in the aggregate, result in a Material Adverse Change. The Company's
execution, delivery and performance of this Agreement, the Indenture
and the Asset Purchase Agreement and consummation of the transactions
contemplated hereby and thereby and by the Prospectus (i) have been
duly authorized by all necessary corporate action and will not result
in any violation of the provisions of the charter or by-laws of the
Company or any subsidiary, (ii) will not conflict with or constitute a
breach of, or Default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, or require the consent
of any other party to, any Existing Instrument, except for such
conflicts, breaches, Defaults, liens, charges or encumbrances as would
not, individually or in the aggregate, result in a Material Adverse
Change and (iii) will not result in any violation of any law,
administrative regulation or administrative or court decree applicable
to the Company or any subsidiary. No consent, approval, authorization
or other order of, or registration or filing with, any court or other
governmental or regulatory authority or agency, is required for the
Company's execution, delivery and performance of this Agreement and the
Asset Purchase Agreement and consummation of the transactions
contemplated hereby and thereby and by the Prospectus, except such as
have been obtained or made by the Company and are in full force and
effect under the Securities Act, applicable state securities or blue
sky laws and from the National Association of Securities Dealers, Inc.
(the "NASD").
(o) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened (i) against or affecting the
Company or any of its subsidiaries, (ii) which has as the subject
thereof any officer or director of, or property owned or leased by, the
Company or any of its subsidiaries or (iii) relating to environmental
or discrimination matters, where in any such case (A) there is a
reasonable possibility that such action, suit or proceeding might be
determined adversely to the Company or such subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would
reasonably be expected to result in a Material Adverse Change or
adversely affect the consummation of the transactions contemplated by
this Agreement. No material labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the best of the
Company's knowledge, is threatened or imminent.
(p) Intellectual Property Rights. The Company and its
subsidiaries own or possess sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals, trade secrets and other
similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct their businesses as now conducted; and
the expected expiration of any of such Intellectual Property Rights
would not result in a Material Adverse Change. Neither the Company nor
any of its subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(q) All Necessary Permits, etc. The Company and each
subsidiary possess such valid and current certificates, authorizations
or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(r) Title to Properties. Except as otherwise disclosed in the
Prospectus, the Company and each of its subsidiaries has good and
marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(j) above (or
elsewhere in the Prospectus), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely
affect the value of such property or the security for the Notes and do
not materially interfere with the use made or proposed to be made of
such property by the Company or such subsidiary and except for liens
being
5
<PAGE> 9
released on the First Closing Date or liens permitted pursuant to the
Indenture. The real property, improvements, equipment and personal
property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed
to be made of such real property, improvements, equipment or personal
property by the Company or such subsidiary.
(s) Tax Law Compliance. The Company and its consolidated
subsidiaries have filed all necessary federal, state and foreign income
and franchise tax returns and have paid all taxes required to be paid
by any of them and, if due and payable, any related or similar
assessment, fine or penalty levied against any of them; provided, that
the Company may have certain unpaid tax liability to the State of
Massachusetts, as described in the Prospectus. The Company has made
adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(j) above in respect of all federal,
state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its consolidated
subsidiaries has not been finally determined.
(t) Company Not an "Investment Company". The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of the Investment Company Act
and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(u) Insurance. Each of the Company and its subsidiaries are
insured by recognized, financially sound and reputable institutions
with policies in such amounts and with such deductibles and covering
such risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and
personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and earthquakes.
The Company has no reason to believe that it or any subsidiary will not
be able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business
as now conducted and at a cost that would not result in a Material
Adverse Change. Neither the Company nor any subsidiary has been denied
any insurance coverage which it has sought or for which it has applied.
(v) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(w) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or
any subsidiary or any other person required to be described in the
Prospectus which have not been described as required.
(x) Certificates. Any certificate signed by an officer of the
Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the
Company to each Underwriter as to the matters set forth therein.
(y) No Unlawful Contributions or Other Payments. Neither the
Company nor any of its subsidiaries nor, to the best of the Company's
knowledge, any employee or agent of the Company or any subsidiary, has
made any contribution or other payment to any official of, or candidate
for, any federal, state or foreign office in violation of any law or of
the character required to be disclosed in the Prospectus.
(z) Company's Accounting System. The Company maintains a
system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance
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with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(aa) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change
(i) neither the Company nor any of its subsidiaries is in violation of
any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum and petroleum
products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which
violation includes, but is not limited to, noncompliance with any
permits or other governmental authorizations required for the operation
of the business of the Company or its subsidiaries under applicable
Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has the Company or any of its subsidiaries received any
written communication, whether from a governmental authority, citizens
group, employee or otherwise, that alleges that the Company or any of
its subsidiaries is in violation of any Environmental Law; (ii) there
is no claim, action or cause of action filed with a court or
governmental authority, no investigation with respect to which the
Company has received written notice, and no written notice by any
person or entity alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties
arising out of, based on or resulting from the presence, or release
into the environment, of any Material of Environmental Concern at any
location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental
Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person
or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or
by operation of law; and (iii) to the best of the Company's knowledge,
there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of
any Environmental Law or form the basis of a potential Environmental
Claim against the Company or any of its subsidiaries or against any
person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
(bb) Periodic Review of Costs of Environmental Compliance. In
the ordinary course of its business, the Company conducts a periodic
review of the effect of Environmental Laws on the business, operations
and properties of the Company and its subsidiaries, in the course of
which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its
established reserves, the Company has reasonably concluded that such
associated costs and liabilities would not, individually or in the
aggregate, result in a Material Adverse Change.
(cc) ERISA Compliance. The Company and its subsidiaries and
any "employee benefit plan" (as defined under the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company, its subsidiaries or their
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the
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Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue
Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates, if such "employee benefit plan" were
terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, its subsidiaries nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "employee benefit plan" or (ii) Sections 412,
4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of
their ERISA Affiliates that is intended to be qualified under Section
401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, which would cause the loss of such
qualification.
(dd) Conditions Precedent. All conditions precedent to the
closings of the Asset Purchase Agreement and the Executory Contract as
defined in Section 5(k) have been satisfied to the satisfaction of the
Representatives, and the Company has no knowledge of any default by any
party in respect of the Asset Purchase Agreement or the Executory
Contract.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell
to the several Underwriters the Firm Common Shares upon the terms herein set
forth. On the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Underwriters agree, severally and not jointly, to purchase from the Company
the respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[___] per share.
The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor shall be
made at the offices of NMS, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed to by the Company and the Representatives) at
6:00 a.m. San Francisco time, on [___], or such other time and date not later
than 10:30 a.m. San Francisco time, on [___] as the Representatives shall
designate by notice to the Company (the time and date of such closing are called
the "First Closing Date").
The Optional Common Shares; the Second Closing Date. In
addition, on the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 1,500,000 Optional Common
Shares from the Company at the purchase price per share to be paid by the
Underwriters for the Firm Common Shares. The option granted hereunder is for use
by the Underwriters solely in covering any over-allotments in connection with
the sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) upon notice by
the Representatives to the Company, which notice may be given at any time within
30 days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
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<PAGE> 12
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representatives
hereby advise the Company that the Underwriters intend to offer for sale to the
public, as described in the Prospectus, their respective portions of the Common
Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in their sole
judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares
shall be made at the First Closing Date (and, if applicable, at the Second
Closing Date) by wire transfer of immediately available funds to the order of
the Company.
It is understood that NMS has been authorized, for its own
account and the accounts of the several Underwriters, to accept delivery of and
receipt for, and make payment of the purchase price for, the Firm Common Shares
and any Optional Common Shares the Underwriters have agreed to purchase. NMS,
individually and not as the Representative of the Underwriters, may (but shall
not be obligated to) make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by NMS by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
Delivery of the Common Shares. The Company shall deliver, or
cause to be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than
12:00 p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS. The Company further covenants
and agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion
of counsel for the Underwriters, the Prospectus is no longer required
by law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus Delivery Period"), prior to amending or
supplementing the Registration Statement (including any registration
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<PAGE> 13
statement filed under Rule 462(b) under the Securities Act) or the
Prospectus, including any amendment or supplement through incorporation
by reference of any report filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment
or supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of
the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date
that any post-effective amendment to the Registration Statement becomes
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any proceedings to remove, suspend or terminate from listing or
quotation the Common Stock from any securities exchange upon which it
is listed for trading or included or designated for quotation, or of
the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of
such order at the earliest possible moment. Additionally, the Company
agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its
reasonable efforts to confirm that any filings made by the Company
under such Rule 424(b) were received in a timely manner by the
Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
opinion of the Representatives or counsel for the Underwriters it is
otherwise necessary to amend or supplement the Prospectus to comply
with law, the Company agrees to promptly prepare (subject to Section
3(a) hereof), file with the Commission and furnish at its own expense
to the Underwriters and to dealers, amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto as the
Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register
the Common Shares for sale under (or obtain exemptions from the
application of) the state securities or blue sky laws or Canadian
provincial Securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as
required for the distribution of the Common Shares. The Company shall
not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise
the Representatives promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares
for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
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exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described
under the caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited)
covering the twelve-month period ending June 30, 1999 that satisfies
the provisions of Section 11(a) of the Securities Act.
(i) Nasdaq SmallCap Market. The Company shall use its best
efforts to effect and maintain the quotation of the Common Shares on
the Nasdaq SmallCap Market and to file with the Nasdaq SmallCap Market
all documents and notices required by the Nasdaq SmallCap Market of
companies that have securities that are traded in the over-the-counter
market and quotations for which are reported by the Nasdaq SmallCap
Market. In the event the Company applies and is approved for listing of
the Nasdaq National Market, the Company shall undertake the foregoing
with respect to the Nasdaq National Market.
(j) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq SmallCap Market all reports and documents
required to be filed under the Exchange Act.
(k) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the
Company will not, without the prior written consent of the
Representatives (which consent may be withheld at the sole discretion
of the Representatives), directly or indirectly, sell, offer, contract
or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the
offering of, or file any registration statement under the Securities
Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than
as contemplated by this Agreement with respect to the Common Shares);
provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other
stock plan or arrangement described in the Prospectus.
(l) Future Reports to the Representatives. During the period
of five years hereafter the Company will furnish to the Representatives
(i) as soon as practicable after the end of each fiscal year, copies of
the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed
by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital
stock.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all
costs, fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the issuance
and
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delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Stock,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel, independent public or certified public
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with the offering of the Common Shares, including
without limitation in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the state securities or blue sky laws or
the provincial securities laws of Canada, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq SmallCap Market, and
(ix) all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Coopers & Lybrand L.L.P.,
independent public or certified public accountants for the Company, a
letter dated the date hereof addressed to the Underwriters, in form and
substance satisfactory to the Representatives, containing statements
and information of the type ordinarily included in accountant's
"comfort letters" to underwriters, delivered according to Statement of
Auditing Standards No. 72 (or any successor bulletin), with respect to
the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and the Representatives shall have received a sufficient number of
additional conformed copies of such accountants' letter for each of the
several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule
430A under the Securities Act) in the manner and within the
time period required by Rule 424(b) under the Securities Act;
or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required
by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed
a Term Sheet with the Commission in the manner and within the
time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and no proceedings for such
purpose shall have been instituted or threatened by the
Commission; and
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(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For
the period from and after the date of this Agreement and prior to the
First Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date:
(i) in the judgment of the Representatives there
shall not have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical
rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Wyatt, Tarrant & Combs, counsel for
the Company, dated as of such Closing Date, the form of which is
attached as Exhibit A (and the Representatives shall have received a
sufficient number of additional conformed copies of such counsel's
legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and the Second Closing Date the Representatives
shall have received the favorable opinion of Jenkens & Gilchrist, a
Professional Corporation, counsel for the Underwriters, dated as of
such Closing Date, as to customary matters and in form satisfactory to
the Representatives (and the Representatives shall have received a
sufficient number of additional conformed copies of such counsel's
legal opinion for each of the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a
written certificate executed by the Chairman of the Board, Chief
Executive Officer or President of the Company and the Chief Financial
Officer or Chief Accounting Officer of the Company, dated as of such
Closing Date, to the effect set forth in subsections (b)(ii) and
(c)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants
of the Company set forth in Section 1 of this Agreement are
true and correct with the same force and effect as though
expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing
Date and the Second Closing Date the Representatives shall have
received from Coopers & Lybrand L.L.P., independent public or certified
public accountants for the Company, a letter dated such date, in form
and substance satisfactory to the Representatives, to the effect that
they reaffirm the statements made in the letter furnished by them
pursuant to subsection (a) of this Section 5, except that the specified
date referred to therein for the carrying out of procedures shall be no
more than three business days prior to the First Closing Date or Second
Closing Date, as the case may be (and the Representatives
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shall have received a sufficient number of additional conformed copies
of such accountants' letter for each of the several Underwriters).
(h) Lock-Up Agreement. On the date hereof, the Company shall
have furnished to the Representatives an agreement in the form of
Exhibit B hereto from each director, officer and each beneficial owner
of Common Stock (as defined determined according to Rule 13d-3 under
the Exchange Act, except that a one hundred eighty day period shall be
used rather than the sixty day period stated therein), and such
agreement shall be in full force and effect on each of the First
Closing Date and the Second Closing Date.
(i) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and
counsel for the Underwriters shall have received such information,
documents and opinions as they may reasonably require for the purposes
of enabling them to pass upon the issuance and sale of the Common
Shares as contemplated herein, or in order to evidence the accuracy of
any of the representations and warranties, or the satisfaction of any
of the conditions or agreements, herein contained, including a letter
of Wiley, Rein & Fielding regarding the statements made with respect to
WRAY (TV) at pages [___] of the Prospectus.
(j) The Notes. The purchase and sale of the Notes pursuant to
the Notes Underwriting Agreement shall be consummated contemporaneously
with the consummation of the purchase and sale of the Firm Common
Shares under this Agreement, and, on or before the First Closing Date,
all conditions to the obligations of the underwriters under the Notes
Underwriting Agreement to purchase the Notes shall have been satisfied
in all material respects, and the Company shall be prepared in all
respects to consummate the sale of such Notes.
(k) Consummation of Other Transactions. The purchase and sale
of the assets to be acquired by the Company's subsidiary, SAH
Acquisition Corporation II ("SAH"), under (i) the Asset Purchase
Agreement, including without limitation broadcast television stations
KCNS located in San Francisco, California and WRAY located in the
Raleigh-Durham, North Carolina market, and (ii) an executory purchase
contract (the "Executory Contract") to be assigned to and assumed by
SAH under the Asset Purchase Agreement to purchase broadcast television
station WOAC (TV) in the Cleveland, Ohio market, shall be consummated
contemporaneously with the consummation of the purchase and sale of the
Firm Common Shares under this Agreement, and, on or before the First
Closing Date, all conditions to the obligations of SAH and the sellers
under the Asset Purchase Agreement and the Executory Contract to
purchase and sell such assets shall have been satisfied or waived, and
SAH and such sellers shall be prepared in all respects to consummate
such purchase and sale transactions.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. The
Company agrees to reimburse the Representatives and the other Underwriters (or
such Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Representatives and the Underwriters in connection
with the proposed purchase and the offering and sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges. The
reimbursement obligation set forth herein shall be in effect in the event this
Agreement is terminated by the Representatives pursuant to Section 5, Section 7,
Section 10 or Section 11, or if the sale to the Underwriters of the Common
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<PAGE> 18
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or to comply with any provision hereof.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement
shall not become effective until the later of (i) the execution of this
Agreement by the parties hereto and (ii) notification by the Commission to the
Company and the Representatives of the effectiveness of the Registration
Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) of any Underwriter to the Company, or (c) of any party hereto to
any other party except that the provisions of Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act and the Exchange Act against any
loss, claim, damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of the Company), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule
434 under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
or (iii) in whole or in part upon any inaccuracy in the representations
and warranties of the Company contained herein; or (iv) in whole or in
part upon any failure of the Company to perform its obligations
hereunder or under law; or (v) any act or failure to act or any alleged
act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based
upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final
judgment that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to
be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements
of counsel chosen by the Representatives) as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action;
provided, however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided,
further, that with respect to
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<PAGE> 19
any preliminary prospectus, the foregoing indemnity agreement shall not
inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Common Shares,
or any person controlling such Underwriter, if copies of the Prospectus
were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if
the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage, liability or expense.
The indemnity agreement set forth in this Section 8(a) shall be in
addition to any liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and
Officers. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of the Securities Act
or the Exchange Act, against any loss, claim, damage, liability or
expense, as incurred, to which the Company, or any such director,
officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises
out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto),
or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
the Registration Statement, any preliminary prospectus, the Prospectus
(or any amendment or supplement thereto), in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the
Company, or any such director, officer or controlling person for any
legal and other expense reasonably incurred by the Company, or any such
director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. The Company hereby
acknowledges that the only information that the Underwriters have
furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) are the statements set forth (A) as
the last paragraph on the inside front cover page of the Prospectus
concerning stabilization by the Underwriters and (B) in the table in
the first paragraph and in the second, third, fourth, sixth and seventh
paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing of
the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it
is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have
16
<PAGE> 20
reasonably concluded that a conflict may arise between the positions of
the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in
the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such
indemnified party of such indemnifying party's election so to assume
the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate
counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel (together
with local counsel), approved by the indemnifying party (the
Representatives in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or
consent to the entry of judgment in any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for
in Section 8 is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party, as incurred, as a result of any losses, claims, damages,
liabilities or expenses referred to therein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Underwriters, on the other hand, from the offering of the Common
Shares pursuant to this Agreement or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, in connection with the statements or omissions
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and the Underwriters, on the other hand, in connection
with the offering of the Common Shares pursuant to this Agreement shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of the Common Shares pursuant to this Agreement (before deducting
expenses) received by the Company, and the total underwriting discount received
by the Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the
17
<PAGE> 21
Securities Act is used, the corresponding location on the Term Sheet) bear to
the aggregate initial public offering price of the Common Shares as set forth on
such cover. The relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact or any such
inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several, and not joint, in proportion
to their respective underwriting commitments as set forth opposite their names
in Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on Schedule A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of the
non-defaulting Underwriters, to purchase the Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Common
Shares and the aggregate number of Common Shares with respect to which such
default occurs exceeds 10% of the aggregate number of Common Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Common Shares are not made within 48 hours
after such default, this Agreement shall terminate without liability of any
party to any other party except that the provisions of Section 4, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but
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<PAGE> 22
in no event for longer than seven days in order that the required changes, if
any, to the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement may be terminated by the Representatives by notice
given to the Company if at any time (i) trading or quotation in any of the
Company's securities shall have been suspended or limited by the Commission or
by the Nasdaq Stock Market, or trading in securities generally on either the
Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) any Underwriter to the Company, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Common Shares sold hereunder and any termination
of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to NMS:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
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<PAGE> 23
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to FBR:
Friedman, Billings, Ramsey & Co., Inc.
1001 19th Street North
Arlington, Virginia 22209
Facsimile: (703) 312-9655
Attention: Syndicate Department
If to the Company:
Shop at Home, Inc.
3100 West End Avenue
Suite 880
Nashville, TN 37203
Facsimile:_______________
Attention:_______________
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10 hereof, and to the benefit of the employees,
officers and directors and controlling persons referred to in Section 8 and
Section 9, and in each case their respective successors, and personal
representatives, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Common
Shares as such from any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby ("Related Proceedings") may be
instituted in the federal courts of the United States of America
located in the City and County of San Francisco or the courts of the
State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party
irrevocably submits to the exclusive
20
<PAGE> 24
jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as
to which such jurisdiction is non-exclusive) of such courts in any such
suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be
effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally
waive any objection to the laying of venue of any suit, action or other
proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such
suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
SHOP AT HOME, INC.
By:
---------------------------------
[TITLE]
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives in San Francisco, California and Arlington,
Virginia, respectively, as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
Acting as Representatives of the
several Underwriters named in
21
<PAGE> 25
the attached Schedule A.
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:
---------------------------------------
Richard A. Smith, Managing Director
22
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM NUMBER
FIRM COMMON OF OPTIONAL
SHARES TO BE COMMON SHARES
UNDERWRITER PURCHASED TO BE SOLD
<S> <C> <C>
NationsBanc Montgomery Securities LLC....................... [___] [___]
Friedman, Billings, Ramsey & Co., Inc....................... [___] [___]
Total:............................................. [___] [___]
</TABLE>
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<PAGE> 27
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Tennessee.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement, the Asset Purchase
Agreement and to consummate the transactions described in each such
agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405
under the Securities Act) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, to the best knowledge of such counsel,
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each
such significant subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or, to the best knowledge
of such counsel, any pending or threatened claim and except for liens
being released on the First Closing Date or liens permitted pursuant to
the Indenture.
(vi) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conform to the descriptions
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable and, to the best of such counsel's knowledge,
have been issued in compliance with the registration and qualification
requirements of federal and state securities laws. The form of
certificate used to evidence the Common Stock is in due and proper form
and complies with all applicable requirements of the charter and
by-laws of the Company and the Tennessee Business Corporation Act. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the
A-1
<PAGE> 28
Prospectus accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Tennessee or (ii) to the best knowledge
of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(ix) The Asset Purchase Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(x) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and delivered
by the Company pursuant to the Underwriting Agreement against payment
of the consideration set forth therein, will be validly issued, fully
paid and nonassessable.
(xi) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if
any, has been issued under the Securities Act and no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
(xii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or
supplement to the Registration Statement and the Prospectus, as of
their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or in exhibits to
or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
(xiii) The Common Shares have been approved for quotation on
the Nasdaq SmallCap Market.
(xiv) The statements (i) in the Prospectus under the captions
"Risk Factors -- Control by Principal Shareholder; Change in Control",
" -- Litigation", " -- Shares Eligible for Future Sale", "Description
of Capital Stock", "Description of Notes", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources", "Business -- Legal Proceedings", "Certain
Relationships and Related Transactions", "Shares Eligible for Future
Sale", and "Underwriting" and (ii) in Item 14 and Item 15 of the
Registration Statement, insofar as
A-2
<PAGE> 29
such statements constitute matters of law, summaries of legal matters,
the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, have been reviewed by such counsel
and fairly present and summarize, in all material respects, the matters
referred to therein.
(xv) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or
threatened which are required to be disclosed in the Registration
Statement, other than those disclosed therein.
(xvi) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed or incorporated by
reference as exhibits thereto; and the descriptions thereof and
references thereto are correct in all material respects.
(xvii) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the Underwriting Agreement and the Asset Purchase
Agreement, and consummation of the transactions contemplated thereby
and by the Prospectus, except as required under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(xviii) The execution and delivery of the Underwriting
Agreement and the Asset Purchase Agreement by the Company and the
performance by the Company of its obligations thereunder (other than
performance by the Company of its obligations under the indemnification
section of the Underwriting Agreement, as to which no opinion need be
rendered) (i) have been duly authorized by all necessary corporate
action on the part of the Company; (ii) will not result in any
violation of the provisions of the charter or by-laws of the Company or
any subsidiary; (iii) will not constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to the Notes or to the best knowledge of such
counsel, any other material Existing Instrument; or (iv) to the best
knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable
to the Company or any subsidiary.
(xix) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act.
(xx) Except as disclosed in the Prospectus under the
caption "Shares Eligible for Future Sale", to the best knowledge of
such counsel, there are no persons with registration or other similar
rights to have any equity or debt securities registered for sale under
the Registration Statement or included in the offering contemplated by
the Underwriting Agreement, except for such rights as have been duly
waived.
(xxi) To the best knowledge of such counsel, neither the
Company nor any subsidiary is in violation of its charter or by-laws or
any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary or is in Default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each
such case for such violations or Defaults as would not, individually or
in the aggregate, result in a Material Adverse Change; provided, that
the Company may have certain unpaid tax liability to the State of
Massachusetts, as described in the Prospectus.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public or certified
A-3
<PAGE> 30
public accountants for the Company and with representatives of the
Underwriters at which the contents of the Registration Statement and
the Prospectus, and any supplements or amendments thereto, and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come
to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the
Registration Statement or such amendments became effective, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or at the
First Closing Date or the Second Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no belief as to the
financial statements or schedules or other financial or statistical
data derived therefrom, included in the Registration Statement or the
Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
laws of the State of Tennessee or the federal law of the United States, to the
extent they deem proper and specified in such opinion, upon the opinion (which
shall be dated the First Closing Date or the Second Closing Date, as the case
may be, shall be satisfactory in form and substance to the Underwriters, shall
expressly state that the Underwriters may rely on such opinion as if it were
addressed to them and shall be furnished to the Representatives) of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters; provided, however, that such
counsel shall further state that they believe that they and the Underwriters are
justified in relying upon such opinion of other counsel, and (B) as to matters
of fact, to the extent they deem proper, on certificates of responsible officers
of the Company and public officials.
A-4
<PAGE> 31
EXHIBIT B
[Date]
NationsBanc Montgomery Securities LLC
Friedman, Billings, Ramsey & Co., Inc.
As Representatives of the Several Underwriters
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
RE: Shop at Home, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
Representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of the Representatives
(which consent may be withheld in their sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under the Exchange Act) by the undersigned, or publicly announce
the undersigned's intention to do any of the foregoing, for a period commencing
on the date hereof and continuing through the close of trading on the date 180
days after the date of the Prospectus. The undersigned also agrees and consents
to the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of 1933, as amended, of
any Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
B-1
<PAGE> 32
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- ---------------------------------------------
Printed Name of Holder
By:
------------------------------------------
Signature
- ---------------------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
<PAGE> 1
EXHIBIT 4.6
SHOP AT HOME, INC.
Issuer,
and
PNC BANK, NATIONAL ASSOCIATION
Trustee
--------------------
INDENTURE
Dated as of March __, 1998
---------------------
$75,000,000
___ % Secured Notes Due 2005
================================================================================
<PAGE> 2
SHOP AT HOME, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE DATED AS OF MARCH __, 1998
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
ss. 310(a)(1) ........................................................ 607
(a)(2) ........................................................ 607
(b) ........................................................ 608
ss. 312(c) ........................................................ 701
ss. 314(a) ........................................................ 703
(a)(4) ........................................................ 1008(a)
(c)(1) ........................................................ 103
(c)(2) ........................................................ 103
(e) ........................................................ 103
ss. 315(b) ........................................................ 601
ss. 316(a)(last
sentence) ........................................................ 101 ("Outstanding")
(a)(1)(A) ........................................................ 502, 512
(a)(1)(B) ........................................................ 513
(b) ........................................................ 508
(c) ........................................................ 105(d)
ss. 317(a)(1) ........................................................ 503
(a)(2) ........................................................ 504
(b) ........................................................ 1003
ss. 318(a) ........................................................ 114
</TABLE>
- --------------------
Note: This reconciliation and tie shall not for any purpose be deemed part of
this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONSOF GENERAL APPLICATION
SECTION 101. Definitions ............................ 1
Acquired Indebtedness ................................ 2
Act .................................................. 2
Affiliate ............................................ 2
Asset Sale ........................................... 3
Attributable Debt .................................... 3
Authority ............................................ 3
Board of Directors ................................... 3
Board Resolution ..................................... 3
Business Day ......................................... 3
Capital Stock ........................................ 3
Capitalized Lease Obligation ......................... 4
Cash Equivalents ..................................... 4
Casualty ............................................. 4
Change of Control .................................... 4
Closing Date ......................................... 5
Collateral ........................................... 5
Commission ........................................... 5
Common Stock ......................................... 5
Common Stock Offering ................................ 5
Company .............................................. 5
Company Request" or "Company Order ................... 5
Condemnation ......................................... 5
Condemnation Proceeds ................................ 5
Consolidated EBITDA .................................. 6
Consolidated Interest Expense ........................ 6
Consolidated Net Income .............................. 6
Consolidated Net Worth ............................... 7
Corporate Trust Office ............................... 7
corporation .......................................... 7
Default .............................................. 7
Defaulted Interest ................................... 7
Depositary ........................................... 7
Disinterested Director ............................... 7
</TABLE>
- -------------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE> 4
ii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Disqualified Stock ......................................... 8
Event of Default ........................................... 8
Exchange Act ............................................... 8
Existing Indebtedness ...................................... 8
Federal Bankruptcy Code .................................... 8
Generally Accepted Accounting Principles ................... 8
Global Note ................................................ 8
Guarantee .................................................. 9
Guarantor .................................................. 9
Hedging Obligations ........................................ 9
Holder ..................................................... 9
Indebtedness ............................................... 9
Indebtedness to EBITDA Ratio ............................... 10
Indenture .................................................. 10
Indenture Obligations ...................................... 10
Insurance Proceeds ......................................... 10
Interest Payment Date ...................................... 10
Investment ................................................. 10
Lien ....................................................... 11
Maturity ................................................... 11
Moody's .................................................... 11
Net Cash Proceeds .......................................... 11
Notes ...................................................... 11
Obligations ................................................ 11
Officers' Certificate ...................................... 12
Opinion of Counsel ......................................... 12
Other Broadcast Subsidiaries ............................... 12
Other Subsidiaries ......................................... 12
Outstanding ................................................ 12
Paying Agent ............................................... 13
Permitted Investments ...................................... 13
Permitted Liens ............................................ 14
Permitted Refinancing Indebtedness ......................... 14
Person ..................................................... 15
Physical Note .............................................. 15
Pledged Stock .............................................. 15
Pledgor .................................................... 15
Predecessor Note ........................................... 15
Preferred Stock ............................................ 15
</TABLE>
<PAGE> 5
iii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Qualified Equity Interest ................................................... 16
Qualified Stock ............................................................. 16
Redemption Date ............................................................. 16
Redemption Price ............................................................ 16
Registrar and Note Registrar ................................................ 16
Regular Record Date ......................................................... 16
Restricted Subsidiary ....................................................... 16
Sale and Leaseback Transaction .............................................. 16
SATH Transaction ............................................................ 16
Securities Act .............................................................. 16
Security and Pledge Agreement ............................................... 16
Senior Credit Facility ...................................................... 16
S&P ......................................................................... 17
Special Record Date ......................................................... 17
Stated Maturity ............................................................. 17
Subordinated Indebtedness ................................................... 17
Subsidiary .................................................................. 17
Subsidiary Guarantors ....................................................... 17
Trading Day ................................................................. 17
Trust Indenture Act or TIA .................................................. 17
Trustee ..................................................................... 17
Unrestricted Subsidiary ..................................................... 17
U.S. Government Obligations ................................................. 18
Voting Stock ................................................................ 18
Weighted Average Life ....................................................... 18
Wholly Owned Restricted Subsidiary .......................................... 18
SECTION 102. Incorporation by Reference of Trust Indenture Act ............. 19
SECTION 103. Compliance Certificates and Opinions .......................... 19
SECTION 104. Form of Documents Delivered to Trustee ........................ 20
SECTION 105. Acts of Holders ............................................... 20
SECTION 106. Notices, etc., to Trustee and Company ......................... 22
SECTION 107. Notice to Holders; Waiver ..................................... 22
SECTION 108. Effect of Headings and Table of Contents ...................... 23
SECTION 109. Successors and Assigns ........................................ 23
SECTION 110. Separability Clause ........................................... 23
SECTION 111. Benefits of Indenture ......................................... 23
SECTION 112. Governing Law ................................................. 23
SECTION 113. Legal Holidays ................................................ 23
SECTION 114. Conflict of Any Provision of Indenture with Trust Indenture Act 24
</TABLE>
<PAGE> 6
iv
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 115. Ancillary Document ................................ 24
ARTICLE TWO
NOTE FORM
SECTION 201. Form Generally .................................... 24
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms ................................... 25
SECTION 302. Denominations ..................................... 26
SECTION 303. Execution, Authentication, Delivery and Dating .... 26
SECTION 304. Temporary Notes ................................... 27
SECTION 305. Registration, Registration of Transfer and Exchange 28
SECTION 306. Book-Entry Provisions for Global Notes ............ 29
SECTION 307. Intentionally Left Blank .......................... 30
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes ....... 30
SECTION 309. Payment of Interest; Interest Rights Preserved .... 31
SECTION 310. Persons Deemed Owners ............................. 32
SECTION 311. Cancellation ...................................... 33
SECTION 312. Computation of Interest ........................... 33
SECTION 313. CUSIP Numbers ..................................... 33
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture ........... 34
SECTION 402. Application of Trust Money ........................ 35
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default ................................. 35
SECTION 502. Acceleration of Maturity; Rescission and Annulment 37
</TABLE>
<PAGE> 7
v
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee........................... 38
SECTION 504. Trustee May File Proofs of Claim.......................................................... 39
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.................................... 40
SECTION 506. Application of Money Collected............................................................ 40
SECTION 507. Limitation on Suits....................................................................... 40
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest................. 41
SECTION 509. Restoration of Rights and Remedies........................................................ 41
SECTION 510. Rights and Remedies Cumulative............................................................ 41
SECTION 511. Delay or Omission Not Waiver.............................................................. 41
SECTION 512. Control by Holders........................................................................ 42
SECTION 513. Waiver of Past Defaults................................................................... 42
SECTION 514. Waiver of Stay or Extension Laws.......................................................... 42
SECTION 515. Waiver of Personal Liability of Directors, Officers, Employees and
Stockholders................................................................................... 43
SECTION 516. Undertaking for Costs..................................................................... 43
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults........................................................................ 43
SECTION 602. Certain Rights of Trustee................................................................. 44
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes................................. 45
SECTION 604. May Hold Notes............................................................................ 46
SECTION 605. Money Held in Trust....................................................................... 46
SECTION 606. Compensation and Reimbursement............................................................ 46
SECTION 607. Corporate Trustee Required; Eligibility................................................... 47
SECTION 608. Resignation and Removal; Appointment of Successor......................................... 47
SECTION 609. Acceptance of Appointment by Successor.................................................... 49
SECTION 610. Merger, Conversion, Consolidation or Succession to Business............................... 49
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND
COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.............................................. 50
</TABLE>
<PAGE> 8
vi
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 702. Reports by Trustee............................................... 50
SECTION 703. Reports by Company............................................... 50
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms............. 51
SECTION 802. Successor Substituted............................................ 53
SECTION 803. Notes to Be Secured in Certain Events............................ 53
SECTION 804. Merger or Consolidation of Subsidiary Guarantors................. 53
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND SECURITY AND PLEDGE AGREEMENT
SECTION 901. Without Consent of Holders....................................... 54
SECTION 902. With Consent of Holders.......................................... 55
SECTION 903. Execution of Supplemental Indentures............................. 56
SECTION 904. Effect of Supplemental Indentures................................ 56
SECTION 905. Conformity with Trust Indenture Act.............................. 56
SECTION 906. Reference in Notes to Supplemental Indentures.................... 56
SECTION 907. Notice of Supplemental Indentures................................ 57
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest............. 57
SECTION 1002. Maintenance of Office or Agency................................. 57
SECTION 1003. Money for Note Payments to Be Held in Trust..................... 58
SECTION 1004. Corporate Existence............................................. 59
SECTION 1005. Payment of Taxes and Other Claims............................... 59
SECTION 1006. Maintenance of Properties....................................... 60
SECTION 1007. Insurance....................................................... 60
SECTION 1008. Statement by Officers As to Default............................. 60
SECTION 1009. Intentionally Left Blank........................................ 61
</TABLE>
<PAGE> 9
vii
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock................................................................................ 61
SECTION 1011. Limitation on Restricted Payments........................................................ 63
SECTION 1012. Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries................................................................................... 66
SECTION 1013. Limitation on Transactions with Affiliates............................................... 66
SECTION 1014. Limitation on Liens...................................................................... 67
SECTION 1015. Purchase of Notes upon a Change of Control............................................... 68
SECTION 1016. Limitation on Certain Asset Sales........................................................ 69
SECTION 1017. Unrestricted Subsidiaries................................................................ 72
SECTION 1018. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries........................................................................ 73
SECTION 1019. Waiver of Certain Covenants.............................................................. 74
SECTION 1020. Payment for Consent...................................................................... 74
SECTION 1021. Limitation on Guarantees of Indebtedness by Restricted Subsidiaries...................... 74
SECTION 1022. Reports.................................................................................. 75
SECTION 1023. SAH Acquisition II....................................................................... 75
SECTION 1024. Line of Business......................................................................... 76
SECTION 1025. Limitation on Sale and Leaseback Transactions............................................ 76
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption...................................................................... 76
SECTION 1102. Applicability of Article................................................................. 76
SECTION 1103. Election to Redeem; Notice to Trustee.................................................... 77
SECTION 1104. Selection by Trustee of Notes to Be Redeemed............................................. 77
SECTION 1105. Notice of Redemption..................................................................... 77
SECTION 1106. Deposit of Redemption Price.............................................................. 78
SECTION 1107. Notes Payable on Redemption Date......................................................... 78
SECTION 1108. Notes Redeemed in Part................................................................... 79
</TABLE>
<PAGE> 10
viii
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Legal Defeasance or Covenant Defeasance ...................... 79
SECTION 1202. Legal Defeasance and Discharge......................................................... 79
SECTION 1203. Covenant Defeasance.................................................................... 80
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance.................................. 80
SECTION 1205. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions........................................................ 82
SECTION 1206. Reinstatement.......................................................................... 82
ARTICLE THIRTEEN
SECURITY
SECTION 1301. Security and Pledge Agreement.......................................................... 83
SECTION 1302. Recording, etc......................................................................... 84
SECTION 1303. Intentionally Left Blank............................................................... 84
SECTION 1304. Certificates of the Company............................................................ 84
SECTION 1305. Suits to Protect the Collateral........................................................ 84
SECTION 1306. Authorization of Receipt of Funds by the Trustee Under
the Security and Pledge Agreement............................................................ 85
SECTION 1307. Additional Pledges..................................................................... 85
ARTICLE FOURTEEN
SUBSIDIARY GUARANTEES
SECTION 1401. Subsidiary Guarantees.................................................................. 85
SECTION 1402. Execution and Delivery of Subsidiary Guarantee......................................... 86
EXHIBITS
Exhibit A - Form of Note................................................................................. A-1
</TABLE>
<PAGE> 11
ix
PAGE
<PAGE> 12
INDENTURE, dated as of March __, 1998 between Shop at Home,
Inc., a Tennessee corporation (herein called the "Company"), the Subsidiary
Guarantors (as defined below) party hereto, and PNC Bank, National Association,
a national banking association duly organized and existing under the laws of the
United States of America, trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issue of
___% Secured Notes Due 2005 (herein called the "Notes") and to provide therefor
the Company has duly authorized the execution and delivery of this Indenture.
Upon the issuance of the Notes this Indenture will be subject
to the provisions of the Trust Indenture Act of 1939, as amended, that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
All things necessary have been done to make the Notes, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, each in accordance with their
respective terms and to secure the Notes in accordance with the Security and
Pledge Agreement (as defined herein).
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
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(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Articles Two, Eight, Ten
and Twelve, are defined in those Articles.
"Acquired Indebtedness" means Indebtedness of a Person (a)
existing at the time such Person is merged with or into the Company or becomes a
Subsidiary or (b) assumed in connection with the acquisition of assets from such
Person.
"Act", when used with respect to any Holder, has the meaning
specified in Section 105.
"Adminstrative Office" of the Trustee means the office of the
Trustee at 1600 Market Street, 30th Floor, Philadelphia, PA 19103, Attention:
Corporate Trust Department.
"Affiliate" means, with respect to any specified Person, (i)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (ii) any other
Person that owns, directly or indirectly, 10% or more of such specified Person's
Capital Stock or any executive officer or director of any such specified Person
or other Person or, with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control", when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
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"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of merger,
consolidation or similar arrangement) (collectively, a "transfer") by the
Company or any Restricted Subsidiary other than in the ordinary course of
business and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Shares of Capital Stock of any of the Company's Restricted
Subsidiaries (which shall be deemed to include the sale, grant or conveyance of
any interest in the income, profits or proceeds therefrom), in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions (x) that have a fair market value in excess of $1.0 million
or (y) for Net Cash Proceeds in excess of $1.0 million. For the purposes of this
definition, the term "Asset Sale" does not include any transfer of properties or
assets (i) that is governed by the provisions of Article 8 of this Indenture,
(ii) between or among the Company and its Restricted Subsidiaries pursuant to
transactions that do not violate any other provision of the Indenture, (iii)
representing obsolete or permanently retired equipment and facilities or
transfers or other dispositions of assets in which the Company or a Subsidiary
Guarantor receives assets that (A) are used or useful in a Permitted Line of
Business and (B) have a value equal to the value of the assets so transferred or
disposed of.
"Attributable Debt" means, in respect of a Sale and Leaseback
Transaction, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such Sale and Leaseback Transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Authority" means any federal, state, municipal or local
government or quasi-governmental agency or authority.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of either such board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York or Pittsburgh, Pennsylvania are authorized or obligated by law or executive
order to close.
"Capital Stock" of any Person means any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated) of such Person's equity interest (however designated),
whether now outstanding or issued after the Closing Date.
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"Capitalized Lease Obligation" means, with respect to any
Person, an obligation incurred or assumed under or in connection with any
capital lease of real or personal property that, in accordance with GAAP, has
been recorded as a capitalized lease.
"Cash Equivalents" means (i) cash equivalents as determined in
accordance with GAAP and (ii) the principal amount of any Indebtedness for money
borrowed (as reflected in the Company's consolidated balance sheet) of the
Company or any Restricted Subsidiary that (x) is assumed by the transferee of
any such assets or other property in an Asset Sale or Collateral Sale, as
applicable, or (y) with respect to the sale or other disposition of all of the
Capital Stock of any Restricted Subsidiary, remains the liability of such
Subsidiary subsequent to such sale or other disposition, but only to the extent
that such assumption, sale or other disposition, as the case may be, is effected
on a basis under which there is no further recourse to the Company or any of its
Restricted Subsidiaries with respect to such liability.
"Casualty" with respect to any Collateral, means loss of,
damage to or destruction of all or any part of such Collateral.
"Change of Control", means the occurrence of any of the
following events:
(a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the voting power of all
classes of Voting Stock of the Company;
(b) the Company, either individually or in conjunction with
one or more Subsidiaries, sells, assigns, conveys, transfers, leases or
otherwise disposes of, or the Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of, all or substantially all of
the properties of the Company and the Subsidiaries, taken as a whole
(either in one transaction or a series of related transactions),
including Capital Stock of the Subsidiaries, to any Person (other than
the Company or a Restricted Subsidiary);
(c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board
of Directors or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or
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(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than in a transaction that complies
with the provisions described under Article Eight.
"Closing Date" means the date on which the Notes are
originally issued under this Indenture.
"Collateral" means (i) the Pledged Stock and (ii) any other
current or future assets of the Company or its Subsidiaries defined as
"Collateral" in the Security and Pledge Agreement.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act of 1934, or, if at
any time after the execution of this Indenture such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's Common Stock, whether now
outstanding or issued after the date of this Indenture, and includes, without
limitation, all series and classes of such Common Stock.
"Common Stock Offering" means the public offering of Common
Stock of the Company scheduled to close on the Closing Date.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Condemnation" means any taking of the Collateral or any part
thereof, in or by condemnation, expropriation or similar proceedings, eminent
domain proceedings, seizure or forfeiture, pursuant to any law, general or
special, or by reason of the temporary requisition of the use or occupancy of
the Collateral, or any part thereof, by any Authority.
"Condemnation Proceeds" means any awards, proceeds, payment or
other compensation arising out of a Condemnation.
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"Consolidated EBITDA" means, for any period, the sum of,
without duplication, Consolidated Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Net Income for such period (a) Consolidated
Interest Expense for such period, plus (b) the provision for federal, state,
local and foreign income taxes of the Company and its Restricted Subsidiaries
for such period, plus (c) the aggregate depreciation and amortization expense of
the Company and its Restricted Subsidiaries for such period, plus (d) any other
non-cash charges for such period, and minus non-cash credits for such period,
other than non-cash charges or credits resulting from changes in prepaid assets
or accrued liabilities in the ordinary course of business; provided that fixed
charges, income tax expense, depreciation and amortization expense and non-cash
charges and credits of a Restricted Subsidiary will be included in Consolidated
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income for such
period.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the amount that, in conformity with GAAP, would be
set forth opposite the caption "interest expense" (or any like caption) on a
consolidated statement of operations of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
debt discount, (ii) the net cost of interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) amortization of debt issuance costs, and (v) the interest
component of Capitalized Lease Obligations, plus (b) cash dividends paid on
Preferred Stock and Disqualified Stock by the Company and any Restricted
Subsidiary (to any Person other than the Company and its Restricted
Subsidiaries), computed on a tax effected basis, plus (c) all interest on any
Indebtedness of any Person guaranteed by the Company or any of its Restricted
Subsidiaries or secured by a lien on the assets of the Company or any of its
Restricted Subsidiaries; provided, however, that Consolidated Interest Expense
will not include (i) any gain or loss from extinguishment of debt, including the
write-off of debt issuance costs, and (ii) the Consolidated Interest Expense of
a Restricted Subsidiary to the extent (and in the same proportion) that the net
income of such Subsidiary was excluded in calculating Consolidated Net Income
pursuant to clause (e) of the definition thereof for such period.
"Consolidated Net Income" means, for any period, the net
income (or net loss) of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP, adjusted
to the extent included in calculating such net income or loss by excluding (a)
any net after-tax extraordinary gains or losses (less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to Asset Sales, (c) the portion of net
income (or loss) of any Person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the
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Company or any Restricted Subsidiary in cash during such period, (d) the net
income (or loss) of any Person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination and (e) the net income (but not the net loss) of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary is at the date of
determination restricted, directly or indirectly, except to the extent that such
net income is actually paid to the Company or a Restricted Subsidiary thereof by
loans, advances, intercompany transfers, principal repayments or otherwise.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity of the Company and its Restricted Subsidiaries as set forth
on the most recently available quarterly or annual consolidated balance sheet of
the Company and its Restricted Subsidiaries, less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the Company or
any of its Restricted Subsidiaries and less to the extent included in
calculating such stockholders' equity of the Company and its Restricted
Subsidiaries, the stockholders' equity attributable to Unrestricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding the
effects of foreign currency adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52).
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at PNC Bank Corporate Trust Operations, 249 Fifth Avenue,
Pittsburgh, PA 15222.
"corporation" includes corporations, associations, companies
and business trusts.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees
and successors.
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the Board of Directors
is required to deliver a resolution of the Board of Directors, to make a finding
or otherwise take action under this Indenture, a member
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of the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Disqualified Stock" means any class or series of Capital
Stock that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (i) is or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes, (ii) is redeemable at the option of
the holder thereof, at any time prior to such final Stated Maturity or (iii) at
the option of the holder thereof is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity; provided that any
Capital Stock that would not constitute Disqualified Stock but for provisions
therein giving holders thereof the right to cause the issuer thereof to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes will
not constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in the covenants described
under Sections 1009, 1015 and 1016 and such Capital Stock specifically provides
that the issuer will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to the provisions contained in the covenants described
under Sections 1009, 1015 and 1016.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Indebtedness" means the Indebtedness of the Company
and its Restricted Subsidiaries (other than the Notes, the Subsidiary Guarantees
or Indebtedness under a Senior Credit Facility) outstanding on the date of the
Indenture and listed on a schedule to the Indenture.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11
of the United States Code, as amended from time to time.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States, as applied from
time to time by the Company in the preparation of its consolidated financial
statements, except that with respect to calculating compliance with financial
covenants, GAAP shall mean generally accepted accounting principles in the
United States, consistently applied, that are in effect on the Closing Date.
"Global Note" has the meaning specified in Section 201.
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"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantor" means any Restricted Subsidiary of the Company
that issues a guarantee of the Notes pursuant to the provisions of Section 1021.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person entered into in the ordinary course of business under
(i) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in interest rates, and (ii) forward exchange agreements,
currency swap, currency option and other similar financial agreements or
arrangements designed to protect such Person against, or manage the exposure of
such Person to, fluctuations in foreign currency exchange rates.
"Holder" means a Person in whose name a Note is registered in
the Register.
"Indebtedness" means (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of such Person
and whether or not contingent, (a) every obligation of such Person for money
borrowed, (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, (c) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (d) every obligation of such
Person issued or assumed as the deferred purchase price of property or services,
(e) the attributable value of every Capitalized Lease Obligation of such Person,
(f) all Disqualified Stock of such Person valued at its maximum fixed repurchase
price, plus accrued and unpaid dividends, (g) all obligations of such Person
under or in respect of Hedging Obligations and (h) every obligation of the type
referred to in clauses (a) through (g) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed.
For purposes of this definition, the "maximum fixed repurchase price" of any
Disqualified Stock that does not have a fixed repurchase price will be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness is required
to be determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Stock, such fair market
value will be determined in good faith by the board of directors of the issuer
of such Disqualified Stock. Notwithstanding the foregoing, trade accounts
payable and accrued liabilities arising in the ordinary course of business and
any liability for federal, state or local taxes or other taxes owed by such
Person will not be considered Indebtedness for purposes of this definition.
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"Indebtedness to EBITDA Ratio" means, with respect to any
date, the ratio of (a) the aggregate principal amount of all outstanding
Indebtedness of the Company and its Subsidiaries as of such date on a
consolidated basis, plus the aggregate liquidation preference or redemption
amount of all outstanding Disqualified Stock of the Company and its Subsidiaries
as of such date (excluding any such Disqualified Stock held by the Company of a
Wholly Owned Subsidiary), to (b) Consolidated EBITDA for the four most recent
full fiscal quarters ending immediately prior to such date for which financial
statements have been made publicly available (but in no event ending more than
135 days prior to the date of determination), determined on a pro forma basis
after giving effect to each acquisition or disposition of assets made by the
Company and its Subsidiaries, outside of the ordinary course of business, from
the beginning of such four-quarter period through such date as if such
acquisition or disposition had occurred at the beginning of such four-quarter
period.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company
and any other obligor hereunder or under the Notes to pay principal of (and
premium, if any) and interest on the Notes when due and payable at maturity, and
all other amounts due or to become due under or in connection with this
Indenture, the Notes and the performance of all other obligations to the Trustee
(including all amounts due to the Trustee under Section 606 hereof) and the
Holders under this Indenture and the Notes, according to the terms hereof and
thereof.
"Insurance Proceeds" mean any payment, proceeds or other
amounts received at any time under any insurance policy as compensation in
respect of a Casualty, provided that business interruption insurance proceeds
shall not constitute Insurance Proceeds.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Notes.
"Investment" in any Person means, (i) directly or indirectly,
any advance, loan or other extension of credit (including, without limitation,
by way of guarantee or similar arrangement) or capital contribution to such
Person, the purchase or other acquisition of any stock, bonds, notes, debentures
or other securities issued by such Person, the acquisition (by purchase or
otherwise) of all or substantially all of the business or assets of such Person,
or the making of any investment in such Person, (ii) the designation of any
Restricted Subsidiary as an Unrestricted Subsidiary and (iii) the fair market
value of the Capital Stock (or any other Investment), held by the Company or any
of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary. Investments exclude (i) extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices and (ii)
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acquisitions of assets, equity interests or other securities of other Persons in
exchange for consideration consisting solely of Common Stock of the Company.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person will be deemed to own subject to a Lien
any property that such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Maturity", when used with respect to any Note, means the date
on which the principal of such Note or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed for, cash or cash equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary), net of (a) brokerage commissions and other fees
and expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (b) provisions for all taxes payable as a result of
such Asset Sale, (c) payments made to retire Indebtedness where such
Indebtedness is secured by the assets that are the subject of such Asset Sale,
(d) amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets that are
subject to the Asset Sale and (e) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the seller after such Asset Sale, including pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"Notes" has the meaning stated in the first recital of this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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"Officers' Certificate" means a certificate signed by the
Chairman, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, including an employee of the Company, and who
shall be reasonably acceptable to the Trustee.
"Other Broadcast Subsidiaries" means MFP, Inc., the owner and
operator of WMFP(TV) in Boston, and Urban Broadcasting Systems, Inc., the owner
and operator of KZJL(TV) in Houston.
"Other Subsidiaries" means any Subsidiary of the Company other
than SAH Acquisition II.
"Outstanding", when used with respect to Notes, means, as of
the date of determination, all Notes theretofore authenticated and delivered
under this Indenture, except:
(a) Notes theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Notes;
provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(c) Notes, except to the extent provided in Sections 1202 and
1203, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Twelve; and
(d) Notes which have been paid pursuant to Section 308 or in
exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent,
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notice or waiver hereunder, and for the purpose of making the calculations
required by TIA Section 313, Notes owned by the Company or any other obligor
upon the Notes or any Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such calculation or in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or such other obligor.
"Paying Agent" means PNC Bank, National Association and any
successor (including the Company acting as Paying Agent) authorized by the
Company to pay the principal of (and premium, if any) or interest on any Notes
on behalf of the Company.
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of one year
or less issued or directly and fully guaranteed or insured by the
United States or any agency or instrumentality thereof (provided that
the full faith and credit of the United States is pledged in support
thereof); (ii) U.S. dollar denominated (or fully hedged foreign
currency) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit or acceptances with a
maturity of one year or less of any financial institution that is a
member of the Federal Reserve System having combined capital and
surplus of not less than $500,000,000 or any bank (an "Approved
Lender") whose short term commercial paper rating from Standard &
Poor's Ratings Group is at least A-1 or the equivalent thereof or from
Moody's Investors Service, Inc. is at least P-1 or the equivalent
thereof; (iii) any shares of money market mutual or similar funds
(including funds for which the Trustee or an affiliate provides
advisory or other services) having assets in excess of $500,000,000
which are invested in instruments of the kind described in clauses (i),
(ii) and (iv) hereof; and (iv) commercial paper with a maturity of one
year or less issued by an Approved Lender that not an Affiliate of the
Company and is organized under the laws of any state of the United
States or the District of Columbia and having a rating (A) from Moody's
Investors Service, Inc. of at least P-2 or (B) from Standard & Poor's
Ratings Group of at least A-2;
(b) Investments by the Company or any Wholly Owned Restricted
Subsidiary in another Person, if as a result of such Investment (i)
such other Person becomes a Restricted Subsidiary that is a Subsidiary
Guarantor or (ii) such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets
to, the Company or a Restricted Subsidiary that is a Subsidiary
Guarantor;
<PAGE> 25
14
(c) Investments by the Company or a Restricted Subsidiary in
the Company or a Restricted Subsidiary;
(d) Investments in existence on the Closing Date; and
(e) promissory notes or other evidence of Indebtedness
received as a result of Asset Sales permitted under Section 1016.
"Permitted Liens" means (i) Liens on the Capital Stock of the
Other Broadcast Subsidiaries and the accounts receivable, inventory and general
intangibles of the Company (excluding any Collateral for the Notes) securing
Indebtedness under a Senior Credit Facility in principal amount not to exceed
$20.0 million at any one time outstanding; (ii) Liens on any property or assets
of a Restricted Subsidiary granted in favor of the Company or a Wholly-Owned
Restricted Subsidiary; (iii) Liens securing the Notes or any Subsidiary
Guarantee; (iv) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Company or any Restricted Subsidiary of
the Company, provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company; (v)
Liens on property existing at the time of acquisition thereof by the Company or
any Restricted Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition and do not extend to
any other assets; (vi) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vii) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (vii) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Disqualified Stock" covering only the assets acquired with such Indebtedness;
(viii) Liens existing on the date of this Indenture; and (ix) any extension,
renewal or replacement, in whole or in part, of any Lien described in the
foregoing clauses (i), (iv) and (v), provided that any such extension, renewal
or replacement is no more restrictive in any material respect than the Lien so
extended, renewed or replaced and does not extend to any additional property or
assets.
"Permitted Line of Business" means the businesses of: (i) the
selling of goods and merchandise by electronic media, including television
broadcasting, use of the internet and by telephone, (ii) the operation of
commercial broadcast television stations and the sale of broadcast time thereon;
(iii) the selling of goods and merchandise by means of printed media, such as
magazines and catalogues; (iv) the manufacture, production and sale of sports
trading cards; and (v) the private branding or contract manufacture of products
sold by the Company by means of any of the foregoing.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the
<PAGE> 26
15
Company or any of its Restricted Subsidiaries; provided that: (i) the principal
amount (or accredit value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount (or accredit value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded plus the lesser of the amount of any premium required to be
paid in connection with such refinancings pursuant to the terms of such
indebtedness or the amount of any premium reasonably determined by the Company
as necessary to accomplish such refinancing (plus the amount of reasonable
expenses incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary of the Company that is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Note" has the meaning specified in Section 201.
"Pledged Stock" means the Capital Stock that is, at any time
and from time to time, pledged to the Trustee pursuant to the Security and
Pledge Agreement.
"Pledgor" means the Company and any Subsidiary that is a
"Pledgor" under the Security and Pledge Agreement.
"Predecessor Note" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, partnership interests, participations, rights in or other
equivalents (however designated) of such Person's preferred or preference stock,
whether now outstanding or issued after the Closing Date, and including, without
limitation, all classes and series of preferred or preference stock of such
Person.
<PAGE> 27
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"Qualified Equity Interest" means any Qualified Stock and all
warrants, options or other rights to acquire Qualified Stock (but excluding any
debt security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital
Stock of such Person, other than Disqualified Stock.
"Redemption Date", when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registrar" and "Note Registrar" have the meaning specified in
Section 305.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the ______ or ______ (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any transaction or
series of related transactions pursuant to which a person sells or transfers any
property or asset in connection with the leasing, or the resale against
installment payments, of such property or asset to the seller or transferor.
"SATH Transaction" means the acquisiton of the Company's new
headquarters facility in exchange for payments to Partner-SATH, L.L.C. or
members thereof in an amount not to exceed $6.5 million.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations thereunder.
"Security and Pledge Agreement" means the agreement, dated the
Closing Date, among the Company, certain Subsidiary Guarantors and the Trustee,
relating to the Collateral.
"Senior Credit Facility" means any senior credit facility of
the Company or any Restricted Subsidiary with one or more banks or other
commercial financial institutions, and any amendments, renewals, replacements or
modifications thereof.
<PAGE> 28
17
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, and its successors.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Note or
any installment of interest thereon, the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness or any installment of interest
thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company
or a Subsidiary Guarantor that is subordinated in right of payment to the Notes
or the Subsidiary Guarantees issued by such Subsidiary Guarantor, as the case
may be.
"Subsidiary" means any Person if Voting Stock representing a
majority of the voting power of the Voting Stock of such Person is at the time
owned, directly or indirectly, by the Company and/or one or more other
Subsidiaries of the Company.
"Subsidiary Guarantors" means, collectively, all Restricted
Subsidiaries that are incorporated in the United States or a State thereof or
the District of Columbia; provided that any Person that becomes an Unrestricted
Subsidiary in compliance with the "Restricted Payments" covenant shall not be
included in "Subsidiary Guarantors" after becoming an Unrestricted Subsidiary.
"Trading Day" means a day during which trading in securities
generally occurs on the principal national or regional securities exchange on
which the applicable security is then listed or, if the applicable security is
not listed on a national or regional securities exchange, on the Nasdaq Stock
Market or, if the applicable security is not quoted on the Nasdaq Stock Market,
on the principal other market on which the applicable security is then traded.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in force at the date as of which this Indenture was executed, except
as provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
<PAGE> 29
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"Unrestricted Subsidiary" means (a) any Subsidiary that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary in accordance with Section 1017 and (b) any Subsidiary of an
Unrestricted Subsidiary.
"U.S. Government Obligations" means (i) securities that are
(a) direct obligations of the United States of America for the payment of which
the full faith and credit of the United States of America is pledged or (b)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof; and (ii) depositary receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depositary receipt.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the time,
stock of any other class or classes has, or might have, voting power by reason
of the happening of any contingency).
"Weighted Average Life" means, as of the date of determination
with respect to any Indebtedness or Disqualified Stock, the quotient obtained by
dividing (a) the sum of the products of (i) the number of years from the date of
determination to the date or dates of each successive scheduled principal or
liquidation value payment of such Indebtedness or Disqualified Stock,
respectively, multiplied by (ii) the amount of each such principal or
liquidation value payment by (b) the sum of all such principal or liquidation
value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary, all of the outstanding voting securities (other than directors'
qualifying shares or shares of foreign Restricted Subsidiaries required to be
owned by foreign nationals pursuant to applicable law) of which are owned,
directly or indirectly, by the Company.
<PAGE> 30
19
SECTION 102. Incorporation by Reference of Trust Indenture
Act.
Whenever this Indenture refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture. The following Trust Indenture Act terms used in this Indenture
have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other Trust Indenture Act terms used in this Indenture
that are defined by the Trust Indenture Act, defined by reference in the Trust
Indenture Act to another statute or defined by a rule of the Commission and not
otherwise defined herein shall have the meanings assigned to them therein.
SECTION 103. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture or the Security and
Pledge Agreement, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture (including any covenant compliance which constitutes a condition
precedent) relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture or the Security and
Pledge Agreement relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
<PAGE> 31
20
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 104. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 105. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or by agents duly
appointed in writing; and, except as herein otherwise
<PAGE> 32
21
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by
any Person, and the date of holding the same, shall be proved by the Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and
<PAGE> 33
22
the Holder of every Note issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Note.
SECTION 106. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Administration Office,
or
(b) the Company by the Trustee or any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at 3100 West End Avenue, Suite
880, Nashville, Tennessee 37203, Attention: George J. Phillips, or at
any other address previously furnished in writing to the Trustee by the
Company.
SECTION 107. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any
<PAGE> 34
23
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice for every purpose hereunder.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Note Registrar and their successors hereunder, the Holders any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Notes shall be governed by, and
construed in accordance with, the law of the State of New York, without regard
to conflicts of law principles thereof. Upon the issuance of the Notes, this
Indenture shall be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
date established for payment of Defaulted Interest pursuant to Section 309,
Stated Maturity or Maturity with respect to any Note shall not be a Business
Day, then (notwithstanding any other provision of this Indenture or of the
Notes) payment of principal (or premium, if any) or interest need not be made on
such date, but may be made on the next succeeding Business Day
<PAGE> 35
24
with the same force and effect as if made on the Interest Payment Date,
Redemption Date, date established for payment of Defaulted Interest pursuant to
Section 309, Stated Maturity or Maturity; provided that no interest shall accrue
for the period from and after such Interest Payment Date, Redemption Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity, Change in Control Purchase Date or Asset Sale Purchase
Date, as the case may be, to the next succeeding Business Day.
SECTION 114. Conflict of Any Provision of Indenture with Trust
Indenture Act.
If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with the duties imposed by Trust Indenture Act
Sections 310 to 318, inclusive, or conflicts with any provision (an
"incorporated provision") required by or deemed to be included in this Indenture
by operation of such Trust Indenture Act Sections, such imposed duties or
incorporated provision shall control. If any provision of this Indenture
modifies or excludes any provision of the Trust Indenture Act that may be so
modified or excluded, the latter provision shall be deemed to apply to this
Indenture as so modified or excluded, as the case may be.
SECTION 115. Ancillary Document.
The Trustee is hereby authorized and directed to execute and
deliver the Security and Pledge Agreement and to perform the duties and
obligations of the Trustee thereunder.
ARTICLE TWO
NOTE FORM
SECTION 201. Form Generally.
The Notes and the Trustee's certificate of authentication
shall be in substantially the form annexed hereto as Exhibit A. The Notes may
have such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture and may have letters, notations
or other marks of identification and such notations, legends or endorsements
required by law, stock exchange agreements to which the Company is subject or
usage. Any portion of the text of any Note may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Note. The
Company shall approve the form of the Notes and any notation, legend or
endorsement on the Notes. Each Note shall be dated the date of its
authentication.
<PAGE> 36
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The definitive Notes shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Company executing such Notes, as evidenced
by their execution of such Notes.
The terms and provisions contained in the form of the Notes
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
The Notes shall be issued initially in the form of a permanent
global Note substantially in the form set forth in Exhibit A (the "Global Note")
deposited with, or on behalf of, the Depositary or with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of the
Global Note may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary or its nominee,
as hereinafter provided. Notes issued pursuant to Section 306 in exchange for or
upon transfer of interests in the Global Note shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "Physical Notes").
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount at maturity of Notes which may
be authenticated and delivered under this Indenture is limited to $75,000,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305,
306, 307, 308, 906, 1015, 1016 or 1108.
The Notes shall be known and designated as the "___% Secured
Notes Due 2005" of the Company. Their Stated Maturity shall be ________, 2005.
Cash interest on the Notes will accrue at a rate of __% per annum from the date
of issuance or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, payable semiannually on ______ and ______ in
each year, commencing _______, 1998, until the principal thereof is paid or duly
provided for.
The principal of (and premium, if any), and interest on the
Notes shall be payable at the Trustee's Corporate Trust Office, and the Notes
shall be exchangeable and
<PAGE> 37
26
transferable, at the office or agency of the Company in The City of New York
maintained for such purposes, (which initially shall be the office of the
Trustee's Drop Agent, The Depositary Trust Company, 55 Water Street, Jeannette
Park Entrance, New York, New York 10041 or, at the option of the Company,
interest may be paid by check mailed to the address of the Person entitled
thereto as such address shall appear on the Register.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman, its President or a Vice President. The signature of any of the
aforementioned officers on the Notes may be manual or facsimile signatures of
the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes directing the Trustee to authenticate
the Notes and certifying that all conditions precedent to the issuance of Notes
contained herein have been fully complied with, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Notes. In each case,
the Trustee shall be entitled to receive an Officers' Certificate and an Opinion
of Counsel of the Company that it may reasonably request in connection with such
authentication of Notes. Such order shall specify the amount of Notes to be
authenticated and the date on which the original issue of Notes is to be
authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
A duly executed by the Trustee by manual
<PAGE> 38
27
signature of an authorized signatory, and such certificate upon any Note shall
be conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder and is entitled to the benefits of this
Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the Notes
authenticated or delivered prior to such consolidation, merger, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Notes executed in the name of the
successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Notes surrendered
for such exchange and of like principal amount; and the Trustee, upon Company
Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section in exchange or substitution for or upon registration of
transfer of any Notes, such successor Person, at the option of the Holders but
without expense to them, shall provide for the exchange of all Notes at the time
Outstanding for Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so
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exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Register shall be in written form or any
other form capable of being converted into written form within a reasonable
time. At all reasonable times, the Register shall be open to inspection by the
Trustee. The Trustee is hereby initially appointed as security registrar (the
"Registrar" or "Note Registrar") for the purpose of registering Notes and
transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denomination and of a like aggregate principal amount,
upon surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Note
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Note Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection
<PAGE> 40
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with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304, 906, 1015, 1016 or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Notes under
Section 1104 and ending at the close of business on the day of such mailing of
the relevant notice of redemption, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
SECTION 306. Book-Entry Provisions for Global Notes.
(a) Each Global Note initially shall (i) be registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder") and (ii) be deposited with, or on behalf of,
the Depositary or with the Trustee, as custodian for such Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under any Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
(b) Transfers of any Global Note shall be limited to transfers
of such Global Note in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in a Global Note
may be transferred in accordance with the rules and procedures of the
Depositary. In addition, Physical Notes shall be transferred to all beneficial
owners in exchange for their beneficial interests in the Global Note, if: (x)
the Depositary notifies the Company that it is unwilling or unable to continue
as Depositary for the Global Note or the Depositary ceases to be a "Clearing
Agency" registered under the Exchange Act and a successor depositary is not
appointed by the Company within 90 days or (y) an Event of Default has occurred
and is continuing and Holders of more than 25% in aggregate principal amount of
the Notes at the time Outstanding represented by the Global Notes advise the
Trustee through the Depositary in writing that the continuation of a book-entry
system through the Depositary with respect to the Global Notes is no longer
required.
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(c) In connection with any transfer pursuant to paragraph (b)
of this Section of a beneficial interest in any Global Note to a beneficial
owner who is required or permitted to hold a Physical Note, the Note Registrar
shall reflect on its books and records the date and a decrease in the principal
amount at maturity of the applicable Global Note in an amount equal to the
principal amount at maturity of the beneficial interest in such Global Note to
be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note
to beneficial owners pursuant to paragraph (b) of this Section, the Global Note
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the Global Note an equal aggregate principal amount at maturity of
Physical Notes of authorized denominations.
(e) The registered Global Notes Holder may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(f) Beneficial owners of interests in a Global Note may
receive Physical Notes in accordance with the procedures of the Depositary. In
connection with the execution, authentication and delivery of such Physical
Notes, the Registrar shall reflect on its books and records a decrease in the
principal amount at maturity of the Global Note equal to the principal amount at
maturity of such Physical Notes and the Company shall execute and the Trustee
shall authenticate and deliver one or more Physical Notes having an equal
aggregate principal amount at maturity.
SECTION 307. Intentionally Left Blank.
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee or the
Registrar, or (ii) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Note, and there is
delivered to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon Company Order the Trustee shall
authenticate and deliver, in exchange for any such mutilated Note or in lieu of
any such destroyed, lost or stolen Note, a new Note of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
<PAGE> 42
31
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the Corporate
Trust Office or, at the option of the Company, interest may be paid by check
mailed to the address of the Person entitled thereto pursuant to Section 310 as
such address appears in the Register; provided that all payments with respect to
the Notes the Holders of which have given written wire transfer instructions to
the Trustee (or other Paying Agent) by the Regular Record Date shall be required
to be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Notes (such
defaulted interest and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as provided
in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are
<PAGE> 43
32
registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Note and
the date of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be given in the manner provided
for in Section 107, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or
their respective Predecessor Notes) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Note is registered as the owner of such
Note for the purpose of receiving payment of principal of (and premium, if any)
and (subject to Sections 305 and 309) interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and
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33
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 311. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold, and all Notes so delivered
shall be promptly cancelled by the Trustee. If the Company shall so acquire any
of the Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures unless by Company Order the Company shall direct that
cancelled Notes be returned to it.
SECTION 312. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
SECTION 313. CUSIP Numbers.
The Company in issuing the Notes may use "CUSIP" numbers (if
then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by an defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in the "CUSIP" numbers.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
Upon the request of the Company, this Indenture will cease to
be of further effect (except as to surviving rights of registration of transfer
or exchange of the Notes, as expressly provided for herein or pursuant hereto)
and the Trustee, at the expense of the Company, will execute proper instruments
acknowledging satisfaction and discharge of this Indenture when:
(a) either (i) all the Notes theretofore authenticated and
delivered (other than mutilated, destroyed, lost or stolen Notes that
have been replaced or paid and Notes that have been subject to
defeasance under Article Twelve) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee
for cancellation (A) have become due and payable, (B) will become due
and payable at maturity within one year or (C) are to be called for
redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company, and the Company, in the case
of (A), (B) or (C) above, has irrevocably deposited or caused to be
deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge the entire Indebtedness on such Notes
not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any, on) and interest on the Notes to the
date of such deposit (in the case of Notes that have become due and
payable) or to the Stated Maturity or redemption date, as the case may
be;
(b) the Company has paid or caused to be paid all sums payable
under this Indenture by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided herein relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 606 and,
if money shall have been deposited with the Trustee pursuant to subclause (ii)
of clause (a) of this Section, the obligations of the Trustee under Section 402
and the last paragraph of Section 1003 shall survive.
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SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest on any Note when it
becomes due and payable, and continuance of such default for a period
of 30 days;
(2) default in the payment of the principal of (or premium, if
any, on) any Note when due;
(3) failure to perform or comply with Sections 801, 1010,
1011, 1012, 1015 or 1016, in each case within the time periods
specified in this Indenture;
(4) default in the performance, or breach, of any covenant or
agreement of the Company, a Pledgor or any Restricted Subsidiary
contained in this Indenture or the Security and Pledge Agreement (other
than a default in the performance, or breach, of a covenant or
agreement that is specifically dealt with elsewhere herein), and
continuance of such default or breach for a period of 30 days after
written notice has been given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding;
(5) (i) an event of default has occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing an issue
of Indebtedness of the Company or any Restricted Subsidiary, which
issue individually or in the aggregate has
<PAGE> 47
36
an aggregate outstanding principal amount of not less than $5,000,000
("Specified Indebtedness"), and such default has resulted in such
Specified Indebtedness becoming, whether by declaration or otherwise,
due and payable prior to the date on which it would otherwise become
due and payable or (ii) a default in any payment when due at final
maturity of any such Specified Indebtedness;
(6) failure by the Company or any of its Restricted
Subsidiaries to pay one or more final judgments the uninsured portion
of which exceeds in the aggregate $5,000,000, which judgment or
judgments are not paid, discharged or stayed for a period of 60 days;
(7) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Restricted
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustments or
composition of or in respect of the Company or any Significant
Subsidiary under the Federal Bankruptcy Code or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or any
Significant Subsidiary or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 90 consecutive days;
(8) the institution by the Company or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or
the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy
Code or any other applicable federal or state law, or the consent by it
to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Significant Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due;
(9) the Security and Pledge Agreement shall cease to be in
full force and effect or enforceable in accordance with its terms,
other than in accordance with its terms, or the Company denies or
disaffirms its obligations under the Security and Pledge Agreement or
the obligations under the Security and Pledge Agreement cease to be
secured by a perfected first priority security interest in that portion
of the Collateral purported to be pledged as a first priority pledge
under the Security and Pledge Agreement and a perfected second priority
security interest in that portion of the
<PAGE> 48
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Collateral purported to be pledged as a second priority pledge under
the Security and Pledge Agreement (other than in accordance with its
terms); or
(10) any Subsidiary Guarantee ceases to be in full force and
effect or is declared null and void or any Subsidiary Guarantor denies
that it has any further liability under any Subsidiary Guarantee, or
gives notice to such effect (other than by reason of the release of any
such Subsidiary Guarantee in accordance with the Indenture).
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than as specified in Section
501(7) or 501(8)) occurs and is continuing, the Trustee or the Holders of not
less than 25% in aggregate principal amount of the Notes then outstanding may,
and the Trustee at the request of such Holders will, declare the Default Amount
of and accrued and unpaid interest on, all of the outstanding Notes immediately
due and payable and, upon any such declaration, such amounts will become due and
payable immediately.
If an Event of Default specified in Section 501(7) or 501(8)
occurs and is continuing, then the Default Amount of, and accrued and unpaid
interest on, all of the outstanding Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes.
At any time after a declaration of acceleration under this
Indenture, but before a judgment or decree for payment of the money due has been
obtained by the Trustee, the Holders of a majority in aggregate principal amount
of the outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if (i) the Company has paid or
deposited with the Trustee a sum sufficient to pay (A) all overdue interest on
all Notes, (B) all unpaid principal of (and premium, if any, on) any outstanding
Notes that has become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes, (C) to the extent that payment
of such interest is lawful, interest upon overdue interest and overdue principal
at the rate borne by the Notes and (D) all sums paid or advanced by the Trustee
under this Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel; and (ii) all Events of
Default, other than the non-payment of the Default Amount (or premium, if any,
on) or interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived. No such rescission will affect any
subsequent default or impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Notes because an Event of Default
specified in Section 501(5)
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shall have occurred and be continuing, such declaration of acceleration shall be
automatically annulled if the Indebtedness that is the subject of such Event of
Default has been discharged or the holders thereof have rescinded their
declaration of acceleration in respect of such Indebtedness, and written notice
of such discharge or rescission, as the case may be, shall have been given to
the Trustee by the Company and countersigned by the holders of such Indebtedness
or a trustee, fiduciary or agent for such holders, within 30 days after such
declaration of acceleration in respect of the Notes, and no other Event of
Default has occurred during such 30-day period which has not been cured or
waived during such period.
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Note when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Note at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Notes, the whole amount then due and payable on such
Notes for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Notes, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated, including Collateral under the Security and Pledge Agreement.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such
<PAGE> 50
39
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal, premium, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
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SECTION 505. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal (and premium, if
any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
No Holder of any of the Notes has any right to institute any
proceeding with respect to this Indenture, the Security and Pledge Agreement or
the Notes or any remedy thereunder, unless the Holders of at least 25% in
aggregate principal amount of the outstanding Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding,
the Trustee has failed to institute any such proceeding within 60 days after
receipt of such notice and the Trustee, within such 60-day period, has not
received directions inconsistent with such written request by Holders of a
majority in aggregate principal amount of the outstanding Notes. Such
limitations do not apply, however, to a suit instituted by a Holder of a Note
for the enforcement of the payment of the principal of, premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
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SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture or the
Security and Pledge Agreement, the Holder of any Note shall have the right,
which is absolute and unconditional, to receive payment, as provided herein
(including, if applicable, Article Twelve) and in such Note of the principal of
(and premium, if any) and (subject to Section 309) interest on such Note on the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 308, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders, as
the case may be.
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SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of
the Outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, including, without
limitation, powers conferred on it by the Security and Pledge Agreement,
provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Notes may, by notice to the Trustee, on behalf of the
Holders of all of the Notes, waive any past defaults under this Indenture or the
Security and Pledge Agreement, except a default in the payment of the Default
Amount (and premium, if any) or interest on any Note, or in respect of a
covenant or provision that under this Indenture or the Security and Pledge
Agreement cannot be modified or amended without the consent of the Holder of
each Note Outstanding.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power
<PAGE> 54
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herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 515. Waiver of Personal Liability of Directors,
Officers, Employees and Stockholders.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Affiliate shall have any
liability for any obligations of the Company under the Notes, this Indenture or
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SECTION 516. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorney's fees and expenses, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section 516 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 508 hereof, or a suit by Holders of more
than 10% in principal amount of the then Outstanding Notes.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing
and is known to the Trustee, the Trustee shall mail to each Holder of the Notes
notice of the Default or Event of Default within 90 days after the occurrence
thereof. However, except in the case of a Default or an Event of Default in
payment of principal of (and premium, if any, on) or interest on any Notes, the
Trustee may withhold the notice to the Holders of the Notes if a committee of
its trust officers in good faith determines that withholding such notice is in
the interests of the Holders of the Notes.
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SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(a) the Trustee may conclusively rely and shall be protected
in acting or refraining from acting, pursuant to the terms of this
Indenture or otherwise, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
with sufficient detail as may be requested by the Trustee and any
resolution of the Board of Directors of the Company may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate and/or an Opinion of Counsel;
(d) the Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities (including fees
and expenses of its agents and counsel) which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into, and may conclusively rely upon, the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further
<PAGE> 56
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inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or
attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(i) except during the continuance of an Event of Default, the
Trustee need perform only those duties as are specifically set forth in
this Indenture; and
(j) the Trustee shall not be deemed to have notice of any
Default or Event of Default unless an officer of the Trustee
responsible for the administration of the trust hereunder has actual
knowledge thereof or unless written notice of any event which is in
fact such a default is received by the Trustee at the Administration
Office of the Trustee, and such notice references the Notes and this
Indenture.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Notes.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture, the Security and Pledge Agreement, any Collateral or the Notes,
except that the Trustee represents that it is duly authorized to execute and
deliver this Indenture, authenticate the Notes and perform its obligations
hereunder and, upon the effectiveness of the Registration Statement, that the
statements made by it in a Statement of Eligibility on Form T-1 supplied to the
Company are true and accurate, subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Notes or the proceeds thereof.
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SECTION 604. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
SECTION 605. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee (in its capacity as Trustee, Paying
Agent and Registrar) from time to time such compensation as shall be
agreed in writing between the Company and the Trustee for all services
rendered by it hereunder and under the Security and Pledge Agreement
(which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein and under
the Security and Pledge Agreement, to reimburse the Trustee upon its
request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of
this Indenture and the Security and Pledge Agreement (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(c) to indemnify each of the Trustee and any predecessor
Trustee for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense, including taxes (other than taxes based on
the income of the Trustee) incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust and the Security and Pledge Agreement,
including the costs and expenses of defending itself against any claim
or liability in connection with the acceptance, exercise or performance
of any of its powers or duties hereunder and under the Security and
Pledge Agreement.
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The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a lien prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(7) or (8), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Notes, delivered to the Trustee and to the Company. If the instrument of
acceptance by a successor Trustee required by Section 609 shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
removal, the Trustee being removed may petition, at the expense of the Company,
any court of competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, except when the Trustee's duty to resign is stayed in
accordance with the provisions of TIA Section 310(b), or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Note for at least
six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided subject to TIA Section 315(e), any Holder who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly
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situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 107. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office and its Adminstration Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder subject to the retiring Trustee's rights
as provided under the last sentence of Section 606. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which
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this Indenture provides that the certificate of authentication of the Trustee
shall have for the certificate of authentication of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND
COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first ______ after the first issuance of Notes, the Trustee shall transmit to
the Holders, in the manner and if and to the extent provided in TIA Section
313(c), a brief report dated as of such May 15 if required by TIA Section
313(a).
SECTION 703. Reports by Company.
The Company shall:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act of 1934; or, if the Company is not
required to file information, documents or reports pursuant to either
of said Sections, then it shall file with the Trustee and the
Commission, in accordance with rules and regulations
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prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may
be required pursuant to Section 13 of the Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(b) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations;
(c) transmit by mail to all Holders, in the manner and to the
extent provided in TIA Section 313(c), within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents
and reports required to be filed by the Company pursuant to paragraphs
(a) and (b) of this Section as may be required by rules and regulations
prescribed from time to time by the Commission; and
(d) file with the Trustee, quarterly within 15 days after the
end of each fiscal quarter of the Company, a statement that no Event of
Default or Default has occurred under this Indenture or specifying the
existence and nature, in reasonable detail, of any such Event of
Default or Default.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain
Terms.
The Company may not, in a single transaction or series of
related transactions, consolidate or merge with or into (whether or not the
Company is the surviving corporation), or directly and/or indirectly through its
Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets (determined on a
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consolidated basis for the Company and its Subsidiaries taken as a whole) in one
or more related transactions to, another corporation, Person or entity unless:
(a) either (i) the Company is the surviving corporation or
(ii) the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (the "Surviving Entity"), is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia and assumes all the obligations of
the Company under the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee;
(b) immediately after giving effect to such transaction, and
treating any obligation of the Company in connection with or as a
result of such transaction as having been incurred as of the time of
such transaction, no Default or Event of Default has occurred and is
continuing;
(c) the Company (or the Surviving Entity if the Company is not
the continuing obligor under this Indenture) could, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable
four-quarter period, incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the first paragraph of
Section 1010;
(d) each Restricted Subsidiary, unless it is the other party
to the transaction described above, has by supplemental indenture
confirmed that its guarantee entered into pursuant to Section 1021
applies to the Surviving Entity's obligations under this Indenture and
the Notes;
(e) if any of the property or assets of the Company or any of
its Restricted Subsidiaries would thereupon become subject to any Lien,
the provisions of Section 1014 are complied with;
(f) immediately after giving effect to such transaction on a
pro forma basis, the Consolidated Net Worth of the Company (or of the
Surviving Entity if the Company is not the continuing obligor under
this Indenture) is equal to or greater than the Consolidated Net Worth
of the Company immediately prior to such transaction; and
(g) the Company delivers, or causes to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee,
an Officers' Certificate and an Opinion of Counsel, each stating that
such transaction complies with the requirements of this Indenture.
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For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
SECTION 802. Successor Substituted.
In the event of any transaction described in and complying
with the conditions listed in Section 801 in which the Company is not the
continuing obligor under this Indenture, the Surviving Entity will succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture, and thereafter the Company will, except in the case of a
lease, be discharged from all its obligations and covenants under this Indenture
and the Notes.
SECTION 803. Notes to Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger
of the Company into any other corporation, or upon any conveyance, lease or
transfer of the property of the Company substantially as an entirety to any
other Person, any property or assets of the Company would thereupon become
subject to any Lien, then unless such Lien could be created pursuant to Section
1014 without equally and ratably securing the Notes, the Company, prior to or
simultaneously with such consolidation, merger, conveyance, lease or transfer,
will as to such property or assets, secure the Notes Outstanding (together with,
if the Company shall so determine any other Indebtedness of the Company now
existing or hereinafter created which is not subordinate in right of payment to
the Notes) equally and ratably with (or prior to) the Indebtedness which upon
such consolidation, merger, conveyance, lease or transfer is to become secured
as to such property or assets by such Lien, or will cause such Notes to be so
secured.
SECTION 804. Merger or Consolidation of Subsidiary Guarantors.
No Subsidiary Guarantor may consolidate with or merge with or into any other
Person or convey, sell, assign, transfer, lease or otherwise dispose of its
properties and assets substantially as an entirety to any other Person (other
than the Company or another Subsidiary Guarantor) unless: (a) the Person formed
by or surviving such consolidation or merger (if other than such Subsidiary
Guarantor) or to which such properties and assets are transferred assumes all of
the obligations of such Subsidiary Guarantor under the Indenture and its
respective Subsidiary Guarantee, pursuant to a supplemental indenture in form
and substance satisfactory to the Trustee, (b) immediately after giving effect
to such transaction, no Default or Event of Default has occurred and is
continuing and (c) the Subsidiary Guarantor delivers, or causes to be delivered,
to the Trustee, in form and substance reasonably satisfactory to the Trustee, an
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Officers' Certificate and an Opinion of Counsel, each stating that such
transaction complies with the requirements of this Indenture.
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND SECURITY AND PLEDGE AGREEMENT
SECTION 901. Without Consent of Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee may amend or supplement this
Indenture, the Security and Pledge Agreement or the Notes:
(a) to evidence the succession of another person to the
Company and the assumption by any such successor of the covenants of
the Company in this Indenture, the Security and Pledge Agreement and in
the Notes; or
(b) to add to the covenants of the Company herein and under
the Security and Pledge Agreement for the benefit of the Holders or to
surrender any right or power herein or therein conferred upon the
Company; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Notes in addition to or in
place of the certificated Notes; or
(e) to evidence and provide for the acceptance of appointment
under this Indenture by a successor Trustee; or
(f) to secure the Notes; or
(g) to cure any ambiguity, to correct or supplement any
provision in this Indenture that may be defective or inconsistent with
any other provision in this Indenture and the Security and Pledge
Agreement, or to make any other provisions with respect to matters or
questions arising under this Indenture and the Security and Pledge
Agreement, provided that such actions pursuant to this clause do not
adversely affect the interests of the Holders in any material respect;
or
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(h) to comply with any requirements of the Commission in order
to effect and maintain the qualification of this Indenture under the
Trust Indenture Act.
Upon the request of the Company accompanied by a Board
Resolution authorizing the execution of any such amended or supplemental
indenture, Security and Pledge Agreement or Note, and upon receipt by the
Trustee of the documents described in Section 602 hereof, the Trustee shall join
with the Company in the execution of any amended or supplemental indenture or
Security and Pledge Agreement authorized or permitted by the terms of this
Indenture and shall make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to enter
into such amended or supplemental indenture or Security and Pledge Agreement
that affects its own rights, duties or immunities under this Indenture or
otherwise.
SECTION 902. With Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount at maturity of the Outstanding Notes, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, and the Trustee may amend or supplement in any manner
this Indenture and the Security and Pledge Agreement and modify in any manner
the rights of the Holders under this Indenture and the Security and Pledge
Agreement; provided, however, that no such amendment or modification may,
without the consent of the Holder of each Outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof or amend or modify the calculation of Default
Amount, or change the coin or currency in which any Note or any premium
or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity
thereof (or, in the case of redemption, on or after the redemption
date);
(b) reduce the percentage in principal amount of outstanding
Notes, the consent of whose Holders is required for any waiver of
compliance with certain provisions of, or certain defaults and their
consequences provided for under, this Indenture or the Security and
Pledge Agreement;
(c) waive a default in the payment of principal of, or
premium, if any, or interest on the Notes or reduce the percentage of
aggregate principal amount at maturity of Outstanding Notes the consent
of whose Holders is necessary for waiver of compliance with certain
provisions of this Indenture or for waiver of certain defaults;
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(d) release any Pledged Stock from the Lien created by the
Security and Pledge Agreement except in accordance with the terms
thereof;
(e) make any change in the foregoing amendment and waiver
provisions of this Section 902; or
(f) waive a redemption payment with respect to any Note (other
than a payment required by the provisions of Sections 1015 and 1016).
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustees own
rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the
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Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each Outstanding Note
affected, in the manner provided for in Section 107, setting forth in general
terms the substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office
or agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The office of the Trustee's Drop Agent, The Depositary Trust
Company, 55 Water Street, Jeannette Park Entrance, New York, New York 10041
shall be such office or agency of the Company, unless the Company shall
designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office or the
Administration Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind any such
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designation; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, on or before each due date of the principal of (or premium,
if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient
to pay the principal (and premium, if any) or interest so becoming due, such sum
to be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Notes in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any payment of
principal (and premium, if any) or interest; and
(c) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying
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Agent, such sums to be held by the Trustee upon the same trusts as those upon
which such sums were held by the Company or such Paying Agent; and, upon such
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Note and remaining unclaimed for two years
after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; provided, however, that the Company shall not be
required to preserve any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
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SECTION 1006. Maintenance of Properties.
The Company will cause all properties owned by the Company or
any Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. Statement by Officers As to Default.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of compliance by the Company with all conditions and
covenants under this Indenture and the Security and Pledge Agreement. For
purposes of this Section 1008(a), such compliance shall be determined without
regard to any period of grace or requirement of notice under this Indenture and
the Security and Pledge Agreement.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $2,000,000), the Company shall
deliver to the Trustee by registered or certified mail or by facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five days of becoming aware of its occurrence.
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SECTION 1009. Intentionally Left Blank.
SECTION 1010. Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock.
The Company will not, and will not permit any Restricted Subsidiary to,
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur (collectively, "incur"), any
Indebtedness (including Acquired Indebtedness and the issuance of Disqualified
Stock), except that the Company may incur Indebtedness and a Subsidiary
Guarantor (other than SAH Acquisition II and its Restricted Subsidiaries) may
incur Indebtedness, in each case if, after giving effect to such event, the
Indebtedness to EBITDA Ratio would be less than (i) 6.5 to 1.0, for any
incurrence occurring through March 15, 2000, (ii) 6.25 to 1.0, for any
incurrence occurring after March 15, 2000 and prior to March 15, 2002, or (iii)
6.0 to 1.0, for any incurrence occurring on March 15, 2002 or thereafter.
In making the foregoing calculation for any four-quarter
period that includes the Closing Date, pro forma effect will be given to the
offerings closed by the Company at or about the Closing Date, as if such
transactions had occurred at the beginning of such four-quarter period. In
addition (but without duplication), in making the foregoing calculation, pro
forma effect will be given to: (i) the incurrence of such Indebtedness and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred and the
application of such proceeds occurred at the beginning of such four-quarter
period, (ii) the incurrence, repayment or retirement of any other Indebtedness
by the Company or its Restricted Subsidiaries since the first day of such
four-quarter period as if such Indebtedness was incurred, repaid or retired at
the beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first day
of such four-quarter period, as if such acquisition or disposition occurred at
the beginning of such four-quarter period. In making a computation under the
foregoing clause (i) or (ii), (A) the amount of Indebtedness under a revolving
credit facility will be computed based on the average daily balance of such
Indebtedness during such four-quarter period, (B) if such Indebtedness bears, at
the option of the Company, a fixed or floating rate of interest, interest
thereon will be computed by applying, at the option of the Company, either the
fixed or floating rate and (C) the amount of any Indebtedness that bears
interest at a floating rate will be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Hedging Obligations applicable to such Indebtedness if such
Hedging Obligations have a remaining term at the date of determination in excess
of 12 months).
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Notwithstanding the foregoing, the Company may, and may permit its
Restricted Subsidiaries (except as specified below) to, incur the following
Indebtedness ("Permitted Indebtedness"):
(i) Indebtedness of the Company or any Subsidiary Guarantor
(other than SAH Acquisition II and its Restricted Subsidiaries) under a
Senior Credit Facility in an aggregate principal amount (or accredited
value, as applicable) at any time outstanding not to exceed $20.0
million less the aggregate amount of all Net Cash Proceeds for Assets
Sales applied to permanently reduce such Indebtedness pursuant to the
provisions of Section 1016 of this Indenture;
(ii) Indebtedness represented by the Notes and the Subsidiary
Guarantees;
(iii) Existing Indebtedness (other than Indebtedness referred
to in clauses (i) and (ii) above);
(iv) the incurrence of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to refund,
refinance or replace, any Indebtedness that is permitted to be incurred
under clause (ii) or (iii) above;
(v) Indebtedness owed by the Company to any Wholly Owned
Restricted Subsidiary or owed by any Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary (provided that such
Indebtedness is held by the Company or such Restricted Subsidiary);
provided, however, that any Indebtedness of the Company owing to any
such Restricted Subsidiary is unsecured and subordinated in right of
payment from and after such time as the Notes shall become due and
payable (whether at Stated Maturity, acceleration, or otherwise) to the
payment and performance of the Company's obligations under the Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary
under Hedging Obligations incurred in the ordinary course of business;
or
(vii) the incurrence by the Company or any of the Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations
(whether or not incurred pursuant to Sale and Leaseback Transactions),
mortgage financings or purchase money obligations, in each case
incurred for the purpose of financing or refinancing all or any part of
the purchase price or cost of construction and improvement of property
used in the business of the Company or such Restricted Subsidiary or
any Permitted Refinancing Indebtedness in respect thereof, in an
aggregate amount not to exceed $3.0 million at any one time
outstanding.
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SECTION 1011. Limitation on Restricted Payments.
The Company shall not, and shall not permit any Restricted
Subsidiaries to, directly or indirectly, take any of the following actions:
(a) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Capital Stock of the Company or any Restricted Subsidiary
(including, without limitation, any payment to stockholders of the Company in
connection with a merger or consolidation involving the Company), other than (i)
dividends or distributions payable solely in Qualified Equity Interests, or (ii)
dividends or distributions by a Restricted Subsidiary payable to the Company or
another Restricted Subsidiary.
(b) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock, or any options, warrants or other
rights to acquire such shares of Capital Stock, of the Company, any Restricted
Subsidiary or any Affiliate of the Company (other than, in either case, any such
Capital Stock owned by the Company or any of its Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to the related scheduled principal
payment, sinking fund payment or final maturity, any Subordinated Indebtedness;
and
(d) make any Investment (other than a Permitted Investment) in any
Person (such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment:
(i) no Default or Event of Default has occurred and is
continuing,
(ii) the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the first
paragraph of the covenant described under Section 1010, and
(iii) the aggregate amount of all Restricted Payments made
after the Closing Date does not exceed the sum of:
(A) cumulative Consolidated EBITDA of the Company
(or, if the cumulative Consolidated EBITDA for such period is
a deficit, less 100% of such deficit) less 1.5 times
cumulative Consolidated Interest Expense of the Company, in
each case for the period (taken as one accounting period)
commencing on the first day of the fiscal quarter beginning
after the date of this Indenture and ending on the last day of
the most recent fiscal quarter for which financial statements
have been made publicly available but in no event ending more
than 135 days prior to the date of such determination; plus
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(B) 100% of the aggregate net cash proceeds received
and retained by the Company from the issue or sale since the
date of this Indenture of Qualified Equity Interests of the
Company or of debt securities of the Company that have been
converted into such Qualified Equity Interests (other than (i)
Qualified Equity Interests (or convertible debt securities)
sold to a Subsidiary of the Company, (ii) Disqualified Stock
or debt securities that have been converted into Disqualified
Stock and (iii) Qualified Equity Interests sold in the Common
Stock Offering).
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may take the following actions, so long as no Default or Event of
Default has occurred and is continuing or would occur:
(a) the payment of any dividend in cash or Qualified Equity
Interests of the Company within 60 days after the date of declaration
thereof, if at the declaration date such payment would not have been
prohibited by the foregoing provisions;
(b) the repurchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the Company, in
exchange for, or out of the net cash proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of, Qualified
Equity Interests of the Company;
(c) the purchase, redemption, defeasance or other acquisition
or retirement for value of any Subordinated Indebtedness in exchange
for, or out of the net cash proceeds of a substantially concurrent
issuance and sale (other than to a Subsidiary) of, shares of Qualified
Equity Interests of the Company;
(d) the purchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Indebtedness in exchange for,
or out of the net cash proceeds of a substantially concurrent issuance
or sale (other than to a Subsidiary) of Subordinated Indebtedness, so
long as the Company or a Restricted Subsidiary would be permitted to
refinance such original Subordinated Indebtedness with such new
Subordinated Indebtedness pursuant to clause (iv) of the definition of
Permitted Indebtedness;
(e) the purchase, redemption, acquisition, cancellation or
other retirement for value of shares of Capital Stock of the Company,
options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or
employees (or their estates or beneficiaries under their estates) or by
any employee benefit plan, upon death, disability, retirement or
termination of employment or pursuant to the terms of any employee
benefit plan or any other agreement under which such shares of stock or
related rights were issued; provided that
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the aggregate cash consideration paid for such purchase, redemption,
acquisition, cancellation or other retirement of such shares of Capital
Stock after the Closing Date does not exceed $1.0 million in any fiscal
year; or
(f) the making of any Investment (other than a Permitted
Investment) in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary)
of Qualified Equity Interests of the Company (other than Qualified
Equity Interests sold in the Common Stock Offering); or
(g) Restricted Payments in an aggregate amount not to exceed
$5.0 million since the date of this Indenture (measured as of the date
made and without giving effect to subsequent changes in value).
The actions described in clauses (b), (c), (e), (f), and (g)
of the second paragraph of this Section 1011 will be Restricted Payments that
will be permitted to be taken in accordance with this paragraph but will reduce
the amount that would otherwise be available for Restricted Payments under
clause (iii) of the first paragraph of this Section 1011 and the actions
described in clauses (a) and (d) of this paragraph will be Restricted Payments
that will be permitted to be taken in accordance with this paragraph and will
not reduce the amount that would otherwise be available for Restricted Payments
under clause (iii) of the first paragraph of this Section 1011.
For the purpose of making any calculations under this Indenture (i) if
a Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company
will be deemed to have made an Investment in an amount equal to the greater of
the fair market value or net book value of the net assets of such Restricted
Subsidiary at the time of such designation as determined by the Board of
Directors of the Company, and (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at fair market value at the time of such
transfer, as determined by the Board of Directors of the Company. The amount of
any Restricted Payment (other than cash) shall be the fair market value on the
date of the Restricted Payment of the asset(s) or securities proposed to be
transferred or issued by the Company or such Restricted Subsidiary, as the case
may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by a nationally
recognized investment banking firm if such fair market value exceeds $1.0
million. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required under "Certain Covenants -- Restricted Payments" were
computed, together with a copy of any opinion or appraisal required by this
Indenture.
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If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other Person that thereafter becomes a Restricted Subsidiary, the aggregate
amount of all Restricted Payments calculated under the foregoing provision will
be reduced by the lesser of (x) the fair market value of such Unrestricted
Subsidiary or other Person at the time it becomes a Restricted Subsidiary and
(y) the initial amount of such Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise, other than the redesignation of an Unrestricted
Subsidiary or other Person as a Restricted Subsidiary), to the extent such net
reduction is not included in the Company's Consolidated Net Income; provided
that the total amount by which the aggregate amount of all Restricted Payments
may be reduced may not exceed the lesser of (x) the cash proceeds received by
the Company and its Restricted Subsidiaries in connection with such net
reduction and (y) the initial amount of such Investment.
SECTION 1012. Limitation on Issuances and Sales of Capital
Stock of Restricted Subsidiaries.
The Company (a) will not permit any Restricted Subsidiary to
issue any Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) will not, and will not permit any Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); provided, however, that this covenant will not prohibit
(i) the sale or other disposition of all, but not less than all, of the issued
and outstanding Capital Stock of a Restricted Subsidiary owned by the Company
and its Restricted Subsidiaries in compliance with the other provisions of this
Indenture or (ii) the ownership by directors of director's qualifying shares or
the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
The Company shall not permit any Restricted Subsidiary to
issue any Preferred Stock.
SECTION 1013. Limitation on Transactions with Affiliates.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction with, or
for the benefit of, any Affiliate of the Company ("Interested Persons"), unless
(a) such transaction is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's-length transaction with third parties who are not
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Interested Persons and (b) the Company delivers to the Trustee (i) with respect
to any transaction or series of related transactions entered into after the
Closing Date involving aggregate payments in excess of $500,000, a resolution of
the Board of Directors of the Company set forth in an Officers' Certificate
certifying that such transaction or transactions complies with clause (a) above
and that such transaction or transactions have been approved by the Board of
Directors (including a majority of the Disinterested Directors) of the Company
and (ii) with respect to a transaction or series of related transactions
involving aggregate payments equal to or greater than $1.0 million (except in
the case of the SATH Transaction), a written opinion as to the fairness to the
Company or such Restricted Subsidiary of such transaction or series of
transactions from a financial point of view issued by a nationally recognized
investment banking firm.
The foregoing covenant will not restrict:
(A) transactions among the Company and/or its Restricted
Subsidiaries;
(B) the Company from paying reasonable and customary regular
compensation, fees and indemnification to directors of the Company or
any wholly owned Restricted Subsidiary who are not employees of the
Company or any Restricted Subsidiary;
(C) loans or advances to employees in the ordinary course of
business; and
(D) transactions permitted by the provisions of Section 1011.
SECTION 1014. Limitation on Liens.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind (other than Permitted Liens) on or with respect to any of its property or
assets, including any shares of stock or indebtedness of any Restricted
Subsidiary, whether owned at the Closing Date or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any right
to receive income thereon, unless (i) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (ii) in the case
of any other Lien, the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer secured
by a Lien; provided, however, that no Lien shall at any time exist on any
Collateral, other than (i) the Lien of the Trustee, for the benefit of the
holder of Notes and (ii) a Lien in favor of the lenders under a Senior Credit
Facility on the Capital Stock of the Other Broadcast Subsidiaries to secure
Indebtedness under a Senior Credit Facility that is permitted under clause (i)
of Permitted Indebtedness.
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SECTION 1015. Purchase of Notes upon a Change of Control.
(a) If a Change of Control occurs at any time, then each
Holder of Notes shall have the right to require that the Company purchase such
Holder's Notes in whole or in part in integral multiples of $1,000, at a
purchase price in cash equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest, if any, to the date of purchase ("Change of Control
Purchase Date"), pursuant to the offer described below (the "Change of Control
Offer").
(b) Within 10 days following any Change of Control, the
Company shall notify the Trustee thereof and give written notice of such Change
of Control to each Holder of Notes by first-class mail, postage prepaid, at its
address appearing in the security register, stating:
(i) that a Change of Control has occurred, that the Change
of Control Offer is being made pursuant to this Section 1015 and that
all Notes validly tendered will be accepted for payment;
(ii) the purchase price and the purchase date, which shall be
a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed or such later date as is necessary to comply
with requirements under the Exchange Act (the "Change of Control
Payment Date");
(iii) that any Note not tendered shall continue to accrue
interest;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date;
(v) that Holders electing to have any Note purchased
pursuant to the Change of Control Offer will be required to surrender
such Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of such Note completed, to the
Paying Agent at the address specified in the notice prior to the close
of business on the Business Day immediately preceding the Change of
Control Payment Date;
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Change of Control
Payment Date, a facsimile transmission or letter setting forth the name
of such Holder, the principal amount of Notes delivered
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for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of
$1,000 or integral multiples thereof.
(c) On the Change of Control Payment Date, the Company shall:
(i) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Offer;
(ii) deposit one day prior to the Change of Control Purchase
Date with the Paying Agent money sufficient to pay the purchase price
of all Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all
Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof accepted for
payment by the Company.
The Paying Agent shall promptly mail, to the Holders of Notes
so accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Notes equal in
principal amount to any unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date. For purposes of this Section 1015, the Trustee
shall act as Paying Agent.
(d) The Company shall comply with the applicable tender offer
rules including Rule-14e under the Exchange Act, and any other applicable
securities laws and regulations in connection with a Change of Control Offer. To
the extent that provisions of any applicable securities laws or regulations
conflict with provisions of this Section 1015, the Company shall comply with
such securities laws and regulations and shall not be deemed to have breached
its obligations under this Section 1015 by virtue thereof.
SECTION 1016. Limitation on Certain Asset Sales.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the consideration received by
the Company or such
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Restricted Subsidiary for such Asset Sale is not less than the fair market value
of the assets sold, as evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee and (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 85% cash or cash equivalents;
provided, however, that in the case of any Asset Sale that involves Collateral,
(i) the consideration received by the Company or the relevant Restricted
Subsidiary in respect thereof shall be all cash or cash equivalents in which the
Trustee shall be granted a security interest of the same priority as the
priority of the security interest held by the Trustee in the asset subject to
the Asset Sale, (ii) no Default or Event of Default shall have occurred and be
continuing on the date of such proposed Asset Sale or would result as a
consequence of such Asset Sale, and (iii) such Asset Sale will not materially
adversely affect or materially impair the value of the remaining Collateral or
materially interfere with the Trustee's ability to realize such value and will
not materially impair the maintenance and operation of the remaining Collateral.
If the Company or any Restricted Subsidiary engages in an Asset Sale
not involving Collateral, the Company may, at its option, within 365 days after
such Asset Sale, (i) apply all or a portion of the Net Cash Proceeds to the
permanent reduction of Indebtedness under a Senior Credit Facility or to the
permanent reduction of other senior Indebtedness of the Company or a Restricted
Subsidiary or (ii) invest (or enter into a legally binding agreement to invest)
all or a portion of such Net Cash Proceeds in assets (other than current assets)
to replace the properties and assets that were the subject of the Asset Sale or
in assets (other than current assets) that will be used in a Permitted Line of
Business. Notwithstanding the foregoing, in the event the Asset Sale involves
Collateral or upon the receipt by the Company or any Restricted Subsidiary of
any Insurance Proceeds or Condemnation Proceeds, as the case may be, resulting
from a Loss Event, within 365 days of consummation of such Asset Sale or the
receipt of such Insurance Proceeds or Condemnation Proceeds, as the case may be,
the Company or the relevant Restricted Subsidiary shall invest (or enter into a
legally binding agreement to invest) all or a portion of such Net Cash Proceeds,
Insurance Proceeds or Condemnation Proceeds in properties and long-term assets
to replace the properties and long-term assets that were the subject of the
Asset Sale or Loss Event or in assets (other than current assets) that will be
used in a Permitted Line of Business, in which assets the Trustee shall have a
security interest of the same priority as the priority of the security interest
held by the Trustee in the Collateral subject to such Asset Sale or Loss Event.
If any legally binding agreement to invest Net Cash Proceeds, Insurance Proceeds
or Condemnation Proceeds referred to above in this paragraph is terminated, the
Company may, within 90 days of such termination or within 365 days of such Asset
Sale or Loss Event, whichever is later, invest such Net Cash Proceeds as
provided above (without regard to the parenthetical relating to the legally
binding agreement to invest). The amount of such Net Cash Proceeds, Insurance
Proceeds or Condemnation Proceeds not so used as set forth above in this
paragraph constitutes "Excess Proceeds."
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When the aggregate amount of Excess Proceeds exceeds $5 million, the
Company will, within 30 days thereafter, make an offer to purchase (an "Excess
Proceeds Offer") from all Holders of Notes on a pro rata basis, in accordance
with the procedures set forth in this Indenture, the maximum principal amount
(expressed as an integral multiple of $1,000) of Notes that may be purchased
with the Excess Proceeds, at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued interest, if any, to the date such offer
to purchase is consummated. To the extent that the aggregate principal amount of
Notes tendered pursuant to such offer to purchase is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes;
provided, however, that any Excess Proceeds which represent Net Cash Proceeds of
Asset Sales involving Collateral or Insurance Proceeds or Condemnation Proceeds
involving Collateral shall continue to remain subject to the security interest
of the Trustee and Collateral for the Notes and may be invested by the Company
in assets (other than current assets) that will be used in a Permitted Line of
Business, the Capital Stock, or properties and assets, of which the Trustee
shall have a first priority security interest in. If the aggregate principal
amount of Notes validly tendered and not withdrawn by holders thereof exceeds
the Excess Proceeds, the Notes to be purchased will be selected on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
will be reset to zero.
(b) Notwithstanding the provisions of subparagraph (a) above,
the Company may transfer any Collateral consisting of 100% of the Capital Stock
of a subsidiary owning licenses for a broadcast television station or assets
used thereby (the "Replaced Collateral") in exchange for Capital Stock of a
subsidiary owning licenses for a broadcast television station, related assets
and/or cash ("Replacement Collateral") (such exchange, a "Substitution
Transaction") if:
(i) no Default shall have occurred and be continuing;
(ii) the Company shall have complied with the other
provisions of this Indenture, if any, applicable to such Substitution
Transaction;
(iii) if the Replaced Collateral consists of Capital Stock of
a subsidiary owning licenses for a broadcast television station, the
Replacement Collateral consists of 100% of assets or equity interests
in one or more broadcast television stations;
(iv) unless the Replaced Collateral has a value not in excess
of $250,000 (as determined by the Company and set forth in an Officer's
Certificate delivered to the Trustee), the Company delivers a written
opinion of an investment banking firm of national standing or an
appraisal firm with expertise in the valuation of broadcast television
stations, stating that the value to the Company of the Replacement
Collateral is at least equal to the value to the Company of the
Replaced Collateral;
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(v) the Company (or the relevant Restricted Subsidiary)
executes a supplemental indenture subjecting the Replacement Collateral
to the Lien in favor of the Trustee on behalf of Noteholders under the
Indenture; and
(vi) the Company delivers an Opinion of Counsel satisfactory
to the Trustee stating that the Replacement Securities are subject to a
valid, perfected Lien in favor of the Trustee having the same priority
as the lien on the Replaced Collateral on behalf of the Noteholders.
(c) The Company will also be entitled to release Collateral (other than
the Pledged Securities) from the Lien in favor of the Noteholders provided that
it delivers to the Trustee an Officer's Certificate stating that the Collateral
so released, since the Closing Date and giving pro forma effect to the proposed
release, has a fair market value not in excess of $100,000.
(d) Consideration received in a Substitution Transaction shall be
subject to the provisions of subparagraph (a) above.
SECTION 1017. Unrestricted Subsidiaries.
(a) The Board of Directors of the Company may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) any Investment in such Subsidiary
made as a result of designating such Subsidiary an Unrestricted Subsidiary will
not violate the provisions of Section 1011, (iv) neither the Company nor any
Restricted Subsidiary has a contract, agreement, arrangement, understanding or
obligation of any kind, whether written or oral, with such Subsidiary other than
those that might be obtained at the time of such redesignation from persons who
are not Affiliates of the Company, (v) neither the Company nor any Restricted
Subsidiary has any obligation to subscribe for additional shares of Capital
Stock or other equity interest in such Subsidiary, or to maintain or preserve
such Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results and (vi) such Unrestricted Subsidiary has at
least one director on its Board of Directors that is not a director or executive
officer of the Company or any of its Restricted Subsidiaries and has at least
one executive officer that is not a director or executive officer of the Company
or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the
Company may not designate any of its Subsidiaries existing as of the Closing
Date or any successor to any of them as an Unrestricted Subsidiary and may not
sell, transfer or otherwise dispose of any properties or
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assets of any such Subsidiary to an Unrestricted Subsidiary, other than in the
ordinary course of business.
(b) The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) no Default
or Event of Default has occurred and is continuing following such designation
and (ii) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the first paragraph of Section
1010 (treating any Indebtedness of such Unrestricted Subsidiary as the
incurrence of Indebtedness by a Restricted Subsidiary).
SECTION 1018. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans or advances to the Company or any other Restricted Subsidiary or (d)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of:
(i) applicable law;
(ii) customary non-assignment provisions of any lease
governing a leasehold interest of the Company or any Restricted
Subsidiary;
(iii) the refinancing or successive refinancing of
Indebtedness incurred under the agreements in effect on the Closing
Date, so long as such encumbrances or restrictions are no more
restrictive than those contained in such agreement in effect on the
Closing Date;
(iv) any agreement or other instrument of a Person acquired
by the Company or any Restricted Subsidiary in existence at the time of
such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; and
(v) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature
described in clause (d) above on the property so acquired.
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SECTION 1019. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Section 803 or Sections 1007, 1018
and 1020 through 1022, inclusive, or any covenant or condition set forth in the
Security and Pledge Agreement, if before or after the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding Notes,
by Act of such Holders, waive such compliance in such instance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
SECTION 1020. Payment for Consent.
Neither the Company nor any of its Restricted Subsidiaries
shall, directly or indirectly, participate in the amendment of the Indenture, if
there is paid any consideration, whether by way of interest, fee or otherwise,
to any Holder of any Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Notes
unless such consideration is offered to be paid or is paid to all Holders of the
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
SECTION 1021. Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable for the payment of any Indebtedness of the Company or any Indebtedness of
any other Restricted Subsidiary, unless (a) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for a
guarantee of payment of the Notes by such Restricted Subsidiary and (b) with
respect to any guarantee of Subordinated Indebtedness by a Restricted
Subsidiary, any such guarantee is subordinated to such Restricted Subsidiary's
guarantee with respect to the Notes at least to the same extent as such
Subordinated Indebtedness is subordinated to the Notes, provided that the
foregoing provision will not be applicable to any guarantee by any Restricted
Subsidiary that existed at the time such person became a Restricted Subsidiary
and was not incurred in connection with, or in contemplation of, such person
becoming a Restricted Subsidiary.
Any guarantee by a Restricted Subsidiary of the Notes pursuant
to the preceding paragraph may provide by its terms that it will be
automatically and unconditionally released
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and discharged upon (i) any sale, exchange or transfer to any person not an
Affiliate of the Company of all of the Company's and the Restricted
Subsidiaries' Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by
this Indenture), (ii) the release or discharge of the guarantee that resulted in
the creation of such guarantee of the Notes, except a discharge or release by or
as a result of payment under such guarantee or (iii) the designation of such
Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the terms
of this Indenture.
SECTION 1022. Reports.
The Company will at all times file with the Commission all
such annual reports, quarterly reports and other documents that the Company is
required to file under Sections 13(a) or 15(d) under the Exchange Act (and in
the event, the Company ceases for any reason to be required to file under
Sections 13(a) or 15(d) under the Exchange Act, the Company shall nonetheless
make such filings as if the Company were subject to the filing requirements of
Sections 13(a) or 15(d) under the Exchange Act.
The Company will also be required (a) to supply to the Trustee
and each Holder of Notes, or supply to the Trustee for forwarding to each such
holder, without cost to such holder, copies of such reports and other documents
within 15 days after the date on which the Company files such reports and
documents with the Commission or the date on which the Company would be required
to file such reports and documents if the Company were so required and (b) if
filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to supply at the Company's
cost copies of such reports and documents to any prospective Holder of Notes
promptly upon written request.
SECTION 1023. SAH Acquisition II.
During the term of this Indenture, the articles of
incorporation of SAH Acquisition II and each Subsidiary thereof will provide
that, so long as any Note is outstanding, (i) SAH Acquisition II shall be a
special purpose corporation, organized solely in order to acquire and own the
assets of KCNS, WRAY and WOAC, including the FCC licenses, (ii) SAH Acquisition
II and each Subsidiary thereof will not own any other assets or conduct any
other business other than the business of KCNS, WRAY and WOAC and assets related
to the business thereof, (iii) SAH Acquisition II and each Subsidiary thereof
will not, directly or indirectly, incur any Indebtedness except in respect of
the Notes, (iv) SAH Acquisition II and each Subsidiary thereof will not create,
incur, assume or suffer to exist any Lien securing Indebtedness on any asset of
SAH Acquisition II or any Subsidiary thereof except Liens in favor of the
Trustee, for the benefit of the holders of Notes, and (v) SAH
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Acquisition II and each Subsidiary thereof will not be permitted to file for
bankruptcy or similar provisions under state law.
SECTION 1024. Line of Business.
During the term of this Indenture, the Company will not, and
will not permit any Restricted Subsidiary to, conduct a business other than a
Permitted Line of Business.
SECTION 1025. Limitation on Sale and Leaseback Transactions.
The Company will not, and will not permit any Restricted
Subsidiary to, enter into any Sale and Leaseback Transaction, provided that the
Company or any Restricted Subsidiary may enter into a Sale and Leaseback
Transaction if (i) the Company or such Restricted Subsidiary could have incurred
(a) Indebtedness in an amount equal to the Attributable Debt relating to such
Sale and Leaseback Transaction under Section 1010 and (b) a Lien to secure such
Indebtedness pursuant to Section 1014, (ii) the aggregate rent payable by the
Company or such Restricted Subsidiary in respect of such Sale and Leaseback
Transaction for the duration of the lease is not in excess of the fair market
rental value of the property of assets leased pursuant to such Sale and
Leaseback Transaction for the duration of the lease, and (iii) such Sale and
Leaseback Transaction is treated as an Asset Sale and the Company and the
relevant Restricted Subsidiaries comply with Section 1016.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
The Notes may be redeemed at the option of the Company, as a
whole or from time to time in part, at any time on or after __________, 2002,
subject to the conditions and at the Redemption Prices specified in the form of
Note, together with accrued interest, if any, to the Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
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SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular
Notes to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee from the Outstanding Notes not previously called
for redemption by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Notes; provided, however, that no such partial redemption shall reduce the
portion of the principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall relate,
in the case of any Note redeemed or to be redeemed only in part, to the portion
of the principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for
in Section 107 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
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(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the
notice which relates to such Note shall state that on and after the
Redemption Date, upon surrender of such Note, the holder will receive,
without charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Note, or the
portion thereof, to be redeemed, and that interest thereon will cease
to accrue on and after said date,
(6) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest, if any, and
(7) the CUSIP number.
Notice of redemption of Notes to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes,
<PAGE> 90
79
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 309.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Note without
service charge, a new Note or Notes, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Note so surrendered.
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Legal Defeasance or
Covenant Defeasance.
The Company may, at its option and at any time, with respect
to the Notes, elect to have either Section 1202 or Section 1203 be applied to
all Outstanding Notes upon compliance with the conditions set forth below in
this Article Twelve.
SECTION 1202. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes on the
date the conditions set forth in Section 1204 are satisfied (hereinafter, "legal
defeasance"). For this purpose, such legal defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the Outstanding Notes, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1205 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Notes and this Indenture
<PAGE> 91
80
insofar as such Notes are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Notes to receive payments in
respect of the principal of (and premium, if any, on) and interest on such Notes
when such payments are due, (B) the Company's obligations to issue temporary
Notes, register the transfer or exchange of any Notes, replace mutilated,
destroyed, lost or stolen Notes, maintain an office or agency for payments in
respect of the Notes and segregate and hold such payments in trust, (C) the
rights, powers, trusts, duties and immunities of the Trustee, and (D) this
Article Twelve. Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the Notes.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company shall be released from its
obligations under any covenant contained in Sections 801 and 803 and in Section
1007 through 1018 and Sections 1020 through 1022 with respect to the Outstanding
Notes on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Notes shall thereafter be deemed
not to be "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "Outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the Outstanding Notes, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 501(3) and (4), but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant
Defeasance.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the Outstanding Notes:
(1) the Company must irrevocably deposit or cause to be
deposited with the Trustee, as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
holders of the Notes, money in an amount, or U.S. Government
Obligations that through the scheduled payment of principal and
interest thereon will provide money in an amount, or a combination
thereof, sufficient, in the opinion of a
<PAGE> 92
81
nationally recognized firm of independent public accountants, to pay
and discharge the principal of (and premium, if any, on) and interest
on the Outstanding Notes at maturity (or upon redemption, if
applicable, as of a date no later than ___________ , provided that the
Company shall have complied with the notice provisions set forth under
this Indenture in connection with such optional redemption) of such
principal or installment of interest;
(2) no Default or Event of Default has occurred and is
continuing on the date of such deposit or, insofar as an event of
bankruptcy under Section 501(7) and (8) above is concerned, at any time
during the period ending on the 91st day after the date of such
deposit;
(3) such legal defeasance or covenant defeasance may not
result in a breach or violation of, or constitute a default under, this
Indenture or any material agreement or instrument to which the Company
is a party or by which it is bound;
(4) in the case of legal defeasance, the Company must deliver
to the Trustee an Opinion of Counsel stating that the Company has
received from, or there has been published by, the Internal Revenue
Service a ruling, or since the date hereof, there has been a change in
applicable federal income tax law, to the effect, and based thereon
such opinion must confirm that, the holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes
as a result of such legal defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(5) in the case of covenant defeasance, the Company must have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Notes outstanding will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
(6) the Company must have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal
defeasance or the covenant defeasance, as the case may be, have been
complied with.
<PAGE> 93
82
SECTION 1205. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the Outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal
(and premium, if any) and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1204 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding Notes.
Anything in this Article Twelve to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1204 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance, as applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1205 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company obligations under this Indenture, the
Security and Pledge Agreement and the Notes shall be revived and reinstated as
though no deposit had occurred pursuant to Section 1202 or 1203, as the case may
be, until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 1205; provided, however, that if the
Company makes any payment of principal of (or premium, if any) or interest on
any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
<PAGE> 94
83
ARTICLE THIRTEEN
SECURITY
SECTION 1301. Security and Pledge Agreement.
In order to secure the due and punctual payment of the
principal of (premium, if any) and interest on the Notes when and as the same
shall be due and payable, whether on an Interest Payment Date, at the Stated
Maturity, by acceleration, call for redemption, or otherwise, and interest on
the overdue principal, premium and interest, if any, of the Notes and
performance of all other obligations of the Company to the Holders or the
Trustee under this Indenture and the Notes, according to the terms hereunder or
thereunder, the Company will make an assignment of its right, title and interest
in and to the Collateral to the Trustee pursuant to the Security and Pledge
Agreement and to the extent therein provided, no later than the date of the
first issuance of the Notes hereunder. Each Holder, by its acceptance of a Note,
consents and agrees to the terms of the Security and Pledge Agreement
(including, without limitation, the provisions providing for foreclosure and
release of Collateral) as the same may be in effect or may be amended from time
to time in accordance with the terms thereof and hereof. The Company (a) will
forever warrant and defend the title to the Collateral against the claims of all
persons whatsoever, (b) will execute, acknowledge and deliver to the Trustee
such further assignments, transfers, assurances or other instruments as the
Trustee may reasonably require or request, and (c) will do or cause to be done
all such acts and things as may be necessary or proper, or as may be required by
the Trustee, to assure and confirm to the Trustee the security interest in the
Collateral contemplated hereby and by the Security and Pledge Agreement or any
part thereof, as from time to time constituted, so as to render the same
available for the security and benefit of this Indenture and of the Notes
secured hereby, according to the intent and purposes herein expressed. The
Company shall take, or cause its Subsidiaries to take, upon request of the
Trustee, any and all actions reasonably required to cause the Security and
Pledge Agreement to create and maintain, as security for this Indenture
Obligations of the Company, a valid and enforceable first priority Lien in and
on the Collateral, in favor of the Trustee, superior to and prior to the rights
of all third Persons, and subject to no other Liens.
<PAGE> 95
84
SECTION 1302. Recording, etc.
(a) The Company will cause, at its own expense, the Security
and Pledge Agreement and this Indenture and all amendments or supplements
thereto to be registered, recorded and filed or re-recorded, re-filed and
renewed in such manner and in such place or places, if any, as may be required
by law in order fully to preserve and protect the security interests created
under the Security and Pledge Agreement and to effectuate and preserve the
security therein of the Holders and all rights of the Trustee.
(b) The Company shall furnish to the Trustee, within 30 days
after any such action set forth in subsection (a) above is taken, an Officers'
Certificate stating that such action has been taken in accordance with Section
1302(a) of this Indenture.
SECTION 1303. Intentionally Left Blank.
SECTION 1304. Certificates of the Company.
In addition to all certificates and documents required to be
furnished by the Company under Section 1303 and the Security and Pledge
Agreement, the Company shall furnish to the Trustee, prior to the proposed
release of Collateral pursuant to this Indenture and the Security and Pledge
Agreement, (i) all documents required by TIA ss. 314(d) and (ii) an Opinion of
Counsel to the effect that such accompanying documents constitute all documents
required by TIA ss. 314(d).
SECTION 1305. Suits to Protect the Collateral.
The Trustee shall have power to institute and to maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts which may be unlawful or in violation of the Security and
Pledge Agreement or this Indenture, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Collateral (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security hereunder or be
prejudicial to the interests of the Holders or the Trustee).
<PAGE> 96
85
SECTION 1306. Authorization of Receipt of Funds by the Trustee
Under the Security and Pledge Agreement.
The Trustee is authorized to receive any funds for the benefit
of the Holders distributed under the Security and Pledge Agreement, and to make
further distributions of such funds to the Holders according to the provisions
of this Indenture.
SECTION 1307. Additional Pledges.
The Company will not transfer or otherwise dispose of, to any
Subsidiary, any Pledged Stock or any property or assets (other than transfers or
dispositions in the ordinary course of business), unless such transferee
Subsidiary is a Restricted Subsidiary and the Company pledges all of the issued
and outstanding Capital Stock of such transferee Subsidiary owned by the Company
to the Trustee pursuant to the Security and Pledge Agreement.
ARTICLE FOURTEEN
SUBSIDIARY GUARANTEES
SECTION 1401. Subsidiary Guarantees.
Each of the Subsidiary Guarantors hereby, jointly and
severally, unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Company hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and
severally obligated to pay the same immediately. The Subsidiary Guarantors
hereby agree that their obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Notes or this
Indenture, the absence of any action to enforce the same, any waiver or consent
by any Holder of the Notes with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the same or
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first
<PAGE> 97
86
against the Company, protest, notice and all demands whatsoever and covenant
that this Subsidiary Guarantee will not be discharged except by complete
performance of the obligations contained in the Notes and this Indenture. If any
Holder or the Trustee is required by any court or otherwise to return to the
Company or Subsidiary Guarantors, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or Subsidiary
Guarantors, any amount paid by either to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Subsidiary Guarantor agrees that they shall not
be entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between the
Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 5 for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such obligations as provided in
Article 5, such obligations (whether or not due and payable) shall forthwith
become due and payable by the Subsidiary Guarantors for the purpose of this
Subsidiary Guarantee. Notwithstanding anything in this Article 14 to the
contrary, the guaranty of each Subsidiary Guarantor shall be limited in amount
to ninety-five percent (95%) of the net worth of such Subsidiary Guarantor.
SECTION 1402. Execution and Delivery of Subsidiary Guarantee.
To evidence its respective Subsidiary Guarantee set forth in
Section 1401, each Subsidiary Guarantor hereby agrees that a notation of such
Subsidiary Guarantee substantially in the form attached hereto shall be endorsed
by an officer of such Subsidiary Guarantor on each Note authenticated and
delivered by the Trustee and that this Indenture shall be executed on behalf of
such Subsidiary Guarantor by its President or one of its Vice Presidents and
attested to by an Officer.
Each Subsidiary Guarantor hereby agrees that its Subsidiary
Guarantee set forth in Section 1401, shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
If an officer or Officer whose signature is on this Indenture
or on the Subsidiary Guarantee no longer holds that office at the time the
Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary
Guarantors.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
<PAGE> 98
87
SHOP AT HOME, INC.
By
------------------------------------------
Name:
Title:
SAH ACQUISITION CORPORATION II
By
------------------------------------------
Name:
Title:
MFP, INC.
By
------------------------------------------
Name:
Title:
BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC.
By
------------------------------------------
Name:
Title:
URBAN BROADCASTING SYSTEMS, INC.
By
------------------------------------------
Name:
Title:
COLLECTOR'S EDGE OF TENNESSEE, INC.
By
------------------------------------------
Name:
Title:
<PAGE> 99
88
PNC BANK, NATIONAL ASSOCIATION
Trustee
By
------------------------------------------
Name:
Title:
<PAGE> 100
Exhibit A
[FACE OF NOTE]
SHOP AT HOME, INC.
___% Secured Note Due 2005
[CUSIP][CINS]_____________
No. _______ $_________________
SHOP AT HOME, INC., a Tennessee corporation (the "Company",
which term includes any successor under this Indenture hereinafter referred to),
for value received, promises to pay to ___________, or its registered assigns,
the principal sum of _________________________________ ($___________), on
___________ , 2005.
Interest Rate: ___% per annum.
Interest Payment Dates: _______ and ________ of each year
commencing ______, 1998.
Regular Record Dates: _______ and ________ of each year.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
SHOP AT HOME, INC.
By
------------------------------------------
Name:
Title:
<PAGE> 101
(Form of Trustee's Certificate of Authentication)
This is one of the ____% Secured Notes due 2005 described in the
within-mentioned Indenture.
PNC BANK, NATIONAL ASSOCIATION
as Trustee
By
------------------------------------------
Authorized Signatory
A-2
<PAGE> 102
[REVERSE SIDE OF NOTE]
SHOP AT HOME, INC.
____% Secured Note due 2005
1. Principal and Interest.
The Company will pay the principal of this Note on ________
__, 2005.
The Company promises to pay interest on the principal amount
of this Note on each Interest Payment Date, as set forth below, at the rate of
___% per annum.
Commencing _______, 1998, interest will be payable
semiannually in arrears on _______, and _________ in each year, until the
principal thereof is paid or duly provided for, to the person in whose name the
Note is registered at the close of business on the ______ or _________ next
preceding such Interest Payment Date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Notes.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on
the principal amount of the Notes on each _______ and _______ to the persons who
are Holders (as reflected in the Register at the close of business on the
_______ and _______, immediately preceding the Interest Payment Date), in each
case, even if the Note is cancelled on registration of transfer or registration
of exchange after such record date.
The principal of (and premium, if any) and interest on the
Notes shall be payable, and the Notes shall be exchangeable and transferable, at
the office or agency of the Company in The City of New York maintained for such
purposes (which initially shall be the office of the Trustee's Drop Agent, The
Depositary Trust Company, 55 Water Street, Jeannette Park Entrance, New York,
New York 10041) or, at the option of the Company, interest may be paid by check
mailed to the address of the Person entitled thereto as such address shall
appear on the Register.
A-3
<PAGE> 103
3. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar upon written notice
thereto. The Company, any Subsidiary or any Affiliate of any of them may act as
Paying Agent, Registrar or co-registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
March __, 1998 (the "Indenture"), between the Company, the Subsidiary Guarantors
and PNC Bank, National Association, as trustee (the "Trustee"). Capitalized
terms herein are used as defined in the Indenture unless otherwise indicated.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act. The Notes are subject
to all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all such terms. To the extent permitted by
applicable law, in the event of any inconsistency between the terms of this Note
and the terms of the Indenture, the terms of the Indenture shall control.
As provided in the Indenture, the Notes are obligations
secured by a pledge to the Trustee pursuant to the Security and Pledge
Agreement. Each Holder by accepting a Note shall be bound by and be entitled to
the benefits of the Security and Pledge Agreement, as the same may be amended
from time to time pursuant to the respective provisions therein and in the
Indenture.
5. Redemption.
Optional Redemption. The Notes will not be redeemable at the
Company's option prior to ________, 2002. Thereafter, the Notes will be
redeemable, at the option of the Company, as a whole or from time to time in
part, on not less than 30 nor more than 60 days' prior notice to the Holders at
the following Redemption Prices (expressed as percentages of principal amount)
together with accrued and unpaid interest, if any, to the date of redemption
(subject to the right of holders of record in the relevant record date to
receive interest due on an interest payment date), if redeemed during the
12-month period beginning on __________, of the years indicated below.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.................................................... %
2003....................................................
2004 and thereafter..................................... 100%
</TABLE>
A-4
<PAGE> 104
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Register. Notes in original
denominations larger than $1,000 may be redeemed in part in integral multiples
of $1,000. On and after the Redemption Date, interest ceases to accrue on Notes
or portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
6. Repurchase upon a Change in Control, Asset Sales or Repurchase Offer
Triggering Event.
(a) If a Change of Control occurs at any time, each Holder of
Notes shall have the right to require that the Company purchase such Holder's
Notes in whole or in part in integral multiples of $1,000, at a purchase price
in cash equal to 101% of the aggregate principal amount at maturity of such
Notes, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to the offer described in the Indenture (the "Change of Control
Offer"); and (b) upon an Asset Sale, the Company may be obligated to make offers
to purchase Notes with a portion of the Net Cash Proceeds of such Asset Sale at
a purchase price in cash equal to 100% of the principal amount at maturity
thereof plus accrued and unpaid interest, if any, to the date of purchase.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons, in
denominations of $1,000 and multiples of $1,000 in excess. A Holder may register
the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption (except the unredeemed portion
of any Note being redeemed in part). Also, it need not register the transfer or
exchange of any Notes for a period of 15 days before the mailing of a notice of
redemption of Notes to be redeemed is made.
8. Persons Deemed Owners.
A Holder may be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the
A-5
<PAGE> 105
Company at its written request. After that, Holders entitled to the money must
look to the Company for payment, unless an abandoned property law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company irrevocably deposits, or causes to be
deposited, with the Trustee money or U.S. Government Obligations sufficient to
pay the then outstanding principal of, premium, if any, and accrued interest on
the Notes (a) to redemption or maturity, the Company will be discharged from the
Indenture and the Notes, except in certain circumstances for certain sections
thereof, and (b) to the Stated Maturity, the Company will be discharged from
certain covenants set forth in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at maturity of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount at maturity of the Notes then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity, defect or
inconsistency.
12. Restrictive Covenants.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Restricted Subsidiary
Capital Stock; (iv) transactions with Affiliates; (v) Liens; (vi) certain Asset
Sales; (vii) dividends and other payment restrictions affecting Restricted
Subsidiaries; (viii) mergers and certain transfers of assets; (ix) sale of
Collateral and loss of Control of the Board of Directors; (x) guarantees of
Indebtedness by Restricted Subsidiaries; (xi) agreements for consents; and (xii)
Unrestricted Subsidiaries. Within 120 days after the end of each fiscal year,
the Company must report to the Trustee on compliance with such limitations.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
A-6
<PAGE> 106
14. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount at maturity of the Notes then outstanding may declare all the
Notes to be immediately due and payable. If a bankruptcy or insolvency default
with respect to the Company or any of its Significant Subsidiaries occurs and is
continuing, the Notes automatically become immediately due and payable. Holders
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in aggregate principal amount at maturity of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.
15. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
16. Authentication.
This Note shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Note.
17. Defeasance.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness represented by this Note, upon compliance by the Company with
certain conditions set forth in the Indenture.
18. Governing Law.
The Notes shall be governed by, and construed in accordance
with, the law of the State of New York, without regard to conflicts of law
principles thereof.
A-7
<PAGE> 107
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to 3100 West
End Avenue, Suite 880, Nashville, Tennessee 37203, Attention: George J.
Phillips.
A-8
<PAGE> 108
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
Date: _________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within- mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee:
<PAGE> 109
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 1015 or Section 1016 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 1015 or Section 1016 of the Indenture, state the
amount (in original principal amount) below:
$_____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
ii
<PAGE> 110
FORM OF NOTATION OF SECURITY
RELATING TO SUBSIDIARY GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture, (a) the due and punctual payment of the principal
of, premium, if any, and interest on the Notes, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on overdue
principal and premium, and, to the extent permitted by law, interest, and the
due and punctual performance of all other obligations of the Company to the
Holders or the Trustee all in accordance with the terms of the Indenture and (b)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. The obligations of the Guarantors
to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee
and the Indenture are expressly set forth in Article XI of the Indenture and
reference is hereby made to the Indenture for the precise terms of the
Subsidiary Guarantee. Each Holder of a Note, by accepting the same, (a) agrees
to and shall be bound by such provisions and (b) appoints the Trustee
attorney-in-fact of such Holder for such purpose.
Guarantors:
SAH Acquisition Corporation II, MFP, Inc.,
Broadcast, Cable and Satellite Technologies,
Inc., Urban Broadcasting Systems, Inc.,
Collector's Edge of Tennessee, Inc.
By
------------------------------------------
Name:
Title:
iii
<PAGE> 1
Exhibit 4.7
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT, dated as of March __, 1998, is made by
SHOP AT HOME, INC., a Tennessee corporation ("SAH"), BROADCAST, CABLE AND
SATELLITE TECHNOLOGIES, INC., a Texas corporation ("BCST"), SAH ACQUISITION
CORPORATION II, a Tennessee corporation ("Acquisition") (each of SAH, BCST and
Acquisition, a "Pledgor" and together, the "Pledgors"), in favor of PNC BANK,
NATIONAL ASSOCIATION, a national banking association, as trustee (the "Trustee")
for the holders (the "Holders") of the Notes (as defined herein).
R E C I T A L S
Pledgors, the Trustee and the other subsidiaries of SAH party thereto, have
entered into an indenture dated as of March __, 1998 (as amended, amended and
restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgors are issuing on the date hereof
$75,000,000 in aggregate principal amount at maturity of its ___% Secured Notes
due 2005 (the "Notes"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Indenture.
SAH and BCST are the legal and beneficial owner of the outstanding shares
of Capital Stock set forth on Schedule I hereto and issued by the corporations
named therein (the "Pledged Stock").
It is a condition precedent to the purchase of the Notes by the Holders
shall have granted the assignment and security interest and made the pledge and
assignment contemplated by this Agreement.
Unless otherwise defined in this Agreement or in the Credit Agreement,
terms defined in Article 9 of the Uniform Commercial Code in effect in the
State of New York (the "Code") are used in this Agreement as such terms are
defined there.
NOW THEREFORE, in consideration of the premises, and in order to induce the
Holders to purchase the Notes, the Pledgors hereby agree with the Trustee for
its benefit and the ratable benefit of the Holders as follows:
SECTION 1. Pledge and Security Interest.
(a) Each Pledgor hereby assigns and pledges to the Trustee for its benefit
and for the ratable benefit of the Holders, and hereby grants to the Trustee for
its benefit and for the ratable benefit of the Holders, a continuing security
interest in all of its right, title and interest in the following collateral
owned by such Pledgor (collectively, the "Pledgor Collateral"):
<PAGE> 2
2
(i) the Pledged Stock and the certificates representing the Pledged
Stock, all proceeds of the Pledged Stock, and all of the following (to the
extent that they may not otherwise constitute proceeds): all income and
profits from the Pledged Stock, all dividends, cash, options, warrants,
rights, subscriptions, instruments and other property from time to time
after the date hereof received, receivable or otherwise distributed in
respect of or in exchange or substitution for any or all of the Pledged
Stock; and
(ii) all additional shares of Capital Stock of, and all securities
convertible into, and all warrants, options or other rights to purchase,
Capital Stock of, the Issuer from time to time after the date hereof
acquired by such Pledgor in any manner, and the certificates representing
any such additional shares and all income and profits thereon, and all
proceeds, dividends, cash, options, warrants, rights, subscriptions,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange or
substitution for any or all of such shares; and
(a) Acquisition hereby assigns and pledges to the Trustee for its benefit
and for the ratable benefit of the Holders, and hereby grants to the Trustee
for its benefit and for the ratable benefit of the Holders, a continuing
security interest in all of its right, title and interest in the following
collateral owned by Acquisition (the "Acquisition Collateral" and, together
with the Pledgor Collateral, the "Collateral"):
(i) all of Acquisition's right, title and interest, whether now owned
or hereafter acquired, in and to all equipment in all of its forms,
wherever located, now or hereafter existing [(including, but not limited
to, )], all fixtures and all parts thereof and all accessories
thereto (any and all such equipment, fixtures, parts and accessions being
the "Acquisition Equipment");
(ii) all of Acquisition's right, title and interest, whether now
owned or hereafter acquired, in and to all accounts, chattel paper,
instruments, deposit accounts, investment property, general intangibles
and other obligations of any kind, now or hereafter existing (excluding
any interest in any license, permit or authorization that may
not be assigned without the consent of the Federal Communications
Commission), whether or not arising out of or in connection with the sale
or lease of goods or the rendering of services, and all rights now or
hereafter existing in and to all security agreements, leases and other
contracts securing or otherwise relating to any such accounts, chattel
paper, instruments, deposit accounts, investment property, general
intangibles or obligations (any and all such accounts, chattel paper,
instruments, deposit accounts, investment property, general intangibles
and obligations being the "Acquisition Receivables", and any and all such
leases, security agreements and other contracts being the "Acquisition
Related Contracts" and, collectively with the Acquisition Equipment, the
"Acquisition Personal Property");
(iii) all other tangible or intangible property of Acquisition,
including, without limitation, all proceeds, products and accessions of and
to any of the property of the Acquisition described in clauses (i) or (ii)
above in this Section 2(b), and, to the extent related to any property
described in said clauses or such proceeds, products and accessions, (i)
all books, correspondence, credit files, records, invoices and other
papers, including without limitation all tapes, cards, computer runs and
other papers and documents in the possession or under the control of
Acquisition or any computer bureau or service company from time to time
acting for Acquisition, (ii) all payments under insurance (whether or not
the Lender is the loss payee thereof), or any indemnity, warranty or
guaranty by reason of loss of or change to or otherwise with respect to
any of the foregoing Acquisition Collateral, and (iii) cash.
SECTION 2. Security for Obligations. (a) This Agreement secures the payment
and performance when due (whether for principal, interest, fees, expenses or
otherwise at stated maturity, by acceleration or otherwise) of the obligations
of the Pledgors under the Indenture or under this Agreement (the "Secured
Obligations").
(b) The Pledgors and the Holders, by their acceptance of this Agreement,
hereby confirm that it is the intention of all such parties that the pledge
contemplated by this Agreement not constitute a fraudulent transfer or
conveyance for purposes of Bankruptcy Law (as defined below), the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law to the extent applicable to this Agreement. To effectuate
the foregoing intention, the Holders and the Pledgors hereby irrevocably agree
that the obligations of the Pledgors under this Agreement shall be limited to
the maximum amount as will, after giving effect to such maximum amount and all
other contingent and fixed liabilities of the Pledgors that are relevant under
such laws, result in the obligations of the Pledgors under this Agreement not
constituting a fraudulent transfer or conveyance. For purposes hereof,
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal or state law
for the relief of debtors.
(c) Without limiting the generality of the foregoing, this Agreement
secures the payment of all amounts that constitute part of the
Secured Obligation and would be owed by Pledgors to the Holders under the
Indenture and the Notes but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving one or more of Pledgors.
<PAGE> 3
3
SECTION 3. Delivery of Collateral. All certificates or instruments
representing or evidencing any and all of the Collateral shall be delivered to
and held by or on behalf of the Trustee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed stock
powers and instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Trustee. The Trustee shall have the right, at any
time in its discretion and without notice to Pledgors, to transfer to or to
register in the name of the Trustee or any of its nominees any or all of the
Collateral, subject only to the revocable rights specified in Section 7(a) of
this Agreement. In addition, the Trustee shall have the right at any time to
exchange certificates or instruments representing or evidencing Collateral for
any of the certificates or instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. (a) Each Pledgor represents and
warrants with respect to itself as follows:
(i) The execution, delivery and performance by Pledgor of this
Agreement are within Pledgor's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of Pledgor or of any agreement,
judgment, injunction, order, decree or other instrument, binding upon
Pledgor or result in the creation or imposition of any Lien on any assets
of Pledgor, except for the security interests granted under this Agreement.
(ii) This Agreement and the pledge of the Pledged Stock create a valid
and perfected first priority security interest in the Collateral securing
the payment of the Secured Obligations, the security interest in the
Collateral comprised of the Capital Stock of BCST, MFP, Inc. and Urban
Broadcasting Systems, Inc. shall be a second priority security interest,
junior to the security interest securing the Senior Credit Facility (as
defined in the Indenture) (the "Junior Lien"). All filings and other
actions necessary or desirable to perfect and protect the foregoing
security interest have been duly taken.
(iii) Pledgor is, and at the time of delivery of any Collateral to the
Trustee pursuant to Section 3 of this Agreement will be, the legal and
beneficial owner of the Collateral, free and clear of any Lien or claims of
any Person except for the lien and security interest created by this
Agreement and, in the case of the Collateral subject to the Junior Lien,
except for the lien and security interest of the Senior Credit Facility. No
effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Trustee relating
to this Agreement.
(iv) The Pledged Stock has been duly authorized and validly issued and
is fully paid and non-assessable.
(vi) The Pledged Stock, consisting of Capital Stock of the Issuer,
identified in Schedule I annexed hereto, constitutes the percentage of the
issued and outstanding shares of stock of the Issuer as set forth on such
schedule.
(e) This Agreement has been duly executed and delivered by Pledgor and
constitutes a legal, valid and binding obligation of Pledgor, enforceable
against
<PAGE> 4
4
Pledgor in accordance with its terms, except as such enforceability may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally or general principles of equity.
(vii) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of
Pledgor, threatened by or against Pledgor with respect to this Agreement or
the Pledge of Collateral by Pledgor contemplated hereby, except in each
case for such litigations, investigations or proceedings that, singly or in
the aggregate, are not reasonably likely to result in a material adverse
effect on (i) the business, operations, properties, assets, liabilities,
net worth, condition (financial or otherwise) or prospects of Pledgor and
its consolidated subsidiaries, taken as a whole or (ii) the ability of
Pledgor to perform any of its obligations under this Agreement;
(viii) No consent of any other Person and no consent, authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body or other Person is required
either for the pledge by Pledgor of the Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement
by Pledgor, (ii) the perfection or maintenance of the pledge created hereby
(including the first priority nature of such pledge except in the case of
the Junior Lien) or (iii) except as provided in Section 26, for the
exercise by the Trustee of the voting or other rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement (except the declaration of effectiveness by the Securities and
Exchange Commission of any registration statement filed pursuant to Section
12).
(ix) Pledgor does not directly own any shares of Capital Stock other
than the shares of Capital Stock set forth on Schedule I annexed hereto.
(x) Except with respect to this Agreement, the Pledged Stock is not
subject to any stockholder agreement, voting trust agreement or other
agreement that affects the voting or other rights of a holder of Pledged
Stock, including the ability to transfer any of the Pledged Stock.
<PAGE> 5
5
(xii) The principal place of business and chief executive office of
Pledgor and the office where Pledgor keeps its records concerning the
Collateral are located at
Pledgor Location
------- --------
(xiii) As of the date hereof, all information set forth herein
relating to the Collateral is accurate and complete in all respects.
(b) Acquisition represents and warrants as follows:
(i) All of the Acquisition Equipment is located at the places
specified in Section 4(a)(xi) herein beneath such Pledgor's name.
(ii) Acquisition has exclusive possession and control of the
Acquisition Equipment.
SECTION 5. Further Assurances. (a) Each Pledgor agrees that at any time and
from time to time, at the expense of such Pledgor, such Pledgor will promptly
execute and deliver or use its best efforts to cause to be executed and
delivered all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Trustee may request, in order to
perfect and protect the priority of the Trustee's security interest in the
Collateral, any pledge, assignment or security interest granted or purported to
be granted hereby or to enable the Trustee to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, each Pledgor will execute and file such financing
or continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Trustee may request, in
order to perfect and preserve the pledge, assignment and security interest
granted or purported to be granted hereby.
(b) Each Pledgor hereby authorizes the Trustee to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of such Pledgor where permitted
by law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
(c) Each Pledgor will furnish to the Trustee from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Trustee may reasonably request,
all in reasonable detail.
SECTION 6. As to Equipment. (a) Acquisition shall keep the Acquisition
Equipment at the places therefor specified in Section 4(a)(xi) or, upon 30
days' prior written notice to the Trustee, at such other places in a
jurisdiction where all action required by Section 5 shall have been taken with
respect to the Acquisition Equipment.
(b) Acquisition shall cause the Acquisition Equipment to be maintained and
preserved in accordance with its existing practices and shall forthwith, or in
the case of any loss or damage to any of the Acquisition Equipment as quickly as
practicable after the occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith that are necessary
or desirable to such end. Acquisition shall promptly furnish to the Trustee a
statement respecting any loss or damage to any of the Acquisition Equipment.
SECTION 7. Voting Rights; Dividends; Etc.. (a) So long as no Default or
Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Stock owned by it or any
part thereof for any purpose not inconsistent with the terms of this
Agreement, the Indenture or the Notes; provided, however, that such Pledgor
shall not exercise or shall refrain from exercising any such right if such
action would be inconsistent with or violate any provisions of this
Agreement or the Indenture.
<PAGE> 6
6
(ii) Each Pledgor shall be entitled to receive and retain any and all
dividends paid in respect of the Collateral; provided, however, that any
and all
(A) dividends paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral
shall be, and shall be forthwith delivered to the Trustee to hold as,
Collateral and shall, if received by a Pledgor, be received in trust for
the benefit of the Trustee, be segregated from the other property or funds
of such Pledgor and be forthwith delivered to the Trustee as Collateral in
the same form as so received (with any necessary endorsement).
(iii) In order to permit a Pledgor to exercise the voting and other
rights which it is entitled to exercise pursuant to Section 6(a)(i) above
and to receive the dividends, distributions or principal payments which it
is authorized to receive and retain pursuant to Section 7(a)(ii) above, the
Trustee shall, if necessary, upon written request of Pledgor, from time to
time execute and deliver (or cause to be executed and delivered) to Pledgor
all such proxies, dividend payment orders and other instruments as Pledgor
may reasonably request.
(b) Upon the occurrence and during the continuance of a Default or an Event
of Default (but subject to Section 28 below);
(i) Upon written notice from the Trustee to a Pledgor, all rights of
such Pledgor to exercise or refrain from exercising the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant
to Section 7(a)(i) above shall cease, and all such rights shall thereupon
become vested in the Trustee which shall thereupon have the sole right to
exercise such voting and other consensual rights.
(ii) All rights of a Pledgor to receive the dividends and
distributions which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) above shall cease and all such rights shall
thereupon become vested in the Trustee
<PAGE> 7
7
who shall thereupon have the sole right to receive and hold as Collateral
such dividends and distributions.
(iii) All dividends, distributions and interest payments that are
received by a Pledgor contrary to the provisions of this Section 7 above
shall be received in trust for the benefit of the Trustee and the Holders,
shall be segregated from other property or funds of Pledgor and shall be
forthwith delivered to the Trustee as Collateral in the same form as so
received (with any necessary endorsement).
(c) In order to permit the Trustee to receive all dividends and other
distributions to which it may be entitled under Section 7(a)(ii) or 7(b)(ii)
above, or to exercise the voting and other consensual rights which it may be
entitled to exercise pursuant to Section 7(b)(i) above, each Pledgor shall, if
necessary, upon written notice from the Trustee, from time to time execute and
deliver (or cause to be executed and delivered) to the Trustee appropriate
proxies, dividend payment orders and other instruments as the Trustee may
reasonably request.
SECTION 8. Covenants. Each Pledgor covenants and agrees with the Trustee
and the Holders from and after the date of this Agreement until the Obligations
have been paid in full:
(a) Except as permitted by the Indenture, Pledgor will not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant
any option or warrant with respect to, any of the Collateral, (ii) create
or permit to exist any Lien upon or with respect to any of the Collateral,
except for the pledge and security interest under this Agreement or, in the
case of the Collateral subject to the Junior Lien, except for the lien and
security interest of the Senior Credit Facility, or (iii) transfer or
otherwise dispose of any Pledged Stock or take any corporate action to
authorize the transfer or disposition of any property or assets (other than
transfers or dispositions in the ordinary course of business) of the Issuer
to a Subsidiary, unless such Subsidiary is a Wholly Owned Restricted
Subsidiary and Pledgor promptly (and in any event within five Business Days
after such transfer or disposition) delivers to the Trustee a duly executed
pledge amendment, in substantially the form of Exhibit A hereto (a "Pledge
Amendment"), with respect to the Capital Stock of such Subsidiary owned by
Pledgor or a Subsidiary of Pledgor. Each such Subsidiary shall, upon
execution of such Pledge Amendment, be an "Issuer" hereunder. If a
Subsidiary of a Pledgor owns any such pledged Capital Stock, such
Subsidiary shall be a "Pledgor" hereunder.
(b) Pledgor agrees that it will not enter into any agreement or
understanding that purports to or may restrict or inhibit the Trustee's
rights or
<PAGE> 8
8
remedies hereunder, including, without limitation, the Trustee's right to
sell or otherwise dispose of the Collateral.
(c) Pledgor shall keep its principal place of business and chief
executive office and the office where it keeps its records concerning the
Collateral at the location specified in Section 4(a)(xi) above or, upon 30
days' prior written notice to the Trustee, at such other location in a
jurisdiction where all actions required by Section 5 above shall have been
taken with respect to the Collateral. Pledgor will hold and preserve such
records and will permit representatives of the Trustee at any time during
normal business hours to inspect and make copies or abstracts from such
records and chattel paper.
(d) Pledgor agrees that immediately upon becoming the beneficial owner
of any additional shares of Capital Stock, it will pledge and deliver to
the Trustee for its benefit and the ratable benefit of the Holders, a
continuing security interest in such shares of equal priority to that
previously granted to the Trustee (as well as duly executed instruments of
transfer or assignments in blank, all in form and substance satisfactory to
the Trustee). Pledgor further agrees that it will promptly (and in any
event within five Business Days after such acquisition) deliver to the
Trustee, duly executed by Pledgor, a Pledge Amendment with respect to the
additional Collateral that is to be pledged pursuant to this Agreement.
(e) Pledgor will at all times be the sole beneficial owner of the
Collateral.
Pledgor hereby authorizes the Trustee to attach each Pledge Amendment to
this Agreement and agrees that any Capital Stock listed on the Pledge Amendment
delivered to the Trustee shall for all purposes hereunder be considered "Pledged
Stock" and "Collateral".
SECTION 9. Trustee Appointed Attorney-in-Fact. In addition to all of the
powers granted to the Trustee pursuant to Article 6 of the Indenture but subject
to Section 28 below, each Pledgor hereby irrevocably appoints the Trustee such
Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor or otherwise, from time to time in the
Trustee's discretion to take any action and to execute any instrument which the
Trustee may reasonably deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral,
<PAGE> 9
9
(b) to receive, endorse and collect any drafts or other instruments
and documents, in connection with clause (a) above, and
(c) to file any claims or take any action or institute any proceedings
that the Trustee may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Trustee with
respect to any of the Collateral.
SECTION 10. Trustee May Perform. If a Pledgor fails to perform any
agreement contained herein, the Trustee, subject to Section 28 below, may itself
perform, or cause performance of, such agreement, and the expenses of the
Trustee, including the fees and expenses of its counsel, incurred in connection
therewith shall be payable by Pledgor under Section 13 hereof.
SECTION 11. The Trustee's Duties. The powers conferred on the Trustee
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Trustee shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, lenders or other matters relative to any
Security Collateral, whether or not the Trustee or any Holder has or is deemed
to have knowledge of such matters, or as to the taking of any necessary steps
to preserve rights against any parties or any other rights pertaining to any
Collateral. The Trustee shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which the Trustee
accords trust property.
SECTION 12. Subsequent Changes Affecting Collateral. Each Pledgor
represents to the Trustee and the Holders that Pledgor has made its own
arrangements for keeping informed of changes or potential changes affecting the
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and Pledgor agrees that the Trustee and the Holders
shall have no responsibility or liability for informing Pledgor of any such
changes or potential changes or for taking any action or omitting to take any
action with respect thereto. Each Pledgor covenants that it will not vote or
take any other action to sell or otherwise dispose of, or grant any option, or
create or permit to exist any Lien upon or, with respect to any of the
Collateral except with respect to Collateral released from this Agreement
pursuant to Section 23 of this Agreement or sales of Collateral in accordance
with this Agreement and the Indenture. Each Pledgor will defend the right, title
and interest of the Trustee and the Holders in and to the Collateral against the
claims and demands of all Persons.
SECTION 13. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing (but subject to Section 28 below):
(a) (i) The Trustee and the Holders may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
upon default under the Code, and the Trustee may also in its sole
discretion, (i) require Acquisition to, and Acquisition hereby agrees that
it will, at its expense and upon request of the Trustee forthwith, assemble
all or part of the Collateral as directed by the Trustee and make it
available to the Trustee at a place to be designated by the Trustee that
is reasonably convenient to both parties, and (ii) without notice except as
specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of the Trustee's offices or
elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms and otherwise in such manner as the
Trustee may deem commercially reasonable, irrespective of the impact of any
such sales on the
<PAGE> 10
10
market price of the Collateral. Each purchaser at any such sale shall hold
the property sold absolutely free from any claim, encumbrance or right on
the part of a Pledgor, and, with respect to any such Collateral sold upon
default, Pledgor hereby waives (to the extent permitted by law) all rights
of redemption, stay and or appraisal which it now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted. Each Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to Pledgor of the time and place
of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Trustee shall not be
obligated to make any sale of Collateral regardless of notice of sale
having been given. The Trustee may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned. Each Pledgor hereby waives any claims against the Trustee
arising by reason of the fact that the price at which any Collateral may
have been sold at such a private sale was less than the price which might
have been obtained at a public sale, even if the Trustee accepts the first
offer received and does not offer such Collateral to more than one offeree.
(ii) Each Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities laws, the Trustee may be compelled, with
respect to any sale of all or any part of the Collateral, to limit
purchasers to those who will agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Each Pledgor acknowledges that any such
private sales may be at prices and on terms less favorable to the Trustee
than those obtainable through a public sale without such restrictions
(including, without limitation, a public offering made pursuant to a
registration statement under the Securities Act), and, notwithstanding such
circumstances, agrees that any private sale shall be deemed to have been
made in a commercially reasonable manner and that the Trustee shall have no
obligation to engage in public sales and no obligation to delay the sale of
any Collateral for the period of time necessary to permit the Issuer to
register it for a form of public sale requiring registration under the
Securities Act or under applicable state securities laws, even if Pledgor
would agree to do so.
(b) If the Trustee determines to exercise its right to sell any or all
of the Collateral, upon written request, each Pledgor shall and shall use
its best efforts to furnish to the Trustee all such information as the
Trustee may request in order to determine the number of shares and other
instruments included in the Collateral which may be sold by the Trustee as
exempt transactions under the Securities Act and the rules of Securities
and Exchange Commission thereunder, as the same are from time to time in
effect.
<PAGE> 11
11
(c) The Trustee may exercise any and all rights and remedies of a
Pledgor in respect of the Collateral, including, without limitation, any
and all of the rights of a Pledgor to demand or otherwise require payment
of any amount under, or performance of any provision of, the Indenture.
(d) All payments received by a Pledgor in respect of the Collateral
shall be received in trust for the benefit of the Trustee, shall be
segregated from other funds of such Pledgor and shall be forthwith paid
over to the Trustee in the same form as so received (with any necessary
endorsement).
SECTION 14. Registration Rights. If the Trustee shall determine to exercise
its rights to sell all or any of the Pledged Stock pursuant to Section 13 above,
each Pledgor agrees that, upon request of the Trustee, Pledgor will, at its own
expense, take all corporate action which it is able to take to cause the Issuer
to:
(a) execute and deliver, and cause its directors and officers to
execute and deliver, all such instruments and documents, and do or cause to
be done all such other acts and things, as may be necessary or, in the
opinion of the Trustee, advisable to register such Pledged Stock under the
provisions of the Securities Act, to cause the registration statement
relating thereto to become effective and to remain effective for such
period as prospectuses are required by law to be furnished and to make all
amendments and supplements thereto and to the related prospectus that, in
the opinion of the Trustee, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations
of the Securities and Exchange Commission applicable thereto;
(b) use its best efforts to qualify the Pledged Stock under the state
securities or "Blue Sky" laws and to obtain all necessary governmental
approvals for the sale of the Collateral, as requested by the Trustee;
(c) make available to its security holders, as soon as practicable, an
earnings statement that will satisfy the provisions of Section 11(a) of the
Securities Act; and
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Collateral or any part thereof valid and
binding and in compliance with applicable law.
The Trustee is authorized, in connection with any sale of the Collateral
pursuant to Section 13 of this Agreement, to deliver or otherwise disclose to
any prospective purchaser of the Collateral (i) any registration statement or
prospectus, and all supplements and amendments thereto, prepared pursuant to
clause (a) above and (ii) any other information
<PAGE> 12
12
(which has not been provided by Pledgor on a confidential basis) in its
possession relating to the Collateral.
SECTION 15. Application of Proceeds. After and during the continuance of an
Event of Default, any cash held by the Trustee as Collateral and all cash
proceeds received by the Trustee (all such cash being "Proceeds") in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by the Trustee of its remedies as a secured
creditor as provided in Section 13 of this Agreement shall be applied promptly
from time to time by the Trustee as follows:
First, to the payment of the costs and expenses of such sale,
collection or other realization, including reasonable compensation to the
Trustee and its agents and counsel, and all expenses, liabilities and
advances made or incurred by the Trustee and its agents and counsel in
connection therewith;
Second, to the payment of the Secured Obligation in accordance with
Section 506 of the Indenture;
Third, to the payment of any other Obligations; and
Fourth, after payment in full of all Obligations, to a Pledgor, or its
successors or assigns, or to whomsoever may be lawfully entitled to receive
the same or as a court of competent jurisdiction may direct, of any surplus
then remaining from such Proceeds.
SECTION 16. Indemnity and Expenses. (a) The Pledgors agree to indemnify
the Trustee from and against any and all claims, losses and liabilities growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement, except claims, losses, or liabilities resulting
from the Trustee's negligence or wilful misconduct as determined by a final
judgment of a court of competent jurisdiction.
(b) Each Pledgor will upon demand pay to the Trustee the amount of any and
all reasonable expenses, including the reasonable fees, expenses and
disbursements of its counsel and of any experts and agents, which the Trustee
may incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Trustee or the Holders hereunder or (iv) the failure by
a Pledgor to perform or observe any of the provisions hereof.
SECTION 17. Security Interest Absolute. The obligations of each Pledgor
under this Agreement are independent of the Secured Obligations, and a separate
action or actions may be brought and prosecuted against each Pledgor to enforce
this Agreement, irrespective of whether any action is brought against any other
Pledgor or whether any other Pledgor is joined in any such action or actions.
All rights of the Trustee and the Holders and security interests hereunder, and
all obligations of a Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
<PAGE> 13
13
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any taking, exchange, surrender, release or non-perfection of any
Liens on any other collateral, or any taking, release or amendment or
waiver of or consent to departure from any guarantee, for all or any of the
Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, a Pledgor in respect of the Obligations or
of this Agreement.
SECTION 19. Amendments, Waivers and Consents. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by any Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. Any
amendment or waiver of any provision of this Agreement and any consent to any
departure by a Pledgor from any provision of this Agreement shall be effective
only if made or given in compliance with all of the terms and provisions of the
Indenture and neither the Trustee nor any Holder shall be deemed, by any act,
delay, indulgence, omission or otherwise, to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. Failure of the Trustee or any
Holder to exercise, or delay in exercising, any right, power or privilege
hereunder shall not operate as a waiver thereof. No single or partial exercise
of any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Trustee or any Holder of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that the Trustee
or such Holder would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any rights or remedies provided by law.
SECTION 20. Addresses for Notices. All notices and other communications
provided for hereunder shall be in the form and manner, and delivered to each of
the parties hereto at their respective addresses, as set forth or provided for
in Section 106 of the Indenture.
SECTION 18. Concerning the Trustee.
(a) Pursuant to Section 512 of the Indenture, the Holders shall have the
right, by one or more instruments in writing executed and delivered to the
Trustee, to direct the time, method and place of conducting any proceeding for
any right or remedy available to the Trustee, or of exercising any trust or
power conferred on the Trustee, or for the appointment of a receiver, or to
direct the taking or the refraining from taking of any action authorized by this
Agreement; provided that (i) such direction shall not conflict with the
provisions of any law or of this Agreement or the Indenture, (ii) the Trustee
shall
<PAGE> 14
14
be adequately secured and indemnified as provided in the Indenture and (iii)
such direction does not involve the Trustee in personal liability and is not
unjustly prejudicial to the Holders not consenting. Nothing in this Section
20(a) shall impair the right of the Trustee in its discretion to take any action
or omit to take any action which it deems proper and which is not inconsistent
with such direction. The Trustee shall have no duty to take or refrain from
taking any action unless explicitly required herein.
(b) The Trustee shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equivalent to that which the Trustee, in its
individual capacity, accords its own similar property in similar situations, it
being understood that neither the Trustee nor any Holder shall have
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Trustee has or is deemed to have knowledge of
such matters, or (b) taking any necessary steps (other than steps taken in
accordance with the standard of care set forth above to maintain possession of
the Pledged Stock) to preserve rights against any Person with respect to any
Collateral.
(c) The Trustee shall not be responsible in any manner whatsoever for the
correctness of any recitals, statements, representations or warranties herein,
all of which are made solely by Pledgors. The Trustee makes no representations
as to the value or condition of the Collateral or any part thereof, or as to the
title of a Pledgor thereto or as to the security afforded by this Agreement, or
as to the validity, execution (except the Trustee's own execution),
enforceability, legality or sufficiency of this Agreement, and the Trustee shall
incur no liability or responsibility in respect of any such matters.
(d) Notwithstanding any other provision of this Agreement, the Trustee
shall not, in its individual capacity, be personally liable for any action taken
or omitted to be taken by it in accordance with this Agreement except for its
own gross negligence or willful misconduct.
(e) The Trustee shall have the same rights with respect to any obligation
secured hereunder held by it as any other secured party and may exercise such
rights as though it were not the Trustee hereunder, and may accept deposits
from, lend money to, and generally engage in any kind of banking or trust
business with a Pledgor as if it were not the Trustee.
(f) For purposes of this Agreement, in the performance of the duties and
obligations hereunder the Trustee shall be entitled to the benefits of the terms
and provisions of Article Six of the Indenture.
<PAGE> 15
15
SECTION 21. Termination. Subject to Section 22 of this Agreement, when all
the Secured Obligations have been indefeasibly paid in full in accordance with
the terms of the Indenture, this Agreement shall terminate, and the Trustee
shall, upon the written request and at the expense of Pledgors, forthwith
assign, transfer and deliver, against receipt and without recourse to the
Trustee, such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof to or on the order of Pledgors.
SECTION 22. Continuing Security Interest; Transfer of Notes. This Agreement
shall create a continuing security interest in the Collateral and shall, unless
otherwise provided in the Indenture or this Agreement, (a) remain in full force
and effect until indefeasible payment in full is made of all Obligations in
accordance with the terms of the Indenture, (b) be binding upon Pledgors, its
successors and assigns, and (c) inure, together with the rights and remedies of
the Trustee hereunder, to the benefit of the Trustee, the Holders and each of
their respective successors, transferees and assigns.
SECTION 23. Separability Clause. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 24. Reinstatement. This Agreement shall continue to be effective or
be reinstated if at any time any amount received by the Trustee or any Holder in
respect of the Obligations is rescinded or must otherwise be restored or
returned by the Trustee or any Holder upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of a Pledgor or upon the appointment
of any receiver, intervenor, conservator, trustee or similar official for a
Pledgor or any substantial part of its assets, or otherwise, all as though such
payments had not been made.
SECTION 25. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, except to the
extent that the validity or perfection of the security interest hereunder, or
remedies hereunder, in respect of any particular Collateral are governed by the
laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Indenture, terms defined in Articles 8 and 9 of the
Uniform Commercial Code as in effect in the State of New York are used herein as
therein defined.
SECTION 26. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
<PAGE> 16
16
SECTION 27. GOVERNMENTAL APPROVALS, ETC. THE TRUSTEE ACKNOWLEDGES THAT IN
CONNECTION WITH ANY EXERCISE BY THE TRUSTEE OF ITS RIGHTS HEREUNDER IT MAY BE
NECESSARY TO OBTAIN THE PRIOR CONSENT OR APPROVAL OF CERTAIN GOVERNMENTAL
AUTHORITIES, INCLUDING, WITHOUT LIMITATION, THE FEDERAL COMMUNICATIONS
COMMISSION ("FCC"). NOTHING IN THIS AGREEMENT SHALL INTERFERE WITH EACH
PLEDGORS' OR EACH LICENSEE'S OBLIGATION TO CONTROL AND OPERATE ITS BUSINESS AS
REQUIRED BY THE FEDERAL COMMUNICATIONS ACT OF 1934, AS AMENDED, AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER. THE TRUSTEE SHALL NOT TAKE ANY ACTION
PURSUANT TO THIS AGREEMENT THAT WOULD CONSTITUTE OR RESULT IN AN ASSIGNMENT OR
TRANSFER OF CONTROL OF ANY FCC LICENSE, PERMIT OR AUTHORIZATION WITHOUT
OBTAINING THE PRIOR CONSENT OF THE FCC THERETO.
PRIOR TO THE EXERCISE BY THE TRUSTEE OF ANY POWER, RIGHT, PRIVILEGE OR REMEDY
PURSUANT TO THIS AGREEMENT WHICH REQUIRES ANY CONSENT, APPROVAL, REGISTRATION,
QUALIFICATION OR AUTHORIZATION OF ANY GOVERNMENTAL AUTHORITY OR INSTRUMENTALITY,
EACH PLEDGOR WILL EXECUTE AND DELIVER, OR WILL CAUSE THE EXECUTION AND DELIVERY
OF, ALL APPLICATIONS, CERTIFICATES, INSTRUMENTS AND OTHER DOCUMENTS AND PAPERS
THAT THE TRUSTEE MAY BE REQUIRED TO OBTAIN FOR SUCH FCC OR OTHER GOVERNMENTAL,
CONSENT, APPROVAL, REGISTRATION, QUALIFICATION OR AUTHORIZATION AND WILL USE
THEIR BEST EFFORTS TO ASSIST THE TRUSTEE TO OBTAIN SUCH CONSENT, APPROVAL,
REGISTRATION, QUALIFICATION OR AUTHORIZATION.
<PAGE> 17
17
IN WITNESS WHEREOF, Pledgors and the Trustee have each caused this
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
PLEDGORS:
SHOP AT HOME, INC.
By: _______________________________
Title:
BROADCAST, CABLE AND SATELLITE
TECHNOLOGIES, INC.
By: _______________________________
Title:
SAH ACQUISITION CORPORATION II
By: _______________________________
Title:
Notice Address of Pledgors:
3100 West End Avenue
Suite 880
Nashville, TN 37203
Attention: ______________________
<PAGE> 18
18
TRUSTEE:
PNC BANK, NATIONAL ASSOCIATION
as Trustee
By: ______________________________
Title:
Notice Address of Trustee:
1600 Market Street
30th Floor
Philadelphia, PA 19103
Attention: Corporate Trust Department
<PAGE> 19
SCHEDULE I
PLEDGED STOCK
PLEDGED STOCK OWNED AND PLEDGED BY SHOP AT HOME, INC.
<TABLE>
<CAPTION>
Percentage of
Capital Stock of
Jurisdiction of Subsidiary Owned
Name of Subsidiary of SAH Incorporation Share Certificate Numbers by SAH
- -------------------------- --------------- ------------------------- -----------------
<S> <C> <C> <C>
SAH Acquisition Corporation Tennessee #1 -- 1000 shares 100%
II
Broadcast, Cable and Satellite Texas #3 -- 1000 shares 100%
Technologies, Inc.
MFP, Inc. Tennessee #1,2 -- 1000 shares 100%
</TABLE>
PLEDGED STOCK OWNED AND PLEDGED BY BROADCAST, SATELLITE & CABLE
TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Percentage of
Capital Stock of
Jurisdiction of Subsidiary Owned
Name of Subsidiary of BCST Incorporation Share Certificate Numbers by BCST
- -------------------------- --------------- ------------------------- -----------------
<S> <C> <C> <C>
Urban Broadcasting Systems, Texas #3 -- 490 shares 100%
Inc. #4 -- 510 shares
</TABLE>
<PAGE> 20
EXHIBIT A
Pledge Amendment
This Pledge Amendment, dated ________________, 19__, is delivered pursuant
to Section 7 of the Pledge Agreement referred to below. The undersigned hereby
pledges to the Trustee for its benefit and the ratable benefit of the Holders,
and grants to the Trustee for its benefit and the ratable benefit of the
Holders, a continuing security interest in all of its right, title and interest
in the Capital Stock listed below.
The undersigned hereby agrees that this Pledge Amendment may be attached to
the Security and Pledge Agreement dated as of March ___, 1998 (the "Pledge
Agreement"), between the undersigned and PNC Bank, National Association, a
national banking association, Trustee, capitalized terms used herein and not
otherwise defined herein shall have the meanings given to such terms in the
Pledge Agreement; and the Collateral listed on this Pledge Amendment shall be
deemed to be part of the Collateral, and shall become part of the Collateral and
shall secure all Obligations.
-------------------------------------
By:
----------------------------------
Name:
Title:
Pledged Shares
--------------
Number of Share
Pledged Certificate Percentage of
Issuer Shares Numbers Outstanding
- ------ --------- ----------- -------------
<PAGE> 1
Exhibit 23.2
Consent of Independent Accountants
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 333-44251) of our report dated February 18,
1998, on our audits of the consolidated financial statements and our report on
the financial statement schedule of Shop at Home, Inc. and subsidiaries as of
February 18, 1998. We also consent to the reference to our firm under the
caption "Experts."
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
March 20, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
The undersigned, J. Daniel Sullivan, as a person named in the Registration
Statement on Form S-1 (File No. 333-44251), and in Amendment No. 1 thereto, as
about to become a director of the Registrant, and who did not execute the
Registration Statement or Amendment No. 1, hereby consents to the references and
descriptions relating to him set out therein.
March 5, 1998
/s/ J. Daniel Sullivan
-------------------------------------
J. Daniel Sullivan
<PAGE> 1
Exhibit 23.4
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
The undersigned, Patricia E. Mitchell, as a person named in the
Registration Statement on Form S-1 (File No. 333-44251), and in Amendment No. 1
thereto, as about to become a director of the Registrant, and who did not
execute the Registration Statement or Amendment No. 1, hereby consents to the
references and descriptions relating to her set out therein.
March 5, 1998
/s/ Patricia E. Mitchell
-----------------------------------
Patricia E. Mitchell
