SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
September 30, 2000 0-25596
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5388 Hickory Hollow Parkway
P. O. Box 305249
Nashville, Tennessee 37230-5249
(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 263-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock $.0025 par value 34,326,552
(Title of class) Shares outstanding at
November 9, 2000)
SHOP AT HOME, INC. AND SUBSIDIARIES
Index
Three Months Ended September 30, 2000 and 1999
--------------------------------------------------------------------------
Part I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5-6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
Item 3 - Quantitative and Qualitative Disclosure
About Market Risk 14-15
Part II OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Defaults upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 6 - Exhibits and Reports on Form 8-K 16-17
Exhibit 10.1 Asset Purchasing Agreement for the sale of KZJL-TV
(Houston, Texas) to Liberman Broadcasting Company,
dated November 10, 2000
Exhibit 27 Financial Data Schedule (For SEC use only)
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
September 30, June 30,
2000 2000
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $12,215 $27,515
Restricted cash 5,410 5,058
Accounts receivable - net 11,487 15,892
Inventories - net 13,726 15,828
Prepaid expenses 1,048 1,214
Deferred tax assets 2,175 1,825
Total current assets __________ ________
46,061 67,332
Related party - note receivable, net of discounts of $56 and
$64, September 30, 2000 and june 30, 2000, respectively 711 703
Property & equipment - net 47,024 48,812
Deferred tax asset 12,275 8,128
FCC and NFL Licenses - net 95,969 96,615
Goodwill, net 2,161 2,202
Other assets 3,340 3,502
__________ ________
Total assets $207,541 $227,294
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $26,304 $32,215
Current portion - capital leases and long term debt 795 12,775
Deferred revenue 483 478
__________ ________
Total current liabilities 27,582 45,468
Long-term debt 90,114 84,336
Redeemable preferred stock:
Series A:
Redeemable at $10 per share,
$10 par value, 1,000,000 shares authorized;
92,732 and 92,032 shares issued and outstanding at
September 30, 2000 and June 30, 1999, respectively 941 941
Series B:
$10,000 stated value, 2,000 shares authorized;
2,000 issued and outstanding on September 30, 2000
and June 30, 2000, respectively; redeemable as discussed
in the June 30, 2000 Annual Report 12,462 11,563
Stockholders' equity:
Common stock - $.0025 par value, 100,000,000
shares authorized; September 30, 2000 & June 30, 2000 and
31,266,787 and 31,264,772 shares issued at September 30, 2000
and June 30, 2000, respectively 78 78
Additional paid in capital 105,274 106,482
Accumulated deficit (28,910) (21,574)
__________ ________
Total liabilities and stockholders' equity $207,541 $227,294
========== ========
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Thousands of Dollars)
Three Months Ended
September 30,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $39,565 $45,282
Operating expenses:
Cost of goods sold (excluding items
listed below)
Salaries and wages 4,792 2,695
Transponder and affiliate charges 8,464 7,893
Other general operating and
administrative expenses 6,005 4,174
Depreciation and amortization 2,965 1,411
__________ ________
Total operating expenses 48,860 44,621
__________ ________
Income/(Loss) from operations (9,295) 661
Interest income 265 304
Interest expense (2,807) (2,280)
Other income/(expense) 4 30
__________ ________
Loss before income taxes (11,833) (1,285)
Income tax benefit (4,497) (495)
__________ ________
Net loss $(7,336) $(790)
========== ========
Basic loss per share $(0.24) $(0.03)
========== ========
Diluted loss per share $(0.24) $(0.03)
========== ========
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2000 and 1999
(Thousands of Dollars)
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(7,336) $(790)
Non-cash expenses/(income) included in net loss:
Depreciation and amortization 2,965 1,411
Gain on disposal of assets (19) -
Deferred tax benefit (4,497) (495)
Deferred interest 135 (10)
Provision for bad debt 107 47
Provision for inventory obsolescence 533 -
Changes in current and non-current items:
Accounts receivable 4,298 (1,069)
Inventories 1,569 (1,869)
Prepaid expenses and other assets 166 (147)
Accounts payable and accrued expenses (6,197) 604
Deferred revenue 5 235
__________ ________
Net cash used by operations (8,271) (2,083)
========== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (430) (6,576)
Deposits (50) -
Net change in restricted cash (353) 552
Other assets - (80)
__________ ________
Net cash used in investing activities (833) (6,105)
========== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt and capitalized leases (6,202) (20,041)
Exercise of stock options and warrants 6 162
Proceeds from stock offering - 44,293
Payment of stock issuance costs - (757)
__________ ________
Net cash provided (used) by financing activities (6,196) 23,657
========== ========
NET INCREASE/(DECREASE) IN CASH (15,300) 15,469
Cash beginning of period 27,515 7,066
__________ ________
Cash end of period $12,215 $22,535
========== ========
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
Three Months Ended September 30, 2000 and 1999
(Thousands of Dollars)
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 586 $ 80
========== ========
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accrued preferred stock dividends $ 313 $ 3
========== ========
Reversal of conversion of preferred stock into shares of
Common stock $ - $ 318
========== ========
Income tax benefit from exercise of stock options $ - $ 159
========== ========
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2000 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
All dollar values have been expressed in thousands (000s) unless otherwise noted
except for per share data. The financial information included herein is
unaudited for the quarter ended September 30, 2000 and 1999; however, such
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of the Company, necessary for a fair
presentation of financial condition and results of operations of the interim
periods. The condensed consolidated balance sheet data for the fiscal year ended
June 30, 2000 was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The accounting policies followed by the Company are set forth in the Company's
financial statements in its Annual Report on Form 10-K for the fiscal year ended
June 30, 2000.
Certain amounts in the prior periods' condensed consolidated financial
statements have been reclassified for comparative purposes to conform to the
current year presentation.
NOTE 2 -- INVENTORY
The components of inventory at September 30, 2000 and June 30, 2000 are
as follows:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
---- ----
<S> <C> <C>
Products purchased for resale $10,946 $ 12,688
Finished goods (Collector's Edge) 2,964 2,909
Work in progress (Collector's Edge) $ 1,018 $ 900
__________ ________
14,928 16,497
Valuation allowance (1,202) (669)
__________ ________
Total $13,726 $ 15,828
========== ========
</TABLE>
NOTE 3 - REVOLVING CREDIT AGREEMENT
On December 15, 1999, the Company obtained a $20.0 million revolving line of
credit from a commercial bank, of which $14.0 million was outstanding as of
September 30, 2000. As of September 30, 2000, the Company was in default under
certain financial performance covenants of the bank facility. On October 30,
2000, the Company borrowed $20.0 million under a new bank facility from a
different financial institution. At the same time the Company paid in full and
terminated its existing bank facility (see Form 8-K filed October 31, 2000),
thus curing the defaults. The new facility matures on November 2, 2001. No
principal payments are due before then except as required as certain assets are
sold. The facility requires that interest be paid at least quarterly at a
variable rate (11.625% currently) based on LIBOR or prime rate. The facility
contains covenants restricting the sale of assets, mergers and investments and
requiring that cash on hand exceed $5.0 million at all times.
NOTE 4 - NET LOSS PER SHARE
Basic and diluted loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Dilutive
securities are represented by options, warrants and convertible preferred stock
outstanding and are not included in the computation for loss periods because
they would be antidilutive.
The following table sets forth for the periods indicated the calculation of net
loss per share:
<TABLE>
<CAPTION>
Three Months Ended
2000 1999
<S> <C> <C>
Numerator:
Net loss $ (7,336) $ (790)
Preferred stock dividends (313) (3)
__________ ________
Numerator for basic loss per share
Available to common stockholders $ (7,649) $ (793)
========== ========
Denominator:
Denominator for basic earnings per share-
Weighted-average shares 31,265 29,959
========== ========
Basic and diluted loss per share $ (0.24) $ (0.03)
========== ========
</TABLE>
Options and warrants to purchase common shares and convertible preferred stock
were excluded from the above computations in loss years because their inclusion
would be anti-dilutive. These amounts are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
a) Employee stock options and warrants 5,277 5,055
b) Convertible preferred stock 8,464 114
114
</TABLE>
<PAGE>
NOTE 5 - SEGMENT DISCLOSURE
The Company operates principally in three segments: Network, collectibles.comsm
and Collector's Edge. The Network segment consists of home shopping, which
primarily includes the sale of merchandise on television. The collectibles.comsm
segment, which became operational November 12, 1999, consists of the Company's
website, which specializes in the sale of collectible merchandise over the
Internet. The Collector's Edge segment includes the operations of Collector's
Edge of Tennessee, Inc., which sells sports trading cards primarily to
unaffiliated customers. The Company operates almost exclusively in the United
States.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
<TABLE>
<CAPTION>
INDUSTRY SEGMENT DATA
Three Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Network $ 34,872 $ 43,221
collectibles.comsm 4,239 -
Collector's Edge 1,270 2,061
Intersegment Sales (816) -
__________ ________
$ 39,565 $ 45,282
========== ========
Income (loss) from operations:
Network $ (6,896) $ 978
collectibles.comsm (1,757) (327)
Collector's Edge (642) 10
__________ ________
$ (9,295) $ 661
========== ========
Depreciation and amortization:
Network $ 2,563 $ 1,210
collectibles.comsm 353 17
Collector's Edge 49 184
__________ ________
$ 2,965 $ 1,411
========== ========
Income (loss) before taxes:
Network $ (9,434) $ (956)
collectibles.comsm (1,757) (327)
Collector's Edge (642) (2)
__________ ________
$ (11,833) $(1,285)
========== ========
September 30, 2000 June 30, 2000
Assets:
Network $ 192,889 $211,433
collectibles.comsm 9,152 8,331
Collector's Edge 6,650 8,830
Intersegment eliminations (1,150) (1,300)
__________ ________
$ 207,541 $227,294
========== ========
</TABLE>
Note: Intersegment sales are at a transfer price reflecting market value.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the "Selected Financial Data" and the Company's consolidated financial
statements and related notes included elsewhere herein.
General
The Company, founded in 1986, sells specialty consumer products,
primarily collectibles, through interactive electronic media, including
broadcast, cable and satellite television and, increasingly, the Internet. It
offers a variety of products such as sports cards and memorabilia, coins,
currency and jewelry, many of which it sells on an exclusive basis.
The Company receives revenues primarily from the sale of merchandise
marketed through its programming carried by:
o television stations from which the Company has purchased broadcast time;
o the Company's television stations, with its programming being carried on
cable television systems under the "must carry" or the retransmission
consent provisions of federal law;
o direct carriage on cable television systems under agreements with cable
system operators;
o direct broadcast satellite services (DBS), such as Echostar;
o direct reception of the Company's transmission by individuals who own
"backyard" satellite downlink equipment; and
o the Company's website, collectibles.com.
Approximately 86.6% of the Company's revenues for the quarter ended
September 30, 2000 were derived from the sale of products on the television
network, 10.7% were from collectibles.com and the remaining 2.7% were from
Collector's Edge. The Company's products include sports collectibles and sports
related products, memorabilia and other signed and autographed merchandise,
electronic equipment, coins and currency, cutlery and knives, jewelry and
gemstones. Beginning in 1997, the Company has also received revenues from sales
by its subsidiary, Collector's Edge. This subsidiary sells sports trading cards
under licenses from National Football League Properties, Inc. and National
Football League Players, Incorporated. The Company launched its website,
collectibles.com, on November 12, 1999. Since its launch, collectibles.com has
had $8.9 million dollars in net sales through September 30, 2000.
As of September 30, 2000, the Company's programming was
viewable during all or part of each day by approximately 59.5 million cable and
DBS households, of which approximately 13.5 million households received the
programming on essentially a full-time basis (20 or more hours per day) and the
remaining 46.0 million households received it on a part-time basis. To measure
performance in a manner that reflects both the growth of the Company and the
nature of its access to part-time households, the Company uses a household
full-time equivalent method to measure the reach of its programming which
accounts for both the quantity and quality of time available to it. To derive
this full-time equivalent household base ("FTE Household"), the Company has
developed a methodology to assign a relative value of each hour of the day to
its overall sales, which is based on sales in markets where the programming is
carried on a full-time basis. Each hour of the day has a value based on
historical sales. FTE Households have grown to 25.0 million at September 30,
2000 from 21.4 million at September 30, 1999. The Company believes that the
change in the number of FTE Households provides a consistent measure of its
growth and applies this methodology to all affiliates. Accordingly, the Company
uses the revenue per average FTE Household as a measure of pricing new affiliate
contracts and estimating their anticipated revenue performance.
Principal elements in the Company's cost structure are (a) cost of
goods sold, (b) transponder and affiliate costs and (c) salaries and wages. The
Company's cost of goods sold is a direct result of both the product mix and its
ability to negotiate favorable prices from its vendors. Transponder and
affiliate costs include expenses related to carriage under affiliation and
transponder agreements. Salaries and wages have increased with the Company's
increased revenues and the addition of staff to support its growth. Since June
30, 2000, however, the Company has implemented an expense reduction plan
affecting each of its principal cost categories (See "Business Strategy").
Business Strategy
Because of disappointing results reported for the fiscal year ended
June 30, 2000, the Company implemented a comprehensive turnaround plan which was
outlined in the Annual Report on Form 10-K filed for that period. The ongoing
plan included cost reductions as well as revenue improvement initiatives.
Significant cost reductions have already been achieved in salaries through
headcount reductions, in affiliate charges by canceling or lowering the payments
related to unprofitable carriage agreements, in shipping costs by eliminating
handling fees paid to the Company's merchandise vendors and in other operating
expenses by renegotiating major contracts such as for long-distance telephone
service and computer software maintenance. Some revenue improvements have also
been achieved by reducing credit card fraud, returning to predictable product
scheduling by daypart and successfully launching a significant database
marketing program. Also, subsequent to the end of the September 30, 2000
quarter, the Company introduced a private label credit card program which has
been well received by customers. The Company has not yet, however,
satisfactorily reduced returns of merchandise or lowered price points to attract
a larger customer base, and is therefore continuing to refine its merchandising
mix to achieve these goals.
Overview of Results of Operations
The following table sets forth for the periods indicated the percentage
relationship to net revenues of certain items included in the Company's
Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended
2000 1999
---- ----
<S> <C> <C>
Net revenues 100.0 % 100.0 %
Cost of goods sold (excluding items listed below) 67.3 62.8
Salaries and wages 12.1 5.9
Transponder and affiliate charges 21.4 17.4
Other general operating and administrative expenses 15.2 9.2
Depreciation and amortization 7.5 3.1
Interest income (0.7) (0.7)
Interest expense 7.1 5.0
Other (income) expense - 0.1
Loss before income taxes (29.9) (2.8)
Income tax benefit (11.4) (1.1)
Net loss (18.5) (1.7)
</TABLE>
Three months ended September 30, 2000 vs. three months ended September 30, 1999
Net Revenues. The Company's net revenues for the quarter ended
September 30, 2000, were $39.6 million, a decrease of 12.6% from $45.3 million
for the same quarter in 1999. The decrease in net revenue is a direct result of
increased sales returns and chargebacks. Returns for the first quarter increased
from $10.0 million or 18.2% of sales last year to $15.5 million or 27.6% of
sales this year. Chargebacks increased from $0.4 million or 0.7% of sales last
year to $1.3 million or 2.4% of sales this year. The Network accounted for 86.6%
of total net revenues on an average of 25.0 million FTE Cable Households in the
quarter ended September 30, 2000 compared to an average of 20.1 million FTE
Cable Households in the 1999 quarter, representing a 29.9% increase.
collectibles.com represented 10.7% of the Company's total net revenues or $4.2
million. The remaining 2.7% of revenues resulted from approximately $1.1 million
in revenue from Collector's Edge, a decrease of $1.0 million or 47.7% from the
1999 period. The decrease in Collector's Edge's revenue was due to a higher
level of competition in the football card market.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the quarter ended September 30, 2000, the
cost of goods sold rose as a percentage of net revenues to 67.1% from 62.8% in
the comparable 1999 period. The cost of goods were $26.5 million for the quarter
ended September 30, 2000 compared to $28.4 million for the quarter ended
September 30, 1999. The cost of goods for the Network was 64.5% or $22.5 million
for the quarter ended September 30, 2000 compared to 62.6% or $27.5 million for
the quarter ended September 30, 1999. The cost of goods for collectibles.com was
67.4% or $2.9 million with no comparable cost in September 1999. However, the
cost of goods was 117.9% or $1.3 million for Collector's Edge as of September
30, 2000 due to inventory liquidation and poor product performance, compared to
67.7% or $1.4 million for the quarter ended September 30, 1999. Margins for the
Network and collectibles.com were also negatively impacted by an increase in
credit card chargebacks from $0.4 million in the quarter ended September 30,
1999 to $1.3 million for the quarter ended September 30, 2000.
Salaries and Wages. Salaries and wages for the quarter ended September
30, 2000 were $4.8 million, an increase of $2.1 million over the comparable 1999
quarter. After adding back $0.4 million in salaries capitalized in the first
quarter last year as part of the development of the enterprise wide computer
system, this increase would be reduced to $1.7 million. Salaries and wages, as a
percent of revenues, increased to 12.1% in the 2000 period compared to 6.0% in
the 1999 period (6.9% after adding back capitalized salaries). The increase in
salaries is due to the full effect of the startup of collectibles.com and the
addition of information systems staff required to support the Company's new
enterprise wide computer system.
Transponder and Affiliate Charges. Transponder, and affiliate charges
for the quarter ended September 30, 2000 were $8.5 million, an increase of $0.6
million or 7.7% over the comparable 1999 quarter. During the same period, FTE
Cable Households grew 23.9%. The affiliate carriage cost component of this
expense category increased as a percentage of revenues to 20.1% from 16.3%.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the quarter ended September 30, 2000
were $6.0 million, an increase of $1.8 million or 43.8% over the comparable 1999
quarter. This increase was comprised of primarily expenses relating to
collectibles.comsm, including advertising expenses of $1.3 million associated
with the continued revenue growth of collectibles.com.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended September 30, 2000 was $3.0 million, an increase of $1.6 million
or 110.1% over the comparable 1999 quarter, due to the installation of the
enterprise wide information system and the launch of collectibles.com.
Interest. Interest expense of $2.6 million increased by $295 or 13.0%
over the comparable period in 1999. The increase is primarily due to interest
associated with the bank facility.
Liquidity and Capital Resources
As of September 30, 2000, the Company had total current assets of $46.1
million and total current liabilities of $27.6 million, resulting in a positive
working capital position of $18.5 million. This represents a $3.4 million
decrease in the working capital position at June 30, 2000. The major components
of the decrease were:
The Company used $6.0 million to reduce its Senior Credit Facility.
The Company also used $6.2 million to reduce accounts payable.
During the quarter ended September 30, 2000, the Company used
approximately $8.3 million for operations. The major components of this net use
were the loss of $7.3 million, which included non-cash items of a $4.5 million
increase in net deferred tax assets, offset by $3.0 million in depreciation and
amortization and a $5.9 million reduction in receivables and inventory.
The Company used approximately $0.8 million for investing activities.
Approximately $0.4 million was used to acquire new equipment. Additionally, the
Company recorded a deposit and made transfers of unrestricted cash toward future
interest payments which increased restricted cash.
Approximately 90% of Shop At Home's receipts are customer credit card
charges. During the quarter ended September 30, 2000, the Company provided
"stretch pay" terms for 46.8% of its revenues. "Stretch pay" terms allow the
customer to pay for the Company's merchandise in two or three monthly credit
card installments. The Company has implemented a private label credit card
program funded by a financial institution to significantly reduce its stretch
pay receivables and bad debt.
As discussed in Note 3 to the Financial Statements, the Company
borrowed $20.0 million on October 30, 2000 under a new bank facility, thus
providing additional working capital and extending the maturity of its bank
debt.
The Company is highly leveraged. Although the Company believes that it
has sufficient working capital, when combined with anticipated positive cash
flow from operations during fiscal 2001, to meet its current debt obligations
and capital equipment needs, management will seek to repay or refinance the
$20.0 million bank facility on a more favorable basis in terms of maturity and
cost. In addition, the Company will evaluate new sources of equity and continue
to consider strategic alternatives for its station assets as well as the entity
as a whole.
Series B Preferred Stock
On September 21, 2000, the Company amended its Series B Preferred Stock
agreements to provide that the holders would convert $5.0 million into common
stock by October 31, 2000 and convert another $5.0 million between November 1
and December 31, 2000. The holders agreed to waive until December 31, 2000 their
rights regarding their ability to convert all Series B Preferred Stock based on
the price of the Company's common stock dropping below certain levels for
specified periods of time. The waiver was contingent upon the Company's
obtaining by October 31, 2000 a $20.0 million bank facility meeting certain
interest amortization and covenant criteria. The Company successfully complied
with this requirement (See Liquidity and Capital Resources). The holders have,
to date, converted $5.0 of the Series B Preferred Stock into 3,059,765 shares of
the Company's common stock.
Recent Developments:
Disposition of Television Stations
On November 10, 2000, the Company entered into a definitive agreement
with Liberman Broadcasting Company for the sale of the Company's Houston
television station, KZJL, Channel 61, for a cash purchase price of $57 million.
In addition, the Company will have the right to receive 50% of the net proceeds
of any payment made in the future to the purchaser to move the station to a new
channel in order to permit an early migration from the 700 Mhz spectrum. The
closing of the sale is subject to FCC approval and other standard contractual
conditions. The Company is obligated to use the proceeds to repay the $20
million bank facility. The Company plans to consider its options with regard to
the use of the remaining proceeds, including the repurchase of a portion of its
Senior Secured Notes Due 2005 and redemption of its Series B Convertible
Preferred Stock.
The Company announced on September 22, 2000, that it had entered into a
Letter Agreement with Azteca America to sell the assets of WSAH, Bridgeport,
Connecticut, for a cash purchase price of $37.5 million. Azteca America has,
however, defaulted on a provision in the Letter Agreement calling for the
execution of a definitive agreement by a stated deadline. The Company does not
anticipate that a final agreement will be reached with the purchaser, and, as a
result, the Company has requested that the $0.5 million escrow deposit paid by
the purchaser be forfeited and paid to the Company. At this time, the escrow
deposit has not been paid to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, foreign
currency exchange rate risk, commodity price risk and other relevant market rate
or price risks.
The Company is exposed to some market risk through interest rates,
related to its investment of its current cash and cash equivalents. These funds
are generally invested in highly liquid debt instruments with short-term
maturities. As such instruments mature and the funds are reinvested, the Company
is exposed to changes in market interest rates. This risk is not considered
material, and the Company manages such risk by continuing to evaluate the best
investment rates available for short-term high quality investments.
The Company is not exposed to market risk through changes in interest
rates on the Notes because the debt is at a fixed rate. The Company is exposed
to market risk through changes in interest rates on its $20.0 million line of
credit which could be effected with changes in the prime rate or LIBOR Rate.
Most of the Company's products are shipped directly to its customers by
its vendors or can be returned by the Company to its vendors. The Company
therefore maintains a retail inventory that is relatively small in relationship
to its sales, reducing its exposure to changes in market conditions for its
products. The Company's products are purchased domestically, and, as a
consequence, there is no foreign currency exchange risk.
The Company has no activities related to derivative financial
instruments or derivative commodity instruments.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Shop At Home, Inc. (the "Company" or "Shop At Home") based
these forward-looking statements largely on its current expectations and
projections about future events and financial trends affecting the financial
condition of its business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about Shop At Home, including,
among other things:
o general economic and business conditions, both nationally and in the
Company's markets;
o the Company's expectations and estimates concerning future financial
performance and financing plans;
o anticipated trends in the Company's business;
o existing and future regulations affecting the Company's business;
o the Company's successful implementation of its business strategy;
o fluctuations in the Company's operating results;
o technological changes in the television and Internet industries;
o restrictions imposed by the terms of the Company's indebtedness and the
issuance of the Series B Convertible Preferred Stock;
o significant competition in the sale of consumer products through
electronic media;
o the Company's dependence on exclusive arrangements with vendors;
o the Company's ability to achieve broad recognition of its brand names;
o continued employment of key personnel and the ability to hire qualified
personnel; and
o legal uncertainties and possible security breaches associated with the
Internet.
In addition, in this report, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Shop At Home, its business or management, are
intended to identify forward-looking statements.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this report. Because of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named in a lawsuit filed in New York State
alleging that the Company engaged in deceptive advertising concerning the sale
of Pokemon trading cards. The plaintiff asked that it be granted class action
status on behalf of all other New York residents. The Company strenuously
objects to the allegations and intends to fully defend this action. The Company
believes that because it has advertising injury insurance and
indemnifications from its vendors that this lawsuit is not likely to have a
material adverse effect on the Company.
Item 2. Changes In Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission Of Matters To A Vote Of Security Holders.
None
Item 6. Reports On Form 8-K.
Form 8-K Reports
The Company filed four reports on Form 8-K during the quarter
ending September 30, 2000, reporting the following:
Form 8-K filed July 5, 2000, reporting that on June 30, 2000,
the Company issued 2,000 shares of its Series B Convertible Preferred Stock and
related Warrants in a private placement to institutional investors.
Form 8-K filed September 1, 2000, reporting that on September
1, 2000, the Company held an "Internet Chat" on its Internet site,
collectibles.com, to discuss the Company's fiscal 2000 financial results, and
containing a transcript of the chat.
Form 8-K filed September 6, 2000, reporting that on September
1, 2000, the Company held a conference call with certain financial analysts to
announce and discuss the Company's financial results for its fiscal year ending
June 30, 2000, and containing a transcript of the call.
Form 8-K filed September 22, 2000, reporting that the Company
had entered into amendment with the holders of its Series B Convertible Stock
and related Warrants agreeing to certain changes and additional terms and
provisions relating thereto. The Company also reported that it had signed a
Letter Agreement to sell television station WSAH in Bridgeport, Connecticut.
Exhibits
Exhibit 10.1 Asset Purchase Agreement for the sale of
KZJL-TV (Houston, Texas) to Liberman
Broadcasting Company, dated November 10, 2000.
Exhibit 27 Financial Data Schedule (For SEC use only)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Kent E. Lillie
Kent E. Lillie, President
Date: 11/13/00
/s/ Arthur Tek
Arthur Tek, Executive VP & Chief Financial Officer
Date: 11/13/00
<PAGE>
Exhibit 10.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into this
10th day of November, 2000, by and among Shop At Home, Inc., a Tennessee
corporation ("SAH Parent"), SAH - Houston Corporation, a Tennessee corporation
("SAH Sub"), and SAH-Houston License Corp., a Tennessee corporation ("SAH
License Sub"), on the one hand, and LBI Holdings II, Inc., a California
corporation ("LBI Holdings"), Liberman Television of Houston, Inc., a California
corporation ("LBI"), and KZJL License Corp., a California corporation ("LBI
Sub"), on the other. SAH Parent, SAH Sub and SAH License Sub are referred to
collectively as "Seller," and LBI and LBI Sub are referred to collectively as
"Buyer."
W I T N E S S E T H:
WHEREAS, Seller owns certain assets used or held for use in
connection with the operation of television station KZJL-TV, licensee of Channel
61, Houston, Texas and in connection with the proposed construction and
operation of digital station KZJL-DT, Channel 44, also Houston, Texas
(collectively, the "Station") and Seller desires to sell and assign to Buyer the
Station and related assets, and the licenses, permits and other authorizations
issued by the Federal Communications Commission (the "FCC" or "Commission") for
or in connection with the operation of the Station, including any and all
pending applications or requests therefor (the "FCC Licenses"); and
WHEREAS, LBI Sub desires to acquire the FCC Licenses and LBI
desires to acquire from Seller all the other assets relating to the Station; and
WHEREAS, the FCC Licenses may not be assigned to LBI Sub
without the prior written consent of the Commission.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the Parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Unless otherwise stated in this Agreement, the following terms
shall have the following meanings:
"Agreement" means this Asset Purchase Agreement, and
references to "Articles," "Sections," "Schedules" and
"Exhibits" are to the Articles and Sections of this Agreement
and to the Schedules and Exhibits attached hereto.
"Assignment Application" means the FCC Form 314 Application
which Seller and Buyer filed with the Commission on October
20, 2000 requesting the Commission's written consent to the
assignment of the FCC Licenses from Seller to LBI Sub.
"Assumed Contracts" means only (i) those Contracts listed on
Schedule I and (ii) those Contracts entered into by Seller in
the ordinary course of business between the date hereof and
the Closing Date which LBI specifically agrees in writing to
assume.
"Buyer" has the meaning set forth in the first paragraph of
this Agreement.
"Buyer's Relocation Profit Notice" has the meaning set forth
in Section 7.7.3.1.
"Challenge Notice" has the meaning set forth in Section
7.7.3.3.
"Closing Date" means 10:00 a.m. on the third business day
following (i) the day on which the Commission publishes notice
of its written consent to the Assignment Application
(including, without limitation, by the Mass Media Bureau by
delegated authority), or (ii) if LBI advises Seller that its
lending sources have requested a later date, the day on which
the Commission's consent to the Assignment Application has
become a Final Order, or (iii) such other time mutually agreed
to in writing by the Parties.
"Closing Place" means the offices of O'Melveny & Myers LLP,
400 South Hope Street, 15th Floor, Los Angeles, California
90071, or such other place mutually agreed to in writing by
the Parties.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" has the meaning set forth in the recitals hereto.
"Communications Act" means the Communications Act of 1934, as
amended, or any successor statute or statutes thereto, and all
rules, regulations, written policies, orders and decisions of
the FCC thereunder, in each case as from time to time in
effect.
"Damages" means any and all claims, demands, liabilities,
obligations, actions suits, proceedings, losses, damages,
costs, expenses, assessments, judgments, recoveries and
deficiencies, including interest, penalties and reasonable
attorneys' fees, of every kind and description, contingent or
otherwise.
"Diminution Amount" has the meaning set forth in Section
7.7.2.
"Encumbrance" means any option, pledge, security interest,
lien, charge, mortgage, claim, debt, liability, obligation,
encumbrance or restriction (whether on voting, sale, transfer
or disposition), whether imposed by agreement, understanding,
law, rule or regulation, and, with respect to real property
assets, including the Transmitter Building and Tower, means
any leases, licenses or other occupancy agreements relating
thereto or covering any portion thereof.
"Escrow Agent" means Union Bank of California, N.A.
"Escrow Agreement" means the Escrow Agreement dated October
11, 2000 executed by the Escrow Agent, LBI Holdings and
Seller, as amended.
"Escrow Deposit" has the meaning set forth in Section 3.3.
"Excluded Assets" has the meaning set forth in Section 2.2.1.
"Fair Market Value" means, with respect to the relevant
property at any time, the value which an arms length buyer
would pay a willing seller under no compulsion to sell for
such property at such time, as determined in accordance with
Section 7.7 (and, as used in connection with a Replacement
Analog Station and Replaced Analog Station, to be measured
without taking into consideration the occurrence of the
Relocation as more particularly set forth in Section 7.7) and
each of the definitions set forth below for the Fair Market
Value of the Replaced Analog Station and the Fair Market Value
of the Replacement Analog Station, respectively. In
determining Fair Market Value of a Replaced Analog Station or
a Fair Market Value of a Replacement Analog Station, each of
the following shall also be taken into account: (i) regulatory
considerations, (ii) the size and demographics of the audience
reached, (iii) comparable sales in the Houston DMA and the
U.S. market for commercial television stations, the state of
the station's technical facilities (including maintenance
costs, necessary enhancements to technical facilities)
including the station's transmitting facilities and facilities
used for delivery of programming.
"Fair Market Value of the Replaced Analog Station" shall mean
the Fair Market Value of the Replaced Analog Station based
upon the station allotment and all assets and properties real
and personal, including, without limitation, all licenses,
permits and ancillary rights in all buildings, towers and
other structure located at tower sites, and all equipment used
and useful in operating the Replaced Analog Station. In the
case of a Voluntary Relocation, such analysis shall not
include, but in the case of a Specified Involuntary Relocation
such analysis shall include, the enterprise value of the
Replaced Analog Station based upon its current operating
characteristics, including but not limited to network
affiliation, programming characteristics, profitability,
demographics of audience, goodwill resulting from past
operations of the station, current and near term
attractiveness of the Replaced Analog Station as an operating
entity to one or more market participants, ethnicity of
audience, available revenue streams including station sales,
existence of retransmission consent agreements, and the like.
"Fair Market Value of the Replacement Analog Station" shall
mean the Fair Market Value of the Replacement Analog Station
based upon the station allotment and all assets and properties
real and personal, including without limitation all licenses,
permits and ancillary rights in all buildings, towers and
other structures located at tower sites, all equipment used
and useful in operating the Replacement Analog Station. Such
analysis shall not include the enterprise value of the
Replacement Analog Station based upon its current operating
characteristics, if any, including but not limited to network
affiliation, programming characteristics, profitability,
demographics of audience, goodwill resulting from past
operations of the Replacement Analog Station, current and near
term attractiveness of the Replacement Analog Station as an
operating entity to one or more market participants, ethnicity
of audience, available revenue streams including station
sales, existence of retransmission consent agreements, and the
like.
"FCC" has the meaning set forth in the recitals hereto.
"FCC Licenses" has the meaning set forth in the recitals
hereto.
"Final Order" means action by the Commission, granting its
consent to the Assignment Application, which has not been
stayed and is no longer subject to administrative or judicial
stay, appeal, review, reconsideration or rehearing within
applicable administrative or judicial time limits.
"Final Proposal" has the meaning set forth in Section
7.7.3.7.5.
"Hazardous Substance" has the meaning set forth in Section
4.12.
"Houston DMA" means the Houston Designated Market Area, as
determined from time to time by Nielsen Media Research.
"HSRA" means the Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended, and the regulations thereunder, as in
effect from time to time.
"Indemnified Party" and "Indemnifying Party" have the meanings
set forth in Section 10.3.
"Intellectual Property" has the meaning set forth in Section
4.14.1.
"LBI," "LBI Holdings" and "LBI Sub" have the meanings set
forth in the first paragraph of this Agreement.
"Mandated Relocation Date" means the earlier of (i) December
31, 2006, which is the currently scheduled end of the
transition period from analog to digital television or (ii)
any earlier date prescribed by the FCC or under the
Communications Act as the end of such transition period (other
than if such transition period is ended as a result of a
Specified Involuntary Relocation).
"Non-cash Consideration" means any non-cash consideration
(other than the Replacement Analog Station and/or any
Replacement Digital Station) received by Buyer (or its
successor or assign) in connection with a Relocation so long
as the value of such non-cash consideration is readily
determinable, readily divisible and readily distributable to
third parties upon receipt thereof by Buyer (or its successor
or assign).
"Party" means any of SAH Parent, SAH Sub, SAH License Sub, LBI
Holdings, LBI or LBI Sub, as the context requires, and the
term "Parties" mean all such entities; provided, however, that
Seller, on the one hand, and LBI Holdings and Buyer, on the
other, shall each be considered a single Party for purposes of
Section 10.3.
"Permits" means the licenses, permits, approvals,
authorizations, consents, and orders of any federal, state or
local governmental authority held by a Seller in connection
with the operation of the Station (including the FCC Licenses)
and all pending requests and applications therefor, all of
which are listed on Schedule II.
"Proceeds" has the meaning set forth in Section 7.5.1.
"Purchased Assets" means all the assets to be conveyed to
Buyer by Seller pursuant to the terms of this Agreement.
"Purchase Price" has the meaning set forth in Section 3.1.
"Reasonably Acceptable Substitute Station" means, with respect
to a Replacement Analog Station or Replacement Digital Station
when used in determining whether a Specified Involuntary
Relocation has occurred, a television station providing
service to the Houston DMA (i) which shall be on a frequency
between channels 2 and 58, (ii) for which the Station's
Required Property Rights are adequate or for which
substantially similar Required Property Rights are reasonably
available to Buyer (or its successor or assign) and (iii) the
operation of which (as compared to the operation of the
Replaced Station) could not reasonably be expected to
(individually or in the aggregate) adversely affect Buyer's
(or its successor's or assign's) television operations in the
Houston DMA based upon various factors, including, without
limitation: (A) the failure to replicate the coverage area of
the Replaced Station as determined using the methodology
outlined in the FCC's OET Bulletin 69, (B) the failure to
provide service to an audience with substantially the same
demographics (including, without limitation, ethnic, economic
and purchasing habit factors) as was served by the Replaced
Station, (C) the failure to have an antenna with substantially
similar height above average terrain as the Replaced Station's
antenna, (D) the failure to operate with an effective radiated
power substantially similar to the Replaced Station's
effective radiated power, (E) the location of the Replacement
Station's analog transmitter and/or digital transmitter, as
applicable, at a site which is more than five kilometers from
the Station's current transmitter site, (F) the Replacement
Station not having substantially the same cable carriage as
the Replaced Station at the time of the Specified Involuntary
Relocation, (G) the financial impairment to Buyer (or its
successor or assign) resulting from the costs or diminishment
of audience as a result of the transition of operations to the
Replacement Station (including, without limitation, due to
off-air time or the requirement to operate at less than full
power), (H) any detriment suffered by Buyer (or its successor
or assign) if the Station's digital television allotment is
changed in connection with such Specified Involuntary
Relocation and (I) such other factors that Buyer (or its
successor or assign) determines in its sole but reasonable
discretion will affect Buyer's (or its successor's or
assign's) ability to operate the Replacement Station in a
manner that is substantially similar to the manner in which
the Replaced Station was operated.
"Reduction" has the meaning set forth in the definition of the
term Relocation Tax Benefit.
"Refund" has the meaning set forth in the definition of the
term Relocation Tax Benefit.
"Relocation" has the meaning set forth in Section 7.7.1.3.
"Relocation Consideration" means the sum of (i) any cash and
(ii) the Fair Market Value of any Non-cash Consideration, in
each case as received by Buyer (or its successor or assign) in
connection with a Relocation.
"Relocation Expenses" means all reasonable costs (as
determined by Buyer (or its successor or assign) in its sole
but reasonable discretion) in any way associated with a
Relocation including, without limitation, (i) transaction
expenses (including professional advisor's or broker's fees
and costs and financing and related fees, commissions and
expenses, including lender waiver fees), (ii) engineering,
construction, equipment and moving costs, (iii) marketing
costs, (iv) the value of any estimated future increases in
expenses in operating the Replacement Station due to a
Relocation (including, without limitation, any increase in
lease payments or utility payments) (v) any estimated
increased costs if the transmitters and studios, respectively,
for the analog and digital stations are not located at a
single site following the Relocation, (vi) the estimated
aggregate amount of all obligations of Buyer (or its successor
or its assign) after the Relocation under leases with respect
to which it is the lessee immediately prior to a Relocation,
(vii) any penalties or liabilities incurred (or estimated to
be incurred) by Buyer (or its success or assign) under
contracts which cannot be terminated by Buyer (or its
successor or assign) prior to a Relocation but which cannot be
performed or are no longer necessary (in the sole but
reasonable discretion of Buyer (or its successor or assign))
by Buyer (or its successor or assign) following the
Relocation, (viii) the aggregate amount of revenues (net of
agency commissions) and the value of any market position
foregone by Buyer (or its successor or its assign) due to "off
air" time or if the Replaced Station and/or the Replacement
Station is not capable of operating at its maximum effective
radiated power as specified in the FCC licenses or, if
applicable, construction permits for the Replaced Station
and/or Replacement Station for any period of time, (ix) costs
incurred in replacing business supplies and other materials
with supplies and materials reflecting the frequency and
address of the Replacement Station, (x) costs incurred in
seeking governmental consents and permits required as part of
the Relocation, (xi) costs incurred in seeking FCC consent to
move the Replaced Station's digital operations to the site of
the Replacement Station's analog operations (including all
expenses of a type set forth in other clauses of this
definition) and (xii) any other costs to Buyer (or its
successor or assign) in any way incurred (or reasonably
estimated to be incurred) by Buyer (or its successor or
assign) in connection with the Relocation.
"Relocation Profit" has the meaning set forth in Section
7.7.2.
"Relocation Tax Adjustment Amount" means the amount of taxes,
if any, payable by Buyer in the Relocation Year on an amount
equal to (i) 50% of the sum of Relocation Profit and
Relocation Expenses, less (ii) the aggregate of the currently
tax deductible portions (determined in the reasonable judgment
of the Buyer) of (x) 50% of the Relocation Expenses and (y)
50% of Relocation Profit. For this purpose, taxes payable by
Buyer include the product of (a) the amount by which the
aggregate of the currently non-deductible portions (determined
in the reasonable judgment of Buyer) of such 50% of Relocation
Expenses, and 50% of Relocation Profit result in a reduction
of the net operating losses or other benefits which would
otherwise be carried forward by Buyer to future years and (b)
the maximum marginal applicable tax rate for the Relocation
Year.
"Relocation Tax Benefit" means, for any year subsequent to the
Relocation Year, the amount, if any, of an actual reduction in
taxes payable by Buyer ("Reduction") and/or the amount, if
any, of a carryback refund actually received by Buyer
("Refund"), if and to the extent that (i) such Reduction
and/or Refund results from Buyer being entitled to
amortization or other deductions or credits based on the
portion of Seller's Relocation Profit which was non-deductible
in the Relocation year, and (ii) such Reduction and/or Refund
would not have been realized by Buyer in the subsequent year
if all of Seller's Relocation Profit had been deductible by
Buyer in the Relocation Year.
"Relocation Year" means the taxable year in which the
Relocation Consideration is realized by Buyer for tax
purposes.
"Replaced Analog Station" means the Station's analog facility
as in existence immediately prior to the time of a Specified
Involuntary Relocation or a Voluntary Relocation (or an event
which would have constituted a Specified Involuntary
Relocation had Buyer (or its successor or assign) been
provided with analog and, if applicable, digital stations
which are Reasonably Acceptable Substitute Stations),
including all FCC licenses required for the operation thereof
and such other tangible and intangible assets previously used
in the operation thereof, in each case, as are transferred by
Buyer (or its successor or assign) in a Specified Involuntary
Relocation or Voluntary Relocation.
"Replaced Digital Station" means the Station's digital
facility as in existence immediately prior to the time of a
Specified Involuntary Relocation or a Voluntary Relocation (or
an event which would have constituted a Specified Involuntary
Relocation had Buyer (or its successor or assign) been
provided with analog and, if applicable, digital stations
which are Reasonably Acceptable Substitute Stations) including
all FCC permits or licenses required for the operation thereof
and such other tangible and intangible assets previously used
in the operation thereof (or which have been obtained for the
planned use in the operation thereof), in each case, as are
transferred by Buyer (or its successor or assign) in a
Specified Involuntary Relocation or Voluntary Relocation.
"Replaced Station" means, collectively, a Replaced Analog
Station and/or any Replaced Digital Station.
"Replacement Analog Station" means an analog television
station providing service to the Houston DMA on a frequency
between channels 2 and 58, including all FCC licenses required
for the operation of such station and such other real,
tangible and intangible assets previously used in the
operation of such station as are transferred to Buyer (or its
successor or assign), upon consummation of a Relocation (or an
event which would have constituted a Specified Involuntary
Relocation had Buyer (or its successor or assign) been
provided with analog and, if applicable, digital stations
which are Reasonably Acceptable Substitute Stations).
"Replacement Digital Station" means a digital television
station providing service to the Houston DMA on a frequency
other than Channel 44, including all FCC licenses, or in the
case of an unbuilt station, any permits, required for the
operation of such station and such other real, tangible and
intangible assets previously used (or which have been obtained
for the planned use) in the operation of such station as are
transferred to Buyer (or its successor or assign), upon
consummation of a Relocation (or an event which would have
constituted a Specified Involuntary Relocation had Buyer (or
its successor or assign) been provided with analog and, if
applicable, digital stations which are Reasonably Acceptable
Substitute Stations).
"Replacement Station" means, collectively, a Replacement
Analog Station and/or any Replacement Digital Station.
"Required Consents" means the FCC consent to the assignment of
the FCC Licenses and the other governmental consents,
third-party consents, approvals or waivers in form and
substance satisfactory to Buyer, necessary to sell, convey or
otherwise sell or assign the Purchased Assets to Buyer,
including without limitation those set forth on Schedule III.
"Required Property Rights" means all rights in and to all
land, buildings, towers and other structures located at tower
sites, as in each case are, in the sole but reasonable
judgment of Buyer (or its successor or assign) required to
operate the related television station.
"SAH License Sub," "SAH Parent" and "SAH Sub" have the
meanings set forth in the first paragraph of this Agreement.
"Seller" has the meaning set forth in the first paragraph of
this Agreement.
"Seller's Relocation Profit" has the meaning set forth in
Section 7.7.2.
"Specified Involuntary Relocation" has the meaning set forth
in Section 7.7.1.2.
"Station" has the meaning set forth in the recitals hereto.
"Tangible Personal Property" has the meaning set forth in
Section 2.1.1.
"Transaction Claims" has the meaning set forth in Section
11.6.
"Transmitter Building" means the studio and transmitter
building located at the Transmitter Site.
"Transmitter Site" means the transmitter and antenna site
located in Fort Bend County, Texas.
"Tower" means the television broadcast tower located at the
Transmitter Site upon which is located the Station broadcast
antenna.
"Valuation Commencement Notice" has the meaning set forth in
Section 7.7.3.6.
"Valuation Mechanism" has the meaning set forth in Section
7.7.3.7.
"Valuation Professional" has the meaning set forth in Section
7.7.3.7.1.
"Voluntary Relocation" has the meaning set forth in Section
7.7.1.1.
1.2 Knowledge. The term "knowledge," as it relates to a Party, shall mean the
knowledge of such Party after reasonable investigation, including due inquiry of
such Party's employees.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Assets to be Conveyed. On the Closing Date at the Closing Place, Seller will
sell, assign, convey, transfer and deliver (i) to LBI Sub, the FCC Licenses and
the Permits, together with any renewals, extensions, additions or modifications
thereof, and (ii) to LBI, all (except the Excluded Assets) of Seller's right,
title and interest in and to the other assets, properties and rights of every
kind and nature, whether tangible or intangible, absolute or contingent,
wherever located and used or usable in connection with the operation of the
Station (which, together with the FCC Licenses and the Permits, are collectively
referred to as the "Purchased Assets"), such sale, assignment, conveyance,
transfer and delivery to be made by instruments of conveyance in form reasonably
satisfactory to Buyer and to be free and clear of all Encumbrances. The
Purchased Assets include the following:
2.1.1 All tangible personal property, furniture, fixtures,
improvements and equipment used or useful in the operation of
the Station, including all furniture and inventory in the
Transmitter Building, all the principal items of which are
listed on Schedule IV, together with any replacements thereof
or additions thereto made between the date hereof and the
Closing Date, less any retirements made in the ordinary and
usual course of the Station's business (collectively, the
"Tangible Personal Property");
2.1.2 The transmitter facilities located at the Transmitter Site;
2.1.3 All prepaid expenses and all deposits made by Seller under
the Assumed Contracts;
2.1.4 The Assumed Contracts and all of Seller's rights thereunder
relating to periods and events occurring on and after the
Closing Date;
2.1.5 Such files, records and logs pertaining to the operation of
the Station as Buyer may reasonably require, including the
Station's public inspection files and other records relating
to the FCC Licenses and other filings with the Commission, but
excluding the corporate and accounting records of Seller
(notwithstanding this conveyance, Buyer agrees to allow Seller
reasonable access to such records of the Station as Seller may
reasonably require from and after the Closing Date); and
2.1.6 All Intellectual Property.
2.2 Excluded Assets and Liabilities.
2.2.1 Excluded Assets. It is understood and agreed that the
Purchased Assets do not include any assets of Seller that are
not used in the operation of the Station, cash, cash
equivalents, accounts receivable, deposits under any contracts
that are not Assumed Contracts, nor do they include the assets
of any pension or other employee benefit plans nor any other
assets specifically excluded from the Purchased Assets by the
provisions of this Agreement (all the foregoing of which are
referred to as the "Excluded Assets").
2.2.2 Liabilities Not Assumed. Except for the liabilities and
obligations specifically assumed pursuant to Section 3.2,
Buyer and LBI Holdings will not assume and will not be or
become liable for, any liabilities or obligations of Seller of
any kind or nature whatsoever, whether absolute, contingent,
accrued, known or unknown, related to the ownership of the
Purchased Assets, the Excluded Assets, the operation of the
Station, Seller's employees or otherwise.
ARTICLE III
PURCHASE PRICE; METHOD OF PAYMENT; ESCROW DEPOSIT
3.1 Purchase Price. The purchase price to be paid to Seller by Buyer for the
Purchased Assets will be Fifty-Seven Million Dollars ($57,000,000) (the
"Purchase Price").
3.1.1 Payment of Purchase Price. On the Closing Date, Buyer will pay
the Purchase Price to Seller by wire transfer of
immediately available funds in accordance with wire transfer
instructions to be provided by Seller to
Buyer not less than five business days prior to the Closing
Date. Notwithstanding the foregoing, if the
Seller or Foothill Capital Corporation (signed by anyone
claiming to be vice president or higher officer
of Foothill Capital Corporation) provides written notice to
the Buyer not less than three business days
prior to the Closing Date instructing the Buyer to pay from
the Purchase Price an amount specified in
such notice to Foothill Capital Corporation, then Buyer will
pay such amount to Foothill Capital
Corporation by wire transfer of immediately available funds in
accordance with the wire transfer
instructions contained in such written notice from Seller or
Foothill Capital Corporation, as
applicable, and such payment will satisfy Buyer's obligations
to pay such portion of the Purchase
Price. In the event Buyer receives conflicting requests from
Seller and Foothill Capital Corporation,
the request from Foothill Capital Corporation shall control.
3.1.2 Release of Escrow Deposit. Also on the Closing Date,
concurrently with the wire transfer of the Purchase Price to
Seller, SAH Parent and LBI Holdings shall jointly execute and
deliver to the Escrow Agent written instructions to terminate
the Escrow Agreement and deliver the entire Escrow Deposit to
LBI Holdings.
3.1.3 Post-Closing Proration. Following the Closing, the Parties
shall determine and make the prorations called for in
Section 3.6.
3.1.4 Relocation Profit. Following the Closing, the Purchase Price
may be increased in accordance with the provisions set forth
in Section 7.7.
3.2 Liabilities Assumed. As of the Closing Date, Buyer will assume and agree to
pay, discharge and perform insofar as they relate to the time period on and
after the Closing Date, or arise out of events occurring on or after the Closing
Date, all the obligations and liabilities of Seller under the Assumed Contracts.
3.3 Escrow Deposit. LBI Holdings deposited Five Hundred Thousand Dollars
($500,000) in the Escrow (the "Initial Deposit") following execution and
delivery of the Escrow Agreement. Concurrently with the execution and delivery
of this Agreement, LBI Holdings will deposit an additional Three Million Dollars
($3,000,000) in the Escrow (the "Final Deposit"). The Initial Deposit, the Final
Deposit and any interest accrued on such amounts, is referred to as the "Escrow
Deposit." The Escrow Deposit will be held, maintained, administered and
disbursed by the Escrow Agent in accordance with the terms and provisions hereof
and of the Escrow Agreement, with the terms of the Escrow Agreement controlling
in the event of any conflict. The Escrow Deposit will be disbursed as follows:
3.3.1 Delivery to Seller. If Buyer fails to consummate the purchase
and sale contemplated by this Agreement under circumstances
that would constitute a breach of its material
representations, warranties or covenants hereunder and Seller
is not then in breach of its material representations,
warranties or covenants hereunder, then the Escrow Deposit
will be delivered to Seller, it being understood and agreed
that payment to Seller of the full amount of the Escrow
Deposit as and when due under the terms of the Escrow
Agreement will constitute full payment for any and all damages
suffered by Seller by reason of LBI Holdings' or Buyer's
failure to consummate the purchase and sale contemplated by
this Agreement.
THE PARTIES ACKNOWLEDGE AND AGREE IN ADVANCE BY
INITIALING THIS AGREEMENT IN THE SPACES PROVIDED [LBI
HOLDINGS' INITIALS _/s/__, BUYER'S INITIALS ___/s/__ AND
SELLER'S INITIALS __/s/__], THAT THE ACTUAL DAMAGES THAT
SELLER WOULD SUFFER AS A RESULT OF BUYER'S FAILURE TO
CONSUMMATE THE PURCHASE AND SALE OF THE ASSETS WOULD BE
EXTREMELY DIFFICULT OR IMPOSSIBLE TO CALCULATE; THAT THE FULL
AMOUNT OF THE ESCROW DEPOSIT IS A FAIR AND EQUITABLE AMOUNT TO
REIMBURSE SELLER FOR ANY DAMAGES WHICH THE PARTIES ESTIMATE
MAY BE SUSTAINED BY SELLER DUE TO BUYER'S FAILURE TO
CONSUMMATE THE PURCHASE AND SALE OF THE ASSETS UNDER THE
CIRCUMSTANCES STATED IN THIS SECTION 3.3.1; AND THAT THIS
SECTION 3.3.1 SHALL CONSTITUTE A LIQUIDATED DAMAGES PROVISION,
WHICH DAMAGES WILL BE SELLER'S SOLE REMEDY HEREUNDER IN THE
EVENT OF LBI HOLDINGS' OR BUYER'S FAILURE TO CONSUMMATE THE
PURCHASE AND SALE OF THE PURCHASED ASSETS UNDER THE
CIRCUMSTANCES STATED IN THIS SECTION 3.3.1.
3.3.2 Delivery to LBI Holdings. The Escrow Deposit shall be
delivered to LBI Holdings if (i) the transaction contemplated
by this Agreement is consummated, or (ii) the purchase and
sale contemplated by this Agreement is not consummated for any
reason other than Buyer's breach of its material
representations, warranties or covenants hereunder.
3.4 Buyer's Remedies. If the purchase and sale contemplated by this Agreement is
not consummated because of the breach by Seller of its material representations,
warranties or covenants, and Buyer is not in breach of its material
representations, warranties or covenants hereunder, Seller agrees that, in
addition to any other rights and remedies available at law or in equity, LBI
Holdings and Buyer shall have the following rights and remedies: (i) Buyer shall
have the right to specific performance of Seller's obligation to sell the
Purchased Assets upon the terms and conditions set forth in this Agreement; (ii)
LBI Holdings shall have the right to the return of the Escrow Deposit; and (iii)
LBI Holdings and Buyer shall have the right to recover money damages for breach
of this Agreement, including but not limited to, benefit of the bargain damages
and compensation for transaction costs. These rights and remedies of LBI
Holdings and Buyer are subject to the required governmental approvals being
obtained and exclude anything beyond Seller's reasonable control that would
prevent it from consummating the transaction contemplated by this Agreement. The
Parties agree that remedy at law is inadequate and that damages are not adequate
to compensate LBI Holdings and Buyer.
3.5 Allocation. The Purchase Price will be allocated as set forth on Schedule V.
3.6 Prorations. The operation of the Station and all income, expenses and
liabilities attributable thereto through 11:59 p.m. on the day immediately
preceding the Closing Date will be for the account of Seller and thereafter for
the account of LBI, and all income and expenses, including such items as power
and utilities charges, rents and other deferred items will be prorated between
Seller and LBI in accordance with generally accepted accounting principles
consistently applied, the proration to be made and paid, insofar as feasible, on
the Closing Date, with a final settlement sixty days after the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY SELLER
Seller hereby represents and warrants to LBI Holdings and
Buyer as follows:
4.1 Organization and Standing. SAH Parent, SAH Sub and SAH License Sub are each
a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation. Seller has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement.
4.2 Authorization. All necessary corporate action to duly approve the execution,
delivery and performance of this Agreement and the consummation of the
transaction contemplated hereby has been taken by Seller, and this Agreement
constitutes the valid and binding agreement of Seller enforceable in accordance
with its terms.
4.3 FCC Licenses.
4.3.1 The FCC Licenses (all of which are listed on Schedule II,
together with any pending applications for FCC
Licenses) constitute all the licenses, waivers, permits and
other authorizations required for and used in
connection with the operation of the Station, including
Seller's pending application for a construction
permit for the construction of digital station KZJL-DT, which
will broadcast on Channel 44 in Houston,
Texas (FCC File No. BPCDT-1999 1101 AFF). Seller is the holder
of all the FCC Licenses. Each FCC
License is validly issued and in full force and effect. Seller
has taken all actions and performed all
of its respective obligations that are necessary to maintain
the FCC Licenses without adverse
modification or impairment, and complete and correct copies of
the FCC Licenses and any pending
applications therefor have been delivered to Buyer. No event
has occurred which has resulted in, or
after notice or lapse of time or both would result in,
revocation, suspension, adverse modification,
non-renewal or termination of or any order of forfeiture with
respect to, any FCC License. None of the
FCC Licenses requires that any assignment thereof must be
approved by any public or other governmental
authority other than the FCC.
4.3.2 Seller is not a party to, and has no knowledge of, any
investigation, notice of apparent liability, violation,
forfeiture, notice of violation, order to show cause or other
order or complaint issued by or before any
court or regulatory body, including, without limitation, the
FCC, or of any other proceedings (other
than proceedings relating to the television industry
generally) that could in any manner threaten or
adversely affect the validity or continued effectiveness of,
or result in the adverse modification of,
any of the FCC Licenses. In the event Seller learns of any
such action, or the filing or issuance of
any such order, notice or complaint, Seller promptly will
notify Buyer of the same in writing and will
take all reasonable measures to contest in good faith or seek
removal or rescission of such action,
order, notice or complaint. The Station is now operating at
its licensed power and antenna height, in
accordance with the FCC Licenses, and is in material
compliance with the Communications Act, including,
without limitation, restrictions on the amount of commercial
advertising that may be included in
children's programming, record-keeping requirements related
thereto, and requirements concerning efforts
to address the educational and informational needs of children
and related record-keeping obligations.
Seller has no reason to believe that the FCC Licenses will not
be renewed in the ordinary course.
4.3.3 None of the facilities used in connection with the television
broadcasting operations of Seller relating to the
Station (including the Transmitter Building, the Transmitter
Site and the Tower) violates the provisions
of any applicable building codes, fire regulations, building
restrictions or other governmental
ordinances, orders or regulations (including, without
limitation, any applicable regulation of the
Federal Aviation Administration) except where such violation
would not impair, impede or affect the
continued, uninterrupted operation of the Station and, each
such facility is zoned so as to permit the
commercial uses intended by the owner or occupier thereof.
Schedule II identifies any outstanding
variances or special use permits materially affecting any of
Seller's facilities or the uses thereof and
Seller is in compliance therewith. Seller has received no
notice of any complaint being made against
the Station relating to the Tower, the Transmitter Site, the
Transmitter Building or Seller's operation
of the Station (including, without limitation, any complaint
relating to the signals broadcast or
otherwise transmitted from the Tower, either by Seller or by
any person subleasing a portion of the
Tower) except where such complaint would not impair, impede or
affect the continued, uninterrupted
operation of the Station. The Tower has been appropriately
registered with the Commission, as described
in Schedule II.
4.3.4 Seller is qualified to sell the Station and to assign the FCC
Licenses in accordance with the terms of this Agreement and in
compliance with the Communications Act. Seller does not know
of any party who has expressed any intention to oppose FCC
approval of the assignment of the FCC Licenses to LBI Sub, nor
does Seller know of any reason why FCC consent to such
assignment might be denied or delayed.
4.3.5 Each report or certification filed by or on behalf of Seller
with the FCC, including, without limitation, any filing
pursuant to 47 C.F.R. ss. 73.3615 with respect to its
ownership of the Station and any other filing relating to the
Station, was timely filed, and was at the time of filing true,
correct and complete in all material respects; there have been
no changes in the ownership of the Station since the filing of
the most recent such ownership reports or certifications.
4.3.6 The operation of the Station by the Seller does not cause or
result in exposure of workers or the general public to levels
of radio frequency radiation in excess of the applicable
limits stated in 47 C.F.R. ss. 1.1310.
4.4 Purchased Assets. All material items of the Purchased Assets as of the date
hereof used in the operation of the Station are listed and described in the
Schedules to this Agreement. On the Closing Date, Seller will have good and
valid title to the Purchased Assets, free and clear of all Encumbrances. Seller
has maintained and has operated the Transmitter Site, the Tower, the Transmitter
Building and the Station under and in accordance with the terms of all
applicable regulations. Seller is not aware of any complaints regarding the
Transmitter Site, the Tower, the Transmitter Building, the antennas, the radio
transmitters or the studio facilities. There is no pending or, to the knowledge
of Seller, threatened action, event, transaction or proceeding that could
interfere with the quiet enjoyment or operation of the Purchased Assets by
Seller or, on and after the Closing Date, by Buyer. The items of Tangible
Personal Property are in all material respects in good operating condition for
equipment of their age and usage (ordinary wear and tear excepted). The
technical equipment, constituting a part of the Tangible Personal Property, has
been maintained in accordance with the Station's past practice and is operating
and complies in all material respects with all applicable rules and regulations
of the FCC and the terms of the FCC Licenses and Permits. The Purchased Assets
include all the personal property and assets necessary to conduct in all
material respects the operation of the Station as now conducted.
4.5 Insurance. Seller now has in force insurance on the Purchased Assets as set
forth in Schedule VI and Seller will continue the present insurance at the
present limits in full force and effect up through the Closing Date.
4.6 Litigation. No litigation, action, suit, judgment, proceeding or, to the
knowledge of Seller, investigation relating to the Station is pending or
outstanding before any forum, court, or governmental body, department or agency
of any kind to which Seller or the Station is a party and, to knowledge of
Seller, no such litigation or proceeding is threatened.
4.7 Contracts. Seller has delivered to Buyer true and complete copies of all the
Assumed Contracts. The Assumed Contracts will be enforceable by Buyer after the
consummation of the transaction contemplated hereby in accordance with their
respective terms. Seller has not taken any action that would impair the
enforceability of the Assumed Contracts, or omitted to take any action, the
omission of which would have such effect. There are no material defaults under
any of the Assumed Contracts and the consummation of the transaction
contemplated hereby will not cause any material defaults under any of the
Assumed Contracts.
4.8 Insolvency. No insolvency proceedings of any character including, without
limitation, bankruptcy, receivership, reorganization, composition or arrangement
with creditors, voluntary or involuntary, affecting Seller or any of its assets
or properties is pending or, to the knowledge of Seller, threatened.
4.9 Reports. All material returns, reports and statements currently required to
be filed by Seller with the Commission or with any other governmental agency
have been filed and each such return, report and statement is true, correct and
complete in all material respects. Seller has complied in all material respects
with the reporting requirements of the Commission and other governmental
authorities having jurisdiction over the Station and its respective operations.
4.10 No Defaults. Neither the execution, delivery and performance by Seller of
this Agreement nor the consummation by Seller of the transaction contemplated
hereby is an event that, of itself or with the giving of notice or the passage
of time or both, will (i) conflict with the provisions of the Articles of
Incorporation or Bylaws of Seller, (ii) constitute a violation of, conflict with
or result in any breach of or any default under, result in any termination or
modification of, or cause any acceleration of any obligation under, any
contract, mortgage, indenture, agreement, lease or other instrument to which
Seller is a party or by which it is bound, or by which it may be affected, or
result in the creation of any Encumbrance on any of the Purchased Assets, (iii)
violate any judgment, decree, order, statute, rule or regulation applicable to
Seller or (iv) violate or constitute a breach of any Assumed Contract. The
execution, delivery and performance of this Agreement by Seller does not require
the consent of any third party other than as listed on Schedule III.
4.11 Disclosures. No covenant, representation or warranty by Seller and no
written statement, certificate, appendix or Schedule furnished by Seller
pursuant hereto or in connection with the transaction contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained therein not materially
misleading.
4.12 Environmental Compliance. (i) Seller has not, in connection with its
business or assets, generated, used, transported, treated, stored, released or
disposed of, or has suffered or permitted anyone else to generate, use,
transport, treat, store, release or dispose of any Hazardous Substance (as
defined below) in violation of any applicable environmental law; (ii) there has
not been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with the conduct of Seller's
business or, to the knowledge of Seller, in any properties within 100 yards of
its business which has created or might reasonably be expected to create any
material liability under any applicable environmental law or which would require
reporting to or notification of any governmental entity; (iii) to the knowledge
of Seller no asbestos or polychlorinated biphenyl or underground storage tank is
contained in or located at any facility used in connection with its business;
and (iv) any Hazardous Substance handled or dealt with in any way in connection
with Seller's business has been and is being handled or dealt with in all
material respects in compliance with all applicable environmental laws. As used
herein, "Hazardous Substance" means substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances," or any other
formulation of any applicable environmental law intended to define, list or
classify substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
4.13 Must Carry Rights. Schedule VII contains a complete and accurate list of
the cable television systems that, to the knowledge of the Seller, are complying
with their respective obligations to carry the Station's programming. Such
systems provide cable television service to at least 800,000 households in the
Houston DMA. Seller has elected its must carry rights on a timely basis under
the Communications Act to provide for carriage of the Station's programming on
the cable television systems listed on Schedule VII. Copies of all must carry
elections have been provided to Buyer and are included in the Station's public
inspection file.
4.14 Intellectual Property.
4.14.1 Schedule VIII contains a true and complete list of all patents
and trademarks, service marks, station names,
alternative station names, slogans, trade names, logos,
jingles, assumed names, fictional business
names, copyrights, licenses, permits, authorizations and other
similar intellectual property rights and
interests applied for, issued to or presently owned or used by
Seller (other than the name "Shop at
Home" and related intellectual property, as well as
programming and its contents used but not owned by
Seller) which are material to the operation of the Station,
including the call letters "KZJL-TV" and
"KZJL-DT" and any other call signs (together with the goodwill
associated therewith, the "Intellectual
Property"). Except as set forth on Schedule VIII, Seller has
good and marketable title to all of the
Intellectual Property, free and clear of all Encumbrances and,
to the extent indicated on Schedule VIII,
such Intellectual Property has been duly registered in, filed
in or issued by the United States
Copyright Office or the United States Patent and Trademark
Office, as appropriate, the appropriate
offices in the various states of the United States and the
appropriate offices of such other
jurisdictions where such registration, filing or issuance is
necessary to protect such Intellectual
Property from infringement and for the conduct of the business
of Seller. Except as set forth on
Schedule VIII, all requisite renewals and affidavits of use
have been filed with respect to each of the
registrations set forth in Schedule VIII, and each is
presently in full force and effect, and each of
the trade names and trademarks is valid, and is in good
standing and active use and none has been
abandoned.
4.14.2 Except as set forth on Schedule VIII, Seller is the sole and
exclusive owner of the Intellectual Property, has the sole and
exclusive right to use the trade names and trademarks included
in the Intellectual Property and has received no notice from
any other person or entity pertaining to or challenging the
right of Seller to use any of the Intellectual Property or any
rights thereunder.
4.14.3 Except as set forth on Schedule VIII, Seller has not violated
or infringed any patent, trademark, trade name, jingle,
assumed name, fictional business name, copyright, license,
permit or other similar intangible property right or interest
held by others or any license or permit held by Seller.
4.14.4 Except as set forth on Schedule VIII, (i) Seller has not
granted any license or other rights and has no obligations to
grant licenses or other rights to any of the Intellectual
Property, and (ii) Seller has not made any claim of any
violation or infringement by others of its rights to or in
connection with any of the Intellectual Property, and there is
no basis for the making of any such claim.
4.14.5 Except as set forth on Schedule VIII, there are no
proceedings, either pending or threatened, in the United
States Copyright Office, the United States Patent and
Trademark Office or any Federal, state or local court or
before any other governmental agency or tribunal, relating to
any pending application with respect to any Intellectual
Property.
4.15 Brokers. No agent, broker, investment or commercial banker, person or firm
acting on behalf of Seller or under the authority of Seller is or will be
entitled to any broker, finder or financial advisor fee or any other commission
or similar fee directly or indirectly in connection with the transaction
contemplated by this Agreement, other than Media Venture Partners, Inc., whose
fee shall be paid by Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY BUYER AND LBI HOLDINGS
LBI Holdings and Buyer represent and warrant to Seller as
follows:
5.1 Status. LBI Holdings, LBI and LBI Sub are each a California corporation,
duly organized, validly existing and in good standing under the laws of the
State of California. LBI Holdings and Buyer each has the requisite corporate
power to enter into and complete the transaction contemplated by this Agreement.
5.2 No Defaults. Neither the execution, delivery and performance by LBI Holdings
or Buyer of this Agreement nor the consummation by Buyer of the transaction
contemplated hereby is an event that, of itself or with the giving of notice or
the passage of time or both, will (i) conflict with the provisions of the
Articles of Incorporation or bylaws of LBI Holdings or Buyer, (ii) constitute a
violation of, conflict with or result in any breach of or any default under,
result in any termination or modification of, or cause any acceleration of any
obligation under, any contract, mortgage, indenture, agreement, lease or other
instrument to which LBI Holdings or Buyer is a party or by which it is bound, or
by which it may be affected, or result in the creation of any Encumbrance on any
of its assets, except for agreements, indentures and instruments related to the
financing of the transaction contemplated by this Agreement, (iii) violate any
judgment, decree, order, statute, rule or regulation applicable to LBI Holdings
or Buyer, or (iv) result in the creation or imposition of any Encumbrance on the
Station or the Purchased Assets, except for liens, charges or encumbrances
relating to the financing of the transaction contemplated by this Agreement.
5.3 Corporate Action. All corporate actions and proceedings necessary to be
taken by or on the part of LBI Holdings and Buyer in connection with the
transaction contemplated by this Agreement have been duly and validly taken, and
this Agreement has been duly and validly authorized, executed and delivered by
LBI Holdings and Buyer and constitutes the legal, valid and binding obligation
of LBI Holdings and Buyer, enforceable against LBI Holdings and Buyer in
accordance with and subject to its terms.
5.4 Brokers. No agent, broker, investment or commercial banker, person or firm
acting on behalf of LBI Holdings or Buyer or under the authority of LBI Holdings
or Buyer is or will be entitled to any broker, finder or financial advisor fee
or any other commission or similar fee directly or indirectly in connection with
the transaction contemplated by this Agreement.
5.5 Qualification as a Broadcast Licensee. Neither LBI Holdings nor Buyer knows
of any fact that would as of the date hereof or as of the Closing Date, under
the Communications Act, disqualify Buyer as owner, operator and licensee of the
Station. As of the date hereof, no request for waiver of any FCC rule,
regulation or policy is required in order to obtain a grant of the assignment
application.
5.6 Litigation. There are no suits, legal proceedings or investigations of any
nature pending or, to the knowledge of LBI Holdings or Buyer, threatened against
or affecting it that would affect the ability of LBI Holdings or Buyer to carry
out the transaction contemplated by this Agreement.
5.7 Approvals and Consents. To knowledge of LBI Holdings or Buyer, the only
approvals or consents of persons or entities not a party to this Agreement that
are legally or contractually required to be obtained by LBI Holdings or Buyer in
connection with the consummation of the transaction contemplated by this
Agreement are identified on Schedule III.
ARTICLE VI
COVENANTS OF SELLER
6.1 Affirmative Covenants of Seller. Between the date hereof and
the Closing Date, except as disclosed in this Agreement:
6.1.1 Maintenance. Seller will continue to operate the Station in
substantial conformity with the FCC Licenses and the
Communications Act.
6.1.2 Preserve Relations. Seller will use its best efforts to
preserve good relations with the lessor under any Assumed
Contract, with owners of property adjacent to the Transmitter
Site, the Transmitter Building, the Tower and others having
business relations with the Station.
6.1.3 Reasonable Access. Following advance notification, Seller will
provide Buyer and representatives of Buyer with reasonable
access to Seller's employees and the properties, contracts,
books, files, logs, records and affairs of the Station, and
Seller will furnish such additional information concerning the
Station as LBI may from time to time reasonably request. Buyer
will maintain the confidentiality of all such information.
6.1.4 Obtain Consents. Seller will use its reasonable efforts to
procure the Required Consents.
6.1.5 Books and Records. Seller will maintain the books and
records of the Station consistent with past practices.
6.1.6 Insurance. Seller will maintain in force the existing
insurance policies identified on Schedule VI or reasonably
equivalent policies. Seller will use the proceeds of any
claims for loss payable under such insurance policies to
repair, replace, or restore any of the Purchased Assets
destroyed by fire and other casualties to their former
condition as soon as possible after the loss.
6.1.7 Notification. Seller will promptly upon learning of the same
notify Buyer of any order to show cause, notice of
violation, notice of apparent liability or of forfeiture or
the filing or threat of filing of any
complaint against the Station or against Seller in connection
with the Station, occurring between the
date hereof and the Closing Date, and respond to any action,
order, notice or complaints, and implement
procedures to ensure that the complaints or violations will
not recur. Without limiting the generality
of the foregoing, Seller will also promptly upon learning of
the same notify Buyer of any complaint
being made against the Station relating to the Tower, the
Transmitter Site, the Transmitter Building or
Seller's operation of the Station (including, without
limitation, any complaint relating to the signals
broadcast or otherwise transmitted from the Tower, either by
Seller or by any person subleasing a
portion of the Tower) and of any invoice unpaid by the Station
or by Seller in connection with the
Station that remains unpaid 60 days after the applicable due
date of such invoice.
6.1.8 Must Carry and Related Matters. Between the date hereof and
the Closing Date, Seller (i) promptly will provide Buyer with
copies of all correspondence of Seller with cable systems
concerning must carry status, retransmission consent, signal
reception matters and other matters arising under the 1992
Cable Act and the Communications Act with respect to the
Station, and (ii) will use its best efforts to preserve good
relations with all cable television systems obligated to carry
the Station's programming.
6.2 Negative Covenants of Seller. From the date hereof through
consummation of the transaction contemplated hereby on the
Closing Date, except as contemplated by this Agreement, Seller
will not, without the prior written consent of Buyer:
6.2.1 Encumbrances. Create or assume any Encumbrance on any of the
Purchased Assets, whether now owned or hereafter acquired,
unless discharged or terminated and fully released prior to
the Closing Date;
6.2.2 Transfers. Sell, assign, lease or otherwise transfer or
dispose of any of the Purchased Assets, whether now owned or
hereafter acquired, except for retirements in the normal and
usual course of business;
6.2.3 Call Letters. Change the Station's call letters or modify the
Station's facilities in any material respect;
6.2.4 Modification of Contracts. Amend or terminate any of the
Assumed Contracts (or waive any substantial right thereunder);
6.2.5 Rights. Cancel or compromise any claim or waive or release any
right of Seller relating to the Purchased Assets, except in
the ordinary course of business consistent with past practice;
6.2.6 FCC Licenses and Permits. Cause or permit, by any act or
failure on its part, the FCC Licenses or Permits to
expire or to be surrendered or modified (unless Buyer has
provided prior written consent with respect to
such modification, which consent shall not be unreasonably
withheld), or take any action which would
cause the FCC or any other governmental authority to
institute proceedings for the suspension,
revocation or adverse modification of any of the FCC Licenses
or Permits, or fail to prosecute with due
diligence any pending applications to any governmental
authority in connection with the operation of the
Station, or take any other action within Seller's control
which would result in the Station being in
non-compliance with the requirements of the Communications Act
or any other applicable law material to
the operation of the Station; or
6.2.7 No Inconsistent Action. Take any other action inconsistent
with its obligations under this Agreement or which could
hinder or delay the consummation of the transaction
contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Application for Commission Consent; Other Consents.
7.1.1 FCC Consent. On October 20, 2000, Buyer and Seller filed the
Assignment Application requesting FCC consent to the
transaction contemplated by this Agreement. The Parties agree
that the Assignment Application will be prosecuted in good
faith and with due diligence. The Parties acknowledge that
this Agreement will have to be filed with the FCC. The Parties
also acknowledge that the Assignment Application may have to
be amended from time to time prior to the date it is granted
to reflect any changes resulting from Buyer's financing and
related arrangements.
7.1.2 Other Governmental Consents. Promptly, but not later than
twenty days following the execution of this Agreement,
the Parties will proceed to prepare and file with all other
appropriate governmental authorities
including all filings required under the HSRA, such other
requests for approval or waiver as may be
required from such governmental authorities to permit the
transfer of the FCC Licenses, Permits and the
Purchased Assets, or as otherwise required in connection with
the transaction contemplated hereby and
will jointly, diligently and expeditiously prosecute, and will
cooperate fully with each other in the
prosecution of, such requests for approval or waiver and all
proceedings necessary to secure such approvals and waivers.
7.1.3 Control of the Station. This Agreement shall not be
consummated until after the Commission has given its written
consent to the Assignment Application. Between the date of
this Agreement and the Closing Date, Buyer, its employees or
agents, shall not directly or indirectly control, supervise or
direct or attempt to control, supervise or direct the
operation of the Station, but such operation will be the sole
responsibility and in the complete discretion of Seller.
7.2 Mutual Right to Terminate. Subject to the provisions of
Section 7.5.2, if the grant of the last pending Assignment
Application by the FCC has not become a Final Order on or
before July 31, 2001, either Buyer or Seller, if such Party is
not materially in default hereunder in a manner which has
delayed the FCC consent, may terminate this Agreement upon
five days' written notice to the other Party.
7.3 Buyer's Right to Terminate. Buyer, at its option, may
terminate this Agreement, so long as Buyer is not then in
material default under or material breach of this Agreement,
upon the happening of any of the following events:
7.3.1 The FCC Licenses, including the application for DTV
facilities, or other Permits are modified or their terms
substantially modified in either case resulting in a material
adverse change in Buyer's ability to operate the Station;
7.3.2 The Assignment Application is designated for a hearing before
an administrative law judge;
7.3.3 The FCC institutes revocation of license proceedings against
the Station; or
7.3.4 Seller is in material breach of this Agreement ten business
days after notice of breach and has not commenced and
continued to prosecute diligently a cure therefor.
7.4 Seller's Right to Terminate. Seller, at its option, may
terminate this Agreement, so long as Seller is not then in
material default under or material breach of this Agreement,
upon the happening of any of the following events:
7.4.1 The Assignment Application is designated for a hearing before
an administrative law judge; or
7.4.2 Buyer is in material breach of this Agreement ten business
days after notice of breach and has not commenced and
continued to prosecute diligently a cure therefor.
7.5 Risk of Loss.
7.5.1 The risk of loss and damage, whether by force majeure or for
any other reason, to the Purchased Assets or the
operation of the Station between the date of this Agreement
and the Closing Date will be on Seller.
Seller shall take all reasonable steps to repair, replace and
restore the Purchased Assets as soon as
possible after any loss or damage, it being understood and
agreed that all insurance proceeds with
respect thereto ("Proceeds") will be applied to or reserved
for such replacement, restoration or repair,
but that Seller will have no obligation to repair, replace or
restore in excess of the Proceeds (plus
any applicable deductible payment), and that Buyer's sole
remedies if Seller elects not to fully repair,
replace or restore will be (i) to terminate this Agreement, in
which case the Escrow Deposit will be
delivered to LBI Holdings, or (ii) to close in accordance with
Section 7.5.3 below.
7.5.2 In the event of any damage or event that prevents broadcast
transmissions of the Station in the normal and usual
manner and substantially in accordance with the FCC Licenses
(not to include ordinary course scheduled
maintenance), Seller will give prompt notice thereof to Buyer
and Buyer, in addition to its other rights
and remedies, will have the right to postpone the Closing Date
until transmission in accordance with the
FCC Licenses has been resumed. The postponed Closing Date
will be any date within the effective period
of the FCC's consent to assignment of the FCC Licenses to LBI
Sub as Buyer may designate by not less
than five business days' prior written notice to Seller.
During the period of postponement, Seller
shall use its best efforts to resume broadcast transmissions.
In the event transmission in accordance
with the FCC Licenses cannot be resumed within the effective
period of the FCC's consent to assignment
of the FCC Licenses to LBI Sub, the Parties will join in an
application or applications requesting the
FCC to extend the effective period of its consent for one or
more periods not to exceed 120 days in the
aggregate. If transmission in accordance with the FCC
Licenses has not been resumed so that the Closing
Date does not occur within such extended period, or any agreed
extension thereof, Buyer will have the
right, by giving written notice to Seller within five business
days after the expiration of such 120-day
period, or any agreed extension thereof, to terminate this
Agreement forthwith without any further
obligation, in which case the Escrow Deposit will be delivered
to LBI Holdings.
7.5.3 If any loss of or damage to the Purchased Assets (including
but not limited to the Tower or the Transmitter
Building) occurs prior to the Closing Date and full repair,
replacement or restoration of all Purchased
Assets has not been made on or before the Closing Date (as the
Closing Date may be extended as provided
in Section 7.5.2), or the cost thereof is greater than the
Proceeds (plus any applicable deductible),
then Buyer will be entitled, but not obligated, to accept the
Purchased Assets in their then-current
condition and will receive an abatement or reduction in the
Purchase Price in an amount equal to the
difference between the amount necessary to fully repair or
replace the damaged Purchased Assets and the
amount of the unused Proceeds, in which case Buyer will be
entitled to all the unused Proceeds and
payment of the deductible amount. If Buyer elects to accept
damaged Purchased Assets at a reduced
Purchase Price, the Parties agree to cooperate in determining
the amount of the reduction to the
Purchase Price in accordance with the provisions hereof.
7.6 Transfer Taxes; Expenses; Bulk Sales.
7.6.1 Transfer Taxes. All FCC filing fees, federal, state or local
excise, sales or use taxes or other costs imposed on or in
connection with the purchase, sale or transfer of the
Purchased Assets and assumption of the Assumed Contracts by
Buyer pursuant hereto (excluding income taxes or any other tax
based on income) will be shared equally by Buyer and Seller.
7.6.2 Expenses. Except as otherwise provided herein, Buyer and
Seller shall each pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and
consummation of the transaction contemplated hereby, including
but not limited to the fees, expenses and disbursements of its
accountants and counsel. Buyer shall be responsible for the
payment of the filing fees in connection with the filing
required under the HSRA.
7.6.3 Compliance With Bulk Sales Laws. Any loss, liability,
obligation or cost suffered by Seller or Buyer as the result
of the failure of Seller or Buyer to comply with the
provisions of any bulk sales laws applicable to the transfer
of the Purchased Assets as contemplated by this Agreement will
be borne by Seller.
7.7 Relocation.
7.7.1 Potential Scenarios. In conjunction with the transition to
digital television, the Communications Act currently
provides that FCC licenses for analog television stations,
including the FCC Licenses, shall expire no
later than the Mandated Relocation Date unless the term of
such licenses is extended beyond the Mandated
Relocation Date as a result of the occurrence of certain
market conditions or a change in the
Communications Act. Additionally, the FCC is considering
whether it will hold an auction to award
licenses to provide wireless services using spectrum in the
700 MHz band. It is anticipated that the
continued operation of the Station on its current analog
frequency would be incompatible with the use of
the 700 MHz spectrum for wireless services.
7.7.1.1 Voluntary Relocation. As a result of such
incompatibility, the potential exists that, prior to
Mandated Relocation Date, a party with an interest in
a 700 MHz license serving the Houston DMA will offer
to purchase the Station from Buyer (or its successor
or assign) and Buyer (or its successor or assign)
will, in its sole and absolute discretion, elect to
accept the offer, in a transaction in which Buyer (or
its successor or assign) continues to operate an
analog facility on a Replacement Analog Station,
operates only a digital facility or operates both a
Replacement Analog Station and a digital facility
(such transaction a "Voluntary Relocation").
7.7.1.2 Specified Involuntary Relocation. As an
alternative, the potential exists that, prior to the
Mandated Relocation Date, whether through the
adoption of new statutory language, a rulemaking
proceeding, a change in policy, or otherwise, Buyer
(or its successor or assign) is ordered to cease
broadcasting on Channel 61 prior to the Mandated
Relocation Date because of the need to make Channel
61 available for the provision of wireless services
using the 700 MHz band. In such event, if the FCC (or
another party) provides Buyer (or its successor or
assign) with a Replacement Analog Station which is a
Reasonably Acceptable Substitute Station, and if a
Replacement Digital Station is provided, with a
Replacement Digital Station which is a Reasonably
Acceptable Substitute Station, such event will be
considered to be a "Specified Involuntary
Relocation."
7.7.1.3 Relocation. For purposes of this
Agreement, the terms Voluntary Relocation and
Specified Involuntary Relocation are at times
referred to collectively as a "Relocation."
7.7.1.4 Date of Relocation. Any Relocation shall be
deemed to occur on the date on which Buyer (or its
successor or assign) ceases to provide an analog
service using Channel 61.
7.7.2 Determination of Existence of Relocation Profit. In the event
of a Voluntary Relocation or Specified Involuntary
Relocation occurring prior to the Mandated Relocation Date,
the parties shall determine whether Buyer
(or its successor or assign) has received any profit as
measured pursuant to this Section 7.7.2 (the
"Relocation Profit"). Seller shall be entitled to receive an
amount ("Seller's Relocation Profit") equal
to (i) 50% of Relocation Profit, less (ii) the Relocation Tax
Adjustment Amount. In addition, Seller
shall be entitled to receive from Buyer, without interest, in
appropriate years subsequent to the
Relocation Year, the amount of Relocation Tax Benefits
actually realized by Buyer in such year or years;
provided that the aggregate amount of Relocation Tax Benefits
payable to Seller shall not exceed
(without interest) the Relocation Tax Adjustment Amount. The
amount of Relocation Tax Benefits actually
realized by Buyer in any year subsequent to the Relocation
Year shall be paid within 45 days from the
filing of the applicable tax returns reflecting the Reduction
(in the event such Relocation Tax Benefits
are due to a Reduction) or within 15 days from the receipt of
the applicable Refund (in the event such
Relocation Tax Benefits are due to a Refund). Seller shall
not have any access to any of Buyer's tax
returns or other records. However, in the event there is a
Relocation that results in a Relocation
Profit, Buyer shall provide a certificate from its accountants
(which shall be Ernst & Young or another
nationally recognized accounting firm) indicating whether
there is a Relocation Tax Adjustment Amount
(in the Relocation Year) or a Relocation Tax Benefit (in each
year after the Relocation Year until the
fifteenth anniversary of the Closing Date) and if there is a
Relocation Tax Adjustment Amount or a
Relocation Tax Benefit, showing the calculation thereof.
Buyer agrees that, in determining the amount
of the Relocation Tax Adjustment Amount and the amount of
Seller's Relocation Profit, Buyer will adopt
the position (the "Deductible Position"), in its tax returns
for the Relocation Year, that the entire
amount of Seller's Relocation Profit paid to Seller is
deductible for tax purposes, unless, in the
opinion of Buyer's tax advisor (which shall be an accounting
or law firm with nationally recognized tax
reputation), (i) it is not more likely than not that the
Deductible Position would be sustained if
challenged; or (ii) there is a significant risk that the
Deductible Position would result in Buyer
incurring penalties under the Code or comparable state law.
Subject to relevant provisions and
limitations in the Code, and advice received from Buyer's tax
advisors, Buyer agrees to use its best
efforts to maximize the amount of Relocation Tax Benefit for
each year subsequent to the Relocation
Year. Seller agrees that, if Buyer (a) adopts the Deductible
Position and makes a payment to Seller for
the Relocation Year based on such Deductible Position, or (b)
claims and realizes a Relocation Tax
Benefit for a subsequent year, and pays the amount of such
Relocation Tax Benefit to Seller pursuant to
this Section 7.7.2, Seller will promptly indemnify and
reimburse Buyer for any loss resulting from Buyer
subsequently being required (x) to make tax deficiency
payments for the Relocation Year based on the
invalidity of the Deductible Position, plus interest thereon,
or (y) to pay or repay to the appropriate
taxing authority part or all of the amount of the Relocation
Tax Benefit, plus interest thereon.
Notwithstanding anything to the contrary set forth herein, the
indemnification obligations set forth in
this Section 7.7.2 shall survive until the expiration of the
applicable statute of limitations.
The existence of any Relocation Profit, or lack thereof, shall
be measured by means of the following formulas:
7.7.2.1 if the Fair Market Value of the Replacement
Analog Station as of the date of the Relocation
exceeds the Fair Market Value of the Replaced Analog
Station as of the date of the Relocation, the
following formula shall be used:
Relocation Consideration
less Sum of Relocation Expenses
equals Relocation Profit
7.7.2.2 if the Fair Market Value of the Replaced
Analog Station as of the date of the Relocation
exceeds the Fair Market Value of the Replacement
Analog Station as of the date of the Relocation (or
if there is no Replacement Analog Station), the
following formula shall be used:
Relocation Consideration
less Sum of Relocation Expenses
less Diminution Amount
equals Relocation Profit
As used herein, the term "Diminution Amount" means
the result of (i) the Fair Market Value of the
Replaced Analog Station as of the date of the
Relocation, less (ii) the Fair Market Value of the
Replacement Analog Station as of the date of the
Relocation (which shall be zero if there is no
Replacement Analog Station).
7.7.3 Process for Determining Fair Market Value. The
procedures set forth in this Section 7.7.3 shall
govern the determination of the Fair Market Value of
any Non-cash Consideration or other asset to be
valued in connection with a determination of the
amount of any Relocation Profit realized by Buyer as
contemplated hereunder. It is understood and agreed
that the determination of Fair Market Value shall be
made specifically and independently, as set forth
herein, as for each particular asset to be valued
hereunder. The following principles and procedures
shall govern this analysis.
7.7.3.1 Upon the closing of a Voluntary Relocation or
Specified Involuntary Relocation, Buyer shall within
one hundred twenty days inform Seller of its good
faith determination of the amount of Relocation
Profit realized by Buyer by reason of such
transaction. Buyer shall set forth its determination
of Relocation Profit in a reasonably detailed
schedule which shall include all factors relevant to
Buyer's determination, including Buyer's good faith
determination of (x) the Fair Market Value of the
Replaced Analog Station, the Replacement Analog
Station (if any in the case of a Voluntary
Relocation) and any Non-cash Consideration, (y) the
Relocation Expenses and (z) the Relocation Tax
Adjustment Amount. The schedule setting forth Buyer's
good faith determination of Relocation Profit as set
forth in this Section 7.7 may be referred to herein
as "Buyer's Relocation Profit Notice."
7.7.3.2 Following receipt of Buyer's Relocation
Profit Notice, Seller may request from Buyer such
additional information, data or other evidence as
Seller may reasonably determine to be necessary to
verify Buyer's determination of Relocation Profit.
Buyer agrees to promptly respond to Seller's requests
for such additional information and shall cooperate
in good faith with Seller to assist Seller in
reaching such verification.
7.7.3.3 Within sixty days following the date of
delivery of Buyer's Relocation Profit Notice (which
term may be extended by mutual agreement of the
parties if information needed to verify value
continues to be requested and provided), Seller shall
deliver to Buyer a written notice either (i)
accepting the amount of Relocation Profit set forth
in Buyer's Relocation Profit Notice or (ii)
challenging Buyer's determination of Relocation
Profit (a "Challenge Notice").
7.7.3.4 If Seller elects to deliver a Challenge
Notice, such notice shall include, in reasonable
detail, Seller's good faith determination of the
Relocation Profit for the Relocation transaction,
including reasonable backup evidence and data. Such
Challenge Notice shall specifically and in reasonable
detail address each of the aspects of Buyer's
Relocation Notice which Seller believes to be
incorrect. If the amount of Relocation Profit set
forth in Seller's Challenge Notice does not exceed
the amount of Relocation Profit set forth in Buyer's
Relocation Profit Notice by at least ten percent, the
amount of Relocation Profit for the Relocation
transaction at issue shall be deemed to be the amount
of Relocation Profit set forth in Buyer's Relocation
Profit Notice.
7.7.3.5 If the amount of Relocation Profit set forth
in Seller's Challenge Notice is more than ten percent
greater than the amount of Relocation Profit set
forth in Buyer's Relocation Profit Notice, then Buyer
and Seller shall, promptly following Buyer's receipt
of Seller's Challenge Notice, meet in good faith to
review the aspects of the calculation of Relocation
Profit upon which the parties have a material
disagreement. The parties shall schedule at least
three face-to-face meetings, which shall include such
valuation professionals and financial accounting
professionals as the parties may wish to include in
such meetings.
7.7.3.6 If, despite such meetings and the good faith
efforts of the parties to agree, the parties are
unable to reach agreement regarding the amount of
Relocation Profit, either party may, by written
notice to the other ("Valuation Commencement
Notice"), elect to have the value of the assets to be
valued as part of the calculation of Relocation
Profit determined by the Valuation Mechanism set
forth below.
7.7.3.7 As used herein, the "Valuation Mechanism"
shall be the procedures pursuant to which the parties
may elect to have the assets to be valued as part of
the calculation of Relocation Profit determined by
third party valuation professionals. The following
are the procedures for the Valuation Mechanism:
7.7.3.7.1 The party delivering the
Valuation Commencement Notice shall specify
in its notice a valuation professional or
appraiser to value each category of the
assets to be valued in calculating
Relocation Profit. Each designated valuation
professional shall be independent, reputable
and experienced in performing the valuation
determination for which he or she will be
responsible (in each case, a "Valuation
Professional"). If a professional
accreditation designation is available for
the nature of the valuation at issue, the
Valuation Professional shall hold such
professional designation and accreditation.
7.7.3.7.2 It is acknowledged that
there may be more than one Valuation
Professional designated by each party if the
valuations to be performed require different
valuation expertise, provided, however, each
party shall only appoint one Valuation
Professional to appraise a type of asset.
For example, the parties agree that a
Valuation Professional designated for the
determination of the Fair Market Value of a
Replacement Station or a Replaced Station
shall be an independent and reputable
appraiser experienced in the valuation of
commercial analog television stations
throughout the United States generally, and
in markets with equivalent characteristics
to the Houston DMA in particular. In
comparison, a Valuation Professional chosen
to determine the Fair Market Value of other
Non-cash Consideration, shall be an
independent, reputable professional
experienced in valuing the type or types of
Non-cash Consideration at issue.
7.7.3.7.3 Within thirty days
following delivery of a Valuation
Commencement Notice, the party receiving
such notice shall deliver to the other a
written designation of the Valuation
Professionals such party has chosen to
determine the Fair Market Value of the
assets at issue.
7.7.3.7.4 Following the designation
of Valuation Professionals by Seller and
Buyer, the Valuation Professionals shall
proceed to determine the Fair Market Value
of the assets each is requested to value,
consistent with the definitions of Fair
Market Value, Fair Market Value of the
Replaced Analog Station, Fair Market Value
of the Replacement Analog Station and
Non-cash Consideration as set forth in this
Agreement. The Valuation Professionals shall
then exchange their determinations to one
another and to each of Buyer and Seller.
7.7.3.7.5 If the determinations of
the Valuation Professionals selected by
Buyer and Seller are, as to any asset
valued, within ten percent of one another
(based upon the value of the higher value
determination) as to such asset, the Fair
Market Value of such asset shall be deemed
to be the average of the two determinations.
If the two determinations of Fair Market
Value as to any asset differ by more than
such ten percent differential, the two
Valuation Professionals shall meet, shall
review the findings and data reviewed and
relied upon by one another and shall attempt
in good faith to agree upon the Fair Market
Value of the asset at issue. If the two
Valuation Professionals are unable to reach
agreement as to the relevant Fair Market
Value within thirty days following the
exchange of valuation determinations, then,
on the next business day following the
expiration of such 30-day period, Buyer and
Seller shall each submit to the other a
final proposed Fair Market Value of the
assets at issue (a "Final Proposal"), and
within ten days following the expiration of
such thirty day period Buyer and Seller
shall mutually appoint a third Valuation
Professional. The third Valuation
Professional shall proceed to determine the
Fair Market Value of the assets at issue,
consistent with the definitions of Fair
Market Value, Fair Market Value of the
Replaced Analog Station, Fair Market Value
of the Replacement Analog Station and
Non-cash Consideration as set forth in this
Agreement and shall make a final
determination of such Fair Market Value of
the assets at issue within thirty days of
being appointed, and such determination
shall be final and binding on the parties.
The determination of Fair Market Value in
accordance with the terms of this Section
7.7.3 shall be final, binding and
non-appealable.
7.7.3.7.6 Each party shall bear the
fees and costs of any third parties
(including Valuation Professional's,
professional advisor's or broker's fees and
costs) incurred by such party in determining
the amount of any Relocation Profit pursuant
to this Section 7.7; provided, however, that
in the event a third Valuation Professional
is appointed to appraise any asset in
accordance with Section 7.7.3.7.5, then the
party whose Final Proposal has a greater
difference from the Fair Market Value of the
assets at issue as determined by the third
Valuation Professional shall bear the fees
and costs (including Valuation
Professional's, professional advisor's or
broker's fees and costs) incurred by all
parties with respect to such asset.
7.7.4 Payment of Seller's Relocation Profit. As soon
as practicable after the determination of Seller's entitlement
to a payment of Seller's Relocation Profit, (i) in the case of
a Specified Involuntary Relocation in connection with which
Buyer receives Non-cash Consideration which is not readily and
promptly convertible into cash, Buyer (or its successor or
assign) shall, in its sole discretion, determine whether it
will pay Seller's Relocation Profit in cash or in Non-cash
Consideration or a combination thereof and (ii) in the case of
a Voluntary Relocation and all other cases of Specified
Involuntary Relocation, Buyer (or its successor or assign)
shall pay Seller's Relocation Profit in cash. Following the
determination of the composition of any payment of Seller's
Relocation Profit, Seller shall identify an account in writing
for the payment by Buyer (or its successor or assign) of any
cash portion of Seller's Relocation Profit and Buyer (or its
successor or assign) shall determine a commercially reasonable
method to effect the transfer of any Non-cash Consideration
portion of Seller's Relocation Profit. Buyer's determination
of such method shall be subject to Seller's consent, which
consent shall not be unreasonably withheld. Subject to Section
7.7.5.4, Buyer (or its successor or assign) will (i) pay any
cash portion of Seller's Relocation Profit by wire transfer of
immediately available funds to the account designated in
writing by Seller pursuant this Section 7.7.4 on the fifth
business day following designation of such account and (ii)
use its commercially reasonable efforts to transfer any
Non-cash Consideration portion of Seller's Relocation Profit
as soon as practicable after such determination of the method
to effect such transfer.
7.7.5 Additional Provisions. In addition to the foregoing,
Buyer and Seller have agreed and
acknowledged that:
7.7.5.1 Control of Negotiations. Buyer (or its
successor or assign) shall control the conduct of any
negotiations with respect to a Specified Involuntary
Relocation or a Voluntary Relocation in its sole and
absolute discretion and shall have no liability to
Seller with respect to the outcome thereof.
7.7.5.2 No Fiduciary or Agency Relationship. No
fiduciary or agency relationship between the Buyer
and Seller shall be created or implied by virtue of
this Section 7.7.
7.7.5.3 Sale. Buyer (or its successor or assign)
shall not have any obligation to Seller with respect
to any transaction which does not constitute a
Specified Involuntary Relocation or a Voluntary
Relocation, including any other sale or disposition
of the Station whether before or after December 31,
2006.
7.7.5.4 Receipt of Relocation Consideration.
Notwithstanding anything in the foregoing to the
contrary, in the event that any Relocation
Consideration is payable on a date subsequent to the
date on which the Specified Involuntary Relocation or
Voluntary Relocation is consummated, the portion of
any payment due to Seller pursuant to this Section
7.7 which corresponds to the portion of the
Relocation Consideration which is to be paid
following the consummation of the Specified
Involuntary Relocation or a Voluntary Relocation
shall not become due and payable until the actual
receipt of such portion of the Relocation
Consideration by Buyer (or its successor or assign).
Additionally, no portion of Seller's Relocation
Profit shall become due and payable to Seller until
Buyer (or its successor or assign) has received an
amount of Relocation Consideration paid in cash which
exceeds the amount of the Relocation Expenses and the
Relocation Tax Adjustment Amount and received an
amount of Relocation Consideration (regardless of
whether paid in cash or Non-cash Consideration) which
exceeds the sum of (i) the Relocation Expenses, (ii)
the Relocation Tax Adjustment Amount and (iii) any
Diminution Amount.
ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions Precedent to Buyer's Obligations. The obligation of Buyer to
consummate the transaction contemplated hereby is subject to the fulfillment
prior to and as of the consummation of the transaction contemplated hereby on
the Closing Date of each of the following conditions, each of which may be
waived (but only by an express written waiver) in the sole discretion of Buyer:
8.1.1 Commission Approval. The definition of Closing Date shall have
been satisfied.
8.1.2 Representations and Warranties. All material representations
and warranties of Seller contained in this Agreement shall be
true and correct at and as of the Closing Date as if made on
the Closing Date except as specifically contemplated by this
Agreement.
8.1.3 Performance. Seller shall have performed and complied in all
material respects with the covenants, agreements and
conditions required by this Agreement to be performed or
complied with by it prior to and on the Closing Date. There
shall not have been any material adverse change in the Station
or the Purchased Assets, or any damage, destruction or loss
materially and adversely affecting the Purchased Assets or the
operation of the Station.
8.1.4 FCC Licenses. Seller shall be the holder of the FCC Licenses,
and there shall not have been any modification of any of the
FCC Licenses or any modification of FCC rules, regulations or
policies affecting the class of holders of FCC licenses to
which Seller belongs as the holder of the FCC Licenses, in
each case that has or is reasonably likely to have a material,
adverse effect on the Station. No proceeding shall be pending,
the effect of which would be to revoke, cancel, fail to renew,
suspend, impair or modify adversely any of the FCC Licenses
specifically or such class of holders generally.
8.1.5 HSRA Waiting Period. The applicable waiting period(s) under
HSRA with respect to the transactions contemplated by this
Agreement shall have expired or shall have been terminated.
8.1.6 Consents. All Required Consents shall have been obtained and
delivered to Buyer. Such Required Consents shall include,
without limitation, executed consents and releases in form and
substance reasonably satisfactory to Buyer from Foothill
Capital Corporation and other creditors of Seller consenting
to the transaction contemplated hereby and releasing their
Encumbrances relating to the Purchased Assets (together with
executed UCC termination statements, amendments to UCC
financing statements and other documents and instruments
implementing such release).
8.1.7 Litigation and Insolvency. Except for matters affecting the
television broadcasting industry generally, no
litigation, action, suit, judgment, proceeding or
investigation shall be pending or outstanding before
any forum, court, or governmental body, department or agency
of any kind, relating to the operation of
the Station or which has the stated purpose or the probable
effect of enjoining or preventing the
consummation of this Agreement, or the transaction
contemplated hereby or to recover damages by reason
thereof, or which questions the validity of any action taken
or to be taken pursuant to or in connection
with this Agreement. No insolvency proceedings of any
character including, without limitation,
receivership, reorganization, composition or arrangement with
creditors, voluntary or involuntary,
affecting Seller or any of its assets or properties, shall be
pending, and Seller shall not have taken
any action in contemplation of, or which would constitute the
basis for, the institution of any such
insolvency proceedings.
8.2 Conditions Precedent to Seller's Obligations. The obligation of Seller to
consummate the transaction contemplated hereby is subject to the fulfillment
prior to and as of the consummation of the transaction contemplated hereby on
the Closing Date of each of the following conditions, each of which may be
waived (but only by an express written waiver) in the sole discretion of Seller:
8.2.1 Commission Approval. The condition set forth in Section 8.1.1
shall have been satisfied.
8.2.2 Representations and Warranties. All material representations
and warranties of LBI Holdings and Buyer contained in this
Agreement shall be true and correct at and as of the Closing
Date as if made on the Closing Date, except as specifically
contemplated by this Agreement.
8.2.3 Performance. LBI Holdings and Buyer shall each have performed
and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be
performed or complied with by it prior to and at the Closing
Date.
8.2.4 HSRA Waiting Period. The applicable waiting period(s) under
HSRA with respect to the transactions contemplated by this
Agreement shall have expired or shall have been terminated.
8.2.5 Litigation and Insolvency. No litigation, action, suit,
judgment, proceeding, complaint or investigation shall
be pending or outstanding before any forum, court or
governmental body, department or agency of any kind
relating to the operation of the Station or which has the
stated purpose or the probable effect of
enjoining or preventing the consummation of this Agreement or
the transaction contemplated hereby or to
recover damages by reason thereof, or which questions the
validity of any action taken or to be taken
pursuant to or in connection with this Agreement. No
insolvency proceedings of any character including,
without limitation, reorganization, receivership, composition
or arrangement with creditors, voluntary
or involuntary, affecting Buyer or any of its assets or
properties shall be pending, and Buyer shall not
have taken any action in contemplation of, or which would
constitute the basis for, the institution of
any such insolvency proceedings.
ARTICLE IX
ITEMS TO BE DELIVERED AT THE CLOSING
9.1 Seller's Performance At Closing. On the Closing Date at the Closing Place,
Seller shall have executed and delivered to Buyer all bills of sale,
endorsements, assignments and other instruments of conveyance and transfer
reasonably satisfactory in form and substance to Buyer and its counsel,
effecting the sale, transfer, assignment and conveyance of the Purchased Assets
to Buyer including, without limitation, the following:
9.1.1 One or more bills of sale conveying to LBI all of the Tangible
Personal Property and Intellectual Property to be acquired by
Buyer hereunder;
9.1.2 An Assignment assigning to LBI Sub the FCC Licenses;
9.1.3 An Assignment assigning to LBI each of the Assumed Contracts
together with the Required Consents and the original copies of
the Assumed Contracts;
9.1.4 The files, records and logs referred to in Section 2.1.5;
9.1.5 Opinions of Seller's counsel and Seller's FCC counsel, each
dated as of the Closing Date substantially in the form of
Exhibits "A" and "B";
9.1.6 Copies of resolutions of the Board of Directors of SAH Parent,
SAH Sub and SAH License Sub, in each case certified by the
Party's Secretary, authorizing the execution, delivery and
performance of this Agreement and the transaction contemplated
hereby;
9.1.7 A certificate, dated as of the Closing Date, executed by the
President and Chief Executive Officer of Seller, to
the effect that, (i) the material representations and
warranties of Seller contained in this Agreement
are true and complete on and as of the Closing Date as though
made on and as of the Closing Date, except
as specifically contemplated by this Agreement; (ii) Seller
has complied with or performed all material
terms, covenants, agreements and conditions required by this
Agreement to be complied with or performed
by it prior to and at the Closing Date; (iii) all Required
Consents have been obtained by Seller and
delivered to Buyer; (iv) except for matters affecting the
television broadcasting industry generally, no
litigation, action, suit, judgment, proceeding or
investigation is pending or outstanding or, to the
knowledge of Seller, threatened, before any forum, court, or
governmental body, department or agency of
any kind, which has the stated purpose or the probable effect
of enjoining or preventing the
consummation of this Agreement or the transaction contemplated
hereby or to recover damages by reason
thereof, or which questions the validity of any action taken
or to be taken pursuant to or in connection
with this Agreement; (v) to the knowledge of Seller, no
insolvency proceedings of any character
including, without limitation, receivership, reorganization,
composition or arrangement with creditors,
voluntary or involuntary, affecting Seller or any of its
material assets or properties is pending, and
Seller has not taken any action in contemplation of, or which
would constitute the basis for, the
institution of any such insolvency proceedings; and (vi)
Seller has performed the requirements of this
Section 9.1;
9.1.8 Instructions to the Escrow Agent to deliver the Escrow Deposit
to LBI Holdings in accordance with the provisions of Section
3.1.2.; and
9.1.9 Such other instruments of transfer, documents or certificates
requested by Buyer as may be necessary or appropriate to
transfer to and vest in Buyer all of Seller's right, title and
interest in and to the Purchased Assets or as reasonably may
be requested by Buyer to evidence consummation of this
Agreement and the transaction contemplated hereby.
9.2 Buyer's Performance at Closing. On the Closing Date at the
Closing Place, Buyer will execute and deliver or cause to be
delivered to Seller:
9.2.1 The monies payable as set forth in Section 3.1.1 by wire
transfer of federal funds;
9.2.2 An opinion of Buyer's counsel dated as of the Closing Date
substantially in the form of Exhibit "C";
9.2.3 Copies of resolutions of the Boards of Directors of LBI
Holdings, LBI and LBI Sub, in each case certified by its
Secretary, authorizing the execution, delivery and performance
of this Agreement and the transaction contemplated hereby;
9.2.4 A certificate, dated as of the Closing Date, executed by the
Executive Vice President of LBI Holdings and Buyer,
to the effect that (i) the material representations and
warranties of LBI Holdings and Buyer contained
in this Agreement are true and complete on and as of the
Closing Date as though made on and as of the
Closing Date, except as specifically contemplated by this
Agreement; (ii) LBI Holdings and Buyer have
each complied with or performed all material terms, covenants,
agreements and conditions required by
this Agreement to be complied with or performed by it prior to
and at the Closing Date; (iii) except for
matters affecting the television broadcasting industry
generally, no litigation, action, suit, judgment,
proceeding or investigation is pending or outstanding or, to
the knowledge of LBI Holdings and Buyer,
threatened, before any forum, court or governmental body,
department or agency of any kind which has the
stated purpose or the probable affect of enjoining or
preventing the consummation of this Agreement or
the transaction contemplated hereby or to recover damages by
reason thereof, or which questions the
validity of any action taken or to be taken pursuant to or in
connection with this Agreement; (iv) to
the knowledge of LBI Holdings and Buyer, no insolvency
proceedings of any character including, without
limitation, receivership, reorganization, composition or
arrangement with creditors, voluntary or
involuntary, affecting LBI Holdings or Buyer or any of their
respective assets or properties is pending,
and neither LBI Holdings nor Buyer has taken any action in
contemplation of, or which would constitute
the basis for, the institution of any such insolvency
proceedings; and (v) LBI Holdings and Buyer have
each performed the requirements of this Section 9.2;
9.2.5 A writing evidencing the assumption by Buyer of each of the
Assumed Contracts consistent with the provisions of this
Agreement; and
9.2.6 Such other instruments, documents and certificates as
reasonably may be requested by Seller to consummate this
Agreement and the transaction contemplated hereby.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification by Seller. It is understood and agreed that LBI Holdings
and Buyer do not assume and will not be obligated to pay any liability of Seller
under the terms of this Agreement or otherwise and will not be obligated to
perform any obligations of Seller of any kind or manner, except in connection
with the Assumed Contracts and with respect thereto only to the extent such
obligations arise subsequent to the consummation of the transaction contemplated
hereby on the Closing Date. Seller, hereby agrees to indemnify, defend and hold
harmless LBI Holdings and Buyer, their successors and assigns, for a period of
two years following the Closing Date, from and against:
10.1.1 Any and all Damages, occasioned by, arising out of or
resulting from the operation of the Station prior to the
Closing Date, including, but not limited to, any and all
claims, liabilities and obligations arising or required to be
performed prior to the Closing Date under any of the Assumed
Contracts or otherwise with respect to Seller's ownership and
operation of the Station prior to the Closing Date; and
10.1.2 Any and all Damages occasioned by, arising out of or resulting
from any material misrepresentation, material breach of
warranty or covenant, or material default or material
nonfulfillment of any agreement on the part of Seller under
this Agreement, or from any material misrepresentation in or
material breach of any certificate, agreement, appendix,
Schedule, or other instrument furnished to LBI Holdings or
Buyer pursuant to this Agreement or in connection with the
transaction contemplated hereby.
10.2 Indemnification by LBI Holdings and Buyer. LBI Holdings and Buyer agree to
indemnify, defend and hold harmless Seller, its successors and assigns, for a
period of two years following the Closing Date from and against:
10.2.1 Any and all Damages occasioned by, arising out of or resulting
from the operation of the Station on or subsequent to the
Closing Date, including, but not limited to, any and all
claims, liabilities and obligations arising or required to be
performed on or subsequent to the Closing Date under any of
the Assumed Contracts or otherwise with respect to Buyer's
ownership and operation of the Station from and after the
Closing Date; and
10.2.2 Any and all Damages occasioned by, arising out of or resulting
from any material misrepresentation, material breach of
warranty or covenant, or material default or material
nonfulfillment, of any agreement on the part of LBI Holdings
or Buyer under this Agreement, or from any material
misrepresentation in or material breach of any certificate,
agreement, appendix, Schedule or other instrument furnished to
Seller pursuant to this Agreement or in connection with the
transaction contemplated hereby.
10.3 Third-Party Claims. In the event of third party claims, each Party
("Indemnified Party") shall give written notice to the other Party
("Indemnifying Party") as soon as practicable and in no event later than ten
business days after the Indemnified Party has knowledge, or the discovery, of
any facts which in its opinion entitle or may entitle it to indemnification
under this Section 10.3. Seller, on the one hand, and LBI Holdings and Buyer, on
the other, shall be considered a single Party for purposes of this Section 10.3.
However, failure to give such notice will not preclude the Indemnified Party
from seeking indemnification hereunder, unless, and to the extent that, such
failure adversely affects to a material degree the Indemnifying Party's ability
to defend against such a claim. The Indemnifying Party will promptly defend such
a claim by counsel approved by the Indemnified Party, which approval shall not
be unreasonably withheld, and the Indemnified Party may appear at any
proceeding, at its own cost, by counsel of its own choosing and will otherwise
reasonably cooperate in the defense of such claim, provided that the
Indemnifying Party shall promptly reimburse the Indemnified Party all reasonable
costs, expenses and attorneys' fees incurred in the course of cooperating in the
defense of such claim. The Indemnifying Party shall be responsible for all costs
and expenses of any settlement. If the Indemnifying Party within ten business
days after notice of a claim fails to defend the Indemnified Party, the
Indemnified Party will be entitled to undertake the defense, compromise or
settlement of such claim at the expense of and for the account and risk of the
Indemnifying Party. Anything in this Section to the contrary notwithstanding:
10.3.1 If LBI Holdings or Buyer is the Indemnified Party and in the
reasonable judgment of LBI Holdings or Buyer there is a
reasonable probability that a claim may materially and
adversely affect the Indemnified Party or its continued
operation of the Station, the Indemnified Party will have the
right, at its own cost and expense, to undertake the
prosecution, compromise and settlement of such claim, and the
Indemnifying Party will cooperate with the Indemnified Party;
10.3.2 If the facts giving rise to indemnification hereunder involve
a possible claim by the Indemnified Party against a third
party, the Indemnified Party will have the right, at its own
cost and expense, to undertake the prosecution, compromise and
settlement of such claim; and
10.3.3 The Indemnifying Party will not, without the consent of the
Indemnified Party, enter into or settle or compromise any
claim or consent to any entry of judgment which (i) in the
reasonable judgment of LBI Holdings or Buyer may materially
and adversely affect LBI Holdings or Buyer or its continued
operation of the Station, and (ii) does not include as an
unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a full and complete
release from all liability in respect to such claim.
10.4 Survival of Representations and Warranties. The representations and
warranties contained in this Agreement or in any Schedule or Exhibit, or in any
certificate or other instrument delivered pursuant to this Agreement, will
survive the Closing Date for a period of two years.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Notices. All notices, demands and requests, required or permitted to be
given under the provisions of this Agreement shall be in writing and will be
deemed duly given if sent by express mail, postage prepaid, overnight express
service or mailgram, effective upon receipt and addressed as follows:
If to Seller:
George J. Phillips, Esq.
Executive Vice President & General Counsel
Shop At Home, Inc.
P.O. Box 305249
Nashville, TN 37230-5249
Fax: (615) 263-8911
Copy (which shall not, by itself, constitute notice) to:
Richard J. Bodorff, Esq.
Wiley, Rein & Fielding
1776 "K" Street, N.W.
Washington, D.C. 20006
Fax: (202) 429-7049
If to LBI Holdings or Buyer:
Lenard D. Liberman
Vice President
Liberman Television Inc.
5724 Hollywood Boulevard
Hollywood, California 90028
Fax: (323) 463-8800
Copy (which shall not, by itself, constitute notice) to:
Joseph K. Kim, Esq.
O'Melveny & Myers LLP
400 South Hope Street, 15th Floor
Los Angeles, California 90071
Fax: (213) 430-6407
or any such other addresses as any Party may from time to time supply in writing
to the other Parties.
11.2 Benefit and Assignment. This Agreement will be binding upon and inure to
the benefit of the Parties, and their respective successors and assigns. This
Agreement will not be assignable by a Party without the prior written consent of
all of LBI Holdings, Buyer and Seller; provided, however, that LBI Holdings and
Buyer may assign its rights and obligations hereunder without Seller's consent
to any party owned, directly or indirectly, by LBI Holdings; and provided,
further, that Foothill Capital Corporation shall have the right to receive a
portion of the Purchase Price (to the extent Seller has the right to receive the
Purchase Price hereunder and subject to any defenses Buyer may have against
Seller) directly from Buyer in accordance with (and only to the extent set forth
in) Section 3.1.1.
11.3 Other Documents. The Parties will execute such other documents as may be
necessary and desirable to the implementation and consummation of this
Agreement.
11.4 Appendices. All Schedules and Exhibits are deemed to be part of this
Agreement and incorporated herein, where applicable, as if fully set forth
herein. Whenever, by the terms of this Agreement or any subsequent agreement of
the Parties, any additions or deletions are made to the Purchased Assets shown
on the Schedules, the Schedules affected shall be appropriately modified to
reflect those changes.
11.5 Construction. This Agreement will be governed, construed and enforced in
accordance with the laws of the State of California as they apply to agreements
executed and fully to be performed in California (without reference to
California's choice of law rules).
11.6 Jurisdiction; Attorneys' Fees. Each party hereto agrees that any and all
claims, grievances, demands, controversies, causes of action or disputes of any
nature whatsoever (hereinafter "Transaction Claims") arising out of, in
connection with or in relation to the interpretation, performance or breach of
this Agreement between the parties hereto, shall be brought in the United States
District Court for the Central District of California or, if such court does not
have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in the County of Los Angeles, California. Each party hereto
unconditionally and irrevocably consents to the jurisdiction of any such court
over any Transaction Claims and waives any objection which such party may have
to the laying of venue of any Transaction Claims in any such court. In the event
of any Transaction Claim, the prevailing party shall be entitled to recover from
the losing party reasonable attorneys' fees, expenses and costs.
11.7 Counterparts. This Agreement may be signed in any number of counterparts
with the same effect as if the signature on each such counterpart were upon the
same instrument.
11.8 Headings. The headings of the Sections of this Agreement are inserted as a
matter of convenience and for reference purposes only and in no respect define,
limit or describe the scope of this Agreement or the intent of any Section.
11.9 Entire Agreement. This Agreement, all Schedules and Exhibits and all
agreements, certificates and instruments delivered by the Parties pursuant to
the terms of this Agreement represent the entire understanding and agreement
between the Parties with respect to the subject matter hereof, supersede all
prior negotiations and agreements between the Parties, including the Letter
Agreement dated October 11, 2000 signed by SAH Parent and LBI Holdings, and can
be amended, supplemented, waived or changed only by an amendment in writing
which makes specific reference to this Agreement or the amendment, as the case
may be, and which is signed by the Party against whom enforcement of any such
amendment, supplement, waiver or modification is sought.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed and delivered by their duly authorized officers on the day and year
first above written.
SHOP AT HOME, INC.
By: ____________/s/__________________
Kent E. Lillie,
President and Chief Executive Officer
SAH-HOUSTON CORPORATION
By: ____________/s/__________________
SAH-HOUSTON LICENSE CORP.
By: ____________/s/__________________
LBI HOLDINGS II, INC.
By: ____________/s/__________________
Lenard D. Liberman
Vice President
LIBERMAN TELEVISION OF HOUSTON, INC.
By: ____________/s/__________________
Lenard D. Liberman
Vice President
and
KZJL LICENSE CORP.
By: _____________/s/_________________
Lenard D. Liberman
Vice President
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..............................................1
1.1 Definitions..............................................1
1.2 Knowledge................................................9
ARTICLE II PURCHASE AND SALE OF ASSETS..............................9
2.1 Assets to be Conveyed....................................9
2.2 Excluded Assets and Liabilities..........................10
ARTICLE III PURCHASE PRICE; METHOD OF PAYMENT; ESCROW DEPOSIT........10
3.1 Purchase Price...........................................10
3.2 Liabilities Assumed......................................11
3.3 Escrow Deposit...........................................11
3.4 Buyer's Remedies.........................................12
3.5 Allocation...............................................12
3.6 Prorations...............................................13
ARTICLE IV REPRESENTATIONS AND WARRANTIES BY SELLER.................13
4.1 Organization and Standing................................13
4.2 Authorization............................................13
4.3 FCC Licenses.............................................13
4.4 Purchased Assets.........................................15
4.5 Insurance................................................15
4.6 Litigation...............................................15
4.7 Contracts................................................15
4.8 Insolvency...............................................15
4.9 Reports..................................................15
4.10 No Defaults..............................................16
4.11 Disclosures..............................................16
4.12 Environmental Compliance.................................16
4.13 Must Carry Rights........................................16
4.14 Intellectual Property....................................17
4.15 Brokers..................................................18
ARTICLE V REPRESENTATIONS AND WARRANTIES BY BUYER AND LBI HOLDINGS.18
5.1 Status...................................................18
5.2 No Defaults..............................................18
5.3 Corporate Action.........................................18
5.4 Brokers..................................................19
5.5 Qualification as a Broadcast Licensee....................19
5.6 Litigation...............................................19
5.7 Approvals and Consents...................................19
ARTICLE VI COVENANTS OF SELLER......................................19
6.1 Affirmative Covenants of Seller..........................19
6.2 Negative Covenants of Seller.............................20
ARTICLE VII ADDITIONAL AGREEMENTS....................................21
7.1 Application for Commission Consent; Other Consents.......21
7.2 Mutual Right to Terminate................................22
7.3 Buyer's Right to Terminate...............................22
7.4 Seller's Right to Terminate..............................22
7.5 Risk of Loss.............................................22
7.6 Transfer Taxes; Expenses; Bulk Sales.....................24
7.7 Relocation...............................................24
ARTICLE VIII CLOSING CONDITIONS...........................................31
8.1 Conditions Precedent to Buyer's Obligations..............31
8.2 Conditions Precedent to Seller's Obligations.............32
ARTICLE IX ITEMS TO BE DELIVERED AT THE CLOSING.....................33
9.1 Seller's Performance At Closing..........................33
9.2 Buyer's Performance at Closing...........................34
ARTICLE X INDEMNIFICATION..........................................36
10.1 Indemnification by Seller................................36
10.2 Indemnification by LBI Holdings and Buyer................36
10.3 Third-Party Claims.......................................37
10.4 Survival of Representations and Warranties...............37
ARTICLE XI MISCELLANEOUS PROVISIONS.................................38
11.1 Notices..................................................38
11.2 Benefit and Assignment...................................38
11.3 Other Documents..........................................39
11.4 Appendices...............................................39
11.5 Construction.............................................39
11.6 Jurisdiction; Attorneys' Fees............................39
11.7 Counterparts.............................................39
11.8 Headings.................................................39
11.9 Entire Agreement.........................................39
