<PAGE> 1
As filed with the Securities and Exchange Commission on January 14, 1998
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Tennessee 5961 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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Agent for Service: Kent E. Lillie, President Copy to: C. Michael Norton, Esq.
Shop at Home, Inc. Wyatt, Tarrant & Combs
102 Woodmont Boulevard Nashville City Center
Suite 200-228 511 Union Street, Suite 1500
Nashville, Tennessee 37205 Nashville, Tennessee 37219
(615) 345-0257 (615) 244-0020
</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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CALCULATION OF REGISTRATION FEE
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============================================================================================================================
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to to be offering price aggregate registration
be registered registered per unit offering price fee
- ----------------------------------------------------------------------------------------------------------------------------
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Common Stock, $.0025 par value . . . . . . . . . . . . 8,625,000 $4.00 $34,500,000 $10,454.54
% Secured Notes Due 20__ . . . .. . . . . . . . . . $60,000,000 100% $60,000,000 $18,181.82
============================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457 under the Securities Act of 1933.
(2) Includes 1,125,000 shares of Common Stock which may be purchased by
the Underwriters pursuant to an over-allotment option.
-------------------
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.
===============================================================================
<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.
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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 20___ 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.
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SUBJECT TO COMPLETION, DATED JANUARY ___, 1998
PROSPECTUS [Shop at Home
Logo]
$---------------
SHOP AT HOME, INC.
___% SECURED NOTES DUE 20__
Shop at Home, Inc. (the "Company"), is offering hereby (the "Notes
Offering") $_____ million principal amount of its ____% Secured Notes Due 20___
(the "Notes"). Interest on the Notes will be payable semiannually on March 15
and September 15 of each year, commencing September 15, 1998. The Notes are not
redeemable at any time prior to ___________, 20___. Concurrent with the Notes
Offering, the Company is offering _____________ shares of Common Stock, par
value $0.0025 per share (the "Common Stock") 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.
On or after September 15, ____, the Notes are redeemable at the option of
the Company in whole or in part, at the redemption prices set forth herein plus
accrued interest to the date of redemption. Upon the occurrence of a Change of
Control (as defined herein), holders 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 repurchase date. The Notes will be general obligations
of the Company. The Notes will be secured by a senior lien on the capital stock
and certain assets of SAH Acquisition II Corporation, a wholly-owned subsidiary
of the Company ("SAH Acquisition II") and a junior lien on the capital stock and
certain assets of the Subsidiaries (as defined herein) of the Company other than
SAH Acquisition II. In addition, the obligations of the Company under the Notes
will be jointly and severally guaranteed by each of the Company's 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.
See "Description of Notes."
THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 14 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.
-----------------------
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===============================================================================
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note _____% _____% _____%
Total $_________ $________ $__________
===============================================================================
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriter (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 $___________.
---------------------
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The Notes are offered by the Underwriter, subject to receipt and
acceptance by the Underwriter, approval of certain legal matters by counsel for
the Underwriter and certain other conditions. The Underwriter reserves the right
to withdraw, cancel or modify such offers and to reject orders in whole or in
part. It is expected that delivery of the Notes will be made through the
facilities of The Depository Trust Company on or about _________, 1998.
---------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is , 1998
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[Graphic depicting baseball signed by Joe DiMaggio, a gemstone, a video
camcorder and two-on air personalities, overlaying a table with a cup of coffee
and folded Wall Street Journal.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER 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.
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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.
THE COMPANY
The Company has been in the business since 1986 of selling and
distributing merchandise and retail products through televised programs
broadcast to cable television system subscribers, television station viewers and
owners of satellite dish receivers. The Company originates twenty-four hours of
live programming each day and broadcasts the programming by satellite. The
Company's programming is provided on the Company's owned and operated television
stations in Boston and Houston, 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.
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 receive the
programming on essentially a full-time basis (20 or more hours per day) and
approximately 44.5 million cable households receive it on a part-time basis. For
households that receive the Company's programming on a part-time basis, the
average duration of programming per day is 4.9 hours.
The Company's programming features a variety of consumer products,
including jewelry, sports collectibles, electronics, health and beauty, personal
care, household and lifestyle, and other select merchandise and collectibles
such as knives, coins, dolls, and figurines. The Company seeks to offer its
products at prices generally below the price for which the consumer could
purchase the goods at a retail outlet or through a catalog. The Company seeks to
differentiate itself from the other televised home shopping programmers by
utilizing a friendly, personal style of programming and by offering unique types
of products and high quality goods such as rare coins, collectible sports items,
jewelry and other limited-availability items. The Company has also developed and
utilized proprietary products and brand names in its jewelry and cosmetic lines.
The Company's 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 revenues and cash flow
by implementing the following strategy:
- - UNIQUE PRODUCT MIX. The Company plans to continue to implement a
strategy of selling niche products that the Company believes are not
readily available through television home shopping and retail
competitors.
- - LOW PRICED, HIGH QUALITY MERCHANDISE. The Company believes that its
products are priced below comparable merchandise of retailers and
catalogue sellers and intends to continue offering low priced, high
quality products to its customers.
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- - ACQUISITION OF BROADCAST STATIONS AND NEW 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. In
addition, the Company plans to further increase its viewership through
negotiation of carriage agreements with multiple system cable owners and
agreements with individual broadcast television stations and networks for
the purchase of broadcast time.
- - IMPROVE MARGINS. The Company plans to improve margins by (i) offering and
selling a mix of products that will yield higher gross profit margins, (ii)
taking advantage of its purchasing power by negotiating lower wholesale
prices with its vendors, and (iii) spreading its fixed costs over increased
households served.
- - CONTROL OF INVENTORY. 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.
- - CUSTOMER SERVICE. The Company plans to continue to offer quality customer
service, including efficient and accurate call center operations, timely
deliveries of merchandise, continuing its 30 day full refund policy, and
encouraging repeat customers through special incentive programs.
RECENT DEVELOPMENT
SAH Acquisition II Corporation, 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 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
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 $52,850,000 (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 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
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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 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 __, 1998 and such approval is expected to
become a final order on February __, 1998 assuming no party files a timely
objection thereto.
The closing of the Asset Purchase Agreement, including the transfer of KCNS
and WRAY and the assignment and assumption of the Executory Contract for WOAC,
was approved by order of the Bankruptcy Court on February __, 1998.
The primary use of the proceeds of the Offerings will be to provide funds
necessary to close the Acquisition and the subsequent closing of the Executory
Contract for WOAC. A complete description of the use of proceeds of the
Offerings is set forth under "Use of Proceeds."
Pursuant to the Asset Purchase Agreement, SAH Acquisition II also acquired
the right to acquire WPMC(TV) in the Knoxville, Tennessee market. SAH
Acquisition II has assigned all of the rights to purchase WPMC to a third party
in consideration of a net payment to SAH Acquisition II of $900,000 and has no
further rights or obligations with respect to such station.
As a result of the Acquisition (and prior to planned upgrades to the
acquired stations), the Company estimates that households receiving 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 will receive it on a full-time basis (20 or more
hours per day) and approximately 43.4 cable million cable households will
receive it on a part-time basis.
THE OFFERING
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Securities Offered.......................... $____ million aggregate principal amount of __% Secured Notes due 20__.
Maturity Date............................... September 15, 20__.
Interest Payment Dates...................... March 15 and September 15, commencing September 15, 1998.
Optional Redemption......................... On or after September 15, ____, 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.
</TABLE>
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Mandatory Redemption........................ None.
Ranking..................................... The Notes will be general obligations of the Company.
Collateral.................................. The Notes will be secured by a first priority lien on all of the issued and
outstanding capital stock of SAH Acquisition II and certain assets of SAH
Acquisition II, which shall be pledged to the Trustee, for the benefit of the
Note holders. The Notes will be secured by a second priority lien on all of
the issued and outstanding capital stock and certain assets of the Subsidiaries
of the Company other than SAH Acquisition II (the "Other Subsidiaries") which
shall be pledged to the Trustee, for the benefit of the Note holders.
See "Description of Notes--Collateral."
Guarantees.................................. The Notes will be unconditionally guaranteed (the "Subsidiary Guarantees")
by each of the existing and future 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, 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 to the date of repurchase.
Covenants................................... The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness and issue preferred stock, incur liens to
secure pari passu or subordinated indebtedness, pay dividends or 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, sell stock of Subsidiaries or sell, assign, transfer,
lease, convey or otherwise dispose of substantially all of the Company. See
"Description of Notes--Certain Covenants."
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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. Friedman, Billings, Ramsey & Co., Inc. (the
"Underwriter") has advised the Company that it currently intends to make a
market in the Notes. However, the Underwriter is 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."
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 acquire equipment
necessary to upgrade and improve the broadcast television stations
acquired through the Acquisition, (iii) to purchase equipment for the
Company's new main offices and studios in Nashville, Tennessee, (iv) to
repay indebtedness of the Company, and (v) as working capital of the
Company, which may be used to acquire additional television stations that
may be available in the future. See "Use of Proceeds."
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CONCURRENT OFFERING OF COMMON STOCK
Concurrent with the Notes Offering, the Company is offering
_____________ shares of Common Stock (plus up to an additional _________ shares
to cover over-allotments, if any) 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."
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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.
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Three Months Ended
Year Ended June 30, September 30,
---------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1996 1997
------- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(in thousands, except per share data and ratios)
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STATEMENTS OF OPERATIONS DATA:
Net sales ......................... $ 19,878 $ 21,717 $ 26,787 $ 40,016 $ 67,817 $ 13,741 $ 20,958
Cost of sales ..................... 15,010 14,278 17,121 24,516 40,626 8,474 12,348
-------- -------- -------- -------- -------- -------- --------
Gross profit ...................... 4,868 7,439 9,666 15,500 27,191 5,266 8,610
Other operating income ............ - - 189 659 1,015 227 271
Operating expenses ................ 7,327 8,406 11,010 16,930 25,882 5,191 8,227
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ..... (2,459) (967) (1,155) (771) 2,323 302 654
Other income (expense) ............ 18 (85) (127) (738) (847) (161) (179)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes . (2,441) (1,052) (1,282) (1,509) 1,476 141 475
Income tax expense (benefit) ...... - - - (104) (80) (25) 108
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ................. $ (2,441) $ (1,052) $ (1,282) $ (1,405) $ 1,556 $ 166 $ 367
======== ======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares .............. 7,379 8,225 9,437 10,284 13,946 14,812 14,257
Net income (loss) per common and
common equivalent share ........ $ (0.33) $ (0.13) $ (0.14) $ (0.14) $ 0.12 $ 0.01 $ 0.03
Cash dividends per share of common
stock .......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
OTHER DATA:
EBITDA(1) ......................... (1,837) (581) (548) 164 3,612 540 1,145
Cash flow from operations ........ (201) (936) 1,943 815 6,245 500 (1,963)
Ratio of earnings to fixed charges
(deficiency if inadequate)(2) .... $ (2,543) $ (1,124) $ (1,498) $ (2,303) 2.37x 1.76x 2.68x
PRO FORMA FINANCIAL DATA(3):
Interest expense................... -- --
Ratio of earnings to fixed charges.
(deficiency if inadequate)(2)...... -- --
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Pro Forma(4)
------------------
June 30, 1997 September 30, 1997 September 30, 1997
------------- ------------------ ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................. $ (4,641) $ (5,561) $ 439
Total assets .................... 34,410 32,627 120,027
Current liabilities ............. 18,078 15,952 15,952
Long-term liabilities ........... 11,136 10,751 70,751
Redeemable preferred stock ...... 1,393 1,393 1,393
Stockholders' equity ............ 3,804 4,531 31,931
</TABLE>
- ---------------------
(1) 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
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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.
(2) For purposes of calculating these ratios, earnings represents 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.
(3) The pro forma financial data has been calculated giving effect to the
Offerings and the application of the net proceeds therefrom as described in
"Use of Proceeds." For purposes of application of pro forma adjustments to
operating statement data the adjustments have been made assuming a
consummation date as of the first day of the respective periods. The
adjustment to interest expense consists of additional interest expense on
the Notes offset by a reduction in interest relating to debt retired
through proceeds of the Notes. However, no other pro forma adjustments have
been made with respect to the Acquisition, including any revenue and
attributable EBITDA effects. The Company will account for the Acquisition
as the purchase of assets rather than the acquisition of a business, due to
the fact that, with the exception of a de minimus 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.
Moreover, the pro forma financial data does not purport to represent what
the Company's results actually would have been if such events had occurred
at the dates indicated, nor does such information purport to project the
results of the Company for any future period. See "BUSINESS OF THE
COMPANY--Recent Development" and "Use of Proceeds."
(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 September 30, 1997.
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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 DEBT
Following the Offerings, the Company will have a significant level of debt.
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 would have been approximately
$____ million. Subject to the restrictions on Indebtedness contained in the
Indenture, the Company may incur additional debt from time to time to finance
acquisitions, 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
will be dedicated to the payment of the principal and interest on its debt 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 debt obligations, 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 any credit arrangements. 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 increased working capital requirements. 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
the Funded Indebtedness, 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, or to fund capital expenditures 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.
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<PAGE> 15
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 television broadcast 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 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
In connection with the offering of the Notes and the Acquisition, the
Company is incurring a substantial debt service obligation. In the event that
the increased revenues and profits associated with increased television
broadcast carriage of the Company's programming do not exceed the additional
costs and expenses associated with the Acquisition 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."
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 the expense of the relocation, including the
costs of completing the tenant improvements and the costs of equipping the
facilities, will be approximately $8.0 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 new facility, the possible transition of
telephone call center operations to the new facility, the possible loss of
personnel and lost productivity due to management resources devoted to the
relocation. See "BUSINESS OF THE COMPANY--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
15
<PAGE> 16
be available to the Company on acceptable terms, if at all. In addition to the
Acquisition, 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 OF THE COMPANY--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 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 intends capital expenditures of approximately
$4.0 million for the acquisition and installation of new equipment, but there
can be no assurance that the actual expenditures will not exceed such amount.
See "BUSINESS OF THE COMPANY--Recent Developments--Global Acquisition."
CONTROL BY PRINCIPAL SHAREHOLDER
J.D. Clinton owns, directly and indirectly, 3,227,700 shares of the Common
Stock representing approximately 27.5% 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 7,500,000 shares), Mr. Clinton would own, directly or indirectly,
5,429,700 shares of the Common Stock representing approximately 25.3% of the
shares of Common Stock of the Company. Mr. Clinton's ownership is substantially
greater than 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. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS."
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
16
<PAGE> 17
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. Certain agreements provide the
right 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 on 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 OF THE COMPANY--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 one or more key employees of the Company terminate their
employment, the Company's operations could be adversely effected. 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 and 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."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company and
its subsidiaries (the "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, encumber substantially all of the assets of the
Company.
The loan agreements relating to Funded Indebtedness may contain extensive
and 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 tests.
In addition, the Company's operating and financial flexibility will be limited
by covenants that limit 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 which may be in the
interests of the Company. The terms of the Funded Indebtedness may
17
<PAGE> 18
prohibit the Company from prepaying other indebtedness (including the Notes)
before Funded Indebtedness. A breach of any of these covenants could result in a
default under the Funded Indebtedness. Upon the occurrence of an event of
default under the Funded Indebtedness, the lenders thereunder could elect to
declare all amounts outstanding under the Funded Indebtedness, 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
Funded Indebtedness 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."
RISK OF INABILITY TO EFFECTIVELY REALIZE UPON COLLATERAL
The Notes will be secured by a lien on all of the issued and outstanding
capital stock and certain assets of the Subsidiaries which shall be pledged to
the Trustee, for the benefit of the Note holders. The lien on the capital stock
and assets of the Other Subsidiaries will be subject to the senior lien of the
Funded Indebtedness in respect of such collateral. Such prior rights of the
Funded Indebtedness would include the right to be paid in full from the proceeds
of the collateral in the event of bankruptcy, liquidation or reorganization of
the Company prior to the payment of the Notes from the proceeds of the
collateral. See "DESCRIPTION OF NOTES--Collateral."
In addition, the security agreements under which the stock of the
Subsidiaries will be 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 which controls an FCC broadcast license, and also
will not transfer control of such pledged shares, without the prior approval of
the FCC. This provision is required by the rules of the FCC. The security
agreements under which the stock of the Subsidiaries that hold an FCC broadcast
license is pledged to secure the Funded Indebtedness will contain similar
provisions. There can be no assurance that FCC approval can be readily obtained,
and the requirement of FCC consent could cause a delay in the realization of the
value of the pledged stock in the event of a default under the Notes or the
Funded Indebtedness. See "DESCRIPTION OF NOTES--Collateral."
RISK OF INSUFFICIENT COLLATERAL VALUE
The Notes are secured by a lien on the capital stock and assets of the
Subsidiaries. Such lien will be a first lien with respect to the capital stock
and assets of SAH Acquisition II. With respect to the capital stock and assets
of the Other Subsidiaries, such lien will be second and junior to the lien of
the Funded Indebtedness. The amount of the Funded Indebtedness is approximately
$________ as of ___________, 1998, however, such amount can increase pursuant to
the terms of the Indenture. See "DESCRIPTION OF NOTES--Incurrence of
Indebtedness and Issuance of Preferred Stock." Upon the occurrence and during
the continuance of an Event of Default on the Notes, the Trustee may undertake
to realize on the collateral for the Notes. However, 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--Collateral."
POTENTIAL INABILITY TO SATISFY A CHANGE OF CONTROL OFFER
The Indenture provides that, upon the occurrence of a Change of Control (as
defined), 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."
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<PAGE> 19
FRAUDULENT CONVEYANCES AND PREFERENTIAL TRANSFERS
The ability of the holders of the Notes or the Trustee (as defined herein) to
enforce the Notes, the Stock Pledges 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 Stock
Pledges 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 of the incurrence of 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.
DEPENDENCE ON ECONOMIC FACTORS
Because the Company derives substantially all of its revenue 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 be adversely affected by local
and/or regional economic downturns. Such economic downturns could have an
adverse impact on the Company's financial condition and results of operations.
19
<PAGE> 20
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 OF THE
COMPANY--Product Assortment."
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 programming is transmitted via Telstar 402R, a preemptible
satellite transponder, under a Services Agreement with B&P The SpaceConnection,
Inc., which agreement expires in December 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 been offered the right to
extend the Services Agreement for two years after 1998 and intends to exercise
that right. The availability of replacement transponder time or satellite
capacity is dependent on a number of factors over which the Company has no
control. An interruption or termination of transponder service could have a
material adverse effect on the Company. See "BUSINESS OF THE COMPANY--Broadcast
Operations."
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 catalog 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 OF THE COMPANY--Competition."
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<PAGE> 21
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 towards fractionalization will likely continue,
providing 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, though 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
21
<PAGE> 22
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-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
have excluded particular communities from an ADI. The Company is unable to
predict the impact of any 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 "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.
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<PAGE> 23
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 Underwriter that it presently intends to
make a market in the Notes. However, the Underwriter is 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.
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<PAGE> 24
USE OF PROCEEDS
The net proceeds to the Company from the Notes Offering, after deducting
underwriting discounts and commissions of the Notes Offering, are estimated to
be approximately $57.6 million. The net proceeds to the Company from the Common
Stock Offering, after deducting underwriting discounts and commissions of the
Common Stock Offering, are estimated to be approximately $27.9 million ($32.1
million if the underwriter of the Common Stock Offering exercises its
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 acquire equipment necessary to upgrade and improve the broadcast television
stations acquired through the Acquisition, (iii) to purchase equipment for the
Company's new main offices and studios in Nashville, Tennessee, (iv) to repay
indebtedness of the Company, and (v) as working capital of the Company, which
may be used to acquire additional television stations that may be available in
the future.
The following table summarizes the anticipated use of the net proceeds from
the Offerings (in thousands):
<TABLE>
<CAPTION>
Sources:
<S> <C>
Net Proceeds of the Notes Offering ................. $57,600
Net Proceeds of the Common Stock Offering .......... 27,900
-------
Total ..................................... $85,500
=======
<CAPTION>
Uses:
<S> <C>
Closing of Asset Purchase Agreement ................ $48,850
Closing of the Executory Contract .................. 21,150
Equipment to upgrade new television facilities ..... 4,000
Equipment for new studio and headquarters facility . 4,000
Payoff of existing indebtedness .................... 3,000
Working capital .................................... 3,000
Estimated net transaction fees and expenses......... 1,500
-------
Total ..................................... $85,500
=======
</TABLE>
24
<PAGE> 25
CAPITALIZATION
The following table sets forth the capitalization of the Company on an
actual basis as of September 30, 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." The table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
------------------------------
Actual As Adjusted
---------- ------------
(In Thousands)
<S> <C> <C>
Long-term liabilities ...................................... $ 6,984 $ 66,984(1)
Redeemable Preferred Stock, $10 par value;
1,000,000 shares authorized; 137,943 issued
and outstanding .......................................... 1,393 1,393
Stockholders' Equity:
Common Stock, $.0025 par value; 30,000,000 shares
authorized; 11,074,414 shares issued and
outstanding and 18,574,414 assumed to be issued
and outstanding(2) ..................................... 28 46
Additional paid in capital(2) .............................. 10,426 37,808
Accumulated deficit ........................................ (5,923) (5,923)
-------- ---------
Total Stockholders' equity .............................. 4,531 31,931
-------- ---------
Total long-term liabilities and Stockholders' equity .... $ 12,908 $ 100,308
======== =========
</TABLE>
(1) Assumes and gives effect to the issuance of Notes in the principal amount
of $60.0 million pursuant to the Notes Offering.
(2) Assumes and gives effect to the issuance of 7.5 million shares of Common
Stock at $4.00 per share net of estimated offering expenses of $500,000 and
underwriting discount of $2.1 million, pursuant to the Common Stock
Offering.
25
<PAGE> 26
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 sheet
and consolidated statement of operations set forth below as of and for each of
the five years ended June 30, 1997 are derived from the audited financial
statements of the Company. The selected consolidated financial data as of
September 30, 1997 and for the three month periods ended September 30, 1996 and
September 30, 1997, have been derived from the unaudited condensed consolidated
financial statements of the Company and have been prepared on the same basis as
the audited financial statements to include, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations and the financial condition of
the Company for such periods. The pro forma data assumes and gives effect to the
Offerings as of the indicated date.
26
<PAGE> 27
<TABLE>
<CAPTION>
Year Ended June 30 Three Months Ended
-------------------------------------------------------- September 30,
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales ......................... $ 19,878 $ 21,717 $ 26,787 $ 40,016 $ 67,817 $ 13,741 $ 20,958
Cost of sales ..................... 15,010 14,278 17,121 24,516 40,626 8,475 12,348
-------- -------- -------- -------- -------- -------- --------
Gross profit ...................... 4,868 7,439 9,666 15,500 27,191 5,266 8,610
Other operating income ............ -- -- 189 659 1,014 227 271
Operating expenses ................ 7,327 8,406 11,010 16,930 25,882 5,191 8,227
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ..... (2,459) (967) (1,155) (771) 2,323 302 654
Other income (expense) ............ 18 (85) (127) (738) (847) (161) (179)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes . (2,441) (1,052) (1,282) (1,509) 1,476 141 475
Income tax expense (benefit) ...... -- -- -- (104) (80) (25) 108
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ................. $ (2,441) $ (1,052) $ (1,282) $ (1,405) $ 1,556 $ 166 $ 367
======== ======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares .............. 7,379 8,225 9,437 10,284 13,946 14,812 14,257
Net income (loss) per common and
common equivalent share ........ $ (0.33) $ (0.13) $ (0.14) $ (0.14) $ 0.12 $ 0.01 $ 0.03
Cash dividends per share of common
stock .......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
OTHER DATA:
EBITDA(1) ......................... (1,837) (581) (548) 164 3,612 540 1,145
Cash flow from operations ......... (201) (936) 1,943 815 6245 500 (1,963)
Ratio of earnings to fixed charges
(deficiency if inadequate)(2) .. $ (2,543) $ (1,124) $ (1,498) $ (2,303) 2.37x 1.76x 2.68x
PRO FORMA FINANCIAL DATA(3):
Interest expense................... --- ----
Ratio of earnings to fixed charges.
(deficiency if inadequate)(2)... --- ----
<CAPTION>
Pro Forma(4)
------------
June 30,1997 September 30, 1997 September 30, 1997
-------------- ------------------ ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $(4,641) $(5,561) $ 439
Total assets......................... 34,410 32,627 120,027
Current liabilities.................. 18,078 15,952 15,952
Long-term liabilities................ 11,136 10,751 70,751
Redeemable preferred stock........... 1,393 1,393 1,393
Stockholders' equity................. 3,804 4,531 31,931
</TABLE>
(1) 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.
(2) For purposes of calculating these ratios, earnings represents 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.
27
<PAGE> 28
(3) The pro forma financial data has been calculated giving effect to the
Offerings and the application of the net proceeds therefrom as described in
"Use of Proceeds." For purposes of application of pro forma adjustments to
operating statement data the adjustments have been made assuming a
consummation date as of the first day of the respective periods. The
adjustment to interest expense consists of additional interest expense on
the Notes offset by a reduction in interest relating to debt retired
through proceeds of the Notes. However, no other pro forma adjustments have
been made with respect to the Acquisition, including any revenue and
attributable EBITDA effects. The Company will account for the Acquisition
as the purchase of assets rather than the acquisition of a business, due to
the fact that, with the exception of a de minimus 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.
Moreover, the pro forma financial data does not purport to represent what
the Company's results actually would have been if such events had occurred
at the dates indicated, nor does such information purport to project the
results of the Company for any future period. See "BUSINESS OF THE
COMPANY--Recent Development" and "Use of Proceeds."
(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 September 30, 1997.
28
<PAGE> 29
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 catalogs, 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 whom 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 the direct carriage on cable television
systems under agreements with cable system operators, and by the direct
reception of the Company satellite transmission by individuals which 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, which engaged
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 November 30, 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 receive the programming on
essentially a full-time basis (20 or more hours per day) and the remaining 44.5
million cable households receive 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, which is 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 affiliates. Accordingly, the
Company utilizes the revenue per average FTE Cable Household as a measure of
pricing new affiliates and estimating their anticipated revenue performance. For
year ended June 30, 1997, the Company had a total of 9.2 million FTE Cable
Households and achieved revenues of approximately $10.00 per FTE Cable
Household.
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 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.
29
<PAGE> 30
Transponder and cable costs include expenses related to carriage under
affiliation and transponder agreements. Carriage costs have increased on both 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 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.
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
Condensed Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Year Ended June 30, Three Months Ended September 30,
----------------------------------------------------- -------------------------------
1995 1996 1997 1996 1997
------------- -------------- -------------- -------------- -------------
(unaudited) (unaudited)
(amounts in thousands) Amount % Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<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 $13,741 100.0 $20,958 100.0
Cost of goods sold 17,121 63.9 24,516 61.3 40,626 59.9 8,475 61.7 12,348 58.9
--------- -------- -------- ------- ----- -------
Gross profit 9,666 36.1 15,500 38.7 27,191 40.1 5,266 38.3 8,610 41.1
--------- -------- -------- ------- ----- -------
Infomercial income 189 0.7 659 1.6 1,014 1.5 227 1.7 271 1.3
--------- -------- -------- ------- ----- -------
Salaries and wages 3,357 12.5 4,113 10.3 5,564 8.2 1,277 9.3 1,739 8.3
Transponder and cable 3,226 12.0 6,025 15.1 12,118 17.9 2,294 16.7 3,855 18.4
Other general operating
and administrative expenses 3,909 14.7 5,915 14.7 7,144 10.5 1,408 10.3 2,247 10.8
Depreciation and amortization 518 1.9 878 2.2 1,056 1.6 212 1.5 386 1.8
--------- -------- -------- ------- ----- -------
Total operating expenses 11,010 41.1 16,930 42.3 25,882 38.2 5,191 37.8 8,227 39.3
--------- -------- -------- ------- ----- -------
Operating income (1,155) (4.3) (771) (1.9) 2,323 3.4 302 2.2 654 3.1
--------- -------- -------- ------- ----- -------
Interest - net (216) (0.8) (795) (2.0) (1,080) (1.6) (187) (1.4) (283) (1.3)
Miscellaneous 89 0.3 57 0.1 233 0.3 26 0.2 104 0.5
--------- -------- -------- ------- ----- -------
Total other expenses (127) (0.5) (738) (1.8) (847) (1.3) (161) (1.2) (179) (0.8)
--------- -------- -------- ------- ----- -------
Income (loss) before income
taxes (1,282) (4.8) (1,509) (3.8) 1,476 2.2 141 1.0 475 2.3
Income tax (benefit)
expenses 0 0 (104) (.3) (80) (.1) (25) (.2) 108 .5
--------- -------- -------- ------- ----- -------
Net Income (loss) $ (1,282) (4.8) $ (1,405) (3.5) $ 1,556 2.3 $ 166 1.2 $ 367 1.8
========= ===== ======== ===== ======== ===== ======= ===== ======= =====
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997
NET SALES. The Company's net sales for the three months ended September 30,
1997, were $20,958,000, an increase of 53% from net sales of $13,741,000 for the
three months ended September 30, 1996. The core business of the shopping network
accounted for 42% of the increase based on an average of 8.4 million FTE Cable
Households in the three months ended September 30, 1997 compared to an average
of 5.7 million FTE Cable Households in the same period in 1996. In the three
months ended September 30, 1997, the Company generated sales per FTE Cable
Household of approximately $8.50 compared with approximately $9.90 per FTE Cable
Household for the same period of the prior year. The remaining 11% of the 1997
increase in net sales resulted from approximately $1,500,000 in sales from
Collector's Edge, the
30
<PAGE> 31
operations of which were not included in 1996. Although the shopping network
sales continued to grow through the addition of more households, sales per FTE
Cable Household in the 1997 quarter were lower than expected due to the UPS
strike and also due to 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 three months ended September 30, 1997,
was 41.1% compared to 38.3% 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
a shift towards product lines with higher gross margins such as home
furnishings, ceremonial cutlery and coins.
INFOMERCIAL INCOME. The Company had infomercial income generated by its
broadcast operations in Boston and Houston of $271,000 during the three months
ended September 30, 1997, compared to $227,000 in the comparable three month
period in 1996.
SALARIES AND WAGES. Salaries and wages for the three months ended September
30, 1997, were $1,739,000, an increase of $462,000 or 36% compared to the three
months ended September 30, 1996. Salaries and wages as a percent of sales,
however, decreased to 8.3% from 9.3%. 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 three months
ended September 30, 1997 were $3,855,000, an increase of $1,561,000 or 68%
compared to the three months ended September 30, 1996. Carriage costs increased
as a percentage of sales from 16.7% to 18.4%. This is a continuation of a trend
which 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. 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 migrate down toward the target, management generally
attempts to renegotiate the carriage contract if acceptable margins cannot be
obtained.
OTHER GENERAL OPERATING AND ADMINISTRATIVE EXPENSES. Other general,
operating and administrative expenses for the three months ended September 30,
1997 were $2,247,000, an increase of $839,000 or 60% compared to the three
months ended September 30, 1996. This constituted an increase as a percentage of
sales from 10.3% in 1996 to 10.8% in 1997; and is attributable to a number of
factors, including legal expenses, credit card discounts, and additional rent
for new offices.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended September 30, 1997 were $386,000, an increase of $174,000 or 82%
compared to the three months ended September 30, 1996, and is attributable to
the acquisition of additional fixed assets and the additional amortization of
the licenses of Collector's Edge.
INTEREST. Interest expense for the three months ended September 30, 1997
was $283,000, an increase of $96,000 or 51% compared to the three months ended
September 30, 1996. The majority of this increase was the result of the
borrowing of $2,900,000 by Collector's Edge necessary to provide working capital
and to protect its NFL licenses.
31
<PAGE> 32
INCOME TAX (BENEFIT) EXPENSE. Income tax expense for the three months ended
September 30, 1997 was $108,000, an increase of $133,000 compared to the three
months ended September 30, 1996. For the three month period ended September 30,
1996, income tax expense was less than the "expected" expense derived from
applying Federal corporate tax rates to pre tax earnings due to the reversal of
a portion of the valuation allowance on deferred tax assets. For the three
months ended September 30, 1997, tax expense was less than the "expected"
expense primarily because of the impact of certain adjustments to tax accrual
amounts.
NET INCOME. As a result of the above revenues and expenses, the Company
generated net income of $367,000 for the three months ended September 30, 1997,
compared to net income of $166,000 for the three months ended September 30,
1996.
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% over the year ended June 30,
1996. The increase was primarily attributable to the addition of approximately
3.2 million FTE Cable Households over the year resulting in a total of 8.6
million FTE Cable Households at the end of June 1997. For the year ended June
1997, the Company generated sales per household of approximately $10.40 on an
average of 6.6 million FTE Cable Households compared with sales of approximately
$9.60 per household on an average of 4.3 million FTE Cable Households in fiscal
1996. This increase in households is attributable mainly to the expanded
coverage through the addition of approximately 2.2 million full power television
station FTE Cable Households and approximately .6 million FTE Cable Households
through an affiliation agreement with TCI.
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 53.8% 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% 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 out-paced the added
salaries. With the planned relocation in late 1998 of the Company's operations
to Nashville, Tennessee, which has higher prevailing wages than Knoxville,
salaries and wages as a percentage of sales may be slightly higher until
sufficient revenue growth is accomplished to support such increases.
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% 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.
32
<PAGE> 33
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
if acceptable margins cannot be obtained.
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 21% 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 out
paced these added variable expenses. With the planned relocation of the
Company's operations in late 1998, there is a potential for these expenses to
increase until sufficient revenue growth is accomplished to support the
additional infrastructure.
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%
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 36% 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.
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% 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 carriage 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 $9.57 on an average of 4.3 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
33
<PAGE> 34
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 more 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 249% 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 $756,200 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 86.7% 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% 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%
compared to the year ended June 30, 1995, which is 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% 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 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 carry
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<PAGE> 35
forwards 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,
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 $4,220,000 and $2,652,000 of debt as of
September 30, 1997 that was incurred in the acquisition of television stations
KZJL in Houston and WMFP in Boston, respectively. These amounts include seller
financing of $2,088,000 and $2,287,000 for Houston and Boston at an annual
interest rate of 9% and 10.25%, respectively. The Company also incurred
additional debt of $2,055,000 in connection with its acquisition of Collector's
Edge. The remaining $556,000 of debt as of September 30, 1997 relates to fixed
asset leases on new equipment purchased within the past two years. The total
monthly payments of principal and interest on all debt approximate $277,000 per
month. In October 1997, a note payable of the Company in the amount of
$1,333,000 was converted into 444,177 shares of common stock at $3.00 per share.
The Company has paid a total of $3,963,000 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, and the remaining $2,963,000 was obtained from the proceeds of a
loan from a commercial bank.
As of September 30, 1997, the Company had total current assets of
$10,391,000 and total current liabilities of $15,952,000 for negative working
capital of $5,561,000. The Company's negative working capital position is
attributable to: (i) low accounts receivable associated with the Company's
sales, which are, except for Collector's Edge and infomercials, primarily made
on customer credit cards, (ii) low inventory due to the Company's extensive use
of drop shipment arrangements with suppliers and "just in time" inventory
practices, and (iii) trade payables which the Company normally pays within 30 to
45 days. The Company believes that it enjoys a strong, long-term relationship
with its vendors.
The Company expects to incur capital expenditures of approximately
$12,500,000 million during the 1998 fiscal year. These 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) $4,000,000 to equip the Company's new studios facility, (iii)
$3,000,000 for build out and tenant improvements at the Company's new facility,
and (iv) $1,500,000 million for normal recurring capital expenditures for the
Company's currently owned facilities. Of these expenditures, the Company expects
the $8,000,000 to upgrade the stations acquired in the Acquisition and to equip
the new facility will be funded from the proceeds of the Offerings, the
$3,000,000 for the build out and tenant improvements will be funded by a bank
line of credit, and that normal maintenance expenses will be funded out of cash
flow from operations and working capital.
The Company expects that the Notes Offering and the Acquisition and the
resulting discontinuation of the recently commenced time brokerage agreements
with KCNS, WRAY and WBNX (See "BUSINESS--Distribution of Programming--General"),
will impact the results of operations as follows: (i) costs of carriage will
decrease due to the termination of the time brokerage agreements, (ii) costs
related to
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<PAGE> 36
station operation will increase, (iii) depreciation and amortization will
increase as a result of the Acquisition, (iv) interest expense will increase as
a result of the Notes Offering and any other additional indebtedness incurred,
and (v) infomercial income will increase. Notwithstanding the increase in the
interest expense resulting from the Notes Offering, the Company believes that
funds necessary to meet the Company's capital requirements for the foreseeable
future will be available from the proceeds of the Offering, funds from
operations (after giving effect of the items listed in (i) through (v) 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 Preferred 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 September 30, 1997,
the Company had collected approximately $800,000 with respect to sales tax
amounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which changes
the calculations used for earnings per share (EPS) and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The effect of the change in the standard on the
consolidated financial statements results in $0.15, ($0.14), $0.03 and $0.02 of
basic EPS for the years ended June 30, 1997 and 1996 and for the quarters ended
September 30, 1997 and September 30, 1996, respectively. The standard would have
no effect on the diluted EPS. The Statement is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure." The Statement establishes standards for disclosing
information about an entity's capital structure. The Statement is effective for
periods ending after December 15, 1997. Management has determined that the
adoption of this Statement will not have a material impact on the financial
statements.
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. Thus, management
has determined that the adoption of this Statement will not have a material
impact on the financial statements.
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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 financial statements issued for periods beginning after December
15, 1997. Management has not yet determined the full effect of this Statement on
its financial statements.
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<PAGE> 38
BUSINESS
COMPANY
The Company is a nationally televised home shopping retailer that has been
in business since 1986. The Company's programming features a variety of consumer
products, including jewelry, sports collectibles, electronics, health and
beauty, personal care, household and lifestyle, and other select merchandise and
collectibles such as jewelry, knives, coins, dolls, and figurines. The Company
seeks to offer unique products in niche markets and to offer products at prices
generally below the price for which the consumer could purchase the goods at a
retail outlet or through a catalog.
The Company's programming uses a show host approach through which
information is conveyed to the television audience about the product and its
use. The Company receives customer orders at its own call center. Merchandise is
shipped to customers primarily pursuant to drop shipping arrangements with the
Company's vendors and, alternatively, through the Company's own fulfillment
center. The Company employs a "just in time" inventory policy. The customer may
purchase any product the Company offers at any time after the product is
offered, subject to availability.
The Company seeks to differentiate itself from the other televised home
shopping programmers by utilizing a friendly, personal style of programming and
by offering unique types of products and high quality goods such as rare coins,
collectible sports items, jewelry and other limited-availability items. The
Company has also developed and utilized proprietary products and brand names in
its jewelry and cosmetic lines.
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 of the Company--Affiliations." In 1995 the Company acquired two
independent full power UHF broadcast television stations. See "Business of the
Company--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 of the Company--Recent Development."
INDUSTRY OVERVIEW
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") 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
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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 increased 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.
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 $4.0
million in 1983 to over $3.0 billion in 1996, representing a compound 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.
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<PAGE> 40
BUSINESS STRATEGY
The Company's business objective is to increase revenues and cash flow
by implementing the following strategy:
- - UNIQUE PRODUCT MIX. The Company plans to continue to implement a strategy
of selling niche products that the Company believes are not readily
available through television home shopping and retail competitors.
- - LOW PRICED, HIGH QUALITY MERCHANDISE. The Company believes that its
products are priced below comparable merchandise of retailers and catalogue
sellers and intends to continue offering low priced, high quality products
to its customers.
- - ACQUISITION OF BROADCAST STATIONS AND NEW 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. In
addition, the Company plans to further increase its viewership through
negotiation of carriage agreements with multiple system cable owners and
agreements with individual broadcast television stations and networks for
the purchase of broadcast time.
- - IMPROVE MARGINS. The Company plans to improve margins by (i) offering and
selling a mix of products that will yield higher gross profit margins, (ii)
taking advantage of its purchasing power by negotiating lower wholesale
prices with its vendors, and (iii) spreading its fixed costs over increased
households served.
- - CONTROL OF INVENTORY. 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.
- - CUSTOMER SERVICE. The Company plans to continue to offer quality customer
service, including efficient and accurate call center operations, timely
deliveries of merchandise, continuing its 30 day full refund policy, and
encouraging repeat customers through special incentive programs.
- - INTERNET SITE. The Company will seek to further develop its transactional
internet site as a complement to its broadcast network. The Company's
internet site allows existing customers and consumers in geographic
locations where the Company's television programming is either not
available or not available on a full time basis to select and purchase
products at any time of the day or week.
RECENT DEVELOPMENT
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 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 $52,850,000 (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 balance of $48,886,250 is payable by the Company to Global at
the closing. In connection with
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<PAGE> 41
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 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 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 __, 1998 and such approval is expected to become a final order
on March __, 1998 assuming no party files a timely objection thereto.
The closing of the Asset Purchase Agreement, including the transfer of
KCNS and WRAY and the assignment and assumption of the Executory Contract for
WOAC, was approved by order of the Bankruptcy Court on February __, 1998.
Pursuant to the Asset Purchase Agreement, SAH Acquisition II also
acquired the right to acquire WPMC(TV) in the Knoxville, Tennessee market. SAH
Acquisition II has assigned all of the rights to purchase WPMC to a third party
in consideration of a net payment to SAH Acquisition II of $900,000 and has no
further rights or obligations with respect to such station.
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. The Underwriter 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. 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 $__________.
In connection with the resolution of the Bankruptcy Proceeding, the Underwriter
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 whom 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 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. See "--Owned and Operated 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."
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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 receive the
programming on essentially a full-time basis (20 or more hours per day) and
approximately 44.5 million cable households receive it on a part-time basis. For
households that receive the Company's programming on a part-time basis, the
average duration of 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 part-time programming distribution to television cable households at
November 30, 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 1,327 37,973 3,336 653 5,652 48,941
(in Thousands)
</TABLE>
As a result of the Acquisition (and prior to planned upgrades to the
acquired stations), the Company estimates that households receiving 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 will receive it on a full-time basis (20 or more
hours per day) and approximately 43.4 cable million cable households will
receive 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 $4.0 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 a new transmitter for 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. While these agreements are fairly new, and
neither station will be broadcasting at full authorized power until after the
capital improvements made subsequent to the Acquisition, the Company is
currently generating sales in those markets which would be $10.40 and $9.04 per
cable household, respectively, on an annualized basis.
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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.
The Company's programming is transmitted via Telstar 402R, a preemptible
satellite transponder, under a Services Agreement with B&P The SpaceConnection,
Inc., which agreement expires in December 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 been offered the right to
extend the agreement through December 2000 and intends to exercise such option.]
An interruption or termination of transponder service could have a material
adverse effect on the Company. Although the availability of replacement
transponder time or 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 which will be owned by the
Company (through its Subsidiaries) following the consummation of the
Acquisition:
<TABLE>
<CAPTION>
Company Cable
Rank Television Cable Households After
of Households Households the Acquisition
Call Sign Channel DMA Market DMA (1) (1) (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 1,600,000
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.
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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.
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 broadcasting on
Channel 67 that began broadcast operations in 1982. The station is licensed to
Canton, Ohio, which is located inside the Cleveland DMA. The station currently
operates from a transmitter 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, the Company's owned and operated
stations will operate in markets that have approximately 8.3 million television
households, of which approximately 5.7 million are cable households and the
Company expects to be the 19th largest broadcast television station operator in
the United States, based upon the DMA market size of the cities in which the
Company will own and operate stations.
The Acquisition of KCNS, WRAY and WOAC is 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.
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In addition, the Company secured coverage on WWOR, New York, which gives the
Company access to more than 7 million households for some portion of each day.
The Company has successfully negotiated carriage with TeleCommunications,
Inc. that has added approximately 4.5 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 term. 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, 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) 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.
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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
Type of Product Product Sold(1) Net Sales(2) Net Sales(2)
- --------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Sports Products $ 162 $ 30,539 45.0%
Collectible Cutlery 119 10,132 14.9
Coins and Currency 240 9,255 13.7
Jewelry and Gemstones 170 10,009 14.7
Health and Beauty Products 85 2,900 4.3
Electronics 231 1,910 2.8
Other Items 85 3,072 4.6
---- -------- ------
Total $155 $ 67,817 100.0%
======== ======
</TABLE>
- ----------------
(1) 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 studio and
broadcasting capacity to produce two live show simultaneously. The Company often
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 "upscale" 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 54% of the Company's customers have incomes above $45,000 as
compared to 42% in the national database. The study also indicated 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.
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The Company estimates that since January 1, 1996, a total of
approximately 465,000 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 three months ended September 30, 1997
returns were 20.2% of total revenues compared to 20.5% for the comparable three
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 OF THE COMPANY--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, 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
whom 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 the National Football League Properties, Inc. ("NFL
Properties") and the 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 the NFL Properties and NFL Players to
produce and sell football trading cards. Collector's Edge specializes in the
production of
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these cards using plastic rather than normal paper stock. Collector's Edge
acquired the assets of a business that previously held the NFL licensing
agreement 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 placement on cable
systems. The Company expects the home shopping industry to continue to expand
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 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
the 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, and catalog
companies and other direct sellers.
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EMPLOYEES
The Company had approximately 300 employees as of December 31, 1997,
most of whom are full-time employees. 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 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 the calendar year of 1998, the Company plans to relocate its
offices and studios to new facilities located in Nashville, Tennessee. The
Company plans to relocate to a 70,000 square foot facility that will be
renovated to specifications of the Company and leased by the Company for a
period of _____ years. The Company has budgeted approximately $6.0 million for
the relocation, including approximately $4.0 million in capital expenditures for
new state-of-the-art studio and production equipment as well as other furniture,
fixtures and equipment. The lessor of the new facility will be a limited
liability company owned by two individuals related to the Chairman of the
Company. The Company and the Chairman intend to guarantee the repayment of a
loan made to the lessor to finance the facility. See"--Certain Relationships
and Related Transactions."
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 the
higher sales volumes while reducing operator and telephone costs. The system
integrates the Company's database with caller ID capability and will reduce 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
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management's goal to invest in current technology to reduce the costs that
support sales. In addition, the software for the order entry and accounting
systems was developed within the last few years and therefore is year 2000
compliant.
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. 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 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 the NBA's 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.
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
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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 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 main station licenses of KZJL and WMFP will expire in
August 1998, and April 1999, respectively. The main 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
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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 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
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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 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 televisions
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
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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 Proxy Statement. All directors
are elected each year at the annual meeting of shareholders. 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
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
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
</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
55
<PAGE> 56
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, 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.
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 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
Curlos.
56
<PAGE> 57
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.
Teresa M. McDowell, Vice President of Call Center Operations. Ms. McDowell
has served as Vice President of Call Center Operations since November 1996. From
1994-1996, Ms. McDowell served as Director of Customer Service for Mark Group,
Inc., a catalog 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 catalog 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.
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 and Secretary/Treasurer. Mr. Jolley has been Director
and Treasurer 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. 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
57
<PAGE> 58
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.
On December 31, 1997, the Board of Directors of the Company voted to
increase the size of the Board of Directors from six to eight persons. At the
same time, the Board nominated the six existing directors for re-election by the
shareholders, and also nominated two new directors for the Company. The new
director nominees are J. Daniel Sullivan and Patricia E. Mitchell. Neither is
currently a shareholder of the Company. The shareholders' meeting at which the
election of directors will be considered is expected to be held in February,
1998.
Mr. Sullivan is 46 years old and since 1995 has served as the President
and CEO of Sullivan Broadcasting Company, a television 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.
Ms. Mitchell is 54 years old and since 1995 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.
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 (a) five years after
the date of vesting or (b) 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 (4) 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 (5) years with a base salary of $190,000 per year. The
agreement is automatically renewable for successive two (2) 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) ten percent (10%) of the increase in the
Company's net operating profit after taxes over the same quarter of the previous
fiscal year, or (ii) five percent (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 twelve months following the
occurrence of the event, and the right to receive an amount equal to his base
salary and monthly allowances for the twelve (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
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 ten percent (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 (2) years following the
termination of his employment.
58
<PAGE> 59
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, along with the director's expenses
associated with attending the meeting. The Company also expects to grant to each
director an option to purchase 5,000 shares of the Company's Common Stock during
1998, with the exercise price being equal to the market value of the shares when
the options are granted.
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 $100,000 for the year ended
June 30, 1997 (collectively, the "Named Executive Officers"):
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<PAGE> 60
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------------- ------------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION /SAR COMPENSATION
POSITION YEAR ($) ($) ($)(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 -- $18,000(2)
Joseph Nawy, Vice 1997 114,393 15,560 6,000 20,000 --
President 1996 96,000 -- 3,500 -- 7,423(3)
Finance 1995 76,431 -- -- 60,000 --
Thomas C. 1997 122,866 -- 5,000 10,000 --
Sutula, 1996 101,539 -- -- 100,000 --
Executive Vice
President/COO(5)
</TABLE>
- ----------
(1) Other Annual Compensation consists of an automobile allowance.
(2) Other Compensation consists of a housing allowance.
(3) Other Compensation consists of a relocation allowance.
(4) Mr. Nawy's employment began in September 1994.
(5) Mr. Sutula's employment began in July 1995 and terminated in March 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock
option and stock appreciation right ("SAR") grants to any Named Executive
Officer who was granted a stock option during the 1997 fiscal year of the
Company.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------
POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR OPTION
OPTIONS/SARS GRANTED TO OR BASE TERMS
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------------------- ------------ ------------ -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kent E. Lillie 500,000 78.4% $2.87 (1) $588,990 $1,386,877
Kent E. Lillie 10,000 1.6 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
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<PAGE> 61
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 thirty (30) days
after the termination of employment or five (5) 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
thirty (30) days after the termination of employment or five (5) 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.
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 $2.87, the
market price of the stock as of the close of business on June 19, 1997,
according to the NASDAQ SmallCap Market. The options eligible to be repriced had
been issued to a total of approximately 43 employees for a total of 682,500
shares. Among the employees holding options subject to repricing, six (6) of
the employees were executive officers whose options subject to repricing totaled
585,000 of the shares. The Board determined that because of the decline in the
market price of the stock from 1996 to 1997, the options were not achieving the
goal of providing an employment incentive to the effected employees.
This repricing of employee stock options is the only repricing of
options ever carried out by the Company. The following table sets out
information concerning the repricing of options held by executive officers of
the Company:
61
<PAGE> 62
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
MARKET
NUMBER OF PRICE EXERCISE LENGTH OF
SECURITIES OF STOCK AT PRICE AT TIME ORIGINAL
UNDERLYING TIME OF OF OPTION TERM
OPTIONS/ REPRICING REPRICING REMAINING AT
SARS OR OR NEW DATE OF
REPRICED OR AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE AMENDED (#) ($) ($) PRICE ($) 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
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.
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<PAGE> 63
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 ten (10)
years from the date such option or SAR was granted or after the expiration of
five (5) 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 628,100 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 Paul W. 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 Global Network Television, Inc. J.D.
Clinton, a director of the Company is the sole shareholder and Chairman of
Global Network Television, and that corporation is a principal shareholder 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 terms and rates of the note were
considered to be at market rates when made. On October 1, 1997, Mr. Clinton
assigned 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 the Underwriter.
The Company's new Nashville facility (the "Facility") will be owned by
Partners - SATH, L.L.C., a Tennessee limited liability company (the "LLC"), and
leased to the Company. The sole members of the LLC will be Steve Sanders and
James P. Clinton, both of whom are related to J.D. Clinton. The LLC will finance
the acquisition and construction of the facility from the proceeds of a loan in
the principal amount of $6.4 million from a commercial bank (the "Facility
Loan"). The Facility Loan will be evidenced by the promissory note of the LLC,
which will be secured by a first mortgage deed of trust on the facility, the
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personal guaranty of J.D. Clinton, and the guaranty of the Company. The lease to
the Company is expected to be for a term of _____ years and will be a net lease
with payments in an amount sufficient to amortize the Facility Loan, with the
Company having the option to purchase the Facility during the term of the lease
at a purchase price equal to no more than 105% of the outstanding balance due on
the Facility Loan. The Company has 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.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of January 12, 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
----------------------------
AFTER
AMOUNT AND NATURE OF BEFORE OFFERINGS
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OFFERINGS (11)
- ---------------------------------------------------------------- -------------------- --------- ---------
<S> <C> <C> <C>
J.D. Clinton and SAH Holdings, L.P.(2).......................... 5,429,700 38.94% 25.32%
W. Paul Cowell(3)............................................... 558,400 4.75% 2.90%
Frank A. Woods(4)............................................... 10,000 .09% .05%
Kent E. Lillie(5)............................................... 730,000 6.06% 3.78%
A.E. Jolley(6).................................................. 511,092 4.35% 2.65%
Joseph I. Overholt(7)........................................... 519,200 4.42% 2.70%
Joseph Nawy(8).................................................. 45,000 .38% .23%
J. Daniel Sullivan(9)........................................... 0 0% 0%
Patricia E. Mitchell(10)........................................ 0 0% 0%
All executive officers and directors
as a group (21 persons)...................................... 7,988,942 55.33% 36.41%
</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
Global Network Television, Inc., a Tennessee corporation ("GNT"), as its
sole general partner. Mr. Clinton is chairman, a director
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<PAGE> 65
and the sole shareholder of GNT. SAH currently owns 2,867,000 shares of
Common Stock. Mr. Clinton owns 126,500 shares in his individual name. Mr.
Clinton holds an option to purchase 10,000 shares of stock from the
Company. Mr. Clinton's wife owns, individually, 6,800 shares of Common
Stock that are assumed to be beneficially owned by SAH. GNT owns 206,000
shares that are assumed to be beneficially owned by SAH. Two trusts, the
beneficiaries of whom are members of Mr. Clinton's immediate family, own
20,500 shares that are assumed to be beneficially owned by SAH. SAH holds
warrants to purchase up to 1,650,000 shares of Common Stock from the
Company. GNT holds warrants to purchase up to 542,500 shares of Common
Stock from the Company which is assumed to be beneficially owned by SAH.
(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 10,000 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 10,000 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 210,000
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.
(6) Mr. Jolley's address is 5715 Superior Drive, Morristown, Tennessee 37814.
Includes options for 10,000 shares issued by the Company.
(7) Mr. Overholt's address is 213 Abbey Road, Newport, Tennessee 37821.
Includes options for 10,000 shares issued by the Company.
(8) Mr. Nawy's address is 5210 Schubert Road, Knoxville, Tennessee 37219.
Includes options for 34,000 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 30318.
(11) Assumes the issuance of 7,500,000 shares pursuant to the Common Stock
Offering.
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<PAGE> 66
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture")
among the Company, the Guarantors and ________________________, as trustee (the
"Trustee"). 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 of 1939
(the "Trust Indenture Act"). The Notes are subject to all such terms, and
holders of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the Indenture
does not purport to be complete and is qualified in its entirety by reference to
the Indenture, including the definitions therein of certain terms used below. A
copy of the proposed form of Indenture is available as set forth under
"-Available Information." The definitions of certain terms used in the following
summary are set forth below under "-Certain Definitions."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $_____
million and will mature on September 15, ____. Interest on the Notes will accrue
at the rate of __% per annum and will be payable semiannually in arrears on
March 15 and September 15, commencing on September 15, 1998, to holders of
record on the immediately preceding March 1 and September 1. 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 date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest on the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest may be
made by check mailed to the holders of Notes at their respective addresses set
forth in the register of holders of Notes; provided that all payments with
respect to Notes that 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. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose. The Notes will be
issued in denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed by the Guarantors.
The Indenture will provide that no Guarantor may consolidate with or
merge with or into (whether or not such Guarantor is the surviving Person),
another corporation, Person or entity whether or not affiliated with such
Guarantor unless (i) subject to the provisions of the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Guarantor) assumes all the obligations of such Guarantor under the Notes
and the Indenture pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, and (ii) immediately after giving effect
to such transaction, no Default or Event of Default exists.
The Indenture will provide that
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<PAGE> 67
in the event of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Guarantee; provided that the Net Proceeds
of any such sale or other disposition described above are applied in accordance
with the applicable provisions of the Indenture. See "Repurchase at the Option
of Holders--Asset Sales."
COLLATERAL
Pursuant to current FCC regulations, a licensee of a television
broadcast station may not directly pledge the FCC license and therefore,
consistent with FCC regulations, the Indenture provides that the Notes will be
secured by the capital stock of the Subsidiaries of the Company that hold the
FCC licenses for the broadcast television stations. The Notes will be secured
by a first priority lien on all of the issued and outstanding capital stock of
SAH Acquisition II (which will own KCNS, WRAY and WOAC subsequent to the
Acquisition). The Notes will be secured by a second and junior lien on all of
the issued and outstanding capital stock of the Other Subsidiaries (which own
KZJL and WMFP). The Notes will also be secured by a first priority lien on all
assets owned by SAH Acquisition II other than the FCC licenses owned by SAH
Acquisition II. The Notes will also be secured by a second and junior priority
lien on all assets owned by the Other Subsidiaries other than the FCC licenses
owned by the Other Subsidiaries. If any Event of Default occurs and is
continuing, the trustee may seek to enforce on any collateral for the Notes,
subject to a requirement to obtain FCC approval of a transfer of the capital
stock of any Subsidiary holding an FCC broadcast television license.
The lien on the capital stock and assets of the Other Subsidiaries is
second and junior to the lien of the Funded Indebtedness. Such Funded
Indebtedness would have the right to be paid in full from the proceeds of the
capital stock and assets of the Other Subsidiaries prior to the payment of the
Notes in the event of the sale, disposition or liquidation of such collateral or
in the event of the bankruptcy, liquidation or reorganization of the Company.
The amount of the Funded Indebtedness is approximately $_____ as of __________,
1998, however, such amount can increase pursuant to the terms of the Indenture.
See "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
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<PAGE> 68
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to
September 15, ____. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the 12-month period beginning on
March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
____............................................... __%
____............................................... __%
____............................................... __%
____............................................... __%
</TABLE>
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that Notes redeemed with the proceeds of an offering of Common Stock as
described below shall be made on a pro rata basis; provided further, that no
Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
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<PAGE> 69
MANDATORY REDEMPTION
Except as set forth below under "-Repurchase at the Option of Holders,"
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. Upon the occurrence of a Change of Control, each
holder of Notes will have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such holder's
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon to the date of purchase (the "Change of
Control Payment"). Within ten days following any Change of Control, the Company
will mail a notice to each holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes pursuant
to the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple 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 Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit holders of Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
Any future credit agreements or other agreements relating to Funded
Indebtedness to which the Company becomes a party may contain provisions
restricting a Change of Control or restricting payment of the Notes in the event
of a Change of Control. 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 will 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 could, in turn,
constitute as default under the Funded Indebtedness.
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<PAGE> 70
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
ASSET SALES. The Indenture will provide that the Company will not, and
will not permit any of its Subsidiaries to, consummate an Asset Sale unless (i)
the Company (or the Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors or a committee of the Board of
Directors, a majority of which committee consists of Independent directors, set
forth in an Officers' Certificate delivered to the Trustee, or by an independent
appraisal by an accounting, appraisal or investment banking firm of national
standing) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 85% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce Funded Indebtedness, if any, having a first priority lien on the assets
sold in the Asset Sale (b) to the acquisition of a controlling interest in
another business, the making of a capital expenditure or the acquisition of
other long-term assets ("Productive Assets"), in each case, in the same or a
similar line of business as the Company was engaged in on the date of the
Indenture or (c) to reimburse the Company or its subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore property
subject to loss, damage or taking to the extent that the net proceeds consist of
insurance proceeds received on account of such loss, damage or taking. Pending
the final application of any such Net Proceeds, the Company may invest such Net
Proceeds in any manner that is not prohibited by the Indenture. For purposes of
the Indenture the Company shall be deemed to have applied Net Proceeds to the
acquisition of Productive Assets within the 365 day time period after receipt of
Net Proceeds, if the Company shall have executed a definitive agreement to
acquire such Productive Assets within such 365 day period and if the closing of
such agreement shall occur during the 545 day time period after receipt of Net
Proceeds. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5
million, the Company will be required to make an offer to all holders of Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 101% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Notes surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
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<PAGE> 71
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Asset Sale Offer.
CERTAIN COVENANTS
RESTRICTED PAYMENTS. The Indenture will provide that the Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on account
of the Equity Interests of the Company or any of its Subsidiaries (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Subsidiaries) or to the direct or indirect
holders of the Equity Interests of the Company or any of its Subsidiaries in
their capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company, dividends or
distributions payable to the Company or any Subsidiary of the Company or
dividends or distributions made by a Subsidiary of the Company to all holders of
its Common Stock on a pro rata basis); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company, any Subsidiary
of the Company or any direct or indirect parent of the Company, (other than any
such Equity Interests owned by the Company or any Subsidiary of the Company);
(iii) make any payment on or in respect of, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is pari passu with
or subordinated to the Notes, except at Stated Maturity or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
under the caption "-Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date of
the Indenture (excluding Restricted Payments permitted by clauses (v) and (w) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) commencing ____________, 1997 to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (ii) 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 Equity Interests of the Company or of
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible debt securities) sold to
a Subsidiary of the Company and other than Disqualified Stock or debt securities
that have been converted into Disqualified Stock).
The foregoing provisions will not prohibit (v) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (w) the making of any Restricted Investment, or the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company, in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than
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<PAGE> 72
any Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such Restricted Investment, redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (x) the defeasance, redemption or repurchase of pari passu
or subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) (ii) of the preceding paragraph;
(y) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by any
member of the Company's (or any of its Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement in effect as
of the date of the Indenture; provided that (A) the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $_______ in any 12-month period plus the aggregate cash proceeds received
by the Company during such 12-month period from any reissuance of Equity
Interests by the Company to members of management of the Company and its
Subsidiaries, and (B) no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; and (z) so long as no Default or
Event of Default shall have occurred and be continuing, Investments in the same
or similar lines of business as the Company was engaged in on the date of the
Indenture in an aggregate amount not to exceed $___ million since the date of
the Indenture (measured as of the date made and without giving effect to
subsequent changes in value).
The Indenture will provide that notwithstanding the above, no dividend
or distribution shall be made on the Common Stock within the first year after
the Offerings.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (evidenced by a resolution of the Board of Directors or a
committee of the Board of Directors, a majority of which committee consists of
Independent directors, set forth in an Officers' Certificate delivered to the
Trustee) on the date of the Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
the Restricted Payment. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "-Restricted Payments" were
computed, which calculations may be based upon the Company's latest available
financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The
Indenture will provide that the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that (x) the Company may incur Indebtedness (including
Acquired Indebtedness) or issue shares of Disqualified Stock and (y) a Guarantor
may incur Acquired Indebtedness, in each case if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least _____ to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period. The
Indenture will provide that the Company may not incur Funded Indebtedness
(except as provided below) unless the above Fixed Charge Coverage Ratio is met
and unless broadcast television assets are acquired with the loan proceeds.
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<PAGE> 73
The foregoing provisions will not apply to:
(i) Funded Indebtedness of the Company existing on the date of the
Indenture in an aggregate principal amount at any time outstanding not to exceed
$7,300,000 million less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently reduce such Senior Indebtedness pursuant to the covenant
described above under the caption "-Repurchase at the Option of Holders-Asset
Sales";
(ii) the incurrence by the Company of Indebtedness represented by the
Notes and the incurrence by the Guarantors of Indebtedness represented by the
Guarantees;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations (whether or not incurred
pursuant to sale and leaseback transactions), mortgage financing or purchase
money obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of property,
plant or equipment used in the business of the Company or such Subsidiary, in an
aggregate principal amount not to exceed $___ million at any time outstanding;
(iv) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund, Existing
Indebtedness or Indebtedness that was permitted by the Indenture to be incurred
(other than any such Indebtedness incurred pursuant to clause (i), (ii), (iii),
(v), (vi), (vii) (viii) or (ix) of this paragraph);
(v) the incurrence by the Company or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly subordinate to
the payment in full of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be;
(vi) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk that is
permitted by the terms of the Indenture to be incurred;
(vii) the incurrence of Indebtedness of a Guarantor represented by
guarantees of Indebtedness of the Company that has been incurred in accordance
with the terms of the Indenture; and
(viii) the incurrence by the Company of Funded Indebtedness for working
capital (in addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding not to exceed $_________ million.
LIENS. The Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness on any asset now owned
or hereafter acquired, or any income or profits therefrom or assign or convey
any right to receive income therefrom, except Permitted Liens.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture will provide that the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
applicable law, (b) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), 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, (c) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (d) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, or (e) Permitted Refinancing Indebtedness, provided that,
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Indenture will provide
that the Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or entity
unless (i) the Company is the surviving corporation or 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 is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Subsidiary of the Company, the Company or the entity or
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 (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than 100% of the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, 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, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES. The Indenture will provide that the
Company will not, and will not permit any of its Subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any
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contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person, (ii) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $500,000
the Company delivers to the Trustee, (a) a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (iii) with respect to any Affiliate Transaction or series of Related
Affiliate transactions involving aggregate consideration in excess of $1.0
million, (b) an opinion as to the fairness to the holders of Notes of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; provided that (w) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors or the
payment of fees and indemnities to directors of the Company and its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (x) loans or advances to employees
in the ordinary course of business, (y) transactions between or among the
Company and/or its Wholly Owned Subsidiaries and (z) Restricted Payments (other
than Investments) that are permitted by the provisions of the Indenture
described above under the caption "-Restricted Payments," in each case, shall
not be deemed Affiliate Transactions.
SALE AND LEASEBACK TRANSACTIONS. The Indenture will provide that the
Company will not, and will not permit any of its Subsidiaries to, enter into any
sale and leaseback transaction; provided that the Company may enter into a sale
and leaseback transaction if (i) the Company could have (a) incurred
Indebtedness in an amount equal to the Attributable Indebtedness relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-Incurrence of Additional Indebtedness and Issuance of Preferred Stock"
and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "-Liens," (ii) the gross cash proceeds of such
sale and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors or a committee of the Board
of Directors, a majority of which committee consists of Independent directors,
and set forth in an Officers' Certificate delivered to the Trustee or an
independent appraisal by an accounting, appraisal or investment banking firm of
national standing) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "-Repurchase at the Option of Holders-Asset Sales."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES; STOCK PLEDGE AGREEMENT. The Indenture will provide that the
Company (i) will not, and will not permit any Wholly Owned Subsidiary of the
Company to, transfer, convey, sell, lease or otherwise dispose of any Capital
Stock of any Wholly Owned Subsidiary of the Company to any Person (other than
the Company or a Wholly Owned Subsidiary of the Company), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the Capital
Stock of such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "-Asset Sales," and (ii)
will not permit any Wholly Owned Subsidiary of the Company to issue any of its
Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Subsidiary of the Company. The Indenture will provide
for the execution of the Stock Pledge Agreement, pursuant to which the Capital
Stock of the Subsidiaries shall be pledged to secure the Notes.
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GUARANTEES OF CERTAIN INDEBTEDNESS. The Indenture will provide that
the Company will not permit SAH Acquisition II to incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness.
PAYMENTS FOR CONSENT. The Indenture will provide that neither the
Company nor any of its Subsidiaries will, directly or indirectly, pay or cause
to be 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 the 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.
REPORTS. The Indenture will provide that, whether or not required by
the rules and regulations of the Commission, so long as any Notes are
outstanding, the Company will furnish to holders of Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if the Company were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of all such information and reports with the Commission
for public availability (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, the Company and the Guarantors have agreed
that, for so long as any Notes remain outstanding, they will furnish to the
holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES. The Indenture will provide that each of
the following constitutes an Event of Default: (i) default for 30 days in the
payment when due of interest on the Notes; (ii) default in payment when due of
the principal of or premium, if any, on the Notes; (iii) failure by the Company
to comply with the provisions described under the captions "Repurchase at the
Option of Holders-Change of Control," "Repurchase at the Option of Holders-Asset
Sales," "-Restricted Payments" or "-Incurrence of Indebtedness and Issuance of
Preferred Stock"; (iv) failure by the Company for 60 days after notice to comply
with any of its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Indebtedness
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or guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness at its final stated maturity or (b) results in the
acceleration of such Indebtedness prior to its maturity and, in each case, the
principal amount of which Indebtedness, together with the principal amount of
any other such Indebtedness described in clauses (a) and (b) above, aggregates
$100,000 or more; (vi) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $100,000, which judgments are not paid,
discharged or stayed for a period of 60 days; (viii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Subsidiaries;
or (ix) the Guarantee of any Guarantor is held in judicial proceedings to be
unenforceable or invalid or ceases for any reason to be in full force and effect
(other than in accordance with the terms of the Indenture) or any Guarantor or
any Person acting on behalf of any Guarantor denies or disaffirms such
Guarantor's obligations under its Guarantee (other than by reason of a release
of such Guarantor from its Guarantee in accordance with the terms of the
Indenture.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately and the Trustee may
enforce on any collateral for the Notes pursuant to the Stock Pledge Agreement
or any other security agreement. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the Company, any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to March
15, 20__, by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to March 15, 20__, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any Guarantor under the Notes, the Guarantees, the Indenture
or for 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. 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, elect to have all of
the obligations of the Company and the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall 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; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming 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; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or
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insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of Notes over the other creditors of the Company or
any Guarantor with the intent of defeating, hindering, delaying or defrauding
creditors, any Guarantor of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
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 documents 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 selected for redemption. Also, 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
Except as provided in the next succeeding paragraphs, the Indenture,
the Guarantees or the Notes may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Notes), and any existing
default or compliance with any provision of the Indenture, the Guarantees or the
Notes may be waived with the consent of the holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in connection
with a purchase of, or a tender offer or exchange offer for, Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption or repurchase of the
Notes (other than provisions relating to the covenant described above under the
caption "-Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of holders of Notes to receive payments of principal of or premium, if
any, or interest on the Notes, (vii) waive a redemption payment with respect to
any Note (other than a payment required by one of the covenants described above
under the caption "-Repurchase at the Option of Holders") (viii) release any
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Guarantor from any of its obligations under its Guarantee or the Indenture,
except in accordance with the terms of the Indenture, or (ix) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Guarantees or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or a
Guarantor's obligations to holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such holder, or to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
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. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Shop at Home, Inc., 102 Woodmont Boulevard, Suite
200-228, Nashville, Tennessee 37205, Attention:
George J. Phillips.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be resold as
set forth herein will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Notes offered hereby (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").
Notes that are issued as described below under "-Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
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such Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
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
Underwriter), 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 thorough 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 Note, the Depositary will credit the
accounts of Participants designated by the Underwriter with portions of the
principal amount of the Global Note and (ii) ownership of the Notes evidenced by
the Global Note 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
transfer Notes evidenced by the Global Note will be limited to such extent. For
certain other restrictions on the transferability of the Notes, see "Notice to
Investors."
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 Note 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 Note, 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.
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Certificated Securities
Subject to certain conditions, any person having a beneficial interest
in the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
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 its Global Note, Notes in such form 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 Note (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
Securities, 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.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person that was not
incurred in connection with, or in contemplation of, such other Person merging
with or into or becoming a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that,
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition
of any assets (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary course of business consistent with
past practices; provided that, the sale, lease, conveyance or other disposition
of all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "-Repurchase at the Option of Holders-Change of Control"
and/or the provisions described above under the caption "-Certain
Covenants-Merger, Consolidation or Sale of Assets" and shall not be deemed to be
"Asset Sales", and (ii) the issue or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $_______
or (b) for net proceeds in excess of $_______. Notwithstanding the foregoing:
(i) a transfer of assets by the Company to a Wholly Owned Subsidiary or by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
(ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company
or to another Wholly Owned Subsidiary, and (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "-Restricted
Payments" will not be deemed to be Asset Sales.
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, 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).
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than 12 months from the date of acquisition, (iii) U.S. dollar or Canadian
dollar denominated (or foreign currency fully hedged) time deposits,
certificates of deposit, Eurodollar time deposits or Eurodollar certificates of
deposit of (a) any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million or (b) any bank whose short term
commercial paper rating from Standard & Poor's is at least A-1 or the equivalent
thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank
being an "Approved Lender"), in each case with maturities of not more than 12
months from the date of acquisition; and (iv) commercial paper issued by any
Approved Lender (or by the parent company thereof) or any variable rate notes
issued by, or guaranteed by, any domestic corporation rated A-2 (or the
equivalent thereof) or better by Standard & Poor's or P-2 (or the equivalent
thereof) or better by Moody's and maturing within 12 months of the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any
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"person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the Voting Stock of the Company or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Indebtedness, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash charges were deducted in computing such Consolidated Net
Income minus (v) non-cash items of such Person and its Subsidiaries increasing
Consolidated Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent (and in same proportion) that the Net Income of such Subsidiary
was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its shareholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof shall be
excluded, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its shareholders, shall be excluded
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date
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of such acquisition shall be excluded and (iv) the cumulative effect of a change
in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common shareholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Eligible Inventory"means, as of any date, all inventory of the Company
and any of its Subsidiaries, wherever located, valued in accordance with GAAP
and shown on the balance sheet of the Company for the quarterly period most
recently ended prior to such date for which financial statements of the Company
are available.
"Eligible Receivables" means, as of any date, all accounts receivable
of the Company and any of its Subsidiaries arising out of the sale of inventory
in the ordinary course of business, valued in accordance with GAAP and shown on
the balance sheet of the Company for the quarterly period most recently ended
prior to such date for which financial statements of the Company are available.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Indebtedness, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and (ii)
the consolidated interest expense of such Person and its Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is guaranteed by such Person or one of its Subsidiaries
or secured by a Lien on assets of such Person or one of its Subsidiaries
(whether or not such guarantee or Lien is called upon) and (iv) the product of
(a) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Funded Indebtedness" means any Indebtedness of the Company for
borrowed money (but not including the Notes).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession which are in effect on the date of the Indenture.
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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 Indebtedness" means, with respect to any Guarantor, (i) the
guarantee of such Guarantor of the Company's Obligations under the Funded
Indebtedness and (ii) any other Indebtedness permitted to be incurred by such
Guarantor under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Guarantee of such Guarantor.
Notwithstanding anything to the contrary in the foregoing, Guarantor
Indebtedness will not include (u) any Indebtedness of such Guarantor
representing a guarantee of Indebtedness of the Company or any other Guarantor
which is subordinate or junior to, or pari passu with, the Notes or the
Guarantee of such other Guarantor, as the case may be, (v) any Indebtedness that
is expressly subordinate or junior in right of payment to any other Indebtedness
of such Guarantor, (w) any liability for federal, state, local or other taxes
owed or owing by such Guarantor, (x) any Indebtedness of such Guarantor to any
of its Subsidiaries or other Affiliates, (y) any trade payables or (z) that
portion of any Indebtedness that is incurred in violation of the Indenture.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates, the value of foreign currencies and the value of commodities
purchased by the Company or any of its Subsidiaries in the ordinary course of
business.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the guarantee by such Person of any indebtedness of any other Person.
"Independent" means, with respect to the Company and its Subsidiaries,
any person who (i) is in fact independent, (ii) does not have any direct
financial interest or any material indirect financial interest in the Company or
any of its Subsidiaries, or in any Affiliate of the Company or any of its
Subsidiaries (other than as a result of holding securities of the Company) and
(iii) is not an officer, employee, promoter, underwriter, trustee, partner or
person performing similar functions for the Company or any of its Subsidiaries.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Other Subsidiaries" means any Subsidiary of the Company other than
SAH Acquisition II.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a Person,
if as a result of such Investment (i) such Person becomes a Wholly Owned
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company, and (d) any Restricted Investment made as a result of the receipt
of non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-Repurchase at
the Option of Holders-Asset Sales."
"Permitted Liens" means (i) Liens on the capital stock and assets of
the Other Subsidiaries securing Funded Indebtedness and Liens on assets of a
Guarantor securing Guarantor Indebtedness of such Guarantor; provided that such
Indebtedness was permitted by the terms of the Indenture to be incurred; (ii)
Liens in favor of the Company; (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
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; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory
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obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; and (vi) Liens existing
on the date of the Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its 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 Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and 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 Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any payment of interest on or
principal of any Indebtedness, the date on which such payment was scheduled to
be made in the documentation governing such Indebtedness, without regard to the
occurrence of any subsequent event or contingency.
"Stock Pledge Agreement" means the Stock Pledge Agreement, dated as of
___________, 199_, by and among the Company and the other parties named on the
signature pages thereof, pursuant to which the Capital Stock of the Subsidiaries
shall be pledged to secure the Notes, as such agreement may be amended, modified
or supplemented from time to time.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Voting Stock" means, with respect to any Person as of any date, the
Capital Stock of such Person that is at the time entitled to vote in the
election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
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"), and
1,000,000 shares of preferred stock, par value $10.00 ("Preferred Stock").
COMMON STOCK
As of December 31, 1997, 11,740,591 shares of the Company's Common
Stock were outstanding and held of record by approximately ____ 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 Company 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 therefore. 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 all
indebtedness or other liabilities to any other person.
On December 31, 1997, the Board of Directors of the Company voted to
recommend that the shareholders approve 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. The shares of Non-Voting Common Stock, if
authorized, would have the same preferences, limitations and relative rights as
the Company's Common Stock, except that the shares of Non-Voting Common Stock
would have no voting rights, unless indefeasibly granted by statute. The
shareholders' meeting at which this matter will be submitted for approval is
expected to be held in February, 1998. The Board of Directors has no current
plans to issue shares of Non-Voting Common Stock, if approved by the
shareholders, 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.
90
<PAGE> 91
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.
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 ____ 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 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 24, 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
91
<PAGE> 92
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.
MARKET INFORMATION
The Common Stock is currently listed on the NASDAQ SmallCap Market. 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 September 30, 1997, as reported by NASDAQ's 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.
92
<PAGE> 93
UNDERWRITING
Subject to the terms and conditions contained in an underwriting
agreement (the Underwriting Agreement") between the Company and the
Underwriter, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase, the $________ aggregate principal amount of
the Notes being offered.
The Underwriting Agreement provides that, subject to the terms and
conditions set forth therein, the Underwriter is obligated to purchase all of
the Notes if any are purchased and all of the shares of Common Stock if any are
purchased.
The Underwriter proposes 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. The Underwriter may allow, and such dealers may re-allow,
a concession not in excess of ___% of the principal amount on sales to certain
other dealers. The offering of the Notes is made for delivery when, as and if
accepted by the Underwriter and is subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriter
reserves 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 Underwriter.
The Underwriter does not intend to confirm sales to any accounts over
which it exercises discretionary authority.
The Underwriter 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. 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 $__________. In connection with
the resolution of the Bankruptcy Proceeding, the Underwriter and the bridge
lenders may be paid in whole or in part on their claims against Global. See
"Business--Recent Development."
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the federal securities laws, or to
contribute to payments that the Underwriter 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 Underwriter
by Jenkens & Gilchrist, a Professional Corporation, Washington, D.C.
93
<PAGE> 94
EXPERTS
The consolidated balance sheets as of June 30, 1996 and 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, 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.
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."
94
<PAGE> 95
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets at June 30, 1996 and June 30, 1997, and
September 30, 1997 (Unaudited) F-3
Consolidated Statements of Operations for the years ended June 30, 1995,
June 30, 1996, and June 30, 1997, and the three months ended
September 30, 1996 and 1997 (Unaudited) F-5
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1995, June 30, 1996, and June 30, 1997, and the
three months ended September 30, 1997 (Unaudited) F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, June 30, 1996, and June 30, 1997, and the three
months ended September 30, 1996 and 1997 (Unaudited) F-8
Notes to Consolidated Financial Statements F-10
</TABLE>
F-1
<PAGE> 96
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 the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 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 the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
Knoxville, Tennessee COOPERS & LYBRAND L.L.P.
August 14, 1997, except
as to Note 17 which is as
of January 8, 1998.
F-2
<PAGE> 97
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, JUNE 30, SEPTEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,914,759 $ 5,077,641 $ 1,260,563
Accounts receivable - trade 380,077 3,292,925 3,687,168
Accounts receivable - related parties 7,680 3,000 --
Inventories 2,611,142 3,262,080 3,066,301
Prepaid expenses 279,505 458,243 894,323
Deferred tax assets 80,000 1,342,450 1,482,530
----------- ----------- ----------
Total current assets 5,273,163 13,436,339 10,390,885
ACCOUNTS RECEIVABLE -- RELATED PARTY -- -- 300,000
PROPERTY & EQUIPMENT, NET 3,470,226 4,433,767 4,623,300
FCC LICENSES, NET 10,516,041 13,423,182 13,161,809
GOODWILL, NET 605,154 1,989,529 2,002,390
OTHER ASSETS 422,086 1,127,493 2,148,838
----------- ----------- -----------
TOTAL ASSETS $20,286,670 $34,410,310 $32,627,222
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 98
SHOP AT HOME, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion - capital leases $ 109,444 $ 171,498 $ 179,622
Current portion of long-term debt 741,262 2,279,833 2,319,664
Accounts payable - trade 3,201,320 6,821,654 6,921,339
Accounts payable - related party 449,550 631,621 636,804
Credits due to customers 1,100,120 3,121,503 2,168,879
Other payables and accrued expenses 1,865,806 4,944,050 3,603,090
Deferred revenue 1,512,291 107,619 122,973
------------ ------------ -----------
Total current liabilities 8,979,793 18,077,778 15,952,371
------------ ------------ -----------
LONG-TERM LIABILITIES
Capital leases, less current portion 53,649 305,666 376,506
Long term debt, less current portion 5,669,063 7,216,465 6,607,328
Deferred income taxes 2,082,336 3,613,410 3,766,871
REDEEMABLE PREFERRED STOCK
$10 par value, 1,000,000 shares authorized,
137,943 issued and outstanding in
1997 and 1996 respectively 1,393,430 1,393,430 1,393,430
COMMITMENTS (NOTES 6,8,10, AND 14)
STOCKHOLDERS' EQUITY Common stock - $.0025 par value, 30,000,000 shares
authorized 10,714,414 and 10,575,255 shares issued at June 30,
1997 and 1996 respectively; 11,074,414 (unaudited) at September
30, 1997 26,438 26,786 27,686
Additional paid in capital 9,927,787 10,066,555 10,425,655
Accumulated deficit (7,845,826) (6,289,780) (5,922,625)
------------ ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,286,670 $ 34,410,310 $32,627,222
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 99
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------------- -------------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 26,787,013 $ 40,016,114 $ 67,817,460 $ 13,741,493 $ 20,958,035
COST OF SALES 17,120,791 24,516,348 40,626,134 8,474,787 12,347,598
------------ ------------ ------------ ------------ ------------
Gross Profit 9,666,222 15,499,766 27,191,326 5,266,706 8,610,437
------------ ------------ ------------ ------------ ------------
OTHER OPERATING INCOME 189,000 659,461 1,014,888 226,834 270,888
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Promotion and advertising costs 269,420 241,170 468,255 80,850 151,490
Salaries and wages 3,356,624 4,112,858 5,564,089 1,207,465 1,617,054
Transponder and cable charges 3,226,481 6,024,743 12,118,305 2,293,552 3,854,460
Other general operating and
administrative expenses 3,639,749 5,673,540 6,675,322 1,397,460 2,217,318
Depreciation and amortization 517,523 877,861 1,056,492 211,192 386,231
------------ ------------ ------------ ------------ ------------
Total operating expenses 11,009,797 16,930,172 25,882,463 5,190,519 8,226,553
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,154,575) (770,945) 2,323,751 303,021 654,772
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest, net (216,486) (794,558) (1,079,529) (186,820) (283,569)
Miscellaneous 89,072 56,637 231,824 25,292 104,334
------------ ------------ ------------ ------------ ------------
Total other income (expense) (127,414) (737,921) (847,705) (161,528) (179,235)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,281,989) (1,508,866) 1,476,046 141,493 475,537
INCOME TAX EXPENSE (BENEFIT) -- (103,394) (80,000) (25,000) 108,382
------------ ------------ ------------ ------------ ------------
NET INCOME/ (LOSS) ($ 1,281,989) ($ 1,405,472) $ 1,556,046 $ 166,493 $ 367,155
============ ============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK ($ 0.14) ($ 0.14) $ 0.12 $ 0.01 $ 0.03
============ ============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 9,436,870 10,284,085 13,945,540 14,812,455 14,256,780
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 100
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN ACCUMULATED
STOCK CAPITAL DEFICIT
-------- ----------- ------------
<S> <C> <C> <C>
Balance - June 30, 1994 $ 22,260 $ 5,883,682 $(5,158,365)
(8,904,118 shares)
Issuances of common stock
(389,215 shares) 973 999,027 --
Retirement of treasury stock (115) (40,135) --
Issuances 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 315 127,125 --
Issuances 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)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 101
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN ACCUMULATED
STOCK CAPITAL DEFICIT
------ ---------- -----------
<S> <C> <C> <C>
Exercise of stock options
(100,000 shares) 250 99,750 --
Exercise of employee stock options
(20,000 shares) 50 19,950 --
Issuances 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 employee stock
options (360,000 shares) 900 359,100 --
Net income -- -- 367,155
------- ------------ -----------
Balance - September 30, 1997
(11,074,414 shares) $27,686 $ 10,425,655 $(5,922,625)
======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 102
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------- --------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) ($1,281,989) ($1,405,472) $ 1,556,046 $ 166,493 $ 367,155
Non-cash expenses included in net income (loss)
Depreciation and amortization 517,523 877,861 1,056,492 211,190 386,229
Loss on sale of equipment -- 19,165 3,053 -- --
Deferred income taxes -- (103,394) (80,000) (25,000) 108,382
Change in provision for inventory obsolescence -- (88,122) -- -- --
Provision for bad debt -- -- 18,800 -- 209,849
Changes in current and non-current items
Accounts receivable (38,135) 119,409 (2,926,968) (96,410) (601,092)
Inventories (110,577) (230,024) (650,938) (108,844) 195,779
Prepaid expenses and other assets 102,563 (197,019) (241,321) 77,790 (436,080)
Accounts payable and accrued expenses 2,759,182 805,455 8,914,889 1,688,379 (2,208,717)
Deferred revenue (5,888) 1,016,954 (1,404,672) (1,413,519) 15,354
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by operations 1,942,679 814,813 6,245,381 500,079 (1,963,141)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Related party note receivable -- -- -- -- (300,000)
Cash payments for acquisitions (1,289,072) -- (1,838,360) -- (50,702)
Purchase of equipment (2,370,582) (507,494) (1,056,581) -- 202,449
Proceeds from sale of equipment -- 400,000 -- (172,768) --
Other assets -- -- (1,856,744) -- (1,021,345)
FCC licenses -- (38,000) -- (50,894) --
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities (3,659,654) (145,494) (4,751,685) (223,662) (1,574,496)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends -- -- (13,742) -- --
Exercise of stock options -- 127,440 120,000 -- 360,000
Repayments of debt (662,115) (985,851) (1,233,467) (208,064) (639,441)
Additional long-term debt 1,620,488 2,056,380 2,919,440 -- --
Capital lease payments (114,278) (154,675) (123,045) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 844,095 1,043,294 1,669,186 (208,064) (279,441)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (872,880) 1,712,613 3,162,882 68,353 (3,817,078)
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 $ 1,983,112 $ 1,260,563
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE> 103
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------- -------------------------------
1995 1996 1997 1996 1997
----------- -------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Stock issued for inventory and reduction
of accounts payable $ -- $609,523 $ 33,116 $ 57,477 $ --
---------- -------- ---------- ---------- -----------
Cost of equipment purchased through
Capital lease obligation $ 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 $ --
---------- -------- ---------- ---------- -----------
Stock issued for acquisitions
of BCST and MFP, Inc. $4,500,000 $ -- $ -- $ -- $ --
---------- -------- ---------- ---------- -----------
Stock issued in connection
with financing $ -- $250,000 $ -- $ -- $ --
---------- -------- ---------- ---------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 139,097 $795,125 $ 997,671 N/A N/A
---------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
<PAGE> 104
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The accompanying consolidated financial statements include the accounts
of Shop at Home, Inc. and its 100% owned subsidiaries, MFP, Inc. ("MFP"),
Broadcast Cable Satellite Technologies, Inc. ("BCST"), Urban Broadcasting
Systems, Inc. ("UBS"), Collectors Edge of Tennessee, Inc. ("Collectors"), and RF
Scientific Transportables, Inc. ("RFS"), (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. All intercompany accounts and transactions have been eliminated
in consolidation.
BASIS OF PRESENTATION
The financial information included herein as of September 30, 1997 and for the
three months ended September 30, 1996 and 1997 is unaudited; however, such
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of financial condition and results of operations of the interim
periods.
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, TX.
MFP, Inc., operates a commercial television station, WMFP, Channel 62,
serving the Boston television market area. MFP, Inc. was acquired in February
1995 (Note 13).
Collector's Edge of Tennessee, Inc. ("Collectors") is a trading card
manufacturer whose main assets are licenses from the National Football League
Properties and the NFL Players, Inc.
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 valuation adjustments related to 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>
F-10
<PAGE> 105
SHOP AT HOME, INC. AND SUBSIDIARIES
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 $268,562 in 1996 and $508,099 in 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 $15,517 for 1996 and
$60,803 for 1997.
SALES RETURNS
- -------------
The Company allows customers to return merchandise for full credit or
refund within 30 days from the date of receipt. Collectors sells to wholesalers
and retailers, terms of sale and return privileges are negotiated on an
individual basis. At June 30, 1996 and 1997, the Company had recorded provisions
of $1,100,000 and $3,122,000, 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 by the user.
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.
INCOME (LOSS) PER SHARE
- -----------------------
Income (loss) per share was computed by dividing the net income (loss)
by the weighted average number of shares of common stock and common stock
equivalents outstanding during the respective periods. Common stock equivalents,
including options, warrants, convertible debt and the convertible preferred
stock have been excluded from the 1995 and 1996 computations because their
inclusion would be antidilutive in these years when the Company generated
losses. The effect of these common stock equivalents on the 1997 per share
computation is an increase of approximately 3.3 million shares, even though
these shares were not issued.
F-11
<PAGE> 106
SHOP AT HOME INC. AND SUBSIDIARIES
In February 1997, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 128, "earnings per Share," which
changes the calculations used for earnings per share (EPS) and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. The effect of the change in the standard on
consolidated financial statements results in ($0.14) and $0.15 of basic EPS for
the years ended June 30, 1996 and 1997, and $.02 and $.03 of basic EPS for the
three months ended September 30, 1996 and 1997. The standard would have no
effect on the diluted EPS. The Statement is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted.
USE OF ESTIMATES
- ----------------
The preparation of the financial statements in conformity with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The Company's financial instruments consist principally of accounts
receivable, accounts payable, accrued expenses and debt. The fair value of these
financial instruments approximate their carrying value.
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
In March 1995, the FASB issued Statement of Accounting Standards No
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which i) requires that long-lived assets to be held
and used be reviewed for impairment whenever events or circumstances indicate
that the carrying value of an asset may not be recoverable, ii) requires that
long-lived assets to be disposed of be reported at the lower of the carrying
amount or the fair value less costs to sell, and iii) provides guidelines and
procedures for measuring impairment losses that are different from previously
existing guidelines and procedures. The Company adopted the provisions of
Statement 121 in fiscal year 1996 and the changes did not have a material effect
on the Company's financial position or results of operations.
STOCK-BASED COMPENSATION
- ------------------------
Additionally, in October 1995, the FASB issued Statement of Accounting
Standards No. 123. "Accounting and Disclosure of Stock-Based Compensation" which
encourages but does not require companies to recognize stock awards based on
their fair value at the date of grant. The Company currently follows, and
expects to continue to follow, the provisions of Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Although the Company is permitted to continue to follow
the provisions of APB 25 under Statement 123, certain pro forma disclosure will
be required beginning in 1996, as if the Company had accounted for its stock
options under the Statement 123 fair value method. Such disclosures are included
in Footnote 10.
F-12
<PAGE> 107
SHOP AT HOME, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
- -------------------
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 financial statements issued for periods beginning after December
15, 1997. Management has not yet determined the full effect of this Statement on
its financial statements.
CAPITAL STRUCTURE
- -----------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure." The Statement establishes standards for disclosing
information about an entity's capital structure. The Statement is effective for
periods ending after December 15, 1997. Management has determined that the
adoption of this Statement will not have a material impact on the financial
statements.
COMPREHENSIVE INCOME
- --------------------
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. Thus, management
has determined that the adoption of this Statement will not have a material
impact on the financial statements.
RECLASSIFICATIONS
- -----------------
Certain amounts in the prior years' consolidated financial statements
have been reclassified for comparative purposes to conform with the current year
presentation.
F-13
<PAGE> 108
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTE 2 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consists of the following major classifications
at June 30, 1996 and 1997.
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Leasehold improvements $ 285,074 $ 318,416
Operating equipment 4,736,119 5,819,654
Furniture and fixtures 194,651 190,656
----------- -----------
5,215,844 6,328,726
Accumulated depreciation (1,745,618) (1,894,959)
----------- -----------
Property and equipment, net $ 3,470,226 $ 4,433,767
=========== ===========
</TABLE>
Depreciation expense totaled $463,496, $585,995, and $527,103 for the
fiscal years ended June 30, 1995, 1996 and 1997 respectively.
NOTE 3 - CAPITAL LEASES
- -----------------------
The Company has acquired various equipment under the provisions of long
term leases.
Equipment held under capital leases, which is included in property and
equipment is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Operating equipment $ 660,032 $660,032
Less accumulated depreciation (396,267) (551,074)
--------- --------
$263,765 $108,958
========= ========
</TABLE>
F-14
<PAGE> 109
SHOP AT HOME, INC. AND SUBSIDIARIES
Future minimum lease payments under capitalized leases are as follows at June
30,1997:
<TABLE>
<S> <C> <C>
1998 $ 229,002
1999 158,286
2000 154,686
2001 43,712
---------
Total minimum lease payments 585,686
Less amount representing interest (108,522)
---------
Present value of minimum lease payments 477,164
Less current portion (171,498)
---------
Long term portion $ 305,666
=========
</TABLE>
NOTE 4 - LONG-TERM DEBT
- -----------------------
<TABLE>
<CAPTION>
Long term debt consist of the following at June 30: 1996 1997
---- ----
<S> <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
Notes payable due in April 2000, with interest
payable at 12% quarterly, collateralized by
certain equipment 800,000 800,000
Note payable bearing interest at 9.5% due in
monthly installments of $26,106 with a
balloon payment due in March 2000 2,399,858 2,310,763
Note payable to related party bearing interest
at 15% due in monthly installments of $9,700,
collateralized by certain equipment 435,101 380,302
Note payable to related party bearing interest at
10.75% due in monthly installments of principal
and interest totaling $43,494 through September 1,
2000 1,775,366 1,425,077
Note payable to related party 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
</TABLE>
F-15
<PAGE> 110
SHOP AT HOME, INC. AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
Assumption note payable to Norwest Credit bearing interest at 1.75% plus prime
(8.5% at 6/30/97) due in equal monthly installments of principal of $75,047
plus interest through March 1999 -- 1,575,992
Term note payable to Norwest Credit Bearing interest at 10% due in equal monthly
installments of principal of $41,667 (with the exception of 1st and
last payment) plus interest through February 1999 -- 854,164
----------- -----------
Total long term debt 6,410,325 9,496,298
Less current maturities (741,262) (2,279,833)
----------- -----------
Long term debt less current portion $ 5,669,063 $ 7,216,465
=========== ===========
</TABLE>
The aggregate future required principal payments at June 30, 1997 for
the above liabilities are as follows:
<TABLE>
<S> <C>
1998 $2,279,833
1999 2,001,973
2000 1,050,519
2001 1,281,964
2002 2,882,009
----------
$9,496,298
==========
</TABLE>
NOTE 5 - 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.
F-16
<PAGE> 111
SHOP AT HOME, INC. AND SUBSIDIARIES
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 of the Company or its shareholders of any transaction with any
single purchaser whereby a change in control of more than fifty percent (50%) of
the issued and outstanding shares of common stock of the Company occurs, will be
considered a liquidation, dissolution and winding up of the Company entitling
the holders of Series A preferred stock to payment of the Liquidation
Preference.
No class of the Company's capital stock is presently outstanding that
possesses rights with respect to distributions upon liquidation, dissolution and
winding up senior to the Series A preferred stock. So long as the Series A
preferred stock remains outstanding, the Company may not issue any capital
stock, including preferred stock of any series, that ranks senior to the Series
A preferred stock with respect to liquidation, dissolution and winding up.
As of June 30, 1996 and 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
NOTE 6 - COMMON STOCK
- ---------------------
In August 1996, 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 4); in September the Company issued 2,000 shares in conversion of its
Redeemable Preferred Stock (Note 5); in October 1995 and May 1996, the Company
issued a total of 126,000 shares in connection with the exercise of employee
stock options (Note 10); and during the period of March through June 1996, 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 (Note 8). By agreement, the stock was valued at $3.00 per
share or $477,525. The Company has 19,519 additional shares remaining to be
issued under this agreement.
F-17
<PAGE> 112
SHOP AT HOME, INC. AND SUBSIDIARIES
On June 30, 1994, the Company sold for $240,000 an option to purchase
up to 600,000 shares of common stock at a purchase price of $2.50 per share.
This option may be exercised at any time after December 31, 1995, but on or
before June 30, 1999.
Effective June 9, 1993, an agreement was entered into between the
Company, SAH Holdings, L.P. and Global Network Television, Inc., whereby the
Company agreed to sell 1,000,000 shares of its common stock to SAH Holdings at
$1.00 per share. The Company also agreed to sell to SAH Holdings a warrant to
acquire 1,300,000 shares of common stock in the Company for a purchase price of
$1.00 per share. The warrant expires on June 30, 2001. The Company agreed to
sell to SAH Holdings an additional warrant to acquire up to 2,000,000 shares of
common stock for a purchase price of $1.00 per share. This warrant was sold for
$400,000 and also expires on June 30, 2001.
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 13 and 14.
NOTE 7 - INCOME TAXES
- ---------------------
The components of temporary differences and the approximate tax effects
that give rise to the Company's net deferred tax liability at June 30, 1996 and
1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards $ 2,324,269 $ 389,126
Accruals 384,495 1,342,450
Valuation allowance (1,263,991) --
----------- -----------
Total deferred tax assets 1,444,773 1,731,576
----------- -----------
Deferred tax liabilities:
Licenses 3,331,736 3,726,985
Depreciation 115,373 275,551
----------- -----------
Total deferred tax liabilities 3,447,109 4,002,536
----------- -----------
Net deferred tax liabilities $ 2,002,336 $ 2,270,960
=========== ===========
Current deferred tax asset $ 80,000 $ 1,342,450
Long-term deferred tax liabilities (2,082,336) (3,613,410)
----------- -----------
Net deferred tax liabilities $(2,002,336) $(2,270,960)
=========== ===========
</TABLE>
F-18
<PAGE> 113
SHOP AT HOME, INC. AND SUBSIDIARIES
At June 30, 1997 the Company had net operating loss carry forwards
which expire as follows:
<TABLE>
<S> <C>
June 30, 2010 409,954
June 30, 2011 614,062
----------
$1,024,016
==========
</TABLE>
Income tax benefit varies from the amount computed by applying the
federal corporate income tax rate of 34% to loss before tax benefit as follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Computed "expected" income tax expense (benefit) $(499,732) $ 501,855
Increase (decrease) in income tax benefit
resulting from:
State income tax expense (benefit), net
of federal effect (58,792) 74,102
Change in valuation allowance 362,411 (1,042,816)
Nondeductible portion of meals
and entertainment 8,480 16,529
Other 84,239 370,330
--------- -----------
Actual income tax benefit $(103,394) $ (80,000)
========= ===========
</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-19
<PAGE> 114
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTE 8 - COMMITMENTS
- --------------------
TRANSPONDER USE AGREEMENT
- -------------------------
In December 1995, the Company's transponder lease with AT&T's 402R
became effective. This lease calls for initial monthly payments of $96,000 in
the first year and increasing to $105,000 and $115,000 in years two and three
respectively. Transponder expense was $1,281,000 in 1995, $1,379,000 in 1996,
and $1,330,000 in 1997.
PURCHASE COMMITMENTS
- --------------------
In 1994, the Company entered into an agreement to purchase, over a
period of 18 months, $1,750,000 of inventory, of which 50% could be paid for
with the Company's common stock. The Company also had an option to purchase an
additional $1,750,000 of this inventory. Terms on this commitment require the
Company to pay the greater of $97,222 per month or the value of the actual
inventory shipped during the month. Any amount up to one-half of the contractual
commitment could be satisfied through the issuance of Company common stock on
terms as set forth in the contract.
In January 1996, the Company entered into a "Restated Agreement"
whereby it was obligated to purchase the remaining balance of merchandise it had
not yet acquired approximating $720,000. The payment of which was made part in
cash and part in stock. (Note 6). As of July 31, 1996, the remaining obligation
under this restated agreement had been satisfied.
Collector's Edge of Tennessee, Inc. has minimum contractual
committments to NFL Players Association and NFL Properties of $2.2 million,
which includes $1.2 million in fiscal year 1998 and $1.0 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
fiscal years ended June 30, 1995, 1996, and 1997, respectively.
The Company has agreements with various carriers to lease air time. The
terms of the agreements vary from week to week to one year periods.
The expenses for leased air time, primarily for cable access fees, was
$1,945,000 in 1995, $4,646,000 in 1996, and $10,789,000 in 1997.
Rental expense for the office and studio and miscellaneous equipment
inclusive of the Knoxville office and studio expense referred to above, was
$184,434, $483,059, and $529,484, for the fiscal years ended June 30, 1995,
1996, and 1997 respectively.
F-20
<PAGE> 115
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTE 9- RELATED PARTY TRANSACTIONS
- ----------------------------------
During the fiscal years ended June 30, 1995, 1996, and 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>
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
PURCHASES - MERCHANDISE
V.J.M. (Victor Mueller) $989,272 $ 795,689 $1,077,925
Howards Sports Collectibles 553,462 2,116,088 3,136,470
Combine International, Inc. 98,843 452,348 706,674
OTHER OPERATING EXPENSES
Lakeway Container 81,827 63,978 5,559
Airbank 27,673 37,604 22,213
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.
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 bears interest imputed at a rate of 6.73% and is repayable at the rate
of 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. Subsequent to September 30, 1997, the Company advanced the additional
$500,000 to this officer under the terms of this agreement.
NOTE 10 - STOCK OPTIONS
- -----------------------
In 1991, the Company adopted a stock incentive plan for eligible
employees. A special administrative committee of the Board of Directors was
appointed to administer the plan. All employees of the Company are eligible to
receive stock options and/or stock appreciation rights ("SARs") under the plan.
Options granted under the plan can be either incentive stock options or
nonqualified stock options. Incentive stock options to purchase common stock may
be granted at not less than 100% of the fair market value of the common stock on
the date of the grant.
SARs generally entitle the participant to receive the excess of the
fair market value of a share of common stock on the date of exercise over the
initial value of the SAR. The initial value of the SAR is the fair market value
of a share of common stock on the date of the grant.
Options and SARs granted under the plan become exercisable immediately
in the event 80% or more of the Company's outstanding stock or substantially all
of its assets are acquired by a third party.
A maximum of 1,500,000 shares of common stock may be issued upon the
exercise of options and SARs. From its adoption through June 30, 1997, a net of
stock options for 588,500 shares of common stock have been granted under the
plan. No SAR's have been issued under the plan.
F-21
<PAGE> 116
SHOP AT HOME, INC. AND SUBSIDIARIES
No option or SAR's may be granted after October 15, 2001. No option
that is an incentive stock option and any corresponding SAR that related to such
option shall be exercisable after the expiration of ten years from the date such
option or SAR was granted or five years after the expiration in the case of any
such option or SAR that was granted to a 10% stockholder.
Additionally, 1,650,000 common shares (680,000 vested at June 30, 1997)
were reserved for options granted to certain executive officers, directors,
employees and others as of June 30, 1997. These options vest annually over a
period of five years and expire the earlier of five years from the date of
vesting or 30 days after termination of employment.
As permitted by SFAS 123, the Company has chosen to apply APB Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for options granted under the plan. Had compensation cost
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 below.
<TABLE>
<CAPTION>
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
Net Income (Loss) Per Share $ (0.14) $ (0.14) $ (0.14) $ (0.14) $ 0.12 $ 0.11
</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 grant in 1997: dividend yield of 0%;
expected volatility of 65%; risk-free interest rate of 6%; and expected life of
7.5 years.
A summary of the status of the Company's plan as of June 30, 1997,
1996, and 1995, and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 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 (200,000) 1.00
Forfeited -- -- (44,000) 2.44 (212,000) 2.81
--------- --------- ---------
</TABLE>
F-22
<PAGE> 117
SHOP AT HOME, INC. AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Outstanding at end of year 1,630,000 1.77 1,785,000 2.01 2,192,500 2.20
========== ========= ==========
Options exercisable at year-end 943,000 1,012,000 1,493,500
Weighted-average fair value of $1.72 $2.02 $2.04
options granted during the year
</TABLE>
The following table summarizes information about the plan's stock options at
June 30, 1997;
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------------------
Number Weighted-Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 6/30/97 Contractual Life Exercise Price at 6/30/97 Exercise Price
- --------------- ----------- ----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.99 630,000 8 years $1.00 620,000 $1.00
$2.00 - $2.99 1,557,500 7 years 2.68 873,500 2.56
$3.00 - $3.99 5,000 10 years 3.00 -
--------- ---------
2,192,500 1,493,500
========= =========
</TABLE>
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
- ---------------------------------------
Concentrations of credit risk include cash on deposit in financial
institutions and accounts receivables. Receivables are primarily due from credit
card companies. The Company maintains reserves which management believes are
adequate to provide for credit losses. Management believes the financial
institutions holding the cash to be financially sound.
The television home shopping business in general is seasonal, with the
major selling season occurring the last quarter of the calendar year. The home
shopping industry is also sensitive to general economic conditions and business
conditions affecting consumer spending. The Company's product lines include
jewelry, sports cards, sports memorabilia, collectibles, and other unique items
that may make it more sensitive to economic conditions.
NOTE 12 - ACQUISITION OF BROADCAST CABLE & SATELLITE TECHNOLOGIES, INC.
- -----------------------------------------------------------------------
On December 6, 1994, the Company purchased all of the issued and
outstanding capital stock of Broadcast, Cable and Satellite Technologies, Inc.
(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-23
<PAGE> 118
SHOP AT HOME, INC. AND SUBSIDIARIES
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 payable to Charles E. Walker 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.
NOTE 13 - ACQUISTION 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.
F-24
<PAGE> 119
SHOP AT HOME, INC. AND SUBSIDIARIES
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of MFP have been included in the consolidated
operating results since the date of acquisition. The purchase price, including
the acquisition costs, was allocated to the net assets acquired based on
appraised fair values at the date of acquisition as follows:
<TABLE>
<S> <C>
FCC License $ 8,960,813
Property & equipment 615,000
Deferred tax liability (2,376,000)
-----------
$ 7,199,813
===========
</TABLE>
The unaudited consolidated pro forma operating data for the Company,
assuming the acquisition of BCST and MFP, Inc. occurred on July 1, 1993, are set
forth below. It should be noted that BCST had no revenues for the periods prior
to the acquisition as the broadcast facility had not been constructed.
Accordingly, the unaudited pro forma information does not include amortization
of the intangible assets of BCST during the 1995 period.
<TABLE>
<CAPTION>
UNAUDITED
June 30, 1994 June 30, 1995
------------- -------------
<S> <C> <C>
Revenues $22,567,430 $27,376,119
Net loss 1,920,967 2,166,932
Net loss per share $ .20 $ .21
</TABLE>
The unaudited pro forma information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions been consummated as of the above date,
nor are they indicative of future operating results.
NOTE 14 - ACQUISITION OF COLLECTOR'S EDGE OF TENNESSEE, INC.
- ------------------------------------------------------------
On February 25, 1997, Collectors Edge of Tennessee, Inc. ("Collectors")
was formed to acquire the assets of a former trading card manufacturer.
Collectors is a trading card manufacturer whose principal assets are licenses
from the National Football League Properties and NFL Players, Inc.
Collectors 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 is convertible into common stock of Collectors at the option of
the Company. As of June 30, 1997, Collectors has repaid none of the working
capital loan. In addition, Collectors assumed a term note with Norwest Bank at
$1.9 million, and borrowed an additional $1.0 million with Norwest Bank. The
note is guaranteed by the Company and collateralized by BCST.
The acquisition of Collectors has been accounted for under the purchase
method because of its economic dependence on the Company, the Company bears the
economic risk of losses of Collectors , and the Company has the ability to
effectively gain equity control of Collectors. Accordingly, the operating
results of Collectors 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:
F-25
<PAGE> 120
SHOP AT HOME, INC. AND SUBSIDIARIES
<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 Collectors,
occurred on the first day of each year presented are set forth below.
<TABLE>
<CAPTION>
UNAUDITED
June 30, 1996 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $50,666,000 $74,987,000
Net income (loss) (1,432,000) 1,178,000
Net income (loss) per share $ (.14) $ .09
</TABLE>
The unaudited pro forma information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions been consummated as of the above date,
nor are they indicative of future operating results.
NOTE 15 - 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-26
<PAGE> 121
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTE 16 -- INDUSTRY SEGMENTS
- ----------------------------
As a result of the acquisition of Collector's Edge of Tennessee, Inc.
discussed in Note 14, 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. who manufacturers and sells sports trading cards to unaffiliated
customers. The Company operates almost exclusively in the United States.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
-------------
<S> <C>
Revenue
Retailing $66,857,751
Manufacturing 959,709
Other 1,014,888
-----------
$68,832,348
===========
Operating profit (loss)
Retailing $ 2,304,643
Manufacturing 19,108
-----------
$ 2,323,751
===========
Assets
Retailing $29,772,304
Manufacturing 4,638,006
-----------
$34,410,310
===========
Depreciation and amortization
Retailing $ 819,356
Manufacturing 237,136
-----------
$ 1,056,492
===========
Capital Expenditures
Retailing $ 1,046,326
Manufacturing 10,255
-----------
$ 1,056,581
===========
</TABLE>
F-27
<PAGE> 122
NOTE 17--SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In contemplation of the proposed offering of $60,000,000 in Senior
Subordinated 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......... 3,353,707 878 387,757 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............. 8,173,209 66,782 5,273,163 17,198,270 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 license, 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
subsidiary........ 9,609,813 -- -- 10,359,813 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total assets......... $21,181,348 $11,681,963 $20,286,670 $30,470,245 $19,585,553 $34,410,310
=========== =========== =========== =========== =========== ===========
Liabilities and
Stockholders Equity
Accounts payable and
secured expense.... $ 6,556,347 $ 3,027,277 $ 6,616,796 $14,338,744 $ 6,065,657 $15,518,828
Current portion-
capital leases and
long-term debt..... 850,706 -- 850,706 849,531 1,601,800 2,451,331
Deferred revenue..... 1,491,782 20,509 1,512,291 87,926 19,693 107,619
----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities........ 8,898,835 3,047,786 8,979,793 15,276,201 7,687,150 18,077,778
Long-term debt....... 5,722,712 -- 5,722,712 5,293,773 2,628,358 7,522,131
Deferred income
taxes.............. -- 2,082,336 2,082,336 -- 3,613,411 3,613,410
Redeemable preferred
stock.............. 1,393,430 -- 1,393,430 1,393,430 750,000 1,393,430
Common Stock......... 26,438 1,065 26,438 26,786 1,165 26,786
Additional paid in
capital............ 9,927,787 9,608,748 9,927,787 10,066,555 9,608,748 10,066,555
Accumulated
deficit............ (4,787,854) (3,057,972) (7,845,826) (1,586,500) (4,703,279) (6,289,780)
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders
equity............. $21,181,348 $11,681,963 $20,286,670 $30,470,245 $19,585,553 $34,410,310
=========== =========== =========== =========== =========== ===========
<CAPTION>
SEPTEMBER 30, 1997 (UNAUDITED)
-----------------------------------------
GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------
<S> <C> <C> <C>
Assets:
Cash................. $ 729,249 $ 531,314 $ 1,260,563
Accounts
receivable......... 8,963,096 1,087,580 3,687,168
Inventories.......... 2,363,812 702,489 3,066,301
Prepaid Expenses..... 552,934 341,389 894,323
Deferred tax
assets............. 1,482,530 -- 1,482,530
----------- ----------- -----------
Total current
assets............. 14,091,621 2,662,772 10,390,885
Notes receivable..... 700,000 -- 300,000
Property and
equipment, net..... 1,558,172 3,065,128 4,623,300
FCC license, net..... 160,718 13,001,091 13,161,809
Goodwill, net........ 585,758 1,416,632 2,002,390
Other assets......... 1,507,330 641,508 2,148,838
Investment in
subsidiary........ 10,359,813 -- --
----------- ----------- -----------
Total assets......... $28,963,412 $20,787,131 $32,627,222
=========== =========== ===========
Liabilities and
Stockholders Equity
Accounts payable and
secured expense.... $11,958,605 $ 7,734,915 $13,330,112
Current portion-
capital leases and
long-term debt..... 993,334 1,505,952 2,499,286
Deferred revenue..... 106,914 16,059 122,973
----------- ----------- -----------
Total current
liabilities........ 13,058,853 9,256,926 15,952,371
Long-term debt....... 5,035,242 2,348,592 6,983,834
Deferred income
taxes.............. -- 3,766,871 3,766,871
Redeemable preferred
stock.............. 1,393,430 750,000 1,393,430
Common Stock......... 27,686 1,165 27,686
Additional paid in
capital............ 10,425,655 9,608,748 10,425,655
Accumulated
deficit............ (977,454) (4,945,171) (5,922,625)
----------- ----------- -----------
Total liabilities and
stockholders
equity............. $28,963,412 $20,787,131 $32,627,222
=========== =========== ===========
</TABLE>
Note: Intercompany balances have been eliminated in the consolidated totals.
F-28
<PAGE> 123
NOTE 17--SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
OPERATING AND CASH FLOW DATA
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------------
JUNE 30, 1995 JUNE 30, 1996
------------------------------------------ -----------------------------------------
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.......... $ 26,787,013 $ -- $26,787,013 $40,016,114 $ -- $40,016,114
Cost of sales......... 17,120,791 -- 17,120,791 24,516,348 -- 24,516,348
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
------------ ----------- ----------- ----------- ----------- -----------
Operating income
(loss)............ (1,304,960) 19,535 (1,154,575) (1,628,195) (193,306) (770,945)
Interest expense,
net................. (216,486) -- (216,486) (793,648) (910) (794,558)
Other income.......... 219,922 -- 89,072 1,106,632 561 56,637
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before
taxes............. (1,301,524) 19,535 (1,281,989) (1,315,211) (193,655) (1,508,866)
Income tax expense
(benefit)........... -- -- -- (103,394) -- (103,394)
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss)..... $ (1,301,524) $ 19,535 $(1,281,989) $(1,211,817) $ (193,655) $(1,405,472)
============ =========== =========== =========== =========== ===========
Cash Flows
Cash provided (used)
by operations....... $ 1,537,042 $ 405,637 $ 1,942,679 $(1,158,506) $ 1,973,319 $ 814,813
Cash provided (used)
by financing
activities.......... (8,797,854) 9,641,949 844,095 1,075,430 (32,136) 1,043,294
Cash provided (used)
by investing
activities.......... 6,378,736 (10,038,390) (3,659,654) 1,753,411 (1,898,905) (145,494)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease)
in cash........... (882,076) 9,196 (872,880) 1,670,335 42,278 1,712,613
Cash at beginning of
period.............. 1,075,026 -- 1,075,026 192,951 9,195 202,146
------------ ----------- ----------- ----------- ----------- -----------
Cash at end of
period.............. $ 192,950 $ 9,196 $ 202,146 $ 1,863,286 $ 51,473 $ 1,914,759
============ =========== =========== =========== =========== ===========
<CAPTION>
YEAR ENDED
--------------------------------------
JUNE 30, 1997
---------------------------------------
GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------
<S> <C> <C> <C>
Net revenues..........$66,857,751 $ 959,709 $67,817,460
Cost of sales......... 40,327,908 298,226 40,626,134
Other operating
income.............. -- 2,017,728 1,014,888
Operating expenses.... 24,943,748 2,992,111 25,882,463
----------- ----------- -----------
Operating income
(loss)............ 1,586,095 (312,900) 2,323,751
Interest expense,
net................. (929,568) (149,961) (1,079,529)
Other income.......... 1,282,380 -- 231,824
----------- ----------- -----------
Income (loss) before
taxes............. 1,938,907 (462,861) 1,476,046
Income tax expense
(benefit)........... (100,000) 20,000 (80,000)
----------- ----------- -----------
Net income (loss).....$ 2,038,907 $ (482,861) $ 1,556,046
=========== =========== ===========
Cash Flows
Cash provided (used)
by operations.......$ 2,926,057 $ 3,319,324 $ 6,245,381
Cash provided (used)
by financing
activities.......... (2,547,230) 4,966,516 1,669,186
Cash provided (used)
by investing
activities.......... 2,514,970 (8,016,755) (4,751,685)
----------- ----------- -----------
Increase (decrease)
in cash........... 2,893,797 269,085 3,162,882
Cash at beginning of
period.............. 1,863,286 51,473 1,914,759
----------- ----------- -----------
Cash at end of
period..............$ 4,757,083 $ 320,558 $ 5,077,641
=========== =========== ===========
</TABLE>
Note: Intercompany balances have been eliminated in the consolidated totals.
F-29
<PAGE> 124
NOTE 17-SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
OPERATING AND CASH FLOW DATA
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
September 30, 1996 September 30, 1997
------------------------------------------- -------------------------------------------
Guarantor Guarantor
Results of Operations Parent Subsidiaries Consolidated Parent Subsidiaries Consolidated
- ---------------------- ------ ------------ ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $13,741,493 $ -- $13,741,493 $19,511,825 $1,446,210 $20,958,035
Cost of sales 8,474,787 -- 8,474,787 11,568,987 778,611 12,347,598
Other operating income -- 641,339 226,834 -- 527,196 270,888
Operating expenses 5,275,413 592,250 5,190,519 7,580,837 1,177,430 8,226,553
----------- --------- ----------- ----------- ---------- -----------
Operating income (8,707) 49,089 303,021 362,001 17,365 654,772
Interest expense (186,754) (66) (186,820) (186,209) (97,360) (283,569)
Other income 287,931 -- 25,292 378,184 1,556 104,334
----------- --------- ----------- ----------- ---------- -----------
Income before taxes 92,470 49,023 141,493 553,976 (78,439) 475,537
Income tax expense (benefit) (20,000) (5,000) (25,000) 98,380 10,002 108,382
----------- --------- ----------- ----------- ---------- -----------
Net income $ 112,470 $ 54,023 $ 166,493 $ 455,596 $ (88,441) $ 367,155
=========== ========= =========== =========== ========== ===========
Cash Flows
Cash provided (used) by operations $ 211,570 $ 288,509 $ 500,079 $(1,159,720) $ (803,421) $(1,963,141)
Cash provided (used) by investing (47,421) (176,241) (223,662) (2,964,287) 1,389,791 (1,574,496)
Cash provided (used) in financing
activities (94,713) (113,351) (208,064) 96,173 (375,614) (279,441)
----------- --------- ----------- ----------- ---------- -----------
Increase (decrease) in cash 69,436 (1,083) 68,353 (4,027,834) 210,756 (3,817,078)
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 $ 1,932,722 $ 50,390 $ 1,983,112 $ 729,249 $ 531,314 $ 1,260,563
=========== ========= =========== =========== ========== ===========
</TABLE>
Note: Intercompany balances have been eliminated in the consolidated totals.
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<PAGE> 125
NOTE 18 - SUBSEQUENT EVENTS (UNAUDITED)
ISSUANCE OF COMMON STOCK
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 $1,332,531. The
conversion rate was $3.00 per share. 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.
PROPOSED ASSET PURCHASE
SAH Acquisition II Corporation, 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 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 WPMC to an unaffiliated entity subsequent to the
consumation of its acquisition. 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 in $52,850,000 (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 borrowing consummated subsequent to September 30, 1997.
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 __, 1998 and such approval is
expected to become a final order in February 1998 assuming no party files a
timely objection thereto.
The Company plans to use the 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.
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<PAGE> 126
<TABLE>
<S> <C>
======================================================== ===================================================
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
BY THE UNDERWRITER. 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 SHOP AT HOME, INC.
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. __% SECURED NOTES DUE 20__
</TABLE>
------------
TABLE OF CONTENTS
------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ............................ 7
Risk Factors .................................. 14 --------
Use of Proceeds ............................... 24
Capitalization ................................ 25 PROSPECTUS
Selected Historical and Pro Forma
Financial Data .............................. 26 --------
Management's Discussion and Analysis of
Financial Condition and Results of Operations 29
Business ...................................... 38
Management .................................... 55
Certain Relationships and Related Transactions 63
Security Ownership of Certain Beneficial Owners 64
Description of Notes .......................... 66
Description of Capital Stock .................. 90
Underwriting .................................. 93 FRIEDMAN, BILLINGS,
Legal Matters ................................. 93 RAMSEY & CO., INC.
Experts ....................................... 94
Additional Information ........................ 94
Index to Consolidated Financial Statements .... F-1
UNTIL ____________, 1998, ALL DEALERS EFFECTING _____________, 1998
TRANSACTIONS IN THE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================== ===================================================
</TABLE>
<PAGE> 127
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
SUBJECT TO COMPLETION, DATED JANUARY ____, 1998
PROSPECTUS
______________ SHARES
SHOP AT HOME, INC.
COMMON STOCK
----------------
All of the ____________ shares of 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 $________ in aggregate principal amount
of its ___% Secured Notes due 20__ (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 initial public offering price.
The Common Stock is quoted on The Nasdaq National Market ("Nasdaq")
under the symbol "SATH."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE ___ 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.
----------------
<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
Underwriter and other information.
(2) Before deducting expenses of the Offering estimated at $__________ payable
by the Company.
(3) The Company has granted the Underwriter an option (the "Over-allotment
Option"), exercisable within 30 days of the date hereof, to purchase up
to ________ additional shares of Common Stock for the purpose of covering
over-allotments, if any. If the Underwriter exercises such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $________________, ____________ and $_______________, respectively.
See "Underwriting."
----------------
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[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
The shares of Common Stock are offered by the Underwriter, subject to
receipt and acceptance by the Underwriter, approval of certain legal matters by
counsel for the Underwriter and certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify such offers and to reject
orders in whole or in part. It is expected that delivery of the shares of Common
Stock will be made against payment therefore in New York, New York or in
book-entry form through the facilities of the Depositary Trust Company on or
about __________, 1998.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is ________________, 1998
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<PAGE> 129
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
[Graphic depicting baseball signed by Joe Dimaggio, a gemstone, a video
camcorder and two-on air personalities, overlaying a table with a
cup of coffee and folded Wall Street Journal.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER 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.
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<PAGE> 130
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered
hereby....................... shares
-----------------
Common Stock to be
outstanding after the
Common Stock Offering.......... 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
acquire equipment necessary to upgrade and
improve the broadcast television stations
acquired through the Acquisition, (iii) to
purchase equipment for the Company's new
main offices and studios in Nashville,
Tennessee, (iv) to repay indebtedness of the
Company, and (v) as working capital of the
Company, which may be used to acquire
additional television stations that may be
available in the future. See "Use of
Proceeds."
NASDAQ symbol.................. "SATH"
</TABLE>
- -------------------
(1) Does not include ______ shares of Common Stock reserved for issuance
pursuant to options issued under the Company's ____ Stock Option Plan.
Upon consummation of the Offerings, options to purchase a total of ______
shares of Common Stock will be outstanding under the ____ Stock Option
Plan.
(2) If the Over-allotment Option is exercised, _________ shares of Common
Stock will be sold in the Common Stock Offering and _______ shares of
Common Stock will be outstanding after the Common Stock Offering.
CONCURRENT OFFERING
Concurrently with the Common Stock Offering, the Company is offering
$___________ in aggregate principal amount of its __% Secured Notes due 20__ 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
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.
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<PAGE> 131
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
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 DEBT
Following the Offerings, the Company will have a significant level of
debt. 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 would have been approximately
$____ million. Subject to the restrictions on Indebtedness contained in the
Indenture, the Company may incur additional debt from time to time to finance
acquisitions, 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
will be dedicated to the payment of the principal and interest on its debt 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 debt obligations, 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 any credit arrangements. 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 increased working capital requirements. 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
the Funded Indebtedness, 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, or to fund capital expenditures 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
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<PAGE> 132
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 television broadcast
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 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
In connection with the offering of the Notes and the Acquisition, the
Company is incurring a substantial debt service obligation. In the event that
the increased revenues and profits associated with increased television
broadcast carriage of the Company's programming do not exceed the additional
costs and expenses associated with the Acquisition 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."
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 the expense of the relocation, including the
costs of equipping the facilities, will be approximately $___ 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 new facility, the possible
transition of telephone call center operations to the new facility, the possible
loss of personnel and lost productivity due to management resources devoted to
the relocation. See "BUSINESS OF THE COMPANY--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, 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 OF THE COMPANY--Business Strategy."
RISKS RELATED TO THE ACQUISITION OF WOAC
Consummation of the acquisition of WOAC is subject to a number of
conditions, certain of which are beyond the Company's control. These conditions
include prior approval of the FCC of the assignments of the broadcast television
license and satisfaction of various closing conditions in the Executory
Contract. There can be no assurance that the acquisitions under the Executory
Contract will be consummated. In the event the acquisition under the Executory
Contract for WOAC is not consummated, the Company intends to reduce
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<PAGE> 133
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
Funded Indebtedness and fund possible future acquisitions. See "BUSINESS OF THE
COMPANY--Recent Developments--Acquisition."
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 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 intends capital expenditures of approximately
$4.0 million for the acquisition and installation of new equipment, but there
can be no assurance that the actual expenditures will not exceed such amount.
See "BUSINESS OF THE COMPANY--Recent Developments--Global Acquisition."
CONTROL BY PRINCIPAL SHAREHOLDER
J.D. Clinton owns, directly and indirectly, 3,227,700 shares of the
Common Stock representing approximately 27.5% 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 7,500,000 shares), Mr. Clinton would own,
directly or indirectly, 5,429,700 shares of the Common Stock representing
approximately 25.3% of the shares of Common Stock of the Company. Mr. Clinton's
ownership is substantially greater than 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. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS."
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. Certain
agreements provide the right 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 on 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 OF THE COMPANY--Affiliations."
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<PAGE> 134
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
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 one or more key employees of the Company terminate their
employment, the Company's operations could be adversely effected. 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 and 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."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company
and its subsidiaries (the "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, encumber substantially all of the assets of the
Company.
The loan agreements relating to Funded Indebtedness may contain
extensive and 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 tests. In addition, the Company's operating and financial flexibility will
be limited by covenants that limit 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 which may be in the interests of the Company. The terms of the Funded
Indebtedness may prohibit the Company from prepaying other indebtedness
(including the Notes) before Funded Indebtedness. A breach of any of these
covenants could result in a default under the Funded Indebtedness. Upon the
occurrence of an event of default under the Funded Indebtedness, the lenders
thereunder could elect to declare all amounts outstanding under the Funded
Indebtedness, 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 Funded Indebtedness 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
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<PAGE> 135
[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
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
The ability of the Company to make payments of interest and principal
on the Notes 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
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, 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 will be entitled,
under certain circumstances, to declare the Notes immediately due and payable,
which would have a material adverse effect on the 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 COLLATERAL
The Notes will be secured by a lien on all of the issued and
outstanding capital stock and assets of the Subsidiaries which shall be pledged
to the Trustee, for the benefit of the Note holders. Three of the Subsidiaries
hold the FCC licenses for the broadcast television stations operated in
connection with the business of the Company, including the stations to be
acquired in the Acquisition. The capital stock and assets of the Other
Subsidiaries may also be subject to a lien of the Funded Indebtedness. In the
event of a default under the Notes or the Funded Indebtedness, the Trustee or
the holder(s) of Funded Indebtedness may enforce the lien against the capital
stock or assets of the Subsidiaries. In the event of such enforcement, one or
more of the Subsidiaries could be sold and the proceeds applied to payment of
the Notes or the Funded Indebtedness, as the case may be. 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--Collateral
DEPENDENCE ON ECONOMIC FACTORS
Because the Company derives substantially all of its revenue 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 be adversely affected by
local and or regional economic downturns. Such economic downturns could have an
adverse impact on the Company's financial condition and results of operations.
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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 OF THE
COMPANY--Product Assortment."
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 programming is transmitted via Telstar 402R, a
preemptible satellite transponder, under a Services Agreement with B&P The
SpaceConnection, Inc., which agreement expires in December 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 been offered the right to
extend the Services Agreement for two years after 1998 and intends to exercise
that right. The availability of replacement transponder time or satellite
capacity is dependent on a number of factors over which the Company has no
control. An interruption or termination of transponder service could have a
material adverse effect on the Company. See "BUSINESS OF THE COMPANY--Broadcast
Operations."
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 catalog 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 OF THE COMPANY--Competition."
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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 towards fractionalization will likely continue,
providing 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 expense 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, though 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
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[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
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 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
have excluded particular communities from an ADI. The Company is unable to
predict the impact of any 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 "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
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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.
See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following consummation of the Offerings, there will be
outstanding _______ shares of Common Stock (_______ shares if the Underwriter's
over-allotment option is exercised in full). The ________ shares of Common Stock
offered hereby (plus an additional _________ shares if the Underwriter's
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
_________________ 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 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 are registered under the Act or sold
in accordance with Rule 144 promulgated under the Act. The Company, its
directors, executive officers and certain other stockholders who, immediately
following the Offerings, will hold ________ shares have agreed not to offer,
sell or otherwise dispose of any such shares of Common Stock for a period of six
months after the closing of the Offerings without the prior written consent of
the Underwriter. At the expiration of such lock-up period, there will be
________ shares of Common Stock that will be "restricted securities" held by
"affiliates" and eligible for resale subject to Rule 144. 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.
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 "CAPITAL STOCK--Market Information."
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
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foreseeable future. In addition, the Indenture contains significant restrictions
on the Company's ability to declare and pay dividends.
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[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
DILUTION
As of September 30, 1997, the net tangible book deficit of the Company
was $(.83) million in the aggregate, or $(.07)per share of Common Stock. "Net
tangible book deficit 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 $4 per share,
net of Underwriter's discount and estimated offering expenses aggregating
$2,600,000, the net pro forma tangible book value of the Common Stock as of
September 30, 1997 would have been $26.6 million in the aggregate, or $1.43 per
share. This represents an immediate increase in net tangible book value of $1.50
per share of Common stock to existing stockholders as a result of the Common
Stock Offering and an immediate dilution of $2.57 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 September 30, 1997.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed offering price per share ............................ $4.00
-----
Net tangible deficit per share before the Common Stock
Offering(1) ................................................. (.07)
----
Increase per share attributable to the Common Stock
Offering .................................................. 1.50
----
Net tangible book value per share as adjusted to reflect the
Common Stock Offering(1)..................................... 1.43
-----
Dilution per share to new shareholders ...................... $2.57
=====
</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 Note Offering. Giving effect
thereto, net tangible book deficit per share before the Common Stock
Offering and net tangible book value per share as adjusted to reflect the
Common Stock Offering would have been $(.38) and $1.25, respectively.
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[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Common Stock Offering, the Company will have
___________ shares of Common Stock outstanding (_____________ shares if the
Underwriter's over-allotment option is exercised in full). Of those shares, the
______________ shares sold in the Common Stock Offering (____________ shares if
the Underwriter's 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 _________________ 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 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 are registered under the Act or sold in accordance with Rule 144
promulgated under the Act.
In general, under Rule 144 a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned his shares for
one year, 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 ___________ shares immediately
after the Common Stock Offering, ___________ 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.
A maximum of ______ shares of Common Stock may also be issued upon
exercise of employee stock options that will be outstanding immediately
following the Offerings. Except for the issuance of such shares as have been
registered by the Company, such shares will constitute "restricted securities"
under the Securities Act. In addition, persons deemed "affiliates" of the
Company will be required to comply with the terms and conditions of Rule 144
under the Securities Act when selling such shares.
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.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement") between the Company and the
Underwriter, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase, the ______ shares of Common Stock being
offered.
The Underwriting Agreement provides that, subject to the terms and
conditions set forth therein, the Underwriter is obligated to purchase all of
the shares of Common Stock if any are purchased.
The Underwriter has advised the Company that the it proposes 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 Underwriter 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 Underwriter, 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 ___________
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 Underwriter may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriter exercises this
option, the Underwriters will have a firm commitment, subject to certain
conditions, to purchase such additional shares. If purchased, the Underwriter
will offer such additional shares on the same terms as those on which all shares
are being offered in the Common Stock Offering.
The Company, its directors, executive officers and certain other
stockholders who, immediately following the Offering, will hold ________ shares
have agreed not to offer, sell or otherwise dispose of any such shares of Common
Stock for a period of one year after the closing of the Offering without the
prior written consent of the Underwriter. See "Shares Eligible for Future Sale."
The Underwriter does not intend to confirm sales to any accounts over
which it exercises discretionary authority.
The Underwriter 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. 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 $__________. In connection with
the resolution of the Bankruptcy Proceeding, the Underwriter and the bridge
lenders may be paid in whole or in part on their claims against Global.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the federal securities laws, or to
contribute to payments that the Underwriter may be required to make in respect
thereof.
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<TABLE>
<S> <C>
======================================================== =====================================================
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
UNDERWRITER. 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 ______________ SHARES
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 SHOP AT HOME, INC.
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. COMMON STOCK
</TABLE>
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ............................ 1
Risk Factors .................................. 5 --------
Use of Proceeds ............................... 24
Capitalization ................................ 25 PROSPECTUS
Selected Historical and Pro Forma
Financial Data .............................. 26 --------
Management's Discussion and Analysis of
Financial Condition and Results of Operations 29
Business ...................................... 38
Management .................................... 55
Certain Relationships and Related Transactions 63
Security Ownership of Certain Beneficial Owners 64
Description of Notes .......................... 66
Description of Capital Stock .................. 90
Sales Eligible for Future Sale ................ 16 FRIEDMAN, BILLINGS,
Underwriting .................................. 17 RAMSEY & CO., INC.
Legal Matters ................................. 93
Experts ....................................... 94
Additional Information ........................ 94
Index to Consolidated Financial Statements .... F-1
_____________, 1998
UNTIL ____________, 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================== =====================================================
</TABLE>
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Securities and Exchange Commission registration fee .................... $28,636
Printing expenses ...................................................... *
Accounting fees and expenses ........................................... *
Legal fees and expenses ................................................ *
Fees and expenses (including legal fees) for qualifications under state *
securities laws ..................................................... *
NASD Filing ............................................................ *
Transfer agent's fees and expenses ..................................... *
Indenture Trustee fees ................................................. *
Miscellaneous .......................................................... *
------
Total ............................................................. $
======
</TABLE>
* To be filed by amendment.
All amounts except the Securities and Exchange Commission registration
fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 48-18-502 of the Tennessee Business Corporation Act (the
"TBCA") provides that a Tennessee corporation may indemnify an individual made a
party to a proceeding, because the individual is or was a director, against
liability incurred in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative if the
individual's conduct was in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no cause to believe his
or her conduct was unlawful. This indemnity extends to an individual who, while
a director of a corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, employee or agent of another corporation or
enterprise. This indemnity extends to any liability for expenses, judgments,
fines and amounts paid in settlement in connection with such action, suit or
proceeding.
A corporation may not indemnify a director: (a) in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation; or (b) in connection with any other
proceeding charging improper personal benefit to him, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him.
Section 48-18-503 of the TBCA further provides that, unless limited by
its charter, a corporation shall indemnify a director who has been successful in
the defense of any action, suit or proceeding, against expenses actually and
reasonably incurred by him or her in connection therewith.
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Section 48-18-507 of the TBCA provides that, unless its charter
provides otherwise, an officer of a corporation who is not a director is
entitled to mandatory indemnification under Section 48-18-503 to the same extent
as a director, and a corporation may indemnify an officer, employee, or agent of
a corporation who is not a director to the same extent as a director.
Section 48-18-508 of the TBCA provide that a corporation may purchase
and maintain insurance or behalf of such individuals against liability asserted
against such persons or incurred by such persons in their capacity as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under the statutes.
Section 6.6 of the Registrant's Bylaws require the Registrant to
indemnify its officers, directors, employees or agents to the maximum extent
permitted by the TBCA. The section also provides that the Registrant may
purchase and maintain insurance as permitted in Section 48-18-508 of the TBCA.
The Registrant is presently negotiating a policy of directors' and
officers' liability insurance in the amount of no less than $3.0 million.
Pursuant to the Underwriting Agreement to be filed as Exhibit 1.1 to
this Registration Statement, the Underwriters have agreed to indemnify the
directors, officers and controlling persons of the Registrant against certain
civil liabilities that may be incurred in connection with the Offering,
including certain liabilities under the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Company has issued the following
unregistered securities:
(a) On August 16, 1995, the Company issued 100,000 shares of Common
Stock to Mortgage Funding Corporation, as the assignee of Global Network
Television, Inc., in consideration for a loan to the Company from Global Network
Television, Inc., in the principal amount of $2,000,000. Exemption from
registration for this issuance was claimed on the grounds that the issuance of
such securities did not involve a public offering within the meaning of Section
4(2) of the Securities Act of 1933, as amended.
(b) On September 25, 1995, the Company issued 26,000 shares of Common
Stock to Valerie May upon the exercise by Ms. May of an option granted to her by
the Company pursuant to its Employee Stock Option Plan. A total cash purchase
price of $27,440 was paid for these shares, made up of the purchase of 25,000
shares at $1.00 per share and 1,000 shares at $2.44 per share. Exemption from
registration for this issuance was claimed on the grounds that the issuance of
such securities did not involve a public offering within the meaning of Section
4(2) of the Securities Act of 1933, as amended.
(c) On May 1, 1996, the Company issued 100,000 shares of Common Stock
to Kent E. Lillie upon the exercise by Mr. Lillie of an option granted to him by
the Company to acquire such shares, which option was granted in connection with
Mr. Lillie's employment as President and Chief Executive Officer of the Company.
The purchase price of $100,000 for such shares ($1.00 per share) was paid in
cash. Exemption from registration for this issuance was claimed on the grounds
that the issuance of such securities did not involve a public offering within
the meaning of Section 4(2) of the Securities Act of 1933, as amended.
(d) Between March, 1996 and July 1996, the Company issued a total of
222,334 shares of Common Stock to Richard Howard, Inc. This issuance was made in
connection with the execution of an amended agreement with Richard Howard, Inc.,
relative to the purchase by the Company of certain sports cards from
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Richard Howard, Inc. Of these shares, 44,000 shares were issued in March 1996,
as partial consideration for the execution of an agreement to sell the cards to
the Company and for the dismissal of certain litigation filed by Richard Howard,
Inc., against the Company. The remaining 178,334 shares were issued as partial
payment for the purchase of the sports cards with each share of Common Stock
being issued as a $3.00 payment for such purchase. Exemption from registration
for this issuance was claimed on the grounds that the issuance of such
securities did not involve a public offering within the meaning of Section 4(2)
of the Securities Act of 1933, as amended.
(e) On January 17, 1997, the Company issued 100,000 shares of Common
Stock to MediaOne, Inc., upon the exercise by that corporation of a warrant
issued by the Company in 1993. A total cash purchase price of $100,000 was paid
for these shares ($1.00 per share). Exemption from registration for this
issuance was claimed on the grounds that the issuance of such securities did not
involve a public offering within the meaning of Section 4(2) of the Securities
Act of 1933, as amended.
(f) On October 1, 1997, the Company issued 444,177 shares of its Common
Stock to FBR Private Equity Fund, L.P., upon the exercise by FBR of its right to
convert a promissory note of the Company to Common Stock at the rate of one
share of Common Stock for each $3.00 of principal on the note. Exemption from
registration for this issuance was claimed on the grounds that the issuance of
such securities did not involve a public offering within the meaning of Section
4(2) of the Securities Act of 1933, as amended.
(g) On November 11, 1997, the Company issued 200,000 shares of Common
Stock to Global Network Television, Inc., upon the exercise by that corporation
of a warrant issued by the Company in 1993. A total cash purchase price of
$227,000 was paid for these shares ($1.135 per share). Exemption from
registration for this issuance was claimed on the grounds that the issuance of
such securities did not involve a public offering within the meaning of Section
4(2) of the Securities Act of 1933, as amended.
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 II-4
Schedule II Valuation and Qualifying Accounts Page II-5
</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-3
<PAGE> 148
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 for each of the three
years ended June 30, 1997 dated August 14, 1997, except as to Note 17 which is
as of January 8, 1998, 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-3 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.
August 14, 1997
II-4
<PAGE> 149
SCHEDULE II
-----------
SHOP AT HOME, INC. AND SUBSIDIARIES
-----------------------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
--------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING RETURNS AND AT END
OF PERIOD ALLOWANCES DEDUCTIONS (1) OF PERIOD
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1995
Estimated credits
due to customers $ 471,878 $ 4,863,486 $ 4,717,460 $ 617,904
========== =========== =========== ==========
Year ended June 30, 1996
Estimated credits
due to customers $ 617,904 $10,147,556 $ 9,665,340 $1,100,120
========== =========== =========== ==========
Year ended June 30, 1997
Estimated credits
due to customers $1,100,120 $19,503,181 $17,481,798 $3,121,503
========== =========== =========== ==========
Three months ended
September 30, 1997
Estimated credits
due to customers
(unaudited) $3,121,503 5,344,093 6,296,717 2,168,879
========== =========== =========== ==========
</TABLE>
(1) Merchandise returned
II-5
<PAGE> 150
ITEM 17. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-6
<PAGE> 151
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 January 9, 1998.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
-------------------------------------
Kent E. Lillie,
President and Chief Executive Officer
Director
II-7
<PAGE> 152
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kent E. Lillie and George J. Phillips and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agents or any
of them or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ J. D. Clinton
- ------------------------------- Chairman of the Board January 9, 1998
J. D. Clinton
/s/ Paul Cowell
- ------------------------------- Director January 9, 1998
Paul Cowell
/s/ A.E. Jolley
- ------------------------------- Director January 9, 1998
A.E. Jolley
/s/ Joseph I. Overholt
- ------------------------------- Director January 9, 1998
Joseph I. Overholt
/s/ Frank A. Woods
- ------------------------------- Director January 9, 1998
Frank A. Woods
/s/ Kent E. Lillie President and Chief Executive January 13, 1998
- ------------------------------- Officer (principal executive
Kent E. Lillie officer)
/s/ James Bauchiero Executive Vice President January 13, 1998
- ------------------------------- and Chief Financial Officer
James Bauchiero (principal financial officer)
/s/ Joseph Nawy Vice President - Finance January 13, 1998
- ------------------------------- (principal accounting officer)
Joseph Nawy
</TABLE>
II-8
<PAGE> 153
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ --------------------------------------------------------------------------------- ------------
<S> <C> <C>
1** Underwriting Agreement dated _______, 199__ between Friedman, Billings, Ramsey
& Co., Inc., and the Company.
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, filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K filed with the Commission for the fiscal year ended June 30, 1993, and
incorporated herein by this reference.
4.1 Form of Trust Indenture dated February 23, 1995, filed as Exhibit 4.5 to the
Company's Current Report on Form 8-K filed with the Commission on
March 2, 1995, and incorporated herein by this reference.
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.
</TABLE>
II-9
<PAGE> 154
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ --------------------------------------------------------------------------------- ------------
<S> <C> <C>
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 dated as of ____________, 1998, with _______________,
as Trustee with regard to the ___% Secured Notes Due 20____, containing
specimen of the Note.
4.7** Form of Stock Pledge Agreement dated as of __________, 1998.
5** Opinion regarding legality of the Common Stock and ___% Secured
Notes Due 20___ being registered, issued by 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>
II-10
<PAGE> 155
<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>
II-11
<PAGE> 156
<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.
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.
</TABLE>
II-12
<PAGE> 157
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ --------------------------------------------------------------------------------- ------------
<S> <C> <C>
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.
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.
</TABLE>
II-13
<PAGE> 158
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ --------------------------------------------------------------------------------- ------------
<S> <C> <C>
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.
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.
</TABLE>
II-14
<PAGE> 159
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ --------------------------------------------------------------------------------- ------------
<S> <C> <C>
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.
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.
</TABLE>
II-15
<PAGE> 160
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ --------------------------------------------------------------------------------- ------------
<S> <C> <C>
10.50* Form of options issued to directors dated June 19, 1997.
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
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.
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
** To be filed by amendment.
II-16
<PAGE> 1
EXHIBIT 4.6
================================================================================
--------------
---------------------------------------------------------
SHOP AT HOME, INC.
__% SECURED NOTES DUE 20__
--------------
INDENTURE
Dated as of __________, 1998
--------------
--------------
[NAME OF TRUSTEE]
--------------
Trustee
================================================================================
<PAGE> 2
INDENTURE dated as of ___________, 1998 among Shop at Home, Inc., a
Tennessee corporation (the "Company"), the corporations listed on Schedule I
hereto (each a "Guarantor" and collectively, the "Guarantors") and
________________________, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the __%
Secured Notes due 20__ (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Indebtedness" means, with respect to any specified
Person: (i) Indebtedness of any other Person existing at the time such other
Person merged with or into or became a Subsidiary of such specified Person that
was not incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that, beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, lease, conveyance of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by the provisions of this Indenture described in
Section 4.15 and/or the provisions described in Sections 5.01 and 5.02 and shall
not be deemed to be "Asset Sales," and (ii) the issue or sale by the Company or
any of its Subsidiaries of Equity Interest of any of the Company's Subsidiaries,
in the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$_______ or (b) for net proceeds in excess of $_______. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary
or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to
the
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Company or to another Wholly Owned Subsidiary, and (iii) Restricted Payments
that are permitted by Section 4.07 will not be deemed to be "Asset Sales."
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, 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 including 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).
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person, or any authorized committee of such Board of
Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interest, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than 12 months from the date of acquisition, (iii) U.S. dollar or
Canadian dollar denominated (or foreign currency fully hedged) time deposits,
certificates of deposit, Eurodollar time deposits or Eurodollar certificates of
deposit of (a) any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million or (b) any bank whose short term
commercial paper rating from Standard & Poor's Ratings Corp. ("Standard &
Poor's) is at least A-1 or the equivalent thereof or from Moody's Investor's
Service, Inc. ("Moody's") is at least P-1 or the equivalent thereof (any such
bank being an "Approved Lender"), in each case the maturities of not more than
12 months from the date of acquisition; and (iv) commercial paper issued by any
approved Lender (or by the parent company thereof) or any variable rate notes
issued by, or guaranteed by, any domestic corporation rated A-2 (or the
equivalent thereof) or better by Standard & Poor's or P-2 (or the equivalent
thereof) or better by Moody's and maturing within 12 months of the date of
acquisition.
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"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any "person" (as such terms is used in Section
13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act), directly or indirectly, of more than 50% of the Voting Stock of the
Company or (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Company" means Shop at Home, Inc., a Tennessee corporation.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable
Indebtedness, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period to the extent that
such depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income minus (v) non-cash items of such Person
and its Subsidiaries increasing Consolidated Net Income for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash charges of, a
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in same proportion) that
the Net Income of such Subsidiary was included in calculating the Consolidated
Net Income of such Person and only if a corresponding amount would be permitted
at the date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees,
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<PAGE> 5
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its shareholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Subsidiary thereof shall
be excluded, (ii) the Net Income of any Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its shareholders, shall be excluded,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common shareholders
of such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of this Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the affirmative vote of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 12.02 hereof or such other address
as to which the Trustee may give notice to the Company.
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<PAGE> 6
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestor or similar official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of the
Notes attached hereto as Exhibit A, that do not include the information called
for by footnotes 1 and 3 thereof.
"Depository" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depository with respect to the Notes, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and
its Subsidiaries in existence on the date of this Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fixed Charges" means, with respect to any Person for any
period, the sum of (i) the consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations imputed
interest with respect to Attributable Indebtedness, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Subsidiary) on any series of preferred stock of
such Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
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<PAGE> 7
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.
"Funded Indebtedness" means any Indebtedness of the Company
for borrowed money (but not including the Notes).
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Indenture.
"Global Note" means a Note that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 3
to the form of the Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
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<PAGE> 8
"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 (i) each of the Company's Subsidiaries which
becomes a guarantor of the Notes pursuant to Article Eleven and (ii) each of the
Company's Subsidiaries executing a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of this Indenture; provided that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Subsidiary Guarantee is released in accordance
with the terms hereof.
"Guarantor Indebtedness" means, with respect to any Guarantor,
(i) the guarantee of such Guarantor of the Company's Obligations under the
Funded Indebtedness and (ii) any other Indebtedness permitted to be incurred by
such Guarantor under the terms of this Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Guarantee of such Guarantor.
Notwithstanding anything to the contrary in the foregoing, Guarantor
Indebtedness will not include (u) any Indebtedness of such Guarantor
representing a guarantee of Indebtedness of the Company or any other Guarantor
which is subordinate or junior to, or pari passu with, the Notes or the
Subsidiary Guarantee of such other Guarantor, as the case may be, (v) any
Indebtedness that is expressly subordinate or junior in right of payment to any
other Indebtedness of such Guarantor, (w) any liability for federal, state,
local or other taxes owed or owing by such Guarantor, (x) any Indebtedness of
such Guarantor to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) that portion of any Indebtedness that is incurred in violation
of this Indenture.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates, the value of foreign currencies and the value of commodities
purchased by the Company or any of its Subsidiaries in the ordinary course of
business.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed
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<PAGE> 9
by such Person) and, to the extent not otherwise included, the guarantee by such
Person of any indebtedness of any other Person.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Independent" means, with respect to the Company and its
Subsidiaries, any person who (i) is in fact independent, (ii) does not have any
direct financial interest or any material indirect financial interest in the
Company or any of its Subsidiaries, or in any Affiliate of the Company or any of
its Subsidiaries (other than as a result of holding securities of the Company)
and (iii) is not an officer, employee, promoter, underwriter, trustee, partner
or person performing similar functions for the Company or any of its
Subsidiaries.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP; provided that an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
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<PAGE> 10
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Note Custodian" means the Trustee, as custodian with respect
to the Notes in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the Offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company or the
Trustee.
"Other Subsidiaries" means any Subsidiary of the Company other
than SAH Acquisition II.
"Permitted Investments" means (i) any Investment in the
Company or in a Wholly Owned Subsidiary of the Company; (b) any Investment in
Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the
Company in a Person, if as a result of such Investment (i) such Person becomes a
Wholly Owned Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to,
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<PAGE> 11
or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company,
and (d) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10.
"Permitted Liens" means (i) (x) Liens on the capital stock and
assets of the Other Subsidiaries securing Funded Indebtedness and (y) Liens on
assets of a Guarantor securing Guarantor Indebtedness of such Guarantor;
provided that such Indebtedness was permitted by the terms of this Indenture to
be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any 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; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
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; and (vi) Liens existing on the date of this
Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its 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 Subsidiaries; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and 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 Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Pledged Stock" means all of the issued and outstanding
capital stock of the Subsidiaries.
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<PAGE> 12
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Representative" means the indenture trustee or other trustee,
agent or representative for any Funded Indebtedness.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"SAH Acquisition II" means SAH Acquisition II, a Tennessee
corporation.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any payment of
interest on or principal of any Indebtedness, the date on which such payment was
scheduled to be made in the documentation governing such Indebtedness, without
regard to the occurrence of any subsequent event or contingency.
"Stock Pledge Agreement" means the Stock Pledge Agreement,
dated as of ___________, 1997, by and among the Company and the other parties
named on the signature pages thereof, pursuant to which the Capital Stock of the
Subsidiaries shall be pledged to secure the Notes, as such agreement may be
amended, modified or supplemented from time to time.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
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<PAGE> 13
"Subsidiary Guarantee" means, individually and collectively,
the guarantees given by the Guarantors pursuant to Article 11 hereof, including
a notation in the Securities substantially in the form included in Exhibit A.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Voting Stock" means, with respect to any Person as of any
date, the Capital Stock of such Person that is at the time entitled to vote in
the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
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<PAGE> 14
SECTION 1.02 OTHER DEFINITIONS
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Affiliate Transaction"........................................ 4.11
"Asset Sale"................................................... 4.10
"Asset Sale Offer"............................................. 3.09
"Change of Control Offer"...................................... 4.15
"Change of Control Payment".................................... 4.15
"Change of Control Payment Date"............................... 4.15
"Covenant Defeasance".......................................... 8.03
"Event of Default"............................................. 6.01
"Excess Proceeds".............................................. 4.10
"incur"........................................................ 4.09
"Legal Defeasance" ............................................ 8.02
"Offer Amount"................................................. 3.09
"Offer Period"................................................. 3.09
"Paying Agent"................................................. 2.03
"Purchase Date"................................................ 3.09
"Registrar".................................................... 2.03
"Restricted Payments".......................................... 4.07
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes and the Subsidiary Guaranties;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor
upon the Notes or any Guarantor.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
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<PAGE> 15
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form included in Exhibit A hereto. The Subsidiary
Guarantees shall be substantially in the form of Exhibit A, the terms of which
are incorporated in and made part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and 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.
Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and 3
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 3 thereto). Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate amount of outstanding Notes from time to time
endorsed thereon and that the aggregate amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect
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<PAGE> 16
exchanges and redemptions. Any endorsement of a Global Note to reflect the
amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depository with respect to the Global Notes.
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<PAGE> 17
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and will notify the
Trustee of any default by the Company or any Guarantor in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company or a
Guarantor, the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company and the Guarantors shall otherwise comply with TIA ss.
312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes
are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal
amount of Definitive Notes of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar duly executed by such Holder or by his
attorney, duly authorized in writing.
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<PAGE> 18
(b) Transfer of a Definitive Note for a Beneficial Interest in a
Global Note. A Definitive Note may not be exchanged for a beneficial interest in
a Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with written instructions from the Holder thereof directing the Trustee
to make, or to direct the Note Custodian to make, an endorsement on the Global
Note to reflect an increase in the aggregate principal amount of the Notes
represented by the Global Note, the Trustee shall cancel such Definitive Note in
accordance with Section 2.11 hereof and cause, or direct the Note Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depository and the Note Custodian, the aggregate principal amount of
Notes represented by the Global Note to be increased accordingly. If no Global
Notes are then outstanding, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depository, in accordance with this Indenture and the procedures of the
Depository therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a
Definitive Note.
(i) Any Person having a beneficial interest in a Global Note
may upon request exchange such beneficial interest for a
Definitive Note. Upon receipt by the Trustee of written
instructions or such other form of instructions as is
customary for the Depository, from the Depository or its
nominee on behalf of any Person having a beneficial
interest in a Global Note, the Trustee or the Note
Custodian, at the direction of the Trustee, shall, in
accordance with the standing instructions and procedures
existing between the Depository and the Note Custodian,
cause the aggregate principal amount of Global Notes to
be reduced accordingly and, following such reduction,
the Company shall execute and, upon receipt of an
authentication order in accordance with Section 2.02
hereof, the Trustee shall authenticate and deliver to
the transferee a Definitive Note in the appropriate
principal amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section
2.06(d) shall be registered in such names and in such
authorized denominations as the Depository, pursuant to
instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Notes to the Persons in whose
names such Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06),
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<PAGE> 19
a Global Note may not be transferred as a whole except by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Notes in Absence of Depository. If
at any time:
(i) the Depository for the Notes notifies the Company that
the Depository is unwilling or unable to continue as
Depository for the Global Notes and a successor
Depository for the Global Notes is not appointed by the
Company within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the issuance
of Definitive Notes under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) Legends. The Notes shall not be legended.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Definitive
Notes, redeemed, repurchased or canceled, all Global Notes shall be returned to
or retained and canceled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Definitive Notes, redeemed, repurchased or canceled, the
principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note, by the Trustee
or the Notes Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Definitive Notes and Global Notes at the Registrar's
request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company
may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or
transfer pursuant to Sections 3.07, 4.10, 4.15 and 9.05
hereto).
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<PAGE> 20
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption
in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes
or Global Notes shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Definitive
Notes or Global Notes surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required:
(A) to issue, to register the transfer of or to
exchange Notes during a period beginning at the
opening of business 15 days before the day of
any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of
business on the day of selection; or
(B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note
being redeemed in part; or
(C) to register the transfer of or to exchange a
Note between a record date and the next
succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name any
Note is registered as the absolute owner of such Note
for the purpose of receiving payment of principal of and
interest on such Notes, and neither the Trustee, any
Agent nor the Company shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Definitive Notes and
Global Notes in accordance with the provisions of
Section 2.02 hereof.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and
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<PAGE> 21
any authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Guarantor or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Trustee knows are so owned shall
be so disregarded.
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<PAGE> 22
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. 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. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
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<PAGE> 23
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
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<PAGE> 24
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price.
A notice of redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the
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<PAGE> 25
redemption date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided in
the Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Company shall not have the option to redeem the Notes pursuant
to this Section 3.07 prior to September 15, ____. Thereafter, the Company shall
have the option to redeem the Notes, in whole or in part, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption date,
if redeemed during the 12 month period beginning on March 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
____.................................................................. _____%
____.................................................................. _____%
____.................................................................. _____%
____ and thereafter................................................... _____%
</TABLE>
(b) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.15 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount
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<PAGE> 26
has been tendered, all Notes tendered in response to the Asset Sale Offer.
Payment for any Notes so purchased shall be made in the same manner as interest
payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset
Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer may only elect to have all of such Note purchased
and may not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the
address specified in the notice at least three days before the Purchase
Date;
(g) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes
to be purchased on a pro rata basis (with
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such adjustments as may be deemed appropriate by the Company so that
only Notes in denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depository or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to __% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of 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 of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; 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 Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company shall furnish to the Trustee
and to all Holders (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all reports that would be required to
be filed with the SEC on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the SEC, the Company shall file a copy of all such information with the SEC for
public availability (unless the SEC will not accept such a filing) and shall
promptly make such information available to all securities analysts and
prospective investors who request it in writing. The Company and the Guarantors
shall at all times comply with TIA ss. 314(a).
(b) The Company and the Guarantors shall furnish to all Holders and
prospective purchasers of the Notes designated by the Holders of restricted
securities, promptly upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
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SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each Guarantor (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall
not, by resort to any such law, hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Equity Interests of the Company or any
of its Subsidiaries (including, without limitation, any payment in connection
with any merger or consolidation involving the Company or any of its
Subsidiaries) or to the direct or indirect holders of the Equity Interests of
the Company or any of its Subsidiaries in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company, dividends or distributions payable to the Company or any
Subsidiary of the Company or dividends or distributions made by a Subsidiary of
the Company to all holders of its Common Stock on a pro rata basis); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company, any Subsidiary of the Company or any direct or indirect parent
of the Company, (other than any such Equity Interests owned by the Company or
any Subsidiary of the Company); (iii) make any payment on or in respect of, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is pari passu with or subordinated to the Notes, except at
Stated Maturity or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 of this Indenture; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of this Indenture (excluding Restricted Payments permitted by
clauses (v) and (w) of the next succeeding paragraph), is less than the
sum of (i)50% of the Consolidated Net Income of the Company for the
period (taken as one
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accounting period) commencing ___________, ____ to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii)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 Equity Interests of the Company
or of debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock).
The foregoing provisions will not prohibit (v) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (w) the making of any Restricted Investment, or the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Subsidiary of the Company) of other Equity Interests of
the Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such Restricted Investment,
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c) (ii) of the preceding paragraph; (x) the defeasance, redemption or
repurchase of pari passu or subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (y) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement in effect as of the date of this Indenture; provided that (A)
the aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $_______ in any 12-month period plus the
aggregate cash proceeds received by the Company during such 12-month period from
any reissuance of Equity Interests by the Company to members of management of
the Company and its Subsidiaries, and (B) no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; and (z) so
long as no Default or Event of Default shall have occurred and be continuing,
Investments in the same or similar lines of business as the Company was engaged
in on the date of this Indenture in an aggregate amount not to exceed $___
million since the date of this Indenture (measured as of the date made and
without giving effect to subsequent changes in value).
Notwithstanding the above, no dividend or distribution shall be made
on the Common Stock within the first year after the Offering.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (evidenced by a resolution of the Board of Directors or a
committee of the Board of Directors, a
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majority of which committee consists of Independent directors, set forth in an
Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.07 were computed, which calculations may be based upon the
Company's latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to
(i)(a) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or
advances to the Company or any of its Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) applicable law,
(b) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), 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, (c)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (d) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired or (e) Permitted Refinancing Indebtedness, provided that, the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Indebtedness) and
that the Company will not issue any Disqualified Stock and will not permit any
of its Subsidiaries to issue any shares of preferred stock; provided, however,
that (x) the Company may incur Indebtedness (including Acquired Indebtedness) or
issue shares of Disqualified Stock and (y) a Guarantor may incur Acquired
Indebtedness, in each case if the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least ____ to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
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Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period. The Company may
not incur Funded Indebtedness (except as provided below) unless the above Fixed
Charge Coverage Ratio is met and unless broadcast television assets are acquired
with the loan proceeds.
The foregoing provisions will not apply to:
(i) Funded Indebtedness of the Company existing on the date of this
Indenture (and guarantees thereof by the Guarantors) in an aggregate principal
amount at any time outstanding not to exceed $7.3 million less the aggregate
amount of all Net Proceeds of Asset Sales applied to permanently reduce such
Indebtedness pursuant to Section 4.10.;
(ii) the incurrence by the Company of Indebtedness represented by the
Notes and the incurrence by the Guarantors of Indebtedness represented by the
Subsidiary Guarantees;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations (whether or not incurred
pursuant to sale and leaseback transactions), mortgage financing or purchase
money obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of property,
plant or equipment used in the business of the Company or such Subsidiary, in an
aggregate principal amount not to exceed $___ million at any time outstanding;
(iv) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund, Existing
Indebtedness or Indebtedness that was permitted by this Indenture to be incurred
(other than any such Indebtedness incurred pursuant to clause (i), (ii), (iii),
(v), (vi), (vii) (viii) or (ix) of this paragraph);
(v) the incurrence by the Company or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly subordinate to
the payment in full of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be;
(vi) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk that is
permitted by the terms of this Indenture to be incurred;
(vii) the incurrence of Indebtedness of a Guarantor represented by
guarantees of Indebtedness of the Company that has been incurred in accordance
with the terms of this Indenture;
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(viii) the incurrence by the Company of Funded Indebtedness for working
capital (in addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding not to exceed $3.0 million; and
(ix) the incurrence by the Company of Funded Indebtedness for leasehold
improvements (in addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding not to exceed $3.0 million.
SECTION 4.10. ASSET SALES.
(a) The Company will not, and will not permit any of its Subsidiaries to,
consummate an Asset Sale unless (i) the Company (or the Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board of Directors or a
committee of the Board of Directors, a majority of which committee consists of
Independent directors, set forth in an Officers' Certificate delivered to the
Trustee, or by an independent appraisal by an accounting, appraisal or
investment banking firm of national standing) of the assets or Equity Interests
issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash.
(b) Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (i) to permanently
reduce Funded Indebtedness, if any, having a first priority lien on the assets
sold in the Asset Sale, (ii) to the acquisition of a controlling interest in
another business, the making of a capital expenditure or the acquisition of
other long-term assets ("Productive Assets"), in each case, in the same or a
similar line of business as the Company was engaged in on the date of this
Indenture or (iii) to reimburse the Company or its subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore property
subject to loss, damage or taking to the extent that the net proceeds consist of
insurance proceeds received on account of such loss, damage or taking. For
purposes of this Indenture the Company shall be deemed to have applied Net
Proceeds to the acquisition of Productive Assets within the 365 day time period
after receipt of Net Proceeds, if the Company shall have executed a definitive
agreement to acquire such Productive Assets within such 365 day period and if
the closing of such agreement shall occur during the 545 day time period after
receipt of Net Proceeds. Pending the final application of any such Net Proceeds,
the Company may invest such Net Proceeds in any manner that is not prohibited by
this Indenture. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this clause (b) will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 101% of the principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase, in accordance with
the procedures set forth in this Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess
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Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
(c) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Asset Sale Offer.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $500,000 the Company delivers to the Trustee a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (i) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, the Company delivers to the
Trustee an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (w) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors or the payment of fees and
indemnities to directors of the Company and its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practices of the
Company or such Subsidiary,(x) loans or advances to employees in the ordinary
course of business, (y) transactions between or among the Company and/or its
Wholly Owned Subsidiaries and (z) Restricted Payments (other than Investments)
that are permitted by the provisions of Section 4.07, in each case, shall not be
deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Notes will be secured by a first priority lien on the Pledged Stock of
SAH Acquisition II pledged to the Trustee, for the benefit of the Note holders,
pursuant to the Stock Pledge Agreement. The Notes will be secured by a second
priority lien on the Pledged Stock of the Subsidiaries pledged to the Trustee,
for the benefit of the Note holders, pursuant to the Stock Pledge Agreement. The
Notes will be secured by a first priority lien on all assets owned by SAH
Acquisition II (except FCC licenses). The Notes will be secured by a second
priority lien on all
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assets owned by the Other Subsidiaries (except FCC licenses). The second
priority liens of the Notes will be subject to the prior lien of the Funded
Indebtedness.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
SECTION 4.13. GUARANTEES OF CERTAIN INDEBTEDNESS.
The Company will not permit SAH Acquisition II to incur, guarantee or
secure through the granting of Liens the payment of any Indebtedness.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, 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,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the " Offer") at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase (the "Change of Control Payment"). Within ten
days following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required by
this Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
(b) On the Change of Control Payment Date, the Company will, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment
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in respect of all Notes or portions thereof so tendered and (3) deliver or cause
to be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
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 Payment Date.
SECTION 4.16. INTENTIONALLY LEFT BLANK.
SECTION 4.17. SALE AND LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any of its Subsidiaries to,
enter into any sale and leaseback transaction; provided that the Company may
enter into a sale and leaseback transaction if (i) the Company could have (a)
incurred Indebtedness in an amount equal to the Attributable Indebtedness
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 of this
Indenture and (b) incurred a Lien to secure such Indebtedness pursuant to
Section 4.12, (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors or a committee of the Board of Directors, a
majority of which committee consists of Independent directors, and set forth in
an Officers' Certificate delivered to the Trustee or an independent appraisal by
an accounting, appraisal or investment banking firm of national standing) of the
property that is the subject of such sale and leaseback transaction and (iii)
the transfer of assets in such sale and leaseback transaction is permitted by,
and the Company applies the proceeds of such transaction in compliance with
Section 4.10.
SECTION 4.18. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES.
The Company (i) will not, and will not permit any Wholly Owned
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Wholly Owned Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Subsidiary of the Company), unless (a)
such transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Wholly Owned Subsidiary and (b) the cash Net Proceeds from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 and (ii) will not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary of
the Company.
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ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or 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 is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made 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; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) except in the case of a merger of the
Company with or into a Wholly Owned Subsidiary of the Company, the Company or
the entity or 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 (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than 100% of the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, 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, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 of this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company, other than for purposes of
calculating Consolidated Net Income in connection with Section 4.07), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest on
the Notes;
(b) default in payment when due of the principal of or premium,
if any, on the Notes;
(c) failure by the Company to comply with the provisions
described under Sections 4.07, 4.09, 4.10, or 4.15;
(d) the Company fails to observe or perform any other covenant,
representation, warranty or other agreement in this Indenture or the
Notes for 60 days after notice to the Company by the Trustee or the
Holders of at least 25% in principal amount of the Notes then
outstanding;
(e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of this Indenture, which default
(i) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness at its final stated maturity or (ii)
results in the acceleration of such Indebtedness prior to its maturity
and, in each case, the principal amount of which Indebtedness, together
with the principal amount of any other such Indebtedness described in
clauses (a) and (b) above, aggregates $100,000 or more;
(f) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the
Company or any of its Subsidiaries and such judgment or judgments remain
undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, provided that the aggregate of all such
undischarged judgments exceeds $100,000;
(g) the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary pursuant to or within the meaning of Bankruptcy
Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
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(iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become
due;
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary in
an involuntary case;
(ii) appoints a Custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary or
for all or substantially all of the property of the Company or
any of its Significant Subsidiaries or any group of Subsidiaries
that, taken as a whole, would constitute a Significant
Subsidiary; or
(iii) orders the liquidation of the Company or any of
its Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days; or
(i) the Subsidiary Guarantee of any Guarantor is held in
judicial proceedings to be unenforceable or invalid or ceases for any
reason to be in full force and effect (other than in accordance with the
terms of this Indenture) or any Guarantor or any Person acting on behalf
of any Guarantor denies or disaffirms such Guarantor's obligations under
its Subsidiary Guarantee (other than by reason of a release of such
Guarantor from its Subsidiary Guarantee in accordance with the terms of
this Indenture.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof with respect to the Company, any
Significant Subsidiary or any group of Significant Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, if an Event of Default specified in clause (g) or
(h) of Section 6.01 hereof occurs with respect to the Company, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable
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immediately without further action or notice. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, interest
or premium that has become due solely because of the acceleration) have been
cured or waived.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
the optional redemption provisions of this Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the Notes. If an Event of Default occurs prior to
March 15, 20__, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to March 15, 20__ upon the
acceleration of the Notes an additional premium shall also become and be
immediately due and payable in an amount, for each of the years beginning on
March 15 of years set forth below, as set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998 1__.__%
1999 1__.__%
2000 1__.__%
2001 1__.__%
2002 1__.__%
</TABLE>
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture or to enforce on any collateral for the Notes pursuant
to the Stock Pledge Agreement or any other security agreement.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount
of the Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Notes waive any
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existing Default or Event of Default and its consequences under this Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes (including in connection with an offer to
purchase); provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Notes may rescind an acceleration and
its consequences, including any related payment default that resulted from such
acceleration. 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 impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of
a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
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SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium, if any, and
interest on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company or any Guarantor for the
whole amount of principal of, premium, if any, and interest remaining unpaid on
the Notes and interest on overdue principal and, to the extent lawful, interest
and 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.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and 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 the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian 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 to the Trustee any amount due to
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 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. 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, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
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SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. 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 a 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
attorneys' fees, 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 does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than __% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
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<PAGE> 45
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to
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<PAGE> 46
take in good faith in reliance on such Officers' Certificate or Opinion of
Counsel. The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or omitted by
it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or Guarantor shall be
sufficient if signed by an Officer of the Company or such Guarantor.
(f) 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 unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of
the Default or Event of Default within 90 days
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<PAGE> 47
after it occurs. Except in the case of a Default or Event of Default in payment
of principal of, premium, if any, or interest on any Note, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of the
Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA ss. 313(a) (but if no event described in
TIA ss. 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
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To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, 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 8.05 hereof 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 (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Article
2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article Eight. Subject to compliance with this Article Eight, the
Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 hereof 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 "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 (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For
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this purpose, 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 6.01 hereof,
but, except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders, cash in United States
dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, premium, if any, and interest on the outstanding
Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of
this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall 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;
(c) in the case of an election under Section 8.03 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
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;
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(d) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all or
a portion of the proceeds of which will be used to defease the Notes
pursuant to this Article Eight concurrently with such incurrence) or
insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at any
time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than this Indenture) to
which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that on the 91st day or on the day
after the last day of the applicable preference period under
Bankruptcy Law following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company; and
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof 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 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, 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 cash or non-callable
Government Securities deposited pursuant
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to Section 8.04 hereof 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 Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
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, 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 its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured 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 the New York Times and The Wall Street Journal (national
edition), 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
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, 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.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture, the
Subsidiary Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's or Guarantor's
obligations to the Holders of the Notes in the case of a merger or
consolidation in accordance with this Indenture.
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Notes; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company and the Guarantors accompanied by a
resolution of their respective Boards of Directors authorizing the execution of
any such amended or supplemental Indenture, and upon receipt by the Trustee of
the documents described in Section 7.02 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of any amended or supple mental
Indenture authorized or permitted by the terms of this Indenture and to 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 that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture (including
Section 3.09, 4.10 and 4.15 hereof), the Notes and the Subsidiary Guarantees may
be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a purchase of, or a tender offer or exchange offer,
for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the
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Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes).
Upon the request of the Company and the Guarantors accompanied by a
resolution of their respective Boards of Directors authorizing the execution of
any such amended or supplemental Indenture, and upon the filing with the Trustee
of evidence satisfactory to the Trustee of the consent of the Holders of Notes
as aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors
in the execution of such amended or supplemental Indenture unless such amended
or supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter or waive any of the provisions with respect to the
redemption of the Notes (other than with respect to Sections 3.09, 4.10
and 4.15 hereof);
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes and
a waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
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(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of premium in and/or interest on the Notes;
(g) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions;
(h) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described above under
Sections 4.10 and 4.15);
(i) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture, except in accordance with the
terms of the Indenture; or
(j) make any change in the foregoing amendment and waiver
provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Subsidiary
Guarantees or the Notes shall be set forth in a amended or supplemental
Indenture that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
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SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company and each Subsidiary Guarantor may not sign an amendment or
supplemental Indenture until the Boards of Directors approves it. In executing
any amended or supplemental indenture, the Trustee shall be entitled to receive
and (subject to Section 7.01) shall be fully protected in relying upon, an
Officer's Certificate and an Opinion of Counsel stating that the execution of
such amended or supplemental indenture is authorized or permitted by this
Indenture.
ARTICLE 10
INTENTIONALLY LEFT BLANK.
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01. SUBSIDIARY GUARANTEES.
Each of the Guarantors hereby, jointly and severally, unconditionally
guaranty 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
Guarantors will be jointly and severally obligated to pay the same immediately.
The 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 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 against the Company, protest, notice and all demands whatsoever
and covenant that this Subsidiary Guarantee will not be
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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 Guarantors, or any Custodian, Trustee,
liquidator or other similar official acting in relation to either the Company or
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 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 Guarantor further agrees that, as between the
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 6 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 6, such obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantors for the purpose of this Subsidiary
Guarantee. The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Guarantee.
Section 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form included in Exhibit A 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 Guarantor by
its President or one of its Vice Presidents and attested to by an Officer.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth
in Section 11.01, 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 Guarantors.
Section 11.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Except as set forth in Articles 4 and 5, nothing contained in
this Indenture or in any of the Notes shall prevent any consolidation or merger
of a Guarantor with or into the Company
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or shall prevent any sale or conveyance of the property of a Guarantor as an
entirety or substantially as an entirety, to the Company.
(b) Except as set forth in Articles 4 and 5, nothing contained in
this Indenture or in any of the Notes shall prevent any consolidation or merger
of a Guarantor with or into a corporation or corporations other than the Company
(whether or not affiliated with the Guarantor), or successive consolidations or
mergers in which a Guarantor or its successor or successors shall be a party or
parties, or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety, to a corporation other than the
Company (whether or not affiliated with the Guarantor) authorized to acquire and
operate the same; provided, however, that each Guarantor hereby covenants and
agrees that, upon any such consolidation, merger, sale or conveyance, the
Subsidiary Guarantee endorsed on the Notes, and the due and punctual performance
and observance of all of the covenants and conditions of this Indenture to be
performed by such Guarantor, shall be expressly assumed (in the event that the
Guarantor is not the surviving corporation in the merger), by supplemental
indenture reasonably satisfactory in form to the Trustee, executed and delivered
to the Trustee, by the corporation formed by such consolidation, or into which
the Guarantor shall have been merged, or by the corporation which shall have
acquired such property. In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in form to the
Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and
punctual performance of all of the covenants and conditions of this Indenture to
be performed by the Guarantor, such successor corporation shall succeed to and
be substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor corporation thereupon may cause to be
signed any or all of the Subsidiary Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under this Indenture
as the Subsidiary Guarantees theretofore and thereafter issued in accordance
with the terms of this Indenture as though all of such Subsidiary Guarantees had
been issued at the date of the execution hereof.
Section 11.04. RELEASES FOLLOWING SALE OF ASSETS.
Concurrently with any sale of assets (including, if applicable, all
of the capital stock of any Guarantor), any Liens in favor of the Trustee in the
assets sold thereby shall be released; provided that in the event of an Asset
Sale, the Net Proceeds from such sale or other disposition are treated in
accordance with the provisions of Section 4.10 hereof. If the assets sold in
such sale or other disposition include all or substantially all of the assets of
any Guarantor or all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition of all of the capital stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of a Guarantor)
shall be released and relieved of its obligations under its Subsidiary Guarantee
or Section 11.03, hereof, as the case may be; provided that in the event of an
Asset Sale, the Net Proceeds from such sale
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or other disposition are treated in accordance with the provisions of Section
4.10 hereof. Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the provisions of this
Indenture, including without limitation Section 4.10 hereof, the Trustee shall
execute any documents reasonably required in order to evidence the release of
any Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor
not released from its obligations under its Subsidiary Guarantee shall remain
liable for the full amount of principal of and interest on the Notes and for the
other obligations of any Guarantor under this Indenture as provided in this
Article 11.
Section 11.05. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 11, shall in such case (unless the context
shall otherwise require) be construed as extending to and including such Paying
Agent within its meaning as fully and for all intents and purposes as if such
Paying Agent were named in this Article 11, in place of the Trustee.
Section 11.06. INTENTIONALLY LEFT BLANK
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss.318(c), the imposed duties shall control.
SECTION 12.02. NOTICES.
Any notice or communication by the Company, a Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address:
If to the Company or a Guarantor:
Shop at Home, Inc.
----------------
----------------
Telecopier No.:
Attention:
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<PAGE> 61
If to the Trustee:
----------------
----------------
----------------
Telecopier No.:
Attention:
The Company, a Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Guarantors, the Trustee, the Registrar and anyone else shall have the protection
of TIA ss. 312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any Guarantor
to the Trustee to take any action under this Indenture, the Company and/or such
Guarantor, as the case may be, shall furnish to the Trustee:
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<PAGE> 62
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(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 such Person, he or she 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 satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or shareholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any Guarantor under the Notes, the Subsidiary Guarantees, this
Indenture or for 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. Such waiver may not be effective to
waive liabilities under the federal Notes laws and it is the view of the SEC
that such a waiver is against public policy.
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<PAGE> 63
SECTION 12.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY
GUARANTEES.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture, the Notes or the Subsidiary Guarantees.
SECTION 12.10. SUCCESSORS.
All agreements of the Company and the Guarantors in this Indenture,
the Subsidiary Guarantees and the Notes shall bind its successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture, the Subsidiary Guarantees 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 12.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents and Headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part of this Indenture and shall in no way modify or restrict
any of the terms or provisions hereof.
Signatures on following page
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<PAGE> 64
SIGNATURES
Dated as of ___________, 1998
SHOP AT HOME, INC.
By:
---------------------------
Name:
Title:
Attest:
- -----------------------------
SAH ACQUISITION CORPORATION II
By:
---------------------------
Name:
Title:
Attest:
- -----------------------------
MFP, INC.
By:
---------------------------
Name:
Title:
Attest:
- -----------------------------
63
<PAGE> 65
BROADCAST CABLE SATELLITE
TECHNOLOGIES, INC.
By:
-------------------------------
Name:
Title:
Attest:
- -----------------------------
URBAN BROADCASTING SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
Attest:
- -----------------------------
COLLECTORS EDGE OF TENNESSEE, INC.
By:
-------------------------------
Name:
Title:
Attest:
- -----------------------------
64
<PAGE> 66
RF SCIENTIFIC TRANSPORTABLES, INC.
By:
-------------------------------
Name:
Title:
Attest:
- -----------------------------
65
<PAGE> 67
EXHIBIT A
(Face of Note)
__% Secured Notes due 20__
No. $__________
SHOP AT HOME, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on March 15, 20__,
Interest Payment Dates: March 15, and September 15
Record Dates: March 1, and September 1
Dated: _______________
Shop at Home, Inc.
By:
------------------------------
Name:
Title:
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
- -------------------------------
as Trustee
By:
----------------------------------
(Back of Note)
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<PAGE> 68
__%Secured Notes due 20__
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.1/
Capitalized terms used herein shall have the meanings assigned to them
in this Indenture referred to below unless otherwise indicated.
1. INTEREST. Shop at Home, Inc., a _____ corporation (the "Company"),
promises to pay interest on the principal amount of this Note at __% per annum
from ___________, 1998 until maturity. The Company will pay interest
semi-annually on March 15 and September 15 of each year, or if any such day is
not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). 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 date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be March 15, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is __% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the May 1 or September 1 next preceding the Interest
Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12
- --------
1. This paragraph should be included only if the Debenture is issued in
global form.
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<PAGE> 69
of this Indenture with respect to defaulted interest. The Notes will be payable
as to principal, premium, interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available will be
required with respect to principal of and interest, and premium, if any, on all
Global Notes and all other Notes the Holders of which shall have provided wire
transfer instructions to the Company or the Paying Agent. Such payment shall be
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, ______________________, the
Trustee under this Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of ___________, 1998 ("Indenture") among the Company, the Guarantors and the
Trustee. The terms of the Notes include those stated in this Indenture and those
made part of this Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to this Indenture and such Act for a statement
of such terms. The Notes are unsecured obligations of the Company limited to
$___ million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
The Company shall not have the option to redeem the Notes prior to
September 15, ____. Thereafter, the Company shall have the option to redeem the
Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on March
15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
____............................................. _____%
____............................................. _____%
____............................................. _____%
____ and thereafter.............................. _____%
</TABLE>
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<PAGE> 70
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (in either case, the "Change of
Control Payment"). Within 10 days following any Change of Control, the Company
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by this Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5.0 million, the Company shall commence an offer to all Holders of Notes (as
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date fixed for
the closing of such offer, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company (or such
Subsidiary) may use such deficiency for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on
a pro rata basis. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
this Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by this Indenture. The Company need not exchange or register the
transfer of
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<PAGE> 71
any Note or portion of a Note selected for redemption, except for the unredeemed
portion of any Note being redeemed in part. Also, it need not exchange or
register the transfer of any Notes for a period of 15 days before a selection of
Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, this
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, this Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's, or any Guarantor's obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under this Indenture of any
such Holder, or to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act.
12. DEFAULTS AND REMEDIES. Events of Default include:
(a) default for 30 days in the payment when due of interest on the
Notes; (b) default in payment when due of the principal of or
premium, if any, on the Notes; (c) failure by the Company to comply
with the provisions described under Sections 4.07, 4.09, 4.10, or
4.15; (d) failure by the Company for 60 days after notice to comply
with any of its other agreements in this Indenture or the Notes; (e)
default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is Subsidiary Guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or
Subsidiary Guarantee now exists, or is created after the date of this
Indenture, which default (i) is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness at its final
stated maturity or (ii) results in the acceleration of such
Indebtedness prior to its maturity and, in each case, the principal
amount of which Indebtedness, together with the principal amount of
any other such Indebtedness described in clauses (a) and (b) above,
aggregates $100,000 or more; (f) failure by the Company or any of its
Subsidiaries to pay final judgments aggregating in excess of
$100,000, which judgments are not paid, discharged or stayed for a
period of 60 days; (g) certain events of bankruptcy or insolvency
with respect to the Company or any of its Subsidiaries;(h) the
Subsidiary Guarantee of any Guarantor is held in judicial proceedings
to be unenforceable or invalid or ceases for any
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<PAGE> 72
reason to be in full force and effect (other than in accordance with
the terms of the Indenture) or any Guarantor or any Person acting on
behalf of any Guarantor denies or disaffirms such Guarantor's
obligations under its Subsidiary Guarantee (other than by reason of a
release of such Guarantor from its Subsidiary Guarantee in accordance
with the terms of the Indenture). If any Event of Default (other than
an Event of Default specified in clause (g) above occurs and is
continuing, the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default specified in clause (g) of this Section
all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders
of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of
all of the Notes waive any existing Default or Event of Default and
its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of,
the Notes. The Holding Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the
Holding Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or this Indenture
or for 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 the issuance
of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. 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).
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<PAGE> 73
17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of this Indenture. Requests may be made to:
Shop at Home, Inc.
------------------
------------------
Attention: Secretary
72
<PAGE> 74
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 Satellite Technologies, Inc., Urban Broadcasting
Systems, Inc., Collectors Edge of Tennessee, Inc., RF
Scientific Transportables, Inc.
By
------------------------------------
Name:
Title:
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<PAGE> 75
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
---------------
Your Signature:
--------------------------------------
(Sign exactly as your name appears on the face of
this Note)
Signature Subsidiary Guarantee.
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<PAGE> 76
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of this Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of this Indenture, state the
amount you elect to have purchased:
$____________
Date: Your Signature:
----------------------- -----------------------------
(Sign exactly as your name appears
on the Note)
Tax Identification No.:
-----------------
Signature Subsidiary Guarantee.
75
<PAGE> 77
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE(3)
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Note authorized officer of
Principal Amount of Principal Amount of following such Trustee or Note
Date of Exchange this Global Note this Global Note decrease (or increase) Custodian
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
3. This should be included only if the Note is issued in global form.
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<PAGE> 78
================================================================================
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER
OF NOTES
Re: __% Secured Notes due 20__ of Shop at Home, Inc.
This Certificate relates to $_____ principal amount of Notes held in
* ________ book-entry or *_______ definitive form by ________________ (the
"Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depository a Note or
Notes in definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global Note (or the
portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that Transferor is familiar with this Indenture
relating to the above captioned Notes and as provided in Section 2.06 of such
Indenture, the transfer of this Note does not require registration under the
Securities Act (as defined below) because:*
[ ] Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
this Indenture).
[ ] Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) in reliance on Rule 144A (in satisfaction of Section
2.06(a)(ii)(B), Section 2.06(b)(A) or Section 2.06(d)(i) (B) of this Indenture)
or pursuant to an exemption from registration in accordance with Rule 904 under
the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of this Indenture.)
- ---------------
*Check applicable box.
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<PAGE> 79
[ ] Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of this Indenture).
[ ] Such Note is being transferred in reliance on and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to
the effect that such transfer does not require registration under the Securities
Act accompanies this Certificate (in satisfaction of Section 2.06(a)(ii)(C) or
Section 2.06(d)(i)(C) of this Indenture).
------------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
---------------------------------------
Date:
--------------------------
- -------------
*Check applicable box.
78
<PAGE> 1
Exhibit 10.45
BILL OF SALE
This Bill of Sale is made this 24th day of February, 1997 from NORWEST
CREDIT, INC. ("Seller") to COLLECTOR'S EDGE OF TENNESSEE, INC. ("Buyer").
Recitals
Seller has a valid and perfected security interest in and to the
collateral of Collector's Edge, L.P., ("Debtor") described on Exhibit A hereto
(the "Collateral") to secure indebtedness of Debtor to Seller in the outstanding
principal amount of $1,919,439.93 (the "Debtor Indebtedness"). The Debtor
Indebtedness is in default.
Pursuant to Section 9-504 of the Uniform Commercial Code, Seller has
agreed to sell the Collateral to Buyer, and Buyer has agreed to purchase the
Collateral from Seller, at a duly noticed private foreclosure sale for a
purchase price consisting of assumption by Buyer of the Debtor Indebtedness.
NOW THEREFORE, in consideration of the premises and the assumption by
Buyer of the Debtor Indebtedness pursuant to the terms of a Credit and Security
Agreement dated February 24, 1997 between Buyer and Seller, the Seller hereby
sells, assigns and transfers to Buyer all of its right, title and interest in
and to the Collateral and the right, title and interest of Debtor in the
Collateral, free and clear of all liens and encumbrances except the prior liens
of Solar Communications, Inc. and Heller Financial, Inc. in certain accounts
receivable which constitute part of the Collateral.
Except as specifically provided herein, the sale of the Collateral to
Buyer pursuant to this Bill of Sale is without representations or warranties by
Seller of any kind, whether expressed or implied, and Seller hereby expressly
disclaims any representation or warranty as to condition, merchantability or
fitness for any particular purpose.
IN WITNESS WHEREOF, the undersigned has caused this Bill of Sale to be
duly executed as of the date first above written.
NORWEST CREDIT, INC.
By: /s/ Keith Palesh
-----------------
Its: Vice President
<PAGE> 2
Acknowledgment of Debtor
The undersigned hereby acknowledges and agrees that the foregoing bill
of sale effectively transfers any and all right, title and interest of the
undersigned in and to Collateral to Buyer, that the private foreclosure sale
pursuant to which Seller sold the Collateral to Buyer was conducted in a
commercially reasonable manner upon adequate notice to the undersigned, and that
the consideration received for the Collateral at such foreclosure sale was
adequate and equaled or exceeded the fair market value of the Collateral.
Dated: February 24, 1997
COLLECTOR'S EDGE, L.P.
By Edge Enterprises, Inc.,
General Partner
By: /s/Mark A. Raymond
------------------
Its: President
<PAGE> 3
EXHIBIT A TO BILL OF SALE
INVENTORY: All inventory of Debtor, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located;
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Debtor to the
payment of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a loan, out
of the overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by Debtor or by some other person who subsequently transfers such
person's interest to Debtor, whether such right to payment is or is not already
earned by performance and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all liens and security
interests) which Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but not
limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles;
EQUIPMENT: All equipment of Debtor, whether now owned or hereafter acquired,
including but not limited to all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including specifically
(without limitation) the goods described in any equipment schedule or list
herewith or hereafter furnished to Secured Party by Debtor; and
GENERAL INTANGIBLES: All general intangibles of Debtor whether now owned or
hereafter acquired, including (without limitation) all present and future
patents, patent applications, copyrights, trademarks, trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use Debtor's name, and the
goodwill of Debtor's business.
<PAGE> 1
EXHIBIT 10.46
CREDIT AND SECURITY AGREEMENT
Dated as of February 24, 1997
COLLECTOR'S EDGE OF TENNESSEE, INC., a Tennessee corporation (the
"Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation(the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(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; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Advance" means an advance to the Borrower by the Lender under the
Credit Facility.
"Agreement" means this Credit and Security Agreement.
"Assumption Note" means the promissory note of the Borrower payable to
the order of the Lender in substantially the form of Exhibit A-1 hereto.
"Banking Day" means a day other than a Saturday on which banks are
generally open for business in Denver, Colorado and Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota, National Association, as its "base rate" or, if
such bank ceases to announce a rate so designated, any similar successor rate
designated by the Lender.
"Collateral" means all of the Equipment, General Intangibles, Inventory
and Receivables, together with all substitutions and replacements for and
products of any of the foregoing Collateral and together with proceeds of any
and all of the foregoing Collateral and, in the case of all tangible Collateral,
together with all accessions and together with (i) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed to or used in
connection with any such goods, and (ii) all warehouse receipts, bills of lading
and other documents of title now or hereafter covering such goods.
<PAGE> 2
"Collateral Account" has the meaning specified in Section 4.1(d)
hereof.
"Collector's Edge-Colorado" means Collector's Edge, L.P., a Delaware
limited partnership.
"Credit Facility" means the credit facility being made available to the
Borrower by the Lender pursuant to Article II hereof.
"Default" means an event that, with giving of notice or passage of time
or both, would constitute an Event of Default.
"Default Rate" means the rate of interest otherwise payable on the
Notes plus two percent (2%).
"Environmental Laws" has the meaning specified in Section 5.12 hereof.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not
limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 8.1 hereof.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guarantor" means any of Shop At Home, Inc., a Tennessee corporation,
Urban Broadcasting Systems, Inc., a Texas corporation, and Broadcast, Cable and
Satellite Technologies, Inc., a Texas corporation.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether consisting
of whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service contracts or
for manufacture or processing, and wherever located.
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<PAGE> 3
"Loan Documents" means this Agreement, the Note, the Collateral Account
Agreement and the Lockbox Agreement.
"Lockbox" has the meaning specified in Section 4.1(e) hereof.
"Notes" means the Assumption Note and the Term Note.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Old Accounts" means those receivables of the Borrower purchased from
Collector's Edge-Colorado.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the premises
legally described in Exhibit C attached hereto.
"Receivables" means each and every right of the Borrower to the payment
of money, whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition of goods
or other property, out of a rendering of services, out of a loan, out of the
overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Security Interest" has the meaning specified in Section 3.1 hereof.
"Solar" means Solar Communications, Inc.
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"Solar Subordination Agreement" means the Subordination Agreement dated
December 20, 1996 between the Lender and Solar.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Term Note" means the promissory note of the Borrower, payable to the
order of the Lender in substantially the form of Exhibit A-2 hereto.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.12 hereof as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern, this
Agreement or any portion hereof.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Assumption of Indebtedness. On the terms and subject to the
conditions set forth in this Agreement, the Borrower assumes personal liability
for and agrees to repay to the Lender, $1,919,439.93 in principal amount of
indebtedness which Collector's Edge-Colorado now owes to the Lender and agrees
that such indebtedness is the legal and binding obligation of the Borrower and
is not subject to any defenses or set-offs in favor of the Borrower of any kind.
On and after the date of this Agreement, such indebtedness shall be secured by
the Collateral as provided in Article III hereof and shall be evidenced by the
Assumption Note. The Assumption Note shall bear interest and be payable as set
forth in the Assumption Note and this Agreement.
Section 2.2 Term Loan. On the terms and subject to the conditions set
forth in this Agreement, the Lender agrees to make a single Advance to the
Borrower in the principal amount of $1,000,000, which Advance shall be secured
by the Collateral as provided in Article III hereof and shall be evidenced by
the Term Note. The Term Note shall bear interest and be payable as set forth in
the Term Note and this Agreement.
Section 2.3 Interest. The principal of the Assumption Note outstanding
from time to time during any month shall bear interest at an annual rate equal
to the sum of the Base Rate plus one and three-quarters percent (1.75%), which
rate shall change
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when and as the Base Rate changes, and the principal balance of the Term Note
shall bear interest at the rate of ten percent (10%) per annum (computed in each
case on the basis of actual days elapsed in a 360-day year); provided, however,
that from the date on which any Default or Event of Default occurs and until
such Default or Event of Default is waived or cured to the written satisfaction
of the Lender, in the Lender's discretion and without waiving any of its other
rights and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate; and provided, further, that in any
event no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law.
Section 2.4 Prepayments. (a) Until such time as the aggregate amount of
such prepayments exceeds $500,000, the Assumption Note shall be prepaid by 100%
of the amount of collections of the Borrower of Old Accounts (net of any amounts
payable to Solar pursuant to the terms of the Solar Subordination Agreement),
and thereafter, by 50% of the amount of collections of the Borrower of Old
Accounts (net of any amounts payable to Solar pursuant to the terms of the Solar
Subordination Agreement). All such mandatory prepayments received by the Lender
prior to June 30, 1997 shall be applied, first to accrued and unpaid interest on
the Assumption Note, and then to the principal of the Assumption Note. All such
mandatory prepayments received after June 30, 1997 shall be applied, first to
accrued and unpaid interest on the Assumption Note, and then to the installments
of principal payable on the Assumption Note in inverse order of maturity.
(b) The Borrower may prepay either Note at any time in full or
from time to time in part; provided, however, that any prepayment in full shall
include accrued and unpaid interest, and any prepayment in part shall be applied
to the installments of principal payable on the Note being prepaid in inverse
order of maturity.
Section 2.5 Payment. All payments of principal of and interest on the
Advances shall be made to the Lender in immediately available funds. Whenever
any payment to be made hereunder shall be stated to be due on a day which is not
a Banking Day, such payment may be made on the next succeeding Banking Day, and
such extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
Section 2.6 Liability Records. The Lender shall maintain liability
records as to the obligations of the Borrower and interest accrued or paid under
this Agreement. All entries made on any such record shall be presumed correct
until the Borrower establishes the contrary. On demand by the Lender, the
Borrower will certify in writing the exact principal balance that the Borrower
then asserts to be outstanding to the Lender for Advances under this Agreement.
Any billing statement or accounting rendered
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by the Lender shall be conclusive and fully binding on the Borrower unless
specific written notice of exception is given to the Lender by the Borrower
within 30 days after its receipt by the Borrower.
ARTICLE III
Security Interest
Section 3.1 Grant of Security Interest. The Borrower hereby assigns and
grants to the Lender a security interest (collectively referred to as the
"Security Interests") in the Collateral, as security for the payment and
performance of each and every debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender (whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower, and whether
it is direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness of the
Borrower arising under this Agreement or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into; all such debts, liabilities and obligations are herein
collectively referred to as the "Obligations").
Section 3.2 Notification of Account Debtors and Other Obligors. In
addition to the rights of the Lender under Section 6.10 hereof, with respect to
any and all rights to payment constituting Collateral the Lender may at any time
after the occurrence of an Event of Default notify any account debtor or other
person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as agent and attorney in fact of the Borrower, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
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Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether before or after the occurrence of any Event of
Default, the Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proof of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.
Section 3.4 Occupancy. (a) The Borrower hereby irrevocably grants to
the Lender the right to take possession of the Premises at any time after the
occurrence and during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and discharge of all
Obligations, and (ii) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, in the event that the Lender does pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time incurred
by or imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling,
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leasing or otherwise disposing of any or all Collateral following an Event of
Default.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Advance. The obligation
of the Lender to make the initial Advance under the Credit Facility shall be
subject to the condition precedent that the Lender shall have received all of
the following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Notes, properly executed on behalf of the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) A Collateral Account Agreement, duly executed by the
Borrower and a financial institution acceptable to the Lender, pursuant to which
the Borrower and the institution establish a depository account (the "Collateral
Account") in the name of and under the sole and exclusive control of the Lender,
from which such institution agrees to transfer finally collected funds to the
Lender for application as provided in Section 6.10 hereof.
(e) A Lockbox Agreement, duly executed by the Borrower and an
institution acceptable to the Lender, pursuant to which the Borrower agrees to
maintain and direct account debtors to make payment to, and such institution
agrees to maintain and process payments received in, a lockbox for the benefit
of the Lender (the "Lockbox"), from which Lockbox such institution shall
transfer funds to the Collateral Account.
(f) A certificate of the Secretary or an Assistant Secretary
of the Borrower and each Guarantor, certifying as to (i) the resolutions of the
directors authorizing, in the case of the Borrower, the execution, delivery and
performance of this Agreement and the other Loan Documents, and, in the case of
each Guarantor, the Guaranty of such Guarantor and, if such Guaranty is secured,
the Security Agreement of such Guarantor, (ii) the articles of incorporation and
bylaws of the Borrower or such Guarantor, and (iii) the signatures of the
officers or agents of the Borrower or such Guarantor authorized to execute and
deliver this Agreement, the other Loan Documents and other instruments,
agreements and
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certificates on behalf of the Borrower or such Guarantor, and, if applicable,
the Security Agreement on behalf of such Guarantor.
(g) A current certificate issued by the Secretary of State of
the state of the Borrower's and each Guarantor's incorporation, certifying that
the Borrower and each such Guarantor is in compliance with all corporate
organizational requirements of such state.
(h) An opinion of counsel to the Borrower and the Guarantors,
addressed to the Lender.
(i) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable endorsement in favor of
the Lender and with all liability insurance naming the Lender as an additional
insured.
(j) Guaranties, properly executed by each of the Guarantors,
pursuant to which each Guarantor unconditionally guarantees the full and prompt
repayment of all present and future Obligations.
(k) Evidence satisfactory to the Lender that (i) the Borrower
has been funded with at least $1,150,000, and (ii) the NFL Players, Inc. and NFL
Properties, Inc. have agreed to provide the Borrower with licenses having a term
of not less than two years upon receipt of payments totaling not more than
$1,400,000.
(l) Such other documents as the Lender in its sole discretion
may require.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief
Executive Office; Inventory and Equipment Locations. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Tennessee, and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. The chief executive office and principal place of business of the
Borrower is located at the address set forth in Exhibit B hereto, and all of the
Borrower's records relating to its business or the Collateral are kept at that
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location. All Inventory and Equipment is located at that location or at one of
the other locations set forth in Exhibit B hereto.
Section 5.2 Authorization of Borrowing: No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower, (b) require any
authorization on, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute, the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. The Borrower has no Subsidiaries.
Section 5.5 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or the properties of the Borrower before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to the Borrower, Affiliates, would have
a material adverse effect on the financial condition, properties or operations
of the Borrower.
Section 5.6 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of
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the proceeds of any Advance will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
Section 5.7 Default. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on the financial condition, properties or
operations of the Borrower.
Section 5.8 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the Credit Facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or pro forma
financial statements, present a good faith opinion as to such projections,
valuations and pro forma condition and results.
ARTICLE VI
Affirmative Covenants of the Borrower
So long as any Note shall remain unpaid or the Credit Facility shall be
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the end
of each fiscal year of the Borrower, financial statements of the Borrower, which
financial statements shall be audited if the Borrower obtains audited financial
statements, and reviewed if the Borrower obtains reviewed financial statements,
and which shall include the balance sheet of the Borrower as at the end of such
fiscal year and the related statements of income, retained earnings and cash
flows of the Borrower for the fiscal year then ended, all in reasonable detail
and prepared in accordance with generally accepted accounting principles
consistently applied, together with (i) if the financial statements are audited
or reviewed, a report signed by the accountants which performed the audit or
review stating that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or Event of
Default hereunder; and (ii) a certificate of the chief financial officer of the
Borrower stating that such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied, and whether
or not such officer has knowledge of the occurrence of
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any Default or Event of Default hereunder and, if so, stating in reasonable
detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after the end
of each month, an unaudited/internal balance sheet and statements of income and
retained earnings of the Borrower as at the end of and for such month and for
the year to date period then ended, in reasonable detail and stating in
comparative form the figures for the corresponding date and periods in the
previous year, if any, all prepared in accordance with generally accepted
accounting principles consistently applied, subject to year-end audit
adjustments; and accompanied by a certificate of the chief financial officer of
the Borrower, stating (i) that such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied,
subject to year-end audit adjustments, and (ii) whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable, an inventory
certification report and a reconciliation of the obligations of Collector's
Edge-Colorado paid by the Borrower as at the end of such month;
(d) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.5 hereof or
which seek a monetary recovery against the Borrower in excess of $25,000;
(e) as promptly as practicable (but in any event not later than fifteen
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by a
responsible officer of the Borrower of the steps being taken by the Borrower to
cure the effect of such breach, default or event;
(f) promptly upon knowledge thereof, notice of (i) any disputes or
claims by customers of the Borrower; (ii) any goods returned to or recovered by
the Borrower; and (iii) any change in the persons constituting the officers and
directors of the Borrower;
(g) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security Documents
or of any substantial adverse change in any Collateral or such other collateral
or the prospect of payment thereof;
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(h) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower or a Guarantor shall
have sent to its stockholders;
(i) promptly after the sending or filing thereof, copies of all regular
and periodic financial reports which Shop At Home, Inc. shall file with the
Securities and Exchange Commission or any national securities exchange;
(j) promptly upon knowledge thereof, notice of the violation by the
Borrower of any law, rule or regulation, the non-compliance with which could
materially and adversely affect its business or its financial condition; and
(k) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with generally accepted accounting
principles consistently applied and, upon request of the Lender, will permit any
officer, employee, attorney or accountant for the Lender to audit, review, make
extracts from or copy any and all corporate and financial books and records of
the Borrower at all times during ordinary business hours, to send and discuss
with account debtors and other obligors requests for verification of amounts
owed to the Borrower, and to discuss the affairs of the Borrower with any of its
directors, officers, employees or agents. The Borrower will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Borrower will at any time and
from time to time upon request of the Lender during the existence of a Default
or an Event of Default send requests for verification of accounts or notices of
assignment to account debtors and other obligors.
Section 6.4 Compliance with Laws; Environmental Indemnity. The Borrower
will (a) comply with the requirements of applicable laws and regulations,the
non-compliance with which would materially and adversely affect its business or
its financial condition, (b) comply with all applicable Environmental Laws and
obtain any permits, licenses or similar approvals required by any
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such Environmental Laws, and (c) use and keep the Collateral, and will require
that others use and keep the Collateral, only for lawful purposes, without
violation of any federal, state or local law, statute or ordinance. The Borrower
will indemnify, defend and hold the Lender harmless from and against any claims,
loss or damage to which the Lender may be subjected as a result of any past,
present or future existence, use, handling, storage, transportation or disposal
of any hazardous waste or substance or toxic substance by the Borrower or on
property owned, leased or controlled by the Borrower. This indemnification
agreement shall survive the termination of this Agreement and payment of the
indebtedness hereunder.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interests, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
Section 6.6 Maintenance of Properties. (a) The Borrower will keep and
maintain the Collateral, the other collateral covered by the Security Documents
and all of its other properties necessary or useful in its business in good
condition, repair and working order (normal wear and tear excepted) and will
from time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the Borrower
from discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the judgment of the Lender, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect to
the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens and
encumbrances except the Security Interests and other security interests
permitted by Section 7.1 hereof.
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Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the benefit of the Lender. All policies of liability insurance required
hereunder shall name the Lender as an additional insured.
Section 6.8 Preservation of Corporate Existence. The Borrower will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, Etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 Lockbox; Collateral Account. (a) The Borrower will
irrevocably direct all present and future Account debtors and other Persons
obligated to make payments constituting Collateral to make such payments
directly to the Lockbox. All of the Borrower's invoices, account statements and
other written or oral communications directing, instructing, demanding or
requesting payment of any Account or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox and shall
include the Lockbox address. All payments received in the Lockbox shall be
processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account or, at the
Lender's option, to deliver to the Lender all collections on Accounts, contract
rights, chattel paper and other rights to payment constituting Collateral, and
all other cash proceeds of Collateral, which the Borrower may receive directly
notwithstanding its direction to Account debtors and other obligors to make
payments to the Lockbox, immediately upon receipt thereof, in the form received,
except for the Borrower's endorsement when deemed necessary. Until delivered to
the Lender or deposited in the Collateral Account, all proceeds or collections
of Collateral shall be held in trust by the Borrower for and as the property of
the Lender and shall not be commingled with any funds or property of
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the Borrower. Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except after
full payment and discharge of all Obligations. All such collections shall
constitute proceeds of Collateral and shall not constitute payment of any
Obligation. During any time when no Default or Event of Default exists, (i)
collected funds from the Collateral Account representing the proceeds of Old
Receivables shall be applied to prepay the Assumption Note to the extent
required by Section 2.4 hereof, and (ii) all other collected funds shall be
remitted by the Lender to the Borrower. During any time when a Default or Event
of Default exists, collected funds from the Collateral Account may, at the
discretion of the Lender be applied to repayment of obligations in such order of
application as the Lender may determine. All items delivered to the Lender or
deposited in the Collateral Account shall be subject to final payment. If any
such item is returned uncollected, the Borrower will immediately pay the Lender,
or, for items deposited in the Collateral Account, the bank maintaining such
account, the amount of that item, or such bank at its discretion may charge any
uncollected item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the Collateral
Account, whether or not in fact endorsed by the Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10
hereof, immediately upon the occurrence of such failure, without notice or lapse
of time), the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the Default
Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which
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appointment is coupled with an interest) with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file in
the name and on behalf of the Borrower any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained, executed,
delivered or endorsed by the Borrower under this Section 6.11.
ARTICLE VII
Negative Covenants
So long as any Note shall remain unpaid or the Credit Facility shall be
outstanding, the Borrower agrees that, without the prior written consent of the
Lender:
Section 7. l Liens. The Borrower will not create or incur any
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer
upon or of any of its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing:
(a) the Security Interests;
(b) security interests in favor of Solar and Heller Financial,
Inc. with respect to certain accounts of the Borrower; and
(c) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower so long as the Borrower
is in, and maintains, compliance with every other provision of this Agreement.
Section 7.2 Indebtedness. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness relating to liens permitted in accordance
with Section 7.1(c) hereof; and
(c) indebtedness to Shop At Home, Inc. which is suborinated,
on terms and conditions satisfactory to the Lender to the Obligations.
Section 7.3 Guaranties. The Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently
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liable in connection with any obligations of any other Person, except the
endorsement of negotiable instruments by the Borrower for deposit or collection
or similar transactions in the ordinary course of business.
Section 7.4 Investments and Subsidiaries. (a) The Borrower will not
purchase or hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture, except:
(1) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States of America having a
maturity of one year or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by Moody's
Investors Service or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(2) travel advances or loans to officers and employees of the
Borrower not exceeding at any one time an aggregate of $10,000; and
(3) advances in the form of progress payments, prepaid rent or
security deposits.
(b) The Borrower will not create or permit to exist any Subsidiary.
Section 7.5 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) all or a substantial part of its assets, or (ii) any Collateral
or any interest therein (whether in one transaction or in a series of
transactions) to any other Person other than the sale of Inventory in the
ordinary course of business or the disposition of Equipment which is obsolete or
unnecessary in the ongoing operation of the Borrower's business, and will not
liquidate, dissolve or suspend business operations. The Borrower will not in any
manner transfer any property without prior or present receipt of full and
adequate consideration.
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Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.9 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by generally accepted
accounting principles. The Borrower will not adopt, permit or consent to any
change fin its fiscal year.
Section 7.10 Defined Benefit Pension Plan. The Borrower will not adopt,
create, assume or become a party to any defined benefit pension plan.
Section 7.11 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.12 Place of Business; Name. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interests. The Borrower will not change
its name.
Section 7.13 Change in Ownership. The Borrower will not issue or sell
any stock of the Borrower so as to reduce the percentage of the common stock of
the Borrower which Urban Broadcasting Systems, Inc. or an affiliate thereof
would receive upon conversion of the preferred stock of the Borrower held by it
below 51% of the common stock of the Borrower determined on a fully diluted
basis.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. "Event of Default," wherever used
herein, means any one of the following events:
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(a) Default in the payment of any interest on or principal of
the Notes when it becomes due and payable; or
(b) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; or
(c) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its inability to pay its debts as they mature, or
make an assignment for the benefit of creditors; or the Borrower or any
Guarantor shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or for all or any substantial part of its
property; or such receiver, trustee or similar officer shall be appointed
without the application or consent of the Borrower or such Guarantor, as the
case may be; or the Borrower or any Guarantor shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding relating to it under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application or otherwise)
against the Borrower or any such Guarantor; or any judgment, writ, warrant of
attachment, garnishment or execution or similar process shall be issued or
levied against a substantial part of the property of the Borrower or any
Guarantor; or
(d) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the Borrower or
such Guarantor as debtor; or
(e) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the Lender or by
the Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective; or
(f) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $50,000 and the
continuance of such judgment, decree or order unsatisfied and in effect for any
period of 30 consecutive days without a stay of execution; or
(g) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which any such evidence
of indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, or under the Borrower's licenses with NFL Properties,
Inc. or the NFL Players, Inc., and the expiration of the applicable period of
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grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease; or
(h) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
prior written consent of the Lender; or
(i) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued; or
(j) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder; or
(k) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's guaranty in
favor of the Lender, or any Guarantor shall cease to exist.
Section 8.2 Rights and Remedies. Upon the occurrence of an
Event of Default or at any time thereafter, the Lender may exercise any or all
of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare to be
forthwith due and payable the entire unpaid principal amount of the Notes then
outstanding, all interest accrued and unpaid thereon, all amounts payable under
this Agreement and any other Obligations, whereupon the Notes, all such accrued
interest and all such amounts and Obligations shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which are hereby expressly waived by the Borrower;
(b) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower,
including without limitation any funds on deposit with the Lender, whether or
not matured, to the payment of the Advances, including interest accrued thereon,
and of all other sums then owing by the Borrower hereunder;
(c) The Lender may, exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the
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Collateral, and, in connection therewith, the Borrower will on demand assemble
the Collateral and make it available to the Lender at a place to be designated
by the Lender which is reasonably convenient to both parties;
(d) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(e) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.l(e) hereof, the entire unpaid principal amount of the
Notes, all interest accrued and unpaid thereon, all other amounts payable under
this Agreement and any other Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days prior to the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.l No Waiver; Cumulative Remedies. No failure or
delay on the part of the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent
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by first class United States mail, (c) sent by overnight courier of national
reputation, or (d) transmitted by telecopy, in each case addressed to the party
to whom notice is being given at its address as set forth below and, if
telecopied, transmitted to that party at its telecopier number set forth below:
If to the Borrower:
Collector's Edge of Tennessee, Inc.
2485 W. 2nd Avenue, Suite 14
Denver, Colorado 80223
Telecopier: (303) 727-9611
Attention: Mark A. Raymond
If to the Lender:
Norwest Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Telecopier: (303) 863-4904
Attention: Kathy Stafford
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II hereof shall not
be effective until received by the Lender.
Section 9.4 Financing Statement. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Collector's Edge of Tennessee, Inc.
2485 W. 2nd Avenue, Suite 14
Denver, Colorado 80223
Federal Tax Identification No.: Applied For
Name and address of Secured Party:
Norwest Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
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Section 9.5 Further Documents. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interests or the rights of the
Lender under this Agreement (but any failure to request or assure that the
Borrower executes, delivers or endorses any such item shall not affect or impair
the validity, sufficiency or enforceability of this Agreement and the Security
Interests, regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion).
Section 9.6 Collateral. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.7 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) reasonable
attorneys' fees, incurred by the Lender in enforcing this Agreement, the Loan
Documents and any other document or agreement related hereto or thereto, or in
connection with the collection of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interests.
Section 9.8 Indemnity. In addition to the payment of expenses
pursuant to Section 9.7 hereof and the environmental indemnity pursuant to
Section 6.4 hereof, the Borrower agrees to indemnify, defend and hold harmless
the Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future of officers, directors, employees and agents of the foregoing the
"Indemnitees"), from and against (i) any and all transfer taxes, documentary
taxes, assessments or charges made by any governmental authority by reason of
the execution and delivery of this Agreement and the other Loan Documents or the
making of the Advances, and (ii) any and all liabilities, losses, damages,
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penalties, judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel) in connection with any investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party thereto,
which may be imposed on, incurred by or asserted against such Indemnitee, in any
manner relating to or arising out of or in connection with the making of the
Advances, this Agreement and all other Loan Documents or the use or intended use
of the proceeds of the Advances (the "Indemnified Liabilities"). If any
investigative, judicial or administrative proceeding arising from any of the
foregoing is brought against any Indemnitee, upon request of such Indemnitee,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole cost and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligation of the
Borrower under this Section 9.8 shall survive the termination of this Agreement
and the discharge of the Borrower's other Obligations.
Section 9.9 Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the participants, successors or assigns of
the Lender.
Section 9.10 Execution in Counterparts. This Agreement and
other Loan Documents may be executed in any number of counterparts and
counterparts may be delivered by facsimile, each of which when so executed and
delivered shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same instrument.
Section 9.11 Binding Effect; Assignment; Complete Agreement.
The Loan Documents shall be binding upon and inure to the benefit of the
Borrower and the Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights thereunder or any
interest therein without the prior written consent of the Lender. This
Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof.
25
<PAGE> 26
Section 9.12 Governing Law; Jurisdiction,Venue; Waiver of Jury
Trial. The Loan Documents shall be governed by and construed in accordance with
the substantive laws (other than conflict laws) of the State of Colorado. Each
party consents to the personal jurisdiction of the state and federal courts
located in the State of Colorado in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient end agrees that any litigation initiated by any of them in connection
with this Agreement shall be venued in either the District Court of the City and
County of Denver, Colorado, or the United States District Court, District of
Colorado. The parties waive any right to trial by jury in any action or
proceeding based on or pertaining to this Agreement.
Section 9.13 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.14 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
COLLECTOR'S EDGE OF TENNESSEE, INC.
By: /s/ Everit A. Herter
--------------------
Its: Secretary-Treasurer
NORWEST CREDIT, INC.
By: /s/ Keith Palesh
----------------
Its: Vice President
26
<PAGE> 27
EXHIBIT A-1 TO CREDIT AND
SECURITY AGREEMENT
ASSUMPTION NOTE
$1,919,439.93 Denver, Colorado
February 24, 1997
For value received, the undersigned, COLLECTOR'S EDGE OF
TENNESSEE, INC., a Tennessee corporation (the "Borrower"), hereby promises to
pay to the order of Norwest Credit, Inc., a Minnesota corporation (the
"Lender"), at its main office in Minneapolis, Minnesota, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of One
Million Nine Hundred Nineteen Thousand Four Hundred Thirty Nine and 93/1OO
Dollars ($1,919,439.93), together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (the "Credit Agreement") by and
between the Lender and the Borrower. The principal hereof and interest accruing
thereon shall be payable as follows: (i) on June 30,1997, all accrued and unpaid
interest on this Note shall be added to the principal balance hereof and shall
for all purposes be deemed to be part of the outstanding principal of this Note,
and (ii) thereafter, the principal balance of this Note shall be payable in
twenty-one (21) equal monthly installments in an amount equal to 1/21st of the
principal balance hereof outstanding immediately after the addition of accrued
and unpaid interest to the principal hereof; commencing July 10, 1997 and
continuing on the tenth day of each month thereafter until March 10, 1999 when
the principal balance hereof remaining unpaid shall be due and payable in full.
Interest accruing on this Note after June 30, 1997 shall be payable on the tenth
day of each month and on earlier payment in full.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Assumption Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note
27
<PAGE> 28
is not paid when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
COLLECTOR'S EDGE OF TENNESSEE, INC.
By:
---------------------------------
Its:
---------------------------------
28
<PAGE> 29
EXHIBIT A-2 TO CREDIT AND
SECURITY AGREEMENT
TERM NOTE
$1,000,000 Denver, Colorado
February 24, 1997
For value received, the undersigned, COLLECTOR'S EDGE OF
TENNESSEE, INC., a Tennessee corporation (the "Borrower"), hereby promises to
pay to the order of Norwest Credit, Inc., a Minnesota corporation (the
"Lender"), at its main office in Minneapolis, Minnesota, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of One
Million and no/100 Dollars ($l,000,000), together with interest on the principal
amount hereunder remaining unpaid from time to time, computed on the basis of
the actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (the "Credit Agreement") by and
between the Lender and the Borrower. Interest accruing on this Note shall be due
and payable on the tenth day of each month, commencing on March 10, 1997, and on
earlier payment in full. The principal of this Note shall be payable in
twenty-four(24) equal monthly installments of $41,667 each, commencing on March
10,1997 and continuing on the tenth day of each month thereafter until February
10, l999 when the principal balance hereof remains unpaid shall be due and
payable in full.
This Note is issued pursuant, and is subject to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
29
<PAGE> 30
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
COLLECTOR'S EDGE OF TENNESSEE, INC.
By:
-------------------------------
Its:
-------------------------------
30
<PAGE> 31
EXHIBIT B TO CREDIT AND
SECURITY AGREEMENT
NAMES
-----
Collector's Edge of Tennessee, Inc.
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
--------------------------------------------------
2485 W. 2nd Avenue, Suite 14
Denver, Colorado 80223
OTHER INVENTORY AND EQUIPMENT LOCATIONS
---------------------------------------
None
31
<PAGE> 32
EXHIBIT C TO CREDIT AND
SECURITY AGREEMENT
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
2485 W. 2nd Avenue, Suite 14
Denver, Colorado 80223
33
<PAGE> 1
EXHIBIT 10.47
Date: November 28, 1997
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of November 28, 1997, by
and between NationsBank of Tennessee, N.A., a national banking association
("Bank") and the Borrower described below:
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. BORROWER. Shop at Home, Inc., a Tennessee
corporation.
B. BORROWER'S ADDRESS:
5210 Schubert Road
Knoxville, Tennessee 37912
C. EBITDA. Shall mean for any fiscal period,
consolidated net income (or consolidated net loss, as the case may be) for such
period (a) the aggregate amount deducted in determining such consolidated net
income (loss) in respect of (i) interest expense, (ii) income taxes, and (iii)
depreciation and amortization expense of the Borrower and its consolidated
subsidiaries determined in accordance with generally accepted accounting
principles, in each case for the applicable fiscal period.
D. FUNDED DEBT. Shall mean at any date, with respect to
the Borrower and its consolidated subsidiaries, all of the following obligations
(without duplication): (i) all obligations for borrowed money, (ii) all
obligations evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations as lessee under capital leases, (v) all
obligations to purchase securities or other property which arise out of or in
connection with the sale Of the same or substantially similar securities or
property, excluding however obligations of the Borrower with respect to the
redemption at any time after February 24, 2000 of up to 137,943 shares of Series
A Preferred Stock, (vi) all non-contingent obligations to reimburse any bank or
other person in respect of amounts paid under a letter of credit or similar
instrument, (vii) all debt of others secured by a lien on any asset of the
Borrower or any subsidiary,
<PAGE> 2
whether or not such debt is assumed, and (viii) all debt of others guaranteed by
the Borrower or any subsidiary.
E. HAZARDOUS MATERIALS. Hazardous Materials include all
materials defined as hazardous wastes or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
F. LOAN(S). Loan(s) means collectively any and all loans
heretofore or hereafter made by Bank to the Borrower.
G. LOAN DOCUMENTS. Loan Documents means this Loan
Agreement and any and all promissory notes executed by Borrower in favor of Bank
and all other documents, instruments, guarantees, security agreements,
certificates and agreements executed and/or delivered by Borrower, any guarantor
or third party in connection with any Loan, including without limitation, MFP.
H. MFP. Shall mean MFP, Inc., a Tennessee corporation
and a wholly owned subsidiary of Borrower.
I. ACCOUNTING TERMS. All accounting terms not
specifically defined or specified herein shall have the meanings generally
attributed to such terms under generally accepted accounting principles
("GAAP"), as in effect from time to time, consistently applied, with respect to
the financial statements referenced in Section 3.H. hereof.
2. LOAN. Bank hereby agrees to make (or has made) a loan or loans to
Borrower in the aggregate principal amount of $3,000,000.00. The obligation to
repay the loan is evidenced by a promissory note or notes dated of even date
herewith (the promissory note or notes together with any other promissory notes
heretofore or hereafter executed by Borrower in favor of Bank and any and all
renewals, extensions or rearrangements thereof being hereafter collectively
referred to as the "Note") having a maturity date, repayment terms and interest
rate as set forth in the Note.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. GOOD STANDING. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of Tennessee and has the
power and authority to own its property and to carry on its business in each
jurisdiction in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of Borrower. No
consent or approval of any public authority or other third party is required as
a condition to the validity of any Loan Document, and Borrower is in
2
<PAGE> 3
compliance with all laws and regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally binding obligations
of Borrower, enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding involving Borrower
pending or, to the knowledge of Borrower, threatened before any court or
governmental authority, agency or arbitration authority, except as disclosed to
Bank in writing and acknowledged by Bank prior to the date of this Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw,
stock provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets.
G. TAXES. All taxes and assessments due and payable by
Borrower have been paid or are being contested in good faith by appropriate
proceedings and the Borrower has filed all tax returns which it is required to
file.
H. FINANCIAL STATEMENTS. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since September 30, 1997. To the best of Borrower's knowledge, all factual
information furnished by Borrower to Bank in connection with this Agreement and
the other Loan Documents is and will be accurate and complete on the date as of
which such information is delivered to Bank and is not and will not be
incomplete by the omission of any material fact necessary to make such
information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office is
located at 5210 Schubert Road, Knoxville, Tennessee 37912
J. ENVIRONMENTAL MATTERS. The conduct of Borrower's business
operations do not and will not violate any federal laws, rules or ordinances for
environmental protection, regulations of
3
<PAGE> 4
the Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials and Borrower will
not use or permit any other party to use any Hazardous Materials at any of
Borrower's places of business or at any other property owned by Borrower except
such materials as are incidental to Borrower's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Borrower agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's places of business or any other
property of Borrower at any reasonable times upon three (3) days prior notice
for the purposes of conducting an environmental investigation and audit
(including taking physical samples) to insure that Borrower is complying with
this covenant and Borrower shall reimburse Bank on demand for the costs of any
such environmental investigation and audit. Borrower shall provide Bank, its
agents, contractors, employees and representatives with access to and copies of
any and all data and documents relating to or dealing with any Hazardous
Materials used, generated, manufactured, stored or disposed of by Borrower's
business operations within five (5) days of the request therefore.
K. CONTINUATION OF REPRESENTATION AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any future
advance under any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. FINANCIAL CONDITION. Maintain at the end of each fiscal
year commencing June 30, 1998, a Funded Debt to EBITDA ratio not to exceed 3.50
to 1.00.
B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a
system of accounting satisfactory to Bank and in accordance with GAAP applied on
a consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of Bank
selected by Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records will be located at
Borrower's chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable to Bank and by
independent certified public accountants acceptable to Bank.
In addition, Borrower will:
4
<PAGE> 5
i. Furnish to Bank certified, audited financial
statements of Borrower for each fiscal year of Borrower, within 100 days after
the close of each such fiscal year.
ii. Furnish to Bank quarter-annual financial
statements (including a balance sheet and profit and loss statement) of Borrower
for each quarterly period of each fiscal year of Borrower, within 50 days after
the close of each such period.
iii. Furnish to Bank a compliance certificate for
(and executed by an authorized representative of) Borrower and MFP,
respectively, concurrently with and dated as of the date of delivery of each of
the financial statements as required in paragraphs i and ii above, containing
(a) a certification that the financial statements of even date are true and
correct and that the Borrower is not in default under the terms of this
Agreement, and (b) computations and conclusions, in such detail as Bank may
request, with respect to compliance with this Agreement, and the other Loan
Documents, including computations of all quantitative covenants.
iv. Furnish to Bank promptly such additional
information, reports and statements respecting the business operations and
financial condition of Borrower and MFP, respectively, from time to time, as
Bank may reasonably request.
C. USE OF PROCEEDS. Proceeds of the Loan will be used
solely to provide for the remainder of the good faith deposit necessary to
secure the purchase of certain assets of Global Broadcasting Systems, Inc. and
Global Broadcasting Systems License Corp. as set forth in that Asset Purchase
Agreement executed by Borrower dated September 23, 1997.
D. INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and with respect to insurance on the Collateral, to contain
a mortgagee clause naming Bank as a loss payee or an additional insured (as
applicable) as its interest may appear and providing for at least 30 days prior
notice to Bank of any cancellation thereof. Satisfactory evidence of such
insurance will be supplied to Bank prior to funding under the Loan(s) and 30
days prior to each policy renewal.
E. EXISTENCE AND COMPLIANCE. Maintain its existence, good
standing and qualification to do business, where required and comply with all
laws, regulations and governmental requirements
5
<PAGE> 6
including, without limitation, environmental laws applicable to it or to any of
its property, business operations and transactions.
F. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in
writing of (i) any condition, event or act which comes to its attention that
would or might materially adversely affect Borrower's financial condition or
operations, the Collateral, or Bank's rights under the Loan Documents, (ii) any
litigation filed by or against Borrower or MFP in which the amount in
controversy exceeds $250,000.00, (iii) any event that has occurred that would
constitute an event of default under any Loan Documents and (iv) any uninsured
or partially uninsured loss through fire, theft, liability or property damage in
excess of an aggregate of $200,000.
G. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes,
assessments and other obligations, including, but not limited to taxes, costs or
other expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.
H. MAINTENANCE. Maintain all of its tangible property in
good condition and repair and make all necessary replacements thereof, and
preserve and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
I. NOTIFICATION OF ENVIRONMENTAL CLAIMS. Borrower shall
immediately advise Bank in writing of (i) any and all enforcement, cleanup,
remedial, removal, or other governmental or regulatory actions instituted,
completed or threatened pursuant to any applicable federal, state, or local
laws, ordinances or regulations relating to any Hazardous Materials affecting
Borrower's business operations; and (ii) all claims made or threatened by any
third party against Borrower relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials. Borrower
shall immediately notify Bank of any remedial action taken by Borrower with
respect to Borrower's business operations.
5. NEGATIVE COMMENTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any requirement of any other
Loan Documents):
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or
otherwise dispose of or transfer any assets, except in the normal course of its
business, or enter into any merger or consolidation, or transfer control or
ownership of the Borrower or MFP.
B. LIENS. Grant, suffer or permit any contractual or
6
<PAGE> 7
noncontractual lien on or security interest in the assets of MFP, except in
favor of Bank.
C. EXTENSIONS OF CREDIT. Make any loan or advance to any
individual, partnership, corporation or other entity other than any existing or
newly formed subsidiary of Borrower.
D. DIVIDENDS. Make any distribution (other than dividends
payable in capital stock of Borrower) on any shares of any class of its capital
stock other than the one percent (1%) per annum dividend paid on its preferred
stock.
E. CHARACTER OF BUSINESS. Change the general character of
business as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
F. CHANGE OF MANAGEMENT. Change its senior management,
such that Kent Lillie ceases to be, for any reason, the chief executive officer
of Borrower.
6. DEFAULT. Borrower shall be in default under this Agreement and under
each of the other Loan Documents if it shall default in the payment of any
amounts due and owing under the Loans or should it fail to timely and properly
observe, keep or perform any term, covenant, agreement or condition in any Loan
Document or in any other loan agreement, promissory note, security agreement,
deed of trust, mortgage, assignment or other contract securing or evidencing
payment of any indebtedness of Borrower to Bank or any affiliate or subsidiary
of NationsBank Corporation.
7. REMEDIES UPON DEFAULT. If an event of default shall occur Bank shall
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
Borrower: Shop At Home, Inc.
5210 Schubert Road
Knoxville, Tennessee 37912
Fax. No.
----------------------
With a copy to:
Kent E. Lillie
102 Woodmont Blvd.
Suite 200-226
Nashville, Tennessee 37205
Fax. No. (615) 345-0256
7
<PAGE> 8
Bank: NationsBank of Tennessee, N.A.
One NationsBank Plaza
Nashville, Tennessee 37239-1697
Attention: Brad Peterson
Fax No.
----------------------
or to such other address as any party my designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by hand delivery;
B. If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage prepaid.
9. COSTS, EXPENSES AND ATTORNEY'S FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all cost, and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel), incurred by Bank in connection with (a)
negotiation and preparation of this Agreement and each of the Loan Documents,
and (b) Bank's continued administration thereof.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right
granted to Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all other
rights of Bank, and no delay in exercising any right shall operate as a waiver
thereof, nor shall any single or partial exercise by Bank of any right preclude
any other or future exercise thereof or the exercise of any other right.
Borrower expressly waives any presentment, demand, protest or other notice of
any kind, including but not limited to notice of intent to accelerate and notice
of acceleration. No notice to or demand on Borrower in any case shall, of
itself, entitle Borrower to any other or future notice or demand in similar or
other circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Tennessee and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or waiver of
any provision of this Loan Agreement, nor consent to any
8
<PAGE> 9
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by an officer of Bank, and then shall be effective only in
the specified instance and for the purpose for which given. This Loan Agreement
is binding upon Borrower, its successors and assigns, and inures to the benefit
of Bank, its successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be effective without
Bank's prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
D. DOCUMENTS. All documents, certificates and other items
required under this Loan Agreement to be executed and/or delivered to Bank shall
be in form and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of
any provision of this Loan Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or unenforceability of
any provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to other
persons or circumstances.
F. INDEMNIFICATION. Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties, costs or
other expenses (including reasonable attorneys' fees and court costs) arising
from or in any way related to any of the transactions contemplated hereby,
including but not limited to actual or threatened damage to the environment,
agency costs of investigation, personal injury or death, or property damage, due
to a release or alleged release of Hazardous Materials, arising from Borrower's
business operations, any other property owned by Borrower or in the surface or
ground water arising from Borrower's business operations or any other condition
existing or arising from Borrower's business operations or any other existence
of Hazardous Materials, whether such claim proves to be true or false. Borrower
further agrees that its indemnity obligations shall include, but are not limited
to, liability for damages resulting from the personal injury or death of an
employee of the Borrower, regardless of whether the Borrower has paid the
employee under the workmen's compensation laws of any state or other similar
federal or state legislation for the protection of employees. The term "property
damage" as used in this paragraph includes, but is not limited to, damage to any
real or personal property of the Borrower, the Bank, and of any third parties.
The Borrower's obligations under this paragraph shall survive the repayment of
the Loan and any deed in lieu of foreclosure or foreclosure of any Deed to
Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan.
9
<PAGE> 10
G. SURVIVABILITY. All covenants, agreements,
representations and warranties made herein or in the other Loan Documents shall
survive the making of the Loan and shall continue in full force and effect so
long as the Loan is outstanding or the obligation of the Bank to make any
advances under the Line shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE, STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE
COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT
AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW;
OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH
AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR
10
<PAGE> 11
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives as of the date first
above written.
BORROWER: Shop At Home, Inc. BANK: NationsBank of Tennessee, N.A.
By: /s/ Kent E. Lillie By: /s/ Brad Peterson
------------------ -----------------
Name: Kent E. Lillie Name: Brad Peterson
Title: President Title: Loan Officer
11
<PAGE> 1
EXHIBIT 10.48
LOAN NOTE
$3,000,000.00 Nashville, Tennessee
November 28, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
NationsBank of Tennessee, N.A. ("Bank") the sum of Three Million Dollars
($3,000,000.00) with interest at the rate of three quarters of one percent
(0.75%) per annum over the NationsBank Prime Rate charged by NationsBank of
Tennessee, N.A., said interest rate to be adjusted whenever there is a change in
said rate, but in no event shall the interest rate charged herein exceed the
maximum rate of interest permitted to be charged under the laws in effect from
time to time (the "Maximum Rate"). NationsBank Prime Rate is the fluctuating
rate of interest established by the Bar from time to time as its "Prime Rate",
whether or not such rate shall be otherwise published. Such Prime Rate is
established by Bank as an index or base rate and may or may not at any time be
the best or lowest rate charged by Bank on any loan. If at any time or from time
to time the Prime Rate increases or decreases, then the rate of interest
hereunder shall be correspondingly increased or decreased effective on the day
on which any such increase or decrease of the Prime Rate changes, unless
otherwise herein provided. In the event that the Bank, during the term hereof,
shall abolish or abandon the practice of establishing a Prime Rate, or should
the same become unascertainable, the Bank shall designate a comparable reference
rate which shall be deemed to be the Prime Rate for purposes hereof.
At the election of the undersigned, to be made in writing delivered to
the Bank on or before September 1, 1998, the undersigned may convert the
interest rate charged hereunder from a floating rate to a fixed rate of interest
to be calculated by adding three and sixty-six one hundredths of one percent
(3.66%) per annum to the Treasury Securities Rate in effect on August 31, 1998.
For the purposes hereof, the term "Treasury Securities Rate" shall mean the rate
of interest per annum determined by Bank, in accordance with its customary
general practice from time to time, to be the weekly average yield on all United
States Treasury Securities adjusted to a constant maturity for a term comparable
to the remaining term of this Loan Note (i.e., 60 months), as most recently
reported by the Federal Reserve System in the weekly Federal Reserve Statistical
Release #H-15(519), entitled "Selected Interest Rates" (or any succeeding
publication) adjusted from time to time in Bank's sole discretion for then
applicable reserve requirements, deposit insurance assessment rates and other
regulatory costs. Notwithstanding the foregoing, if the undersigned elects not
to maintain its primary deposit balances and accounts
PAGE 1 OF A 5 PAGE NOTE
<PAGE> 2
with Bank, then the applicable rate of interest charged hereunder, whether a
fixed or floating rate of interest, shall be increased commencing September 1,
1998 by one quarter of one percent (0.25%) per annum for the remaining term of
this Note.
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Said interest shall be due and payable
monthly on the then outstanding principal balance on the first (1st) day of each
consecutive month, the first such payment being due January 1, 1998. Principal
hereunder shall be due and payable in sixty (60) equal monthly installments
computed by dividing the outstanding principal balance hereunder on August 31,
1998, by the figure of sixty (60), with said principal installments to be due
and payable on the first (1st) day of each consecutive month commencing
September 1, 1998. On the Maturity Date, September 1, 2003, the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
This Note may be prepaid at any time, in whole or in part, without
premium or penalty; provided however, if the undersigned elects the fixed rate
of interest hereinabove set forth and if the undersigned further prepays this
Note in whole or in part from funds derived (directly or indirectly) from
another financial institution, a prepayment penalty of one-half of one percent
(0.50%) of the outstanding balance will be due and payable to Bank on the
principal amount prepaid hereunder.
Interest shall continue to accrue when payments are submitted by
instruments representing funds not immediately available and until such funds
are, in fact, collected. Both principal and interest due on this Note are
payable in Nashville, Tennessee, at par in lawful money of the United States of
America, in the Main Office of NationsBank of Tennessee, N.A. or at such other
place as NationsBank of Tennessee, N.A. may designate in writing from time to
time.
This Note is governed by a Loan Agreement of even date herewith between
the undersigned and Bank and is secured by a Pledge Agreement from undersigned
as well as a Limited Guaranty and a Security agreement from MFP, Inc.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of any part of interest or
principal in accordance with the terms hereof, or upon failure of the
undersigned to keep and perform all the covenants, promises, agreements,
conditions and provisions of this Note, the Loan Agreement, or in any other
instrument or document now or hereafter evidencing, securing or otherwise
PAGE 2 OF A 5 PAGE NOTE
KEL
---------
(initial)
<PAGE> 3
relating to the indebtedness evidenced hereby; or if any obligor hereon makes a
general assignment for the benefit of creditors or files a voluntary petition in
bankruptcy or a petition for reorganization under the bankruptcy laws; or if a
petition in bankruptcy is filed against any obligor; or if a receiver or trustee
is appointed for all or any part of the property and assets of any obligor; or
should any levy, attachment or garnishment be issued or any lien be filed
against the property of any obligor and not be satisfied or released within
thirty (30) days after filing; then, in any such case, the entire unpaid
principal sum evidenced by this Note, together with all accrued interest, shall,
at the option of any holder, without notice, become due and payable forthwith,
regardless of the stipulated Maturity Date. Upon the occurrence of any default
as set forth herein, at the option of holder and without notice to obligor, all
accrued and unpaid interest, if any, shall be added to the outstanding principal
balance hereof, and the entire outstanding principal balance, as so adjusted,
shall bear interest thereafter until paid at an annual rate (the "Default Rate")
equal to the lesser of (i) the rate that is three percentage points (3%) in
excess of the above-specified interest rate, as it varies from time to time, or
(ii) the Maximum Rate, regardless of whether or not there has been an
acceleration of the payment of principal as set forth herein. All such interest
shall be paid at the time of and as a condition precedent to the curing of any
such default. Failure of the holder to exercise this right of accelerating the
maturity of the debt, or indulgence granted from time to time, shall in no event
be considered as a waiver of said right of acceleration or stop the holder from
exercising said right.
To the extent permitted by applicable law, obligor shall pay to
NationsBank of Tennessee, N.A. a late charge equal to four percent (4%) of any
payment which is past due for a period of fifteen (15) or more days, in order to
cover the additional expenses incident to the handling and processing of
delinquent payments.
All persons or corporations now or at any time liable, whether
primarily or secondarily, for the payment of the indebtedness hereby evidenced,
for themselves, their heirs, legal representatives and assigns, waive demand,
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection and all other notices or demands whatsoever with respect
to this Note or the enforcement hereof, and consent that the time of said
payments or any part thereof may be extended by the holder hereof and assent to
any substitution, exchange, or release of collateral permitted by the holder
hereof, all without in any wise modifying, altering, releasing, affecting or
limiting their respective liability. This Note may not be changed orally, but
only
PAGE 3 OF A 5 PAGE NOTE
KEL
---------
(initial)
<PAGE> 4
by an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
The term obligor, as used in this Note, shall mean all parties, and
each of them, directly or indirectly obligated for the indebtedness that this
Note evidences, whether as principal, maker, endorser, surety, guarantor or
otherwise.
It is expressly understood and agreed by all parties hereto, including
obligors, that if it is necessary to enforce payment of this Note through an
attorney or by suit, undersigned or any obligors shall pay reasonable attorney's
fees, court costs and all costs of collection.
This obligation is made and intended as a Tennessee contract and is to
be so construed.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING
BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS NOTE OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. LN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS NOTE MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR
(II) BE A
PAGE 4 OF A 5 PAGE NOTE
KEL
---------
(initial)
<PAGE> 5
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
IN WITNESS WHEREOF, this Note has been duly executed by the undersigned
the day and year first above written.
SHOP AT HOME, INC., a Tennessee corporation
By: /s/ Kent E. Lillie
-------------------
Its: President/CEO
KEL
---------
(initial)
<PAGE> 1
EXHIBIT 10.50
FORM OF OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of the 19th day of June,
1997, by and between SHOP AT HOME, INC. (the "Company"), a Tennessee
corporation, and [EXECUTIVE];
WHEREAS, the Company engages in the business of retail sales of
merchandise by sales presentations broadcast directly to potential customers by
cable and satellite television transmissions commonly known as the "shop at home
business";
WHEREAS, [Executive] is a director of the Company and the Company
wishes to provide a mechanism to recognize [Executive's] continued service to
the Company as a director;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Stock Options. The Company will grant to [Executive] a non-qualified
(as defined by the Internal Revenue Code) option to purchase up to 10,000 shares
of the Company's Common Stock, $.0025 par value, at an exercise price of $2.875
per share, expiring five (5) years from the date of this Agreement. Such option
shall be in the form of Exhibit A hereto.
2. Miscellaneous.
2.1 Legend on Certificate. Each certificate evidencing any of
the shares required by [Executive] pursuant to the Option shall be endorsed as
follows:
The shares evidenced by this certificate have not
been registered under the Securities Act of 1993, as amended,
or under the securities laws of any state. The shares may not
be sold, transferred, pledged or hypothecated in the absence
of any effective registration statement under the Securities
Act of 1933, as amended, and such registration or
qualification, as may be necessary under the securities laws
of any state, or an opinion of counsel satisfactory to the
Corporation that such registration or qualification is not
required.
2.2 Hold Harmless. [Executive] and the Company covenant and
agree that they will indemnify and hold harmless the other from (i) any and all
losses, damages, liabilities, expenses or claims resulting from or arising out
of any nonfulfillment by the defaulting party of any material provision of this
Agreement, and (ii) any and all losses or damages resulting from the defaulting
party's malfeasance or gross negligence.
3. Assignment. This Agreement shall be binding and shall inure to the
benefit of the Company and its successors and assigns and to [Executive] and his
heirs and assigns.
4. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or mailed, first class, certified mail, postage
prepaid:
<PAGE> 2
To Company:
Shop At Home, Inc.
5210 Schubert Road
P.O. Box 12600
Knoxville, Tennessee 37912
To [Executive]:
--------------------------
--------------------------
--------------------------
5. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto.
6. Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument.
7. Headings. The headings set out in this Agreement are for convenience
of reference and shall not be deemed a part of this Agreement and shall not
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SHOP AT HOME, INC.
By:
-----------------------
Kent E. Lillie
President and
Chief Executive Officer
--------------------------
<PAGE> 3
EXHIBIT A
SHOP AT HOME, INC.
1997 $2.875 COMMON STOCK PURCHASE OPTION
1. GENERAL PROVISIONS. Shop At Home, Inc., a Tennessee corporation
(herein called the "Corporation"), for value received, and other good and
valuable consideration, receipt of which is hereby acknowledged, hereby
certifies that [EXECUTIVE] or his registered assigns (herein called the "Option
Holder") is entitled to purchase shares of the fully paid and voting
nonassessable Common Stock, $.0025 par value per share, of the Corporation (such
number and character of such shares being subject to adjustment as provided in
paragraph 4 below), at Exercise Price Per Share set forth herein by surrendering
this Option with the Subscription Form attached hereto as EXHIBIT 1 duly
executed, at the offices of the Corporation, and by paying in full the Exercise
Price Per Share for the number of shares of Common Stock as to which this Option
is exercised. No fractional shares shall be issued hereunder, and instead, any
fractional shares created by exercise hereunder shall be purchased by the
Corporation at the rate of the Exercise Price Per Share then in effect.
2. EXERCISE PERIOD. This Option may be exercised by the Option Holder
at any time after its issuance and shall expire and all rights hereunder shall
cease on June 18, 2002.
3. NUMBER OF SHARES COVERED BY OPTION; EXERCISE PRICE. The number of
shares of the Corporation's Common Stock, $.0025 par value per share, for which
this Option may be exercised shall be 10,000 voting, common shares, subject to
adjustment as provided in paragraph 4 below, which may be purchased as a whole
at any time or in part from time to time subject to paragraph 4, below, within
the time limit herein specified. The price per share for the shares purchased
upon exercise of this Option shall be $2.875 per share, subject to adjustment as
provided in paragraph 4, below (the "Exercise Price Per Share").
4. ADJUSTMENTS IN NUMBER OF SHARES AND EXERCISE PRICE. If at any time
after this Option is granted, the Corporation shall declare or pay a dividend or
dividends payable in shares of its Common Stock (or any security convertible
into or granting rights to purchase shares or such Common Stock) or split the
then outstanding shares of its Common Stock into a greater number of shares, the
number of shares of Common Stock which may be purchased upon the exercise of
this Option in effect at the time of taking of a record for such dividend or at
the time of such stock split shall be proportionately increased and the Exercise
Price Per Share proportionately decreased as of such time; and conversely, if at
any time the Corporation shall contract the number of outstanding shares of its
Common Stock by combining such shares into a smaller number of shares, the
number of shares which may be purchased upon the exercise of this Option at the
time of such action shall be proportionately decreased and the Exercise Price
Per Share proportionately increased as of such time. If the Corporation declares
or pays a dividend or makes a distribution on shares of its Common Stock payable
otherwise than out of earnings or earned surplus, then thereafter the Option
Holder, upon the exercise hereof, will be entitled to receive the number of
shares of Common Stock to be received upon exercise of this Option determined as
stated above and, in addition and without further payment, the cash, stock or
other securities and other property which the Option Holder would have received
by way of dividends and distributions (otherwise than out of such earnings or
surplus) as if the Option Holder (i) has exercised this Option immediately prior
to the declaration of such dividend or the making of such distribution so as to
be entitled thereto, and (ii) had retained all dividends in stock or securities
payable in respect of such Common Stock or in respect of any stock or
<PAGE> 4
securities paid as dividends and distributions and originating directly or
indirectly from such Common Stock. For the purposes of the foregoing a dividend
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or surplus are charged an amount equal to
the fair value of such dividend.
Appropriate and similar adjustment of the number of shares which may be
purchased upon the exercise of this Option and of the Exercise Price Per Share
shall also be made in the event of any other capital adjustment,
recapitalization, reorganization, reclassification or any consolidation of the
Corporation with, or a merger of the Corporation into, any other corporation, or
a sale, lease or other transfer of all or substantially all of the assets of the
Corporation, or a distribution by the Corporation of its assets with respect to
its Common Stock as a liquidating or partial liquidating dividend, or the
happening of any similar event affecting the Common Stock. In any such event,
the Option Holder shall have the right thereafter to exercise this Option for
the acquisition of any kind and amount of shares of stock and other securities
and property to which the Option Holder would have been entitled if the Option
Holder had purchased Common Stock of the Corporation by the full exercise of
this Option immediately prior to such capital adjustment, recapitalization,
reorganization, reclassification, consolidation, merger, sale, lease, transfer,
distribution or other similar event and the Corporation shall make lawful
provision therefor as a part of such event. The Corporation shall not effect any
such consolidation, merger, sale, lease or similar transfer involving another
corporation unless, upon or prior to the consummation thereof, the successor
corporation or the corporation to which the property of the Corporation has been
consolidated, merger, sold, leased or otherwise transferred shall assume by
written instrument the obligation to deliver to the Option Holder such shares of
stock, securities, cash or property as in accordance with the foregoing
provisions of the Option Holder shall be entitled to receive.
5. RESERVATION OF SHARES. The Corporation shall at all times reserve
and keep available a number of its authorized but unissued shares of its Common
Stock sufficient to permit the exercise in full of this Option.
6. SALE OF OPTION OR SHARES. The shares to be issued hereunder have not
been registered under the Securities Act, or under the securities laws of any
state, and such shares to be issued hereunder, when issued, may not be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement for this Option, or the shares to be issued hereunder, as the case may
be, under the Securities Act, and such registration or qualification as may be
necessary under the securities laws of any state, or an opinion of counsel
satisfactory to the Corporation that such registration or qualification is not
required. The certificate or certificates evidencing all or any of the shares to
be issued hereunder shall bear the following legend:
The shares evidenced by this Certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of any effective registration statement
under the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any
state, or an opinion of counsel satisfactory to the Corporation that
such registration or qualification is not required.
<PAGE> 5
This Option shall be registered on the books of the Corporation, which
shall be kept by it as its principal office for the purpose and shall be
transferable only on said books by the registered owner hereof in person or by
duly authorized attorney upon surrender of this Option properly endorsed, and
only in compliance with the provision of the preceding paragraph. In case of the
exercise hereof in part only, the Corporation will deliver the Option Holder a
new Option of like tenor in the name of the Option Holder evidencing the right
to purchase the number of shares as to which this Option has not been exercised.
7. GOVERNING LAW. This Option is to be construed and enforced in
accordance with and governed by the laws of the State of Tennessee.
IN WITNESS WHEREOF, the Corporation has caused this Option to be issued
in its corporate name by its duly appointed officer.
DATED: June 19, 1997
SHOP AT HOME, INC.
By:
-----------------------
Kent E. Lillie
President and
Chief Executive Officer
<PAGE> 6
EXHIBIT 1
The undersigned optionee under that certain 1997 $2.875 Common Stock
Purchase Option (the "Agreement"), hereby exercises the Option granted under the
Agreement for the following number of shares of Common Stock, subject to the
terms and conditions of the Agreement:
Number of shares purchased
---------------
Total purchased price $
submitted herewith ---------------
--------------------------------
(Signature)
--------------------------------
(Date)
<PAGE> 1
EXHIBIT 10.51
AGREEMENT BETWEEN
B&P THE SPACECONNECTION, INC.
AND
SHOP AT HOME, INC.
CONCERNING AT&T SKYNET(R) TRANSPONDER SERVICE
This Agreement is made this 28th day of June 1995 by and between B&P
The Spaceconnection, Inc., a corporation organized and existing under the laws
of the State of California, and having its primary place of business at 14655
Vanowen Street, Van Nuys, California 91405 (hereinafter referred to as
"Spaceconnection" which expression shall include its successors and permitted
assigns) and Shop at Home, Inc., a corporation organized and existing under the
laws of the State of Tennessee and having a place of business at 5210 Schubert
Road, Knoxville, TN 37912 (hereinafter referred to as "Shop at Home" and/or
"User" which expressions shall include its successors and permitted assigns).
WITNESSETH:
WHEREAS, AT&T operates a domestic satellite system and offers services
on such system in accordance with FCC tariffs filed with the Federal
Communications Commission ("FCC") and;
WHEREAS, AT&T anticipates launching another satellite in its system
bearing the designation Telstar 402R (the "Satellite") from AT&T when same
becomes available, a portion of which is offered to Shop at Home.
WHEREAS, Shop at Home and Spaceconnection wish to enter into an
Agreement involving an offering of satellite services on the satellite by
Spaceconnection to Shop at Home under terms and conditions different from those
in existing and proposed AT&T tariffs.
NOW, THEREFORE, Spaceconnection and Shop at Home, in consideration of
the mutual covenants expressed herein, agree as follows:
1 SATELLITE SERVICES
A. Spaceconnection offers, if and when available, and
Shop at Home hereby orders, if and when available,
AT&T Skynet transponder service consisting of service
on one (1) bronze c-band 36 MHz 12 watt transponder
on Telstar 402R (the "Transponder" or "Designated
Transponder") for service beginning on October 1,
1995 or the first day that AT&T places the satellite
in service, whichever occurs later (the "Commencement
Date") and terminating three years from the
Commencement Date (the "Termination Date").
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B. The services as described in Section 1.1 above shall
hereafter be referred to as the "Service".
C. The Service is furnished to Shop at Home subject to
the terms and conditions set forth herein and the
technical specifications set forth in Exhibit A
("Telstar 4 Performance Parameters"), attached hereto
as Exhibit A and incorporated herein by this
reference.
D. Shop at Home acknowledges that Telstar 402R has not
yet been placed in its assigned orbit and, further,
that there is no guarantee that said satellite will
be placed in orbit. If the satellite is placed in
orbit, it is anticipated the satellite will be placed
in service during the fourth quarter of 1995 and Shop
at Home accepts Service on Telstar 402R on that basis
from the Commencement Date to the Termination Date.
Shop at Home is making its own decisions concerning
the effect the satellite's telemetry will have on its
operations and will be solely responsible for its
decisions in that regard. In addition to the
limitations on liability set forth in Section 8
hereof, Spaceconnection specifically disclaims any
responsibility with respect to the satellite's
telemetry and its impact on Shop at Home's operations
and, further, makes no representations or warranties
in that regard. Shop at Home assumes all risk with
respect to AT&T's transpond- er operations described
herein and may not terminate this lease for signal
degradation or signal transmission difficulties
unless the transponder fails to meet AT&T's then
current performance specifications for that satellite
and until Spaceconnection is released from its
obligations under its --- agreement with AT&T for the
Transponder.
2 TARIFFS
2.1 AT&T has represented to Spaceconnection that it shall
file with the FCC the tariff provisions and revisions
necessary to permit it to offer the service to
Spaceconnection as specified herein (the "Tariff").
Spaceconnection and Shop at Home's obligations under
this Agreement are contingent upon the FCC allowing
such revisions to go into and continue in effect and
AT&T's continuing ability to provide such service to
Spaceconnection.
2.2 If the FCC, or any other governmental body,
conditions AT&T's or Spaceconnection's provision of
the Service upon conditions or requirements that in
either AT&T's or Spaceconnection's sole judgement,
are unacceptable to either AT&T or Spaceconnection,
or AT&T conditions the provision of the Service upon
conditions or requirements that are in
Spaceconnection's sole judgment unacceptable, then
Spaceconnection may terminate this Agreement upon ten
(10) days written notice to Shop at Home without any
liability to Shop at Home. Such notice shall be given
within thirty (30) days of the FCC order, if
possible. Neither AT&T or Spaceconnection shall be
under an obligation to appeal such order.
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2.3 The general terms and conditions of the Tariff (to be
filed) and the specific terms and conditions of the
Tariff pertaining to the Service, including any
tariff revisions that become effective subsequent to
the date of this Agreement and the provisions of the
agreement between AT&T and Spaceconnection (the "AT&T
Agreement") are hereby incorporated by reference and
made a part of this Agreement only to the extent that
they are operationally or legally necessary to
preserve Spaceconnection's or AT&T's ability to
provide the Service to Shop at Home under this
Agreement. To the extent that the terms and
conditions of this Agreement are inconsistent with
the Tariff or the AT&T Agreement and it is mandatory
that the Tariff or the AT&T Agreement control so that
AT&T's and/or Spaceconnection's ability to provide
the Service is not jeopardized, then the Tariff
and/or the AT&T Agreement shall control. However with
respect to all other provisions, including but not
limited to service rates, billing procedures, default
and cure provisions, limitations of liability and
other provisions solely between the parties to this
agreement and which do not effect AT&T's ability to
provide the Service, the terms and conditions of this
Agreement shall control. AT&T has represented to
Spaceconnection that it shall use all reasonable
efforts to establish and modify the Tariff so that it
is consistent with Spaceconnection's agreement with
AT&T. However, AT&T's actions and conduct in this
regard is not under the control or influence of
Spaceconnection and Spaceconnection assumes no
responsibility with respect thereto. If the FCC, or
any other governmental body, requires AT&T to modify
any material provisions of the Tariff pertaining to
the rates or term of the Service, or the degree of
protection provided for the Service or AT&T
voluntarily requests such a modification or AT&T
otherwise changes the terms and conditions of its
Agreement with Spaceconnection which will require
Spaceconnection to modify the terms and conditions of
this Agreement, Shop at Home may terminate the
Service by providing written notice to
Spaceconnection of Shop at Home's intent to so
terminate the service within thirty (30) days of the
effective date of the AT&T Tariff incorporating such
modification, or within ten (10) days of notice from
Spaceconnection, whichever is later, without further
liability to Spaceconnection. Neither AT&T or
Spaceconnection shall have any obligation to appeal
such ruling or order.
2.4 In the event that the Service is permitted to be
offered under tariff but is subsequently de-tariffed,
the terms and conditions of the applicable provisions
of the AT&T Tariff immediately prior to its
detariffing (excepting the service rate, billing
procedures, default and cure provisions, limitations
of liability and other provisions solely between
Spaceconnection and Shop at Home) shall continue to
be incorporated into this Agreement and made a part
hereof as though set out in full. If any provision of
this Agreement is inconsistent with those of the
Tariff on the date of such incorporation the terms of
the Agreement shall control unless the enforcement of
such terms would jeopardize AT&T's ability to provide
the Service to Spaceconnection.
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2.5 Once incorporated into this Agreement, terms and
conditions contained in the expired Tariff may be
modified or amended only as provided herein.
2.6 Pertinent portions of the applicable AT&T Tariff
which are or will be applicable to this Agreement are
not yet available, but when available, will be a
matter of public record and available to both Parties
hereto and need not be made apart of this Agreement
to be applicable. Both Parties hereto assume the
responsibility of obtaining and reviewing the Tariff.
2.7 The formal written AT&T Agreement was also not
available as of the date this Agreement was prepared
and executed; however, both Parties acknowledge that
the terms and provisions of the AT&T Agreement
necessary to insure Spaceconnection's continued
ability to provide Shop at Home the Service shall be
incorporated herein even though same is not attached
hereto. Spaceconnection shall be the sole judge of
what provisions of the AT&T Agreement shall be
incorporated herein, if any. Spaceconnection shall
give Shop at Home written notice of the effective
terms of the AT&T Agreement and said terms shall
become applicable immediately upon receipt of notice
of same by Shop at Home.
2.8 In the event the Service is offered by AT&T but is
never tariffed, then the terms and conditions of the
AT&T Agreement shall be incorporated herein and
control only to the extent necessary to preserve
Spaceconnection's and/or AT&T's ability to provided
Service (as described above).
3 RATES, PAYMENT, SERVICE AND TERMS
3.1 Shop at Home shall pay for the Service in accordance
with the following schedule:
Quantity: 1 Transponder
Service: Bronze 36MHz 12 Watt
Satellite: 402R
Term: Commencement Date as
defined herein for a three
(3) year term until
termination date
Option to Extend Term: None
Monthly Service rate per
Transponder for each
consecutive year of on
line service: $96,000 for year one
$105,000 for year two
$115,000 for year three
Including tracking,
telemetry and control for
each year service
Security Deposit: $96,000 for year one
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$105,000 for year two
$115,000 for year three
3.2 All monthly Service Rate payments are due and payable
on the twenty fifth (25th) day of the month
immediately preceding each service month.
3.3 All payments by Shop at Home shall be made to
Spaceconnection without set off at its principal
place of business, as designated in Section 10, and
shall be deemed to be made only upon actual receipt
by Spaceconnection. All refunds by Spaceconnection
shall be made to Shop at Home at its principal place
of business as designated in Section 10, and shall be
deemed to be made only upon actual receipt by Shop at
Home.
3.4 All refunds provided for in this Agreement to be made
by Spaceconnection shall be due and paid within
thirty (30) business days of notification to
Spaceconnection of the occurrence of the event giving
rise to such refund.
3.5 Any late payments by Shop at Home of amounts due and
payable hereunder (including but not limited to,
specified payments, security deposit payments,
service rate payments, damages and indemnification)
to Spaceconnection shall be subject to a delinquency
charge at the rate set forth in Section 28 payable
with the amount due and calculated from the date
payment was due until the date it is received by
Spaceconnection.
3.6 Shop at Home does not have a right or the option to
extend this Agreement beyond its term.
4 SECURITY DEPOSIT
Shop at Home has paid to Spaceconnection the Security Deposit
of $96,000 the receipt of which is hereby acknowledged. As the rent
increases during the term of this Agreement, Shop at Home shall
increase the security deposit at the beginning of each year to the same
amount as the monthly rental for that year. Accordingly, the security
deposit of the second year of this Agreement shall be $105,000 and for
the third year be $115,000. In the even any portion of the Security
Deposit is applied for any reason during the term of this Agreement,
Shop at Home shall replace the applied portion of said Security Deposit
upon five (5) days written notice from Spaceconnection. The failure to
timely replace the applied portion or any increase of the Security
Deposit shall be treated as a failure to timely pay the Service Rate
and give Spaceconnection the right, but not the obligation, to
terminate Service to Shop at Home as set forth in Section 5 hereof.
This Security Deposit is non-refundable except s otherwise set forth in
this Agreement, and any unapplied portion of the Security Deposit at
the end of this Agreement shall be applied against the payment of the
monthly Service Rate due from Shop at Home to Spaceconnection for the
last month of the Term. Spaceconnection shall apply the unapplied
portion of the deposit remaining on the first day of the last service
month of this Agreement toward the total Service Rate due for the last
month immediately preceding the Termination Date.
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5 TERMINATION RIGHTS, FAILURE TO LAUNCH AND SERVICE TERMINATION
PROCEDURES
5.1 Spaceconnection, upon the occurrence of any Event of
Default (as defined below) and only after any
relevant cure period, may, for so long as such Event
of Default shall continue, declare this Agreement to
be in default (provided, however, that this Agreement
shall be deemed to be in default immediately upon the
occurrence and during the continuation of any Event
of Default under Section 5.2 (iv), (v) or (vi), and
at any time thereafter, Spaceconnection may in its
sole and absolute discretion declare immediately due
and payable all sums due and to become due hereunder
for the full term of this Agreement, require Shop at
Home to redeliver Shop at Home's Transponder(s) to
Spaceconnection as set forth in Section 6.8 hereof,
render Shop at Home's Transponder(s) unusable without
removal, cancel this Agreement, obtain damages
without canceling this Agreement, and exercise any
other right or remedy which is provided for in this
Agreement or which may be available under the
California Uniform Commercial Code or other
applicable law, including without limitation
exercising any right or remedy applicable to default
under Section 10523(I) of the California Uniform
Commercial Code for any Event of Default hereunder
(the "Default Option"). A cancellation hereunder
shall occur only upon written notice from
Spaceconnection to Shop at Home stating that such
cancellation is made and only as to such Transponders
as Spaceconnection, specifically elects to cancel and
this Agreement shall continue in full force and
effect as to the remaining Transponders, if any. No
remedy referred to in this Section 5 is intended to
be exclusive, but each remedy shall be cumulative and
in addition to any other remedy referred to above or
otherwise available to Spaceconnection at law or in
equity. Spaceconnection shall mitigate its damages
should it elect to seek from Shop at Home the full
amount due hereunder in the event of an Event of
Default by Shop at Home as so required under the
California Uniform Commercial Code. As set forth in
Section 25, Spaceconnection's failure in any case to
exercise the Default Option shall not constitute a
waiver of any breach or Event of Default or a
continuing waiver or similar or other breaches or
Events of Default.
5.2 The following events shall constitute "Event(s) of
Default" by Shop at Home (whether any such even shall
arise as a result of the voluntary or involuntary
action or inaction of Shop at Home or come about or
be effected by operation of, or pursuant to or in
compliance with, any law:
(I) Shop at Home shall fail to make any payment
due hereunder when due and such failure
shall continue for five (5) days after
Spaceconnection has given Shop at Home
written notice of such failure; or
(II) Shop at Home shall fail to perform or
observe in any material respect any
covenant, condition or agreement to be
performed or
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observed by it under this Agreement and such
failure shall continue unremedied for a
period of fifteen (15) days following notice
from Spaceconnection; provided, however,
nothing in this Section 5.02(II) shall
restrict Spaceconnection's rights to deny
Shop at Home access pursuant to Section 6
hereof during such fifteen (15) day period
or otherwise; or
(III) Any representation or warranty made by Shop
at Home in this Agreement or in any
statement furnished by Shop at Home in
connection herewith after execution of this
Agreement shall have been incorrect in any
material respect at the time made but only
if such incorrect representation, warranty
or statement shall have a material adverse
effect on Spaceconnection and/or AT&T or
their rights or obligations hereunder and
shall continue un-remedied for a period of
ten (10) days after Spaceconnection has
given written notice to Shop at Home of such
incorrect representation, warranty or
statement; or
(IV) Shop at Home shall consent to the
appointment of, or taking possession by, a
receiver, trustee, custodian or liquidator
of itself or of a substantial part of its
assets, or Shop at Home shall make a general
assignment for the benefit of creditors; or
(V) Shop at Home shall file a voluntary petition
in bankruptcy or a voluntary petition or an
answer seeking reorganization in proceed-
ing under any applicable bankruptcy or
insolvency laws (as now or hereafter in
effect) or an answer admitting the material
allegations of a petition filed against such
person in any such proceeding, or Shop at
Home shall, by voluntary petition,l answer
or consent, seek relief under the provisions
of any now existing or future bankruptcy,
insolvency or other similar law providing
for the liquidation, reorganization or
dissolution of corporations, or providing
for an agreement, composition, extension or
adjustment with its creditors; or
(VI) A receiver, trustee, liquidator or custodian
of Shop at Home or of a substantial part of
its property shall be appointed by court
order and such order shall remain in effect
for more than sixty (60) days; or any
substantial part of the property of Shop at
Home shall be sequestered by court order and
such order shall remain in effect for more
than sixty (60) days; or a petition shall be
filed against Shop at Home under any
bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt,
dissolution or liquidation law of any
jurisdiction, whether now or hereafter in
effect, and shall not be dismissed within
sixty (60) days after such filing.
5.3 Spaceconnection has a right to transfer use of the
Transponder(s) for non-payment:
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5.3.1 If, for any reason whatsoever, Shop at Home
does not make the payments in the amounts
and on the dates set forth in (and in
accordance with) Section 3 and Shop at Home
fails to cure such default as set forth in
Section 5.2, then, in addition to all of its
other remedies at law or in equity,
Spaceconnection shall be entitled to
Transfer Shop at Home's Transponder(s) and
the use thereof immediately to whomever
Spaceconnection sees fit, Shop at Home shall
not be entitled to any equitable or other
relief as a result thereof, and Shop at
Home's exclusive remedy shall be limited to
recovery, without interest, of any lease
payments actually paid by Shop at Home to
Spaceconnection pursuant to Section 3, less
any claim Spaceconnection has against Shop
at Home by reason of Shop at Home's default.
5.3.2 If, for any reason whatsoever, Shop at Home
does not make the payments in the amounts
and on the dates set forth in (and in
accordance with) Section 4 with respect to
Transponders provided hereunder other than
Shop at Home's Transponder(s) and Shop at
Home fails to cure such default as set forth
in Section 5.2, then, in addition to all of
its other remedies at law or in equity,
Spaceconn- ection, if it has obtained the
rights to such Transponders shall be
entitled to Transfer such Transponder(s)
immediately to whomever Spaceconnection sees
fit, Shop at Home shall not be entitled to
any equitable or other relief as a result
thereof, and Shop at Home's exclusive remedy
shall be limited to recovery, without
interest, of any lease payments actually
paid by Shop at Home to Spaceconnection,
pursuant to Section 4, less any claim
Spacecon- nection has against Shop at Home
by reason of Shop at Home's default.
5.3.3 AT&T "Bronze" Service is service that is not
protected in the event of a transponder
failure. Bronze Service may be preempted on
a permanent or temporary basis to restore
protected service in accordance with the
procedures set forth in the Tariff. Bronze
Service may also be preempted on a temporary
basis as set froth in the Tariff. If Shop at
Home continues to use Bronze Service longer
than five minutes following notification or
attempted notification by Spaceconnection or
AT&T of preemption to restore a protected
service, a Preemption Notification Charge
shall apply at twice the rate specified in
the AT&T Tariff at the time of the
preemption, currently the Tariff rate
is $1,102.00 per minute, or each fraction
thereof, for each minute after such five
minute period. For purposes of notification
concerning preemption of Bronze Service,
Shop at Home shall specify a telephone
number of numbers where designated Shop at
Home personnel may be reached by Spaceco-
nnection or AT&T. Until further notice is
given by Shop at Home, the specified Shop at
Home contact is Kent E. Lillie, telephone
number (615) 688-0300 or any Vice President,
Shift Supervisor or
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engineer in charge at 800-366-4010. The five
minute notification period specified above
shall begin to run from the time the
telephone call is completed with the Shop at
Home representative or from the time of
attempted notification of Shop at Home if
there is no answer at the above telephone
number. Nothing in this Agreement shall
prevent AT&T or Spaceconnection from taking
any action which they are required by law to
take in accordance with the provisions of
Section 706 of the Communications Act of
1934, as amended, 47 U.S.C. 1606. If Bronze
Service is preempted Shop at Home will be
credited for the period of interrupted
service as follows: The effective rate of
each transponder for the purposes of
calculating credit due to preemption shall
be the current monthly service rate set
forth in this Agreement divided by the
number of transponders being furnished at
the time. The actual amount credited shall
be prorated based on the actual time Shop at
Home is without the transponder service.
5.4 In the event that 402R is not successfully
launched by February 1, 1996, either Party
may terminate this Agreement and upon such
termination, all consideration shall be
returned and neither party shall owe any
further obligation, responsibility or duty
to the other Party hereto.
6 RIGHT TO DENY ACCESS
6.1 If, in connection with using Shop at Home's
Transponder(s):
(I) "User" (as defined below) is
indicted or is otherwise charged as
a defendant in criminal proceeding
based upon, or is convicted under,
any Obscenity Law or has been found
by any Governmental Authority to
have violated any such law;
(II) Based on any User's use of Shop at
Home's Transponder(s) AT&T and/or
Spaceconnection are indicted or
otherwise charged as a criminal
defendant, becomes the subject of a
criminal proceeding or a
governmental action seeking a fine,
license revocation or other
sanctions, or any Governmental
Authority seeks a cease and desist
or other similar order or filing;
(IV) Spaceconnection and/or AT&T obtains
a court order pursuant to Section
6.3, below, or a court or
Governmental Authority of competent
jurisdiction orders Spaceconnection
or AT&T to deny access to User or
orders User to cease transmission;
or
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(V) Spaceconnection and/or AT&T
receives notice (the "Illegal
Programming Notice"), written or
oral, from a Governmental Authority
that such authority considers Shop
at Home and/or any other User's
programming to be in violation of
Obscenity Laws (the "Illegal
Programming"), and that if AT&T
and/or Spaceconnection does not
cease transmitting such Illegal
Programming, then AT&T and/or
Spaceconnection and/or their
Affiliates and/or any of their
executives will be indicted or
otherwise charged as a criminal
defendant, will become the subject
of a criminal proceeding or a
governmental action seeking a
fine, license revocation or other
sanctions, or that such
Governmental Authority will seek a
cease and desist or other similar
order or filing (with AT&T and/or
Spaceconnection being obligated, to
the extent permitted by law, to
provide Shop at Home with a copy of
such Illegal Programming Notice. If
written, or with other
verification, including the details
thereof, if oral); then, upon
notice from Spaceconnection and/or
AT&T to Shop at Home (the "Denial
of Access Notice"), User shall
cease using Shop at Home's
Transponder(s) immediately, in the
case of a denial of access pursuant
to subparagraphs (I), (II), (III)
or (IV) above, or within 24 hours
following receipt of such notice,
in the case of a denial of access
pursuant to subparagraph (V),
above; and if User does not
voluntarily cease using such
capacity at the appropriate time,
then Spaceconnection shall have the
right to take such steps as
Spaceconnection and/or AT&T deems
necessary to prevent User from
accessing Shop at Home's
Transponders. Provided, however,
that if User has more than one
programming service, then the
denial of access by Spaceconnection
and/or AT&T shall apply only to
the Transponder used to provide the
Illegal Programming service; and
provided further, however, that if,
upon receipt of the Denial of
Access Notice from Spaceconnection
and/or AT&T, User does not
immediately cease transmission of
such Illegal Programming service,
then Spaceconnection and/or AT&T
shall have the right to take such
steps as either AT&T and/or
Spaceconnection deems necessary to
prevent User from accessing the
transponder used to transmit such
Illegal Programming service (and
if, thereafter, Shop at Home
transmits such Illegal Programming
Service using any of Shop at Home's
Transponders, then Spaceconnection
and/or AT&T shall have the
immediate right, without further
notification, to take such steps as
either AT&T and/or Spaceconnection
deems necessary to prevent Shop at
Home from accessing any of Shop at
Home's Transponders). As used
herein, "User" shall mean Shop at
Home and any person to whom Shop at
Home transfers all or part of
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its right to use Shop at Home's
Transponders or Galaxy Backup
Transponders, including without
limitation, a Shop at Home, licensee
or assignee. Shop at Home agrees to
maintain a properly operating
facsimile machine at all times to
receive a Denial of Access Notice
(or any other notice which can be
given to Shop at Home under the
terms of this Agreement) from
Spaceconnection and/or AT&T.
6.2 If Spaceconnection and/or AT&T denies, or
has given Shop at Home (or Spaceconnection)
notice of their intent to deny access to
Shop at Home's Transponder(s) pursuant to
the provisions of this Section 6, and if
Shop at Home does not believe the conditions
set forth in this Agreement to
Spaceconnection's and/or AT&T's denial of
access have been met, then Shop at Home
shall have the immediate right to seek
injunctive relief, including a temporary
restraining order on notice of four (4)
hours or more to prevent the denial or
continuing denial of such access by
Spaceconnection and/or AT&T.
6.3 Spaceconnection and/or AT&T shall also have
the right to seek: (I) injunctive relief,
including a temporary restraining order on
notice of four (4) hours or more to Shop at
Home, to prevent, suspend or otherwise
limited User's continued access to Shop at
Home's Transponders where Spaceconnection
and/or AT&T believe such use has resulted or
will result in a violation of any Obscenity
Law; or (II) declaratory relief to establish
its right to deny Users access to Shop at
Home's Transponders under this Agreement
and/or AT&T's agreement with
Spaceconnection.
6.4 Either party shall be entitled to oppose the
other's attempt to obtain equitable relief.
However, in order to enable either party to
obtain a resolution of any such dispute as
expeditiously as possible and subject to
Section 23 hereof, both parties hereby agree
that: (I) neither party will contest the
jurisdiction of, or the venue of, any action
from equitable relief brought by the other
party in the following court and the U.S.
District Court of the Central District of
California; (II) the party opposing
equitable relief (the "Opposing Party") will
make itself available to accept service by
telecopy or personal delivery on a 24
hour-a-day basis for five (5) consecutive
days following receipt by the Opposing Party
of the other party's notice of its intent to
seek such equitable relief; and (III) if
either party seeks a temporary restraining
order and provides notice to the Opposing
Party at least four (4) hours before the
scheduled court hearing, then the Opposing
Party will not challenge the timeliness of
such notice.
6.5 If it is determined by final judgment order
that Spaceconnection and/or AT&T prevented
Shop at Home from accessing any or all of
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Shop at Home's Transponders at a time when
either did not have the right to do so,
pursuant to Section 6, then Shop at Home's
sole and exclusive remedy shall be
Spaceconnection's payment to Shop at Home of
liquidated damages equal to two (2) times a
prorated amount of Shop at Home's monthly
Base Lease Rate or the Monthly Lease Rate,
as applicable, for the terminated capacity,
such pro-ration to be based on the period of
time of loss of use of such capacity.
6.6 All remedies of Spaceconnection and/or AT&T
set forth in this Section 6 shall be
cumulative and in addition to, and not in
lieu of any other remedies available to
Spaceconnection and/or AT&T at law, in
equity, elsewhere in this Agreement or
otherwise, and may be enforced by
Spaceconnection and/or AT&T concurrently or
from time to time.
6.7 In addition to any other indemnification
obligations found elsewhere in this
Agreement, Shop at Home shall indemnify and
save AT&T and/or Spaceconnection, their
directors, officers, employees, and their
affiliates from any liability or expense
arising out of or related to User's use of
Shop at Home's Transponder(s) under this
Section 6. Shop at Home shall pay all
expenses (including reasonable attorney's
fees) incurred by Spaceconnection and/or
AT&T in connection with all legal or other
formal or informal proceedings, instituted
by any private third party or any
Governmental Authority, and arising out of
or related to User's use of Shop at Home's
Transponders under this Section 6, and Shop
at Home shall satisfy all judgments, fines,
penalties, costs, or other awards which may
be incurred by or rendered against
Spaceconnection and/or AT&T as a result
thereof, as and to the extent permitted by
law.
6.8 Upon the expiration, termination, or
cancellation of this Agreement as to any
Transponder for any reason whatsoever
(including, without limitation, expiration
of this Agreement in accordance with its
terms and cancellation by Spaceconnection as
a result of an Event of Default by Shop at
Home), such Transponder shall be deemed,
without any further action by any party, to
be redelivered to Spaceconnection and
Spaceconnection shall be entitled to
immediate possession thereof.
Spaceconnection shall thereafter have the
right to utilize such redelivered
Transponder in any manner it determines.
7 CONTENT OF TRANSMISSIONS
7.1 Shop at Home is solely responsible for the
content of transmissions using the
Transponder(s) and related service and
agrees to defend, indemnify and hold
harmless Spaceconnection, its parents,
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and its parents subsidiaries and affiliates
and the directors, officers, employees,
agents and subcontractors of all of them
from and against any and all loss, cost,
damage, expense (including, but not limited
to, reasonable attorney's fee's) claims and
demands by any person based on the content
of any transmission.
7.2 Spaceconnection may terminate, prevent or
restrict any programming containing "Adult
Material" using the Service provided
hereunder as a means of transmission if such
actions (1) are undertaken at the request or
direction of AT&T or a governmental agency
(including, but not limited to the FCC) or
(2) are taken subsequent to the institution
against Spaceconnection and/or AT&T Shop at
Home, or Shop at Home's Designee(s), any
legal entity affiliated with any of them, or
any of the directors, officers, agents or
employees of the Parties, the Designees or
their affiliates, of criminal, civil or
administrative proceedings or investigations
based upon the content of such programming.
7.3 Spaceconnection may terminate, prevent or
restrict any programming containing "Adult
Material" using the Service provided
hereunder as a means of transmission if, in
the sole judgment of Spaceconnection's legal
counsel, (1) such actions are reasonably
appropriate and/or necessary to avoid
violation of applicable law, or (2) there is
a reasonable risk that criminal civil or
administrative proceedings or investigations
based on the content of such programming
will be instituted against Spaceconnection
and/or AT&T, their affiliates, parent
companies, subsidiaries, directors,
officers, agents or employees, or (3) such
programming will expose Spaceconnection
and/or AT&T to costs, expenses, liability,
damages, fines or other penalties from which
Spaceconnection and/or AT&T are not
adequately protected by the arrangement for
compensation, indemnity and insurance
provided by Shop at Home. Not withstanding
the foregoing and without limiting same,
Spaceconnection may, at its sole option,
agree to allow the transmission of such
"Adult Material" at a substantially
increased Service Rate. The substantially
increased Service rate shall be set by
Spaceconnection, in its sole discretion, and
the offer to continue Service on such basis
shall not at as a bar to prevent termination
of Service by Spaceconnection in the event
such offer of continued Service on proposed
revised Service rate basis is not acceptable
or accepted by Shop at Home.
7.4 Shop at Home's transmissions (and those of
its uplinking agents) to the Satellite(s)
shall comply, in all material respects, with
AT&T's Tariff and all FCC and all other
governmental (whether international,
federal, state, municipal, or otherwise)
statutes, laws, rules, regulations,
ordinances, codes, directives and orders, of
any such governmental agency, body, or court
(collectively, "Laws") applica-
13
<PAGE> 14
ble to it regarding the operation of the
Satellite(s), Shop at Home's Transponder(s)
to which Shop at Home is given access
pursuant to this Agreement and shall not
interfere with the use of any other
Transponder. Shop at Home shall not utilize
(or permit or allow any of its uplinking
agents to utilize) Shop at Home's
Transponder(s) to which Shop at Home is
given access pursuant to this Agreement in a
manner which will or may interfere with the
use of any other Transponder or cause
physical harm to Shop at Home's
Transponder(s) to which Shop at Home is
given access pursuant to this Agreement, any
other Transponders, or to the Satellite(s).
Further, Shop at Home will coordinate (and
will require its uplinking agents to
coordinate) with AT&T and Spaceconnection or
their designee, in accordance with
procedures established by AT&T and/or
Spaceconnection to control and supervise its
transmissions to the Satellite(s), so as to
minimize adjacent channel and adjacent
satellite interference. For purposes of this
Section 7.4, interference shall also mean
its Transponder Performance Specifications.
Without limiting the generality of the
foregoing, Shop at Home (and its uplinking
agents) shall comply with AT&T's Tariff and
all FCC and AT&T rules and regulations
regarding use of automatic transmitter
identification systems.
8 LIMITATION OF LIABILITY
8.1 Any and all express and implied warranties,
including, but not limited to, warranties of
merchantability or fitness for any purpose
or use, are expressly excluded and
disclaimed except to the extent specifically
and expressly provided for in this
agreement. It expressly is agreed that
Spaceconnection's and/or AT&T's sole
obligations and liabilities resulting from a
breach of this agreement, and Shop at Home's
exclusive remedies for any cause whatsoever
(including, without limitation, liability
arising from negligence) arising out of or
relating to this agreement and/or the
transactions contemplated hereby, are
limited to those set forth in this agreement
and/or any applicable tariff, and all other
remedies of any kind are expressly excluded,
including, without limitation, all rights
and remedies of Shop at Home under division
10, Chapter 5, Article 2 and Sections 10209,
10406 and 10504 of the California Uniform
Commercial Code.
8.2 In no event shall Spaceconnection and/or
AT&T be liable for any incidental or
consequential damages, whether foreseeable
or not, occasioned by any defect in the
Transponder(s), delay in delivery or
provision of the Transponder(s), failure of
the Transponder(s) to perform or any other
cause whatsoever. Spaceconnection and/or
AT&T make no warranty, express or implied,
to any other person or entity concerning the
Transponder(s) or the Satellite(s) and user
shall defend and indemnify Spaceconnection
and AT&T from any
14
<PAGE> 15
claims made under any warranty or
representation by user to any third party.
The limitations of liability set forth
herein shall also apply to all affiliates of
Spaceconnection and AT&T.
8.3 Notwithstanding the limitations of this
Section above, Shop at Home and
Spaceconnection each shall have the right to
obtain injunctive relief, if necessary, in
order to prevent the other party from
willfully breaching is obligations under
this Agreement or to compel the other party
to perform its obligations under this
Agreement.
8.4 To the extent that AT&T has any liability to
Spaceconnection as a result of the services
that it provides pursuant to its agreement
with Spaceconnection, AT&T has required that
its sole liability for its act or omissions
under this Agreement shall be determined in
accordance with the limitation of liability
provision contained in Section 2.4.I of the
Tariff, or its successor or replacement
tariff. If the FCC requires or permits the
Service to be provided without a tariff, the
limitation of liability provision contained
in Section 2.4.I of the Tariff at the time
of initial tariff revisions are filed shall
be incorporated int this Agreement and made
a part hereof as though set out in full.
Neither AT&T or Spaceconnection shall have
any liability in excess of that set forth
above except as set forth herein as to
Spaceconnection alone.
9 ASSIGNMENT AND TRANSFER
9.1 Shop at Home may assign this Agreement in
its entirety, including all of its rights,
duties and obligations hereunder, either in
connection with the sale of all or
substantially all of its assets or to its
parent corporation or to any wholly owned
subsidiary.
9.2 Shop at Home shall remain jointly and
severally liable with the replacement
customer for all charges for the Service
incurred on or before the date of such
transfer or assignment. If, in
Spaceconnection's sole judgment, the
proposed transferee or assignee replacement
customer represents a greater credit risk
than Shop at Home, Spaceconnection may
condition its consent to such transferee or
assignment upon Shop at Home remaining
jointly and severally liable for all charges
for the Service over the remaining term.
9.3 Spaceconnection shall have the right to
assign this Agreement including its rights,
duties and obligations hereunder, to its
parent corporation or any present or future
affiliate or subsidiary of Spaceconnection,
or in connection with the merger or
acquisition of its satellite business.
15
<PAGE> 16
9.4 Except as specifically set forth in this
Section 9, Shop at Home shall not transfer
any of its rights or obligations under this
Agreement except with the prior written
consent of Spaceconnection, which consent
may be given or withheld in
Spaceconnection's sole and absolute
discretion.
10 NOTICES
All notices, demands, requests, or other
communications which may be or are required to be given,
serviced, or sent by one party to the other party pursuant to
this Agreement (except as otherwise specifically provided in
this Agreement) shall be in writing and shall be delivered by
and or mailed by first-class, registered or certified mail,
return receipt requested, postage prepared, addressed as
follows:
(I) If to Spaceconnection:
B&P The Spaceconnection, Inc.
Ms. Priscilla Davis
14655 Vanowen Street
Van Nuys, California 91405
Tel: (818) 909-9966
Fax: (818) 909-2213
(II) If to Shop at Home:
Shop at Home, Inc.
5210 Schubert Road
P.O. Box 12600
Knoxville, Tennessee 37912
Tel: (615) 688-0300
Fax: (615) 689-5069
Either party may designate by notice in writing a new
address or addressee to which any notice, demand, request, or
communication may thereafter be so given, served or sent. Each
notice, demand, request, or communication which shall be
delivered to a telegraph company, shall be deemed sufficiently
given, served, sent or received for all purposes at such time
as it is delivered to the addressee named above as to each
party, with the signed messenger receipt, return receipt, or
the delivery receipt being deemed conclusive evidence of such
delivery, or with respect to a telex, the answer each being
presumptive evidence of such delivery, or at such time as
delivery is refused by the addressee upon presentation.
11 INDEPENDENT CONTRACTOR
Nothing herein contained shall create any association,
partnership, joint venture, the relation of principal and agent, or the
relation of employer and employee between the parties hereto or AT&T
and that AT&T shall perform all services hereunder as an independent
contractor.
16
<PAGE> 17
12 PUBLICITY AND ADVERTISING
12.1 Shop at Home shall not in any way or in any form
publicize or advertise in any manner the fact that is
obtaining services from Spaceconnection or AT&T
pursuant to this Agreement, without the express
written approval (which shall not be unreasonably
withheld) of Spaceconnection, obtained in advance,
for each item of such advertising or publicity.
Spaceconnection may have to obtain AT&T's permission
in this regard and the Parties agree that any
decision AT&T may make with respect to publicity
and/or advertising issues will be final and binding
on the Parties. The foregoing prohibition shall
include but not be limited to news releases, letters,
correspondence, literature, promotional materials or
displays of any nature or form. Each request for
approval hereunder shall be submitted in writing to
the representative designated in writing by
Spaceconnection; and approval, in each instance,
shall be effective only if in writing and signed by
said representative. Notwithstanding the foregoing,
Shop at Home may refer to the fact that it is
securing services from Spaceconnection without
Spaceconnection's prior approval so long as such
statements are limited to a statement of such fact
and are not an endorsement of any product or service
by AT&T or Spaceconnection.
12.2 Spaceconnection shall not in any way or in any form
publicize or advertise in any manner the fact that it
is providing services to Shop at Home pursuant to
this Agreement, without the express written approval
(which shall not be unreasonably withheld) of Shop at
Home, obtained in advance, for each item of
advertising or publicity. The foregoing prohibition
shall include but not be limited to news releases,
letters, correspondence, literature, promotional
materials or displays of any nature or form. Each
request for approval hereunder shall be submitted in
writing to the representative designated in writing
by Shop at Home; and approval, in each instance,
shall be effective only if in writing and signed by
said representative. Nothing herein shall prevent
AT&T or Spaceconnection from providing the FCC or any
other governmental agency, information concerning
this Agreement or the Tariff implementing this
Agreement as required by Law or in response to a
request for information by such governmental agency.
Notwithstanding the foregoing, Spaceconnection may
refer to the fact that it is providing the service to
Shop at Home without Shop at Home's prior approval so
long as such statements are limited to a statement of
such fact and are not an endorsement of any product
or service by Shop at Home.
13 NONDISCLOSURE OF INFORMATION
13.1 Each Party to this Agreement may find it beneficial
to disclose to the other party documentation or other
information which the disclosing Party considers
proprietary or is under a duty to protect
("Information"). Such Information may include but is
not limited to, engineering, hardware,
17
<PAGE> 18
software or other technical information concerning
the project or the business of AT&T, Spaceconnection
or Shop at Home generally.
13.2 It is specifically understood and agreed that
Information disclosed pursuant to this Agreement
shall be considered proprietary either because 1) it
has been developed internally by the disclosing
party, or because 2) it has been received by the
disclosing Party subject to a continuing obligation
to maintain the confidentiality of the Information.
13.3 Information that is provided in a Tangible form shall
be marked in a manner to indicate that it is
considered proprietary or otherwise subject to
limited distributions provided herein. If the
Information is provided orally, the disclosing party
shall clearly identify it as being proprietary at the
time of disclosure, and within five (5) working days
of such disclosure, confirm the disclosure in writing
to the other party.
13.4 With respect to Information, the Party to whom the
Information is disclosed and its employees shall:
(I) hold the Information in confidence and
protect it in accordance with the security
regulations by which it protects its own
proprietary or confidential information,
which it does not wish to disclose;
(II) restrict disclosure of the Information
solely to those employees with a need to
know and not disclose it to any other
persons;
(III) advise those employees of their obligations
with respect to the Information, and
(IV) use the Information only in connection with
implementing this Agreement and in
continuing discussions and negotiations
between the parties concerning the Service;
except as may otherwise be agreed upon in
writing.
13.5 In the event a party to whom Information has been
disclosed proposes to disclose that Information to an
outside consultant or agent, it shall obtain the
consent of the party from whom the Information was
originally received and arrange for the execution by
the consultant or agent for a nondisclosure agreement
for a form satisfactory to the party from whom the
Information was originally received.
13.6 The party to whom Information is disclosed shall have
no obligations to preserve the proprietary nature of
any Information which:
(I) was previously known to it free of any
obligations to keep it confidential;
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<PAGE> 19
(II) is disclosed to third parties by the
disclosing party or the third party
requiring such protection (such as AT&T)
without restriction;
(III) is or becomes publicly available by other
than unauthorized disclosure; or
(IV) is independently developed by the receiving
party.
13.7 The Information shall be deemed the property of the
disclosing party and, upon request, the other party
will return all Information which is in tangible form
to the disclosing party or destroy all such
information.
14 SPECIAL OBLIGATIONS OF SPACECONNECTION
Spaceconnection confirms and affirms its obligation to keep
its obligations to AT&T pursuant to the terms of its service agreement
with AT&T current and fulfilled so that the use of the Designated
Transponder(s) used by Shop at Home or its permittee is not jeopardized
or subject to interference was a result of the action or inaction of
Spaceconnection with respect to its lease with AT&T.
15 SPECIAL ACKNOWLEDGMENTS OF SHOP AT HOME
Shop at Home confirms and affirms to Spaceconnection its
understanding that:
(I) Spaceconnection is not the operator or owner
of the satellite, and consequently it is not
responsible for operational failures or
representations or the failure of AT&T to
perform any of its obligations to
Spaceconnection pursuant to the terms of
their lease/service agreement or related
agreements with respect to the Designated
Transponder(s). Regardless of whether said
obligations are referred to in this
Agreement.
(II) Spaceconnection is a lessee/customer of AT&T
with respect to the Designated
Transponder(s) and has acquired whatever
rights it has with respect to same as a
result of its lease/service agreement with
AT&T. Spaceconnection's rights an Shop at
Home's rights are limited by that agreement
and any applicable Tariff.
16 OBLIGATIONS OF SHOP AT HOME'S PERMITTEES
Prior to authorizing or permitting the use of the Designated
Transponder(s) by any permittee, Shop at Home shall secure AT&T's and
Spaceconnection's written approval and said permittee's written
agreement to be bound by all of the provisions of this Agreement
including, but not limited to, those which relate to Shop at Home's
obligations hereunder with respect to (I) the indemnification of
Spaceconnection and AT&T and (II) Shop at Home's responsibility for
damages to any party as a result of its or its permittee's breach of
any of the provisions of this Agreement as set forth herein. Said third
party permittee shall also agree to be bound by all of the provisions
regarding the operation
19
<PAGE> 20
of the Satellite(s) and the use of the Transponder(s), including
without limitation, Sections 2, 5, 6, 7, 8, 15, 16, 17, 18, 21 and 23
of this Agreement as though the permittee were Shop at Home. Said
permittee must also be able to meet Spaceconnection's and AT&T's legal,
technical and operational requirements as set forth in the Tariff and
herein.
17 INDEMNIFICATION
Shop at Home, and any of its permittees (collectively referred
to in this Agreement as "Shop at Home"), agree to indemnify and hold
harmless Spaceconnection and AT&T, their officers, agents, servants,
representatives, employees, and the affiliated companies and
corporations specified in this Agreement (collectively the "Indemnified
Parties") from all liability disclaimed by Spaceconnection and/or AT&T,
as specified in this Agreement, to the extent such liability arises in
connection with the provision by Spaceconnection and/or AT&T of the
Designated Transponder or Shop at Home's use of such Designated
Transponder(s) pursuant to this Agreement. Shop at Home shall pay all
expenses (including attorneys fees) incurred by the Indemnified Parties
in connection with all legal or other formal or informal proceedings
concerning claims of third parties, and Shop at Home shall satisfy all
judgments, costs, or other awards which may be incurred by or rendered
against the Indemnified Parties. Shop at Home shall also pay any
settlement of any such claim or legal or other formal or informal
proceeding, but Shop at Home shall not agree to any such settlement
without first giving thirty (30) days prior written notice of the terms
and conditions of such settlement to the Indemnified Parties involved
and obtaining the consent of such Indemnified Parties to such
settlement, which consent shall not be unreasonably withheld.
18 EXPRESS COVENANT OF GOOD FAITH AND FAIR DEALING
The Parties to this Agreement expressly confirm and represent
to each other that each will deal with the other in all matters
pertaining to this Agreement, in good faith.
19 TIME IS OF THE ESSENCE
Time is expressly declared to be of the essence in connection
with the obligations of the Parties as set forth in this Agreement.
20 TAXES
If any property or sales taxes are asserted against
Spaceconnection and/or AT&T after, or as a result of, delivery, by any
local, state, national or international, public or quasi-public
governmental entity, in respect of Shop at Home's transponder(s) or the
lease to or use thereof by Shop at Home, or are asserted in respect of
the provision of any other Transponder(s) provided hereunder, Shop at
Home shall be solely responsible for such taxes. If any taxes, charges
or other levies are asserted by reason of the use of the point in space
or the frequency spectrum at that point in space in which the satellite
containing Shop at Home's Transponders is located, or the use or
ownership of such Satellite (excluding any FCC license fee imposed on
the Satellite itself, as compared to the Transponders, which license
fee is the responsibility of AT&T, and such taxes are not specifically
allocated among the various components of such Satellite, then Shop at
20
<PAGE> 21
Home on behalf and through Spaceconnection, AT&T and the other Owners
and/or Users of such Transponders shall each pay a proportionate amount
of such taxes based on the number of Transponders each of them owns,
uses and/or leases.
21 NO THIRD-PARTY BENEFICIARY
The provisions of this Agreement are for the benefit only of
the Parties hereto and AT&T, and no third party other than AT&T may
seek to enforce, or benefit from, these provisions, except that both
Parties acknowledge and agree that the provisions of Sections 6.1, 7.1
and 7.4, are intended for the benefit of both Spaceconnection and all
other Owners. Both Parties agree that any other such Owner shall have
the right to enforce, as a third-party beneficiary, the provisions of
Sections 6.1, 7.1 and 7.4, against Shop at Home directly, in an action
brought solely by such other owner, or may join with Spaceconnection or
any other owner, in bringing an action against Shop at Home for
violation of such sections. Further, AT&T is the owner and operator of
the satellite and the designated Transponder(s), consequently, AT&T may
enforce any rights conferred upon it directly or any and all rights of
Spaceconnection and/or obligations of Shop at Home to which it has been
made a beneficiary thereto by the terms of this Agreement.
22 FORCE MAJEURE
22.1 Any failure or delay in the performance by
Spaceconnection of its obligations to deliver or
provide any Transponders shall not be a breach of
this Agreement if such failure or delay results from
any acts of God, governmental action or law (whether
in its sovereign or contractual capacity) or any
other circumstances reasonably beyond the control of
Spaceconnection, including, but not limited to,
weather or acts or omissions of Shop at Home or any
third parties (including the AT&T and all of its
direct and indirect subsidiaries, and any other
affiliates of AT&T or any company with whom AT&T
contracts for any components of the satellites or any
services with respect thereto).
22.2 Any failure in the performance of the Transponders,
once delivered or provided, shall not be a breach of
this Agreement if such failure results from acts of
God, governmental action or law (whether in its
sovereign or contractual capacity) or any other
circumstances reasonably beyond the control of
Spaceconnection AT&T, including, but not limited to,
earth station sun outage, weather, or acts or
omissions of Shop at Home or any third parties
(including AT&T and all of its direct and indirect
subsidiaries, and any other affiliates of AT&T or
companies with whom AT&T contracts with for any
components of the satellite(s) or any services with
respect thereto).
23 GOVERNING LAW, VENUE AND FORUM SELECTION
This Agreement shall be considered as entered into in and
governed by and construed under the laws of the State of California.
Shop at Home shall comply (and shall require its uplinking agents to
comply), in all material respects, with all laws
21
<PAGE> 22
applicable to it regarding the operation or use of the satellite(s),
Shop at Home's Transponder(s) to which Shop at Home is given access
pursuant to this Agreement. All legal actions must be brought in the
federal courts for the Central District of California or the Superior
Courts of the State of California, county of Los Angeles. By executing
this Agreement, Shop at Home is submitting to the jurisdiction of the
State of California with respect to any dispute which may arise out of
this Agreement.
24 HEADINGS
The headings used throughout this Agreement are for
convenience only and are not a part of this Agreement and shall have no
effect upon the construction and interpretation of this Agreement.
25 WAIVERS
A waiver by either party or any of the terms and conditions of
this Agreement in any instance shall not be deemed or construed to be a
waiver of such terms or condition for the future, or of any subsequent
breach thereof. Either party hereto may specifically waive any breach
of this Agreement (including an Event of Default) by the other party,
provided that no such waiver shall be binding or effective unless in
writing and no such waiver shall constitute a continuing waiver of
similar or other breaches, a waiving party, at any time, and upon
notice given in writing to the breaching party, may direct future
compliance with the waived term or terms of this Agreement, in which
event the breaching party shall comply as directed from such time
forward.
26 LEGAL COUNSEL AND INTERPRETATION
Each party hereto has consulted its own legal counsel in
connection with the negotiation and drafting of this Agreement. Counsel
for Spaceconnection has prepared this Agreement; however, the parties
acknowledge that each party and its counsel have reviewed and revised
this Agreement, and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement.
27 DELINQUENCY CHARGE
If any payment of any sum due from User shall not be received
by Spaceconnection with five (5) days after such payment is due, then
such overdue amount shall be subject to delinquency charge (liquidated
damages under California Civil Code Section 1671) at the rate of
interest equal to eighteen percent (18%) per annum from the date such
overdue amount was actually due until the date it is actually received
by Spaceconnection. User acknowledges that such delinquency charge is
reasonable under all the circumstances existing at the time this
Agreement is entered into. User agrees that acceptance of all or any
portion of such delinquency charge by Spaceconnection shall in no event
constitute a waiver by Spaceconnection of User's default with respect
to such overdue amount, nor shall it prevent Spaceconnection from
exercising any or all other rights or remedies which Spaceconnection
may have. User further acknowledges that failure to make payments when
due shall give Spaceconnection the right, but not the
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<PAGE> 23
obligation, to terminate service to User as set forth in Section 5
hereof. The term "prorated" shall mean an allocation on a straight line
basis based on a number of days. All present value analyses shall use a
18% annual discount rate, compounded monthly. Any delinquency charge,
discount rate and/or interest rate set forth herein shall be charged or
applied at the rate set forth herein or the maximum rate allowed by
law, whichever is lower.
29 SEVERABILITY
Nothing contained in this Agreement shall be construed so as
to require the commission of any act contrary to any laws, and wherever
there is any conflict between any provision of this Agreement and any
law, such law shall prevail; provided, however, that in such event, the
provisions of this Agreement so affected shall be curtailed and limited
only to the extent necessary to permit compliance with the minimum
legal requirement yet permit the implementation of the intent of the
Parties and the spirit of the Agreement. To the extent possible, such
interpretation shall minimize the extent other provisions of this
Agreement shall be affected thereby and shall confirm that all other
provisions of this Agreement shall continue in full force and effect.
30 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties contained herein or made by
Spaceconnection or Shop at Home in connection herewith shall survive
any independent investigation made by Spaceconnection or Shop at Home.
31 COUNTERPARTS
This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and all such counterparts
together shall constitute but one and the same instrument.
32 DOCUMENTS
Each party hereto agrees to execute and, if necessary, to file
with the appropriate governmental entities, such documents as the other
party hereto shall reasonably request in order to carry out the
purposes of this Agreement and to notify the other party of any such
filing.
33 ENTIRE AGREEMENT AND AMENDMENT
This Agreement, along with matters incorporated herein by
reference, constitutes the entire Agreement between Shop at Home and
Spaceconnection relative to the service, and this Agreement can be
altered, amended or revoked only by an instrument in writing signed by
both Shop at Home and Spaceconnection. Shop at Home and Spaceconnection
agree hereby that any prior or contemporaneous oral and written
agreements between and among themselves and their agents and
representatives relative to the subject of this Agreement are
superseded and replaced by this Agreement.
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<PAGE> 24
IN WITNESS WHEREOF, the Parties have signed this Agreement on the day
and year first above written.
B&P THE SPACECONNECTION, INC.
By: /s/ Priscilla L. Davis
-----------------------------
Title: Executive Vice President
Date: June 29, 1995
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
-----------------------------
Title: President/CEO
Date: June 29, 1995
24
<PAGE> 1
EXHIBIT 11
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30,
1996 1997
------------ -----------
<S> <C> <C>
Net earnings $ 166,493 $ 367,155
Interest expense saved from
conversion of debt 29,582 28,582
Interest expense saved from
payoff of debt with excess
proceeds from conversion
of options and warrants 24,848 - 0 -
----------- -----------
Adjusted net earnings $ 220,923 $ 395,737
=========== ===========
Common shares outstanding 10,587,958 10,925,718
Common equivalent shares
issuable upon exercise of
stock options and warrants (1) 3,523,408 2,748,942
Common equivalent shares
issuable upon conversion
of debt 563,146 444,177
Common equivalent shares
issuable upon conversion
of preferred stock 137,943 137,943
----------- -----------
Total weighted average shares 14,812,455 14,256,780
=========== ===========
Primary and fully diluted net
income per common and
equivalent share $ 0.01 0.03
=========== ===========
</TABLE>
Notes:
(1) Amount calculated using the modified treasury stock method and fair market
values.
<PAGE> 2
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
Years Ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $1,556,046 $(1,405,472) $(1,281,989)
Interest expense saved from
conversion of debt 107,408 -
Preferred stock dividend (14,000) (14,000) (5,000)
------------ ------------- --------------
Adjusted net income (loss) $1,649,454 $(1,419,472) $(1,286,989)
------------ ------------- --------------
Common shares outstanding 10,651,472 10,284,085 9,436,870
Common equivalent shares
issuable upon exercise of
stock options and warrants (1) 2,681,100
Common equivalent shares
issuable upon conversion
of debt 475,026
Common equivalent shares
issuable upon conversion
of preferred stock 137,943
------------ ------------ ------------
Total weighted average shares 13,945,540 10,284,085 9,436,870
============ ============ ============
Primary and fully diluted net
earnings per common and
equivalent share $0.12 $(0.14) $(0.14)
============ ============ ============
</TABLE>
Notes: (1) Amount calculated using the modified treasury stock method and fair
market values.
<PAGE> 1
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
y/e y/e y/e y/e y/e 3 mos
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings/(loss) (2,441) (1,052) (1,282) (1,509) 1,476 141
Fixed charges 103 72 216 795 1,080 284
-----
Ratio 137%
=====
------ ------ ------ ------ ---
Deficiency (2,544) (1,124) (1,498) (2,304) (143)
====== ====== ====== ====== ====
</TABLE>
<PAGE> 1
Exhibit 21
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
MFP, Inc. Tennessee
Broadcast, Cable & Satellite Technologies, Inc. Texas
Urban Broadcasting Systems, Inc. Texas
Collector's Edge of Tennessee, Inc. Tennessee
SAH Acquisition Corporation Tennessee
SAH Acquisition Corporation II Tennessee
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. _________) of our report dated August 14, 1997, except as to Note 17 which
is as of January 8, 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 August 14, 1997. We also consent to the reference to our
firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
January 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 5,077,641
<SECURITIES> 0
<RECEIVABLES> 3,292,925
<ALLOWANCES> 0
<INVENTORY> 3,262,080
<CURRENT-ASSETS> 13,436,339
<PP&E> 6,328,726
<DEPRECIATION> 1,894,959
<TOTAL-ASSETS> 34,410,310
<CURRENT-LIABILITIES> 18,077,778
<BONDS> 7,522,131
1,393,430
0
<COMMON> 26,786
<OTHER-SE> 3,776,775
<TOTAL-LIABILITY-AND-EQUITY> 34,410,310
<SALES> 67,817,460
<TOTAL-REVENUES> 69,064,172
<CGS> 40,626,134
<TOTAL-COSTS> 40,626,134
<OTHER-EXPENSES> 26,881,992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,079,529
<INCOME-PRETAX> 1,476,046
<INCOME-TAX> (80,000)
<INCOME-CONTINUING> 1,556,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,556,046
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,260,563
<SECURITIES> 0
<RECEIVABLES> 3,687,168
<ALLOWANCES> 0
<INVENTORY> 3,066,301
<CURRENT-ASSETS> 10,390,885
<PP&E> 6,680,274
<DEPRECIATION> 2,056,974
<TOTAL-ASSETS> 32,627,222
<CURRENT-LIABILITIES> 15,952,371
<BONDS> 6,983,834
1,393,430
0
<COMMON> 27,686
<OTHER-SE> 4,503,030
<TOTAL-LIABILITY-AND-EQUITY> 32,627,222
<SALES> 20,958,035
<TOTAL-REVENUES> 21,333,257
<CGS> 12,347,598
<TOTAL-COSTS> 12,347,598
<OTHER-EXPENSES> 8,226,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383,569
<INCOME-PRETAX> 475,537
<INCOME-TAX> 108,382
<INCOME-CONTINUING> 367,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 367,155
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
