SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Company [X]
Filed by a Party other than the Company [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Shop At Home, Inc.
(Name of Company as Specified In Its Charter)
C. Michael Norton, Bone McAllester Norton PLLC, SunTrust Center, 424 Church
Street, Suite 900 Nashville, Tennessee 37219
Name of Person(s) Filing Proxy Statement, if other than the Company)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock of SAH Holdings, Inc., a subsidiary of the Registrant
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(2) Aggregate number of securities to which transaction applies:
800 shares of Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$49,500,000, which is the cash purchase price of stock per the
Share Purchase Agreement
--------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$49,500,000
(5) Total fee paid:
$9,900.00
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
SHOP AT HOME, INC.
5388 Hickory Hollow Parkway
Nashville, Tennessee 37013
Notice of Special Meeting of Shareholders
to be held on October 16, 2002
Notice is hereby given that a special meeting (the "Meeting") of
shareholders of Shop At Home, Inc. (the "Company" or "we"), will be held at the
offices of the Company, located at 5388 Hickory Hollow Parkway, Nashville,
Tennessee, 37013, on October 16, 2002, at 10:00 a.m. Central Standard Time, for
the following purposes:
(1) To consider and to vote upon the approval of an indirect sale
to a subsidiary of The E.W. Scripps Company of a 70% interest
in the operating assets and liabilities and business
operations of the Company's television and Internet home
shopping network;
(2) To consider and to vote upon the approval of an amendment to
the charter of the Company changing the name of the Company to
"Premier Media, Inc.," or if the new name becomes unavailable
or is unacceptable to the applicable regulators having
jurisdiction over the affairs of the Company, to any other
name that is approved by the Board of Directors in its sole
discretion.
(3) To transact such other business as may properly come before
the meeting or any adjournment thereof.
Information regarding the matters to be acted upon at the Meeting is
contained in the Proxy Statement accompanying this Notice. The Meeting may be
adjourned from time to time without notice, other than the announcement of the
adjournment at the Meeting or any adjournment or adjournments thereof, and any
and all business for which notice is hereby given may be transacted at any such
adjourned Meeting.
The Board of Directors has fixed the close of business on September 9,
2002 as the record date for the determination of shareholders entitled to notice
of, and to vote at, the Meeting.
By Order of the Board of Directors
George J. Phillips, Secretary
Nashville, Tennessee
September 11, 2002
YOUR REPRESENTATION AT THE MEETING IS IMPORTANT. TO ENSURE YOUR REPRESENTATION,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY. IF YOU DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AS
PROVIDED IN THE ACCOMPANYING PROXY STATEMENT, AT ANY TIME BEFORE IT IS VOTED.
TABLE OF CONTENTS
SUMMARY TERM SHEET OF THE SALE OF ASSETS.....................................1
Corporate Structure Immediately Prior to the Closing.......3
Corporate Structure Immediately Following the Closing........................3
INFORMATION CONCERNING THE SOLICITATION......................................3
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION..................5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............6
PROPOSAL ONE: SALE OF ASSETS.................................................7
General....................................................7
Background of the Sale of Assets...........................7
Reasons for the Sale of Assets.............................10
Opinion of the Financial Adviser to the Company's Board....11
Summary of the Agreements..................................13
Federal Income Tax Consequences............................19
Required Regulatory Approval...............................20
Interest of Certain Persons................................20
Board Recommendation.......................................23
Vote Required..............................................23
Dissenters Rights..........................................23
PROPOSAL TWO: CHARTER AMENDMENT .............................................23
Reason for the Proposal and Effect if Adopted by
the Shareholders.....................................24
Text of the Charter Amendment and Board's Authority to
Designate Another Name...............................24
Vote Required..............................................24
PROPOSAL THREE: OTHER BUSINESS..............................................24
CERTAIN INFORMATION CONCERNING OUR COMPANY ..................................24
Company Overview...........................................24
Industry Background........................................25
Recent Developments........................................25
Distribution of Programming................................26
Programming Origination....................................26
Owned and Operated Stations................................26
Affiliates.................................................27
Products and Customers.....................................27
Competition................................................28
Employees..................................................29
Information Technology.....................................29
Broadcasting Technology....................................29
Properties.................................................29
Legal Proceedings..........................................30
Operation of the Company Following the Sale of Assets......30
Incorporation by Reference.................................31
ABOUT SCRIPPS AND SCRIPPS NETWORKS...........................................31
RISK FACTORS ...........................................................31
Risks Relating to Company if the Sale of Assets
is Not Consummated...................................31
Risks Relating to the Sale of Assets.......................31
SELECTED FINANCIAL DATA......................................................34
OTHER INFORMATION 36
Cost of Solicitation of Proxies.....................................36
Shareholder Proposals...............................................36
Where You Can Find More Information.................................36
GLOSSARY ....................................................................36
Appendix A Share Purchase Agreement
Appendix B Fairness Opinion
SHOP AT HOME, INC.
5388 Hickory Hollow Parkway
Nashville, Tennessee 37013
(615) 263-8000
PROXY STATEMENT
For
SPECIAL MEETING OF SHAREHOLDERS
SUMMARY TERM SHEET OF THE SALE OF ASSETS
The following summary briefly describes the material terms of the
proposed sale of a substantial portion of the assets and business of the Company
to The E.W. Scripps Company ("Scripps"). This summary does not contain all the
information that may be important for you to consider when evaluating the
proposed transaction. We encourage you to read this Proxy Statement and the
appendices attached to it before voting. We have included a Glossary at the end
of this Proxy Statement which contains definitions of some of the principal
terms we use herein. We have included cross references to direct you to a more
complete description of the topics described in this summary.
Shop At Home, Inc., located in Nashville, Tennessee, owns and operates five
full-power television stations, located in the San Francisco, Cleveland,
Boston, Raleigh, and Bridgeport, Connecticut markets, and operates a
television home shopping network (the "Network").
Our Board of Directors has unanimously approved the proposal for us to
indirectly sell and transfer a 70% interest in our Network to Scripps. The
Board believes this sale (the "Sale of Assets") is in our best interest and
is fair to our shareholders due to, among other reasons more fully
described in this Proxy Statement, the reduction of leverage and the
improvement of liquidity, unlocking the value of the broadcast stations,
alternative financing proposals being expensive and dilutive and our need
to bring additional funds into the Network in order to promote its further
growth and development. While our Board has explored a number of other
alternatives to maximize the value of the Network, no other party has
presented an offer move favorable than the proposal made by Scripps. See
"Background of the Sale of Assets" herein.
If the Sale of Assets is closed, we will receive a purchase price of $49.5
million for the 70% interest in the Network, plus the right to receive $3.0
million in cash from Network operations immediately prior to the closing.
See "Summary of Agreements" herein for further information regarding this
and the following points.
In order to accomplish the Sale of Assets, Scripps, through its wholly
owned subsidiary, Scripps Networks, Inc. ("Scripps Networks"), will
indirectly purchase a 70% interest in our subsidiary which owns and
operates the Network (the "Operating Company"). Certain of our assets and
liabilities will not be included in the Sale of Assets, and we will retain
such assets and liabilities. Among other things, these retained assets and
liabilities include the following:
-the 30% interest in the Network
-the Company's five television broadcast stations
-wireless spectrum rights with respect to certain of our current and
previously owned television licenses -liability for our $75 million Senior
Secured Notes and our $17.5 million senior credit facility -pending
litigation and certain contractual obligations -our net operating loss
carry forward
From two years to five years after the closing, we can require Scripps to
buy the remaining 30% of the Network for fair market value, and after five
years Scripps can require us to sell the 30% interest for fair market
value. Scripps can call our 30% interest if there is a change of control of
the Company, we become insolvent or we breach certain other agreements we
will have with Scripps.
The Operating Company will be governed by a five-member board, two members
of which will be designated by us and three members of which will be
designated by Scripps, and with almost all decisions requiring only a
majority vote.
If the Sale of Assets is closed, Scripps has agreed to fund the Operating
Company with a $35 million loan, as needed, with interest at 6%. An initial
advance of up to $3.0 million is intended to be made at the closing. If
additional funds are required to operate the Operating Company, Scripps
will be able to decide whether such additional funds will be by loan, by
additional equity investments by the owners, or an investment by a third
party. If Scripps elects to provide such funds by equity investment, we
will have a period of six months in which to fund our 30% portion of the
required equity investment. If we elect not to provide such funds or we are
unable to do so, Scripps will be permitted to dilute our ownership interest
in the Network.
In addition to the payment of the purchase price for the 70% interest in
the Network, if the Sale of Assets is closed, Scripps has agreed to loan us
$47.5 million (the "Loan"). We will pay interest quarterly on the Loan at
the annual rate of 6% and we will be required to repay the Loan in full to
Scripps at the end of three years. The Loan will be secured by liens on our
30% retained interest in the Network, as well as by our television stations
in San Francisco, Boston and Cleveland.
We will use the proceeds of the Sale of Assets and the Loan to pay off our
$75 million Senior Secured Notes and our $17.5 million credit facility.
If the Sale of Assets is closed, we have agreed to enter into an
affiliation agreement with the Operating Company under which we will carry
the Network's programming for three years. Under this agreement, we will
receive for each market annual fees of $1.25 per cable television
subscriber payable monthly. We estimate that there are currently
approximately 5.3 million cable subscribers covered by all five of our
television stations. We may terminate the affiliation agreement as to any
or all of the television stations after 15 months following the closing.
At the same time as the agreement for the Sale of Assets was executed,
Scripps invested $3.0 million in a newly created class of our non-voting
preferred stock. This preferred stock must be redeemed by us for $3.0
million plus dividends at 6% per annum on April 15, 2005. If the Sale of
Assets does not close, the dividend rate will increase to 12% per annum.
This preferred stock is not convertible to any other type of our capital
stock.
If the Sale of Assets is closed, we have agreed to assign all rights we
have in the name "Shop At Home" to the Operating Company, and we have
agreed to ask that the shareholders approve a change in our corporate name.
The Board of Directors has recommended that our name be changed to "Premier
Media, Inc."
The following charts show the ownership of the Network by us prior to
the closing of the Sale of Assets and the proposed ownership structure following
the closing:
Corporate Structure Immediately Prior to the Closing
[Graphical presentation of Corporate structure]
Corporate Structure Immediately Following the Closing
[Graphical presentation of Corporate structure]
INFORMATION CONCERNING THE SOLICITATION
The accompanying proxy is solicited by the Board of Directors of the
Company, for use at the Meeting of Shareholders to be held on October 16, 2002,
and any adjournments thereof, notice of which is attached hereto.
This Proxy Statement has been mailed on or about September 11, 2002, to
all shareholders of record on September 9, 2002.
The purposes of the Meeting are: [1] to consider and to vote upon the
approval of an indirect sale to a subsidiary of The E.W. Scripps Company of a
70% interest in the operating assets and liabilities and business operations of
the Company's television and Internet home shopping network; [2] to consider and
to vote upon the approval of an amendment to the charter of the Company changing
the name of the Company to "Premier Media, Inc.;" or if the new name becomes
unavailable or is unacceptable to the applicable regulators having jurisdiction
over the affairs of the Company, to any other name that is approved by the Board
of Directors in its sole discretion, and [3] to consider such other business as
may properly come before the meeting or any adjournment thereof.
A shareholder of record who signs and returns a proxy in the
accompanying form may revoke that proxy at any time before the authority granted
thereby is exercised (i) by attending the Meeting and electing to vote in
person, (ii) by filing with the Secretary of the Company a written revocation,
or (iii) by duly executing and filing with the Secretary of the Company a proxy
bearing a later date. Unless so revoked, the shares represented by the proxy
will be voted at the Meeting. Where a choice is specified on the proxy, the
shares represented thereby will be voted in accordance with that specification.
If no specification is made, all shares will be voted FOR the Sale of Assets and
FOR the charter amendment.
The Board of Directors knows of no other matters that are to be brought
to a vote at the Meeting. If, however, any other matter does come before the
Meeting, the persons appointed in the proxy, or their substitutes, will vote in
accordance with their best judgment on such matters.
The Board of Directors has fixed the close of business on September 9,
2002 (the "Record Date") as the record date for the Meeting. The Company's only
class of securities entitled to vote is its Common Stock, $.0025 par value per
share ("Common Stock"). On the Record Date, the Company had outstanding
41,956,747 shares of Common Stock. Only shareholders of record at the close of
business on the Record Date will be entitled to vote at the Meeting.
Shareholders will be entitled to one vote for each share held, which vote may be
given in person or by proxy authorized in writing.
Under the Tennessee Business Corporation Act (the "Act") and the
Company's Bylaws, the presence, in person or by proxy, of a majority of the
outstanding shares of the Company's Common Stock is necessary to establish a
quorum of the Company's shareholders for the purpose of taking action at the
Meeting. For these purposes, shares which are present or represented by a proxy
at the Meeting will be counted for quorum purposes, regardless of whether the
holder of the shares or proxy fails to vote on any particular matter or whether
a broker with discretionary authority fails to exercise its discretionary voting
authority with respect to any particular matter.
The Act requires a Tennessee corporation to obtain shareholder approval
if it sells substantially all of its property. It is unclear whether or not the
sale by the Company of a 70% interest in the Network is the sale of
substantially all of its property under the Act. As a result, the Corporation
has elected to seek shareholder approval of the Sale of Assets despite the fact
that such approval may not be legally required. If shareholder approval is
required, the Sale of Assets must be approved by a majority of the total number
of outstanding shares of Common Stock. The charter amendment must be approved by
a majority of the votes cast. For voting purposes regarding the Sale of Assets,
abstentions and broker non-votes have the same effect as a vote against the
proposal. For voting purposes regarding the Charter Amendment, abstentions and
broker non-votes will not be counted in determining whether or not that proposal
has been approved.
Even if the Sale of Assets receives a negative vote or fails to receive
enough affirmative votes to constitute a majority of the total number of
outstanding shares, the Company's Board of Directors could elect to move ahead
and close the Sale of Assets on the basis that shareholder approval was not
required. The Board has not made a decision with respect to whether or not it
would take that position. Furthermore, obtaining shareholder approval for the
Sale of Assets constitutes one of Scripps' closing conditions, such that closing
the Sale of Assets on the foregoing basis following a failure to obtain
shareholder approval would require a waiver of such condition by Scripps. The
agreement between the Company and Scripps Networks regarding the Sale of Assets
(the "Share Purchase Agreement") provides that, if Scripps deems it advisable to
seek a judgment from a court that shareholder approval is not required, the
Company will cooperate in the filing of such an action and its prosecution.
Each of the members of the Company's Board of Directors, along with
Arthur D. Tek, the Company's Executive Vice President and Chief Financial
Officer, have executed a Voting Agreement with Scripps Networks, dated August
14, 2002, under which these persons have agreed to vote their shares of Common
Stock of the Company in favor of the Sale of Assets and the Charter Amendment
and against any proposal which would breach the terms of the Share Purchase
Agreement, or would result in any of the closing conditions under that agreement
not being fulfilled. The shareholders who signed the Voting Agreement hold
5,435,766 shares, which constitute approximately 13% of the total number of
outstanding shares of Common Stock entitled to vote.
None of the proposals will give any shareholder of the Company the right
to dissent from such action, and to thereby obtain payment in cash of the fair
value of that shareholder's shares.
The Common Stock of the Company is listed on the Nasdaq National Market
System under the symbol "SATH." If the shareholders approve the name change of
the Company, the Company will select a new trading symbol. The Company
anticipates a continual listing on the National Market System.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION
This Proxy Statement, and the information the Company is incorporating
by reference into it, 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. The Company has 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 the Company, including, among other things:
general economic and business conditions, both nationally and in the
Company's markets;
the Company's expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
anticipated trends in its business;
existing and future regulations affecting its business;
our successful implementation of our business strategy;
fluctuations in its operating results;
technological changes in the television and Internet industry; and
other risk factors described under "Risk Factors" herein.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to the Company, its business or its 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 Proxy Statement. Because of these
risks and uncertainties, the forward-looking events and circumstances discussed
in this Proxy Statement may not occur and actual results could differ materially
from those anticipated or implied in the forward-looking statements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following information relates to the Common Stock of the Company
beneficially owned, directly or indirectly, by all persons known by the Company
to be the beneficial owners of more than five percent (5%) of the Common Stock,
as of September 9, 2002. Unless otherwise noted, the named persons have sole
voting and investment power with respect to the shares indicated.
- ----------------------------------------------------------------- -------------------------- --------------
Amount and Nature of Percent of
Name and Address of Beneficial Owner(1) Beneficial Ownership Class
- ------------------------------------ -------------------- -----
- ----------------------------------------------------------------- -------------------------- --------------
- ----------------------------------------------------------------- -------------------------- --------------
J.D. Clinton and SAH Holdings, Ltd.(2)....................... 4,282,124 10.2%
Legacy Media Partners, LLC; Legacy Asset Management, Inc.;
Legacy Investment Group, Inc.; Michael D. Easterly; John R.
Jordan; W. Charles Warner; and Glenn M. and Ronda J. Caudill
(the "Legacy Group") (3)..................................... 3,199,142 7.6%
- ----------------------------------------------------------------- -------------------------- --------------
(1) In addition to shares over which the person has voting power or investment
power, a person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from the date of this Proxy
Statement upon the exercise of options and warrants. Each beneficial
owner's percentage ownership is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date of this Proxy
Statement have been exercised.
(2) Mr. Clinton's address and the address of SAH Holdings, Ltd. ("SAH"), is 400
Fifth Avenue South, Suite 205, Naples, Florida 34102. SAH is a Florida
limited partnership, and Gatehouse Equity Management Corporation, a
Tennessee corporation ("GEM"), is its sole general partner. Mr. Clinton is
chairman, a director and the sole shareholder of GEM. SAH currently owns
3,268,508 shares of Common Stock. Clinton Investments, Ltd., a Florida
limited partnership of which GEM is also the sole general partner, owns
835,285 shares of Common Stock. GEM owns 18,600 shares of Common Stock. Mr.
Clinton individually holds options to purchase 91,250 shares of Common
Stock from the Company. Mr. Clinton's wife owns, individually, 9,320 shares
of Common Stock. Two trusts, the beneficiaries of which are members of Mr.
Clinton's immediate family, own 59,161 shares of Common Stock in the
aggregate. All of the listed shares are assumed to be beneficially owned by
Mr. Clinton. SAH Holdings, Ltd. is a Florida limited partnership and is
unrelated to SAH Holdings, Inc., the subsidiary of the Company.
(3) The address of the Legacy Group is 3384 Peachtree Road, N.E., Suite 300,
Atlanta, Georgia 30326-1106. Legacy Media Partners, LLC ("LMP"), a Georgia
limited liability company, is the beneficial owner of 2,829,332 shares,
made up of 1,896,145 shares owned directly and certain shares for which it
may be deemed to be the beneficial owner, as follows: 216,000 shares held
by Mr. Jordan; 329,000 shares held by Mr. Warner, along with 15,000 shares
owned by Mr. Warner jointly with his two daughters, 10,000 shares owned by
Mr. Warner jointly with his wife, and 2,000 held individually by Mr.
Warner's wife; and 262,466 shares owned directly by Mr. Caudill, and
125,121 shares owned directly by Mrs. Caudill. Jordan, Warner and the
Caudills have each granted LMP a revocable proxy to vote such shares.
Legacy Asset Management, Inc., a Georgia corporation and a member and the
sole manager of LMP ("LAM"), is the beneficial owner of 369,810 shares
which are directly owned by clients of LAM for whom LAM acts as an
investment advisor. Of these 369,810 shares, 54,500 are directly owned by
Mr. Easterly and 25,700 shares are owned by Legacy Investment Group, Inc.,
a Georgia corporation that is the holding company parent of LAM. Mr.
Easterly is a director and the controlling shareholder of Legacy Investment
Group.
PROPOSAL NO. 1
SALE OF ASSETS
General
A detailed description of the Sale of Assets and related
information is included in this Proxy Statement Descriptions of the Sale of
Assets in this Proxy Statement are qualified in their entirety by reference to
the Share Purchase Agreement that is attached to this Proxy Statement as
Appendix A. You are encouraged to read the Share Purchase Agreement in its
entirety.
The Company announced on August 14, 2002 that it had entered into
a Share Purchase Agreement to sell, indirectly, 70% of the Network to Scripps
Networks, Inc., a wholly-owned subsidiary of Scripps. The Company will retain an
indirect 30% interest in the Network and will also retain ownership of its five
full-power television stations, certain wireless spectrum assets and its tax
loss carry forward benefits.
Prior to consummation of the transactions contemplated by the
Share Purchase Agreement, the Company will contribute assets to the Operating
Company. Such assets will include substantially all of the assets of the Network
and certain current liabilities of the Network. The Company will retain its
obligations under its $17.5 million credit facility and its $75 million 11%
Senior Secured Notes due 2005, both of which will be repaid with the proceeds
from the Sale of Assets and the Loan. The Company will also retain its
liabilities, except for certain current obligations which will be assumed by the
Operating Company. Also prior to consummation of the transactions contemplated
by the Share Purchase Agreement, the Company will contribute 87.5% of the
outstanding membership interests in the Operating Company to SAH Holdings, Inc.,
80% of the stock of which will be acquired by Scripps Networks pursuant to the
Share Purchase Agreement. Thus, upon consummation of the transactions
contemplated by the Share Purchase Agreement, the Company will own 20% of SAH
Holdings, Inc. (the name of which will be changed to The Scripps Shop At Home
Holding Company) ("Holding Company") and 12.5% of the Operating Company. Scripps
Networks will own 80% of Holding Company. This will result in an indirect
ownership of 30% the Network by the Company and 70% of the Network by Scripps
Networks. A graphical presentation of the corporate structure of the Sale of
Assets is included herein as part of "Summary Term Sheet of the Sale of Assets."
The Company's shares in Holding Company and the Company's
membership interest in the Operating Company will be subject to certain puts and
calls requiring Scripps Networks to directly or indirectly purchase, or the
Company to sell, such securities in accordance with the terms of the agreements
between them.
Background of the Sale of Assets
The Company experienced disappointing operating results for its
fiscal year ended June 30, 2001, and management believed that those results
failed to reflect the Company's potential performance in view of the overall
growth in the television home shopping industry. The Company's board responded
by terminating the employment of its chief executive officer in May 2001 and
assembling a new management team with significant experience in the
broadcasting, retail, and consumer product industries. New management
immediately began to seek additional liquidity through new financing sources and
to pursue one or more strategic partners with significant experience in the
broadcasting, retail, or consumer product industries. To enhance its liquidity
position for the short-term, the Company obtained a $17.5 million credit
facility in August 2001.
From the beginning of fiscal year 2002 to the present, the
Company's management has received and reviewed a number of proposals from
potential funding sources as well as from companies presenting opportunities for
viable strategic alliances with the Company's home shopping network. In January
2002, for example, the board approved the engagement of an investment banker to
raise up to $135 million through a private placement of senior secured notes,
the proceeds of which were to be used to retire existing indebtedness and to
provide additional working capital. In mid-March, however, management determined
and announced that the Company would not pursue the high-yield debt financing,
because the Company could not secure the financing in the current market upon
terms and conditions that would ultimately enhance the Company's balance sheet
and long term financial position. Following that announcement, management and
the board continued to assess other proposals for both equity and debt
financing, but none of the numerous discussions held with third parties resulted
in any acceptable offers or the execution of any definitive agreements.
The Company's Chairman of the Board, J.D. Clinton, and Frank
Gardner, Senior Vice President of Scripps, have had a long-standing social
relationship. During early 2001, Mr. Clinton and Mr. Gardner had an informal
discussion regarding the potential interest of Scripps in a strategic alliance
with the Company, with several subsequent informal contacts occurring between
the parties, including a follow-up meeting between Mr. Gardner and executive
officers of the Company on November 28, 2001. Based upon a continuing interest
by both parties, on March 13, 2002, Frank A. Woods and George R. Ditomassi, the
Company's co-chief executive officers, together with Mr. Clinton and the
Company's outside legal counsel, met with executive officers of Scripps to
discuss a potential transaction that would result either in some type of
strategic partnership or in an acquisition, in whole or in part, of the
Company's assets. After this meeting, executive officers of the Company held a
series of meetings to better understand Scripps' business. During a Company
board meeting on March 26, 2002, Mr. Woods and Mr. Ditomassi discussed these
meetings, and the Company's board authorized the Company to engage in formal
negotiations with Scripps' management and to enter into a limited exclusivity
agreement with Scripps that would preclude the Company from negotiating any
similar transactions with other companies.
Following the board's authorization, Mr. Woods and Mr. Ditomassi
continued discussions with Scripps regarding a strategic alliance including more
particular terms that could be incorporated into a term sheet. On April 18,
2002, the Company's board met and discussed the merits of a possible strategic
alliance transaction with Scripps. The Company's board authorized Mr. Woods and
Mr. Ditomassi to continue pursuing discussions with members of Scripps'
management and to continue their review of Scripps' operations. In addition, the
board authorized the Company's engagement of the investment banking firm,
Friedman, Billings, Ramsey & Co., Inc., to provide a fairness opinion in
connection with the possible transaction with Scripps.
On April 19, 2002, the Company announced financial operating
results for the quarter and nine months ended March 31, 2002, and filed its
quarterly report on Form 10-Q with the SEC. The announcement stated that the
Company's net revenues for the nine month period ended March 31, 2002, were
$142.4 million, an increase of 3.4% over $137.7 million in the prior year. The
Company's net revenues for the quarter ended March 31, 2002, were $49.7 million,
a decrease of 1.3% from $50.4 million in the prior year. Merchandise sales were
negatively affected by the retail slowdown that began before September 11, 2001,
and then deepened for a period thereafter, as well as by the de-emphasis in the
Company's marketing of sports memorabilia, historically a major component of
overall product mix. As of March 31, 2002, the Company had $15.3 million of
unrestricted cash on hand. The Company's $17.5 million credit facility restricts
the Company from paying dividends on its Common Stock and has quarterly EBITDA
requirements. The Company failed to comply with the EBITDA covenant for the six
months ended December 31, 2001. The Company was granted a waiver of the EBITDA
violation within an amendment to the loan agreement. The amendment also
prospectively eliminated the EBITDA covenant through June 30, 2002, and reduced
the requirement thereafter. When the Company announced these financial operating
results, it stated that it continued to experience a loss from operations and
that, if the Company were unable to eliminate its operating losses during the
balance of fiscal 2002 and beyond, additional financing or asset sales may be
required. The Company also announced that, from time to time, it had engaged in
discussions with potential sources of debt and equity financing, and that some
or all of the proceeds generated by asset sales, if any were consummated, could
be required to repay the Company's indebtedness.
In April, May, and June 2002, the Company's management continued
its negotiations with Scripps' management to determine the terms and conditions
upon which a transaction could be structured. On June 19, 2002, the Company's
executive committee discussed the relative merits of the existing Scripps
proposal compared with other proposals received for equity investments and
determined to continue discussions with Scripps and other parties, including
institutional investors, for potential equity investments and strategic
alliances. In addition, the executive committee discussed negotiations it had
undertaken with a commercial lender for a new syndicated revolving credit
facility that would be used to repay and consolidate all of the Company's
existing indebtedness.
The Company's board met on June 24 and June 26, 2002, to discuss the
status of current proposals available to the Company for equity and debt
financing, as well as strategic alliances, including the Scripps proposal.
Although the board approved the syndicated revolving credit facility, management
ultimately determined that the terms and conditions being offered were not
acceptable to the Company and were not in accord with the board's long-range
financial goals. Thereafter, management of the Company continued to negotiate
with Scripps management in a series of telephone conferences and was able to
agree on principal terms set forth in a term sheet that management of each
company was willing to present to its board. When the Company's board met again
on July 18, Mr. Woods and Mr. Ditomassi presented this term sheet and engaged
the board in a comprehensive discussion regarding the financial and operational
terms of the proposed transaction. The board then instructed and authorized
management to execute and deliver the term sheet to Scripps and to negotiate the
definitive agreement for a transaction. During the remainder of July and the
first two weeks of August 2002, management of the two companies continued their
due diligence activities and began negotiating a definitive agreement by which
Scripps would effectively acquire a 70% interest in the home shopping network
business of the Company and would also immediately invest $3.0 million in the
Company by purchasing redeemable non-voting preferred stock. For the 70%
interest in the home shopping network business, the Company would be paid $49.5
million, and the Company would retain all of its five owned and operated
television stations and most of its liabilities (as described in more detail
herein). In addition, Scripps would loan $47.5 million to the Company, the
proceeds of which would be required to repay existing debt.
During the week of August 5, 2002, members of the Company's and
Scripps' management and their respective legal counsel met in Nashville at the
Company's headquarters to complete negotiations of a definitive Share Purchase
Agreement and ancillary documents, including the documents related to Scripps'
immediate $3.0 million investment in the Company. On August 9, 2002, the
Company's board met with its legal advisers to discuss the revised terms and
conditions of the transaction as negotiated since the prior board meeting. The
board extensively discussed the proposed transaction, including the transfer of
a 70% interest in the home shopping network to a new company to be controlled by
Scripps in exchange for $49.5 million to be paid to the Company. The board also
discussed the proposed immediate equity investment of $3.0 million by Scripps
through the purchase of redeemable non-voting preferred stock, as well as the
proposed $47.5 million term loan that Scripps would extend to the Company upon
the closing of the primary transaction. The board discussed the Company's cash
position and the extent to which financing alternatives were available to the
Company and the feasibility of such alternatives in the event the Scripps
transaction--and the related equity and debt financing to be provided by
Scripps--became delayed or unachievable. The board concluded that this
transaction and the financing it provided to the Company presented the best
strategic alternative to the Company and addressed a number of the board's
strategic objectives for the Company, including the Company's near-term cash
needs. The board tentatively agreed to the structure of the transaction and
authorized Mr. Woods and Mr. Ditomassi to negotiate final terms and conditions
and reach agreement on the definitive Share Purchase Agreement and ancillary
documents. The Company's board scheduled a meeting for August 13, 2002, at which
it would vote whether to approve the transaction and requested that Friedman,
Billings, Ramsey & Co., Inc., render a fairness opinion to the board at that
meeting.
Following the board's meeting on August 9, the Company's management
met with its legal advisers and worked over the weekend of August 10-11 to
address any remaining open issues to be negotiated with Scripps' management. On
August 12, 2002, the Company's management and its legal advisers met by
telephone conference with Scripps' management and legal advisers to negotiate
and document the final terms and conditions of the transaction.
On August 13, 2002, the Company's board met, at which time the
Company's legal counsel apprised the board of the status of, and changes to, the
definitive Share Purchase Agreement and ancillary agreements since the prior
board meeting. The board discussed the terms and conditions of the transaction
and considered the alternatives available to the Company. At this meeting,
Friedman, Billings, Ramsey & Co., Inc. delivered its oral opinion to the board
that, as of August 13, 2002, the contemplated transaction between the Company
and Scripps, was fair, from a financial point of view, to the Company. Based on
the board's careful deliberations, which it considered to be consistent with its
analysis of the reasons for and benefits of the transaction discussed at its
August 9 meeting, the board approved the definitive agreements documenting the
Sale of Assets, subject to the Company's management reaching agreement with
Scripps on remaining open contractual matters. These matters were resolved
overnight on August 13 and through the day of August 14, 2002. The board
determined that the transaction with Scripps is fair to, and in the best
interests of, the Company's shareholders and resolved to recommend that the
Company's shareholders vote in favor of the approval of the transaction with
Scripps.
On August 14, 2002, the Company and Scripps signed a definitive
Share Purchase Agreement and a definitive Preferred Share Purchase Agreement,
and both companies announced a new strategic alliance built on the Company's
home shopping and electronic retailing division.
Reasons for the Sale of Assets
In reaching its determination to approve and adopt the definitive
Share Purchase Agreement and the definitive Preferred Share Purchase Agreement
signed on behalf of the Company and Scripps, the Company's board consulted with
the Company's management and its financial and legal advisers and considered a
number of factors. The following is an outline of the information and factors
considered by the Company's board in reaching this determination. This outline
is not intended to be exclusive but includes the material factors considered by
the Company's board. In the course of its deliberations with respect to the
transaction with Scripps, the Company's board discussed the anticipated impact
of the transaction on the Company, the Company's shareholders, and the Company's
various other constituencies, and no material disadvantages expected to result
from the transaction were identified during these discussions. In reaching its
determination to approve and recommend the transaction with Scripps, the
Company's board did not assign any relative or specific weights to the factors
considered in reaching such determination, and individual directors may have
given differing weights to different factors.
Corporate/Operation Benefits
Reduces leverage and improves liquidity.
Unlocks the value of the owned and operated television stations.
Reduces the need for expensive and dilutive alternative financing mechanism.
Investment in the New Company
Company's investment has the potential to grow and prosper.
Provides funding to the Operating Company.
In the course of reaching its decision to approve the definitive Share
Purchase Agreement and the definitive Preferred Share Purchase Agreement, the
Company's board consulted when relevant with its legal, accounting, and
financial advisers, as well as with the Company's management, and considered, in
addition to the factors set forth above, the following additional factors:
the board's familiarity with and review of the business, operations, financial
condition, and earnings of the Company on an historical and prospective basis;
the opinion of Friedman, Billings, Ramsey & Co., Inc. to the Company's
board as to the fairness of the transaction with Scripps;
the terms and conditions of the definitive Share Purchase Agreement;
the proposed investment pursuant to the Preferred Share Purchase Agreement
by which the Company would issue preferred shares to Scripps for an
aggregate purchase price of $3 million;
economic and market conditions related to the electronic retailing
industry;
the financial condition, results of operation, cash flow and business of
Scripps, and the operational, financial, and legal due diligence performed
by the Company's management and advisers;
the fact that the Company will recognize taxable gain in connection with
the closing of the Scripps transaction but that the Company has been
advised by its independent accountants that available net operating loss
carry forwards substantially exceed the taxable gain to be recognized by
the Company; and
the Company's shortage of working capital, the extensive process conducted
on behalf of the Company by management and its legal and financial advisers
in exploring and determining the viability of other strategic alliances and
equity or debt financing, and the lack of alternative strategic alliances
or sources of financing on acceptable terms and conditions.
The Company's board also considered factors that may be characterized
as countervailing considerations:
the transaction costs associated with completing the transaction with
Scripps;
the termination fee payable by the Company;
70% of the control of the new company residing with Scripps; and
the challenge of integrating the home shopping network business into
Scripps and the attendant risk of not achieving the expected "synergies" or
improved earnings for the home shopping network business.
The foregoing discussion of the information and factors considered by
the Company's board is not intended to be exhaustive but includes material
factors considered by the board. On balance, considering all factors and risks,
the Company's board concluded that the terms of the transaction with Scripps are
fair to, and in the best interests of, the Company's shareholders. Accordingly,
the Company's board unanimously recommends that the Company's shareholders vote
FOR the approval of the transaction with Scripps.
Opinion of the Financial Adviser to the Company's Board
The Company's board engaged Friedman, Billings, Ramsey & Co., Inc.
("FBR") to render an opinion as to the fairness of the transaction, from a
financial point of view, to the Company. On August 13, 2002, FBR rendered its
oral opinion to the Company's board that, as of that date, the contemplated
transaction between the Company and Scripps is fair, from a financial point of
view, to the Company, and FBR subsequently confirmed its oral opinion in its
written fairness opinion dated as of August 14, 2002.
A COPY OF THE WRITTEN OPINION OF FBR RENDERED TO THE COMPANY'S BOARD,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE AND
LIMITATIONS OF THE REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY FBR IS
ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND IS INCORPORATED INTO THIS
PROXY STATEMENT BY REFERENCE. THE COMPANY'S SHAREHOLDERS ARE ADVISED TO READ
THAT OPINION IN ITS ENTIRETY. THE OPINION OF FBR DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
MEETING OF THE COMPANY'S SHAREHOLDERS.
To render its opinion, FBR reviewed the definitive Share Purchase
Agreement along with certain agreements attached as exhibits thereto, including
the Contribution Agreements, the Shareholders Agreement for Holding Company, the
Operating Agreement for the Operating Company, the Affiliation Agreement and the
Loan Agreement. FBR also reviewed the definitive Preferred Share Purchase
Agreement. In addition to these transaction documents, FBR reviewed certain of
the Company's period reports filed with the SEC, including its annual report for
the year ended June 30, 2001 and its quarterly and periodic reports filed during
2002. FBR reviewed operating and financial information related to the Company,
including projections of financial results of the Company on a stand-alone basis
as well as on a pro-forma basis to give effect to the Scripps transaction, which
information was prepared and reviewed for FBR by the Company's senior
management. FBR also reviewed operating and financial information related to the
Operating Company, including projections of financial results of the Operating
Company, which information was prepared by the senior management of the Company
in consultation with Scripps and reviewed for FBR by the Company's senior
management. FBR discussed with members of the senior management of both the
Company and Scripps these operations, historical financial statements and future
prospects, as well as their views of the business, operational, strategic and
financial benefits and other implications of the Scripps transaction. In
addition to the foregoing, FBR reviewed the historical stock prices, trading
volumes and valuation parameters of the Company's Common Stock and reviewed
certain publicly available financial data, stock market performance data and
valuation parameters of companies that FBR deemed generally comparable to the
Company and the Operating Company. Finally, FBR considered such other
information and conducted such other studies, analyses, inquiries and
investigations as it deemed appropriate in arriving at its opinion.
In rendering its opinion, FBR assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with FBR. With respect to projections of financial results and
other information and data provided to or otherwise reviewed by or discussed
with FBR, FBR assumed that such projections and other information were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of the Company as to the expected future
performance of the Company, and of the senior management of the Company and
Scripps as to the expected future performance of the Operating Company. FBR has
not assumed any responsibility for the independent verification of any such
projections or other information provided to it and has relied further upon the
assurances of the senior management of the Company and Scripps that they are
unaware of any facts that would make such projections or other information
provided to FBR incomplete or misleading in any material respect.
In evaluating the transaction, FBR conducted an analysis to compare the
value of the Company giving effect to the transaction with the value of the
Company without the transaction. As part of this comparison and as a separate
measure, FBR considered the adequacy of the purchase price being paid by Scripps
for its interest in the Network. In conducting the analysis, FBR analyzed
trading multiples of comparable public companies, analyzed sale transaction
multiples of comparable companies and undertook discounted cash flow analyses.
For purposes of analyzing trading multiples of comparable public companies, FBR
considered home shopping companies and catalog/retail companies. The Company's
business, before and after giving effect to the Scripps transaction, has
characteristics of both industries. For purposes of analyzing sale transaction
multiples, FBR compared the pricing of the Scripps transaction to the pricing of
other transactions for home shopping and catalog/retail companies. FBR performed
discounted cash flow analyses for the Company before and after giving effect to
the Scripps transaction under a variety of assumptions. For these analyses, FBR
discounted the cash flows reflected in financial projections provided by the
Company to present value under a number of different assumptions, including the
number of years of operations and the terminal value. FBR also considered other
factors in reaching its opinion, including the liquidity needs and the existing
debt burden of the Company, the financial resources and industry stature of
Scripps and probable terms and conditions of alternative financing options of
the Company.
FBR did not express any opinion as to the price at which the Company's
common stock will trade following the completion of the transaction with
Scripps. FBR did not make an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company. FBR expressed no view
as to, and its opinion does not address, the relative merits of the transaction
with Scripps as compared to any alternative business strategies that might exist
for the Company. FBR's opinion is necessarily based upon information available,
and financial, stock market and other conditions and circumstances existing and
disclosed, to FBR as of the date of its opinion. FBR was not asked to and did
not recommend the specific consideration payable to the Company in connection
with the Scripps transaction, which was determined through negotiation between
the managements of the Company and Scripps. In its analyses, FBR made numerous
assumptions with respect to the Company, the Operating Company, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the Company or the
Operating Company. The estimates contained in such analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. FBR's opinion and analyses were
only one of many factors considered by the Company's board in its evaluation of
the Scripps transaction and should not be viewed as determinative of the views
of the Company's board or management of the Company with respect to the Scripps
transaction.
The Company has agreed to pay FBR a fee of $250,000 for rendering its
opinion in connection with the Scripps transaction. The Company has also agreed
to reimburse FBR for its reasonable out-of-pocket expenses, including reasonable
fees and expenses of its counsel, and to indemnify FBR and certain related
persons against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws. No limitations were
imposed by the Company on FBR with respect to the investigations made or
procedures followed by FBR in connection with its engagement or the rendering
its opinion.
As part of its investment banking business, FBR regularly is engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. FBR has in the past
performed certain investment banking services for the Company and was selected
based, in part, upon the Company's prior experience with FBR. The Company also
considered proposals from other investment banks before engaging FBR for
performance of services in connection with the Scripps transaction.
Summary of the Agreements
Purchase Price and Use of Proceeds
Scripps Networks will pay $49.5 million for control of the Network. The
proceeds from the Sale of Assets, together with the proceeds from the $47.5
million loan from Scripps, will be used to repay the Company's $17.5 million
credit facility and its $75 million 11% Senior Secured Notes due 2005 and for
working capital purposes.
Share Purchase Agreement
Representations and Warranties
The Company has made customary representations and warranties to
Scripps Networks relating to the Network business and the Sale of Assets in the
Share Purchase Agreement, including representations and warranties as to (i)
organization and good standing, (ii) authority and conflicts, (iii)
capitalization, (iv) financial statements, (v) books and records, (vi) title to
properties and encumbrances, (vii) condition and sufficiency of assets, (viii)
accounts receivable and reserves for returns, (ix) inventory, (x) undisclosed
liabilities, (xi) taxes, (xii) employee benefits, (xiii) compliance and
governmental authorizations, (xiv) legal proceedings or orders, (xv) absence of
certain changes, (xvi) contracts and defaults, (xvii) insurance, (xviii)
environmental matters, (xix) employees, (xx) labor relations and compliance,
(xxi) intellectual property, (xxii) certain payments, (xxiii) subscribers,
(xxiv) affiliation and programming assets, (xxv) transponder contracts, (xxvi)
network rights, (xxvii) the Company's website, (xxviii) relationships with
affiliates, (xxix) this Proxy Statement, (xxx) customers and vendors, (xxxi)
brokers and finders and (xxxii) certain statements being true and correct.
Scripps Networks has made customary representations and warranties to
the Company relating to the Sale of Assets in the Share Purchase Agreement,
including representations and warranties as to (i) organization and good
standing, (ii) authority and conflicts, (iii) investment intent and financial
capability, (iv) certain legal proceedings, (v) preparation of this Proxy
Statement, and (vi) brokers and finders.
The representations and warranties of the Company are contained in
Article III of the Share Purchase Agreement and the representations and
warranties of Scripps Networks are contained in Article IV of the Share Purchase
Agreement. The Share Purchase Agreement is attached as Appendix A to this Proxy
Statement.
The Share Purchase Agreement provides that the representations and
warranties of the Company and Scripps Networks will survive the closing for a
period of two years, except that those representations and warranties of the
Company relating to capitalization, taxes, compliance and governmental
authorizations, environmental matters and employees will survive indefinitely.
Pre-Closing Covenants; Conduct of Business Pending Closing
The Company and Scripps Networks have agreed to use their respective
reasonable best efforts to take all actions necessary to cause the conditions to
the closing of the Sale of Assets to occur, including making any required
regulatory filings.
The Company has agreed to provide Scripps Networks and its
representatives full and free access to the properties, books and records that
relate to the Network and to furnish Scripps Networks with such additional
financial, operating and other information regarding the Network's business that
Scripps Networks may reasonably request.
Except for the contemplated transfer of Network assets to the Operating
Company as described in this Proxy Statement and except for the $3.0 million
distribution from the Operating Company to the Company, which distribution will
be made immediately prior to the closing, until the closing of the Sale of
Assets or termination of the Share Purchase Agreement, the Share Purchase
Agreement also obligates the Company to:
Operate the Network business in the ordinary course of
business;
Use best commercial efforts to preserve intact its business
organization, keep available the services of its officers,
employees and agents and maintain relations and goodwill with
its suppliers, customers, landlords, creditors, employees,
agents, affiliates, advertisers and others;
Confer with Scripps Networks concerning material operational
matters;
Notify Scripps Networks of any breach in the Company's
representations or any fact or condition that would constitute
a breach of a representation if the representation had been
made at the time of occurrence or discovery of the fact or
condition and notify Scripps Networks of any breach of
covenant or the occurrence of any event that may make
satisfaction of the closing conditions unlikely or impossible.
In addition, prior to the closing of the Sale of Assets or termination
of the Share Purchase Agreement, the Company must also maintain sufficient cash
on hand to timely make required payments with respect to its indebtedness for
borrowed money and must not permit the Operating Company's net working capital
deficit at closing to exceed $4.8 million without Scripps Network's consent,
which will not be unreasonably withheld.
The Share Purchase Agreement also provides that, prior to the closing
of the Sale of Assets or termination of the Share Purchase Agreement, neither
the Company nor any of its affiliates or representatives will directly or
indirectly solicit, initiate, encourage or facilitate any inquiry with respect
to, or the making of, any acquisition proposal, or participate in discussions or
negotiations regarding any acquisition proposal, or approve or endorse or enter
into any agreement relating to any acquisition proposal. If the Company receives
a written acquisition proposal, it must promptly notify Scripps Networks of the
terms of such proposal. Notwithstanding the foregoing, the Company may
participate in discussions and negotiations, enter into agreements and conclude
transactions with certain third parties with respect to possible non-voting
preferred equity investments that rank on parity or junior to the Company's
Series D Senior Redeemable Preferred Stock held by Scripps provided that the
Company keeps Scripps Networks informed with respect thereto and the Company
may, with notice to Scripps Networks, discuss with any third party proposals for
the potential acquisition of one or more of the Company's broadcast television
stations (exclusive of the Network business) but the Company may not enter into
agreements in respect of such discussions without Scripps Networks' consent.
Conditions to Closing
Scripps Networks is required to complete the Sale of Assets only after
the satisfaction or waiver of various conditions. These conditions include,
among others:
The accuracy of the Company's representations and warranties
contained in the Share Purchase Agreement;
The performance and compliance by the Company of its covenants
and obligations under the Share Purchase Agreement;
Receipt of any governmental or third party consents required
in connection with the Sale of Assets;
Delivery to Scripps Networks of various documents, including
certificates representing the shares of Holding Company and
the various additional agreements among the Company and
Scripps Networks and their affiliates relating to the
transaction, the governance of Holding Company and the
Operating Company, and the $47.5 million loan by Scripps to
the Company;
No proceeding having been commenced or threatened that
challenges or will have the effect of delaying, making illegal
or otherwise interfering with the transactions contemplated by
the Share Purchase Agreement;
No claim being made by any person asserting entitlement to the
purchase price or any interest in Holding Company or the
Operating Company;
The completion of the transactions consummated by the Share
Purchase Agreement not materially contravening, conflicting
with or resulting in a material violation of or causing
Scripps Networks or any of its affiliates to suffer any
material adverse consequence under any legal requirement or
order;
The transfer of the Network assets and liabilities to the
Operating Company or Holding Company as applicable;
Amendment of certain employment agreements and plans of the
Company such that the transactions contemplated by the Share
Purchase Agreement do not trigger any change in control,
successor or automatic conversion provisions contained
therein; and
Receipt by the Company of shareholder approval for the Sale of
Assets and the change of the Company's name as contemplated by
this Proxy Statement.
The Company is required to complete the Sale of Assets only after the
satisfaction or waiver of various conditions. These conditions include, among
others:
The accuracy of Scripps Networks' representations and
warranties contained in the Share Purchase Agreement;
The performance and compliance by Scripps Networks of its
covenants and obligations under the Share Purchase Agreement;
Receipt of any governmental or third party consents required
in connection with the Sale of Assets;
Delivery to the Company of various documents, including the
various additional agreements among the Company and Scripps
Networks and their affiliates relating to the transaction, the
governance of Holding Company and the Operating Agreement, the
$47.5 million loan by Scripps to the Company and the $35
million loan by Scripps to the Operating Company; and
No order or legal requirement in effect prohibiting the Sale
of Assets.
The Company cannot assure you as to when or if all of the other
conditions to the Sale of Assets can or will be satisfied or waived by the party
permitted to do so. Either the Company or Scripps Networks may terminate the
Share Purchase Agreement in the event the Sale of Assets is not consummated by
December 31, 2002 if the failure to consummate the acquisition is not caused by
any breach of the Share Purchase Agreement by the party seeking termination.
Waiver, Amendment and Termination
Any provision of the Share Purchase Agreement may be waived, changed,
or terminated only by an agreement signed by the party against which the
enforcement of such waiver, change or termination is sought. In addition, before
or at the time the Sale of Assets become effective, either the Company or
Scripps Networks or both may waive any default in the performance of any term of
the Share Purchase Agreement by the other party or may waive or extend the time
for the compliance or fulfillment by the other party of any and all of its
obligations under the Share Purchase Agreement. In addition, either Scripps
Networks or the Company may waive any default in the performance of any term of
the Share Purchase Agreement or any of the conditions precedent to its
obligations under the Share Purchase Agreement, unless a violation of law or
governmental regulation would result. To be effective, a waiver must be in
writing and signed by an authorized officer of the Company or Scripps Networks,
as the case may be.
At any time before the consummation of the Sale of Assets, the boards
of directors of the Company and Scripps Networks may agree by mutual consent to
terminate the Share Purchase Agreement. In addition, either the Company or
Scripps Networks may terminate the Share Purchase Agreement by written notice of
termination to the other party in the following circumstances:
A law or regulation makes consummation of the transactions
contemplated by the Share Purchase Agreement illegal or
otherwise prohibited or consummation of such transactions
would violate any order;
If the closing has not occurred on or before December 31,
2002, unless the party seeking to terminate has failed to
perform or satisfy in any material respect any covenant,
condition or obligation under the Share Purchase Agreement;
If the representations or warranties of the other party are
inaccurate or untrue in any material respect and such
inaccuracy cannot reasonably be expected to be cured by
December 31, 2002, and, in the case of the Company, such right
will only be available if such inaccuracy or untruth would
reasonably be expected to have a material adverse effect on
the Operating Company or its ability to operate the Network.
In addition, Scripps Networks may terminate the Share Purchase
Agreement if the Company has not obtained shareholder approval for the Sale of
Assets and the change of the Company's name by November 22, 2002.
Except as set forth in the following sentence, termination of the Share
Purchase Agreement will not be an exclusive election of a party's rights or
remedies and the terminating party will continue to have such other legal
remedies available to it. If Scripps Networks terminates the Share Purchase
Agreement because the Company failed to obtain shareholder approval for the Sale
of Assets by November 22, 2002 and if the Company has received an acquisition
proposal, then the Company shall pay to Scripps Networks a break-up fee equal to
$2.5 million, payable in cash within one business day after the closing of such
transaction or 30 days after termination of discussions with respect to such
transaction, the receipt of which will be Scripps Network's sole remedy.
Indemnification
The Share Purchase Agreement requires the Company to indemnify Scripps
Networks, Holding Company and the Operating Company and their respective
affiliates against damages arising from any breach of representation or warranty
or breach of covenant contained in the Share Purchase Agreement, any claim
arising from any product shipped by or services provided by the Company or the
Operating Company prior to the closing date, any liability of the Company that
is not assumed by the Operating Company and any claim for broker's fees in
connection with the transactions contemplated by the Share Purchase Agreement.
Except for knowing breaches of representations or intentional breaches of
covenants for which there is no limitation on the amount of damages for which
the Company will be liable, the Company will not be liable for any damages until
all damages incurred by Scripps Networks, Holding Company and the Operating
Company exceed, $100,000, after which the Company will be liable for all damages
and not merely those that exceed $100,000.
The Share Purchase Agreement requires Scripps Networks to indemnify the
Company and its affiliates against damages arising from any breach of
representation or warranty or breach of covenant contained in the Share Purchase
Agreement, and any claim for broker's fees in connection with the transactions
contemplated by the Share Purchase Agreement. Except for knowing breaches of
representations or intentional breaches of covenants for which there is no
limitation on the amount of damages for which the Company will be liable, the
Company will not be liable for any damages until all damages incurred by Scripps
Networks, Holding Company and the Operating Company exceed, $50,000, after which
the Company will be liable for all damages and not merely those that exceed
$50,000.
Guarantee
Scripps has guaranteed Scripps Networks' obligations under the Share
Purchase Agreement.
Effective Date and Consequences of the Sale of Assets
The Company will transfer the assets and the current liabilities of the
Network to the Operating Company and the membership interest in the Operating
Company to Holding Company as soon as possible upon receipt of approval from the
Company's senior lender and upon approval from Scripps Network.
Subject to the conditions to the obligations of the parties to effect
the Sale of Assets, the Sale of Assets will be completed no later than the
second business day following the satisfaction or, in some instances, waiver of
all closing conditions, including the shareholder vote. The Company anticipates
that the Sale of Assets will be consummated immediately following the Meeting on
October 16, 2002; however, delays could occur. The Company cannot assure you
that it will be able to obtain shareholder or necessary regulatory approvals for
the Sale of Assets or that it will be able to satisfy other conditions to
completion of the Sale of Assets. Either the Company or Scripps Networks may
terminate the Share Purchase Agreement if the Sale of Assets has not been
completed by December 31, 2002, unless the Sale of Assets has not been completed
because of the breach of the Share Purchase Agreement by the party seeking
termination.
Upon consummation of the Share Purchase Agreement, Scripps Networks
will indirectly hold 70% of the Network and the Company will indirectly hold 30%
of the Network.
Related Transactions
Governance; Rights to Purchase and Sell
In connection with the closing under the Share Purchase Agreement, the
Company, Scripps Networks and Holding Company will enter into a Shareholder
Agreement and the Operating Company, the Company, SAH Acquisition Corporation, a
wholly owned subsidiary of the Company that owns a 1% interest in the Operating
Company, and Holding Company will enter into an Amended and Restated Operating
Agreement. Throughout this Proxy Statement, references to the Company's indirect
30% membership interest in the Operating Company includes the 1% interest of SAH
Acquisition Corporation and when this Proxy Statement refers to the Company's
rights to have its membership interest purchased or Holding Company's rights to
require the Company to sell its membership interest or similar restrictions on
the Company's membership interests, the Company includes SAH Acquisition
Corporation.
The Operating Company will be governed by a five person Board of
Governors, three members of which will be selected by Scripps Networks and two
of which will be selected by the Company. Holding Company will be governed by a
five person Board of Directors, four members of which will be selected by
Scripps Networks and one of which will be selected by the Company.
Pursuant to the Shareholder Agreement between the Company and Scripps
Networks concerning the ownership of Holding Company and the Amended and
Restated Operating Agreement concerning the ownership of the Operating Company,
the Company will have the right to require Scripps Networks to purchase the
Company's shares in Holding Company and to require the Operating Company to
redeem the Company's membership interest in the Operating Company during the
period beginning on the second anniversary of the closing and ending on the
fifth anniversary of the closing at a cash price equal to the fair market value
thereof. The foregoing rights must be exercised by the Company contemporaneously
with respect to both the membership interest in the Operating Company and the
shares in Holding Company. In all cases fair market value is determined without
regard to any premium or discount for marketability, transferability or control
or lack thereof.
After five years, Scripps Networks will have the right to require the
Company to sell its shares in Holding Company and its membership interests in
the Operating Company at a cash price equal to the fair market value thereof.
Prior to five years following the closing, Scripps Networks will also have the
right to require the Company to sell its shares in Holding Company and its
membership interests in the Operating Company upon the occurrence of certain
events, including an attempted disposition thereof by the Company, a change in
control of the Company, the Company's breach of certain obligations to Scripps
Networks or its affiliates, or the Company's insolvency. Such sale would also be
for cash at a price equal to the fair market value of such shares and membership
interests. In all cases fair market value is determined without regard to any
premium or discount for marketability, transferability or control or lack
thereof. The foregoing rights must be exercised by Scripps Networks
contemporaneously with respect to both the membership interest in the Operating
Company and the shares in Holding Company. In all cases fair market value is
determined without regard to any premium or discount for marketability,
transferability or control or lack thereof.
Any amounts received in connection with any sale of the Company's
membership interest in the Operating Company or the Company's shares in Holding
Company must be used to redeem the Series D Senior Redeemable Preferred Stock
held by Scripps and to repay the $47.5 million loan from Scripps.
The Company will be restricted in its ability to sell its shares in
Holding Company and its membership interest in the Operating Company without
first offering to sell those interests to Scripps Networks.
Scripps Networks will be restricted in its ability to sell all or part
of its interest in Holding Company, and Holding Company will be restricted in
its ability to sell all or part of its interest in the Operating Company, to a
third party if such transfer would result in a change in control of the
Operating Company, unless the purchaser of such interest also agrees to purchase
the Company's interests in such entity if the Company so elects (in which event
the Company may also require the purchase of its interests in the other entity
by that entity). Even if the Company does not elect to require the purchaser of
Scripps Networks or Holding Company's interest to purchase the Company's
interests in Holding Company or the Operating Company, as the case may be,
Scripps Networks may require the Company to sell such interest upon the same
terms and conditions as Scripps Networks or Holding Company is selling.
Scripps will guarantee Scripps Networks' obligations under the
Shareholder Agreement.
Company Loan
Simultaneously with the consummation of the transactions contemplated
by the Share Purchase Agreement, Scripps has agreed to loan $47.5 million to the
Company, payable in three years. The loan will bear interest at 6% per annum,
payable quarterly, and will be secured by an assignment of the Company's
membership interest in the Operating Company, the Company's shares in Holding
Company, the Company's shares in its subsidiaries holding the assets related to
its Boston, San Francisco and Cleveland television stations and assets related
to the Boston, San Francisco and Cleveland television stations themselves. The
Company will use the proceeds of the loan, together with the proceeds under the
Share Purchase Agreement, to retire its $17.5 million senior credit facility and
$75 million 11% Senior Secured Notes and for working capital purposes.
Network Loan
Scripps has agreed to loan up to $35.0 million to the Operating Company
to be used for working capital purposes. Scripps has agreed to make an initial
advance of such loan to the Operating Company in an amount sufficient for a
distribution of $3.0 million to be made to the Company immediately prior to the
closing under the Share Purchase Agreement.
Affiliation
The Company has agreed that it and certain of its subsidiaries will enter into
an affiliation agreement with Shop At Home Network, LLC for the affiliation of
all of the Company's television broadcasting stations with the Network. The
affiliation agreement will be for a three year term following consummation of
the transactions contemplated by the Share Purchase Agreement. However, the
Company may terminate the affiliation agreement with respect to any station upon
six months' prior written notice after 15 months so long as the Company does not
enter into any other affiliation or limited marketing agreement with any other
television home shopping network. The affiliation agreement will provide that
the Operating Company will supply to the Company network programming for free
over-the-air television broadcasting by each station 24 hours per day, seven
days per week for the term of the agreement. Subject only to Federal
Communications Commission requirements, each station shall clear and broadcast
all programming supplied to such station.
Pursuant to the affiliation agreement, the Operating Company will pay
the Company an amount calculated by dividing the product of $1.25 and the
average number of cable households reached by the Network on the first and last
day of each month by 12. If a station broadcasts more than 3.5 hours of
programming other than Network programming in any calendar week, payments to the
Company for the month that includes the last day of such calendar week will be
reduced by an amount equal to $.0001461 for every hour of programming other than
Network programming broadcast in excess thereof multiplied by the number of
network households reached by the station.
Accounting Treatment
The Sale of Assets will be treated as a sale for accounting purposes. A
book profit or loss (net of tax) will be recognized to the extent that the
proceeds from the Sale of Assets are more or less than the sum of the book value
of the net assets sold and transaction expenses. The Company estimates that the
Sale of Assets would have resulted in a book profit of approximately $22.7
million if it had been consummated on June 30, 2002.
Federal Income Tax Consequences
The Sale of Assets will have no material tax consequences to the
Company's shareholders directly, but the Company will have corporate-level tax
consequences as discussed below.
The Sale of Assets will be treated as a taxable asset acquisition, with
Holding Company as the seller and a new corporation owned by Scripps Networks as
the buyer. Although for state law purposes Scripps Networks will acquire shares
of Holding Company, rather than assets, the parties have agreed to make a
special tax election under Section 338(h)(10) of the Internal Revenue Code to
treat the acquisition for tax purposes as a sale by Holding Company of all of
its assets to a new corporation owned by Scripps Network and the assumption by
such corporation of certain liabilities of Holding Company.
The Company consolidated group will generally recognize taxable gains
or losses in the Sale of Assets. Gain or loss will equal the difference between
the fair market value of the consideration (including liabilities assumed)
allocable to the assets deemed sold by Holding Company and the aggregate tax
basis of the assets deemed sold by Holding Company. The Company expects that the
Company consolidated group will recognize gain of the deemed sale of assets to
Scripps Network but that all of such gain will be offset by its net operating
loss carryforwards. Consequently, the Company does not expect to currently pay
any federal income taxes as a result of the Sale of Assets.
Required Regulatory Approval
The Company is not aware of any material government approvals or
actions that are required to complete the Sale of Assets. If any approval or
action is required, the Company and Scripps Networks have agreed that they will
seek such approval or action.
Scripps indirectly owns and controls television stations, including
station WEWS, Cleveland, Ohio, a market also served by the Company's station
WOAC, Canton, Ohio. Under the multiple ownership policies of the Federal
Communications Commission, Scripps may be deemed to have an attributable
ownership interest in station WOAC while WOAC carries Network programming. The
parties have agreed to cooperate in making appropriate filings with the Federal
Communications Commission, if any.
Interest of Certain Persons
Certain Company Officers to Enter into Agreements with the Operating
Company
Certain executive officers of the Company, some of whom had employment
agreements with the Company, will enter into employment agreements or severance
arrangements with the Operating Company. This is one of Scripps' conditions to
close the Sale of Assets. The Company's board was aware of the interests of
these executive officers arising from this condition and considered them, among
other matters, in approving the Sale of Assets and the related transactions.
The key benefits afforded to George R. Ditomassi and Frank A. Woods,
the co-chief executive officers of the Company, under their respective proposed
agreements with the Operating Company are expected to be as follows:
Mr. Ditomassi would be employed as a part-time executive officer
of the Company at an agreed upon base salary, with a contract
term through June 2003. He would receive a "stay bonus" of 50% of
his salary if he remains with the Operating Company through June
30, 2003. Severance compensation would be equal to the amount of
the balance of his unpaid salary for the remaining term of his
contract in the event of termination without cause or by Mr.
Ditomassi with good reason (as defined in contract) plus the
amount of his stay bonus.
Mr. Woods would be employed as a full-time executive officer of
the Company at an agreed upon base salary, with a contract term
through December 2003, with a three month notice period for
renewal. Mr. Woods' would be eligible for a performance bonus of
35% of his annual base salary if the Operating Company achieves
certain performance objectives and would receive a stay bonus of
50% of his base annual salary if he remains with the Operating
Company through December 31, 2003. He also would be eligible to
participate in Scripps' stock option plan, subject to its board's
approval. Severance compensation would be equal to the greater of
(i) amount of the balance of his unpaid salary for the remaining
term of his contract or (ii) one year's annual base salary, plus
his stay bonus and the pro rated portion of his performance
bonus, in the event of termination without cause or by Mr. Woods
with good reason.
In addition, the senior executive officers who are required to enter
into employment agreements with the Operating Company include Ron Cook, senior
vice president of merchandising, H. Wayne Lambert, executive vice president and
chief information officer, Thomas N. Merrihew, executive vice president of sales
and merchandising, George J. Phillips, executive vice president, general counsel
and secretary, Bennett S. Smith, executive vice president of network affiliate
relations/station operations, Arthur D. Tek, executive vice president and chief
financial officer, and Robert B. Wales, executive vice president of operations.
The key benefits afforded to these senior officers under their respective
proposed agreements with the Operating Company are expected to be as follows:
Employment at the officer's current base annual salary, with a
contract term through December 2003. The officer would be
eligible for a performance bonus of 30% of annual base salary
if the Operating Company achieves certain performance
objectives. The officer would be eligible for a "stay bonus"
of 50% of his base annual salary if the officer remains with
the Operating Company through December 31, 2003. He also would
be eligible to participate in Scripps' stock option plan,
subject to its board's approval. Severance compensation would
be equal to one year's base annual salary, plus his stay bonus
and the pro rated portion of his performance bonus, in the
event of termination of the officer without cause or by the
officer for good reason.
The Company's vice presidents who are required to agree to severance
arrangements include Fred Bergman, vice president of marketing and new media, R.
Steven Chadwell, vice president of finance, Bob Miller, vice president of
enterprise technology, Robert Montano, vice president and deputy general
counsel, Laura A. Purswell, vice president of human resources, Kurt Staiger,
vice president of merchandising, Tracey Walsh, vice president of call center
operations, and Dawn Woods, vice president and treasurer. Although Scripps has
proposed that these officers will be employed by the Operating Company at will
and will have no fixed term contractual employment relationship, there are
certain benefits afforded to these officers in connection with these severance
arrangements:
While employed, they would be each be compensated at their
current annual base salaries and would be eligible for a 20%
target bonus based on the Operating Company meeting certain
performance objectives. Each officer would be eligible to
participate in Scripps's stock option plan, subject to its
board's approval. Severance compensation would be equal to six
months of that officer's annual base salary plus the officer's
pro rated portion of his or her performance bonus, in the
event of termination of the officer without cause or by the
officer for good reason.
At this time, all of the above employment agreements and arrangements
are proposals only, and the specific terms, including salaries and performance
objectives, have yet to be agreed upon.
Stock Options
Each of the executive officers of the Company has been granted stock
options under which they have the right to purchase shares of Common Stock of
the Company over a period of time at a fixed price. The follow chart shows the
number of shares for which each executive officer has been granted options and
the number of shares for which those options are vested on the date of this
Proxy Statement:
Number of Shares Number of Shares Number of
for Which Options for Which Options Additional Shares
Have Been Granted Have Vested and for Which Options
Executive Officer Office and Are Outstanding Are Exercisable Will Vest Within 60
- ----------------- ------ ------------------- --------------- -------------------
Days
George R. Ditomassi Co-Chief Executive Officer 837,500 337,501 116,667
Frank A. Woods Co-Chief Executive Officer 861,250 361,251 116,667
Arthur Tek Executive Vice President/CFO 320,000 128,000 10,000
Executive Vice
George J. Phillips President/General Counsel 117,000 56,000 --
Thomas Merrihew Executive Vice President 125,000 45,000 --
Wayne Lambert Executive Vice President 84,000 36,000 --
Bennett Smith Executive Vice President 150,000 50,000 --
Robert Wales Executive Vice President 50,000 0 10,000
Except for certain option grants to Mr. Ditomassi, Mr. Woods, Mr. Smith,
Mr. Tek and Mr. Merrihew, these options vest on a pro rata basis over a period
of five years from the date of grant, with the holder having a period of five
years from each vesting date to exercise the options. For the grants to Mr.
Ditomassi and Mr. Woods each of options to purchase 750,000 shares, one-third
vested on the date of grant, one-third will vest on the first anniversary date
of the grant and the remainder on the second anniversary date. Additionally, all
the options to Mr. Ditomassi and Mr. Woods granted to them before their
employment as the Company's Co-Chief Executive Officers were for their services
as directors and members of the Office of the Chairman and were fully vested
upon grant. In connection with their initial option grants, certain of the
executive officers received grants which were immediately vested. Mr. Merrihew
was granted options to purchase 25,000 shares which vested immediately. Mr. Tek
was granted options to purchase 30,000 shares which vested immediately, and Mr.
Smith was granted options to purchase 50,000 shares which vested immediately.
Upon the consummation of the Sale of Assets, it is anticipated that
each of the executive officers of the Company will become employees of the
Operating Company (as described above) and their employment with the Company
will be terminated. With certain exceptions described below, such a termination
of employment causes the unvested options to terminate and also causes an
acceleration of the expiration of the vested options. Rather than expiring at
the end of five years, vested options would expire after thirty days following
the termination of the officer's employment unless exercised prior to that date.
In the case of Mr. Ditomassi and Mr. Woods, certain options granted to
them for their services as a director or as a member of the Office of the
Chairman expire at the end of five years following the date of grant,
notwithstanding the termination of their employment. Mr. Woods has one such
grant that will expire ten years from the date of grant. In addition, the
termination of their employment for convenience with the Company would cause
their unvested options granted to them for their service as Co-Chief Executive
Officers to immediately vest.
In addition, the stock option agreements with these officers provide
that if their termination of employment follows a "change of control," then the
unvested options will vest rather than terminate. It is unclear as to whether or
not the Sale of Assets is such a sale which would constitute a change of
control. It is a condition to Scripps' obligation to close the Sale of Assets
that the option plans and agreements provide that the Sale of Assets is not
deemed to be a change of control under the option plans or agreements. The
Company expects to conclude that the Sale of Assets is a change of control
within the meaning of the various stock option agreements and to request that
Scripps agree to waive the above closing condition. If Scripps agrees to waive
this closing condition, substantially all of the unvested options would vest and
become exercisable, and the period within which the officer may exercise the
option will be extended from thirty to ninety days or longer in some cases.
Severance Payments
Five of the Company's executive officers have employment agreements with
the Company, including Mr. Woods and Mr. Ditomassi, the Company's Co-Chief
Executive Officers, as well as Mr. Tek, Mr. Merrihew and Mr. Smith. Under the
employment agreements with Mr. Woods, Mr. Ditomassi and Mr. Tek, in the event of
a "change of control" of the Company, each of them is entitled to resign his
position with the Company and to receive a severance payment. The severance
payment to Mr. Ditomassi and Mr. Woods would equal two times their annual
compensation, and the severance payment to Mr. Tek would equal his compensation
payable for the remainder of the term of his employment agreement. If the board
determines that the Sale of Assets constitutes a change of control within the
meaning of each person's employment agreement, these executive officers would
have the right to resign their positions with the Company in order to accept a
position with the Operating Company and would be entitled to the severance
payments from the Company.
The employment agreements with Mr. Merrihew and Mr. Smith do not contain
provisions permitting them to resign after a change of control and thereby
receive severance payments. Their agreements, along with the agreements with Mr.
Ditomassi, Mr. Woods and Mr. Tek, do provide, however, that if any of them is
terminated for convenience following a change of control, they would be entitled
to receive similarly computed severance payments from the Company. The agreement
of the Company regarding the Sale of Assets does not contemplate the continued
employment of these five employees by the Company because Scripps has required
as a condition of closing that all five of these officers, along with certain
other officers of the Company, become employees of the Operating Company.
In the event the severance payments are required, the total amount of the
severance payments to these five employments would be approximately $1,600,000.
These severance payments would be an obligation of the Company, and such
obligation will not be assumed by the Operating Company or by Scripps and will
not result in any reduction of working capital transferred to the Operating
Company by the Company.
Board Recommendation
Based upon the factors discussed herein under "Sale of Assets -
Background of the Sale of Assets" and "Sale of Assets - Reasons for the Sale of
Assets," the Board of Directors has approved the Share Purchase Agreement and
has determined that the Sale of Assets contemplated by the Share Purchase
Agreement is fair to and in the best interests of the Company and its
shareholders. Accordingly, the Board of Directors recommends that the
shareholders of the Company vote "FOR" the approval of the Sale of Assets at the
Meeting.
Vote Required
It is unclear under Tennessee law whether the Sale of Assets
constitutes a sale of substantially all of the property of the Company requiring
shareholder approval. Although the Company does not believe that the Sale of
Assets constitutes a sale of substantially all of the assets and therefore, does
not believe that shareholder approval is actually required, the Company has
elected to seek the approval of its shareholders in connection with the Sale of
Assets as if such approval were required pursuant to Tennessee law. Therefore,
the Company is seeking the affirmative vote of the holders of a majority of the
outstanding common shares entitled to vote on this proposal. Abstentions may be
specified on the proposal and will be considered present at the Meeting but will
not counted as affirmative votes. Broker non-votes (that is, those shares that
are held in "street name" by brokers and nominees who indicate on their proxies
that they do not have discretionary authority to vote on a particular matter)
will not be voted for or against the proposal. Abstentions and broker non-votes,
therefore, will have the practical and legal effect of voting against the
proposal.
Even if the Sale of Assets receives a negative vote or fails to receive
enough affirmative votes to constitute a majority of the total number of
outstanding shares, the Company's Board of Directors could elect to move ahead
and close the Sale of Assets on the basis that shareholder approval was not
required. The Board has not made a decision with respect to whether or not it
would take that position. Furthermore, obtaining shareholder approval for the
Sale of Assets constitutes one of Scripps' closing conditions, such that closing
the Sale of Assets on the foregoing basis following a failure to obtains
shareholder approval would require a waiver of such condition by Scripps. The
Share Purchase Agreement provides that, if Scripps deems it advisable to seek a
judgment from a court that shareholder approval is not required, the Company
will cooperate in the filing of such an action and its prosecution.
Each of the members of the Company's Board of Directors, along with
Arthur D. Tek, the Company's Executive Vice President and Chief Financial
Officer, have executed a Voting Agreement with Scripps Networks, dated August
14, 2002, under which these persons have agreed to vote their shares of Common
Stock of the Company in favor of the Sale of Assets and the Charter Amendment
and against any proposal which would breach the terms of the Share Purchase
Agreement between the Company and Scripps Networks, or would result in any of
the closing conditions under that agreement not being fulfilled. The
shareholders who signed the Voting Agreement hold 5,435,766 shares, which
constitute approximately 13% of the total number of outstanding shares of Common
Stock entitled to vote.
Dissenters Rights
Shareholders of the Company are not entitled to exercise dissenters'
rights under Tennessee law with respect to Proposal No.1.
PROPOSAL NO. 2
CHARTER AMENDMENT
The Company's board has proposed that Article 1 of the Company's
charter be amended to change the corporate name of the Company to "Premier
Media, Inc.," or, if the new name becomes unavailable or is unacceptable to the
applicable regulators having jurisdiction over the affairs of the Company, to
any other name that is approved by the board in its sole discretion.
Reason for the Proposal and Effect if Adopted by the Shareholders
As part of the transaction with Scripps, the Company is transferring
the rights it may have to use the name "Shop At Home" to the Operating Company.
As a condition of closing the transaction with Scripps, the Company is required
to amend its charter to change its corporate name from "Shop At Home, Inc." to
another name that is not the same as or similar to "Shop At Home, Inc." or any
other trademark or trade style now used by the Company or its subsidiaries.
The change in corporate name will not affect the status of the Company
or the rights of any shareholder in any respect, or the validity or
transferability of stock certificates presently outstanding. The Company's
shareholders will not be required to exchange stock certificates to reflect the
new name. If a shareholder's shares of common stock are represented currently by
a physical certificate, that certificate will continue to represent such
shareholder's ownership of such shares. (It will not be necessary for
shareholders to surrender stock certificates bearing the Company's former
corporate name. When physical certificates are presented for transfer in the
ordinary course, new certificates bearing the new corporate name will be
issued.) In connection with the name change, the Company intends to apply for a
new trading symbol. The trading symbol will become effective as soon as
practicable after the effective date of the action.
Text of the Charter Amendment and Board's Authority to Designate Another Name
The text of the proposed amendment is as follows:
The Amended and Restated Charter of Shop At Home, Inc. shall be amended
by deleting Article 1 thereof and fully restating it as follows:
Article 1: The name of the corporation is Premier Media, Inc.
(the "Corporation").
If the proposed corporate name becomes unavailable for any reason or is
unacceptable to the applicable regulators having jurisdiction over the affairs
of the Company, the Board of Directors in its sole discretion may designate and
file with the applicable governmental authorities an alternative corporate name
without prior approval by the shareholders.
Vote Required
Under Tennessee law, the affirmative vote of a majority of the shares
of the Company's common stock entitled to vote and voted at the Meeting will be
required to approve this amendment to the Company's charter.
PROPOSAL NO. 3
OTHER BUSINESS
The Board of Directors of the Company currently is unaware of any
proposal to be presented at the Meeting other than the matters specified in the
Notice of Meeting accompanying this Proxy Statement. Should any other proposal
properly come before the Meeting, the persons named in the enclosed proxy will
vote on each such proposal in accordance with their discretion.
CERTAIN INFORMATION CONCERNING THE COMPANY
Company Overview
The Company sells a variety of consumer products through interactive
electronic media including broadcast, cable and satellite television and the
Internet. The Company's products fall into three principal categories:
collectibles; jewelry, beauty and fitness; and electronics. The Company produces
programming in a digital format at its facilities in Nashville, Tennessee. The
programming is transmitted by satellite to cable television systems, direct
broadcast satellite (DBS) systems and television broadcasting stations across
the country.
The Company owns and operates five UHF television stations, which are
located in the San Francisco, Boston, Cleveland, Raleigh and Bridgeport markets.
Four of these television stations are located in the top 15 television markets
in the United States, including the Bridgeport, Connecticut, station which
covers a portion of the New York City designated market area (as defined by
Nielsen Media). As of June 30, 2002, the Company's television programming
reached, during all or part of the day, 69.8 million cable and direct broadcast
system (DBS) households, many of which received the programming on more than one
channel. The Company estimates (based on a proprietary formula) that these 69.8
million homes are the full-time equivalent of approximately 41.8 million cable
and DBS households.
The Company is incorporated in Tennessee and its principal place of
business and executive offices are located at 5388 Hickory Hollow Parkway,
Nashville, Tennessee 37013. The Company's telephone number is (615) 263-8000 and
its Internet address is www.shopathometv.com.
Industry Background
Television Programming. Electronic commerce using full-time television
programming has grown to a $6.5 billion industry. This industry has four large
competitors, QVC, HSN, ShopNBC and Shop At Home.
Television station ownership allows a broadcaster to utilize the "must
carry" rules of the Federal Communications Commission (FCC). Generally, the must
carry rules require most cable systems (with the exception of some small
systems) to set aside up to one-third of their channels to carry the broadcast
signals of local, full-power television stations, including those broadcasting
programming that allows consumers to shop from their homes. These signals must
be carried on a continuous, uninterrupted basis and must be placed in the same
numerical channel position as when broadcast over-the-air, or on a mutually
agreeable channel. The five television stations owned by the Company enjoy these
must carry rights.
In addition, the FCC has adopted rules for implementing digital
(including high-definition) television service, or DTV service. The FCC has
allotted to eligible existing television stations a second channel on which to
provide DTV service. Television stations will be allowed to use these channels
according to their best business judgment. These uses include multiple standard
definition program channels, data transfer, subscription video, interactive
materials, and audio signals, while continuing to provide a free programming
service digitally that is at least comparable to today's analog service.
Internet Commerce. The Internet is an increasingly significant global
medium for communications, content and commerce. The increasing functionality,
accessibility and overall usage of the Internet have made it an attractive
commercial medium. The Internet is evolving into an alternative sales and
marketing channel to retail stores, mail-order catalogues and television
shopping. Online retailers can interact directly with customers, adjusting their
featured selections, editorial insights, shopping interfaces, pricing and visual
presentations to effectively market their products. The Company believes that
the minimal cost to originate programming on the Internet, the ability to reach
and serve a large and global group of customers electronically from a central
location, and the potential for personalized low-cost customer interaction all
provide additional economic benefits for online retailers.
Recent Developments
Channel 60-69 Auction. In the 1997 Balanced Budget Act, Congress
directed the FCC to reallocate the 746-806 MHz band of spectrum for both public
safety and commercial use. The FCC anticipates that this spectrum will be used
for next generation, or 3G, wireless services. This band currently is being used
by analog broadcast television stations operating on channels 60 through 69. The
spectrum is occupied by more than 100 analog broadcast television stations
("incumbent stations") throughout the country, including the Company's stations
located in the Boston and Cleveland markets and a former Company station located
in Houston.
Under the FCC's rules, these incumbent stations are permitted to
continue analog operations on Channels 60 through 69 until at least December 31,
2006. Auction of the spectrum for wireless services scheduled for January 14,
2003 is currently being reviewed to resolve spectrum allocation issues. Because
broadcasters and wireless carriers cannot use the spectrum simultaneously,
auction winners wishing to initiate commercial wireless services before 2007,
may desire to relocate the incumbent broadcast stations, including the Company's
incumbent stations.
The FCC has initiated a proceeding to investigate several 746-806 MHz
band-clearing proposals. While the Company is unable to predict the outcome of
this proceeding, the FCC also has concluded that there is a presumption in favor
of certain band-clearing agreements between broadcasters and auction winners.
Accordingly, assuming the auction is completed, there is a possibility that
either through an FCC-endorsed band-clearing plan, or through private
negotiations, opportunities may exist for broadcast station owners located in
the 746-806 MHz band (i.e. on channels 60-69), including the Company, to reach
agreements, including possible compensation with auction winners, to facilitate
relocation of certain stations. If such an opportunity exists, the Company may
be willing, for a negotiated price to cover its investment in these stations and
to recoup expected losses from potential over-the-air viewership losses
occurring from vacating the analog spectrum early, to relocate any or all the
stations listed above to its digital allocation. In addition to its stations in
Boston and Cleveland, the Company has retained an interest in the potential
spectrum auction profit related to its former Houston property.
Distribution of Programming
The Company distributes its programming to viewers by or through:
the Company's owned and operated television stations;
television stations with which the Company has entered into agreements to
purchase broadcast time;
the carriage of those television broadcasts by cable television systems
under the "must carry" or retransmission consent provisions of federal law;
direct carriage on cable television systems under agreements with cable
system operators;
direct-to-home satellite programming services (DBS); and
the Company's website, shopathometv.com.
Programming Origination
The Company originates its programming from its studios and technical
facilities in Nashville, Tennessee. The Company transmits its programming to
transponders leased or subleased by it on satellites. The satellites retransmit
the Company's signal to various program distribution sources.
The Company also originates programming on its website with video
streaming of its live television network.
Owned and Operated Stations
The following table sets forth certain information regarding each of
the broadcast stations owned by the Company:
Actual cable
Households
DMA Households(1) Reached
---------------------------- -----------------------
License (In Thousands) (In Thousands)
DMA Expiration Rank of Broadcast
Call Sign Market Date DMA Television Cable June 30, 2001
---------- ---------------- ------------ --------- ----------------- ---------- -----------------------
WSAH New York (2) 6/2007 1 6,936 5,189 (2) 756
KCNS San Francisco 12/2006 5 2,423 1,761 1,453
WMFP Boston 4/2007 6 2,211 1,812 1,724
WOAC Cleveland 10/2005 15 1,479 1,082 1,029
WRAY Raleigh 12/2004 29 858 540 382
(1) Per Nielsen Media Research, total number of broadcast television
households as of January 2001 and total number of cable households as of
September 2000.
(2) While WSAH, Bridgeport, Connecticut, is inside the New York DMA, the
station only covers a portion of the market.
Affiliations
In 1993, the Company began an aggressive effort to increase the
distribution of its programming. Since that time, the Company has been
successful in significantly building a "network" for distribution of its
programming and in building relationships with television stations owned by
third parties, certain owners of multiple cable systems and with EchoStar and
DirecTV, the leading DBS providers. The Company's programming is now viewed via
broadcast or cable affiliation in more than 150 television markets, including
all of the country's top fifty 50 designated market areas (DMA's).
The Company's affiliation agreements typically are short term. The
Company's experience has been that most of the affiliation agreements continue
for long-term periods. The time purchased under these agreements is usually
preemptible only under certain limited circumstances, including public interests
or breaking news programming, and the Company generally pays a fixed rate for
the hours its programming is actually carried.
Products and Customers
Products and Merchandise. The Company offers a variety of consumer
products, including cards and memorabilia, coins, jewelry, computers, cameras,
fitness equipment, apparel and health and beauty merchandise.
The Company buys products from numerous vendors, and certain products sold
by the Company are available through multiple suppliers. The Company also
acquires unique products from a select group of vendors and believes that it
will be able to continue to identify sources of specialty products. By
monitoring product sales and revising product offerings, the Company strives to
maintain an attractive and profitable product mix. The Company also is
continuously evaluating new products and vendors to broaden its merchandise
selection.
During the year ended June 30, 2002, the Company had three vendors from
whom it purchased more than 10% each of its total cost of goods sold. The three
vendors represented two different product categories and accounted for 15.2%,
10.8% and 10.7% of the Company's cost of goods sold. The Company believes that
it could find replacement vendors for the products sold by any one of these
vendors without a material adverse effect on the Company.
The following table sets forth certain information about the principal
categories of merchandise sold by the Company during the years ended June 30,
2002, 2001 and 2000:
Type of Product Percentage of Net Revenues
- --------------------------------------------- ----------------------------------------------------------------
2002 2001 2000
-------------------- ----------------- ------------------
Collectibles 43.4 % 58.3 % 55.8 %
Jewelry, beauty and fitness 30.8 27.5 21.1
Electronics 25.8 14.2 23.1
Total 100.0 % 100.0 % 100.0 %
Programming and Presentation of Merchandise. The Company segments most
of its programming into product or theme categories. It has the studio and
broadcasting capability to produce multiple live shows simultaneously. The
Company's technical facilities allow it to broadcast an analog and digital
signal to its main satellite transponder in the same transmission signal. The
Company replays selected programming on its website.
The Company's programs use a show-host approach, with the host
conveying information about the products and demonstrating their use. The viewer
may purchase any product the Company offers, subject to availability. The
Company seeks to differentiate itself from other televised shopping programmers
by using an informal, personal style of presentation and by offering unique
products.
Returns of Products and Merchandise. The Company generally offers its
customers a full refund on merchandise returned within 30 days of the date of
purchase.
Shipping. The Company ships customer orders as promptly as possible
after taking the order, via a combination of ground and priority delivery
services. The Company ships either from its warehouse facility or through
selected vendors who ship products directly to the customer. The Company
maintains its own customer service department to address customer inquiries
about ship dates, product, and billing information.
Customer Relations. Customers can place orders with the Company 24
hours a day, seven days a week, over the Internet or via the Company's toll-free
number (800) 366-4010. The Company uses customer sales representatives and an
automated touch-tone ordering system to accept customer orders. A majority of
its customers pay for their purchases by credit card, and the Company also
accepts payment by money order, check, debit card and electronic funds transfer.
Mechanical, electronic and other items may be covered by manufacturer
warranties. The Company strives to continuously improve its customer service and
to make objective comparisons with its competitors.
Seasonality. The Company's business is somewhat seasonal, with its
sales made in the last quarter of the calendar year normally being the highest
for the fiscal year.
Competition
Competition in Television Commerce. The television commerce industry is
competitive with QVC and HSN being the revenue leaders. The Company's
programming competes directly with QVC, HSN and, often, ShopNBC in almost all of
its markets. The Company's competitors are well-established and have
substantially greater financial, distribution and marketing resources than the
Company. They also reach a larger percentage of U.S. television households. The
Company competes generally with traditional store and catalogue retailers.
Competition in Internet Retailing. Internet commerce is also highly
competitive. Many major retailers and marketers now sell their products on the
Internet. Despite a high failure rate, new retail websites are being launched
daily and may compete directly with shopathometv.com in the future.
Employees
As of June 30, 2002, the Company employed approximately 508 persons of
which approximately 465 were full-time employees. The Company believes it
maintains a good relationship with its employees. Presently, no collective
bargaining agreements exist between the Company and its employees.
Information Technology
The Company operates on an enterprise-wide platform integrating
customer management, the Internet, and financial reporting. The system is
scalable as the Company grows and interfaces with the Company's telephone center
operations, its website, e-mail and vendors with electronic data interchange
capabilities.
The Company manages customer sales and service through a
state-of-the-art telephone system. The telephone system is combined with the
enterprise-wide computer system to support automated ordering through integrated
voice response.
The Company's web site, shopathometv.com, is designed around "best of
breed" e-commerce computer solutions. The system is totally integrated with the
broadcast network. The site is designed to support thousands of stocking units
pulled directly from the Company's product database and offers a live video
stream of the Company's television programming and show schedules. The site is
hosted at the Company's facilities in Nashville.
Broadcast Technology
Production. The Company's production facility in Nashville features
state-of-the-art digital equipment. Utilizing "serial digital" video processing
allows the Company to produce programs with minimal signal degradation in any
part of the production process and to provide the viewer with optimum signal
quality. Computer video server technology and the MPEG-2 format are used
extensively to allow instant recall of product shots or promotional spots to be
used on the air. Panasonic's DVCPRO videotape format is used for digital content
recording and playback. Video promotions are produced in editing suites
utilizing computer equipment and the Motion-JPEG video format.
Distribution. The Company currently has four satellite distribution
channels: three analog and one digital. The uplink signals are transmitted
through two state-of-the-art 9.3 meter dishes at the Company's Nashville
facilities. A portion of the Company's affiliates, including all five of its
owned and operated stations, have begun using the digital MPEG-2 signal to
deliver an ultra-clear picture. The Company's primary feed is via PanAmSat's
satellite G-11.
Properties
The Company's technical facilities, studios and executive offices are
located in Nashville, Tennessee in a 74,000 square foot building it owns and in
9,200 square feet of leased space in an adjacent facility. The adjacent facility
is owned by an entity controlled by J.D. Clinton, who is the Chairman of the
Board and a principal shareholder of the Company. The terms of the lease are
comparable to those available in similar facilities in the area where they are
located. Additionally, the Company leases a 43,000 square foot warehouse located
near its Nashville headquarters.
Each of the Company's owned television stations has studio, office and
transmitter facilities, all of which are leased.
Legal Proceedings
A lawsuit was filed against the Company in January 2000 by a former
vendor, Classic Collectibles, LLC, in state Chancery Court in Chattanooga,
Tennessee. The vendor alleges that the Company improperly canceled certain
orders and that certain amounts it paid to the Company under a written agreement
should be refunded. The vendor is also claiming entitlement to alleged lost
profits of approximately $2 million asserting the Company did not provide an
amount of broadcast network time in 1999 that the vendor alleges was orally
promised in connection with the written agreement. The Company has filed its
answer and has vigorously defended this action. The case is currently set for a
jury trial in November 2002.
A lawsuit was filed against the Company in April 2002 by ING Merger
LLC, as successor to ING Barings LLC ("ING"), in the United States District
Court in the Southern District of New York. ING alleged that the Company failed
to pay investment banking fees and related expenses in connection with two
agreements. In its complaint ING demanded damages of approximately $450,000 plus
interest and costs. The Company has filed its answer and plans to vigorously
defend this action.
The Company is subject to routine litigation arising from the normal
and ordinary operation of its business. The Company believes that such
litigation is not likely to have a material adverse effect on its business.
Operations of the Company Following the Sale of Assets
Following the closing, the material assets of the Company will consist
of the following:
o the 30% interest in the Network; o the five television stations; o the
wireless spectrum rights; and o the net operating loss carry forwards.
Substantially all of the current employees of the Company will become
employees of the Operating Company. The Company currently employs approximately
persons to operate its television stations, and those persons are expected to
remain employees of the Company. Because the current senior management officials
of the Company will become management employees of the Operating Company, the
Company's board expects to employ new senior management for the Company. In
addition, the Company will replace certain other employees who will be employed
by the Operating Company, including persons who will perform the Company's
accounting functions. At this time, these new employees of the Company have not
been identified.
The Company's role in the management of the Operating Company after the
closing will be essentially limited to participation in meetings of the
governing board of the Operating Company, upon which the Company will have
proportionate representation. Because Scripps will have the right to designate a
majority of such board members and most operational decisions require only a
majority vote, it is not expected that the Company will make any operational
decisions concerning the Network.
Under the affiliation agreement which the Company has agreed to enter
into with the Operating Company, the stations will carry the programming of the
Network for a period of three years. The Company has the right, however, to
terminate the affiliation agreement as to any or all of the stations after 15
months following the closing. At that time, the Company will be free to seek
other affiliations or other alternatives for the programming of the stations;
provided, however, that the Company has agreed not to affiliate with any other
entity providing home shopping programming while the Company owns an interest in
the Network and for a period of three years thereafter.
Except for its agreement not to compete with the Network, the Company
will be able to pursue other business opportunities after the closing. The
Company, however, has no currents plans to do so.
Incorporation by Reference
The Company incorporates herein by reference its Annual Report on Form
10-K for the fiscal year ended on June 30, 2002, and filed with the SEC on
August ___, 2002. A copy of the Annual Report is being mailed to all
shareholders together with this Proxy Statement.
ABOUT SCRIPPS AND SCRIPPS NETWORKS
Scripps is a diversified media company operating in three business
segments: newspapers, broadcast television stations and cable television
networks. The newspaper segment includes daily newspapers in 21 operating
markets. The television segment includes 10 broadcast television stations, nine
of which are affiliated with national television networks. The cable television
networks segment, operated through Scripps Networks, includes four national
television networks.
Scripps Networks is a wholly owned subsidiary of Scripps. Scripps
Networks distributes through cable and satellite television systems Scripps'
four national networks, Home & Garden Television (HGTV), Food Network, Do It
Yourself and Fine Living. Scripps Networks' programming can be viewed in 25
countries.
RISK FACTORS
Risks Relating to Company if the Sale of Assets is Not Consummated
The following paragraphs describe some of the significant risks
associated with the continuing operation of the Company if the Sale of Assets is
not consummated.
o We have a history of losses and we may need additional financing. We have
experienced net losses in each fiscal year since 1998. Our future profitability
largely depends on management's ability to implement our business strategy in a
timely manner, at a reasonable cost to us, and under conditions acceptable to
us.
Successful implementation of our business strategy would depend on
numerous factors beyond our control, including the economy, our competitors and
other conditions and uncertainties. We cannot assure you that all of these
strategic initiatives will be successfully implemented. If we fail to become
profitable, or if we are unable to generate sufficient cash from our business to
fund our operational requirements and business strategy, we will be required to
obtain additional funds by incurring additional indebtedness or selling
additional stock.
Our ability to arrange additional financing and the cost of financing
would depend upon many factors, including:
economic and capital markets conditions generally, and, in particular, the
non-investment grade debt market;
conditions in the television home shopping industry;
regulatory developments;
credit availability from banks or other lenders;
investor confidence in the home shopping industry and our company; and
the success of our business plan.
Our inability to raise additional capital would have an adverse effect
on our financial condition and results of operations, including causing us to
default on our current indebtedness, requiring that we significantly revise and
limit our business strategy and impairing our ability to continue the normal
operation of our business. We can give you no assurance that we would be able to
obtain additional financing on commercially reasonable terms, if at all.
Our substantial indebtedness could impair our financial condition. We
have substantial debt. The amount of our current indebtedness:
requires us to use a substantial portion or all of our cash flow
from operations to pay interest on our indebtedness, reducing the
amount of cash flow available to fund working capital, capital
expenditures and other requirements of our business;
limits our flexibility in planning for, and reacting to, changes
in our business and the industry in which we operate;
could place us at a disadvantage compared with our competitors
that have more capital and less debt; and
makes it more difficult for us to borrow money for working
capital, capital expenditures, acquisitions or other corporate
purposes.
We face significant competition. The sale of consumer products by
electronic media is intensely competitive. The television home shopping industry
is dominated by two established competitors, QVC and HSN (Home Shopping
Network). Both of these networks have substantially more television and cable
carriage than we do. We also compete with ShopNBC, another broadly distributed
television home shopping company, and we compete with other companies that sell
consumer goods on the Internet. We also compete with traditional store and
catalog retailers. Many of our competitors have substantially greater financial,
distribution and marketing resources than we do. These competitors may enter
into business combinations, joint ventures and strategic alliances with each
other, which could further enhance their resources and make it harder for us to
maintain or increase our market share.
The increasing number of channels and websites poses a significant
competitive threat to us. In order for our customers to purchase our products,
they must either watch our television programs or access our website. Consumers
have ever-growing alternatives to the traditional over-the-air television
broadcast, including cable television, satellite dishes, multichannel multipoint
distribution systems, pay-per-view programs, video movie rentals and the
Internet. These alternatives have created smaller television viewing audiences
for particular programs. Further technological developments will likely continue
this trend, putting additional competitive pressures on us.
We depend on affiliation and carriage agreements, which can be
terminated or may not be renewed. Our business is dependent upon affiliation
agreements with television broadcast stations, cable system operators and DBS
providers. We must renegotiate and renew these agreements from time to time.
Most of these agreements give the owner of the station or system the right to
terminate the agreement at any time with 30 days notice, or the right to preempt
our programs in certain situations. We must compete with other television
programmers for time on these stations and systems, and there is no assurance we
can match the prices our competitors may be willing to pay. There can be no
assurance that any of the agreements can be renewed on acceptable terms, if at
all.
We rely on service providers and product vendors. We are dependent upon
certain service providers and product vendors to conduct our business. Because
we have positioned ourselves in the television home shopping market as the
seller of certain unique products, we depend upon a limited number of suppliers
for such products. This supply cannot be assured. In addition, we rely on the
services of a credit card processor, and a limited number of telephone service
providers, shipping companies and computer hardware and software suppliers.
Should we lose or experience interruptions in the services of any of these
service providers or if certain of our vendor relationships terminate, we may
not be able to replace these providers or vendors.
Our broadcast properties are subject to significant regulation that may
be costly and may interfere with our ability to conduct business. Federal law
permits the operation of a television broadcast station only with a license
issued by the FCC. The law empowers the FCC, among other things:
to determine the frequencies, location and power of broadcast stations;
to issue, modify, renew and revoke station licenses;
to approve the assignment or transfer of control of broadcast licenses;
to regulate the equipment used by stations;
to impose penalties for violations of the Communications Act of 1934 (the
"Communications Act") or FCC regulations; and
to regulate some of a station's programming content.
FCC television licenses are granted or renewed for terms of eight
years, although licenses may be renewed for a shorter period. We must apply for
renewal of each broadcast license. At the time an application is filed for
renewal, petitions to deny the renewal may be filed by interested parties. There
can be no assurance that the licenses for our stations will be renewed at their
expiration dates or, if renewed, will be renewed for the full eight-year term.
The non-renewal or revocation of one or more of our television station licenses
could have a materially adverse effect on our operations. Failure to comply with
FCC rules and policies can also result in the imposition of various sanctions,
including monetary forfeitures or, for particularly egregious violations, the
revocation of a license. See "Business - Regulation - License Renewals."
If we fail to keep pace with rapid technological change, it could
materially harm our ability to attract and retain customers. The Internet and
electronic commerce industries are characterized by rapid technological change,
changes in user and customer requirements, frequent new service or product
introductions embodying new technologies and the emergence of new industry
standards and practices that could render our website and technology obsolete.
Our performance will depend, in part, on our ability to license or acquire
leading technologies, to enhance our existing services and to respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. There can be no assurance that we will be successful
in using new technologies effectively or adapting our website and technology to
emerging industry standards.
Risks Related to the Sale of Assets
The following paragraphs describe some of the significant risks
associated with the operation of the Company if the Sale of Assets does close.
The loss of key personnel could weaken the management expertise of the
Company. The Company expects its key personnel, including its Co-Chief Executive
Officers and its other executive officers, will become employees of the
Operating Company. As a result, the Company will lose the services of such
persons, and the Company will need to employ new senior management to operate
the retained business and assets of the Company. Those persons have not been
identified and the failure of the Company to recruit effective management at
reasonable compensation levels could adversely affect the financial performance
of the Company following the closing.
The Company will hold a minority position in the Operating Company.
Following the closing, the Company will hold an indirect 30% interest in the
Network and will have the right to designate two of the five members of the
governing board of the Operating Company and one of the five members of the
board of directors of Holding Company. Scripps, as the holder of an indirect 70%
interest and the right to designate three of the five board members of the
Operating Company and four members of the board of directors of Holding Company,
will have the right to make substantially all business and operational decisions
affecting the operation of the Network. This means that the value of the
Company's 30% interest will essentially dependent on the management of the
Operating Company by Scripps.
The ownership interest of the Company in the Operating Company is
subject to dilution. If Scripps decides that additional funding is needed in the
operations of the Operating Company, Scripps will decide whether such additional
funding will be by loan to the Company, additional equity investments by the
members or investments by third parties. If Scripps elects to invest additional
funds as equity into the Operating Company, the Company will have a period of
six months to pay its share of the investment into the Company. If the Company
is unable or unwilling to make such equity investment, its 30% ownership
position will be diluted by the investment made by Scripps.
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in
conjunction our consolidated financial statements and notes thereto. The
statement of operations and balance sheet data set forth below as of and for
each of the five years in the period ended June 30, 2002 are derived from our
audited financial statements.
Fiscal Year Ended June 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net revenues............................. $100,906 $150,399 $201,556 $177,615
Cost of goods sold....................... 60,410 93,396 133,751 122,353
------- ------- ------- ------
Profit before operating expenses......... 40,496 57,003 67,805 55,262
Operating expenses ...................... 36,099 54,712 79,153 98,448
------- ------- ------- ------
Income (loss) from operations............ 4,397 2,291 (11,348) (43,186)
Interest expense, net.................... 2,129 8,276 8,914 10,969
Gain on sale of station.................. - - - 48,929
Other income (expense)................... 900 (46) (154) 63
---- ---- ----- --
Income (loss) before income taxes........ 3,168 (6,031) (20,416) (5,163)
Income tax expense (benefit)............. 1,204 (2,492) (7,709) 262
------ ------- ------- ---
Income (loss) from continuing operations. 1,964 (3,539) (12,707) (5,425)
Income (loss) from discontinued operations (451) 235 (786) (598)
Loss on disposal of discontinued operations - - - (2,864)
Cumulative effect of accounting change .. - - - (1,359)
---- ---- ---- -------
Net income (loss)........................ 1,513 (3,304) (13,493) (10,246)
Preferred stock accretion and dividends.. (14) (14) (6) (8,156)
---- ---- --- -------
Net income (loss) available to common
shareholders $ 1,499 $ (3,318) $ (13,499) $(18,402)
========== ========== ========== =========
OTHER DATA:
EBITDA1.................................. $5,912 $ 6,493 $(2,975) $ (29,251)
Capital expenditures..................... 16,800 14,101 17,671 2,727
Depreciation and amortization............ 1,515 4,202 8,373 13,935
Ratio of earnings to fixed charges2...... 2.17x 0.32x - 0.54x
As Adjusted
June 30,
20023
BALANCE SHEET DATA:
Cash and cash equivalents................ $ $ $ $
Working capital4......................... 11,568 (17,646) 16,806 8,579
Total assets............................. 143,770 170,697 227,294 180,017
Current liabilities...................... 19,212 48,364 45,468 28,785
Long-term debt and capital leases,
including current portion ............... 75,415 96,191 97,111 76,361
Redeemable preferred stock............... 1,393 834 12,504 161
Stockholders' equity..................... 44,360 61,459 84,986 75,587
(1) We define EBITDA as income (loss) from operations plus depreciation
and amortization. EBITDA includes unusual charges totalling $11.3 million for
fiscal year 2001, consisting primarily of severance payments and write-offs of
inventory, accounts receivable and an affiliate agreement. EBITDA is not a
measure of performance under generally accepted accounting principles and should
not be used in isolation or as a substitute for net income, cash flows from
operating activities or other income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
profitability or liquidity. EBITDA information is included because we believe
that certain investors may use it as supplemental information to evaluate a
company's ability to service debt. The definition of EBITDA used in this
offering memorandum may not be comparable to the definition used by other
companies.
(2) For purposes of determining the ratio of earnings to fixed charges,
(a) earnings means income (loss) from continuing operations before income taxes
plus fixed charges less dividends on preferred stock and (b) fixed charges means
interest expense plus amortization of debt expense, one-third of rental expense
on operating leases (representing that portion of rental expense deemed to be
attributed to interest) and dividends on preferred stock. Earnings were
insufficient to cover fixed charges by $10.8 million, $10.4 million and $13.3
million for fiscal year 2000 and the six months ended December 31, 2001 and
2000, respectively
(3) As adjusted for the Sale of Assets, as described herein.
(4) Current assets (including cash and cash equivalents) minus current
liabilities.
OTHER INFORMATION
Cost of Solicitation of Proxies
The cost of solicitation of proxies, including expenses in connection
with preparing, assembling and mailing this Proxy Statement, will be borne by
the Company. That solicitation will be made by mail, and also may be made by the
Company's regular officers or employees, personally or by telephone or telegram.
The Company may reimburse brokers, custodians and nominees for their expenses in
sending proxies and proxy material to beneficial owners. In addition, the
Company anticipates retaining a proxy solicitation firm to distribute material
to beneficial owners whose shares are held by brokers, banks, or other
institutions and to assist in soliciting proxies, for a fee estimated at
$________ plus expenses.
Shareholders' Proposals
In the Company's proxy statement for its annual meeting held on
November 29, 2001, the deadline for shareholders intending to submit proposals
for presentation at the Company's 2002 annual meeting of shareholders for
inclusion in the proxy statement and form of proxy relating to that meeting was
established as June 23, 2002. This date was set on the assumption that the 2002
annual meeting would not be changed by more than 30 days from the date of the
2001 annual meeting. Because of the holding of the Meeting and the pendency of
the Sale of Assets, it is likely that the Company will delay its annual meeting
for more than 30 days after November 29, 2002. In that event the deadline for
submitting shareholder proposals will be a reasonable time before the Company
begins to print and mail its proxy materials for the 2002 annual meeting. The
Company plans to announce the new deadline in its Form 10-Q which it will file
with the SEC for the quarter ending September 30, 2002.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file with
the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain further information about the operation
of the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC
filings are also available to the public over the Internet at the SEC's website
at http://www.sec.gov. In addition, you may obtain a copy of any of our filings,
at no cost, by writing to or telephoning us at Shop At Home, Inc., 5388 Hickory
Hollow Parkway, Nashville, Tennessee 37013-3128, Telephone 615-263-8000.
GLOSSARY
As used in this Proxy Statement, the following terms have the indicated
meanings, unless the context requires another meaning:
"Act" means the Tennessee Business Corporation Act, as amended.
"Common Stock" means the common stock, $.0025 par value, of the Company.
"Company" or "we" means Shop At Home, Inc., a Tennessee corporation.
"Holding Company" means SAH Holdings, Inc., an Ohio corporation and
currently a wholly owned subsidiary of the Company, the name of which is
intended to be changed to The Scripps Shop At Home Holding Company.
"Loan" means the loan in the principal amount of $47.5 million which
Scripps has agreed to make to the Company upon the closing of the Sale of
Assets.
"Meeting" means the special meeting of the shareholders of the Company
scheduled for October 16, 2002.
"Network" means the television home shopping network currently owned and
operated by the Company.
"Operating Company" means Partners-SATH, L.L.C., a Tennessee limited
liability company, which is intended to be re-capitalized as Shop At Home
Network, LLC, a Delaware limited liability company, and will be the entity which
owns and operates the Network.
"Sale of Assets" means the transaction whereby the Company will indirectly
sell to Scripps a 70% ownership interest in the Network.
"Scripps" means The E.W. Scripps Company, an Ohio corporation.
"Scripps Networks" means Scripps Networks, Inc., a Delaware corporation
and a wholly owned subsidiary of Scripps.
"Share Purchase Agreement" means the principal agreement by which, at
closing, the Company sells, and Scripps Networks acquires, an 80% interest in
Holding Company and an indirect 70% interest in the Operating Company.
"Record Date" means the date the Board of Directors has chosen to determine
which shareholders will be permitted to vote at the Meeting, and is September 9,
2002.
APPENDIX A
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SHARE PURCHASE AGREEMENT
between
SHOP AT HOME, INC.
and
SCRIPPS NETWORKS, INC.
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August 14, 2002
-iii-
TABLE OF CONTENTS
Pages
ARTICLE I. DEFINITIONS....................................................4
Section 1.1 Definitions..........................................4
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ARTICLE II. SALE AND TRANSFER OF SHARES; CLOSING..........................11
Section 2.1 Shares...............................................11
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Section 2.2 Purchase Price.......................................11
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Section 2.3 Closing..............................................12
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ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.....................12
Section 3.1 Organization and Good Standing.......................12
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Section 3.2 Authority; No Conflict...............................12
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Section 3.3 Capitalization.......................................14
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Section 3.4 Financial Statements.................................14
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Section 3.5 Books and Records....................................15
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Section 3.6 Title to Properties; Encumbrances....................15
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Section 3.7 Condition and Sufficiency of Assets..................16
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Section 3.8 Accounts Receivable; Reserves for Returns and........16
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Charge Backs
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Section 3.9 Inventory............................................16
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Section 3.10 No Undisclosed Liabilities..........................16
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Section 3.11 Taxes...............................................17
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Section 3.12 Employee Benefits...................................18
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Section 3.13 Compliance; Governmental Authorizations.............23
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Section 3.14 Legal Proceedings; Orders...........................25
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Section 3.15 Absence of Certain Changes and Events...............26
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Section 3.16 Contracts; No Defaults..............................26
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Section 3.17 Insurance...........................................29
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Section 3.18 Environmental Matters...............................30
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Section 3.19 Employees...........................................30
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Section 3.20 Labor Relations; Compliance.........................31
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Section 3.21 Intellectual Property...............................31
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Section 3.22 Certain Payments....................................34
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Section 3.23 FCC Licenses; Operations of Licensed Facilities.....34
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Section 3.24 Subscribers.........................................34
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Section 3.25 Affiliation and Programming Agreements..............35
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Section 3.26 Transponder Contracts...............................36
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Section 3.27 Network Rights......................................36
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Section 3.28 Website.............................................36
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Section 3.29 Relationships with Affiliates.......................37
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Section 3.30 Proxy Statement.....................................37
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Section 3.31 Customers and Vendors...............................37
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Section 3.32 Brokers or Finders..................................37
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Section 3.33 Disclosure..........................................37
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.......................38
Section 4.1 Organization and Good Standing.......................38
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Section 4.2 Authority; No Conflict...............................38
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Section 4.3 Investment Intent; Financial Capability..............38
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Section 4.4 Certain Proceedings..................................38
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Section 4.5 Proxy Statement Preparation..........................39
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Section 4.6 Brokers or Finders...................................39
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ARTICLE V. COVENANTS OF SELLER PRIOR TO CLOSING DATE......................39
Section 5.1 Access and Investigation.............................39
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Section 5.2 Operation of the Business of the Network.............39
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Section 5.3 Negative Covenant....................................40
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Section 5.4 Notification.........................................40
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Section 5.5 Reasonable Best Efforts..............................40
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Section 5.6 No Solicitation......................................40
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Section 5.7 Preparation of Proxy Statement.......................41
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Section 5.8 Shareholders Meeting.................................42
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Section 5.9 Approval for Transfer of Network Assets and .........42
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Network Liabilities
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ARTICLE VI. COVENANTS OF BUYER PRIOR TO CLOSING DATE......................43
Section 6.1 Reasonable Best Efforts..............................43
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Section 6.2 Preparation of Proxy Statement.......................43
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Section 6.3 Loan to Operating Company............................43
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ARTICLE VII. MISCELLANEOUS COVENANTS......................................43
Section 7.1 Section 338(h)(10) Election..........................43
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Section 7.2 Required Approvals...................................43
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Section 7.3 FCC Actions..........................................44
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Section 7.4 Amendment to Holding Company Articles................44
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Section 7.5 Access to Records....................................45
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ARTICLE VIII. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.........45
Section 8.1 Accuracy of Representations..........................45
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Section 8.2 Seller's Performance.................................45
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Section 8.3 Consents.............................................45
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Section 8.4 Additional Documents.................................45
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Section 8.5 No Proceedings.......................................46
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Section 8.6 No Claim Regarding Ownership or Sale Proceeds........46
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Section 8.7 No Prohibition.......................................46
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Section 8.8 Loan Transaction.....................................46
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Section 8.9 Network Assets and Network Liabilities...............46
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Section 8.10 Holding Company Amended Articles....................47
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Section 8.11 Title Insurance.....................................47
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Section 8.12 754 Election........................................47
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Section 8.13 Amendment of Option Plans; Employment Agreements....47
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Section 8.14 HSR Act.............................................47
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Section 8.15 Shareholder Approval................................47
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ARTICLE IX. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE..........47
Section 9.1 Accuracy of Representations..........................47
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Section 9.2 Buyer's Performance..................................47
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Section 9.3 Consents.............................................48
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Section 9.4 Additional Documents.................................48
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Section 9.5 No Injunction........................................48
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Section 9.6 Loan Transaction.....................................48
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ARTICLE X. TERMINATION....................................................48
Section 10.1 Termination of Agreement............................48
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Section 10.2 Effect of Termination...............................49
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ARTICLE XI. INDEMNIFICATION; REMEDIES.....................................50
Section 11.1 Survival; Right to Indemnification Not Affected ....50
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by Knowledge
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Section 11.2 Indemnification by Seller...........................50
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Section 11.3 Indemnification by Buyer............................51
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Section 11.4 Time Limitations....................................51
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Section 11.5 Limitations on Amount...............................51
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Section 11.6 Procedure for Indemnification - Third Party Claims..51
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Section 11.7 Procedure for Indemnification - Other Claims........53
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ARTICLE XII. GENERAL PROVISIONS...........................................53
Section 12.1 Expenses............................................53
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Section 12.2 Public Announcements................................53
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Section 12.3 Confidentiality.....................................53
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Section 12.4 Declaratory Judgment................................53
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Section 12.5 Notices.............................................53
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Section 12.6 Jurisdiction; Service Of Process....................54
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Section 12.7 Further Assurances..................................54
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Section 12.8 Waiver..............................................55
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Section 12.9 Entire Agreement and Modification...................55
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Section 12.10 Schedules..........................................55
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Section 12.11 Assignments, Successors, and No Third-Party Rights.55
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Section 12.12 Severability.......................................56
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Section 12.13 Section Headings, Construction.....................56
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Section 12.14 Governing Law......................................56
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Section 12.15 Counterparts.......................................56
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SHARE PURCHASE AGREEMENT
This Agreement is made as of August 14, 2002, by Scripps Networks,
Inc., a Delaware corporation ("Buyer"), and Shop At Home, Inc., a Tennessee
corporation ("Seller").
RECITALS
Seller owns 1,000 common shares, without par value, of SAH Holdings, Inc., an
Ohio corporation ("Holding Company"), constituting all of Holding Company's
outstanding shares.
Seller desires to sell, and Buyer desires to purchase, 800 common shares,
without par value, of Holding Company (the "Shares") for the consideration and
on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Definitions. For purposes of this Agreement, the following
terms have the meanings specified in this Section:
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor law, and rules and regulations issued pursuant thereto.
"Affiliate" means, with respect to any Person, any other Person (i)
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person, (ii) that is a
general partner, director, manager, trustee or principal officer of, or a
limited partner owning more than 10% of, or that serves in a similar capacity
with respect to, such Person, or (iii) of which such Person is a general
partner, director, manager, trustee or principal officer or a limited partner
owning more than 10% of, or with respect to which such Person serves in a
similar capacity. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or to cause the
direction of the management or policies of the Person in question through the
ownership of voting securities or by contract or otherwise.
"Affiliation Agreement" means the letter agreement to be entered into
between Seller and Operating Company prior to or at the Closing pertaining to
the provision of programming by the Network to Seller's owned television
stations.
"Assets and Liabilities Statement" is defined in Section 3.4(a).
"Buyer" is defined in the first paragraph of this Agreement.
"Closing" is defined in Section 2.4.
"Closing Date" means the date and time as of which the Closing actually
takes place.
"Communications Act" means the Communications Act of 1934, as amended
and the rules and regulations promulgated thereunder.
"Companies" means collectively Holding Company and Operating Company
and a "Company" means either Holding Company or Operating Company.
"Confidentiality Agreement" means the Confidentiality Agreement between
The E.W. Scripps Company and Seller dated March 11, 2002.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" means all of the transactions contemplated
by this Agreement, including: (a) the transfer by Seller to Holding Company or
Operating Company of the Network Assets and Network Liabilities, (b) the sale of
the Shares by Seller to Buyer; (c) the execution, delivery, and performance of
the Transaction Documents; (d) the performance by Buyer and Seller of their
respective covenants and obligations under this Agreement; and (e) Buyer's
acquisition and ownership of the Shares and exercise of control over Holding
Company.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
"Damages" is defined in Section 11.2.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwater, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost,
damages, liability or other obligation arising under Environmental Law or
Occupational Safety and Health Law and consisting of or relating to (a) any
environmental, health, or safety matters or conditions (including on-site or
off-site contamination, occupational safety and health, and regulation of
chemical substances or products); (b) fines, penalties, judgments, awards,
settlements, legal or administrative proceedings, damages, losses, claims,
demands and response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law; (c)
financial responsibility under Environmental Law or Occupational Safety and
Health Law for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Body or other Person) and for any natural resource damages; or (d)
any other compliance, corrective, investigative, or remedial measures required
under Environmental Law or Occupational Safety and Health Law. The terms
"removal," "remedial," and "response action" include the types of activities
covered by the U.S. Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. ss.9601 et seq., as amended.
"Environmental Law" means any Legal Requirement that requires or
relates to: (a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities that could have significant impact on the Environment; (b)
preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment; (c) reducing the
quantities, preventing the release, or minimizing the hazardous characteristics
of wastes that are generated; (d) assuring that products are designed,
formulated, packaged, and used so that they do not present unreasonable risks to
human health or the Environment when used or disposed of; (e) protecting
resources, species, or ecological amenities; (f) reducing to acceptable levels
the risks inherent in the transportation of hazardous substances, pollutants,
oil, or other potentially harmful substances; (g) cleaning up pollutants that
have been released, preventing the threat of release, or paying the costs of
such clean up or prevention; or (h) making responsible parties pay private
parties for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA" means the Employee Retirement Income Security Act of 1974 or
any successor law, and rules and regulations issued pursuant to thereto.
"FTE Subscribers" is defined in Section 3.24.
"Facilities" means any real property, leaseholds, or other interests
currently or formerly owned or operated by Seller with respect to the Network or
by Operating Company and any buildings, plants, structures, or equipment
currently or formerly owned or operated by Seller with respect to the Network or
by Operating Company.
"FCC" means the Federal Communications Commission.
"GAAP" means generally accepted United States accounting principles,
applied on a consistent basis.
"Governmental Authorization" means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HSR Act" is defined in Section 7.2.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Companies.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under any
Environmental Law, including any admixture or solution thereof.
"Holding Company" is defined in the Recitals to this Agreement.
"Holding Company Contribution Agreement" means the Contribution and
Assumption Agreement to be entered into by Seller and Holding Company
immediately prior to the Closing, the form of which is attached hereto as
Exhibit 1.1A.
"IRC" means the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant thereto.
"IRS" means the U.S. Internal Revenue Service or any successor agency,
and, to the extent relevant, the U.S. Department of the Treasury.
"Intellectual Property Assets" is defined in Section 3.21.
An individual will be deemed to have "Knowledge" of a particular fact
or matter if he or she is actually aware of such fact or matter or if a prudent
individual could be expected to discover or otherwise become aware of such fact
or matter in the course of conducting a reasonably comprehensive investigation
concerning the existence of such fact or matter. A Person other than an
individual will be deemed to have "Knowledge" of a particular fact or matter if
any individual who is serving as a director, executive officer, member,
governor, manager (with respect to a partnership or limited liability company),
partner, executor, or trustee of such Person (or in any similar capacity) has,
or at any time had, Knowledge of such fact or matter in accordance with the
preceding sentence.
"Legal Requirement" means any order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty of any Governmental
Body.
"Network" means a home shopping cable television network and
interactive web-based business called the Shop At Home Network.
"Network Assets" means the "Membership Interest" and the "Network
Employee Rights" under the Holding Company Contribution Agreement, and the
"Contributed Assets" under the Operating Company Contribution Agreement.
"Network Liabilities" means the "Assumed Liabilities" under the Holding
Company Contribution Agreement and the Operating Company Contribution Agreement.
"Network Intangible Rights" means all domestic or foreign patents,
patent applications, written invention disclosures to be filed or awaiting
filing determinations, trademark and service mark applications, registered
trademarks, registered service marks, uniform resource locators, domain names,
franchises, trade names, jingles, slogans, logotypes, copyrights and other
intangible rights owned, leased or licensed by Seller or the Companies in
connection with the Network.
"Occupational Safety and Health Law" means any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any program, whether governmental or
private (including those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working conditions.
"Operating Company" means Partners - SATH L.L.C., a Tennessee limited
liability company, which is currently owned 99% by Seller and 1% by SAH
Acquisition, but which will, upon consummation of the Contemplated Transactions,
be owned 87.5% by Holding Company, 11.5% by Seller and 1% by SAH Acquisition.
"Operating Company Contribution Agreement" means the Contribution and
Assumption Agreement to be entered into by Seller, SAH Acquisition and Operating
Company immediately prior to the Closing (or earlier upon receipt of consent of
Seller's senior lender and Buyer), the form of which is attached hereto as
Exhibit 1.1B.
"Operating Company LLC Agreement" means the Amended and Restated
Operating Agreement among Holding Company, Seller, SAH Acquisition and Operating
Company to be entered into at the Closing.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena or verdict entered, issued, made, or rendered by any court,
administrative agency or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" means an action taken by a Person only
if: (a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of such Person's normal day-to-day operations; (b)
such action is not required to be authorized by such Person's board of directors
or managers (or by any Person or group of Persons exercising similar authority)
and is not required to be specifically authorized by such Person's parent
company (if any) or other equity holders; and (c) such action is similar in
nature and magnitude to actions customarily taken, without any authorization by
the board of directors or managers (or by any Person or group of Persons
exercising similar authority), in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as such
Person.
"Organizational Documents" means (a) the articles or certificate of
incorporation and bylaws or code of regulations of a corporation; or (b) the
articles of organization or certificate of formation or similar document and
limited liability company agreement or operating agreement or similar document
of a limited liability company; (c) any charter or similar document adopted or
filed in connection with the creation, formation, or organization of a Person;
and (d) any amendment to any of the foregoing.
"Participation Agreement" means the letter agreement referred to in
Section 8.4(g).
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan" is defined in Section 3.13.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Programming Assets" means all programs, programming, performances,
productions, content and related materials of any nature whatsoever, and all
elements thereof, whether intended for television broadcast or other exhibition
over any other medium (including, but not limited to, the Internet) as a live
performance, a pre-recorded performance or otherwise, whether completed or in
process or production, in whatever form or media the same may be recorded,
including, but not limited to, documents, drawings, films, tapes, compact discs,
and any other digital or digitized formats (collectively, the "Programming
Materials"), all related common law and statutory Network Intangible Rights in
the Programming Materials and all rights, releases, clearances, and licenses
granted to Seller by third parties (including, but not limited to, persons
appearing in, or performing services in connection with the exhibition and
syndication of, any of the Programming Materials) with respect to such third
parties' Third-Party Intangible Rights in the Programming Materials.
"Promotional Assets" means all sales support, advertising, marketing
and promotional materials of any nature whatsoever, including, but not limited
to, interstitial promotional materials, and all elements thereof (including, but
not limited to, all advertiser files, information, lists and rate cards, all
catalogs, data, drawings, designs, files, price lists and subscriber
information, files and lists, and all other records and other documents related
thereto), whether intended for television broadcast or other exhibition over or
in any other medium (including, but not limited to, the Internet and any print
media) as a live performance, a pre-recorded performance or otherwise, whether
completed or in process or production, in whatever form or media the same may be
recorded, including, but not limited to, documents, drawings, films, tapes,
compact discs, and any other digital or digitized formats (collectively, the
"Promotional Materials"), all related common law and statutory Network
Intangible Rights in the Promotional Materials and all rights, releases,
clearances, and licenses granted to Seller by third parties (including, but not
limited to, persons appearing in, or performing services in connection with the
exhibition and syndication of, any of the Promotional Materials) with respect to
such third parties' Third-Party Intangible Rights in the Promotional Materials.
"Proxy Statement" is defined in Section 5.8.
"Release" means any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional.
"Representative" means with respect to a particular Person, any
director, officer, member, manager, employee, agent, consultant, advisor, or
other representative of such Person, including legal counsel, accountants, and
financial advisors.
"SAH Acquisition" means SAH Acquisition Corporation, a Tennessee
corporation wholly owned by Seller.
"SEC" means the U.S. Securities and Exchange Commission or any
successor agency.
"Section 338(h)(10) Election" is defined in Section 7.2.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and rules and regulations issued pursuant thereto.
"Seller" is defined in the first paragraph of this Agreement.
"Shareholder Agreement" means the Shareholder Agreement among Seller,
Buyer and Holding Company to be entered at the Closing.
"Shareholder Approval" is defined in Section 5.7.
"Shareholders Meeting" is defined in Section 5.8.
"Shareholders Vote" is defined in Section 5.8.
"Shares" is defined in the Recitals of this Agreement.
"Subscriber" means a household that receives Shop at Home Network in a
distribution system, including but not limited to, any cable television system,
MATV and SMATV systems, MMDS, TVRO and other wireline, wireless and direct
broadcast satellite delivery methods, in all cases, whether analog or digital,
in the United States and its territories and possessions.
"Tax" means (a) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, franchise,
profits, license, withholding on amounts paid to or by Seller or a Company,
payroll, employment, excise, severance, stamp occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Body responsible for the imposition of any such tax (domestic or
foreign), (b) any liability of Seller or a Company for the payment of any
amounts of the type described in clause (a) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any period prior to the
Closing, and (c) any liability of Seller or a Company for the payment of any
amounts of the type described in clause (a) as a result of any express or
implied obligation to indemnify any other Person..
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Tax Sharing Agreement" means the Tax Sharing Agreement referenced in
Section 8.4(h).
"Third Party Intangible Rights" means third parties' literary,
artistic, trademark, copyright, music performance, master use, synchronization
and other similar intellectual property rights and their publicity, privacy and
publishing rights.
A claim, Proceeding, dispute, action, or other matter will be deemed to
have been "Threatened" if any demand or statement has been made (orally or in
writing) or any notice has been given (orally or in writing), or if any other
event has occurred or any other circumstances exist, that would lead a prudent
Person to conclude that such a claim, Proceeding, dispute, action, or other
matter is likely to be asserted, commenced, taken, or otherwise pursued in the
future.
"Transaction Documents" means this Agreement, the Shareholder
Agreement, the Operating Company LLC Agreement, the Affiliation Agreement, the
Confidentiality Agreement, the Participation Agreement, and the Tax Sharing
Agreement.
ARTICLE II. SALE AND TRANSFER OF SHARES; CLOSING
Section 2.1 Shares. Subject to the terms and conditions of this Agreement, at
the Closing, Seller shall sell and transfer the Shares to Buyer, and Buyer shall
purchase the Shares from Seller.
Section 2.2 Purchase Price. The purchase price (the "Purchase Price") for
the Shares is $49,500,000.00.
Section 2.3 Closing. The purchase and sale provided for in this Agreement (the
"Closing") will take place at the offices of Bone McAllester Norton PLLC at 424
Church Street, Suite 900, Nashville, Tennessee, at 10:00 a.m. (local time) on
October 17, 2002 or at such other time and place as the parties may agree.
Subject to Article IX, failure to consummate the Closing on the date and time
determined pursuant to this Section will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.
At the Closing, Buyer shall pay the Purchase Price to Seller by wire transfer to
an account specified by Seller.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1 Organization and Good Standing.
(a) Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Tennessee, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under this Agreement and the other Transaction Documents to which it
is a party. Seller is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on Seller.
(b) Holding Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Ohio, with full corporate power and
authority to own the assets that it purports to own and to perform all its
obligations under this Agreement and the other Transaction Documents to which it
is a party. Holding Company does not own and has never owned any assets. Holding
Company does not conduct and has never conducted any business.
(c) Operating Company is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Tennessee, with
full power and authority to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under the other
Transaction Documents to which it is a party. Operating Company currently owns
only certain real estate located at 5388 Hickory Hollow Parkway and certain
fixtures and rights related thereto and such property constitutes the only
assets ever owned by Operating Company. Operating Company does not conduct and
has never conducted any business other than the ownership and operation of such
property.
(d) Seller has delivered to Buyer copies of its and each Company's
Organizational Documents, as currently in effect.
Section 3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Seller, enforceable against Seller in accordance with its terms. Upon the
execution and delivery by Seller and the Companies of each other Transaction
Document to which any of them is a party, such Transaction Documents will
constitute the legal, valid, and binding obligations of Seller and the
Companies, as applicable, enforceable against Seller or the Company in
accordance with their respective terms. Each of Seller and each Company has the
absolute and unrestricted right, power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform its obligations
thereunder. Seller's Board of Directors has approved the Contemplated
Transactions and has resolved to recommend the Contemplated Transactions for
Shareholder Approval.
(b) Except as set forth in Schedule 3.2, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Seller or either
Company, or (B) any resolution adopted by the board of
directors or the stockholders of Seller or Holding Company or
the member or managers of Operating Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions, or to exercise
any remedy or obtain any relief under, any Legal Requirement
or any Order to which Seller or a Company, or any of the
assets owned or used by Seller or a Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by Seller or a Company
or that otherwise relates to the business of, or any of the
assets owned or used by, Seller or a Company;
(iv) cause Buyer or a Company to become subject to, or to become
liable for the payment of, any Tax;
(v) cause any of the assets owned or used by Seller or a Company
to be reassessed or revalued by any taxing authority or other
Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or
modify, any Contract to which Seller or a Company is bound;
(vii) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by Seller
or a Company; or
(viii) contravene, conflict with, or result in a violation, breach,
or acceleration of any provision of any employment agreement
between Seller and any employee of Seller.
Except as set forth in Schedule 3.2, neither Seller nor a Company is or will be
required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
Section 3.3 Capitalization. The authorized capital shares of Holding Company
consist solely of 1,500 common shares. The Shares constitute all of the
outstanding shares of Holding Company. Seller is and will be on the Closing Date
the record and beneficial owner and holder of all of the Shares of Holding
Company, free and clear of all Encumbrances. All of the Shares are duly
authorized, validly issued, fully paid and nonassessable, and were issued in
conformity with all applicable state and federal securities laws. Holding
Company has no other equity securities of any class issued, reserved for
issuance, or outstanding. There are no outstanding options, offers, warrants,
conversion rights, agreements, or other rights to subscribe for or to purchase
from Holding Company. No shares of Holding Company carry, and no shareholder of
Holding Company has been granted, any preemptive rights. Holding Company is not
obligated under any agreement, arrangement or understanding to redeem or
otherwise purchase any of its shares. Seller and SAH Acquisition are the record
and beneficial owners and holders of 99% and 1%, respectively, of the
outstanding membership interests of Operating Company, free and clear of all
Encumbrances. Other than as contemplated by this Agreement, there are no
Contracts relating to the issuance, sale, or transfer of any equity or other
securities of either Company. Neither Company owns, nor has a Contract to
acquire, any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business.
Section 3.4 Financial Statements.
(a) Since June 30, 1997, Seller has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC Documents"). A complete list of the
SEC Documents is set forth on Schedule 3.4. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act. None of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, Seller's financial statements included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with GAAP (except as may be otherwise indicated in such financial
statements or the notes thereto, or in the case of unaudited interim statements,
to the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of Seller as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of Seller to Buyer that is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading.
(b) Schedule 3.4(b) includes a statement of assets and liabilities of
the Network as of June 30, 2002 (the "Assets and Liabilities Statement"). The
Assets and Liabilities Statement was prepared in accordance with the books and
records of Seller (which are and have been maintained in accordance with GAAP,
consistently applied), were prepared in good faith in accordance with sound
internal accounting practices, consistently applied, subject to the assumptions
stated therein, and present fairly in all material respects the financial
condition of the Network at June 30, 2002.
Section 3.5 Books and Records. The books of account, minute books, stock record
books, and other records of Seller and each Company, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices. Seller maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorizations, (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
minute books of Seller and each Company contain accurate and complete records of
all meetings held of, and action taken by, the stockholders or members and Board
of Directors, managers, and committees thereof, and no meeting of any such
stockholders, members, Board of Directors, managers, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books except for certain meetings held after June 16, 2002 solely for the
purpose of considering the Contemplated Transactions (each of which will be
provided to Buyer as soon as they are available and in no event later than the
Closing). At the Closing, each Company will be in possession of all of its books
and records.
Section 3.6 Title to Properties; Encumbrances. Schedule 3.6 contains a complete
and accurate list of all real property, leaseholds, or other interests therein
owned or used by the Network. Seller has made available to Buyer all policies of
title insurance, surveys, deeds and other documents vesting title in or
containing restrictions on the ownership or use of any real property owned or
used by the Network. Seller or a Company owns (with good and marketable title in
the case of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that it purports to own located in the
facilities owned or operated by it or reflected as owned in its books and
records. Except as set forth on Schedule 3.6, all properties and assets of
Seller and each Company are free and clear of all Encumbrances and are not, in
the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, liens for current taxes
not yet due and with respect to real property, (a) minor imperfections of title,
if any, none of which is substantial in amount, materially detracts from the
value or impairs the use of the property subject thereto, or impairs the
operations of the Network, and (b) zoning laws and other land use restrictions
that do not impair the present or anticipated use of the property subject
thereto. All buildings, plants, and structures owned by Seller or a Company lie
wholly within the boundaries of the real property owned by such entity and do
not encroach upon the property of, or otherwise conflict with the property
rights of, any other Person.
Section 3.7 Condition and Sufficiency of Assets. The buildings, plants,
structures, and equipment constituting the Network Assets are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put, and none of such buildings, plants, structures, or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures, and equipment constituting the Network Assets are sufficient
for the continued conduct of the Companies' business after the Closing in
substantially the same manner as conducted by Seller prior to the Closing and
constitute all of the assets necessary to operate the Network as previously
operated by Seller.
Section 3.8 Accounts Receivable; Reserves for Returns and Charge Backs. All
accounts receivable of Seller that are reflected on the Network accounting
records of Seller as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current and collectible by the Companies, net of the
respective reserves shown on the accounting records of Seller. Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within 90 days after the day on which it first
becomes due and payable. There is no contest, claim, or right of set-off, other
than returns in the Ordinary Course of Business, under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Schedule 3.8 contains a complete and accurate list of all
Accounts Receivable as of June 30, 2002, which list sets forth the aging of such
Accounts Receivable. The reserves for returns shown on the Network accounting
records of Seller are adequate and calculated consistent with past practice.
Section 3.9 Inventory. All inventory of Seller relating to the Network consists
of a quality and quantity usable and salable in the Ordinary Course of Business,
except for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value on the Network
accounting records of Seller as of June 30, 2002. All inventories not written
off have been priced on an average cost basis. The quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of Seller.
Section 3.10 No Undisclosed Liabilities. Except as set forth in Schedule 3.10,
Seller has no liabilities or obligations of any nature (whether known or unknown
and whether absolute, accrued, contingent, or otherwise) related to the Network
except for liabilities or obligations reflected or reserved against on the face
of the Assets and Liabilities Statement and current liabilities incurred in the
Ordinary Course of Business since June 30, 2002.
Section 3.11 Taxes.
(a) Seller and the Companies have timely filed or caused to be timely filed all
Tax Returns that are or were required to be filed by or with respect to any of
them, either separately or as a member of a group of entities, pursuant to
applicable Legal Requirements and all Taxes owed by Seller and the Companies
have been timely paid. All such Tax Returns are true, correct and complete.
Seller has made available to Buyer copies of all such Tax Returns filed since
June 30, 1993. Schedule 3.11 contains a complete and accurate list of all income
Tax Returns filed since June 30, 1993. Seller and the Companies have paid, or
made provision for the payment of, all Taxes that have or may have become due
pursuant to all Tax Returns or otherwise, or pursuant to any assessment received
by Seller or a Company, except such Taxes, if any, as are listed in Schedule
3.11 and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the applicable
accounting records.
(b) The United States federal and state income Tax Returns of Seller and the
Companies subject to such Taxes have been audited by the IRS or relevant state
tax authorities or are closed by the applicable statute of limitations for all
taxable years through June 30, 1998. Schedule 3.11 contains a complete and
accurate list of all audits of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Schedule 3.11, are being contested in good faith by
appropriate proceedings. Schedule 3.11 describes all adjustments to the United
States federal and state income Tax Returns filed by Seller or a Company or any
group of corporations including Seller or a Company for all taxable years since
June 30, 1993, and the resulting deficiencies proposed by the IRS or state
authorities. Except as described in Schedule 3.11, neither Seller nor a Company
has given or been requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of Seller or a Company or for which
Seller or a Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the respective
books of Seller and each Company are adequate (determined in accordance with
GAAP) and are at least equal to Seller's and such Company's respective liability
for Taxes. There exists no proposed Tax assessment against Seller or either
Company except as disclosed in Schedule 3.11. All Taxes that Seller or a Company
is or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(d) Except as set forth on Schedule 3.11, (i) none of Seller or the Companies
has made with respect to Seller or the Companies, or any property held by the
Companies any consent under IRC ss.341(f), (ii) no property of the Companies is
"tax exempt use property" within the meaning of IRC ss.168(h), (iii) none of the
Companies is a party to any lease made pursuant to ss.168(f)(8) of the Internal
Revenue Code of 1954, and (iv) none of Seller or the Companies has agreed or is
required to make any adjustment under IRC ss.481(a) by reason of a change in
method of accounting or otherwise that will affect the liability of Seller or
the Companies for Taxes.
(e) Except as set forth on Schedule 3.11, Seller and the Companies have withheld
and paid all Taxes required by law to have been withheld and paid and have
complied in all respects with all rules and regulations relating to the
withholding or remittance of Taxes (including, without limitation,
employee-related Taxes).
(f) Except as set forth on Schedule 3.11, none of the Companies is a party to an
Contract or arrangement that, individually or collectively, would give rise to
any payment (whether in cash or property) that would not be deductible pursuant
to IRC ss.ss.162(a)(1), 162(m), 162(n) or 280G.
(g) None of Seller or the Companies is a foreign person within the meaning of
IRCss.1445.
(h) Except as set forth on Schedule 3.11, (i) none of Seller or the Companies is
a party to any Tax allocation, indemnity or sharing agreement; (ii) none of
Seller or the Companies has any liability for Taxes of any Person (A) under
Treasury Regulation ss.1.1502-6, (B) as transferee or successor, (C) by
Contract, or (D) otherwise; and (iii) neither Seller nor the Companies has been
a member of an affiliated group (as that term is defined in the IRC) filing a
consolidated federal income Tax return other than a group the common parent of
which was Seller.
Section 3.12 Employee Benefits.
(a) As used in this Section, the following terms have the following meanings:
"Company Other Benefit Obligation" means an Other Benefit Obligation
owed, adopted, or followed by Seller or an ERISA Affiliate.
"Company Plan" means all Plans of which Seller or an ERISA Affiliate is
or was a Plan Sponsor, or to which Seller or an ERISA Affiliate otherwise
contributes or has contributed, or in which Seller or an ERISA Affiliate
otherwise participates or has participated.
"ERISA Affiliate" means any other Person that, together with Seller,
would be treated as a single employer under IRC ss.414.
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary or wages, as compensation for services rendered, to present or
former directors, employees, or agents, other than obligations, arrangements,
and practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC ss.132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" is defined in ERISA ss.3(2)(A).
"Plan" is defined in ERISA ss.3(3).
"Plan Sponsor" is defined in ERISA ss.3(16)(B).
"Qualified Plan" means any Company Plan that meets or purports to meet
the requirements of IRC ss.401(a).
"Welfare Plan" is defined in ERISA ss.3(1).
(b) (i) Schedule 3.12(b)(i) contains a complete and
accurate list of (A) all ERISA Affiliates, and (B) all Plans
of which Seller or any such ERISA Affiliate is or was a Plan
Sponsor, in which Seller or any such ERISA Affiliate
participates or has participated, or to which Seller or any
such ERISA Affiliate contributes or has contributed.
Neither Seller nor any ERISA Affiliate has ever established,
maintained, or contributed to or otherwise participated
in, or had an obligation to maintain, contribute to, or
otherwise participate in, any voluntary employees' benefit
association under IRCss.501(c)(9), Pension Plan subject to
Title IV of ERISA or multi-employer plan as defined in
ERISAss.3(37)(A). Neither Company has or has ever had any
employees or sponsored any Plan or Other Benefit
Obligation.
(ii) Schedule 3.12(b)(ii) contains a complete and
accurate list of all Company Plans, Company Other Benefit
Obligations and identifies as such all Company Plans that are
defined benefit Pension Plans or Qualified Plans.
(iii) Schedule 3.12(b)(iii) sets forth a calculation
of Seller's liability for post-retirement benefits other than
pensions, made in accordance with Financial Accounting
Statement 106 of the Financial Accounting Standards Board,
regardless of whether Seller is required by Statement 106 to
disclose such information.
(iv) Schedule 3.12(b)(iv) sets forth the financial
cost of all obligations owed under any Company Plan or Company
Other Benefit Obligation that is not subject to the disclosure
and reporting requirements of ERISA.
(c) Seller has delivered to Buyer:
(i) all documents that set forth the terms of each Company Plan,
Company Other Benefit Obligation and of any related trust,
including (A) all plan descriptions and summary plan
descriptions of Company Plans for which Seller is required to
prepare, file, and distribute plan descriptions and summary
plan descriptions, and (B) all summaries and descriptions
furnished to participants and beneficiaries regarding Company
Plans and Company Other Benefit Obligations for which a plan
description or summary plan description is not required;
(ii) all personnel, payroll, and employment manuals and policies;
(iii) all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred
(including both pension and welfare benefits) by Seller and
the ERISA Affiliates, and all collective bargaining agreements
pursuant to which contributions are being made or obligations
are owed by such entities;
(iv) a written description of any Company Plan or Company Other
Benefit Obligation that is not otherwise in writing;
(v) all registration statements filed with respect to any Company
Plan;
(vi) all insurance policies purchased by or to provide benefits
under any Company Plan;
(vii) all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent
contractors that relate to any Company Plan and Company Other
Benefit Obligation;
(viii) all reports submitted within the four years preceding the date
of this Agreement by third party administrators, actuaries,
investment managers, consultants, or other independent
contractors with respect to any Company Plan or Company Other
Benefit Obligation;
(ix) all notifications to employees of their rights under
ERISAss.601 et seq. and IRCss.4980B;
(x) the Form 5500 filed in each of the most recent three plan
years with respect to each Company Plan, including all
schedules thereto and the opinions of independent accountants;
(xi) all notices that were given by Seller or any ERISA Affiliate
or any Company Plan to the IRS, PBGC, or any participant or
beneficiary, pursuant to statute, within the four years
preceding the date of this Agreement, including notices that
are expressly mentioned elsewhere in this Section 3.12;
(xii) all notices that were given by the IRS, PBGC, or the
Department of Labor to Seller, any ERISA Affiliate, or any
Company Plan within the four years preceding the date of this
Agreement; and
(xiii) the most recent determination letter for each Qualified Plan.
(d) Except as set forth in Schedule 3.12(d):
(i) Seller and each ERISA Affiliate have performed all of their
respective obligations under all Company Plans and Company
Other Benefit Obligations. Seller and each ERISA Affiliate
have made appropriate entries in their financial records and
statements for all obligations and liabilities under such
Plans and Obligations that have accrued but are not due.
(ii) No statement, either written or oral, has been made by Seller
or any ERISA Affiliate to any Person with regard to any Plan
or Other Benefit Obligation that was not in accordance with
the Plan or Other Benefit Obligation and that could have,
individually or in the aggregate, a material adverse economic
consequence to a Company or Buyer.
(iii) Seller and each ERISA Affiliate, with respect to all Company
Plans and Company Other Benefits Obligations are, and each
Company Plan and Company Other Benefit Obligation is, in full
compliance with ERISA, the IRC, and other applicable Legal
Requirements, including the provisions of such Legal
Requirements expressly mentioned in this Section 3.12, and
with any applicable collective bargaining agreement.
(iv) No transaction prohibited by ERISA ss.406 and no "prohibited
transaction" under IRC ss.4975(c) have occurred with respect
to any Company Plan with respect to which there is no
statutory or regulatory exemption.
(v) Seller has no liability to the IRS with respect to any Company
Plan, including any liability imposed by Chapter 43 of the
IRC.
(vi) Seller has no liability to the PBGC with respect to any
Company Plan or has any liability under ERISA ss.502 or
ss.4071.
(vii) All filings required by ERISA and the IRC as to each Company
Plan have been timely filed, and all notices and disclosures
to participants required by either ERISA or the IRC have been
timely provided.
(viii) All contributions and payments made or accrued with respect to
all Company Plans and Company Other Benefit Obligations are
deductible under IRC ss.162 or ss.404. No amount, or any asset
of any Company Plan is subject to tax as unrelated business
taxable income.
(ix) Each Company Plan can be terminated within 30 days, without
payment of any additional contribution or amount and without
the vesting or acceleration of any benefits promised by such
Plan.
(x) Since June 30, 1999, there has been no establishment or
amendment of any Company Plan or Company Other Benefit
Obligation.
(xi) No event has occurred or circumstance exists that could result
in a material increase in premium costs of Company Plans and
Company Other Benefit Obligations that are insured, or a
material increase in benefit costs of such Plans and
Obligations that are self-insured.
(xii) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding
involving, any Company Plan or Company Other Benefit
Obligation is pending or, to Seller's Knowledge, Threatened.
(xiii) No Company Plan is a stock bonus or pension plan within the
meaning of IRC ss.401(a).
(xiv) Each Qualified Plan is qualified in form and operation under
IRC ss.401(a); each trust for each such Qualified Plan is
exempt from federal income tax under IRC ss.501(a). No event
has occurred or circumstance exists that will or could give
rise to disqualification or loss of tax-exempt status of any
such Qualified Plan or trust.
(xv) Seller and each ERISA Affiliate has met the minimum funding
standard, and has made all contributions required, under ERISA
ss.302 and IRC ss.402.
(xvi) Seller and each ERISA Affiliate has paid all amounts due to
the PBGC pursuant to ERISA ss.4007.
(xvii) Neither Seller nor any ERISA Affiliate has filed a notice of
intent to terminate any Company Plan or has adopted any
amendment to treat a Company Plan as terminated. The PBGC has
not instituted proceedings to treat any Company Plan as
terminated. No event has occurred or circumstance exists that
may constitute grounds under ERISA ss.4042 for the termination
of, or the appointment of a trustee to administer, any Company
Plan.
(xviii) No amendment has been made, or is reasonably expected to be
made, to any Company Plan that has required or could require
the provision of security under ERISA ss.307 or IRC
ss.401(a)(29).
(xix) No accumulated funding deficiency, whether or not waived,
exists with respect to any Company Plan; no event has occurred
or circumstance exists that may result in an accumulated
funding deficiency as of the last day of the current plan year
of any Company Plan.
(xx) The actuarial report for each Pension Plan of Seller and each
ERISA Affiliate fairly presents the financial condition and
the results of operations of each such Pension Plan in
accordance with GAAP.
(xxi) Since the last valuation date for each Pension Plan of Seller
and each ERISA Affiliate, no event has occurred or
circumstance exists that would increase the amount of benefits
under any such Pension Plan or that would cause the excess of
Pension Plan assets over benefit liabilities (as defined in
ERISA ss.4001) to decrease, or the amount by which benefit
liabilities exceed assets to increase.
(xxii) No reportable event (as defined in ERISA ss.4043 and in
regulations issued thereunder) has occurred.
(xxiii) Seller has no Knowledge of any facts or circumstances that may
give rise to any liability of Seller, a Company or Buyer to
the PBGC under Title IV of ERISA.
(xxiv) Except to the extent required under ERISA ss.601 et seq. and
IRC ss.4980B, neither Seller nor any ERISA Affiliate provides
health or welfare benefits for any retired or former employee
nor is it obligated to provide health or welfare benefits to
any active employee following such employee's retirement or
other termination of service.
(xxv) Seller has the right to modify and terminate benefits to
retirees (other than Pension Plans) with respect to both
retired and active employees.
(xxvi) Seller has complied with the provisions of ERISAss.601 et seq.
and IRCss.4980B.
(xxvii) No payment that is owed or may become due to any director,
officer, employee, or agent of Seller will be non-deductible
to Seller or subject to tax under IRC ss.280G or ss.4999; nor
will Seller be required to "gross up" or otherwise compensate
any such Person because of the imposition of any excise tax on
a payment to such Person.
(xxviii) The consummation of the Contemplated Transactions will not
result in the payment, vesting, or acceleration of any benefit
under any Company Plan or Company Other Benefit Obligation,
nor will it trigger the payment of severance or termination
pay under any policy, plan, procedure, practice or agreement
to any employee of Seller.
(xxix) Seller is in material compliance with its obligations to its
employees under the Health Insurance Portability and
Accountability Act of 1996.
Section 3.13 Compliance; Governmental Authorizations.
(a) Except as set forth in Schedule 3.13(a):
(i) each of Seller and each Company is and at all times has been,
in full compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result
in a violation by Seller or a Company of, or a failure on the
part of Seller or a Company to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the
part of Seller or a Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature;
and
(iii) neither Seller nor a Company has received any notice or other
communication (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of Seller or a
Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
(b) Schedule 3.13(b) contains a complete and accurate list of each Governmental
Authorization that is held by Seller or each Company or that otherwise relates
to the business of, or to any of the assets owned or used by, the Companies.
Each Governmental Authorization listed or required to be listed in Schedule
3.13(b) is valid and in full force and effect. Except as set forth in Schedule
3.13(b):
(i) Seller and each Company is, and at all times has been, in full
compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be
identified in Schedule 3.13(b);
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result
directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental
Authorization listed or required to be listed in Schedule
3.13(b), or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Schedule
3.13(b);
(iii) neither Seller nor a Company has received any notice or other
communication (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with
any term or requirement of any Governmental Authorization, or
(B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the Governmental Authorizations listed or required to be
listed in Schedule 3.13(b) or the transfer of the Governmental
Authorizations listed or required to be listed in Schedule
3.13(b) from Seller or any of its subsidiaries to either
Company have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings
required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 3.13(b) collectively
constitute all of the Governmental Authorizations necessary to permit the
Companies to lawfully conduct and operate their business in the manner they
currently conduct and operate such business and to permit the Companies to own
and use their assets in the manner in which they currently own and use such
assets.
Section 3.14 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 3.14, there is no pending Proceeding:
(i) that has been commenced by or against Seller or a Company or
that otherwise relates to or may affect the business of, or
any of the assets owned or used by, the Companies; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any
of the Contemplated Transactions.
To Seller's Knowledge, no such Proceeding has been Threatened. Seller has made
available to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Schedule 3.14. Except as specifically
referenced in Schedule 3.14 as having a material adverse effect, the Proceedings
listed in Schedule 3.14 will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Companies.
(b) Except as set forth in Schedule 3.14:
(i) there is no Order to which a Company, or any of the assets
owned or used by the Companies, is subject;
(ii) Seller is not subject to any Order that relates to the
business of, or any of the assets owned or used by, the
Companies; and
(iii) no officer, director, agent, or employee of a Company is
subject to any Order that prohibits such Person from engaging
in or continuing any conduct, activity, or practice relating
to the business of the Companies.
(c) Except as set forth in Schedule 3.14:
(i) Each of Seller and each Company is, and at all times has been,
in full compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by
it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of
time) a violation of or failure to comply with any term or
requirement of any Order to which Seller or a Company, or any
of the assets owned or used by the Companies, is subject; and
(iii) neither Seller nor a Company has received any notice or other
communication (whether oral or written) from any Governmental
Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply
with, any term or requirement of any Order to which Seller or
a Company, or any of the assets owned or used by the
Companies, is or has been subject.
Section 3.15 Absence of Certain Changes and Events. Since June 30, 2001, except
as set forth on Schedule 3.15, there has not been any material adverse change in
the business, operations, properties, prospects, assets, or condition of Seller,
and no event has occurred or circumstance exists that may result in such a
material adverse change. Neither Seller nor either Company has taken any steps,
and none of them currently expect to take any steps, to seek protection pursuant
to any bankruptcy law nor does Seller or either Company have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact that would reasonably lead a
creditor to do so. Except as set forth in Schedule 3.15, since June 30, 2001,
Seller has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) payment or increase by Seller of any bonuses, salaries, or other
compensation to any director, officer, or (except in the Ordinary Course of
Business) employee or entry into any employment, severance, or similar Contract
with any director, officer, or (except in the Ordinary Course of Business)
employee;
(b) adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other employee benefit plan for or with any employees of Seller;
(c) damage to or destruction or loss of any asset or property owned or used by
the Network, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Network;
(d) entry into, termination of, or receipt of notice of termination of (i) any
license, distributorship, dealer, sales representative, joint venture, credit,
affiliation or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to Seller (as relates to the Network) of at
least $50,000 except in the Ordinary Course of Business;
(e) sale (other than sales of inventory in the Ordinary Course of Business),
lease, or other disposition of any asset or property owned or used by the
Companies or mortgage, pledge, or imposition of any Encumbrance on any material
asset or property owned or used by the Network;
(f) cancellation or waiver of any claims or rights with a value to Seller (as
relates to the Network) in excess of $50,000;
(g) material change in the accounting methods used by Seller; or
(h) agreement, whether oral or written, by Seller or a Company, as applicable,
to do any of the foregoing.
Section 3.16 Contracts; No Defaults.
(a) Schedule 3.16(a) contains a complete and accurate list, and Seller has
delivered to Buyer true and complete copies, of:
(i) each Contract relating to the business of the Network that
involves performance of services or delivery of goods or
materials by Seller or a Company of an amount or value in
excess of $50,000;
(ii) each Contract relating to the business of the Network that
involves performance of services or delivery of goods or
materials to Seller or a Company of an amount or value in
excess of $50,000;
(iii) each Contract relating to the business of the Network that was
not entered into in the Ordinary Course of Business and that
involves expenditures or receipts of Seller or a Company in
excess of $50,000;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract
relating to the business of the Network affecting the
ownership of, leasing of, title to, use of, or any leasehold
or other interest in, any real or personal property (except
personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of
less than $50,000 and with terms of less than one year);
(v) each licensing agreement or other Contract relating to the
business of the Network with respect to patents, trademarks,
copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure
of any Intellectual Property Assets;
(vi) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or
liabilities by Seller or a Company or with respect to the
Network business with any other Person;
(vii) each Contract containing covenants that in any way purport to
restrict the business activity of Seller or a Company or any
Affiliate of a Company or limit the freedom of Seller or a
Company or any Affiliate of a Company to engage in any line of
business or to compete with any Person;
(viii) each Contract providing for payments to or by any Person based
on sales, purchases, or profits, other than direct payments
for goods;
(ix) each power of attorney binding on Seller (as relates to the
Network) or a Company that is currently effective and
outstanding;
(x) each Contract entered into other than in the Ordinary Course
of Business that contains or provides for an express
undertaking by Seller (as relates to the Network) or a Company
to be responsible for consequential damages;
(xi) each Contract for capital expenditures by Seller or a Company
with respect to the Network business in excess of $50,000;
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended
by Seller or a Company with respect to the Network business
other than in the Ordinary Course of Business;
(xiii) each Contract that is a talent or programming Contract or in
any way obligates Seller to pay any royalty, residual, license
fee or other similar payment in respect of any third parties'
literary, artistic, trademark, copyright, music performance,
master use, synchronization and other similar intellectual
property rights and their publicity, privacy and publishing
rights; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth in Schedule 3.16(b), no officer, director, or employee
of Seller is bound by any Contract that purports to limit the ability of such
Person to (A) engage in or continue any conduct, activity, or practice relating
to the business of the Network, or (B) assign to a Company or to any other
Person any rights to any invention, improvement, or discovery.
(c) Except as set forth in Schedule 3.16(c), each Contract listed or required to
be listed in Schedule 3.16(a) is in full force and effect and is valid and
enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.16(d):
(i) each of Seller and each Company is and has been in full
compliance with all applicable terms and requirements of each
Contract listed or required to be listed in Schedule 3.16(a),
including, without limitation, all "most favored nations"
provisions of such Contracts;
(ii) each other party to each Contract listed or required to be
listed in Schedule 3.16(a) is, to Seller's Knowledge, in full
compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give Seller or
a Company or other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Contract listed or required to be listed in Schedule 3.16(a);
and
(iv) neither Seller nor a Company has given to or received from any
other Person, at any time since June 30, 1999, any notice or
other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach
of, or default under, any Contract listed or required to be
listed in Schedule 3.16(a), except for notices of violations,
breaches or defaults, the results of which would not result in
the ability for the other party to such Contract to exercise a
right or remedy that could have a material adverse effect on
Seller or the Company, as the case may be.
(e) To Seller's Knowledge, there are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any material amounts paid or
payable to a Company or with respect to the Companies' business under current or
completed Contracts with any Person and no such Person has made written demand
for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision of
products or services by the Companies have been entered into in the Ordinary
Course of Business and have been entered into without the commission of any act
alone or in concert with any other Person, or any consideration having been paid
or promised, that is or would be in violation of any Legal Requirement.
Section 3.17 Insurance.
(a) Seller has made available to Buyer true and complete copies of all policies
of insurance to which Seller or a Company is a party or under which Seller or a
Company, or any director, officer or manager of Seller or a Company, is or has
been covered at any time within the five years preceding the date of this
Agreement, copies of all pending applications for policies of insurance; and any
statement by the auditor of Seller's financial statements with regard to the
adequacy of such entity's coverage or of the reserves for claims.
(b) Schedule 3.17(b) sets forth, by year, for the current policy year and each
of the five preceding policy years a summary of the loss experience under each
policy and a statement describing each claim under an insurance policy for an
amount in excess of $10,000.
(c) Except as set forth on Schedule 3.17(c):
(i) All policies to which Seller or a Company is a party or that
provide coverage to Seller, a Company, or any director,
officer or manager of Seller or a Company (A) are valid,
outstanding and enforceable; (B) are issued by an insurer that
is financially sound and reputable; (C) taken together,
provide adequate insurance coverage for the assets and the
operations of the Network; (D) are sufficient for compliance
with all Legal Requirements and Contracts to which Seller or a
Company is a party or by which any of them is bound; (E) will
continue in full force and effect following the consummation
of the Contemplated Transactions; and (F) do not provide for
any retrospective premium adjustment or other
experienced-based liability on the part of Seller or a
Company.
(ii) Neither Seller nor a Company has received any refusal of
coverage or any notice that a defense will be afforded with
reservation of rights, or any notice of cancellation or any
other indication that any insurance policy is no longer in
full force or effect or will not be renewed or that the issuer
of any policy is not willing or able to perform its
obligations thereunder.
(iii) Each of Seller and each Company has paid all premiums due, and
has otherwise performed all of its obligations, under each
policy to which it is a party or that provides coverage to the
Companies or their business or any director, officer or
manager thereof.
(iv) Seller and the Companies have given notice to the insurer of
all material claims that may be insured thereby.
Section 3.18 Environmental Matters. Except as set forth in Schedule 3.18:
(a) Each of Seller and each Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law. Neither Seller nor either Company has or has any basis to
expect, nor has any of them or any other Person for whose conduct they are or
may be held to be responsible received, any actual or Threatened Order, notice,
or other communication from (i) any Governmental Body or private citizen acting
in the public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which Seller or a Company has or had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
Seller, a Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no Hazardous Materials present on or in the Environment at the
Facilities. None of Seller, either Company, or any other Person for whose
conduct they are or may be held responsible has permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real, personal, or mixed) in which Seller or
a Company has or had an interest except in full compliance with all applicable
Environmental Laws.
(c) There has been no Release or, to Seller's Knowledge, threat of Release, of
any Hazardous Materials at or from the Facilities or at any other locations
where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by the Facilities,
or from or by any other properties and assets (whether real, personal, or mixed)
in which Seller or a Company has or had an interest.
(d) Seller has delivered to Buyer accurate and complete copies and results of
any reports, studies, analyses, tests, or monitoring possessed or initiated by
Seller or a Company pertaining to Hazardous Materials or Hazardous Activities
in, on, or under the Facilities, or concerning compliance by Seller, a Company,
or any other Person for whose conduct they are or may be held responsible, with
Environmental Laws.
Section 3.19 Employees.
(a) Schedule 3.19 contains a complete and accurate list of the following
information for each employee of Seller relating to the Network, including each
employee on leave of absence or layoff status: name; job title; current
compensation paid or payable and any change in compensation since June 30, 2002;
vacation accrued; and service credited for purposes of vesting and eligibility
to participate under any Company Plan.
(b) No employee of Seller is a party to, or is otherwise bound by, any agreement
or arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee and any other Person (a "Proprietary
Rights Agreement") that in any way adversely affects or will affect (i) the
performance of his duties as an employee of Seller or, after the Closing, of a
Company, or (ii) the ability Seller or the Companies to conduct the Network
business, including any Proprietary Rights Agreement with Seller or a Company.
To Seller's Knowledge, no officer or other key employee of Seller intends to
terminate his employment.
Section 3.20 Labor Relations; Compliance. Since June 30, 1997, Seller has not
been and is not a party to any collective bargaining or other labor Contract.
Except as set forth on Schedule 3.20, since June 30, 1997, there has not been,
there is not presently pending or existing, and to Seller's Knowledge there is
not Threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting the Network relating
to the alleged violation of any Legal Requirement pertaining to labor relations
or employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting the Network, or (c) any
application for certification of a collective bargaining agent. To Seller's
Knowledge, no event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute by employees of Seller. There
is no lockout of any employees by Seller, and no such action is contemplated by
Seller. Seller has complied in all respects with all Legal Requirements relating
to employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safety and health, and plant closing. Seller is
not liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any
of the foregoing Legal Requirements.
Section 3.21 Intellectual Property.
(a) Intellectual Property Assets. As used in this Agreement, the term
"Intellectual Property Assets" includes:
(i) the name "Shop at Home", all fictional business names, trading
names, registered and unregistered trademarks, service marks,
and applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights in Mask
Works"); and
(v) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively,
"Trade Secrets")
in each case owned, used, or licensed by Seller as licensee or licensor.
(b) Agreements. Schedule 3.21(b) contains a complete and accurate list and
summary description, including any royalties paid or received by Seller, of all
Contracts relating to the Intellectual Property Assets to which Seller is a
party or by which Seller is bound, except for any license implied by the sale of
a product and perpetual, paid-up licenses for commonly available software
programs with a value of less than $25,000 under which Seller is the licensee.
There are no outstanding and, to Seller's Knowledge, no Threatened disputes or
disagreements with respect to any such Contract.
(c) Know-How Necessary for the Business. The Intellectual Property Assets are
all those necessary for the operation of the Network as it is currently
conducted. Seller is the owner of all right, title, and interest in and to each
of the Intellectual Property Assets, free and clear of all Encumbrances, and
Seller has the right to use without payment to a third party all of the
Intellectual Property Assets. Notwithstanding the foregoing, Buyer acknowledges
that Seller has not applied for a trademark or servicemark registration for the
name "Shop At Home"; provided, however that nothing contained in this sentence
will be deemed to abrogate Seller's representation with respect to such Mark as
set forth in Section 3.21(e)(v).
(d) Patents. Except for commercially available software applications and as
disclosed on Schedule 3.21(d), Seller does not own or use any Patents relating
to the Network.
(e) Marks.
(i) Schedule 3.21(e) contains a complete and accurate list and
summary description of all Marks. Seller is the owner of all
right, title, and interest in and to each of the Marks, free
and clear of all Encumbrances.
(ii) All Marks that have been registered with the U.S. Patent and
Trademark Office are currently in compliance with all formal
legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject
to any maintenance fees or Taxes or actions falling due within
90 days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to Seller's Knowledge, no
such action is Threatened with the respect to any of the
Marks.
(iv) To Seller's Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) Except as Schedule 3.21, no Mark is infringed or, to Seller's
Knowledge, has been challenged or threatened in any way. None
of the Marks used by Seller infringes or is alleged to
infringe any trade name, trademark, or service mark of any
third party.
(vi) All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
(f) Copyrights.
(i) Schedule 3.21(f) contains a complete and accurate list and
summary description of all Copyrights. Seller is the owner of
all right, title, and interest in and to each of the
Copyrights, free and clear of all Encumbrances.
(ii) All the Copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and
enforceable, and are not subject to any maintenance fees or
Taxes or actions falling due within 90 days after the date of
Closing.
(iii) No Copyright is infringed or, to Seller's Knowledge, has been
challenged or threatened in any way. None of the subject
matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative
work based on the work of a third party.
(iv) All works encompassed by the Copyrights have been marked with
the proper copyright notice.
(g) Trade Secrets.
(i) With respect to each Trade Secret, the documentation relating
to such Trade Secret is current, accurate, and sufficient in
detail and content to identify and explain it and to allow its
full and proper use without reliance on the knowledge or
memory of any individual.
(ii) Seller has taken all reasonable precautions to protect the
secrecy, confidentiality, and value of its Trade Secrets.
(iii) Seller has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets used by it related
to the Network. The Trade Secrets are not part of the public
knowledge or literature, and, to Seller's Knowledge, have not
been used, divulged, or appropriated either for the benefit of
any Person (other than Seller or a Company) or to the
detriment of the Network. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.
Section 3.22 Certain Payments. Since June 30, 1997, neither Seller nor a Company
or any director, officer, member, manager, agent, or employee of Seller or a
Company, or to Seller's Knowledge, any other Person associated with or acting
for or on behalf of Seller or a Company, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of Seller or a Company or any Affiliate of Seller or a Company, or (iv)
in violation of any Legal Requirement, or (b) established or maintained any fund
or asset that has not been recorded in the books and records of Seller or a
Company.
Section 3.23 FCC Licenses; Operations of Licensed Facilities. Seller and its
subsidiaries have operated the television stations for which any of them hold
licenses from the FCC, in each case which are owned or operated by Seller or its
subsidiaries (the "Licensed Facilities"), in material compliance with the terms
of the licenses issued by the FCC to Seller or any subsidiary (the "FCC
Licenses"), and in material compliance with the Communications Act. Seller has,
and each of its subsidiaries has, timely filed or made all applications, reports
and other disclosures required by the FCC to be made with respect to the
Licensed Facilities and has timely paid all FCC regulatory fees with respect
thereto. Seller and each of its subsidiaries have, and are the authorized legal
holders of, all FCC Licenses necessary or used in the operation of the business
of Seller and the Companies as presently operated. All FCC Licenses are validly
held and are in full force and effect, unimpaired by any act or omission of
Seller, any of its subsidiaries (or, to Seller's Knowledge, their respective
predecessors) or their respective officers, managers, employees or agents.
Except as set forth in Schedule 3.23, no application or Proceeding is pending
for the renewal of any FCC License and, to Seller's Knowledge, there is not
before the FCC any Proceeding, notice of violation or order of forfeiture
relating to any Licensed Facility, and Seller has no Knowledge of any basis that
could reasonably be expected to cause the FCC not to renew any FCC License
(other than Proceedings to amend FCC rules or the Communications Act of general
applicability to the television broadcast industry). There is not pending and,
to Seller's Knowledge, there is not Threatened, any action by or before the FCC
to revoke, suspend, cancel, rescind, fail to renew, or modify in any material
respect any FCC License (other than Proceedings to amend FCC rules or the
Communications Act of general applicability to the television broadcast
industry).
Section 3.24 Subscribers. Seller has an Existing Subscriber Base (as hereinafter
defined) of at least 42 million FTE Subscribers represented by existing
Affiliation Agreements or carriage agreements, each of which is in full force
and effect and is the legal, valid and binding obligation of Seller and, to
Seller's Knowledge, the other parties thereto. Schedule 3.24 contains a summary
of each oral carriage agreement to which Seller or a subsidiary of Seller is a
party. "Existing Subscriber Base" means FTE Subscribers pursuant to oral or
written carriage agreements with Seller or its subsidiaries. "FTE Subscriber"
means one Subscriber who receives the Shop At Home Network on a full-time basis,
calculated on a basis consistent with that historically calculated by Seller by
estimating the number of full-time households that receive the Shop At Home
Network and derived by adding (a) the number of actual full-time households and
(b) a number calculated under the assumption that part-time households had been
combined into full-time households in accordance with a formula, as set forth
more fully on Schedule 3.24, that considers the number of hours carried and
gives weight to the amount of sales historically made by Seller during such
hours.
Section 3.25 Affiliation and Programming Agreements.
(a) Affiliation Agreements. Schedule 3.25(a) sets forth an accurate and complete
list of, and a schedule of payments with respect to, all Contracts with cable
system operators and satellite televisions system operators relating to carriage
of the Network (the "Affiliation Agreements") and the number of Subscribers
served by each such operator. Except as disclosed on Schedule 3.25(a), none of
the Affiliation Agreements contains any "most favored nations" provisions and
none of the Affiliation Agreements purports to be binding on any Affiliates of
Seller or the Companies or any successor in interest to any of them. Except as
disclosed on Schedule 3.25(a), Seller has not received any notice that any such
cable system operator or satellite television system operator (i) has canceled
or terminated, or has a specific intention to cancel or terminate, any
Affiliation Agreement, or (ii) has a specific intention to effect a planned
reduction in the number of Subscribers covered by any Affiliation Agreement,
other than any Affiliation Agreement representing less than 10,000 FTE
Subscribers. All Affiliation Agreements are valid, binding and in full force and
effect, enforceable by Seller in accordance with their terms. Except as
disclosed on Schedule 3.25(a), Seller has performed all obligations required to
be performed by it to date under the Affiliation Agreements and Seller is not
(with or without the lapse of time or the giving of notice, or both) in breach
or default in any respect thereunder and, to Seller's Knowledge, no other party
to any of the Affiliation Agreements is (with or without the lapse of time or
the giving of notice, or both) in breach or default in any respect thereunder.
(b) Programming Agreements. Schedule 3.25(b) sets forth an accurate and complete
list of, and a schedule of payments with respect to, all Contracts with third
parties relating to the Programming Assets (the "Programming Agreements").
Except as disclosed on Schedule 3.25(b), Seller has not received any notice that
any other party to the Programming Agreements (i) has canceled or terminated, or
has a specific intention to cancel or terminate, any Programming Agreement, or
(ii) has a specific intention to effect a planned alteration or modification of
the Programming Assets that are the subject matter of any Programming Agreement.
All Programming Agreements are valid, binding and in full force and effect,
enforceable by Seller in accordance with their terms. Except as disclosed on
Schedule 3.25(b), Seller has performed all obligations required to be performed
by it to date under the Programming Agreements and Seller is not (with or
without the lapse of time or the giving of notice, or both) in breach or default
in any respect thereunder and, to Seller's Knowledge, no other party to any of
the Programming Agreements is (with or without the lapse of time or the giving
of notice, or both) in breach or default in any respect thereunder.
Section 3.26 Transponder Contracts. Schedule 3.26 sets forth (a) a list of, and
a schedule of payments in respect of, all Contracts to which Seller or a Company
is a party that relate to transponders for the Network and (b) a description of
any ongoing discussion Seller is conducting with any third person or entity with
respect thereto.
Section 3.27 Network Rights. Except as disclosed on Schedule 3.27, (a) none of
the execution and delivery of this Agreement, the consummation by Seller of the
Contemplated Transactions or the compliance by Seller with any of the provisions
hereof will result in the creation or imposition of any Encumbrance upon, or
give to any other party or parties any claim, interest or right, including
rights of termination or cancellation in or with respect to (i) any Network
Intangible Rights or (ii) any rights, releases, clearances or licenses granted
by third parties (A) with respect to their Third-Party Intangible Rights in any
Programming Assets, Promotional Assets, or other Network Intangible Rights
(collectively, "Network Rights") and (B) appearing on or performing services in
connection with the operation of the Network and exhibition and syndication of
its Network Rights; (b) other than in the ordinary course and scope of business,
neither Seller nor any director, officer or employee of Seller has done
anything, by Contract or otherwise, which could reasonably be expected to impair
the rights of Seller (or, after the Closing, the Companies) in the Network
Rights; (c) Seller is the owner of the Network Rights, and the Network Rights
are in full force and effect and not subject to cancellation for any reason; (d)
there are no registrations for the Network Rights in any country outside the
United States; (e) Seller has not done or authorized, caused or permitted to be
done any action or omission that conflicts with Seller's ownership of the
Network Rights; (f) neither Seller nor either Company is a party to or bound
under any, and there is no pending, proposed, or, to Seller's Knowledge,
Threatened certificate, claim, lien, Contract, instrument, Order, or other
restriction, which adversely affects, or reasonably could be expected to
adversely affect, any or all of the Network Rights, or any rights of Seller or a
Company with respect to the Network Rights now or following the consummation of
the transactions contemplated by this Agreement; (g) neither Seller nor a
Company has infringed upon or unlawfully used any intellectual property owned or
claimed by another; (h) to Seller's Knowledge, no person or entity is infringing
on any right of Seller with respect to any Network Rights; and (i) Seller has
not received any notice of any claim of infringement or any other claim or
proceeding relating to any Network Rights, and no Affiliate or employee of
Seller owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, in any Network Rights. The Network does not use
any licensed music with respect to its programming.
Section 3.28 Website. With respect to shopathometv.com, Seller (a) has obtained
and presently possesses all legal rights to exclusive use of the required
Universal Resource Locator ("URL") under the shopathometv.com, .org and .net
domains and shall promptly obtain identical URLs at the .biz and .info domains;
(b) has applied for appropriate Trademark registrations for the URL; (c)
maintains what it believes are adequate computer resources to help ensure that
no service outages will occur due to insufficient data-storage, memory, server
or other related reasons; and (d) has in place a plan to permit and accommodate
anticipated increases in traffic levels (e.g., additional servers, hardware,
software and/or personnel).
Section 3.29 Relationships with Affiliates. Neither Seller nor any Affiliate of
Seller or a Company has, or since June 30, 1999 has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to the Companies' business. Neither Seller nor any
Affiliate of Seller or of a Company is, or since June 30, 1999 has owned (of
record or as a beneficial owner) an equity interest or any other financial or
profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with Seller or a Company other than
business dealings or transactions conducted in the Ordinary Course of Business
with Seller or a Company at substantially prevailing market prices and on
substantially prevailing market terms, or (ii) engaged in competition with
Seller or a Company with respect to the Companies' business. Except as set forth
in Schedule 3.29, neither Seller nor any Affiliate of Seller or of a Company is
a party to any Contract with, or has any claim or right against, a Company.
Section 3.30 Proxy Statement. Other than information supplied in writing by
Buyer and its Affiliates for inclusion in the Proxy Statement, with respect to
which Seller gives no representation, the Proxy Statement will not on the date
the Proxy Statement is first mailed to shareholders of Seller or at the time of
the Shareholders Vote, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, omits to state any material fact necessary in order to make
such statements made in the Proxy Statement not false or misleading, or omits to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Shareholders
Meeting which has become false or misleading. If at any time prior to the
Shareholders Vote, any event relating to Seller or any of its Affiliates that
should be set forth in a supplement to the Proxy Statement is discovered by
Seller, Seller shall promptly inform Buyer thereof.
Section 3.31 Customers and Vendors. Schedule 3.31 lists the top ten vendors of
products to Seller during the fiscal year ended June 30, 2002, and the amount
purchased from such vendors during the fiscal years ended June 30, 2002 and June
30, 2001. Schedule 3.31 lists the top ten customers of products from Seller
during the fiscal year ended June 30, 2002.
Section 3.32 Brokers or Finders. Except for Friedman, Billings, Ramsey & Co.,
Inc., neither Seller nor a Company has incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions,
fairness opinion, or other similar payment in connection with this Agreement and
Seller shall indemnify and hold Buyer and the Companies harmless from any
such payment alleged to be due by or through Seller or a Company as a result of
Seller's or such Company's action.
Section 3.33 Disclosure. No representation or warranty of Seller in this
Agreement (including the Schedules) omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they were made, not misleading. There is no fact known to Seller that has
specific application to Seller or the Companies (other than general economic or
industry conditions) and that materially adversely affects or, as far as Seller
can reasonably foresee, materially threatens, the assets, business, prospects,
financial condition, or results of operations of the Companies that has not been
set forth in this Agreement or the Schedules.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware.
Section 4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Transaction Documents to which it is a
party, such Transaction Documents will constitute the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Transaction Documents to
which it is a party and to perform its obligations hereunder and thereunder.
(b) Neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated Transactions by Buyer
will give any Person the right to prevent, delay, or otherwise interfere with
any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may
be bound.
Buyer is not and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
Section 4.3 Investment Intent; Financial Capability. Buyer is acquiring the
Shares for its own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act. Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D. Buyer has
the financial ability to consummate the Contemplated Transactions.
Section 4.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
Section 4.5 Proxy Statement Preparation. The information supplied in writing by
Buyer for inclusion in the Proxy Statement will not, on the date the Proxy
Statement is first mailed to shareholders of Seller or at the time of the
Shareholders Vote, contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, omits to state any material fact necessary in order to make such
statements made in the Proxy Statement not false or misleading, or omits to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Shareholders
Meeting which has become false or misleading. If at any time prior to the
Shareholders Vote, any event relating to Buyer or any of its Affiliates that
should be set forth in the supplement to the Proxy Statement is discovered by
Buyer, Buyer shall promptly inform Seller thereof.
Section 4.6 Brokers or Finders. Except for Allen & Company, Incorporated, Buyer
has incurred no obligation or liability, contingent or otherwise, for brokerage
or finders' fees or agents' commissions or other similar payment in connection
with this Agreement and shall indemnify and hold Seller harmless from any such
payment alleged to be due by or through Buyer as a result of Buyer's action.
ARTICLE V. COVENANTS OF SELLER PRIOR TO CLOSING DATE
Section 5.1 Access and Investigation. Between the date of this Agreement and the
Closing Date, Seller shall, and shall cause the Companies and their
Representatives to, (a) afford Buyer and its Representatives and, if applicable,
prospective lenders and their Representatives (collectively, "Buyer's Advisors")
full and free access to the Companies' personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data,
(b) furnish Buyer and Buyer's Advisors with copies of all such contracts, books
and records, and other existing documents and data as Buyer reasonably requests,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer reasonably requests.
Section 5.2 Operation of the Business of the Network. Between the date of this
Agreement and the Closing Date, Seller shall, and shall cause the Companies to:
(a) conduct its business only in the Ordinary Course of Business;
(b) use its best efforts to preserve intact its current business organization,
keep available the services of its current officers, employees, and agents, and
maintain the relations and goodwill with suppliers, customers, landlords,
creditors, employees, agents, Network affiliates, advertisers and others having
business relationships with it;
(c) confer with Buyer concerning operational matters of a material nature; and
(d) otherwise report periodically to Buyer, at Buyer's reasonable request,
concerning the status of its business, operations, and finances.
Without limiting the foregoing, Seller shall maintain sufficient cash on hand to
timely make required payments with respect to its indebtedness for borrowed
money. Notwithstanding anything to the contrary contained in this Section 5.2,
immediately prior to the Closing (or earlier upon consent of Seller's senior
lender and Buyer), Seller shall transfer the Network Assets and Network
Liabilities to Holding Company or Operating Company, as Buyer and Seller shall
mutually agree. Furthermore, notwithstanding anything to the contrary contained
in this Section 5.2, Operating Company may make a distribution to its members of
$3,000,000. In no event will Seller permit the net working capital deficit of
Operating Company at the Closing to be greater than $4,800,000 without obtaining
Buyer's prior consent, which consent will not be unreasonably withheld. As used
in the previous sentence, "net working capital" means (a) cash, cash
equivalents, inventories and trade receivables, net of applicable reserves,
computed in accordance with GAAP, minus (b) trade payables and accrued wages,
computed in accordance with GAAP.
Section 5.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Seller shall
not, and shall cause the Companies not to, without Buyer's prior consent, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in Section
3.15 is likely to occur.
Section 5.4 Notification. Between the date of this Agreement and the Closing
Date, Seller shall promptly notify Buyer in writing if Seller or a Company
becomes aware of any fact or condition that causes or constitutes a breach of
any of Seller's representations and warranties as of the date of this Agreement,
or if Seller or a Company becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly contemplated
by this Agreement) cause or constitute a breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. During the same period,
Seller shall promptly notify Buyer of the occurrence of any breach of any
covenant of Seller in this Article V or of the occurrence of any event that may
make the satisfaction of the conditions in Article VIII impossible or unlikely.
Section 5.5 Reasonable Best Efforts. Between the date of this Agreement and the
Closing Date, Seller shall use its reasonable best efforts to cause the
conditions in Articles VIII and IX to be satisfied.
Section 5.6 No Solicitation. During the term of this Agreement, Seller (a) shall
not, directly or indirectly, and shall not authorize or permit its officers,
directors, employees, affiliates, agents or advisors or other Representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing non-public information), or take any other
action to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) that
constitutes, or may reasonably be expected to lead to, any Third-Party
Transaction (as hereinafter defined), or enter into or maintain or continue
discussions or negotiate with any person or entity regarding a Third-Party
Transaction, or agree to or endorse any Third-Party Transaction; (b) shall
notify Buyer promptly if any written proposal or offer regarding a Third-Party
Transaction is made; (c) shall immediately cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to a Third-Party Transaction; and (d) shall not release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which Seller is a party. Seller shall promptly notify Buyer in writing if it
receives any written proposal or offer relating to a Third-Party Transaction,
and Seller shall inform such inquiring person or entity of the existence of this
provision and make such person or entity aware of Seller's obligations
hereunder. Notification hereunder must include the identity of the person or
entity making such offer or other proposal, the terms thereof, and any other
information with respect thereto as Buyer reasonably requests. Notwithstanding
the foregoing, (y) Seller may engage in discussions and negotiations, enter into
agreements, and conclude transactions with Castle Creek Partners, Capital Works
Group and the Dickey family with respect to possible non-voting preferred equity
investments (pari passu or junior to Seller's Series D Senior Redeemable
Preferred Stock) by such third parties in Seller unrelated to the Contemplated
Transactions; provided that Seller shall keep Buyer information regarding all
developments with respect thereto and (z) Seller may, with notice to Buyer,
discuss with any third party proposals for the potential acquisition of one or
more of Seller's broadcast television stations (exclusive of the Network
business) but Seller may not enter into agreements in respect of such
discussions without Buyer's written consent; provided that in no event shall any
such transaction be inconsistent with or impair the benefit to Buyer of the
Contemplated Transactions. For purposes hereof, a "Third-Party Transaction"
means any of the following involving Seller (other than the Contemplated
Transactions and other than as set forth in the previous sentence): (a) a
merger, consolidation, share exchange, business combination or other similar
transaction; (b) any sale, lease, exchange, transfer or other disposition of 10%
or more of the assets of Seller; (c) a tender offer or exchange offer for, or
any other acquisition of, 10% or more of the outstanding voting securities of
Seller; or (d) any issuance, sale or grant of any shares of, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of Seller.
Section 5.7 Preparation of Proxy Statement.
(a) As soon as practicable after the execution of this Agreement,
Seller shall prepare and cause to be filed with the SEC preliminary proxy
materials (the "Proxy Statement") for the solicitation of approval of the
shareholders of Seller of (i) the Contemplated Transactions and (ii) the
amendment of Seller's amended and restated charter to change its corporate name
to one which is not the same as or similar to its present name or any other
trademark or trade style or name now or then used by Operating Company
(collectively, the "Shareholder Approval") and for the election of directors and
such other matters as Seller and Buyer may reasonably agree. Subject to
compliance by Buyer with its covenants in this Section 6.3, Seller shall cause
the Proxy Statement related thereto to materially comply with applicable law and
the rules and regulations promulgated by the SEC, to respond promptly to any
comments of the SEC or its staff and Seller shall use reasonable best efforts to
cause the Proxy Statement to be mailed to Seller's shareholders as promptly as
practicable. Each party shall promptly furnish to the other party all
information concerning itself, its shareholders and its affiliates that may be
required or reasonably requested in connection with any action contemplated by
this Section. If any event relating to any party occurs, or if any party becomes
aware of any information, that should be disclosed in an amendment or supplement
to the Proxy Statement, then such party shall inform the other thereof and shall
cooperate with each other in filing such amendment or supplement with the SEC
and, if appropriate, in mailing such amendment or supplement to the shareholders
of Seller. The Proxy Statement shall include the recommendations of the Board of
Directors of Seller in favor of Shareholder Approval. Buyer and its advisors
shall have a reasonable opportunity to review and comment on the proxy materials
prior to any filing with the SEC.
(b) Seller will notify Buyer promptly of the receipt of any comments
from the SEC or its staff or any other government official and of any requests
by the SEC or its staff or any other government official for amendments or
supplements to the Proxy Statement or for additional information, and will
supply Buyer with copies of all such comments and any correspondence between
Seller and its representatives, and the SEC or its staff or any other government
official with respect thereto. If at any time prior to the Closing Date, any
event shall occur that should be set forth in an amendment of, or a supplement
to, the Proxy Statement, Seller agrees promptly to prepare and file such
amendment or supplement and to distribute such amendment or supplement as
required by applicable law, including mailing such supplement or amendment to
the shareholders of Seller. Buyer and its advisors shall have a reasonable
opportunity to review and comment on any amendment or supplement to the Proxy
Statement prior to any filing with the SEC.
Section 5.8 Shareholders Meeting. Seller shall take all action necessary in
accordance with applicable law and its amended and restated charter, as amended,
and its bylaws, and use its best efforts, to (a) on the date hereof, set a
record date of September 9, 2002 for a meeting of Seller's shareholders (the
"Shareholders Meeting") to provide for the vote of Seller's shareholders (the
"Shareholders Vote") with respect to the matters subject to Shareholder Approval
and with respect to the other matters to be voted upon pursuant to Section 5.7,
(b) on the date hereof, call and publicly announce such Shareholders Meeting and
such record date, and (c) hold and convene the Shareholders Meeting. The date of
the Shareholders Meeting will be October 16, 2002 unless the parties otherwise
agree to another date. Except as required by the SEC or applicable court order,
Seller shall not postpone or adjourn (other than for the absence of a quorum)
the Shareholders Meeting without the consent of Buyer. Seller shall take all
other action necessary or advisable to secure the Shareholder Approval.
Section 5.9 Approval for Transfer of Network Assets and Network Liabilities. As
soon as practicable after the date hereof, Seller shall request the consent of
its senior lender to transfer the Network Assets and the Network Liabilities to
Holding Company or Operating Company and to transfer a portion of Seller's
membership in Operating Company representing 87.5% of the outstanding membership
interests to Holding Company and Seller shall use best efforts to obtain such
consent; provided, however, that if obtaining such consent requires the payment
of money other than the actual expenses of the lender with respect thereto,
including reasonable attorneys' fees, then Seller shall first obtain Buyer's
consent with respect thereto.
ARTICLE VI. COVENANTS OF BUYER PRIOR TO CLOSING DATE
Section 6.1 Reasonable Best Efforts. Between the date of this Agreement and the
Closing Date, Buyer shall use its reasonable best efforts to cause the
conditions in Articles VIII and IX to be satisfied.
Section 6.2 Preparation of Proxy Statement. None of the information to be
supplied by Buyer or its Affiliates for inclusion in the Proxy Statement will,
at the time the Proxy Statement is mailed to the shareholders of Seller, or as
of the Shareholders Vote, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As to all matters respecting Buyer and its
Affiliates, the Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act, and the rules and regulations
promulgated by the SEC thereunder.
Section 6.3 Loan to Operating Company. Immediately prior to the Closing and upon
Operating Company's execution of that certain Secured Promissory Note in the
original amount of $35,000,000 and the security documents required by Buyer in
connection therewith, Buyer shall make Operating Company a loan under such Note
in at least an amount such that Operating Company has, together with its cash
already on hand, cash equal to $3,000,000 in readily available funds.
ARTICLE VII. MISCELLANEOUS COVENANTS
Section 7.1 Section 338(h)(10) Election. Seller will join with Buyer in making
an election under IRC ss.338(h)(10) (and an election corresponding to IRC
ss.338(h)(10) or ss.338(g) under state, local and foreign tax law to the extent
necessary to achieve a tax basis step-up in the Company's assets) with respect
to the purchase by Buyer from Seller of the Shares (a "Section 338(h)(10)
Election"). Buyer and Seller shall report the Contemplated Transactions in a
manner consistent with the Section 338(h)(10) Election. Neither Seller nor Buyer
shall take any action that is inconsistent with the Section 338(h)(10) Election
or its validity under the IRC and the applicable Treasury Regulations. Buyer
shall deliver to Seller, Buyer's calculation of the aggregate deemed sales
price, the adjusted grossed-up basis and the allocation of the adjusted
grossed-up basis among the assets of the Company in accordance with the
principles of Treasury Regulations ss.1.338-6. Buyer shall prepare and file Form
8023 and such other documents required in connection with the Section 338(h)(10)
Election. Seller, Holding Company and Buyer shall cooperate fully with each
other and make available to each other such Tax data and other information as
may be reasonably required by Seller or Buyer in order for Buyer to timely file
the Section 338(h)(10) Election and any other required statements or schedules
(or any amendments or supplements thereto) and compute the aggregate deemed sale
price and the adjusted grossed-up basis in accordance with the Treasury
regulations.
Section 7.2 Required Approvals. As promptly as practicable after the date of
this Agreement, Buyer and Seller shall, and Seller shall cause the Companies to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions. Between the date of this Agreement and
the Closing Date, Buyer and Seller shall, and Seller shall cause the Companies
to, cooperate with each other with respect to all filings that the other elects
to make or is required by Legal Requirements to make in connection with the
Contemplated Transactions.
Without limiting the generality of the foregoing, Seller and Buyer shall
promptly make and effect all registrations, filings and submissions required to
be made or effected by them pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and other applicable Legal
Requirements with respect to this Agreement and the other Transaction Documents
and the Contemplated Transactions. Each of Seller and Buyer shall bear one-half
of the cost of such filing. Without limiting the generality of the foregoing,
each of Buyer and Seller shall (a) promptly provide all information requested by
any Governmental Body in connection with this Agreement and the other
Transaction Documents and the Contemplated Transactions, and (b) promptly take
all actions and steps necessary to obtain any antitrust clearance or similar
clearance required to be obtained from the Federal Trade Commission, the
Antitrust Division of the Department of Justice, any state attorney general, any
foreign competition authority or any other governmental entity in connection
with the Contemplated Transactions. The actions required to be taken by Buyer
and Seller pursuant to this Section in order to obtain required antitrust
clearances will include using reasonable efforts to avoid or set aside any
preliminary or permanent injunction or other Order but do not include making
arrangements for the disposition of particular assets and making arrangements to
hold such assets separate pending their disposition.
Without limiting the generality of the foregoing, each party hereto shall (a)
give the other party prompt notice of the commencement of any Proceeding by or
before any Governmental Body with respect to this Agreement or the other
Transaction Documents or any of the Contemplated Transactions, (b) keep the
other party informed as to the status of any such Proceeding, and (c) promptly
inform the other party of any communication to or from the Federal Trade
Commission, the Antitrust Division of the Department of Justice, or any other
Governmental Body regarding this Agreement or the Contemplated Transaction.
Section 7.3 FCC Actions. Seller and Buyer shall (i) promptly make any
submissions required under the FCC's rules or the Communications Act or
requested by the FCC or its staff; (ii) use reasonable efforts to cooperate with
one another in (A) determining whether any filings are required to be made with,
or consents, authorizations or approvals are required to be obtained from the
FCC in connection with the execution, delivery and performance of the
Transaction Documents, and (B) timely make all such filings and timely seek all
such consents, authorizations or approvals; and (iii) take, or cause to be
taken, all other actions and do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective the transactions
contemplated hereby, including, without limitation, taking or undertaking all
such further action as may be necessary to resolve such objections, if any, as
the FCC, may assert under communications laws with respect to the Contemplated
Transactions. Any fee payable to the FCC in connection with such filing will be
borne one-half by Seller and one-half by Buyer.
Section 7.4 Amendment to Holding Company Articles. If the Closing occurs prior
to November 6, 2002, Seller hereby agrees to vote its shares in Holding Company
in favor of an amendment to Holding Company's Articles of Incorporation to
eliminate cumulative voting.
Section 7.5 Access to Records. For a period of three years following the Closing
Date, Buyer shall provide, or shall cause Operating Company or Holding Company
to provide, to Seller reasonable access to or copies of any files, records,
books of account, computer programs and software, data and other records which
were a part of the Network Assets, which Seller reasonably believes are
necessary or advisable for tax reporting or other business purposes.
ARTICLE VIII. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the
other actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
Section 8.1 Accuracy of Representations. Each of Seller's representations and
warranties in this Agreement must have been accurate as of the date of this
Agreement, and must be accurate as of the Closing Date as if made on the Closing
Date.
Section 8.2 Seller's Performance.
Each of the covenants and obligations that Seller is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing must have been
duly performed and complied with in all material respects.
Section 8.3 Consents. Each of the Consents identified in Schedule 3.2 must have
been obtained and must be in full force and effect.
Section 8.4 Additional Documents. Each of the following documents must have
been delivered to Buyer:
(a) certificates representing the Shares, issued in the name of Buyer or duly
endorsed for transfer;
(b) a certificate executed by Seller certifying to Buyer that each of Seller's
representations and warranties in this Agreement was accurate in all respects as
of the date of this Agreement and is accurate in all respects as of the Closing
Date as if made on the Closing Date;
(c) an opinion of Bone McAllester Norton PLLC, dated the Closing Date, in the
form of Exhibit 8.4(c);
(d) the Operating Company LLC Agreement, in the form of Exhibit 8.4(d), executed
by all of the parties thereto;
(e) the Shareholder Agreement, in the form of Exhibit 8.4(e), executed by Seller
and Holding Company;
(f) the Affiliation Agreement, in the form of Exhibit 8.4(f), executed by the
parties thereto;
(g) the Participation Agreement, in the form of Exhibit 8.4(g), executed by
Seller;
(h) the Loan and Security Agreement, in the form of Exhibit 8.4(h), executed by
the parties thereto (other than The E.W. Scripps Company);
(i) the Tax Sharing Agreement, executed by Buyer and Holding Company;
(j) such documents and forms, executed by Seller, as are required to complete
properly the Section 338(h)(10) Election; and
(k) such other documents as Buyer may reasonably request for the purpose of (i)
evidencing the accuracy of any of Seller's representations and warranties, (ii)
evidencing the performance by Seller of, or the compliance by Seller with, any
covenant or obligation required to be performed or complied with by Seller,
(iii) evidencing the satisfaction of any condition referred to in this Article
VIII, or (iv) otherwise facilitating the consummation or performance of any of
the Contemplated Transactions.
Section 8.5 No Proceedings. Since the date of this Agreement, there must not
have been commenced or Threatened against Buyer, or against any Person
affiliated with Buyer, any Proceeding (a) involving any challenge to, or seeking
damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the likely effect of preventing, delaying,
making illegal, or otherwise interfering with any of the Contemplated
Transactions.
Section 8.6 No Claim Regarding Ownership or Sale Proceeds. There must not have
been made or Threatened by any Person any claim asserting that such Person (a)
is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, the Companies, or (b) is entitled to all or any portion
of the Purchase Price.
Section 8.7 No Prohibition. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause Buyer or any Person affiliated with Buyer to
suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
Section 8.8 Loan Transaction. All of the conditions to the making of the
$47,500,000 loan by Buyer to Seller, other than consummation of the Closing,
shall have been satisfied and the closing thereof shall occur simultaneously
with the Closing.
Section 8.9 Network Assets and Network Liabilities. The Network Assets and the
Network Liabilities shall have been transferred to Holding Company or Operating
Company and a portion of Seller's membership interest in Operating Company
representing 87.5% of the outstanding membership interests of Operating Company
shall have been transferred to Holding Company, each on terms and conditions and
pursuant to documentation in form and substance in all respects reasonably
satisfactory to Buyer.
Section 8.10 Holding Company Amended Articles. The Articles of Incorporation of
Holding Company shall have been amended to change the name thereof to Scripps
Shop At Home Holding Company and, if the Closing occurs after November 6, 2002,
to eliminate cumulative voting.
Section 8.11 Title Insurance. Operating Company shall be the beneficiary of a
policy or policies of title insurance with respect to its real property, in form
and substance satisfactory to Buyer.
Section 8.12 754 Election. Operating Company shall have made an election
pursuant to IRCss.754.
Section 8.13 Amendment of Option Plans; Employment Agreements. Seller shall have
amended all of its various stock option plans, agreements and grants to the
extent necessary in Buyer's reasonable opinion to provide that the Contemplated
Transactions do not trigger any change in control, successor or automatic
conversion provisions contained therein. Operating Company or Holding Company
shall have entered into employment agreements, upon terms and conditions
satisfactory to Buyer in its sole and absolute discretion with those executive
officers listed on Schedule 8.13 containing such terms as set forth on Schedule
8.13.
Section 8.14 HSR Act. The waiting period (and any extensions thereof) applicable
to the Contemplated Transactions under the HSR Act shall have been terminated or
shall have expired.
Section 8.15 Shareholder Approval. The Shareholders Meeting, the Shareholders
Vote and the Shareholder Approval shall have been consummated.
ARTICLE IX. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other
actions required to be taken by Seller at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Seller, in whole or in part):
Section 9.1 Accuracy of Representations. Each of Buyer's representations and
warranties in this Agreement must have been accurate in all respects as of the
date of this Agreement and must be accurate in all respects as of the Closing
Date as if made on the Closing Date.
Section 9.2 Buyer's Performance. Each of the covenants and obligations that
Buyer is required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been performed and complied with in all material
respects.
Section 9.3 Consents. Each of the Consents identified in Schedule 3.2 must have
been obtained and must be in full force and effect.
Section 9.4 Additional Documents. Each of the following documents must have
been delivered to Seller:
(a) the Shareholder Agreement, duly endorsed by Buyer;
(b) the Participation Agreement, in the form of Exhibit 8.4(g), executed by
Buyer;
(c) the Loan and Security Agreement, in the form of Exhibit 8.4(h), executed by
The E.W. Scripps Company;
(d) a certificate executed by Buyer certifying to Seller that each of Buyer's
representations and warranties in this Agreement was accurate in all respects as
of the date of this Agreement and is accurate in all respects as of the Closing
Date as if made on the Closing Date;
(e) the E.W. Scripps Company and Operating Company shall have entered into a
Secured Cognovit Promissory Note in a principal amount of $35,000,0000 and the
security documents referred to therein;
(f) such documents as Seller may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of Buyer, (ii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, (iii)
evidencing the satisfaction of any condition referred to in this Article IX, or
(iv) otherwise facilitating the consummation of any of the Contemplated
Transactions.
Section 9.5 No Injunction. There must not be in effect any Legal Requirement or
any injunction or other Order that prohibits the sale of the Shares by Seller to
Buyer.
Section 9.6 Loan Transaction. All of the conditions to the making of the
$47,500,000 loan by Buyer to Seller, other than consummation of the Closing,
shall have been satisfied and the closing thereof shall occur simultaneously
with the Closing.
ARTICLE X. TERMINATION
Section 10.1 Termination of Agreement. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing
Date:
(a) by mutual written consent of Buyer and Seller duly authorized by their
respective Boards of Directors;
(b) by either Buyer or Seller if there is any law or regulation that makes
consummation of the Contemplated Transactions illegal or otherwise
prohibited or if consummation of the Contemplated Transactions would
violate any non-appealable final order, decree or judgment of any
Governmental Entity having competent jurisdiction;
(c) by either Seller or Buyer on or after January 1, 2003 if the Closing
shall not have been consummated on or before December 31, 2002 (the
"Termination Date"); provided that such right to terminate this
Agreement will not be available to any party whose failure to perform
or satisfy in any material respect any covenant, condition or
obligation of such party under this Agreement when performance or
satisfaction thereof was due is the cause of such delay;
(d) by either Buyer or Seller if any of the representations or warranties
of the other party contained herein are inaccurate or untrue in any
respect if qualified by the word "material" or in any material respect
if not so qualified, and such inaccuracy cannot reasonably be expected
to be cured prior to the Termination Date and, in the case of Seller,
the failure of any representation and warranty to satisfy the foregoing
standard would reasonably be expected to have a material adverse effect
on Operating Company or its ability to operate the Network;
(e) by Buyer if Seller has not within 100 days from the date hereof
obtained Shareholder Approval;
(f) by Buyer, provided it is not then in material breach of any of its
obligations under this Agreement, if Seller fails to perform or satisfy
in any material respect any agreement, covenant, condition or
obligation in this Agreement when performance or satisfaction thereof
is due and does not cure the failure within 20 business days after
Buyer delivers written notice thereof; or
(g) by Seller, provided it is not then in material breach of any of its
obligations under this Agreement, if Buyer fails to perform or satisfy
in any material respect any agreement, covenant, condition or
obligation in this Agreement when performance thereof is due and does
not cure the failure within 20 business days after notice by Seller
thereof.
The party desiring to terminate this Agreement pursuant to this Section 10.1
will give written notice of such termination to the other party.
Section 10.2 Effect of Termination. Except as set forth in clause (b) to the
proviso to the following sentence, each party's right of termination under
Section 10.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 10.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 12.1 and 12.3 will survive; provided, however,
that (a) if this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired, and (b) if this Agreement is terminated by
Buyer pursuant to Section 10.1(e) and Seller has received an offer or proposal
for a Third-Party Transaction, then Seller shall pay to Buyer, in cash, within
one business day after the closing of the Third-Party Transaction or 30 days
after termination of discussions by Seller and such third party with respect
thereto a non-refundable fee in the amount of $2,500,000, the receipt of which
will be Buyer's sole remedy hereunder.
ARTICLE XI. INDEMNIFICATION; REMEDIES
Section 11.1 Survival; Right to Indemnification Not Affected by Knowledge. All
representations, warranties, covenants, and obligations in this Agreement, the
Schedules, and any other certificate or document delivered pursuant to this
Agreement will survive the Closing. The right to indemnification, payment of
Damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any Knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
Section 11.2 Indemnification by Seller. Seller shall indemnify and hold harmless
Buyer, the Companies and their respective Representatives and Affiliates
(collectively, the "Indemnified Persons") for, and shall pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Seller in this
Agreement or any other certificate or document delivered by Seller pursuant to
this Agreement;
(b) any breach by Seller of any covenant or obligation of Seller in this
Agreement;
(c) any product shipped by, or any services provided by, Seller or a Company
prior to the Closing Date;
(d) any liability of Seller that does not constitute a Network Liability; and
(e) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with either Seller or a Company (or any Person acting on
their behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 11.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
Section 11.3 Indemnification by Buyer. Buyer shall indemnify and hold harmless
Seller, and shall pay to Seller the amount of any Damages arising, directly or
indirectly, from or in connection with (a) any breach of any representation or
warranty made by Buyer in this Agreement or in any certificate delivered by
Buyer pursuant to this Agreement, (b) any breach by Buyer of any covenant or
obligation of Buyer in this Agreement, or (c) any claim by any Person for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such Person with Buyer
(or any Person acting on its behalf) in connection with any of the Contemplated
Transactions.
Section 11.4 Time Limitations. If the Closing occurs, Seller will not be liable
(for indemnification or otherwise) with respect to any representation or
warranty, or covenant or obligation to be performed and complied with prior to
the Closing Date, other than those in Sections 3.3, 3.11, 3.13, 3.18, and 3.19,
unless on or before the second annual anniversary of the Closing Date, Buyer
notifies Seller of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Buyer; a claim with respect to
Section 3.3, 3.11, 3.13, 3.18 or 3.19, or a claim for indemnification or
reimbursement not based upon any representation or warranty or any covenant or
obligation to be performed and complied with prior to the Closing Date may be
made at any time. If the Closing occurs, Buyer will not be liable (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, unless on or before the second annual anniversary of the Closing Date
Seller notifies Buyer of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Seller.
Section 11.5 Limitations on Amount.
(a) Seller will not be liable (for indemnification or otherwise) with respect to
the matters described in Section 11.2(a) or, to the extent relating to any
failure to perform or comply prior to the Closing Date, Section 11.2(b) until
the total of all Damages with respect to such matters exceeds $100,000, after
which Seller will be liable for all Damages and not merely those that exceed
$100,000. However, the foregoing limitation will not apply to any breach of any
of Seller's representations and warranties of which Seller had Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by Seller of any covenant or obligation.
(b) Buyer will not be liable (for indemnification or otherwise) with respect to
the matters described in Section 11.3(a) or (b) until the total of all Damages
with respect to such matters exceeds $50,000, after which Buyer will be liable
for all Damages and not merely those that exceed $50,000. However, the foregoing
limitation will not apply to any breach of any of Buyer's representations and
warranties of which Buyer had Knowledge at any time prior to the date on which
such representation and warranty is made or any intentional breach by Buyer of
any covenant or obligation.
Section 11.6 Procedure for Indemnification - Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 11.2 or 11.3 of
notice of the commencement of any Proceeding against it, such indemnified party
will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the indemnifying party
of any liability that it may have to any indemnified party, except to the extent
that the indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 11.6(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party may participate in such
Proceeding and, to the extent that it wishes (unless (i) the indemnifying party
is also a party to such Proceeding and the indemnified party determines in good
faith that joint representation would be inappropriate, or (ii) the indemnifying
party fails to provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and provide indemnification with
respect to such Proceeding) to assume the defense of such Proceeding with
counsel reasonably satisfactory to the indemnified party and, after notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party shall not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Article XI for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on any
other claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party; and (iii) the indemnified party will not be liable with respect to any
compromise or settlement of such claims effected without its consent. If notice
is given to an indemnifying party of the commencement of any Proceeding and the
indemnifying party does not, within 20 days after the indemnified party's notice
is given, give notice to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will be bound by any
determination made in such Proceeding or any compromise or settlement effected
by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
(d) Seller and Buyer hereby consent to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on Seller or Buyer, as the case may be, with respect to
such a claim anywhere in the world.
Section 11.7 Procedure for Indemnification - Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
ARTICLE XII. GENERAL PROVISIONS
Section 12.1 Expenses. Except as otherwise expressly provided in this Agreement,
each party will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
Section 12.2 Public Announcements. The parties shall issue a joint press release
(and individual press releases that have been approved by the other party) upon
execution of this Agreement and upon the Closing. Except as otherwise required
by law, neither party shall make any other disclosure regarding the Contemplated
Transactions without giving the other party the reasonable opportunity to
comment on such disclosure. Seller and Buyer will consult with each other
concerning the means by which a Company's employees, customers, and suppliers
and others having dealings with a Company, will be informed of the Contemplated
Transactions, and Buyer has the right to be present for any such communication.
Section 12.3 Confidentiality. The parties shall continue to be bound by the
Confidentiality Agreement.
Section 12.4 Declaratory Judgment. If Buyer deems it advisable to seek any
declaratory judgment that Shareholder Approval is not necessary, Seller shall
cooperate in all respects with respect thereto, including bringing and using its
best efforts to vigorously prosecute such action. Buyer, at its own expense, may
participate in or direct the prosecution of such action.
Section 12.5 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by certified mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Seller:
SHOP AT HOME, INC.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013
Attn: George J. Phillips, Executive Vice President
Facsimile No.: (615) 263-8911
with a copy to:
BONE McALLESTER NORTON PLLC
SunTrust Center
424 Church Street
Suite 900
Nashville, Tennessee 37203
Attn: Charles W. Bone, Esq.
Facsimile No.: (615) 238-6301
Buyer:
SCRIPPS NETWORKS, INC.
c/o The E.W. Scripps Company
312 Walnut Street
28th Floor
Cincinnati, Ohio 45202
Attn: Timothy Peterman, Vice President Corporate Development
Facsimile No.: (513) 977-3024
with a copy to:
BAKER & HOSTETLER LLP
312 Walnut Street
Suite 2650
Cincinnati, Ohio 45202
Attn: William Appleton, Esq.
Facsimile No.: (513) 929-0303
Section 12.6 Jurisdiction; Service Of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Ohio, Hamilton County, or, if it has or can acquire jurisdiction, in the
United States District Court for the Southern District of Ohio, and each party
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
Section 12.7 Further Assurances. Each party agrees (a) to furnish to the other
party such further information, (b) to execute and deliver to the other party
such other documents, and (c) to do such other acts and things, all as the other
party reasonably requests for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
Section 12.8 Waiver. The parties' rights and remedies are cumulative and not
alternative. A party's failure or delay in exercising any right, power, or
privilege under this Agreement or the documents referred to in this Agreement
will not operate as a waiver of such right, power, or privilege, and no single
or partial exercise of any such right, power, or privilege will preclude any
other or further exercise of such right, power, or privilege or the exercise of
any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement or the
documents referred to in this Agreement can be discharged by one party, in whole
or in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
Section 12.9 Entire Agreement and Modification. This Agreement, together with
the Confidentiality Agreement, supersedes all prior agreements between the
parties with respect to its subject matter and constitutes (along with the
documents referred to in this Agreement) a complete and exclusive statement of
the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
Section 12.10 Schedules.
(a) The disclosures in the Schedules must relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body of this
Agreement and those in the Schedules (other than an exception expressly set
forth as such in the Schedules with respect to a specifically identified
representation or warranty), the statements in the body of this Agreement will
control.
Section 12.11 Assignments, Successors, and No Third-Party Rights. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, except that Buyer may assign any of its rights under this
Agreement to any Affiliate of Buyer. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties any legal or equitable right, remedy, or claim under or
with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties and their successors and assigns.
Section 12.12 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
Section 12.13 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
Section 12.14 Governing Law. This Agreement will be governed by the laws of the
State of Ohio without regard to conflicts of laws principles.
Section 12.15 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER:
SCRIPPS NETWORKS, INC.
By___/s/ Richard A. Boehne
--------------------------------------
Title Executive Vice President
--------------------------------------
SELLER:
SHOP AT HOME, INC.
By__/s/ George R. Ditomassi
--------------------------------------
Title____Co-Chief Executive Officer
---------------------------
By__/s/ Frank A. Woods
-----------------------------------------
Title____Co-Chief Executive Officer
-----------------------------
The E.W. Scripps Company hereby guarantees the obligations of Buyer under the
foregoing Share Purchase Agreement.
THE E.W. SCRIPPS COMPANY
By____/s/ Richard A. Boehne____
---------------------
Title_____Executive Vice President__
------------------------
EXHIBIT 1.1A
CONTRIBUTION AND ASSUMPTION AGREEMENT
THIS CONTRIBUTION AND ASSUMPTION AGREEMENT, dated as of __________,
2002 [this date will be the Closing Date of the Share Purchase Agreement] (this
"Agreement"), is made by and between Shop At Home, Inc., a Tennessee corporation
("SATH"), and SAH Holdings, Inc., an Ohio corporation and wholly owned
subsidiary of SATH ("Holdings").
WHEREAS, SATH desires to contribute to Holdings 88.39% of the 99%
membership interest that SATH currently owns in Partners - SATH, L.L.C., a
Tennessee limited liability company (the "Company") and a wholly owned
subsidiary of SATH (including an indirect 1% interest owned through SAH
Acquisition Corporation, a Tennessee corporation and a wholly owned subsidiary
of SATH), representing an 87.5% membership interest in the Company; and
WHEREAS, SATH desires to contribute or cause certain of its Affiliates
to contribute to Holdings all of its and their rights relating to the employment
of the employees of the Network Employees who are listed on Schedule 1.01(b)
(the "Network Employees) as set forth herein for the benefit of the Network
Business (the "Network Employees Rights"), and Holdings desires to assume
certain of the liabilities and obligations of SATH and certain of its Affiliates
relating to the employment of the Network Employees by Holdings for the benefit
of the Network Business.
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth below, the parties hereto agree as follows:
ARTICLE I
Contribution, Retention and Assumption
1.01 Contributions.
-------------
(a) SATH hereby contributes, conveys, transfers and assigns to Holdings, free
and clear of all liens and encumbrances, all of SATH's right, title and interest
in and to 88.39% of SATH's 99% membership interest in the Company (representing
an 87.5% membership interest in the Company) (the "Membership Interest").
(b) SATH and each of its Affiliates with an interest therein hereby contributes,
grants, conveys, assigns, transfers and delivers to Holdings all of their
Network Employees Rights with respect to the Network Employees listed on
Schedule 1.01(b), including all records, contracts, assets and other properties
of SATH and its Affiliates related thereto, and SATH and Holdings hereby agree,
as soon as is administratively practicable after the date hereof, to cause each
Network Employee to become an employee of Holdings for all purposes on such
salary as set forth for such Network Employee on Schedule 1.01(b) and such other
terms and conditions, including but not limited to bonus, leave allowances and
health and welfare benefits, as SATH and Holdings shall mutually agree with the
consent of Scripps Networks, Inc.
1.02 Retention and Assumption of Liabilities.
---------------------------------------
(a) Except for the Assumed Membership Interest Liabilities (hereinafter defined)
and the Assumed Employees Liabilities (hereinafter defined) (collectively, the
"Assumed Liabilities"), Holdings shall not assume any debts, liabilities or
obligations of any kind, character or description, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or undetermined, or
any costs or expenses related thereto (collectively, "Liabilities"), of SATH or
any Affiliate of SATH, including, but not limited to Liabilities in respect of
the Membership Interest, the Network Employees and the Network Employees Rights
(collectively, the "Retained Liabilities"), and Holdings shall not at any time
be required to assume, pay, perform or discharge any Retained Liabilities.
(b) Notwithstanding the provisions of Section 1.02(a), the Company hereby
unconditionally assumes and agrees to pay, perform, satisfy and discharge all
Liabilities first arising on or after the date hereof in connection with the
ownership of the Membership Interest, whether arising by reason of contact,
operation of law or otherwise, and including, but not limited to all such
Liabilities arising under the Operating Agreement of the Company dated _____,
_____ (the "Assumed Membership Interest Liabilities").
(c) Notwithstanding the provisions of Section 1.02(a), Holdings hereby
unconditionally assumes and agrees to pay, perform, satisfy and discharge (i)
all Liabilities first arising on or after the date hereof in connection with the
Network Employees and Network Employees Rights and (ii) the Liabilities of SATH
and its Affiliates relating to the Network Employees to the extent unpaid,
unperformed, unsatisfied and not discharged prior to the date hereof solely as
expressly set forth on Schedule 1.02(c) (collectively, the "Assumed Employees
Liabilities"). Holdings shall have no responsibility or liability with respect
to any employees of SATH or its Affiliates who are not listed on Schedule
1.01(b).
(d) For purposes of this Agreement, the term "Affiliate" means
any other legal entity (i) that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
SATH, (ii) that is a general partner, director, manager, trustee or principal
officer of, or a limited partner owning more than ten percent (10%) of, or that
serves in a similar capacity with respect to, SATH, or (iii) of which SATH is a
general partner, director, manager, trustee or principal officer or a limited
partner owning more than ten percent (10%) of, or with respect to which SATH
serves in a similar capacity. For purposes of this definition of Affiliate,
"control" means the possession, directly or indirectly, of the power to direct
or to cause the direction of the management or policies of the legal entity in
question through the ownership of voting securities or by contract or otherwise.
The Holdings shall be excluded from the meaning of Affiliate for all purposes of
this Agreement.
(a) 1.03 Intentionally Omitted.
---------------------
Section 12.16 1.04 Conveyancing and Assumption Instruments. In connection with
the transfers of the Membership Interest and the Network Employees Rights and
the assumptions of Assumed Liabilities contemplated by this Agreement, the
parties hereto agree that (a) the transfers of assets, rights and properties
contemplated hereby shall be effected by delivery by the appropriate parties of
such good and sufficient instruments of contribution, transfer and delivery, in
form and substance reasonably satisfactory to the parties as shall be necessary
to vest in the Holdings all of the right, title and interest in and to the
Membership Interest and the Network Employees Rights, and (b) the assumption of
the Assumed Liabilities contemplated hereby shall be effected by delivery of the
appropriate parties of such good and sufficient instruments of assumption, in
form and substance reasonably satisfactory to the parties, as shall be necessary
for the assumption by Holdings of the Assumed Liabilities. Each of the parties
hereto also agrees to deliver to any other party hereto such other documents,
instruments and writings as may be reasonably requested by such other parties
hereto in connection with the transactions contemplated hereby. Notwithstanding
any other provisions of this Agreement to the contrary, (x) the instruments of
transfer or assumption referred to in this Section 1.04 shall not include any
representations and warranties, and (y) in the event and to the extent that
there is any conflict between the provisions of this Agreement and the
provisions of any of the instruments of transfer or assumption referred to in
this Section 1.04, the provisions of this Agreement shall prevail and govern.
1.05 Indemnities. SATH shall indemnify Holdings and hold it harmless
from any and all claims, demands, losses, liabilities, damages and expenses
(including reasonable attorneys fees) ("Losses") arising out of or in connection
with the Retained Liabilities. Holdings shall indemnify SATH and hold it
harmless from any and all Losses arising out of or in connection with the
Assumed Liabilities.
1.06 Further Assurances. Each of the parties promptly shall execute
such documents and other instruments and take such further actions (including
the making of governmental filings) as may be reasonably required or desirable
to carry out the provisions of this Agreement and to consummate the transactions
contemplated hereby, including all certificates, assignments, assumption
agreements, bills of sale, consents, and other documents, as shall be reasonably
necessary to evidence the transactions contemplated hereby.
ARTICLE 2
Miscellaneous
2.01 Parties Bound. This Agreement shall be binding upon
the parties and their respective successors and assigns.
2.02 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but together shall
constitute but one and the same agreement.
2.03 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior written and oral and all contemporaneous oral agreements
and understandings with respect to the subject matter hereof.
Section 12.17 2.04 Applicable Law. The laws of the State of Tennessee
shall govern this Agreement, excluding any conflict of laws rules.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
SHOP AT HOME, INC.
By:
- ----------------------------------------------------------
Name: ____________________________________
Title: _____________________________________
SAH HOLDINGS, INC.
By:
- ----------------------------------------------------------
Name: ____________________________________
Title: _____________________________________
Schedule 1.01(b)
Network Employees
[To be provide by George Phillips]
Schedule 1.02(c)
Assumed Employee Liabilities
1. Accrued but unpaid wages of the Network Employees.
2. Accrued but unused vacation of the Network Employees.
EXHIBIT 1.1B
CONTRIBUTION AND ASSUMPTION AGREEMENT
This Contribution and Assumption Agreement, dated effective as of
__________, 2002 (this "Agreement"), is made by and among Shop At Home, Inc., a
Tennessee corporation ("SATH"), SAH Acquisition Corporation, a Tennessee
corporation and a wholly owned subsidiary of SATH ("SAHAC"), and Partners -
SATH, L.L.C., a Tennessee limited liability company and a wholly owned
subsidiary of SATH through an indirect 1% membership interest held therein by
SAHAC and a 99% membership interest held by SATH (the "Company").
WHEREAS, SATH desires to contribute, or cause certain of its Affiliates
(hereinafter defined) to contribute, to the Company certain rights, assets and
properties relating to SATH's business of selling consumer products through
interactive electronic media including broadcast, cable and satellite television
and the Internet (via shopathometv.com) (the "Network Business") and to cause
the Company to assume certain liabilities and obligations of SATH and certain of
its Affiliates relating to the Network Business in order to consolidate
substantially all of the rights, assets, properties, liabilities and obligations
of the Network Business into the Company, excluding rights and liabilities in
respect of the employees of the Network Business (the "Network Employees").
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, the parties hereto agree as follows:
Contribution, Retention and Assumption
Contribution and Retention of Assets.
------------------------------------
Except for the Retained Assets (hereinafter defined), SATH and
each of its Affiliates with an interest therein hereby contributes, grants,
conveys, assigns, transfers and delivers, subject to all liens and encumbrances,
a 1% undivided interest to SAHAC and, immediately upon such contribution by SATH
to SAHAC, SATH and each of its Affiliates with an interest therein and SAHAC
hereby respectively contribute, grant, convey, assign, transfer and deliver 99%
and 1% undivided interests to the Company, in and to all right, title and
interest of SATH and its Affiliates and SAHAC with an interest therein in and to
any and all assets, rights and properties used or held for use in the conduct
and operation of the Network Business, whether tangible or intangible, whether
fixed, contingent or otherwise, and wherever located (collectively, the
"Contributed Assets"), including, but not limited to, the assets, rights and
properties described on Schedule 1.01(a).
Notwithstanding the provisions of Section 1.01(a), the
Contributed Assets shall not include, and SATH and its Affiliates shall retain
all of their right, title and interest in and to, the assets, rights and
properties described on Schedule 1.01(b), SATH's rights under this Agreement,
all their rights relating to the employment of the Network Employees and any
other assets, rights and properties of SATH and its Affiliates not used or held
for use in the operations of the Network Business (collectively, the "Retained
Assets").
Retention and Assumption of Liabilities.
---------------------------------------
Except for the Assumed Liabilities (hereinafter defined),
neither SAHAC nor the Company shall assume any debts, liabilities or obligations
of any kind, character or description, whether accrued or fixed, absolute or
contingent, matured or unmatured or determined or undetermined, or any costs or
expenses related thereto (collectively, "Liabilities"), of SATH, the Network
Business, or any Affiliate of SATH, including, but not limited to Liabilities in
respect of the Network Employees (collectively, the "Retained Liabilities"), and
neither SAHAC nor the Company shall at any time be required to assume, pay,
perform or discharge any Retained Liabilities.
Notwithstanding the provisions of Section 1.02(a), SAHAC as to
an undivided interest of 1% of SATH therein, and the Company as to the 99% and
1% undivided interests of SATH and SAHAC therein, without recourse, hereby
unconditionally assume and agree to pay, perform, satisfy and discharge (i) all
Liabilities first arising on or after the date hereof in connection with the
Contributed Assets or as a result of the Company's conduct and operation of the
Network Business on or after the date hereof and (ii) the Liabilities of SATH
and its Affiliates relating to the Network Business (excluding Liabilities in
respect of the Network Employees and excluding Liabilities in respect of any
Retained Asset) to the extent unpaid, unperformed, unsatisfied and not
discharged prior to the date hereof solely as expressly set forth on Schedule
1.02(b) (the "Assumed Liabilities").
(c) For purposes of this Agreement, the term "Affiliate" means
any other legal entity (i) that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
SATH, (ii) that is a general partner, director, manager, trustee or principal
officer of, or a limited partner owning more than ten percent (10%) of, or that
serves in a similar capacity with respect to, SATH, or (iii) of which SATH is a
general partner, director, manager, trustee or principal officer or a limited
partner owning more than ten percent (10%) of, or with respect to which SATH
serves in a similar capacity. For purposes of this definition of Affiliate,
"control" means the possession, directly or indirectly, of the power to direct
or to cause the direction of the management or policies of the legal entity in
question through the ownership of voting securities or by contract or otherwise.
The Company and SAHAC shall be excluded from the meaning of Affiliate for all
purposes of this Agreement.
1.03 Intentionally omitted.
1.04 Conveyancing and Assumption Instruments. In connection with the
transfers of Contributed Assets and the assumptions of Assumed Liabilities
contemplated by this Agreement, the parties hereto agree that (a) the transfers
of assets, rights and properties contemplated hereby shall be effected by
delivery by the appropriate parties of (i) with respect to those which are
evidenced by capital stock certificates or similar instruments, certificates
duly endorsed in blank or accompanied by stock powers or other instruments of
assignment executed in blank, (ii) with respect to any real property interest
and any improvements thereon, a quitclaim deed or the equivalent thereof in
accordance with local practice, and (iii) with respect to all other rights,
assets and properties, such good and sufficient instruments of contribution,
transfer and delivery, in form and substance reasonably satisfactory to the
parties as shall be necessary to vest in the Company or SAHAC, as the case may
be, all of the right, title and interest in and to the Contributed Assets, and
(b) the assumption of the Assumed Liabilities contemplated hereby shall be
effected by delivery of the appropriate parties of such good and sufficient
instruments of assumption, in form and substance reasonably satisfactory to the
parties, as shall be necessary for the assumption by SAHAC or the Company of the
Assumed Liabilities. Each of the parties hereto also agrees to deliver to any
other party hereto such other documents, instruments and writings as may be
reasonably requested by such other parties hereto in connection with the
transactions contemplated hereby. Notwithstanding any other provisions of this
Agreement to the contrary, (x) the instruments of transfer or assumption
referred to in this Section 1.04 shall not include any representations and
warranties, and (y) in the event and to the extent that there is any conflict
between the provisions of this Agreement and the provisions of any of the
instruments of transfer or assumption referred to in this Section 1.04, the
provisions of this Agreement shall prevail and govern.
1.05 Indemnities. SATH shall indemnify SAHAC and the Company and hold
them harmless from any and all claims, demands, losses, liabilities, damages and
expenses (including reasonable attorneys fees) ("Losses") arising out of or in
connection with the Retained Liabilities. The Company shall indemnify SATH and
SAHAC and hold each of them harmless from all Losses arising out of or in
connection with the Assumed Liabilities.
Further Assurances. Each of the parties promptly shall execute such
documents and other instruments and take such further actions as may be
reasonably required or desirable to carry out the provisions of this Agreement
and to consummate the transactions contemplated hereby, including all
assignments, assumption agreements, bills of sale, consents, and other documents
as shall be reasonably necessary to evidence the assignments, transfers,
conveyances, and assumptions hereunder.
1.07 Employees. Nothing in this Agreement, expressed or implied, shall
confer upon any current employee or former employee of SATH or the Company or
any of their Affiliates any rights or remedies of any nature or kind whatsoever
(including, without limitation, any right to employment, resumed employment or
continued employment for any specified period), under or by reason of this
Agreement, and no such current or former employee will be deemed to be a
third-party beneficiary of any provision of this Agreement.
Miscellaneous
Parties Bound. This Agreement shall be binding upon the parties and
their successors and assigns.
Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but together shall constitute but one and the
same agreement.
Entire Agreement. This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
written and oral and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof.
Applicable Law. The laws of the State of Tennessee shall govern this
Agreement, excluding any conflict of laws rules.
Exhibits and Schedules. All Exhibits and Schedules referred to herein
and attached hereto are incorporated by this reference thereto.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
SHOP AT HOME, INC.
By:
-----------------------------------------------------
Name:
Title:
SAH ACQUISITION CORPORATION
By:
-----------------------------------------------------
Name:
Title:
PARTNERS-SATH, L.L.C.
By:
-----------------------------------------------------
Name:
Title:
Schedule 1.01(b)
CONTRIBUTED ASSETS
The following sets forth general descriptions of certain assets, rights
and properties included in the Contributed Assets:
all programs, programming, performances, productions, content
and related materials of any nature whatsoever, and all elements thereof,
whether intended for television broadcast or other exhibition over any other
medium (including, but not limited to, the Internet) as a live performance, a
pre-recorded performance or otherwise, whether completed or in process or
production, in whatever form or media the same may be recorded, including, but
not limited to, documents, drawings, films, tapes, compact discs, and any other
digital or digitized formats (collectively, the "Programming Materials"), all
related common law and statutory Network Intangible Rights (as defined in
paragraph (c) hereof) in the Programming Materials and all rights, releases,
clearances, and licenses granted by third parties (including, but not limited to
persons appearing in, or performing services in connection with the exhibition
and syndication of, any of the Programming Materials) with respect to such third
parties' literary, artistic, trademark, copyright, music performance, master
use, synchronization and other similar intellectual property rights and their
publicity, privacy and publishing rights (collectively, the "Third-Party
Intangible Rights") in the Programming Materials;
all sales support, advertising, marketing and promotional
materials of any nature whatsoever, including, but not limited to, interstitial
promotional materials, and all elements thereof (including, but not limited to,
all advertiser files, information, lists and rate cards, all catalogs, data,
drawings, designs, files, price lists and subscriber information, files and
lists, and all other records and other documents related thereto), whether
intended for television broadcast or other exhibition over or in any other
medium (including, but not limited to, the Internet and any print media) as a
live performance, a pre-recorded performance or otherwise, whether completed or
in process or production, in whatever form or media the same may be recorded,
including, but not limited to, documents, drawings, films, tapes, compact discs,
and any other digital or digitized formats (collectively, the "Promotional
Materials"), all related common law and statutory Network Intangible Rights in
the Promotional Materials and all rights, releases, clearances, and licenses
granted by third parties (including, but not limited to, persons appearing in,
or performing services in connection with the exhibition and syndication of, any
of the Promotional Materials) with respect to such third parties' Third-Party
Intangible Rights in the Promotional Materials;
all domestic or foreign patents, patent applications, written
invention disclosures to be filed or awaiting filing determinations, copyrights,
trademark and service mark applications, registered trademarks, registered
service marks, unregistered trademarks and service marks in which SATH or its
Affiliates possess common law rights, uniform resource locators, domain names,
franchises, trade names, jingles, slogans, logotypes, copyrights and other
intangible rights owned, leased or licensed (collectively, the "Network
Intangible Rights");
all goodwill associated with the Network Business as a going
concern and with the Network Intangible Rights;
all files, records, books of account, computer programs,
tapes, electronic data processing software, data and other records to the extent
exclusively relating to the conduct and operation of the Network Business, in
whatever form or format they are maintained, kept or stored, including, without
limitation, books of account and accounting information, purchasing and
production information, income, sales, use and all other tax information,
subscriber data, subscriber and other third party credit information, pricing
information, advertiser information, cost and expense information, market
research, surveys and reports, equipment service, maintenance and warranty
records, sales, advertising, marketing and promotional materials, and industry
information;
all Contracts entered into in connection with the conduct and
operation of the Network Business (such as, without limitation, contracts with
suppliers, service vendors, providers of insurance or services in connection
with employee benefit and welfare plans, advertisers, consultants and designers)
and all rights under such Contracts, whether such rights are express or implied,
matured or unmatured, known or unknown, absolute or contingent;
all stationery, forms, labels, and similar supplies bearing,
exhibiting or otherwise embodying any of the Network Intangible Rights;
all prepaid expenses, deposits and other current assets of a
similar nature related to Contracts or otherwise, including cash, cash
equivalents, notes receivable, accounts receivable and prepaid taxes, and all
negotiable instruments and chattel paper, including credit card receivables and
accrued interest charges on customer accounts;
all rights to all post office boxes, telephone numbers and
facsimile numbers;
all orders, arrangements, understandings and Contracts for the
sale of advertising time on broadcasts or on Internet web sites;
all goods, assets, rights and services due under trade
contracts with third parties, and all inventory and work in process;
all permits, licenses, consents, approvals or other
authorizations from or of any court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority, agency or body
relating to or necessary for the conduct and operation of the Network Business;
all rights, claims, credits, causes of action and rights of
set-off against third parties relating to the Network Business or Contributed
Assets; and
all real property, furniture, fixtures, equipment, vehicles,
tools, computer and hardware, whether owned, leased licensed or otherwise, and
all appurtenances thereto.
Schedule 1.01(b)
RETAINED ASSETS
The following sets forth the Retained Assets:
(a) all assets, rights and properties directly used or
directly held for use in the operation of the five (5) UHF television station
properties owned and operated by SATH and its Affiliates in San Francisco,
California, Boston, Massachusetts, Cleveland, Ohio, Raleigh, North Carolina and
Bridgeport, Connecticut, including but not limited to, the FCC licenses for such
stations, equipment at such stations, employment agreements of the personnel
working at such stations and the leases and other Contracts which relate
exclusively to such stations, but excluding all rights in Programming Materials,
Third-Party Intangible Rights, Promotional Rights, and Network Intangible
Rights.
(b) AT&T/TCI full-time carriage agreement dated 4/24/96.
(c) Employment related contracts with Bennett S, Smith, George
S. Ditomassi, Frank A. Woods, Arthur D. Tek, George J. Phillips, Robert B.
Wales, Ronald T. Cook, Thomas N. Merrihew and Howard W. Lambert.
(d) Promissory Notes from J.D. Clinton and Charles W. Bone.
(e) Equity Edge Software concerning SATH's stock option
program.
(f) The membership interest in the Company and the shares of
capital stock in SAH Holdings, Inc. and SAHAC owned and held by SATH.
(g) Paymaxx Agreement.
(h) All rights, claims, credits, causes of action and rights
of set-off against third parties relating to the Retained Liabilities.
Schedule 1.02(b)
ASSUMED LIABILITIES
(a) The current liabilities of the Network Business as of the
date hereof reflected or reserved against on the face of the Pro Forma Statement
of Assets and Liabilities attached to and made part hereof (as approved in
writing by Scripps Networks, Inc.). SATH hereby represents and warrants to the
Company that such Pro Forma Statement of Assets and Liabilities has been
prepared in all material respects consistently with the Pro Forma Statement of
Assets and Liabilities of the Network Business as of June 30, 2002 delivered by
SATH to Scripps Networks, Inc. in connection with the Share Purchase Agreement
dated August __, 2002 between SATH and Scripps Networks, Inc. SATH further
represents and warrants to the Company that such Pro Forma Statement of Assets
and Liabilities does not contain any current liabilities not incurred in the
Ordinary Course of Business (as such term is defined in the Share Purchase
Agreement referred to herein).
(b) If any claim is made after the date hereof by a third
party alleging infringement of such third party's intellectual property rights
arising from the use of the name "Shop at Home" in the operation of the Network
Business by either or both SATH or the Company, as between SATH and the Company,
SATH shall be responsible for all Liabilities which arose therefrom that relate
to any period prior to the date hereof and the Company shall be responsible for
all Liabilities which arose therefrom on and after the date hereof and, if the
Company elects to defend such claim, the Company shall at its cost and expense
provide a defense for both the Company and SATH; provided that SATH shall
cooperate with the Company at SATH's cost and expense as may be reasonably
required.
EXHIBIT 8.4(c)
Capitalized terms used herein will have the meanings set forth in the Share
Purchase Agreement between Shop At Home, Inc. and Scripps Networks, Inc. (the
"Purchase Agreement").
1. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Tennessee. The
Holding Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Ohio. The Operating Company is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Tennessee.
2. Each of Seller, the Holding Company and the Operating Company has the
necessary power and authority to conduct its business as currently conducted and
to own, lease and use its assets in the manner in which its assets are currently
owned, leased and used. Each of Seller, the Holding Company and the Operating
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its business or ownership of its assets
requires such qualification (except to the extent that failure to be so
qualified would not have a material adverse effect on the business of Seller,
the Holding Company or the Operating Company, as the case may be), and is in
good standing in each such jurisdiction.
3. The Holding Company has 1,500 authorized shares, without par value, of which
1,000 are outstanding and are held beneficially and of record by Seller. All of
the Holding Company's outstanding shares have been duly authorized and validly
issued and are fully paid and nonassessable.
4. The Operating Company is owned beneficially and of record 1% by SAH
Acquisition Corporation, 87.5% by the Holding Company and 11.5% by Seller.
5. No preemptive rights, rights of first refusal or similar rights to purchase
securities of the Operating Company or the Holding Company exist and no such
rights will arise or become exercisable by virtue of or in connection with the
transactions contemplated by the Agreement. There are no outstanding or
authorized options, warrants, convertible securities, subscription rights,
conversion rights, exchange rights relating to the issuance or sale of any
securities of the Holding Company or the Operating Company. There are no stock
appreciation, phantom stock, profit participation or other similar rights
granted by the Holding Company or the Operating Company.
6. To our knowledge, there is no pending Proceeding and no Person has threatened
to commence any Proceeding materially affecting or that could materially affect
the Holding Company or the Operating Company, or their properties or assets or
the Network or that questions the validity or enforceability of the Transaction
Documents or the Contemplated Transactions.
7. Each of Seller, the Holding Company and the Operating Company has the
requisite power and authority to enter into and to perform its obligations
pursuant to the Transaction Documents to which it is a party. The execution,
delivery and performance by each of Seller, the Holding Company and the
Operating Company of the Transaction Documents to which it is a party, and the
consummation of the Contemplated Transactions, have been duly authorized by all
necessary corporate and shareholder action on the part of Seller, the Holding
Company and the Operating Company. The Transaction Documents to which each of
Seller, the Holding Company and the Operating Company is a party constitute the
legal, valid and binding obligation of Seller, the Holding Company or the
Operating Company, as the case may be, enforceable against such entity in
accordance with their respective terms.
8. The execution and delivery by each of Seller, the Holding Company and the
Operating Company of the Transaction Documents to which it is a party and the
consummation by such entity of the Contemplated Transactions will not (a)
violate such entity's Organizational Documents; (b) violate any Legal
Requirement applicable to the Contemplated Transactions; or (c) cause a default
by such entity under, or give rise to a right of payment under or the right to
terminate, amend, modify, abandon or accelerate obligations under, any Contract
to which such entity is a party or by which it or any of its assets or
properties are bound.
9. Except for the third party consents or notices set forth on Schedule 3.2 to
the Purchase Agreement, none of Seller, the Holding Company or the Operating
Company is required to make any filing with or give any notice to or obtain any
consent from any Person in connection with the execution and delivery of the
Transaction Documents or consummation of the Contemplated Transactions.
EXHIBIT 8.4(d)
AMENDED AND RESTATED OPERATING AGREEMENT
OF
SHOP AT HOME NETWORK, LLC
i
TABLE OF CONTENTS
Page
iv
ARTICLE 1 Definitions.........................................................1
ARTICLE 2 The Company.........................................................1
2.1................................................Formation. 1
2.2......................................Operating Agreement. 1
2.3.....................................................Name. 1
2.4..................................................Purpose. 2
2.5....Authority of Scripps Holding and Scripps Governors
with Respect to the Network. 2
2.6...........................Names and Addresses of Members. 2
2.7.......................................Period of Duration. 2
2.8...............................Statutory Agent and Office. 2
2.9...............................Principal Executive Office. 2
ARTICLE 3 Accounting and General Tax Matters..................................2
3.1.......................................Accounting Methods. 2
3.2..................................................Records. 2
3.3..............................................Fiscal Year. 2
3.4................................Taxation as a Partnership. 3
3.5............................................Tax Elections. 3
3.6......................................Tax Matters Partner. 3
3.7..........................................Tax Information. 3
ARTICLE 4 Management..........................................................3
4.1.....................Management by the Board of Governors. 3
4.2.......................................Board of Governors. 5
4.2.1....................................Composition........5
4.2.2......................................Authority........5
4.2.3.........................................Voting........6
4.2.4.......................................Meetings........6
4.2.5.....................................Committees........6
4.2.6...................................Compensation........6
4.2.7.....................Governors' Time and Effort........6
4.3...................................Officers and Employees. 6
4.4.....................Arrangements with Scripps Affiliates. 7
4.5.........................Compensation of Scripps Holdings. 7
4.6...............................................Discretion. 7
ARTICLE 5 General Rights and Obligations of Members...........................7
5.1..................................Limitation of Liability. 7
5.2......................Standards for Access to Information. 8
5.3.....................Limited Voting and Management Rights. 8
5.4...........................Representations and Warranties. 8
5.5................................No Withdrawal of a Member. 9
5.6........................................Title to Property. 9
5.7.....................................Financial Statements. 9
5.8................................Confidentiality Covenants. 9
5.9......................Outside Businesses or Opportunities. 10
5.10.........................Noncompetition Covenant of SATH. 10
5.11................................Re-formation in Delaware. 11
ARTICLE 6 EXCULPATORY PROVISIONS; Indemnification.............................11
6.1...................................Exculpatory Provisions. 11
6.1.1.................General Limitation of Liability.......11
6.1.2............................Limitation of Duties.......11
6.1.3........................No Consequential Damages.......11
6.2..Indemnification of Governors and Other Indemnified Persons. 11
6.2.1..............General Obligations of the Company.......12
6.2.2...............................Disabling Conduct.......12
6.2.3........................................Advances.......12
6.2.4.................................Non-Exclusivity.......12
6.2.5.......................................Insurance.......12
6.2.6................No Personal Liability of Members.......13
6.2.7...........................Conflicts of Interest.......13
6.2.8...................................Beneficiaries.......13
ARTICLE 7 Contributions and Loans.............................................13
7.1...........................Members' Capital Contributions. 13
7.2................................Additional Equity Funding. 13
7.3..............................................No Interest. 14
7.4..............................................Credit Line. 14
7.5.......................................Loans From Members. 14
ARTICLE 8 Capital Accounts....................................................14
8.1........................Creation and Maintenance. 14
8.1.1.................................Interpretations.......14
8.1.2....................................Computations.......15
8.1.3..Book Value and Revaluations of Company Property......15
8.1.4.Effective Terminations under Code Section 708(b)(1)(B)15
8.2...Transfer of Capital Account; No Code Section 743 Adjustment. 16
8.3........................No Deficit Restoration Obligation. 16
ARTICLE 9 Allocations.........................................................16
9.1...............Allocation of Operating Profits and Losses. 16
9.1.1.........................................Profits.......16
9.1.2..........................................Losses.......16
9.1.3.............Limitations and Special Allocations.......16
9.2......................................Special Allocations. 17
9.2.1..........................Nonrecourse Deductions.......17
9.2.2...................Member Nonrecourse Deductions.......17
9.2.3............................Company Minimum Gain.......17
9.2.4.............................Member Minimum Gain.......17
9.2.5.........................Qualified Income Offset.......17
9.2.6.........................Gross Income Allocation.......18
9.2.7....................Code Section 754 Adjustments.......18
9.3...................................Corrective Allocations. 18
9.4.......................Application of Code Section 704(c). 18
9.5..........Distributions of Nonrecourse Liability Proceeds. 18
9.6.......................................Allocation of Debt. 19
9.7..............................Other Allocation Provisions. 19
9.7.1.......................................Elections.......19
9.7.2.................................Fees to Members.......19
ARTICLE 10 Distributions......................................................19
10.1...........................................Distributions. 19
10.1.1...............Definition of Distributable Cash.......19
10.1.2..............................Tax Distributions.......19
10.1.3............Distributions of Distributable Cash.......20
10.1.4.....Distributions of Proceeds from Interim
Capital Transactions.........................20
10.1.5.....Distributions of Proceeds from Liquidating
Capital Transactions.........................20
10.2....................General Limitations on Distributions. 20
ARTICLE 11 Dispositions of Membership Interests...............................20
11.1....................................General Restrictions. 20
11.2.......................................Void Dispositions. 22
11.3................Scripps Holding's Right of First Refusal. 22
11.3.1.................Notice of Intended Disposition.......22
11.3.2..............................Exercise of Right.......22
11.3.3..........................Non-Exercise of Right.......22
11.3.4......................................SATH Debt.......22
11.4.................................Transfers to Affiliates. 23
11.5Scripps Holding's Right to Sell; SATH's and Sub's
Tag Along Right; Scripps Holding's Drag Along Right. 23
11.6.....................................Put and Call Rights. 24
11.6.1.....................SATH's and Sub's Put Right.......24
11.6.2.....................SATH's Put Right Upon
Scripps's Disposition of Scripps Holding Shares.....24
11.6.3.............Scripps's Call Right.....................24
11.6.4..............Scripps Holding Call Right Upon
SATH's Disposition of Scripps Holding Shares.......25
11.6.5......Scripps Call Right Upon Change in Control
of SATH...............................25
11.6.6......Scripps Call Right Upon Default.................25
11.6.7..........Limitation on Exercise Based on Exercise
of Put/Call Relating to Scripps Holding.......25
11.7...................................Certain Buyout Events. 25
11.7.1............................Definition of Event.......25
11.7.2.................Purchase Option of the Company.......26
11.7.3..................Company's Right of Assignment.......26
11.7.4...................................Scripps Debt.......27
11.7.5.............Continuing Effect After Insolvency.......27
11.8......................Determination of Fair Market Value. 27
11.9..........................................Contract Terms. 27
11.9.1..................................Payment Terms.......28
11.9.2........................................Closing.......28
11.9.3......................................Documents.......28
ARTICLE 12 Assignees; Substitute Members......................................28
12.1.........................Admission of Substitute Members. 28
12.2.....................................Rights of Assignees. 28
ARTICLE 13 Dissolution and Winding Up.........................................29
13.1.............................................Dissolution. 29
13.2...................................Effect of Dissolution. 29
13.3..............................................Winding Up. 29
13.4.........................Fair Market Value Distributions. 29
13.5.................................Proceeds of Liquidation. 30
13.5.1.......................................Expenses.......30
13.5.2..........................................Debts.......30
13.5.3.......................................Reserves.......30
13.5.4...............................Capital Accounts.......30
13.6........................................Final Accounting. 30
ARTICLE 14 Amendment..........................................................30
ARTICLE 15 Miscellaneous Provisions...........................................30
15.1........................................Entire Agreement. 30
15.2...................Rights of Creditors and Third Parties. 30
15.3.................................................Notices. 31
15.4............................................Severability. 31
15.5...........................................Parties Bound. 31
15.6..........................................Applicable Law. 31
15.7.....................................Strict Construction. 31
15.8................................................Headings. 31
15.9...................................Counterpart Execution. 31
15.10...............................................Pronouns. 31
15.11............................Effect of Waiver or Consent. 31
15.12.....................................Further Assurances. 32
15.13...................................Public Announcements. 32
15.14...............................................Expenses. 32
SCHEDULE II...................................................................1
AMENDED AND RESTATED OPERATING AGREEMENT OF SHOP AT HOME NETWORK, LLC
THIS AMENDED AND RESTATED OPERATING AGREEMENT of Shop At Home Network,
LLC, a Tennessee limited liability company fka Partners - SATH, L.L.C. (together
with any successor thereto, the "Company"), dated as of , 2002, is made by and
among Shop At Home, Inc., a Tennessee corporation ("SATH"), SAH Acquisition
Corporation, a Tennessee corporation and wholly owned subsidiary of SATH
("Sub"), and The Scripps Shop At Home Holding Company, an Ohio corporation fka
SAH Holdings, Inc. ("Scripps Holding").
WHEREAS, SATH holds an eleven and one-half percent (11.5%) membership
interest in the Company, Sub holds a one percent (1%) membership interest in the
Company and Scripps Holding holds an eighty-seven and one-half percent (87.5%)
membership interest in the Company; and
WHEREAS, pursuant to the Share Purchase Agreement, dated August 14,
2002, between Scripps Networks, Inc., a Delaware corporation ("Scripps"), and
SATH, SATH sold to Scripps eighty percent (80%) of the outstanding common shares
of Scripps Holding and as a condition to such sale, SATH, Sub, and Scripps
Holding are required to enter into this Amended and Restated Operating
Agreement.
Definitions
Certain capitalized terms used in this Agreement are defined as set
forth on Schedule I.
The Company
Formation. The Members hereby agree to associate themselves as Members
of the Company under and pursuant to the provisions of the Act for the limited
purposes and scope set forth in this Agreement. The Members expressly do not
intend to form a partnership under the laws of the State of Tennessee or any
other laws; provided, however, that to the extent permissible by law, the
Members intend for the Company to be treated as a partnership for Federal,
state, and local income tax purposes as more fully set forth in Section 3.4.
Operating Agreement. In consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree to the
terms and conditions of this Agreement (as it may from time to time be amended
according to its terms), intending that this Agreement, including the Schedules
and Exhibits incorporated herein, shall be the sole source of agreement among
the Members as to the affairs of the Company and the conduct of its business.
Name. The name of the Company is "Shop At Home Network, LLC" and all
business of the Company shall be conducted under that name or such other assumed
or fictitious name or names as may be approved by the Board of Governors. The
Company shall execute and file, as appropriate, any assumed or fictitious name
certificates and other similar documents and instruments as may be necessary or
appropriate with respect to the conduct of the Company's business. The name of
the Company may be changed if authorized by the Board of Governors and upon any
such name change the Company shall promptly file such name change instruments as
may be required by applicable law.
Purpose. The purpose of the Company is to own and operate a home
shopping cable television network and related interactive web-based service
offered and distributed in North America (the "Shop At Home Network") and to
take any action as the Board of Governors determines to be appropriate,
convenient or incidental to such purpose.
Authority of Scripps Holding and Scripps Governors with Respect to the Network.
Neither Scripps Holding nor the Scripps Governors will be obligated to continue
the business operations of the Network, and, as the holder of more than fifty
percent (50%) of the Membership Interests, Scripps Holding may cause the
discontinuation of the business of the Network and the dissolution of the
Company, if, in its sole discretion such business is no longer feasible or
desirable or otherwise in the interests of Scripps Holding or Scripps.
Names and Addresses of Members. The names and addresses of the
Members are as reflected on Schedule II.
Period of Duration. The period of duration of the Company shall
commence on the Effective Date and shall continue in perpetuity unless the
Company shall be dissolved and its affairs wound up in accordance with the Act
or this Agreement.
Statutory Agent and Office. The Company's statutory agent and office in
Tennessee shall be CT Corporation System, 530 Gay Street, Knoxville, Tennessee
37902. At any time, the Board of Governors may designate another statutory agent
or office.
Principal Executive Office. The principal executive office of the Company shall
be at 5388 Hickory Hollow Parkway, Nashville, Tennessee, or such other location
as may be approved by the Board of Governors.
Accounting and General Tax Matters
Accounting Methods. The Company shall prepare and maintain its books and records
substantially in accordance with generally accepted accounting principles
(subject, in the case of interim periods, to normal year-end audit adjustments).
The Members' Capital Accounts shall be maintained and Profits and Losses shall
be calculated as provided in this Agreement.
Records. The Company shall maintain and preserve, during the term of the
Company, and for such time after dissolution as the Board of Governors
determines, all accounts, books and other material Company documents and
records, including the documents and records required to be maintained by the
Act.
Fiscal Year. The fiscal year of the Company shall be its Taxable Year, which is
intended to be the twelve (12) calendar month period ending on December 31 in
each year, except that the first fiscal year of the Company shall be that period
(even if less than twelve months) beginning on the Effective Date and ending on
the next following December 31, and the final fiscal year of the Company shall
be that period beginning on January 1 of such year and ending on the date of
cancellation of the Articles of Organization.
Taxation as a Partnership. It is intended that the Company, as a domestic
eligible entity under Treasury Regulations Section 301.7701-3, will be
recognized and treated as a partnership for Federal, state and local tax
purposes and, accordingly, it is agreed that for Federal income tax purposes,
the Company shall keep its books and records and shall report in accordance with
the provisions of Subchapter K of Chapter 1 of the Code and such other Code and
Treasury Regulations provisions as may apply. The Members further agree that no
Member shall cause the Company to elect to be classified other than as a
partnership.
Tax Elections. Except as otherwise provided in this Agreement
(including but not limited to Section 9.4.7 and Section 9.6), the Board of
Governors may make any and all tax elections for the Company allowed under the
Code or the tax laws of any state or other jurisdiction having taxing
jurisdiction over the Company.
Tax Matters Partner. The Board of Governors shall designate one Member
as the "tax matters partner" of the Company pursuant to Section 6231(a)(7) of
the Code. The initial tax matters partner for the Company shall be Scripps
Holding. Upon a Change of Control, a successor "tax matters partner" shall be
designated by a Majority of Members entitled to vote after such Change of
Control is consummated. Any Member designated as the tax matters partner shall
take such action as may be necessary to cause each Member to become a notice
partner within the meaning of Section 6223 of the Code. Any Member who is
designated the tax matters partner may not take any action contemplated by
Sections 6222 through 6232 of the Code without the consent of the Board of
Governors.
Tax Information. The Company shall provide complete tax return
information to the Members within one hundred twenty (120) days after the close
of each Taxable Year.
Management
Management by the Board of Governors. Except to the extent that any
provision of this Agreement or the Act (and in the case of the Act only those
provisions which cannot be modified by this Agreement) requires any power,
authority, or action to be exercised or taken, or first authorized or taken, or
requires any decision to be made, by the Members, the Board of Governors shall
have the complete and exclusive right and the fullest right, power and
authority, and the Members hereby irrevocably grant to the Board of Governors
the complete and exclusive right, power and authority to the fullest extent
permitted by the Act, to manage, direct, and control the affairs and business of
the Company and exercise the authority and powers of the Company. Without
limiting the generality of the foregoing, and by way of example and not
limitation, the Board of Governors will have the sole right, power and authority
(except as otherwise noted) to cause the Company to take any of the following
actions:
acquire, sell, lease, sublease, manage, finance and own
assets, whether or not in the ordinary course of the Company's business;
repurchase Membership Interests or any other class or type of
interest in the Company;
admit new members to the Company and reduce the Membership
Interests of existing Members to reflect the value of new members' contributions
to the Company in accordance with Section 7.2;
make distributions and retain significant balances of cash and
cash equivalents not required for working capital;
subject to and in accordance with Section 4.4, enter into any
transaction with any Member or an Affiliate thereof;
approve an annual budget and any significant deviations
therefrom (including capital, operating, research and development budgets);
make capital expenditures;
establish reserves or write-offs;
pay, collect, compromise, litigate, arbitrate or otherwise
adjust or settle any and all claims or demands of or against the Company or to
hold such proceeds against the payment of contingent liabilities;
borrow money or obtain credit in such amounts, at such rates
of interest and upon such other terms and conditions as it deems appropriate,
including nonrecourse debts, from banks, other lending institutions or any other
Person, including (subject to Section 7.5) the Members or any of their
respective Affiliates, and pursuant to indentures, loan agreements or any other
type of instrument, for any purpose of the Company, and secure payment of the
principal of any such indebtedness and the interest thereon by mortgage, pledge,
conveyance or assignment in trust of or grant security interests in the whole or
any part of any or all of the property and assets of the Company; provided,
however, that no Member shall become personally liable, as a guarantor or
otherwise, without such Member's written consent;
make, execute, assign, acknowledge and file any and all
documents or instruments of any kind which it may deem necessary or appropriate
in carrying out the purposes and business of the Company (and any Person dealing
with the Board of Governors shall not be required to determine or inquire into
its authority or power to bind the Company or to execute, acknowledge or deliver
any and all documents in connection therewith);
assume obligations, enter into contracts, including contracts
of guaranty or suretyship, incur liabilities, lend money and otherwise use the
credit of the Company, and secure any and all obligations, contracts or
liabilities of the Company by mortgage, pledge or other encumbrance of all or
any part of the property and assets of the Company;
invest funds of the Company;
employ and engage suitable agents, employees, advisors,
consultants and counsel (including any custodian, investment advisor,
accountant, attorney, corporate fiduciary, bank or other reputable financial
institution, or any other agents, employees or Persons who may serve in such
capacity for any Member or any Affiliate thereof) to carry out any activities
under this Agreement, including a Person who may be engaged to undertake some or
all of the general management, property management, financial accounting and
recordkeeping or other duties, and to indemnify such Persons against liabilities
incurred by them in acting in such capacity on behalf of the Company;
employ and retain Persons as may be necessary or appropriate
for the conduct of the Company's business;
qualify the Company to do business in any state, territory,
dependency or foreign country;
form or cause to be formed, and own securities of, one or more
corporations, and form or cause to be formed and participate and own interests
in partnerships, joint ventures, limited liability companies, trusts and other
entities;
adopt, fund and maintain employee benefit plans or participate
in affiliated group plans;
select and engage independent accountants;
choose and change accounting and tax policies;
modify or terminate any of the agreements to which the Company
is a party and enter into new agreements; and
take any other actions as the Board of Governors determines to
be appropriate, convenient or incidental to the purposes of the Company.
The expression of any right, power or authority of the Board of
Governors in this Agreement shall not in any way limit or exclude any other
right, power or authority which is not specifically or expressly set forth in
this Agreement.
Board of Governors.
Composition. So long as SATH and Sub collectively hold 12.5%
of the Membership Interests of the Company, the Board of Governors shall consist
of five (5) members, three (3) to be appointed by Scripps Holding (the "Scripps
Governors") and two (2) to be appointed by SATH (the "SATH Governors"). Either
Scripps Holding or SATH may remove one or more of its appointees on the Board of
Governors and appoint substitutes therefor at any time and from time to time
upon written notice to the Company and the other Members. Removals and
appointments shall be mandatory at any time upon which the relative Percentage
Interests of the Members shift pursuant to this Agreement, so that the relative
voting power on the Board of Governors complies at all times with the intent of
this Section 4.1.1. Sub shall not be entitled to a Governor. The Company shall
also allow one representative designated by SATH to attend all meetings of the
Board of Governors in a nonvoting capacity.
Authority. Except for any matter with respect to which
approval of the Members is expressly required by this Agreement, any matter
pertaining to the Company that the Board of Governors in its discretion submits
to a vote of the Members, or any matter with respect to which approval of the
Members is required by any provision of the Act which cannot be modified by this
Agreement (collectively, the "Reserved Matters"), the Board of Governors shall
have full and complete authority, power and discretion to manage and control the
business, operations, affairs and properties of the Company, to make all
decisions regarding those matters and to perform any and all other acts or
activities customary or incident thereto. Except for decisions in respect of the
Reserved Matters, all decisions of the Board of Governors shall be presumed to
be within its scope of authority, power and discretion and shall be binding on
the Company and each Member. The Members hereby waive all rights to vote on
matters relating to the management and control of the business, operations,
affairs and properties of the Company, other than with respect to the Reserved
Matters, and hereby irrevocably assign all such voting rights to the Board of
Governors. No member of the Board of Governors in his or her capacity as such
shall have the authority, power or discretion to take any action individually
other than in the course of carrying out delegated authority, power or
discretion under direction given by the Board of Governors or its delegee duly
acting.
Voting. All approvals, authorizations, consents, decisions,
votes and other actions of the Board of Governors under this Agreement ("Board
Actions") shall be deemed duly given, made or taken if accomplished either by
(i) the affirmative vote of a majority of the Board of Governors at a duly
constituted meeting at which a quorum is present, or (ii) the written action or
consent of a majority of the Board of Governors.
Meetings. Meetings of the Board of Governors will be held
quarterly at such time and place as are specified in a call for such meeting
made by any two members of the Board of Governors by giving at least five (5)
business days prior written notice to the other members of the Board of
Governors of the time, place and purposes of such meeting. Meetings may be held
by conference telephone if each person participating in the meeting can hear and
be heard by the others. A designee of the Board of Governors shall keep minutes
of each meeting and a record of all Board Actions and shall deliver such minutes
and records to the members of the Board of Governors promptly after such
meeting.
Committees. The Board of Governors may form such committees of
its members with such delegated authority, power and discretion as the Board of
Governors may determine from time to time are in the best interests of the
Company and the Members. Each such committee shall include at least one SATH
Governor.
Compensation. The Company shall not compensate any Governor
for services he or she may render to or for the Company in his or her capacity
as Governor; provided that the Company shall reimburse each Governor for his or
her reasonable out-of-pocket expenses incurred in such capacity on behalf of the
Company, subject to any limits imposed by the Board of Governors.
Governors' Time and Effort. Notwithstanding any other
provision of this Agreement to the contrary, no Governor shall be required to
devote his or her full time, effort, or attention to the operations, business
and affairs of the Company, but shall devote such time, effort and attention as
such Governor deems to be reasonably necessary to manage and direct the
operations, business and affairs of the Company.
Officers and Employees.
The day-to-day operational management of the Company shall be
exercised by such officers as shall be appointed from time to time by the Board
of Governors, which officers shall include a President who will be the Chief
Manager of the Company and a Secretary and may include any number of
Vice-Presidents as may be deemed necessary from time to time by the Board of
Governors and a Treasurer, and may include any other officer as may be deemed
necessary by the Board of Governors from time to time. Except for the positions
of President and Secretary which shall not be held by the same Person, one
Person may hold more than one position, but no officer shall execute,
acknowledge, or verify any instrument in more than one capacity. The officers,
subject to the direct control of the Board of Governors, shall do all things and
take all actions necessary or appropriate to run the business of the Company.
Any officer may be removed at any time, with or without cause by the Board of
Governors.
The Company may employ such employees and agents as the Board
of Governors deems necessary or appropriate to effectuate the purposes of the
Company.
The officers and employees of the Company may be officers and
employees of Scripps or its Affiliates, including Scripps Holding, and officers
and employees of the Company may also be officers and employees of Scripps
Holding. The Members hereby waive any conflict of interest that may arise in
connection with the foregoing.
Arrangements with Scripps Affiliates. The Company may enter into
any agreement or contract with any Person who is an Affiliate of Scripps,
without the prior approval of any Member; provided that any such agreement or
contract shall contain substantially such terms and conditions as would be
contained in a similar agreement or contract entered into by the Company with a
comparable, unaffiliated third party.
Compensation of Scripps Holdings.
Scripps Holding and its personnel, and any Affiliates of it
and their personnel utilized by the Company, may be compensated and reimbursed
by the Company for their operating, administrative, management, employee and
clerical services for and on behalf of the Company, including but not limited
to, the following functions: (i) bookkeeping and accounting, (ii) data
processing, (iii) accounts payable, (iv) purchasing, (v) regulatory reporting,
(vi) contract administration, (vii) legal, tax and auditing matters, (viii)
marketing, (ix) advertising and affiliate sales, (x) programming, (xi) promotion
and development, and (xii) human resources matters. Such compensation and
reimbursement shall be on substantially the terms that would be available in
connection with the provision of such services from comparable, unaffiliated
third parties as the Board of Governors shall determine in its discretion.
The Company shall reimburse Scripps Holding for all
compensation, benefits, costs, employment taxes, and expenses paid by Scripps
Holding to any officer or other employee of Scripps Holding or any Affiliate of
Scripps Holding assigned to or working for the Company.
Discretion. Whenever in this Agreement the Board of Governors or a
Member is permitted or required to make a decision in its "discretion" or under
a grant of similar authority or latitude, each Governor or Member shall be
entitled to exercise his or its sole and absolute discretion after considering
only such interests and factors as he or it desires, including, exclusively its
interests in the case of a Member, and the interests of the Member he represents
on the Board of Governors in the case of a Governor; and shall have no duty or
obligation to give preference to any interest of or factors affecting the other
Members of its Governor(s).
General Rights and Obligations of Members
Limitation of Liability. Each Member's personal liability for the debts,
liabilities and obligations of the Company shall be limited as set forth in the
Act, including but not limited to Section 48-217-101 of the Act, and as set
forth in Section 6.1.2.
Standards for Access to Information. Any Member requesting access to
the information described in Section 48-228-102 of the Act shall make such
demand in writing, stating the purpose of the demand in reasonable detail,
mailed or delivered to the Company at the Principal Office. The Company shall
comply with such demand by providing the Member with the right to examine
documents in person or by agent or attorney and to make copies of the documents
personally examined, or providing the Member true and accurate copies of the
documents responsive to the demand. The Company may not keep confidential from
the Members any information concerning the business or affairs of the Company,
including but not limited to, trade secrets, except information that the Company
is required by order of a court of competent jurisdiction to keep confidential,
and any confidential information disclosed to a Member shall be subject to the
confidentiality and nondisclosure provisions of Section 5.8.
Limited Voting and Management Rights. Members (but not Assignees who
have not been admitted as Substitute Members pursuant to Article 12) shall be
entitled to vote only on the Reserved Matters. Except to the extent otherwise
expressly provided in this Agreement or in any provision of the Act which cannot
be modified by this Agreement, all Reserved Matters shall require the
affirmative consent or approval, either in writing or pursuant to a vote at a
duly constituted meeting of the Members entitled to vote thereon, of Members
having Percentage Interests in excess of 50% of the Percentage Interests of all
Members (a "Majority of the Members"). The Members shall meet as often as shall
be necessary to act on the Reserved Matters. Except as otherwise provided in
this Agreement with respect to the Reserved Matters, no Member may in its
capacity as a member participate in the management, control or direction of the
Company's operations, business or affairs, transact any business for the
Company, or have any right, power or authority to act for or on behalf of or to
bind the Company, the same being vested solely and exclusively in the Board of
Governors and its delegees. The Members acknowledge and agree that each Member,
when exercising its right to vote on Reserved Matters, shall be entitled to
exercise such right to vote considering exclusively its own interests and,
without limiting the generality of the foregoing, such Member, in exercising its
right to vote, shall have no duty or obligation to consider the interests of the
Company or the interests of any other Member and may exercise its right to vote
irrespective of the effect that the action proposed to be taken will have on the
Company or on any other Member and that the foregoing provisions apply whether
or not any single Member or group of Affiliated Members constitutes or controls
a Majority of the Members.
Representations and Warranties. Each Member hereby represents and
warrants to the Company and each other Member that: (a) it is duly organized,
validly existing and in good standing under the laws of its state of
organization; (b) it has all requisite power and authority to enter into this
Agreement; (c) its execution and delivery of this Agreement and its consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate or limited liability company action on its part; (d) this
Agreement has been duly and validly executed and delivered by it and constitutes
(assuming the due and valid execution and delivery of this Agreement by the
other party) its legal, valid and binding obligation, enforceable against it in
accordance with its terms; (e) there is no litigation pending or, to the best of
its knowledge, threatened against it which has a reasonable likelihood of
materially and adversely affecting the operations, properties or business of the
Company or any of such party's obligations under this Agreement; (f) its
execution, delivery and performance of this Agreement will not result in a
breach of any of the terms, provisions or conditions of any agreement to which
it is a party which has a reasonable likelihood of materially and adversely
affecting the operations, properties or business of the Company or its
obligations under this Agreement; (g) its execution and delivery of this
Agreement does not require any filing by such party with, or approval or consent
of, any governmental authority which has not already been made or obtained; and
(h) it acknowledges that its Membership Interest has not been registered under
the Securities Act of 1933, as amended, or any state securities laws and may not
be resold or transferred by such party without appropriate registration or in
accordance with an opinion of counsel in form and substance satisfactory to the
Board of Governors that an exemption from such requirements is available.
No Withdrawal of a Member. Except as specifically provided in Article 11, and
subject to the provisions for Disposition contained therein, no Member shall
have the right to withdraw as a Member of the Company prior to the Liquidation
and termination of the Company. No Member shall be considered to have ceased to
be or to have withdrawn as a member of the Company for any reason listed in
Section 48-245-101(a)(5) of the Act, it being the express intent of the parties
that this Agreement contain the complete understanding of the Members in respect
thereof. In addition, no Member shall have the right to receive a return of or
withdraw any portion of its Capital Contributions to, or to receive any
Distributions or Liquidation Proceeds from, the Company, except as provided in
Article 10, Article 11 or Article 13, as the case may be.
Title to Property. All real and personal property owned by the Company shall be
owned by the Company as an entity and no Member shall have any ownership
interest in such property in the Member's individual name or right. No Member,
officer, or agent of the Company shall have the right or authority to pledge,
lien, or mortgage any Company asset for his or its own personal benefit.
Financial Statements. The Board of Governors shall deliver to all
Members annual audited financial statements of the Company, commencing with the
Fiscal Year ending December 31, 2002, within ninety (90) days after the close of
each Fiscal Year and shall deliver to all Members monthly unaudited financial
statements of the Company within thirty (30) days after the end of each fiscal
month, or within such earlier timeframe as necessary to let the Members comply
with their respective reporting obligations to the Securities and Exchange
Commission.
Confidentiality Covenants. Each Member agrees that, except as required by law,
legal process, government regulators, or as reasonably necessary for the proper
performance of such Member's obligations or the enforcement of such Member's
rights under this Agreement, such Member will treat and hold as confidential
(and not disclose or provide access to any Person other than such Member's
attorneys or accountants, without the prior written consent of the Company) and
such Member will cause its Affiliates, officers, managers, governors, partners,
employees and agents to treat and hold as confidential (and not divulge, provide
access to any Person, or use to the detriment of the disclosing Member or the
Company, without the prior written consent of the Board of Governors) all
information relating to (i) the business of the Company and of Scripps Holding
and (ii) any patents, inventions, designs, know-how, trade secrets or other
intellectual property relating to the Company or to Scripps Holding in each case
which is of a proprietary nature and the secrecy of which provides a material,
competitive, or economic advantage to the Company or Scripps Holding, and in
each case excluding (A) information in the public domain when received by such
Member or thereafter in the public domain through sources other than such
Member, (B) information lawfully received by such Member from a third party not
subject to a confidentiality obligation and (C) information developed
independently by such Member. The obligations of the Members hereunder shall not
apply to the extent that the disclosure of information otherwise determined to
be confidential is required by applicable law, provided, however, that prior to
disclosing such confidential information to any party other than a governmental
agency exercising its ordinary regulatory oversight of a Member, a Member shall
notify the Company thereof, which notice shall include the basis upon which such
Member believes the information is required to be disclosed. This Section 5.8
shall survive for a period of five years with respect to any Member that for any
reason ceases to be a Member of the Company and for a period of time agreed to
by all of the Members in connection with any dissolution of the Company pursuant
to Article 13. The provisions of this Section 5.8 shall be enforceable by any
and all remedies available at law and in equity, including, but not limited to,
damages and injunctive relief.
Outside Businesses or Opportunities. Except as set forth in the
letter agreement, dated as of the date hereof, between SATH and Scripps relating
to SATH's right to participate in future acquisitions by Scripps of a home
shopping network, Scripps or any Affiliate thereof may engage in or possess an
interest in any business venture of any nature or description, including,
without limitation, any business venture for the exploitation of home shopping
programming, content, merchandising, licensing and products and services and all
rights in connection therewith in all media and formats now or hereafter
devised, including without limitation, magazines, radio programming, conventions
and trade shows, independently or with others, which business venture may be the
same as, similar to or dissimilar to the business of the Company or Scripps
Holding, and may use the words "Shop At Home"; and neither the Company or
Scripps Holding, nor any Member of the Company or any shareholder of Scripps
Holding, shall have any rights by virtue of this Agreement in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
by Scripps or any such Affiliate of any such venture, even if competitive with
the business of the Company or Scripps Holding, shall not be deemed wrongful or
improper. Neither Scripps nor any Affiliate thereof shall be obligated to
present any particular investment opportunity to the Company or Scripps Holding
even if such opportunity is of a character which, if presented to the Company or
Scripps Holding, could be taken by the Company or Scripps Holding or which,
absent this provision, would have to be presented to the Company or Scripps
Holding, and Scripps or any such Affiliate shall have the right to take for its
own account (individually or as a partner or fiduciary) or to recommend to
others any such particular investment opportunity.
Noncompetition Covenant of SATH. Solely for purposes of this Section
5.10 and for no other purpose, the term "Affiliate" does not include any
individual stockholder of SATH or any Person that is a director or officer of
SATH. During the period in which SATH has any interest in the Company, and for a
period of three years following the earlier of the termination of this Agreement
or the termination of SATH's interest in the Company, neither SATH nor any of
its Affiliates shall directly or indirectly acquire or possess any interest, or
engage or participate, independently or with any other Person, as an owner,
investor, shareholder, member, partner, joint venturer, lender, manager,
governor, operator, distributor, consultant, contractor, director, officer,
employee, agent or otherwise, in any business, enterprise, venture or other
activity that consists of the development, ownership, distribution and
commercial exploitation of a cable television network or interactive web-based
service business the same or substantially the same in concept as the Shop At
Home Network. The provisions of this Section 5.10 shall be enforceable by any
and all remedies available at law and in equity, including, but not limited to,
damages and injunctive relief. Notwithstanding the foregoing, SATH, or any
Affiliate of SATH, may acquire and hold shares constituting not more than five
percent (5%) of the equity in any company where the shareholding is for
investment purposes only and does not confer any control over the business in
question and neither SATH nor any such Affiliate is involved in the management
of such company or provides services to such company.
Re-formation in Delaware. SATH hereby consents to the re-formation of
the Company as a Delaware limited liability company at Scripps Holdings' option,
by virtue of a merger with and into a Delaware limited liability company
containing substantially the same rights and obligations with respect to the
Membership Interests as contained herein.
EXCULPATORY PROVISIONS; Indemnification
Exculpatory Provisions.
General Limitation of Liability. Notwithstanding any other
provision of this Agreement, whether express or implied, or any obligation or
duty at law or in equity (including fiduciary duties), none of the Members, any
Governor, or any of their respective Affiliates, or any of their respective
officers, directors, stockholders, partners, employees, representatives or
agents, and none of the officers, employees, representatives or agents of the
Company or its Affiliates (individually, a "Covered Person" and collectively,
the "Covered Persons") shall be liable to the Company or any Member for any act
or omission of such Covered Person in reliance on the provisions of this
Agreement, provided that such act or omission does not constitute fraud, willful
misconduct or bad faith ("Disabling Conduct"). For the avoidance of doubt, the
Members acknowledge and agree that under no circumstances will the exercise by a
Member of its voting rights, or the direction of a member over its
representative(s) on the Board of Governors, under any section of this Agreement
and the consideration in connection therewith by such Member of exclusively its
own interests irrespective of any interests of the Company or any other Member,
constitute Disabling Conduct. A Covered Person may rely and shall incur no
liability in acting or refraining from acting in reliance upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, paper, document, signature or writing reasonably
believed by such Covered Person to be genuine, and a Covered Person may rely on
a certificate signed by an officer or other agent or representative of any
Person in order to ascertain any fact with respect to such Person or within such
Person's knowledge and may rely on an opinion of counsel selected by such
Covered Person with respect to legal matters, unless in any such case such
Covered Person commits Disabling Conduct.
Limitation of Duties. The provisions of this Agreement,
including, without limitation, this Section 6.1 and Section 5.3, to the extent
that they alter, define, limit, modify or restrict the duties (including
fiduciary duties) and liabilities of any Covered Person otherwise existing at
law or in equity, are agreed by the Members to replace such other duties
(including fiduciary duties) and liabilities of such Covered Person.
No Consequential Damages. Notwithstanding any other provision
of this Agreement, no Covered Person shall be liable to any other Member, any
Governor or other Person claiming by or through any Member, Governor or
Affiliate thereof for any lost profits or any special, incidental,
consequential, or punitive losses or damages arising out of this Agreement or
any breach thereof or any actions or omissions in connection therewith or as the
result of any investment in the Company by any Member or Governor or any rights
as a Member or Governor.
Indemnification of Governors and Other Indemnified Persons.
General Obligations of the Company. To the fullest extent
permitted by law, the Company shall indemnify and hold harmless each Covered
Person from and against any and all losses, claims, demands, liabilities,
expenses (including all fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative in nature,
in which the Covered Person may be involved, or threatened to be involved, as a
party or otherwise, by reason of being a Member or by reason of management of
the affairs of the Company, or status as a Governor, or an Affiliate thereof, or
partner, director, officer, member, manager, governor, stockholder, employee,
representative or agent thereof or of the Company or a Person serving at the
request of the Company, any Governor or any Affiliate thereof with another
Person in a similar capacity, which relates to or arises out of the property,
business or affairs of the Company, and regardless of whether the liability or
expense accrued at or relates to, in whole or in part, any time before, on or
after the date hereof. The negative disposition of any such action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
the Covered Person acted in a manner contrary to the standard set forth in
Section 6.2.2. Any indemnification pursuant to this Section 6.2 shall be made
only out of the assets of the Company.
Disabling Conduct. A Covered Person shall not be entitled to
indemnification under Section 6.2.1 with respect to any claim, issue or matter
in which it has been finally determined by the non-appealable judgment of a
court of competent jurisdiction that it has engaged in Disabling Conduct;
provided that a court of competent jurisdiction may determine upon application
that, despite such Disabling Conduct, in view of all the circumstances of the
case, the Covered Person is fairly and reasonably entitled to indemnification
for such liabilities and expenses as the court may deem proper.
Advances. To the fullest extent permitted by law, expenses
(including legal fees and expenses) incurred by a Covered Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Company of an undertaking by or
on behalf of the covered Person to repay such amount if it shall be determined
that the covered Person is not entitled to be indemnified as authorized in this
Section 6.2.
Non-Exclusivity. The indemnification provided by this Section
6.2 shall be in addition to any other rights to which a Covered Person may be
entitled under any agreement, by law or vote of the Members or otherwise, both
as to action in the Covered Person's capacity as a Governor, an Affiliate
thereof or a partner, director, officer, stockholder, member, manager, governor,
representative, employee or agent thereof, or an officer, employee,
representative or agent of the Company or an Affiliate thereof and, as to action
in any other capacity, shall continue as to a Covered Person who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of a Covered Person.
Insurance. The Company may purchase and maintain insurance, to
the extent and in such amounts as the Board of Governors shall, in its
discretion, deem reasonable, on behalf of Covered Persons and such other Persons
as the Board of Governors shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with activities of the Company or such indemnitees, regardless of whether the
Company would have the power to indemnify such Person against such liability
under the provisions of this Agreement. The Board of Governors may cause the
Company to enter into indemnity contracts with Covered Persons and adopt written
procedures pursuant to which arrangements are made for the advancement of
expenses and the funding of obligations under this Section 6.2 and containing
such other procedures regarding indemnification as are appropriate.
No Personal Liability of Members. In no event may any Covered
Person subject the Members to personal liability by reason of any
indemnification of a Covered Person under this Agreement or otherwise. Any
indemnification by the Company as authorized by this Section 6.2 shall in no
event cause the Members to incur any personal liability beyond their liability
stated under this Agreement, nor shall it result in any liability of the Members
to any third party.
Conflicts of Interest. A Covered Person shall not be denied
indemnification in whole or in part under this Section 6.2 because the Covered
Person had an interest in the transaction with respect to which the
indemnification applies if the transaction is otherwise permitted by the terms
of this Agreement.
Beneficiaries. The provisions of this Section 6.2 are for the
benefit of the Covered Persons and their heirs, successors, assigns,
administrators and personal representatives and shall not be deemed to be for
the benefit of any other Persons. The provisions of this Section 6.2 shall not
be amended in any way that would adversely affect the Covered Person without the
consent of the Covered Person.
Contributions and Loans
Members' Capital Contributions. As of the Effective Date, each Member has made
the Capital Contribution to the Company that is set forth opposite such Member's
name on Schedule II. No Member shall be required to make any additional Capital
Contributions.
Additional Equity Funding. If a Majority of the Members determine,
in such Majority's discretion, that the Company requires funding in addition to
that available under the EWS Credit Facility, the Scripps Governors shall have
the sole discretion to determine whether such funding will be in the form of a
loan to the Company by Scripps or an Affiliate thereof, the Members (pursuant to
Section 7.5) or a third party, or whether such funding will be in the form of
Additional Capital Contributions from the Members or Scripps or an Affiliate of
Scripps or a third party, any such contribution to be based upon the Fair Market
Value of the Company at the time such contribution is proposed to be made, as
determined in accordance with Section 11.8. If Capital Contributions are to be
made in accordance with the foregoing by Scripps or Scripps Holding or any of
their Affiliates, SATH shall be entitled to make an Additional Capital
Contribution on a pro rata basis and will be granted a period of six (6) months,
measured from receipt of written notice evidencing the aforesaid commitment of
Scripps, Scripps Holding or such Affiliate, to determine whether or not to make
such Additional Capital Contribution and to make such Additional Capital
Contribution in accordance herewith. During such six (6) month period, Scripps,
Scripps Holding or such Affiliate of Scripps may make its contemplated
Additional Capital Contribution and may loan to the Company funds equal to the
portion of the Additional Capital Contribution to be made by SATH, with such
loan bearing interest at 6% per annum and with such interest being borne by SATH
and payable at the time of its Additional Capital Contribution. Such loan shall
be repaid in full, with such interest, when SATH makes its Additional Capital
Contribution as contemplated. If a third party makes an additional capital
contribution or if Scripps, Scripps Holding or an Affiliate of Scripps makes
Additional Capital Contributions to the Company, but SATH and/or Sub do not (or
both Scripps and Sub and/or SATH make Additional Capital Contributions, but not
in the ratio of their then-current respective Percentage Interests), then the
Percentage Interests of the Members will be recomputed, based on the ratio of
the fair market values of the Members' respective Capital Accounts as of the end
of the six-month period referred to above and taking into account the Additional
Capital Contributions of the Members. Notwithstanding and without limiting the
foregoing, SATH will not have any preemptive right to purchase any securities
issued to any third party other than Scripps, Scripps Holding or an Affiliate of
Scripps.
No Interest. No interest shall accrue on any Capital Contribution.
Credit Line. The E.W. Scripps Company ("EWS") and the Company have
entered into a credit facility, dated ________, 2002, pursuant to which EWS may
loan up to $35,000,000 in aggregate principal amount to the Company as EWS
determines in its sole discretion is necessary for the working capital needs of
the Company (the "EWS Credit Facility"). Other than Tax Distributions, the
Company shall not make any distributions to the Members until all principal and
interest outstanding under the EWS Credit Facility is paid in full. The Members
each have received and reviewed copies of all documents evidencing the EWS
Credit Facility.
Loans From Members. In the event that the Board of Governors determines in its
reasonable business judgment that it is in the best interest of the Company to
borrow funds from the Members for use in the operation of the business of the
Company, the Company shall give written notice of such determination to the
Members including a requested loan amount. The Members shall have a period of
twenty (20) days from the date of such notice in which to give the Company
written notice that they wish to loan funds to the Company in an amount equal to
the amount of the requested loan, multiplied by their respective Percentage
Interests. In that case, the Company shall execute a promissory note in form and
content reasonably acceptable to all Members making a loan and such Members
shall each loan their share of the requested funds in cash to the Company within
five (5) days after the Member's written election to participate in such loan is
delivered to the Company. If all Members do not elect to participate in the
making of any such loan within the aforementioned twenty (20) day period, the
Company may borrow the remaining amount from the Members who have elected to
participate in such loan request, in such manner as the Board of Governors deems
reasonably appropriate. All loans made pursuant to this Section 7.5 shall be
payable upon demand or upon such other commercially reasonable terms as the
Board of Governors shall determine. Unless otherwise agreed by the Board of
Governors, interest shall accrue and may be payable monthly on the unpaid
principal balance of any such loan at a fluctuating interest rate not to exceed
two percentage points (2%) in excess of the announced prime rate of The Fifth
Third Bank of Cincinnati, Ohio or its successors, and any change in the interest
rate due to a change in such announced prime rate shall be effective immediately
upon and after each such announced change in the prime rate. Any payments made
by the Company on such loans shall be made to the Members in proportion to the
outstanding balance of the loans owed to each of them. In making any such loan,
Members shall be treated as general creditors of the Company and not as Members.
Capital Accounts
Creation and Maintenance.
Interpretations. The Company shall maintain for each Member a
separate Capital Account in accordance with Treasury Regulations Section
1.704-1(b), this Section 8.1 and all other provisions of this Agreement relating
to the maintenance of Capital Accounts. All such provisions of this Agreement
are intended to be interpreted and applied in a manner consistent therewith.
Computations. The Capital Account of each Member shall, except
as otherwise expressly stated herein, initially consist of the amount of its
Capital Account immediately after the date of this Agreement. The Member's
Capital Account shall be increased by (a) the amount of cash or the Agreed Value
of Contributed Property it contributes to the Company, net of liabilities
assumed by the Company or to which the Contributed Property is subject and (b)
its allocable share of Profits and items thereof allocated pursuant to the
provisions of this Agreement. Its Capital Account shall be decreased by (i) the
amount of any cash distributed to it, (ii) the fair market value of any Company
Property distributed to it (net of the amount of any Company liability assumed
by such Member or which is secured by any Company Property distributed to such
Member), (iii) its allocable share of Losses and items thereof allocated
pursuant to the provisions of this Agreement, (iv) its share of any expenditures
described in Code Section 705(a)(2)(B), and (v) such other items as are required
by the Treasury Regulations.
Book Value and Revaluations of Company Property.
"Book Value" means, with respect to any asset of the
Company, such asset's adjusted basis for federal
income tax purposes, except as follows:
The initial Book Value of any Contributed
Property shall be the gross fair market value of such
asset.
The Book Value of all Company assets shall
be adjusted to equal their respective gross fair market
values, as determined by the Board of Governors in accordance with Code Section
7701(g), as of the following times: (a) the acquisition of an additional
interest in the Company by any new or existing Member in exchange for more than
a de minimis Capital Contribution; (b) the distribution by the Company to a
retiring or continuing Member as consideration for a Membership Interest in the
Company of more than a de minimis amount of money or other Company Property; and
(c) the Liquidation of the Company.
If the Book Value of an asset has been determined or adjusted pursuant to
clause (i) or (ii) of this Section 8.1.3, such Book Value shall thereafter be
adjusted for the Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
The decision of whether to revalue the Company Property and the Members'
Capital Accounts, and the amount of any such adjustments shall be determined by
the Board of Governors using such reasonable methods of valuation as it may
adopt.
Effective Terminations under Code Section 708(b)(1)(B). A
Transferee of a Member's Membership Interest will succeed to the Capital Account
(or portion thereof) relating to the Disposed interest; provided, however, that
if the Disposition causes a termination of the Company under Code Section
708(b)(1)(B), the Company Properties shall be deemed to have been contributed to
a new limited liability company in exchange for all of the interests in such new
limited liability company, which interests will then be deemed to be distributed
in Liquidation of the Company to the Members (including the transferee of an
interest). The Capital Accounts of such new limited liability company shall be
maintained in accordance with the principles set forth herein, this Agreement
will apply to such new limited liability company and all references herein to
the Company will become references to the new limited liability company.
Transfer of Capital Account; No Code Section 743 Adjustment. In the
event of a Disposition of some or all of a Member's Membership Interest as
permitted by this Agreement, the Capital Account of the Disposing Member shall
become the Capital Account of the Transferee to the extent it relates to the
portion of the Membership Interest subject to the Disposition. The Capital
Account to which a Transferee succeeds pursuant to a Disposition shall not be
adjusted to reflect any basis adjustment under Code Section 743.
No Deficit Restoration Obligation. Notwithstanding anything in this
Agreement to the contrary, no Member shall have an obligation to make any
contributions of capital to the Company at any time, including but not limited
to an obligation to restore a deficit Capital Account or otherwise.
Allocations
Allocation of Operating Profits and Losses. After accounting for the
special allocations contemplated by Section 9.4, and subject to the provisions
of Section 9.2 and Section 9.3, Operating Profits and Losses shall be allocated
among the Members as follows:
Profits. Operating Profits shall be allocated in the
following order and priority:
(a) First, to the extent that Losses have been allocated pursuant to Section
9.1.2(b), Profits shall be allocated among the Members to offset the Losses
allocated pursuant to Section 9.1.2(b) until the cumulative Profits allocated
pursuant to this Section 9.1.1(a) equal cumulative Losses allocated pursuant to
Section 9.1.2(b) for all periods (and allocated among the Members pro rata in
proportion to their shares of Losses being offset).
(b) Second, the balance, if any, shall be allocated to the Members pro rata in
proportion to their respective Percentage Interests.
Losses. Operating Losses shall be allocated in the following
order and priority:
First, to the extent Profits have been allocated
pursuant to Section 9.1.1(b) for any prior Taxable Year,
Losses shall be allocated first to offset any Profits allocated pursuant to
Section 9.1.1(b) (pro rata among the Members in proportion to their shares of
Profits being offset). To the extent that any allocations of Profits are offset
pursuant to this Section 9.1.2(a), such allocations shall be disregarded for
purposes of computing subsequent allocations pursuant to this Section 9.1.2(a).
Second, to the Members pro rata in proportion to
their respective Percentage Interests.
Limitations and Special Allocations. Notwithstanding the
provisions of Section 9.1.2, no Losses will be allocated to a Member to the
extent it would result in or cause a further increase in a deficit balance in
its Adjusted Capital Account as of the end of the Taxable Year. In such event,
such Losses will be allocated among the Members pro rata in proportion to their
Adjusted Capital Account balances. Furthermore, if any Losses are allocated
among the Members pursuant to this Section 9.1.3(a), then notwithstanding the
provisions of Section 9.1.1, Operating Profits occurring after the Taxable Year
of such Losses will first be allocated to those Members to offset the Losses so
allocated pursuant to the second sentence of this Section 9.1.3(a).
Special Allocations. Notwithstanding anything to contrary contained in
Section 9.1, the following special allocations contemplated by this Section 9.2
shall in all events apply in determining the allocation of Profits and Losses
among the Members and shall be made prior to the allocations required under
Section 9.1.
Nonrecourse Deductions. Nonrecourse Deductions shall be
allocated to the Members in proportion to their Percentage Interests.
Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Taxable Year shall be allocated to the Member(s) bearing the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2 (i)(1).
Company Minimum Gain. Notwithstanding any other provisions of
this Agreement, in the event there is a net decrease in Company Minimum Gain
during a Taxable Year, the Members shall be allocated items of income and gain
in accordance with Treasury Regulations Section 1.704-2(f). For purposes of this
Agreement, this Section 9.2.3 is intended to comply with the minimum gain
charge-back requirement of Treasury Regulations Section 1.704-2(f) and shall be
interpreted and applied in a manner consistent therewith.
Member Minimum Gain. Notwithstanding any provision of the
Agreement to the contrary (except Section 9.2.3 and subject to the exceptions
set forth in Treasury Regulations Section 1.704-2(i)(4)), if there is a net
decrease in Member Nonrecourse Debt Minimum Gain during any Taxable Year, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain, determined
in accordance with Treasury Regulations Section 1.704-2(i)(3), shall be
specially allocated items of Company income and gain for such Taxable Year (and,
if necessary, subsequent Taxable Years) in an amount equal to such Member's
share of the net decrease in Member Nonrecourse Debt Minimum Gain, determined in
accordance with Treasury Regulations Section 1.704-2(i)(5). Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(4). This Section 9.2.4 is intended to comply with the minimum gain
chargeback requirement in Treasury Regulations Section 1.704-2(i) and shall be
interpreted consistently therewith. Solely for purposes of this Section 9.2.4,
each Member's Adjusted Capital Account balance shall be determined prior to any
other allocations pursuant to this Article 9 with respect to such Taxable Year,
other than allocations pursuant to Section 9.2.3.
Qualified Income Offset. Any Member who unexpectedly receives
an adjustment, allocation or distribution described in Treasury Regulations Code
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes a deficit balance in
its Capital Account (in excess of any amounts which such Member is obligated to
restore to the Company, if any, or any deemed deficit restoration obligation
pursuant to Treasury Regulations Sections 1.704-2(g)(1) and (i)(5)), shall be
allocated items of income and gain in an amount and a manner sufficient to
eliminate, to the extent required by the Treasury Regulations, such deficit
balance as quickly as possible. This Section 9.2.5 is intended to comply with
the alternate test for economic effect set forth in Treasury Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in a manner consistent
therewith.
Gross Income Allocation. If any Member has a deficit Capital
Account at the end of any Company Taxable Year which is in excess of the sum of
(i) the amount (if any) such Member is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be
specially allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 9.2.6 shall be made only if and to the extent that such Member would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article 9 have been made as if this Section 9.2.6 and
Section 9.2.5 were not in this Agreement.
Code Section 754 Adjustments. To the extent an adjustment to
the adjusted basis of any Company Property or Contributed Property pursuant to
Code Section 734(b) or Code Section 743(b) is required, pursuant to the Treasury
Regulations to be taken into account in determining Capital Accounts, the amount
of such adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to the Treasury Regulations.
Corrective Allocations. The allocations set forth in Section 9.2 (the
"Regulatory Allocations") are intended to comply with the requirements of
Treasury Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding any other
provisions of this Article 9 (other than the Regulatory Allocations), the
Regulatory Allocations shall be taken into account as provided for in the
following two sentences. Income, gain, loss and deduction shall be reallocated
to the extent that such reallocation causes the net aggregate amount of
allocations of income, gain, deduction and loss to each Member to be equal to or
more closely approximate the net aggregate amount of such items that would have
been allocated to each such Member if the Regulatory Allocations had not
occurred. This Section 9.3 shall be interpreted and applied in such a manner and
to such extent as is reasonably necessary to eliminate, as quickly as possible,
permanent economic distortions that would otherwise occur as a consequence of
the Regulatory Allocations in the absence of this Section 9.3.
Application of Code Section 704(c). Notwithstanding any other provision
of this Agreement, to the extent required by law, taxable income, gain, loss,
deduction, and items thereof attributable to Contributed Property and to Company
Property that has been revalued pursuant to Section 8.1.3 shall be shared among
the Members so as to take into account any variation between the basis of the
property and the fair market value of the property at the time of contribution
or revaluation in accordance with the requirements of Section 704(c) of the Code
and the applicable Treasury Regulations thereunder. Further, if Code Section
704(c) applies to any such property, all required reallocations shall be made
using the method(s) prescribed by the Board of Governors.
Distributions of Nonrecourse Liability Proceeds. If, during a Taxable
Year, the Company makes a distribution to any Member that is allocable to the
proceeds of any Nonrecourse Liability of the Company that is allocable to an
increase in Company Minimum Gain pursuant to Treasury Regulations Section
1.704-2(h), then the Company shall elect, to the extent permitted by Treasury
Regulations Section 1.704-2(h)(3), to treat such distribution as a distribution
that is not allocable to an increase in Company Minimum Gain.
Allocation of Debt. For purposes of allocating excess Nonrecourse
Liabilities among the Members pursuant to Treasury Regulations Section
1.752-3(a)(3), the Members' interests in Profits shall be allocated among the
Members in the proportion to their respective Percentage Interests.
Other Allocation Provisions.
Elections. Except as otherwise provided in this Agreement
(including but not limited to Sections 9.2.7 and 9.4) herein, any elections or
other decisions relating to the allocations of Company items of income, gain,
loss, deduction or credit shall be made by the Board of Governors in any manner
that reasonably reflects the purpose and intention of this Agreement.
Fees to Members. Notwithstanding any provision of the
Agreement to the contrary, to the extent any payments in the nature of fees paid
to a Member are finally determined by the Internal Revenue Service to be
distributions to a Member for federal income tax purposes, such Member shall be
allocated gross income in the amount of such distribution.
Distributions
Distributions.
Definition of Distributable Cash. For purposes of this
Agreement, the term "Distributable Cash" means, as of the close of each quarter
of the Fiscal Year, the aggregate amount of cash on hand or in bank, money
market, marketable securities or similar accounts of the Company derived from
any source and which the Board of Governors determines, in its discretion, is
available for distribution to the Members, after taking into account amounts
necessary to pay or fund (i) operating expenses, including but not limited to
management expenses, (ii) capital expenditures in excess of those paid with
Capital Contributions and borrowed funds, (iii) legal, accounting, management,
consulting and advisory fees, (iv) principal and interest payments on borrowed
money (including any money borrowed from a Member or an Affiliate of a Member),
and (v) any reserves established by the Board of Governors in its discretion for
the current Fiscal Year for working capital or other purposes incident to the
operation of the Company or contingent liabilities or to maintain or supplement
existing reserves established by the Board of Governors in its discretion.
Tax Distributions.Within thirty (30) days, or as soon
thereafter as possible, after the end of each fiscal quarter of the Company, the
Company shall calculate and distribute to each Member such Member's Mandatory
Tax Distribution Amount (as defined herein). The "Mandatory Tax Distribution
Amount" for each Member in each fiscal quarter of each Fiscal Year means an
amount equal to the excess of (i) the product of (A) the Company's taxable
income allocated to (or reasonably estimated to be allocable to) that Member
from the beginning of the Fiscal Year through the end of such fiscal quarter
attributable to the items allocated to that Member pursuant to this Agreement
and (B) the maximum federal corporate income tax rate and the maximum combined
state and local corporate income tax rate to which any Member is subject (less
the effect of the deduction of state and local income taxes on the federal
return, assuming no limitation of that deduction under Code Section 68), over
(ii) the aggregate Mandatory Tax Distribution Amounts distributed to that Member
for all prior fiscal quarters in such Fiscal Year. Solely for purposes of this
Section 10.1.2, if a Member is allocated a loss for federal income tax purposes
under Article 9 for any Fiscal Year or period of the Company beginning after the
date of this Agreement, such net loss shall be offset against, and shall reduce
the income allocated (or reasonably estimated to be allocable) to, such Member
under this Section 10.1.2 in subsequent fiscal quarters of the Company (until
such loss is exhausted) for purposes of calculating the Mandatory Tax
Distribution Amount for such Member for such subsequent fiscal quarters within
the same calendar year. The Mandatory Tax Distribution Amount shall be paid by
check delivered by Express Mail, or by wire transfer, (i) at least ten (10) days
in advance of each date on which quarterly payments of estimated federal income
taxes are due and (ii) on April 10th of the following tax year for any
reconciliation amounts. Payments of Mandatory Tax Distribution Amounts shall be
made before any other distributions of Distributable Cash.
Distributions of Distributable Cash. To the extent that the
Company has any Distributable Cash after the payment of Tax Distributions under
Section 10.1.2, the Board of Governors, in its sole discretion, may distribute
all or a portion of the balance of the Distributable Cash to the Members in
proportion to their Membership Interests in the Company; provided, however, that
the parties agree, in accordance with Section 7.4, that it is not the intention
of the Members that the Board of Governors distribute any Distributable Cash to
the members until after payment of the EWS Credit Facility.
Distributions of Proceeds from Interim Capital Transactions.
If the Company engages in an Interim Capital Transaction, the net proceeds
received by the Company from such Interim Capital Transaction may, in the
discretion of the Board of Governors, be first distributed to Scripps under the
EWS Credit Facility, then to Scripps Holding and any other Member to repay its
loans (plus interest), and then to the Members pro rata in proportion to their
Percentage Interests.
Distributions of Proceeds from Liquidating Capital
Transactions. The proceeds of a Capital Transaction (other than from an Interim
Capital Transaction) shall be distributed among the Members in accordance with
Section 13.5.4.
General Limitations on Distributions. No Distributions shall be
required or permitted, except as provided in this Article 10, in Article 11 with
respect to involuntary withdrawals pursuant to which the Company has exercised
its Event Option, and in Article 13 with respect to Liquidation of the Company.
Dispositions of Membership Interests
General Restrictions. Except as specifically provided in this
Agreement, no Member, Assignee or other Transferee may directly or indirectly
Dispose of all or any part of its Membership Interest or other equity interests
in the Company, whether now owned or hereafter acquired, without first complying
with the terms and conditions of this Article 11. Notwithstanding the foregoing,
in no event will SATH be permitted to pledge, hypothecate or encumber its
Membership Interest without the written consent of Scripps Holdings to be
provided in Scripps Holdings' sole discretion; provided, however that nothing in
this Article 11 will prohibit the pledge by SATH of its Membership Interest to
Scripps or an Affiliate of Scripps as security for any indebtedness for borrowed
money. Without limiting the generality of the foregoing, no Disposition shall be
permitted, even if permitted by any other provision of this Article 11, unless
each of the following conditions are satisfied in the judgment of, or waived in
writing by, the Board of Governors in its discretion:
The Member, Assignee or other Transferee engaging or
attempting to engage in such Disposition (the "Assigning Member") complies with
all applicable provisions of this Article 11;
The Person engaging or attempting to engage in such
Disposition as the Transferee agrees in writing to assume all of the obligations
of the Assigning Member with respect to such Membership Interest (including the
obligations imposed under this Agreement, including this Article 11) as a
condition to any Disposition and becomes a party to this Agreement;
The Assigning Member and the Transferee each execute,
acknowledge and deliver to the Company such instruments of transfer and
assignment with respect to such Disposition and such other instruments as may be
reasonably deemed necessary by, and in form and substance reasonably
satisfactory to, the Board of Governors (including the written instruments
described in Section 12.2, if applicable);
Either (i) the Disposed interests will be registered under the
Securities Act of 1933, as amended, and any applicable state securities laws, or
(ii) the Company shall have received, at the expense of the parties to the
Disposition, an opinion of counsel for the Company (or counsel acceptable to
counsel of the Company) to the effect that such Disposition is exempt from
registration under the Securities Act of 1933, as amended, and is in compliance
with all applicable federal and state securities laws and regulations; provided
that, in the event that the Board of Governors waives such opinion requirements,
such waiver will not constitute a waiver of any subsequent Disposition of such
interest or the Disposition of any other interest;
The Disposition does not cause any Nonrecourse Debt that is
not already Member Nonrecourse Debt to become Member Nonrecourse Debt;
The Disposition does not result in or create a "prohibited
transaction" as defined in Code Section 4975(c), or result or cause the Company
or any Member, or any Affiliate of a Member, to be liable for any excise tax
under Chapter 42 of the Code, or result in or cause any interest in the Company
or the Company's assets to become an asset of an employee benefit plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
or any successor law, and rules and regulations issued pursuant to thereto);
The Disposition does not cause any violation of or an event of
default under, or result in acceleration of any indebtedness under, any note,
mortgage, loan, or similar instrument or document to which the Company is a
party;
The Disposition does not cause a material adverse tax
consequence to the Company or any of the Members including but not limited to
any material adverse tax consequence resulting, directly or indirectly, from the
termination of the Company under Code Section 708;
The Disposition does not cause the Company to be classified as
an entity other than a partnership for purposes of the Code;
The Assigning Member and Transferee furnish the Company with
the Transferee's taxpayer identification number, sufficient information to
determine the Transferee's initial tax basis in the interest Disposed, and any
other information necessary to permit the Company to file all required federal
and state tax returns and other legally required information statements or
returns; provided that, without limiting the generality of the foregoing, the
Company will not be required to make any distribution otherwise provided for in
this Agreement with respect to any Disposed interests until it has received such
information; and
All costs of the Disposition incurred by the Company are
reimbursed by the Assigning Member or the Transferee to the Company.
Void Dispositions. Any attempted Disposition of a Membership Interest,
or any part thereof, not in compliance with this Article 11 shall be null and
void ab initio as against the Company and all other Persons, the Company's
rights under Section 11.7 shall apply, and the Assigning Member(s) shall be
liable to the Company and the other Members for all damages, costs and expenses
the other Members may sustain or incur as a result of such attempted
Disposition.
Scripps Holding's Right of First Refusal.
Notice of Intended Disposition. If SATH and Sub desire to
accept a bona fide non-Affiliated third party offer for the Disposition of all
(but not less than all) of their collective Membership Interests, whether in the
public or private markets (including an initial public offering), SATH and Sub
shall promptly deliver to Scripps Holding a written offer (the "Offer") to sell
such Membership Interests to Scripps Holding on terms and conditions not less
favorable to Scripps Holding than those under which they propose to Dispose of
such Membership Interests to such third party. The Offer shall disclose the
identity of the third party offeror, the agreed terms of the proposed
Disposition (including a date certain on which the Disposition will be abandoned
and terminated if not then consummated), and any other material facts relating
to the proposed Disposition. SATH and Sub shall also provide satisfactory proof
that the Disposition of the Membership Interests to such third party offeror
would not be in contravention of the provisions set forth in Section 11.1.
Exercise of Right. Within 30 days after receipt of the Offer,
Scripps Holding may give written notice to SATH and Sub of its intent to
purchase all of SATH's and Sub's Membership Interests on substantially the same
terms and conditions as set forth in the Offer. Scripps Holding will have the
right to transfer its right to purchase the Membership Interests to any of its
Affiliates.
Non-Exercise of Right. If Scripps Holding does not exercise
its rights under this Section 11.3, SATH and Sub may thereafter Dispose of all
(but not less than all) of their collective Membership Interests to the third
party offeror identified in the Offer upon the terms and conditions specified in
the Offer; provided that any such Disposition must not be effected in
contravention of the provisions of Section 11.1 and the terms of Article 11 must
be recognized, including but not limited to Scripps Holding's rights under
Section 11.5, and such Disposition must be consummated or abandoned and
terminated by a date certain set forth in the Offer but in any event not later
than 90 days after the Offer has been declined by Scripps Holding or the time
for exercise has lapsed. If SATH and Sub do not effect such Disposition of such
Membership Interests within the specified period, this Section 11.3 will
continue to be applicable to any subsequent attempted Disposition of SATH's and
Sub's Membership Interests.
SATH Debt. In the event of a sale of SATH's and Sub's
Membership Interests under this Section 11.3 (whether or not Scripps Holding is
the purchaser) SATH shall use the proceeds of such sale (less expenses related
thereto but including the proceeds to Sub) to first, redeem any Series D Senior
Redeemable Preferred Stock (the "Series D Preferred Shares") held by EWS or its
Affiliates at the Original Issue Price thereof, plus accrued and unpaid
dividends thereon, and second, pay to EWS or its Affiliates principal and
interest owed by SATH to EWS or its Affiliates under any indebtedness for
borrowed money. If Scripps Holding is the purchaser hereunder, Scripps Holding
will have the right to offset, on a dollar for dollar basis, from the purchase
price payable to SATH hereunder an amount equal to such outstanding
indebtedness, redemption price and dividends.
Transfers to Affiliates. Subject only to compliance with Sections 11.1,
a Member or permitted Transferee that is an Entity (each, an "Entity Member")
may Dispose of all or any portion of such Entity Member's interests in the
Company to any member of an affiliated group of corporations within the meaning
of Code Section 1504 that includes such Entity Member. Upon consummation of any
Disposition covered by this Section 11.4 in compliance herewith, such Transferee
shall become a Substitute Member upon execution of a counterpart of this
Agreement.
Scripps Holding's Right to Sell; SATH's and Sub's Tag Along Right;
Scripps Holding's Drag Along Right. Subject only to compliance with Section 11.1
and this Section 11.5, Scripps Holdings and its successors and assigns may
Dispose of any or all of their Membership Interests to any Person (a
"Purchaser") without notice to any other Member and without any further
restriction. As a condition to the effectiveness of any such Disposition, if
Scripps Holding intends to Dispose of its Membership Interest and such
Disposition would result in a Change of Control of the Company, SATH and Sub
will have the collective right to require, as a condition to such Disposition,
that the Purchaser purchase from SATH and Sub all of SATH's and Sub's Membership
Interests. Such right of SATH and Sub must be exercised concurrently and neither
may exercise such right without the participation of the other. Scripps Holding
shall promptly deliver to SATH and Sub written notice of the proposed
Disposition (the "Sale Notice"), including the terms and conditions of the
Purchaser's offer, including the price to be paid to Scripps Holding, and the
closing and termination dates, the identity of the Purchaser and any other
material facts or terms and conditions. SATH and Sub shall notify Scripps
Holding of their intention to participate in such sale as soon as practicable
but not later than 30 days after receipt of the Sale Notice, which notice of
intention to participate together with the Sale Notice, will be deemed to
constitute a valid, legally binding and enforceable agreement for the
Disposition of all of SATH's and Sub's Membership Interests. Scripps Holding,
SATH and Sub shall sell to the Purchaser all of the Membership Interests in the
Company proposed to be Disposed by them at not less than the price originally
offered by the Purchaser, and upon other terms and conditions, if any, not more
favorable to the Purchaser than those originally offered. Scripps Holding shall
use its reasonable best efforts to obtain the agreement of the Purchaser to the
participation of SATH and Sub in the contemplated Disposition, and shall not
Dispose of any Membership Interest to such Purchaser if such Disposition would
result in a Change of Control of the Company and such Purchaser declines to
purchase all of SATH's and Sub's Membership Interests pursuant to the terms of
this Section. If (a) SATH and Sub elect not to, or otherwise fail to notify
Scripps Holding of their decision to or not to, participate in the sale under
the Sale Notice and (b) the sale under the Notice of Sale would result in a
Change of Control of the Company, Scripps Holding will have the right, but not
the obligation, to require SATH and Sub to sell all of their Membership
Interests pursuant to the Sale Notice and the foregoing provisions of this
Section by written notice of such requirement given within 45 days after its
delivery of the Sale Notice to SATH and Sub. In the event of a sale of SATH's
and Sub's Membership Interests under this Section 11.5, SATH shall use the
proceeds of such sale (less expenses related thereto but including the proceeds
to Sub) to first, redeem any Series D Preferred Shares held by EWS or its
Affiliates at the Original Issue Price thereof, plus accrued and unpaid
dividends thereon, and second, pay to EWS or its Affiliates principal and
interest owed by SATH to EWS or its Affiliates under any indebtedness for
borrowed money. If Scripps Holding is the purchaser hereunder, Scripps Holding
will have the right to offset, on a dollar for dollar basis, from the purchase
price payable to SATH hereunder an amount equal to such outstanding
indebtedness, redemption price and dividends.
Put and Call Rights.
SATH's and Sub's Put Right. At any time after the second
anniversary of the Effective Date and prior to the fifth anniversary of the
Effective Date, SATH and Sub will have the right (the "Put Right") to require
the Company to purchase all but not less than all of the Membership Interests of
SATH and Sub on the Contract Terms at a price equal to the Fair Market Value
thereof (as determined under Section 11.8). The Put Right must be exercised by
SATH and Sub concurrently and neither may exercise such right without the
participation of the other. The Fair Market Value will be determined as of the
date on which SATH and Sub give written notice to the Company and Scripps
Holding of its intent to exercise such right. The closing of a Disposition shall
take place not later than 30 days after the Fair Market Value is finally
determined. Notwithstanding any permitted Disposition of SATH's and Sub's
interests in the Company, the Put Right may not be Disposed to any Person other
than a Transferee pursuant to Section 11.4. Notwithstanding the foregoing
provisions of this Section 11.6.1, the Put Right may not be exercised if a Sale
Notice has been given pursuant to Section 11.5 and has not been rescinded or
otherwise terminated. As a condition to the closing of the transactions
contemplated by exercise of the Put Right, SATH shall use the proceeds of such
sale (less expenses related thereto but including the proceeds to Sub) to redeem
any Series D Preferred Shares held by Scripps or its Affiliates at the Original
Issue Price thereof, plus accrued and unpaid dividends thereon, and the put
price will be reduced, on a dollar for dollar basis, first, by such redemption
price, including accrued and unpaid dividends thereon, and second, by the amount
of principal and interest owed by SATH to Scripps or its Affiliates under any
indebtedness for borrowed money.
SATH's Put Right Upon Scripps's Disposition of Scripps Holding
Shares. If Scripps Disposes of or attempts to Dispose of such shares in Scripps
Holding that such Disposition (or series of related or unrelated Dispositions)
of the shares in Scripps Holding such that, upon consummation thereof, Scripps
and/or its Affiliates (taken as a group) would no longer possess, directly or
indirectly, the power to direct or cause the direction of management or policies
of Scripps Holding through the ownership of shares, then SATH and Sub may
exercise their Put Right in Section 11.6.1 notwithstanding any limitations with
respect to timing set forth in the first clause of such Section.
Scripps's Call Right. Except to the extent such right may be
exercised earlier pursuant to Section 11.6.4, 11.6.5 or 11.6.6, at any time upon
and after the fifth anniversary of the Effective Date, Scripps Holding will have
the right (the "Call Right") to require SATH and Sub to sell all and not less
than all of their Membership Interests to Scripps Holding (or its assignees) on
the Contract Terms at a price equal to the Fair Market Value thereof. The Fair
Market Value will be determined as of the date on which Scripps Holding gives
written notice to SATH and Sub of its intent to exercise such right. The closing
of such Disposition will take place not later than 30 days after the Fair Market
Value is so determined. Notwithstanding the foregoing provisions of this Section
11.6.3, the Call Right may not be exercised if a Sale Notice has been given
pursuant to Section 11.5 and has not been rescinded or otherwise terminated. As
a condition to the closing of the transactions contemplated by exercise of the
Call Right, SATH shall use the proceeds of such sale (less expenses related
thereto but including the proceeds to Sub) to redeem any Series D Preferred
Shares held by Scripps or its Affiliates at the Original Issue Price thereof,
plus accrued and unpaid dividends thereon, and the call price will be reduced,
on a dollar for dollar basis, first, by such redemption price, including accrued
and unpaid dividends thereon, and second, by the amount of principal and
interest owed by SATH to Scripps or its Affiliates under any indebtedness for
borrowed money.
Scripps Holding Call Right Upon SATH's Disposition of Scripps
Holding Shares. If SATH Disposes of or attempts to Dispose of its shares in
Scripps Holding under any circumstances, then Scripps Holding may exercise its
Call Right in Section 11.6.3 notwithstanding any limitations with respect to
timing set forth in the first clause of such Section.
Scripps Call Right Upon Change in Control of SATH. If (A) the
board of directors or shareholders of SATH approve a merger or consolidation
that results in the shareholders of SATH immediately prior to the transaction
giving rise to the consolidation or merger owning less than 50% of the total
combined voting power of all classes of stock entitled to vote of the surviving
entity immediately after the consummation of the merger or consolidation, (B)
the board of directors or shareholders of SATH approve the sale of substantially
all of the assets of SATH or the liquidation or dissolution of SATH, (C) any
person or other entity (other than SATH) purchases any shares (or securities
convertible into shares) pursuant to a tender or exchange offer without the
prior consent of the board of directors or becomes the beneficial owner of
securities of SATH representing 25% or more of the voting power of SATH's
outstanding securities, (D) during any two-year period, individuals who at the
beginning of such period constitute the entire board of directors of SATH cease
to constitute a majority of the board of directors of SATH, unless the election
or the nomination for election of each new director is approved by at least
two-thirds of the directors then still in office who were directors at the
beginning of that period or (E) any third party acquires the power to direct or
cause the direction of management or policies of SATH through the ownership of
securities, by contract or otherwise, then Scripps Holding may exercise its Call
Right in Section 11.6.3 notwithstanding any limitations with respect to timing
set forth in the first clause of such Section.
Scripps Call Right Upon Default. If SATH is in default under
this Agreement or any other agreement between it and Scripps or an Affiliate of
Scripps (including without limitation the Amendment to SATH's Charter relating
to the Series D Preferred Shares), then Scripps Holding may exercise its Call
Right in Section 11.6.3 notwithstanding any limitations with respect to timing
set forth in the first clause of such Section.
Limitation on Exercise Based on Exercise of Put/Call Relating
to Scripps Holding. Notwithstanding anything to the contrary in the foregoing
Section 11.6, neither the Put Right nor the Call Right may be exercised unless
the Put Right or the Call Right, respectively, set forth in Section 3(f) of the
Shareholder Agreement among Scripps Holding, SATH and Scripps relating to the
ownership by Scripps and SATH of shares of Scripps Holding is exercised by SATH
or Scripps, respectively.
Certain Buyout Events.
Definition of Event. For purposes of this Section 11.7, the
term "Event" means the occurrence of any of the following events or
circumstances with respect to any Member or Assignee or other Transferee during
any period of ownership of any Membership Interest by such Member or Assignee or
other Transferee or with respect to any Membership Interest subject to this
Agreement:
such Member, Assignee or Transferee becomes or is
determined to be bankrupt or insolvent;
such Member, Assignee or Transferee institutes or
has instituted against it any proceedings of any
kind under any provision of any applicable bankruptcy or insolvency law seeking
any readjustment, arrangement, composition, postponement or reduction of debts,
liabilities or obligations (in the case of any involuntary proceeding, which is
not removed or dismissed within ninety (90) days);
such Member, Assignee or Transferee makes an
assignment for the benefit of its creditors;
such Member, Assignee or Transferee is required
or deemed to have Disposed of any interest in any of
its Membership Interest by operation of law (other than a Disposition to the
Company);
any Membership Interest of such Member, Assignee
or Transferee is attached by, levied upon by, or
becomes subject to judicial or other legal process and such proceeding is not
removed, discharged, dismissed or bonded within ninety (90) days;
the death or Permanent Disability of any Member,
Assignee or Transferee who is a natural Person; or
any Membership Interest of such Member, Assignee
or Transferee is the subject of a Disposition or an
attempted Disposition in any way (including a sale ordered by a court or a
Disposition required or deemed to have occurred by operation of law, other than
a Disposition to the Company) in breach of this Agreement.
Purchase Option of the Company. Upon the occurrence of an
Event, the Member, Assignee or Transferee subject to such Event or its legal
representative, if applicable (the "Offering Member"), shall notify the Company
and all Members of the Event within five (5) days of its occurrence (the "Event
Notice") and, thereupon, the Company shall have the right, but not the
obligation, to purchase all, but not less than all, of the Membership Interest
owned or held beneficially by the Offering Member at the time of such Event at
the price equal to its Fair Market Value as of the date that is the calendar
month-end immediately preceding such Event and on and in accordance with the
Contract Terms (the "Event Option"). Within five (5) days after the
determination of the Fair Market Value in accordance with Section 11.8, the
Company shall notify the Offering Member and the other Members of whether it
intends to exercise the Event Option and upon any such exercise, the closing
thereof shall be made on and in accordance with the Contract Terms. Failure of a
party to give or receive an Event Notice shall not prejudice the rights of the
other parties under this Section 11.7.
Company's Right of Assignment. At the option of Scripps
Holding, the Company's Event Option may be assigned to and assumed by Scripps
Holding or an Affiliate of Scripps Holding (if it is not the Offering Member)
or, if Scripps Holding does not wish to have the Company's Event Option assigned
to it or an Affiliate of it, by any other Member or Members (or their designees)
other than the Offering Member, in any case at the option of the Board of
Governors in its discretion without any approval by the Members. If any Members
other than the Offering Member are purchasers and such other Members are unable
to agree upon the amount of the Membership Interest to be acquired by each of
them, each purchasing Member shall be entitled to purchase a portion of such
Membership Interest in the same proportion that the Percentage Interest of such
Member bears to the total Percentage Interests of all such Members.
Scripps Debt. In the event of a sale of SATH's or Sub's
Membership Interests under this Section 11.7 (whether or not Scripps Holding is
the purchaser) SATH or Sub, as the case may be, shall use the proceeds of such
sale (less expenses related thereto) to first, redeem any Series D Preferred
Shares held by EWS or its Affiliates at the Original Issue Price thereof, plus
accrued and unpaid dividends thereon, and second, pay to EWS or its Affiliates
principal and interest owed by SATH to EWS or its Affiliates under any
indebtedness for borrowed money. If Scripps Holding is the purchaser hereunder,
Scripps Holding will have the right to offset, on a dollar for dollar basis,
from the purchase price payable to SATH hereunder an amount equal to such
outstanding indebtedness, redemption price or dividends.
Continuing Effect After Insolvency. The failure of the
Company or the other Members, as the case may be, to exercise the Event Option,
or to consummate the Event Option if exercised, shall not affect their
respective rights to purchase the same Membership Interest under and in
accordance with any other applicable provisions of this Agreement in the event
of a proposed Disposition thereof to any receiver, petitioner, assignee,
transferee or other Person attempting to obtain an interest in such Membership
Interest by a proposed Disposition or by operation of law. In addition, with
respect to any Membership Interest subject to an Event Option which is not
purchased by the Company or by any other Members, in the absence of any order to
the contrary with respect to such Membership Interest by any court or agency
having jurisdiction under federal or state law with respect to the Event, and to
the extent not in violation of applicable law, such Membership Interest shall be
and remain subject to the provisions and restrictions contained in this
Agreement regardless of the identity of the transferee and such transferee shall
be deemed to be bound by the terms and provisions of this Agreement as an
Assignee.
Determination of Fair Market Value. If the purchase price for any
transaction involving any Membership Interest purchased and sold on and in
accordance with the Contract Terms or otherwise is to be the Fair Market Value
thereof, or if Additional Capital Contributions are proposed to be made under
Section 7.2, the determination of such Fair Market Value as at the applicable
valuation date shall be made as set forth in this Section 11.8. Within ten (10)
days after it is determined that the Fair Market Value process must be
initiated, each of Scripps Holding and SATH will choose a nationally recognized
reputable investment bank (which investment bank must commit to deliver its
determination within 60 days) to determine the Fair Market Value and the Fair
Market Value will be the average of the two determinations so made.
Notwithstanding anything to the contrary in the foregoing, however, if the two
determinations differ by more than ten percent (10%), then the aforesaid
investment banks shall select a third nationally recognized reputable investment
bank (which investment bank must commit to deliver its determination within 60
days) to determine the Fair Market Value; and upon receipt of the third
determination, the Fair Market Value will be the average of the two
determinations closest in amount to each other. Scripps Holding, on the one
hand, and SATH and Sub, on the other hand, will share equally in the cost of the
investment banks. The Board of Governors and the purchaser(s) and seller(s) in
the transaction shall cooperate with the investment banks and provide them (on a
confidential basis) with all information regarding the Company and their
respective Membership Interests (directly or indirectly owned) as reasonably
requested by them. The Fair Market Value shall be determined without regard to
any minority interest, lack of marketability or other discounts for any
Membership Interest and without regard to any premiums for control.
Contract Terms. For purposes of this Agreement, the "Contract
Terms" are as follows:
Payment Terms. The purchase price to be paid in any
transaction subject to the Contract Terms shall be due and payable in cash in
full at the closing of the transaction held in accordance with Section 11.9.2,
except that the purchase price of any such Membership Interest shall be reduced,
at the election of the Company where the Company is the purchaser, by an amount
equal to the unpaid balance and any accrued but unpaid interest owed to the
Company by the holder of such Membership Interest, and such indebtedness (to the
extent of the reduction in purchase price) shall be deemed paid to the Company.
Closing. Any Disposition of a Membership Interest made pursuant to the Contract
Terms shall be closed as specified in the applicable Section of this Agreement
or, if not so specified, within sixty (60) days after the date on which the
parties involved become unconditionally bound under this Agreement to effect
such Disposition or at such other time as such parties may otherwise agree.
Documents. Upon the delivery at the closing by the transferee of the purchase
price, in cash, to be delivered in payment for such Membership Interest Disposed
of pursuant to the Contract Terms, the Disposing Member shall execute and
deliver to the transferee all such assignments and other instruments which may
reasonably be required to evidence and cause such Disposition to be a valid,
binding and legally enforceable Disposition of such Membership Interest to the
transferee. The transferor shall also execute and deliver to the transferee a
certificate, dated the closing date of such Disposition, containing a
representation and warranty that on such date the transferor is the holder of
record and sole beneficial owner of the entire Membership Interest so Disposed
of, has the full and unrestricted right to sell, assign, transfer and deliver
such Membership Interest to such transferee, that the Disposition of such
Membership Interest to the transferee will not conflict with or constitute a
breach of the Company's Articles of Organization, or this Agreement, and that
the transferor is transferring to such transferee good and marketable title to
the Membership Interest so transferred, free from all liens, security interests,
pledges, encumbrances, equities, charges, claims, voting trusts or restrictions
whatsoever, other than those restrictions contained in or arising under this
Agreement or, if applicable, the Articles of Organization (and any restrictions
arising by reason of federal or state securities laws).
Assignees; Substitute Members
Admission of Substitute Members. Except as provided in Section 11.4, a
Transferee of a Membership Interest shall be admitted as a Substitute Member and
entitled to all the rights of the Member who initially assigned the Membership
Interest only with the approval of the Board of Governors in its discretion and
upon its delivery to the Company of such instruments, duly executed, as may be
reasonably required by the Board of Governors to confirm such Transferee's
agreement to be bound by the terms of this Agreement and to assume all
obligations of the Assigning Member under this Agreement. If so admitted, the
Substitute Member has all the rights and powers and is subject to all the
restrictions and liabilities of the Member originally assigning the Membership
Interest. The admission of a Substitute Member, without more, shall not release
the Member originally assigning the Membership Interest from any liability to
the Company that may have existed prior to such admission.
Rights of Assignees. If the Board of Governors does not consent to the
substitution of a permitted Transferee as a Substitute Member in respect of a
Disposed Membership Interest, the permitted Transferee shall be an Assignee and
will not, with respect to such Disposed Membership Interest, have any rights or
privileges under this Agreement, except (i) the rights of a holder of a
Membership Interest to receive distributions, return of Capital Contributions
and related tax allocations and (ii) such privileges and rights which a
non-substituted permitted Transferee is entitled to under the Act that cannot be
eliminated or modified by this Agreement. Accordingly, an Assignee shall not
have any rights to (a) participate or become a participant in the management of
the business and affairs of the Company, (b) require an accounting of the
Company's transactions, (c) inspect the Company's books and records, (d) require
any information from the Company, or (e) exercise any privilege or right of a
member of a Tennessee limited liability company which is not specifically and
irrevocably reserved to a non-substituted permitted Transferee under the Act.
Dissolution and Winding Up
Dissolution. The Company shall be dissolved and shall commence the
winding up of its affairs and liquidation of its assets, upon the first to occur
of the following events:
the consent of a Majority of Members to dissolve the Company;
the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
the entry of a decree of judicial dissolution under the Act.
For purposes of this Agreement, no other event shall be deemed an event
triggering dissolution, including, but not limited to, the death, retirement,
resignation, expulsion, bankruptcy, or dissolution of a Member, or any event
specified under the Act as affecting the dissolution of a limited liability
company formed under the Act.
Effect of Dissolution. Upon dissolution, the Company shall cease
carrying on (as distinguished from the winding up of its affairs and liquidating
of its assets) the Company business, but the Company is not terminated and
continues until winding up and liquidation are completed and a certificate of
dissolution has been filed with the Secretary of State of the State of
Tennessee.
Winding Up. Upon the occurrence of the event triggering Dissolution,
the Company will continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members. After such event, neither the Board of Governors nor any
Member shall take any action that is inconsistent with, or not necessary or
appropriate for, the winding up of the Company's business and affairs. The
Company's assets will be liquidated as promptly as is consistent with obtaining
the fair value thereof, and the proceeds therefrom, to the extent sufficient
therefor, will be applied and distributed in accordance with Section 13.5 of
this Agreement. The process of winding up and liquidating the assets of the
Company is referred to in this Agreement as "Liquidation".
Fair Market Value Distributions. If upon Liquidation of the Company any
assets are to be distributed in kind to the Members, the value of such assets
shall be adjusted pursuant to the Treasury Regulations promulgated under Code
Section 704(b) and such assets shall be distributed at their respective fair
market values. Furthermore, each Member's Capital Account shall be adjusted to
reflect what its Capital Account would be if the Company were to sell all of
such assets at their respective fair market values and allocated the Profits or
Losses among the Members in accordance with the provisions of Article 9.
Proceeds of Liquidation. The proceeds of the Liquidation of the Company
shall be applied and distributed in the following order of priority, to the
extent permitted by the Act:
Expenses. To the payment of the costs and expenses of the
Liquidation of the Company;
Debts. To the payment of the debts and liabilities of the
Company (including any and all fees and loans payable to
one or more Members) in the order of priority as provided by
law;
Reserves. To establish reserves which the Board of Governors
(or the agent or trustee appointed for Liquidation)
may deem reasonably necessary for any reasonably foreseeable
contingent liabilities or obligations of the Company; and
Capital Accounts. The remaining balance, if any, shall then be
distributed to the Members in an amount equal to and in satisfaction of the
positive balance of each Member's Capital Account on the date of the Company's
termination, after giving effect to all adjustments to all Members' Capital
Account balances for all periods as prescribed by this Agreement.
Final Accounting. Each Member shall be furnished with a statement
reviewed by the Company's accountants, which shall set forth the Profits and/or
Losses generated upon the sale or exchange of the Company's properties in
Liquidation; the allocation of such Profits and Losses among the Members; the
Company's proceeds received from the sale or exchange of its properties in
Liquidation; any revaluations of Company Property; the assets and liabilities of
the Company; and the amount distributed or distributable to each Member as of
the date of termination of the Company. Upon compliance with the foregoing
distribution plan, the Members shall cease to be such, and the Board of
Governors (or the agent or trustee appointed for Liquidation), shall execute and
cause to be filed with the Secretary of State of the State of Tennessee a
certificate of cancellation of the Company and any and all other documents
necessary with respect to the termination and cancellation of the Company.
Amendment
No provision of this Agreement may be amended or modified at any time
except by a written instrument adopted by the Board of Governors and approved by
all of the Members.
Miscellaneous Provisions
Entire Agreement. This Agreement, including the Schedules referred to
herein and attached hereto, represents the entire agreement among all the
Members and between the Members and the Company. All Schedules referred to
herein and attached hereto are incorporated by this reference thereto.
Rights of Creditors and Third Parties. This Agreement is expressly not
intended for the benefit of any creditor of the Company or for any Person other
than the Company, the Members and any Assignees. Except and only to the extent
provided by applicable statute, no such creditor or third party shall have any
rights under this Agreement or any agreement between the Company and any Member
or Assignee with respect to any Capital Contribution or otherwise.
Notices. All notices and demands required or permitted under this
Agreement shall be in writing, and delivered as follows: (i) by actual delivery
of the notice into the hands of the party entitled to receive it; (ii) by
mailing such notice by registered or certified mail, return receipt requested,
in which case the notice shall be deemed to be given three (3) days after the
date of its mailing; or (iii) by any overnight carrier, in which case the notice
shall be deemed to be given as of the next business day after it is sent. All
notices which concern this Agreement shall be addressed as follows:
If to the Company or the Board of Governors: to the Principal Office
of the Company.
If to the Members: to the address as shown from time to time on the
records of the Company. Any Member may specify a different address, which change
shall become effective upon receipt of such notice by the Company.
Severability. If any provision of this Agreement or the application of
such provision to any Person or circumstance shall be held invalid, or
prohibited or ineffective under the Act or other applicable law, such provision
shall be considered amended to the least degree possible in order to make it
effective under the Act or such other law and, in the event the Act or other
applicable law is subsequently amended or interpreted in such a way to make
valid or no longer prohibited or ineffective any provision of this Agreement
that was formerly invalid, prohibited or ineffective, such provision shall be
considered to be valid and effective from the effective date of such amendment
or interpretation. The remainder of this Agreement, or the application of such
provision to Persons or circumstances other than those as to which it is held
invalid, prohibited or ineffective shall not be affected.
Parties Bound. This Agreement shall be binding upon the Members and
their respective successors, permitted assigns, heirs, devisees, legal
representatives, executors and administrators.
Applicable Law. The laws of the State of Tennessee shall govern this
Agreement, excluding any conflict of laws rules. To the extent permitted by
applicable law, the provisions of this Agreement shall override the provisions
of the Act to the extent of any inconsistency or contradiction between them.
Strict Construction. It is the intent of the Members that this
Agreement shall be deemed to have been prepared by all of the parties to the end
that no Member shall be entitled to the benefit of any favorable interpretation
or construction of any term or provision hereof under any rule or law.
Headings. The headings in this Agreement are inserted for convenience
and identification only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision.
Counterpart Execution. This Agreement may be executed in counterparts,
each of which shall be deemed an original but together shall constitute but one
and the same agreement.
Pronouns. All pronouns shall be deemed to refer to the masculine,
feminine or neuter, singular or plural, as the identity of the Person or Persons
may require.
Effect of Waiver or Consent. A waiver or consent, express or implied,
to or of any breach or default by any Person in the performance by that Person
of its obligations hereunder or with respect to the Company is not a consent or
waiver to or of any other breach or default in the performance by that Person of
the same or any other obligations of that Person. Failure on the part of a
Person to complain of any act or to declare any Person in default hereunder,
irrespective of how long that failure continues, does not constitute a waiver by
that Person of its rights with respect to that default.
Further Assurances. Each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and the transactions contemplated herein.
Public Announcements. Except as otherwise required by law, for so long
as this Agreement is in effect, no Member shall issue or cause the publication
of any press release or other public announcement with respect to the formation,
business plans, markets, products, management, or business of the Company
without the consent of the Board of Governors.
Expenses. Each Initial Member shall bear its own costs for all matters
involved in the negotiation, execution, and performance of this Agreement, and
related transactions unless otherwise specified herein.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
SHOP AT HOME, INC.
By:
---------------------------------
Its:
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THE SCRIPPS SHOP AT HOME HOLDING COMPANY, LLC
By:
--------------------------------
Its:
-------------------------------
SAH ACQUISITION CORPORATION
By:
--------------------------------
Its:
-------------------------------
Acknowledged and agreed to:
SHOP AT HOME NETWORK, LLC
By:
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Its:
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SCHEDULE I
DEFINITIONS
1. Act. The Tennessee Limited Liability Company Act, Title 48,
Chapters 201-248 of the Tennessee Code Annotated, and any successor statute, as
amended from time to time.
2. Additional Member. A Member other than an Initial Member or a
Substitute Member who has acquired a Membership Interest from the Company and
who agrees to be bound by the terms and conditions of this Agreement.
3. Adjusted Capital Account. A Member's Capital Account balance, increased by
such Member's obligation to restore a deficit balance in its Capital Account,
including any deemed obligation pursuant to the penultimate sentences of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and decreased by
the amounts described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
(5), or (6).
4. Affiliate. When used with reference to a specified Person, any other Person
(i) that directly, or indirectly through one or more intermediaries, controls or
is controlled by or is under common control with the specified Person, (ii) that
is a general partner, director, manager, governor, trustee or principal officer
of, or a limited partner owning more than ten percent (10%) of, or that serves
in a similar capacity with respect to, the specified Person, or (iii) of which
the specified Person is a general partner, director, manager, governor, trustee
or principal officer or a limited partner owning more than ten percent (10%) of,
or with respect to which the specified Person serves in a similar capacity. For
purposes of this definition of Affiliate, "control" means the possession,
directly or indirectly, of the power to direct or to cause the direction of the
management or policies of the Person in question through the ownership of voting
securities or by contract or otherwise.
5. Agreed Value. The fair market value of Contributed Property as agreed to by
the contributing Member, the other Members and the Board of Governors, using
such reasonable method of valuation as they may adopt.
6. Agreement. This Limited Liability Company Agreement of Shop At Home Network,
LLC, including all amendments.
7. Articles of Organization. The Articles of Organization of the Company as
properly adopted and as amended from time to time and filed with the Secretary
of State of the State of Tennessee.
8. Assignee. A transferee of a Membership Interest who has not been admitted as
a Substitute Member.
9. Assigning Member. As defined in Section 11.1.1.
10.Board Actions. As defined in Section 4.2.3.
11.Board of Governors. As described in Section 4.2.1.
12.Book Value. As defined in Section 8.1.3.
13.Capital Account. As defined in Section 8.1.
14.Capital Contribution. The gross amount of investment by a Member or all
Members, as the case may be, which may consist of cash, Property, promissory
note(s) or any binding obligation(s) to contribute cash or Property.
15.Capital Transaction. Any of the following: (i) a sale, exchange, transfer,
assignment, or other disposition of all or a portion of any Company Property
(but not including occasional sales in the ordinary course of business of
inventory, operating equipment or furniture, fixtures and equipment); (ii) any
financing or refinancing of, or with respect to, any Company Property; (iii) any
condemnation proceeds or deeding in lieu of condemnation of all or a portion of
any Company Property; (iv) a collection in respect of property, hazard, or
casualty insurance (but not business interruption insurance) or any damage award
except to the extent proceeds are used to repair or replace the assets so
damaged or destroyed; or (v) any other transactions which under generally
accepted accounting principles, would be capital in nature, and specifically
including, but not limited to, the distribution to the Members of Capital
Contributions or proceeds of any loans.
16. Change of Control. Any Disposition or series of related or unrelated
Dispositions of the Membership Interest of Scripps Holding or its Affiliates
which, upon consummation thereof, would result in Scripps Holding and/or its
Affiliates (taken as a group) no longer possessing, directly or indirectly, the
power to direct or cause the direction of management or policies of the Company
through the ownership of Membership Interests.
17.Code. The Internal Revenue Code of 1986 and any successor statute, as
amended from time to time.
18.Company. As defined in the preamble.
19. Company Minimum Gain. Such terms have the meaning given to the term
"partnership minimum gain" as set forth in Treasury Regulations Sections
1.704-2(b)(2) and 1.704-2(d), and any Member's share of Company Minimum Gain
shall be determined in accordance with Treasury Regulations Section
1.704-2(g)(1).
20. Company Property. All Property acquired by the Company and any improvements
thereto, but excluding Contributed Property.
21. Contract Terms. As defined in Section 11.9.
22. Contributed Property. Property or other consideration (excluding services
and cash) contributed to the capital of the Company by the Members.
23. Covered Person or Covered Persons. As defined in Section 6.1.1.
24. Depreciation. For each Taxable Year or other period, an amount equal to the
depreciation, amortization or other cost recovery deduction, as computed for
federal income tax purposes, allowable with respect to an asset of the Company
for such Taxable Year or other period. Notwithstanding the foregoing, if the
Book Value of a Company asset differs from its adjusted basis for federal income
tax purposes at the beginning of such Taxable Year or other period, Depreciation
shall be an amount which bears the same ratio at such beginning Book Value as
the Depreciation deduction for such Taxable Year or other period bears to such
beginning adjusted tax basis.
25. Disabling Conduct. As defined in Section 6.1.1.
26. Discretion. Whenever in this Agreement a Member or the Board of Governors is
permitted or required to make a decision in its "discretion" or under a grant of
similar authority or latitude, the Member or the Member's representative(s) on
the Board of Governors shall be entitled to exercise sole and absolute
discretion after considering only such interests and factors as it or he
desires, including its or his Member's own interests, and shall have no duty or
obligation to give any consideration to any interest of or factors affecting the
Company or any other Member.
27. Distributable Cash. As defined in Section 10.1.1.
28. Distribution. A transfer of Property to a Member on account of a Membership
Interest as described in Article 10.
29. Disposition (Dispose). Any direct or indirect sale, assignment, transfer,
exchange, mortgage, pledge, grant, endorsement, delivery, conveyance,
hypothecation, or other transfer, whether absolute, contingent or conditional,
or as security or an encumbrance, whether voluntary or involuntary, whether with
or without consideration, and whether by operation of law, such as dispositions
in a merger or consolidation, pursuant to intestacy, descendance, distribution
by succession, bankruptcy, insolvency, receivership, levy, execution or other
seizure and sale by legal process.
30. EWS Credit Facility. As defined in Section 7.4.
31. Effective Date. The date of this Agreement set forth in the preamble.
32. Entity. A Person other than a natural individual. Entity includes without
limitation corporations (both non-profit and other corporations), partnerships
(both limited and general), joint ventures, limited liability companies, trusts
and unincorporated associations and organizations of any kind, but the term does
not include joint tenancies and tenancies by the entirety.
33. Entity Member. As defined in Section 11.4.
34. Event. As defined in Section 11.7.1.
35. Event Notice. As defined in Section 11.7.2.
36. Event Option. As defined in Section 11.7.2.
37. Fair Market Value. As determined pursuant to Section 11.8.
38. Fiscal Year. The fiscal year of the Company described in Section 3.3.
39. Governor. A member of the Board of Governors.
40. Initial Members. Those persons identified on Schedule II who have executed
this Agreement as of the Effective Date.
41. Interim Capital Transaction. A Capital Transaction that does not lead to or
is not made in connection with the Liquidation of the Company.
42. Liquidation. As described in Section 13.3.
43. Liquidation Proceeds. The proceeds and assets available for distribution to
creditors and Members upon or pursuant to the termination and Liquidation of
the Company, including the proceeds available from the sale of all or
substantially all of the Company's assets.
44. Losses. As described in the definition of Profits and Losses.
45. Majority of the Members. As defined in Section 5.3.
46. Member Minimum Gain. A Member's share of minimum gain attributable to a
Member Nonrecourse Debt within the meaning of Treasury Regulations Section
1.704-2(i)(4) and (5).
47. Member Nonrecourse Debt. Such term has the meaning given to the term
"partner nonrecourse debt" as set forth in Treasury Regulations Section
1.704-2(b)(4).
48. Member Nonrecourse Debt Minimum Gain. The amount, with respect to each
Member Nonrecourse Debt, determined in the same manner as "partner nonrecourse
debt minimum gain" would be determined in accordance with Treasury Regulations
Section 1.704-2(i).
49. Member Nonrecourse Deductions. Such term has the meaning given to the term
"partner nonrecourse deductions" as set forth in Treasury Regulations Section
1.704-2(i)(2). For any Taxable Year, the amount of Member Nonrecourse Deductions
with respect to a Member Nonrecourse Debt shall equal the net increase during
the Taxable Year, if any, in the amount of Member Nonrecourse Debt Minimum Gain
reduced (but not below zero) by proceeds of the liability that are both
attributable to the liability and allocable to an increase in the Member
Nonrecourse Debt Minimum Gain.
50. Members. The Initial Members, Substitute Members and Additional Members.
51. Membership Interest. A Member's share or interest in the Profits and Losses
of the Company and such Member's rights to Distributions and Liquidation
Proceeds, in each case as provided by this Agreement. A Membership Interest does
not include a Member's rights (if any) to participate in Company management
pursuant to this Agreement.
52. Nonrecourse Debt. Such term has the meaning given the term "nonrecourse
debt" as set forth in Treasury Regulations Section 1.704-2(b)(3).
53. Nonrecourse Deductions. Such term has the meaning given the term
"nonrecourse deductions" as set forth in Treasury Regulations Section
1.704-2(b)(1). The amount of Nonrecourse Deductions for a Taxable Year equals
the excess, if any, of the net increase, if any, in the amount of Company
Minimum Gain during that Taxable Year over the aggregate amount of any
distributions during that Taxable Year of proceeds of a Nonrecourse Liability
that are allocable to an increase in Company Minimum Gain, determined according
to the provisions of Treasury Regulations Section 1.704-2(c).
54. Nonrecourse Liability. Such term has the meaning given the term
"nonrecourse liability" as set forth in Treasury Regulations Section
1.704-2(b)(3).
55. Offer. As defined in Section 11.3.1.
56. Offering Member. As defined in Section 11.7.2.
57. Operating Profits and Losses. The Company's Profits and Losses other than
Profits and Losses from a Capital Transaction.
58. Original Issue Price. means the Original Issue Price as defined in the
Articles of Amendment to SATH's Charter relating to the Series D Preferred
Shares
59. Percentage Interest. An expression of a Member's Membership Interest as a
percentage. The Percentage Interests of the Members are set forth on
Schedule II.
60. Person. A natural individual, an estate or any Entity permitted to be a
member of a limited liability company under the laws of the State of Tennessee.
61. Principal Office. The principal office of the Company as described in
Section 2.9.
62. Profits and Losses. For each Taxable Year or other period an amount equal to
the Company's taxable income or loss for such year or period, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) any income of the Company that is exempt from federal
income tax shall be added to such taxable income or loss;
(ii) any expenditures of the Company not deductible in
computing its taxable income and not properly chargeable to capital account (as
described in and within the meaning of Code Section 705(a)(2)(B)) or treated as
Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(i) shall be subtracted from such taxable income or loss;
(iii) if Company property is reflected on the Company's books
at other than its adjusted tax basis, then in lieu of depreciation, amortization
and other cost recovery deductions taken into account for federal income tax
purposes, there shall be taken into account Depreciation for such year or other
period, computed in accordance with the Treasury Regulations promulgated
pursuant to Code Section 704(b);
(iv) any items that are specially allocated to a Member
pursuant to Section 9.4 shall not be taken into account
in determining Profits and Losses; and
(v) for purposes of determining Profit or Loss upon the sale
or other disposition of any Company asset, then in accordance with the Treasury
Regulations promulgated under Code Section 704(b), the value of an asset
properly reflected on the Company's books at the time of sale or other
disposition shall be substituted for the asset's adjusted tax basis if at the
time of sale or disposition there is a variance in such value and adjusted tax
basis.
Except as may be otherwise provided in this Agreement, all items that are
components of Profits and Losses shall be divided among the Members in the same
ratio as they share Profits and Losses.
63. Property. Any property, real or personal, tangible or intangible, including
cash and any legal or equitable interest in such property, but excluding
services and promises to perform services in the future.
64. Purchaser. As defined in Section 11.5.
65. Regulatory Allocations. As defined in Section 9.5.
66. Reserved Matters. As defined in Section 4.2.2.
67. Sale Notice. As defined in Section 11.5.
68. SATH. As defined in the preamble.
69. SATH Governors. As defined in Section 4.2.1.
70. Scripps. As defined in the preamble.
71. Scripps Holding. As defined in the preamble.
72. Scripps Governors. As defined in Section 4.2.1.
73. Series D Preferred Shares. As defined in Section 11.3.4.
74. Shop At Home Network. As defined in Section 2.4.
75. Sub. As defined in the preamble.
76. Substitute Member. Any Person not a Member of the Company (prior to the
transfer of a Membership Interest to such Person) to whom a Membership Interest
in the Company has been transferred and who has been admitted to the Company as
a Member pursuant to and in accordance with the provisions of Section 12.1.
77. Tax Distributions. The distributions required by Section 10.1.2.
78. Taxable Year. The taxable year of the Company as determined pursuant to
Section 706 of the Code.
79. Transferee. A purchaser, transferee, assignee (other than collateral
assignees), or any other Person who takes, in accordance with the terms of this
Agreement, a Membership Interest in the Company, and who thereby becomes bound
by the terms and conditions of this Agreement, regardless of whether such Person
becomes a Substitute Member.
80. Treasury Regulations. Except where the context indicates otherwise, the
permanent, temporary, proposed or proposed and temporary regulations of the
Department of the Treasury promulgated under the Code as such regulations may be
lawfully changed from time to time.
81. Unreturned Capital Contribution. The excess, if any, of a Member's aggregate
Capital Contributions made after the date of this Agreement, over the aggregate
cash distributed to the Member after the date of this Agreement, except for Tax
Distributions under Section 10.1.2.
SCHEDULE II
SHOP AT HOME NETWORK, LLC
Members, Percentage Interests and
Capital Contributions (As of _________, 2002)
Percentage Capital
Name and Address Interest Contribution
Shop At Home, Inc. 11.5% $_______
The Scripps Shop At Home Holding Company 87.5% $_______
SAH Acquisition Corporation 1% $________
EXHIBIT 8.4(e)
SHAREHOLDERS AGREEMENT
THIS AGREEMENT, dated as of ___________, 2002 (the "Effective Date"), is
among The Scripps Shop At Home Holding Company fka SAH Holdings, Inc., an Ohio
corporation (the "Company"), Shop At Home, Inc., a Tennessee corporation
("SATH"), and Scripps Networks, Inc., a Delaware corporation ("Scripps").
R E C I T A L S :
A. Pursuant to a Share Purchase Agreement (the "Purchase
Agreement") dated as of August 14, 2002 between Scripps and SATH, Scripps has
agreed to purchase from SATH, and SATH has agreed to sell to Scripps, 800 common
shares, without par value, of the Company ("Shares").
B. Upon consummation of the transactions contemplated by the
Purchase Agreement, SATH will be the record and beneficial owner of 200 Shares
and Scripps will be the record and beneficial owner of 800 Shares.
C. It is a condition to the obligations of Scripps and SATH
under the Purchase Agreement that the parties execute this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Definitions.
"Affiliate" means, with respect to any Person, any other
Person (i) that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with such Person, (ii)
that is a general partner, director, manager, trustee or principal officer of,
or a limited partner owning more than 10% of , or that serves in a similar
capacity with respect to, such Person, or (iii) of which such Person is a
general partner, director, manager, trustee or principal officer or a limited
partner owning more than 10% of, or with respect to which such Person serves in
a similar capacity. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or to cause the
direction of the management or policies of the Person in question through the
ownership of voting securities or by contract or otherwise.
"Board" means the board of directors of the Company.
"Change of Control" means any Disposition or series of related
or unrelated Dispositions of the Shares of Scripps or its Affiliates which, upon
consummation thereof, would result in Scripps or its Affiliates (taken as a
group) no longer possessing, directly or indirectly, the power to direct or
cause the direction of management or policies of the Company through the
ownership of Shares.
"Code" means the Internal Revenue Code of 1986 and any
successor statute, as amended from time to time.
"Dispose" and "Disposition" mean any direct or indirect sale,
assignment, transfer, exchange, mortgage, pledge, grant, endorsement, delivery,
conveyance, hypothecation, or other transfer, whether absolute, contingent or
conditional, or as security or an encumbrance, whether voluntary or involuntary,
whether with or without consideration, and whether by operation of law, such as
dispositions in a merger or consolidation, pursuant to intestacy, descendance,
distribution by succession, bankruptcy, insolvency, receivership, levy,
execution or other seizure or sale by legal process.
"LLC" means Shop At Home Network, LLC, a Tennessee limited
liability company, of which SATH owns 11.5%, SAH Acquisition Corporation, a
Tennessee corporation and wholly owned subsidiary of SATH, owns 1% and the
Company owns 87.5% of the outstanding membership interests.
"Original Issue Price" means the Original Issue Price as
defined in the Articles of Amendment to SATH's Charter relating to the Series D
Preferred Shares.
"Person" means any natural person, partnership, corporation,
association, limited liability company, joint stock company, trust, joint
venture, unincorporated organization or governmental entity or any department,
agency or political subdivision thereof.
"Purchase Agreement" is defined in the Recitals to this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Series D Preferred Shares" means any shares of SATH's Series
D Senior Redeemable Preferred Stock held by Scripps or an Affiliate of Scripps.
"Shareholders" means Scripps and SATH and their permitted
assignees and transferees.
2. Board of Directors. So long as SATH holds at least 15% of
the outstanding shares of the Company, each Shareholder shall vote the Shares
over which such Shareholder has voting control, and shall take all other
necessary or desirable actions within such Shareholder's control (whether in his
or its capacity as a Shareholder, director, member of a Board committee or
officer of the Company or otherwise), and the Company shall take all necessary
and desirable actions within its control, in order to cause the Board to be
comprised of five members, four to be appointed by Scripps and one to be
appointed by SATH. Either Scripps or SATH may remove one or more of its
appointees upon written notice to the Company and the other. Removals and new
appointments will be mandatory at any time upon which the relative pro rata
proportions of Share ownership of the Shareholders shift pursuant to this
Agreement, so that the relative voting power on the Board complies at all times
with the intent of this Section. The Company shall also allow two representative
designated by SATH to attend all meetings of the Board in a nonvoting capacity.
In making determinations with respect to the LLC (whether on
behalf of Scripps Holding as a Member or otherwise), neither Scripps nor the
directors of the Company appointed by Scripps will in any way be obligated to
cause the continuation of the business of the Network (as defined in the LLC's
Amended and Restated Operating Agreement) and Scripps may cause the
discontinuation of the business of the Network and the dissolution of the LLC,
if, in its sole discretion, such business is no longer feasible or desirable or
otherwise in the interests of Scripps.
3. Restrictions on Transfer of Shares.
(a) Transfer of Shares. Except as specifically provided in
this Agreement, no Shareholder may directly or indirectly Dispose of all or any
portion of the Shares or other equity interests in the Company, whether now
owned or hereafter acquired, without first complying with the terms and
conditions of this Section 3. Notwithstanding the foregoing, in no event will
SATH be permitted to pledge, hypothecate or encumber its Shares without the
written consent of Scripps to be provided in Scripps's sole discretion;
provided, however that nothing in this Section 3 will prohibit the pledge of
Shares by SATH to Scripps or an Affiliate of Scripps as security for any
indebtedness for borrowed money. Without limiting the generality of the
foregoing, no Disposition will be permitted, even if permitted by any other
provision of this Section 3, unless each of the following conditions are
satisfied in the judgment of, or waived in writing by, the Board in its
discretion:
(i) The Shareholder engaging or attempting to engage in
such Disposition (the "Assigning Shareholder")
complies with all of the applicable provisions of
this Section 3;
(ii) The Person engaging or attempting to engage in such
Disposition as the assignee, purchaser or other
transferee of Shares (the "Transferee") agrees in
writing to assume all of the obligations of the
Assigning Shareholder with respect to such Shares
(including the obligations imposed under this
Agreement and specifically this Section 3) as a
condition to any Disposition and becomes a party to
this Agreement;
(iii) The Assigning Shareholder and the Transferee each
execute, acknowledge and deliver to the Company such
instruments of transfer and assignment with respect
to such Disposition and such other instruments as may
be reasonably deemed necessary by, and in form and
substance reasonably satisfactory to, the Board.
(iv) Either (A) the Disposed interests will be registered
under the Securities Act and any applicable state
securities laws, or (B) the Company shall have
received, at the expense of the parties to the
Disposition, an opinion of counsel for the Company
(or counsel acceptable to counsel of the Company) to
the effect that such Disposition is exempt from
registration under the Securities Act and is in
compliance with all applicable federal and state
securities laws and regulations; provided that, if
the Board waives such opinion requirements, such
waiver will not constitute a waiver of any subsequent
Disposition of such interest or the Disposition of
any other interest;
(v) The Disposition does not cause any violation of or an
event of default under, or result in acceleration of
any indebtedness under, any note, mortgage, loan, or
similar instrument or document to which the Company
is a party;
(vi) The Assigning Shareholder and Transferee furnish the
Company with the Transferee's taxpayer identification
number, sufficient information to determine the
Transferee's initial tax basis in the interest
Disposed, and any other information necessary to
permit the Company to file all required federal and
state tax returns and other legally required
information statements or returns; and
(vii) All costs of the Disposition incurred by the Company
are reimbursed by the Assigning Member or the
Transferee to the Company.
c.02 (b) Void Dispositions. Any attempted Disposition of Shares, or any part
thereof, not in compliance with this Section 3 will be null and void ab initio
as against the Company and all other Persons, the Company's rights under Section
3(g) will apply, and the Assigning Member(s) will be liable to the Company and
the other Members for all damages, costs and expenses the other Members may
sustain or incur as a result of such attempted Disposition.
c.03 (c) Scripps's Right of First Refusal.
(i) Notice of Intended Disposition. If SATH desires to
accept a bona fide non-Affiliated third party offer
for the Disposition of all (but not less than all) of
its Shares, whether in the public or private markets
(including an initial public offering), SATH shall
promptly deliver to Scripps a written offer (the
"Offer") to sell such Shares to Scripps on terms and
conditions not less favorable to Scripps than those
under which it proposes to Dispose of such Shares to
such third party. The Offer shall disclose the
identity of the third party offeror, the agreed terms
of the proposed Disposition (including a date certain
on which the Disposition will be abandoned and
terminated if not then consummated), and any other
material facts relating to the proposed Disposition.
SATH shall also provide satisfactory proof that the
Disposition of the Shares to such third party offeror
would not be in contravention of the provisions set
forth in Section 3(a).
(ii) Exercise of Right. Within 30 days after receipt of
the Offer, Scripps may give written notice to SATH of
its intent to purchase all of SATH's Shares on
substantially the same terms and conditions as set
forth in the Offer. Scripps will have the right to
transfer its right to purchase the Shares to any of
its Affiliates.
(iii) Non-Exercise of Right. If Scripps does not exercise
its rights under this Section3(c),SATH may thereafter
Dispose of all (but not less than all) of its Shares
to the third party offeror identified in the Offer
upon the terms and conditions specified in the
Offer; provided that any such Disposition must not be
effected in contravention of the provisions of
Section 3(a) and the terms of Section 3 must be
recognized, including but not limited to Scripps's
rights under Section 3(e), and such Disposition
must be consummated or abandoned and terminated by
a date certain set forth in the Offer but in any
event not later than 90 days after the Offer has been
declined by Scripps or the time for exercise has
lapsed. If SATH does not effect such Disposition of
such Shares within the specified period, this Section
3 will continue to be applicable to any
subsequent attempted Disposition of SATH's Shares.
(iv) SATH Debt. In the event of a sale of SATH's Shares
under this Section 3(c) (whether or not Scripps is
the purchaser), SATH shall use the proceeds of such
sale (less expenses related thereto) to first,
redeem any Series D Preferred Shares held by
Scripps or its Affiliates at the Original Issue
Price thereof, plus accrued and unpaid dividends
thereon, and second, pay to Scripps or its
Affiliates principal and interest owed by SATH to
Scripps or its Affiliates under any indebtedness for
borrowed money.If Scripps is the purchaser hereunder,
Scripps will have the right to offset, on a dollar
for dollar basis, from the purchase price payable
to SATH hereunder an amount equal to such
outstanding indebtedness, redemption price and
dividends.
c.04 (d) Transfers to Affiliates. Subject only to compliance with Section
3(a), a Shareholder that is an entity may Dispose of all or any portion of its
Shares to any member of an affiliated group of corporations within the meaning
of Code Section 1504 that includes such Shareholder.
c.05 (e) Scripps's Right to Sell; SATH's Tag Along Right; Scripps's Drag Along
Right. Subject only to compliance with Section 3(a) and this Section 3(e),
Scripps and its successors and assigns may Dispose of any or all of their Shares
to any Person (a "Purchaser") without notice to any other Shareholder and
without any further restriction. As a condition to the effectiveness of any such
Disposition, if Scripps intends to Dispose of Shares and such Disposition would
result in a Change of Control of the Company, SATH will have the right to
require, as a condition to such Disposition, that the Purchaser purchase from
SATH all of SATH's Shares. Scripps shall promptly deliver to SATH written notice
of the proposed Disposition (the "Sale Notice"), including the terms and
conditions of the Purchaser's offer, including the price to be paid to Scripps,
and the closing and termination dates, the identity of the Purchaser and any
other material facts or terms and conditions. SATH shall notify Scripps of its
intention to participate in such sale as soon as practicable but not later than
30 days after receipt of the Sale Notice, which notice of intention to
participate together with the Sale Notice, will be deemed to constitute a valid,
legally binding and enforceable agreement for the Disposition of all of SATH's
Shares. Scripps and SATH shall sell to the Purchaser all of the Shares in the
Company proposed to be Disposed by them at not less than the price originally
offered by the Purchaser, and upon other terms and conditions, if any, not more
favorable to the Purchaser than those originally offered. Scripps shall use its
reasonable best efforts to obtain the agreement of the Purchaser to the
participation of SATH in the contemplated Disposition, and shall not Dispose of
any Shares to such Purchaser if such Disposition would result in a Change of
Control of the Company and such Purchaser declines to purchase all of SATH's
Shares pursuant to the terms of this Section. If (i) SATH elects not to, or
otherwise fails to notify Scripps of its decision to or not to, participate in
the sale under the Sale Notice and (ii) the sale under the Notice of Sale would
result in a Change of Control of the Company, Scripps will have the right, but
not the obligation, to require SATH to sell all of its Shares pursuant to the
Sale Notice and the foregoing provisions of this Section by written notice of
such requirement given within 45 days after its delivery of the Sale Notice to
SATH. In the event of a sale of SATH's Shares under this Section 3(e), SATH
shall use the proceeds of such sale (less expenses related thereto) to first,
redeem any Series D Preferred Shares held by Scripps or its Affiliates at the
Original Issue Price thereof, plus accrued and unpaid dividends thereon, and
second, pay to Scripps or its Affiliates principal and interest owed by SATH to
Scripps or its Affiliates under any indebtedness for borrowed money. If Scripps
is the purchaser hereunder, Scripps will have the right to offset, on a dollar
for dollar basis, from the purchase price payable to SATH hereunder an amount
equal to such outstanding indebtedness, redemption price and dividends.
c.06 (f) Put and Call Rights.
(i) SATH's Put Right. At any time after the second anniversary of the
Effective Date and prior to the fifth anniversary of the
Effective Date, SATH will have the right (the "Put Right") to
require Scripps to purchase all but not less than all of the
Shares of SATH on the Contract Terms (as defined in Section 3(i))
at a price equal to the Fair Market Value thereof (as determined
under Section 3(h)). The Fair Market Value will be determined as
of the date on which SATH gives written notice to Scripps of its
intent to exercise such right. The closing of a Disposition shall
take place not later than 30 days after the Fair Market Value is
finally determined. Notwithstanding any permitted Disposition of
SATH's interest in the Company, the Put Right may not be Disposed
to any Person other than a Transferee pursuant to Section 3(d).
Notwithstanding the foregoing provisions of this Section 3(f)(i),
the Put Right may not be exercised if a Sale Notice has been
given pursuant to Section 3(e) and has not been rescinded or
otherwise terminated. As a condition to the closing of the
transactions contemplated by exercise of the Put Right, SATH
shall use the proceeds of such sale to redeem any Series D
Preferred Shares held by Scripps or its Affiliates at the
Original Issue Price thereof, plus accrued and unpaid dividends
thereon, and the put price will be reduced, on a dollar for
dollar basis, first, by such redemption price, including accrued
and unpaid dividends thereon, and second, by the amount of
principal and interest owed by SATH to Scripps or its Affiliates
under any indebtedness for borrowed money. (ii) SATH's Put Right
Upon Scripps Holdings' Disposition of LLC Membership Interests.
If Scripps Holding Disposes of or attempts to Dispose of any
membership interests in the LLC such that such Disposition
constitutes a Change in Control (as defined in the LLC's
Operating Agreement), then SATH may exercise its Put Right in
Section 3(f)(i) notwithstanding any limitations with respect to
timing set forth in the first clause of such Section.
(iii) Scripps's Call Right. Except to the extent such right may be
exercised earlier pursuant to Section 3(f)(iv), 3(f)(v) or
3(f)(vi), at any time upon and after the
fifth anniversary of the Effective Date, Scripps will have the
right (the "Call Right") to require SATH to sell all and not less
than all of SATH's Shares to Scripps (or its
assignees) on the Contract Terms at a price equal to the Fair
Market Value thereof. The Fair Market Value will be determined as
of the date on which Scripps gives written notice to SATH of its
intent to exercise such right. The closing of such Disposition
will take place not later than 30 days after the Fair Market
Value is so determined. Notwithstanding the foregoing provisions
of this Section 3(f)(iii), the Call Right may not be exercised if
a Sale Notice has been given pursuant to Section 3(e) and has not
been rescinded or otherwise terminated. As a condition to the
closing of the transactions contemplated by exercise of the Call
Right, SATH shall use the proceeds of such sale to redeem any
Series D Preferred Shares held by Scripps or its Affiliates at
the Original Issue Price thereof, plus accrued and unpaid
dividends thereon, and the call price will be reduced, on a
dollar for dollar basis, first, by such redemption price,
including accrued and unpaid dividends thereon, and second, by
the amount of principal and interest owed by SATH to Scripps or
its Affiliates under any indebtedness for borrowed money.
(iv) Scripps Call Right Upon SATH's Disposition of LLC Membership
Interests. If SATH or SAH Acquisition Corporation Disposes of or
attempts to Dispose of its membership interest in the LLC, or any
portion thereof, under any circumstances, then Scripps may
exercise its Call Right in Section 3(f)(iii) notwithstanding any
limitations with respect to timing set forth in the first clause
of such Section.
(v) Scripps Call Right Upon Change in Control of
SATH. If (A) the board of directors or shareholders of SATH
approve a merger or
consolidation that results in the shareholders of SATH
immediately prior to the transaction giving rise to the
consolidation or merger owning less than 50% of the total
combined voting power of all classes of stock entitled to vote of
the surviving entity immediately after the consummation of the
merger or consolidation, (B) the board of directors or
shareholders of SATH approve the sale of substantially all of the
assets of SATH or the liquidation or dissolution of SATH, (C) any
person or other entity (other than SATH) purchases any shares (or
securities convertible into shares) pursuant to a tender or
exchange offer without the prior consent of the board of
directors or becomes the beneficial owner of securities of SATH
representing 25% or more of the voting power of SATH's
outstanding securities, (D) during any two-year period,
individuals who at the beginning of such period constitute the
entire board of directors of SATH cease to constitute a majority
of the board of directors of SATH, unless the election or the
nomination for election of each new director is approved by at
least two-thirds of the directors then still in office who were
directors at the beginning of that period or (E) any third party
acquires the power to direct or cause the direction of management
or policies of SATH through the ownership of securities, by
contract or otherwise, then Scripps may exercise its Call Right
in Section 3(f)(iii) notwithstanding any limitations with respect
to timing set forth in the first clause of such Section.
(vi) Scripps Call Right Upon Default. If SATH is in default under this
Agreement or any other agreement between it and Scripps or an
Affiliate of Scripps (including without limitation the Amendment
to SATH's Charter relating to the Series D Preferred Shares),
then Scripps may exercise its Call Right in Section 3(f)(iii)
notwithstanding any limitations with respect to timing set forth
in the first clause of such Section. (vii) Limitation on Exercise
Based on Exercise of Put/Call Relating to Shop At Home Network.
Notwithstanding anything to the contrary in the foregoing Section
3(f), neither the Put Right nor the Call Right may be exercised
unless the Put Right or the Call Right, respectively, set forth
in Section 11.6 of the LLC's Operating Agreement is exercised by
SATH or the Company, respectively.
(g) Certain Buyout Events.
(i) Definition of Event. For purposes of this Section
3(g), the term "Event" means the occurrence of any of
the following events or circumstances with respect to
any Shareholder during any period of ownership of any
Shares by such Shareholder or with respect to any
Shares subject to this Agreement:
(A) such Shareholder becomes or is determined to
be bankrupt or insolvent;
(B) such Shareholder institutes or has instituted
against it any proceedings of any kind under
any provision of any applicable bankruptcy or
insolvency law seeking any readjustment,
arrangement, composition, postponement or
reduction of debts, liabilities or
obligations (in the case of any involuntary
proceeding, which is not removed or dismissed
within 90 days);
(C) such Shareholder makes an assignment for the
benefit of its creditors;
(D) such Shareholder is required or deemed to
have Disposed of any interest in any of its
Shares by operation of law (other than
a Disposition to the Company);
(E) any Shares of such Shareholder are attached
by, levied upon by, or becomes subject to
judicial or other legal process and such
proceeding is not removed, discharged,
dismissed or bonded within 90 days; or
(F) any Shares of such Shareholder are the
subject of a Disposition or an attempted
Disposition in any way (including a sale
ordered by a court or a Disposition required
or deemed to have occurred by operation of
law, other than a Disposition to the
Company) in breach of this Agreement.
(ii) Purchase Option of the Company. Upon the occurrence of
an Event, the Shareholder subject to such Event or its
legal representative, if applicable (the "Offering
Shareholder"), shall notify the Company and all
Shareholders of the Event within five days of its
occurrence (the "Event Notice") and, thereupon, the
Company will have the right, but not the obligation, to
purchase all, but not less than all, of the Shares
owned or held beneficially by the Offering Shareholder
at the time of such Event at the price equal to its
Fair Market Value as of the date that is the calendar
month-end immediately preceding such Event and on and
in accordance with the Contract Terms (the "Event
Option"). Within five days after the determination of
the Fair Market Value in accordance with Section 3(h),
the Company shall notify the Offering Shareholder and
the other Shareholders whether it intends to exercise
the Event Option and upon any such exercise, the
closing thereof will be made on and in accordance with
the Contract Terms. Failure of a party to give or
receive an Event Notice will not prejudice the rights
of the other parties under this Section 3(g).
(iii)Right of Assignment. At Scripps's option, the
Company's Event Option may be assigned to and assumed
by Scripps or an Affiliate of Scripps (if it is not the
Offering Shareholder) or, if Scripps does not wish to
have the Company's Event Option assigned to it or an
Affiliate of Scripps, by any other Shareholder or
Shareholders (or their designees) other than the
Offering Shareholder, in any case at the option of the
Board in its discretion without any approval by the
Shareholders. If any Shareholders other than the
Offering Shareholder are purchasers and such other
Shareholders are unable to agree upon the number of
Shares to be acquired by each of them, each purchasing
Shareholder will be entitled to purchase a portion of
such Shares in the same proportion that the number of
Shares held by such Shareholder bears to the total
outstanding Shares held by all such Shareholders.
(viii) Scripps Debt. In the event of a sale of SATH's Shares
under this Section 3(g) (whether or not Scripps is the
purchaser), SATH shall use the proceeds of such sale
(less expenses related thereto) to first, redeem any
Series D Preferred Shares held by Scripps or its
Affiliates at the Original Issue Price thereof, plus
accrued and unpaid dividends thereon, and second, pay
to Scripps or its Affiliates principal and interest
owed by SATH to Scripps or its Affiliates under any
indebtedness for borrowed money. If Scripps is the
purchaser hereunder, Scripps will have the right to
offset, on a dollar for dollar basis, from the purchase
price payable to SATH hereunder an amount equal to such
outstanding indebtedness, redemption price and
dividends.
(ix) Continuing Effect After Insolvency. The failure of the
Company or the other Shareholders, as the case may be,
to exercise the Event Option, or to consummate the
Event Option if exercised, will not affect their
respective rights to purchase the same Shares under and
in accordance with any other applicable provisions of
this Agreement in the event of a proposed Disposition
thereof to any receiver, petitioner, assignee,
transferee or other Person attempting to obtain an
interest in such Shares by a proposed Disposition or by
operation of law. In addition, with respect to any
Shares subject to an Event Option which are not
purchased by the Company or by any other Shareholder,
in the absence of any order to the contrary with
respect to such Shares by any court or agency having
jurisdiction under federal or state law with respect to
the Event, and to the extent not in violation of
applicable law, such Shares will be and remain subject
to the provisions and restrictions contained in this
Agreement regardless of the identity of the transferee
and such transferee will be deemed to be bound by the
terms and provisions of this Agreement as an Assignee.
(h) Determination of Fair Market Value. If the purchase price
for any transaction involving any Shares purchased and sold on and in accordance
with the Contract Terms or otherwise is to be the Fair Market Value thereof, the
determination of such Fair Market Value as at the applicable valuation date will
be made as set forth in this Section 3(h). Within 10 days after it is determined
that the Fair Market Value process must be initiated, each of Scripps and SATH
shall choose a nationally recognized reputable investment bank (which investment
bank must commit to deliver its determination within 60 days) to determine the
Fair Market Value and the Fair Market Value will be the average of the two
determinations so made. Notwithstanding anything to the contrary in the
foregoing, however, if the two determinations differ by more than 10%, then the
aforesaid investment banks shall select a third nationally recognized reputable
investment bank (which investment bank must commit to deliver its determination
within 60 days) to determine the Fair Market Value; and upon receipt of the
third determination, the Fair Market Value will be the average of the two
determinations closest in amount to each other. Scripps and SATH will share
equally in the cost of the investment banks. The Board and the purchaser(s) and
seller(s) in the transaction shall cooperate with the investment banks and
provide them (on a confidential basis) with all information regarding the
Company and their respective Shares (directly or indirectly owned) as they
reasonably request. The Fair Market Value will be determined without regard to
any minority interest, lack of marketability or other discounts for any Shares
and without regard to any premiums for control and will be determined without
regard for any increase in membership interest by the Company in the LLC due to
a concurrent exercise of any rights and remedies contained in the LLC's
Operating Agreement.
(i) Contract Terms. For purposes of this Agreement, the "Contract
Terms" are as follows:
(i) Payment Terms. The purchase price to be paid in any
transaction subject to the Contract Terms will be due
and payable in cash in full at the closing of the
transaction held in accordance with Section 3(i)(ii),
except that the purchase price of any such Shares
will be reduced, at the Company's election where the
Company is the purchaser, by an amount equal to the
unpaid balance and any accrued but unpaid interest
owed to the Company by the holder of such Shares, and
such indebtedness (to the extent of the reduction in
purchase price) will be deemed paid to the Company.
(ii) Closing. Any Disposition of Shares made pursuant to
the Contract Terms must be closed as specified in the
applicable Section of this Agreement or, if not so
specified, within 60 days after the date on which the
parties involved become unconditionally bound under
this Agreement to effect such Disposition or at such
other time as such parties may otherwise agree.
(iii) Documents. Upon the delivery at the closing by the
Transferee of the purchase price, in cash, to be
delivered in payment for such Shares Disposed of
pursuant to the Contract Terms, the Assigning
Shareholder shall execute and deliver to the
Transferee certificates representing the Shares
Disposed of and all such assignments and
other instruments which may reasonably be required to
evidence and cause such Disposition to be a valid,
binding and legally enforceable Disposition of such
Shares to the Transferee. The Assigning Shareholder
shall also execute and deliver to the Transferee a
certificate, dated the closing date of such
Disposition, containing a representation and warranty
that on such date the Assigning Shareholder is the
holder of record and sole beneficial owner of the
Shares so Disposed of, has the full and unrestricted
right to sell, assign, transfer and deliver such
Shares to such Transferee, that the Disposition of
such Shares to the Transferee will not conflict with
or constitute a breach of the Company's Articles of
Incorporation, Code of Regulations, or this
Agreement, and that the Assigning Shareholder is
transferring to such Transferee good and marketable
title to the Shares so transferred, free from all
liens, security interests, pledges, encumbrances,
equities, charges, claims, voting trusts or
restrictions whatsoever, other than those
restrictions contained in or arising under this
Agreement or, if applicable, the Articles of
Incorporation (and any restrictions arising by reason
of federal or state securities laws).
4. Affiliate Transactions. SATH acknowledges that the Company
may enter into any agreement with any Person that is an Affiliate of Scripps,
without the prior approval of the Shareholders provided that any such agreement
contains substantially such terms and conditions as would be contained in a
similar agreement entered into by the Company with a comparable, unaffiliated
third party.
5. Outside Businesses or Opportunities. Except as set forth in
the letter agreement dated as of the date hereof between SATH and Scripps
relating to SATH's right to participate in future acquisitions by Scripps of a
home shopping network, Scripps or any Affiliate thereof may engage in or possess
an interest in any business venture of any nature or description, including,
without limitation, any business venture for the exploitation of home shopping
programming, content, merchandising, licensing and products and services and all
rights in connection therewith in all media and formats now or hereafter
devised, including without limitation, magazines, radio programming, conventions
and trade shows, independently or with others, which business venture may be the
same as, similar to or dissimilar to the business of the Company or the LLC, and
may use the words "Shop At Home"; and neither the Company or the LLC, nor any
Shareholder of the Company or any member of the LLC, will have any rights by
virtue of this Agreement or otherwise in and to such independent ventures or the
income or profits derived therefrom, and the pursuit by Scripps or any such
Affiliate of any such venture, even if competitive with the business of the
Company or the LLC, will not be deemed wrongful or improper. Neither Scripps nor
any Affiliate thereof will be obligated to present any particular investment
opportunity to the Company or the LLC even if such opportunity is of a character
which, if presented to the Company or the LLC, could be taken by the Company or
the LLC or which, absent this provision, would have to be presented to the
Company or the LLC, and Scripps or any such Affiliate will have the right to
take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment opportunity.
6. SATH Participation in Additional Equity Issuances. If the
Company issues any additional equity securities to Scripps or an Affiliate of
Scripps, then SATH will have the right, for a period of six months from
Scripps's (or such Affiliate's) election to fund any equity purchase, to
purchase up to a number of such securities equal to (a) the number of such
securities issued to Scripps or such Affiliate, multiplied by (b) a fraction,
the numerator of which is the number of equity securities held by SATH on a
fully diluted basis immediately prior to the issuance to Scripps or such
Affiliate and the denominator of which is the number of equity securities held
by Scripps and its Affiliates on a fully diluted basis immediately prior to the
issuance to Scripps or such Affiliate. Notwithstanding and without limiting the
foregoing, SATH will not have any preemptive right to purchase any securities
issued to any third party other than Scripps or an Affiliate of Scripps.
7. Legend. Each certificate evidencing Shares and each
certificate issued in exchange for or upon the transfer of any Shares shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A SHAREHOLDERS AGREEMENT DATED AS OF ___________, 2002, AMONG
THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND THE
COMPANY'S SHAREHOLDERS. A COPY OF SUCH AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF
WITHIN FIVE DAYS OF WRITTEN REQUEST."
8. Miscellaneous.
(a) Amendment and Waiver. Except as otherwise provided in this
Agreement, no modification, amendment or waiver of any provision of this
Agreement will be effective unless such modification, amendment or waiver is
approved in writing by the Company and the Shareholders. The failure of any
party to enforce any of the provisions of this Agreement will in no way be
construed as a waiver of such provisions and will not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained in this Agreement.
(c) Entire Agreement. Except as otherwise expressly set forth
in this Agreement, this Agreement embodies the complete agreement and
understanding among the parties with respect to the subject matter of this
Agreement and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, that may have related
to the subject matter of this Agreement in any way.
(d) Successors and Assigns. Except as otherwise provided in
this Agreement, this Agreement will bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns, and the Stockholders
and their respective representatives, successors and assigns, so long as they
hold Shares.
(e) Counterparts. This Agreement may be executed in separate
counterparts, each of which, when executed, will be an original and all of which
taken together will constitute one and the same agreement.
(f) Remedies. Each Shareholder acknowledges and agrees that,
if that Shareholder fails to perform that Shareholder's obligations under this
Agreement, the remedy at law available to any party aggrieved by such failure
would be inadequate and that, in addition to any other rights or remedies such
aggrieved party may have at law or in equity, the aggrieved party will be
entitled to specific performance of the provisions of this Agreement or an
injunction against any breach of this Agreement, without the necessity of proof
of actual damage. Accordingly, with respect to any action or proceeding brought
by such aggrieved party to enforce the provisions of this Agreement against such
Shareholder, each such Shareholder hereby waives the claim or defense that such
aggrieved party now has or hereafter has an adequate remedy at law and such
Shareholder hereby agrees not to assert such claim or defense in any such action
or proceeding. This provision will not be construed as precluding such aggrieved
party from exercising any other rights, privileges or remedies to which such
party may be entitled, all of which rights, remedies and privileges will be
deemed cumulative and none of which will be deemed exclusive. Except as
otherwise expressly provided in this Agreement or otherwise agreed to in writing
executed by such aggrieved party, no course of dealing on the part of, nor any
omission or delay by, such aggrieved party will operate as a waiver of any such
right, remedy or privilege, nor will any single or partial exercise or waiver of
any such right, privilege or remedy preclude any other or further exercise
thereof or of any other right, privilege or remedy available to such aggrieved
party.
(g) Indemnification. Each Shareholder shall defend, indemnify
and hold harmless all other Shareholders from and against any and all
liabilities, obligations, claims, costs, damages and expenses, including without
limitation reasonable attorneys' fees and additional tax liabilities and
interest and penalties, incurred by the other Shareholders as a result of the
failure of performance of, or the breach by, the indemnifying Shareholder of any
of that Shareholder's obligations contained in this Agreement.
(h) Power of Attorney. Each Shareholder hereby irrevocably
appoints the Company as that Shareholder's attorney-in-fact for the purpose of
executing an addendum Agreement on behalf of the Shareholders, from time to
time, for the purpose of binding any Tranferees to the conditions and
obligations of this Agreement.
(i) Notices. Any notice provided for in this Agreement must be
in writing and either personally delivered or mailed first-class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address indicated on the records of the Company and to any
subsequent holder of Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices will be deemed to have been given when delivered
personally, three days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service.
(j) Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Ohio, without regard to
conflicts of law principles.
(k) Conflict. If, and to the extent, any terms or provisions
of the Company's Articles of Incorporation or Code of Regulations are contrary
to the terms of this Agreement, the terms of this Agreement will control.
[Signature pages follow.]
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
THE SCRIPPS SHOP AT HOME HOLDING COMPANY
By:
Name:
Title:
SCRIPPS NETWORKS, INC.
By:
Name:
Title:
SHOP AT HOME, INC.
By:
Name:
Title:
The E.W. Scripps Company hereby guarantees the obligations of Scripps under the
foregoing Shareholder Agreement.
THE E.W. SCRIPPS COMPANY
By____________________________
Title_________________________
EXHIBIT 8.4(f)
Shop At Home Network, LLC
5388 Hickory Hollow Parkway
Nashville, Tennessee 37013
______________, 2002
Shop at Home, Inc.
5388 Hickory Hollow Parkway
Nashville, Tennessee 37013
Ladies and Gentlemen:
The following shall comprise the agreement (the "Agreement") among
____________ (formerly known as Shop at Home, Inc.) and its subsidiaries listed
on Exhibit A, attached hereto and made part hereof (collectively, "SATH"), and
Shop At Home Network, LLC (the "Company") for the affiliation of SATH's
television broadcasting stations set forth on Exhibit A (each respective station
and the holder of the FCC license therefor being referred to herein as a
"Station" and collectively as, the "Stations"), with the Company's Shop at Home
Network (the "Network") and shall supersede and replace all prior agreements
between SATH and the Company or its predecessor with respect to the Network,
which agreements are hereby terminated and of no further force or effect.
1. Term and Termination.
--------------------
(a) This Agreement shall become effective at ____ a.m., central time
on ____________, 2002 (the "Effective Date") and, unless sooner terminated as
provided herein, shall remain in effect until _____ a.m., central time on
_____________, 2005 (the "Term").
(b) This Agreement may be terminated by SATH with respect to any Station,
provided that such termination shall not be effective (i) prior to the day
following the last day of the fifteenth (15th) month following the Effective
Date; (ii) unless SATH provides the Company written notice of such termination
no later than six (6) months prior to the date of such termination; and (iii) so
long as SATH does not enter into any other affiliation or limited marketing
agreement with any television home shopping network.
(c) Provided SATH is not in breach of its obligations under this Agreement, SATH
may terminate this Agreement with respect to any Station upon written notice to
the Company if the Company breaches any of its obligations under this Agreement
with respect to such Station and the Company fails within thirty (30) days after
its receipt of notice of such breach from SATH to cure such breach.
(d) The Company may terminate this Agreement as to all Stations without
liability upon six (6) months prior written notice if the Company shall by
action of its members elect to cease the business of the Network.
2. Programming.
(a) The Company commits to supply to SATH network programming
for free over-the-air television broadcasting by each Station twenty-four (24)
hours a day, seven (7) days a week for the term of this Agreement (the
"Programming Period"). SATH agrees that, subject only to Section 3 below, each
Station shall clear and broadcast all programming supplied to Station hereunder
for broadcast during the Programming Period.
(b) All programming furnished to SATH for the Stations
pursuant to this Agreement shall be referred to herein as "Network Programming,"
and any one program of Network Programming shall be referred to as a "Network
Program." The selection, scheduling, substitution and withdrawal of any Network
Program or other portion of Network Programming shall at all times remain within
the sole discretion and control of the Company.
(c) SATH shall be solely responsible for all costs and
expenses incurred by SATH or any Station hereunder in connection with SATH's
ownership, operation, maintenance and facility upgrades of each Station,
including, without limitation, timely compliance with the FCC's requirements for
transition to digital television broadcasting. Notwithstanding the foregoing,
any costs and expenses incurred by SATH or any Station in connection with the
expansion of any Station facilities beyond the FCC's requirements or any other
non-essential capital improvement, in either case expressly requested by the
Company, shall be paid by the Company.
(d) Notwithstanding anything to the contrary in this
Agreement, the Company shall not have any obligation to supply Network
Programming to any Station if the Company reasonably believes that such
Station's airing of Network Programming could result in the violation by the
Company or any parent, subsidiary or affiliated company of the Company of any
policy, rule or regulation of the FCC, including but not limited to, Section
73.3555(b) of the FCC's rules (the local television multiple ownership rule).
3. FCC Mandated Programming Requirements.
(a) SATH shall be responsible for all material broadcast over
its facilities and reserves the right to substitute programming other than
Network Programming as necessary in its good faith discretion to comply with its
licensee obligations under the FCC's rules and policies. During the past year,
Stations each have devoted less than 3.5 hours per week (the "Programming
Allowance") to programming other than Network Programming. SATH does not
presently foresee that any Station's licensee obligations will require that it
present a greater amount of programming other than Network Programming during
the Programming Period or significantly alter the time periods during which such
programming other than Network Programming is presented.
(b) SATH shall immediately notify the Company in the event
that any Station broadcasts more than 3.5 hours of programming other than
Network Programming in any calendar week and shall provide the Company with a
complete schedule of that week's programming other than Network Programming
within one week. SATH agrees that the next Network Payment for a month that
includes the last day of a calendar week in which any Station aired more than
3.5 hours of programming other than Network Programming shall be reduced by an
amount equal to $.0001461 for every hour of programming other than Network
Programming broadcast in excess of the Programming Allowance multiplied by the
number of Network Households reached by the Station. Further, should any Station
broadcast more than 3.5 hours per calendar week of programming other than
Network Programming during any four calendar weeks per calendar year, the
Company, in addition to any other remedies it may have under this Agreement or
otherwise, may immediately terminate the Agreement with respect to that Station.
The remedies set forth in this Section 3 shall not apply if (i) SATH's failure
to broadcast Network Programming on any Station is a direct result of an event
of force majeure as provided in Section 6 of this Agreement; or (ii) SATH
reasonably believes that such Network Programming is unsatisfactory, unsuitable,
or contrary to the public interest as described below.
(c) While a Station may decline to air Network Programming
that it reasonably deems to be unsatisfactory, unsuitable, or contrary to the
public interest, SATH shall not fail to broadcast any Network Programming as a
result of commercial motivation; that is, programming shall not be deemed to be
unsatisfactory, unsuitable or contrary to the public interest based on
performance, ratings, or the availability of alternative programming which SATH
believes to be more profitable or more attractive.
4. Payments. In consideration of SATH entering into this Agreement and the
Stations' performance of their obligations hereunder, the Company shall pay SATH
an amount calculated by dividing the product of $1.25 and the average number of
Network Households (as hereinafter defined) by twelve (the "Network Payment").
For purposes of this Section 4, "Network Households" shall mean the number of
cable households reached by the Network calculated by averaging the total number
of cable households reached by the Network on the first and last day of each
month during the Term. The Network Payment shall be due and payable to SATH in
arrears on a monthly basis on the fifteenth (15th) day of each month during the
Term. If any Network Payment is not made within ten (10) days after the due date
thereof, then such Network Payment will bear a penalty equal to 1% of the amount
of such Network Payment per month. The number of Network Households shall be
computed by SATH according to its normal historical practices based on available
information which it believes to be reliable and according to the agreed upon
procedures set forth on Exhibit B. Each Network Payment shall be accompanied by
a certification of SATH's Chief Executive Officer, Chief Operating Officer or
Chief Financial Officer that such amount has been determined in compliance with
this Section 4. The Company shall have the right, exercisable no more often than
once per year, to conduct an audit of SATH's calculations of the number of
Network Households. If, as a result of the audit, the Company concludes that
SATH's calculations are overstated by a factor of more than 5% for any Station,
the resulting overpayments made during the period of the audit shall be
immediately paid to the Company by SATH. Notwithstanding this payment
obligation, SATH may object to the audit determination made by the Company, and
in that event the parties will mutually agree upon an independent third party to
conduct an audit of such calculations, and the results of such audit shall be
binding for the period covered by the audit. If, as a result of the audit by the
third party, it is determined that SATH overstated the number of Network
Households during the audit period by more than 5% for any Station, the cost of
the audit shall be paid by SATH. Otherwise, the cost of the audit shall be paid
by the Company.
5. Conditions of Station's Broadcast. As a condition to SATH's broadcast of
Network Programming on any Station, SATH shall not make any deletions from, or
additions or modifications to, any Network Program or any commercial, Network
identification, program promotional or production credit announcements or other
interstitial material contained therein, nor broadcast any commercial or other
announcements (except emergency bulletins) during any such program, without the
Company's prior written authorization. SATH shall broadcast each Network Program
on the Stations from the commencement of network origination until the
commencement of the next program.
6. Force Majeure. Neither SATH nor the Company shall incur any liability to the
other party hereunder because of the Company's failure to deliver, or the
failure of a Station to broadcast, any or all Network Programs due to failure of
facilities, labor disputes, government regulations, including, but not limited
to, applicable FCC regulations, or causes beyond the reasonable control of the
party so failing to deliver or to broadcast. Without limiting the generality of
the foregoing, the Company's failure to deliver a program due to cancellation of
that program for any reason shall be deemed to be for causes beyond the
Company's reasonable control.
7. Indemnification.
(a) The Company shall indemnify, defend and hold each Station (individually, an
"Indemnified Station"), its parent, subsidiary and affiliated companies, and
their respective directors, officers and employees, harmless from and against
all claims, damages, liabilities, costs and expenses (including reasonable
attorneys' fees) arising out of the use by the Indemnified Station, in
accordance with this Agreement, of any Network Program or other material as
furnished by the Company hereunder, provided that the Indemnified Station
promptly notifies the Company of any claim or litigation to which this indemnity
shall apply, and that the Indemnified Station cooperates fully with the Company
in the defense or settlement of such claim or litigation.
(b) SATH shall indemnify, defend and hold the Company, its parent, subsidiary
and affiliated companies, and their respective directors, officers and
employees, harmless with respect to (i) material added to or deleted from any
program by any Station; and (ii) any programming or other material broadcast by
any Station and not provided by the Company hereunder, provided that the Company
promptly notifies SATH of any claim or litigation to which this indemnity shall
apply, and that the Company cooperates fully with SATH in the defense or
settlement of such claim or litigation.
(c) These indemnities shall not apply to litigation expenses,
including attorneys' fees, which the indemnified party elects to incur on its
own behalf, provided that the indemnifying party has assumed responsibility for
the defense or settlement of the claim.
8. Change in Operations. SATH represents and warrants that it holds a valid
license granted by the FCC to operate each Station as a television broadcast
station. Such representation and warranty shall constitute a continuing
representation and warranty by SATH. In the event that at any time a Station's
transmitter location, power, frequency or operations and such change results in
a loss of 10% or more of the cable TV households which receive the Station, then
the Company may terminate this Agreement with respect to such Station or
Stations upon thirty (30) days' prior written notice to SATH.
9. Unauthorized Copying and Transmission; Retransmission Consent.
(a) SATH shall not authorize, cause, or permit, without the Company's consent,
any Network Program or other material furnished to SATH hereunder to be
recorded, duplicated, rebroadcast or otherwise transmitted or used for any
purpose other than broadcasting by SATH on each Station as provided herein.
Notwithstanding the foregoing, SATH shall not be restricted in the exercise of
its signal carriage rights pursuant to any applicable rule or regulation of the
FCC with respect to retransmission of its broadcast signal by any cable system
or multichannel video program distributor ("MVPD"), as defined in Section
76.64(d) of the FCC's rules, which (i) is located within the DMA in which each
Station is located; or (ii) was actually carrying Station's signal as of April
1, 1993; or (iii) with respect to cable systems, serving an area in which
Station is "significantly viewed" (as determined by the FCC) as of April 1,
1993; provided, however, that any such exercise pursuant to the FCC's rules with
respect to Network Programs shall not be deemed to constitute a license by the
Company.
(b) SATH shall not consent to the retransmission of its broadcast signal by any
cable television system, or, except as provided in Section (c) below, to any
other MVPD whose carriage of broadcast signals requires retransmission consent,
if such cable system or MVPD is located outside the DMA to which any Station is
assigned, unless such Station's signal was actually carried by such cable system
or MVPD as of April 1, 1993, or, with respect to such cable system, is
"significantly viewed" (as determined by the FCC) as of April 1, 1993.
(c) SATH shall not consent to the retransmission of its broadcast signal by any
MVPD that provides such signal to any home satellite dish user, unless such user
is located within any Station's own DMA.
(d) If SATH violates any of the provisions set forth in this Section 9, the
Company may, in addition to any other of its rights or remedies at law or in
equity under this Agreement or any amendment thereto, terminate this Agreement
with respect to the violating Station by written notice to SATH given at least
ninety (90) days prior to the effective date of such termination.
10. DTV Conversion. SATH acknowledges that, upon commencement of operation of
each Station's digital television signal ("DTV channel"), SATH will cause each
Station, to the same extent as this Agreement provides for carriage of Network
Programming on its analog channel, carry on such DTV channel the digital feed,
when available, of such Network Programming as and in the technical format
provided by the Company consistent with the ATSC standards and all program
related material.
11. Assignment.
(a) This Agreement may not be assigned or transferred
(including pursuant to any change in the control of SATH or any Station), except
a "short form" assignment or transfer of control made pursuant to Section
73.3540(f) of the FCC's rules, directly or indirectly, whether by operation of
law or otherwise, without the prior written consent of the Company, which
consent shall not be unreasonably withheld, and, except as permitted by Section
11(b), no permitted assignment or transfer shall relieve SATH of its obligations
hereunder. Any purported assignment or transfer by SATH or any Station without
the Company's consent as required hereby shall be null and void and not
enforceable against the Company.
(b) In the event of a transfer of control or assignment of any
Station's license, except a "short form" assignment or transfer of control made
pursuant to Section 73.3540(f) of the FCC's rules (each, a "Change in Control
Transaction"), SATH shall cause the license assignee or transferee (a "Station
Transferee") to assume SATH's obligations hereunder with respect to such
Station, provided that such Station Transferee may terminate this Agreement with
respect to such Station but such termination shall not be effective (i) prior to
the day following the last day of the fifteenth (15th) month following the
Effective Date; and (ii) unless such Station Transferee provides the Company
written notice of such termination no later than six (6) months prior to the
date of such termination.
12. Notices. Notices hereunder shall be in writing and shall be given by
personal delivery or overnight courier service: (a) to SATH at the address set
forth on the first page of this Agreement; and (b) to the Company at the address
set forth on the first page of this Agreement, or at such address or addresses
as may be specified in writing by the party to whom the notice is given. Notices
shall be deemed given when personally delivered and on the next business day
following dispatch by overnight courier service.
13. Availability of Equitable Remedies. In the event of a material breach of
this Agreement, the party not at fault, if any, shall retain and have the right
to pursue all rights and remedies available at law or in equity against the
defaulting party. Since a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any party shall be entitled, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or threatened breach and to specific performance of any
such provision of this Agreement. No bond or other security shall be required in
connection with any such action, and the parties consent to the issuance of such
an injunction and to the ordering of specific performance.
14. Entire Agreement/Amendments. The foregoing constitutes the entire Agreement
among the parties with respect to the affiliation of the Stations with the
Network. This Agreement may not be changed, amended, modified, renewed, extended
or discharged, except as specifically provided herein or by an agreement in
writing signed by the parties hereto.
15. Confidentiality. The parties agree to use their best efforts to preserve
the confidentiality of this Agreement and the terms and conditions set forth
herein, and the exhibits annexed hereto, to the fullest extent permissible by
law.
16. Applicable Law. The obligations of SATH and the Company under this Agreement
are subject to all applicable federal, state, and local laws, rules and
regulations, including, but not limited to, the Communications Act of 1934, as
amended, and the rules and regulations of the FCC, and this Agreement and all
matters or issues collateral thereto shall be governed by the law of the State
of Ohio, without regard to applicable conflict of laws provisions.
17. Severability. If any provision of this Agreement or the application of such
provision to any circumstance is held invalid, the remainder of this Agreement,
or the application of such provision to circumstances other than those as to
which it is held invalid, will not be affected thereby.
18. Waiver. A waiver by SATH or the Company of a breach of any provision of this
Agreement shall not be deemed to constitute a waiver of any preceding or
subsequent breach of the same provision or any other provision hereof.
19. Counterparts. This Agreement may be signed in any number of counterparts,
ach of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
20. Headings. The headings contained in this Agreement are for convenience of
reference only and shall not be considered a part of, or affect the construction
or interpretation of any provision of, this Agreement.
21. Liability of SATH and Stations. Notwithstanding any provision herein, SATH
and each of its subsidiaries shall be jointly and severally liable for all
agreements, covenants, representations, warranties and indemnities of SATH
hereunder.
If the foregoing is in accordance with your understanding, please
indicate your acceptance on the copy of this Agreement enclosed for that purpose
and return that copy to us.
Very truly yours,
SHOP AT HOME NETWORK, LLC
By:__________________________________
Name:________________________________
Title:_________________________________
AGREED:
SHOP AT HOME, INC.
By:__________________________________
Name:________________________________
Title:_________________________________
SAH LICENSE, INC.
By:__________________________________
Name:________________________________
Title:_________________________________
SAH ACQUISITION CORPORATION II
By:__________________________________
Name:________________________________
Title:_________________________________
EXHIBIT A
1. SAH License, Inc.
3993 Howard Hughes Parkway, Suite 100
Las Vegas, NV 89109
Licensee of Television Stations: WSAH, Bridgeport, CT; WMFP,
Lawrence, MA
2. SAH Acquisition Corporation II
P.O. Box 305249
Nashville, TN 37230
Licensee of Television Stations: KCNS, San Francisco, CA; WRAY-TV,
Wilson, NC; WOAC, Canton, OH
EXHIBIT 8.4(g)
THE E.W. SCRIPPS COMPANY
312 Walnut Street
Cincinnati, Ohio 45202
_____________, 2002
Shop At Home, Inc.
5388 Hickory Hollow Parkway
Nashville, Tennessee 37013
Dear Sirs:
c.07 As a condition to the indirect purchase by The E.W. Scripps Company
("EWScripps"), through a subsidiary, of shares in SAH Holdings, Inc.
("Holdings"), an Ohio corporation and a wholly owned subsidiary of Shop At Home,
Inc. ("SATH"), EW Scripps hereby agrees that it will not directly or indirectly
through a subsidiary acquire substantially all of the equity interests in or
assets related to any home shopping cable television network offered and
distributed in the United States unless it provides SATH with the opportunity to
participate in such acquisition, on the same terms and conditions as EW Scripps,
pro rata with EW Scripps to the extent of SATH's direct or indirect membership
interest in the Shop At Home Network, LLC, a Tennessee limited liability company
owned by SATH, Holdings and SAH Acquisition Corporation, a wholly owned
subsidiary of SATH (the "LLC"). If EW Scripps so chooses, in its sole
discretion, EW Scripps can require that such participation take the form of
direct participation in the purchase from the seller of such business, purchase
of the business through an entity jointly owned (directly or indirectly) by EW
Scripps, SATH and third parties, or a sale by EW Scripps or issuance by the
entity holding such business to SATH of equity as soon as practicable after
consummation of the acquisition. EW Scripps shall promptly deliver to SATH
written notice of the proposed acquisition (the "Acquisition Notice"), including
information regarding the business to be acquired, the terms and conditions of
the acquisition, and the closing and termination dates, and any other material
facts or terms and conditions. SATH shall notify Scripps of its intention to
participate in such acquisition as soon as practicable but not later than 30
days after receipt of the Acquisition Notice.
In no event will EW Scripps be required to use the LLC to effect any
acquisition of a home shopping cable television network or be required to offer
any opportunity to effect any such acquisition to the LLC, and, by their
countersignatures on this letter, SATH, SAH Acquisition Corporation and the LLC
hereby acknowledge and agree to same and waive any statutory or common law
duties with respect to the foregoing.
Respectfully,
THE E.W. SCRIPPS COMPANY
By
Acknowledged and agreed to:
SHOP AT HOME, INC.
By
------------------------------------------
SHOP AT HOME NETWORK, LLC
By
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SAH HOLDINGS, INC.
By
------------------------------------------
SAH ACQUISITION CORPORATION
By
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EXHIBIT 8.4(h)
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is dated as of __________,
2002, among (formerly known as SHOP AT HOME, INC.), a Tennessee corporation
("SATH"), KCNS, INC., a Tennessee corporation ("KCNS"), WMFP, INC., a Tennessee
corporation ("WMFP"), WOAC, INC., a Tennessee corporation ("WOAC"), and SAH
LICENSE, INC., a Nevada corporation ("SAH License"), as the borrowers (each of
the foregoing individually, a "Borrower" and, collectively, the "Borrowers"),
and THE E.W. SCRIPPS COMPANY, an Ohio corporation, as the lender (the "Lender").
Capitalized and certain other terms are defined in Section 8 of this Agreement.
AGREEMENT
In consideration of the mutual agreements contained in this Agreement, the
parties hereby agree as follows:
SECTION 1
LOAN, PREPAYMENT AND USE OF PROCEEDS
1.1 Loan. Subject to the terms and conditions of this Agreement, the Borrowers
agree to borrow from the Lender, and the Lender agrees to loan to the Borrowers,
the principal sum of $47,500,000.00 (the "Loan"). The obligation to repay the
Loan pursuant to this Agreement will be evidenced by a promissory note (the
"Note") of the Borrowers in the principal amount of $47,500,000.00 in the form
attached hereto as Exhibit A and made a part hereof, and on the terms set forth
therein.
1.2 Prepayment. The Loan may be prepaid prior to maturity at any time or from
time to time, in whole or in part, without penalty or premium. If the Borrowers
make any prepayment of the Loan, such prepayment will be applied first to
payment of accrued but unpaid interest on the principal balance of the Loan
through the date of prepayment and then to payment of principal. After any
partial prepayment, regular payments will continue to be due and payable in the
same amounts and at the same times as required by the Note prior to prepayment
until the Loan is paid in full.
The parties acknowledge that the Loan is secured by the Collateral. Without
limiting any other provision of this Agreement, if any Borrower sells, transfers
or otherwise disposes of, whether by sale of assets or Stock, merger,
consolidation, reorganization, by contract or otherwise (each a "Transfer"), any
interest in any Collateral, then the Borrowers shall pay to the Lender the
entire amount of the Net Proceeds received by any Borrower from such Transfer as
a prepayment of the Loan under this Section and such amount will be applied in
accordance herewith. Without the Lender's express written consent, no Borrower
may use any proceeds of a Transfer of Collateral to pay any taxes, assessments,
liens or other obligations other than those contemplated by the definition of
Net Proceeds.
The parties acknowledge that SATH and Scripps Networks, Inc., a subsidiary of
the Lender ("Scripps Networks"), are parties to a Shareholders Agreement dated
of even date herewith, in respect of their interests in The Scripps Shop At Home
Holding Company, an Ohio corporation ("Holdings"), and that Holdings, SATH and
SAH Acquisition Corporation, a wholly owned subsidiary of SATH, are parties to
an Amended and Restated Operating Agreement dated of even date herewith, in
respect of their interests in Shop At Home Network, LLC, a Tennessee limited
liability company ("Network Operating Company") (the Shareholders Agreement and
the Amended and Restated Operating Agreement will be referred to as the "Network
Partnership Agreements"). The Lender hereby agrees that upon the occurrence of
any event that under the Network Partnership Agreements results in any provision
thereof requiring or permitting Scripps Networks or Holdings to offset all or
any portion of the Loan against SATH's right to receive payments from Scripps
Networks or Holdings, or requiring SATH to make a prepayment of the Loan, the
Lender shall accept such offsets with Scripps Networks and Holdings as valid
prepayments hereunder and the amount of such offsets as determined under the
Network Partnership Agreements will constitute satisfaction of the Loan to the
extent of such amount.
1.3 Use of Proceeds. The Borrowers shall use the Loan proceeds solely to fund a
portion of the payments necessary for the Borrowers to extinguish all of their
Indebtedness existing on the date hereof under SATH's $75,000,000 Senior Secured
Notes due April 2005 and the Loan and Security Agreement dated August 1, 2001
between SATH, as Borrower, and Foothill Capital Corporation, as Lender, and all
encumbrances in respect thereof.
SECTION 2
CREATION OF SECURITY INTEREST
2.1 Grant of Security Interest. The Borrowers hereby grant to the Lender a
continuing valid first lien and security interest (individually, the "Security
Interest" and collectively, the "Security Interests") in all of their respective
right, title and interest in and to all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all of the Obligations in accordance with the terms and conditions of the Loan
Documents and in order to secure prompt performance by each Borrower of its
respective covenants and duties under the Loan Documents. The Security Interest
shall attach to all of the Collateral without any further action on the part of
the Lender or the Borrowers. Notwithstanding any other provision of this
Agreement or any of the other Loan Documents, no Borrower has any authority,
whether express or implied, to Transfer or to create any Encumbrance on any of
the Collateral.
2.2 Evidence of Security Interest. The Security Interest shall be evidenced and
enhanced by this Agreement, the Financing Statements, the Pledge Agreements and
the Collateral Assignments of Leases. The Borrowers shall take all steps
required by any of the foregoing documents to perfect or enhance the Security
Interest, including without limitation by delivering such certificates and stock
powers as may be necessary to perfect the Security Interest in the Pledged Stock
and to the extent not delivered as of the Closing Date by using commercially
reasonable best efforts to obtain the delivery of landlord lien waivers and
estoppels as to any leased real property.
2.3 Broadcast Licenses as Collateral. Notwithstanding anything in the definition
of "Collateral" to the contrary, to the extent that this Agreement or any other
Loan Document purports to require any Borrower to grant a security interest to
the Lender in any Broadcast License now owned or hereafter acquired, the Lender
will have only a lien and security interest in such Broadcast License at such
time and to the extent that a lien and security interest in such Broadcast
License is permitted under applicable Legal Requirements. Notwithstanding
anything in this Agreement or any other Loan Document to the contrary, the
Lender shall not take any action pursuant to this Agreement or any other Loan
Document that would constitute or result in any assignment or deemed assignment
of any Broadcast License without obtaining the prior approval of the FCC or any
other necessary Governmental Body if, under the applicable Legal Requirements
then in effect, such assignment would require such approval. Prior to the
Lender's exercise of any power, right, privilege or remedy pursuant to this
Agreement that requires any consent, approval, recording, qualification or
authorization of the FCC or any other Governmental Body, the Borrowers shall
execute and deliver, or shall cause the execution and delivery of, all
applications, certificates, instruments and other documents and papers that the
Lender determines may be required to obtain such consent, approval, recording,
qualification or authorization. Without limiting the generality of the
foregoing, upon the Lender's request, the Borrowers shall use their good faith
efforts to assist the Lender in obtaining any of the foregoing consents,
approvals or authorizations.
2.4 Financing Statements; Additional Actions.
a. The Borrowers authorize the Lender to file any financing statements required
hereunder and any continuation statements or authorizations with respect thereto
(collectively, the "Financing Statements") in any appropriate filing office
without the signature of any Borrower where permitted by applicable law.
b. If any of the Collateral, including without limitation any proceeds of any
Collateral, is evidenced by or consists of letters of credit, letter of credit
rights, instruments, promissory notes, drafts, documents or chattel paper
(including without limitation electronic chattel paper), or any supporting
obligations in respect thereof, and the Security Interest depends upon or is
enhanced by possession of any such Collateral, immediately upon the Lender's
request, the Borrowers shall endorse and deliver to the Lender physical
possession thereof.
c. If any Borrower acquires any commercial tort claims relating to any Stations
after the date hereof, such Borrower shall immediately deliver a written
description of such claim to the Lender, together with a written agreement in
form and substance satisfactory to the Lender in its reasonable discretion
pursuant to which such Borrower shall pledge and collaterally assign all of its
right, title and interest in and to such commercial tort claim to the Lender as
security for the Obligations.
d. If any Collateral is at any time in the possession or control of any
warehouseman, bailee or any agent or processor, the Borrowers shall notify such
Person of the Security Interest in such Collateral and shall obtain from such
Person an acknowledgment that such Person is holding the Collateral for the
Lender's benefit.
e. At any time upon Lender's request, the Borrowers shall execute and deliver to
the Lender any and all Financing Statements, mortgages, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of title
and all other documents, each in form and substance satisfactory to the Lender
in its reasonable discretion, to create and perfect and continue perfected or
better perfect the Security Interest (whether arising now or hereafter) in the
Collateral. To the maximum extent permitted by applicable law, each Borrower
hereby (i) authorizes the Lender to execute and file any such documents in any
appropriate filing office and (ii) agrees, upon the Lender's request, (A) to
cause all patents, copyrights and trademarks acquired or generated by the
Borrower and relating to the Stations that are not already the subject of a
registration with the appropriate filing office to be registered with such
filing office in a manner sufficient to impart constructive notice of the
Borrower's ownership thereof and (B) to cause to be prepared, executed and
delivered to the Lender supplemental schedules to the applicable Loan Documents
to identify any of the foregoing as being subject to the Security Interest
created under this Agreement.
2.5 Power of Attorney. The Borrowers hereby irrevocably make, constitute and
appoint the Lender and any officers, employees or agents designated by the
Lender as the Borrowers' true and lawful attorney, with power (a) to sign the
name of any Borrower on any of the documents described in this Section 2, (b) at
any time that an Event of Default has occurred and is continuing, to sign the
name of any Borrower on any document relating to the Collateral, (c) to send
requests for verification of accounts, (d) to endorse the name of any Borrower
on any checks, instruments or items of payment that may come into the Lender's
possession, (e) at any time that an Event of Default has occurred and is
continuing, to make, settle and adjust any claims under a policy of insurance of
any Borrower and (f) at any time that an Event of Default has occurred and is
continuing, to settle and adjust disputes and claims respecting the accounts,
chattel paper or general intangibles directly with the account debtors for
amounts and upon terms that the Lender determines in its sole discretion. The
Lender's appointment as the Borrowers' attorney, and each and every one of the
Lender's rights and powers, being coupled with an interest, are irrevocable
until the Obligations have been fully repaid and performed.
2.6 Right to Inspect. The Lender and its officers, employees or agents will have
the right, at any time upon reasonable advance notice and from time to time but
not more often than quarterly, to inspect the books and records of the Borrowers
and to assess, check, test and appraise the Collateral, in either case to verify
the financial condition of any Borrower or the amount, quality, value or
condition of the Collateral.
SECTION 3
CONDITIONS PRECEDENT TO THE LENDER'S OBLIGATION
The obligation of the Lender to enter into this Agreement and make the Loan to
the Borrowers is conditioned upon the Borrowers' satisfaction of the following
conditions precedent:
3.1 Delivery of Documents. The Borrowers shall have delivered to the Lender each
of the following documents, each in form and substance satisfactory to the
Lender in its sole discretion:
a. Properly executed Note;
b. Properly executed Financing Statements, Pledge Agreements and Collateral
Assignments of Leases, and other documentation contemplated thereby or hereby;
c. The Organizational Documents of each Borrower pursuant to the Pledge
Agreements, in each case certified by the Secretary or Assistant Secretary of
such Borrower as true and complete on and as of the date of such certificate,
and a certificate of good standing for each of the Borrowers issued by the
secretary of state of its jurisdiction of organization and all other
jurisdictions in which it is qualified, in each case as of a date immediately
prior to the date hereof;
d. Certified copy of the resolutions of the board of directors of each
Borrower authorizing the Loan and such Borrower's
execution and delivery of the Loan Documents, its grant of the Security
Interest, and its assumption of the Obligations;
e. Incumbency certificate for each Borrower, signed by the Secretary or
Assistant Secretary of such Borrower, for each person
executing any of the Loan Documents on behalf of such Borrower;
f. Opinion of counsel for each Borrower in form and substance satisfactory to
the Lender confirming the following:
(i) The Borrower is a corporation duly organized, existing and in good standing
under the laws of its jurisdiction of organization. The Borrower has the
corporate power to own its properties and to carry on its business as now being
conducted. The Borrower is where necessary duly qualified as a foreign
corporation to do business and is in good standing in the jurisdiction or
jurisdictions in which the nature of the business conducted makes such
qualification necessary.
(ii) Except as otherwise disclosed in writing, there is no action or proceeding
pending or threatened against or affecting the Borrower in any court or before
any Governmental Body, arbitration board or tribunal, which individually or in
the aggregate could have a Material Adverse Effect.
(iii) The execution of the Loan Documents executed by the Borrower, the Loan and
the Security Interests have been fully authorized by the Borrower pursuant to
its Organizational Documents or otherwise; and the officers executing the Loan
Documents have been duly authorized to do so.
(iv) The Loan Documents executed by the Borrower constitute legal, valid and
binding obligations of the Borrower and are enforceable against the Borrower in
accordance with their respective terms, except as enforcement of such terms may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditor's rights generally.
(v) The Security Interests constitute valid liens upon the Collateral and are
properly perfected. The filings made in connection with the Liens have been made
in all of the necessary public offices and are all of the filings which may be
of material advantage in preserving, protecting and perfecting the Security
Interests.
(vi) The execution of the Loan Documents by the Borrower and its performance of
the Obligations will not be in conflict with the terms and provisions of any
contract or agreement to which the Borrower is a party or by which it is bound
and will not result in a breach of the terms, conditions and provisions of or
constitute a default under the Borrower's Organizational Documents.
(vii) The execution and performance of the Loan Documents by the Borrower do not
violate any law, statute or ordinance, nor do they violate any rule or
regulation promulgated pursuant to any law, statute or ordinance which
materially and adversely affects the Borrower.
(viii) Such qualifications, assumptions and other matters incident to the Loan
as reasonably may be requested by the Borrower's counsel.
g. Such other usual and customary documents as the Lender or its counsel may
reasonably request.
3.2 Share Purchase Agreement. All of the terms and conditions provided under the
Share Purchase Agreement dated as of August ___, 2002 between Scripps Networks
and SATH (the "Share Purchase Agreement") which are required to have been
performed for the consummation of the closing thereunder shall have been fully
satisfied and the closing thereunder shall occur simultaneously with the closing
hereunder.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
Note: No Schedules need to be produced until the Closing Date, so
all internal restructuring will have occurred already.
The Borrowers, jointly and severally, represent and warrant to the
Lender, as of the date hereof (except for such representations and warranties
that refer specifically to another date and, in such case, as of the date so
referred to), as follows:
4.1 Organization and Good Standing. Each Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of its state of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all of its Obligations. Each Borrower is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either the ownership
or use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification. Each Borrower has delivered to the
Lender copies of its Organizational Documents, as currently in effect.
4.2 Authority; No Conflict.
a. This Agreement constitutes the legal, valid, and binding obligation of each
Borrower, enforceable against each Borrower in accordance with its terms. Upon
the execution and delivery by each Borrower of each of the Loan Documents to
which it is a party, such Loan Documents will constitute the legal, valid, and
binding obligations of such Borrower, enforceable against such Borrower in
accordance with their respective terms. Each Borrower has the absolute and
unrestricted right, power and authority to execute and deliver the Loan
Documents to which it is a party and to perform its obligations thereunder.
b. Neither the execution and delivery of this Agreement nor the consummation or
performance of the terms and conditions of the Loan Documents, after giving
effect to the closing of the transactions contemplated under the Share Purchase
Agreement and the Network Partnership Agreements (collectively, the "Network
Transactions"), by a Borrower will, directly or indirectly (with or without
notice or lapse of time):
(i) contravene, conflict with, or result in a violation of any provision of the
Organizational Documents of such Borrower, or any resolution adopted by the
board of directors or stockholders of such Borrower;
(ii) contravene, conflict with, or result in a violation of, or give any
Governmental Body or other person the right to challenge the Loan, or to
exercise any remedy or obtain any relief under, any Legal Requirement or any
Order to which such Borrower, or any of the assets owned or used by such
Borrower, may be subject;
(iii) contravene, conflict with, or result in a violation of any of the terms
of, or give any Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization that is held by
such Borrower or that otherwise relates to the business of, or any of the assets
owned or used by, such Borrower;
(iv) contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Contract to which such Borrower is bound; or
(v) result in the imposition or creation of any Encumbrance upon or with respect
to any of the assets owned or used by such Borrower, other than the Security
Interest.
Except as set forth in Schedule 4.2, no Borrower will be required to give any
notice to or obtain any Consent from any Person in connection with the execution
and delivery of the Loan Documents, the consummation of the Loan or the
performance of the Obligations.
4.3 Capitalization. After giving effect to the Network Transactions, SATH is the
record and beneficial owner and holder of all of the Pledged Stock of KCNS,
WMFP, WOAC, Holdings and Network Operating Company and WMFP is the record and
beneficial owner of all of the Pledged Stock of SAH License. The Pledged Stock
of SAH Acquisition, WMFP and SAH License constitutes all of the outstanding
Stock of such entities. All of the Pledged Stock is owned free and clear of all
Encumbrances except for the Security Interest. The authorized capital Stock of
each such Subsidiary Borrower is set forth in Schedule 4.3, and all of such
Stock is duly authorized, validly issued, fully paid and nonassessable, and was
issued in conformity with all applicable state and federal securities laws. No
Subsidiary Borrower has any other Stock of any class issued, reserved for
issuance, or outstanding. There are no outstanding options, offers, warrants,
conversion rights, agreements, or other rights to subscribe for Stock of or to
purchase Stock from any Subsidiary Borrower. No Stock of any Subsidiary Borrower
carries, and no stockholder of any Subsidiary Borrower has been granted, any
preemptive rights. No Subsidiary Borrower is obligated under any agreement,
arrangement or understanding to redeem or otherwise purchase any of its Stock.
There are no Contracts relating to the issuance, sale or Transfer of any equity
or other Stock of any Subsidiary Borrower. No Borrower owns, or has a Contract
to acquire, any Stock of any Person, including without limitation any direct or
indirect equity or ownership interest in any other business.
4.4 Financial Statements.
a. SATH has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). A complete list of the SEC Documents is set forth on Schedule
4.4. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act. None of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, SATH's financial statements included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with GAAP (except as may be
otherwise indicated in such financial statements or the notes thereto, or, in
the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of SATH and its
subsidiaries on a consolidated basis as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of any Borrower to
the Lender that is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading.
b. The Borrowers have delivered or caused to be delivered to the Lender pro
forma combined statements of operations and balance sheets of the Borrowers for
the twelve months ended June 30, 2002 and for the quarter ended September 30,
2002, after giving effect to the Network Transactions and the Loan as if such
transactions had occurred as of July 1, 2002 (the "Pro Forma Financial
Statements"). The Pro Forma Financial Statements were prepared on behalf of the
Borrowers in good faith after taking into account the existing and historical
levels of business activity of the Borrowers, known trends, including general
economic trends, and all other information, assumptions and estimates considered
by management of Borrowers to be reasonable at the time, after giving effect to
the Network Transactions and the Loan, and on a basis consistent with the
financial statements referred to in Sections 4.4(a) and (c), other than as
expressly set forth in the Pro Forma Financial Statements. There are no
statements or conclusions in any of the Pro Forma Financial Statements that are
based upon or include information known to any Borrower to be misleading in any
material respect or that fail to take into account material information
regarding the matters set forth therein. No facts are known to the Borrowers
which, if reflected in the Pro Forma Financial Statements, could be expected to
materially affect the reliability, performance, accuracy and completeness of the
Pro Forma Financial Statements or the assets, liabilities, results of operations
or cash flows reflected therein.
c. The Borrowers have delivered to the Lender complete and correct copies of pro
forma financial projections prepared by Borrowers' management for the fiscal
years ending June 30, 2003 and June 30, 2004, after giving effect to the Network
Transactions and the Loan (the "Financial Projections"). The Financial
Projections were prepared on behalf of the Borrowers in good faith after taking
into account the existing and historical levels of business activity of the
Borrowers, known trends, including general economic trends, and all other
information, assumptions and estimates considered by Borrowers' management to be
reasonable at the time, after giving effect to the Network Transactions and the
Loan and on a basis consistent with the financial statements referred to in
Sections 4.4(a) and (b), other than as expressly set forth in the Financial
Projections. There are no statements or conclusions in the Financial Projections
that are based upon or include information known to any Borrower to be
misleading in any material respect or that fail to take into account material
information regarding the matters set forth therein. No facts are known to the
Borrowers which, if reflected in the Financial Projections, could be expected to
materially affect the reliability, performance, accuracy and completeness of the
Financial Projections or the assets, liabilities, results of operations or cash
flows reflected therein. On the date hereof, the Borrowers believe that the
Financial Projections are reasonable and attainable but the parties acknowledge
that future changes in facts and circumstances may render such Financial
Projections unattainable. This Section 4.4(c) is not intended, nor will it be
considered, to be a guaranty of future performance.
d. Except as fully reflected in the financial statements and notes related
thereto described in Section 4.4(a), there were as of the date hereof (after
giving effect to the Network Transactions), no liabilities or obligations with
respect to any Borrower of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) which, either individually or in
aggregate, have had or could reasonably be expected to result in a material
adverse effect on the business, prospects, properties, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of any
Borrower. As of the date hereof, the Borrowers know of no basis for the
assertion against any Borrower of any liability or obligation of any nature
whatsoever that is not fully disclosed in the financial statements delivered
pursuant to Sections 4.4(a) and (b) which, either individually or in the
aggregate, has had or could reasonably be expected to result in a Material
Adverse Effect. As of the date hereof (after giving effect to the Network
Transactions), no Borrower has any outstanding Indebtedness other than the Loan
and the Permitted Indebtedness.
4.5 Books and Records. The books of account, minute books, stock record books,
and other records of the Borrowers, all of which have been made available to the
Lender, are complete and correct and have been maintained in accordance with
sound business practices. Each Borrower maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorizations, (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
minute books of each Borrower contain accurate and complete records of all
meetings held of, and action taken by, the stockholders or members and the
boards of directors, the managers, and the committees thereof, and no meeting of
any stockholders, members, board of directors, managers, or committee of any
Borrower has been held for which minutes have not been prepared and are not
contained in such minute books.
4.6 Title to Properties; Encumbrances; Leases. Schedule 4.6 contains a complete
and accurate list of all real property, leaseholds, or other interests therein
owned or used by each Borrower. The Borrowers have made available to the Lender
all policies of title insurance, surveys, deeds and other documents vesting
title in or containing restrictions on the ownership or use of any real property
owned or used by any Borrower. Each Borrower owns (with good and marketable
title in the case of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that it purports to own or reflected
as owned in its books and records. Except as set forth on Schedule 4.6, all
properties and assets of the Borrowers are free and clear of all Encumbrances
and are not, in the case of real property, subject to any rights of way,
building use restrictions, exceptions, variances, reservations, or limitations
of any nature except, with respect to all such properties and assets, liens for
current taxes not yet due and with respect to real property, (a) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of any Borrower, and (b) zoning laws and
other land use restrictions that do not impair the present or anticipated use of
the property subject thereto. Each Borrower enjoys peaceful and undisturbed
possession under any leases to which it is a party. All of such leases are valid
and subsisting, and no default by any Borrower exists under any such leases. The
property leased or owned by the Borrowers is all of the property necessary for
the operation of the Stations as they are currently being operated.
4.7 Condition and Sufficiency of Assets. The buildings, plants, structures, and
equipment of the Borrowers are structurally sound, in good operating condition
and repair, and adequate for the uses to which they are being put, and none of
such buildings, plants, structures or equipment is in need of maintenance or
repairs except for routine maintenance and repairs that are not material in
nature or cost. The building, plants, structures, and equipment of each Borrower
are sufficient for the continued conduct of such Borrower's business (after
giving effect to the Network Transactions) after the date hereof in
substantially the same manner as conducted prior to the date hereof (excluding
the business transferred in the Network Transactions) and constitute all of the
assets necessary for such Borrower to conduct its business.
4.8 No Undisclosed Liabilities. Except as set forth in Schedule 4.8, no Borrower
has any liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against on the face of the Pro Forma Financial
Statements and current liabilities incurred in the Ordinary Course of Business
since June 30, 2002.
4.9 Taxes.
a. Each Borrower has timely filed or caused to be timely filed all Tax Returns
that are or were required to be filed by or with respect to any of them, either
separately or as a member of a group of entities, pursuant to applicable Legal
Requirements, and all Taxes owed by each Borrower have been timely paid. All
such Tax Returns are true, correct and complete. Each Borrower has made
available to the Lender copies of all such Tax Returns filed since June 30,
1993. Schedule 4.9 contains a complete and accurate list of, all such income Tax
Returns filed since June 30, 1993. Each Borrower has paid, or made provision for
the payment of, all Taxes that have or may have become due pursuant to all Tax
Returns or otherwise, or pursuant to any assessment received by such Borrower,
except such Taxes, if any, as are listed in Schedule 4.9 and are being contested
in good faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the applicable accounting records.
b. The federal and state income Tax Returns of each Borrower have been audited
by the IRS or relevant state tax authorities or are closed by the applicable
statute of limitations for all taxable years through June 30, 1998. Schedule 4.9
contains a complete and accurate list of all audits of all such Tax Returns,
including a reasonably detailed description of the nature and outcome of each
audit. All deficiencies proposed as a result of such audits have been paid,
reserved against, settled, or, as described in Schedule 4.9, are being contested
in good faith by appropriate proceedings. Schedule 4.9 describes all adjustments
to the United States federal and state income Tax Returns filed by Borrower or
any group of corporations including each of the Borrowers for all taxable years
since June 30, 1993 and the resulting deficiencies proposed by the IRS or state
authorities. Except as described in Schedule 4.9, no Borrower has given or been
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other Person) of any statute of limitations relating
to the payment of Taxes of such Borrower for which such Borrower may be liable.
c. The charges, accruals and reserves with respect to Taxes on the books of each
Borrower are adequate (determined in accordance with GAAP) and are at least
equal to such Borrower's liability for Taxes. There exists no proposed Tax
assessment against any Borrower except as disclosed in Schedule 4.9. All Taxes
that each Borrower is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Body or other Person.
4.10 Employee Benefits. No member of the ERISA Group has ever had any liability,
nor has it ever made a contribution, to any Plan subject to the minimum funding
standards of IRC ss.412, or to any Multiemployer Plan. Each Plan sponsored by,
or contributed to, any member of the ERISA Group which is intended to be
qualified under IRC ss.401(a) is so qualified. Each Plan and Benefit Arrangement
has been operated and administered, in all material respects, in compliance with
all applicable Legal Requirements. The Borrowers have made all contributions and
payments to all Plans and Benefit Arrangements which were due and payable
through the date hereof.
4.11 Compliance; Governmental Authorizations.
a. Except for liabilities expressly assumed by Holdings or the Network
Operating Company in connection with the Network Transactions and except as
set forth in Schedule 4.11:
(i) each Borrower is, and at all times has been, in full compliance with each
Legal Requirement and each Governmental Authorization that is or was applicable
to it or to the conduct or operation of its business or the ownership or use of
any of its assets;
(ii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a violation by any Borrower
of, or a failure on the part of any Borrower to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the part of any Borrower
to undertake, or to bear all or any portion of the cost of, any remedial action
of any nature; and
(iii) no Borrower has received any notice or other communication (whether oral
or written) from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of, or failure to comply with,
any Legal Requirement or Governmental Authorization, or (B) any actual, alleged,
possible, or potential obligation on the part of any Borrower to undertake, or
to bear all or any portion of the cost of, any remedial action of any nature.
b. Schedule 4.11 contains a complete and accurate list of each Governmental
Authorization held by each Borrower or that otherwise relates to the business of
any Borrower as such business shall exist immediately after giving effect to the
Network Transactions. Each Governmental Authorization listed or required to be
listed in Schedule 4.11 is valid and in full force and effect. Except as set
forth in Schedule 4.11:
(i) each Borrower is, and at all times has been, in full compliance with all of
the terms and requirements of each Governmental Authorization identified or
required to be identified in Schedule 4.11;
(ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time, or both) (A) constitute or result directly or
indirectly in a violation of, or a failure to comply with, any term or
requirement of any Governmental Authorization listed or required to be listed in
Schedule 4.11, or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any modification to,
any Governmental Authorization listed or required to be listed in Schedule 4.11;
(iii) no Borrower has received any notice or other communication (whether oral
or written) from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of, or failure to comply with,
any term or requirement of any Governmental Authorization, or (B) any actual,
proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any Governmental Authorization;
and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Schedule 4.11 or
the transfer of the Governmental Authorizations listed or required to be listed
in Schedule 4.11 have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 4.11 collectively constitute
all of the Governmental Authorizations necessary to permit each Borrower to
lawfully conduct and operate its business in the manner in which such business
is currently conducted and operated and to permit each Borrower to own and use
its assets in the manner in which it currently owns and uses such assets in each
case after giving effect to the Network Transactions.
4.12 Legal Proceedings; Orders.
a. Except as set forth in Schedule 4.12, there is no pending Proceeding (i) that
has been commenced by or against any Borrower or that otherwise relates to or
may affect the business of, or any of the assets owned or used by, any Borrower;
or (ii) that challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the transactions contemplated by
this Agreement. To the Borrowers' Knowledge, no such Proceeding has been
Threatened, and no event has occurred or circumstance exists that may give rise
to or serve as a basis for the commencement of any such Proceeding. The
Borrowers have delivered to the Lender copies of all pleadings, correspondence,
and other documents relating to each Proceeding listed in Schedule 4.12. The
Proceedings listed in Schedule 4.12 will not have a Material Adverse Effect.
b. Except as set forth in Schedule 4.12, (i) there is no Order to which any
Borrower, or any of the assets owned or used by any Borrower, is subject; and
(ii) no Borrower is subject to any Order that relates to the business of, or any
of the assets owned or used by, any of the Borrower.
c. Except as set forth in Schedule 4.12:
(i) each Borrower is, and at all times has been, in full compliance with all of
the terms and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a violation of or failure to comply
with any term or requirement of any Order to which any of the Borrower, or any
of the assets owned or used by any of the Borrower, is subject; and
(iii) no Borrower has received any notice or other communication (whether oral
or written) from any Governmental Body or any other Person regarding any actual,
alleged, possible, or potential violation of, or failure to comply with, any
term or requirement of any Order to which any Borrower, or any of the assets
owned or used by any Borrower, is or has been subject.
4.13 Absence of Certain Changes and Events. Except for the Network Transactions
and except as set forth on Schedule 4.13, since June 30, 2001, there has not
been any material adverse change in the business, operations, properties,
prospects, assets, or condition of any Borrower, and no event has occurred or
circumstance exists that may result in a Material Adverse Effect. No Borrower
has taken, and none of them currently expects to take, any steps to seek
protection pursuant to any bankruptcy law, nor does any Borrower have any
Knowledge that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual Knowledge of any fact that would reasonably lead a
creditor to do so.
4.14 Contracts; No Defaults.
a. Schedule 4.14(a) contains a complete and accurate list, and the Borrowers
have delivered to the Lender true and complete copies, of (in each case after
giving effect to the Network Transactions):
(i) each Contract relating to the business of each Borrower that involves
performance of services or delivery of goods or materials by such Borrower of an
amount or value in excess of $50,000;
(ii) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Contract relating to the business of any
Borrower affecting the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal property (except personal
property leases and installment and conditional sales agreements having a value
per item or aggregate payments of less than $50,000 and with terms of less than
one year);
(iii) each joint venture, partnership, and other Contract (however named)
involving a sharing of profits, losses, costs, or liabilities of any Borrower
or, with respect to any Borrower's business, with any other Person;
(iv) each written warranty, guaranty, or other similar undertaking with respect
to contractual performance extended by any Borrower or with respect to the any
Borrower's business other than in the Ordinary Course of Business;
(v) each other Contract material to the business of any Borrower; and
(vi) each amendment, supplement, and modification (whether oral or written) in
respect of any of the foregoing.
b. Except as set forth in Schedule 4.14(b), each Contract listed or required to
be listed in Schedule 4.14(a) is in full force and effect and is valid and
enforceable in accordance with its terms.
c. Except as set forth in Schedule 4.14(c):
(i) each Borrower is and has been in full compliance with all applicable
terms and requirements of each Contract listed or required to be listed in
Schedule 4.14(a);
(ii) each other party to each Contract listed or required to be listed in
Schedule 4.14(a) is, to the Borrowers' Knowledge, in full compliance with all
applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or without notice
or lapse of time, or both) may contravene, conflict with, or result in a
violation or breach of, or give any Borrower the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract listed or required to be listed in
Schedule 4.14(a); and
(iv) no Borrower has given to or received from any other Person, at any time
since June 30, 1999, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Contract listed or required to be listed in Schedule 4.14(a).
d. To the knowledge of the Borrowers, there are no renegotiations of, attempts
to renegotiate, or outstanding rights to renegotiate any material amounts paid
or payable to any Borrower or with respect to a Borrower's business under any
Contracts listed or required to be listed on Schedule 4.14(a) with any Person,
and no such Person has made written demand for such renegotiation.
4.15 Insurance.
a. The Borrowers have made available to the Lender true and complete copies of
all policies of insurance to which any Borrower is a party or under which any
Borrower, or any director or officer of any Borrower, is or has been covered at
any time within the five years preceding the date of this Agreement; copies of
all pending applications for policies of insurance; and any statement by the
auditor of any Borrower's financial statements with regard to the adequacy of
such Borrower's coverage or of the reserves for claims.
b. Schedule 4.15(b) sets forth, by year, for the current policy year and each of
the five preceding policy years, a summary of the loss experience under each of
the foregoing policies and a statement describing each claim under any insurance
policy for an amount in excess of $10,000.
c. Except as set forth on Schedule 4.15(c):
(i) all policies to which any Borrower is a party or that provide coverage to
any Borrower, or any director or officer of any Borrower (A) are valid,
outstanding and enforceable; (B) are issued by an insurer that is financially
sound and reputable; (C) taken together, provide adequate insurance coverage for
Borrowers' assets and the operations; (D) are sufficient for compliance with all
Legal Requirements and Contracts to which any Borrower is a party or by which
any of them is bound; (E) will continue in full force and effect following the
consummation of the Loan; and (F) do not provide for any retrospective premium
adjustment or other experienced-based liability on the part of any Borrower;
(ii) no Borrower has received any refusal of coverage or any notice that a
defense will be afforded with reservation of rights, or any notice of
cancellation or any other indication that any insurance policy is no longer in
full force and effect or will not be renewed or that the issuer of any policy is
not willing or able to perform its obligations thereunder;
(iii) each Borrower has paid all premiums due, and has otherwise performed all
of its obligations under, each policy to which it is a party or that provides
coverage to such Borrower or any of its directors or officers; and
(iv) each Borrower has given notice to each insurer of all material claims that
may be insured thereby.
4.16 Environmental Matters. Except as set forth in Schedule 4.16:
a. Each Borrower is, and at all times has been, in full compliance with, and has
not been and is not in violation of or liable under, any Environmental Law. No
Borrower has or has any basis to expect, nor has any Borrower or any other
Person for whose conduct a Borrower is or may be held to be responsible
received, any actual or Threatened order, notice, or other communication from
(i) any Governmental Body or private citizen acting in the public interest, or
(ii) the current or prior owner or operator of any real property in which
Borrower has or previously had an interest, of any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or Threatened
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the improvements on any such property
or any other assets (whether real, personal, or mixed) in which any Borrower has
or had an interest, or with respect to any property at or to which Hazardous
Materials were generated, manufactured, refined, transferred, imported, used, or
processed by any Borrower, or any other Person for whose conduct a Borrower is
or may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
b. There are no Hazardous Materials present on or in the Environment at any real
property in which a Borrower now has or had immediately prior to giving effect
to the Network Transactions an interest directly or indirectly through a
Subsidiary. No Borrower, or any other Person for whose conduct a Borrower is or
may be held responsible has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to any such property or any other
assets (whether real, personal, or mixed) in which any Borrower has or had an
interest except in full compliance with all applicable Environmental Laws.
c. There has been no Release or, to Borrowers' Knowledge, threat of Release, of
any Hazardous Materials at or from any property in which any Borrower has or had
an interest or at any other location where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used, or
processed.
d. The Borrowers have delivered to the Lender accurate and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by any Borrower pertaining to Hazardous Materials or Hazardous
Activities in, on, or under any property in which any Borrower has or had an
interest, or concerning compliance by any Borrower, or any other Person for
whose conduct a Borrower is or may be held responsible, with Environmental Laws.
4.17 Labor Relations; Compliance. Since June 30, 1997, no Borrower has been or
is a party to any collective bargaining or other labor Contract. Since June 30,
1997, there has not been, there is not presently pending or existing, and to the
Borrowers' Knowledge there is not Threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process affecting any Borrower,
(b) any Proceeding against or affecting any Borrower relating to the alleged
violation of any Legal Requirement pertaining to labor relations or employment
matters, including any charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission,
or any comparable Governmental Body, or any organizational activity, or any
labor or employment dispute against or affecting any Borrower or any Borrower's
business, or (c) any application for certification of a collective bargaining
agent affecting any Borrower. To the Borrowers' Knowledge, no event has occurred
or circumstance exists that could provide the basis for any work stoppage or
other labor dispute by employees of any Borrower. There is no lockout of any
employees by any Borrower, and no such action is contemplated by any Borrower.
Each Borrower has complied in all respects with all Legal Requirements relating
to employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safety and health, and plant closings. No
Borrower is liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any
of the foregoing Legal Requirements.
4.18 Intellectual Property. The Borrowers own, or hold licenses in, all
trademarks, trade names, copyrights, patents, patent rights, and licenses that
are necessary to the conduct of their respective businesses as currently
conducted after giving effect to the Network Transactions. Schedule 4.18 is a
true, correct and complete listing of all material patents, patent applications,
registered trademarks, trademark applications and copyright registrations as to
which any Borrower is the owner or exclusive licensee.
4.19 Certain Payments. Since June 30, 1997, no Borrower and no director,
officer, agent, or employee of any Borrower, or to the Borrowers' Knowledge, any
other Person associated with or acting for or on behalf of any Borrower, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of any Borrower, (iv) in
violation of any Legal Requirement, or (b) established or maintained any fund or
asset that has not been recorded in the books and records of the Borrowers.
4.20 Broadcast Licenses; Operations of Stations. The Borrowers have operated the
Stations in material compliance with the terms of the applicable Broadcast
License and of the Communications Act. Each Borrower has timely filed or made
all applications, reports and other disclosures required by the FCC to be made
with respect to the Stations and has timely paid all FCC regulatory fees with
respect thereto. Each Borrower has and is the authorized legal holder of, all
Broadcast Licenses necessary or useful in the operation of the business of each
Borrower as presently operated. All of the Broadcast Licenses are validly held
and are in full force and effect, unimpaired by any act or omission of any
Borrower or, to the Borrowers' Knowledge, their respective predecessors, or
their respective directors, officers, employees or agents. Except as set forth
in Schedule 4.20, no application or Proceeding is pending for the renewal of any
Broadcast License and, to the Borrowers' Knowledge, there is no Proceeding
before the FCC, no notice of violation or no Order of forfeiture relating to any
Station, and no Borrower has Knowledge of any basis that could reasonably be
expected to cause the FCC not to renew any Broadcast License (other than
Proceedings to amend FCC rules or the Communications Act of general
applicability to the television broadcast industry). There is not pending and,
to the Borrowers' Knowledge, there is not Threatened, any action by or before
the FCC to revoke, suspend, cancel, rescind, fail to renew, or modify in any
material respect any Broadcast License (other than Proceedings to amend FCC
rules or the Communications Act of general applicability to the television
broadcast industry).
4.21 Relationships with Affiliates. Except as set forth on Schedule 4.21,
neither a Borrower nor any Affiliate of a Borrower has, or since June 30, 1999
has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to the business of the
Borrowers. Neither a Borrower nor any Affiliate of a Borrower is, or since June
30, 1999 has owned (of record or as a beneficial owner) an equity interest or
any other financial or profit interest in, a Person that has (a) had business
dealings or a material financial interest in any transaction with a Borrower
other than business dealings or transactions conducted in the Ordinary Course of
Business with a Borrower at substantially prevailing market prices and on
substantially prevailing market terms, or (b) engaged in competition with a
Borrower with respect to the business of the Borrowers. Except as set forth in
Schedule 4.21, no Borrower is a party to any Contract with, or has any claim or
right against any other Borrower and no Affiliate of a Borrower is a party to
any Contract with, or has any claim or right against, a Borrower.
4.22 State of Incorporation; Location of Chief Executive Office; FEIN;
Organizational I.D. The state of incorporation, chief executive office and FEIN
and organizational identification numbers of each of the Borrowers is as set
forth in Schedule 4.22.
4.23 Brokerage Fees. The Borrowers have not utilized the services of any broker
or finder in connection with this Agreement, and no brokerage commission or
finder's fee is payable by the Borrowers in connection with this Agreement.
4.24 Disclosure. No representation or warranty of any Borrower in this Agreement
(including the Schedules) omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading. There is no fact known to any Borrower that has specific
application to such Borrower (other than general economic or industry
conditions) and that materially adversely affects or, as far as any Borrower can
reasonably foresee, materially threatens, the assets, business, prospects,
financial condition, or results of operations of any Borrower that has not been
set forth in this Agreement or the Schedules.
SECTION 5
AFFIRMATIVE COVENANTS
So long as this Agreement is in effect or the Loan or any other Obligation of
the Borrowers to the Lender is outstanding, the Borrowers shall, jointly and
severally:
5.1 Promptly pay when due the principal and interest on the Note;
5.2 Furnish or cause to be furnished to the Lender, with respect to each
Borrower:
a. not later than 30 days following the end of each fiscal quarter, in
form and substance satisfactory to the Lender:
(i) an unaudited income statement for the period and fiscal year to date
and copies of statements for the same periods of the previous year;
(ii) an unaudited balance sheet as of the end of such period and copies of
statements for the same period of the previous year;
(iii) a certificate from the chief financial officer stating that the above
financial statements are complete and correct and fairly represent the financial
position of such Borrower as of their respective dates and the results of the
respective Borrower's operations for the periods then ended;
(iv) a certificate from the Chief Financial Officer certifying that there exists
no condition, event or act which with notice of lapse of time could constitute
an Event of Default, or any condition, event or act which could materially and
adversely affect the financial condition or operations of such Borrower, or, if
any such condition, event or act exists, specifying the nature and status
thereof (A) that such Borrower has complied with and is then in compliance with
all terms and covenants of this Agreement, and (B) that there exists no Event of
Default as defined in this Agreement and no event which, with the giving of
notice or the lapse of time would constitute such an Event of Default; and
b. not later than 90 days following the end of each fiscal year of each
Borrowers, in form and substance satisfactory to the Lender:
(i) complete audited financial statements for such Borrower for such fiscal
year, certified by Deloitte & Touche or another comparable independent certified
public accounting firm reasonably acceptable to the Lender, with an opinion not
significantly qualified in the Lender's opinion; and
(ii)a certificate from the Chief Financial Officer certifying that there exists
no condition, event or
act which with notice of lapse of time could constitute an Event of Default, or
any condition, event or act which could materially and adversely affect the
financial condition or operations of such Borrower, or, if any such condition,
event or act exists, specifying the nature and status thereof (A) that such
Borrower has complied with and is then in compliance with all terms and
covenants of this Agreement, and (B) that there exists no Event of Default as
defined in this Agreement and no event which, with the giving of notice or the
lapse of time would constitute such an Event of Default
5.3 At all times maintain all of the Borrowers' properties, real and personal,
tangible and intangible, in good order and working condition and from time to
time make necessary repairs, renewals and replacements thereto in order that
such properties shall be preserved and maintained fully and efficiently and, in
addition, maintain and protect any permit, patent, trademark, trade name or
other rights that any Borrower may possess or under which any Borrower may
operate and that are material to any Borrower's business;
5.4 Keep all insurable property, real and personal, of the Borrowers insured
with responsible insurance companies against loss or damage by fire, tornado or
windstorm and against such other hazards or liabilities as are commonly insured
against by companies operating the same or comparable businesses, with each
policy naming the Lender as an additional insured. Such insurance shall be kept
in reasonable amounts based on past practices as the Lender may require and in
any event in an amount equal to at least 100% of the replacement value of such
property. Copies of all such policies shall be delivered to the Lender and shall
not be subject to cancellation or modification without at least 30 days' prior
written notice to the Lender. In addition thereto, the Borrowers shall carry
liability insurance on account of injury to persons or property and in respect
of use and occupancy, including business interruption, in such reasonable
amounts as the Lender may require. Such insurance may be carried under blanket
policies applicable to more than one entity;
5.5 Take all action necessary to preserve the corporate existence, foreign
qualification where necessary and applicable, and the right to continue business
of the Borrowers, and operate within the limitations set forth under each
Borrower's Organizational Documents, and under the applicable Legal
Requirements;
5.6 Pay and discharge all Taxes imposed upon any of them or upon any of their
income or profits, or upon any property belonging to any of them, prior to the
date on which penalties attach thereto, provided that the Borrowers will not be
required to pay such tax, assessments, charges or levies, the payment of which
is being contested in good faith and by proper proceedings;
5.7 Promptly give notice (together with copies of any order or notice received
by any Borrower) to the Lender of:
a. the imminent threat or commencement of Proceedings against any Borrower
wherein the amount claimed or the amount of all claims in the aggregate exceeds
$100,000 unless such claim or claims are insured under policies conforming to
the requirements of Section 5.4 or are funded by reserves established in
accordance with GAAP;
b. any notification from the Internal Revenue Service or U.S. Department of
Labor of any material noncompliance by a Borrower or any member of the ERISA
Group with applicable Legal Requirements regarding any of Plans or Benefit
Arrangements;
c. with respect to any Borrower, any condition, event or act which constitutes
an Event of Default, or which, with the giving of notice or lapse of time, or
both, would constitute an Event of Default, by delivering to the Lender the
certificate of the chief financial officer of such Borrower specifying such
condition, event or act, the period of existence thereof, and what action such
Borrower proposes to take with respect thereto;
d. any change of name, address, identity or corporate structure of any Borrower;
e. with respect to any Borrower, any uninsured or partially uninsured loss
through fire, theft, liability or property damage in
excess of $100,000 in the aggregate during any fiscal year of such Borrower;
f. any other event or fact that may materially and adversely affect the
financial or operating condition of any Borrower or any Collateral; or
g. as soon as practicable after the receipt thereof, and in any event within ten
business days after the issuance thereof:
(i) any order or notice of the FCC, a court of competent jurisdiction, or any
other Governmental Body which designates any Broadcast License of any Borrower
or any application therefor for a hearing, or which refuses renewal or extension
of any such Broadcast License, or revokes or suspends the authority of any
Borrower to operate a Station;
(ii) a copy of any competing application filed against any Broadcast License of
any Borrower or any application therefor;
(iii) copies of any citation, notice of violation or order to show cause from
the FCC, or any material complaint filed by or with the FCC, in each case, in
connection with any Borrower; and
(iv) a copy of any notice or application by any Borrower requesting authority to
cease broadcasting on any Station for any period in excess of 48 hours.
5.8 Pay when due all rent and other amounts payable under any leases to which
any Borrower is a party or by which any Borrower or its properties or assets are
bound;
5.9 Comply in all material respects with all applicable Environmental Laws and
obtain and comply in all material respects with and maintain any and all
licenses, approvals, notifications, registrations and permits required by
applicable Environmental Laws; and
5.10 Provide the Lender promptly upon their becoming available, and in any event
within five days after the receipt of the filing thereof by a Borrower, with
copies of (i) any periodic or special reports filed by any Borrower with any
Governmental Body, if such reports indicate any event or occurrence that could
have a Material Adverse Effect or if copies are requested by the Lender and (ii)
any material notices and other material communications from any Governmental
Body which relate specifically to a Borrower or any Broadcast License.
SECTION 6
NEGATIVE COVENANTS
So long as this Agreement remains in effect or any Borrower has any Obligations
to the Lender, no Borrower shall without the prior written consent of the
Lender:
6.1 Grant any security interest in, or permit the imposition of any Encumbrance
upon, any of its properties or assets used or useful in the conduct or operation
of the Stations or the Pledged Stock, including without limitation the
Collateral, except for those in existence as of the date hereof which are set
forth on Schedule 6.1;
6.2 Purchase, redeem or exchange for cash any of its outstanding Stock or
declare or pay, during any fiscal year, any dividend in cash, stock or other
property except that any Subsidiary Borrower may pay a dividend to another
Borrower and, so long as no Event of Default has occurred, SATH may make
dividends to its shareholders as required by the terms of any of its issued and
outstanding stock and otherwise at its election consistent with its historical
practices;
6.3 Lease, license, or Transfer any of its properties or assets used or useful
in the conduct or operations of the Stations, including, without limitation, the
Collateral, other than (i) in the Ordinary Course of Business; (ii) as permitted
by and subject to the prepayment repayments of Section 1.2; or (iii) in
connection with a Transfer from any Borrower of the interest in the Borrower's
Broadcast License to any other Person who will own and control the Broadcast
License of that Borrower, provided that such Person will execute and deliver any
and all documentation and instruments (including, without limitation, this
Agreement or an amendment hereto) to evidence that such Person will serve as a
Borrower with respect to the Loan and the Obligations.
6.4 Consolidate with or merge with or into any other Person or reorganize, or,
solely with respect to the Subsidiary Borrowers, issue any additional shares of
common or preferred stock, acquire all or substantially all of the assets of any
other Person, or acquire the Stock of or an ownership interest in any other
Person;
6.5 Solely with respect to the Subsidiary Borrowers, assume, guarantee, or
become contingently liable upon any obligation or Indebtedness of SATH, any
Affiliate or any other Person;
6.6 Solely with respect to the Subsidiary Borrowers, create any Indebtedness to
SATH, any Affiliate any other Person, except for short-term trade accounts
payable and endorsements of checks, drafts, and other negotiable instruments
incurred in the Ordinary Course of Business;
6.7 Solely with respect to the Subsidiary Borrowers, make any loan or loans,
advance or advances, or investment or investments to, in or with SATH, any
Affiliate or any other Person;
6.8 Prepay, or cause to be prepaid, or become obligated to prepay any
Indebtedness other than in accordance with its stated maturity, except
Indebtedness incurred pursuant to this Agreement;
6.9 Change the nature of, suspend or cease all of any portion of the business of
any Subsidiary Borrower currently being conducted, or suspend or cease a
material portion of the business or SATH as currently being conducted after
giving effect to the Network Transactions, or change its name, FEIN,
organizational identification number, date of incorporation, or corporate
structure or identity, or add any new fictitious name;
6.10 Take any action that permits, or after notice or lapse of time or both
would permit, revocation or termination of any Broadcast License;
6.11 Modify or change its method of accounting (other than as may be required to
conform to GAAP);
6.12 Enter into or permit to exist, directly or indirectly, any transaction with
any Affiliate of such Borrower except for transactions in the Ordinary Course of
Business, upon fair and reasonable terms that are disclosed to the Lender and
that are no less favorable to the Borrower than would be obtained in an arm's
length transaction with a non-Affiliate; or
6.13 Use the Loan proceeds for any purpose other than the purpose specified in
Section 1.3.
SECTION 7
DEFAULT - RIGHTS OF THE LENDER
7.1 Events of Default. Any one or more of the following events will constitute
an event of default (each, an "Event of Default") under this Agreement:
a. Default in any payment required to be made under the Note, or in any other
Obligation within five (5) days after the same shall become due;
b. Default in any payment of principal or of interest on any other obligation
for borrowed money beyond any period of grace provided with respect thereto
(except for amounts less than $100,000 that are disputed by the Borrowers in
good faith) or in the performance of any other agreement, term or condition
contained in any agreement including without limitation, financing leases under
which any such obligation is created, if the effect of such default is to cause
such obligation to become due or to entitle the holder to declare such
obligation due prior to its date of maturity or, in the case of financing
leases, to enable the lessor to exercise remedies arising only upon the
occurrence of default;
c. Any representation or warranty made by any Borrower herein or in any writing
subsequently furnished in connection with or pursuant to this Agreement is false
in any material respect on the date as of which executed or delivered to the
Lender;
d. Default in the performance or observance of any other covenant, term or
condition or agreement contained herein or any of the other Loan Documents, if
such default shall not have been remedied within 30 days after determination of
the existence thereof by a Borrower or within 30 days after written notice
thereof is delivered to a Borrower by the Lender, whichever is earlier, except
defaults as to payments as set forth in Sections 7.1(a) and (b), or by
misrepresentation or warranty breach as set forth in Section 7.1(c), as to which
no notice need be given;
e. Any Borrower or Affiliate of a Borrower breaches or is in default under any
provision, term or condition provided under any agreements between the Lender
or any Affiliate of the Lender, on the one hand, and a Borrower or an
Affiliate of a Borrower, on the other hand;
f. Any Broadcast License necessary for the operation of the Stations is
terminated, forfeited or revoked or fails to be renewed for any reason
whatsoever, or, for any other reason, any Borrower at any time fails to be a
licensee under any of the Broadcast Licenses or otherwise fails to have all
required authorizations, licenses and permits to construct, own, operate or
promote any Station pursuant to any Broadcast License;
g. Any Borrower loses, fails to keep in force, suffers the termination or
revocation or non-renewal of, or terminates, forfeits or suffers a material
adverse amendment to any Broadcast License used by it in connection with any
Station, or any Proceeding is commenced against a Borrower that is reasonably
likely to result in such loss, termination or non-renewal, provided that an
Event of Default will not be deemed to exist if a Broadcast License is not
renewed but is replaced prior to its expiration by another Broadcast License
authorizing substantially the same operations as the non-renewed Broadcast
License;
h. (i) The directors or shareholders of any Borrower approve a merger or
consolidation that results in the shareholders of such Borrower immediately
prior to the transaction giving rise to the consolidation or merger owning less
than 50% of the total combined voting power of all classes of stock entitled to
vote of the surviving entity immediately after the consummation of the merger or
consolidation; (ii) the directors or shareholders of any Borrower approve the
sale of substantially all of the assets of such Borrower or the liquidation or
dissolution of such Borrower; (iii) any person or entity (other than another
Borrower) purchases any shares (or securities convertible into shares) of a
Borrower pursuant to a tender or exchange offer without the prior consent of
such Borrower's board of directors or becomes the beneficial owner of securities
of such Borrower representing 25% or more of the voting power of the Borrower's
outstanding securities; (iv) during any two-year period, individuals who at the
beginning of such period constitute the entire board of directors of any
Borrower cease to constitute a majority of the board of directors of such
Borrower, unless the election or the nomination for election of each new
director is approved by at least two-thirds of the directors then still in
office who were directors at the beginning of that period; or (v) any third
party acquires the power to direct or cause the direction of management or
policies of any Borrower through the ownership of securities, contract or
otherwise;
i. Any Borrower makes an assignment for the benefit of creditors; or any
Borrower applies to any tribunal for the appointment of a trustee or receiver
for such Borrower or of any substantial part of such Borrower's assets; or any
Borrower commences any Proceeding relating to such Borrower under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed or any such proceedings are commenced and such Borrower by
any act indicates its approval thereof, consent thereto, or acquiescence
therein; or an order is entered appointing any trustee or receiver, or
adjudicating any such Borrower bankrupt or insolvent, or approving the petition
in any such proceeding;
j. Any Order entered in any Proceeding against any Borrower decrees the
dissolution or split-up of such Borrower;
k. Any Borrower is enjoined, restrained or in any way prevented by Order from
continuing to conduct all or any material part of its business;
l. This Agreement or any other Loan Document that purports to create the
Security Interest, for any reason, fails or ceases to create a valid and
perfected first priority Security Interest on any of the Collateral; or
m. A notice of Encumbrance is filed of record with respect to any Borrower's
assets by any Governmental Authority, or if any Taxes owing to any Governmental
Authority become an Encumbrance upon any assets of a Borrower.
7.2 Lender's Rights and Remedies. Upon the occurrence of an Event of Default,
the Lender, at its option, may (a) declare the Obligations immediately due and
payable, without presentment, notice, protest or demand of any kind for the
payment of all or any part of the Obligations (all of which are expressly waived
by the Borrowers) and exercise all of its rights and remedies against the
Borrowers and any Collateral provided herein, in any other Loan Document, or in
any other agreement between any Borrower and the Lender, at law or in equity,
and (b) exercise all rights granted to a secured party under the UCC or
otherwise. Upon the occurrence of an Event of Default, the Lender may take
possession of the Collateral, or any part thereof, and the Borrowers hereby
grant the Lender authority to enter upon any premises on which the Collateral
may be situated, and remove the Collateral from such premises or use such
premises together with the Borrowers' materials, supplies, books and records, to
maintain possession and/or the condition of the Collateral and to prepare the
Collateral. The Borrowers shall, upon the Lender's demand, assemble the
Collateral and make it available at a place designated by the Lender which is
reasonably convenient to the Lender. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Lender shall give the Borrowers reasonable notice of the
time and place of any public sale thereof or of the time after which any private
sales or other intended disposition thereof is to be made. The requirement of
reasonable notice will be met if such notice is mailed, postage prepaid, to
Borrowers at least ten days prior to the time of such sale or disposition. If
the Lender sells any of the Collateral upon credit, the Borrowers will be
credited only with payments actually made by the purchaser, received by the
Lender and applied to the Obligations. If the purchaser fails to pay for the
Collateral, the Lender may resell the Collateral and the Borrowers will be
credited with the proceeds therefrom. Notwithstanding the foregoing, upon the
filing by or against any Borrower of any petition under any provision of the
United States Bankruptcy Code (and in the case of an involuntary action, which
remains unvacated for 45 days), the Lender may take the actions described above
in clauses (a) and (b).
SECTION 8
DEFINITIONS
As used herein, the following terms shall have the meanings herein specified:
8.1 "1934 Act" means the Securities Act of 1934, as amended, or any successor
law, and rules and regulations issued pursuant thereto.
8.2 "Affiliate" means, with respect to any Person, any other Person (i) that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person, (ii) that is a
general partner, director, manager, trustee or principal officer of, or a
limited partner owning more than 10% of, or that serves in a similar capacity
with respect to, such Person, or (iii) of which such Person is a general
partner, director, manager, trustee or principal officer or a limited partner
owning more than 10% of, or with respect to which such Person serves in a
similar capacity. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or to cause the
direction of the management or policies of the Person in question through the
ownership of voting securities or by contract or otherwise. Solely for purposes
of this Agreement, Holdings and Network Operating Company will be deemed to be
Affiliates of the Lender but not Affiliates of any Borrower.
8.3 "Agreement" is defined in the introductory paragraph.
8.4 "Benefit Arrangement" means an employee benefit plan within the meaning of
ERISA ss.3(3) that is not a Plan or Multiemployer Plan.
8.5 "Borrower" is defined in the introductory paragraph.
8.6 "Broadcast License" means any license, permit, authorization or certificate
now or hereafter held by any Borrower (including without limitation the
Broadcast Licenses listed on Schedule 8.6) to construct, own, operate or program
any Station that is or has been granted by the FCC or any other Governmental
Body, and all extensions, additions and renewals thereto or thereof.
8.7 "Collateral" means all of the Borrowers' respective right title and
interest, whether now owned or hereafter acquired, in and to each of the
following to the extent it relates to the Stations: accounts; chattel paper;
inventory; equipment; instruments; investment property; documents; letter of
credit rights; general intangibles (including without limitation payment
intangibles); commercial tort claims identified in Schedule 8.7; supporting
obligations; real property; rights under any leases for real property; all of
the Borrowers' respective rights under all present and future Governmental
Authorizations heretofore or hereafter granted to any Borrower for the ownership
or operation of the Stations, including the Broadcast Licenses; and to the
extent not listed above as original collateral (and without regard to Section
2.5), all proceeds and products of the any of the foregoing. "Collateral" also
includes all of the Pledged Stock.
8.8 "Collateral Assignments of Leases" means the agreements, whether collateral
assignments or leasehold mortgages or deeds of trust, whereby the Borrowers
assign to the Lender all of their respective interests in leases used or useful
in the operation of the Stations.
8.9 "Communications Act" means the Federal Communications Act of 1934, as
amended and the rules and regulations promulgated thereunder.
8.10"Consent" means any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization).
8.11 "Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied).
8.12 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any successor statute.
8.13 "ERISA Group" means the Borrowers and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrowers, are treated as a single
employer with the Borrowers under IRC ss.414.
8.14 "Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
8.15 "Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwater, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
8.16 "Environmental, Health, and Safety Liabilities" means any cost, damages,
liability or other obligation arising under Environmental Law or Occupational
Safety and Health Law and consisting of or relating to (a) any environmental,
health, or safety matters or conditions (including on-site or off-site
contamination, occupational safety and health, and regulation of chemical
substances or products); (b) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses arising
under Environmental Law or Occupational Safety and Health Law; (c) financial
responsibility under Environmental Law or Occupational Safety and Health Law for
cleanup costs or corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions ("Cleanup")
required by applicable Environmental Law or Occupational Safety and Health Law
(whether or not such Cleanup has been required or requested by any Governmental
Body or other Person) and for any natural resource damages; or (d) any other
compliance, corrective, investigative, or remedial measures required under
Environmental Law or Occupational Safety and Health Law. The terms "removal,"
"remedial," and "response action" include the types of activities covered by the
U.S. Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. ss.9601 et seq., as amended.
8.17 "Environmental Law" means any Legal Requirement that requires or relates
to: (a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities that could have significant impact on the Environment; (b)
preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment; (c) reducing the
quantities, preventing the release, or minimizing the hazardous characteristics
of wastes that are generated; (d) assuring that products are designed,
formulated, packaged, and used so that they do not present unreasonable risks to
human health or the Environment when used or disposed of; (e) protecting
resources, species, or ecological amenities; (f) reducing to acceptable levels
the risks inherent in the transportation of hazardous substances, pollutants,
oil, or other potentially harmful substances; (g) cleaning up pollutants that
have been released, preventing the threat of release, or paying the costs of
such clean up or prevention; or (h) making responsible parties pay private
parties for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
8.18 "Event of Default" is defined in Section 7.1.
8.19 "FCC" means the Federal Communications Commission.
8.20 "Financial Projections" is defined in Section 4.4(c).
8.21 "Financing Statements" is defined in Section 2.4(a).
8.22 "GAAP" means generally accepted United States accounting principles,
applied on a consistent basis.
8.23 "Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
8.24 "Governmental Body" means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
8.25 "Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from any real property in which any Borrower has or had an interest
into the Environment, and any other act, business, operation, or thing that
increases the danger, or risk of danger, or poses an unreasonable risk of harm
to persons or property on or off any real property in which any Borrower has or
had an interest, or that may affect the value of any real property in which any
Borrower has or had an interest or the Borrowers.
8.26 "Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under any Environmental
Law, including any admixture or solution thereof.
8.27 "Holdings" is defined in Section 1.2.
8.28 "Indebtedness" means (i) all indebtedness for borrowed money, including
without limitation the Loan; (ii) all obligations evidenced by bonds,
debentures, notes or other similar instruments; (iii) all other obligations upon
which interest or finance charges are customarily paid; (iv) all obligations
arising under conditional sale or other title retention agreements (including
any lease capitalized in accordance with generally accepted accounting
principles) with respect to property acquired; (v) all indebtedness and
obligations of the foregoing types which are secured by property of a person
(whether or not such indebtedness shall have been assumed by such person); and
(vi) all indebtedness and obligations of the foregoing types which are
guaranteed by such person.
8.29 "IRC" means the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the Internal Revenue Service pursuant thereto.
8.30 "KCNS" is defined in the introductory paragraph.
8.31 An individual will be deemed to have "Knowledge" of a particular fact or
matter if he or she is actually aware of such fact or matter or if a prudent
individual could be expected to discover or otherwise become aware of such fact
or matter in the course of conducting a reasonably comprehensive investigation
concerning the existence of such fact or matter. A Person other than an
individual will be deemed to have "Knowledge" of a particular fact or matter if
any individual who is serving as a director, executive officer, member,
governor, manager (with respect to a partnership or limited liability company,
partner, executor, or trustee of such Person (or in any similar capacity) has,
or at any time had, Knowledge of such fact or matter in accordance with the
preceding sentence.
8.32 "Legal Requirement" means any order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty of any Governmental
Body.
8.33 "Lender" is defined in the introductory paragraph.
8.34 "Loan" is defined in Section 1.1.
8.35 "Loan Documents" means this Agreement, the Note and any other document
executed by any party in connection with this Agreement, as each may be amended,
supplemented or modified from time to time.
8.36 "Material Adverse Effect" means (a) a material adverse effect on the
business, properties, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of any Borrower, (b) a
material impairment of any Borrower's ability to perform its Obligations or of
the Lender's ability to enforce the Obligations or realize upon the Collateral
or (c) a material impairment of the enforceability or priority of the Security
Interest with respect to the Collateral as a result of an action or a failure to
act on the part of any Borrower.
8.37 "Multiemployer Plan" means an employee pension benefit plan within the
meaning of ERISAss.4001(a)(3).
8.38 "Net Proceeds" means the aggregate proceeds paid in cash or other readily
available funds received by any or all of the Borrowers in exchange for the
Transfer of a Station, net of (a) reasonable costs and expenses relating to the
Transfer of the Station and actually incurred (including, without limitation,
reasonable legal and accounting fees, and customary agent, broker or finder
commissions), and (b) all Taxes paid or payable as a result of the Transfer of
the Station, including but not limited to any transfer or conveyance taxes
actually incurred by the Borrowers solely to the extent that they arise from the
Transfer of the Station and in any event after giving effect of any applicable
net operating loss carry forward with respect to such Tax liability.
8.39 "Network Operating Company" is defined in Section 1.2.
8.40 "Network Partnership Agreements" is defined in Section 1.2.
8.41 "Network Transactions" is defined in Section 4.2(b).
8.42 "Note" is defined in Section 1.1.
8.43 "Obligations" means the Borrowers' obligation to repay the Loan together
with all other obligations of the Borrowers to the Lender under this Agreement,
the other Loan Documents or any other agreements among the Parties.
8.44 "Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
8.45 "Order" means any award, decision, injunction, judgment, order, ruling,
subpoena or verdict entered, issued, made, or rendered by any court,
administrative agency or other Governmental Body or by any arbitrator.
8.46 "Ordinary Course of Business" means an action taken by a Person only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of such Person's normal day-to-day operations; (b)
such action is not required to be authorized by such Person's board of directors
(or by any Person or group of Persons exercising similar authority) and is not
required to be specifically authorized by such Person's parent company (if any)
or other equity holders; and (c) such action is similar in nature and magnitude
to actions customarily taken, without any authorization by the board of
directors (or by any Person or group of Persons exercising similar authority),
in the ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
8.47 "Organizational Documents" means (a) the charter or articles or certificate
of incorporation and bylaws or code of regulations of a corporation; (b) any
charter or similar document adopted or filed in connection with the creation,
formation, or organization of any other Person; and (c) any amendment to any of
the foregoing.
8.48 "Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
8.49 "Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) which is covered by the Title IV of ERISA or subject to the minimum
funding standards under IRC ss.412.
8.50 "Pledge Agreements" means stock pledge agreements in form and substance
satisfactory to the Lender executed and delivered by SATH to the Lender with
respect to the pledge by SATH of all Stock (including, in the case of the
Network Operating Company, the membership interests) of WOAC, WMFP, KCNS,
Holdings, the Network Operating Company, and any other Person owning and/or
controlling the Broadcast Licenses for WOAC, WMFP, and KCNS held by SATH and
executed an delivered by WOAC, WMFP and KCNS to the Lender with respect to the
pledge by WOAC, WMFP and KCNS of all Stock of SAH License or any other Person
owning and/or controlling the Broadcast Licenses for WOAC, WMFP and KCNS.
8.51 "Pledged Stock" means the Stock subject to the Pledge Agreements.
8.52 "Pro Forma Financial Statements" is defined in Section 4.4(b).
8.53 "Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
8.54 "Release" means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
8.55 "SAH License" is defined in the introductory paragraph.
8.56 "SATH" is defined in the introductory paragraph.
8.57 "Scripps Network" is defined in Section 1.2.
8.58 "SEC" means the U.S. Securities and Exchange Commission or any successor
agency.
8.59 "SEC Documents" is defined in Section 4.4.
8.60 "Security Interest" is defined in Section 2.1.
8.61 "Share Purchase Agreement" is defined in Section 3.3.
8.62 "Stations" means WOAC (TV) in Canton, Ohio; KCNS (TV) in San Francisco,
California; and WMFP (TV) in Lawrence, Massachusetts.
8.63 "Stock" means all shares, options, warrants, interests, partnerships or
other equivalents (regardless of how designated) of or in a Person, whether
voting or nonvoting, including without limitation common stock, preferred stock,
partnership interest, limited liability company membership interest or any other
"equity securities" (as defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the 1934 Act).
8.64 "Subsidiary Borrowers" means KCNS, WMFP, and SAH License.
8.65 "Tax" means (a) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, franchise, profits,
license, withholding on amounts paid to or by any of the Borrowers, payroll,
employment, excise, severance, stamp occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Body responsible for the imposition of any such tax (domestic or
foreign), (b) any liability of any Borrower for the payment of any amounts of
the type described in clause (a) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period prior to the Closing, and
(c) any liability of any Borrower for the payment of any amounts of the type
described in clause (a) as a result of any express or implied obligation to
indemnify any other Person.
8.66 "Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
8.67 A claim, proceeding, dispute, action, or other matter will be deemed to
have been "Threatened" if any demand or statement has been made (orally or in
writing) or any notice has been given (orally or in writing), or if any other
event has occurred or any other circumstances exist, that would lead a prudent
Person to conclude that such a claim, Proceeding, dispute, action, or other
matter is likely to be asserted, commenced, taken, or otherwise pursued in the
future.
8.68 "Transfer" is defined in Section 1.2.
8.69 "UCC" shall mean the Uniform Commercial Code as in effect on the date
hereof in the State of Ohio; provided, however, that if by reason of mandatory
provisions of law, any of the attachment, perfection or priority of the security
interest in any item or portion of the Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of Ohio,
"UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such perfection
or effect of perfection or non-perfection.
8.70 "WOAC" is defined in the introductory paragraph.
8.71 "WMFP" is defined in the introductory paragraph.
8.72 All accounting and financial terms used in this Section and
throughout this Agreement and not otherwise defined shall be determined in
accordance with generally accepted accounting principles consistently applied.
8.73 Subject to the express definitions set forth in this Agreement, all terms
used in this Agreement are defined in the UCC have the meanings ascribed to them
in the UCC.
SECTION 9
ADDITIONAL REPRESENTATIONS AND WARRANTIES,
WAIVERS AND CONSENTS.
Each Borrower acknowledges, covenants and agrees as follows:
9.1 Each Borrower will be jointly and severally liable for satisfaction of the
Obligations, including without limitation the repayment of all of the
Indebtedness.
9.2 The Lender will not have any responsibility to inquire into the
apportionment, allocation or disposition of the proceeds of the Loan as among
the Borrowers.
9.3 Each Subsidiary Borrower hereby irrevocably appoints SATH as its agent and
attorney-in-fact for all purposes of the Loan Documents, including without
limitation the giving and receiving of notices and other communications, the
making of requests for and conversions or continuations of the Loan, the
execution and delivery of certificates, and the receipt and allocation of
disbursements of the Loan proceeds from the Lender and all matters under Section
9.6. Any statement, representation, response or instruction provided by SATH
will be deemed to be approved and consented to by each Borrower, and the Lender
may unconditionally rely on any such statement, representation, response or
instruction.
9.4 The making of the Loan on a joint borrowing basis is solely an accommodation
to the Borrowers and is done at Borrowers' request. The request for joint
handling of the Loan was made because all of the Borrowers are engaged in owning
and operating the Stations and each Borrower expects to derive benefit, directly
or indirectly, from the Loan because the successful operation of the Stations is
dependent on the continued successful performance of all of the Borrowers. Each
Borrower agrees that the Lender will not incur any liability to any Borrower as
a result thereof. To induce the Lender to make the Loan, and in consideration
thereof, each Borrower hereby agrees to indemnify the Lender and hold the Lender
harmless from and against any and all liabilities, expenses, losses, damages
and/or claims of damage or injury asserted against the Lender by any Borrower or
by any other Person arising from or incurred by reason of the structuring of the
Loan as provided in this Agreement, reliance by the Lender on any requests or
instructions from any Borrower, or any other action taken by the Lender under
this Agreement. This Section will survive repayment of the Loan.
9.5 Each Borrower has established adequate means of obtaining from each other
Borrower on a continuing basis financial and other information pertaining to the
business, operations and condition (financial and otherwise) of each other
Borrower and is and hereafter will be completely familiar with the business,
operations and condition (financial and otherwise) of each other Borrower. The
Lender will have no duty, and each Borrower hereby waives any duty of the
Lender, to disclose to any Borrower any matter, fact or thing relating to the
business, operations or condition (financial or otherwise) of any other
Borrower, or the property of any other Borrower, whether now or hereafter known
by the Lender.
9.6 The obligations and liabilities of each Borrower under this Agreement or any
other Loan Document may derive from value provided directly to another Borrower
and, in full recognition of that fact, each Borrower consents and agrees that
the Lender may, at any time and from time to time, without notice to, demand on,
or the agreement of, such Borrower, and without affecting the enforceability or
security of the Loan Documents:
a. with the agreement of such Borrower, supplement, modify, amend,
extend, renew, accelerate or change the terms of the
Indebtedness, or otherwise change the time for payment of the Indebtedness
or any part thereof, including increasing or decreasing
the rate of interest thereon;
b. with the agreement of such Borrower, supplement, modify, amend or waive, or
enter into any agreement, approval or consent with respect to, the Indebtedness
or any part thereof or any of the Loan Documents or any collateral or any
additional security or guaranties, or any condition, covenant, default, remedy,
right, representation or term thereof or thereunder;
c. with the agreement of such Borrower, accept new or additional
instruments, documents or agreements in exchange for, or
relative to, any of the Loan Documents or the Indebtedness or any part thereof;
d. accept partial payments on the Indebtedness;
e. with the agreement of such Borrower, receive and hold additional security
or guaranties for the Indebtedness or any part thereof;
f. release, reconvey, terminate, waive, abandon, subordinate, exchange,
substitute, transfer and enforce any collateral or
guaranties, and apply any security and direct the order or manner of sale
thereof as the Lender in its sole and absolute discretion
may determine;
g. release any party or any guarantor from any personal liability with respect
to the Indebtedness or any part thereof;
h. settle, release on terms satisfactory to the Lender, or by operation of
applicable laws or otherwise liquidate or enforce
any of the Indebtedness and any security or guaranty in any manner, consent
to the transfer of any security, and bid and purchase at
any sale; and/or
i. consent to the merger, change or any other restructuring or termination of
the corporate or limited liability company existence of any other Borrower or
any other person or entity, and correspondingly restructure the Loan, continuing
existence of any lien under any other Loan Document to which any Borrower is a
party or the enforceability hereof or thereof with respect to all or part of the
Indebtedness.
9.7 Lender will not be required to, and each Borrower expressly waives any right
to require the Lender to, marshal assets in favor of any Borrower or any other
Person or to proceed against any other Borrower or any other person or entity or
any Collateral provided by any other Borrower or any other Person, and the
Lender will have the right to proceed against any Borrower and/or any of the
Collateral in such order as the Lender determines in its sole and absolute
discretion. The Lender may file a separate action or actions against any
Borrower, whether such action is brought or prosecuted with respect to any other
security or against any other person, or whether any other person is joined in
any such action or actions. The Lender will have the right to deal with any
Borrower in connection with the Indebtedness or otherwise, or alter any
contracts or agreements now or hereafter existing between the Lender and any
Borrower, in any manner whatsoever, all without in any way altering or affecting
the obligations of any other Borrower under the Loan Documents.
9.8 Each Borrower authorizes Lender, upon the occurrence of and during the
continuance of any Event of Default, at its sole option, without notice or
demand and without affecting any Aggregate Indebtedness or the validity or
enforceability of any liens of Lender on any collateral, to foreclose any or all
of the deeds of trust of mortgages securing the obligations by judicial or
nonjudicial sale. Each by real property. This means, among other things:
(i) The Lender may collect from any Borrower without first foreclosing on
any real or personal property collateral pledged by the debtor;
(ii) If the Lender forecloses on any real property collateral pledged by the
debtor;
A. The amount of the debt may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even if the collateral is worth
more than the sale price; and
B. The Lender may collect from any Borrower even if the Lender, by
foreclosing on the real property collateral, has destroyed
any right one Borrower may have to collect from another Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses the
Borrower may have because the obligations are secured by real property. These
rights and defenses include but are not limited to, any rights or defenses based
upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.
Each Borrower waives all rights and defenses arising out of an election of
remedies by the Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Borrower's rights of subrogation and reimbursement against the
other Borrower by the operation of Section 580d of the Code of Civil Procedure
or otherwise.
9.9 Each Borrower expressly waives any and all defenses now or hereafter arising
or asserted by reason of (i) any disability or other defense of any other
Borrower or any other Person with respect to any Indebtedness, (ii) the
unenforceability or invalidity as to any other Borrower or any other Person of
the Indebtedness, (iii) the unenforceability or invalidity of any security or
guaranty for the Indebtedness or the lack of perfection or continuing perfection
or failure of priority of any security for the Indebtedness, (iv) the cessation
for any cause whatsoever of the liability of any Borrower or any other Person
(other than by reason of the full payment and performance of all Indebtedness),
(v) to the extent permitted by law, any failure of the Lender to give notice of
sale or other disposition of Collateral to any Borrower or any defect in any
notice that may be given in connection with any sale or disposition, (vi) to the
extent permitted by law, any failure of the Lender to comply with applicable
Legal Requirements in connection with the sale or other disposition of any
Collateral or other security for any Indebtedness, including without limitation
any failure of the Lender to conduct a commercially reasonable sale or other
disposition of any Collateral or other security for any obligation, (vii) any
act or omission of the Lender or others that directly or indirectly results in
or aids the discharge or release of any Borrower or any other Person or the
Indebtedness or any other security or guaranty therefor by operation of law or
otherwise, (viii) any Legal Requirement that provides that the obligation of a
surety or guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety's or guarantor's
obligation in proportion to the principal obligation, (ix) any failure of the
Lender to file or enforce a claim in any bankruptcy or other proceeding with
respect to any other Borrower, (x) the election by the Lender, in any bankruptcy
proceeding of any other Borrower, of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code, (xi) any extension of
credit or the grant of any lien under Section 364 of the United States
Bankruptcy Code in connection with the bankruptcy of any other Borrower, (xii)
any use of cash collateral under Section 363 of the United States Bankruptcy
Code, or (xiii) any agreement or stipulation with any other Borrower with
respect to the provision of adequate protection in any bankruptcy proceeding of
any person or entity. 9.10 Notwithstanding anything to the contrary elsewhere
contained herein or in any other Loan Document to which any Borrower is a party,
each Borrower hereby waives with respect to each other Borrower and their
respective successors and assigns (including any surety) and any other party any
and all rights at law or in equity, to subrogation, to reimbursement, to
exoneration, to contribution, to setoff or to any other rights that could accrue
to a surety against a principal, to a guarantor against a maker, to an
accommodation party against the party accommodated, or to a holder or transferee
against a maker and which any Borrower may have or hereafter acquire against
each other Borrower or any other party in connection with or as a result of the
execution, delivery and/or performance of this Agreement, the Note or any other
Loan Document to which any Borrower is a party. Each Borrower agrees that it
will not have and shall not assert any such rights against any other Borrower or
the successors and assigns of any other Borrower or any other party (including
any surety), either directly or as an attempted setoff to any action commenced
against any Borrower by another Borrower (as Borrower or in any other capacity)
or any other party. Each Borrower hereby acknowledges and agrees that this
waiver is intended to benefit the Lender and will not limit or otherwise affect
the liability of the Borrower hereunder or under any other Loan Document to
which any Borrower is a party, or the enforceability hereof or thereof.
SECTION 10
MISCELLANEOUS PROVISIONS
10.1 Amendment; Modification and Waiver. No amendment, modification or
alteration of the terms hereof will be binding unless it is in writing and duly
executed by the parties. Failure of the Lender to exercise its rights hereunder
on any one occasion will not be construed as a waiver of any requirement of this
Agreement or a waiver of the Lender's right to take advantage of any subsequent
or continued breach by any of the Borrowers of any covenant contained herein.
All remedies herein provided will be in addition to and not in substitution for
any remedies otherwise available to the Lender.
10.2 Other Reports to the Lender by the Borrowers and Inspections of Books,
Records, Etc. In addition to the reports required to be furnished to the Lender
under Section 5, each Borrower shall furnish to the Lender such other
information and reports as may be necessary in the Lender's opinion to inform
the Lender of each Borrower's financial status and condition and shall permit
any person designated by the Lender to visit and inspect any of the properties,
corporate books and financial records of any Borrower and to discuss its
affairs, finances and accounts with its officers and employees at such
reasonable times and as often as may be requested by the Lender.
10.3 Lender's Expenses. If an Event of Default occurs, the Borrowers shall
pay the Lender's reasonable expenses of collection,
including without limitation reasonable attorneys' fees and expenses for counsel
retained by the Lender.
10.4 Notices. All notices and communications to the Lender provided for herein
shall be hand delivered, sent by registered or certified mail, return receipt
requested, or by recognized national courier service, or sent by facsimile (with
receipt confirmed electronically), and shall be effective upon receipt or
delivery, or refusal to accept delivery as evidenced by the return receipt,
addressed to:
The E.W. Scripps Company
312 Walnut Street, 28th Floor
Cincinnati, Ohio 45202
Attention: Timothy Peterman, Vice President Corporate Development
Facsimile: (513) 977-3024
with a copy to:
William Appleton, Esq.
Baker & Hostetler LLP
312 Walnut Street
Suite 2650
Cincinnati, Ohio 45202-4074
Facsimile No.: (513) 929-0303
All communications to the Borrowers hereunder shall be hand delivered, sent by
registered or certified mail, return receipt requested, or by recognized
national courier service, or sent by facsimile (with receipt confirmed
electronically), and shall be effective upon receipt or delivery, or refusal to
accept delivery as evidenced by the return receipt, addressed to:
Shop At Home, Inc.
5388 Hickory Hollow Parkway
Nashville, Tennessee 37013
Attn:
-------------------------------------
Facsimile: _____________________
with a copy to:
--------------
Charles W. Bone, Esq.
Bone McAllester Norton, P.L.L.C.
Suntrust Center
424 Church Street, Suite 900
Nashville, Tennessee 37203
Facsimile: (613) 238-6301
10.5 Lender's Duties Upon Payment in Full by the Borrowers. Upon payment in full
of all Obligations, the Lender shall (a) reassign or redeliver, as appropriate,
to the Borrowers all Collateral (except to the extent such Collateral secures
other indebtedness to the Lender); (b) at the Borrowers' expense, cause to be
released or cancelled of record all financing statements or other documents
previously filed and recorded in public offices by or on behalf of the Lender
evidencing the Obligations and the security therefor; and (c) deliver to the
Borrowers the Note marked "Paid in Full."
10.6 Governing Law; Interpretation. This Agreement is being delivered and is
intended to be performed in the State of Ohio and will be construed and enforced
in accordance with the laws of such state, without regard to conflicts of laws
principles, except to the extent that, by reason of any mandatory provision of
law, the attachment, perfection or priority of the Security Interest is governed
by the Uniform Commercial Code as in effect in any jurisdiction other than Ohio.
The section headings contained in this Agreement are for reference purposes only
and will not affect in any way the meaning or interpretation of this Agreement.
10.7 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same instrument.
10.8 Assignment; Successors and Assigns. Neither this Agreement nor any of the
rights, interests or Obligations hereunder may be assigned by the Borrowers
(whether by operation of law or otherwise) without the prior written consent of
the Lender. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
10.9 Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to create any third party
beneficiaries.
10.10 Consent to Jurisdiction; Venue. Each of the parties irrevocably submits to
the exclusive jurisdiction of the state courts of Ohio and the United States
District Court for the Southern District of Ohio for the purpose of any action
or proceeding arising out of or relating to this Agreement, and each of the
parties irrevocably agrees that all claims in respect to such action or
proceeding may be heard and determined exclusively in any Ohio state court
sitting in Hamilton County, Ohio or the United States District Court for the
Southern District of Ohio. Each of the parties agrees that a final judgment in
any Proceeding will be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
10.11 Further Assurances. The Borrowers shall, in good faith, execute such other
and further instruments, assignments or documents as may be necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement.
10.12 Severability. If any provision of this Agreement is finally determined by
a court of competent jurisdiction to be unenforceable, such provision will be
deemed to be severed from this Agreement, but every other provision of this
Agreement will remain in full force and effect.
10.13 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement among the
parties with respect to its subject matter and supersedes all prior agreements
and understandings, or representations, by or among the parties, written and
oral, with respect to the subject matter hereof and thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.
LENDER: BORROWERS:
------- ----------
THE E. W. SCRIPPS COMPANY SHOP AT HOME, INC.
By By
WOAC, INC.
By
- ----------------------------------------------------------
- ------------------------- -----------------------
WMFP, INC.
By
- ----------------------------------------------------------
- -------------------------- -----------------------
KCNS, INC.
By
- ----------------------------------------------------------
,
- -------------------------- -----------------------
SAH LICENSE, INC.
By
- ----------------------------------------------------------
,
- -------------------------- -----------------------
APPENDIX B
FAIRNESS OPINION
August 14, 2002
Board of Directors
Shop At Home, Inc.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013
Dear Sirs:
We understand that Shop At Home, Inc. ("Shop At Home") and its affiliates
have executed, or will at closing execute, a series of agreements pursuant to
which Shop At Home's home shopping network business will be contributed to and
operated by Shop At Home Network, LLC (the "Operating Company"). Pursuant to the
agreements, the Operating Company will be 12.5% owned by Shop At Home and a
wholly-owned subsidiary of Shop At Home and 87.5% owned by SAH Holdings, Inc.
("Holding Company") and the Holding Company will in turn be 20% owned by Shop At
Home and 80% owned by Scripps Networks, Inc. ("Scripps Network"). The agreements
relating to the Operating Company include:
1. Contribution and Assumption Agreements ("Contribution Agreements")
pursuant to which the home shopping network business will be contributed to the
Operating Company and the Operating Company will become 87.5% owned by the
Holding Company, which Contribution Agreements are to be executed in the form
attached to the Share Purchase Agreement as Exhibits 1.1A and 1.1B thereto;
2. Share Purchase Agreement dated as of August 14, 2002 ("Share Purchase
Agreement"), pursuant to which Scripps Network has agreed to pay $49,500,000 to
Shop At Home in order to acquire an 80% ownership interest in the Holding
Company;
3. Shareholders Agreement ("Shareholders Agreement") among the Holding
Company and its shareholders, which Shareholders Agreement is to be executed in
the form attached to the Share Purchase Agreement as Exhibit 8.4(e) thereto;
4. Amended and Restated Operating Agreement ("Operating Agreement") of the
Operating Company, which Operating Agreement is to be executed in the form
attached to the Share Purchase Agreement as Exhibit 8.4(d) thereto;
5. Affiliation Agreement ("Affiliation Agreement") pursuant to which the
home shopping programming of the Operating Company will be broadcast on Shop At
Home's television stations, which Affiliation Agreement is to be executed in the
form attached to the Share Purchase Agreement as Exhibit 8.4(f) thereto; and
In connection with the transactions involving the Operating Company,
certain assets and liabilities of Shop At Home that do not constitute part of
the home shopping network business are not being contributed to the Operating
Company, including, without limitation, cash in the amount of $3,000,000, the
television broadcast stations owned by Shop At Home and related assets and
liabilities (including the wireless spectrum rights associated with the
Cleveland and Boston stations and a 50% interest in the wireless spectrum rights
associated with the Houston station), and indebtedness for borrowed money owing
by Shop At Home.
As provided in Section 7.4 of the Operating Agreement, The E.W. Scripps
Company ("EWSC") may loan the Operating Company up to $35,000,000 as EWSC in its
sole discretion determines is necessary for the working capital needs of the
Company.
We also understand that, in connection with the transactions involving the
Operating Company, EWSC has agreed to purchase preferred stock of Shop At Home
and to make a loan to Shop At Home. The agreements between EWSC and Shop At Home
include:
1. Preferred Share Purchase Agreement dated as of August 14, 2002
("Preferred Share Purchase Agreement"), pursuant to which EWSC has agreed to
acquire $3,000,000 of Series D Preferred Stock of Shop At Home; and
2. Loan Agreement ("Loan Agreement") pursuant to which EWSC has agreed to
make a secured loan to Shop At Home in the amount of $47,500,000, which Loan
Agreement is to be executed in the form attached to the Share Purchase Agreement
as Exhibit 8.4(h) thereto.
We understand that Shop At Home will repay in full its 11% Senior Secured
Notes dated March 23, 1998 and its indebtedness under a Loan and Security
Agreement dated as of August 1, 2001 between Shop At Home and Foothill Capital
Corporation from the proceeds of the $49,500,000 share purchase and the
$47,500,000 loan described above.
The transactions contemplated by the above described agreements are
collectively referred to as the "Transaction."
We understand that Shop At Home will recognize taxable gain in connection
with the closing of the Transaction; senior management of Shop At Home has
informed us that Shop At Home's available net operating loss carry-forwards
substantially exceed the taxable gain to be realized by Shop At Home from the
Transaction and that no federal income tax will be payable as a result of the
Transaction.
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to Shop At Home.
In the course of performing our reviews and analyses for rendering this
opinion, we have:
1. Reviewed the Contribution Agreements, the Share Purchase Agreement, the
Shareholders Agreement, the Operating Agreement, the Affiliation Agreement, the
Preferred Share Purchase Agreement and the Loan Agreement;
2. Reviewed the following filings of Shop At Home filed with the Securities and
Exchange Commission: Form 10-K/A for the year ended June 30, 2001; Forms 10-Q
for the periods ended September 30, 2001 and March 31, 2002; Form 10-Q/A for the
period ended December 31, 2001; and Forms 8-K dated July 3, 2001, October 25,
2001, February 14, 2002, and April, 22, 2002;
3. Reviewed a draft (delivered to us electronically by Shop At Home on August 9,
2002) of Shop At Home's Form 10-K for June 30, 2002;
4. Reviewed certain operating and financial information, including projections
of financial results of Shop At Home on a stand-alone basis (the "Shop At Home
Stand Alone Projections") as well as on a pro-forma basis (the "Shop At Home Pro
Forma Projections") to give effect to the Transaction, prepared and reviewed for
us by the senior management of Shop At Home as to Shop At Home's business and
future prospects;
5. Reviewed certain operating and financial information, including projections
of financial results of the Operating Company (the "Operating Company
Projections"), prepared by the senior management of Shop At Home in consultation
with Scripps Network and reviewed for us by the senior management of Shop At
Home, as to the Operating Company's business and future prospects;
6. Discussed with certain members of Shop At Home and Scripps Network senior
management, these operations, historical financial statements and future
prospects, as well as their views of the business, operational, strategic and
financial benefits and other implications of the Transaction;
7. Reviewed the historical stock prices, trading volumes and valuation
parameters of the Shop At Home's common stock;
8. Reviewed certain publicly available financial data, stock market performance
data and valuation parameters of companies that we deemed generally comparable
to Shop At Home and the Operating Company or otherwise relevant to our inquiry;
and
9. Considered such other information and conducted such other studies, analyses,
inquiries and investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including the Shop At Home Stand Alone Projections, the Shop
At Home Pro Forma Projections and the Operating Company Projections, provided to
us by Shop At Home or otherwise publicly available. With respect to the Shop At
Home Projections, the Shop At Home Pro Forma Projections and the Operating
Company Projections, including any projected or anticipated benefits, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior management of Shop At
Home as to the expected future performance of Shop At Home and the senior
management of Shop At Home and Scripps Network as to the expected future
performance of Operating Company. We have not assumed any responsibility for the
independent verification of any such information or projections provided to us
and we have relied further upon the assurances of the senior management of Shop
At Home with respect to the Shop At Home Stand Alone Projections and Shop At
Home Pro Forma Projections and the senior management of Shop At Home and Scripps
Network regarding Operating Company Projections that they are unaware of any
facts that would make the information or projections provided to us incomplete
or misleading in any material respect.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of Shop at Home.
We have further assumed that the Transaction will be consummated in
accordance with the terms of the transaction documents furnished to us including
that, in all respects material to our analysis, the representations and
warranties made by the parties thereto are true and accurate in all material
respects. We have further assumed that the operational and performance targets
set forth in the Shop At Home Pro Forma Projections and the Operating Company
Projections will be met within the time frames estimated thereby.
Our opinion is necessarily based on the economic, market and other
conditions, and the information made available to us, as of the date hereof. We
do not express any opinion as to the price or range of prices at which shares of
Shop At Home's common stock may trade prior to or subsequent to the consummation
of the Transaction. This opinion does not address Shop At Home's underlying
decision to enter into the Transaction, and is not a recommendation to Shop At
Home's directors or shareholders as to whether to approve or vote for the
Transaction or any component thereof, and by rendering this opinion we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof.
We have acted as financial advisor to Shop At Home in connection with the
Transaction and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent on the consummation of the Transaction. We are currently rendering
other investment banking services to Shop At Home for which we may receive a
customary fee. We have previously rendered certain investment banking and
financial advisory services to Shop At Home, for which we received customary
compensation. In the ordinary course of business, Friedman, Billings, Ramsey
Group, Inc. may actively trade the securities of Shop At Home or EWSC for its
own account and for the accounts of customers and accordingly, may, at any time,
hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Shop At Home in its evaluation of the Transaction and
is not to be reproduced, disseminated, quoted from or referred to at any time,
in whole or in part, without our prior written consent; provided, however, that
this letter may be included in its entirety in any proxy statement to be
distributed by Shop At Home to its stockholders in connection with the
Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transaction is fair, from a financial point of view, to Shop at
Home.
Very truly yours,
Friedman, Billings, Ramsey Group, Inc.
By:
__/s/ Joseph R. Nardini_______
Joseph R. Nardini
Managing Director
SHOP AT HOME, INC.
Proxy Solicited by the Board of Directors of Shop At Home, Inc.
for the Special Meeting of Shareholders to be held on October 16, 2002.
The undersigned hereby appoints A. E. Jolley and Joseph I. Overholt,
and each of them, as proxies, with full power of substitution, to vote all
shares of the undersigned as shown below on this proxy at the Special Meeting of
Shareholders of Shop At Home, Inc. to be held at the offices of Shop At Home,
Inc., located at 5388 Hickory Hollow Parkway, Antioch, Tennessee, 37013, on
October 16, 2002, at 10:00 a.m., Central Standard Time, and any adjournments
thereof.
(1) To approval of the sale to a subsidiary of The E.W. Scripps
Company of a 70% interest in the operating assets and liabilities and business
operation of the Company's television and Internet home shopping network;
[ ]FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(2) To approve an amendment to the charter of the Company changing
the name of the Company to "Premier Media, Inc."
[ ]FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(3) In their discretion, to transact such other business as may
properly be brought before the meeting or any adjournment thereof.
[ ]FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(Please date and sign this proxy on the reverse side.)
Your shares will be voted in accordance with your instructions. If no
choice is specified, shares will be voted FOR the sale of a 70% interest in the
Network, and FOR the change in name of the corporation.
Date , 2002. LEASE SIGN HERE AND RETURN PROMPTLY
----------------------------
Please sign exactly as your name appears at left. If registered in the
names of two or more persons, each should sign. Executors, administrators,
trustees, guardians, attorneys, and corporate officers should show their full
titles.
IF you have changed your address, please PRINT your new address on this
line.