<PAGE>
As filed with the Securities and Exchange Commission on October 19, 1998
Registration Statement No. 333-62077
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
JONES INTERNATIONAL NETWORKS, LTD.
(Exact name of Registrant as specified in its charter)
For a list of Co-Registrants, see page (iii)
<TABLE>
<S> <C> <C>
Colorado 7922 84-1470911
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9697 East Mineral Avenue
Englewood, Colorado 80112
(303) 792-3111
(Address, including zip code, and telephone number, including
area code, of Registrant's and Co-Registrants' principal executive office)
Jay B. Lewis
Vice President/Finance
Jones International Networks, Ltd.
9697 East Mineral Avenue
Englewood, Colorado 80112
(303) 792-3111
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copy to:
Patricia A. Peterson, Esq.
Davis, Graham & Stubbs LLP
P.O. Box 185
Denver, Colorado 80201
(303) 892-9400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
<PAGE>
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Proposed Proposed
Title of each class maximum maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit(1) price(1) registration fee(1)
---------- ---------- ------- -------- -------------------
<S> <C> <C> <C> <C>
11 3/4% Senior Secured
Notes due 2005 $100,000,000 100% $100,000,000 $29,500
Guarantees of the
11 3/4% Senior
Secured Notes due
2005(2) N/A N/A N/A N/A
=============================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the amount of the
registration fee in accordance with Rule 457(f) under the Securities Act of
1933.
(2) Represents the guarantees of the 11 3/4% Senior Secured Notes due 2005 to
be issued by the Co-Registrants. Pursuant to Rule 457(n), no additional
registration fee is being paid regarding these guarantees. The guarantees
are not traded separately.
_________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
(ii)
<PAGE>
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
Primary Standard Industrial IRS Employer
Name State of Organization Classification Code Number Identification Number
---- --------------------- --------------------------- ---------------------
<S> <C> <C> <C>
JPN, Inc. Colorado 7922 84-1250515
Jones Radio Holdings, Inc. Colorado 7922 84-1452541
Great American Country, Inc. Colorado 7922 84-1322917
Jones Space Holdings, Inc. Colorado 4899 84-1400488
Jones Infomercial Networks, Inc. Colorado 7922 84-1250514
Jones Earth Segment, Inc. Colorado 4899 84-1092471
Jones Galactic Radio, Inc Colorado 7922 84-1064021
Jones Galactic Radio Partners, Inc. Colorado 7922 84-1150629
Jones Radio Network, Inc. Colorado 7922 84-1152848
Jones Audio Services, Inc. Colorado 7922 84-1363223
MediaAmerica, Inc. New York 7313 84-1467401
Jones Radio Network Ventures, Inc. Colorado 7922 84-1361177
Jones Infomercial Network Ventures, Inc. Colorado 7922 84-1298089
Jones/Owens Radio Programming LLC Colorado 7922 84-1362977
Jones MAI Radio, Inc. Colorado 7922 84-1467402
</TABLE>
(iii)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED OCTOBER 19, 1998
PROSPECTUS
JONES INTERNATIONAL NETWORKS, LTD.
OFFER TO EXCHANGE 11 3/4% SENIOR SECURED NOTES DUE 2005 FOR ALL OF ITS
OUTSTANDING 11 3/4% SENIOR SECURED NOTES DUE 2005
The Exchange Offer will expire at 5:00 P.M., New York City time, on
_______________, ___________, 1998, unless extended.
Jones International Networks, Ltd. (the "Company"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount of its 11 3/4% Senior Secured Notes
Due 2005 (the "Exchange Notes") for each $1,000 principal amount of its
outstanding 11 3/4% Senior Secured Notes Due 2005 (the "Old Notes"), of which
$100,000,000 in aggregate principal amount are outstanding as of the date
hereof. The Exchange Offer has been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a registration statement of which
this Prospectus is a part (the "Registration Statement"). The form and terms of
the Exchange Notes will be substantially identical in all material respects to
the form and terms of the Old Notes, including interest rate and interest
payment dates, except that the exchange will have been registered under the
Securities Act and therefore the Exchange Notes will not bear legends
restricting the transfer thereof. In addition, the Additional Interest (as
defined) provisions will be modified or eliminated as appropriate and holders of
the Exchange Notes will not be entitled to certain rights of holders of the Old
Notes under the Exchange and Registration Rights Agreement (as defined), which
rights with respect to Old Notes that are exchanged will terminate upon the
consummation of the Exchange Offer. See "Description of the Notes--Exchange
Offer; Registration Rights." The Exchange Notes will evidence the same debt as
the Old Notes which they replace and will be entitled to the benefits of the
Indenture dated as of July 10, 1998 governing the Old Notes and the Exchange
Notes. The Exchange Notes and the Old Notes are considered collectively to be a
single class for all purposes under the Indenture, including, without
limitation, waivers, amendments and redemptions and are sometimes referred to
herein collectively as the "Notes." See "The Exchange Offer" and the
"Description of the Notes." References throughout this Prospectus to the "Notes"
are to the Old Notes and the Exchange Notes collectively.
The Company will accept for exchange any and all validly tendered Old Notes
which are not withdrawn prior to 5:00 p.m., New York City time, on
_______________, __________, 1998 ("Expiration Date"); provided, however, that
if the Company, in its sole discretion, has extended the period of time for
which the Exchange Offer is open, the term "Expiration Date" means the latest
time and date to which the Exchange Offer is extended. Tenders of Old Notes may
be withdrawn at any time prior to the Expiration Date. Old Notes may be tendered
only in integral multiples of $1,000.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is October ____, 1998.
<PAGE>
Interest on the Exchange Notes will be payable semi-annually on January 1 and
July 1 of each year, commencing January 1, 1999. The Exchange Notes will mature
on July 1, 2005. Except as described below, the Company may not redeem the
Exchange Notes prior to July 1, 2003. On or after such date, the Company may
redeem the Exchange Notes, in whole or in part, at any time, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time and from time to time on or
prior to July 1, 2001, the Company may, subject to certain requirements, redeem
up to 35% of the aggregate principal amount of the Exchange Notes with the cash
proceeds of one or more Equity Offerings (as defined) at a redemption price
equal to 111.75% of the principal amount to be redeemed, together with accrued
and unpaid interest, if any, to the date of redemption, provided, that at least
65% of the aggregate principal amount of the Notes remains outstanding
immediately after each such redemption. The Exchange Notes will not be subject
to any sinking fund requirement. Upon the occurrence of a Change of Control (as
defined), the Company will be required to make an offer to repurchase the
Exchange Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of repurchase.
The Exchange Notes will be senior obligations of the Company. The Exchange
Notes will rank pari passu in right of payment with all existing and future
Senior Indebtedness (as defined) of the Company and will rank senior to all
existing and future Subordinated Obligations (as defined) of the Company. The
Company is a holding company that conducts substantially all of its operations
through subsidiaries. The Exchange Notes will be secured by the capital stock of
the Company's wholly-owned subsidiary, JPN, Inc., and its direct subsidiaries.
The Exchange Notes will be unconditionally guaranteed (the "Guarantees") by each
of the Company's Restricted Subsidiaries (as defined) (the "Subsidiary
Guarantors"). The Guarantees are senior obligations of the Subsidiary Guarantors
and rank pari passu in right of payment with all existing and future Senior
Indebtedness of the Subsidiary Guarantors, other than Bank Indebtedness (as
defined) and Capitalized Lease Obligations (as defined), and will rank senior in
right of payment to all existing and future Subordinated Obligations of the
Subsidiary Guarantors. The Guarantees are not secured. The Guarantees are full
and unconditional.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
The Old Notes were sold by the Company on July 10, 1998 to NatWest
Capital Markets Limited (the "Initial Purchaser") pursuant to a Purchase
Agreement dated July 2, 1998 by and between the Company and the Initial
Purchaser (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the
Company and the Initial Purchaser entered into an Exchange and Registration
Rights Agreement dated as of July 10, 1998 (the "Exchange and Registration
Rights Agreement") which granted the holders of the Old Notes certain exchange
and registration rights. The Exchange Offer is being made to satisfy certain of
the Company's obligations under the Exchange and Registration Rights Agreement.
Based upon existing interpretations by the staff of the Commission
which were issued to third parties, the Company believes that the Exchange Notes
will be freely transferable by holders thereof (other than affiliates of the
Company and the Subsidiary Guarantors) after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of
business, that it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and that it is not an affiliate of the Company or the
Subsidiary Guarantors, as such terms are interpreted by the Commission; provided
that broker-dealers ("Participating Broker-Dealers"), if any, receiving Exchange
Notes in the Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The Commission has not considered the
Exchange Offer itself in the context of its interpretations and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. The Commission has taken the position that
the Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with the prospectus
contained in the Exchange Offer Registration Statement. The Company has agreed
if, at the time of the completion of the Exchange Offer, information in the
Letter of Transmittal submitted by exchanging holders indicates that there are
holders that are Participating Broker-Dealers or otherwise subject to prospectus
delivery requirements, the Company will, for such period of time as is necessary
to comply with applicable law up to the date that is 180 days after consummation
of the Exchange Offer, make available a prospectus meeting the requirements of
the Securities Act to such persons, if any, for use in connection with any
resale of such Exchange Notes.
The Exchange Offer is not conditioned on any minimum amount of Old
Notes being tendered for exchange. The Company will not receive any proceeds
from the Exchange Offer and will pay all of its expenses incident thereto.
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. In the event that the Company terminates the
Exchange Offer (which is not anticipated) and does not accept for exchange any
Old Notes, the Company will promptly return the Old Notes to the holders
thereof. Old Notes not tendered or accepted will remain outstanding. See "The
Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Old Notes or the Exchange Notes. The Company does not intend to list the
Exchange Notes on any securities exchange or to seek approval for quotation
through any automated quotation system. There can be no assurance that a market
for the Exchange Notes will develop. To the extent that a market for the
Exchange Notes does develop, the market value of the Exchange Notes will depend
upon many factors, including the Company's financial condition and results of
operations and other conditions. See "Risk Factors--Absence of Public Market."
Each Exchange Note will bear interest at the rate of 11 3/4% per annum
from the most recent date to which interest has been paid or duly provided for
on the Old Note surrendered in exchange for such Exchange Note or, if no
interest has been paid or duly provided for on such Old Note, from July 10, 1998
(the date of original issuance of such Old Note). Interest on the Exchange Notes
will be payable semiannually on January 1 and July 1 of each year, commencing on
the first such date following the original issuance date of the Exchange Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will
not receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date (as defined) to which interest has been paid or duly
provided for on such Old Notes prior to the original issue date of the Exchange
Notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on such Old Notes, and will be deemed to have
waived the right to receive any interest on such Old Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after July 10, 1998.
i
<PAGE>
----------------
ADDITIONAL INFORMATION
Upon consummation of the Exchange Offer, the Company will be required to file
reports and other information with the Securities and Exchange Commission (the
"Commission") pursuant to the information requirements of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends to
furnish the holders of the Exchange Notes with annual reports containing
consolidated financial statements audited by independent certified public
accountants following the end of each fiscal year and with quarterly reports
containing unaudited financial information for each of the first three quarters
of each fiscal year following the end of such quarter.
The Company has filed with the Commission a Registration Statement on Form S-
4 under the Securities Act with respect to the Exchange Offer. As permitted by
the rules and regulations of the Commission, this Prospectus, which is a part of
the Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the Registration Statement. For further information
pertaining to the Company and the securities offered hereby, reference is made
to such Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents or provisions of any
documents referred to herein are not necessarily complete, and in each instance,
reference is made to the copy of the document filed as an exhibit to the
Registration Statement.
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates
from the Public Reference Section of the Commission at such address, and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements. Such forward-
looking statements may concern, among other things, the market and prospects for
radio and television programming, the market and demand for satellite delivery
and production support services, the Company's ability to continue to
consolidate the PIN Venture (as defined) for financial reporting purposes, its
ability to increase the distribution of its television networks and the timing
of such distribution, the expected impact of the GAC Equity Agreements (as
defined) and the Acquisition (as defined) on the Company's financial condition,
results of operation and business prospects, the Company's ability to increase
the audience for its radio programming, the Company's ability to develop or
acquire new radio and television programming, the Company's ability to sell
advertising airtime on its radio and television networks, the Company's ability
to market such airtime and to increase its advertising rates, the Company's
ability to lease its unused satellite transponder capacity and the price and
timing of any leases that may be entered into, plans for acquiring and/or
creating complementary businesses and value-added services, the Company's
ability to integrate the operations of MediaAmerica and increase the Company's
profitability, the competition in the radio and television businesses, the
technology of delivering the Company's programming, the Company's ability to
operate effectively and profitably, including to pursue its planned investment
strategy in accordance with the operating restrictions and cash flow
requirements imposed by the Indenture, including its ability to access bank or
other financing, and other statements of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts. In particular, any statements, express or implied, concerning future
operating results or the ability to generate revenues and operating income to
service the Notes, including Great American Country's projected subscriber
level, license fees and advertising revenues expected to be received that were
used in preparing the pro forma information presented elsewhere herein and the
information under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward-looking statements. Such
forward-looking statements generally are accompanied by words such as "expect,"
"predict," "anticipate," "should," "assume," "believe," "plan," "intend" or
other words that convey the uncertainty of future events or outcomes.
ii
<PAGE>
Such forward-looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's financial condition and
results of operations. As a consequence, actual results may differ materially
from expectations, estimates or assumptions expressed in or implied by any
forward-looking statements made by or on behalf of the Company. The risks and
uncertainties include generally risks and uncertainties associated with the
Company's substantial leverage, restrictions imposed by the Indenture, the
acquisition and distribution of television and radio programming and the
development or acquisition of programming that audiences will like, risks and
uncertainties associated with reliance on others for the distribution of
television programming, risks associated with the Acquisition, uncertainties
associated with the integration of acquired companies and businesses, dependence
on the sale of advertising airtime and to generate advertising revenues, risks
associated with the PIN Venture, risks and uncertainties associated with the
satellite delivery and production support market and technology and those other
risks and uncertainties discussed herein under "Risk Factors." Also, the impact
of competition on all aspects of the business is not predictable. Additionally,
unpredictable or unknown factors not discussed herein could have material
adverse effects on actual results related to matters which are the subject of
forward-looking information. Forward-looking statements speak only as of the
date of this Prospectus. The Company does not intend to update these cautionary
statements.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be
read in conjunction with the more detailed information and the historical and
pro forma consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Unless the context requires otherwise, references
to the Company herein include Jones International Networks, Ltd. and its direct
and indirect subsidiaries. Unless the context requires otherwise and when
statistical data are provided as of a specific date, all information reflects
the completion of the Acquisition. The Company was incorporated in May 1998. The
Company formerly was a wholly-owned subsidiary of Jones Network Holdings LLC
("Network Holdings"), a Colorado limited liability company. Network Holdings'
wholly-owned subsidiary, JPN, Inc. was incorporated in November 1993. Effective
upon the closing of the offering of the Old Notes in July 1998 and the
Acquisition (as defined), the Company acquired all of the shares of JPN, Inc.
from Network Holdings, and the members of Network Holdings exchanged their Class
A Ownership Interests and Class B Ownership Interests in Network Holdings for
shares of Class A Common Stock and Class B Common Stock, respectively, of the
Company, and Network Holdings was dissolved (the "Reorganization"). All
information in this Prospectus assumes that the Reorganization occurred on
January 1, 1995. Investors should consider carefully the information set forth
under the heading "Risk Factors".
THE COMPANY
Jones International Networks, Ltd. (the "Company") provides radio
programming to radio stations in the U.S. and cable television programming to
cable system operators. The Company's radio programming includes twelve 24-hour
formats and 18 syndicated programs that are broadcast by approximately 2,300
radio station affiliates throughout the United States to over 60 million weekly
listeners. The Company's cable television programming consists of Great American
Country (country music videos) and the Product Information Network (long-form
advertising). Pursuant to affiliate agreements with five of the ten largest
multiple-system operators ("MSOs"), as well as the two cable programming
cooperatives and others, Great American Country was distributed to 4.6 million
subscribers at August 15, 1998. The Product Information Network is presently
distributed to 278 cable systems and broadcast affiliates and is available to
18.6 million households. The Company has successfully expanded the reach of its
cable television programming to a broad number of major MSOs as a result of the
extensive experience of the Company's senior management team, including Mr.
Glenn R. Jones, the Company's Chairman and majority shareholder.
In July, 1998, the Company acquired substantially all the assets of
MediaAmerica, Inc. ("MediaAmerica") (the "Acquisition"). MediaAmerica was
founded in 1987 to provide advertising representation services to providers of
radio programming, such as the Company, and in 1994 expanded to provide radio
programming and other services to radio stations. The Acquisition provides the
Company with a group of experienced executives who have long-standing
relationships with many advertising agencies and advertisers that the Company
believes will be valuable in driving its advertising-related revenue growth. See
"The Acquisition and Related Transactions."
The Company primarily derives its revenues from the sale of its
commercial radio or cable television airtime inventory to national advertisers
that are attracted to the Company's ability to efficiently reach a large
national audience across a variety of demographics and markets. The Company also
receives license fees from MSOs that carry Great American Country and provides
satellite delivery and production support services for its own programming
operations as well as to others. The Company's strategy is to increase
advertising revenues by continuing to increase its base of radio station
affiliates and cable system affiliates, thereby broadening its audience of radio
listeners and cable television viewers. The Company also plans to diversify and
expand its sources of revenues by developing new radio and cable television
programming, acquiring complementary businesses (such as MediaAmerica), offering
programming-related and other value-added services and leasing satellite
transponder capacity made available by more efficient digital compression
techniques. There is no assurance that the Company will be successful in these
efforts.
The Company provides a wide variety of advertisers many different ways
to reach their target audiences through network radio and cable television.
Given network radio's wide reach and relatively low advertising costs, it is one
of the most cost-effective means to reach targeted demographic groups. The
Company's radio audience demographics are primarily adults, ages 25-54. Great
American Country, the Company's country music television network, also targets
this attractive demographic sector. According to industry sources, country music
is one of America's most popular music formats and has been one of the fastest
growing segments of the music industry. In addition, the Company believes the
Product Information Network's long-form advertising provides television
advertisers with a cost-effective medium to deliver sales messages, product
introductions and demonstrations to targeted audiences. The Company believes
that the number of advertisers and the volume of long-form advertising will
continue to grow as the Product Information Network's coverage of U.S.
households increases and Fortune 500
1
<PAGE>
companies and other major advertisers increasingly take advantage of the
benefits of long-form advertising to reach their desired audience.
RADIO PROGRAMMING. The Company, through its radio programming
division, Jones Radio, typically provides programming to its radio affiliates in
exchange for commercial airtime inventory which it sells to national
advertisers. Jones Radio's programming and related services offer radio stations
a cost-efficient alternative to the talent, time and expense required to develop
in-house programming. In addition, Jones Radio's variety of appealing 24-hour
formats, primarily country and adult contemporary, and its nationally recognized
group of syndicated programs and personalities, enable radio stations to
distinguish themselves within their increasingly competitive markets. As a
group, Jones Radio's radio station affiliates generally capture larger audience
(measured by average quarter hour listeners ("AQH")) as a result of broadcasting
Jones Radio's programming, which can result in additional local advertising
revenues for these radio stations. Jones Radio has been a successful provider of
country music programming, one of the most popular music formats with over 4
million U.S. listeners each week. Jones Radio provides its programming to
approximately 30% of all country radio stations in the United States and
believes it is the largest provider of country music programming to U.S. radio
stations. Between December 31, 1994 and June 30, 1998, Jones Radio's base of
radio station affiliates grew from 925 to 1,510, representing a compound annual
growth rate ("CAGR") of 14.1%. For the same period, Jones Radio has experienced
a 37.9% CAGR in AQH, growing from 670,000 at December 31, 1994 to 2,473,000 at
June 30, 1998. In addition to its advertising representation business,
MediaAmerica provides radio programming and services to 990 radio station
affiliates in mostly larger markets. As a result of the Acquisition, Jones Radio
has more than doubled its AQH to 6.5 million, which represents 60 million total
weekly listeners. While Jones Radio has historically provided programming to
radio stations in small and medium-sized markets, it is currently focusing its
programming development efforts to appeal to larger markets. Jones Radio has
radio station affiliates in all 50 states and in all of the top 50 markets.
RADIO ADVERTISING REPRESENTATION SERVICES. As a result of the
Acquisition, the Company offers advertising representation services to providers
of radio programming throughout the United States. As a representation firm,
MediaAmerica historically acted as an intermediary between advertisers and radio
programming providers, such as the Company. The Company was one of
MediaAmerica's largest customers in 1997 for this type of service. The Company
plans to develop numerous cross-selling opportunities and other synergies that
arise from the complementary nature of MediaAmerica's services and customer
base. There can be no assurance that the Company will be successful in these
efforts.
TELEVISION PROGRAMMING--GREAT AMERICAN COUNTRY. Great American Country
is a 24-hour country music video network that capitalizes on the popularity of
country music and leverages the Company's core competency in country music
programming. Great American Country represents a high-quality alternative to
currently available country music networks and offers MSOs attractive incentives
for carriage. In order to drive subscriber growth, Great American Country
generally offers affiliates a one-time cash launch incentive and waives license
fees for a certain period which varies based on the level of subscriber
commitment. The Company is enhancing its near-term operating cash flow through
new agreements with two significant MSOs to issue them shares of the Company's
Class A Common Stock in return for which Great American Country will be paid
license fees from the date of launch (the "GAC Equity Agreements"). Great
American Country has affiliate agreements with five of the ten largest MSOs,
including Adelphia Communications Corporation ("Adelphia"), Comcast Cable
Communications, Inc. ("Comcast"), Jones Intercable, Inc. ("Jones Intercable"),
TCI Communications, Inc. ("TCI") and Time Warner Networks, Inc. ("Time Warner"),
as well as the two cable programming cooperatives, Telesynergy, Inc. and
National Cable Television Cooperative, Inc. The Company believes that by
offering its carriage incentive programs, competitive license fee rates and
twice the amount of local advertising avails than its primary competitor, it
will attract additional subscribers from existing and new MSO affiliates that
are increasingly seeking to decrease costs and generate more advertising
revenues.
TELEVISION PROGRAMMING--PRODUCT INFORMATION NETWORK. The Company
introduced the Product Information Network in October 1993 to capitalize on the
growing infomercial industry which, based on industry statistics, represents
approximately $1 billion of airtime expenditures. The Product Information
Network is aired on a full-time (24-hour) basis or on a part-time basis, thereby
affording cable and broadcast affiliates the opportunity to generate incremental
revenues from otherwise under-utilized time. The Product Information Network
airs long-form informational programming from all of the major infomercial
producers, such as Guthy-Renker Corporation and National Media Corporation.
Through agencies, it also airs advertising from major corporate advertisers,
which have recently included Phillips-Magnavox, Simmons, Hanes, Sunbeam, The
Sharper Image and Time-Life. Since December 31, 1994, the Product Information
Network has increased its base of cable subscribers and broadcast households
from 1.5 million to 18.6 million at June 30, 1998, representing a CAGR of 74.1%.
The Product Information Network is presently distributed to 9.7 million full-
time equivalent subscribers through 278 cable systems and broadcast affiliates.
The MSOs that carry the network on a portion of their cable systems include nine
of the ten largest MSOs, including Adelphia, Cablevision Systems Corporation
("Cablevision"), Comcast, Cox Communications, Inc. ("Cox"), Jones Intercable,
Marcus Cable Company, LP ("Marcus Cable"), MediaOne Group, TCI and Time Warner.
The Product Information Network operates through a joint venture among the
Company, Adelphia and Cox (the "PIN Venture").
2
<PAGE>
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES. The Company
supports the production and distribution of its radio and cable television
programming operations through its state-of-the-art satellite uplinking
facilities. The Company's satellite delivery and production support services
provide reliable and efficient playback, trafficking, uplinking and satellite
transmission services to the Company's radio and cable television programming
operations and to certain related companies. The Company believes that the
integration of these distribution services gives it strict management and
quality control over the distribution of its programming. The Company has
financed its ownership of two analog satellite transponders through a capital
lease that was fully prepaid with a portion of the proceeds of the offering of
the Old Notes. The channel capacity on one satellite transponder has been
digitally compressed to seven channels, four of which are currently leased to
Product Information Network, Great American Country and two related parties.
This transponder could now be digitally compressed into additional channels if
demand warranted. In August 1998, the Company entered into a lease agreement
with an unaffiliated party for the lease of three digital channels until August
31, 1999. The other satellite transponder is an analog channel which the Company
recently leased to a third party. The Company believes that the demand for its
satellite delivery and production support services should increase as digital
programming and distribution technologies continue to develop and cable systems
complete upgrades and rebuilds to expand their channel capacity. The cable
systems' expansion of their channel capacity provides more programming space for
cable programmers who, in turn, would require satellite transponders to provide
the programming.
COMPETITIVE STRENGTHS
EXPERIENCED MANAGEMENT TEAM WITH STRONG RELATIONSHIPS WITH RADIO
STATION AFFILIATES, MSOS AND ADVERTISERS. Glenn R. Jones, the Company's Chairman
and majority shareholder is also the Chairman and Chief Executive Officer of
Jones Intercable, one of the ten largest MSOs in the United States. It is
anticipated that following consummation of the pending acquisition from entities
affiliated with Mr. Jones of shares representing a controlling interest in Jones
Intercable by Comcast Corporation, Mr. Jones will no longer be affiliated with
Jones Intercable. Mr. Jones has assembled a management team with extensive
experience in all aspects of the Company's businesses. The Company's senior
management team has an aggregate of 141, 94 and 142 years of experience in the
radio, cable television and advertising industries, respectively. The Company's
radio programming experience dates back to 1989 when it launched its first 24-
hour satellite delivered format. The rapid increase in radio station affiliates
is the result of the Company's sales and marketing efforts, which emphasize its
quality programming, customer service and experienced air talent. The Company's
cable television programming has benefited substantially from management's
experience and relationships with major MSOs, with five of the ten largest MSOs
affiliating with Great American Country and cable systems owned by nine of the
ten largest MSOs affiliating with the Product Information Network. Finally, the
Acquisition provides the Company with a group of experienced executives who have
long-standing relationships with many advertising agencies and advertisers that
the Company believes will be valuable in driving advertising-related revenue
growth.
LARGE AND GROWING INSTALLED BASE OF LISTENERS AND SUBSCRIBERS WITH
ATTRACTIVE DEMOGRAPHICS. The Company's radio and cable television programming
reaches a large nationwide audience, in most cases, 24 hours a day, seven days a
week. The Company's audience includes 60 million weekly radio listeners and 18.6
million households for the Product Information Network. This audience has grown
dramatically over the past five years, as the Company has developed or acquired
new and improved programming for an increasing number of radio station and cable
system affiliates. The Company's audience is represented by a variety of
demographics in small, medium-sized and large markets, which the Company
believes appeals to a broad array of national advertisers. As the Company's
audience increases, the Company believes it will be able to obtain a more than
proportional increase in advertising revenues.
SIGNIFICANT OPERATING LEVERAGE WITH LOW PROGRAMMING COSTS AND STATE-
OF-THE- ART INFRASTRUCTURE. The Company's radio and cable television programming
costs are low relative to many of its competitors. The Company's programming
operations utilize state-of-the-art digital equipment to automate its operations
and thus reduce its operating costs. Great American Country receives country
music videos at no cost from the record label companies, and the Product
Information Network's advertisers purchase airtime from the Company to broadcast
their programs. The Company's satellite uplinking and distribution costs are
generally fixed and, as a result, additional radio or cable television
programming can be distributed by the Company at minimal incremental cost.
INTEGRATED PROVIDER OF HIGH-QUALITY RADIO PROGRAMMING. The Company is
strategically positioned as an independent provider of radio programming. In
their increasingly competitive markets, radio stations may seek programming from
the Company, because as an "independent," the Company does not own or operate
competitive radio stations. The Company's independence also enables it to act as
a radio programming distributor for large group radio station owners, such as
CapStar Broadcasting Corp. ("CapStar"). The Company ensures the quality of the
distribution of its radio programming in part
3
<PAGE>
through its integrated state-of-the-art satellite uplinking and distribution
facilities which employ recent innovations in digital storage and delivery.
COMPLEMENTARY ACQUISITION OF MEDIAAMERICA YIELDS SUBSTANTIAL BENEFITS.
The Acquisition offers a number of opportunities for the Company and is expected
to enhance its profitability. MediaAmerica had $15.1 million of net revenues in
1997. MediaAmerica will also enable the Company to pursue programming alliances
with parties to which it previously had no access. For example, the Company and
MediaAmerica are in joint discussions with a major cable television network to
develop a group of news and entertainment radio programs utilizing the network's
talent and news gathering resources. The Company believes there are also
potential synergies in MediaAmerica's radio programming operations, which add 14
radio programs provided through 990 radio station affiliates to an audience of
28 million weekly listeners. Finally, MediaAmerica's management team brings an
aggregate of 142 years of experience in the radio advertising representation
industry. The Company believes that MediaAmerica's long-standing relationships
with advertising agencies and advertisers should significantly enhance the
Company's ability to drive advertising-related revenue growth; although there
can be no assurance to that effect.
COMBINATION OF RADIO AND CABLE TELEVISION OFFERS ADVERTISERS EFFICIENT
MEANS OF REACHING A LARGE AUDIENCE. As a diversified provider of radio and cable
television programming, the Company provides to a wide variety of advertisers
many different ways to reach their target audience. Radio is one of the most
cost-effective means to reach targeted demographics. According to industry
sources, 167 million people listen to radio each day. Similarly, cable
television is a relatively inexpensive means to target large audiences as
compared to broadcast television. According to industry sources, 68 million of
97 million U.S. TV households subscribe to cable and 54% of viewing time is on
cable networks. The Company believes it is strategically positioned to offer
both radio and cable television advertising inventory in a single package. For
example, the Company is developing joint media proposals for advertisers to
target a large nationwide audience through the Company's country music radio
programs and Great American Country.
STRATEGY
The Company's objective is to increase its revenues and operating
income by employing the following strategies:
DISTRIBUTE PROGRAMMING TO A LARGER AUDIENCE. To increase its revenues
from advertisers, the Company must increase the distribution of, and audience
for, its programming. Jones Radio plans to increase its marketing and sales
activities in an effort to increase the number of its radio station affiliates
and the size of its audience. The Company also plans to continue to aggressively
market its cable television networks to both cable operators and other multi-
channel distributors, including direct broadcast satellite services systems
("DBS"), multi-point, multi-system distribution systems ("MMDS") and others. The
Company relies on financial incentives and its established relationships with
MSOs to market these networks.
DEVELOP OR ACQUIRE ADDITIONAL HIGH-QUALITY PROGRAMMING. The Company
believes that there is market demand for additional long-form and short-form
radio programming due to the financial constraints and limited creative
resources of many radio stations and their need to improve operating
efficiencies. In addition, the Company believes there are additional market
opportunities for 24-hour music and information programs that the Company does
not currently distribute, such as news/talk radio. Jones Radio intends to
develop and/or acquire radio programming addressing these market demands. An
example of new radio programming includes "Nashville Nights," a national long-
form country night-time show targeted at larger markets, which is being produced
in a venture with CapStar. The Company is exploring opportunities to produce
additional low-cost cable television programming based on the strength of its
relationships with major MSOs and its success with Great American Country and
the Product Information Network. The Company believes that any new cable
television programming would typically serve unfilled or underserved niches and,
similar to Great American Country, would most likely serve as an attractive
competitively priced alternative to an existing cable network.
INCREASE ADVERTISING REVENUES. The Company's primary goal in driving
revenue growth is to increase its audience by developing new programming and
expanding its base of radio station and cable system affiliates. In addition,
the Company's new radio programs are designated to increasingly target larger
markets which typically generate higher advertising rates. Management believes
that when Great American Country's attainment of a 5 million subscriber level is
reached, of which there is no assurance, the Company will be able to target a
broader group of advertisers and derive significantly higher advertising
revenues based on traditional spot advertising as opposed to direct response
advertising. Finally, the Company intends to promote the benefits of long-form
advertising to Fortune 500 companies and other major advertisers, with the goal
of attracting
4
<PAGE>
more advertising from such advertisers, enhancing the quality of the Product
Information Network's programming and increasing the rates for its advertising
time.
ACQUIRE OR CREATE COMPLEMENTARY BUSINESSES AND VALUE-ADDED SERVICES.
The Company intends to expand its business by acquiring and/or creating
businesses complementary to its business. The Acquisition represents an example
of this strategy. The Company believes that numerous opportunities exist, both
in the development of new programming and the acquisition of complementary
businesses. A portion of the proceeds from the offering of the Old Notes will
provide the Company with additional resources for these purposes.
INCREASE UTILIZATION OF SATELLITE TRANSPONDER CAPACITY AND PRODUCTION
SUPPORT FACILITIES. The Company's satellite delivery and production support
facilities provide reliable and efficient playback, trafficking, uplinking and
satellite transmission services to the Company's radio and cable television
programming operations, to certain related companies and to a third party. The
Company has seven channels on its digitally compressed satellite transponder,
which could be digitally compressed into additional channels if demand
warranted. All seven channels on this satellite transponder are leased . The
Company also has one analog channel on another satellite transponder which is
leased. The Company believes that its remaining compressible satellite
transponder capacity represents a valuable asset because of the potential demand
from new cable programmers for satellite transponder space, the opportunity to
provide profitable uplinking and other services along with the satellite
transponder space, and the availability of satellite transponder space in-house
in the event that the Company develops or acquires additional cable television
networks in the future.
COMPANY BACKGROUND
The Company was founded by Glenn R. Jones. Mr. Jones is the Chairman
and Chief Executive Officer of Jones Intercable, one of the ten largest MSOs
serving more than 1.4 million subscribers through 37 cable television systems in
the United States. Mr. Jones has been instrumental in leading the Company's
early growth and continues as its majority shareholder and Chairman. Mr. Jones
beneficially owns 100% of the Company's Class B Common Stock, which has the
right as a class to elect 75% of the Company's Board of Directors, and 78.9% of
the Company's Class A Common Stock, and he controls the election of the six
members of the Company's Board of Directors (subject to certain contractual
agreements made in connection with the Acquisition). Mr. Jones has been a leader
in the cable television business for over 35 years and in 1994 he was inducted
into the Broadcasting and Cable Hall of Fame. Jones Intercable is a significant
customer of the Company, as it distributes Great American Country and the
Product Information Network to most of its subscribers. This relationship is
expected to continue in accordance with current contractual arrangements after
the closing of the acquisition by Comcast Corporation of certain shares
representing a controlling interest in Jones Intercable from Mr. Jones and other
major shareholders of Jones Intercable. Two affiliated companies, Jones
Education Company and Knowledge TV, Inc., also lease satellite transponder
capacity and purchase uplinking and other services from the Company.
Upon the sale of Mr. Jones' interest in Jones Intercable, Jones
Intercable will no longer share in many of the administrative and related
expenses which have historically been shared by the various entities affiliated
with Mr. Jones, including the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company was incorporated as a Colorado corporation and is the
successor to certain affiliated entities that previously conducted certain of
its businesses. The Company's corporate offices are located at 9697 East Mineral
Avenue, Englewood, Colorado 80112, and its telephone number is (303) 792-3111.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.................... The Company is offering to exchange
$1,000 principal amount of Exchange
Notes for each $1,000 principal amount
of Old Notes that is properly tendered
and accepted. The form and terms of the
Exchange Notes are substantially
identical in all material respects as
the form and terms of the Old Notes
except that the exchange will have been
registered under the Securities Act and
therefore the Exchange Notes will not
bear legends restricting the transfer
thereof. In addition, the Additional
Interest provisions will be modified or
eliminated as appropriate and holders
of the Exchange Notes will not be
entitled to certain rights of holders
of the Old Notes under the Exchange and
Registration Rights Agreement, which
rights with respect to Old Notes that
are exchanged will terminate upon the
consummation of the Exchange Offer. See
"The Exchange Offer--Payment of
Additional Interest Under Certain
Conditions." The issuance of the
Exchange Notes is intended to satisfy
certain obligations of the Company
contained in the Exchange and
Registration Rights Agreement. Subject
to certain conditions, a holder who
wishes to tender must transmit a
properly completed and duly executed
Letter of Transmittal to United States
Trust Company of New York (the
"Exchange Agent") on or prior to the
Expiration Date. For procedures for
tendering, see "The Exchange Offer."
Based upon existing interpretations by
the staff of the Commission issued to
third parties, the Company believes the
Exchange Notes will be freely
transferable by holders thereof (other
than affiliates of the Company and the
Subsidiary Guarantors) after the
Exchange Offer without further
registration under the Securities Act
if the holder of the Exchange Notes
represents that it is acquiring the
Exchange Notes in the ordinary course
of business, that it has no arrangement
or understanding with any person to
participate in the distribution (within
the meaning of the Securities Act) of
the Exchange Notes and that it is not
an affiliate of the Company or the
Subsidiary Guarantors, as such terms
are interpreted by the Commission;
provided that broker-dealers
("Participating Broker-Dealers")
receiving Exchange Notes in the
Exchange Offer will have a prospectus
delivery requirement with respect to
resales of such Exchange Notes. The
Commission has not considered the
Exchange Offer itself in the context of
its interpretations and there can be no
assurance that the staff of the
Commission would make a similar
determination with respect to the
Exchange Offer. The Commission has
taken the position that the
Participating Broker-Dealers may
fulfill their prospectus delivery
requirements with respect to the
Exchange Notes (other than a resale of
an unsold allotment from the original
sale of the Old Notes) with the
prospectus contained in the Exchange
Offer Registration Statement. The
Company has agreed if, at the time of
the completion of the Exchange Offer,
information in the Letter of
Transmittal submitted by exchanging
holders indicates that there are
holders that are Participating Broker-
Dealers or otherwise subject to
prospectus delivery requirements, the
Company will, for such period of time
as is necessary to comply with
applicable law up to the date that is
180 days after consummation of the
Exchange Offer, make available a
prospectus meeting the requirements of
the Securities Act to such persons, if
any, for use in connection with any
resale of such Exchange Notes.
Exchange and Registration
Rights Agreement...................... The Old Notes were sold by the Company
on July 10, 1998 to the Initial
Purchaser pursuant to the Purchase
Agreement. Pursuant to the Purchase
Agreement, the Company and the Initial
Purchaser entered into the Exchange and
Registration Rights Agreement. This
Exchange Offer is intended to satisfy
certain obligations of the Company
contained in the Exchange and
Registration Rights Agreement, which
terminate upon the consummation of
6
<PAGE>
the Exchange Offer. The holders of the
Exchange Notes are not entitled to any
exchange or registration rights with
respect to the Exchange Notes. The Old
Notes are subject to the payment of
Additional Interest under certain
circumstances if the Company is not in
compliance with its obligations under
the Exchange and Registration Rights
Agreement. See "The Exchange Offer,
Payment of Additional Interest Under
Certain Circumstances."
Expiration Date...................... The Exchange Offer will expire at 5:00
p.m., New York City time, on the
"Expiration Date." As used herein, the
term "Expiration Date" means 5:00 p.m.,
New York City time, on ______________,
__________, 1998; provided, however,
that if the Company, in its sole
discretion, has extended the period of
time for which the Exchange Offer is to
remain open, the term "Expiration Date"
means the latest time and date to which
the Exchange Offer is extended.
Withdrawal........................... Tenders of Old Notes pursuant to the
Exchange Offer may be withdrawn at any
time prior to the Expiration Date by
sending a written notice of withdrawal
to the Exchange Agent. Any Old Notes so
withdrawn will be deemed not to have
been validly tendered for exchange for
purposes of the Exchange Offer. Any Old
Notes not accepted for exchange for any
reason will be returned without expense
to the tendering holder thereof as
promptly as practicable after the
expiration or termination of the
Exchange Offer. See "The Exchange Offer
--Terms of the Exchange Offer; Period
for Tendering Old Notes."
Certain Conditions to
the Exchange Offer.................... The Exchange Offer is subject to
certain customary conditions, which may
be waived by the Company. See "The
Exchange Offer--Certain Conditions to
the Exchange Offer."
Federal Income Tax
Consequences.......................... The exchange of the Old Notes for
Exchange Notes pursuant to the Exchange
Offer should not constitute a taxable
exchange for federal income tax
purposes. See "Certain United States
Federal Income Tax Considerations."
Use of Proceeds....................... There will be no proceeds to the
Company from the issuance of the
Exchange Notes pursuant to the Exchange
Offer.
Exchange Agent........................ United States Trust Company of New
York is serving as Exchange Agent in
connection with the Exchange
Offer.
7
<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. Accordingly, such Old Notes may only be
offered, sold, pledged or otherwise transferred (A)(i) to a person whom the
seller reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act ("Rule 144A") in a transaction meeting the
requirements of Rule 144A, (ii) in an offshore transaction meeting the
requirements of Rule 903 or Rule 904 of Regulation S under the Securities Act,
(iii) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder ("Rule 144"), if available or (iv) pursuant to
another exemption from registration as set forth in the legend on the Old Notes
and (B) in accordance with all applicable securities laws of the states of the
United States. The Company does not anticipate that it will register the Old
Notes under the Securities Act. See "Risk Factors--Consequences of Failure to
Exchange Old Notes" and "The Exchange Offer--Consequences of Failure to
Exchange."
THE EXCHANGE NOTES
The form and terms of the Exchange Notes are substantially identical in all
material respects to the form and terms of the Old Notes except that the
exchange will have been registered under the Securities Act and therefore the
Exchange Notes will not bear legends restricting the transfer thereof. In
addition, the Additional Interest provisions will be modified or eliminated as
appropriate and holders of the Exchange Notes will not be entitled to certain
rights of holders of the Old Notes under the Exchange and Registration Rights
Agreement, which rights with respect to Old Notes that are exchanged will
terminate upon the consummation of the Exchange Offer. See "Description of the
Notes--Exchange Offer; Registration Rights." The Exchange Notes will evidence
the same debt as the Old Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture. See "Description of the
Notes" for further information and for definitions of certain capitalized terms
used below.
Each Exchange Note will bear interest at the rate of 11 3/4% per annum from
the most recent date to which interest has been paid or duly provided for on the
Old Note surrendered in exchange for such Exchange Note or, if no interest has
been paid or duly provided for on such Old Note, from July 10, 1998 (the date of
original issuance of such Old Notes). Interest on the Exchange Notes will be
payable semiannually on January 1 and July 1 of each year, commencing on the
first such date following the original issuance date of the Exchange Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the Exchange Notes or if
no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and will be deemed to have waived the right
to receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after July 10, 1998.
8
<PAGE>
THE NOTES
Securities............................ $100,000,000 aggregate principal
amount of 11 3/4% Senior Secured
Notes due 2005.
Maturity Date......................... July 1, 2005.
Interest Payment Dates................ January 1 and July 1 of each year,
commencing on January 1, 1999.
Optional Redemption................... Except as described below and under
"Change of Control," the Company may
not redeem the Notes prior to July
1, 2003. On or after such date, the
Company may redeem the Notes, in
whole or in part, at any time at the
redemption prices set forth herein,
together with accrued and unpaid
interest, if any, to the date of
redemption. In addition, at any time
and from time to time on or prior to
July 1, 2001, the Company may,
subject to certain requirements,
redeem up to 35% of the aggregate
principal amount of the Notes with
the cash proceeds received from one
or more Equity Offerings at a
redemption price equal to 111.75% of
the principal amount to be redeemed,
together with accrued and unpaid
interest, if any, to the date of
redemption, provided that at least
65% of the aggregate principal
amount of the Notes remains
outstanding immediately after each
such redemption.
Change of Control..................... Upon the occurrence of a Change of
Control, the Company will be
required to make an offer to
repurchase the Notes at a price
equal to 101% of the principal
amount thereof, together with
accrued and unpaid interest, if any,
to the date of repurchase.
Ranking............................... The Notes rank pari passu in right
of payment with all existing and
future Senior Indebtedness of the
Company and rank senior in right of
payment to all existing and future
Subordinated Obligations of the
Company. Claims of holders of the
Notes are structurally subordinated
to claims of holders of indebtedness
of the Company's subsidiaries.
Security.............................. The collateral securing the Notes
consists of the capital stock of the
Company's wholly-owned subsidiary,
Jones Programming, and its direct
subsidiaries. The Guarantees are not
secured.
Guarantees............................ The Notes are unconditionally
guaranteed, jointly and severally,
by each of the Subsidiary
Guarantors. The Guarantees are
senior unsecured obligations of each
Subsidiary Guarantor and rank pari
passu in right of payment with all
existing and future Senior
Indebtedness of each Subsidiary
Guarantor, other than Bank
Indebtedness and Capitalized Lease
Obligations, and rank senior in
right of payment to all existing and
future Subordinated Obligations of
each Subsidiary Guarantor.
Restrictive Covenants................. The indenture under which the Notes
are issued (the "Indenture")
contains certain covenants that,
among other things, limit (i) the
incurrence of additional
indebtedness by the Company and its
subsidiaries, (ii) the payment of
dividends on, and redemption of,
capital stock of the Company and the
redemption of certain subordinated
obligations of the Company, (iii)
investments, including investments
over a certain amount in any entity
that is not a Wholly-Owned
Subsidiary, (iv) sales of assets and
subsidiary stock, (v) transactions
with affiliates and (vi)
consolidations, mergers and
transfers of all or substantially
all of the assets of the Company.
The Indenture also prohibits the
restriction of certain distributions
and asset transfers from Restricted
Subsidiaries. All the limitations
and prohibitions are subject to a
number of important qualifications
and exceptions.
9
<PAGE>
Transfer Restrictions;
Absence of a Public Market.......... If issued, the Exchange Notes will
generally be freely transferable but
will be new securities for which
there will not initially be a
market. The Old Notes are designated
for trading in the PORTAL market.
The Initial Purchaser has advised
the Company that it may make a
market in the Old Notes and in the
Exchange Notes. However, the Initial
Purchaser is not obligated to do so,
and any market-making may be
discontinued at any time without
notice. The Company does not intend
to apply for listing of the Old
Notes, or, if issued, the Exchange
Notes, on any securities exchange or
automated dealer quotation system.
See "Exchange Offer and Registration
Rights" and "Plan of Distribution."
Use of Proceeds....................... The Company will receive no proceeds
from the issuance of the Exchange
Notes. The net proceeds from the
offering of the Old Notes was
approximately $95.2 million. See
"Use of Proceeds."
For more complete information regarding the Notes, see "Description of
Notes."
10
<PAGE>
SUMMARY UNAUDITED REPORTED AND PRO FORMA FINANCIAL DATA
The following table sets forth certain summary unaudited reported and pro
forma consolidated financial data of the Company for the periods ended and as of
the dates indicated and are derived from and described in "Selected Unaudited
Pro Forma Financial Data" and "Selected Consolidated Financial Data." The
summary unaudited pro forma income statement and other data for 1997 give effect
to the consolidation on a pro forma basis of the Company's subsidiary, the PIN
Venture, as if this transaction had occurred at the beginning of 1997. The
summary unaudited pro forma income statement and other data are further adjusted
to reflect the Acquisition, the offering of the Old Notes and the application of
the net proceeds therefrom, the payment of launch incentive fees, receipt of
subscriber license fees and issuance of Class A Common Stock pursuant to the GAC
Equity Agreements and the conversion of the $10 million note to Global Group
into shares of Class A Common Stock (collectively, the "Transactions") as if
they had occurred at the beginning of the periods presented. The summary
unaudited pro forma balance sheet data give effect to the Transactions as if
they had occurred on June 30, 1998. The summary unaudited pro forma financial
data are provided for informational purposes only and should not be construed to
be indicative of what the Company's results of operations or financial condition
would have actually been had any of the aforementioned Transactions been
consummated as of such dates or to project the Company's results of operations
or financial condition for any future period or date.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- --------------------------------
REPORTED PRO FORMA REPORTED PRO FORMA
---------------------------- --------- ------------------- ---------
1995 1996 1997 1997 1997 1998 1998
-------- -------- -------- --------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Radio programming................. $ 5,121 $ 6,978 $10,200 $14,041 $ 5,090 $ 3,739 $ 5,400
Radio advertising and sales
representation................... -- -- -- 11,285 -- -- 4,314
Television programming............ 340 1,153 12,002 15,484 3,898 7,865 8,126
Satellite delivery and
production support................ 9,666 8,523 6,910 6,485 3,918 2,128 2,128
------- ------- ------- ------- ------- -------- --------
Total revenues.......................... 15,127 16,654 29,112 47,295 12,906 13,732 19,968
------- ------- ------- ------- ------- -------- --------
Total operating expenses................ 13,660 15,778 26,859 40,696 11,544 16,326 22,235
------- ------- ------- ------- ------- -------- --------
Operating income (loss)................. 1,467 876 2,253 6,599 1,362 (2,594) (2,267)
------- ------- ------- ------- ------- -------- --------
Interest expense, net................... 4,006 4,428 5,569 12,081 2,845 2,541 6,062
Other (income) expense, net............. 5 (841) 616 785 651 191 260
Income tax provision (benefit).......... (498) (387) (1,342) (1,188) (356) 268 311
Minority interests (a).................. -- (9) 903 1,072 418 69 69
------- ------- ------- ------- ------- -------- --------
Net loss................................ $(2,046) $(2,315) $(3,493) $(6,151) $(2,196) $ (5,663) $ (8,969)
======= ======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------
AS REPORTED PRO FORMA
------------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 2,445 $ 26,260(b)
Working capital....................................................................... (6,395) 23,079
Total assets.......................................................................... 40,762 111,963
Total long-term debt (c).............................................................. 54,296 100,000
Minority interests (d)................................................................ 822 822
Shareholders' deficit................................................................. (23,869) (4,852)
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- --------------------------------
REPORTED PRO FORMA REPORTED PRO FORMA
---------------------------- --------- ------------------- ---------
1995 1996 1997 1997 1997 1998 1998
-------- -------- -------- --------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (e)......................... $ 5,355 $ 5,352 $ 6,561 $12,215 $ 3,788 $ 19 $ 1,140
Depreciation and amortization (f).. 3,888 4,476 5,130 6,622 2,512 2,651 3,445
Capital expenditures............... 1,262 2,969 1,367 1,551 1,002 539 645
Ratio of earnings to fixed
charges (g)....................... -- -- -- -- -- --
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------- -------------------------------
REPORTED PRO FORMA REPORTED PRO FORMA
-------------------- --------- -------------------- ---------
1995 1996 1997 1997 1997 1998 1998
----- ----- ------ --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT RADIO STATION AFFILIATE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
AUDIENCE DATA (AT END OF PERIOD):
Radio AQH (24-hour formats) (h).................... 765 1,090 1,148 1,148 1,105 1,324 1,324
Radio AQH (syndicated) (h)......................... -- 834 1,048 4,644 798 1,148 4,808
Radio station affiliates........................... 929 1,273 1,484 2,139 1,317 1,510 2,255
Great American Country households.................. 14 1,049 1,550 2,750 1,172 3,578 4,060
Product Information Network households............. 4,825 8,111 11,500 11,500 10,522 18,630 18,630
</TABLE>
_______________
(a) Represents minority interest in the net income (loss) of the Company's
consolidated subsidiaries.
(b) Includes $10.0 million of restricted cash from the net proceeds of the
Offering that was deposited into a Reserve Account.
(c) Includes current and non-current maturities of long-term debt and capital
lease obligations.
(d) Represents the minority interest in the net assets of the Company's
consolidated subsidiaries.
(e) EBITDA represents operating income (loss) plus depreciation and amortization
minus the EBITDA attributable to the minority interests in the Company's
consolidated 54%-owned PIN Venture subsidiary. EBITDA does not include cash
distributions of $100 and $350 for the year ended December 31, 1997 and the
six months ended June 30, 1998, respectively, from the Company's
unconsolidated 50% owned Superaudio subsidiary. (See calculations in the
table below.) Management believes that EBITDA is a measure commonly used by
analysts and investors to determine a company's ability to service and incur
its debt. EBITDA should not be considered in isolation or as a substitute
for net income (loss), cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity as the items excluded in the calculation of EBITDA, such as
interest, depreciation and amortization, are significant components in
understanding and assessing the Company's financial performance. EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ------------------------------
REPORTED PRO FORMA REPORTED PRO FORMA
----------------------- --------- ------------------ ---------
1995 1996 1997 1997 1997 1998 1998
------ ------ ------- --------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CALCULATION OF EBITDA:
Operating income (loss)....................... $1,467 $ 876 $2,253 $ 6,599 $1,362 $(2,594) $(2,267)
Plus: Depreciation and amortization........... 3,888 4,476 5,130 6,622 2,512 2,651 3,445
Less: EBITDA attributable to PIN
Venture's minority interests............. -- -- (822) (1,006) (86) (38) (38)
------ ------ ------ ------- ------ ------- -------
EBITDA........................................ $5,355 $5,352 $6,561 $12,215 $3,788 $ 19 $ 1,140
</TABLE>
(f) Excludes the amortization of debt issuance costs.
(g) The ratio of earnings to fixed charges is determined by dividing (i) the sum
of earnings before extraordinary items and accounting changes, interest
expense, taxes and that portion of operating lease rental expense which is
representative of an interest factor by (ii) interest expense. For Reported
Financial Data, earnings were insufficient to cover fixed charges by $2,380,
$3,249, $3,291 and $4,788 for the years ended December 31, 1995, 1996 and
1997, and for the six months ended June 30, 1998, respectively. For Pro
Forma Financial Data, earnings were insufficient to cover fixed charges by
$5,456 and $8,051 for the year ended December 31, 1997 and the six months
ended June 30, 1998, respectively. The ratio does not take into account
depreciation and amortization.
(h) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's advertising inventory (i) during
any 15-minute period from 6am-7pm, Monday through Friday for 24-hour formats
or (ii) during any 15-minute period that the program is being broadcast for
syndicated programs, each as measured by the Arbitron rating service. Radio
advertising is generally sold on the basis of the listening audience as
quantified by the AQH.
12
<PAGE>
RISK FACTORS
Investors should carefully consider the following risk factors, as well as
other information contained in this Prospectus. This Prospectus contains
forward-looking statements . These statements appear in a number of places and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers, primarily with respect to the future
operating performance of the Company. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those in the forward-looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including the information
set forth below, identifies certain important factors that could cause such
differences. See "Forward-Looking Information."
SUBSTANTIAL LEVERAGE; POTENTIAL INABILITY TO PAY INTEREST OR PRINCIPAL OF DEBT
WHEN DUE
For the year ended December 31, 1997 and the six months ended June 30, 1998,
on a pro forma basis, earnings were insufficient to cover fixed charges by $5.5
million and $8.1 million, respectively. The Company has and will have a
significant amount of debt outstanding. The Company presently has approximately
$100 million of indebtedness. See "Capitalization" and "Selected Unaudited Pro
Forma Financial Data."
Because the Company has a significant amount of debt outstanding, and is
subject to significant financial and operating restrictions, the Company could
experience several adverse consequences that may impair or impede its ability to
pay principal and interest on the Notes as they become due as a result of
maturity, acceleration, redemption or other repurchase obligation, such as a
change of control, or may cause it to be otherwise in default. Such consequences
include the following:
. Substantial amounts of the cash flow from the Company's operations will
have to be used for the payment of the principal and interest on the
Notes and other indebtedness, and will not be available to use for other
purposes, which may result in a competitive disadvantage.
. The Company could be unable to obtain additional financing, particularly
bank financing, in the future on favorable terms, or at all, to use for
working capital, acquisitions, capital expenditures, refinancing or
other purposes.
. As a result of the foregoing, the Company could be more vulnerable to
changes in economic conditions and in its industry and may not be able
to withstand competitive pressures, to keep up with technological
developments, to consummate acquisitions or to capitalize on business
opportunities.
Furthermore, it is possible that the Company will not have the available
cash or be able to generate the cash flow required to pay the principal and
interest that will become due on the Notes or to pay its other outstanding
indebtedness, in the long term. Payment of interest for the full term of the
Notes will require an increase in cash flows from operations, which will
continue to be affected by various factors discussed herein, including in "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Continued losses would have a material adverse effect on
the Company's results of operations and financial condition and could adversely
affect its ability to meet its obligations, in the long term, including
obligations under the Notes. The Company's cash flow depends upon its future
performance and financial, economic and other factors, some of which are beyond
its control.
If the Company is unable to generate cash flow from operations or otherwise
in amounts sufficient for it to be able to pay its debt as it becomes due as a
result of maturity, acceleration, redemption or other repurchase obligation,
such as a change of control, the Company may be required to refinance all or a
portion of such debt or sell equity securities or some or all of its assets. The
Company is restricted by the terms of the Indenture in its ability to incur
additional indebtedness. Even without such restrictions, the Company may not be
able to refinance all or a portion of its debt or sell its equity securities or
the assets of its subsidiaries on a timely basis, on acceptable terms or at all.
In such event, the Company may be in default on the Notes and other
indebtedness, and payment of such debt could be accelerated. See "Description of
Notes."
HISTORY OF NET LOSSES
On a historical basis, the Company has sustained net losses of ($2.0)
million, ($2.3) million, ($3.5) million and ($5.7) million and operating income
(loss) of $1.5 million, $0.9 million, $2.3 million and ($2.6) million, for the
years ended December 31, 1995, 1996 and 1997 and the six months ended June 30,
1998. Net losses have resulted in an accumulated deficit of $33.1
13
<PAGE>
million as of June 30, 1998. On a pro forma basis, operating income (loss) and
net losses would have been $6.6 million and $(6.2) million, respectively, for
the year ended December 31, 1997 and $(2.3) million and $(9.0) million,
respectively, for the six months ended June 30, 1998. The Company's ability to
incur additional indebtedness and to make investments under the Indenture is
determined in part by the Company's Consolidated Cash Flow (as defined) and
Cumulative Available Cash Flow (as defined), each of which is derived from
earnings. There can be no assurance that the Company will generate net income in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Notes--Certain Covenants--Limitation
on Indebtedness" and "--Limitation on Restricted Payments."
RISKS RELATED TO HOLDING COMPANY STATUS; DEPENDENCE UPON EARNINGS AND CASH FLOWS
OF SUBSIDIARIES AND ADVANCES AND LOANS FROM AFFILIATES; STRUCTURAL SUBORDINATION
The Company is a holding company with no business operations of its own. The
Company's assets are the direct and indirect equity interests in its
subsidiaries, through which the Company conducts its business operations.
Accordingly, the Company depends, and will continue to depend, significantly
upon the earnings and cash flows of, and dividends and distributions from, its
subsidiaries to pay its expenses, meet its obligations and pay interest and
principal on the Notes and its other indebtedness. Furthermore, the creditors of
the Company's subsidiaries are, and will continue to be, entitled to payment of
obligations owing to them before the subsidiaries can dividend or distribute
their earnings to the Company. In addition, the terms of the Company's joint
ventures generally require the mutual consent of the Company and its joint
venture partners to distribute or advance funds to the Company. The Company
cannot assure the holders of the Notes that its subsidiaries will generate
sufficient earnings and cash flow for the subsidiaries to pay dividends or
otherwise provide funds to enable the Company to pay its expenses, meet its
obligations and pay interest and principal on the Notes and its other
indebtedness or that other restrictions on the subsidiaries would not prohibit
such payments. If the Company cannot do so, it may not be able to pay its
indebtedness as it becomes due and, as a result, may be in default on such
indebtedness, including the Notes, and payment of such indebtedness could be
accelerated. Historically, the Company has relied on advances and loans from
Jones International and its affiliates to fund a portion of its cash needs, with
cumulative borrowings of $23.0 million, $28.6 million, $26.4 million and $15.4
million as of December 31, 1995, 1996 and 1997 and June 30, 1998, respectively.
Jones International and related parties are under no obligation to provide
additional financial assistance to the Company, and the Company does not expect
that such funding will be available in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Notes."
The Indenture permits certain indebtedness to be incurred by subsidiaries
and joint ventures of the Company and creditors of such subsidiaries may be
permitted to obtain a security interest in the assets of such subsidiaries,
subject to certain thresholds. Claims of holders of the Notes will be
effectively subordinated to the indebtedness and other liabilities and
commitments of the Company's subsidiaries and joint ventures and will be limited
to the extent of the Company's direct or indirect equity interest in such
entities. Consequently, in the event of an insolvency, liquidation,
reorganization, dissolution or other winding up of the Company's subsidiaries
and joint ventures, the claims of the Company's creditors, including holders of
the Notes, will be subject to the prior claims of those entities' creditors,
including trade creditors, and any prior or equal claim of any joint venture
partner. Upon the occurrence of a payment default under, or acceleration of,
bank indebtedness, bank creditors of subsidiaries with a security interest in
the assets of such subsidiaries may be entitled to restrict the payment of
dividends to the Company and, if secured by the assets of the subsidiaries,
would be permitted to foreclose on the assets of such subsidiaries.
RESTRICTIONS IMPOSED BY TERMS OF THE INDENTURE
The terms and conditions of the Indenture impose restrictions that affect
the ability of the Company to incur debt, make distributions, sell assets,
create liens, make investments or engage in merger and acquisition activity. The
Indenture imposes certain restrictions on the Company's ability to operate
through joint ventures, such as the PIN Venture, a form of entity that has been
used in the past and which the Company anticipates using in the future. See
"Description of Notes--Certain Covenants." The financial requirements of and
calculations in the Indenture are not governed by, and may not conform to,
generally accepted accounting principles, so that certain accounting measures
and coverages reflected in this Prospectus do not necessarily reflect how such
measures and coverages would be calculated under the Indenture. The Company is
also required to limit its transactions with related parties. The restrictive
covenants contained in the Indenture, as well as the highly leveraged position
of the Company, could significantly limit the ability of the Company to respond
to changing business or economic conditions or to substantial declines in
operating results. The ability of the Company to comply with the provisions in
the Indenture can be affected by events beyond the Company's control.
14
<PAGE>
UNENFORCEABILITY OR UNAVAILABILITY OF THE GUARANTEES OF THE RESTRICTED
SUBSIDIARIES; FRAUDULENT CONVEYANCE CONSIDERATIONS
Various federal and state fraudulent conveyance laws enacted for the
protection of creditors apply to the Guarantees issued by the Subsidiary
Guarantors and could make these Guarantees unenforceable or otherwise avoidable
in whole or in part. In addition, such laws could make the Guarantees
subordinate to indebtedness that the Subsidiary Guarantors owe to creditors
other than the holders of the Notes. A court could find one or more of the
Guarantees unenforceable or avoidable or could subordinate them to other
indebtedness, including for any of the following reasons:
. If the Subsidiary Guarantor does not receive fair consideration or
reasonably equivalent value for giving its Guarantee and
. is insolvent,
. becomes insolvent as a result of giving the Guarantee,
. is engaged or is about to engage in a business or transaction for
which the remaining assets of such Subsidiary constitute
unreasonably small capital to carry on its business, or
. intends to incur, or believes that it would incur, debts beyond its
ability to pay as they mature.
. If the Subsidiary Guarantor does so with the intent to hinder, delay
or defraud any of its present or future creditors or if the Subsidiary
Guarantor is contemplating insolvency in order to prefer one or more
of its creditors over other creditors.
The measure of insolvency for purposes of a fraudulent conveyance claim will
vary depending upon the law of the jurisdiction applied in the proceeding.
Generally, a court may find that a subsidiary is insolvent at a particular time
if the sum of its debts, including contingent liabilities, is greater than the
fair market value of its assets or if the fair market value of its assets is
less than the amount that would be required to pay its probable liability in
respect of existing debts, including contingent liabilities, as they become
absolute and mature.
A court considering whether a guarantee is unenforceable or avoidable as a
fraudulent conveyance or whether to subordinate a guarantee to other
indebtedness may focus on, among other things, the benefits, if any, realized by
the subsidiary giving the guarantee. Part of the proceeds of the offering of the
Old Notes were used for repayment of Company obligations and for prepayment of a
capital lease on which a Subsidiary of the Company is obligor. The Guarantees of
the Notes are for the benefit of the Company and only indirectly for the benefit
of the Subsidiary Guarantors, and a court may find that the obligations of the
Subsidiary Guarantors were incurred for less than reasonably equivalent value or
fair consideration. In order to decrease the likelihood that a court would find
that any or all of the Guarantees are unenforceable or avoidable or should be
subordinated, the obligations of each Subsidiary Guarantor under its Guarantee
will be limited to the maximum amount that will, after giving effect to all of
the liabilities of such Subsidiary Guarantor, result in such obligations not
being held unenforceable or avoidable or subordinated to other indebtedness. The
Company cannot give any assurances that a court, particularly in light of
developments that may occur after the Notes are issued, would apply the above
tests or that a court would not find for any other reason that the Guarantees
are unenforceable or avoidable or should be subordinated.
If a court were to find that a Guarantee is unenforceable or avoidable in
whole or in part as a fraudulent conveyance, holders of the Notes would not have
any claim against the Subsidiary Guarantor giving such guarantee to the extent
the Guarantee was avoidable and would be creditors only of the Company and any
of its Subsidiary Guarantors that gave Guarantees that are not found to be
unenforceable or avoidable. As a result, the claims of the holders of the Notes
against the Subsidiary Guarantor whose Guarantee was not enforceable or
avoidable would be subject to the prior payment of all other liabilities of such
Subsidiary Guarantor. If any of the above events occurs, there may not be
sufficient assets to satisfy all or any part of the claims of the holders of the
Notes.
DIFFICULTY IN SECURING FUTURE BANK OR OTHER INDEBTEDNESS
The Company believes that it may be necessary during the period that the
Notes are outstanding to secure bank or other financing. While the Indenture
permits the Company to incur a limited amount of bank or other indebtedness, and
permits such borrowings to be secured by assets of the Company's subsidiaries,
the Indenture restricts the terms of such bank or other indebtedness, including
the ability of a bank or other lender to limit the flow of funds from the
subsidiaries to the Company.
15
<PAGE>
Banks or other financial institutions may not be willing to lend to the Company
under such circumstances, particularly in light of the Company's overall
leverage position, or may not be willing to lend on terms that are acceptable to
the Company. The inability of the Company to obtain bank or other financing
during the term of the Notes could have a material adverse effect on the Company
and its ability to meet its cash flow needs, and could limit the Company's
ability to implement its business strategy.
TRANSACTIONS WITH AND RELIANCE ON RELATED PARTIES; CONFLICTS OF INTEREST
The Company has engaged, and expects to continue to engage, in certain
transactions with related parties. To date, these transactions have involved
primarily loans and advances, affiliation agreements for the distribution of
cable television programming, leasing of satellite transponder and production
support services, and lease and service agreements related to certain technical,
computer and administrative services. For the year ended December 31, 1997,
approximately $5.0 million, or 11%, of the Company's pro forma total revenues
and approximately $6.5 million, or 16%, of its pro forma total operating
expenses involved related party transactions. In addition, $27.6 million of the
proceeds of the offering of the Old Notes was used to prepay the obligation
under a capital lease. See "Certain Relationships and Related Transactions--
Transfer of Satellite Transponder Leases." $16.7 million of such proceeds were
used to repay outstanding indebtedness under Radio Holdings' credit facility
with a commercial bank, which was incurred in March 1998 and was used to repay
related party advances and to repay a related party note. See "Use of Proceeds."
Principal management employees devote substantially all of their time to the
Company's business. Because certain officers and directors of the Company are
also officers and directors of related parties, the terms of any distribution,
programming, production, lease or other agreements between the Company and such
related parties are not the result of arm's-length negotiations. There can be no
assurance that the terms of any transactions between the Company and related
parties have been or will be as favorable as the Company could obtain from
unrelated parties or that such transactions will continue in the future, on
their current or other terms. The Indenture provides that, with certain
exceptions, future dealings with related parties must be approved by the
disinterested members of the Board of Directors of the Company and transactions
over a specified threshold are subject to the receipt of a fairness opinion from
a nationally recognized independent investment banking firm. See "--Dependence
on Key Personnel," "Certain Relationships and Related Transactions" and
"Description of Notes--Certain Covenants."
Upon the sale of Mr. Jones' interest in Jones Intercable, Jones
Intercable will no longer share in many of the administrative and related
expenses which have historically been shared by the various entities affiliated
with Mr. Jones, including the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH ACQUISITION AND DISTRIBUTION OF RADIO PROGRAMMING
The Company's ability to maintain and increase the distribution of its radio
network and to increase the audience for its radio programming is dependent
upon, among other factors, the radio stations' demand for the Company's radio
programming and the Company's ability to assess consumer preferences accurately
and to develop, acquire and distribute radio programming that is attractive to
radio listeners. Even though the Company has recently launched several new radio
programs, there can be no assurance that the Company will be able to continue to
develop or acquire radio programming that will be accepted in its targeted
markets. There can similarly be no assurance that the Company will be able to
enter into new affiliation agreements, or maintain its existing affiliation
agreements, with radio stations. As radio station ownership is consolidated into
larger station groups, more radio station owners may develop and produce
programming in-house and thereby reduce their need for the type of radio
programming provided by the Company. See "Business--Radio Programming--The Radio
Network-Jones Radio."
DEPENDENCE ON ADVERTISING REVENUES
The Company is heavily dependent on advertising revenues. For the year ended
December 31, 1997, advertising revenues comprised 82% of the Company's total pro
forma revenues. The Company's ability to attract advertisers is dependent upon
its ability to demonstrate that its radio and cable television networks are able
to deliver the type and quantity of radio listeners and cable television viewers
that such advertisers seek to target with their advertising. The Company's
ability to maintain or increase its advertising revenues is, and will continue
to be, affected by a number of factors, including the ability to expand the
distribution of the networks, to deliver high quality entertaining programming
that is appealing to additional listeners and viewers and to increase awareness
of its networks. There is no assurance of success in this endeavor. In addition,
competitive conditions in the industry may have an adverse effect on the number
of advertising spots sold and the advertising rates in the market.
Advertising revenues and operating income also may be adversely affected by
economic downturns. Such economic downturns, if prolonged, might have an adverse
impact on radio and cable television advertising and on the Company's financial
condition and results of operations. In addition, advertising revenues may be
impacted by many other factors beyond the Company's control, including but not
limited to: (i) the amount of funds that advertisers dedicate to radio and cable
television
16
<PAGE>
advertising in general and to the Company's networks in particular, (ii) the
popularity of programming and ratings achieved by radio station affiliates that
broadcast the Company's radio programming or utilize its services, (iii) the
number of advertisers who seek audiences within the demographic groups to which
the networks target their programming, (iv) competition within national and
regional markets from radio, television and other media and (v) regulatory
restrictions on advertising (e.g., beer, wine, liquor or cigarette advertising).
There can be no assurance that the Company will be able to maintain its existing
advertisers or attract additional advertisers in the future. If the Company is
not able to do so, its advertising revenues and operating results will be
adversely affected. See "--Competition" and "Business."
DEPENDENCE ON ADVERTISING RELATIONSHIPS
Historically, the Company's radio network advertising revenues have been
highly dependent on the efforts of MediaAmerica. In 1997, 97% of the Company's
radio advertising revenues were derived from sales made through MediaAmerica.
The Company believes that sales of advertising time through the new MediaAmerica
division will not be adversely affected, but there can be no assurance to that
effect. See "--Risks Regarding the Acquisition."
The Product Information Network's advertising revenues historically have been
highly dependent on its relationships with five national media agencies. In
1997, 53% of the PIN Venture's gross advertising revenues were derived from
sales of airtime to two national media agencies. The Product Information
Network's contract with one of the agencies, National Media Corporation,
representing 12% of 1997 gross advertising revenues, expires in December 1998
and will automatically renew for an additional six months unless the Product
Information Network is notified otherwise. The agreement with the other agency,
representing 41% of the PIN Venture's 1997 gross advertising revenues, was
mutually terminated in July 1997. While the Product Information Network has
replaced the large block of airtime placed by such agency through sales to other
advertisers, it has not been able to fill such airtime with the type of non-
traditional infomercials of Fortune 500 companies provided by such agency. The
termination of the relationship with such agency and the resulting loss of non-
traditional infomercials from certain major corporate advertisers have
contributed to a decrease in the revenue per subscriber of approximately 4.6%
in the last approximately twelve months. There can be no assurance that the
remaining media agency will continue, maintain or increase the amount of airtime
it purchases. In addition, there can be no assurance that the Product
Information Network will be able to renew its contract with such agency, or
obtain a suitable replacement, on acceptable terms. See "Business--Television
Programming--The Product Information Network."
RISKS ASSOCIATED WITH DISTRIBUTION OF TELEVISION PROGRAMMING
Growth in the Company's television programming business is largely dependent
upon the distribution of Great American Country and the Product Information
Network through cable television systems and other video distributors. With
respect to cable distribution, Great American Country and the Product
Information Network compete for a limited number of available cable channels
with a large number of other cable television programmers supplying a variety of
alternative programming, including entertainment, sports, news, public affairs
and educational programming. Many of these programmers provide substantial cash
incentives to cable television systems and other video distributors that the
Company may not be able to match. In addition, cable programming distribution is
controlled by MSOs, some of which are affiliated with competing program
providers. Sales of cable systems by MSOs, or sales of MSOs, that have
affiliation agreements with the Company could result in a loss of subscribers if
the new cable system owners do not retain the programming, and the number of
lost subscribers could be material. Jones Intercable, a significant distributor
of Great American Country and the Product Information Network, expects to sell
during 1998 and the first quarter of 1999, through its managed partnerships,
cable television systems representing approximately 283,000 and 420,000
subscribers for Great American Country and the Product Information Network,
respectively. The buyers of such cable television systems may not continue to
subscribe for the Company's cable television programs. In addition, some
affiliation agreements allow the MSOs to delete the Company's programming on a
system-by-system basis. Because advertising revenues generated by Great American
Country and the Product Information Network are a function of distribution,
success in the distribution of the Company's cable television programming will
directly affect the amount of advertising revenues generated by the Company's
cable television networks. The Company's expansion plans for Great American
Country and the Product Information Network are dependent, in part, upon the
ability to retain and expand its distribution from existing affiliation
agreements, to renew existing affiliation agreements when such agreements
expire, and to obtain affiliation agreements with additional MSOs and other
video programming distributors. There can be no assurance that the Company will
be able to negotiate new affiliation agreements, expand its distribution or
retain or renew existing affiliation agreements. See "Business--Television
Programming."
17
<PAGE>
RISKS RELATED TO DISTRIBUTION OF THE PRODUCT INFORMATION NETWORK
A significant portion of the Product Information Network's distribution is on
cable systems owned and/or managed by affiliates of the PIN Venture's three
partners. While the PIN Venture has entered into affiliation agreements with
systems owned by nine of the ten largest MSOs in the United States, as well as
with a number of smaller MSOs, carriage on each of the systems operated by an
MSO is not guaranteed by such agreements and, in many cases, these agreements do
not provide for the distribution of the Product Information Network's
programming for 24 hours per day. Most affiliation agreements for the Product
Information Network, other than those with the Company's partners in the PIN
Venture, are short-term in nature. Many of the MSOs which carry the Product
Information Network may also carry programming which is competitive with the
Product Information Network. See "Risks Associated with the Product Information
Network," "Business--Overview--Strategy" and "-- Television Programming--The
Product Information Network" and "Certain Relationships and Related
Transactions."
RISKS REGARDING THE ACQUISITION
A substantial portion ($26.7 million) of the proceeds of the offering of the
Old Notes was used to pay the cash portion of the consideration in the
Acquisition. MediaAmerica provides advertising representation services and more
recently has entered the radio programming business. Provision of advertising
representation services is a new business for the Company and presents the risks
associated with integration of a business in which the Company has no prior
experience. While the Company has historically made acquisitions, primarily from
affiliated entities, it has never made a significant acquisition from an
unrelated party. Because MediaAmerica and the Company's radio programming
operations are in the same line of business, and subject to the same market
trends, the Acquisition could increase the Company's vulnerability to adverse
market trends. The Company expects that its accounting for the Acquisition will
result in a significant amount of goodwill, and if the benefits of the
Acquisition do not substantiate the carrying value, write-offs could be
required, which could adversely affect the Company's operating income and
earnings. See "--Substantial Leverage; Potential Inability to Pay Debt When
Due."
The benefits expected to be realized from the Acquisition will depend on the
Company achieving synergies, particularly in radio programming, and in retaining
and increasing MediaAmerica's current customer base. MediaAmerica produces
programming which competes with some of the programming produced by its
representation customers. As a result of the Acquisition, the range of
programming produced by the Company will expand and thereby increase the
possibility that a customer or potential customer will perceive the programming
produced by the Company to be competitive with its own programming. These
customers may be more reluctant to utilize the Company's advertising
representation services after the Acquisition because of the Company's
competitive position, and thus the market for customers for the advertising
representation division may be adversely affected.
The Company relies on the services of Messrs. Ron Hartenbaum and Gary
Schonfeld (the "MediaAmerica Principals"), the principal executives and former
owners of MediaAmerica, to support and strengthen the Company's advertising
representation business. The MediaAmerica Principals have three-year employment
agreements with the Company which provide that they will not compete with the
Company during the term of their employment and for two years after the
employment agreements terminate. There is no assurance that the MediaAmerica
Principals will remain with the Company for the full term of the employment
agreements or thereafter. Further, no assurance can be given that the Company
will be successful in the advertising representation business, or that the
MediaAmerica Principals will be integrated into the Company's operations so as
to cause this business to maintain operations at current levels or to grow.
Certain agreements between MediaAmerica and its existing clients allow the
clients to terminate the agreements if the MediaAmerica Principals are no longer
involved in the business. Even in the absence of such provisions, clients may
discontinue or reduce the level of services provided by MediaAmerica if the
MediaAmerica Principals are no longer employed by the Company.
The terms of several of MediaAmerica's representation agreements with some of
its major clients are scheduled to expire in 1998 and 1999, unless renewed. The
Company intends to seek to obtain renewals of such agreements in due course, but
there can be no assurance that any such renewals will be obtained.
INABILITY TO SUSTAIN OR MANAGE GROWTH
The Company's revenues have grown in recent years primarily as a result of
increased advertising and licensing revenues generated by the Company's radio
and television programming networks and syndicated programs. The ability to
maintain growth will depend on a number of factors, many of which are beyond the
Company's control, including maintaining and expanding distribution of Great
American Country and the Product Information Network through MSOs, as well as
through alternative distribution systems such as DBS, MMDS and video
distribution systems being established by various
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telecommunications companies; maintaining and expanding distribution of its
radio network; developing and/or acquiring additional programming for the radio
network that is consistent with listener preferences; developing and/or
acquiring additional cable television programming that will be carried by MSOs;
and attracting and maintaining advertisers that are willing to pay competitive
rates. In addition, the Company is subject to a variety of business risks
generally associated with growing companies. Future growth and expansion could
place significant strain on management personnel and may require additional
management personnel.
As part of its business strategy, the Company intends to acquire and/or
create complementary businesses. See "Business--Overview--Strategy." The success
of this strategy depends on the availability of such businesses for acquisition
and the availability of resources to effect such acquisition, as well as the
Company's ability to integrate acquired businesses into its organization
effectively and to retain and motivate key personnel of acquired businesses. The
recent rapid consolidation of the radio programming industry has reduced the
availability of potential acquisition targets complementary to the radio
programming business. The Company may not be successful in its endeavors to
identify and acquire businesses suitable for acquisition. Certain complementary
businesses may not be available because of price or because other objectives of
potential sellers may not be met. The Company faces competition in its
acquisition strategy from other companies, some of which may have substantially
greater financial resources. There can be no assurance that the Company will be
able to manage its expanding operations effectively or that it will be able to
attract and retain sufficient management personnel necessary for continued
growth. Furthermore, there is no assurance that, because of the significance of
its debt service requirements, the Company will be able to carry out its growth
strategies.
RISKS ASSOCIATED WITH SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
The Company delivers its television programming through its own satellite
delivery and production support facilities, and subleases transponder space
from third parties to deliver its radio programming. The Company also earns
revenues by providing satellite delivery and production support services to a
related party. If such related party were no longer able to obtain and pay for
such services, the loss of revenues would be significant to the Company and
there is no assurance that a replacement could be obtained on similar terms. The
satellite delivery and production support services have represented substantial
fixed costs. The satellite transponder agreement covers two transponders. One is
a digitally compressed transponder, on which seven channels are leased. The
other transponder was leased to a third party as of July, 1998. See "Business--
Satellite Delivery and Production Support Services." The Company could increase
its channel capacity by further digital compression if demand warranted.
Although the Company believes that picture quality would not be adversely
affected by further compression, this possibility may dissuade some potential
lessees. There are a number of other companies which are competing with the
Company to lease their transponder capacity, certain of which are offering lease
rates that are lower than those being offered by the Company. There can be no
assurance that the Company will be able to lease whatever capacity may be
available at any particular time. The Company used $27.6 million of the proceeds
of the offering of the Old Notes to prepay the capital lease obligations under
the satellite transponders, which allows the Company to now own the
transponders. See "Use of Proceeds." There can be no assurance that the payments
to be received in connection with the lease of the transponders over the
remaining life of the satellites, as well as the value to the Company of having
available satellite capacity for its own use, will recoup the price of the
satellite transponders. The satellites may not have a useful life beyond 2004,
at which time the Company will be required to locate replacements to use for its
programming. The Indenture restricts the incurrence of Indebtedness through
capital lease obligations and, accordingly, there can be no assurance that the
Company will be able to enter into new satellite leases at that time on
favorable terms, if at all.
The satellite transponder agreement referred to above provides various
protections in the event of satellite failure, and the transponders are not
subject to preemption by third parties in most instances. Although the agreement
provides that if service is unavailable for any reason on the satellite, the
lessor is required to place the Company's programming on a replacement
satellite, there can be no assurance that this would occur. There are a limited
number of domestic communications satellites available for the transmission of
cable television programming to cable system operators. The availability of
transponders in the future is dependent on a number of factors over which the
Company has no control. These factors include, primarily, the limited
availability of desirable orbital slots for commercial communications
satellites, the successful launches of additional commercial communications
satellites by third parties and competition and demand for transponder leases on
existing and new satellites. See "Business--Satellite Delivery and Production
Support Services."
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RISKS ASSOCIATED WITH THE PRODUCT INFORMATION NETWORK
The growth expectations for the Product Information Network are largely
dependent on increasing the number of hours of long-form advertising from major
corporate advertisers, as this advertising results in higher rates for airtime
sold and is more attractive to MSOs. In addition, increased advertising from
major corporate advertisers decreases the reliance of the Product Information
Network on national media infomercial buyers. See "--Dependence on Advertising
Relationships." While the Product Information Network has implemented a strategy
to accomplish this goal, the strategy may not be successful, and it may not be
able to air as many of these long-form advertisements as it has in the past. See
"Business--Overview--Strategy."
The Product Information Network is operated by the PIN Venture, a joint
venture among the Company, Cox and Adelphia. Pursuant to the agreement governing
the PIN Venture, the Company manages the day-to-day operations of the PIN
Venture. The PIN Venture has an Executive Committee consisting of five persons,
two of whom are appointed by the Company, two by Cox, and one by Adelphia. The
other venture partners, however, have voting rights with respect to major
decisions concerning the venture and there is a risk that the partners may not
agree on significant aspects of the PIN Venture's business plans. Unlike the
Company, Cox and Adelphia are major MSOs and may have different goals and
objectives with respect to the PIN Venture's affiliation agreements with MSOs,
particularly the amount of the rebate payable to MSOs by the PIN Venture. See
"Business--Television Programming."
The Company, Cox and Adelphia own approximately 53.8%, 45.4% and 0.8%,
respectively, of the PIN Venture. The PIN Venture may in the future issue equity
to its existing partners or new partners which would dilute the Company's
interest in the PIN Venture and could result in the venture's operations no
longer being consolidated by the Company for financial reporting purposes.
The PIN Venture agreement contains a number of provisions that either allow
or require a partner to withdraw from the PIN Venture. The Company or Cox could
be required to withdraw if the number of subscribers provided by either of them
falls below a certain level. See "--Risks Associated with Distribution of
Television Programming." Such a withdrawal would cause a dissolution of the PIN
Venture. The PIN Venture by its terms expires on December 31, 2004, but Cox
could elect to terminate its participation after 1999. Such a withdrawal would
cause Cox to lose its equity interest in the PIN Venture.
If, for any reason, the Company is unable to consolidate the PIN Venture's
results of operations, the Company's financial statements would change because
the PIN Venture's revenues and operating income, if any, would not be included
in the Company's consolidated revenues and operating income. On a pro forma
basis for the year ended December 31, 1997, the PIN Venture accounted for 28% of
the Company's consolidated revenues and 26% of consolidated operating income.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts and abilities of its senior
management, including Glenn R. Jones, Chairman of the Board, Gregory J. Liptak,
President, Jay B. Lewis, Group Vice President and Chief Financial Officer, Eric
Hauenstein, the President and General Manager of the radio network, and Jeffrey
C. Wayne, the President and Chief Operating Officer of cable television network
operations. In addition, as a result of the Acquisition, the Company employs
Messrs. Ron Hartenbaum and Gary Schonfeld as executives in charge of its radio
network and advertising representation operations. Except for Messrs. Hartenbaum
and Schonfeld, the Company does not have employment agreements with, and does
not carry key life insurance on, any of its employees. The Company's success
depends in part upon its ability to attract and retain talented writers,
performers and other creative personnel. Although the Company believes that its
relations with its creative personnel are good and that it will continue to be
successful in attracting and retaining qualified creative personnel, there can
be no assurance that it will be able to continue to do so. See "Business--
Employees" and "Management."
The Company is also dependent upon the talents and abilities of its
advertising account executives. The account executives have personal
relationships with the national advertisers and their advertising agencies which
are important to the Company's ability to continue to maintain and increase the
Company's share of the radio advertising market. While the Company believes that
its relations with its account executives are good and that it will continue to
be successful in attracting and retaining qualified sales personnel, there can
be no assurance that it will be able to do so. See "--Dependence on Advertising
Revenues."
COMPETITION
Competition in the radio programming market is intense. The Company's radio
network competes for both advertising and radio station affiliations with major
network radio distribution companies, as well as with a large number of smaller
independent producers and distributors. The radio programming industry has
recently experienced rapid consolidation, which has increased competition from
well financed larger radio programming distribution companies. The largest
competitors in the
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industry are affiliated with major station owners. These competitors have
recognized brand names as well as large networks which include affiliates to
which such competitors pay compensation to broadcast the network's commercials.
There can be no assurance that the Company will be able to compete successfully
for radio advertising revenues in the future.
Radio networks also face competition from improving technologies available to
local radio stations that may enable them to pre-record their local announcers
and automate their operations, thereby allowing them to reduce costs and operate
more efficiently. Another technological advance, Digital Audio Radio Service
("DARS"), permits national radio stations to broadcast digital quality radio
programming nationwide to homes, automobiles and other locations via satellite.
The Company cannot predict what effect the potential future development of
digital automation or DARS will have on the radio industry or the Company.
The advertising representation business acquired from MediaAmerica will also
be subject to significant competition. The radio advertising representation
business is highly competitive, both in terms of competition to gain program
provider clients and to sell airtime inventory to advertisers. The Company's
radio advertising representation firm competes with major network radio
distribution companies, which operate divisions that both sell their own
company's airtime inventory and also contract with third party radio programmers
to sell their airtime inventory. Over the last two years, many independent
program providers have been acquired by major network distribution companies.
These companies have large amounts of airtime inventory to sell and have
significant resources. The formation by certain group radio station owners of
radio networks, such as AMFM, has adversely affected, and may continue to
adversely affect, the Company's advertising revenues.
Competition in the cable television programming market is also intense. The
Company's cable television networks compete for distribution of programming on
cable systems, for viewers and for advertising revenues with hundreds of cable
and broadcast television networks which provide a variety of infomercial and
entertainment programming.
Great American Country has one principal direct competitor, a large network
with substantial financial resources that distributes its programming to
approximately 60% of the cable television subscribers in the United States. In
attempting to expand its distribution, Great American Country will directly
compete for carriage with such network, which has undertaken a substantial
campaign in at least one major market to retain its subscribers and may do so in
other markets. There can be no assurance that the Company will be able to expand
the distribution of its cable television networks or compete successfully
against the other networks.
The Product Information Network competes directly with at least three other
long-form advertising networks and believes that new infomercial networks are
currently being planned or formed that also will compete directly with the
Product Information Network. The Product Information Network also competes with
at least 30 cable television networks that air long-form advertising, many of
which have a substantial number of viewers. The Company expects to encounter
additional competition for viewers as the implementation of technological
advances, including the deployment of digital compression technology, the
deployment of fiber optic cable and the "multiplexing" of cable services, allows
cable systems to greatly expand their channel capacity and, as a result, their
ability to add new networks. There can be no assurance that long-form
advertising will continue to be attractive to advertisers and consumers or that
it will be able to continue to compete against other forms of advertising.
The Company competes in the delivery of domestic satellite services with
satellite owners, satellite service providers, microwave carriers and full
service teleports, many of which have substantially greater financial and other
resources than the Company.
As there are generally few barriers to entry into the Company's markets, the
Company could in the future face competition from new competitors offering
services similar to those of the Company. The Company's radio and television
networks also compete with other forms of media for advertising dollars, such as
broadcast and cable television, print, outdoor, the Internet and other media.
Many of the Company's competitors have greater resources than the Company and
there can be no assurance that the Company will be able to compete successfully
in the future. See "Business--Competition."
THE IMPACT OF THE AMFM NETWORK
In 1998 Chancellor Media, one of the largest radio station ownership groups
in the United States, formed a new network known as AMFM. This network consists
of advertising time on the stations owned by Chancellor Media and an affiliate.
In general, these stations are in larger markets than those of the other radio
networks, including those of the Company. The Company believes that AMFM has
grown largely by attracting advertisers to its network and away from the other
radio networks,
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including the Company's. This competitive factor has already caused a decline in
the Company's revenues and will likely continue to have a negative impact on the
Company's radio advertising revenues and operations. There can be no assurance
that the Company will be able to regain its market share from these advertisers
in the future.
SEASONALITY
Advertising revenues in the radio and cable television industries fluctuate
due to seasonality in such industries. The Company believes that radio network
revenues are typically lowest in the first quarter and cable television network
revenues are typically lowest in the third quarter. With the Acquisition, the
Company expects that its seasonal trend of lower first quarter revenues will be
more significant. Other than the fees paid by the Company to third parties for
certain of its radio programming, the fees paid by the Company in connection
with the distribution of the Product Information Network and the sales
commissions paid to account executives for radio advertising representation
sales, the Company's expenses have not historically varied significantly
relative to the seasonal fluctuation of revenues. The Company's quarterly and
annual results of operations are affected by a wide variety of factors, many of
which are outside the Company's control, which could materially and adversely
affect profitability. These factors include the timing and volume of advertising
on the Company's radio network and cable television networks, the number and
size of the radio stations that carry the Company's radio programming, the
number and size of cable systems and other video distributors that carry the
Product Information Network and Great American Country and general economic
conditions. There can be no assurance that the seasonality of the Company's
business will not adversely affect its ability to generate cash flow from
operations in certain periods in amounts sufficient for it to be able to pay it
debts, including the Notes, as they become due.
GOVERNMENT REGULATION
Although the Company's radio and television networks are not generally
directly regulated by the Federal Communications Commission ("FCC"), the radio
stations, cable television systems and other video distributors to which the
Company sells its programming are regulated. As a result, the federal laws and
FCC regulations that affect these entities indirectly affect the Company. See
"Business-- Governmental Regulation."
The Company's satellite delivery and production support services are directly
regulated by the FCC. The Company holds FCC microwave and earth station uplink
licenses that it utilizes to provide delivery and support services. Because the
licenses relate primarily to the technical operation of its microwave and uplink
facilities, which are used for internal purposes and program delivery, the
Company believes that there are limited regulatory burdens associated with
maintaining these licenses in good standing. There can be no assurance, however,
that these licenses will be able to be maintained or that additional regulatory
burdens will not be imposed in the future. See "Business-- Government
Regulation."
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00." This problem could
cause system failure or miscalculations causing disruptions of business
processes. Jones Intercable, an affiliate of the Company, initiated an
assessment of how the Year 2000 problem could affect its operations and the
operations of related companies, including the Company, in the summer of 1997
and established a Year 2000 Program Office (the "Y2K Office") to manage the
process for all related companies. The Company depends upon the Y2K Office to
identify which of its systems are likely to be affected by the Year 2000 issue,
assess the potential risks, determine its Year 2000 priorities and implement
appropriate solutions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Impact of the Year 2000 Issue" for a
discussion of these matters. There can be no assurance that the Y2K Office will
continue to be available to the Company in the future or that it provide to the
Company the resources and time necessary to resolve all Year 2000 issues in a
timely manner.
If the Company's systems are not Year 2000 compliant in time, the Company
could experience operational difficulties, including loss of power to transmit
signals leading to service interruption, inaccuracies in billing and financial
information systems and the failure of insertion equipment to include the
Company's full complement of programming, which would in turn require the
Company to replace missed air time. There can be no assurance that the
Company's failure to be Year 2000 compliant would not have a material adverse
effect on the Company's business, financial condition or results of
operations.
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The Y2K Office commenced contacting the Company's vendors of application and
operating system software in 1997 and continues to work with vendors through
industry groups focused on Year 2000 issues. The Company has not yet determined
the extent to which it is vulnerable to the failure by vendors and customers
that have a material relationship with the Company to remediate Year 2000
compliance issues. There can be no assurance that the failure of the Company's
vendors and customers to be Year 2000 compliant would not have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, the Company could be adversely affected by disruptions
in the operations of other companies with which the Company does business, from
general widespread problems or an economic crisis resulting from noncompliant
Year 2000 systems.
The Company has not incurred any material historical Year 2000 costs to date.
Management does not have an estimate of future Year 2000 project costs that may
be incurred. Management expects, but makes no assurance that, future Year 2000
costs will not have a material adverse effect on its financial condition and
results of operations. The Company has not yet formulated contingency plans in
the event that its systems are not Year 2000 compliant. The lack of contingency
plans could prevent the Company from resolving Year 2000 issues in a timely and
efficient manner, and could heighten the risk that the Year 2000 problem may
have a material adverse effect on the Company's financial condition and results
of operations.
INTELLECTUAL PROPERTY
The Company regards its original programming as proprietary and relies
primarily on a combination of statutory and common law copyright, trademark and
trade secret laws, customer licensing agreements, nondisclosure agreements and
other methods to protect its proprietary rights. If substantial unauthorized use
of the Company's programming were to occur, the Company's results of operations
could be negatively affected. There can be no assurance that the Company's means
of protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar program content and
distribution methods. In addition, there can be no assurance that third parties
will not claim that the Company's current or future programming infringes on the
proprietary rights of others.
CONSEQUENCES OF A FAILURE TO EXCHANGE OUTSTANDING NOTES
The Old Notes have not been registered under the Securities Act or any state
securities laws and therefore may not be offered, sold or otherwise transferred
except in compliance with the registration requirements of the Securities Act
and any other applicable securities laws, or pursuant to an exemption therefrom
or in a transaction not subject thereto, and in each case in compliance with
certain other conditions and restrictions, including the Company's and the
Trustee's right in certain cases to require the delivery of opinions of counsel,
certifications and other information prior to any such transfer. Old Notes that
are not exchanged pursuant to the Exchange Offer will continue to bear a legend
reflecting such restrictions on transfer. In addition, upon consummation of the
Exchange Offer, holders of Old Notes that remain outstanding will not be
entitled to have such Old Notes registered under the Securities Act, subject to
certain limited exceptions. The Company currently intends to register under the
Securities Act Old Notes that remain outstanding after consummation of the
Exchange Offer only if such Old Notes are held by the Initial Purchaser or
persons ineligible to participate in the Exchange Offer, neither of which is
anticipated.
The Exchange Notes and any Old Notes that remain outstanding after
consummation of the Exchange Offer will constitute a single series of debt
securities under the Indenture and, accordingly, will vote together as a single
class for purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of the Notes."
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to the holders of the Old Notes. The Old
Notes were resold by the Initial Purchaser to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. The Old Notes are eligible for
trading in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") Market, the National Association of Securities Dealers' screen based,
automated market for trading of securities eligible for resale under Rule 144A.
There currently is no market for the Exchange Notes and the Exchange Offer is
not conditioned upon any minimum or maximum aggregate principal amount of Old
Notes being tendered for exchange. Although the Initial Purchaser may make a
market in the Old Notes and has advised the Company that it currently intends to
make a market in the Exchange Notes, it is not obligated to do so and may
discontinue such market making at any time without notice. The Company does not
currently intend to apply for listing of
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the Old Notes or the Exchange Notes on a national securities exchange or
automated quotation system. Accordingly, no assurance can be given that an
active market will develop for any of the Notes or as to the liquidity of the
trading market for any of the Notes. If a trading market does not develop or is
not maintained, holders of the Exchange Notes may experience difficulty in
reselling their Exchange Notes or may be unable to sell them at all. If a market
for the Exchange Notes develops, any such market may be discontinued at any
time. To the extent that a market for the Exchange Notes does develop, the
market value of the Exchange Notes will depend upon many factors, including
prevailing interest rates, market conditions, yields on alternative investments,
general economic conditions, the Company's financial condition and results of
operations and other conditions. Historically, the market for non-investment
grade debt has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Exchange Notes. There can
be no assurance that, if a market for the Exchange Notes were to develop, such a
market would not be subject to similar disruptions.
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THE EXCHANGE OFFER
REASON FOR THE EXCHANGE OFFER
The Old Notes were issued on July 10, 1998 in an offering that was exempt
from registration under the Securities Act. Accordingly, the Old Notes may not
be offered, sold or otherwise pledged, hypothecated or transferred in the United
States unless registered under the Securities Act or unless an exemption from
such registration requirements and applicable state securities laws is
available. The Company and the Initial Purchaser have entered into an exchange
and registration rights agreement dated July 10, 1998 (the "Exchange and
Registration Rights Agreement") pursuant to which the Company agreed for the
benefit of the holders of the Old Notes, that it will, at its cost, within 45
days after July 10, 1998, the original issue date of the Old Notes (the "Issue
Date"), file a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act with respect to an offer to exchange the
Old Notes for newly issued notes of the Company which will have the form and
terms substantially identical in all material respects to the form and terms of
the Old Notes (the "Exchange Notes"), including interest rate and interest
payment dates, except that the exchange will have been registered under the
Securities Act and therefore the Exchange Notes will not bear legends
restricting the transfer thereof. In addition, the Additional Interest
provisions will be modified or eliminated as appropriate and holders of the
Exchange Notes will not be entitled to certain rights of holders of the Old
Notes under the Exchange and Registration Rights Agreement, which rights with
respect to Old Notes that are exchanged will terminate upon the consummation of
the Exchange Offer. See "Description of the Notes--Exchange Offer; Registration
Rights." The Company agreed to use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective within 120 days after the Issue
Date. The Registration Statement, of which this Prospectus is a part, is
intended to be the Exchange Offer Registration Statement required to be filed by
the Company, therefore the Company believes it has satisfied such requirement.
The Company has also agreed to use its best efforts to consummate the Exchange
Offer within 180 days after the Issue Date.
The Company is hereby offering the Exchange Notes (and the related
guarantees) in exchange for surrender of the Old Notes (and the related
guarantees). The Company will keep the Exchange Offer open for not less than 30
business days (or longer if required by applicable law) after the date notice of
the Exchange Offer is mailed to the holders of the Old Notes. For each of the
Old Notes surrendered pursuant to the Exchange Offer, the holder who surrendered
such Old Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Old Note. Interest on each Exchange Note will accrue
from the last interest payment date on which interest was paid on the Old Note
surrendered in exchange therefor or, if no interest has been paid on such Old
Note, from the Issue Date. The Exchange Notes will evidence the same debt as the
Old Notes which they replace and will be issued under, and be entitled to the
benefits of, the Indenture.
RESALE OF THE EXCHANGE NOTES
Based upon existing interpretations by the staff of the Commission issued to
third parties, the Company believes that the Exchange Notes will be freely
transferable by holders thereof (other than affiliates of the Company and the
Subsidiary Guarantors) after the Exchange Offer without further registration
under the Securities Act if the holder of the Exchange Notes represents that it
is acquiring the Exchange Notes in the ordinary course of business, that it has
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an affiliate of the Company or the Subsidiary Guarantors, as
such terms are interpreted by the Commission; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will have a prospectus delivery requirement with respect to resales of such
Exchange Notes. The Commission has not considered the Exchange Offer itself in
the context of its interpretations and there can be no assurance that the staff
of the Commission would make a similar determination with respect to the
Exchange Offer. The Commission has taken the position that the Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Old Notes) with the prospectus contained in the Exchange
Offer Registration Statement. The Company has agreed if, at the time of
completion the Exchange Offer, information in the Letter of Transmittal
submitted by exchanging holders indicates that there are holders that are
Participating Broker-Dealers or otherwise subject to prospectus delivery
requirements, the Company will, for such period of time as is necessary to
comply with applicable law up to the date that is 180 days after consummation of
the Exchange Offer, make available a prospectus meeting the requirements of the
Securities Act to such persons, if any, for use in connection with any resale of
such Exchange Notes.
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TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange any and all Old Notes
which are properly tendered on or prior to the Expiration Date and not withdrawn
as permitted below. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount at maturity of outstanding
Old Notes surrendered pursuant to the Exchange Offer. Old Notes may be tendered
only in integral multiples of $1,000. As of the date of this Prospectus, an
aggregate of $100,000,000 in principal amount of the Old Notes is outstanding.
The Exchange Offer is being made or about __________, 1998, to all record
holders of Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of the Exchange Offer, and thereby delay acceptance for
exchange of any Old Notes, by giving written notice of such extension to the
holders thereof as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned to the tendering holders thereof as soon as
practicable after the expiration of the Exchange Offer.
The Company reserves the right to amend or terminate the Exchange Offer upon
the occurrence of any of the conditions of the Exchange Offer specified below
under "--Certain Conditions of the Exchange Offer." The Company will give
written notice of any extension, amendment, nonacceptance or termination to the
holders of the Old Notes as promptly as practicable, such notice in the case of
any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender of Old Notes by a holder thereof as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the Letter of Transmittal. Except
as set forth below, a holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must provide a properly completed and duly
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at one of the addresses set forth
below under "--Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a
book-entry transfer including an Agent's Message (a "Book-Entry Confirmation")
of such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY.
NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trustee or other nominee and who wishes to tender
should contact such registered holder and instruct such registered holder to
tender on behalf of the beneficial owner. If such beneficial owner wishes to
tender on its own behalf, it must, prior to completing and executing the Letter
of Transmittal and delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed power of attorney from the registered holder
of such Old Notes. If the Letter of Transmittal is signed by a person or persons
other than the registered holder or holders of Old Notes, such Old Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders that appear on
the Old Notes.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the
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<PAGE>
account of an Eligible Institution (as defined herein below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trustee
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, if Old Notes not accepted for exchange or
not tendered are to be returned to a person other than the registered holder, or
if Exchange Notes are to be issued in the name of or sent to a person other than
the registered holder, the Old Notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Company in its sole
discretion, duly executed by the registered holder with the signature thereon
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any Old Notes not properly tendered or not to accept any Old Notes whose
acceptance might, in the judgment of the Company, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company nor the Exchange Agent shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of Old Notes for exchange, nor shall they incur any liability for
failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
Each holder who wishes to exchange its Old Notes for Exchange Notes in the
Exchange Offer will be required to represent that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business and that
at the time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
affiliate of the Company.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
applicable Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Notes that were acquired as a
result of market making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions of the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent, with written confirmation
of any oral notice to be given promptly thereafter.
The issuance of Exchange Notes for Old Notes that are accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer, or if Old Notes are submitted for a greater amount than the holder
desires to exchange, Old Notes in the appropriate denomination will be promptly
returned to the holder thereof or, in the case of Old Notes tendered by book-
entry procedures described below, such non-exchanged Old Notes will be credited
to an account maintained with such Book-Entry Transfer Facility designated by
the tendering holder as promptly as practicable after the expiration or
termination of the Exchange Offer.
27
<PAGE>
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue Exchange Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer as provided herein
prior to the Expiration Date, if because of any changes in law, or applicable
interpretations thereof by the Commission, or because any action or proceeding
is instituted or threatened in any court or governmental agency with respect to
the Exchange Offer, the Company determines that it is not permitted to effect
the Exchange Offer.
INTEREST ON THE EXCHANGE NOTES
Each Exchange Note will bear interest at the rate of 11 3/4% per annum from
the most recent date to which interest has been paid or duly provided for on the
Old Note surrendered in exchange for such Exchange Note or, if no interest has
been paid or duly provided for on such Old Note, from July 10, 1998 (the date of
original issuance of such Old Notes). Interest on the Exchange Notes will be
payable semiannually on January 1 and July 1 of each year, commencing on the
first such date following the original issuance date of the Exchange Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the Exchange Notes or if
no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and will be deemed to have waived the right
to receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after July 10, 1998.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof, or an Agent's Message, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
The term "Agent's Message" means a message, transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal, and the Company
may enforce the Letter of Transmittal against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes, stating that
the tender is being made thereby and guaranteeing that within five trading days
(on the Nasdaq Stock Market's National Market (the "Nasdaq National Market"))
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other
28
<PAGE>
documents required by the Letter of Transmittal, are received by the Exchange
Agent within five Nasdaq National Market trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn by the tendering parties at any time
prior to the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under "--
Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the amount of such Old Notes), and (where certificates
for Old Notes have been transmitted) specify the name in which such Old Notes
are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account with such Book-Entry Transfer Facility specified by the holder) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "--Procedures for Tendering Old Notes" above
at any time on or prior to the Expiration Date.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
Deliver To: United States Trust Company of New York, Exchange Agent
<TABLE>
<CAPTION>
BY MAIL: BY HAND:
<S> <C>
United States Trust Company of New York United States Trust Company of New York
P.O. Box 841, Peter Cooper Station 111 Broadway, Lower Level
New York, NY 10276-0841 New York, NY 10006
Attention: Corporate Trust and Agency Services Attention: Corporate Trust and Agency Services
</TABLE>
FOR INFORMATION, CALL:
(800) 225-2398
Fax: (212) 420-6155
BY OVERNIGHT COURIER OR EXPRESS MAIL:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
Attention: Corporate Trust and Agency Services
29
<PAGE>
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register Exchange Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take. See "Certain United States Federal Income Tax
Considerations."
The Old Notes that are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain restricted securities and may only be offered, sold,
pledged or otherwise transferred (A)(i) to a person whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A, (ii) in an offshore
transaction meeting the requirements of Rule 903 or Rule 904 of Regulations S
under the Securities Act, or (iii) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 thereunder or other exemption from
such registration (if available) and (B) in accordance with all applicable
securities laws of the states of the United States. Under certain circumstances,
the Company is required to file a Shelf Registration Statement (as defined
below) on behalf of the Initial Purchaser or those holders of Old Notes who are
not eligible to participate in the Exchange Offer. See "Description of the
Notes--Exchange Offer; Registration Rights."
PAYMENT OF ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES
If the Exchange Offer is not consummated within 180 days after the Issue
Date, or, under certain circumstances, if the Initial Purchaser or any holder of
Notes (other than the Initial Purchaser) who is not eligible to participate in
the Exchange Offer so requests (each a "Shelf Request"),the Company will at its
cost, (a) within 45 days of such Shelf Request, file a shelf registration
statement (a "Shelf Registration Statement") covering resales of the Notes held
by such requesting holders (the "Shelf Notes"), (b) use its best efforts to
cause such Shelf Registration Statement to be declared effective under the
Securities Act no later than 120 days following a Shelf Request and (c) use its
best efforts to keep effective such Shelf Registration Statement until the
earlier of two years after the Issue Date or such shorter time as all of the
applicable Notes have been sold thereunder or all applicable Notes have ceased
to be Registrable Notes (as defined). The Company will, in the event of the
filing of a Shelf Registration Statement, provide to each holder of the Shelf
Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such holder when such Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Shelf Notes. A holder that sells its Shelf Notes
pursuant to a Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection
30
<PAGE>
with such sales and will be bound by the provisions of the Exchange and
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
The Exchange and Registration Rights Agreement provides that as liquidated
damages and as the sole and exclusive remedy therefor, additional interest (the
"Additional Interest") will become payable under certain circumstances with
respect to the Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within, in the case of the Exchange Offer
Registration Statement, 45 days following the Issue Date or, in the
case of the Shelf Registration Statement, 45 days following a Shelf
Request, Additional Interest will accrue on the Old Notes, in the
case of the Exchange Offer Registration Statement, or the Shelf
Notes, in the case of the Shelf Registration Statement, over and
above the stated interest at a rate of 0.50% per annum for the first
30 days commencing on the 46th day after the Issue Date or the Shelf
Request, respectively, such Additional Interest rate increasing by
an additional 0.50% per annum at the beginning of each subsequent
30-day period.
(ii) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within, in the case of the
Exchange Offer Registration Statement, 120 days following the Issue
Date or, in the case of the Shelf Registration Statement, 120 days
following a Shelf Request, Additional Interest will accrue on the
Old Notes, in the case of the Exchange Offer Registration Statement,
or the Shelf Notes, in the case of the Shelf Registration Statement,
over and above the stated interest at a rate of 0.50% per annum for
the first 90 days commencing on the 121st day after the Issue Date
or the Shelf Request, respectively, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(iii) if (A) the Company has not exchanged all Old Notes validly tendered
in accordance with the terms of the Exchange Offer on or prior to
180 days after the Issue Date or (B) the Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that
the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to
the second anniversary of the Issue Date (unless all the Notes have
been sold thereunder or all applicable Notes have ceased to be
Registrable Notes (as defined)), then Additional Interest will
accrue on the Old Notes, with respect to (x) and (y), and the Shelf
Notes, with respect to (z), over and above the stated interest at a
rate of 0.50% per annum for the first 90 days commencing on (x) the
181st day after the Issue Date with respect to the Old Notes validly
tendered and not exchanged by the Company, in the case of (A) above,
or (y) the day the Exchange Offer Registration Statement ceases to
be effective or usable for its intended purpose in the case of (B)
above, or (z) the day such Shelf Registration Statement ceases to be
effective in the case of (C) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
provided, however, that the Additional Interest rate on the Old Notes or the
Shelf Notes under clauses (i), (ii) or (iii) above, may not exceed in the
aggregate 2.0% per annum; and provided further, that (1) upon the filing of the
Exchange Offer Registration Statement or Shelf Registration Statement (in the
case of clause (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of clause
(ii) above), or (3) upon the exchange of Exchange Notes for all Old Notes
tendered (in the case of clause (iii)(A) above), or upon the effectiveness of
the Exchange Offer Registration Statement which had ceased to remain effective
in the case of clause (iii)(B) above), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) above), Additional Interest on the Notes as a result of such
clause (or the relevant subclause thereof), as the case may be, will cease to
accrue.
The Company has already met the conditions regarding the filing and
effectiveness of the Exchange Offer Registration Statement in (i) and (ii)
above, accordingly as to such registration statement, (i) and (ii) are no longer
applicable.
The above is a summary of the terms set forth in more detail in the
Exchange and Registration Rights Agreement and such summary is qualified by
reference to such agreement, which is filed as an exhibit to the Exchange Offer
Registration Statement.
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<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer.
The net proceeds to the Company from the offering of the Old Notes were
$95.2 million after deducting the fees and expenses of $4.8 million payable by
the Company. Of the net proceeds, the Company used (i) $27.6 million to prepay
the capital lease obligation relating to the satellite transponders, which
allows the Company to now own the transponders, (ii) $26.7 million to finance
the cash portion of the Acquisition, and (iii) $16.7 million to repay
outstanding indebtedness under Radio Holdings' $30 million revolving credit
facility. The remaining $24.2 million will be used for general corporate
purposes, $10.0 million of which was deposited into the Reserve Account. Cash
balances in the Reserve Account are restricted to use for only acquisitions and
payment of principal of or interest on the Notes. Borrowings under Radio
Holding's credit facility bore interest at a maximum rate of LIBOR plus 2.875%
(approximately 7.9% at June 30, 1998) and was otherwise repayable between March
31, 2000 and March 31, 2002. Borrowings under this credit facility were used to
repay certain indebtedness and to pay credit facility fees. See "Certain
Relationships and Related Transactions--Advances" and "--Purchase of Galactic
Radio and Earth Segment." In connection with the offering of the Old Notes, the
Company terminated the Radio Holdings' credit facility.
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<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of June 30, 1998 (i) on a historical basis as reported, and (ii) on a pro
forma basis to reflect the Transactions. This table should be read in
conjunction with the Company's historical consolidated financial statements and
the related notes thereto and the other information included elsewhere in this
Offering Memorandum. See "Use of Proceeds," "Selected Consolidated Financial
Data," "Selected Unaudited Pro Forma Financial Data," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------
REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................................................. $ 2,445 $ 16,260
Restricted cash(1)........................................................................ -- 10,000
-------- --------
Total cash, cash equivalents and restricted cash.......................................... $ 2,445 $ 26,260
======== ========
Debt:
Credit facility...................................................................... $ 16,705 $ --
11 3/4% Senior Secured Notes due 2005................................................ -- 100,000
Capital lease obligation............................................................. 27,591 --
Jones Global Group Note(2)........................................................... 10,000 --
-------- --------
Total debt........................................................................... 54,296 100,000
-------- --------
Minority interests........................................................................ 822 822
Class A Common Stock Subject to Put....................................................... - 1,213
Shareholders' deficit:
Class A Common Stock, $.01 par value: 50,000,000 shares authorized;
2,980,953, and 4,264,407 shares issued and outstanding, respectively................. 30 43
Class B Common Stock, $.01 par value: 1,785,120 shares authorized;
1,785,120, and 1,785,120 shares issued and outstanding, respectively................. 18 18
Additional paid-in capital........................................................... 9,143 28,147
Accumulated deficit.................................................................. (33,060) (33,060)
-------- --------
Total shareholders' deficit.......................................................... (23,869) (4,852)
-------- --------
Total capitalization...................................................................... $ 31,249 $ 97,183
======== ========
</TABLE>
(1) Restricted to acquisitions and payment of principal of and interest on the
Notes.
(2) Concurrent with the closing of the offering of the Old Notes, the Jones
Global Group Note was converted into 666,667 shares of Class A Common Stock at
$15 per share, which was the value agreed upon by the parties.
33
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
OVERVIEW
The following Selected Unaudited Pro Forma Financial Data as of and for the
six months ended June 30, 1998 have been derived from the unaudited financial
statements of the Company and the unaudited financial statements of
MediaAmerica. The Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1997 is based on the audited financial statements of the Company,
adjusted to reflect the effects of the consolidation of the PIN Venture as a
result of the Company's acquisition of a majority interest, and the audited
financial statements of MediaAmerica. The Selected Unaudited Pro Forma Financial
Data further adjust the unaudited financial statements to reflect the
Transactions.
The further Selected Unaudited Pro Forma Financial Data reflect adjustments
that are based upon available information and factually supportable assumptions
that the Company believes are reasonable and do not necessarily reflect the
results of operations or the financial position of the Company that actually
would have resulted had the Acquisition been consummated or the GAC Equity
Agreements been in place. Pro forma adjustments above have been reflected, as of
the date or for the periods indicated. In preparing the Selected Unaudited Pro
Forma Financial Data, the Company believes it has utilized reasonable methods to
conform the basis of presentation.
The Selected Unaudited Pro Forma Financial Data and accompanying notes
should be read in conjunction with the Selected Consolidated Financial Data of
the Company as well as the consolidated financial statements of the Company and
MediaAmerica and the other financial information pertaining to the Company,
including "Use of Proceeds," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
THE ACQUISITION
On July 10, 1998, the Company acquired certain of the assets and assumed
certain of the liabilities of MediaAmerica. Pursuant to the Acquisition,
MediaAmerica received $26.7 million in cash and $6.0 million in shares of Class
A Common Stock of the Company valued at $15 per share. MediaAmerica also
received approximately 142,000 additional shares of Class A Common Stock, valued
at $15 per share, in the amount of the estimated working capital adjustment
calculated on the date of the closing of the Acquisition, subject to final
adjustment sixty days after closing. In addition, MediaAmerica can earn up to $5
million in additional shares of Class A Common Stock valued at $15 per share,
with remaining amounts to be paid in cash, based on certain multiples of
"EBITDA" (earnings before interest, taxes, depreciation and amortization) from
the MediaAmerica business (as defined) for the twelve-month period following the
closing of the Acquisition (the "Earnout"). The closing of the Acquisition was
contingent on and was closed simultaneous with the closing of the offering of
the Old Notes on July 10, 1998.
The Acquisition will be accounted for by the purchase method of
accounting, under which the purchase price of MediaAmerica will be allocated to
the tangible and intangible assets and liabilities of MediaAmerica. The Selected
Unaudited Pro Forma Financial Data have been prepared based upon certain
assumptions made by management regarding a preliminary estimate of the purchase
price allocation. In Management's opinion, the actual accounting treatment
regarding the Acquisition and the final adjustments and allocation of the
purchase price will not materially differ from the preliminary treatment and the
estimated amounts.
34
<PAGE>
THE GAC EQUITY AGREEMENTS
In the first quarter of 1998, Great American Country and the Company
entered into equity affiliate agreements with two MSOs. Pursuant to the terms of
such agreements, the Company agreed to issue shares of Class A Common Stock to
the MSOs in return for the MSOs providing Great American Country's programming
to no less than 550,000 subscribers by May 31, 1998, an additional 500,000
subscribers by December 31, 1998 and to another 150,000 subscribers by December
31, 1999. The total number of shares to be issued is based on the number of
subscribers provided by the MSOs. As of June 30, 1998, 714,770 subscribers had
been provided by the MSOs. As a result, the Company is required to issue 104,237
shares to such MSOs. If the MSOs provide the remaining 485,230 additional
subscribers by the dates specified, the Company would be required to issue a
total of 70,763 additional shares to such MSOs. At August 1, 1998, 101,124
shares of Class A Common Stock had been issued to one of the MSOs.
Pursuant to the GAC Equity Agreements, the MSOs agreed to pay a specified
rate per subscriber, less a volume discount based on the level of subscribers
provided. Pro forma subscriber license fee revenues were calculated based on the
total number of subscribers that these MSOs agreed to provide to Great American
Country and the agreed upon rate per subscriber. In addition, launch incentive
payments of $1.2 million are to be paid by the Company under the GAC Equity
Agreements.
35
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
SELECTED UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
COMPANY MEDIAAMERICA(a) ADJUSTMENTS PRO FORMA
------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........................... $ 2,445 $ 809 13,006 (b) $ 16,260
Restricted cash..................................... -- -- 10,000 (b) 10,000
Accounts receivable................................. 2,799 7,150 -- 9,949
Other current assets................................ 504 684 -- 1,188
-------- ------- -------- --------
Total current assets.......................... 5,748 8,643 23,006 37,397
-------- ------- -------- --------
Property, plant and equipment....................... 26,920 840 -- 27,760
Goodwill............................................ 3,009 -- 29,780 (c) 32,789
Intangible assets................................... 1,082 2,202 3,300 (d) 6,584
Other long-term assets.............................. 4,003 41 3,389 (e) 7,433
-------- ------- -------- --------
Total assets.................................. $ 40,762 $11,726 $ 59,475 $111,963
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS'
INVESTMENT(DEFICIT):
Accounts payable.................................... $ 1,264 $ 5,751 $ (1,111) (e) $ 5,904
Accrued liabilities................................. 1,954 405 -- 2,359
Other current liabilities........................... 8,925 99 (2,969) (e)(f) 6,055
-------- ------- -------- --------
Total current liabilities..................... 12,143 6,255 (4,080) 14,318
-------- ------- -------- --------
Note payable--affiliated entity..................... 10,000 -- (10,000) (f) --
Senior secured notes................................ -- -- 100,000 (f) 100,000
Credit facility..................................... 16,705 -- (16,705) (f) --
Capital lease obligations........................... 24,922 -- (24,922) (f) --
Other long-term liabilities......................... 39 423 -- 462
-------- ------- -------- --------
Total long-term liabilities................... 51,666 423 48,373 100,462
-------- ------- -------- --------
Minority interests.................................. 822 -- -- 822
Class A Common Stock subject to put................ -- -- 1,213 (g) 1,213
Shareholders' investment (deficit):
Class A Common Stock.............................. 30 50 (37) (h) 43
Class B Common Stock.............................. 18 -- -- 18
Additional paid-in capital........................ 9,143 292 18,712 (h) 28,147
Retained earnings (accumulated deficit)........... (33,060) 4,706 (4,706) (h) (33,060)
-------- ------- -------- --------
Total shareholders' investment (deficit)...... (23,869) 5,048 13,969 (4,852)
-------- ------- -------- --------
Total liabilities and shareholders'
investment (deficit).............................. $ 40,762 $11,726 $ 59,475 $111,963
======== ======= ======== ========
</TABLE>
See notes to selected unaudited pro forma financial data.
36
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
SELECTED UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
COMPANY MEDIAAMERICA ADJUSTMENTS PRO FORMA
------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming..................................... $ 3,739 $ 998 $ 663 (j) $ 5,400
Radio advertising sales
representation.................................... -- 4,990 (676) (j) 4,314
Television programming................................ 7,865 -- 13 (j) 8,126
248 (k) --
Satellite delivery and production support............. 2,128 -- -- 2,128
------- ------- ------ -------
Total revenues................................ 13,732 5,988 248 19,968
------- ------- ------ -------
OPERATING EXPENSES:
Radio programming.................................. 3,490 -- -- 3,490
Radio advertising sales representation............. -- 1,154 -- 1,154
Television programming............................. 6,667 -- -- 6,667
Satellite delivery and production support.......... 2,330 -- -- 2,330
Selling and marketing.............................. 1,747 1,874 -- 3,621
General and administrative......................... 2,092 2,390 491 (m) 4,973
------- ------- ------ -------
Total operating expenses...................... 16,326 5,418 491 22,235
------- ------- ------ -------
OPERATING INCOME (LOSS)....................... (2,594) 570 (243) (2,267)
------- ------- ------ -------
OTHER EXPENSE (INCOME):
Interest expense................................... 2,640 24 3,556 (n) 6,220
Interest income.................................... (99) (59) -- (158)
Equity share of income of subsidiary (q)........... (73) -- -- (73)
Other expense (income), net........................ 264 69 -- 333
------- ------- ------ -------
Total other expense (income).................. 2,732 34 3,556 6,322
------- ------- ------ -------
Income (Loss) before income taxes and minority
interests......................................... (5,326) 536 (3,799) (8,589)
Income tax provision............................... 268 43 -- 311
------- ------- ------ -------
Loss before minority interests..................... (5,594) 493 (3,799) (8,900)
Minority interests in net loss of
consolidated subsidiaries........................ 69 -- -- 69
------- ------- ------ -------
NET INCOME (LOSS).................................. $(5,663) $ 493 $(3,799) $(8,969)
======= ====== ======= =======
OTHER DATA:
EBITDA (s)......................................... $ 19 $ 823 $ 298 $ 1,140
Depreciation and amortization (t).................. 2,651 253 541 3,445
Capital expenditures............................... 539 106 -- 645
EBITDA attributable to PIN
Venture's minority interests (u)................. (38) -- -- (38)
</TABLE>
See notes to selected unaudited pro forma financial data.
37
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
SELECTED UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PIN VENTURE (i) MEDIAAMERICA ADJUSTMENTS PRO FORMA
------- -------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming........... $10,200 $ -- $ 1,702 2,139 (j) $14,041
Radio advertising sales
representation............. -- -- 13,436 (2,151) (j) 11,285
Television programming...... 12,002 2,858 -- 12 (j) 15,484
612 (k)
Satellite delivery and
production support......... 6,910 -- -- (425) (l) 6,485
------- ------ ------- -------- -------
Total revenues.............. 29,112 2,858 15,138 187 47,295
------- ------ ------- -------- -------
OPERATING EXPENSES:
Radio programming........... 5,816 -- -- -- 5,816
Radio advertising sales
representation............. -- -- 1,296 -- 1,296
Television programming...... 9,272 2,175 -- (221) (1) 11,226
Satellite delivery and
production support......... 4,685 -- -- (204) (l) 4,481
Selling and marketing....... 2,918 104 4,594 -- 7,616
General and administrative.. 4,168 203 5,219 671 (m) 10,261
------- ------ ------- -------- -------
Total operating expenses.... 26,859 2,482 11,109 246 40,696
------- ------ ------- -------- -------
OPERATING INCOME (LOSS)..... 2,253 376 4,029 (59) 6,599
------- ------ ------- -------- -------
OTHER EXPENSE (INCOME):
Interest expense............ 5,677 12 14 6,704 (n) 12,407
Interest income............. (108) (3) (227) 12 (n) (326)
Write-off of deferred
offering costs (o)......... 938 -- -- -- 938
Officers' incentive
compensation............... -- -- 2,600 (2,600) (p) --
Equity share of loss (income)
of subsidiary.............. (396)(q) -- -- 169 (r) (227)
Other expense (income), net. 74 -- -- -- 74
------- ------ ------- -------- -------
Total other expense......... 6,185 9 2,387 4,285 12,866
------- ------ ------- -------- -------
Income (loss) before income
taxes and minority interests (3,932) 367 1,642 (4,344) (6,267)
Income tax provision
(benefit).................. (1,342) -- 154 -- (1,188)
------- ------ ------- -------- -------
Income (loss) before minority
interests.................. (2,590) 367 1,488 (4,344) (5,079)
Minority interests in net
income of consolidated
subsidiaries............... 903 -- -- 169 (r) 1,072
------- ------ ------- -------- -------
NET INCOME (LOSS)........... $(3,493) $ 367 $ 1,488 $ (4,513) $(6,151)
======= ====== ======= ======== =======
OTHER DATA:
EBITDA (s).................. $ 6,561 $ 216 $ 4,326 $ 1,112 $12,215
Depreciation and
amortization (t).......... 5,130 24 297 1,171 6,622
Capital expenditures........ 1,367 19 165 -- 1,551
EBITDA attributable to PIN
Venture's minority interests (u) (822) (184) -- -- (1,006)
</TABLE>
See notes to selected unaudited pro forma financial data.
38
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
(a) On July 10, 1998, the Company acquired substantially all assets and assumed
certain liabilities of MediaAmerica, Inc. for $32.7 million. The allocation of
purchase price between cash and Class A Common Stock is summarized as
follows:
<TABLE>
(IN THOUSANDS)
<S> <C>
Cash......................................................... $ 26,700
Class A Common Stock valued at $15 per share................. 6,000
--------
Total........................................................ $ 32,700
========
</TABLE>
The $15 per share market value was determined by agreement of the parties.
This column represents only those assets acquired and those liabilities
assumed in the Acquisition.
The Unaudited Pro Forma Statement of Financial Position gives effect to the
following unaudited pro forma adjustments:
(b) Represents the receipt of gross proceeds of $100.0 million from the
offering of the Old Notes less (i) the payment of a $27.6 million capital
lease obligation relating to the satellite transponders, (ii) the payment
of $26.7 million for the cash portion of the Acquisition, (iii) the
repayment of $16.7 million of outstanding indebtedness under Radio
Holdings' revolving credit facility, (iv) the deposit of $10.0 million into
the Reserve Account, (v) the payment of $4.8 million of issuance costs
related to the offering of the Old Notes and (vi) the payment of $1.2
million related to launch incentive fees to the MSOs under the GAC Equity
Agreements.
(c) Represents goodwill of approximately $29.8 million related to the
Acquisition based on a preliminary allocation of the purchase price in
accordance with the purchase method of accounting. The allocation to
goodwill consists of the excess of the purchase price over the specific
asset amounts set forth in the MediaAmerica column of the Unaudited Pro
Forma Statement of Financial Position as of June 30, 1998. For radio
programming assets (including related agreements with radio stations), the
allocation made by the Company represented MediaAmerica's historical
acquisition costs for such assets. No other amounts were specifically
allocated to any other acquired agreements, including representation
agreements, because of (1) the short-term nature of most of the agreements,
(2)the fact that the other parties to certain of the agreements have the
ability to terminate the agreements unilaterally under certain
circumstances and (3) because the Company believes that the purchase price
was paid principally for the ongoing ability of MediaAmerica to contribute
to the long-term success of the Company (through expertise, business
relationships, etc.), and not for the acquisition of any specific agreement
or agreements.
(d) Represents (i) intangible assets of approximately $2.1 million related to
the Class A Common Stock expected to be issued under the GAC Equity
Agreements and (ii) intangible assets of approximately $1.2 million related
to the payment of launch incentive fees to the MSOs under the GAC Equity
Agreements.
(e) Represents the payment of $4.8 million for issuance costs related to the
offering of the Old Notes. The Company had already incurred approximately
$1.4 million of the $4.8 million total estimated issuance costs as of June
30, 1998, with $1.1 million reflected in accounts payable and $0.3 million
reflected in other current liabilities.
(f) Represents the (i) addition of $100.0 million in Notes pursuant to the
offering of the Old Notes, (ii) payment of a $27.6 million capital lease
obligation relating to the satellite transponders, (iii) repayment of $16.7
million of outstanding amounts under the Radio Holdings' revolving credit
facility and (iv) conversion of the $10.0 million Jones Global Group Note
into shares of the Company's Class A Common Stock valued at $15 per
share.
(g) Represents the addition of $1.2 million in shares of Class A Common Stock,
subject to put, expected to be issued pursuant to one of the GAC Equity
Agreements.
(h) Represents the (i) addition of $6.0 million in Class A Common Stock issued
pursuant to the Acquisition valued at $15 per share, (ii) addition of $2.1
million in shares of Class A Common Stock expected to be issued in the
Acquisition pursuant to the working capital adjustment, (iii) addition of
$0.9 million in shares of Class A Common Stock expected to be issued
pursuant to one of the GAC Equity Agreements, (iv) conversion of the $10.0
million Jones Global Group Note into shares of the Company's Class A Common
Stock valued at $15 per share and (v) elimination of MediaAmerica's
shareholders' investment. The $15 per share values were determined by
agreement of the parties in both instances.
(i) Reflects the operating results on a consolidated basis of the PIN Venture
as a result of the Company's acquiring a majority interest.
The Unaudited Pro Forma Statements of Operations give effect to the
following unaudited pro forma adjustments:
(j) Represents the reclassification of representation fees charged by
MediaAmerica to the Company from radio advertising sales representation to
radio programming and cable programming.
(k) Represents subscriber license fees expected to be received under the GAC
Equity Agreements, which are not included in the historical revenues of the
Company.
(l) Represents the (i) elimination of the satellite delivery and production
support revenues the Company charged to the PIN Venture and (ii)
reclassification of the portion of satellite transponder and production
support expenses that the Company charged its own subsidiaries to
television programming expenses as a result of the consolidation of the PIN
Venture.
39
<PAGE>
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA--(CONTINUED)
(m) Reflects the (i) amortization over 40 years of goodwill resulting from the
Acquisition, (ii) elimination of certain contractual expenses related to
the Acquisition, (iii) amortization over 10 years (approximate life of
agreements) relating to the GAC Equity Agreements and (iv) amortization of
goodwill pertaining to the PIN Venture over 18 years (remaining life of the
partnership agreement) as summarized below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(IN THOUSANDS)
<S> <C> <C>
The Acquisition:
Amortization of Acquisition goodwill...................... $ 764 $ 376
Identified cost savings related to the Acquisition........ (200) (50)
Nonrecurring legal expenses............................... (300) --
------ ------
Subtotal............................................. 264 326
GAC Equity Agreements:
Amortization of subscriber incentive payments............. 121 60
Amortization of intangibles............................... 210 105
PIN Venture, amortization of goodwill.......................... 76 --
------ ------
Subtotal.................................................. 407 165
------ ------
Total..................................................... $ 671 $ 491
====== ======
</TABLE>
Elimination of certain expenses related to the Acquisition consisted of
identified cost savings related to the Acquisition that are pursuant to
contractual items of the combination. Management believes the Company
will realize other cost savings in addition to the adjustments that
are not pursuant to contractual items of the combination that would have
increased pro forma net income by approximately $560 and $353 for the
year ended December 31, 1997 and the six months ended June 30, 1998,
respectively.
(n) The pro forma adjustment to interest expense reflects interest expense on
the Notes plus the amortization of debt financing costs related to the
Notes and the revolving credit facility minus historical interest expense
as summarized below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Interest Expense Elimination:
Capital lease interest expense............................ $ (2,985) $ (1,414)
Jones Global Group Note interest expense.................. (1,196) (413)
Jones International interest expense on advances.......... (868) (327)
Revolving Credit Facility interest expense................ -- (330)
Jones Earth Segment interest expense...................... (627) (156)
PIN Venture interest expense.............................. (12) --
---------- ----------
Subtotal............................................. (5,688) (2,640)
Interest Expense Adjustments:
Interest expense on the Notes............................. 11,750 5,875
Amortization of debt financing costs...................... 642 321
---------- ----------
Subtotal............................................. 12,392 6,196
---------- ----------
Total................................................ $ 6,704 $ 3,556
========== ==========
</TABLE>
(o) Represents portion of deferred financing costs incurred during 1996 and
1997 in connection with a proposed initial public offering that was deemed
not transferable to other financing activities.
(p) Represents the elimination of MediaAmerica's officers' incentive
compensation.
(q) Represents the Company's share of the net loss (income) of its
unconsolidated Superaudio joint venture, which is 50% owned by the Company
and is accounted for under the equity method.
40
<PAGE>
distributions of $350 and $100 from the Company's unconsolidated 50%-owned
Superaudio subsidiary for the six months ended June 30, 1998 and the year
ended December 31, 1997, respectively. Management believes that EBITDA is a
measure commonly used by analysts and investors to determine a company's
ability to service and incur its debt. EBITDA should not be considered in
isolation from or as a substitute for net income (loss), cash flows from
operating activities or other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity as the items excluded for the
calculation of EBITDA, such as interest, depreciation and amortization, are
significant components in understanding and assessing the Company's
financial performance. EBITDA measures presented may not be comparable to
similarly titled measures presented by other companies.
(r) Represents the elimination of (i) the Company's equity share of income
(loss) of the PIN Venture and (ii) the minority interest in the PIN Venture
on an adjusted basis.
(s) EBITDA represents operating income (loss) plus depreciation and
amortization minus the EBITDA attributable to the minority interests in the
Company's consolidated 54%-owned PIN Venture subsidiary. EBITDA does not
include cash
(t) Excludes the amortization of debt issuance costs.
(u) Represents the EBITDA attributable to the minority interests in the
Company's consolidated 54%-owned PIN Venture subsidiary.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The historical statements of operations and statements of financial position
data as of and for each of the years in the five-year period ended December 31,
1997 have been derived from the consolidated financial statements of the
Company, which have been audited by Arthur Andersen LLP, independent auditors.
The selected consolidated financial data as of and for the six months ended June
30, 1997 and 1998 have been derived from unaudited financial statements included
elsewhere herein. In the opinion of management, these statements include all
adjustments, consisting solely of normal recurring accruals and other
adjustments as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," necessary for the fair presentation of
financial position and of the results of operations for those periods. The
results of operations for the six months ended June 30, 1998 may not be
indicative of results that may be expected for the full year ending December 31,
1998.
<TABLE>
<CAPTION>
SIX MONTHS
----------
ENDED
-----
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ --------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
REVENUES:
Radio programming.........................$ 3,186 $ 2,541 $ 5,121 $ 6,978 $ 10,200 $ 5,090 $ 3,739
Television programming.................... 290 1,946 340 1,153 12,002 3,898 7,865
Satellite delivery and production support. 7,745 6,805 9,666 8,523 6,910 3,918 2,128
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................ 11,221 11,292 15,127 16,654 29,112 12,906 13,732
--------- --------- --------- --------- --------- --------- ---------
OPERATING EXPENSES:
Radio programming......................... 1,974 2,068 3,068 4,163 5,816 2,804 3,490
Television programming.................... 355 1,149 366 1,157 9,272 3,006 6,667
Satellite delivery and production support. 5,045 4,546 6,530 5,451 4,685 2,605 2,330
Selling and marketing..................... 955 1,090 1,374 1,737 2,918 1,266 1,747
General and administrative................ 1,319 1,958 2,322 3,270 4,168 1,863 2,092
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.............. 9,648 10,811 13,660 15,778 26,859 11,544 16,326
--------- --------- --------- --------- --------- --------- ---------
OPERATING INCOME (LOSS)................... 1,573 481 1,467 876 2,253 1,362 (2,594)
--------- --------- --------- --------- --------- --------- ---------
OTHER EXPENSE (INCOME):
Interest expense.......................... 3,522 3,459 4,070 4,500 5,677 2,867 2,640
Interest income........................... (194) (58) (64) (72) (108) (22) (99)
Write-off of deferred offering costs (a).. -- -- -- -- 938 938 --
Equity share of income of subsidiary (b).. (161) (237) (11) (829) (396) (287) (73)
Other expense (income), net............... 34 9 16 (12) 74 -- 264
--------- --------- --------- --------- --------- --------- ---------
Total other expense................... 3,201 3,173 4,011 3,587 6,185 3,496 2,732
--------- --------- --------- --------- --------- --------- ---------
Loss before income taxes and minority
interests............................... (1,628) (2,692) (2,544) (2,711) (3,932) (2,134) (5,326)
Income tax provision (benefit)............ (170) (389) (498) (387) (1,342) (356) 268
--------- --------- --------- --------- --------- --------- ---------
Loss before minority interests............ (1,458) (2,303) (2,046) (2,324) (2,590) (1,778) (5,594)
Minority interests in net income (loss)
of consolidated subsidiaries............ -- -- -- (9) 903 418 69
--------- --------- --------- --------- --------- --------- ---------
NET LOSS..................................$ (1,458) $ (2,303) $ (2,046) $ (2,315) $ (3,493) $ (2,196) $ (5,663)
========= ========= ========= ========= ========= ========= =========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE............................$ (0.36) $ (0.56) $ (0.50) $ (0.56) $ (0.79) $ (0.50) $ (1.19)
========= ========= ========= ========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING......................4,103,573 4,103,573 4,103,573 4,103,573 4,400,448 4,366,073 4,766,073
========= ========= ========= ========= ========= ========= =========
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIO AND RADIO STATION AFFILIATE DATA)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 715 $ 705 $ 5 $ 4 $ 3,717 $ 349 $ 2,445
Working capital (deficit).................. (5,150) 276 (847) (6,615) (9,331) (5,109) (6,395)
Total assets............................... 40,721 39,196 36,352 38,298 41,358 42,026 40,762
Total long-term debt....................... 45,171 52,667 53,476 53,277 45,312 52,333 54,296
Minority interests (c)..................... -- -- -- 291 1,593 1,145 822
Shareholders' deficit...................... (12,484) (16,302) (20,360) (23,269) (18,206) (22,793) (23,869)
OTHER DATA:
Cash provided by (used in) operating
activities............................... $ 2,938 $ 6,933 $ 364 $ 4,776 $ 7,589 $ 2,574 $ (8,145)
Cash used in investing activities.......... 4,348 1,271 1,873 3,971 1,156 741 696
Cash provided by (used in) financing
activities............................... 1,444 8,266 809 (807) (2,720) (1,488) 7,569
EBITDA (d)................................. 4,960 3,769 5,355 5,352 6,561 3,788 19
Depreciation and amortization.............. 3,387 3,288 3,888 4,476 5,130 2,512 2,651
Capital expenditures....................... 4,384 1,641 1,262 2,969 1,367 1,002 539
Ratio of earnings to fixed charges (e)..... -- -- -- -- -- --
AUDIENCE DATA (AT END OF PERIOD):
Radio station AQH (24-hour formats) (f).... 516 670 765 1,090 1,148 1,105 1,324
Radio station AQH (syndicated) (f)......... -- -- -- 834 1,048 798 1,148
Radio station affiliates................... 718 925 929 1,273 1,484 1,317 1,510
Great American Country households.......... -- -- 14 1,049 1,550 1,172 3,578
Product Information Network households..... 275 1,489 4,825 8,111 11,500 10,552 18,630
</TABLE>
(a) Represents portion of deferred financing costs incurred during 1996 and
1997 in connection with a proposed initial public offering that was deemed
not transferable to other financing activities.
(b) Represents the Company's share of the net loss (income) of its
unconsolidated Superaudio joint venture, which is 50% owned by the Company
and is accounted for under the equity method.
(c) Represents the minority interest in the net assets of the Company's
consolidated subsidiaries.
(d) EBITDA represents operating income (loss) plus depreciation and
amortization minus the EBITDA attributable to the minority interests in the
Company's consolidated 54%-owned PIN Venture subsidiary. EBITDA does not
include cash distributions of $375, $175, $300, $100 and $350 received from
the Company's unconsolidated 50%-owned Superaudio subsidiary for the years
ended December 31, 1994, 1995, 1996 and 1997 and for the six months ended
June 30, 1998, respectively. Management believes that EBITDA is a measure
commonly used by analysts and investors to determine a company's ability to
service and incur its debt. EBITDA should not be considered in isolation
from or as a substitute for net income (loss), cash flows from operating
activities or other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of profitability or liquidity as the items excluded for the
calculation of EBITDA, such as interest, depreciation and amortization, are
significant components in understanding and assessing the Company's
financial performance. EBITDA measures presented may not be comparable to
similarly titled measures presented by other companies.
<TABLE>
<CAPTION>
December 31, June 30,
------------ --------
1993 1994 1995 1996 1997 1997 1998
----- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
CALCULATION OF EBITDA:
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income (loss).... $ 1,573 $ 481 $ 1,467 $ 876 $ 2,253 $ 1,362 $ (2,594)
Plus: Depreciation and amortization 3,387 3,288 3,888 4,476 5,130 2,512 2,651
Less: EBITDA attributable to PIN Venture's
minority interests.... -- -- -- -- (822) (86) (38)
----- ----- ----- ----- ----- ----- -----
EBITDA..................... $ 4,960 $ 3,769 $ 5,355 $ 5,352 $ 6,561 $ 3,788 $ 19
</TABLE>
(e) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings before (i) extraordinary items and accounting changes, interest
expense, taxes and that portion of operating lease rental expense which is
representative of an interest factor by (ii) interest expense. Earnings
were insufficient to cover fixed charges by $1,790, $2,554, $2,380, $3,249,
$3,291, and $4,788 for the years ended December 31, 1993, 1994, 1995, 1996,
1997 and the six months ended June 30, 1998, respectively.
43
<PAGE>
(f) AQH represents the average audience (persons age 12 or older) listening to
radio stations broadcasting the Company's advertising inventory (i) during
any 15-minute period from 6am-7pm, Monday through Friday for 24-hour
formats or (ii) during any 15-minute period that the program is being
broadcast for syndicated programs, each as measured by the Arbitron rating
service. Radio advertising is generally sold on the basis of the listening
audience as quantified by the AQH.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of results of operations and financial condition
should be read in conjunction with the Company's historical consolidated and
reconsolidated financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. See "Forward-Looking Information" and "Risk
Factors." The Company's actual results may differ materially from the results
discussed in any forward-looking statement.
OVERVIEW OF OPERATIONS
The Company creates, develops, acquires and produces programming which it
distributes to radio stations, cable television system operators and other video
distributors. The Company (i) provides radio programming to radio stations in
exchange for advertising time that it resells to national advertisers, (ii)
provides cable television programming to cable television system operators and
other video distributors, sells advertising time on its two cable television
networks and receives license fees for its country music television network, and
(iii) owns and operates playback, uplink and satellite transmission facilities
that are used to distribute the Company's programming and also are subleased to
others for a fee.
Prior to the Acquisition, the Company's revenues consisted of radio
programming revenues, cable television programming revenues and satellite
delivery and production support revenues. Radio programming revenues consist
primarily of advertising revenues and, to a lesser extent, license fees paid by
smaller radio station affiliates. License fees from radio stations have remained
stable over the past three years, reflecting the Company's decision to focus on
obtaining advertising time, instead of license fees, from its affiliated radio
stations. The Company generates radio advertising revenues by selling airtime to
advertisers who advertise their products or services on the Company's radio
network. The Company recognizes advertising revenues upon airing of the
advertisements. Any amounts received from customers for radio advertisements
that have not been aired during the period are recorded as unearned revenues
until such time as the advertisements are aired. The Company delivers its
programming to radio stations for distribution to their listeners. Radio station
license fees are earned monthly based on each radio station's contractual
agreement.
Television programming revenues consist primarily of advertising revenues
from the sale of infomercial time on the Product Information Network and
advertising time on Great American Country, as well as license fees relating to
Great American Country. The Company generates cable television advertising
revenues by selling airtime to advertisers who advertise their products or
services on the Company's television networks. The Company recognizes
advertising revenues upon airing of the advertisements. Any amounts received
from customers for television advertisements that have not been aired during the
period are recorded as unearned revenues until such time as the advertisements
are aired. The Company delivers its programming to cable television systems and
broadcast affiliates for distribution to their viewers. License fees are earned
monthly based on a per subscriber rate set pursuant to the cable operator's
agreement with the Company and the number of subscribers that are receiving the
Company's programming during the month.
Satellite delivery and production support revenues include revenues from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenues primarily by providing such services to related
parties. The Company recognizes satellite delivery and production support
revenues upon completion of the services or as provided by contract.
The Company's operating expenses consist of: (i) radio programming
expenses, (ii) television programming expenses, (iii) satellite delivery and
production support expenses, (iv) selling and marketing expenses, and (v)
general and administrative expenses.
Radio programming expenses consist of program licensing, programming
development and production costs, distribution and delivery costs and other
costs related to the operation of the Company's radio network. Program licensing
and programming development and production costs include the costs of
researching, designing, producing, and licensing programs for the Company's
radio network and other associated programming costs. Radio distribution and
delivery costs include satellite transponder expenses, uplinking charges and
other associated costs.
Television programming expenses consist primarily of distribution and
delivery costs and other costs related to the operation of the Company's cable
television networks. Because substantially all of the programming is made
available to the Company at no cost by third parties and requires limited
additional production effort by the Company, programming and
45
<PAGE>
production costs are not significant. Cable television program distribution
and delivery costs include satellite transponder expenses, uplinking charges and
other associated costs.
Satellite delivery and production support expenses include a portion of the
satellite transponder expenses, uplinking expenses and other associated
operating costs to provide these services.
Selling and marketing expenses include salaries, travel and other
associated expenses related to the Company's sales and marketing activities, as
well as the costs of designing, producing and distributing marketing,
advertising and promotional materials.
General and administrative expenses include personnel and associated costs
for the Company's executive management and management staff and operational
support and management staff.
Many of the costs associated with program distribution and delivery, such
as satellite transponder expenses and uplinking expenses, are relatively fixed
with respect to each of the Company's radio and cable television networks; as a
result, an increase in the Company's radio or cable television programming
revenues should not result in a proportionate increase in program distribution
and delivery costs. The Company charges satellite transponder and uplinking fees
to its own subsidiaries as well as to related parties and third parties. The
portions of these expenses related to subsidiary activities are included in
radio or television programming expense as appropriate.
Total other expense consists primarily of net interest expense, write-off
of deferred offering costs, equity share of loss (income) of subsidiaries and
other miscellaneous items.
46
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage relationship
to total net revenues of, certain items included in the Company's historical
consolidated statements of operations for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively:
REPORTED RESULTS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<C> <S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming............................. $ 5,121 34% $6,978 42% $10,200 35%
Television programming........................ 340 2 1,153 7 12,002 41
Satellite delivery and production support..... 9,666 64 8,523 51 6,910 24
-------- --- ------ --- ------ ---
Total revenues.............................. 15,127 100 16,654 100 29,112 100
-------- --- ------ --- ------ ---
OPERATING EXPENSES:
Radio programming............................. 3,068 20 4,163 25 5,816 20
Television programming........................ 366 2 1,157 7 9,272 32
Satellite delivery and production support..... 6,530 43 5,451 33 4,685 16
Selling and marketing......................... 1,374 9 1,737 10 2,918 10
General and administrative.................... 2,322 16 3,270 20 4,168 14
------- --- ------ --- ------ ---
Total operating expenses.................... 13,660 90 15,778 95 26,859 92
------- --- ------ --- ------ ---
OPERATING INCOME (LOSS).......................... 1,467 10 876 5 2,253 8
------- --- ------ --- ------ ---
OTHER EXPENSE.................................... 4,011 27 3,587 21 6,185 21
INCOME TAX PROVISION (BENEFIT) AND MINORITY
INTERESTS..................................... (498) (3) (396) (2) (439) (1)
------- --- ------ --- ------ ---
NET LOSS......................................... $(2,046) (14)% $(2,315) (14)% $(3,493) (12)%
======== === ======= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998
---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Radio programming............................... $ 5,090 39% $ 3,739 27%
Television programming.......................... 3,898 30 7,865 57
Satellite delivery and production support....... 3,918 31 2,128 16
------ ---- ------ ----
Total revenues.............................. 12,906 100 13,732 100
------ ---- ------ ----
OPERATING EXPENSES:
Radio programming............................... 2,804 22 3,490 25
Television programming.......................... 3,006 23 6,667 49
Satellite delivery and production support 2,605 20 2,330 17
Selling and marketing........................... 1,266 10 1,747 13
General and administrative...................... 1,863 14 2,092 15
------ --- ------- ---
Total operating expenses..................... 11,544 89 16,326 119
------ --- ------- ---
OPERATING INCOME (LOSS).............................. 1,362 11 (2,594) (19)
------ --- ------- ---
OTHER EXPENSE........................................ 3,496 27 2,732 20
INCOME TAX PROVISION (BENEFIT) AND MINORITY
INTERESTS....................................... 62 1 337 2
------ --- ------- ---
NET LOSS............................................. $ (2,196) (17)% $(5,663) (41)%
====== === ======= ===
</TABLE>
47
<PAGE>
Recent Financial Results
The Company expects that its revenues for the third quarter of 1998,
excluding MediaAmerica, will be below 1997 revenues for the comparable period
and its operating income for the third quarter is expected to be significantly
below third quarter 1997 operating income. The principal reason for the decline
in revenues has been the Company's radio programming operations. Sales of radio
advertising for the first nine months of 1998 have been adversely affected by
the recent entry into the market of AMFM, which added approximately 20% more
radio advertising inventory to the marketplace, thereby increasing competition
for network radio advertising dollars. Additionally, AMFM has been able to shift
the focus of network radio advertisers to its radio network which delivers
larger market radio stations as compared to the radio stations delivered by the
Company's radio network. During the third quarter of 1998, the Company has
continued to sell a decreased amount of radio advertising spots and is realizing
lower rates, as compared to 1997. AMFM's entry into the marketplace, as well as
the increased amount of advertising inventory in the marketplace, will continue
to have a negative impact on the Company's advertising sellout percentage and
its advertising spot rates in the fourth quarter of 1998. There is no assurance
that these factors will not materially adversely affect the Company's 1999 radio
programming operations.
In December 1997, MediaAmerica's agreement with its largest radio
advertising representation customer was terminated, and a termination fee was
paid to MediaAmerica in the first half of 1998. MediaAmerica has continued to
provide radio advertising representation services to such customer in 1998, but
the level of service has declined substantially from that provided in 1997.
AMFM's entry into the marketplace has also negatively affected MediaAmerica's
revenues from representation clients. These factors have resulted in lower
commission revenue generated by MediaAmerica and therefore its operating income
for the second half of 1998 is expected to be lower than the 1997 comparable
period.
The Company has recently entered into agreements to lease four channels on
its C-3 satellite transponder and all of its capacity on its C-4 transponder;
all but one of the channels on the Company's C-3 transponder were leased by
third parties. Based on the satellite transponder leases, the Company believes
its satellite delivery and production results will improve significantly in the
second half of 1998. These improvements, however, will not be sufficient to
offset the decline in total revenues and operating income in the first three
quarters of 1998 as compared to the same period for 1997 on a Company wide
basis. Further, the Company's operating results for the first three periods will
be negatively affected by the increase in expenses over the comparable 1997
period, including certain non-recurring expenses associated with the Offering.
The increase in expenses resulted principally from the Company's strategy to
grow the distribution of its cable television programming which resulted in
increased sales and marketing expenses to expand distribution of Great American
Country and the Product Information Network and increases in rebates offered to
cable television operators to carry the Product Information Network.
Upon the sale of Mr. Jones' interest in Jones Intercable, Jones Intercable
will no longer share in many of the administrative and related expenses which
have historically been shared by the various entities affiliated with Mr. Jones,
including the Company. Because Jones Intercable is the largest of such sharing
entities, its exclusion from the allocation process will cause the Company to
incur material increases beginning in the second half of 1999 in certain
overhead and related costs, including computer services, insurance, and
personnel costs for accounting, legal, risk management and human resources
services.
As a result of the changes occurring in the marketplace, the Company is
focusing on increasing the amount it receives per radio advertising spot and its
sellout percentage. Historically, the Company has sold its advertising to
traditional network advertisers. With the recent shift in the radio advertising
market the Company is concentrating its efforts on advertisers that have
targeted the specific demographic areas that the Company serves. Additionally,
the Company will be implementing cost reductions such as consolidating its
programming, using voice tracking and other technologies to reduce programming
costs, and reducing overhead.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Total Revenues. Total revenues increased $0.8 million, or 6%, from $12.9
million as reported for the six months ended June 30, 1997 to $13.7 million as
reported for the six months ended June 30, 1998. This increase was due primarily
to an increase in Great American Country advertising revenues and the
consolidation of the PIN Venture.
Radio Programming Revenues. Radio programming revenues decreased $1.4
million, or 27%, from $5.1 million as reported for the six months ended June 30,
1997 to $3.7 million as reported for the six months ended June 30, 1998, due to
a $1.4 million, or 31%, decrease in advertising revenues. Advertising revenues
decreased primarily due to a decrease in the
48
<PAGE>
number of advertising spots sold. Sales of radio advertising for the three
months ended June 30, 1998 were adversely affected by the recent entry into the
market of AMFM, which added approximately 20% more radio advertising inventory
to the marketplace, thereby increasing competition for network radio advertising
dollars and causing a decrease in the number of advertising spots sold in the
first six months of 1998 compared to the similar period in the prior year.
Licensing revenues remained relatively stable reflecting the Company's strategy
to focus on radio station affiliates with significant audiences, which are
generally not charged a license fee.
Television Programming Revenues. Television programming revenues increased
$4.0 million, or 102%, from $3.9 million as reported for the six months ended
June 30, 1997 to $7.9 million as reported for the six months ended June 30,
1998, due primarily to: (i) an increase of $3.3 million in advertising revenues
due to the consolidation of the PIN Venture, (ii) an increase of $0.3 million in
advertising revenues on the Product Information Network as a result of the
increase in the number of subscribers receiving its programming, (iii) an
increase of $0.3 million in Great American Country advertising revenues due to
higher advertising rates being charged for airtime as a result of an increase in
the number of its subscribers, and (iv) an increase of $0.1 million in Great
American Country affiliate fees due to an increase in the number of its
subscribers.
Satellite Delivery and Production Support Revenues. Satellite delivery and
production support revenues decreased $1.8 million, or 46%, from $3.9 million as
reported for the six months ended June 30, 1997 to $2.1 million as reported for
the six months ended June 30, 1998 due to (i) the expiration in October 1997 of
a third party satellite delivery and production support services agreement,
resulting in a reduction of $1.6 million in satellite delivery revenues, and
(ii) the consolidation of the PIN Venture which for financial statement
reporting purposes resulted in the elimination of $0.4 million in satellite
delivery revenues. This decrease was partially offset by an increase in
satellite delivery and production support fees charged to related parties. The
Company recently leased three digital channels and will provide certain related
services to a third party beginning August 15, 1998 through August 31, 1999,
subject to early termination at the option of the Company. The revenues from
this lease and service agreement are $138,000 per month. In addition, the
Company leased the C-4 satellite transponder to a third party beginning in July
1998 through December 31, 2002, at which time the third party may terminate and
pay the Company $750,000 or extend the lease through the end of lease. The
Company also leased one digital channel and certain related services to an
affiliate beginning July 1998 through July 1, 2001. These agreements will
generate revenues of approximately $160,000 and $97,000 per month, respectively.
Total Operating Expenses. Total operating expenses increased $4.8 million,
or 41%, from $11.5 million as reported for the six months ended June 30, 1997 to
$16.3 million as reported for the six months ended June 30, 1998. This increase
was due primarily to an increase in television programming expenses, radio
programming expenses and selling and marketing expenses. The increase in
television programming expenses was due primarily to the consolidation of the
PIN Venture. The increase in radio programming expenses was due primarily to an
increase in programming production expenses. The increase in selling and
marketing expenses was due primarily to increased marketing efforts undertaken
for Great American Country as well as due to increased commission expense paid
to sales associates for such increased distribution. As a percentage of total
revenues, total operating expenses increased from 89% for the six months ended
June 30, 1997 to 119% for the six months ended June 30, 1998.
Radio Programming Expenses. Radio programming expenses increased $0.7
million, or 24%, from $2.8 million as reported for the six months ended June 30,
1997 to $3.5 million as reported for the six months ended June 30, 1998, due
primarily to an increase in programming production expenses. Programming
production expenses increased approximately $0.7 million due to an increase in
the number of formats and syndicated programs offered by the Company. As a
percentage of radio programming revenues, radio programming expenses increased
from 55% for the six months ended June 30, 1997 to 93% for the six months ended
June 30, 1998.
Television Programming Expenses. Television programming expenses increased
$3.7 million, or 122%, from $3.0 million as reported for the six months ended
June 30, 1997 to $6.7 million as reported for the six months ended June 30,
1998, due primarily to the consolidation of the PIN Venture. As a percentage of
television programming revenues, television programming expenses increased from
77% for the six months ended June 30, 1997 to 85% for the six months ended June
30, 1998.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses decreased $0.3 million, or 11%, from $2.6 million as
reported for the six months ended June 30, 1997 to $2.3 million as reported for
the six months ended June 30, 1998 due primarily to the consolidation of the PIN
Venture and the allocation of the satellite delivery and production support
expenses attributable to the Product Information Network to television
programming expenses from
49
<PAGE>
satellite delivery and production support expenses. As a percentage of satellite
delivery and production support revenues, satellite delivery and production
support expenses increased from 66% for the six months ended June 30, 1997 to
109% for the six months ended June 30, 1998 due to the expiration in October
1997 of the third party satellite delivery and product support service
agreement.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.5 million, or 38%, from $1.3 million as reported for the six months ended
June 30, 1997 to $1.8 million as reported for the six months ended June 30, 1998
due to an increase of $0.4 million in marketing expenditures to increase Great
American Country's distribution and an increase of $0.1 million due to the
consolidation of the PIN Venture. As a percentage of total revenues, selling and
marketing expenses increased from 10% for the six months ended June 30, 1997 to
13% for the six months ended June 30, 1998.
General and Administrative Expenses. General and administrative expenses
increased $0.2 million, or 12%, from $1.9 million as reported for the six months
ended June 30, 1997 to $2.1 million as reported for the six months ended June
30, 1998 due primarily to an increase in management and operational support for
the Company's radio operations. As a percentage of total revenues, general and
administrative expenses increased from 14% for the six months ended June 30,
1997 to 15% for the six months ended June 30, 1998.
Total Other Expense. Total other expense decreased $0.8 million from $3.5
million as reported for the six months ended June 30, 1997 to $2.7 million as
reported for the six months ended June 30, 1998. The decrease was due to a
write-off of deferred offering costs of $0.9 million in 1997 for which no
similar expense was incurred in the first six months of 1998 and $0.3 million of
expenses incurred in the first half of 1998 related to the MediaAmerica
acquisition and the Notes offering.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
Total Revenues. Total revenues increased $12.4 million, or 75%, from $16.7
million as reported for the year ended December 31, 1996 to $29.1 million as
reported for the year ended December 31, 1997. This increase was due primarily
to increases in both television and radio programming revenues. The increase in
television programming revenues is due primarily to a 98% increase in the number
of Great American Country's households from December 31, 1996 to December 31,
1997. The increase in radio programming revenues is due to a 5% increase in the
number of radio affiliates from December 31, 1996 to December 31, 1997.
Radio Programming Revenues. Radio programming revenues increased $3.2
million, or 46%, from $7.0 million as reported for the year ended December 31,
1996 to $10.2 million as reported for the year ended December 31, 1997 due to a
$3.2 million, or 52%, increase in advertising revenues. Advertising revenues
increased due primarily to an increase in the rates charged by the Company for
its advertising spots as a result of an increase in AQH. Licensing revenues
remained relatively stable, reflecting the Company's strategy to focus on radio
station affiliates with significant audiences, which are generally not charged a
license fee.
Television Programming Revenues. Television programming revenues increased
$10.8 million, or 940%, from $1.2 million as reported for the year ended
December 31, 1996 to $12.0 million as reported for the year ended December 31,
1997, due primarily to: (i) an increase of $10.4 million in advertising revenues
due to the consolidation of the PIN Venture and (ii) an increase in Great
American Country advertising and license revenues of $0.4 million due primarily
to higher advertising rates being charged for airtime on Great American Country
as a result of an increase in the number of subscribers receiving Great American
Country's programming, a decrease in the amount of unsold airtime, and an 84%
increase in the number of sold direct response paid spots.
Satellite Delivery and Production Support Revenues. Satellite delivery and
production support revenues decreased $1.6 million, or 19%, from $8.5 million as
reported for the year ended December 31, 1996 to $6.9 million as reported for
the year ended December 31, 1997 due primarily to the expiration in October 1997
of a third party satellite delivery and production support services agreement
and the consolidation of the PIN Venture. The decrease was partially offset by
an increase in production support fees charged to related parties.
Total Operating Expenses. Total operating expenses increased $11.1 million,
or 70%, from $15.8 million as reported for the year ended December 31, 1996 to
$26.9 million as reported for the year ended December 31, 1997. This increase
was due to increases in television programming expenses, radio programming
expenses, selling and marketing and general and administrative expenses. These
increases were primarily due to the consolidation of the PIN Venture. As a
percentage of total
50
<PAGE>
revenues, total operating expenses decreased from 95% for the year ended
December 31, 1996 to 92% for the year ended December 31, 1997.
Radio Programming Expenses. Radio programming expenses increased $1.6
million, or 40%, from $4.2 million as reported for the year ended December 31,
1996 to $5.8 million as reported for the year ended December 31, 1997 due
primarily to an increase in programming production and distribution expenses.
Programming production expenses increased approximately $1.4 million due to an
increase in the number of formats and syndicated programs offered by the
Company. Programming distribution expenses, such as the satellite transponder
and uplink expenses, increased approximately $0.2 million due to an increase in
the costs of distributing the new formats and syndicated programs offered by the
Company. As a percentage of radio programming revenues, radio programming
expenses decreased from 60% for the year ended December 31, 1996 to 57% for the
year ended December 31, 1997.
Television Programming Expenses. Television programming expenses increased
$8.1 million, or 701%, from $1.2 million as reported for the year ended December
31, 1996 to $9.3 million as reported for the year ended December 31, 1997, due
primarily to the consolidation of the PIN Venture. As a percentage of television
programming revenues, television programming expenses decreased from 100% for
the year ended December 31, 1996 to 77% for the year ended December 31, 1997.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses decreased $0.8 million, or 14%, from $5.5 million as
reported for the year ended December 31, 1996 to $4.7 million as reported for
the year ended December 31, 1997 due primarily to the launch in late 1995 and
early 1996 of Great American Country and allocation of the satellite delivery
and production support expenses attributable to Great American Country to
television programming expenses from satellite delivery and production support
expenses. As a percentage of satellite delivery and production support revenues,
satellite delivery and production support expenses increased from 64% for the
year ended December 31, 1996 to 68% for the year ended December 31, 1997.
Selling and Marketing Expenses. Selling and marketing expenses increased
$1.2 million, or 68%, from $1.7 million as reported for the year ended December
31, 1996 to $2.9 million as reported for the year ended December 31, 1997 due
primarily to an increase in marketing expenditures of approximately $0.7 million
related to the Company's radio programming marketing activities, an increase in
marketing expenditures of approximately $0.1 million related to the Company's
television programming marketing activities and an increase in marketing
expenditures of approximately $0.4 million related to the consolidation of the
PIN Venture. As a percentage of total revenues, selling and marketing expenses
remained relatively stable at 10% for the years ended December 31, 1996 and
1997.
General and Administrative Expenses. General and administrative expenses
increased $0.9 million, or 27%, from $3.3 million as reported for the year ended
December 31, 1996 to $4.2 million as reported for the year ended December 31,
1997 due primarily to the consolidation of the PIN Venture. As a percentage of
total revenues, general and administrative expenses decreased from 20% for the
year ended December 31, 1996 to 14% for the year ended December 31, 1997.
Total Other Expense. Total other expense increased $2.6 million as reported
from $3.6 million for the year ended December 31, 1996 to $6.2 million as
reported for the year ended December 31, 1997. The increase was due to a write-
off of deferred offering costs of approximately $0.9 million, an increase of
approximately $1.2 million in interest expense relating to the Jones Global
Group Note and an increase of approximately $0.5 million in interest expense
relating to advances from Jones International.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Total Revenues. Total revenues increased $1.6 million, or 10%, from $15.1
million as reported for the year ended December 31, 1995 to $16.7 million as
reported for the year ended December 31, 1996. This increase was due primarily
to an increase in radio programming revenues and, to a lesser extent, television
programming revenues. Radio programming revenues increased primarily due to an
increase in the rates charged by the Company as a result of an increase in AQH
and the launch of the Crook and Chase Country CountDown program in January 1996.
Television programming revenues increased primarily due to the launch of Great
American Country in December 1995.
Radio Programming Revenues. Radio programming revenues increased $1.9
million, or 36%, from $5.1 million as reported for the year ended December 31,
1995 to $7.0 million as reported for the year ended December 31, 1996, due
primarily to a $1.9 million, or 44%, increase in advertising revenues.
Advertising revenues increased due primarily to: (i) an
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increase in the rates charged by the Company for its advertising spots as a
result of a 23% increase in AQH, which accounted for $1.2 million of the
increase, and (ii) the launch of the Crook and Chase Country CountDown program,
which accounted for $0.7 million of the increase. Licensing revenues were stable
as compared to the prior period, reflecting the Company's strategy to focus on
radio station affiliates with significant audiences, which are generally not
charged a license fee.
Television Programming Revenues. Television programming revenues increased
$0.9 million, or 239%, from $0.3 million as reported for the year ended December
31, 1995 to $1.2 million as reported for the year ended December 31, 1996, due
primarily to a $0.7 million increase in licensing revenues and $0.1 million
increase in advertising revenues. Licensing and advertising revenues increased
due primarily to the launch of Great American Country on Jones Intercable
systems in December 1995.
Satellite Delivery and Production Support Revenues. Satellite delivery and
production support revenues decreased $1.2 million, or 12%, from $9.7 million as
reported for the year ended December 31, 1995 to $8.5 million as reported for
the year ended December 31, 1996, due primarily to a decrease in satellite
production support fees charged to related parties.
Total Operating Expenses. Total operating expenses increased $2.1 million,
or 16%, from $13.7 million as reported for the year ended December 31, 1995 to
$15.8 million as reported for the year ended December 31, 1996. This increase
was due primarily to increases in radio programming expenses, television
programming expenses and general and administrative expenses. These increases
were due primarily to the launch of Great American Country. As a percentage of
total revenues, total operating expenses increased from 90% for the year ended
December 31, 1995 to 95% for the year ended December 31, 1996.
Radio Programming Expenses. Radio programming expenses increased $1.1
million, or 36%, from $3.1 million as reported for the year ended December 31,
1995 to $4.2 million as reported for the year ended December 31, 1996 due
primarily to an increase in programming production expenses. Programming
production expenses increased $0.4 million due to an increase in the number of
formats offered by the Company and $0.7 million due to the launch of the Crook
and Chase Country CountDown program. Programming distribution expenses did not
increase significantly as a result of the relatively fixed nature of many of the
costs, such as satellite transponder expenses. As a percentage of radio
programming revenues, radio programming expenses remained consistent at 60% for
the years ended December 31, 1995 and 1996.
Television Programming Expenses. Television programming expenses increased
$0.8 million, or 216%, from $0.4 million as reported for the year ended December
31, 1995 to $1.2 million as reported for the year ended December 31, 1996 due
primarily to an increase in programming distribution expenses. Programming
distribution expenses increased as a result of the launch of Great American
Country. As a percentage of television programming revenues, television
programming expenses decreased from 107% for the year ended December 31, 1995 to
100% for the year ended December 31, 1996. This decrease was due to the
substantial start-up costs, relative to revenues, related to the launch of Great
American Country in 1995.
Satellite Delivery and Production Support Expenses. Satellite delivery and
production support expenses decreased $1.0 million, or 17%, from $6.5 million as
reported for the year ended December 31, 1995 to $5.5 million as reported for
the year ended December 31, 1996. As a percentage of satellite delivery and
production support revenues, satellite delivery and production support expenses
decreased from 68% for the year ended December 31, 1995 to 64% for the year
ended December 31, 1996.
Selling and Marketing Expenses. Selling and marketing expenses increased
$0.3 million, or 26%, from $1.4 million as reported for the year ended December
31, 1995 to $1.7 million as reported for the year ended December 31, 1996.
Selling and marketing expenses increased due primarily to: (i) an increase of
$0.2 million due to the launch of Great American Country and (ii) an increase of
$0.1 million due to the launch of the Crook and Chase Country CountDown program.
As a percentage of total revenues, selling and marketing expenses increased from
9% for the year ended December 31, 1995 to 10% for the year ended December 31,
1996.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 41%, from $2.3 million as reported for the year ended
December 31, 1995 to $3.3 million as reported for the year ended December 31,
1996. Approximately $0.7 million of the increase was due to an increase in
management and operational support expenses as a result of the launch of Great
American Country and approximately $0.2 million of the increase was due to an
increase in management and operational support for the Company's radio
operations. As a percentage of total revenues, general and administrative
expenses increased from 15% for the year ended December 31, 1995 to 20% for the
year ended December 31, 1996.
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Total Other Expense. Total other expense decreased $0.4 million from $4.0
million as reported for the year ended December 31, 1995 to $3.6 million as
reported for the year ended December 31, 1996 due primarily to an increase in
equity share of income of subsidiary, which was partially offset by an increase
in interest expense.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Advertising revenues in the radio and cable television industries fluctuate
due to seasonality in such industries. The Company believes that radio network
revenues are typically lowest in the first quarter and cable television network
revenues are typically lowest in the third quarter. With the Acquisition, the
Company expects that its seasonal trend of lower first quarter revenues will be
more significant. Other than the fees paid by the Company to third parties for
certain of its radio programming, the fees paid by the Company in connection
with the distribution of the Product Information Network and the sales
commissions paid to account executives for radio and advertising representation
sales, the Company's expenses have not historically varied significantly
relative to the seasonal fluctuation of revenues. The Company's quarterly and
annual results of operations are affected by a wide variety of factors, many of
which are outside the Company's control, which could materially and adversely
affect profitability. These factors include the timing and volume of advertising
on the Company's radio network and cable television networks, the number and
size of the radio stations that carry the Company's radio programming, the
number and size of cable systems and other video distributors that carry the
Product Information Network and Great American Country, and general economic
conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to successfully implement its growth strategies is
subject to the availability of cash generated from operations and equity and/or
debt financing. On a pro forma basis to reflect the placement of the Notes and
the use of the proceeds therefrom, the Company had cash and cash equivalents of
$26.2 million (as of June 30, 1998), including $10.0 million of cash set aside
in the Reserve Account, and will be limited by the Indenture in its ability to
enter into other debt financing. There can be no assurance that the Company will
have sufficient cash flow from operations after debt service to support these
strategies in the long term. In addition, there can be no assurance that the
capital resources necessary to accomplish the Company's growth strategies over
the long term will be available or, if available, will be on terms and
conditions acceptable to the Company.
Since its inception, the Company has incurred net losses primarily as a
result of expenses associated with developing and launching its programming
networks. Net cash provided by (used in) operating activities for the years
ended December 31, 1995, 1996, 1997 and the six-month period ended June 30, 1998
was $0.4 million, $4.8 million, $7.6 million and $(8.1) million, respectively.
Net cash provided by (used in) operating activities decreased for the six-month
period ended June 30, 1998 because of modest revenue growth and significantly
higher expenses during the period, as described above. Net cash used in
operating activities for the six-month period ended June 30, 1998 includes the
net repayment of $4.1 million of advances from Jones International.
For the years ended December 31, 1995, 1996, 1997 and for the six-month
period ended June 30, 1998, net cash used in investing activities was $1.9
million, $4.0 million, $1.2 million and $0.7 million, respectively. The
Company's investing activities in 1995 consisted primarily of: (i) purchases of
equipment for the Company's satellite delivery and production facility, (ii)
purchases of equipment for the radio programming network and (iii) the
acquisition of certain radio programming network assets. In 1996, the Company's
investing activities related primarily to the conversion of the delivery system
of its radio programming networks to a digital satellite delivery system and the
purchase of automated playback and other equipment for Great American Country
and miscellaneous equipment. In addition, the Company invested $1.0 million in a
radio programming venture, Jones/Owens Radio Programming LLC, in October 1996.
The Company's 1997 net capital expenditures of approximately $1.4 million were
primarily related to the completion of the conversion to a digital satellite
delivery system and to the purchase of the equipment to effect the digital
compression of one of the Company's satellite transponders. During the first six
months of 1998, the Company's capital expenditures totaled $539,000. Total
capital expenditures for the 1998 year are estimated to be $1.1 million
primarily to purchase equipment to further digitally compress the Satcom C-3
satellite transponder and to add formats and programming for Jones Radio. During
the first six months of 1998, the Company made subscriber incentive payments for
Great American Country totaled $0.2 million. Total subscriber incentive payments
for 1998 are estimated to be $3.5 million.
Net cash provided by (used in) financing activities for the years ended
December 31, 1995, 1996, 1997 and for the six month period ended June 30, 1998
were $0.8 million, $(0.8) million, $(2.7) million, and $7.6 million,
respectively. For these
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periods, the Company's financing activities consisted primarily of borrowings
under the Company's credit facility and from related parties and repayments of a
capital lease obligation and loans from related parties.
Effective August 15, 1996, the Company purchased all of the outstanding
common stock of Galactic Radio from Global Group for $17.2 million. Global Group
had acquired Galactic Radio from Jones Intercable, a related party, for $17.2
million on June 14, 1996. The purchase price was paid using $1.2 million in
cash, which was advanced to the Company by Jones International, with the balance
paid in the form of a $16.0 million note. Effective September 30, 1997, $6.0
million of the $16.0 million note payable to Global Group was converted into
400,000 shares of the Company's Class B Common Stock at $15 per share. Effective
upon the closing of the offering of the Notes, the remaining $10 million of the
Jones Global Group Note was converted into 666,667 shares of Class A Common
Stock valued at $15 per share.
In July 1998, the Company acquired substantially all of the assets and
liabilities of MediaAmerica. Pursuant to the Acquisition, MediaAmerica received
$26.7 million in cash and $6.0 million in shares of Class A Common Stock of the
Company. MediaAmerica also received approximately 142,000 additional shares of
Class A Common Stock, valued at $15 per share, as the estimated working capital
adjustment calculated on the date of closing. In addition, MediaAmerica may
receive up to $5 million in additional shares of Class A Common Stock, with the
excess, if any, to be paid in cash, pursuant to the Earnout.
In March 1998, Radio Holdings entered into a five year $30 million secured
revolving credit facility with a commercial bank. Borrowings under the credit
facility bore interest at a maximum of LIBOR plus 2.875% (approximately 7.9% at
June 30, 1998). Borrowings of $16.7 million under the credit facility were
outstanding as of June 30, 1998. The Company terminated this credit facility in
connection with the offering of the Notes. Borrowings of $16.3 million under the
credit facility were used to repay a $6.6 million note payable to Jones
Intercable and to repay $9.7 million in advances from Jones International. In
July 1998, the Company repaid the credit facility, using the proceeds from the
old Notes offering.
The Company has received advances and loans from Jones International and
related companies to fund its operating and investing activities in the past and
anticipates that Jones International will not make additional advances to the
Company in the future. Outstanding advances from Jones International and related
parties at June 30, 1998 were approximately $5.4 million. The Company expects to
repay these advances with cash flow from operations and/or available cash
balances. Jones International and such related companies are under no obligation
to provide additional advances or loans to the Company.
The Company has historically financed its ownership of two analog satellite
transponders through a capital lease agreement that was fully prepaid with $27.6
million of the proceeds of the offering of the Old Notes. The channel capacity
on one satellite transponder has been digitally compressed to seven channels,
four of which are currently leased to Product Information Network, Great
American Country and two related parties. This transponder could now be
digitally compressed into additional channels if demand warranted. The Company
recently leased the other three digital channels and certain related services
until August 31, 1999, subject to early termination at the option of the
Company. The revenues from this lease are $138,000 per month. In addition, the
Company has leased the C-4 satellite transponder to a third party beginning July
1998, and one digital channel and certain related services to an affiliate
beginning July 1, 1998. These agreements will generate revenues of approximately
$160,000 and $97,000 per month, respectively.
Pursuant to the terms of one GAC Equity Agreement, an MSO was granted a put
option in respect of the shares of Class A Common Stock that may be issued to it
under such agreement. The put option provides that, if as of December 31, 2001,
the Company or its successor has not completed a public offering of its
securities, the MSO may within 60 days of such date require the Company to
purchase its Class A Common Stock. If the put election is made, the Company or
its successor would be required to purchase the Class A Common Stock at a price
equal to all or a portion of the license fees that would have been paid during
the period between the date of the agreement and the exercise date of the put
option. The purchase price would be based on the total number of MSO subscribers
receiving Great American Country as of December 31, 1998. In the event the MSO
provides the full number of subscribers committed under the agreement by
December 31, 1998, the estimated purchase price of the Class A Common Stock in
the event the put option is exercised would be approximately $1,300,000. The
Company intends to continue to enter into similar arrangements in the future, to
the extent permitted under the terms of the Indenture.
The Company depends, and will continue to depend, significantly upon the
earnings and cash flows of, and dividends and distributions from, its
subsidiaries to pay its expenses, meet its obligations and pay interest and
principal on the Notes and its other indebtedness. The terms of the Company's
joint ventures generally require the mutual consent of the Company and its joint
venture partners to distribute or advance funds to the Company. There are no
significant contractual restrictions on distributions from each of the
Subsidiary Guarantors (as defined) to the Company. Management believes that the
proceeds from
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the Notes and operating cash flow, including the cash flows of, and dividends
and distributions from its subsidiaries will be sufficient to fund the Company's
capital needs through at least December 31, 1998. The Company deposited $10.0
million of the proceeds of the offering of the Notes in a Reserve Account which
will be used for acquisitions and payment of principal of and interest on the
Notes. However, payment of interest for the full term of the Notes will require
an increase in cash flows from operations, which will continue to be affected by
various factors discussed herein, including in "Risk Factors."
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 128 ("SFAS 128") entitled, "Earnings
per Share." SFAS 128 is effective for fiscal years ending after December 15,
1997; early adoption is not permitted. SFAS 128 replaces primary and fully
diluted earnings per share with basic and diluted earnings per share,
respectively. Under SFAS 128, net loss per share for the periods reported would
be the same for both basic and fully diluted.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which is effective for financial statements for
periods ended after December 15, 1997. This statement establishes standards for
disclosing information about an entity's capital structure. The Company has
adopted this statement. The adoption of this statement did not have a material
impact on the financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the year ending December 31, 1998. This
statement establishes standards for the reporting and display of comprehensive
income and its components in financial statements and thereby a measure of all
changes in equity of an enterprise that result from transactions and other
economic events other than transactions with owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for the year ending
December 31, 1998. This statement changes the requirements under which publicly
held companies report disaggregated information.
The Company will adopt SFAS No. 130 and No. 131 on their respective dates.
Management of the Company does not expect that the adoption of these statements
will have a material impact on the financial statements.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00." This problem could
cause system failure or miscalculations causing disruptions of business
processes.
Jones Intercable initiated an assessment of how the Year 2000 problem could
affect its operations and the operations of related companies in the summer of
1997 and established the Y2K Office to manage the process for all Jones
companies. A subsidiary of Jones International provides computer hardware and
software services to the Company and related parties, including Jones
Intercable, which is the largest user of these services. The Y2K Office meets
regularly with a review committee that includes the Chief Accounting Officer of
the Company.
During 1997, the Y2K Office conducted Year 2000 awareness sessions within
the Company and developed a comprehensive inventory of computer systems and
computer-controlled devices that are potentially affected by the Year 2000
issue. Then, the Y2K Office prepared a risk assessment profile to identify Year
2000 priorities by analyzing and determining whether the Year 2000 related risks
were low, medium or high and whether the business impact would be marginal,
manageable, critical or fatal for each system and device that may be affected by
the Year 2000 issue. Based on its risk assessment profile, the Y2K Office
analyzed the various systems and devices and determined whether to retire,
repair/correct, replace/upgrade or ignore those that posed Year 2000 issues. The
Company determined that its first priority would be operational support/facility
systems and then all other systems thought to be non-compliant.
The Y2K Office is currently implementing the steps needed to address the
Year 2000 problem based upon its set priorities and is testing the implemented
solutions. The Y2K Office's schedule for implementing and testing its Year 2000
solutions for systems that have been determined to be first priority for the
Company is as follows:
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Project Description Expected Completion Date
------- ----------- ------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Financial Information
Management System Test for Y2K compliance 1Q99
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Human Resources
Information System Test for Y2K compliance 2Q99
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Upgrade to Y2K compliant
Unix Hardware and Software releases and test for compliance 4Q98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Local Area Network ("LAN")
and Wide Area Network ("WAN") Determine which components are
Components not Y2K compliant 4Q98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
LAN/WAN Hardware and Software Upgrade to Y2K compliant releases
and test for compliance 2Q99
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Telephony Systems Upgrade to Y2K compliant releases
and test for compliance 4Q98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
PIN Network Traffic and
Billing System Y2K certification testing 4Q98
- -----------------------------------------------------------------------------------------
</TABLE>
In 1999, the Y2K Office will focus on Year 2000 compliance issues with respect
to other systems, such as desktop hardware and software, data archiving systems,
traffic and billing reconciliation applications and other record management
systems. The Company has not used, and does not plan to employ, unaffiliated
third party verification and validation processes to assure the reliability of
its risk and cost estimates. The Company has not deferred any other information
technology projects due to Year 2000 efforts.
The Y2K Office commenced contacting vendors of application and operation
system software in 1997 and continues to work with vendors through industry
groups focused on Year 2000 issues. The Company has not yet determined the
extent to which it is vulnerable to the failure by vendors and customers that
have a material relationship with the Company to remediate Year 2000 compliance
issues. Management believes, but makes no assurance, that the Company does not
supply to third parties systems or equipment that may cause a Year 2000 problem.
The Company has not incurred any material historical Year 2000 costs to
date. Management does not have an estimate for future Year 2000 project costs
that may be incurred. Management expects, but makes no assurance that,
future Year 2000 project costs will not have a material adverse effect on its
financial condition and results of operations.
The Company has not yet formulated contingency plans in the event that
systems are not Year 2000 compliant. The Company recognizes the need for a
contingency plan and plans to develop one by the first quarter of 1999. There
can be no assurance that the Company's systems will be Year 2000 compliant in
time. The Year 2000 issue poses many risks for the Company and could materially
adversely affect its financial condition and results of operations. See "Risk
Factors - Impact of the Year 2000 Issue" for a discussion of such risks.
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BUSINESS
OVERVIEW
The Company provides radio programming to radio stations in the U.S. and
cable television programming to cable system operators. The Company's radio
programming includes twelve 24-hour formats and 18 syndicated programs that are
broadcast by approximately 2,300 radio station affiliates throughout the United
States to over 60 million weekly listeners. The Company's cable television
programming consists of Great American Country (country music videos) and the
Product Information Network (long-form advertising). Pursuant to affiliate
agreements with five of the ten largest multiple-system operators ("MSOs"), as
well as the two cable programming cooperatives and others, Great American
Country was distributed to 4.6 million subscribers at August 15, 1998. The
Product Information Network is distributed to 278 cable systems and broadcast
affiliates and is available to 18.6 million households. The Company has
successfully expanded the reach of its cable television programming to a broad
number of major MSOs as a result of the extensive experience of the Company's
senior management team, including Mr. Glenn R. Jones, the Company's Chairman and
majority shareholder.
In July, 1998, the Company acquired substantially all of MediaAmerica's
assets. MediaAmerica was founded in 1987 to provide advertising representation
services to providers of radio programming, such as the Company, and in 1994
expanded to provide radio programming and other services to radio stations. The
Acquisition provides the Company with a group of experienced executives who have
long-standing relationships with many advertising agencies and advertisers that
the Company believes will be valuable in driving its advertising-related revenue
growth.
The Company primarily derives its revenues from the sale of its commercial
radio or cable television airtime inventory to national advertisers that are
attracted to the Company's ability to efficiently reach a large national
audience across a variety of demographics and markets. The Company also receives
license fees from MSOs that carry Great American Country and provides satellite
delivery and production support services for its own programming operations as
well as to others. The Company's strategy is to increase advertising revenues by
continuing to increase its base of radio station affiliates and cable system
affiliates, thereby broadening its audience of radio listeners and cable
television viewers. The Company also plans to diversify and expand its sources
of revenues by developing new radio and cable television programming, acquiring
complementary businesses (such as MediaAmerica), offering programming-related
and other value-added services and leasing satellite transponder capacity made
available by more efficient digital compression techniques. There is no
assurance that the Company will be successful in these efforts.
The Company provides a wide variety of advertisers many different ways to
reach their target audiences through network radio and cable television. Given
network radio's wide reach and relatively low advertising costs, it is one of
the most cost-effective means to reach targeted demographic groups. The
Company's radio audience demographics are primarily adults, ages 25-54. Great
American Country, the Company's country music television network, also targets
this attractive demographic sector. According to industry sources, country music
is one of America's most popular music formats and has been one of the fastest
growing segments of the music industry. In addition, the Company believes the
Product Information Network's long-form advertising provides television
advertisers with a cost-effective medium to deliver sales messages, product
introductions and demonstrations to targeted audiences. The Company believes
that the number of advertisers and the volume of long-form advertising will
continue to grow as the Product Information Network's coverage of U.S.
households increases and Fortune 500 companies and other major advertisers
increasingly take advantage of the benefits of long-form advertising to reach
their desired audience.
Radio Programming. The Company, through its radio programming division,
Jones Radio, typically provides programming to its radio affiliates in exchange
("barter") for commercial airtime inventory which it sells to national
advertisers. Jones Radio's programming and related services offer radio stations
a cost-efficient alternative to the talent, time and expense required to develop
in-house programming. In addition, Jones Radio's variety of appealing 24-hour
formats, primarily country and adult contemporary, and its nationally recognized
group of syndicated programs and personalities, enable radio stations to
distinguish themselves within their increasingly competitive markets. As a
group, Jones Radio's radio station affiliates generally capture larger audience
(measured by AQH) as a result of broadcasting Jones Radio's programming, which
can result in additional local advertising revenues for these radio stations.
Jones Radio has been a successful provider of country music programming, one of
the most popular music formats with over 4 million U.S. listeners each week.
Jones Radio provides its programming to approximately 30% of all country radio
stations in the United States and believes it is the largest provider of country
music programming to U.S. radio stations. Between December 31, 1994 and June 30,
1998, Jones Radio's base of radio station affiliates grew from 925 to 1,510
representing a CAGR of 14.1%. For the same period, Jones Radio has experienced a
37.9% CAGR in AQH, growing from 670,000 at December 31, 1994 to 2,473,000 at
June 30, 1998. In addition to its advertising representation business,
MediaAmerica provides radio programming and services to 990 radio station
affiliates in mostly larger
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markets. As a result of the Acquisition, Jones Radio has more than doubled its
AQH to 6.5 million, which represents 60 million total weekly listeners. While
Jones Radio has historically provided programming to radio stations in small and
medium-sized markets, it is currently focusing its programming development
efforts to appeal to larger markets. Jones Radio has radio station affiliates in
all 50 states and in all of the top 50 markets.
Radio Advertising Representation Services. As a result of the Acquisition,
the Company offers advertising representation services to providers of radio
programming throughout the United States. As a representation firm, MediaAmerica
historically acted as an intermediary between advertisers and radio programming
providers, such as the Company. The Company was one of MediaAmerica's largest
customers in 1997 for this type of service. The Company plans to develop
numerous cross-selling opportunities and other synergies that arise from the
complementary nature of MediaAmerica's services and customer base. There can be
no assurance that the Company will be successful in these efforts.
Television Programming--Great American Country. Great American Country is a
24-hour country music video network that capitalizes on the popularity of
country music and leverages the Company's core competency in country music
programming. Great American Country represents a high-quality alternative to
currently available country music networks and offers MSOs attractive incentives
for carriage. In order to drive subscriber growth, Great American Country
generally offers affiliates a one-time cash launch incentive and waives license
fees for a certain period which varies based on the level of subscriber
commitment. The Company is enhancing its near-term operating cash flow through
new agreements with two significant MSOs to issue them shares of the Company's
Class A Common Stock in return for which Great American Country will be paid
license fees from the date of launch. Great American Country has affiliate
agreements with five of the ten largest MSOs, including Adelphia, Comcast, Jones
Intercable, TCI, and Time Warner, as well as the two cable programming
cooperatives, Telesynergy, Inc. and National Cable Television Cooperative, Inc.
The Company believes that by offering carriage incentive programs, competitive
license fee rates and twice the amount of local advertising avails than its
primary competitor, it will attract additional subscribers from existing and new
MSO affiliates that are increasingly seeking to decrease costs and generate more
advertising revenues.
Television Programming--Product Information Network. The Company introduced
the Product Information Network in October 1993 to capitalize on the growing
infomercial industry which, based on industry statistics, today represents
approximately $1 billion of airtime expenditures. The Product Information
Network is aired on a full-time (24-hour) basis or on a part-time basis, thereby
affording cable and broadcast affiliates the opportunity to generate incremental
revenues from otherwise under-utilized time. The Product Information Network
airs long-form informational programming from all of the major infomercial
producers, such as Guthy-Renker Corporation and National Media Corporation.
Through agencies, it also airs advertising from major corporate advertisers,
which have recently included Phillips-Magnavox, Simmons, Hanes, Sunbeam, The
Sharper Image and Time-Life. Since December 31, 1994, the Product Information
Network has increased its base of cable subscribers and broadcast households
from 1.5 million to 18.6 million at June 30, 1998, representing a CAGR of 74.1%.
The Product Information Network is distributed to 9.7 million full-time
equivalent subscribers through 278 cable systems and broadcast affiliates. The
MSOs that carry the network on a portion of their cable systems include nine of
the ten largest MSOs, including Adelphia, Cablevision, Comcast, MediaOne Group,
Cox, Jones Intercable, Marcus Cable, TCI and Time Warner. The Product
Information Network operates through the PIN Venture.
Satellite Delivery and Production Support Services. The Company supports
the production and distribution of its radio and cable television programming
operations through its state-of-the-art satellite uplinking facilities. The
Company's satellite delivery and production support services provide reliable
and efficient playback, trafficking, uplinking and satellite transmission
services to the Company's radio and cable television programming operations and
to certain related companies. The Company believes that the integration of these
distribution services gives it strict management and quality control over the
distribution of its programming. The Company has financed its ownership of two
analog satellite transponders through a capital lease that was fully prepaid
with a portion of the proceeds of the offering of the Old Notes. The capacity on
one satellite transponder has been digitally compressed to seven channels, four
of which are leased to Product Information Network, Great American Country and
two related parties. In August 1998, the Company entered into a lease agreement
with an unaffiliated party for the lease of three digital channels until August
31, 1999. This transponder could be digitally compressed into additional
channels if demand warranted. The other satellite transponder is an analog
channel which the Company recently leased to a third party. The Company believes
that the demand for its satellite delivery and production support services
should increase as digital programming and distribution technologies continue to
develop and cable systems complete upgrades and rebuilds to expand their channel
capacity. The cable systems' expansion of their channel capacity provides more
programming space for cable programmers who, in turn, would require satellite
transponders to provide the programming.
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STRATEGY
The Company's objective is to increase its revenues and operating income by
employing the following strategies:
Distribute Programming to a Larger Audience. To increase its revenues from
advertisers, the Company must increase the distribution of, and audience for,
its programming. Jones Radio plans to increase its marketing and sales
activities in an effort to increase the number of its radio station affiliates
and the size of its audience. The Company also plans to continue to aggressively
market its cable television networks to both cable operators and other multi-
channel distributors, including DBS, MMDS and others. The Company relies on
financial incentives and its established relationships with MSOs to market these
networks.
Develop or Acquire Additional High-Quality Programming. The Company
believes that there is market demand for additional long-form and short-form
radio programming due to the financial constraints and limited creative
resources of many radio stations and their need to improve operating
efficiencies. In addition, the Company believes there are additional market
opportunities for 24-hour music and information programs that the Company does
not currently distribute, such as news/talk radio. Jones Radio intends to
develop and/or acquire radio programming addressing these market demands. An
example of new radio programming includes "Nashville Nights," a national long-
form country night-time show targeted at larger markets, which is being produced
in a venture with CapStar. The Company is exploring opportunities to produce
additional low-cost cable television programming based on the strength of its
relationships with major MSOs and its success with Great American Country and
the Product Information Network. The Company believes that any new cable
television programming would typically serve unfilled or underserved niches and,
similar to priced alternative to an existing cable network.
Increase Advertising Revenues. The Company's primary goal in driving
revenue growth is to increase its audience by developing new programming and
expanding its base of radio station and cable system affiliates. In addition,
the Company's new radio programs are designated to increasingly target larger
markets which typically generate higher advertising rates. Management believes
that when Great American Country's attainment of a 5 million subscriber level is
reached, of which there is no assurance, the Company will be able to target a
broader group of advertisers and derive significantly higher advertising
revenues based on traditional spot advertising as opposed to direct response
advertising. Finally, the Company intends to promote the benefits of long-form
advertising to Fortune 500 companies and other major advertisers, with the goal
of attracting more advertising from such advertisers, enhancing the quality of
the Product Information Network's programming and increasing the rates for its
advertising time.
Acquire or Create Complementary Businesses and Value-Added Services. The
Company intends to expand its business by acquiring and/or creating businesses
complementary to its business. The Acquisition represents an example of this
strategy. The Company believes that numerous opportunities exist, both in the
development of new programming and the acquisition of complementary businesses.
A portion of the proceeds from the offering of the Old Notes will provide the
Company with additional resources for these purposes.
Increase Utilization of Satellite Transponder Capacity and Production
Support Facilities. The Company's satellite delivery and production support
facilities provide reliable and efficient playback, trafficking, uplinking and
satellite transmission services to the Company's radio and cable television
programming operations and to certain related companies. The Company has seven
channels on its digitally compressed satellite transponder, which could be
digitally compressed into additional channels if demand warranted. All seven
channels on this satellite transponder are leased. The Company also has one
analog channel on another satellite transponder which is leased. The Company
believes that its remaining compressible satellite transponder capacity
represents a valuable asset because of the potential demand from new cable
programmers for satellite transponder space, the opportunity to provide
profitable uplinking and other services along with the satellite transponder
space, and the availability of satellite transponder space in-house in the event
that the Company develops or acquires additional cable television networks in
the future.
RADIO PROGRAMMING
The Radio Programming Market
According to the FCC, there are approximately 10,500 commercial radio
stations in the United States. Radio broadcasting has consistently maintained a
steady share of total advertising revenues in the United States, in part because
it is among the most cost effective forms of advertising. Radio allows the
advertiser to target specific demographic groups in particular geographic areas
at a relatively low cost, making it available to small, local advertisers as
well as large, regional and national advertisers. This cost advantage makes
radio advertising spending less susceptible to downturns in the economy.
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Moreover, more than one-half of all radio listening is done outside of the home,
closer to the point of purchase. With the exception of 1991, radio advertising
expenditures have increased every year, growing at a compound annual rate of
7.6% since 1961. According to industry sources, total radio advertising revenues
were $13.6 billion in 1997.
Radio stations compete for advertising revenues in their respective
markets. To be competitive, radio stations are continuously seeking the highest
quality programming at the lowest cost. Radio stations develop formats such as
music, news/talk or various types of entertainment programming, intended to
appeal to a target listening audience with demographic characteristics that will
attract national, regional and local commercial advertisers. However, limited
financial and creative resources, among other things, prevent most radio
stations from producing national quality programming. Accordingly, radio
stations rely on network programming from independent producers, or
"syndicators," such as the Company, to enhance or provide their radio
programming. National programming broadcast on an exclusive geographic basis can
help differentiate a station within its market, and thereby enable a station to
increase its audience and local advertising revenues. By placing a program with
radio stations throughout the United States, the syndicator creates a "network"
of stations that carry its programming. A radio network typically provides
programming to radio stations in exchange for a contractual amount of commercial
broadcast time, usually expressed as a number of minutes per hour or per day,
which is then resold to advertisers. The Company believes that most commercial
radio stations utilize radio network or syndicated third party programming. The
commercial broadcast time for such programs may vary from market to market
within a specified time period, depending upon the requirements of the
particular radio station affiliate and the terms of the contract with the
affiliate.
The Telecommunications Act of 1996 (the "Telecom Act") significantly
changed the radio broadcast industry by repealing national limits on the number
of radio stations that may be owned by one entity and by relaxing the common
ownership rules in a single market. As a result, the Telecom Act has created a
wave of radio station acquisitions and increased consolidation in the industry.
This, in turn, has led many ownership groups to seek ways to cut costs, better
manage their operations and improve their efficiencies. Radio networks, such as
the Company's, may address these needs by providing high quality programming to
radio stations and reducing the radio stations' costs.
There are four basic types of programs from which a station may select: 24- hour
programming, long-form programming, short-form programming and services.
24-Hour Programming. This "round-the-clock" programming is aired live and
hosted by announcers. Examples of this type of programming include popular
formats such as country, adult contemporary and oldies.
Long-Form Programming. This type of programming is less than 24 hours in
duration and is designed to fill, on a daily or weekly daypart basis, a one-to
six-hour time period of the day, such as mornings-6 a.m. to 10 a.m., middays-10
a.m. to 3 p.m., afternoons-3 p.m. to 7 p.m., evenings-7 p.m. to midnight, or
overnights-midnight to 6 a.m. Examples of this type of programming include talk
shows hosted by nationally known personalities and popular countdown shows
hosted by nationally known disc jockeys.
Short-Form Programming. This type of programming generally is less than 5
minutes in duration. Examples of this type of programming include news and
commentary radio shows.
Services. In addition, radio networks provide radio stations services such
as weather reports and comedy services designed to assist on air talent in
preparation for these shows. An example includes comedy services, consisting of
sound bites, song parodies and fake commercials.
The Radio Network--Jones Radio
The Company, through its radio programming division, Jones Radio, provides
for the programming needs of radio stations by supplying them with programs and
services that individual stations may not be able to produce on their own. The
Company offers radio stations a wide selection of regularly scheduled,
syndicated programming as well as 24-hour continuous play formats. Because these
programs and formats are produced by the Company, the stations have minimal
production costs. Typically, each program is offered for broadcast by the
Company exclusively to one station in its geographic market, which assists the
station in competing for audience share in its local marketplace.
The Company enters into affiliation agreements with radio stations.
Pursuant to these affiliation agreements, the Company typically provides
programming to its radio affiliates in exchange for commercial airtime inventory
which it sells to national advertisers ("barter"). With respect to the 24-hour
formats, the Company may also receive a fee from the affiliated
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stations for the right to broadcast the formats. The Company's affiliation
agreements for 24-hour formats are generally three years in length; long-form
and short-form formats and service agreements are generally one year.
The Company has affiliation agreements with 2,238 radio stations throughout
the United States and Canada, with approximately 600 of these stations receiving
more than one program. The Company's programming is sold on an exclusive basis
in the radio station's city of license. However, the Company is able to place
different programs within the same market. There are currently over 100 markets
in which the Company has a program on three or more radio stations in the
market. The Company controls the production of its programming, allowing it to
tailor its programs to respond to current and changing listening preferences.
This high-quality, distinctive programming is designed to enable radio stations
to improve and differentiate their on-air presentations and increase their
ratings, thereby increasing advertising revenues for both the radio stations and
the Company. The Company is able to deliver to national advertisers frequency,
reach and the primary demographic the national advertisers target, the 25 to 54
year old adult. The Company currently sells advertising to over 100 national
advertisers, including Chrysler Corp., Encore Media, General Motors Corp., Ocean
Spray Inc., Procter & Gamble and Radio Shack.
The Company sells its airtime to advertisers either as "up-front" or
"scatter" purchases. Up-front purchases are early advertiser commitments for
national broadcast time typically lasting 26 to 52 weeks. Scatter purchases are
contracts for a specific period of time that are typically sold at or above up-
front market prices. Advertising prices vary significantly based on prevailing
market conditions. The Company's strategy for growth in advertising revenues is
to increase its audience size for its programming and to expand the programming
it offers to radio stations. See "Business--Overview--Strategy."
The Company delivers twelve 24-hour music programs that cover the types of
major music formats used by the majority of radio stations across the United
States. The Company has radio station affiliates in all 50 states and in all of
the top 50 markets. This programming is designed to provide all the programming
for the Company's affiliated radio stations, replacing their in-house air talent
and significantly reducing their production costs. In order to present a
localized "sound," the Company's air talents record unique liners and
positioning statements for each affiliate which are cued through the satellite
for broadcast at the local station. In addition, the programming provides local
breaks for the radio station to insert locally sold commercials, news, weather
or traffic. The Company is able to attract and retain programming personnel to
provide the radio stations with a high level of experience, consistency and
quality not available in the majority of their local markets. The Company has
also invested in equipment with redundancy (back-up capability) that its radio
station affiliates can rely on without going off the air due to network
equipment problems. The radio stations provide the Company with a set amount of
their airtime, and in some cases, fees, in exchange for the programming.
The Company also produces syndicated shows consisting of long-form
programs, short-form programs, specials and services. The Company's long-form
programs include weekly countdown shows hosted by nationally known talent such
as Crook & Chase and Charlie Tuna, music artist interview shows featuring
interviews with popular music talents of today and yesterday. The short-form
programs are 60 to 90 second entertainment news reports that are interactive
with the affiliated radio stations, features on recreation and oldies music and
a consumer feature hosted by the national consumer advocate, David Horowitz.
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The following table summarizes the Company's radio programming:
<TABLE>
<CAPTION>
YEAR
LAUNCHED OR
PROGRAM NAME PROGRAM DESCRIPTION ACQUIRED
------------ ------------------- --------
<S> <C> <C>
24-Hour
Adult Hit Radio(TM) Hot adult contemporary 1989
Soft Hits(TM) Soft adult contemporary 1989
US Country(TM) Mainstream country 1989
Good-Time Oldies(TM) 60's based oldies 1990
CD Country(TM) Hot country, personality driven 1993
NAC (New Adult Contemporary)(TM) Smooth jazz 1994
Z-Spanish(TM) Hispanic contemporary hit radio 1994
Rock Alternative(TM) Modern adult contemporary 1996
The New Music of Your Life(TM) Adult standards 1996
Classical Collection(TM) Well-known and best-loved masterpieces 1997
Classic Hit Country(TM) Country artists of the 60's & 70's 1997
Rock Classics(TM) Mainstream classic rock 1997
Long-Form
Crook & Chase Centerstage Specials(TM) Special shows programmed for holidays 1996
The Crook & Chase Country(TM) Country's amiable ambassadors features 1996
CountDown(TM) today's top country songs
AOR Specials Shows programmed for holidays 1998*
Country's Most Wanted In-studio appearances and artist interviews 1998*
HardDrive(TM) A Billboard magazine's syndicated program 1998*
of the year nominee, featuring alternative
rock artists and music weekly
The Hitlist with Elvis Duran & Elliot A top 40 countdown featuring NY's Z100 1998*
morning drive team
The McLaughlin Radio Hour+ Hosted by John McLaughlin 1998*
Personal Notes Showcases the best new contemporary jazz 1998*
music and artists
Up Close Weekly music and interviews featuring 1998*
album-oriented rock artists
Your Weekend with Jim Brickman Lifestyle information and celebrity guests 1998*
for adult contemporary stations
Weekly Top 30 Country countdown hosted by well-known 1998*
personality Charlie Tuna
Short-Form
The Jimmy Carter Entertainment Interactive entertainment report 1996
Report(TM)
Outdoor Life Radio Features award-winning outdoor writer 1997
Scott Linden
Fight Back! With David Horowitz+ Popular consumer advocate 1998*
News from the 21st Century A look at the impact of new technology on 1998*
everyday lives
Oldies Calendar With CharlieTuna A daily calendar with information culled 1998*
from Charlie's years of interviews with artists
Services
American Comedy Network (ACN)(TM) Premier comedy service for morning shows 1998*
ACN/PDQ Satellite version of CAN 1998*
Fax Off! Show prep for rock stations 1998*
</TABLE>
* MediaAmerica programming.
+ License to syndicate.
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The Company's radio programming includes twelve 24-hour formats and 18
syndicated programs that are broadcast by approximately 2,300 radio station
affiliates throughout the United States to over 60 million weekly listeners. The
Company's radio network has over 90 on-air personalities, the majority of whom
have extensive top 25 market experience. In addition, the Company believes that
its programming management is among the best in the industry, consisting of
format experts with over 285 years of combined radio experience. These program
directors access music research and consultants to assist in creating high-
quality programming. To supplement its in-house programming expertise, from time
to time the Company enters into agreements to distribute distinctive, high-
quality programming developed and produced by third party programmers. These
programmers have expertise in developing programming for specific targeted
audiences (e.g., ethnic, mature) and typically employ recognized talent. An
example of such a relationship is The New Music Of Your Life program hosted by
Gary Owens, Wink Martindale, Pat Boone and other well-known radio personalities.
Agreements with third party programmers usually provide that the programmer
creates and develops the radio program, while the Company markets the program to
radio station affiliates, manages the relationship with the radio station
affiliates, manages the sale of national advertising, and provides technical
support and other services. The term of these license agreements is usually
three to five years. Programming produced under these agreements generated
approximately 10% of the Company's revenues in 1997.
The Company markets its radio programming directly to radio stations
through its 13-person affiliate sales group. These affiliate salespeople develop
close professional relationships with the radio station affiliates in order to
position the Company to serve the station's programming needs. The affiliate
sales group utilizes industry market research and databases to identify
prospective radio station affiliates. The in-house marketing team assists in the
sales effort with marketing campaigns, direct mail, trade advertising and sales
materials. In addition, the Company's presence at industry conventions and trade
shows is designed to increase awareness of its radio programming.
The Company is constantly evaluating new programming possibilities, both
in-house and with third parties. These possibilities include the national
syndication of existing programming and the development of new programming for
syndication. When programming or talent is currently being broadcast on a
station owned by a large radio group, it is usually advantageous to partner with
the owner of the station to maintain or increase carriage on the group's radio
stations.
In July 1998, the Company launched a nighttime long-form country show
called "Nashville Nights" with CapStar, one of the top ten national radio
groups, which is broadcast on its premiere country radio station in Nashville.
The Company is responsible for all sales and marketing efforts and is a 50%
owner in the venture that produces the program.
The Company and MediaAmerica are in joint discussions with a major cable
television network to develop a group of news and entertainment radio programs
utilizing the network's talent and news gathering resources. If these
discussions are successful, the resulting programs would be expected to launch
in 1999.
RADIO ADVERTISING REPRESENTATION SERVICES
The Radio Advertising Market
The diversity in formats and programs has intensified competition among
stations for local advertising revenues. A radio station has two principal
methods of effectively competing for these revenues. First, it can differentiate
itself in its local market by selecting and successfully executing a format
targeted at a particular audience, thus enabling advertisers to place their
commercial messages on stations aimed at audiences with certain demographic
characteristics. A station can also broadcast special programming, syndicated
shows, sporting events or national news product not available to its competitors
within its format. National programming broadcast on an exclusive geographic
basis can help differentiate a station within its market and thereby enable a
station to increase its audience and local advertising revenues.
Radio advertising is generally sold on the basis of a radio program's AQH.
AQH is typically defined as the average number of persons listening to a
particular station for at least five minutes in a 15-minute period within a
specific daypart. The AQH can range from zero for a small-market radio station
to greater than 50,000 for a large-market radio station, with the majority of
large-market stations in the range of 10,000-20,000. Radio advertising time can
be purchased on a local, national or network basis. Local purchases allow an
advertiser to target a very specific geographic area; however, this process is
time-consuming and is not cost efficient. National spot buys can be targeted to
specific markets, but again, tend to be less cost efficient for the advertiser.
Advertising purchased from a radio network is one method by which an advertiser
targets its commercial messages to a specific demographic audience, thereby
achieving national coverage on a cost efficient basis. In order to increase
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advertising rates, it is necessary to increase the size (or rating) of the
audience the program provider delivers to national advertisers.
MediaAmerica
Most radio stations carry some form of syndicated programming during part
of the day or week. This demand for syndicated programming has resulted in a
large number of syndicated program producers, some of which on a standalone
basis are not able to accumulate sufficient audience or national coverage to
attract advertising revenues from national advertisers. MediaAmerica was created
in 1987 to service these independent producers. By consolidating the advertising
sales revenues from multiple syndicators in addition to MediaAmerica's owned
programming, MediaAmerica has the economies of scale to staff a national sales
organization beyond what the individual producers could afford on their own.
Additionally, MediaAmerica has the ability to aggregate the commercial broadcast
time of these syndicators and present the resulting packages for sale to
national advertisers such as General Motors Corp., Procter & Gamble, Warner-
Lambert Company, and J.C. Penney Company, Inc. This ability to aggregate time
benefits the syndicators by giving them access via a professional sales
organization to advertisers which are normally not interested in purchasing
commercial broadcast time which does not deliver a specific threshold level of
audience. Advertisers benefit through the ease of buying from one professional,
larger source and the confidence that comes from an established multi-faceted
supplier versus an independent producer. The producer pays the advertising sales
representative firm a commission for the sale of the commercial broadcast time
and related services such as inventory management, commercial scheduling, proof-
of-performance distribution and collection, and financial services.
As of June 30, 1998, MediaAmerica represented approximately 70 programs or
services produced by approximately 30 programmers. Such programs include, among
others, the Weather Channel Radio Network, Newsweek on Air and Nascar Motor
Racing Network. In general, the representation agreements are up to five years
in duration and provide for varying commissions as a percentage of net sales
(the revenues from the sale of advertising time after deduction of the standard
advertising agency fee). MediaAmerica also provides sales and marketing to radio
station affiliates for certain programs. These additional services increase the
amount of the commission MediaAmerica receives. These agreements typically give
MediaAmerica exclusive national advertising sales rights but are non-exclusive
with respect to the programming MediaAmerica can represent.
MediaAmerica has been in existence for over 11 years, and throughout that
period has developed relationships with many major advertising agencies and
clients. MediaAmerica's reputation enables it to sell its clients' commercial
broadcast time at favorable rates and achieve high sellout levels.
MediaAmerica's eleven advertising account executives and sales managers are
located in the five major advertising buying markets in the United States (New
York, Los Angeles, Chicago, Detroit and Dallas). These account executives market
the commercial broadcast time of MediaAmerica's producers and owned programs via
personal selling to national advertisers and their advertising agencies. The
sales team, including the principals, has an average of 18 years experience in
the radio advertising sales and sales management arena.
In order to serve its many producers and advertising clients, MediaAmerica
has developed a state of the art, proprietary software system that handles the
sales proposal, commercial inventory management and order processing for its
advertising sales. In addition, the Company's research department continuously
analyzes a variety of data to provide its salespeople with accurate estimates of
listening audiences plus creative means with which to demonstrate the particular
advantages of the programs MediaAmerica sells, as well as network radio's
advantages over other media. MediaAmerica utilizes audience listening data from
Arbitron, an independent rating service, to develop its audience and demographic
reports for all its programs.
OTHER AUDIO SERVICES
The Company provides music and information audio programming designed to
complement the video offerings of cable television system operators. The Company
provides these services directly and through Superaudio, a joint venture which
is owned 50% by an indirect subsidiary of the Company and 50% by a third party,
that also programs and sells premium music programming directly to cable
television operators and other video distributors. Superaudio offers nine
formats of 24-hour programming that consist of six analog stereo music formats
and three analog information and entertainment formats. Superaudio's term as a
joint venture will expire in 2000 unless extended. Superaudio's programming is
distributed to cable systems serving approximately 4 million households.
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TELEVISION PROGRAMMING--GREAT AMERICAN COUNTRY
The Cable Television Market
As of 1997, cable television was in approximately 70% of all homes in the
United States, and approximately 82% of U.S. households with an annual income of
at least $60,000. Industry sources indicate that in 1997 Americans spent $27.9
billion subscribing to cable services. Many advertisers consider cable
television a cost-effective medium to reach audiences using picture, sound and
motion at considerably cheaper rates than broadcast television. Total U.S. cable
advertising revenues were $7.9 billion in 1997, a 17% increase from 1996. The
average cable household devoted three and one-half hours a day watching
advertising-supported basic cable television in 1997.
The Country Music Industry
According to industry sources, country music is one of the most popular
music formats in the United States. Every week, approximately 44 million
Americans listen to country music radio. With 2,528 radio stations programming
country music, representing approximately 24% of all commercial radio stations,
country music has become the dominant radio format in the United States. Country
music radio reaches 7 million more listeners per week than adult contemporary,
the next most popular format. In 1997, country music was the top-rated format in
35 of the nation's top 100 markets.
Great American Country
Great American Country is a 24-hour country music video network featuring a
mix of current top country hits and past country hits. Great American Country
was distributed to approximately 4.6 million subscribers at August 15, 1998. The
Company believes that Great American Country offers a programming mix with fewer
commercials and more attractive economic carriage terms for cable system
operators, including more local advertising spots, than its principal
competitors. Great American Country has six minutes per hour of national avails
and four minutes per hour of local avails (the times available for running
advertising). In addition, Great American Country programs an average of 14
videos per hour, or 3 more videos on average per hour than its primary
competitor. Since its debut, Great American Country has concentrated on refining
its programming and on-air presentation in order to broaden its carriage. Great
American Country acquires its music videos at no cost from record companies,
which use this medium to promote their performing artists. The Company produces
or acquires the other programming on Great American Country. Great American
Country targets the largest and most influential and affluent market segment of
the country music audience--the 25-54 age group. Management believes that Great
American Country has significantly benefited from the Company's experience in
the country music radio programming business and is pursuing additional cross-
promotional opportunities.
In order to drive subscriber growth, Great American Country generally
offers affiliates a one-time cash launch incentive and waives license fees for a
period which varies based on the level of subscriber commitment. The Company is
enhancing its near-term operating cash flow through new agreements with two
significant MSOs to issue them shares of the Company's Class A Common Stock in
return for which Great American Country will be paid license fees from the date
of launch. Great American Country has affiliate agreements with five of the ten
largest MSOs, including Adelphia, Comcast, Jones Intercable, TCI and Time
Warner, as well as the two cable programming cooperatives, Telesynergy, Inc. and
the National Cable Television Cooperative, Inc. Management believes that when
Great American Country's attainment of a 5 million subscriber level is reached,
of which there is no assurance, the Company will be able to target a broader
group of advertisers and derive significantly higher advertising revenues based
on traditional spot advertising as opposed to relying on direct response
advertising. As a result, the Company believes that as its audience increases,
it will be able to obtain a more than proportional increase in advertising
revenues. In addition, the Company believes that by offering carriage incentive
programs, competitive license fee rates and twice the amount of local
advertising avails than its primary competitor, it will attract additional
subscribers from existing and new MSO affiliates that are increasingly looking
to decrease costs and generate more advertising revenues.
Great American Country derives its revenues from subscriber fees and national
advertising. Typically the average length of Great American Country's affiliate
agreements is ten years. Monthly license fees for Great American Country are
approximately $.05 per subscriber, which rate the Company believes to be
attractive and competitive. Great American Country's affiliate agreements
typically provide for annual escalators of $.005 per subscriber per year. Great
American Country began selling national advertising in the last quarter of 1997
and currently generates approximately $155,000 per month in advertising
revenues. Great American Country's advertising sales are impacted by a variety
of factors, including distribution, ratings, advertising rates, sellout ratios
and the number of avails allocated for national advertising. Management believes
that as the network's distribution grows, advertising rates will outpace the
rate of distribution growth, and the network will begin to attract
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traditional advertising clients and reduce the amount of avails for direct
response advertisements, which are typically at a much lower rate.
The Company is evaluating a variety of additional revenue opportunities for
the future. These include web site advertising, merchandise sales, catalog sales
and syndicated programming in conjunction with Jones Radio.
TELEVISION PROGRAMMING--THE PRODUCT INFORMATION NETWORK
Long-Form Advertising Market
The Company believes that, during recent years, advertisers evaluating the
benefits of broadcast and cable television advertising have recognized the
effectiveness and reasonable cost of long-form, informational programming,
commonly known as infomercials. An infomercial is an advertisement where airtime
time is paid for by the advertiser on the basis of the time of day the
infomercial is aired and the number of homes reached. Infomercials are usually
one half-hour in length and are often produced in an entertainment format with
high production quality. Regardless of the presentation format, the viewers are
provided information that can be used to make informed purchasing decisions from
their homes.
Increasingly, advertisers are recognizing the benefits of infomercials as
an effective marketing tool. The Company believes that infomercials provide
advertisers with a cost-effective medium through which to deliver sales
messages, product introductions or demonstrations to an interested target
audience. Advertisers are recognizing that infomercials can increase a company's
or product's brand awareness while educating potential new customers. The viewer
or potential consumer is provided information that can be used to make more
informed purchasing decisions. Unlike most traditional television advertising,
the direct response nature of many infomercials provides advertisers with the
ability to sell products or services over the phone or to encourage the viewer
to take other action, such as visiting a web site for more information or
visiting a retail outlet.
The Company believes that the infomercial industry has grown rapidly during
the past several years. Historically, infomercials occupied time slots that were
less profitable for broadcasters. Increasingly, infomercials are being placed in
more expensive and attractive time periods such as daytime, early fringe and
prime time, and are becoming a more widely accepted form of advertising.
The production quality of infomercial programming by major advertisers has
also increased the credibility of the infomercial industry. The Company believes
that as the benefits of infomercial programming become more widely understood,
the number of advertisers and the volume of infomercial programming will
continue to grow. In terms of demand for airtime, major corporate advertisers
who use long-form programming for image building rather than direct selling
messages may ultimately surpass infomercial programmers who rely on immediate
sales to viewers via telephone response. Currently, major advertisers spend only
a relatively small part of their overall advertising budget on infomercials. The
Company believes that such advertising expenditures will continue to increase.
According to industry sources, total infomercial advertising expenditures
totaled $787 million, and infomercial sales totaled $1.4 billion in 1996,
compared to $806 million and $1.1 billion, respectively, in 1995.
The Product Information Network
The Product Information Network is a satellite-delivered, long-form
advertising programming service owned by the PIN Venture, a joint venture among
the Company, Cox and Adelphia. The audience of the programming is primarily
cable subscribers of the Product Information Network's affiliated systems. The
Product Information Network is provided to cable system operators on its own
dedicated channel 24 hours a day, seven days a week.
The Company developed and tested the concept of a 24-hour, long-form
advertising network in 1993. The Company launched the Product Information
Network in October 1993 on cable television systems owned and/or managed by
Jones Intercable. To broaden the Product Information Network's distribution, the
Company formed a partnership with Cox to own and operate the Product Information
Network. Adelphia became a partner approximately one year later. Both Cox and
Adelphia distribute the Product Information Network on a number of their cable
television systems. See "Risk Factors--Risks Associated with the Product
Information Network."
As of June 30, 1998, the Product Information Network was distributed on a
full or part-time basis on cable television systems representing approximately
15.5 million, or approximately 22.6%, of the nation's cable subscribers on a
full- or part-time basis, as well as to over 3.1 million broadcast households.
The Product Information Network is distributed to 9.7 million full-time
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equivalent subscribers through 278 cable systems and broadcast affiliates. The
MSOs that carry the network on a portion of their cable systems include nine of
the ten largest MSOs, including Adelphia, Cablevision, Comcast, Cox, Jones
Intercable, Marcus Cable, Media One Group, TCI and Time Warner. Approximately
2.6 of the 3.1 million broadcast households are through KSTV in the Los Angeles
market. The majority of the Product Information Network's present full-time
subscriber base is provided by Cox, Adelphia and Jones Intercable. The standard
Product Information Network affiliation agreement generally requires a one-year
commitment of carriage. In the case of cable systems that are owned or operated
by Cox, Adelphia or Jones Intercable, the affiliation agreements are for terms
of five years, ten years, and ten years, respectively, and expire on January 31,
2000, October 1, 2005 and February 1, 2005, respectively. See "Risk Factors--
Risks Associated with Distribution of Television Programming."
The Product Information Network compensates cable operators for carriage of
the Product Information Network through a revenue sharing program. Such
compensation, which is generally in the form of an annual rebate per subscriber,
averages approximately 70% of the Product Information Network's adjusted net
advertising revenues (which are revenues less agency commissions and bad debt
expenses) attributable to the time that the system carries the network's
programming. For 1997, the Product Information Network paid its full-time (24
hours a day) affiliates an average of approximately $1.40 per subscriber
per.year.
The Product Information Network's programming is produced and provided by
its advertisers at no cost to the network. The majority of current programming
consists of traditional infomercials from major infomercial producers, including
Guthy-Renker Corporation, National Media Corporation and American Telecast. The
strategy of the Product Information Network is to continue to diversify and
strengthen its advertising base by further developing relationships with
representatives of major corporate advertisers, which have recently included
Phillips-Magnavox, Simmons, Hanes, Sunbeam, Sharper Image and Time-Life. The
Product Information Network, through its new focus on major companies, is in the
process of developing direct relationships with high profile companies in order
to reduce its dependence on traditional infomercial programming for a
significant portion of its advertising revenues. See "Risk Factors--Dependence
on Advertising Relationships."
The Product Information Network plans to attract major corporate
advertisers involved in the travel business through its new agreement with Robin
Leach, who will provide the narration and background for infomercials which
feature travel themes. The Product Information Network is marketing this as a
two-hour block and is negotiating with a number of travel-oriented companies and
others as part of its efforts to obtain higher rates for this type of long-form
infomercial programming. If the Product Information Network is successful in
these efforts, it intends to explore similar types of infomercial programming by
the use of "star" talent as the connection between the infomercial theme and the
infomercial advertising.
The Product Information Network is also considering a variety of other
means to broaden the distribution of its programming and to increase the rates
charged for its advertising time. These include the possibility of an additional
satellite "feed," entering into sales representation agreements with other cable
networks to gain broader distribution and bringing in additional MSOs as equity
partners in the Product Information Network, thereby gaining access to their
subscribers.
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
The Company transmits its radio and cable television programming directly to
radio stations, cable system operators and other video distributors. The
programming is distributed via satellite transponders leased from third parties
and from affiliates. The Company provides playback services, trafficking and
ground-to-satellite transmission of its programming services from its uplink
facility in Englewood, Colorado.
The Company owns one full satellite transponder on each of two strategically
positioned GE Americom satellites, Satcom C-3 and Satcom C-4, which deliver a
variety of popular cable television programming. The Company utilizes advanced
technology in providing uplink, playback and trafficking services. In January
1997, the Company installed General Instrument Corporation's DigiCipher II
(MPEG-2) compression equipment, which increased the compression of its Satcom C-
3 satellite transponder from 4:1 compression to 6:1 compression. The Company has
recently installed additional equipment which increased the capacity to seven
channels. The Company could digitally compress the C-3 transponder to add
additional channels at minimal incremental cost. Any excess capacity created by
this new technology could be used for the distribution of the Company's
programming, related party programming or third party programming.
Four of the digital channels available on the Satcom C-3 satellite
transponder are being used by each of Great American Country, the Product
Information Network and two related parties. The term of each lease for such
channels is generally for the remaining life of the satellite except that one of
the related parties leased a channel on Satcom C-3 for a seven-year term with a
one-time option, exercisable by the related party on six months' advance notice,
to terminate the lease on July 1, 2001. In August
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1998, the Company entered into a lease agreement with an unrelated party to
lease three digital channels on the Satcom C-3 transponder for the period August
15, 1998 through August 31, 1999. The lessee will have the right to renew for
successive monthly periods. The aggregate monthly charge for the three channels
(included related services provided by the Company) is $138,000. The Company has
recently leased the C-4 transponder to an unrelated party. This lease provides
for monthly lease payments averaging $160,000, with higher lease payments in
early years and lower lease payments in the later years. The lease term
commenced in July 1998 and will terminate on December 31, 2002, with an option,
exercisable by the lessee, to extend the lease through October 16, 2004. If the
lessee does not exercise the option to extend the lease, it must make a one-time
penalty payment to the Company of $750,000. The Company's satellite uplinking
and distribution costs are generally fixed and, as a result, additional radio or
cable television programming can be distributed by the Company at minimal cost.
The Company continues to market its additional compressible capacity on its
Satcom C-3 transponder and related services. The Company expects that the
satellite transponders will be effective to provide distribution for radio and
television programming until 2004, at which time it will be required to locate
replacements to use for its programming.
COMPETITION
Radio Network
The Company's radio network competes for national advertising revenues and
radio station affiliates with major network radio distribution companies in the
United States, as well as with a large number of smaller independent producers
and distributors. The dominant competitors in the industry are affiliated with
major station owners, have recognized brand names and have large networks which
include affiliates to which such competitors pay compensation to broadcast the
network's commercials. Moreover, beginning in early 1997 many of the Company's
larger competitors began to consolidate, thereby intensifying competition.
In September 1997, Chancellor Media, an owner of a large group of radio
stations, announced that it was forming a national radio network, AMFM, that
will utilize Chancellor Media's existing talent and, in conjunction with CapStar
Broadcasting Partners, a related party, serve over 400 radio stations. In
January 1998, AMFM began taking one minute per hour of advertising time from
both the Chancellor and CapStar radio stations and reselling the commercial time
to national advertisers who typically buy network radio. This arrangement has
diluted the pool of advertising available to other radio networks, including the
Company's radio network. Additionally, AMFM's radio station line-up is
concentrated in larger markets than the typical radio network, including those
of the Company, thereby increasing its attractiveness to national
advertisers.
The Company's largest direct competitors include ABC Radio Networks, Westwood
One/CBS Radio Networks, Jacor Communications and AMFM. The principal competitive
factors in the radio industry are the quality and creativity of programming and
the ability to provide advertisers with a cost-effective method of delivering
commercial advertisements. There can be no assurance that the Company will be
able to compete successfully for radio advertising revenues.
Radio networks also face competition from improving technologies available to
local radio stations that may enable them to pre-record their local announcers
and automate their operations, thereby allowing them to reduce costs and operate
more efficiently. Another technological advance, DARS, permits national radio
stations to broadcast digital quality radio programming nationwide to homes,
automobiles and other locations via satellite. In February 1997, the FCC
auctioned two licenses for DARS. The Company cannot predict what effect the
potential future development of digital automation or DARS will have on the
radio industry or the Company.
Radio Advertising Representation Services
The radio advertising representation business is highly competitive, both in
terms of competition to gain program provider clients and to sell commercial
inventory to national advertisers. The Company's radio advertising
representation firm competes with the major network radio distribution
companies, which operate divisions that both sell their own company's airtime
inventory and also contract with third party radio programmers to sell their
national commercial inventory. Over the last two years, many independent program
providers have been acquired by the major network distribution companies. These
companies have large amounts of commercial inventory to sell and have
significant resources.
The Company also competes on behalf of its clients for advertising dollars
with other media such as broadcast and cable television, print, outdoor, the
Internet and other media. The primary factors determining success in the radio
advertising representation service industry are strong relationships with
advertising agencies and national advertisers, acquisition and maintenance of
representation contracts from producers with high quality products and
experienced advertising sales personnel.
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Television Networks
The Company's television networks compete for distribution on cable systems,
viewers and advertising revenues with hundreds of cable and broadcast television
networks supplying a variety of entertainment and infomercial programming.
Great American Country's principal direct competitor is Country Music
Television ("CMT"), an advertiser-supported basic cable network that delivers
country music videos 24 hours a day. The Great American Country network also
competes with The Nashville Network ("TNN"), which plays country music videos
during a portion of the broadcast week. Most of TNN's music programming is
focused on theater-style music concert programming such as the Grand Ole
Opry.CBS, Inc., which owns the CBS broadcasting network, owns CMT and TNN.
The Product Information Network competes directly with at least three other
infomercial networks: Infomall TV, Access Television Network and GRTV, certain
of which have greater distribution than the Product Information Network.
Infomall TV is an infomercial network carried by its affiliated broadcast
television stations. Access Television Network delivers infomercial programming
for use primarily during "remnant time." Remnant time is time that is made
available by "rolling-over" or replacing infomercials contained in other network
programming or time that is not used by the cable operator such as blacked out
programming and unused leased access time. GRTV is an infomercial network that
was recently launched. Guthy-Renker, GRTV's parent company, is a major supplier
of infomercial programming to the Product Information Network. The Company
believes that new infomercial networks are currently being planned or formed
that will compete directly with the Product Information Network. The Product
Information Network also competes with at least 30 cable television networks,
many of which have a substantial number of subscribers, that air infomercial
programming.
The Company expects to encounter additional competition for viewers as
technological advances, such as the deployment of digital compression
technology, the deployment of fiber optic cable and the "multiplexing" of cable
services, allow cable systems to greatly expand their channel capacity. As a
result, their ability to add new networks will be enhanced. In addition, there
can be no assurance that the infomercial concept will continue to be acceptable
to advertisers and consumers or that it will be able to compete against other
forms of advertising.
Satellite Delivery and Production Support Services
The Company competes in the delivery of domestic satellite services with
satellite owners, satellite service providers, microwave carriers and full
service teleports. Some of the Company's principal competitors, many of which
have substantially greater financial and other resources, include Vyvx Teleport,
MicroNet Inc., ID/B Keystone, Rainbow Network Communications, Washington
International Teleport, Inc. and Brewster Teleport. The Company believes that
transmission quality, reliability, price and the location of uplink facilities
are the key competitive factors in this market.
Other Competitive Factors
As there are generally few legal barriers or proprietary rights to prevent
entry into the Company's markets, the Company could in the future face
competition from new competitors offering services similar to that of the
Company. Many of the Company's competitors have greater resources than the
Company, and there can be no assurance that the Company will be able to compete
successfully in the future. If the Company is unable to compete successfully for
distribution of its networks and advertising revenues, the Company's operating
results would be adversely affected. See "Risk Factors--Competition."
GOVERNMENT REGULATION
Although the Company's radio and television networks are not generally
directly regulated by the FCC, the radio stations and cable television systems
and other video distributors to which the Company sells its programming are
regulated. As a result, the federal laws and FCC regulations that affect these
entities indirectly affect the Company.
Among other things, the FCC adopts and implements regulations and policies
that directly or indirectly affect the ownership, operation and sale of radio
and television stations, and has the power to impose penalties for violations of
its rules or federal statutes. Such regulation may adversely affect the
Company's business. The Telecom Act significantly changed the radio broadcast
industry by repealing national limits on the number of radio stations that may
be owned by one entity and by relaxing the common ownership rules in a single
market. These measures have led to significant radio industry consolidation. The
Telecom Act has resulted in a greater number of radio group owners seeking to
reduce costs. There can be no assurance that future effects of such legislation
will not negatively impact the Company.
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The cable television industry is subject to extensive federal, state and
local regulation. Regulation can take the form of price controls, programming
carriage requirements and programming content restrictions. Such regulation
could affect the availability of time on local cable television systems for sale
by the Company as well as the price at which such time is available. Both Great
American Country and the Product Information Network are subject to the FCC's
new rules requiring closed captions for the hearing impaired on all programming
beginning in the first quarter of 2000. The Company expects that compliance with
these new rules will not have an adverse effect on the Company's financial
condition. There can be no assurance that material adverse changes in
regulations affecting the cable television industry, in general, or the Company,
in particular, will not occur in the future.
The Company's satellite delivery and production support services are
directly regulated by the FCC. The Company holds FCC microwave and earth station
uplink licenses, which it utilizes to provide delivery and support services.
Because these licenses relate primarily to the technical operation of its
microwave and uplink facilities, which are used for internal purposes and
program delivery, there are only limited regulatory burdens associated with
maintaining these licenses in good standing. See "Risk Factors--Government
Regulation."
FACILITIES
The Company's principal executive offices are located in Englewood,
Colorado. The Company subleases office space from affiliates of Jones
International as well as office space and studio space from third parties. See
"Certain Relationships and Related Transactions." In addition, the Company owns
8.4 acres of land in Englewood, Colorado. The Company believes its office space,
studio space and Earth Segment's satellite uplink facility are adequate to meet
its current needs. The following table lists the location and square footage of
the Company's facilities and indicates whether they are owned or leased:
<TABLE>
<CAPTION>
ENTITY UTILIZING FACILITY LOCATIONS SQUARE FOOTAGE OWNED/LEASED
- ------------------------- --------- -------------- ------------
<S> <C> <C> <C>
Earth Segment Englewood, Colorado 13,194 Owned
Company Englewood, Colorado 556 Leased
Company Englewood, Colorado 658 Leased
Jones Radio Englewood, Colorado 9,049 Leased
Jones Radio/Superaudio Englewood, Colorado 2,794 Leased
Jones Radio/Superaudio Englewood, Colorado 2,551 Leased
Jones Radio/Superaudio Englewood, Colorado 3,102 Leased
Great American Country Englewood, Colorado 500 Leased
PIN Venture Englewood, Colorado 2,806 Leased
MediaAmerica New York, New York 18,868 Leased
MediaAmerica Chicago, Illinois 250 Leased
MediaAmerica Milford, Connecticut 1,966 Leased
MediaAmerica Dallas, Texas 150 Leased
MediaAmerica Detroit, Michigan 125 Leased
</TABLE>
EMPLOYEES
The Company refers to its employees as associates. As of June 30, 1998, the
Company had 114 full-time and 68 part-time associates, and MediaAmerica had 66
full-time and 7 part-time associates. In addition, the Company maintains
relationships with independent writers, program hosts, technical personnel and
producers. None of the associates are covered by a collective bargaining
agreement, and the Company believes its employee relations to be good.
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine legal proceedings
incident to the ordinary course of its business. The Company believes that the
outcome of all such routine legal proceedings in the aggregate will not have a
material adverse effect on its financial condition or results of operations.
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THE ACQUISITION AND RELATED TRANSACTIONS
MEDIAAMERICA
MediaAmerica was founded in 1987 by Messrs. Ron Hartenbaum and Gary
Schonfeld (the "Principals"), both of whom had prior executive experience with a
major radio network before they organized MediaAmerica. The Company,
MediaAmerica and the Principals entered into an agreement dated June 2, 1998
(the "Exchange Agreement") which provided that the Company acquire substantially
all of the assets and assume certain of the obligations of MediaAmerica for an
aggregate consideration of $32.7 million, payable $26.7 million in cash and $6.0
million in shares of Class A Common Stock of the Company (equal to 400,000
shares), subject to a "working capital adjustment" which, in general, is the sum
of current assets less the sum of current liabilities at closing. A positive
working capital adjustment is paid in additional shares of Class A Common Stock
of the Company at an agreed value of $15 per share. At closing on July 10, 1998,
the Company issued approximately 142,000 shares of Class A Common Stock pursuant
to an estimated working capital adjustment. The final working capital adjustment
is not expected to differ materially from the estimate. In addition,
MediaAmerica can earn up to $5 million in shares of Class A Common Stock, with
the excess, if any, to be paid in cash, pursuant to the Earnout.
The assets of MediaAmerica consist principally of advertising
representation agreements with its various clients and radio programming and
related agreements pursuant to which it receives advertising time (and in some
cases, fees) for providing radio programming or services to radio stations. The
radio programming is either "long" or "short" form programs or services and
consists of those identified in the table under "Business--Jones Radio--The
Radio Network." These programs are licensed to 990 radio station affiliates
throughout the U.S., of which 139 are in major markets. MediaAmerica acquired
the majority of these radio programs in mid-to-late 1997.
RELATED TRANSACTIONS
The Acquisition is intended to qualify for partially tax-free treatment
under Section 351 of the Internal Revenue Code of 1986 and, as a result,
MediaAmerica would recognize taxable gain to the extent of the cash portion of
the exchange consideration. To the extent taxable gain is so recognized, the
Company will obtain additional basis in the acquired assets equal to the amount
of gain recognized by MediaAmerica.
As part of the Exchange Agreement, the Company, MediaAmerica and the
Principals entered into a number of additional agreements, consisting of
employment agreements with the Principals, a registration rights agreement, and
a "Post-Closing Agreement." The employment agreements are for three years and
restrict the Principals from competing with the Company during the term of
employment and for two years after the employment agreements terminate. These
agreements provide for annual salaries of $300,000 for each Principal and
eligibility for a variety of employee benefits and plans generally made
available to the Company's key associates at their level.
The registration rights agreement provides for two "demand" registrations
for the shares of Class A Common Stock of the Company issued in the MediaAmerica
transaction plus an unlimited number of "piggy-back" registration rights, all of
which are to be provided at no cost to the Principals or to MediaAmerica (except
for sales commissions and certain legal costs).
The Post-Closing Agreement gives MediaAmerica the right to cause the
Company to purchase the shares of the Company owned by MediaAmerica at any time
after three years from closing. The price would be the fair market value
thereof, as determined by agreement or by an appraisal conducted by an
independent investment banking firm. The Company has a correlative right to
require that MediaAmerica sell such shares to the Company at fair market value
as decided above. Such rights terminate upon an initial public offering (as
defined) by the Company. Before MediaAmerica can require the Company to buy its
shares, the Company must have "unrestricted cash" (as defined) available to make
the purchase. This condition lapses after seven and one quarter years from the
date of closing. If the Company has exercised its purchase right and there is a
"change of control" (as defined) involving a higher price within six months
thereafter, the Company must pay the Principals certain additional
consideration. The Post-Closing Agreement also grants the Principals the right
to designate certain nominees to both the Boards of Directors of the Company and
Galactic Radio, Inc., a subsidiary of the Company which has oversight of all
radio-related operations. The Post-Closing Agreement also grants certain other
rights regarding the Class A Common Stock of the Company as a class and provides
that transactions with affiliates must be on terms substantially the same as
those from a third party.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company currently has six directors: Glenn R. Jones, Chairman of the
Board, Gregory J. Liptak, President of the Company, Jay B. Lewis, Group Vice
President/Finance and Chief Financial Officer of the Company, Ron Hartenbaum,
Chief Executive Officer - Radio Network, Yrma G. Rico and Fred A. Vierra.
Set forth below is certain information concerning each person who is an
executive officer or director of the Company. Information is also provided for
certain key employees. All directors hold office for a period of one year or
until their respective successors are elected and qualified, or until their
earlier resignation or removal.
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION AGE SINCE
---- -------- --- -----
<S> <C> <C> <C>
Glenn R. Jones............ Chairman of the Board 68 1993
Gregory J. Liptak......... President and Director 58 1993
Jay B. Lewis.............. Group Vice President/Finance, Chief Financial Officer and Director 40 1996
Elizabeth M. Steele....... Vice President and Secretary 46
Keith D. Thompson......... Chief Accounting Officer 31
Jeffrey C. Wayne.......... President, Cable Programming Networks (1) 43
Gary Schonfeld............ Chief Executive Officer--Radio Advertising (1)(2) 46
Ron Hartenbaum............ Chief Executive Officer--Radio Network and Director (1)(2) 45 1998
Eric Hauenstein........... President/General Manager--Radio Network (1) 50
Phil Barry................ Vice President of Programming--Radio Network (1) 45
Yrma G. Rico.............. Director 49 1998
Fred A. Vierra............ Director 66 1998
</TABLE>
(1) Key employee; an officer of a subsidiary, but not of the Company itself.
(2) Pursuant to an agreement entered into in connection with the Acquisition,
Messrs. Hartenbaum and Schonfeld may nominate one member of the Board of
Directors. This right terminates upon the earlier of the ninth anniversary
of the consummation of the Acquisition and the date on which, among other
things, the direct or indirect ownership of Messrs. Hartenbaum and
Schonfeld in the Company's common stock falls below certain levels.
The principal occupations for at least the past five years of each of the
directors, executive officers and certain key employees of the Company are as
follows:
GLENN R. JONES has been involved in the cable television business in
various capacities since 1961 and currently serves as a director and/or
executive officer of many of the Company's affiliates, including Chief Executive
Officer and a director of Jones Intercable. He has been Chairman of the Board of
the Company since 1993. Mr. Jones will continue to devote a substantial amount
of his time to the Company's business. Mr. Jones received a B.S. in Economics
from Allegheny College and a J.D. from the University of Colorado School of Law.
In 1994, Mr. Jones was inducted into the Broadcasting and Cable Hall of Fame.
Mr. Jones is a member of the Board of Directors and Executive Committee for the
National Cable Television Association, the Board and Education Council of the
National Alliance of Business and the Board of Governors for the UCLA Center for
Communications Policy. He is also one of the founding members of the James
Madison National Council and has served on the Board of Governors for the
American Society for Training and Development.
GREGORY J. LIPTAK has served as a director of the Company since 1993, was
elected an Assistant Vice President in January 1996 and was elected as President
in October 1996. Mr. Liptak has been associated with the Jones International
group of companies since March 1985. He has served as Vice President of
Operations, Group Vice President of Operations and President of Jones Intercable
from 1985 to 1989, as President of Mind Extension University, Inc., a subsidiary
of Jones Education, and President of Jones Spacelink, Ltd., from 1989 to 1995.
From 1975 to 1985, Mr. Liptak served as an executive officer of Times Mirror
Cable Television, Inc. Mr. Liptak received a B.S. and M.S. in Marketing and
Communications from the University of Illinois. Mr. Liptak was also the co-
founder and first president of CTAM, the Cable Television Marketing Society, and
has also served as Chairman of the Cable Television Advertising Bureau, and
currently serves as Chairman of the National Cable Television Cooperative.
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JAY B. LEWIS has served as Vice President/Finance and as Chief Financial
Officer of the Company since July 1996 and was elected Group Vice
President/Finance, and appointed as a director, in October 1996. Mr. Lewis has
also served as Treasurer of the Company since September 1994. From January 1995
until October 1996, Mr. Lewis was Vice President of Finance and Treasurer of
Jones International, the parent of the Company, and certain of its subsidiaries.
From February 1986 to December 1994, Mr. Lewis was employed in various
capacities, including Controller and Treasurer, by Jones Spacelink, Ltd., a
former affiliate of the Company. Prior to joining the Jones International group
of companies, Mr. Lewis was employed by Arthur Young & Co. (now Ernst & Young
LLP), a public accounting firm. Mr. Lewis received a B.S. in Accounting from the
University of Wyoming in 1980.
ELIZABETH M. STEELE has served as Secretary of the Company since it was
founded in 1993 and as Vice President of the Company since November 1995. Ms.
Steele has also served as Vice President/General Counsel and Secretary of Jones
Intercable, as well as general counsel to certain of Jones Intercable's and the
Company's affiliates since 1987. Ms. Steele will continue to devote a
significant amount of her time to these affiliates. From 1980 through 1987, Ms.
Steele practiced law with the Denver law firm of Davis, Graham & Stubbs LLP,
where she was elected a partner in 1985. Ms. Steele received a B.A. in History
from Hamilton College and J.D. from the University of New Mexico.
KEITH D. THOMPSON has served as Chief Accounting Officer of the Company
since October 1996. Mr. Thompson also serves as Chief Accounting Officer of
several of the Company's affiliates. Mr. Thompson has been associated with Jones
International since October 1994, serving as Senior Accountant from October 1994
to April 1995, as Accounting Manager from April 1995 to January 1996, as
Director of Accounting from January 1996 to July 1997, and Controller from July
1997 to present. Mr. Thompson will continue to devote a substantial amount of
his time to Jones International and its affiliates. From July 1989 to October
1994, Mr. Thompson was an auditor for Deloitte & Touche LLP. Mr. Thompson
received a B.S. in Accounting from Oral Roberts University and is a member of
both the American and Colorado Societies of Certified Public Accountants.
JEFFREY C. WAYNE has served as President and Chief Operating Officer,
Cable Network Operations for the Company and as Vice President/General Manager
for Great American Country since July 1997 and was elected President, Cable
Programming Networks and as President/General Manager for Great American Country
in January 1998. Mr. Wayne is a 21-year veteran of the cable television
industry. From 1995 to July 1997, Mr. Wayne was Vice President of Programming
for The Providence Journal's Broadcast Division. At The Providence Journal, he
was responsible for overseeing a portfolio of cable network programming ventures
including The Television Food Network and America's Health Network. At the
Providence Journal, Mr. Wayne served as acting President of The Television Food
Network; the network's subscriber base grew from 13 to over 20 million during
his tenure. From 1978 to 1995, Mr. Wayne held various marketing positions with
Colony Communications, Inc., a top 20 multiple system cable operator with over
800,000 subscribers, serving as Executive Director of Marketing and Ad Sales
from 1988 to 1993 and Vice President of Marketing and Ad Sales from 1994 to
1995. Mr. Wayne has a B.A. in Political Science from the University of Colorado,
Boulder.
GARY SCHONFELD is the co-founder of MediaAmerica and has served as its
President since its formation in 1987. Mr. Schonfeld became the Chief Executive
Officer--Radio Advertising upon the consummation of the Acquisition in July
1998. Mr. Schonfeld has over 20 years of experience in the sales arena,
including Vice-President Eastern Sales Region for Westwood One. Previously Mr.
Schonfeld served as an account executive with CBS Radio Networks and in various
positions with Fairchild Publications, Y&R Advertising and ABC Radio. Mr.
Schonfeld has a B.A. from the University of Vermont and an M.A. from the
University of Michigan.
RON HARTENBAUM is the co-founder of MediaAmerica, which was founded in
1987, and has been its Chairman since its formation. Mr. Hartenbaum became the
Chief Executive Officer--Radio Network and a Director upon the consummation of
the Acquisition in July 1998. Mr. Hartenbaum has over 20 years of experience in
radio advertising sales. Before forming MediaAmerica, Mr. Hartenbaum was Vice-
President and Director of Advertising Sales for Westwood One for six years,
growing sales from $5 million to over $50 million in that period. Prior to
joining Westwood One, Mr. Hartenbaum was involved in advertising sales for ABC
Radio and advertising development at ad agencies Needham Harper Worldwide and
Grey Advertising for national advertisers including Procter & Gamble and General
Mills. Mr. Hartenbaum has a B.A. from Queens College and an MBA from New York
University.
ERIC HAUENSTEIN has served as Vice President/General Manager--Radio
Networks since 1994 and was elected President/General Manager--Radio Networks in
January 1998. During his twenty-five years of radio station management and
ownership, he has been responsible for the operation of over twenty radio
stations, including KDKB in Phoenix and KBPI in Denver. From 1991 to 1994, he
was the General Manager of three radio stations in Richmond, Virginia. He has
also served on state and national boards of directors for the radio industry
including the National Association of Broadcasters, the National
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Radio Broadcasters Association, the Arizona Broadcasters Association and the
Virginia Association Broadcasters. He attended St. Louis University and the
University of Cincinnati.
PHIL BARRY, whose proper name is Phillip H. Baykian, has served as Vice
President of Programming--Radio Networks since 1991. Mr. Barry has nearly 25
years in on-air and programming experience. He served as Vice President of
Programming for Drake Chenault Radio Consultants in Albuquerque, New Mexico from
1986 to 1991. Previously, he was Operations Consultant for TM Programming, a
radio industry programming consultant company, from 1981 to 1986. Mr. Barry
attended Delta College at University Center.
YRMA G. RICO is General Manager of KCEC-TV, Channel 50 in Denver,
Colorado, a position she has held since 1992. She has 19 years of experience in
the television industry and has served as the National Sales Manager for KCEC-TV
and WNAC-TV, headquartered in Providence, Rhode Island.
FRED A. VIERRA is the Vice Chairman of the Board of Directors of, and a
consultant to, Tele-Communications International, Inc. ("TINTA"), positions he
has held since January, 1998. From 1994 to January 1998, he served as TINTA's
Vice Chairman, President and Chief Executive Officer. From 1992 to 1994, he
served as an Executive Vice President of TCI. Mr. Vierra served as the President
of United Artists Entertainment Company ("UAE") from 1989 to 1991 and as the
President of United Cable Television Corporation from 1982 to 1989, when the
company was merged into UAE. Mr. Vierra is a member of the Board of Directors of
Flextech plc, Torneos y Compotencias S.A. and Formus Communications, Inc. Mr.
Vierra has previously served as a member of the Board of Directors of Turner
Broadcasting, the Discovery Channel, Princes Holdings Ltd., Australas Media Ltd.
and Telewest plc. Mr. Vierra has a B.S. in Business Administration from the
University of Tulsa.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers of the Company for
their services as directors. Directors who are not officers of the Company or
its affiliates will receive $2,500 per quarter for services rendered as a
director and $500 for attending in person each meeting of the Board or one of
its committees. All directors will be reimbursed for their expenses in attending
Board and committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation for services in all capacities to the Company for the years ended
December 31, 1995, 1996 and 1997 for the President of the Company and the other
four most highly compensated executive officers and key employees of the Company
and its subsidiaries whose total annual salary and bonus attributable to such
entities exceeded $100,000 (collectively, the "Named Executive Officers"). Mr.
Jones was President of the Company during 1995 and through October 1996 and has
been Chairman of the Board during all such periods. He did not receive any
compensation for services rendered to the Company during such periods.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ---- ------ ----- --------------
<S> <C> <C> <C> <C>
Gregory J. Liptak(2)................................ 1997 $283,879 $ -- $22,417
President 1996 127,746 38,250 15,566
1995 156,134 46,750 21,843
Jay B. Lewis(3)..................................... 1997 150,007 -- 9,000
Group Vice President/Finance and 1996 44,287 -- 3,543
Chief Financial Officer 1995 -- -- --
Jeffrey C. Wayne(4)................................. 1997 76,897 -- 37,215
President, Cable Programming Networks 1996 -- -- --
1995 -- -- --
Eric Hauenstein..................................... 1997 150,015 13,900 6,883
President/General Manager--Radio Network 1996 139,006 -- 8,340
1995 127,924 20,000 21,513
Phil Barry.......................................... 1997 90,024 8,000 2,993
Vice President of Programming--Radio Network 1996 80,010 5,800 1,547
1995 68,814 13,250 --
</TABLE>
(1) The Company's employees are entitled to participate in a 401(k) profit
sharing plan and/or a deferred compensation plan. The amounts shown in this
column represent the Company's contributions to the 401(k) profit sharing
plan and/or the deferred compensation plan for the benefit of the named
person's account and, with respect to Messrs. Hauenstein and Wayne,
includes $17,713 and $33,615, respectively, reimbursed to them for moving
expenses in 1995 and 1997, respectively.
(2) Mr. Liptak became President of the Company in October 1996. Mr. Liptak's
total compensation for services rendered to the Company during 1995 and
1996 represents an allocation to the Company of the total compensation paid
to Mr. Liptak by Jones International for these years based upon the time
allocated to the Company's business. Mr. Liptak serves as an executive
officer and director of certain of the Company's affiliates. Since the
beginning of 1997, Mr. Liptak has devoted all of his time to the business
of the Company and will continue to do so in the future.
(3) Mr. Lewis' total compensation for services rendered to the Company during
1996 represents an allocation to the Company of the total compensation paid
to Mr. Lewis by Jones International for 1996 based upon the time allocated
to the Company's business. For the year 1995, no portion of Mr. Lewis'
compensation was allocated to the Company, all of which was paid by Jones
International.
(4) Reflects compensation from July 1997 when Mr. Wayne joined the Company.
The Company has agreed to give Messrs. Wayne and Hauenstein each a $250,000
bonus if certain defined levels of distribution in the cable programming network
and the radio network, respectively, are reached within approximately three
years.
On July 10, 1998, the Company entered into employment agreements with
Messrs. Hartenbaum and Schonfeld. See "The Acquisition and Related Transactions"
for a description of the employment agreements.
STOCK OPTION PLAN
The Company has adopted an employee stock option plan (the "Plan") that
provides for the grant of stock options and stock appreciation rights ("SARs")
to employees or individuals providing services to the Company. The plan is
construed, interpreted and administered by the Board or a committee of two or
more non-employee directors. The committee or the Board determines the
individuals to whom options are granted, the number of shares subject to the
options, the exercise price of the
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options (which may be below fair market value of the stock on the date of
grant), the period over which the options become exercisable and the term of the
options. The committee or the Board has the discretion to set other terms and
provisions of stock options as it may determine from time to time, subject only
to the provisions of the Plan.
The Plan covers an aggregate of up to 400,000 shares of the Company's Class
A Common Stock. The number of shares available for grant of options under the
Plan and the number of shares included in each outstanding option are subject to
adjustment upon recapitalizations, stock splits or other similar events that
cause changes in the Company's Class A Common Stock. Shares of Class A Common
Stock underlying options that expire unexercised are available for future option
grants under the Plan.
The Plan provides for the grant of incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-statutory stock options that do not
qualify as incentive stock options under Section 422 of the Code ("Non-Qualified
Options"). Options granted may be either Incentive Options or Non-Qualified
Options or a combination of the two. The exercise price of each Incentive Option
granted must be at least equal to the fair market value of the Class A Common
Stock on the date the Incentive Option is granted. The exercise price of Non-
Qualified Options may be less than the fair market value of the Class A Common
Stock on the date the Non-Qualified Option is granted. If an Incentive Option is
granted to an employee who then owns stock possessing 10% of the total combined
voting power of all classes of stock of the Company, the exercise price of the
Incentive Option must be at least equal to 110% of the fair market value of the
Class A Common Stock on the date the Incentive Option is granted.
The maximum term of options granted under the Plan is generally ten years,
but with respect to an Incentive Option granted to an employee who then owns
stock possessing 10% of the total combined voting power of all classes of stock
of the Company, the maximum term of the option is five years. Subject to the
foregoing limitation, the Committee or the Board determines the term of the
options and the period over which they vest and come exercisable.
SARs may be granted in tandem with options granted under the Plan. Each SAR
entitles the participant, upon the exercise of the SAR, to receive the excess of
the fair market value of a share of Class A Common Stock on the exercise date
over the fair market value of the share on the date the SAR was granted. An SAR
is exercisable only to the extent the associated stock option is exercisable. To
the extent the option is exercised, the accompanying SAR will cease to be
exercisable, and vice versa. An SAR may be exercised only when the market price
of Class A Common Stock subject to the option exceeds the exercise price of such
option.
Options and associated SARs are not transferable, except by will or
pursuant to the laws of descent and distribution, and are exercisable only by
the option holder during his lifetime or, in the event of disability or
incapacity, by the option holder's guardian or legal representative.
The Board may amend the Plan at any time or may terminate it without the
approval of the shareholders; provided, however, that shareholder approval is
required for any amendment to the Plan that increases the number of shares for
which options may be granted, materially increases the benefits accruing to
participants in the Plan or materially modifies the eligibility requirements for
participation in the Plan. However, no action by the Board or shareholders may
alter or impair any option previously granted without the consent of the
optionee.
An aggregate of options to acquire 275,000 shares of Class A Common Stock
have been granted under the Plan, including the following: Mr. Jones - 50,000
shares; Mr. Liptak - 50,000 shares; Mr. Lewis - 50,000 shares; Mr. Hauenstein -
20,000 shares; and Mr. Wayne - 20,000 shares.
Certain Federal Income Tax Consequences.The following discussion, which is
based on the law as in effect on the date of this Prospectus , summarizes
certain federal income tax consequences of participation in the Plan. The
summary does not purport to cover federal employment tax or certain other
federal tax consequences that may be associated with the Plan, nor does it cover
state, local or non-U.S. taxes. Recipients of stock options or SARs under the
Plan are urged to consult their own tax advisors with respect to the
consequences of their participation in the Plan.
In general, an optionee realizes no taxable income upon the grant or
exercise of an Incentive Option. The exercise of an Incentive Option may result
in an alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an Incentive Option within
two years from the date of grant or within one year after exercise produces
ordinary income to the optionee (and a corresponding deduction is available to
the Company) equal to the value of the shares at the time of exercise less the
exercise price. Gain or loss recognized on sales of shares acquired upon the
exercise of an Incentive Option will be treated as capital gain or loss for
which the Company is not entitled to a deduction if the shares have been held
for
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more than one year after exercise and more than two years after the date of
grant. Any such gain will be long-term capital gain and will be subject to tax
at a maximum rate of 20%. In general, an Incentive Option that is exercised more
than three months after termination of employment (other than termination by
reason of death) is treated as a Non-Qualified Option. Options are also treated
as Non-Qualified Options to the extent they first become exercisable by an
individual in any calendar year for shares having a fair market value
(determined as of the date of grant) in excess of $100,000.
An optionee generally recognizes no taxable income upon the receipt of a
Non- Qualified Option. Upon the exercise of a Non-Qualified Option, the optionee
normally recognizes ordinary income equal to the difference between the option
price and the fair market value of the stock on the date of exercise, and the
Company is entitled to a deduction in the same amount.
The grant of SARs has no federal income tax consequences at the time of
grant. Upon the exercise of SARs, the amount received is generally taxable as
ordinary income, and the Company is entitled to a corresponding deduction.
EMPLOYEE INVESTMENT 401(K) PLAN
The Company's employees are eligible to participate in an Employee Profit
Sharing/Retirement Savings Plan (the "401(k) Plan"). Under the 401(k) Plan,
eligible employees are permitted to defer receipt of up to 16% of their annual
compensation, subject to a limit prescribed by statute. In general, the Company
currently matches 50% of the employees' deferrals up to a maximum of 6% of their
annual compensation. The Company's contribution vests immediately. Subject to
certain restrictions, contributions to the 401(k) Plan are invested by the
trustees of the 401(k) Plan in accordance with the directions of each
participant. All employees of the Company who have completed 500 hours of
service within a six consecutive-month period are eligible to participate in the
401(k) Plan on the next open enrollment following the date that the eligibility
requirements have been met.
Participants or their beneficiaries are entitled to payment of benefits:
(i) upon retirement either at or after age 65, (ii) upon death or disability or
(iii) upon termination of employment. In addition, hardship distributions and
loans to participants from the 401(k) Plan are available under certain
circumstances. The amount of benefits ultimately payable to a participant under
the 401(k) Plan will depend on the performance of the investments to which
contributions are made on the participant's behalf. During 1997, the Company
contributed approximately $83,000 to the 401(k) Plan on behalf of its employees.
DEFERRED COMPENSATION PLAN
Certain of the Company's key employees are eligible to participate in a
Deferred Compensation Plan (the "Deferred Compensation Plan"). Key employees
eligible to participate in the Deferred Compensation Plan constitute a select
group of highly compensated or management personnel and are selected by the
Company's Board. Under the Deferred Compensation Plan, key employees are
permitted to defer receipt of up to 100% of their annual compensation. The
Company currently matches the key employees' deferrals up to a maximum of 6% of
their contributions. The funds are deposited with Norwest Bank Colorado, NA, as
Trustee of the Deferred Compensation Plan's Rabbi Trust, and they are invested
in a number of pre-selected investment funds. Both the key employees'
contributions and the Company's contributions are at all times subject to the
claims of the Company's general creditors.
Key employees who participate in the Deferred Compensation Plan receive a
distribution of their contributions, the Company's contributions, and earnings
attributable to those contributions on their separation from employment with the
Company or their death. The Deferred Compensation Plan also permits hardship
distributions in certain circumstances. The amount of benefits ultimately
payable to a key employee participant depends upon the performance of the
investment funds held by the trust. During 1997, the Company contributed
approximately $33,000 to the Deferred Compensation Plan on behalf of its key
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Company's Board, comprised of Messrs. Jones, Liptak and
Lewis, set the compensation of the Company's executive officers. Messrs. Jones,
Liptak and Lewis served as executive officers of the Company and certain of its
subsidiaries, and also served as directors and officers of a number of the
Company's affiliates, during 1997. As individuals, the Company's executive
officers and directors had no transactions with the Company in 1997. See
"Certain Relationships and Related Transactions" for a discussion of certain
transactions between the Company and its affiliates.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the following transactions, no third party bids or appraisals were
obtained. In addition, certain of these transactions are by their nature unique
to the companies involved. Although the Company believes that these transactions
were fair to it, no assurance can be given that the terms of these transactions
were generally as favorable to it as could have been obtained from third
parties. The transactions described below, other than the loans and advances,
are expected to continue and additional agreements and transactions with
affiliated parties may occur in the future, subject to the restrictions in the
Indenture.
Where applicable, references in this section to amounts paid to or by the
Company include amounts paid to or by the PIN Venture and Superaudio as well as
the Company.
ADVANCES
Since its inception, the Company has received advances from Jones
International and related parties to fund its activities. These advances have no
maturity date and accrue interest at the published prime rate plus 2%
(approximately 11%, 10% and 10% in 1995, 1996 and 1997, respectively). The
Company has received advances from Jones International and related parties to
fund a portion of its cash needs, with cumulative advances of $1.8 million, $6.0
million, $9.8 million and $5.4 million as of December 31, 1995, 1996 and 1997
and June 30, 1998, respectively. The Company paid interest on these advances of
approximately $142,000, $243,000, $868,000 and $328,000 for the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998,
respectively. The largest total amount of outstanding advances from Jones
International and related parties in 1997 was approximately $10.3 million.
Outstanding borrowings of $16.3 million under Radio Holdings' credit facility
were used to repay a $6.6 million note payable to Jones Intercable and to repay
$9.7 million in advances from Jones International in March 1998. At June 30,
1998, outstanding advances from Jones International and related parties were
$5.4 million. Jones International is under no obligation to provide additional
financial assistance to the Company.
PURCHASE OF GALACTIC RADIO AND EARTH SEGMENT
Effective August 15, 1996, the Company purchased all of the common stock
of Galactic Radio from Global Group, a related party, for $17.2 million.
Galactic Radio is a holding company that owns a 100% interest in Jones Radio
Network, Inc. and, indirectly, a 50% interest in Superaudio. Global Group had
acquired Galactic Radio from Jones Intercable, another affiliate of the Company,
for a $17.2 million purchase price on June 14, 1996. The $17.2 million purchase
price paid for Galactic Radio consisted of $1.2 million in cash and a $16.0
million note payable to Global Group. The note payable to Global Group bore
interest at 8.25% per annum and was payable quarterly. Interest expenses totaled
approximately $495,000 and $1,196,000 for the years ended December 31, 1996 and
1997, respectively. Effective September 30, 1997, the Company and Global Group
agreed to convert $6.0 million of the $16.0 million note to Global Group into
400,000 shares of the Company's Class B Common Stock at $15 per share. This note
was repaid in conjunction with a reorganization of the Company's parent in
December 1997, and the Company issued a new $10 million unsecured promissory
note to Global Group on December 31, 1997 (the "Global Group Note"). The Global
Group Note accrued interest at 8.25% per annum, compounded annually. Effective
upon the closing of the offering of the Old Notes in July 1998, the Global Group
Note was converted into 666,667 shares of Class A Common Stock valued at $15 per
share. The Company has paid the accrued interest of approximately $413,000 on
the Global Group Note. Interest expense on the Jones Global Group Note totaled
approximately $413,000 for the six months ended June 30, 1998.
Effective September 30, 1996, the Company purchased all of the common
stock of Earth Segment from Mr. Jones and Jones International for 110,833 shares
and 472,500 shares, respectively, of Class A Common Stock valued at $12 per
share. In connection with this transaction, the Company assumed Earth Segment's
obligations under an approximately $6.6 million promissory note payable to Jones
Intercable. Approximately $670,000, $608,000, $627,000 and $156,000 of interest
was paid on the note for the years ended December 31, 1995, 1996, and 1997 and
the six months ended June 30, 1998, respectively. This note was paid in full in
March 1998 with borrowings under Radio Holdings' credit facility.
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PURCHASE OF MINORITY INTERESTS IN GREAT AMERICAN COUNTRY AND THE PRODUCT
INFORMATION NETWORK FROM AN AFFILIATE
Mr. Glenn R. Jones is the principal shareholder of the Company and is also
a director. Pursuant to an exchange agreement dated November 6, 1996 (as
amended on April 1, 1997), Mr. Jones transferred 1,196 shares of Class A and
Class B Common Stock of Jones Infomercial Networks, Inc. and 1,900 shares of
Class A and Class B Common Stock of Great American Country, Inc. to the Company
in exchange for 333,333 shares of Class A Common Stock of the Company.
TAX SHARING AGREEMENT
Prior to April 2, 1997, the Company joined in filing a consolidated tax
return as provided for under the terms of a tax allocation agreement with Jones
International and certain of Jones International's subsidiaries. Pursuant to the
terms of the tax allocation agreement, tax provisions (benefits) were allocated
to the members of the tax sharing group based on their respective pro rata
contribution of taxable income (loss) to Jones International's consolidated
taxable income (loss). As a result of certain stock issuances on April 1, 1997
described above, less than 80% of the Company's outstanding common stock was
owned by Jones International and, therefore, the Company is no longer included
in the Jones International tax allocation agreement.
The tax allocation agreement with Jones International gave Jones
International the option to either make a payment of the tax benefits due to the
subsidiary members of the tax sharing group or defer such payments until a
subsequent taxable period in which the subsidiary member generates taxable
income and has a tax payment due either to Jones International or to a federal
or state taxing authority. Jones International could defer such payments for a
period not to exceed five years from the date the tax benefits were incurred and
would accrue interest at the time the deferred amounts originate. For the year
ended December 31, 1997, Jones International elected to defer a tax benefit of
approximately $1,342,000 due to the Company and its subsidiaries. For the six
months ended June 30, 1998, the Company incurred a tax provision of
approximately $268,000 to adjust estimated tax provisions to actual tax
provisions for the year ended December 31, 1997.
In 1995, 1996 and 1997, the Company recognized income tax benefits as a
result of the tax sharing arrangement of approximately $498,000, $387,000 and
$1,342,000, respectively.
SATELLITE DELIVERY AND PRODUCTION SUPPORT SERVICES
The Company has agreements to provide uplinking, playback, trafficking
and related services to Jones Education, a related party, that terminate on
December 31, 2004. The Company has the right to terminate the uplinking
agreement upon 30-days' written notice. The Company received approximately $1.9
million, $2.2 million, $2.2 million and $1.3 million from Jones Education for
these services for the years ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1998, respectively. In June 1998, the Company and an
affiliate of Jones Education entered into an agreement pursuant to which the
Company is providing, beginning July 1, 1998, additional uplinking, playback,
trafficking and related services in connection with the lease of an additional
channel on one of the Company's satellite transponders for a monthly fee of
$30,000 and an amount representing a proportionate share of expenses.
SATELLITE TRANSPONDER AGREEMENTS
The Company has leased to Jones Education one channel on a non-preemptible
satellite transponder on a domestic communications satellite that the Company
historically leased from a third party, which lease was prepaid with a portion
of the proceeds of the offering of the Old Notes. The Company has the right to
terminate the lease to Jones Education at any time upon 30-days' written notice.
The monthly payments under such lease may be adjusted periodically through the
December 2004 expiration date based on the number of customers using the
transponder. The Company received lease payments of approximately $1.2 million,
$0.9 million, $0.9 million and $0.5 million for the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1998, respectively. In
June 1998, the Company and an affiliate, Knowledge TV, Inc., entered into an
agreement pursuant to which such party leased one additional channel on the
transponder from the Company from July 1, 1998 for a seven-year term with an
option, exercisable by the related party on six months' advance notice, to
terminate the lease on July 1, 2001, at a monthly lease rental of approximately
$59,000.
The Company subleases from Satellite Holdings, a related party, an audio
channel on a non-preemptible satellite transponder on the Galaxy V
communications satellite for approximately $58,000 per month. Satellite Holdings
has the right to
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terminate the sublease prior to its May 2004 expiration date upon 30-days'
written notice. Satellite Holdings leases the transponder from a third party
pursuant to a lease that terminates in 2004. Satellite Holdings charged lease
payments of approximately $696,000 for each of the years ended December 31,
1995, 1996 and 1997, respectively. The Company paid Satellite Holdings a fee of
$348,000 for the six months ended June 30, 1998.
SALES COMMISSIONS
The Company earns up to a 3% commission on its sale of airtime for
informational programming on certain network subsidiaries of Jones Education.
The Company received commissions from Jones Education of approximately $52,000,
$241,000, $216,000 and $97,000 for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1998, respectively. Effective July 1,
1998, these services for Jones Education are being provided by the PIN Venture,
which will receive all future commissions and will pay for the personnel who
perform such services.
An affiliate of the Company began providing affiliate sales services to
the Company in late 1997. This affiliate charged the Company approximately
$201,000 for the year ended December 31, 1997 and approximately $444,000 for the
six months ended June 30, 1998.
AFFILIATE FEES
Great American Country is licensed to certain cable television systems
owned or managed by Jones Intercable. Jones Intercable and its affiliated
partnerships paid total license fees to the Company of approximately $719,000,
$853,000 and $468,000 for the years ended December 31, 1996 and 1997 and the six
months ended June 30, 1998, respectively. This affiliation agreement expires on
December 31, 2010. See "Risk Factors--Risks Associated with Distribution of
Television Programming." Superaudio also licenses its audio services to these
systems. Jones Intercable and its affiliated partnerships paid Superaudio
approximately $720,000 for each of the years ended December 31, 1995, 1996 and
1997 and $360,000 for the six months ended June 30, 1998.
The Product Information Network is distributed to Jones Intercable and its
affiliated partnerships and to Cox and Adelphia, both partners in the PIN
Venture. The affiliation agreement with Jones Intercable expires on February 1,
2005. Prior to January 1, 1997, under the terms of the affiliation agreements
with these MSOs, the Company made incentive payments of approximately 50% of its
net advertising revenues to the cable systems that carry its programming. For
the year ended December 31, 1997 and the six months ended June 30, 1998, the
PIN Venture made incentive payments of approximately 60% and 65%, respectively,
of its net advertising revenues to these systems. For the eleven months ended
December 31, 1995, the years ended December 31, 1996 and 1997 and the six months
ended June 30, 1998, Jones Intercable and its affiliated partnerships received
incentive payments totaling approximately $0.9 million, $1.2 million, $1.6
million and $0.9 million, respectively.
COMPUTER SERVICES
A subsidiary of Jones International provides computer hardware and software
services and miscellaneous related support services to the Company and other
Jones International affiliates. The Company paid service fees to this subsidiary
of approximately $306,000, $385,000, $574,000 and $330,000 for the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998,
respectively.
OFFICE LEASE AND SUBLEASE
The Company leases and subleases office space in Englewood, Colorado from
affiliates of Jones International on a month-to-month basis. The Company paid
rent and associated expenses under these leases and subleases of approximately
$14,000, $32,000, $88,000 and $74,000 for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1998, respectively.
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ADMINISTRATIVE SERVICES
The Company reimburses Jones International and its affiliates for certain
administrative services provided by these companies, such as legal, accounting,
purchasing and human resources services. Jones International and its affiliates
charge the Company for these services based upon an allocation of its personnel
expense associated with providing these services. These allocated expenses
totaled approximately $163,000, $861,000, $540,000 and $513,000, for the years
ended December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998,
respectively. A significant portion of the administrative expenses for 1996 were
non-recurring in nature or were paid directly by the Company in 1997 as a result
of organizational changes which were effected in early 1997.
An affiliate of the Company charged the Company approximately $110,000 for
the six months ended June 30, 1998 for the allocated costs of its airplane which
was used by the Company in connection with the Notes offering. No services were
provided in the years ended December 31, 1995, 1996 or 1997.
TRANSFER OF SATELLITE TRANSPONDER LEASES
In April 1997, the Company acquired the satellite transponder leases and
related subleases held by Space Segment, an affiliate, in exchange for 416,667
shares of Class A Common Stock valued at $12 per share. These various agreements
were then transferred to a wholly-owned subsidiary, Space Holdings. In January
1998, the Company transferred the shares of Space Holdings to Space Segment for
a nominal amount, and the Company was relieved of the obligations related to the
activities of Space Holdings. Upon the closing of the offering of the Old Notes,
the parties rescinded the transfer of the shares of Space Holdings to Space
Segment. The Company has prepaid the capital lease obligations for such
transponders with the proceeds from such offering and now owns the transponders.
CONFLICTS OF INTEREST OF MANAGEMENT
Messrs. Jones, Liptak, Lewis, Wayne and Thompson and Ms. Steele, who are
officers and/or directors of the Company, are also officers and/or directors of
certain affiliated entities and, from time to time, the Company may enter into
transactions with these entities. Consequently, such officers and/or directors
may have conflicts of interest with respect to matters potentially or actually
involving or affecting the Company and such affiliates. In addition, such
directors and/or officers may have such conflicts of interest with respect to
corporate opportunities suitable for both the Company and such affiliates.
Under the Colorado Business Corporation Act, as amended (the "Colorado Act"), no
conflicting interest transaction shall be void or voidable or be enjoined, set
aside or give rise to an award of damages or other sanctions in a proceeding by
a shareholder or by or in the right of the corporation, solely because the
conflicting interest transaction involves a director of the corporation or an
entity in which a director of a corporation is a director or officer or has a
financial interest or solely because the director is present at or participates
in the meeting of the corporation's board of directors or of a committee of the
board of directors which authorizes, approves, or ratifies the conflicting
interest transaction or solely because the directors' vote is counted for such
purpose, if: (i) the material facts as to the director's relationship or
interest and as to the conflicting interest transaction are disclosed or known
to the board of directors or the committee and said board of directors or
committee authorizes, approves, or ratifies in good faith the conflicting
interest transaction, (ii) the material facts as to the director's relationship
or interest and as to the conflicting interest transaction are disclosed or
known to the shareholders entitled to vote thereon and said shareholders
specifically authorize, approve or ratify in good faith the conflicting interest
transaction, or (iii) the conflicting interest transaction is fair as to the
corporation.
Conflicts of interest also may arise in managing the operations of more
than one entity with respect to allocating time, personnel and other resources
between entities. To the extent deemed appropriate by the Company, such
conflicts would be resolved by employing additional personnel as necessary. See
"Risk Factors--Transactions with and Reliance on Related Parties; Conflicts of
Interest." Transactions with affiliates will be subject to the restrictions in
the Indenture. See "Description of Notes--Certain Covenants--Limitation on
Affiliate Transactions."
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of August 1, 1998 with
respect to the beneficial ownership of the Class A Common Stock and Class B
Common Stock of the Company by the Company's executive officers, directors,
holders of more than 5% of its Class A Common Stock or Class B Common Stock and
its executive officers and directors as a group. Except as otherwise indicated,
each person named in the table has informed the Company that such person has
sole voting and investment power with respect to all shares beneficially owned
by such person.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
PERCENT OF VOTE
NUMBER PERCENT NUMBER PERCENT OF ALL CLASSES OF
BENEFICIAL OWNER OF SHARES OF SHARES OF SHARES OF SHARES COMMON STOCK(1)
- ---------------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Glenn R. Jones (2)................................... 3,385,120 78.9% 1,785,120 100.0% 95.9%
MediaAmerica (3)..................................... 541,570 12.6% -- -- 2.4%
Adelphia (4)......................................... 262,500 6.1% -- -- 1.2%
Ron Hartenbaum (3)................................... 270,785 6.3% -- -- 1.2%
TCA.................................................. 101,124 2.4% -- -- 0.5%
All executive officers and directors as a group
(8 persons)..................................... 3,655,905 95.2% 1,785,120 100.0% 97.1%
</TABLE>
(1) Holders of Class A Common Stock are entitled to one vote per share and are
entitled to elect 25% of the Board of Directors, and holders of Class B
Common Stock are entitled to ten votes per share and to elect the remaining
75% of the Company's Board of Directors. The holders of the Class B Common
Stock have the right to convert their shares of Class B Common Stock into
shares of Class A Common Stock on a share for share basis at any time at
their option.
(2) Glenn R. Jones is the Chairman of the Board and Chief Executive Officer of
Jones International and owns all of the outstanding shares of Jones
International which, in turn, owns 81% of the outstanding common stock of
Jones Space Segment and 80% of the outstanding common stock of Global
Group. He is therefore deemed to be the beneficial owner of 1,594,500
shares of the Class A Common Stock and 1,122,000 shares of the Class B
Common Stock owned by Jones International, 416,667 shares of the Class A
Common Stock owned by Space Segment and 666,667 shares of Class A Common
Stock and 400,000 shares of the Class B Common Stock owned by Global Group.
Glenn R. Jones', Jones International's, Space Segment's and Global Group's
address is 9697 East Mineral Avenue, Englewood, Colorado 80112.
(3) The above table does not include any additional shares of Class A Common
Stock issuable based on the final working capital adjustment of
MediaAmerica, one-half of which would be beneficially owned by Mr.
Hartenbaum. The number of shares beneficially owned by MediaAmerica
includes the shares beneficially owned by Mr. Hartenbaum. Mr. Hartenbaum
was elected as a director of the Company upon the consummation of the
Acquisition. The address of MediaAmerica and Mr. Hartenbaum is 11 West 42nd
Street, New York, New York 10036.
(4) Adelphia's address is 5 West Third Street, Coudersport, Pennsylvania 16915.
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DESCRIPTION OF NOTES
GENERAL
For purposes of this description, the term "Notes" refers to the Old Notes
andthe Exchange Notes collectively. The Old Notes and the Exchange Notes are
considered collectively to be a single class under the Indenture. The Notes are
issued under an Indenture, dated as of July 10, 1998 (the "Indenture"), among
the Company and United States Trust Company of New York, as Trustee (the
"Trustee"), a copy of which has been filed as an exhibit to the Exchange Offer
Registration Statement. The following is a summary of certain provisions of the
Indenture and the Notes and does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture (including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended) and the
Notes. References herein to "interest" are deemed to include Additional
Interest, if any, payable as described under "Exchange Offer and Registration
Rights".
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the holders as such address appears in the Note
Register. The Trustee will act as Paying Agent and Registrar for the Notes. The
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar, which initially will be the Trustee's corporate trust office.
The Company may change any Paying Agent and Registrar without notice to holders
of the Notes.
The Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF NOTES
The Notes are senior secured obligations of the Company, limited to $100
million aggregate principal amount from time to time outstanding, except as set
forth under the Indenture, and mature on July 1, 2005. Each Note bears interest
at the rate of 11 3/4% per annum from the date of issuance, or from the most
recent date to which interest has been paid or provided for, and will be payable
semiannually on January 1 and July 1 of each year (each an "Interest Payment
Date"), commencing on January 1, 1999, to holders of record at the close of
business on the June 15 or December 15 immediately preceding the Interest
Payment Date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
SECURITY
The Notes are secured by a first priority security interest in the Capital
Stock of Jones Programming, the Company's wholly-owned intermediate holding
company and of all direct Subsidiaries of Jones Programming. In addition, the
Notes are guaranteed by Subsidiary Guarantees issued by certain domestic
Restricted Subsidiaries of the Company. The Subsidiary Guarantees are not
secured.
REDEMPTION
Mandatory Redemption. The Company is not required to make mandatory
redemptions or sinking fund payments prior to the maturity of the Notes, but is
required to make an offer to repurchase the Notes in connection with a change of
control and, under certain circumstances, following certain asset sales. See
"Change of Control" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock".
Optional Redemption. Except as set forth below, the Notes are not
redeemable at the option of the Company prior to July 1, 2003. On and after such
date, the Notes are redeemable, at the Company's option, in whole or in part,
at any time upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
holder's registered address, at the following redemption prices (expressed in
percentages of principal amount), if redeemed during the 12-month period
commencing on July
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1 of the years set forth below, plus accrued and unpaid interest to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ------
<S> <C>
2003....................................................... 105.875%
2004 and thereafter........................................ 100.000%
</TABLE>
Optional Redemption Upon Equity Offering. In addition, at any time on or
prior to July 1, 2001, the Company may, at its option, redeem up to 35% of the
originally issued aggregate principal amount of the Notes, with net cash
proceeds of one or more Equity Offerings by the Company, at a redemption price
equal to 111.75% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided, however, that
after any such redemption the aggregate principal amount of the Notes
outstanding must equal at least 65% of the aggregate principal amount of Notes
issued under the Indenture; and provided, further, that the Company may not so
redeem the Notes in connection with a Change of Control. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company shall
make such redemption not more than 90 days after the consummation of any such
Equity Offering.
Selection. In the case of any partial redemption, selection of the Notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate; provided, however, that if a partial redemption is made with
proceeds of an Equity Offering, selection of the Notes or portions thereof to be
redeemed shall be made by the Trustee only on a pro rata basis, unless such
method is otherwise prohibited. Notes may be redeemed in part in multiples of
$1,000 principal amount only. Notice of redemption will be sent, by first class
mail, postage prepaid, at least 30 days (unless a shorter period is acceptable
to the Trustee) but no more than 60 days prior to the date fixed for redemption
to each holder whose Notes are to be redeemed at the last address for such
holder then shown on the Note Register. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note. On and after any redemption
date, interest will cease to accrue on the Notes or part thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the redemption price pursuant to the Indenture.
RANKING
The Notes are senior secured obligations of the Company and rank pari
passu inright of payment with all existing and future Senior Indebtedness of the
Company and rank senior in right of payment to all existing and future
Subordinated Obligations of the Company. Claims of holders of the Notes are
contractually subordinated under the Subsidiary Guarantees to all claims of
holders of Bank Indebtedness and Capitalized Lease Obligations Incurred by
Restricted Subsidiaries of the Company and structurally subordinated to all
claims of holders of Indebtedness of Unrestricted Subsidiaries of the Company.
SUBSIDIARY GUARANTEES
Each Subsidiary Guarantor has unconditionally guaranteed, jointly and
severally, to each holder and the Trustee, the full and prompt payment of
principal, premium, if any, and interest on the Notes, and of all other
obligations of the Company under the Indenture. The Guarantees are senior
unsecured obligations of each Subsidiary Guarantor and rank pari passu in right
of payment with all existing and future Senior Indebtedness of each Subsidiary
Guarantor (other than Indebtedness of any Subsidiary Guarantor in respect of
Bank Indebtedness and Capitalized Lease Obligations permitted to be Incurred
bysuch Subsidiary Guarantor under the covenant described under "-Certain
Covenants--Limitation on Indebtedness", as to which the Subsidiary Guarantees
are expressly subordinated) and senior in right of payment to all existing and
future Subordinated Obligations of each Subsidiary Guarantor.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to
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contribution from each other Subsidiary Guarantor in pro rata amount based on
the Adjusted Net Assets of each Subsidiary Guarantor.
Except as set forth in the Indenture, each Subsidiary Guarantor may
consolidate with or merge into or sell its assets to the Company or another
Subsidiary Guarantor. Subject to the satisfaction of certain conditions, each
Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a Person other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor).
Upon the sale or disposition of a Subsidiary Guarantor (or all or substantially
all of its assets) to a Person (whether or not an Affiliate of the Subsidiary
Guarantor) which is not a Subsidiary of the Company or the designation of a
Subsidiary Guarantor as an Unrestricted Subsidiary, which sale or disposition or
designation is otherwise in compliance with the Indenture (including the
covenants described under "Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" and "--Limitation on Designations of Unrestricted
Subsidiaries"), such Subsidiary Guarantor shall be deemed released from all its
obligations under the Indenture and its Subsidiary Guarantee and such Subsidiary
Guarantee shall terminate; provided, however, that any such termination shall
occur only to the extent that all of its guarantees of, and all of its pledges
of assets or other security interests which secure, any other Indebtedness of
the Company or any other Restricted Subsidiary shall also terminate upon such
release, sale or transfer.
Subsequent to the Issue Date, separate financial information for the
Subsidiary Guarantors will not be provided except to the extent required by
Regulation S-X under the Securities Act.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder has the right to
require the Company to repurchase all or any part of such holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant Interest Payment Date).
Within 30 days following any Change of Control, unless the Company has
maileda redemption notice with respect to all the outstanding Notes in
connection with such Change of Control, the Company shall mail a notice to each
holder with a copy to the Trustee stating: (i) that a Change of Control has
occurred and that such holder has the right to require the Company to purchase
such holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on a record date to receive interest
on the relevant Interest Payment Date); (ii) the repurchase date (which shall be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (iii) the procedures determined by the Company, consistent with the
Indenture, that a holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions,
a disposition of all or substantially all of the property and assets of the
Company and its Subsidiaries. With respect to the disposition of property or
assets, the phrase "all or substantially all" as used in the Indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which is the choice of law under
the Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear as to whether a Change of Control has occurred and whether the
Company is required to make an offer to repurchase the Notes as described above.
Future Senior Indebtedness of the Company and its Subsidiaries may contain
prohibitions of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase of the Company. Finally, the Company's ability to pay cash to the
holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
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The existence of a holder's right to require the Company to repurchase
such holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and
its Restricted Subsidiaries that are Subsidiary Guarantors may Incur
Indebtedness if (i) no Default or Event of Default shall have occurred and be
continuing at the time of such Incurrence or would occur as a consequence of
such Incurrence and (ii) on the date thereof the Consolidated Coverage Ratio (A)
with respect to Indebtedness pari passu with the Notes, would be greater than or
equal to 2.0:1 and (B) with respect to Subordinated Obligations, would be
greater than or equal to 1.50:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company or any Restricted Subsidiary under
Bank Indebtedness and under standby letters of credit or reimbursement
obligations with respect thereto issued in the ordinary course of business and
consistent with industry practice, provided, however, that the principal amount
of any Indebtedness Incurred pursuant to this clause (i) shall not exceed $20
million at any time outstanding;
(ii) Indebtedness represented by Capitalized Lease Obligations,
mortgage financings or purchase money obligations, in each case Incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property or equipment used in a Permitted
Business or Incurred to refinance any such purchase price or cost of
construction or improvement, in each case Incurred no later than 365 days
after the date of such acquisition or the date of completion of such
construction or improvement; provided, however, that the principal amount
of any Indebtedness Incurred pursuant to this clause (ii), together with
Indebtedness Incurred in connection with Sale/Leaseback Transactions in
accordance with the "Limitation on Sale/Leaseback Transactions" covenant,
shall not exceed $5 million at any time outstanding;
(iii) Indebtedness of the Company owing to and held by any Wholly-
Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any Wholly-Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to the
Company or any Wholly-Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (w) the Notes, (x) Existing
Indebtedness and (y) any Refinancing Indebtedness Incurred in respect of
any Indebtedness described in this clause (iv) or Incurred pursuant to
paragraph (a);
(v) (A) Indebtedness of a Person Incurred on or before and
outstanding on the date on which such Person becomes a Restricted
Subsidiary of the Company (other than Indebtedness Incurred in anticipation
of, or to provide all or any portion of the funds or credit support
utilized to consummate the transaction or series of related transactions
pursuant to which such Person became a Subsidiary or was otherwise acquired
by the Company); provided, however, that at the time such Person is
acquired by the Company, the Company would have been able to Incur an
additional $1.00 of Senior Indebtedness pursuant to paragraph (a) above
after giving effect to the Incurrence of such Indebtedness pursuant to this
clause (v) and (B) Refinancing Indebtedness Incurred by a Restricted
Subsidiary in respect of Indebtedness Incurred by such Restricted
Subsidiary or another Restricted Subsidiary the Capital Stock of which is
owned, either directly or indirectly, by the Restricted Subsidiary
Incurring such Refinancing Indebtedness, pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of
its Restricted Subsidiaries to their customers in the ordinary course of
their business,
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(B) in respect of performance bonds or similar obligations of the Company
or any of its Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business in
connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations,
(C) arising from Guarantees to suppliers, lessors, licensees, contractors,
franchises or customers of obligations (other than Indebtedness) Incurred
in the ordinary course of business and (D) under Currency Agreements and
Interest Rate Agreements; provided, however, that in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and
Interest Rate Agreements are entered into for bona fide hedging purposes of
the Company or its Restricted Subsidiaries (as determined in good faith by
the Board of Directors of the Company) and correspond in terms of notional
amount, duration, currencies and interest rates as applicable, to
Indebtedness of the Company or its Restricted Subsidiaries Incurred without
violation of the Indenture or to business transactions of the Company or
its Restricted Subsidiaries on customary terms entered into in the ordinary
course of business;
(vii) Indebtedness consisting of (A) Guarantees by the Company of
Indebtedness Incurred by a Wholly-Owned Subsidiary without violation of the
Indenture (so long as the Company could have Incurred such Indebtedness
directly without violation of the Indenture) and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness Incurred by the Company
without violation of the Indenture (so long as such Restricted Subsidiary
could have Incurred such Indebtedness directly without violation of the
Indenture);
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued by the
Company or its Restricted Subsidiaries drawn against insufficient funds in
the ordinary course of business in an amount not to exceed $500,000 at any
time, provided that such Indebtedness is extinguished within two business
days of its Incurrence; and
(ix) Indebtedness (other than Indebtedness permitted under clauses
(i) through (viii)) in a principal amount which, when taken together with
the principal amount of all other Indebtedness Incurred pursuant to this
clause (ix) and then outstanding, will not exceed $5 million (it being
understood that any Indebtedness Incurred under this clause (ix) shall
cease to be deemed Incurred or outstanding for purposes of this clause (ix)
(but shall be deemed to be Incurred for purposes of paragraph (a) or
paragraph (b) (i) or (ii), as the case may be) from and after the first
date on which the Company or its Restricted Subsidiaries could have
Incurred such Indebtedness under the foregoing paragraph (a) or, to the
extent applicable, paragraph (b) (i) or (ii) without reliance upon this
clause (ix)).
(c) Neither the Company nor any Restricted Subsidiary shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
or any Restricted Subsidiary unless such Indebtedness shall be subordinated to
the Senior Indebtedness to at least the same extent as the Subordinated
Obligations being refinanced.
(d) Notwithstanding paragraphs (a) and (b) above, neither the Company nor
any Restricted Subsidiary of the Company shall incur any liability, either
direct or contingent, in respect of Bank Indebtedness unless (i) in the case of
the Company, the Company is the borrower or primary obligor in respect of such
Bank Indebtedness or (ii) in the case of any Restricted Subsidiary, such
Restricted Subsidiary is either (a) the borrower or primary obligor in respect
of such Bank Indebtedness or (b) a Wholly Owned Subsidiary of such borrower or
primary obligor.
Limitation on Restricted Payments
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) except (A) dividends or distributions payable in its
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock, and (B) dividends or distributions
payable to the Company or any of its Restricted Subsidiaries by any of its
Subsidiaries (and if the Restricted Subsidiary paying the dividend or making the
distribution is not a Wholly-Owned Subsidiary, to its other holders of Capital
Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Company held by Persons other than a Wholly-
Owned Subsidiary of the Company (other than in exchange for Capital Stock of the
Company (other than Disqualified Stock)) or any Capital Stock of a Restricted
Subsidiary held by any Affiliate of the Company, other than a Wholly-Owned
Subsidiary (other than in exchange for Capital Stock of the Company or such
Subsidiary (other than Disqualified Stock)), (iii) purchase, repurchase, redeem,
defease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of purchase, repurchase or
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acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment as described in
preceding clauses (i) through (iv) being referred to as a "Restricted Payment");
if at the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom); or
(2) the Company is not able to Incur an additional $1.00 of Senior
Indebtedness pursuant to paragraph (a) under "--Limitation on
Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of (A) 50% of the Cumulative Available Cash Flow accrued
during the period (treated as one accounting period) from the first day of
the fiscal quarter beginning on or after the Issue Date to the end of the
most recent fiscal quarter ending prior to the date of such Restricted
Payment as to which financial results are available (but in no event ending
more than 135 days prior to the date of such Restricted Payment) (or, in
case such Cumulative Available Cash Flow shall be a deficit, minus 100% of
such deficit); (B) the aggregate net proceeds received by the Company from
the issue or sale of its Capital Stock (other than Disqualified Stock) to
the extent not applied to redeem Notes as described under "--Redemption--
Optional Redemption Upon Equity Offering" or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an
issuance or sale of such Capital Stock to (x) a Subsidiary of the Company,
(y) an employee stock ownership plan or similar trust or (z) management
employees of the Company or any Subsidiary of the Company); provided,
however, that the value of any non-cash net proceeds shall be as determined
by the Board of Directors in good faith, except that in the event the value
of any non-cash net proceeds shall be $2 million or more, the value shall
be as determined in writing by an independent investment banking firm of
nationally recognized standing; (C) the amount by which Indebtedness of the
Company is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary of the Company) subsequent
to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock of the Company (less the amount of any cash,
or other property, distributed by the Company upon such conversion or
exchange); and (D) the amount equal to the net reduction in Investments
(other than Permitted Investments) made after the Issue Date by the Company
or any of its Restricted Subsidiaries in any Person resulting from (i)
repurchases or redemptions of such Investments by such Person (including
liquidating dividends thereon), proceeds realized upon the sale of such
Investment to an unaffiliated purchaser, repayments of loans or advances or
other transfers of assets by such Person to the Company or any Restricted
Subsidiary of the Company or (ii) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries or the qualification of non-wholly
owned Restricted Subsidiaries as Wholly Owned Subsidiaries (valued in each
case as provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary or any non-wholly owned Subsidiary that
thereafter qualifies as a Wholly-Owned Subsidiary, the amount of
Investments previously included in the calculation of the amount of
Restricted Payments; provided, however, that no amount shall be included
under this clause (D) to the extent it is already included in Cumulative
Available Cash Flow.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase
or redemption of Capital Stock or Subordinated Obligations of the Company made
by exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary, an employee stock ownership plan
or similar trust or management employees of the Company or any Subsidiary of the
Company); provided, however, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause (3) (B) of paragraph
(a); (ii) any purchase or redemption of Subordinated Obligations of the Company
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Company in compliance with the
"Limitation on Indebtedness" covenant; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under "--Limitation on Sales of Assets
and Subsidiary Stock" below; provided, however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments; (iv)
any purchase or redemption of Capital Stock pursuant to the terms of the MSO
Agreements in an amount not in excess of $2.5 million on a cumulative basis on
and after the Issue Date; provided that such purchase or redemption shall be
included in the calculation of Restricted Payments; and (v) dividends paid
within 60 days after the date of declaration if at such date of declaration such
dividend would have complied with this provision; provided, however, that such
dividend shall be included in the calculation of the amount of Restricted
Payments; and provided, further, in each case that no Default or Event of
Default shall have occurred or be continuing at the time of such payment or as a
result thereof.
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(c) For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment, provided, further that (i) in the
case of any Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the Capital Stock or Indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment made with non-cash
assets in an aggregate amount in excess of $2 million, a written opinion as to
the fairness of the valuation thereof (as determined by the Company) for
purposes of determining compliance with the "Limitation on Restricted Payments"
covenant in the Indenture shall be issued by an independent investment banking
firm of national standing.
(d) Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment complies with the Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available quarterly
financial statements and a copy of any required investment banker's opinion.
(e) Insofar as the Company has made Investments in a Wholly Owned
Subsidiary, whether before, on, or after the Issue Date, and such Subsidiary
thereafter ceases to be a Wholly Owned Subsidiary, on the date such Subsidiary
ceases to be a Wholly Owned Subsidiary, the Company shall be deemed to make an
Investment that constitutes either a Restricted Payment or a Permitted Basket
Investment (to the extent eligible) in an amount equal to the sum of (i) fair
market value of the Capital Stock of such Subsidiary owned by the Company and
the Restricted Subsidiaries plus (but without duplication) (ii) the aggregate
amount of other Investments of the Company and its other Restricted Subsidiaries
in such Subsidiary, in each case as of the date on which such Subsidiary ceases
to be a Wholly Owned Subsidiary.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Liens,
except for Permitted Liens.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay ordinary dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligation owed to the Company, (ii) make any
loans or advances to the Company or (iii) transfer any of its property or assets
to the Company, except: (a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date; (b) any encumbrance or
restriction with respect to such a Restricted Subsidiary pursuant to an
agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by the
Company and outstanding on such date (other than Indebtedness Incurred in
anticipation of, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary of
the Company or was acquired by the Company); (c) any encumbrance or restriction
with respect to such a Restricted Subsidiary pursuant to an agreement evidencing
Indebtedness Incurred without violation of the Indenture or effecting a
refinancing of Indebtedness issued pursuant to an agreement referred to in
clause (b) or this clause (c) or contained in any amendment to an agreement
referred to in clauses (a) or (b) or this clause (c); provided, however, that
the encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any of such agreement, refinancing agreement or amendment, taken as
a whole, are no less favorable to the holders of the Notes in any material
respect, as determined in good faith by the Board of Directors of the Company,
than encumbrances and restrictions with respect to such Restricted Subsidiary
contained in agreements in effect at, or entered into on, the Issue Date; (d) in
the case of clause (iii), any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease,license, conveyance or contract or similar property or asset,
(B) by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lienon, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indenture, (C) that is included in a
licensing agreement to the extent such restrictions limit the transfer of the
propertysubject to such licensing agreement, or (D) arising or agreed to in the
ordinary course of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Company or any of its
Subsidiaries in any manner material to the Company or any such Restricted
Subsidiary; (e) any encumbrance or restriction applicable to a Restricted
Subsidiary that Incurs Bank Indebtedness without violation of the Indenture,
provided, however, that such encumbrances and restrictions are applicable only
following the occurrence and during the continuance, of a payment default under
the terms of theagreements governing, or the acceleration of all of, such Bank
Indebtedness; (f) in the case of clause (iii) above, restrictions contained in
security agreements,
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mortgages or similar documents securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject to
such security agreements; (g) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and (h)
encumbrances or restrictions arising or existing by reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as determined in good faith
by senior management of the Company or, if the fair market value of such assets
exceeds $500,000, by the Company's Board of Directors) (including as to the
value of all non-cash consideration), of the shares and assets subject to such
Asset Disposition, (ii) at least 80% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents, Additional Assets or distribution agreements with radio stations or
cable television operators or other video distributors which would receive
programming of the Company or its Restricted Subsidiaries according to the
Company's historical practice and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company (or such
Restricted Subsidiary, as the case may be): (A) first, to the extent the Company
or any Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness), (x) to prepay, repay or purchase Senior Indebtedness of the
Company or its Restricted Subsidiaries or (y) to the investment in or
acquisition of Additional Assets within 180 days from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) second,
within 180 days from the receipt of such Net Available Cash, to the extent of
the balance of such Net Available Cash after application in accordance with
clause (A), to make an offer to purchase Notes (C) third, within 180 days after
the later of the application of Net Available Cash in accordance with clauses
(A) and (B) and the date that is one year from the receipt of such Net Available
Cash, to the extent of the balance of such Net Available Cash after application
in accordance with clauses (A) and (B), to prepay, repay or repurchase
Indebtedness (other than Preferred Stock) of a Wholly-Owned Subsidiary (in each
case other than Indebtedness owed to the Company or another Wholly-Owned
Subsidiary); and (D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C), to (w) the
investment in or acquisition of Additional Assets, (x) the making of Temporary
Cash Investments, (y) the prepayment, repayment or purchase of Indebtedness of
the Company (other than Indebtedness owing to any Subsidiary of the Company) or
Indebtedness of any Subsidiary (other than Indebtedness owed to the Company or
any of its Restricted Subsidiaries) or (z) any other purpose otherwise permitted
under the Indenture, in each case within the later of 45 days after the
application of Net Available Cash in accordance with clauses (A), (B) and (C) or
the date that is one year from the receipt of such Net Available Cash; provided,
however, that, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (B), (C) or (D) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased; provided, however, that the
foregoing shall not be deemed to require any reduction in the commitment for
Bank Indebtedness to less than $20 million. Notwithstanding the foregoing
provisions, the Company and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which has not been
applied in accordance with this covenant at any time exceeds $5 million. The
Company shall not be required to make an offer for Notes pursuant to this
covenant if the Net Available Cash available therefor (after application of the
proceeds as provided in clause (a) (iii) (A)) is less than $5 million for any
particular Asset Disposition (which lesser amounts shall be carried forward for
purposes of determining whether an offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be
cash: (x) the assumption by the transferee of Senior Indebtedness of the Company
or Senior Indebtedness of any Restricted Subsidiary of the Company and the
release of the Company or such Restricted Subsidiary from all liability on such
Senior Indebtedness or Senior Indebtedness in connection with such Asset
Disposition (in which case the Company shall, without further action, be deemed
to have applied such paid Senior Indebtedness in accordance with clause
(a)(iii)(A)) and (y) securities received by the Company or any Restricted
Subsidiary of the Company from the transferee that are promptly (and in any
event within 60 days) converted by the Company or such Restricted Subsidiary
into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(B), the Company will be required to purchase
Notes tendered pursuant to an offer by the Company for the Notes at a purchase
price of 101% of their principal amount plus accrued and unpaid interest, if
any, to the purchase date in accordance with the procedures (including prorating
in the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of the Notes tendered pursuant to the offer is less than the Net
Available Cash allotted to the purchase of the Notes, the Company will apply the
remaining Net Available Cash in accordance with clauses (a)(iii)(C) or (D)
above. (c) The Company will comply, to the
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extent applicable, with the requirements of Section 14(e) of the Exchange Act
and any other securities laws or regulations in connection with the repurchase
of Notes pursuant to the Indenture. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the Indenture by virtue
thereof.
Limitation on Affiliate Transactions
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any transaction
or series of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of any Affiliate of the Company, other than a Wholly-Owned Subsidiary
(an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could be obtained at the time of such transaction in
arm's length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $1
million, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of the Company and by a majority of the
Disinterested Directors, if any (and such majority or majorities, as the case
may be, determine that such Affiliate Transaction satisfies the criteria in (i)
above); (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the Company has received a written opinion from
an independent investment banking firm of nationally recognized standing that
such Affiliate Transaction is fair to the Company or such Restricted Subsidiary,
as the case may be, from a financial point of view; and (iv) such Affiliate
Transaction does not involve the acquisition of an Affiliate Business.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under "--
Limitation on Restricted Payments," or to a Permitted Basket Investment, (ii)
any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements,
or any stock options and stock ownership plans for the benefit of employees,
officers and directors, consultants and advisors approved by the Board of
Directors of the Company, (iii) loans or advances to employees in the ordinary
course of business of the Company or any of its Restricted Subsidiaries in
aggregate amount outstanding not to exceed $500,000 at any time, (iv) loans or
advances to senior management of the Company which loans and advances are
secured by shares of Common Stock of the Company owned by such senior
management, in an aggregate amount outstanding not to exceed $750,000, (v) any
transaction between Wholly-Owned Subsidiaries, (vi) indemnification agreements
with, and the payment of fees and indemnities to, directors, officers and
employees of the Company and its Restricted Subsidiaries, in each case in the
ordinary course of business, (vii) transactions pursuant to (x) agreements in
existence on the Issue Date which are (I) described in the Offering Memorandum
or (II) otherwise, in the aggregate, immaterial to the Company and its
Restricted Subsidiaries taken as a whole, including extensions of any such
agreements which are approved by a majority of Disinterested Directors and (y)
arrangements in existence on the Issue Date between Jones Intercable and the
Company with respect to the allocation of personnel and other related expenses
from Jones Intercable to the Company in accordance with the parties' historical
practices; provided, however, that such arrangements must be approved by a
majority of the members of the Board of Directors of the Company and by a
majority of the Disinterested Directors, if any, within 60 days of the Issue
Date, (viii) any employment, non-competition or confidentiality agreements
entered into by the Company or any of its Restricted Subsidiaries with its
employees in the ordinary course of business, and (ix) the issuance of Capital
Stock of the Company (other than Disqualified Stock).
Limitation on Issuances of Capital Stock of Restricted Subsidiaries
The Company will not permit any of its Restricted Subsidiaries to issue
any Capital Stock to any Person (other than to the Company or a Wholly-Owned
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly-Owned Subsidiary of the Company) to own any Capital Stock of a Restricted
Subsidiary of the Company, if in either case as a result thereof such Restricted
Subsidiary would no longer be a Restricted Subsidiary of the Company; provided,
however, that this provision shall not prohibit (x) the Company or any of its
Restricted Subsidiaries from selling, leasing or otherwise disposing of all of
the Capital Stock of any Restricted Subsidiary or (y) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with the
Indenture. The Company will not permit Holdco to issue any Capital Stock to any
Person (other than to the Company).
Limitation on Sale/Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, Guarantee or otherwise become liable with
respect to any Sale/Leaseback Transaction with respect to any property or assets
unless (i) the Company or such Restricted Subsidiary, as the case may be, would
be entitled pursuant to the Indenture to Incur Indebtedness secured by a
Permitted Lien on such property or assets in an amount equal to the Attributable
Indebtedness with respect to such
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Sale/Leaseback Transaction, (ii) the Net Cash Proceeds from such Sale/Leaseback
Transaction are at least equal to the fair market value of the property or
assets subject to such Sale/Leaseback Transaction (such fair market value
determined, in the event such property or assets have a fair market value in
excess of $500,000, no more than 30 days prior to the effective date of such
Sale/Leaseback Transaction, by the Board of Directors of the Company as
evidenced by a resolution of such Board of Directors), (iii) the Net Cash
Proceeds of such Sale/Leaseback Transaction are applied in accordance with the
provisions described under "--Limitation on Sales of Assets and Subsidiary
Stock," and (iv) the Indebtedness Incurred in connection with such
Sale/Leaseback Transaction, together with Indebtedness Incurred in accordance
with clause (b)(ii) of the "Limitation on Indebtedness" covenant, does not
exceed $5 million at any time outstanding.
SEC Reports
The Company will file with the Trustee and provide to the holders of the
Notes, within 15 days after it files them with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. In the event that the Company is not
required to file such reports with the Commission pursuant to the Exchange Act,
the Company will nevertheless deliver such Exchange Act information to the
holders of the Notes within 15 days after it would have been required to file it
with the Commission.
Conduct of Business
The Company will not, and will not permit its Restricted Subsidiaries to
directly or indirectly engage in any business other than a Permitted Business.
Limitation on Designations of Unrestricted Subsidiaries
The Company may designate any Subsidiary of the Company (other than a
Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary)
as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment constituting a Restricted Payment or a Permitted Basket
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date plus (but without
duplication) (ii) the aggregate amount of other Investments of the Company
and the Restricted Subsidiaries in such Subsidiary on such date; and
(c) unless the Company could make a Permitted Basket Investment in the
amount described in paragraph (b) above, the Company would be permitted to
Incur an additional $1.00 of Senior Indebtedness pursuant to paragraph (a)
of the "--Limitation on Indebtedness" covenant at the time of Designation
(assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under "-
- -Limitation on Restricted Payments" and, in the case of clause (z), pursuant to
a Guarantee of such Indebtedness of an Unrestricted Subsidiary to the extent
such Guarantee is permitted under the covenant described under "--Limitation on
Restricted Payments."
The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
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(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of the Indenture;
(c) such Unrestricted Subsidiary does not own or operate an Affiliate
Business.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Merger and Consolidation
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of its assets (otherwise than
pursuant to one or more Asset Dispositions that comply with the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock") to, any
Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Company or any Subsidiary of the
Successor Company as a result of such transaction as having been incurred by the
Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company (A) would have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to such
transaction and (B) would be able to Incur at least an additional $1.00 of
Senior Indebtedness pursuant to paragraph (a) of the "--Limitation on
Indebtedness" covenant; and (iv) the Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary of the Company may consolidate with or merge into the Company.
Separate Account
On the Issue Date, the Company deposited $10.0 million of the net proceeds
of the offering of the Old Notes into a separate account, which amount may only
be used by the Company (i) for acquisitions or (ii) to pay principal of or
interest on the Notes.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Note when due, continued for 30
days, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under the "Merger and Consolidation" covenant described under
"Certain Covenants" above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
"Change of Control" above or under covenants described under "Certain Covenants"
above (in each case, other than a failure to purchase Notes which shall
constitute an Event of Default under clause (ii) above), other than "Merger and
Consolidation," (v) the failure by the Company or any Subsidiary Guarantor to
comply for 60 days after notice with its other agreements contained in the
Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $3 million and such default shall not
have been cured or such acceleration rescinded after a 10-day period (the "cross
acceleration default provision"), (vii) certain events of bankruptcy, insolvency
or reorganization of the Company or a Significant Subsidiary (the "bankruptcy
default provision"), (viii) any judgment or decree for the payment of money in
excess of $3 million (to the extent not covered by insurance) is rendered
against the Company or a Significant Subsidiary and such judgment or decree
shall remain undischarged or unstayed for a period of 60 days after such
judgment becomes final and non-appealable (the
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"judgment default provision") and (ix) except as permitted by the Indenture, the
cessation of effectiveness of any Subsidiary Guarantee of a Significant
Subsidiary or the disaffirmation by any Subsidiary Guarantor that is a
Significant Subsidiary of its obligations under its Subsidiary Guarantee (the
"guarantee default provision"). However, a default under clause (iv) or (v) will
not constitute an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding Notes notify the Company of the default and
the Company does not cure such default within the time specified in clause (iv)
or (v) after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in aggregate principal amount of the outstanding Notes
by notice to the Company may declare the principal of and any accrued and unpaid
interest, if any, on all the Notes to be due and payable. Upon such a
declaration, such principal and accrued and unpaid interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and accrued and unpaid interest on all the Notes will become and be immediately
due and payable without any notice or other act on the part of the Trustee or
any holders. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of any amount due on any Note, the Trustee may withhold notice if and so long as
its board of directors, a committee of its board of directors or a committee of
its Trust officers in good faith determines that withholding notice is in the
interests of the holders of the Notes. In addition, the Company is required to
deliver to the Trustee, within 90 days after the end of each fiscal year of the
Company, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year. The Company also is required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any events which would constitute a Default.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
written consent of the holders of a majority in aggregate principal amount of
the Notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding. However, without the consent of
each holder of an outstanding Note affected, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the stated rate of or extend the stated time for payment
of interest on any Note, (iii) reduce the principal of or extend the Stated
Maturity of any Note, (iv) reduce the premium payable upon the redemption or
repurchase of any Note or change the time at which any Note may be redeemed as
described under "Optional Redemption" above, (v) make any Note payable in money
other than that stated in the Note, (vi) impair the right of any holder to
receive any payment on or with respect to such holder's Notes on or after the
due date therefor or to institute suit for the enforcement of any payment on or
with respect to such holder's Notes or (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions.
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Without the consent of any holder, the Company and the Trustee may amend
the Indenture (i) to cure any ambiguity, omission, defect or inconsistency, (ii)
to provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of the Company under the Indenture,
(iii) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), (iv) to secure the Notes with additional collateral, (v) to add to the
covenants of the Company for the benefit of the holders or to surrender any
right or power conferred upon the Company, (vi) to make any other change that
does not adversely affect the rights of any holder or (vii) to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
Subject to the satisfaction of certain conditions, the Company at any time
may terminate all its obligations under (i) the Notes and the Indenture ("legal
defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes or (ii) the covenants
described under "Certain Covenants" (other than "Merger and Consolidation"), the
operation of the cross acceleration default provision, the bankruptcy default
provision with respect to Significant Subsidiaries, the judgment default
provision and the guarantee default provision described under "Events of
Default" above and the limitations contained in clauses (iii) and (iv) under
"Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (v), (vi), (vii) (with respect only
to Significant Subsidiaries), (viii) or (ix) under "Events of Default" above or
because of the failure of the Company to comply with clause (iii) or (iv) under
"Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
TRANSFER AND EXCHANGE
Upon any transfer of a Note, the Registrar may require a holder of Notes,
among other things, to furnish appropriate endorsements and transfer documents,
and to pay any taxes and fees required by law or permitted by the Indenture.
Neither the Registrar nor the Company is required to register the transfer or
exchange of any Notes selected for redemption except the unredeemed portion of
any Note being redeemed in part nor is the Registrar or the Company required to
register the transfer or exchange of any Notes for a period of 15 days before a
selection of Notes to be redeemed. The registered holder of a Note may be
treated as the owner of it for all purposes.
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CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and the Registrar and Paying Agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Indenture) it must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured) the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of the Notes issued thereunder
unless they shall have offered to the Trustee security and indemnity
satisfactory to it.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquisition Agreement" means the Agreement, dated as of June 2, 1998, by
and among the Company, MediaAmerica, Ron Hartenbaum, Gary Schonfeld and Jones
Network Holdings, LLC.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary of the Company; or (iv) Permitted Investments of
the type and in the amounts described in clause (viii) of the definition
thereof; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Permitted Business.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of (x) the amount by which the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, the probable liability of such Subsidiary Guarantor with respect to
its contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee of such Subsidiary Guarantor at such
date and (y) the amount by which the present fair salable value of the assets of
such Subsidiary Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary by
such Subsidiary Guarantor in respect of the obligations of such Subsidiary under
the Subsidiary Guarantee), excluding debt in respect of the Subsidiary
Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Affiliate Business" means all or any portion of a business (including
related assets) from an Affiliate (other than a Restricted Subsidiary and, in
the case of any Restricted Subsidiary, any other Restricted Subsidiary).
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"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) the licensing of radio and cable television
programming in the ordinary course of business, (iv) the disposition in the
ordinary course of business of airtime and advertising inventory, (v) a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business, (vi) dispositions of property for net proceeds which, when taken
collectively with the net proceeds of any other such dispositions under this
clause (vi) that were consummated since the beginning of the calendar year in
which such disposition is consummated, do not exceed $1 million, and (vii)
transactions permitted under "Certain Covenants--Merger and Consolidation"
above. Notwithstanding anything to the contrary contained above, a Restricted
Payment made in compliance with the "Limitation on Restricted Payments" covenant
shall not constitute an Asset Disposition except for purposes of determinations
of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the product of the numbers of years (rounded upwards to the nearest month)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to Preferred Stock multiplied by the amount of such payment by (ii) the
sum of all such payments.
"Bank Indebtedness" means loans to the Company or a Restricted Subsidiary
that are made by, and reimbursement obligations in respect of letters of credit
for the account of the Company or a Restricted Subsidiary that are issued by,
banks, trust companies and other institutions, principally engaged in the
business of lending money to businesses, under a credit facility, loan agreement
or similar agreement.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligation for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or Preferred Stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means (i) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially
all the assets of the Company and its Subsidiaries (to a Person other than a
Wholly Owned Subsidiary); or (ii) the Company shall cease to hold directly all
of the outstanding Capital Stock of Holdco; or (iii) Mr. Glenn R. Jones and/or
his Permitted Transferees at any time cease to hold in the aggregate, either
directly or indirectly, Capital Stock having ordinary voting power to elect a
majority of directors of the Company.
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"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Adjusted Operating Cash Flow" means, with respect to any
period the Consolidated Net Income for such period increased by, to the extent
deducted in computing Consolidated Net Income, the sum of (i) depreciation and
(ii) amortization, determined on a consolidated basis in accordance with GAAP.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies, and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the Stated Maturity of the Notes) and less, to the extent added
in calculating Consolidated Net Income, (x) exchange or translation gains on
foreign currencies and (y) non-cash items (excluding such non-cash items to the
extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Notes), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (1) if the Company or any of its Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period (provided that if such
Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the projected weighted
average balance of such Indebtedness for the period beginning on the first day
of such four consecutive fiscal quarter period and ending on the date one year
subsequent to such date (as determined in good faith by the Board of Directors
of the Company and as adjusted to give effect to Indebtedness that has been
permanently repaid and the underlying commitment terminated and has not been
replaced) shall be deemed outstanding for purposes of this calculation), and (B)
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period any Indebtedness of the Company or any of its
Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and the underlying commitment terminated and has not been replaced),
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Indebtedness had been repaid, repurchased,
defeased or otherwise discharged on the first day of such period, (3) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Asset Disposition,
Consolidated Cash Flow for such period shall be reduced by an amount equal to
the Consolidated Cash Flow (if positive) attributable to the assets which are
the subject of such Asset Disposition for such period or increased by an amount
equal to the Consolidated Cash Flow (if negative) attributable thereto for such
period, and Consolidated Interest Expense for such period shall be (i) reduced
by an amount equal to the Consolidated Interest Expense attributable to any
Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale) and (ii) increased by interest income attributable
to the assets which are the subject of such Asset Disposition for such period,
(4) if since the beginning of such period the Company or any of its Restricted
Subsidiaries (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary of the Company (or any Person which becomes a Restricted
Subsidiary of the Company as a result thereof) or an acquisition of assets which
constitutes all or substantially all of an operating unit or a business in
connection with a transaction causing a calculation to be made hereunder,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary of the Company or was merged with or
into the Company or any Restricted Subsidiary of the Company since the beginning
of such period) shall have made any Asset Disposition, Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if
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made by the Company or a Restricted Subsidiary of the Company during such
period, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition or disposition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness being Incurred bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries determined in accordance
with GAAP, plus, to the extent not included in such interest expense (i)
interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments (whether positive or negative) pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified Stock
dividends in respect of all Preferred Stock of Subsidiaries and Disqualified
Stock of the Company held by Persons other than the Company or a Wholly-Owned
Subsidiary and less (a) to the extent included in such interest expense, the
amortization of capitalized debt issuance costs and (b) interest income.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Company, that was not a Wholly-Owned
Subsidiary, shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its consolidated Subsidiaries determined in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income: (i) any net income (loss) of any Person acquired
by the Company or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of the Company if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Restricted Subsidiary of the Company and other than
restrictions that are created or exist in compliance with the "Limitation on
Restrictions on Distributions from Restricted Subsidiaries" covenant), (iii) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (iv) any extraordinary gain or
loss, (v) the cumulative effect of a change in accounting principles, (vi) the
net income of any Person, other than a Restricted Subsidiary, except to the
extent of the lesser of (A) cash dividends or distributions actually paid to the
Company or any of its Restricted Subsidiaries by such Person and (B) the net
income of such Person (but in no event less than zero), (vii) the net loss of
any Person (other than a Subsidiary) in excess of the aggregate Investment of
the Company or any of its Restricted Subsidiaries in such Person and (viii) any
non-cash expenses attributable to grants or exercises of employee stock options.
Notwithstanding the foregoing, (A) Consolidated Net Income for any period shall
be reduced by the aggregate amount of dividends paid during such period pursuant
to clause (v) of paragraph (b) of the "Limitation on Restricted Payments"
covenant and (B) for the purpose of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income, as such term is used in calculating Consolidated
Adjusted Operating Cash Flow, any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
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"Cumulative Available Cash Flow" means, as of any date of determination,
the positive cumulative Consolidated Adjusted Operating Cash Flow, or, if such
cumulative Consolidated Adjusted Operating Cash Flow for such period is
negative, the amount by which cumulative Consolidated Adjusted Operating Cash
Flow is less than zero.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means a member of the Board of Directors of the
Company who is not otherwise affiliated with the Company and who is not
otherwise involved or interested in the transaction in question.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Stated Maturity of the Notes, or (ii) is convertible into or exchangeable
(unless at the sole option of the issuer thereof) for (a) debt securities or (b)
any Capital Stock referred to in (i) above, in each case at any time prior to
the Stated Maturity of the Notes; provided, that Capital Stock issued pursuant
to the Acquisition Agreement and the MSO Agreements entered into by the Company
as of the Issue Date shall not be considered Disqualified Stock. Disqualified
Stock shall be deemed to be Incurred as Indebtedness in an amount equal to (i)
the greater of its maximum voluntary or involuntary liquidation preference or
repurchase price, if any, plus accrued and unpaid dividends or (ii) if
redeemable at fair market value or at some fixed premium over fair market value,
then the average closing price on the principal securities exchange or automated
quotation system on which such Disqualified Stock is listed or eligible for
trading on the five trading days immediately preceding the date on which it is
issued or, if not so listed or eligible, the value as of such date as determined
in writing by an independent investment banking firm of nationally recognized
standing plus, in either case, any applicable premium.
"Equity Offering" means an offering for cash by the Company of its common
stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Existing Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issue Date, plus interest accrued
thereon, after application of the net proceeds of the sale of the Notes. "fair
market value" means, with respect to any asset or property, the price which
could be negotiated in an arms-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Except as otherwise
expressly provided, fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for, and "Incurrence" has a corresponding meaning; provided, however, that (i)
any Indebtedness or Disqualified Stock of a Person existing at the time such
Person becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred at
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the time it becomes a Restricted Subsidiary and (ii) neither the accrual of
interest nor the accretion of discount on Indebtedness shall be deemed to be an
Incurrence of additional Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v) ) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such Person
of a demand for reimbursement following payment on the letter of credit), (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses Incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of the Company, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated Maturity
of the Notes (but excluding, in each case, accrued dividends) with the amount of
Indebtedness represented by such Disqualified Stock or Preferred Stock, as the
case may be, being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price; provided that,
for purposes hereof the "maximum fixed repurchase price" of any Disqualified
Stock or Preferred Stock, as the case may be, which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock, as the case may be, as if such
Disqualified Stock or Preferred Stock, as the case may be, were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based on the fair market value of such
Disqualified Stock or Preferred Stock, as the case may be, such fair market
value shall be determined in good faith by the Board of Directors of the Company
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. Unless specifically set
forth above, the amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations as described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date. Indebtedness shall not include any
obligation to purchase or redeem the Capital Stock of the Company pursuant to
the terms of the MSO Agreements as in effect on the Issue Date or the
Acquisition Agreement.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property (excluding Capital Stock (other than Disqualified Stock)
of the Company) to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the "Limitation on Restricted Payments" covenant and determinations relating to
Permitted Basket Investments, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in a Restricted Subsidiary to be
designated as an Unrestricted Subsidiary or in a Wholly Owned Subsidiary that
otherwise ceases to qualify as such) of the fair market value of the net assets
of such Subsidiary of the Company at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary or such Wholly Owned Subsidiary otherwise
ceases to qualify as such; provided, however, that upon a redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary or upon the qualification of
a non-wholly owned Restricted Subsidiary as a Wholly Owned Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary or a non-wholly owned Restricted Subsidiary in an amount
(if positive) equal to (x) the Company's "Investment" in such Subsidiary at the
time of such redesignation or qualification less (y) the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of such Subsidiary at the time that such Subsidiary is so
redesignated a Restricted Subsidiary or qualifies as a Wholly Owned Subsidiary;
and (ii) any property transferred to or from an Unrestricted Subsidiary or a
Restricted Subsidiary that is not a Wholly Owned Subsidiary shall be valued at
its fair market value
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at the time of such transfer, in each case as determined in good faith by the
Board of Directors and evidenced by a resolution of such Board of Directors
certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Notes were originally issued. The
Issue Date is July 10, 1998. "Jones Programming" means JPN, Inc., a Colorado
corporation and a Wholly Owned Subsidiary of the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"MSO Agreements" means agreements with multiple system operators of cable
television systems providing for the issuance of Class A Common Stock of the
Company in exchange for specified service commitments, entered into in
accordance with the Company's historical practice.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition) therefrom in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments made to any Person owning a beneficial interest in assets
subject to sale or minority interest holders in Subsidiaries or joint ventures
as a result of such Asset Disposition, (iv) the deduction of appropriate amounts
to be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition,
provided however, that upon any reduction in such reserves (other than to the
extent resulting from payments of the respective reserved liabilities), Net
Available Cash shall be increased by the amount of such reduction to reserves,
and retained by the Company or any Restricted Subsidiary of the Company after
such Asset Disposition and (v) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition) provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees and expenses,
discounts or commissions and brokerage, consultant and other fees actually
Incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the Chief Financial Officer, or any Vice President, the Treasurer or the
Secretary of the Company.
"Officer's Certificate" shall mean a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive, financial or
accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form and substance
acceptable to the Trustee, from legal counsel, which may be internal counsel to
the Company, who is acceptable to the Trustee.
"Paying Agent" means United States Trust Company of New York, as paying
agent under the Indenture, or any successor thereto appointed pursuant to the
Indenture.
"Permitted Basket Investment" means an Investment by the Company or a
Restricted Subsidiary in a Restricted Subsidiary (other than a Wholly Owned
Subsidiary), an Unrestricted Subsidiary or any other Person engaged in a
Permitted Business, including without limitation a loan or advance to, or
Guarantee of Indebtedness of, a Restricted Subsidiary (other than a Wholly Owned
Subsidiary), an Unrestricted Subsidiary or any other Person engaged in a
Permitted Business; provided, however, that no such Investment may qualify as a
Permitted Basket Investment to the extent the amount thereof, when taken
together with all other such Investments that qualify as Permitted Basket
Investments, would exceed an aggregate amount outstanding at any time equal to
the sum of (i) $10 million plus (ii) to the extent not previously reinvested as
a Permitted Basket Investment, any
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interest payment or dividend or other distribution from cumulative earnings
realized on any Permitted Basket Investments, or any release or other
cancellation of any Guarantee constituting a Permitted Basket Investment plus
(iii) to the extent not previously reinvested as a Permitted Basket Investment,
any return of capital on a Permitted Basket Investment (including any deemed
return of capital resulting from the designation or qualification of the
recipient thereof as a Restricted Subsidiary (if such recipient was previously
an Unrestricted Subsidiary) or as a Wholly Owned Subsidiary (if such recipient
was previously a non-wholly owned Restricted Subsidiary)) less (iv) all losses
realized on the sale or other disposition of Permitted Basket Investments.
"Permitted Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the date of the Indenture, as reasonably determined
by the Company's Board of Directors, including, without limitation, advertising
sales, services and representation; the acquisition, development, licensing,
distribution and sale, through existing or new media, of new programming,
networks, products and services related, ancillary or complementary to any of
the businesses of the Company and its Restricted Subsidiaries on the date of the
Indenture; and all aspects of satellite delivery and production support,
services and facilities; provided, that, an entity which is not an operating
entity and whose primary business is to hold or maintain intellectual property
or licenses shall not qualify as a "Permitted Business."
"Permitted Investment" means an Investment by the Company or any of its
Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
provided, however, that the primary business of such Wholly-Owned Subsidiary is
a Permitted Business; (ii) another Person if as a result of such Investment such
other Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; provided,
however, that in each case such Person's primary business is a Permitted
Business, (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary in an aggregate amount outstanding at any one time not to exceed
$500,000; (vii) loans or advances to senior management of the Company which
loans or advances are secured by shares of Common Stock of the Company owned by
such senior management in an aggregate amount outstanding not to exceed
$750,000; (viii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
of its Restricted Subsidiaries or in satisfaction of judgments or claims; (ix) a
Permitted Basket Investment (x) Persons to the extent such Investment is
received by the Company or any Restricted Subsidiary as consideration for Asset
Dispositions effected in compliance with the covenant described under "--
Limitations on Sales of Assets and Subsidiary Stock"; (xi) prepayments and other
credits to suppliers made in the ordinary course of business consistent with the
past practices of the Company and its Restricted Subsidiaries; and (xii)
Investments in connection with pledges, deposits, payments or performance bonds
made or given in the ordinary course of business in connection with or to secure
statutory, regulatory or similar obligations, including obligations under
health, safety or environmental obligations.
"Permitted Liens" means: (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens, in each case for sums not yet due from the
Company or any Restricted Subsidiary or being contested in good faith by
appropriate proceedings by the Company or any Restricted Subsidiary, as the case
may be, or other Liens arising out of judgments or awards against the Company or
any Restricted Subsidiary with respect to which the Company or such Restricted
Subsidiary, as the case may be, will then be prosecuting an appeal or other
proceedings for review; (ii) Liens for property taxes or other taxes,
assessments or governmental charges of the Company or any Restricted Subsidiary
not yet due or payable or subject to penalties for nonpayment or which are being
contested by the Company or such Restricted Subsidiary, as the case may be, in
good faith by appropriate proceedings; (iii) Liens in favor of issuers of
performance, surety and other bonds issued pursuant to clause (b)(vi) under "--
Certain Covenants--Limitation on Indebtedness"; (iv) survey exceptions,
encumbrances, easements or, reservations of, or rights of others for, licenses,
rights-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes or zoning or other restrictions as to the use of real property
of the Company or any Restricted Subsidiary incidental to the ordinary course of
conduct of the business of the Company or such Restricted Subsidiary or as to
the ownership of properties of the Company or any Restricted Subsidiary, which,
in either case, were not incurred in connection with Indebtedness and which do
not in the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of the Company or
any Restricted Subsidiary; (v) Liens outstanding immediately after the Issue
Date as set forth in a schedule to the Indenture; (vi) Liens on property or
assets of any Person at the time such Person becomes a Restricted Subsidiary of
the Company; provided, however, that (A) if any such Lien has been Incurred in
anticipation of such transaction, such property or assets subject to such Lien
will have a fair market value at the date of the acquisition thereof not in
excess of the lesser of (1) the aggregate purchase price paid or owed in
connection with the acquisition of such Person and (2) the fair market value of
all property and assets of such Person and (B) any such Lien will not extend to
any other assets owned by the Company or any Restricted Subsidiary; (vii) Liens
on property or assets at the time the Company or any Restricted Subsidiary
acquires such assets,
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including any acquisition by means of a merger or consolidation with or into the
Company or such Restricted Subsidiary; provided, however, that (A) if any such
Lien is Incurred in anticipation of such transaction, such property or assets
subject to such Lien will have a fair market value at the date of the
acquisition thereof not in excess of the lesser of (1) the aggregate purchase
price paid or owed in connection with the acquisition thereof and of any other
property and assets acquired simultaneously therewith and (2) the fair market
value of all such property and assets acquired by the Company or such Restricted
Subsidiary and (B) any such Lien will not extend to any other property or assets
owned by the Company or any Restricted Subsidiary; (viii) Liens securing
Indebtedness or other obligations of a Restricted Subsidiary owing to the
Company or a Wholly Owned Subsidiary; (ix) Liens to secure any extension,
renewal, refinancing, replacement or refunding (or successive extensions,
renewals, refinancings, replacements or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in any of clauses (v), (vi) and (vii);
provided, however, that any such Lien will be limited to all or part of the same
property or assets that secured the original Lien (plus improvements on such
property) and the aggregate principal amount of Indebtedness that is secured by
such Lien will not be increased to an amount greater than the sum of (A) the
outstanding principal amount, or, if greater, the committed amount, of the
Indebtedness secured by Liens described under clauses (v), (vi) and (vii) at the
time the original Lien became a Permitted Lien under the Indenture and (B) an
amount necessary to pay any premiums, fees and other expenses Incurred by the
Company in connection with such refinancing, refunding, extension, renewal or
replacement; (x) Liens on property or assets of the Company securing Interest
Rate Agreements and Currency Agreements so long as the related Indebtedness is
permitted under "--Certain Covenants--Limitation on Indebtedness", and is
secured by a Lien on the same property securing the relevant Interest Rate
Agreement or Currency Agreement; (xi) Liens on property or assets of the Company
or any Restricted Subsidiary securing Indebtedness (1) under purchase money
obligations, mortgage financings or Capital Lease Obligations permitted under
the "--Limitation on Indebtedness" covenant or (2) under Sale/Leaseback
Transactions permitted under the "-- Limitation on Sale/Leaseback Transactions"
or "--Limitation on Indebtedness" covenants; provided, that (A) the amount of
Indebtedness Incurred in any specific case does not, at the time such
Indebtedness is Incurred, exceed the lesser of the cost or fair market value of
the property or asset acquired or constructed in connection with such purchase
money obligations, mortgage financing or Capital Lease Obligation or subject to
such Sale/Leaseback Transaction, as the case may be, (B) such Lien will attach
to such property or asset upon acquisition of such property or asset and or upon
commencement of such Sale/Leaseback Transaction, as the case may be, and (C) no
property or asset of the Company or any Restricted Subsidiary (other than the
property or asset acquired or contracted in connection with such purchase money
obligations, mortgage financing or Capital Lease Obligation or subject to such
Sale/Leaseback Transaction, as the case may be) is subject to any Lien securing
such Indebtedness; (xii) Liens granted to the Trustee securing the Company's
obligations under the Indenture; (xiii) Liens on assets of a Restricted
Subsidiary and/or the Company securing Bank Indebtedness permitted under clause
(b)(i) of the "--Limitations on Indebtedness" covenant and outstanding in an
aggregate principal amount not exceeding $20 million; provided, that such
Restricted Subsidiary and/or the Company, as the case may be, is permitted to
incur liability with respect to such Bank Indebtedness under paragraph (d) of
the "--Limitation on Indebtedness" covenant; (xiv) Liens on satellite
transponders and/or transponder capacity, transmitting facilities and/or
capacity, and related assets acquired with the proceeds of, and that secure the
repayment of, Replacement Satellite Indebtedness permitted under "--Limitations
on Indebtedness"; and (xv) Liens on assets of the Restricted Subsidiaries and/or
the Company securing any combination of additional Bank Indebtedness, additional
Capitalized Lease Obligations, additional Attributable Indebtedness in respect
of Sale/Leaseback Transactions and Indebtedness permitted under clause (b)(ix)
of the "--Limitation on Indebtedness" covenant; provided that, (A) at the time
such Lien is granted and after giving effect to the Indebtedness secured
thereby, (I) the Consolidated Coverage Ratio is greater than or equal to 2.5:1
and (II) the ratio of (x) all Indebtedness that is secured by Liens on any
assets of the Company and its Restricted Subsidiaries (other than Replacement
Satellite Indebtedness) to (y) an amount equal to the sum of $120 million plus
the maximum amount of Indebtedness of the Company and its Restricted
Subsidiaries (other than Replacement Satellite Indebtedness) that could be
Incurred under paragraph (a) of "--Limitation on Indebtedness" (for which
purpose all such Indebtedness not then outstanding shall be deemed to bear
interest at a rate equal to the weighted average interest rate on all
outstanding Indebtedness) does not exceed 1.0:6 and (B) in the case of
additional Bank Indebtedness, such Liens are on property or assets of a Person
that is permitted to incur liability with respect to such Bank Indebtedness
under paragraph (d) of the "--Limitation on Indebtedness" covenant.
"Permitted Transferee" means, with respect to a Person, (i) the spouse,
parent or lineal descendant of such Person, (ii) a trustee, guardian or
custodian for, or an executor, administrator or other legal representative of
the estate of such Person, (iii) the trustee of a trust for the benefit of such
Person or its Permitted Transferees and (iv) a corporation, partnership or other
entity of which such Person and its Permitted Transferees are the beneficial
owners of, and control the Capital Stock representing, a majority of the
ordinary voting power.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision hereof or any
other entity.
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"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of
any Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary, the Capital Stock of which is owned, directly or indirectly, by the
Restricted Subsidiary that is Incurring the Refinancing Indebtedness) including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
earlier of (A) the first anniversary of the Stated Maturity of the Notes and (B)
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the lesser of (A) the Average Life of
the Notes and (B) the Average Life of the Indebtedness being refinanced and
(iii) the Refinancing Indebtedness is in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
(or 101% of, in the case of a refinancing of the Notes in connection with a
Change of Control) or less than the sum of the aggregate principal amount (or if
issued with original issue discount, the accreted value) then outstanding of the
Indebtedness being refinanced.
"Registrar" means United States Trust Company of New York, as registrar
under the Indenture, or any successor thereto appointed pursuant to the
Indenture.
"Replacement Satellite Indebtedness" means Indebtedness of the Company or
a Wholly Owned Subsidiary of the Company Incurred on or after January 1, 2002,
to finance the acquisition of satellite broadcasting capacity, including
satellite transponders and/or capacity, transmitting facilities and/or capacity,
and related assets, whether secured or unsecured, and whether Incurred as
regular Indebtedness or as a Capitalized Lease Obligation.
"Restricted Subsidiary" means any Subsidiary of the Company other an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means, whether outstanding on the Issue Date or
thereafter issued, all Indebtedness of the Company or its Restricted
Subsidiaries, including interest and fees thereon; provided, however, that
Senior Indebtedness will not include any Subordinated Obligation of the Company
or any Restricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"S&P" means Standard and Poor's Ratings Group.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of the Company or a
Restricted Subsidiary (whether outstanding on the Issue Date or thereafter
Incurred) in respect of which, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that the
obligations of the Company or such Restricted Subsidiary in respect of such
Indebtedness are subordinate or junior in right of payment to any other
Indebtedness of such Person of the type described in clause (i) or (ii) or (vii)
of the definition of "Indebtedness".
"Subsidiary" of any Person means any corporation, association or other
business entity of which such Person owns, directly or indirectly through one or
more Subsidiaries, a majority of the Capital Stock or other ownership interests
(including partnership and membership interests) and has ordinary voting power
to elect a majority of the directors, managers, trustees or other persons
performing similar functions or, in the case of a partnership, of which such
Person or any of its Subsidiaries is the general or managing general partner.
Notwithstanding the foregoing, Product Information Network Venture and
Superaudio shall
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be deemed to be Subsidiaries of the Company. Unless otherwise specified herein,
each reference to a Subsidiary shall refer to a Subsidiary of the Company.
"Subsidiary Guarantee" means the Guarantee of the Notes by a Subsidiary
Guarantor.
"Subsidiary Guarantor" means each Restricted Subsidiary of the Company,
whether in existence on the Issue Date or created or acquired thereafter (other
than any foreign Subsidiary and other than any domestic Restricted Subsidiary
that is subject to a contractual limitation, existing on the Issue Date, on its
ability to issue a Subsidiary Guarantee which limitation has not, with the
exercise of such Restricted Subsidiary's best efforts, been satisfied or
waived).
"Temporary Cash Investments" means any of the following: (i) any
Investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital surplus and undivided
profits aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and whose long-term debt, or whose parent holding company's
long-term debt, is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more than
180 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
(v) Investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's and
(vi) Investments in mutual funds whose investment guidelines restrict such
funds' investments to those satisfying the provisions of clauses (i) through (v)
above.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
acquires an Affiliate Business, (ii) any other Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below, (iii) any Subsidiary of an
Unrestricted Subsidiary, (iv) Product Information Network Venture; (v)
Superaudio; and (vi) Capstar LLC. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock of the Company or
any Restricted Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total consolidated assets of $10,000 or less
or (B) if such Subsidiary has consolidated assets greater than $10,000, then
such designation would be permitted under "Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary subject to the limitations contained in "Limitation on
Designations of Unrestricted Subsidiaries".
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
106
<PAGE>
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, each of the Old Notes initially
was, and the Exchange Notes will be represented by Global Notes. The Global Note
regarding the Old Notes has been, and the Global Note regarding the Exchange
Notes will be, deposited with, or on behalf of, DTC and registered in the name
of a nominee of DTC.
Old Notes (i) transferred to institutional "accredited investors," as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not
QIBs or to any other persons who are not QIBs or (ii) held by QIBs who elect to
take physical delivery of their certificates instead of holding their interest
through the Global Notes (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be issued
in registered form (the "Certificated Notes"). Upon the transfer to a QIB of any
Certificated Note previously issued to a Non-Global Purchaser, such Certificated
Note will, unless the transferee requests otherwise or such Global Notes has
previously been exchanged in whole for Certificated Notes, be exchanged for an
interest in such Global Note.
Global Securities. Pursuant to procedures established by DTC (i) upon the
issuance of the Global Notes, DTC or its custodian will credit, on its internal
system, the principal amount of Notes of the individual beneficial interest
holders represented by such Global Notes to the respective accounts for persons
who have accounts with DTC and (ii) ownership of beneficial interests in the
Global Notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of persons who have accounts with DTC ("participants")), including
Euroclear and Cedel, and the records of participants (with respect to interests
of persons other than participants). Such accounts initially will be designated
by or on behalf of the Initial Purchaser and ownership of beneficial interests
in the Global Notes will be limited to participants or persons who hold
interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments on the Global Notes will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. None of the Company, the Transfer
Agent, the Trustee or any Paying Agent will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that DTC or its nominee, upon receipt of any payment
in respect of a Global Note, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the Global
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practice, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell such Note to persons in states which require physical delivery
of Certificated Notes, or to pledge such securities, such holder must transfer
its interest in the Global Note, in accordance with the normal procedures of
DTC.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of a Global Note (including the presentation of Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Note are credited and only in
respect of such portion of the Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Indenture, DTC will exchange the Global Note for Certificated
Notes, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
107
<PAGE>
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchaser, the
Trustee or the Transfer Agent will have any responsibility for the performance
by DTC or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue
as a depositary for a Global Note and a successor depositary is not appointed by
the Company within 90 days, Certificated Notes will be issued in exchange for
such Global Note.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States Federal income tax
consequences that generally apply to a holder that exchanges Old Notes for
Exchange Notes in the Exchange Offer. This discussion is based on the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations, and judicial and administrative holdings, all of which could be
changed at any time, possibly on a retroactive basis. It relates only to persons
who hold their Old Notes and Exchange Notes as capital assets. It does not
discuss state, local or foreign tax aspects, or tax consequences to holders that
are subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks, dealers in securities, or persons who hold the Old
Notes or the Exchange Notes as part of a "conversion" transaction, "hedging"
transaction, "integrated" transaction or "straddle" for U.S. Federal income tax
purposes. Tax consequences may vary depending on a holder's tax situation. No
rulings will be sought from the Internal Revenue Service ("IRS") concerning the
Exchange Offer.
The following discussion concerns U.S. Federal income tax consequences
that apply to a holder of Old Notes and Exchange Notes that is a U.S. person for
Federal income tax purposes, i.e., (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized under the laws of
the United States or any State (including the District of Columbia) (including
any other partnership treated as a U.S. person under Treasury Regulations),
(iii) an estate or trust described in Section 7701(a)(3) of the Code, or (iv) a
person otherwise subject to United States Federal income tax on its worldwide
income (collectively, a "U.S. Holder").
THIS SECTION DOES NOT DEAL WITH ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO PARTICIPATE IN THE EXCHANGE
OFFER. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING FEDERAL
INCOME TAX LAWS AND OTHER TAX LAWS APPLICABLE TO ITS PARTICULAR SITUATION BEFORE
DECIDING WHETHER TO EXCHANGE ITS OLD NOTES FOR EXCHANGE NOTES.
THE EXCHANGE OFFER
Under Treasury Regulations, the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer should not constitute a significant modification
of the Old Notes and, accordingly, should be a "nonevent" for Federal income tax
purposes. Therefore, a U.S. Holder of Old Notes should not recognize gain or
loss in the exchange, and should continue to include interest on the Exchange
Notes in gross income in accordance with its method of accounting for Federal
income tax purposes. A U.S. Holder's holding period in Exchange Notes received
in the Exchange Offer will include the U.S. Holder's holding period in the Old
Notes exchanged.
TREATMENT OF INTEREST
In general, interest on an Old Note or Exchange Note will be taxable to a
U.S. Holder as ordinary income when received or accrued, depending on the U.S.
Holder's method of accounting for tax purposes.
The Company will treat the Old Notes as being issued without original
issue discount ("OID"). Under Treasury Regulations, contingent payments under a
debt instrument are not taken into account in computing OID if there is a remote
likelihood that the payments will be made. If the Company failed to effect the
Exchange Offer on a timely basis, Additional
108
<PAGE>
Interest would be payable on the Old Notes. Because there was only a remote
possibility that this would occur, the Company determined that the Old Notes
were issued without OID. The IRS could disagree with this determination. If the
Old Notes were issued with OID, U.S. Holders of the Old Notes or Exchange Notes
could have to accrue taxable interest income before the receipt or accrual of
stated interest. Each U.S. Holder should consult its own tax advisor concerning
the possible accrual of OID on the Old Notes.
SALE, EXCHANGE OR REDEMPTION OF PRINCIPAL; DISPOSITIONS
On the sale, redemption, retirement at maturity or other disposition of an
Old Note or an Exchange Note, a U.S. Holder generally will recognize capital
gain or loss equal to the difference between (i) the amount realized on the
disposition (except to the extent attributable to accrued but unpaid interest or
market discount, which will be taxable as ordinary income) and (ii) the U.S.
Holder's adjusted tax basis in the Old Note or the Exchange Note. Such capital
gain generally will be taxable at a reduced maximum rate for a U.S. Holder who
is not a corporation and who held the Old Notes or Exchange Notes for more than
one year. A U.S. Holder's adjusted basis in an Old Note or Exchange Note will
generally be its cost to the U.S. Holder plus the amount of interest previously
taken into account, but not yet received, by the U.S. Holder.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder purchases an Old Note or an Exchange Note for a price
that exceeds its stated redemption price at maturity plus any accrued and unpaid
interest ("Bond Premium"), the U.S. Holder will not have to include OID, if any,
in income and may elect to amortize the Bond Premium. This election applies to
all Notes acquired by the U.S. Holder during the year of election or in a later
year.
MARKET DISCOUNT
A U.S. Holder, other than an initial holder, will be treated as holding an
Old Note or an Exchange Note at a market discount (a "Market Discount Note") if
the U.S. Holder purchased the Old Note or the Exchange Note for a price less
than its redemption price at maturity, subject to a de minimis rule. An initial
holder of an Old Note will be treated as holding a Market Discount Note if the
initial holder purchased the Old Note for less than its issue price.
In general, any partial payment of principal on, or gain recognized on the
maturity, redemption, or disposition of, a Market Discount Note will be ordinary
interest income to the extent of accrued market discount on the Market Discount
Note. Alternatively, a U.S. Holder of a Market Discount Note may elect to
include market discount in income over the life of each Market Discount Note.
Market discount accrues on a straight-line basis, unless the U.S. Holder
elects to accrue the discount on a constant yield-to-maturity basis. If this
election is not made, a U.S. Holder of a Market Discount Note generally must
defer interest deductions in the amount of the accrued market discount on the
Market Discount Note, until it matures or is sold. If the Market Discount Note
is disposed of in a nontaxable transaction (other than certain tax- free
exchanges), the U.S. Holder must report the accrued market discount as ordinary
income as if the Market Discount Note were sold at its fair market value.
BACKUP WITHHOLDING
Under the Code, a U.S. Holder of an Old Note or Exchange Note may be
subject to "backup withholding" at a 31% rate on payments of interest or the
gross proceeds of sale. This withholding generally applies if the U.S. Holder
(i) fails to furnish its social security number or other taxpayer identification
number ("TIN") on request, (ii) furnishes an incorrect TIN, (iii) is notified by
the IRS that it has failed to report properly payments of interest and dividends
and the IRS has notified the Company that it is subject to backup withholding,
or (iv) fails, in certain situations, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is correct and that the U.S.
Holder is not subject to backup withholding. Any amount withheld under the
backup withholding rules is allowed as a credit against the U.S. Holder's
Federal income tax liability, if the required information is furnished to the
IRS. Corporations and certain other entities are generally exempt from backup
withholding if they establish their exempt status.
109
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of market-
making activities or other trading activities. The Company acknowledges and each
holder, other than a broker-dealer, must acknowledge that it is not engaged in,
does not intend to engage in, and has no arrangement or understanding with any
person to participate in a distribution of Exchange Notes. The Company has
agreed if, at the time of the completion of the Exchange Offer, information in
the Letter of Transmittal submitted by exchanging holders indicates that there
are holders that are Participating Broker-Dealers or otherwise subject to
prospectus delivery requirements, the Company will, for such period of time as
is necessary to comply with applicable law up to the date that is 180 days after
consummation of the Exchange Offer, make available a prospectus meeting the
requirements of the Securities Act to such persons, if any, for use in
connection with any resale of such Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker- dealer and/or the purchasers of any such Exchange Notes. Any broker-
dealer that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit it is an "underwriter"
within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Davis, Graham & Stubbs LLP, Denver, Colorado.
INDEPENDENT AUDITORS
The Consolidated Financial Statements of the Company as of December 31,
1996 and 1997 and for each of the years in the three-year period ended December
31, 1997 included in this Prospectus have been audited by Arthur Andersen LLP,
independent auditors, and the financial statements of MediaAmerica, Inc. as of
December 31, 1996 and 1997, and for each of the years in the three-year period
ended December 31, 1997 included in this Prospectus have been audited by David
Berdon & Co. LLP, independent auditors.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.......................................................................... F-3
Consolidated Statements of Financial Position as of December 31, 1996 and 1997 and
June 30, 1998 (unaudited)..................................................................................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997 and
for the Six Months Ended June 30, 1997 and 1998 (unaudited)................................................... F-6
Consolidated Statements of Changes in Shareholders' Deficit for the Years Ended December 31,
1995, 1996 and 1997 and for the Six Months Ended June 30, 1998 (unaudited).................................... F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and
for the Six Months Ended June 30, 1997 and 1998 (unaudited)................................................... F-8
Notes to Consolidated Financial Statements........................................................................ F-9
MEDIAAMERICA, INC. FINANCIAL STATEMENTS
Independent Auditors' Report...................................................................................... F-37
Balance Sheets as of December 31, 1996 and 1997................................................................... F-38
Statements of Income for the Years Ended December 31, 1995, 1996 and 1997......................................... F-39
Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1996 and 1997........................... F-40
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997..................................... F-41
Notes to Financial Statements..................................................................................... F-42
Accountants' Review Report........................................................................................ F-47
Balance Sheets as of June 30, 1997 and 1998 (unaudited)........................................................... F-48
Statements of Operations for the Six Months Ended June 30, 1997 and 1998 (unaudited).............................. F-49
Statements of Shareholders' Equity for the Six Months Ended June 30, 1997 and 1998 (unaudited).................... F-50
Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1998 (unaudited).............................. F-51
Notes to Financial Statements (unaudited)......................................................................... F-52
JONES/OWENS RADIO PROGRAMMING, LLC FINANCIAL STATEMENTS
Independent Auditors' Report...................................................................................... F-58
Statements of Financial Position as of December 31, 1996 and 1997................................................. F-59
Statements of Operations for the Three Months Ended December 31, 1996 and the Year Ended December 31, 1997........ F-60
Statements of Members' Equity for the Three Months Ended December 31, 1996 and the Year Ended December 31 1997.... F-61
Statements of Cash Flows for the Three Months Ended December 31, 1996 and for the Year Ended December 31, 1997.... F-62
Notes to Financial Statements..................................................................................... F-63
Unaudited Statements of Financial Position as of June 30, 1997 and 1998........................................... F-65
Unaudited Statements of Operations for the Six Months Ended June 30, 1997 and 1998................................ F-66
Unaudited Statements of Members' Equity for the Six Months Ended June 30, 1998.................................... F-67
Unaudited Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1998................................ F-68
Notes to Unaudited Financial Statements........................................................................... F-69
</TABLE>
F-1
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jones International Networks, Ltd.:
We have audited the accompanying consolidated statements of financial
position of Jones International Networks, Ltd. (a Colorado corporation) and its
subsidiaries (collectively, the "Company") as of December 31, 1996 and 1997 and
the related consolidated statements of operations, changes in shareholders'
deficit and cash flows for the three years ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1997, and the results of its operations and cash flows for the
three years ended December 31, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Denver, Colorado
August 1, 1998.
F-3
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
1996 1997 1998
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 3,892 $ 3,717,169 $ 2,444,772
Accounts receivable, net of allowance for doubtful accounts of
$286,562, $157,405 and $169,122, respectively.......................... 851,866 1,454,763 2,798,820
Receivables from affiliates................................................ 803,162 -- 40,215
Prepaid expenses........................................................... 537,072 54,870 158,405
Deferred commissions, current (Note 2)..................................... 248,286 222,302 261,975
Other current assets....................................................... 74,647 263,267 43,666
------------- ------------ ------------
Total current assets................................................ 2,518,925 5,712,371 5,747,853
------------- ------------ ------------
PROPERTY, PLANT AND EQUIPMENT (Note 2):
Land....................................................................... 1,395,592 1,395,592 1,395,592
Building................................................................... 2,321,463 2,321,463 2,321,463
Leased satellite transponders (Note 15).................................... 35,010,454 35,010,454 35,010,454
Furniture, fixtures and equipment.......................................... 9,090,374 10,457,665 10,735,179
Leasehold improvements..................................................... 258,908 374,643 635,936
------------- ------------ ------------
Total property, plant and equipment................................. 48,076,791 49,559,817 50,098,624
------------- ------------ ------------
Less accumulated depreciation and amortization............................. (15,978,974) (20,784,095) (23,178,762)
------------- ------------ ------------
Net property, plant and equipment................................... 32,097,817 28,775,722 26,919,862
------------- ------------ ------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $15,000, $171,795
and $288,153, respectively (Note 2).................................... 285,000 3,125,567 3,009,209
Other intangible assets, net of accumulated amortization of
$504,877, $733,428 and $873,287, respectively (Note 2)................. 1,283,303 1,063,888 1,081,661
Investment in affiliates................................................... 922,135 577,264 300,265
Income tax benefit receivable from Jones International, Ltd. (Note 12)..... -- 1,342,111 1,074,536
Capitalized loan fees (Note 15)............................................ -- 50,000 568,583
Deferred commissions, long-term (Note 2)................................... 496,572 478,676 422,809
Deferred offering costs (Note 7)........................................... 607,505 174,744 1,341,906
Other assets............................................................... 86,420 57,785 295,320
------------- ------------ ------------
Total other assets.................................................. 3,680,935 6,870,035 8,094,289
------------- ------------ ------------
Total assets........................................................ $ 38,297,677 $ 41,358,128 $ 40,762,004
============= ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements are an
integral part of these consolidated financial statements.
F-4
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
1996 1997 1998
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable--trade.................................................. $ 239,872 $ 1,438,602 $ 1,263,886
Accrued liabilities...................................................... 686,131 1,300,516 1,954,538
Accounts payable--Jones International, Ltd. (Notes 2 and 6).............. 6,017,809 9,814,874 5,424,512
Interest payable......................................................... 215,524 53,619 522,471
Deferred revenues (Note 2)............................................... 5,500 13,554 301,583
Capital lease obligations (Note 9)....................................... 1,964,954 2,422,022 2,668,202
Other current liabilities................................................ 4,574 -- 8,003
------------ ------------ ------------
Total current liabilities......................................... 9,134,364 15,043,187 12,143,195
------------ ------------ ------------
LONG-TERM LIABILITIES
Customer deposits and deferred revenues.................................. 829,962 38,532 38,773
Capital lease obligation, net of current portion (Note 9)................ 28,757,208 26,335,186 24,922,805
Long-term debt--affiliated entities (Note 8)............................. 22,554,500 16,554,500 10,000,000
Credit facility (Note 15)................................................ -- -- 16,704,500
------------ ------------ ------------
Total long-term liabilities....................................... 52,141,670 42,928,218 51,666,078
------------ ------------ ------------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES
(Note 2)............................................................. 290,949 1,593,168 822,049
COMMITMENTS AND CONTINGENCIES (NOTE 14)
SHAREHOLDERS' DEFICIT:
Class A Common Stock, $.01 par value: 50,000,000 shares
authorized; 1,968,453, 2,980,953 and 2,980,953 shares issues
and outstanding, respectively........................................ 19,685 29,810 29,810
Class B Common Stock, $.01 par value: 1,785,120 shares
authorized; 1,385,120, 1,785,120 and 1,785,120 shares issued
and outstanding, respectively........................................ 13,851 17,851 17,851
Additional paid-in capital............................................... -- 9,143,375 9,143,375
Accumulated deficit...................................................... (23,302,842) (27,397,481) (33,060,354)
------------ ------------ ------------
Total shareholders' deficit....................................... (23,269,306) (18,206,445) (23,869,318)
------------ ------------ ------------
Total liabilities and shareholders' deficit.............................. $ 38,297,677 $ 41,358,128 $ 40,762,004
============ ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements are an
integral part of these consolidated financial statements.
F-5
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ --------------------------
1995 1996 1997 1997 1998
------------ ---------------- ---------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming................................ $ 5,121,310 $ 6,978,303 $10,199,870 $ 5,089,673 $ 3,739,193
Television programming
Non-affiliated entities....................... 288,591 193,204 10,863,512 3,326,645 7,300,147
Affiliated entities (Note 6).................. 51,574 960,254 1,138,000 571,721 564,415
------------- ----------- ----------- ----------- -----------
Total television programming............... 340,165 1,153,458 12,001,512 3,898,366 7,864,562
Satellite delivery and production support
Non-affiliated entities....................... 3,129,844 3,120,000 2,600,000 1,560,000 --
Affiliated entities (Note 6).................. 6,535,742 5,402,680 4,309,818 2,358,395 2,128,118
------------- ----------- ----------- ----------- -----------
Total satellite delivery and
production support....................... 9,665,586 8,522,680 6,909,818 3,918,395 2,128,118
------------- ----------- ----------- ----------- -----------
Total revenues............................. 15,127,061 16,654,441 29,111,200 12,906,434 13,731,873
------------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Radio programming................................ 3,067,745 4,162,634 5,816,250 2,803,601 3,489,844
Television programming
Non-affiliated entities....................... 256,266 1,156,922 5,726,418 1,832,527 3,848,027
Affiliated entities (Note 6).................. 109,333 -- 3,545,930 1,173,306 2,818,964
------------- ----------- ----------- ----------- -----------
Total television programming............... 365,599 1,156,922 9,272,348 3,005,833 6,666,991
Satellite delivery and production support........ 6,530,278 5,451,966 4,685,470 2,605,135 2,329,432
Selling and marketing............................ 1,374,368 1,737,566 2,916,648 1,266,538 1,747,231
General and administration....................... 2,321,780 3,269,623 4,168,005 1,862,734 2,092,697
------------- ----------- ----------- ----------- -----------
Total operating expenses................... 13,659,770 15,778,711 26,858,721 11,543,841 16,326,195
------------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)............................ 1,467,291 875,730 2,252,479 1,362,593 (2,594,322)
------------- ----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense (Note 6, 8 and 9)............... 4,069,837 4,499,898 5,676,896 2,867,025 2,640,260
Interest income.................................. (63,792) (72,151) (107,843) (22,235) (99,025)
Write-off of deferred offering (Note 7).......... -- -- 938,000 938,000 --
Equity in income of subsidiaries................. (10,886) (828,992) (396,155) (286,734) (73,001)
Other expense (income)........................... 16,276 (11,660) 73,972 -- 263,801
------------- ----------- ----------- ----------- -----------
Total other expense, net................... 4,011,435 3,587,095 6,184,870 3,496,056 2,732,035
------------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST................................. (2,544,144) (2,711,365) (3,932,391) (2,133,463) (5,326,357)
Income tax provisions (benefit) (Note 12)........ (497,739) (386,912) (1,341,997) (355,548) 267,575
------------- ----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTERESTS..................... (2,046,405) (2,324,453) (2,590,394) (1,777,915) (5,593,932)
------------- ----------- ----------- ----------- -----------
Minority interests in net income (loss) of
consolidated subsidiaries..................... -- (9,051) 902,781 417,852 68,941
------------- ----------- ----------- ----------- -----------
NET LOSS........................................... $ (2,046,405) $(2,315,402) $(3,493,175) (2,195,767) (5,662,873)
============= =========== =========== =========== ===========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE...................................... $ (0.50) $ (0.56) $ (0.79) $ (0.50) $ (1.19)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING....................................... 4,103,573 4,103,573 4,400,448 4,366,073 4,766,073
============= =========== =========== =========== ===========
</TABLE>
The accompanying notes to these consolidated financial statements are an
integral part of these consolidated financial statements.
F-6
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------
CLASS A CLASS B PAID-IN ACCUMULATED SHAREHOLDERS'
------- -------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.............. 1,385,120 $13,851 $1,385,120 $13,851 $ -- $(16,329,557) $(16,301,855)
Advances to parent company
(Note 2).............................. -- -- -- -- -- (2,011,828) (2,011,828)
Net Loss................................ -- -- -- -- -- (2,046,405) (2,046,405)
--------- ------- ---------- ------- ---------- ------------ ------------
Balance, December 31, 1995.............. 1,385,120 13,851 1,385,120 13,851 -- (20,387,790) (20,360,088)
Issuance of common stock in exchange
for Earth Segment (Note 1)............ 583,333 5,834 -- -- -- (5,834) --
Advances to parent company
(Note 2).............................. -- -- -- -- -- (593,816) (593,816)
Net Loss................................ -- -- -- -- -- (2,315,402) (2,315,402)
--------- ------- ---------- ------- ---------- ------------ ------------
Balance, December 31, 1996.............. 1,968,453 19,685 1,385,120 13,851 -- (23,302,842) (23,269,306)
Issuance of common stock in
exchange for Jones Space
Segment, Inc. (Note 1)................ 416,667 4,167 -- -- -- (4,167) --
Advance to parent company (Note 2)...... -- -- -- -- -- (593,964) (593,964)
Issuance of common stock in
exchange for minority interests
of Glenn R. Jones (Note 1)............ 333,333 3,333 -- -- -- (3,333) --
Issuance of common stock for the
Product Information Network
acquisition (Note 1).................. 262,500 2,625 -- -- 3,147,375 -- 3,150,000
Conversion of the Jones Global
Group note (Note 8)................... -- -- 400,000 4,000 5,996,000 -- 6,000,000
Net Loss................................ -- -- -- -- -- (3,493,175) (3,493,175)
--------- ------- ---------- ------- ---------- ------------ ------------
Balance, December 31, 1997.............. 2,980,953 29,810 1,785,120 17,851 9,143,375 (27,397,481) (18,206,445)
Net Loss (unaudited).................... -- -- -- -- -- (5,662,873) (5,662,873)
--------- ------- ---------- ------- ---------- ------------ ------------
Balance, June 30, 1998 (unaudited)...... 2,980,953 $29,810 1,785,120 $17,851 $9,143,375 $(33,060,354) $(23,869,318)
========= ======= ========== ======= ========== ============ ============
</TABLE>
The accompanying notes to these consolidated financial statements are an
integral part of these consolidated financial statements.
F-7
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- -------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(2,046,405) $(2,315,402) $(3,493,175) $(2,195,767) $(5,662,873)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 3,888,151 4,476,027 5,167,892 2,512,381 2,650,885
Equity in income of subsidiaries.................... (10,886) (828,992) (396,155) (286,734) (73,001)
Distributions received.............................. 175,000 300,000 100,000 -- 350,000
Write-off of deferred offering costs................ -- -- 938,000 938,000 --
Minority interest in net loss....................... -- (9,051) 902,781 417,852 68,941
Loss on sale of equipment........................... -- -- 81,209 36,579 --
Net change in assets and liabilities:
Decrease (increase) in receivables................ 227,932 5,317 1,168,733 (1,766,267) (1,344,057)
Decrease (increase) in receivables from
affiliates....................................... (316,052) (361,809) (538,949) 748,668 (40,215)
Decrease (increase) in prepaid expenses
and other current assets......................... (1,533) (495,717) 344,865 289,289 116,066
Decrease (increase) in deferred commissions....... 49,377 (104,204) 43,880 19,088 16,194
Decrease (increase) in other assets............... 4,462 (58,983) 78,635 (10,988) (237,535)
Increase in accounts payable...................... 8,054 223,393 1,192,730 648,659 (174,716)
Increase (decrease) in accounts payable to
Jones International.............................. (1,943,222) 3,668,270 2,861,899 1,115,631 (4,122,787)
Increase (decrease) in interest payable........... -- 215,524 (161,905) 655 468,852
Increase in deferred revenues..................... -- 5,500 8,054 -- 288,029
Increase (decrease) in accrued liabilities
and other liabilities............................ 355,049 52,872 112,355 134,181 (448,976)
Increase (decrease) in customer deposits.......... (25,827) 3,352 (821,378) (27,049) 241
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities....................................... 364,100 4,776,097 7,589,471 2,574,178 (8,144,952)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............. (1,261,669) (2,969,379) (1,367,026) (1,001,533) (538,807)
Sale of property, plant and equipment................. -- -- 255,671 261,975 --
Purchases of intangible assets........................ (436,519) (1,001,667) (44,646) (1,110) (157,632)
Investment in joint venture........................... (174,826) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities............... (1,873,014) (3,971,046) (1,156,001) (740,668) (696,439)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs................... -- (607,505) (505,239) (494,696) (56,162)
Increase in capitalized loan fees..................... -- -- (50,000) (50,000) (518,583)
Repayment of borrowings............................... (10,642) (7,991) -- -- (6,554,500)
Repayment of capital lease obligations................ (1,178,409) (1,533,031) (1,964,954) (943,355) (1,166,201)
Proceeds from borrowings.............................. 1,997,916 1,341,968 -- -- 16,704,500
Distributions paid to minority interests.............. -- -- -- -- (840,060)
Acquisition of minority interests..................... -- -- (200,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities......................................... 808,865 (806,559) (2,720,193) (1,488,051) 7,568,994
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (700,049) (1,508) 3,713,277 345,459 (1,272,397)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 705,449 5,400 3,892 3,892 3,717,169
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 5,400 $ 3,892 $ 3,717,169 $ 349,351 $ 2,444,772
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid......................................... $ 4,069,871 $ 4,499,898 $ 5,838,801 $ 2,866,442 $ 2,171,408
=========== =========== =========== =========== ===========
Income tax benefit (provision)........................ $ 497,739 $ 386,912 $ 1,341,997 $ 355,662 $ (267,575)
=========== =========== =========== =========== ===========
Deferred offering costs............................... $ -- $ -- $ -- $ -- $ 1,111,000
=========== =========== =========== =========== ===========
Goodwill.............................................. $ -- $ 300,000 $ 3,036,923 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to these consolidated financial statements are an
integral part of these consolidated financial statements.
F-8
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (AUDITED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(1) ORGANIZATION AND BUSINESS
Jones International Networks, Ltd. (which is now known as JPN, Inc., "Old
Company," effective May 1998) was incorporated in November 1993. The Old Company
was temporarily a wholly-owned subsidiary of Jones Network Holdings LLC
("Network Holdings"), a Colorado limited liability company. Old Company has
acquired certain subsidiaries from the parent of Network Holdings, Jones
International, Ltd. ("Jones International"). Mr. Glenn R. Jones, Chairman and
Chief Executive Officer, owns 100 percent of Jones International. The
accompanying financial statements have been prepared on the basis of
reorganization accounting of entities under common control (similar to pooling
of interests) as though Old Company had made the acquisitions of these Jones
International subsidiaries at their inception.
In May 1998, a new company named Jones International Networks, Ltd. ("New
Company") was formed as a wholly-owned subsidiary of Network Holdings and a
sister company of Old Company. Effective upon the closing in July 1998 of an
offering of 11 3/4% Senior Secured Notes by New Company (see Note 15) and the
acquisition by New Company of MediaAmerica, Inc. (see Note 15), New Company
acquired all of the shares of Old Company from Network Holdings, and the members
of Network Holdings exchanged their Class A Ownership Interests and Class B
Ownership Interests in Network Holdings for shares of Class A Common Stock and
Class B Common Stock, respectively, of New Company, and Network Holdings was
dissolved. Old Company is now a subsidiary of New Company. Old Company is
hereinafter referred to as the "Company." The results of operations and
financial condition of New Company will be substantially identical to the
financial statements of the Company.
The Company creates, develops, acquires and produces programming that it
distributes to radio stations, cable television system operators and other video
distributors. The Company (i) provides radio programming to radio stations in
exchange for advertising time that it resells to national advertisers, (ii)
provides television and music programming to cable television system operators
and other video distributors, (iii) sells advertising time on its two television
networks and (iv) receives license fees for its country music television
network.
On April 1, 1997, the Company acquired Mr. Glenn R. Jones' 19% equity
interest in Jones Infomercial Networks, Inc. ("Infomercial Networks"), the
subsidiary through which the Company has invested in the PIN Venture, and Glenn
R. Jones' 19% equity interest in Great American Country, Inc. ("Great American
Country"), the subsidiary through which the Company operates Great American
Country, in exchange for 333,333 shares of the Company's Class A Common Stock.
As a result of these transactions, these subsidiaries are wholly owned by the
Company. Also on April 1, 1997, the Company acquired the satellite transponder
leases and related subleases owned by Jones Space Segment, Inc. ("Space
Segment"), an affiliate of the Company, in exchange for 416,667 shares of the
Company's Class A Common Stock. These three transactions were accounted for as a
reorganization of entities under common control. The historical consolidated
financial statements have been restated to include these transactions for all
periods presented.
The Company has received advances and loans from Jones International and
related companies to fund its operating and investing activities in the past.
Jones International and such related companies are under no obligation to
provide, nor does the Company expect them to provide, additional advances or
loans to the Company.
Ventures--The Company is a partner in two joint ventures, the PIN Venture
and Galactic/Tempo ("Superaudio"), and is a member in a third venture,
Jones/Owens Radio Programming, LLC ("JORP"). The PIN Venture was organized in
January 1995 and commenced operations on February 1, 1995. The PIN Venture owns
and operates a 24-hour-a-day cable television network for the airing of long-
form advertising ("infomercials"). JORP is in the business of developing,
producing and distributing short-form and long-form syndicated radio programs.
Superaudio commenced operations in July 1990 and is a joint venture which is
owned 50 percent by the Company and 50 percent by a third party. Superaudio
provides audio programming services to cable television system operators.
Profits, losses and distributions of these ventures have been and will be
allocated in accordance with the respective Common Stocks of the partners or
members. Distributions of assets have been and will be approved by the partners
or members for the respective venture prior to such distributions.
F-9
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
From February 1995 until March 31, 1997, the Company owned 50% or less of
the PIN Venture, the entity that owns and operates the Product Information
Network. Effective April 1, 1997, the Company acquired from Adelphia
Communications an 8.35% equity interest in the PIN Venture in exchange for
262,500 shares of the Company's Class A Common Stock. As a result of this
transaction, which was accounted for as a purchase, the Company now owns
approximately 54% of the PIN Venture and, effective April 1, 1997, consolidated
the results of operations of the PIN Venture for financial reporting purposes.
Interim Financial Information (unaudited)--The accompanying statements of
financial position as of June 30, 1998, the statements of operations and cash
flows for the six months ended June 30, 1997 and 1998, and the statement of
changes in shareholders' deficit for the six months ended June 30, 1998, are
unaudited. However, in the opinion of management, these statements include all
adjustments, consisting of normal recurring adjustments, necessary for the fair
presentation of results for these interim periods. The results of operations for
the six months ended June 30, 1998 are not necessarily indicative of results to
be expected for the entire year, or for any other interim period.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--The Company considers all highly liquid
investments with a maturity when purchased of three months or less to be cash
equivalents.
Fair Value of Financial Instruments--The fair value of the Company's
financial instruments is estimated based on the quoted market prices for similar
instruments.
Principles of Consolidation--The consolidated financial statements include
the accounts of all majority-owned and controlled subsidiaries. Investments in
entities which are not majority-owned and controlled by the Company are
accounted for under the equity method. All significant intercompany balances and
transactions have been eliminated in consolidation.
Minority Interest--The minority interest in the net income or loss of the
Company's consolidated subsidiaries is reflected in the statements of
operations. To the extent the minority interest in the net losses of the
Company's consolidated subsidiaries exceeds the minority investment in those
subsidiaries, such excess losses are charged to the Company.
Property, Plant and Equipment--Property and equipment are depreciated using
the straight-line method over the estimated useful lives of 3 to 15 years.
Depreciation of the building is provided using the straight-line method over an
estimated useful life of 40 years. Leasehold improvements are depreciated over
the lesser of five years or the term of the lease. Satellite transponders are
depreciated over the term of the lease.
Goodwill--Goodwill consists primarily of the excess purchase price paid in
the PIN acquisition in 1997 as discussed in Note 5. Goodwill is amortized over
the estimated economic life of the partnership, which is approximately 18 years.
Other Intangible Assets--Intangible assets consist primarily of radio
programming licensing agreements obtained from a third party in October 1996.
Intangible assets are amortized over the lesser of 15 years or the term of the
affiliate agreements.
Long-Lived Assets--The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. No such impairment indicators have been identified by the Company.
Advances to Parent Company--Advances to parent company in the statements of
shareholders' deficit represent the net impact of the intercompany activity
between Space Segment and Jones International. Such amounts have been presented
as further reductions of accumulated deficit in connection with the
reorganization of these entities under common control.
Deferred Commissions--Sales commissions are amortized over the life of the
corresponding affiliate agreements from which the sales commission was paid. The
current amount represents the portion to be amortized within the next 12 months.
The remaining portion is classified as long-term.
Deferred Offering Costs--Deferred offering costs consist primarily of
financial advisory, legal and accounting fees incurred in connection with
financing activities. These costs will be charged against the gross proceeds of
the financing activities or written off if and when the financing activities are
not consummated.
Customer Deposits and Deferred Revenues--Customer deposits consist of
unearned revenues associated with affiliate fees and refundable advance payments
received from radio stations. Deferred revenues consist of advance payments and
a security deposit paid by the sub-lessor on the leased transponders.
F-10
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Income Taxes--Prior to April 2, 1997, the Company joined in filing a
consolidated tax return as provided for under the terms of a tax allocation
agreement with Jones International and certain of Jones International's
subsidiaries. Pursuant to the terms of the tax allocation agreement, tax
provisions (benefits) were allocated to the members of the tax sharing group
based on their respective pro rata contribution of taxable income (loss) to
Jones International's consolidated taxable income (loss). As a result of the
issuance of additional shares of the Company's common stock (see Note 1), less
than 80% of the Company's outstanding common stock was beneficially (or
indirectly) owned by Jones International. Therefore, the Company is no longer
included in the Jones International tax allocation agreement.
The tax allocation agreement with Jones International gives Jones
International the option to either make a payment of the tax benefits due to the
subsidiary members of the tax sharing group or to defer such payments until a
subsequent taxable period in which the subsidiary member generates taxable
income and has a tax payment due either to Jones International or to a federal
or state taxing authority. Jones International may defer such payments for a
period not to exceed five years from the date the tax benefits were incurred and
will accrue interest at the time the deferred amounts originate. For the year
ended December 31, 1997, Jones International elected to defer a tax benefit of
approximately $1,342,000 due to the Company and its subsidiaries. For the six
months ended June 30, 1998, the Company incurred a tax provision of
approximately $268,000 to adjust estimated tax provisions to actual tax
provisions for the year ended December 31, 1997. This provision was offset
against the income tax receivable.
The Company accounts for deferred tax liabilities or assets based on the
temporary differences between the financial reporting and tax bases of assets
and liabilities as measured by the enacted tax rates which are expected to be in
effect when these differences reverse. Deferred tax assets are reduced, if
deemed necessary, by a valuation allowance for the amount of any tax benefits
which, based upon current circumstances, are not expected to be realized.
Revenue Recognition--The Company's revenues consist of radio programming
revenues, television programming revenues and satellite delivery and production
support revenues.
Radio programming revenues include advertising and license fees. The
Company generates radio advertising revenues by selling airtime to advertisers
who advertise their products or services on the networks. The Company recognizes
advertising revenues upon airing of the advertisements. Any amounts received
from customers for radio advertisements that have not been aired during the
period are recorded as deferred revenues until such time as the advertisement is
aired. The Company delivers its programming to radio stations for distribution
to their listeners. Radio station license fees are earned monthly based on the
radio station's contractual agreement.
Television programming revenues include advertising and license fees. The
Company generates television advertising revenues by selling airtime to
advertisers who advertise their products or services on the networks. The
Company recognizes advertising revenues upon the airing of the advertisements.
Any amounts received from customers for television advertisements that have not
been aired during the period are recorded as deferred revenues until such time
as the advertisement is aired. The Company delivers its programming to cable
television systems for distribution to their viewers. Cable television system
license fees are earned monthly based on a per subscriber fee set under the
terms of the cable operator's contractual agreement and the number of
subscribers that are receiving the Company's programming during the respective
month.
Satellite delivery and production support revenues include revenues from
satellite delivery, uplinking, trafficking, playback and other services. The
Company generates revenues by providing such services to affiliates and third
parties. The Company recognizes satellite delivery and production support
revenues upon completion of the services or upon contractual arrangements.
New Accounting Pronouncements--Net loss per common share in the
accompanying consolidated financial statements is based on the weighted average
number of common shares outstanding during the respective periods. In February
1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards 128 ("SFAS 128") entitled, "Earnings per Share."
SFAS 128 is effective for fiscal years ending after December 15, 1997; early
adoption is not permitted. SFAS 128 replaces primary and fully diluted earnings
per share with basic and diluted earnings per share, respectively. Under SFAS
128, diluted net income (loss) per share for the periods reported would be the
same as the basic earnings per share presented in the accompanying consolidated
financial statements.
F-11
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which is effective for financial statements for
periods ended after December 15, 1997. This statement establishes standards for
disclosing information about an entity's capital structure. The Company has
adopted this statement. The adoption of this statement did not have a material
impact on the financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the year ending December 31, 1998. This
statement establishes standards for the reporting and display of comprehensive
income and its components in financial statements and thereby a measure of all
changes in equity of an enterprise that result from transactions and other
economic events other than transactions with owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for the year ending
December 31, 1998. This statement changes the requirements under which publicly
held companies report disaggregated information.
The Company will adopt SFAS No. 130 and No. 131 on their respective dates.
Management of the Company does not expect that the adoption of these statements
will have a material impact on the financial statements.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications--Certain prior period amounts have been reclassified to
conform to the current year presentation.
Impact of the Year 2000 Issue (unaudited)--The Year 2000 issue is the
result of many computer programs being written such that they will malfunction
when reading a year of "00." This problem could cause system failure or
miscalculations causing disruptions of business processes.
Jones Intercable initiated an assessment of how the Year 2000 problem could
affect its operations and the operations of related companies in the summer of
1997 and established the Y2K Office to manage the process for all Jones
companies. A subsidiary of Jones International provides computer hardware and
software services to the Company and related parties, including Jones
Intercable, which is the largest user of these services. The Y2K Office meets
regularly with a review committee that includes the Chief Accounting Officer of
the Company.
During 1997, the Y2K Office conducted Year 2000 awareness sessions within
the Company and developed a comprehensive inventory of computer systems and
computer-controlled devices that are potentially affected by the Year 2000
issue. Then, the Y2K Office prepared a risk assessment profile to identify Year
2000 priorities by analyzing and determining whether the Year 2000 related risks
were low, medium or high and whether the business impact would be marginal,
manageable, critical or fatal for each system and device that may be affected by
the Year 2000 issue. Based on its risk assessment profile, the Y2K Office
analyzed the various systems and devices and determined whether to retire,
repair/correct, replace/upgrade or ignore those that posed Year 2000 issues. The
Company determined that its first priority would be operational support/facility
systems and then all other systems thought to be non-compliant.
The Y2K Office is currently implementing the steps needed to address the
Year 2000 problem based upon its set priorities and is testing the implemented
solutions. The Y2K Office's schedule for implementing and testing its Year 2000
solutions for systems that have been determined to be first priority for the
Company is as follows:
F-12
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Project Description Expected Completion Date
------- ----------- ------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Financial Information
Management System Test for Y2K compliance 1Q99
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Human Resources
Information System Test for Y2K compliance 2Q99
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Upgrade to Y2K compliant
Unix Hardware and Software releases and test for compliance 4Q98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Local Area Network ("LAN")
and Wide Area Network ("WAN") Determine which components are
Components not Y2K compliant 4Q98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
LAN/WAN Hardware and Software Upgrade to Y2K compliant releases
and test for compliance 2Q99
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Telephony Systems Upgrade to Y2K compliant releases
and test for compliance 4Q98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
PIN Network Traffic and
Billing System Y2K certification testing 4Q98
- -----------------------------------------------------------------------------------------
</TABLE>
In 1999, the Y2K Office will focus on Year 2000 compliance issues with respect
to other systems, such as desktop hardware and software, data archiving systems,
traffic and billing reconciliation applications and other record management
systems. The Company has not used, and does not plan to employ, unaffiliated
third party verification and validation processes to assure the reliability of
its risk and cost estimates. The Company has not deferred any other information
technology projects due to Year 2000 efforts.
The Y2K Office commenced contacting vendors of application and operation
system software in 1997 and continues to work with vendors through industry
groups focused on Year 2000 issues. The Company has not yet determined the
extent to which it is vulnerable to the failure by vendors and customers that
have a material relationship with the Company to remediate Year 2000 compliance
issues. Management believes, but makes no assurance, that the Company does not
supply to third parties systems or equipment that may cause a Year 2000 problem.
The Company has not incurred any material historical Year 2000 costs to
date. Management does not have an estimate for future Year 2000 project costs
that may be incurred. Management expects, but makes no assurance that,
future Year 2000 project costs will not have a material adverse effect on its
financial condition and results of operations.
The Company has not yet formulated contingency plans in the event that
systems are not Year 2000 compliant. The Company recognizes the need for a
contingency plan and plans to develop one by the first quarter of 1999. There
can be no assurance that the Company's systems will be Year 2000 compliant in
time. The Year 2000 issue poses many risks for the Company and could materially
adversely affect its financial condition and results of operations. See "Risk
Factors - Impact of the Year 2000 Issue" for a discussion of such risks.
(3) JONES NETWORK HOLDINGS LLC EXCHANGE
Effective December 31, 1997, all shareholders of the Company contributed
their shares of the Company to Network Holdings in exchange for the same number
of Class A or Class B Ownership Interests in Network Holdings. Network Holdings
was the sole shareholder of all of the Company's outstanding stock as of
December 31, 1997 (see Note 1). On July 10, 1998, the date of the closing of the
Company's 11 3/4% Senior Secured Notes offering, all of the shares of Old
Company were acquired by New Company from Network Holdings, which was then
dissolved.
F-13
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
(4) ACQUISITION OF JONES GALACTIC RADIO, INC. AND JONES EARTH SEGMENT, INC.
Effective August 15, 1996, the Company purchased all of the common stock of
Jones Galactic Radio, Inc. ("Galactic Radio") from Jones Global Group, Inc.
("Global Group"), an affiliate of the Company, for $17,200,000. Galactic Radio
is a holding company which owns 100% of the Company's radio network programming
business, and through a subsidiary, a 50% interest in Superaudio (see Note 10).
The purchase price was paid using $1,200,000 in cash with the balance in the
form of a $16,000,000 promissory note to Global Group.
The net assets of Galactic Radio as of the purchase date totaled
approximately $5.1 million. In accordance with generally accepted accounting
principles for a transfer of entities under common control, the amount of
purchase price paid in excess of Galactic Radio's net assets (approximately
$12.1 million) was charged to shareholders' investment at the beginning of the
periods presented.
Effective September 30, 1996, the Company acquired all of the common stock
of Jones Earth Segment, Inc. ("Earth Segment") from Mr. Glenn R. Jones and Jones
International for 110,833 shares and 472,500 shares, respectively, of the
Company's Class A Common Stock. Earth Segment, now a wholly owned subsidiary of
the Company, owns the assets through which the Company provides playback,
editing, duplication and uplinking services, primarily to affiliates. This
transaction was treated as a reorganization of entities under common control and
is included in the Company's historical financial statements for all periods
presented.
(5) ACQUISITION AND CONSOLIDATION OF PIN VENTURE
From February 1995 until March 31, 1997, the Company owned 50% or less of
the PIN Venture, the entity that owns and operates the PIN Network. Effective
April 1, 1997, the Company acquired from Adelphia Communications an 8.35% equity
interest in the PIN Venture in exchange for 262,500 shares of the Company's
Class A Common Stock which was valued at $12 per share for a total of
$3,150,000. As a result of this transaction, which was accounted for as a
purchase, the Company now owns approximately 54% of the PIN Venture and,
effective April 1, 1997, consolidated the results of operations of the PIN
Venture for financial reporting purposes.
The proportionate share (8.35%) of the net assets of the PIN Venture as of
the purchase date totaled approximately $113,000. In accordance with generally
accepted accounting principles for acquisition accounting, the amount of
purchase price paid by the Company in excess of the proportionate share of the
PIN Venture's net assets (approximately $3,037,000) was recorded as goodwill.
Goodwill is being amortized over the estimated life of the partnership, which is
approximately 18 years.
Certain condensed pro-forma financial information of the Company assuming
the PIN Venture was consolidated as of January 1, 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Total assets..................................... $ 42,454,000 $ 41,358,000
Liabilities...................................... 56,564,000 59,565,000
Shareholders' deficit............................ (14,110,000) (18,207,000)
Revenues......................................... 23,114,000 31,544,000
Operating expenses............................... 21,420,000 28,914,000
Operating income................................. 1,694,000 2,630,000
Net loss......................................... (2,307,000) (3,493,000)
</TABLE>
F-14
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
(6) TRANSACTIONS WITH AFFILIATED ENTITIES
The Company is a subsidiary of Jones International, a holding company with
ownership in several companies involved in various aspects of the
telecommunications industry. Jones International is wholly owned by Glenn R.
Jones, Chairman and Chief Executive Officer of Jones Intercable, Inc. ("Jones
Intercable") and various other subsidiaries of Jones International. Certain
members of management of the Company are also officers or directors of these
affiliated entities and, from time to time, the Company may have transactions
with these entities. Certain expenses are paid by affiliated entities on behalf
of the Company and are allocated at cost based on specific identification or
other methods which management believes are reasonable. Principal recurring
transactions with affiliates, excluding Superaudio, are described below. See
Note 10 for transactions with affiliates related to Superaudio.
Television Programming Revenues--Prior to July 1, 1998, the Company earned
up to a three percent commission on the sale of airtime for informational
programming on Jones Education Company ("Jones Education") and its affiliates.
Prior to October 1, 1995, the Company did not provide this service to Jones
Education. For the year ended December 31, 1995, 1996 and 1997, the Company
received approximately $52,000, $241,000 and $216,000, respectively, for this
service. For the six months ended June 30, 1997 and 1998, the Company received
approximately $112,000 and $97,000, respectively, for this service. After July
1, 1998, PIN will perform such services and will receive all commissions, as
well as paying all related expenses.
Prior to the consolidation of the PIN Venture, which was effective April 1,
1997, the Company received from the PIN Venture approximately $35,000 for the
year ended December 31, 1996 and $8,000 for the three months ended March 31,
1997 for commissions on the sale of airtime for informational programming.
The Company distributes Great American Country to certain cable television
systems owned or managed by Jones Intercable. Great American Country, a 24-hour
country music video network, was launched on December 31, 1995. Jones Intercable
and its affiliated partnerships paid total license fees to the Company of
approximately $719,000 and $853,000 for the years ended December 31, 1996 and
1997. Jones Intercable and its affiliated partnerships paid total license fees
to the Company of approximately $452,000 and $468,000 for the six months ended
June 30, 1997 and 1998, respectively.
Satellite Delivery and Production Support Revenues--Earth Segment provides
playback, editing, duplication and uplinking services primarily to its cable
programming network affiliates. Earth Segment charges affiliates for its
services using rates which are calculated to achieve a specified rate of return
on investment to Earth Segment. For the years ended December 31, 1995, 1996 and
1997, Earth Segment charged Jones Education and its affiliates approximately
$1,885,000, $2,248,000 and $2,193,000, respectively, for these services. For the
six months ended June 30, 1997 and 1998, Earth Segment charged Jones Education
and its affiliates approximately $1,072,000 and $1,335,000, respectively, for
these services.
Prior to the consolidation of the PIN Venture, Earth Segment charged the
PIN Venture approximately $522,000, $726,000 and $201,000 for the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 1997,
respectively, for these services.
In addition, Jones Space Holdings ("Space Holdings"), a subsidiary of the
Company, subleased a non-preemptible satellite transponder to Jones Education
and its affiliates. Satellite transponder lease revenues of approximately
$1,213,000, $852,000 and $896,000, were received from Jones Education for the
years ended December 31, 1995, 1996, and 1997, respectively. Satellite
transponder lease revenues of approximately $448,000 and $468,000, were received
from Jones Education for the six months ended June 30, 1997 and 1998,
respectively.
Prior to the consolidation of the PIN Venture, satellite transponder lease
revenues of approximately $1,112,000, $852,000, and $224,000 were received from
the PIN Venture, for the years ended December 31, 1995 and 1996 and for the six
months ended June 30, 1997, respectively.
F-15
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Television Programming Expense--Infomercial Networks provided programming
to Jones Intercable and its managed partnerships prior to the formation of the
PIN Venture and, as required under the terms of the affiliate agreement, paid a
fee of approximately 33% of the net revenues generated to the affiliates which
aired the infomercial programming. For the year ended December 31, 1995,
Infomercial Networks paid cable system rebates to Jones Intercable and its
managed systems totaling approximately $109,000. Television programming expenses
decreased in 1996 due to the effects of the deconsolidation of the PIN Venture
for financial reporting purposes on February 1, 1995.
From February 1995 through March 31, 1997, the Company owned 50% or less of
the PIN Venture, the entity that owns and operates the Product Information
Network. Effective April 1, 1997, the Company acquired from Adelphia
Communications an 8.35% equity interest in the PIN Venture. As a result of this
transaction, which was accounted for as a purchase, the Company now owns
approximately 54% of the PIN Venture and, effective April 1, 1997 consolidated
the results of operations of the PIN Venture for financial reporting purposes.
During 1997, the PIN Venture paid approximately 60% of the revenues generated by
its infomercial programming in the form of cable system rebates to all systems
which enter into agreements to air such programming. Amounts paid by the PIN
Venture to Jones Intercable and its affiliated partnerships, Cox Communications
and Adelphia Communications were approximately $3,546,000 for the nine months
ended December 31, 1997. Amounts paid by the PIN Venture to Jones Intercable and
its affiliated partnerships, Cox and Adelphia were approximately $1,173,000 for
the three months ended June 30, 1997 and $2,819,000 for the six months ended
June 30, 1998.
An affiliate of the Company began providing affiliate sales services to the
Company in late 1997. This affiliate charged the Company approximately $201,000
for the year ended December 31, 1997 and approximately $444,000 for the six
months ended June 30, 1998.
Satellite Delivery and Production Support Expense--Galactic Radio has a
transponder lease agreement with Jones Satellite Holdings ("Satellite
Holdings"), an affiliate of the Company, for the use of the sub-carriers on a
non-preemptible satellite transponder. This agreement allows Galactic Radio to
use a portion of the transponder to distribute its audio programming. Satellite
Holdings has the right to terminate the license agreement at any time upon 30
days written notice to Galactic Radio. The Company agreed to pay Satellite
Holdings approximately $58,000 per month. This agreement will expire May 7,
2004. Satellite Holdings charged approximately $696,000 for each of the years
ended December 31, 1995, 1996 and 1997, for this service. The Company paid
Satellite Holdings fees of approximately $348,000 for the six months ended June
30, 1997 and 1998, for this service.
General and Administrative Expenses--The Company leases and subleases
office space in Englewood, Colorado from affiliates of Jones International. Rent
and associated expenses are allocated to the Company based on the amount of
square footage it occupies. The Company was charged approximately $14,000,
$32,000 and $88,000, for the years ended December 31, 1995, 1996 and 1997,
respectively for rent and associated expenses. Affiliates of Jones International
charged the Company approximately $39,000 and $74,000, for the six months ended
June 30, 1997 and 1998, respectively for rent and associated expenses.
An affiliate of Jones International provides computer hardware and software
support services to the Company. This affiliate charged the Company
approximately $306,000, $385,000 and $574,000, for the years ended December 31,
1995, 1996 and 1997, respectively, for such services. This subsidiary charged
the Company approximately $216,000 and $330,000, for the six months ended June
30, 1997 and 1998, respectively, for such services.
An affiliate of the Company charged the Company approximately $110,000 for
the six months ended June 30, 1998 for the allocated costs of its airplane which
was used by the Company in connection with the Notes offering. No services
were provided in the years ended December 31, 1995, 1996 or 1997.
The Company and its consolidated subsidiaries reimburse Jones International
and its affiliates for certain allocated administrative expenses. These expenses
generally consist of salaries and related benefits. Allocations of personnel
costs are generally based on actual time spent by affiliated associates with
respect to the Company. Jones International and its affiliates charged the
Company approximately $163,000, $861,000 and $540,000, for the years ended
December 31, 1995, 1996 and 1997, respectively, for these administrative
expenses. Jones International and its affiliates charged the Company
approximately $289,000 and $513,000, for the six months ended June 30, 1997 and
1998, respectively, for these administrative expenses.
F-16
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
To assist funding its operating and investing activities, the Company has
borrowed funds from Jones International. Jones International charged interest on
its advances to the Company at rates of approximately 11, 10 and 10 percent per
annum in 1995, 1996 and 1997, respectively. Jones International's interest rate
is calculated using the published prime rate plus two percent. Jones
International charged the Company interest of approximately $142,000, $243,000
and $868,000, for the years ended December 31, 1995, 1996 and 1997,
respectively. Jones International charged the Company interest of approximately
$375,000 and $328,000, for the six months ended June 30, 1997 and 1998,
respectively. The Company anticipates it will repay these advances from
operating cash flow and/or available cash balances.
(7) DEFERRED OFFERING COSTS
The Company had incurred approximately $1,113,000 in deferred offering
costs through December 31, 1997 relating to a proposed initial public offering
and certain other financing undertaken by the Company during 1996 and 1997. Such
costs included amounts paid to financial advisors, legal counsel and independent
public accountants, and for regulatory and stock exchange registration fees and
other various costs. As a result of the Company's withdrawal of this proposed
offering in early 1997, certain deferred offering costs relating to the offering
that were deemed not transferable to other financing activities were expensed.
During 1997, the Company expensed $938,000 of such costs. The remaining deferred
offering costs of approximately $175,000 are included in other assets in the
accompanying consolidated statements of financial position at December 31, 1997
and are deemed to benefit the debt offering which closed in July, 1998 (see Note
15).
(8) NOTE PAYABLE
In December 1994, Earth Segment issued a promissory note which was acquired
by Jones Intercable. As of December 31, 1996 and 1997, the principal amount of
the note was $6,554,500, which approximates fair market value. The note was
secured by all of Earth Segment's present and future tangible and intangible
property and bore interest at one percent over the published prime rate (9.5% at
December 31, 1997). Interest expense, which was payable quarterly, totaled
approximately $670,000, $608,000 and $627,000 for the years ended December 31,
1995, 1996 and 1997, respectively. Interest expense totaled approximately
$311,000 and $156,000 for the six months ended June 30, 1997 and 1998,
respectively. This note and accrued interest were repaid on March 31, 1998 (see
Note 15).
In August 1996, the Company issued a $16 million promissory note to Global
Group that bore interest at 8.25 percent per annum and was payable quarterly.
Effective September 30, 1997, the Company and Global Group agreed to convert $6
million of the $16 million note payable to Global Group into 400,000 shares of
the Company's Class B Common Stock. This note was repaid in conjunction with the
exchange of Network Holdings' Ownership Interests with the Company's
shareholders as of December 31, 1997. Network Holdings issued a new $10 million
promissory note to Global Group on December 31, 1997, which replaced the note
with the Company. Such new $10 million promissory note bore interest at 8.25
percent per annum. Interest on the promissory note accrues and compounds
annually. All outstanding principal and unpaid interest were due and payable in
full on December 31, 2005.
On July 10, 1998, the Company issued $100 million of 11 3/4% Senior Secured
Notes. Effective upon the closing of the Notes offering, the Global Group note
was transferred to the Company and was then converted into 666,667 shares of the
Company's Class A Common Stock valued at $15 per share (see Note 15).
(9) CAPITAL LEASES
The capital lease obligation was comprised of a satellite transponder lease
agreement which provides two non-preemptible satellite transponders, one on each
of two satellites launched in 1992. The agreement provides for full time usage
of two transponders for 12 years. A portion of these satellite transponders are
subleased to affiliated entities and third parties.
Future minimum payments under these capital leases, together with the
present value of the minimum lease payments, were as follows (see Note 15):
F-17
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
1998............................................................ $ 5,190,000
1999............................................................ 5,430,000
2000............................................................ 5,670,000
2001............................................................ 5,910,000
2002............................................................ 6,150,000
Thereafter...................................................... 12,165,000
-----------
Future minimum payments......................................... 40,515,000
Less: amounts representing interest............................. 11,758,000
-----------
Present value of minimum lease payments......................... $28,757,000
===========
On July 24, 1998, the Company prepaid the entire capital lease obligation
using the proceeds from the Notes offering (see Note 15).
(10) JOINT VENTURE
The Company is a partner in the Superaudio joint venture. The term of this
joint venture is until May 2000. Superaudio commenced operations in July 1990
and is a joint venture which is owned 50 percent by the Company and 50 percent
by a third party. Superaudio provides audio programming services to cable
television system operators.
Certain condensed financial information for Superaudio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total assets....................................... $1,156,000 $ 950,000 $1,216,000 $1,171,000 $647,000
Total liabilities.................................. 310,000 72,000 62,000 55,000 47,000
Partners' capital.................................. 846,000 878,000 1,154,000 1,116,000 600,000
Revenues........................................... 1,898,000 2,379,000 2,132,000 1,141,000 948,000
Operating expenses................................. 1,480,000 1,755,000 1,684,000 914,000 815,000
Operating income................................... 418,000 624,000 448,000 227,000 133,000
Net income......................................... 431,000 632,000 476,000 237,000 146,000
</TABLE>
Superaudio reimburses the Company and its affiliates for certain allocated
overhead and administrative expenses. These expenses generally consist of
salaries and related benefits, rent, data processing services and other
corporate facilities costs. The Company and its affiliates provide programming,
advertising sales management, engineering, marketing, administrative,
accounting, information management, and legal services to Superaudio.
Allocations of personnel costs have been based primarily on actual time spent by
the Company and its affiliates' employees.
Significant transactions for Superaudio with affiliated entities are
described below:
Audio Programming Revenues--Superaudio delivers its audio programming to
cable television systems owned by Jones Intercable and its affiliated
partnerships for a monthly fee of $60,000. For each of the years ended December
31, 1995, 1996 and 1997, Jones Intercable and its affiliates paid Superaudio
$720,000 for audio programming. For each of the six months ended June 30, 1997
and 1998, Jones Intercable and its affiliates paid Superaudio $360,000 for audio
programming.
Audio Programming Expense--The Company sells certain audio programming and
services to Superaudio. For the years ended December 31, 1995, 1996 and 1997,
the Company charged Superaudio approximately $55,000, $48,000 and $16,000,
respectively, for audio programming and services. For the six months ended June
30, 1997 and 1998, the Company charged Superaudio approximately $16,000 and
$156,000, respectively, for audio programming and services.
F-18
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Satellite Delivery and Production Support Expense--The Company has a
satellite transponder lease agreement with Satellite Holdings and in turn
subleases the audio subcarriers on this satellite transponder to Superaudio. The
Company charged Superaudio $633,000 for each of the three years in the period
ended December 31, 1997 for this service. The Company charged Superaudio
approximately $316,000 for each of the six months ended June 30, 1997 and 1998,
for this service. For the six months ended June 30, 1997 and 1998, Earth Segment
charged Superaudio approximately $72,000 and $59,000, respectively, for
satellite delivery and production support services.
General and Administrative Expenses--An affiliate of Jones International
provides computer hardware and software support services to Superaudio. The
affiliate charged Superaudio approximately $41,000, $40,000 and $23,000 for the
years ended December 31, 1995, 1996 and 1997, respectively, for computer
services. The subsidiary charged Superaudio approximately $12,000 and $15,000
for the six months ended June 30, 1997 and 1998, respectively, for computer
services.
Superaudio reimburses Jones International for certain allocated
administrative expenses. These expenses generally consist of salaries and
related benefits. Allocations of personnel costs are generally based on actual
time spent by affiliated associates with respect to Superaudio. Jones
International and its affiliates charged Superaudio approximately $6,000,
$23,000 and $10,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, for these administrative expenses. Jones International and its
affiliates charged Superaudio approximately $6,000 and $10,000 for the six
months ended June 30, 1997 and 1998, respectively, for these administrative
expenses.
(11) COMMON STOCK
Voting Rights--Holders of Class A Common Stock are generally entitled to
one vote per share and are entitled to elect 25% of the Board of Directors, and
holders of Class B Common Stock are entitled to ten votes per share and to elect
the remaining 75% of the Directors. Both classes vote together as a single class
on all matters not requiring a class vote under Colorado law.
Stock Option Plan--The Company has adopted an employee stock option plan
(the "Plan") that provides for the grant of stock options and stock appreciation
rights ("SARs") to employees or individuals providing services to the Company.
The Plan is construed, interpreted and administered by the Board or a committee
of two of more non-employee directors. The committee or the Board determines the
individuals to whom options are granted, the number of shares subject to the
options, the exercise price of the options (which may be below fair market value
of the stock on the date of grant), the period over which the options become
exercisable and the terms and provisions of stock options as it may determine
from time to time, subject only to the provisions of the Plan. The Plan covers
an aggregate of up to 400,000 shares of the Company's Class A Common Stock. As
of December 31, 1997, the Company had not granted any options or SARs. As of
July 10, 1998, the Company had granted options for 275,000 shares of Class A
Common Stock at fair market value.
(12) INCOME TAXES
As described in Note 2, the Company joined in filing a consolidated tax
return as provided for under the terms of a tax sharing agreement with Jones
International and Jones International's other subsidiaries through the first
quarter of 1997. Pursuant to the terms of the agreement, tax (provisions)
benefits are allocated to members of the tax sharing group based on their
respective pro rata contribution of taxable income (loss) to Jones
International's consolidated taxable income (loss). Income tax benefits
recognized as a result of the tax sharing arrangement were approximately
$498,000, $387,000 and $1,342,000 for the years ended December 31, 1995, 1996
and 1997.
F-19
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The difference between the statutory federal income tax rate and effective
rate is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Computed "excepted tax benefit"................................. $ 602,000 $ 743,000 $ 1,692,000
State taxes, net of federal benefit............................. 56,000 72,000 157,000
Other........................................................... 10,000 20,000 28,000
---------- ---------- ------------
668,000 835,000 1,877,000
Valuation allowance............................................. (668,000) (835,000) (1,877,000)
---------- ---------- ------------
Tax benefit before impact of tax sharing agreement.............. -- -- --
Impact of tax sharing agreement (through April 2, 1997)......... 498,000 387,000 1,342,000
---------- ---------- ------------
Total income tax benefit........................................ $ 498,000 $ 387,000 $ 1,342,000
========== ========== ============
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carry forwards............................................................ $ 1,306,000 $ 1,654,000
Future deductible amounts associated with other assets and liabilities....................... 227,000 154,000
------------ ------------
1,533,000 1,808,000
DEFERRED TAX LIABILITIES:
Investments in property and equipment........................................................ (425,000) (706,000)
VALUATION ALLOWANCE.......................................................................... (1,108,000) (1,102,000)
------------ ------------
Net deferred tax assets...................................................................... $ -- $ --
============ ============
</TABLE>
At December 31, 1997, the Company had net tax operating loss carryforwards
("NOLs") of approximately $4.3 million which expire between 2006 and 2007.
Although management expects future results of operations to improve, it
recognizes the Company's past performance rather than growth projections when
determining the valuation allowance. Any subsequent adjustment to the valuation
allowance, if deemed appropriate due to changed circumstances, will be
recognized as a separate component of the provision for income taxes.
(13) EMPLOYEE INVESTMENT AND DEFERRED COMPENSATION PLANS
The Company's employees are eligible to participate in an Employee Profit
Sharing/Retirement Savings Plan (the "401(k) Plan"). Under the 401(k) Plan,
eligible employees are permitted to defer up to 16% of their annual
compensation. The Company currently matches 50% of the employees' deferrals up
to a maximum of 6% of their annual compensation, with the Company's contribution
vesting immediately. Contributions to the 401(k) Plan are invested by the
trustees of the 401(k) Plan in accordance with the directions of each
participant. Participants or their beneficiaries are entitled to payment of
benefits (i) upon retirement either at or after age 65, (ii) upon death or
disability or (iii) upon termination of employment, unless the participant
elects to receive payment prior to one of the events previously listed. For the
years ended December 31, 1995, 1996 and 1997, the Company contributed
approximately $51,000, $62,000 and $83,000, respectively, to the 401(k) Plan on
behalf of its employees.
Certain of the Company's key management personnel are eligible to
participate in a Deferred Compensation Plan (the "Deferred Compensation Plan").
Under the Deferred Compensation Plan, key employees are permitted to defer
receipt of 100% of their annual compensation. The Company currently matches the
key employees' deferrals up to a maximum of 6% of their compensation. The
contributed funds are deposited with an independent trustee and are invested in
a number of pre-selected investment funds. Both the key employees' and the
Company's contributions are subject to the claims of the Company's creditors.
Participants in the Deferred Compensation Plan or their beneficiaries receive a
distribution of their contributions, the Company's contributions, and earnings
attributable to those contributions on their separation from employment with the
Company or their death. Contributions made by the Company to the Deferred
Compensation Plan on behalf of key employees totaled approximately $25,000,
$23,000 and $33,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
F-20
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
(14) COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company rents an office facility under a lease agreement. Future
minimum lease payments under this noncancelable operating lease at December 31,
1997, for each of the next five years and thereafter, are approximately as
follows:
FISCAL YEAR FACILITIES LEASE
- ----------- ----------------
1998.......................................................... $158,000
1999.......................................................... 162,000
2000.......................................................... 162,000
2001.......................................................... 162,000
2002.......................................................... 148,000
Thereafter.................................................... --
--------
$792,000
========
GAC Equity Agreements
In the first quarter of 1998, Great American Country and the Company
entered into equity affiliate agreements with two multiple cable system
operators ("MSOs"). Pursuant to the terms of such agreements, the Company agreed
to issue shares of Class A Common Stock to the MSOs in return for the MSOs
providing Great American Country's programming to no less than 550,000 of their
subscribers by May 31, 1998, 500,000 subscribers by December 31, 1998 and
150,000 subscribers by December 31, 1999. The total number of shares of Class A
Common Stock to be issued is based on the number of subscribers provided by the
MSOs. If all the subscribers as described above receive Great American Country's
programming by the specified dates, the Company will be required to issue a
total of 175,000 shares of Common Stock on specified dates through February
2000. At August 1, 1998, 101,124 shares of Class A Common Stock had been issued
to one of the MSOs. Pursuant to the guidelines of SFAS 123 "Accounting for
Stock-Based Compensation," the value of the Class A Common Stock was recorded as
an intangible asset upon execution of the affiliate agreements and upon issuance
of the Class A Common Stock. This intangible will be amortized over the life of
the contract (approximately 10 years). Because of a put option, the shares
issued to one of the MSOs will be presented above the Shareholders' Deficit
section. The amount of accretion from the value of the shares issued to the put
option at the exercise date is not significant.
As noted above, one of the MSOs was granted a put option on the Common
Stock issued, whereby, if as of December 31, 2001, the Company or its successor
has not completed a public offering of its securities, the MSO shall have the
option within 60 days of such date to sell its Class A Common Stock back to the
Company. If the put election is made, the Company or its successor would
purchase the Class A Common Stock at a price equal to all or a portion of the
license fees that would have been paid during the period between the date of the
agreement and the exercise date of the put option. The purchase price would be
based on the total number of MSO subscribers receiving the Great American
Country service as of December 31, 1998. In the event the MSO provides the full
number of subscribers committed under the agreement by December 31, 1998, the
estimated purchase price of the Class A Common Stock in the event the put option
is exercised would be approximately $1,300,000.
(15) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
In July 1998, the Company issued $100 million of Senior Secured Notes (the
"Notes"). The Notes are senior obligations of the Company. The Notes rank pari
passu in right of payment with all existing and future senior indebtedness of
the Company and rank senior to all existing and future subordinated obligations
of the Company. The Notes are secured by the capital stock of the Company's
subsidiary, JPN, Inc., and its direct subsidiaries. The Notes are fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis
by the following wholly-owned subsidiaries of the Company: JPN, Inc., Jones
Space Holdings, Inc., Jones Earth Segment, Inc., Jones Infomercial Networks,
Inc., Jones Radio Holdings, Inc., Great American Country, Inc., Jones Galactic
Radio, Inc., Jones Infomercial Network Ventures, Inc., Jones Galactic Radio
Partners, Inc., Jones
F-21
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Radio Network, Inc., Jones Audio Services, Inc., Jones Radio Network Ventures,
Inc., MediaAmerica, Inc. and Jones MAI Radio, Inc. and by its 90%-owned
subsidiary, Jones/Owens Radio Programming LLC (collectively, the "Subsidiary
Guarantors"). The only existing subsidiaries of the Company that did not
guarantee the Notes are the following three entities: the Product Information
Network Venture, a general partnership in which the Company, through a
Subsidiary Guarantor, owns a 54% interest; Galactic Tempo, d/b/a Superaudio
("Superaudio"), a general partnership in which the Company, through a Subsidiary
Guarantor, owns a 50% interest (see Note 10) and Jones/Capstar Venture Radio
Programming LLC, a recently formed limited
liability company in which the Company, through a Subsidiary Guarantor, owns a
50% interest (collectively, the "Non-Guarantor Subsidiaries").
The Company has not provided separate complete financial statements and
other disclosures of the respective Subsidiary Guarantor because management has
determined that such information is not material to investors. There are no
significant contractual restrictions on distributions from each of the
Subsidiary Guarantors to the Company.
Investments in subsidiaries are required to be accounted for by investors
on the equity method for purposes of the supplemental condensed consolidating
financial statement presentation. Under this method, investments are recorded at
cost and adjusted for the investor company's ownership share of the
subsidiaries' cumulative results of operations. In addition, investments
increase in the amount of contributions to subsidiaries and decrease in the
amount of distributions from subsidiaries. The elimination entries eliminate the
equity method investment in subsidiaries accounting and the equity in earnings
of subsidiaries, intercompany payables and receivables and other transactions
between subsidiaries including contributions and distributions.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following supplemental condensed consolidating financial
statements.
Presented below is condensed consolidating financial information for the
Company and its subsidiaries as of and for the years ended December 31, 1995,
1996 and 1997, and the six months ended June 30, 1997 and 1998.
F-22
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER
31, 1995:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
-------- ---------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
<S>
INCOME STATEMENT DATA:
REVENUES:
Radio programming................................. $ -- $ 5,121 $ -- $ -- $ 5,121
Television programming............................ -- 340 4,111 (4,111) 340
Satellite delivery and production support......... -- 9,666 -- -- 9,666
------ ------- --------- -------- -------
Total revenues............................... -- 15,127 4,111 (4,111) 15,127
------ ------- --------- -------- -------
OPERATING EXPENSES:
Radio programming................................. -- 3,068 -- -- 3,068
Television programming............................ -- 366 3,719 (3,719) 366
Satellite delivery and production support......... -- 6,530 -- -- 6,530
Selling and marketing............................. -- 1,374 115 (115) 1,374
General and administrative........................ 304 2,018 662 (662) 2,322
------ ------- --------- -------- -------
Total operating expenses..................... 304 13,356 4,496 (4,496) 13,660
------ ------- --------- -------- -------
OPERATING INCOME............................. (304) 1,771 (385) 385 1,467
------ ------- --------- -------- -------
OTHER EXPENSE (INCOME):
Interest expense.................................. 35 4,079 33 (77) 4,070
Interest income................................... (17) (91) -- 44 (64)
Write-off of deferred offering costs.............. -- -- -- -- --
Equity share of loss (income) of subsidiaries..... 217 (11) -- (217) (11)
Other expense (income), net....................... -- 16 (6) 6 16
------ ------- --------- -------- -------
Total other expense.......................... 235 3,993 27 (244) 4,011
------ ------- --------- -------- -------
Income (loss) before income taxes and minority
interests....................................... (539) (2,222) (412) 629 (2,544)
Income tax provision (benefit).................... (57) (441) -- -- (498)
------ ------- --------- -------- -------
Income (loss) before minority interests........... (482) (1,781) (412) 629 (2,046)
Minority interests in net income of consolidated
subsidiaries.................................... -- -- -- -- --
------ ------- --------- -------- -------
NET INCOME (LOSS)................................. $ (482) $(1,781) $ (412) $ 629 $(2,046)
====== ======= ========= ======== =======
</TABLE>
F-23
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE YEAR ENDED DECEMBER
31, 1995:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
-------- ---------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (482) $ (1,781) $ (412) $ 629 $ (2,046)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Non-cash expenses (income)........................... -- 3,877 18 (18) 3,877
Distributions received............................... -- 175 -- -- 175
Net change in assets and liabilities................. 484 (1,909) 262 (479) (1,642)
------ -------- ------ ----- --------
Net cash provided by (used in) operating activities 2 362 (132) 132 364
------ -------- ------ ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............... -- (1,262) (326) 326 (1,262)
Sale of property, plant and equipment................... -- -- 124 (124) --
Purchases of intangible assets.......................... (2) (434) (436)
Investment in joint venture............................. -- (175) -- -- (175)
------ -------- ------ ----- --------
Net cash used in investing activities............. (2) (1,871) (202) 202 (1,873)
------ -------- ------ ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings................................. -- (11) -- -- (11)
Repayment of capital lease obligations.................. -- (1,178) -- -- (1,178)
Proceeds from borrowings................................ -- 1,998 -- -- 1,998
Distributions paid to minority interests................ -- -- -- -- --
Contributed capital from general partners............... -- -- 350 (350) --
------ -------- ------ ----- --------
Net cash provided by financing activities......... -- 809 350 (350) 809
------ -------- ------ ----- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................................. -- (700) 16 (16) (700)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ -- 705 -- -- 705
------ -------- ------ ----- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ -- $ 5 $ 16 $ (16) $ 5
====== ======== ====== ===== ========
</TABLE>
F-24
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF DECEMBER 31,
1996:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
-------- ---------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................................. $ -- $ 4 $ 55 $ (55) $ 4
Accounts receivable....................................... -- 852 1,778 (1,778) 852
Other current assets...................................... -- 1,663 62 (62) 1,663
-------- -------- -------- -------- --------
Total current assets............................ -- 2,519 1,895 (1,895) 2,519
-------- -------- -------- -------- --------
Property, plant and equipment............................. -- 32,098 448 (448) 32,098
Goodwill.................................................. -- 285 -- -- 285
Intangible assets......................................... 3 1,280 -- -- 1,283
Other long-term assets.................................... 4,210 1,505 3 (3,605) 2,113
-------- -------- -------- -------- --------
Total assets.................................... $ 4,213 $ 37,687 $ 2,346 $ (5,948) $ 38,298
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT):
Accounts payable.......................................... $ 253 $ (13) $ 379 $ (379) $ 240
Accrued liabilities....................................... 196 490 144 (144) 686
Other current liabilities................................. 2,439 5,770 810 (810) 8,209
-------- -------- -------- -------- --------
Total current liabilities....................... 2,888 6,247 1,333 (1,333) 9,135
-------- -------- -------- -------- --------
Note payable--affiliated entity........................... 16,000 6,554 -- -- 22,554
Capital lease obligations................................. 28,757 -- -- 28,757
Other long-term liabilities............................... -- 830 -- -- 830
-------- -------- -------- -------- --------
Total long-term liabilities..................... 16,000 36,141 -- -- 52,141
-------- -------- -------- -------- --------
Minority interests........................................ -- 291 -- -- 291
Shareholders' investment (deficit):
Class A Common Stock................................. 6 14 -- -- 20
Class B Common Stock................................. -- 14 -- -- 14
General partners' contributions...................... -- -- 350 (350) --
Additional paid-in capital........................... -- 9,342 -- (9,342) --
Retained earnings (accumulated deficit).............. (14,681) (14,362) 663 5,077 (23,303)
-------- -------- -------- -------- --------
Total shareholders' investment (deficit)........ (14,675) (4,992) 1,013 (4,615) (23,269)
-------- -------- -------- -------- --------
Total liabilities and shareholders' investment (deficit).. $ 4,213 $ 37,687 $ 2,346 $ (5,948) $ 38,298
======== ======== ======== ======== ========
</TABLE>
F-25
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS- FOR THE YEAR ENDED DECEMBER
31, 1996:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
-------- ---------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming................................... $ 477 $ 6,501 $ -- $ -- $ 6,978
Television programming.............................. -- 1,153 8,038 (8,038) 1,153
Satellite delivery and production support........... -- 8,523 -- -- 8,523
------- ------- ------- ------- -------
Total revenues................................. 477 16,177 8,038 (8,038) 16,654
------- ------- ------- ------- -------
OPERATING EXPENSES:
Radio programming................................... 420 3,743 -- -- 4,163
Television programming.............................. 1,157 5,922 (5,922) 1,157
Satellite delivery and production support........... -- 5,451 -- -- 5,451
Selling and marketing............................... 100 1,637 240 (240) 1,737
General and administrative.......................... 579 2,691 751 (751) 3,270
------- ------- ------- ------- -------
Total operating expenses....................... 1,099 14,679 6,913 (6,913) 15,778
------- ------- ------- ------- -------
OPERATING INCOME............................... (622) 1,498 1,125 (1,125) 876
------- ------- ------- ------- -------
OTHER EXPENSE (INCOME):
Interest expense.................................... 744 3,940 30 (214) 4,500
Interest income..................................... (177) (75) (2) 182 (72)
Write-off of deferred offering costs................ -- -- -- -- --
Equity share of loss (income) of subsidiaries....... 1,200 (829) -- (1,200) (829)
Other expense (income), net......................... -- (12) 21 (21) (12)
------- ------- ------- ------- -------
Total other expense (income)................... 1,767 3,024 49 (1,253) 3,587
------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interests......................................... (2,389) (1,526) 1,076 128 (2,711)
Income tax provision (benefit)...................... (377) (10) -- -- (387)
------- ------- ------- ------- -------
Income (loss) before minority interests............. (2,012) (1,516) 1,076 128 (2,324)
Minority interests in net income of consolidated
subsidiaries...................................... -- (9) -- -- (9)
------- ------- ------- ------- -------
NET INCOME (LOSS)................................... $(2,012) $(1,507) $ 1,076 $ 128 $(2,315)
======= ======= ======= ======= =======
</TABLE>
F-26
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE YEAR ENDED DECEMBER
31, 1996:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ (2,012) $ (1,507) $ 1,076 $ 128 $ (2,315)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash expenses (income)....................... 2 4,841 63 (1,267) 3,639
Distributions received........................... -- 300 -- -- 300
Net change in assets and liabilities............. 2,618 535 (774) 774 3,153
-------- ----- ------ ------ -----
Net cash provided by (used in) operating
activities. ................................... 608 4,169 365 (365) 4,777
-------- ----- ------ ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........ -- (2,969) (341) 341 (2,969)
Sale of property, plant and equipment............ -- -- 15 (15) --
Purchases of intangible assets................... -- (1,002) -- -- (1,002)
Investment in joint venture...................... -- -- -- -- --
-------- ----- ------ ------ -------
Net cash used in investing activities.......... -- (3,971) (326) 326 (3,971)
-------- ----- ------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs.............. (608) -- -- -- (608)
Increase in capitalized loan fees................ -- -- -- -- --
Repayment of borrowings.......................... -- (8) -- -- (8)
Repayment of capital lease obligations........... -- (1,533) -- -- (1,533)
Proceeds from borrowings......................... -- 1,342 -- -- 1,342
Distributions paid to minority interests......... -- -- -- -- --
Acquisition of minority interests................ -- -- -- -- --
-------- ----- ------ ------ -------
Net cash used in financing activities.......... (608) (199) -- -- (807)
-------- ----- ------ ------ -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... -- (1) 39 (39) (1)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................................... -- 5 16 (16) 5
-------- ----- ------ ------ -----
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ -- $ 4 $ 55 $ (55) $ 4
======== ===== ====== ====== =====
</TABLE>
F-27
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF DECEMBER 31,
1997: (IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
-------- ---------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................................. $ (25) $ 79 $ 3,663 $ -- $ 3,717
Accounts receivable....................................... -- 781 674 -- 1,455
Other current assets...................................... -- 540 -- -- 540
-------- ---------- ------------ ------- --------
Total current assets................................. (25) 1,400 4,337 -- 5,712
-------- ---------- ------------ ------- --------
Property, plant and equipment............................. 7 28,557 212 -- 28,776
Goodwill.................................................. -- 3,126 -- -- 3,126
Intangible assets......................................... 53 1,006 5 -- 1,064
Other long-term assets.................................... 1,683 2,871 -- (1,874) 2,680
-------- ---------- ------------ ------- --------
Total assets......................................... $ 1 ,718 $ 36,960 $ 4,554 $ (1,874) $ 41,358
-------- ---------- ------------ ------- --------
LIABILITIES AND SHAREHOLDERS'
INVESTMENT (DEFICIT):
Accounts payable.......................................... $ 417 $ 132 $ 890 $ -- $ 1,439
Accrued liabilities....................................... 312 961 27 -- 1,300
Other current liabilities................................. 5,910 5,915 479 -- 12,304
-------- ---------- ------------ ------- --------
Total current liabilities............................ 6,639 7,008 1,396 -- 15,043
-------- ---------- ------------ ------- --------
Note payable--affiliated entity........................... 10,000 6,554 -- -- 16,554
Capital lease obligations................................. -- 26,335 -- -- 26,335
Other long-term liabilities............................... 3,289 39 -- (3,289) 39
-------- ---------- ------------ ------- --------
Total long-term liabilities.......................... 13,289 32,928 -- (3,289) 42,928
-------- ---------- ------------ ------- --------
Minority interests........................................ -- 134 -- 1,459 1,593
Shareholders' investment (deficit):
Class A Common Stock................................. 30 1 -- (1) 30
Class B Common Stock................................. 18 1 -- (1) 18
General partners' contributions...................... -- -- 350 (350) --
Additional paid-in capital........................... 9,143 12,840 -- (12,840) 9,143
Retained earnings (accumulated deficit).............. (27,401) (15,952) 2,808 13,148 (27,397)
-------- ---------- ------------ ------- --------
Total shareholders' investment (deficit)........ (18,210) (3,110) 3,158 (44) (18,206)
-------- ---------- ------------ --------- ---------
Total liabilities and shareholders' investment (deficit).. $ 1,718 $ 36,960 $4,554 $ (1,874) $ 41,358
========= ========== ============ ========= ==========
</TABLE>
F-28
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER
31, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION> NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming..................................... $ -- $ 10,200 $ -- $ -- $10,200
Television programming................................ 285 1,230 13,345 (2,858) 12,002
Satellite delivery and production support............. -- 8,241 -- (1,331) 6,910
----- ------ ------ ------- ------
Total revenues.................................... 285 19,671 13,345 (4,189) 29,112
===== ======= ====== ======= ======
OPERATING EXPENSES:
Radio programming..................................... -- 5,816 -- -- 5,816
Television programming................................ 148 2,585 10,045 (3,506) 9,272
Satellite delivery and production support............. -- 4,685 -- -- 4,685
Selling and marketing................................. 137 2,489 396 (104) 2,918
General and administrative............................ 1,155 2,428 788 (203) 4,168
----- ------ ------ ------- ------
Total operating expenses.......................... 1,440 18,003 11,229 (3,813) 26,859
----- ------ ------ ------- ------
OPERATING INCOME (LOSS)........................... (1,155) 1,668 2,116 (376) 2,253
======= ======= ====== ======= ======
OTHER EXPENSE (INCOME):
Interest expense...................................... 2,065 3,612 16 (16) 5,677
Interest income....................................... (6) (25) (83) 6 (108)
Write-off of deferred offering costs.................. 938 -- -- -- 938
Equity share of loss (income) of subsidiaries......... 663 (1,363) -- 304 (396)
Other expense (income), net........................... -- 35 39 -- 74
----- ------ ------ ------- ------
Total other expense (income).................... 3,660 2,259 (28) 294 6,185
===== ====== ======= ======= ======
Income (loss) before income taxes and minority
interests.......................................... (4,815) (591) 2,144 (670) (3,932)
Income tax provision (benefit)........................ (1,376) (786) -- 820 (1,342)
------ ------ ------ ------- ------
Income (loss) before minority interests............... (3,439) 195 2,144 (1,490) (2,590)
Minority interests in net income of consolidated
subsidiaries....................................... -- 37 -- 866 903
------- ------ ------ ------- ------
NET INCOME (LOSS)..................................... $(3,439) $ 158 $ 2,144 $ (2,356) $(3,493)
======= ======= ====== ======= ======
</TABLE>
F-29
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE YEAR ENDED DECEMBER
31, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $(3,439) $ 158 $ 2,144 $(2,356) $(3,493)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Non-cash expense (income)..................................... 640 4,411 82 1,561 6,694
Distributions received........................................ -- 100 -- -- 100
Net change in assets and liabilities.......................... 3,540 (1,329) 1,227 850 4,288
------- ------- ------- ------- -------
Net cash provided by operating activities.................... 741 3,340 3,453 55 7,589
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment...................... (8) (1,340) (19) -- (1,367)
Sale of property, plant and equipment.......................... -- 82 174 -- 256
Purchases of intangible assets................................. (3) (42) -- -- (45)
Investment in joint venture.................................... -- -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) investing activities.......... (11) (1,300) 155 -- (1,156)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs............................. (505) -- -- -- (505)
Increase in capitalized loan fees............................... (50) -- -- -- (50)
Repayment of borrowings......................................... -- -- -- -- --
Repayment of capital lease obligation........................... -- (1,965) -- -- (1,965)
Proceeds from borrowings........................................ -- -- -- -- --
Distributions paid to minority interests........................ -- -- -- -- --
Acquisition of minority interests............................... (200) -- -- -- (200)
------- ------- ------- ------- -------
Net cash used in financing activities......................... (755) (1,965) -- -- (2,720)
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................................... (25) 75 3,608 55 3,713
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD....................................................... -- 4 55 (55) 4
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $ (25) $ 79 $ 3,663 $ -- $ 3,717
======= ======= ======= ======== =======
</TABLE>
F-30
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE
30, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming................................. $ -- $ 5,090 $ -- $ -- $ 5,090
Television programming............................ 132 603 6,021 (2,858) 3,898
Satellite delivery and production support......... -- 4,336 -- (418) 3,918
--------- --------- --------- --------- ---------
Total revenues............................... 132 10,029 6,021 (3,276) 12,906
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Radio programming................................. -- 2,804 -- -- 2,804
Television programming............................ 56 936 4,607 (2,593) 3,006
Satellite delivery and production support......... -- 2,605 -- -- 2,605
Selling and marketing............................. 66 1,062 242 (104) 1,266
General and administrative........................ 578 1,107 381 (203) 1,863
--------- --------- --------- --------- ---------
Total operating expenses..................... 700 8,514 5,230 (2,900) 11,544
--------- --------- --------- --------- ---------
OPERATING INCOME............................. (568) 1,515 791 (376) 1,362
--------- --------- --------- --------- ---------
OTHER EXPENSE (INCOME):
Interest expense.................................. 1,035 1,820 16 (4) 2,867
Interest income................................... -- (23) (3) 4 (22)
Write-off of deferred offering costs.............. 938 -- -- -- 938
Equity share of loss (income) of Subsidiaries..... (92) (488) -- 293 (287)
Other expense (income), net....................... -- (38) 38 -- --
--------- --------- --------- --------- ---------
Total other expense (income)................. 1,881 1,271 51 293 3,496
--------- --------- --------- --------- ---------
Income (loss) before income taxes and minority
interests....................................... (2,449) 244 740 (669) (2,134)
Income tax provision (benefit).................... (288) (68) -- -- (356)
--------- --------- --------- --------- ---------
Income (loss) before minority interests........... (2,161) 312 740 (669) (1,778)
Minority interests in net income of consolidated
subsidiaries.................................... -- 246 -- 172 418
--------- --------- --------- --------- ---------
NET INCOME (LOSS)................................. $ (2,161) $ 66 $ 740 $ (841) $ (2,196)
========= ========= ========= ========= =========
</TABLE>
F-31
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE
30, 1997:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,161) $ 66 $ 740 $ (841) $(2,196)
Adjustment to reconcile net loss to net cash provided
(used in) by operating activities:....................
Non-cash Expense.......................................... (91) 3,548 (362) 523 3,618
Net change in assets and liabilities...................... 2,755 (1,801) (175) 373 1,152
-------- --------- ------- -------- ---------
Net cash provided by operating activities............ 503 1,813 203 55 2,574
-------- --------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (7) (876) (119) -- (1,002)
Sale of property, plant and equipment..................... -- -- 262 -- 262
Purchases of intangible assets............................ (4) 5 (2) -- (1)
Investment in joint venture............................... -- -- -- -- --
-------- --------- ------- -------- ---------
Net cash provided by (used in) investing activities.. (11) (871) 141 -- (741)
-------- --------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs....................... (495) -- -- -- (495)
Increase in capitalized loan fees......................... (50) -- -- -- (50)
Repayment of borrowings................................... -- -- -- -- --
Repayment of capital lease obligations.................... -- (943) -- -- (943)
Proceeds from borrowings.................................. -- -- -- -- --
Distributions paid to minority interests.................. -- -- -- -- --
Acquisition of minority interests......................... -- -- -- -- --
-------- --------- ------- -------- ---------
Net cash used in financing activities................ (545) (943) -- -- (1,488)
-------- --------- ------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................... (53) (1) 344 55 345
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................................. -- 4 55 (55) 4
-------- --------- ------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ (53) $ 3 $ 399 $ -- $ 349
======== ========= ======= ======== =========
</TABLE>
F-32
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF JUNE 30, 1998:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................................. $ 162 $ 20 $ 2,263 -- $ 2,445
Accounts receivable....................................... 2 2,088 709 -- 2,799
Other current assets...................................... -- 351 116 37 504
-------- -------- -------- -------- --------
Total current assets............................ 164 2,459 3,088 37 5,748
-------- -------- -------- -------- --------
Property, plant and equipment............................. 8 26,603 309 -- 26,920
Goodwill.................................................. -- 3,009 -- -- 3,009
Intangible assets......................................... 3 1,075 4 -- 1,082
Other long-term assets.................................... 1,748 3,067 -- (812) 4,003
-------- -------- -------- -------- --------
Total assets.................................... $ 1,923 $ 36,213 $ 3,401 $ (775) $ 40,762
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT):
Accounts payable.......................................... $ 348 $ 193 $ 723 $ -- $ 1,264
Accrued liabilities....................................... 725 1,255 33 (59) 1,954
Other current liabilities................................. -- 7,790 1,134 -- 8,924
-------- -------- -------- -------- --------
Total current liabilities....................... 1,073 9,238 1,890 (59) 12,142
-------- -------- -------- -------- --------
Note payable--affiliated entity........................... 10,000 -- -- -- 10,000
Credit facility........................................... -- 16,705 -- -- 16,705
Capital lease obligations................................. -- 24,923 -- -- 24,923
Other long-term liabilities............................... 13,481 (19,829) 50 6,337 39
-------- -------- -------- -------- --------
Total long-term liabilities..................... 23,481 21,799 50 6,337 51,667
-------- -------- -------- -------- --------
Minority interests........................................ -- (716) -- 1,538 822
-------- -------- -------- -------- --------
Shareholders' investment (deficit):
Class A Common Stock................................. 30 1 (1) 30
Class B Common Stock................................. 18 1 -- (1) 18
General Partners' contributions...................... -- -- 350 (350)
Additional paid-in capital........................... 9,143 12,840 -- (12,840) 9,143
Retained earnings (accumulated deficit).............. (31,822) (6,950) 1,111 4,601 (33,060)
-------- -------- -------- -------- --------
Total shareholders' investment (deficit)........ (22,631) 5,892 1,461 (8,591) (23,869)
-------- -------- -------- -------- --------
Total liabilities and shareholders' investment (deficit).. $ 1,923 $ 36,213 $ 3,401 $ (775) $ 40,762
======== ======== ======== ======== ========
</TABLE>
F-33
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE
30, 1998:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Radio programming............................... $ -- $ 3,739 $ -- -- $ 3,739
Television programming.......................... 174 996 6,695 -- 7,865
Satellite delivery and production support....... -- 3,038 -- (910) 2,128
------- ------- ------- ------- -------
Total revenues............................. 174 7,773 6,695 (910) 13,732
------- ------- ------- ------- -------
OPERATING EXPENSES:
Radio programming............................... -- 3,490 -- -- 3,490
Television programming.......................... 81 1,268 6,228 (910) 6,667
Satellite delivery and production support....... -- 2,330 -- -- 2,330
Selling and marketing........................... 49 1,528 170 -- 1,747
General and administrative...................... 833 1,045 214 -- 2,092
------- ------- ------- ------- -------
Total operating expenses................... 963 9,661 6,612 (910) 16,326
------- ------- ------- ------- -------
OPERATING INCOME (EXPENSE) (789) (1,888) 83 -- (2,594)
------- ------- ------- ------- -------
OTHER EXPENSE (INCOME):
Interest expense................................ 740 1,900 -- -- 2,640
Interest income................................. (6) (3) (90) -- (99)
Write-off of deferred offering costs............ -- -- -- -- --
Equity share of loss (income) of subsidiaries... 2,898 (73) -- (2,898) (73)
Other expense (income), net..................... -- 261 3 -- 264
------- ------- ------- ------- -------
Total other expense (income)............... 3,632 2,085 (87) (2,898) 2,732
------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interests..................................... (4,421) (3,973) 170 2,898 (5,326)
Income tax provision............................ 92 176 -- -- 268
------- ------- ------- ------- -------
Income (loss) before minority interests......... (4,513) (4,149) 170 2,898 (5,594)
------- ------- ------- ------- -------
Minority interests in net income of
consolidated subsidiaries..................... -- -- -- 69 69
------- ------- ------- ------- -------
NET INCOME (LOSS)............................... $(4,513) $(4,149) $ 170 $ 2,829 $(5,663)
======= ======= ======= ======= =======
</TABLE>
F-34
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
CONDENSED CONSOLIDATING CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE 30, 1998:
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARY GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
------- ---------- ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................ $(4,513) $(4,149) $ 170 $ 2,829 $(5,663)
Adjustment to reconcile net loss to net cash provided
by (used in) operating activities:
Non-cash expenses (income).................................... 2,900 2,953 (27) (2,829) 2,997
Distributions received........................................ -- 350 -- -- 350
Net change in assets and liabilities.......................... 1,418 (7,576) 330 -- (5,828)
------- ------- ------- ------- -------
Net cash provided by (used in) operating activities....... (195) (8,422) 473 -- (8,144)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment....................... (3) (467) (69) -- (539)
Purchases of intangible assets.................................. -- (154) (4) -- (158)
Dividend from joint venture..................................... 960 -- -- (960) --
------- ------- ------- ------- -------
Net cash provided by (used in) investing activities....... 957 (621) (73) (960) (697)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs............................. (56) -- -- -- (56)
Increase in capitalized loan fees............................... (519) -- -- -- (519)
Repayment of borrowings......................................... -- (6,555) -- -- (6,555)
Repayment of capital lease obligations.......................... -- (1,166) -- -- (1,166)
Proceeds from borrowings........................................ -- 16,705 -- -- 16,705
Distributions paid to minority interests........................ -- -- (1,800) 960 (840)
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities....... (575) 8,984 (1,800) 960 7,569
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 187 (59) (1,400) -- (1,272)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................... (25) 79 3,663 -- 3,717
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $ 162 $ 20 $ 2,263 $ -- $ 2,445
======= ======= ======= ======= =======
</TABLE>
(16) SUBSEQUENT EVENTS
On March 31, 1998, Jones Radio Holdings, Inc. ("Radio Holdings")
entered into a $30 million revolving credit facility with a commercial bank with
a five-year term. Borrowings under the credit agreement bore interest at a
maximum of LIBOR plus 2.875% (7.9% at June 30, 1998), subject to reduction
should the leverage ratio of Jones Holdings improve. The credit facility was
secured by the assets of Jones Holdings, a subsidiary of the Company. The amount
of available borrowings under the credit facility was based on certain ratios of
debt to operating cash flow as defined in the credit agreement. On March 31,
1998, the Company borrowed approximately $16.7 million under the credit
facility. The Company used these funds to repay an approximately $6.6 million
note payable to Jones Intercable (see Note 8), $9.7 million to repay advances
from Jones International and approximately $0.4 million for fees related to the
credit facility. These fees are included in capitalized loan fees on the
accompanying statements of financial position and are being amortized over the
life of the revolving credit facility. In July 1998, the Company repaid the
credit facility using the proceeds from the Notes offering and all capitalized
debt offering costs related to the credit facility were written off.
On July 10, 1998, the Company acquired substantially all assets and
assumed certain liabilities of MediaAmerica, Inc. ("MediaAmerica") for $32.7
million plus a Working Capital Adjustment as defined. MediaAmerica provides
radio advertising sales representation services and also owns syndicated radio
programming. MediaAmerica received $26.7 million in cash and $6.0 million in
shares of Class A Common Stock of the Company valued at $15 per share.
MediaAmerica also received 141,970 shares of Class A Common Stock as an
estimated working capital adjustment. In addition, MediaAmerica may receive up
to $5 million in shares of Class A Common Stock, with the excess, if any, to be
paid in cash if certain multiples of "EBITDA" (earnings before interest, taxes,
depreciation and amortization) for the twelve-month period following the closing
are achieved. The acquisition was accounted for by the purchase method of
accounting, under which the purchase price of Media America was allocated to the
tangible and intangible assets and liabilities of Media America.
F-35
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
MediaAmerica has the right to cause the Company to purchase the shares of
the Company owned by MediaAmerica at any time after three years from closing,
July 10, 1998. The price would be the fair market value thereof, as determined
by agreement or by independent investment banking firm. The Company has a
correlative right to require that MediaAmerica sell such shares to the Company
at fair market value. Such rights terminate upon an initial public equity
offering by the Company. Before MediaAmerica can require the Company to buy its
shares, the Company must have unrestricted cash (as defined) available to make
the purchase. This condition lapses after seven and one quarter years from the
date of closing. If the company has exercised its purchase right and there is a
change of control involving a higher price within six months thereafter, the
Company must pay the prior owners certain additional consideration.
In July 1998, the Company issued $100 million of 11 3/4% Senior Secured
Notes (the "Notes"). The Company used the proceeds from the Notes offering (i)
to finance the cash consideration of the MediaAmerica transaction, (ii) to
prepay the capital lease obligation relating to the satellite transponders,
(iii) to repay the Radio Holdings credit facility and (iv) for general corporate
purposes, including the payment of fees and expenses.
The Company has financed its ownership of two analog satellite transponders
through a capital lease that was prepaid with a portion of the proceeds of the
Notes offering. The channel capacity on one satellite transponder has been
digitally compressed to seven channels, four of which are currently leased,
respectively, to Product Information Network, Great American Country and two
related parties. The other three channels were recently leased to a third party.
The other satellite transponder is an analog channel which the Company recently
leased to a third party.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
MediaAmerica, Inc.
New York, New York
We have audited the accompanying balance sheets of MediaAmerica, Inc. as of
December 31, 1996 and 1997 and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MediaAmerica, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
DAVID BERDON & CO. LLP
Certified Public Accountants
New York, New York
January 23, 1998
F-37
<PAGE>
MEDIAAMERICA, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 713,455 $ 301,246
Cash held in trust 56,581 99,417
Accounts receivable (less, allowance for doubtful accounts of $48,000 in 1996 and
$53,000 in 1997).............................................................. 10,323,844 12,664,152
Prepaid expenses................................................................. 108,963 94,781
Loans receivable--related parties................................................ 202,120 501,418
Other current assets............................................................. 464,900 150,267
Investment in U.S. Treasury Note................................................. -- 214,340
------------ -----------
TOTAL CURRENT ASSETS..................................................... 11,869,863 14,025,621
------------ -----------
PROPERTY AND EQUIPMENT--AT COST (Less, accumulated depreciation and
amortization)................................................................. 916,348 855,587
------------ -----------
OTHER ASSETS:
Investment in U.S. Treasury Note................................................. 209,099 --
Investment in partnership........................................................ 33,000 33,000
Security deposits................................................................ 5,854 6,254
Intangible assets (less, accumulated amortization)............................... 24,708 2,301,882
------------ -----------
TOTAL OTHER ASSETS................................................................. 272,661 2,341,136
------------ -----------
$ 13,058,872 $17,222,344
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable--bank............................................................... $ 3,000,000 $ 4,500,000
Producers' fees payable.......................................................... 4,244,012 5,754,010
Accounts payable................................................................. 389,689 398,843
Accrued expenses and other current liabilities................................... 513,697 774,535
Deferred revenue................................................................. 64,160 27,321
Deferred income taxes payable.................................................... 335,900 345,900
------------ -----------
TOTAL CURRENT LIABILITIES 8,547,458 11,800,609
------------ -----------
LONG-TERM LIABILITIES:
Deferred rent expense............................................................ 470,776 464,673
Deferred compensation payable.................................................... 93,781 272,217
------------ -----------
TOTAL LONG-TERM LIABILITIES........................................................ 564,557 736,890
------------ -----------
TOTAL LIABILITIES........................................................ 9,112,015 12,537,499
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 8, 9, 11, 12 and 13)
SHAREHOLDERS' EQUITY:
Common stock--no par value:
Authorized--1,000 shares; issued and outstanding--100 shares.................. 50,000 50,000
Additional paid-in capital....................................................... 292,887 292,887
Shareholders' undistributed earnings............................................. 3,603,970 4,341,958
------------ -----------
TOTAL SHAREHOLDERS' EQUITY......................................................... 3,946,857 4,684,845
------------ -----------
$ 13,058,872 $17,222,344
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES:
Gross advertising revenues--representation....... $ 62,814,076 $ 74,075,660 $ 76,292,976
Gross advertising revenues--programming.......... 917,578 1,139,795 1,837,730
Promotion and other revenues..................... 272,644 181,288 1,065,556
------------- ------------- --------------
TOTAL REVENUES............................... 64,004,298 75,396,743 79,196,262
Advertising agency commissions................... (9,663,555) (11,310,383) (11,745,087)
Producer fees.................................... (44,097,447) (51,483,562) (52,313,532)
------------- ------------- --------------
TOTAL NET REVENUES........................... 10,243,296 12,602,798 15,137,643
------------- ------------- --------------
OPERATING EXPENSES:
Radio programming expenses....................... 662,816 817,272 1,295,914
Selling and marketing expenses................... 3,515,406 3,909,277 4,593,431
General and administrative expenses.............. 2,639,201 3,642,410 4,368,596
Officers' salaries............................... 2,730,000 3,811,040 3,450,000
------------- ------------- --------------
TOTAL OPERATING EXPENSES..................... 9,547,423 12,179,999 13,707,941
------------- ------------- --------------
INCOME FROM OPERATIONS............................ 695,873 422,799 1,429,702
OTHER INCOME (EXPENSES):
Loss on investment in and advances to affiliate.. (325,000) (181,649) --
Interest income.................................. 157,799 189,240 227,381
Interest expense................................. (30,307) (22,698) (14,681)
------------- ------------- --------------
INCOME BEFORE INCOME TAXES........................ 498,365 407,692 1,642,402
Provision for state and local income taxes....... 125,333 127,147 154,414
------------- ------------- --------------
NET INCOME........................................ $ 373,032 $ 280,545 $ 1,487,988
============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL SHAREHOLDERS'
---------- -------------
COMMON PAID-IN UNDISTRIBUTED
-------- ---------- -------------
TOTAL STOCK CAPITAL EARNINGS
------- -------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1995............... $3,293,280 $50,000 $292,887 $2,950,393
Net income for the year................ 373,032 -- -- 373,032
---------- ------- --------- ----------
BALANCE--DECEMBER 31, 1995............. 3,666,312 50,000 292,887 3,323,425
Net income for the year................ 280,545 -- -- 280,545
---------- ------- --------- ----------
BALANCE--DECEMBER 31, 1996............. 3,946,857 50,000 292,887 3,603,970
Net income for the year................ 1,487,988 -- -- 1,487,988
Distributions to shareholders.......... (750,000) -- -- (750,000)
---------- ------- --------- ----------
BALANCE--DECEMBER 31, 1997............. $4,684,845 $50,000 $292,887 $4,341,958
========== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 373,032 $ 280,545 $ 1,487,988
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 128,093 236,146 296,603
Amortization of covenant not to compete........................................... -- -- 6,250
Bad debt (recovery) expense....................................................... 26,696 (67,777) (24,064)
Amortized discount of marketable securities....................................... (4,397) (2,473) (5,241)
Deferred revenue.................................................................. 202,816 (290,298) (36,839)
Deferred taxes.................................................................... 58,000 26,900 10,000
Deferred rent expense............................................................. 444,383 26,393 (6,103)
Deferred compensation............................................................. 56,581 37,200 178,436
Loss on investment in and advances to affiliate................................... -- 181,649 --
Write-down of investment in and advances to affiliate to net realizable value..... 325,000 -- --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable............................................................. (3,550,760) 269,694 (1,893,585)
Prepaid expenses................................................................ (1,416) (5,669) 14,182
Due from related parties........................................................ (80,029) 80,029 (7,805)
Other assets.................................................................... (77,330) (271,851) 314,233
Increase (decrease) in:
Producers' fee payable.......................................................... 2,075,296 (697,248) 1,087,340
Accounts payable................................................................ 73,814 192,682 (15,846)
Accrued expenses and other current liabilities.................................. 166,284 48,097 147,004
----------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................................. 216,063 44,019 1,552,553
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of radio programs....................................................... -- -- (2,165,256)
Payments of covenant-not-to-compete agreement....................................... -- -- (50,000)
Capital expenditures................................................................ (572,504) (355,032) (165,177)
(Increase) decrease in loans to related parties..................................... (362,825) 637,113 (291,493)
Decrease (increase) in investment and advances to affiliate......................... (310,830) 81,610 --
Increase in cash held in trust...................................................... -- (56,581) (42,836)
Investment in U.S. Treasury Note.................................................... (202,229) -- --
----------- ---------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES................................... (1,448,388) 307,110 (2,714,762)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable--bank..................................................... (1,500,000) (3,500,000) (3,000,000)
Proceeds from note payable--bank.................................................... 3,500,000 3,000,000 4,500,000
Distributions to shareholders....................................................... -- -- (750,000)
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................... 2,000,000 (500,000) 750,000
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 767,675 (148,871) (412,209)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR.......................................... 94,651 862,326 713,455
----------- ---------- -----------
CASH AND CASH EQUIVALENTS--END OF YEAR................................................ $ 862,326 $ 713,455 $ 301,246
=========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.............................................. $ 25,856 $ 22,695 $ 23,936
=========== ========== ===========
Cash paid during the year for income taxes.......................................... $ 53,646 $ 107,080 $ 151,083
=========== ========== ===========
</TABLE>
For purposes of the statements of cash flows, the Company considers highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
MediaAmerica, Inc. (the "Company") sells advertising time on nationally
syndicated radio programs.
The Company had an agreement, which was terminated for consideration, to
sell advertising time and other services for one producer of radio programs,
which resulted in net broadcast revenues of approximately $3,362,000,
$3,216,000 and $3,584,000 in 1995, 1996 and 1997, respectively. The
termination agreement provides for the Company to continue certain sales
efforts through the year ended December 31, 1998.
(b) Revenue Recognition
The Company recognizes revenues from advertising at the time the
advertising is aired.
(c) Depreciation
Equipment, software and furniture are depreciated by the straight-line
method over estimated useful lives ranging from 5 to 10 years. Leasehold
improvements are amortized over the life of the lease.
(d) Investment in Partnership
The Company has an interest (less than 20%) in a limited partnership
which is being accounted for under the cost method.
(e) Investment in Affiliate
In 1996, the Company sold its 45% interest in a corporation. Since the
Company could not exercise significant influence in the corporation's
operating or financial policies, this investment was accounted for using the
cost method.
(f) Intangible Assets
In 1997, the Company acquired various radio programs, consisting of
related program libraries, trade names, and contracts with radio stations that
broadcast the programs. The programs are being amortized over a period of ten
years.
In connection with the acquisition of the radio programs, the seller of
certain programs entered into a covenant not to compete with the Company. The
cost of the covenant is being amortized over the term of the covenant using
the straight-line method. In addition, in July 1997, the Company entered into
a second covenant not to compete which requires monthly payments of $8,333
over a period of 48 months.
Start-up costs incurred primarily to open offices in Detroit and Chicago
are being amortized on a straight-line basis over a period of five years.
Goodwill is being amortized on a straight-line basis over a period of 15
years.
(g) Research and Development Costs
Research and development expenditures are expensed as incurred.
F-42
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS-- (CONTINUED)
(h) Income Taxes
The Company has elected "S" corporation status under the applicable
provisions of the Internal Revenue Code and certain state statutes. The
shareholders' respective shares in the net income of the Company will be
reportable on their individual tax returns. Accordingly, the financial
statements reflect no provision or liability for Federal and certain state
income taxes. The Company is liable for state and local taxes in certain
jurisdictions.
The Company files its tax returns on the cash basis of accounting.
Deferred state and local income taxes are provided for temporary differences
resulting primarily from the cash basis method of accounting used for income
tax purposes.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1996 and 1997,
and the reported amounts of revenues and expenses for each of the three years
in the period ended December 31, 1997. Actual results could differ from those
estimates.
NOTE 2--INVESTMENT IN UNITED STATES TREASURY NOTE
The Company's investment in United States Treasury Note is classified as
held-to-maturity and, accordingly, is recorded at its amortized cost. The
investment bears interest at the rate of 5.125% per annum and matures on June
30, 1998. The fair market value of the investment was approximately $217,000 and
$220,000 at December 31, 1996 and 1997, respectively.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Equipment........................................ $ 114,301 $ 114,301
Computer equipment and software.................. 786,565 895,864
Furniture and fixtures........................... 207,320 215,370
Leasehold improvements........................... 71,222 81,844
Other............................................ 53,112 90,316
---------- ----------
1,232,520 1,397,695
Less: accumulated depreciation and amortization.. 316,172 542,108
---------- ----------
$ 916,348 $ 855,587
=========== ==========
</TABLE>
NOTE 4--INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Radio programs................................... $ -- $2,304,091
Covenant not to compete.......................... -- 50,000
Goodwill......................................... 23,099 23,099
Start-up costs................................... 119,599 119,599
--------- ----------
142,698 2,496,789
117,990 194,907
--------- ----------
Less: accumulated amortization................... $ 24,708 $2,301,882
========= ==========
</TABLE>
F-43
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROVISION FOR STATE AND LOCAL INCOME TAXES
Provision for state and local income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current................. $ 67,333 $100,247 $144,414
Deferred................ 58,000 26,900 10,000
-------- -------- --------
$125,333 $127,147 $154,414
======== ======== ========
</TABLE>
NOTE 6--LINE OF CREDIT
The Company has a $5,000,000 revolving line of credit with a bank, which
bears interest at the prime rate (8.5% at December 31, 1997). The balance
outstanding at December 31, 1996 and 1997 was $3,000,000 and $4,500,000,
respectively. The debt is secured by the assets of the Company and is guaranteed
by the shareholders and an affiliate of the Company, and also restricts (1) the
amount of distributions and compensation that can be paid to shareholders and
(2) the amount of loans to related parties.
NOTE 7--COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office space under several operating leases. The total
amount of the base rent payments is being charged to expense on the
straight-line method over the terms of the leases. The Company has recorded
a deferred credit to reflect the excess of the rent expense over the cash
payments since the inception of the leases. The leases provide for the
minimum rentals plus operating expenses and real estate tax escalations.
The total future minimum rental payments required for noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- ------------
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1998....................................................... $ 509,000
1999....................................................... 473,000
2000....................................................... 525,000
2001....................................................... 531,000
2002....................................................... 531,000
Thereafter................................................. 1,552,000
----------
$4,121,000
==========
</TABLE>
F-44
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
One of the leases is secured by a $75,000 letter of credit.
Rent expense amounted to approximately $401,000, $383,000 and $444,000
in 1995, 1996 and 1997, respectively (net of amounts allocated to related
entities).
(b) Consulting Agreement
On July 14, 1997, the Company entered into a consulting agreement that
requires monthly payments of $4,167 over a period of 24 months.
(c) Program Acquisition Contingency
As part of the purchase price of certain radio programs acquired on
November 17, 1997, the Company has agreed to pay (i) 10% of the net
revenues of the acquired radio programs, payable for each of the eight
calendar quarters following the date of acquisition, and (ii) 5% of the net
revenues of the acquired radio programs, payable for the next two calendar
quarters succeeding those described above.
NOTE 8--EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) tax deferred savings plan. This plan covers
all full-time employees who meet certain eligibility requirements. The plan
allows employees to defer up to 15% of their compensation, limited to the amount
allowed for income tax purposes. The Company, at its discretion, may contribute
an amount equal to a percentage of the amount the employees contribute. The
Company can also make an additional contribution to the plan. The Company's
expense under this plan was $400, $17,000 and $65,000 in 1995, 1996 and 1997,
respectively.
NOTE 9--SHAREHOLDERS' AGREEMENT
The Company is obligated to repurchase the stock of its shareholders upon
the occurrence of certain events at the predetermined price, as set forth in the
shareholders' agreement. In the case of death, a portion of the purchase price
is funded by life insurance policies on the lives of the shareholders.
NOTE 10--RELATED PARTY TRANSACTIONS
(a) Loans to related parties consist of loans to shareholders and affiliates.
The loans are due on demand and bear interest at the Applicable Federal
Rate. The Company earned interest of approximately $51,700, $32,300 and
$32,600 on these loans in 1995, 1996 and 1997, respectively.
(b) The Company incurred costs for various services performed by affiliates
amounting to approximately $285,400, $170,500 and $203,400 in 1995, 1996
and 1997, respectively.
(c) The Company charged affiliates for allocated rent and certain office
services of approximately $324,000, $217,600 and $215,300 in 1995, 1996 and
1997, respectively.
(d) The Company recognized revenues for various services performed for an
affiliate amounting to $111,900 in 1997.
F-45
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--DEFERRED COMPENSATION PLANS
The Company has established two deferred compensation plans for the benefit
of certain employees. Under the terms of the first plan, an annual award is to
be made to an employee based on the "net profits" (as defined), which will be
paid into a trust. 60% of the balance of the trust becomes vested on January 1,
1998, and an additional 20% each January 1 thereafter until January 1,
2000.Distributions from the trust are to be made at the earlier of January 1,
2005,or upon the occurrence of certain events as set forth in the plan.
Under the terms of the second plan, an annual award is to be made to an
employee based on the "net profits" (as defined), which will be paid into
a trust. 25% of the balance of the trust becomes vested on December 23, 1998,
and an additional 25% each December 23, thereafter, until December 23, 2001.
Distributions from the trust are to be made at the earlier of December 23, 2007,
or upon the occurrence of certain events as set forth in the plan.
The Company has also established an Equity Appreciation Plan ("EAP") for
the benefit of certain employees. Under the terms of the EAP, a total of one
thousand units are available for distribution. One of such units is equivalent
to one share of common stock. On an annual basis, the fair market value (as
defined) of one unit is to be calculated and each participant is to be credited
an amount based on the number of units awarded to that participant. Payment of
benefits shall be made upon the occurrence of certain events, as set forth in
the EAP. As of December 31, 1997, 3 units have been awarded.
NOTE 12--LITIGATION
As of December 31, 1997, the Company is a defendant in a lawsuit for an
unspecified amount in connection with one of its sales representation agreements
which expired in 1996. In response to the claims asserted in the lawsuit, the
Company has filed affirmative defenses and counterclaims against the plaintiff.
Arbitration hearings commenced in May 1997 and were completed in December 1997.
Posthearing memoranda will be submitted by February 20, 1998. The arbitrators'
decision is likely to be issued by April 1998. No determination can be made as
to the possible outcome of this lawsuit. Management is of the opinion, however,
that this lawsuit will not have a material adverse effect on the Company's
financial position.
NOTE 13--CONCENTRATION OF CREDIT RISK
As of December 31, 1997, the Company had a significant concentration of
cash on deposit with one financial institution.
F-46
<PAGE>
ACCOUNTANTS' REVIEW REPORT
To the Shareholders and
Board of Directors
MediaAmerica, Inc.
New York, New York
We have reviewed the accompanying balance sheets of MediaAmerica, Inc. as
of June 30, 1997 and 1998, and the related statements of income, shareholders'
equity and cash flows for the six months then ended. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
DAVID BERDON & CO. LLP
Certified Public Accountants
New York, New York
July 24, 1998
F-47
<PAGE>
MEDIAAMERICA, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
ASSETS 1997 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 2,753,778 $ 809,473
Cash held in trust........................................................ 97,102 172,042
Accounts receivable (less, allowance for doubtful accounts of $89,000 in
1997 and $64,000 in 1998)............................................... 12,018,837 7,150,102
Prepaid expenses.......................................................... 114,604 112,449
Loans receivable--related parties......................................... 456,512 547,018
Other current assets...................................................... 526,689 596,186
Investment in U.S. Treasury Note.......................................... 211,669 --
----------- -----------
TOTAL CURRENT ASSETS............................................ 16,179,191 9,387,270
----------- -----------
PROPERTY AND EQUIPMENT--AT COST (Less, Accumulated Depreciation
and Amortization)......................................................... 897,489 840,420
----------- -----------
OTHER ASSETS:
Investment in partnership................................................. 33,000 33,000
Security deposits......................................................... 5,854 7,810
Intangible assets (less, accumulated amortization)........................ 16,908 2,202,335
----------- -----------
TOTAL OTHER ASSETS.............................................. 55,762 2,243,145
----------- -----------
TOTAL ASSETS.................................................... $17,132,442 $12,470,835
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Producers' fees payable................................................... $10,062,614 $ 5,504,350
Accounts payable.......................................................... 253,869 246,628
Accrued expenses and other current liabilities............................ 1,117,098 721,547
Deferred revenue.......................................................... 297,995 99,004
Deferred income taxes payable............................................. 377,000 47,900
----------- -----------
TOTAL CURRENT LIABILITIES....................................... 12,108,576 6,619,429
----------- -----------
LONG-TERM LIABILITIES:
Deferred rent expense..................................................... 430,109 423,388
Deferred compensation payable............................................. 117,402 250,842
----------- -----------
TOTAL LONG-TERM LIABILITIES................................................. 547,511 674,230
----------- -----------
TOTAL LIABILITIES........................................................... 12,656,087 7,293,659
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 8, 9, 11, 12 and 13)
SHAREHOLDERS' EQUITY:
Common stock--no par value:
Authorized--1,000 shares; issued and outstanding--100 shares............ 50,000 50,000
Additional paid-in capital................................................ 292,887 292,887
Shareholders' undistributed earnings...................................... 4,133,468 4,834,289
----------- -----------
TOTAL SHAREHOLDERS' EQUITY...................................... 4,476,355 5,177,176
----------- -----------
$17,132,442 $12,470,835
=========== ===========
</TABLE>
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
REVENUES:
Gross advertising revenues--representation.. $ 38,284,478 $ 22,529,891
Gross advertising revenues--programming..... 443,442 1,174,623
Promotion and other revenues................ 367,786 907,529
------------ ------------
TOTAL REVENUES............................ 39,095,706 24,612,043
Advertising agency commissions.............. (5,865,170) (3,560,043)
Producer fees............................... (26,479,958) (15,063,803)
------------ ------------
TOTAL NET REVENUES........................ 6,750,578 5,988,197
------------ ------------
OPERATING EXPENSES:
Radio programming expenses.................. 323,458 1,154,362
Selling and marketing expenses.............. 2,080,928 1,874,356
General and administrative expenses......... 2,156,532 2,040,244
Officers' salaries.......................... 1,650,000 350,000
------------ ------------
TOTAL OPERATING EXPENSES.................. 6,210,918 5,418,962
------------ ------------
INCOME FROM OPERATIONS........................ 539,660 569,235
OTHER INCOME (EXPENSES):
Litigation settlement....................... -- (68,500)
Interest income............................. 83,251 58,679
Interest expense............................ (10,313) (24,083)
------------ ------------
INCOME BEFORE INCOME TAXES.................... 612,598 535,331
Provision for state and local income taxes.... 83,100 43,000
------------ ------------
NET INCOME.................................... $ 529,498 $ 492,331
============ ============
</TABLE>
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL SHAREHOLDERS'
---------- -------------
COMMON PAID-IN UNDISTRIBUTED
------ ------- -------------
TOTAL STOCK CAPITAL EARNINGS
----- ----- ------- --------
<S> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1997............................. $3,946,857 50,000 $292,887 $3,603,970
Net income for the six months ended June 30, 1997.... 529,498 -- -- 529,498
---------- ------- -------- ----------
BALANCE--JUNE 30, 1997............................... $4,476,355 $50,000 $292,887 $4,133,468
========== ======= ======== ==========
BALANCE--JANUARY 1, 1998............................. $4,684,845 $50,000 $292,887 $4,341,958
Net income for the six months ended June 30, 1998.... 492,331 -- -- 492,331
---------- ------- -------- ----------
BALANCE--JUNE 30, 1998............................... $5,177,176 $50,000 $292,887 $4,834,289
========== ======= ======== ==========
</TABLE>
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
MEDIAAMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 529,498 $ 492,331
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 116,900 252,813
Bad debt expense...................................................................... 15,000 15,000
Amortized discount of marketable securities........................................... (2,570) (5,660)
Deferred revenue...................................................................... 233,835 71,683
Deferred taxes........................................................................ 41,100 (298,000)
Deferred rent expense................................................................. (40,667) (41,285)
Deferred compensation................................................................. 23,621 (21,375)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................................................. (1,754,993) 5,454,045
Prepaid expenses.................................................................... (5,641) (17,668)
Due from related parties............................................................ (56,982) (45,442)
Other assets........................................................................ (61,789) (447,475)
Increase (decrease) in:
Producers' fee payable.............................................................. 5,863,602 (204,660)
Accounts payable.................................................................... (135,820) (127,215)
Accrued expenses and other current liabilities .................................... 603,401 10,852
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................................... 5,368,495 5,087,944
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of radio programs............................................................. -- (121,001)
Capital expenditures...................................................................... (90,241) (105,933)
(Increase) in loans to related parties.................................................... (197,410) (158)
Decrease in U.S. treasury note............................................................ -- 220,000
(Increase) in cash held in trust.......................................................... (40,521) (72,625)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES...................................................... (328,172) (79,717)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable--bank........................................................... (3,000,000) (4,500,000)
----------- -----------
NET CASH (USED IN) FINANCING ACTIVITIES...................................................... (3,000,000) (4,500,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 2,040,323 508,227
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR................................................. 713,455 301,246
----------- -----------
CASH AND CASH EQUIVALENTS--END OF YEAR ..................................................... $ 2,753,778 $ 809,473
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................................................. $ 10,313 $ 26,208
=========== ===========
Income taxes.......................................................................... $ 89,377 $ 73,106
=========== ===========
</TABLE>
For purposes of the statements of cash flows, the Company considers highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
See accountants' review report.
The accompanying notes are an integral part of these statements.
F-51
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
MediaAmerica, Inc. (the "Company") sells advertising time on
nationally syndicated radio programs.
The Company had an agreement, which was terminated for
consideration, to sell advertising time and other services for
one producer of radio programs, which resulted in net broadcast
revenues of approximately $1,735,000 and $858,000 for the six
months ended June 30, 1997 and 1998, respectively. The
termination agreement provides for the Company to continue
certain sales efforts through the year ended December 31, 1998.
(b) Revenue Recognition
The Company recognizes revenues from advertising at the time
the advertising is aired.
(c) Depreciation
Equipment, software and furniture are depreciated by the
straight-line method over estimated useful lives ranging from 5
to 10 years. Leasehold improvements are amortized over the life
of the lease.
(d) Investment in Partnership
The Company has an interest (less than 20%) in a limited
partnership which is being accounted for under the cost method.
(e) Intangible Assets
In 1997, the Company acquired various radio programs,
consisting of related program libraries, trade names, and
contracts with radio stations that broadcast the programs. The
programs are being amortized over a period of ten years.
In connection with the acquisition of the radio programs,
the seller of certain programs entered into a covenant not to
compete with the Company. The cost of the covenant is being
amortized over the term of the covenant using the straight-line
method. In addition, in July 1997, the Company entered into a
second covenant not to compete which requires monthly payments of
$8,333 over a period of 48 months.
Start-up costs incurred primarily to open offices in Detroit
and Chicago are being amortized on a straight-line basis over a
period of five years.
Goodwill is being amortized on a straight-line basis over a
period of 15 years.
(f) Research and Development Costs
Research and Development expenditures are expensed as
incurred.
(g) Income Taxes
The Company has elected "S" corporation status under the
applicable provisions of the Internal Revenue Code and certain
state statutes. The shareholders' respective shares in the net
income of the Company will be reportable on their individual tax
returns. Accordingly, the financial statements reflect no
provision or liability for Federal and certain state income
taxes. The Company is liable for state and local taxes in certain
jurisdictions.
F-52
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
The Company files its tax returns on the cash basis of
accounting. Deferred state and local income taxes are provided
for temporary differences resulting primarily from the cash basis
method of accounting used for income tax purposes.
(h) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at June 30, 1997 and 1998, and the reported amounts
of revenues and expenses for the periods then ended. Actual
results could differ from those estimates.
NOTE 2--INVESTMENT IN UNITED STATES TREASURY NOTE
The Company's investment in United States Treasury Note is classified
as held-to-maturity and, accordingly, is recorded at its amortized cost. The
investment bears interest at the rate of 5.125% per annum and matured on June
30, 1998. The market value of the investment was $217,000 at June 30, 1997.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Equipment..................................................... $ 114,301 $ 118,669
Computer equipment and software............................... 868,894 931,813
Furniture and fixtures........................................ 211,050 216,663
Leasehold improvements........................................ 74,409 98,584
Other ........................................................ 54,107 137,898
---------- ----------
1,322,761 1,503,627
Less, accumulated depreciation and amortization............... 425,272 663,207
---------- ----------
$ 897,489 $ 840,420
========== ==========
</TABLE>
NOTE 4--INTANGIBLE ASSETS
Intangible assets consist of the following as of June 30:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Radio programs................................................ $ -- $2,336,257
Covenant not to compete....................................... -- 50,000
Goodwill ..................................................... 23,099 23,099
Start-up costs ............................................... 119,599 119,599
---------- ----------
142,698 2,528,955
Less, accumulated amortization............................... 125,790 326,620
---------- ----------
$ 16,908 $2,202,335
========== ==========
</TABLE>
F-53
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
NOTE 5--PROVISION FOR STATE AND LOCAL INCOME TAXES
Provision for state and local income taxes consists of the following:
1997 1998
------- ----------
Current.................. $42,000 $ 341,000
Deferred................. 41,100 (298,000)
------- ---------
$83,100 $ 43,000
======= =========
NOTE 6--LINE OF CREDIT
The Company has a $5,000,000 revolving line of credit with a bank. The
Company did not utilize any of the available line of credit at June 30, 1997 and
1998, respectively.
NOTE 7--COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office space under several operating
leases. The total amount of the base rent payments is being
charged to expense on the straight-line method over the terms of
the leases. The Company has recorded a deferred credit to reflect
the excess of the rent expense over the cash payments since the
inception of the leases. The leases provide for the minimum
rentals plus operating expenses and real estate tax escalations.
The total future minimum rental payments required for
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -------------
JUNE 30, AMOUNT
- -------- ----------
<S> <C>
1999........................................................... $ 488,000
2000........................................................... 497,000
2001........................................................... 531,000
2002 .......................................................... 531,000
2003........................................................... 520,000
Thereafter..................................................... 1,297,000
----------
$3,864,000
==========
</TABLE>
F-54
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
One of the leases is secured by a $75,000 letter of credit.
Rent expense amounted to approximately $223,000 and $238,000 for the six
months ended June 30, 1997 and 1998, respectively (net of amounts allocated
to related entities).
(b) Consulting Agreement
On July 14, 1997, the Company entered into a consulting agreement that
requires monthly payments of $4,167 over a period of 24 months.
(c) Program Acquisition Contingency
As part of the purchase price of certain radio programs acquired on
November 17, 1997, the Company has agreed to pay (i) 10% of the net
revenues of the acquired radio programs, payable for each of the eight
calendar quarters following the date of acquisition, and (ii) 5% of the
net revenues of the acquired radio programs, payable for the next two
calendar quarters succeeding those described above.
NOTE 8--EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) tax deferred savings plan. This plan covers
all full-time employees who meet certain eligibility requirements. The plan
allows employees to defer up to 15% of their compensation, limited to the amount
allowed for income tax purposes. The Company, at its discretion, may contribute
an amount equal to a percentage of the amount the employees contribute. The
Company can also make an additional contribution to the plan. The Company's
expense under this plan was $22,200 and $25,500 for the six months ended June
30, 1997 and 1998, respectively.
NOTE 9--SHAREHOLDERS' AGREEMENT
The Company is obligated to repurchase the stock of its shareholders upon
the occurrence of certain events at the predetermined price, as set forth in the
shareholders' agreement. In the case of death, a portion of the purchase price
is funded by life insurance policies on the lives of the shareholders.
NOTE 10--RELATED PARTY TRANSACTIONS
(a) Loans to related parties consist of loans to shareholders and affiliates.
The loans are due on demand and bear interest at the Applicable Federal
Rate. The Company earned interest of approximately $12,700 and $17,000 on
these loans for the six months ended June 30, 1997 and 1998, respectively.
(b) The Company incurred costs for various services performed by affiliates
amounting to approximately $50,900 and $34,300 for the six months ended
June 30, 1997 and 1998, respectively.
(c) The Company charged affiliates for allocated rent and certain office
services of approximately $114,100 and $91,200 for the six months ended
June 30, 1997 and 1998, respectively.
NOTE 11--DEFERRED COMPENSATION PLANS
The Company has established two deferred compensation plans for the benefit
of certain employees. Under the terms of the first plan, an annual award is to
be made to an employee based on the "net profits" (as defined), which will be
paid into a trust. 60% of the balance of the trust becomes vested on January 1,
1998, and an additional 20% each January 1 thereafter until
F-55
<PAGE>
MEDIAAMERICA, INC.
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
January 1, 2000. Distributions from the trust are to be made at the earlier of
January 1, 2005, or upon the occurrence of certain events as set forth in the
plan.
Under the terms of the second plan, an annual award is to be made to an
employee based on the "net profits" (as defined), which will be paid into a
trust. 25% of the balance of the trust becomes vested on December 23, 1998, and
an additional 25% each December 23, thereafter, until December 23, 2001.
Distributions from the trust are to be made at the earlier of December 23, 2007,
or upon the occurrence of certain events as set forth in the plan.
The Company has also established an Equity Appreciation Plan ("EAP") for
the benefit of certain employees. Under the terms of the EAP, a total of one
thousand units are available for distribution. One of such units is equivalent
to one share of common stock. On an annual basis, the fair market value (as
defined) of one unit is to be calculated and each participant is to be credited
an amount based on the number of units awarded to that participant. Payment of
benefits shall be made upon the occurrence of certain events, as set forth in
the EAP. As of June 30, 1998, 3 units have been awarded.
NOTE 12--LITIGATION
As of June 30, 1998, the Company is a defendant in a lawsuit in connection
with one of its sales representation agreements which expired in 1996. On July
10, 1998, the Company paid $68,500 to settle the lawsuit.
NOTE 13--CONCENTRATION OF CREDIT RISK
As of June 30, 1998, the Company had a significant concentration of cash on
deposit with one financial institution.
NOTE 14--SUBSEQUENT EVENT
On July 10, 1998, the Company sold substantially all its assets, subject to
certain liabilities, for $32.7 million, plus approximately $2 million for a
working capital adjustment, as defined. The Company received $26.7 million in
cash and approximately $8 million in shares of Class A Common Stock of the
buyer, valued at $15 per share. In addition, the Company may receive up to $5
million in additional shares of Class A Common Stock, with the excess, if any,
to be paid in cash if certain multiples of "EBITDA" (earnings before interest,
taxes, depreciation and amortization) for the twelve-month period following the
closing are achieved.
The Company has the right to cause the buyer to purchase the shares of the
buyer owned by the Company at any time, for three years for closing. The price
would be the fair market value thereof, as determined by agreement or by
independent investment banking firm. The buyer has a correlative right to
require the Company sell such shares to the buyer at fair market value. Such
rights terminate upon an initial public offering by the buyer. Before the
Company can exercise its rights to have the buyer purchase its shares, the buyer
must have available cash to make the repurchase. This condition lapses after
seven and one-quarter years from the date of closing. If the buyer has
exercised its purchase right and there is a change of control involving a higher
price within six months thereafter, the buyer must also pay certain additional
consideration.
F-56
<PAGE>
ARTHUR ANDERSEN LLP
JONES/OWENS RADIO PROGRAMMING, LLC
FINANCIAL STATEMENTS, TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE PERIOD FROM INCEPTION (OCTOBER 1, 1996)
TO DECEMBER 31, 1996 AND THE YEAR
ENDED DECEMBER 31, 1997
F-57
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Jones/Owens Radio Programming, LLC:
We have audited the accompanying statements of financial position of Jones/Owens
Radio Programming, LLC, a Colorado limited liability company (the "Company"), as
of December 31, 1996 and 1997, and the related statements of operations,
members' equity and cash flows for the period from inception (October 1, 1996)
to December 31, 1996 and the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for the
period from inception (October 1, 1996) to December 31, 1996 and the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado,
March 27, 1998.
F-58
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
As of December 31,
1996 1997
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 74,294
Accounts receivable 142,146 220,270
Allowance for doubtful accounts (11,105) (17,272)
-------------- --------------
Net accounts receivable 131,041 202,998
Advances to Jones Radio Network Ventures, Inc. (Note 3) - 243,105
Prepaid expenses 21,566 11,724
-------------- --------------
Total current assets 152,607 532,121
-------------- --------------
INTANGIBLE ASSETS:
Intangible assets (Note 2) 1,000,000 1,000,000
Accumulated amortization (36,665) (189,980)
-------------- --------------
Net intangible assets 963,335 810,020
-------------- --------------
Total assets $ 1,115,942 $ 1,342,141
============== ==============
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,001 $ 2,000
Advances from Jones Radio Network Ventures, Inc. (Note 3) 143,112 -
-------------- --------------
Total current liabilities 146,113 2,000
-------------- --------------
MEMBERS'EQUITY:
Member contributions (Note 1) 1,000,000 1,000,000
Retained earnings (accumulated deficit) (30,171) 340,141
-------------- --------------
Total members' equity 969,829 1,340,141
-------------- --------------
Total liabilities and members' equity $ 1,115,942 $ 1,342,141
============== ==============
</TABLE>
The accompanying notes to these financial statements are an integral part of
these statements.
F-59
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The
Three Months For The
Ended Year Ended
December 31, December 31,
1996 1997
-------------- ---------------
<S> <C> <C>
REVENUE (Note 2):
Radio programming revenue:
Advertising, net of commissions $ 166,131 $ 1,146,280
Licensing fees 10,453 39,984
-------------- ---------------
Total radio programming revenue 176,584 1,186,264
-------------- ---------------
OPERATING EXPENSES:
Radio programming expenses:
Non-affiliated entities 90,634 348,638
Affiliated entities (Note 3) 79,449 338,888
-------------- ---------------
Total radio programming expenses 170,083 687,526
Selling and marketing 1,747 -
General and administrative expenses (Note 3) 34,925 128,426
-------------- ---------------
Total operating expenses 206,755 815,952
-------------- ---------------
NET INCOME (LOSS) $(30,171) $ 370,312
============== ===============
</TABLE>
The accompanying notes to these financial statements
are an integral part of these statements.
F-60
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
Capital Contributions Retained
-------------------------------------
Jones Radio Jim Owens Earnings Total
Network & Associates, (Accumulated Members'
Venture, Inc. Inc. Deficit) Equity
----------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1996 $ - $ - $ - $ -
Member contributions 1,000,000 - - 1,000,000
Dilution of member's contributions (300,000) 300,000 - -
Net loss - - (30,171) (30,171)
----------------- -------------- -------------- ---------------
BALANCE, DECEMBER 31, 1996 700,000 300,000 (30,171) 969,829
----------------- -------------- -------------- ---------------
Contribution of Interest (Note 1) 200,000 (200,000) - -
Net income - - 370,312 370,312
----------------- -------------- -------------- ---------------
BALANCE, DECEMBER 31, 1997 $ 900,000 $ 100,000 $ 340,141 $1,340,141
================= ============== ============== ===============
</TABLE>
The accompanying notes to these financial statements are an integral part of
these statements.
F-61
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The
Three Months For The
Ended Year Ended
December 31, December 31,
1996 1997
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (30,171) $ 370,312
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization expense 36,665 153,315
Net change in assets and liabilities:
Increase in net accounts receivable (131,041) (71,957)
Decrease (increase) in prepaid expenses (21,566) 9,842
Increase (decrease) in accounts payable and accrued liabilities 3,001 (1,001)
Net change in advances to/from Jones Radio Network Ventures, Inc. 143,112 (386,217)
--------------- -----------------
Net cash provided by operating activities - 74,294
--------------- -----------------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchase of intangible assets (1,000,000) -
--------------- -----------------
Net cash used in investing activities (1,000,000) -
--------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from member 1,000,000 -
--------------- -----------------
Net cash provided by financing activities 1,000,000 -
--------------- -----------------
INCREASE IN CASH - 74,294
--------------- -----------------
CASH, BEGINNING OF PERIOD - -
--------------- -----------------
CASH, END OF PERIOD $ - $ 74,294
=============== =================
</TABLE>
The accompanying notes to these financial statements
are an integral part of these statements.
F-62
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (OCTOBER 1, 1996) TO DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
(1) ORGANIZATION AND BUSINESS
-------------------------
Jones/Owens Radio Programming, LLC (the "Company") is a limited liability
company which is owned by Jones Radio Network Ventures, Inc. ("JRNV") and
Jim Owens and Associates, Inc. ("Owens"). The Company is in the business of
developing, producing and distributing short-form and long-form syndicated
radio programs.
The Company commenced operations on October 1, 1996. JRNV contributed $1
million for the purchase of certain intangible assets from Owens (Note 2)
and certain of their affiliation agreements to the Company for a 70 percent
ownership interest in the Company. Owens contributed certain rights in the
Crook and Chase Country CountDown show for a 30 percent ownership interest
in the Company. In August 1997, Owens contributed 2/3 of their ownership
interest in the Partnership to JRNV in payment of certain programming and
production costs for which Owens was responsible under the original
agreement. After this contribution, JRNV and Owens had a 90% and 10%
ownership interest, respectively, in the Company. Profits, losses and
distributions of the Company have been and will be allocated in accordance
with the respective ownership interests of the members.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Intangible Assets - Intangible assets consist primarily of personal service
-----------------
agreements, a consulting agreement, a perpetual license agreement and a
right of first refusal. Personal service agreements of $200,000 and the
consulting agreement of $400,000 are being amortized over the 5 year life
of the agreements. The perpetual license agreement of $100,000 and the
right of first refusal of $300,000 are being amortized over the 10 year
life of the agreements.
Revenue Recognition - The Company generates revenue by providing
-------------------
programming to radio stations in exchange for advertising time on the radio
station and, in certain cases, a fee to license the programming. The
Company then resells the airtime to national advertisers. Revenue is
recorded as the audio programming is provided.
Jones Radio Network, Inc. ("JRN"), an affiliate of the Company, contracts
with a national advertising representation firm to sell the Company's
advertising time. JRN also distributes the Company's programming (see Note
3). In 1996 and 1997, approximately 55% and 63%, respectively, of the
Company's radio advertising revenue was derived from sales made through
this national advertising representation firm.
The Company had two major customers purchasing audio programming and
airtime during the three months and year ended December 31, 1996 and 1997,
respectively. The approximate total net revenue and related percentages are
as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Year Ended
December 31, 1996 December 31, 1997
--------------------------- -----------------------
Amount Percent Amount Percent
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Customer A $ 66,000 37% $ 140,000 12%
Customer B 22,000 12% 43,000 4%
Customer C - 0% 142,000 12%
----------- - ------------ --
$ 88,000 49% $ 325,000 28%
=========== == ============ ==
</TABLE>
F-63
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
NOTES TO FINANCIAL STATEMENTS - (Continued)
Use of Estimates - The preparation of financial statements in conformity
----------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(3) TRANSACTIONS WITH AFFILIATED ENTITIES
-------------------------------------
JRNV is an indirectly owned subsidiary of Jones International, Ltd.
("International"). Certain members of management of the Company are also
officers or directors of other affiliated entities and, from time to time,
the Company may have transactions with these entities. Certain expenses are
paid by affiliated entities on behalf of the Company and are allocated at
cost based on specific identification or other reasonable methods.
Significant transactions with affiliated entities are described below.
Radio Programming Expense - JRN distributes radio programming for the
-------------------------
Company. For the three months and year ended December 31, 1996 and 1997,
respectively, JRN charged the Company a fee of approximately $18,000 and
S101,000, respectively, for radio programming distribution services. The
fee represents approximately 10% of the Company's net revenues for the
three months and the ten months ended December 31, 1996 and October 31,
1997, respectively. Beginning in November 1997, this distribution fee was
no longer charged by JRN to the Company due to an amendment to the original
agreement.
In addition, Owens produces radio programming for the Company. For the
three months and year ended December 31, 1996 and 1997, respectively, Owens
charged the Company approximately $61,000 and $238,000, respectively, for
radio programming services.
General and Administrative Expenses - The Company reimburses International
-----------------------------------
for certain allocated administrative expenses. These expenses generally
consist of salaries and related benefits. Allocations of personnel costs
are generally based on actual time spent by affiliated associates with
respect to the Company. International and its affiliates charged the
Company approximately $1,500 and $17,400 for the three months and year
ended December 31, 1996 and 1997, respectively, for these administrative
expenses.
Periodically, in the normal course of business, JRNV (1) remits funds on
behalf of the Company to third parties and affiliates in payment for
products and services, purchased by the Company and/or (2) receives funds
on behalf of the Company, primarily from affiliates, in payment for
products and services provided by the Company. These amounts are then
subsequently reimbursed from/to JRNV on a timely basis. Due to their short-
term nature, such amounts outstanding with JRNV are classified as a current
asset or liability in the accompanying financial statements.
(4) INCOME TAXES
------------
Income taxes are not reflected in the accompanying financial statements as
such amounts accrue directly to the members. The Federal and state income
tax returns of the Company will be prepared and filed by the members.
The Company's tax returns and the amount of distributable Company income or
loss are subject to examination by Federal and state taxing authorities. If
such examinations result in changes with respect to the Company's tax
status, or the Company's recorded income or loss, the tax liability of the
members would be adjusted accordingly.
The Company's only significant book-tax differences between the financial
reporting and tax bases of the Company's assets and liabilities are
associated with the accrued expenses recognized under generally accepted
accounting principles and the amount allowed for tax purposes.
F-64
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
UNAUDITED STATEMENTS OF FINANCIAL POSITION
JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 18,806
Accounts receivable 567,372 433,984
Allowance for doubtful accounts (13,296) (20,096)
----------- -----------
Net accounts receivable 554,076 413,888
Advances to Jones Radio Network Ventures, Inc.
(Note 2) - 16,430
Deferred commissions (Note 3) - 50,490
Prepaid expenses 3,715 20,989
----------- -----------
Total current assets 557,791 520,603
----------- -----------
INTANGIBLE ASSETS:
Intangible assets 1,000,000 1,000,000
Accumulated amortization ( 119,984) (279,968)
----------- -----------
Net intangible assets 880,016 720,032
----------- -----------
Total assets $ 1,437,807 $ 1,240,635
=========== ===========
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,501 $ 1,250
Advances from Jones Radio Network Ventures, Inc.
(Note 2) 308,930 -
----------- -----------
Total current liabilities 310,431 1,250
----------- -----------
MEMBERS' EQUITY:
Member contributions 1,000,000 1,000,000
Retained earnings 127,376 239,385
----------- -----------
Total members' equity 1,127,376 1,239,385
----------- -----------
Total liabilities and members' equity $ 1,437,807 $ 1,240,635
=========== ===========
</TABLE>
F-65
The accompanying notes to these unaudited financial statements
are an integral part of these unaudited fianacial statements.
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
UNAUDITED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
REVENUE:
Radio programming revenue:
Advertising, net of commissions $ 536,549 $ 427,128
Licensing fees 21,496 23,883
---------- ----------
Total radio programming revenue 558,045 451,011
---------- ----------
OPERATING EXPENSES:
Radio programming expenses:
Non-affiliated entities 134,783 228,317
Affiliated entities (Note 2) 200,727 161,238
---------- ----------
Total radio programming expenses 335,510 389,555
Selling and marketing - 96,959
General and administrative expenses (Note 2) 64,988 65,253
---------- ----------
Total operating expenses 400,498 551,767
---------- ----------
NET INCOME (LOSS) $ 157,547 $ (100,756)
========== ==========
</TABLE>
The accompanying notes to these unaudited financial statements
are an integral part of these unaudited financial statements.
F-66
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
UNAUDITED STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
Capital Contributions Retained
----------------------------------
Jones Radio Jim Owens Earnings Total
Network & Associates, (Accumulated Members'
Venture, Inc. Inc. Deficit) Equity
-------------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 700,000 $ 300,000 $ (30,171) $ 969,829
Net income - - 157,547 157,547
-------------- --------------- ------------ ----------
BALANCE, JUNE 30, 1997 $ 700,000 $ 300,000 $ 127,376 $1,127,376
============== =============== ============ ==========
BALANCE, DECEMBER 31, 1997 $ 900,000 $ 100,000 $ 340,141 $1,340,141
Net loss - - (100,756) (100,756)
-------------- --------------- ------------ ----------
BALANCE, JUNE 30, 1998 $ 900,000 $ 100,000 $ 239,385 $1,239,385
============== =============== ============ ==========
</TABLE>
The accompanying notes to these unaudited financial statements
are an integral part of these unaudited financial statements.
F-67
<PAGE>
JONES/OWEN RADIO PROGRAMMING, LLC
UNAUDITED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 157,547 $ (100,756)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization expense 83,319 89,988
Net change in assets and liabilities:
Increase in net accounts receivable (423,035) (210,890)
Increase in deferred commission - (50,490)
Decrease (increase) in prepaid expenses 17,851 (9,265)
Decrease in accounts payable and accrued liabilities (1,500) (750)
Net change in advances to/from Jones Radio Network Ventures, Inc. 165,818 226,675
------------ ------------
Net cash used in operating activities - (55,488)
------------ ------------
CASH, BEGINNING OF PERIOD - 74,294
------------ ------------
CASH, END OF PERIOD $ - $ 18,806
============ ============
</TABLE>
The accompanying notes to these unaudited financial statements
are an integral part of these unaudited financial statements.
F-68
<PAGE>
JONES/OWENS RADIO PROGRAMMING, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(1) ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
Jones/Owens Radio Programming, LLC (the "Company") is a limited liability
company which is owned 90% by Jones Radio Network Ventures, Inc. ("JRNV")
and 10% by Jim Owens and Associates, Inc. ("Owens").
The accompanying statements of financial position as of June 30, 1997 and
1998 and the statements of operations and the statements of cash flows for
the six months ended June 30, 1997 and 1998 are unaudited. However, in the
opinion of management, these statements include all adjustments, consisting
of normal recurring adjustments, necessary for the fair presentation of
results for those interim periods. The results of operations for the six
months ended June 30, 1998 are not necessarily indicative of results to be
expected for the entire year, or for any other interim period.
(2) TRANSACTIONS WITH AFFILIATED ENTITIES
-------------------------------------
JRNV is an indirectly owned subsidiary of Jones International, Ltd.
("International"). Certain members of management of the Company are also
officers or directors of other affiliated entities and, from time to time,
the Company may have transactions with these entities. Certain expenses
are paid by affiliated entities on behalf of the Company and are allocated
at cost based on specific identification or other reasonable methods.
Significant transactions with affiliated entities are described below.
Radio Programming Expense - Jones Radio Network, Inc. ("JRN"), an affiliate
-------------------------
of the Company, distributes radio programming for the Company. For the six
months ended June 30, 1997, JRN charged the Company a fee of approximately
$56,000 for radio programming distribution services. The fee represents
approximately 10% of the Company's net revenues for the six months ended
June 30, 1997. Beginning in November 1997, this distribution fee was no
longer charged by JRN to the Company due to an amendment to the original
operating agreement.
In addition, Owens produces radio programming for the Company. For the six
months ended June 30, 1997 and 1998, Owens charged the Company
approximately $145,000 and $161,000, respectively, for radio programming
services.
General and Administrative Expenses - The Company reimburses International
-----------------------------------
for certain allocated administrative expenses. These expenses generally
consist of salaries and related benefits. Allocations of personnel costs
are generally based on actual time spent by affiliated associates with
respect to the Company. International and its affiliates charged the
Company approximately $12,400 and $7,800 for the six months ended June 30,
1997 and 1998, respectively, for these administrative expenses.
Periodically, in the normal course of business, JRNV (1) remits funds on
behalf of the Company to third parties and affiliates in payment for
products and services, purchased by the Company and/or (2) receives funds
on behalf of the Company, primarily from affiliates, in payment for
products and services provided by the Company. These amounts are then
subsequently reimbursed from/to JRNV on a timely basis. Due to their short-
term nature, such amounts outstanding with JRNV are classified as a current
asset or liability in the accompanying financial statements.
(3) DEFERRED COMMISSIONS
--------------------
Sales commissions are amortized over the life of the corresponding
agreements from which the sales commission was paid. The current amount
represents the portion to be amortized within the next 12 months.
F-69
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THE PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
_______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Information...................................................
Prospectus Summary............................................................
Risk Factors..................................................................
The Exchange Offer............................................................
Use of Proceeds...............................................................
Capitalization................................................................
Selected Unaudited Pro Forma Financial Data...................................
Selected Consolidated Financial Data..........................................
Management's Discussion and Analysis of Financial Condition and Results
of Operations..............................................................
Business......................................................................
The Acquisition and Related Transactions......................................
Management....................................................................
Certain Relationships and Related Transactions................................
Principal Shareholders........................................................
Description of Notes..........................................................
Book-Entry, Delivery and Form.................................................
Certain Federal Income Tax Consequences.......................................
Plan of Distribution..........................................................
Legal Matters.................................................................
Independent Auditors..........................................................
Index to Financial Statements................................................. F-1
</TABLE>
JONES INTERNATIONAL NETWORKS, LTD.
LOGO
OFFER TO EXCHANGE
11/3//4% SENIOR SECURED NOTES
DUE 2005
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM,
NEW YORK CITY TIME, ON ___________, 1998,
UNLESS EXTENDED.
Prospectus
Dated October ____, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with the Colorado Business Corporation Act, as amended (the
"Colorado Act"), the Company's articles of incorporation eliminate in certain
circumstances the liability of directors of the Company for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director for: (i) a breach of the director's duty of loyalty
to the Company or its shareholders, (ii) acts or omissions by the director not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) a willful or negligent declaration of an unlawful distribution or
(iv) transactions from which the director derived an improper personal benefit.
The Company's articles of incorporation also provide that the Company shall
indemnify any person and his or her estate and personal representatives against
all liability and expenses incurred by reason of the person being or having been
a director or officer of the Company or, while serving as a director or officer
of the Company, serving at the request of the Company or any of its subsidiaries
as a director, an officer, an agent, an associate, an employee, a fiduciary, a
manager, a member, a partner, a promoter, or a trustee of, or to hold any
similar position with, another domestic or foreign corporation or other
individual or entity or of an employee benefit plan, to the full extent
permitted under the Colorado Act. The Colorado Act requires a corporation to
indemnify its officers and directors against reasonable expenses incurred in any
proceeding to which the officer or director is a party and was wholly
successful, on the merits or otherwise, in defense of the proceeding. In
addition to this mandatory indemnification, the Colorado Act provides that a
corporation may indemnify its officers and directors against liability and
reasonable expenses if the officer or director acted in good faith and in a
manner reasonably relieved to be in the best interests of the corporation in the
case of conduct in an official capacity, in a manner he or she reasonably
believed was at least not opposed to the corporation's best interests in all
other cases, or in a manner he or she had no reasonable cause to believe was
unlawful in the case of criminal proceedings. In actions by or in the name of
the corporation, the Colorado Act provides the same standard but limits
indemnification to reasonable expenses incurred by the director and prohibits
any indemnification if the director was adjudged liable to the corporation. The
Colorado Act also prohibits indemnification of a director in connection with
actions charging improper personal benefit to the director if the director is
adjudged liable on that basis.
ITEM 21. EXHIBITS
The following exhibits are filed as part of this Registration Statement.
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1* Articles of Incorporation of the Company.
3.2* Bylaws of the Company.
4.1* Indenture, dated July 10, 1998, between the Company and United
States Trust Company of New York (the "Indenture").
4.2* Form of Exchange Note is included as Exhibit A-3 to the
Indenture.
4.3* Exchange and Registration Rights Agreement, dated July 10, 1998,
between the Company and NatWest Capital Markets Limited.
4.4* Pledge Agreement, dated July 10, 1998, among the Company, United
States Trust Company of New York and others.
4.5* Form of Subsidiary Guaranty is included as part of the
Indenture
5.1 Opinion of Davis, Graham & Stubbs LLP as to the legality of the
securities being registered
10.1* 1998 Stock Option Plan.
10.2* Form of Basic Incentive Stock Option Agreement.
I-1
<PAGE>
10.3* Form of Basic Non-Qualified Stock Option Agreement.
10.4* Purchase and Sale Agreement dated August 9, 1996, between Jones
Global Group, Inc. and Jones International Networks, Ltd. (n/k/a
JPN, Inc.).
10.5* Exchange Agreement dated September 30, 1996, among Glenn R. Jones,
Jones International, Ltd. and Jones International Networks, Ltd.
(n/k/a JPN, Inc.).
10.6* Agreement and its amendment, dated November 6, 1996 and April 1,
1997, respectively, between Glenn R. Jones and Jones International
Networks, Ltd. (n/k/a JPN, Inc.).
10.7*+ Second Amended and Restated Partnership Agreement of Product
Information Network Venture dated April 1, 1997, among Jones
Infomercial Network Ventures, Inc., Cox Consumer Information
Network, Inc. and Adelphia Communications Corporation.
10.8* Affiliate Agreement dated January 1, 1996, among Great American
Country, Inc., Jones Programming Services, Inc. and Jones
Intercable, Inc
10.9* Amended and Restated Affiliate Agreement dated August 1, 1994,
between Jones Infomercial Networks, Inc. and Jones Intercable,
Inc., together with an Assignment dated January 31, 1995, between
Jones Infomercial Networks, Inc. and Jones Infomercial Network
Ventures, Inc.
10.10*+ Affiliate Agreement dated January 31, 1995, between Product
Information Network Venture and Cox Communications, Inc.
10.11*+ Affiliate Agreement as Amended, dated October 1, 1995 as amended
effective April 1, 1997, between Product Information Network
Venture and Adelphia Communications Corporation.
10.12* Uplink Services Agreement dated January 1, 1995, among Jones Earth
Segment, Inc., Jones Infomercial Networks, Inc., Jones Computer
Network, Ltd., Mind Extension University, Inc. (n/k/a Knowledge TV,
Inc.) and Jones Galactic Radio, Inc., together with a letter
agreement dated June 10, 1998, between Jones Earth Segment, Inc.
and Knowledge TV, Inc.
10.13* Services Agreement dated January 1, 1995, among Jones Earth
Segment, Inc., Jones Infomercial Networks, Inc., Jones Computer
Network, Ltd. and Mind Extension University, Inc. (n/k/a Knowledge
TV, Inc.), together with a letter agreement dated June 10, 1998,
between Jones Earth Segment, Inc. and Knowledge TV, Inc.
10.14* Transponder Licenses Agreement dated January 1, 1995, among Jones
Space Segment, Inc., Jones Infomercial Networks, Inc. and Jones
Computer Network, Ltd., together with a letter agreement dated June
10, 1998, between Jones Space Holdings, Inc. and Knowledge TV, Inc.
10.15* Transponder Licenses Agreement dated January 1, 1995, among Jones
Satellite Holdings, Inc., Jones Galactic Radio, Inc. and Mind
Extension University, Inc. (n/k/a Knowledge TV, Inc.).
10.16*+ C-3/C-4 Satellite Transponder Service Agreement dated July 28,
1989, between GE American Communications, Inc. and Jones Space
Segment, Inc.
10.17* Agreement dated June 2, 1998, among MediaAmerica, Inc., Ron
Hartenbaum, Gary Schonfeld, Jones Network Holdings LLC and the
Company.
10.18* Post-Closing Agreement dated July 10, 1998, with MediaAmerica,
Inc., Gary Schonfeld and Ron Hartenbaum.
10.19* Employment Agreement dated July 10, 1998, between Ron Hartenbaum
and the Company.
10.20* Employment Agreement dated July 10, 1998, between Gary Schonfeld
and the Company.
10.21* Purchase Agreement dated July 2, 1998, between the Company and
NatWest Capital Markets Limited.
II-2
<PAGE>
12 Statement re: Ratio of Earnings to Fixed Charges.
21* Subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of David Berdon & Co. LLP.
23.3 Consent of Davis, Graham & Stubbs LLP. (See Exhibit 5.1).
24* Power of Attorney (included on Signature Page).
25 Statement of Eligibility of United States Trust Company of New York
on Form T-1 with respect to the Senior Secured Notes.
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of W-9.
_________________
*Previously filed.
+Portions of this exhibit have been omitted pending a determination by the
Securities and Exchange Commission that certain information contained therein
shall be afforded confidential treatment.
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the following, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent a no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the
II-3
<PAGE>
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to a registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the city of Denver, state of
Colorado, on October 19, 1998.
JONES INTERNATIONAL NETWORKS, LTD
By: /s/ Gregory J. Liptak
----------------------------
Gregory J. Liptak
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to a Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----<S>
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors October 19, 1998
- ----------------------
Glenn R. Jones
/s/ Gregory J. Liptak President and Director (Principal Executive Officer) October 19, 1998
- ----------------------
Gregory J. Liptak
/s/ Jay B. Lewis Group Vice President/Finance and Director October 19, 1998
- ----------------------
Jay B. Lewis (Principal Financial Officer)
/s/ Keith D. Thompson Chief Accounting Officer (Principal Accounting Officer) October 19, 1998
- ----------------------
Keith D. Thompson
*/s/ Ronald Hartenbaum Director October 19, 1998
- ----------------------
Ronald Hartenbaum
*/s/ Yrma G. Rico Director October 19, 1998
- ----------------------
Yrma G. Rico
- ----------------------
Fred A. Vierra Director
*By /s/ Gregory J. Liptak
-----------------------------
Gregory J. Liptak
Attorney-in-fact
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the co-
registrants listed in Attachment A hereto has duly caused this amendment to a
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the city of Denver, state of Colorado, on October 19,
1998.
THE CO-REGISTRANTS LISTED
IN ATTACHMENT A HERETO
By: /s/ Gregory J. Liptak
----------------------------------------
Gregory J. Liptak
President of each of said co-registrants
Pursuant to the requirements of the Securities Act of 1933, this
amendment to a Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors October 19, 1998
- -----------------------
Glenn R. Jones
/s/ Gregory J. Liptak President and Director (Principal Executive Officer) of October 19, 1998
- -----------------------
Gregory J. Liptak each co-registrant listed on Attachment A
/s/ Jay B. Lewis Vice President/Finance and Director (Principal Financial October 19, 1998
- -----------------------
Jay B. Lewis Officer) of each co-registrant listed on Attachment A
/s/ Keith D. Thompson Chief Accounting Officer (Principal Accounting Officer) of October 19, 1998
- -----------------------
Keith D. Thompson each co-registrant listed on Attachment A
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment B hereto has duly caused this amendment to a registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Denver, state of Colorado, on October 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT B HERETO
By: /s/ Jay B. Lewis
------------------------------
Jay B. Lewis
Vice President/Finance of said
co-registrant
Pursuant to the requirements of the Securities Act of 1933, this
amendment to a Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Gregory J. Liptak
- ------------------------ Chairman of the Board of Directors October 19, 1998
Gregory J. Liptak
*/s/ Ronald Hartenbaum President (Principal Executive Officer) of the co- October 19, 1998
- ------------------------
Ronald Hartenbaum registrant listed on Attachment B
/s/ Jay B. Lewis Vice President/Finance and Director (Principal Financial October 19, 1998
- ------------------------
Jay B. Lewis Officer) of the co-registrant listed on Attachment B
/s/ Keith D. Thompson Chief Accounting Officer (Principal Accounting Officer) of October 19, 1998
- ------------------------
Keith D. Thompson the co-registrant listed on Attachment B
*By /s/ Gregory J. Liptak
----------------------
Gregory J. Liptak
Attorney-in-fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the co-
registrants listed in Attachment C hereto has duly caused this amendment to a
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the city of Denver, state of Colorado, on October 19, 1998.
THE CO-REGISTRANTS LISTED
IN ATTACHMENT C HERETO
By: /s/ Glenn R. Jones
----------------------------------------
Glenn R. Jones
Chief Executive Officer of each of said
co-registrants
Pursuant to the requirements of the Securities Act of 1933, this amendment
to a Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors (Principal Executive October 19, 1998
- -----------------------
Glenn R. Jones Officer) of each co-registrant listed on Attachment C
/s/ Jay B. Lewis Treasurer (Principal Financial Officer) of each co- October 19, 1998
- -----------------------
Jay B. Lewis registrant listed on Attachment C
/s/ Keith D. Thompson Chief Accounting Officer(Principal Accounting Officer) of October 19, 1998
- -----------------------
Keith D. Thompson each co-registrant listed on Attachment C
/s/ Gregory J. Liptak Director October 19, 1998
- -----------------------
Gregory J. Liptak
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment D hereto has duly caused this amendment to a registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Denver, state of Colorado, on October 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT D HERETO
By: /s/ Glenn R. Jones
---------------------------------
Glenn R. Jones
President of said co-registrant
Pursuant to the requirements of the Securities Act of 1933, this amendment
to a Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors and President October 19, 1998
- -----------------------
Glenn R. Jones (Principal Executive Officer) of the co-registrant listed
on Attachment D
/s/ Jay B. Lewis Treasurer(Principal Financial Officer) of the co- October 19, 1998
- ------------------------
Jay B. Lewis registrant listed on Attachment D
/s/ Keith D. Thompson Chief Accounting Officer(Principal Accounting Officer) of October 19, 1998
- ------------------------
Keith D. Thompson the co-registrant listed on Attachment D
/s/ Elizabeth M. Steele Director October 19, 1998
- ------------------------
Elizabeth M. Steele
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the co-
registrants listed in Attachment E hereto has duly caused this amendment to a
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the city of Denver, state of Colorado, on October 19, 1998.
THE CO-REGISTRANTS LISTED
IN ATTACHMENT E HERETO
By:
/s/ Glenn R. Jones
---------------------------------------
Glenn R. Jones
Chief Executive Officer of each of said
co-registrants
Pursuant to the requirements of the Securities Act of 1933, this amendment
to a Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors and Chief Executive Officer October 19, 1998
- ----------------------
Glenn R. Jones (Principal Executive Officer) of each co-registrant listed on
Attachment E
/s/ Jay B. Lewis Treasurer (Principal Financial Officer) of each co-registrant October 19, 1998
- ----------------------
Jay B. Lewis listed on Attachment E
/s/ Keith D. Thompson Chief Accounting Officer (Principal Accounting Officer) of each October 19, 1998
- ----------------------
Keith D. Thompson co-registrant listed on Attachment E
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment F hereto has duly caused this amendment to a registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Denver, state of Colorado, on October 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT F HERETO
By: /s/ Gregory J. Liptak
--------------------------------
Gregory J. Liptak
Manager of said co-registrant
Pursuant to the requirements of the Securities Act of 1933, this amendment
to a Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Gregory J. Liptak Manager (Principal Executive Officer) of the co-registrant October 19, 1998
- ---------------------------------
Gregory J. Liptak listed on Attachment F
/s/ Jay B. Lewis Manager (Principal Financial Officer) of the co-registrant October 19, 1998
- ---------------------------------
Jay B. Lewis listed on Attachment F
/s/ Keith D. Thompson Chief Accounting Officer (Principal Accounting Officer) of October 19, 1998
- ---------------------------------
Keith D. Thompson the co-registrant listed on Attachment F
/s/ Eric Hauenstein Manager of the co-registrant listed on Attachment F October 19, 1998
- ---------------------------------
Eric Hauenstein
Manager of the co-registrant listed on Attachment F
- ---------------------------------
Gus Bailey
Manager of the co-registrant listed on Attachment F
- ---------------------------------
Jim Owens
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment G hereto has duly caused this amendment to a registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Denver, state of Colorado, on October 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT G HERETO
By: /s/ Glenn R. Jones
--------------------------------
Glenn R. Jones
President of said co-registrant
Pursuant to the requirements of the Securities Act of 1933, this amendment
to a Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Glenn R. Jones Chairman of the Board of Directors and President October 19, 1998
- -----------------------------
Glenn R. Jones (Principal Executive Officer) of the co-registrant listed
on Attachment G
/s/ Jay B. Lewis Treasurer and Director (Principal Financial Officer) of October 19, 1998
- -----------------------------
Jay B. Lewis the co-registrant listed on Attachment G
/s/ Keith D. Thompson Chief Accounting Officer (Principal Accounting Officer) October 19, 1998
- -----------------------------
Keith D. Thompson of the co-registrant listed on Attachment G
/s/ Gregory J. Liptak Group Vice President and Director October 19, 1998
- -----------------------------
Gregory J. Liptak
*/s/ Ronald Hartenbaum Director October 19, 1998
- -----------------------------
Ronald Hartenbaum
Director
- -----------------------------
Jeffrey C. Wayne
Director
- -----------------------------
Gary Schonfeld
*By /s/ Gregory J. Liptak
-------------------------
Gregory J. Liptak
Attorney-in-fact
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the co-registrant
listed in Attachment H hereto has duly caused this amendment to a registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of New York, state of New York, on October 19, 1998.
THE CO-REGISTRANT LISTED
IN ATTACHMENT H HERETO
By: /s/ Jay B. Lewis
-----------------------------------------
Jay B. Lewis
Vice President/Finance of said co-registrant
Pursuant to the requirements of the Securities Act of 1933, this amendment
to a Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
*/s/ Ronald Hartenbaum Chairman of the Board of Directors October 19, 1998
- --------------------------
Ronald Hartenbaum
*/s/ Gary Schonfeld
- -------------------------- Chief Executive Officer, President and Director (Principal
Gary Schonfeld Executive Officer) of the co-registrant listed on Attachment H October 19, 1998
/s/ Jay B. Lewis
- -------------------------- Vice President/Finance and Director (Principal Financial October 19, 1998
Jay B. Lewis Officer) of the co-registrant listed on Attachment H
*/s/ Catherine Csukas Chief Accounting Officer (Principal Accounting Officer) of October 19, 1998
- --------------------------
Catherine Csukas the co-registrant listed on Attachment H
/s/ Gregory J. Liptak
- -------------------------- Director October 19, 1998
Gregory J. Liptak
*By /s/ Gregory J. Liptak
-----------------------
Gregory J. Liptak
Attorney-in-fact
</TABLE>
II-13
<PAGE>
ATTACHMENT A
JPN, Inc.
Jones Radio Holdings, Inc.
Jones Space Holdings, Inc.
<PAGE>
ATTACHMENT B
Jones MAI Radio, Inc.
<PAGE>
ATTACHMENT C
Great American Country, Inc.
Jones Infomercial Networks, Inc.
Jones Audio Services, Inc.
Jones Infomercial Network Ventures, Inc.
<PAGE>
ATTACHMENT D
Jones Earth Segment, Inc.
<PAGE>
ATTACHMENT E
Jones Galactic Radio Partners, Inc.
Jones Radio Network, Inc.
Jones Radio Network Ventures, Inc.
<PAGE>
ATTACHMENT F
Jones/Owens Radio Programming LLC
<PAGE>
ATTACHMENT G
Jones Galactic Radio, Inc.
<PAGE>
ATTACHMENT H
MediaAmerica, Inc.
<PAGE>
EXHIBIT 5.1
October 19, 1998
Jones International Networks, Ltd.
9697 East Mineral Avenue
Englewood, Colorado 80112
Re: Registration Statement on Form S-4 Relating to
$100,000,000 Aggregate Principal Amount of
Senior Secured Notes and Guarantees Thereof
Ladies and Gentlemen:
We have acted as counsel to Jones International Networks, Ltd., a
Colorado corporation (the "Company") and JPN, Inc., Jones Space Holdings, Inc.,
Jones Earth Segment, Inc., Jones Infomercial Networks, Inc., Jones Radio
Holdings, Inc., Great American Country, Inc., Jones Galactic Radio, Inc., Jones
Infomercial Network Ventures, Inc., Jones Galactic Radio Partners, Inc., Jones
Radio Network, Inc., Jones Audio Services, Inc., Jones Radio Network Ventures,
Inc., Jones/Owens Radio Programming LLC, Jones MAI, Inc. and Jones MAI Radio,
Inc. (the "Subsidiary Guarantors") in connection with the Company's offer (the
"Exchange Offer") to exchange its 11 3/4% Senior Secured Notes due 2005 to be
registered under the Securities Act of 1933 (the "1933 Act") (the "Exchange
Notes") for any and all of its outstanding 11 3/4% Senior Secured Notes due 2005
(the "Outstanding Notes"). The Outstanding Notes are, and the Exchange Notes
will be, fully and unconditionally guaranteed (the "Subsidiary Guarantees," and
together with the Exchange Notes, the "Securities") on a joint and several basis
by all of the Subsidiary Guarantors. The Outstanding Notes have been, and the
Exchange Notes will be, issued pursuant to an Indenture dated as of July 10,
1998 (the "Indenture"), among the Company, the Subsidiary Guarantors and U.S.
Trust Company of New York, as trustee.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the 1933 Act.
<PAGE>
Jones International Networks, Ltd.
October 19, 1998
Page 2
In connection with such matters, we have examined the Indenture, the
Subsidiary Guarantees and the Registration Statement on Form S-4, filed by the
Company and the Subsidiary Guarantors with the Securities and Exchange
Commission, for the registration of the Securities under the 1933 Act (the
Registration Statement, as amended at the time it becomes effective, hereafter
being referred to as the "Registration Statement"). In addition, we have
examined and relied on originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records and other instruments,
have made such inquiries as to questions of fact of officers and representatives
of the Company and have made such examinations of law as we have deemed
necessary or appropriate for purposes of giving the opinions expressed below.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies.
The following opinions are limited solely to applicable federal law of
the United States of America and the laws of the State of Colorado. We note
that the Securities and the Indenture are stated to be governed by and construed
in accordance with the laws of the State of New York. Accordingly, our opinions
herein assume that the laws of the State of New York are identical with the laws
of the State of Colorado.
Based upon and subject to the foregoing and in reliance thereon, we
are of the opinion that:
1. The issuance and sale by the Company and the Subsidiary
Guarantors, as applicable, of up to $100,000,000 of Securities, as provided in
the Registration Statement, have been duly and validly authorized by all
necessary corporate action of the Company and the Subsidiary Guarantors, as
applicable.
2. Subject to compliance with any applicable State securities laws,
when (i) the Registration Statement has become effective under the 1933 Act,
(ii) the Indenture has been qualified under the Trust Indenture Act of 1939,
(iii) the Exchange Notes have been duly authenticated in accordance with the
Indenture, and (iv) the Securities have been executed, issued and delivered as
contemplated in the Registration Statement and the Prospectus and in accordance
with the Indenture, the Exchange Notes will constitute valid and legally binding
obligations of the Company entitled to the benefits provided by the Indenture
and the Subsidiary Guarantees, and the Subsidiary Guarantees will constitute
valid and legally binding obligations of the respective Subsidiary Guarantor,
except in each case that the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and by general equitable principles.
<PAGE>
Jones International Networks, Ltd.
October 19, 1998
Page 3
We express no opinion as to:
(a) the legality, validity, binding effect or enforceability of any
provision of the Indenture relating to indemnification or exculpation (i) in
connection with violations of any applicable laws, including securities laws,
statutory duties or public policy, (ii) in connection with willful, reckless or
unlawful acts or gross negligence of the indemnified or exculpated party, or
(iii) under circumstances involving the negligence of the indemnified or
exculpated party in which a court might determine the provision to be unfair or
insufficiently explicit;
(b) the legality, validity, binding effect or enforceability of any
provision of the Indenture and the Securities related to choice of governing
law; and
(c) the enforceability of any provision of the Indenture and the
Securities specifying that provisions thereof may be waived only in writing, to
the extent that an oral agreement or an implied agreement by trade practice or
course of conduct has been created that modifies any provision of the Indenture
and the Securities.
To the extent that the obligations of the Company and the Subsidiary
Guarantors may be dependent upon such matters, we assume for purposes of this
opinion that the Indenture is within the capacity and power of, and has been
duly authorized, executed and delivered by, the Trustee, that it is the legal,
valid, binding and enforceable obligation of the Trustee, and that the Trustee
has the requisite corporate or other organizational power and authority to
perform its obligations under the Indenture.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Legal Matters" in the Prospectus included in the
Registration Statement as the counsel who will pass upon the validity of the
Securities. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/DAVIS, GRAHAM & STUBBS LLP
<PAGE>
Exhibit 12
- ---------------------------------------------
Jones International Networks, Ltd.
Ratio to Earnings to Fixed Charges
- ---------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Company as Reported
--------------------------------------------------------------------
June 30,
1993 1994 1995 1996 1997 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss before income taxes and minority interest ($1,628) ($2,692) ($2,544) ($2,711) ($3,932) ($5,326)
Plus:
Fixed Charges (Interest Expense, Net) $3,328 $3,401 $4,006 $4,428 $5,569 $2,541
Non-cash, non-recurring items - - - - $938 $261
Distribution of income of less than 50%
owned entities - $375 $175 $300 $100 $350
Less:
Minority interest - - - ($9) - $0
Equity in income of subsidiaries ($162) ($237) ($11) ($829) ($397) ($73)
--------------------------------------------------------------------
Total earnings (loss) $1,538 $847 $1,626 $1,179 $2,278 ($2,247)
====================================================================
Earnings to fixed charged ratio 46% 25% 41% 27% 41% -
Deficit Amount ($1,790) ($2,554) ($2,380) ($3,249) ($3,291) ($4,788)
<CAPTION>
-------------- ----------
Pro Pro
Forma Forma
------------- ----------
December 31, June 30,
1997 1998
------------- ----------
<S> <C> <C>
Loss before income taxes and minority interest ($6,267) ($8,589)
Plus:
Fixed Charges (Interest Expense, Net) $12,081 $6,062
Non-cash, non-recurring items $938 $261
Distribution of income of less than 50%
owned entities $100 $350
Less:
Minority interest $0 $0
Equity in income of subsidiaries ($227) ($73)
--------------------------
Total earnings (loss) $6,625 ($1,989)
==========================
Earnings to fixed charged ratio 55% -
Deficit Amount ($5,456) ($8,051)
</TABLE>
<PAGE>
[LETTER OF ARTHUR ANDERSEN LLP APPEARS HERE]
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of Amendment No.
1 to Form S-4 Registration Statement File Number 333-62077.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Denver, Colorado,
October 19, 1998.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "EXPERTS" in
the Prospectus forming part of Amendment No. 1 of the Form S-4 Registration
Statement of Jones International Networks, Ltd. and to the incorporation of our
reports, dated July 24, 1998 and January 23, 1998 on the financial statements of
MediaAmerica, Inc., as of June 30, 1998, December 31, 1997 and 1996 and for the
six months ended June 30, 1998 and 1997, and for each of the three years in the
period ended December 31, 1997.
/s/ David Berdon & Co. LLP
DAVID BERDON & CO. LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
October 16, 1998
<PAGE>
EXHIBIT 25
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
__________________
JONES INTERNATIONAL NETWORKS, LTD.
----------------------------------
(Exact name of obligor as specified in its charter)
Colorado
-------- 84-1470911
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
9697 E. Mineral Avenue
----------------------
Englewood, Colorado 80112
------------------- -----
(Address of principal executive offices) (Zip Code)
(Title of the indenture securities)
Offer to Exchange 11 3/4% Senior Secured Notes Due 2005
for all of its outstanding 11 3/4% Senior Secured Notes Due 2005
======================================
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Jones International Networks, Ltd. currently is not in default under any of
----------------------------------
its outstanding securities for which United States Trust Company of New York
is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form
T-1 filed on September 15, 1995 with the Commission pursuant
to the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as amended,
is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform Act
of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform Act
of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee pursuant to
law or the requirements of its supervising or examining authority.
NOTE
====
As of August 20, 1998, the trustee had 2,999,020 shares of Common Stock
------ -- ----
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 20th
----
day of August, 1998.
------ ----
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Patricia N. Glazier
-------------------------------
Name: Patricia N. Glazier
Title: Assistant Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
---------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
-------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
----------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
----------
Total Assets $2,919,930
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,646,049
----------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
----------
Total Liabilities $2,745,347
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
----------
TOTAL STOCKHOLDER'S EQUITY 174,583
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,919,930
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
July 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001067465
<NAME> JONES INTERNATIONAL NETWORKS, LTD.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 JUN-30-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 3,717,169 2,444,772
<SECURITIES> 0 0
<RECEIVABLES> 1,612,168 2,967,942
<ALLOWANCES> 157,405 169,122
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,712,371 5,747,853
<PP&E> 49,559,817 50,098,624
<DEPRECIATION> 20,784,095 23,178,762
<TOTAL-ASSETS> 41,358,128 40,762,004
<CURRENT-LIABILITIES> 15,043,187 12,143,195
<BONDS> 0 0
0 0
0 0
<COMMON> 47,661 47,661
<OTHER-SE> (18,254,106) (23,916,979)
<TOTAL-LIABILITY-AND-EQUITY> 41,358,128 40,762,004
<SALES> 0 0
<TOTAL-REVENUES> 29,111,200 13,731,873
<CGS> 0 0
<TOTAL-COSTS> 26,858,721 16,326,195
<OTHER-EXPENSES> 507,974 2,823,810
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,676,896 2,640,260
<INCOME-PRETAX> (4,835,172) (5,395,298)
<INCOME-TAX> (3,493,175) (5,662,873)
<INCOME-CONTINUING> (3,493,175) (5,662,873)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,493,175) (5,662,873)
<EPS-PRIMARY> (0.79) (1.19)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11 3/4% SENIOR SECURED NOTES DUE 2005
OF
JONES INTERNATIONAL NETWORKS, LTD.
PURSUANT TO THE PROSPECTUS
DATED OCTOBER ____, 1998
THIS OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK TIME, ON
____________, 1998, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE
DISCRETION (THE "EXPIRATION DATE"). TENDERS OF NOTES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail via the enclosed envelope: By Overnight Courier or Express Mail: By Hand:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
P.O. Box 841, Peter Cooper Station 770 Broadway, 13th Floor 111 Broadway, Lower Level
New York, NY 10276-0841 New York, NY 10003 New York, NY 10006
Attention: Corporate Trust and Agency Attention: Corporate Trust and Agency Attention: Corporate Trust and Agency
Services Services Services
</TABLE>
By Facsimile: Phone Number:
(212)420-6155 (800) 225-2398
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY AND PRINT OR TYPE
ALL RESPONSES. YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS
FORM. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES
OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO
THE EXCHANGE AGENT. DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN
ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE TO A NUMBER OTHER THAN AS LISTED ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
<PAGE>
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO
THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR OLD
NOTES TO THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal is to be used by holders ("Holders") of
11 3/4% Senior Secured Notes due 2005 (the "Old Notes") of Jones
International Networks, Ltd. (the "Company") if: (i) certificates
representing Old Notes are to be physically delivered to the Exchange
Agent herewith by such Holders; (ii) tender of Old Notes is to be made
by book-entry transfer to the Exchange Agent's account at the
Depository Trust Company ("DTC") pursuant to the procedures set forth
under the caption "The Exchange Offer -Procedures for Tendering Old
Notes" and "Book-Entry; Delivery and Form" in the Prospectus dated
October _____, 1998 (the "Prospectus"); or (iii) tender of Old Notes
is to be made according to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer - Guaranteed Delivery
Procedures" in the Prospectus, and, in each case, instructions are not
being transmitted through the DTC Automated Tender Offer Program
("ATOP"). The undersigned hereby acknowledges receipt of the
Prospectus. All capitalized terms used herein and not defined shall
have the meanings ascribed to them in the Prospectus.
Holders of Old Notes that are tendering by book-entry transfer to
the Exchange Agent's account at DTC can execute the tender through
ATOP, for which the transaction will be eligible. DTC participants
that are accepting the exchange offer as set forth in the Prospectus
and this Letter of Transmittal (together, the "Exchange Offer") must
transmit their acceptance to DTC; which will edit and verify the
acceptance and execute a book-entry delivery to the Exchange Agent's
account at DTC. DTC will then send an Agent's Message to the Exchange
Agent for its acceptance. Delivery of the Agent's Message by DTC will
satisfy the terms of the Exchange Offer as to execution and delivery
of a Letter of Transmittal by the participant identified in the
Agent's Message. DTC participants may also accept the Exchange Offer
by submitting a notice of guaranteed delivery through ATOP.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
If a Holder desires to tender Old Notes pursuant to the Exchange
Offer and time will not permit this Letter of Transmittal,
certificates representing such Old Notes and all other required
documents to reach the Exchange Agent, or the procedures for book-
entry transfer cannot be completed, on or prior to the Expiration
Date, then such Holder must tender such Old Notes according to the
guaranteed delivery procedures set forth under the caption "The
Exchange Offer - Guaranteed Delivery Procedures" in the Prospectus.
See Instruction 2.
The undersigned should complete, execute and deliver this Letter of
Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
-2-
<PAGE>
- --------------------------------------------------------------------------------
TENDER OF OLD NOTES
- --------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Check Number:_______________________________________________________
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):________________________________________________
Window Ticket Number (if any):__________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Eligible Institution that Guaranteed Delivery:__________________________
- --------------------------------------------------------------------------------
<PAGE>
List below the Old Notes to which this Letter of Transmittal relates.
The name(s) and address(es) of the Registered Holder(s) should be printed, if
not already printed below, exactly as they appear on the Old Notes Tendered
hereby. The Old Notes and the principal amount of Old Notes, in integrals of
$1,000 that the Undersigned wishes to tender should be indicated in the
appropriate boxes. If the space provided is inadequate, list the certificate
number(s) and principal amount(s) on a separately executed schedule and affix
the schedule to this Letter of Transmittal.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
=============================================================================================================================
<S> <C> <C> <C>
PRINCIPAL
Name(s) and Address(es) Amount
of Registered Holder(s) Aggregate Tendered
(Please fill in if blank) Certificate Principal Amount (in integrals of
See Instruction 3. Number(s)* Represented** $1,000 only)**
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Principal
Amount of
Old Notes
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless otherwise specified, the entire aggregate principal amount represented by the Old Notes described above
will be deemed to be tendered. See Instruction 4.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Jones International Networks, Ltd.
(the "Company"), upon the terms and subject to the conditions set forth in its
Prospectus dated October _____, 1998 (the "Prospectus"), receipt of which is
hereby acknowledged, and in accordance with this Letter of Transmittal (which
together constitute the "Exchange Offer"), the principal amount of Old Notes
indicated in the foregoing table entitled "Description of Old Notes" under the
column heading "Principal Amount Tendered." The undersigned represents that it
is duly authorized to tender all of the Old Notes tendered hereby which it holds
for the account of beneficial owners of such Old Notes ("Beneficial Owner(s)")
and to make the representations and statements set forth herein on behalf of
such Beneficial Owner(s).
Subject to, and effective upon, the acceptance for purchase of the
principal amount of Old Notes tendered herewith in accordance with the terms and
subject to the conditions of the Exchange Offer, the undersigned hereby sells,
assigns and transfers to, or upon the order of; the Company, all right, title
and interest in and to all of the Old Notes tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned (with full knowledge that
the Exchange Agent also acts as the agent of the Company) with respect to such
Old Notes, with full powers of substitution and revocation (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(i) present such Old Notes and all evidences of transfer and authenticity to, or
transfer ownership of; such Old Notes on the account books maintained by DTC to,
or upon the order of, the Company, (ii) present such Old Notes for transfer of
ownership on the books of the Company, and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms and conditions of the Exchange Offer as described in
the Prospectus.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants to the Company and the Subsidiary Guarantors that (i) the Exchange
Notes to be acquired by the undersigned and any Beneficial Owner(s) in
connection with the Exchange Offer are being acquired by the undersigned and any
Beneficial Owner(s) in the ordinary course of business of the undersigned and
any Beneficial Owner(s), (ii) the undersigned and each Beneficial Owner are not
participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) except as indicated below, neither the undersigned nor any
Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities
Act of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), of the Company or the Subsidiary Guarantors
and (iv) the undersigned and each Beneficial Owner acknowledge and agree that
(x) any person participating in the Exchange Offer with the intention or for the
purpose of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the Exchange Notes acquired by such person with a
registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K promulgated by the Securities and
Exchange Commission (the "Commission") and cannot rely on the interpretation of
the Staff of the Commission described in the section of the Prospectus entitled
"The Exchange Offer-Resale of The Exchange Notes" and (y) any broker-dealer
that, pursuant to the Exchange Offer, receives Exchange Notes for its own
account in exchange for Old Notes which it acquired for its own account as a
result of market-making activities or other trading activities must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account, it represents and warrants that the
Old Notes to be exchanged for the Exchange Notes were acquired as the result of
market-making activities or other trading activities, and it acknowledges that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. By so acknowledging and by delivering a prospectus, a broker-dealer shall
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
-5-
<PAGE>
The undersigned understands that tenders of Old Notes may be withdrawn
by written notice of withdrawal received by the Exchange Agent at any time prior
to the Expiration Date in accordance with the Prospectus. In the event of a
termination of the Exchange Offer, the Old Notes tendered pursuant to the
Exchange Offer will be returned to the tendering Holders promptly (or, in the
case of Old Notes tendered by book-entry transfer, such Old Notes will be
credited to the account maintained at DTC from which such Old Notes were
delivered). If the Company makes a material change in the terms of the Exchange
Offer or the information concerning the Exchange Offer or waives a material
condition of such Exchange Offer, the Company will disseminate additional
Exchange Offer materials and extend such Exchange Offer, if and to the extent
required by law.
The undersigned understands that the tender of Old Notes pursuant to any
of the procedures set forth in the Prospectus and in the instructions hereto
will constitute the undersigned's acceptance of the terms and conditions of the
Exchange Offer. The Company's acceptance for exchange of Old Notes tendered
pursuant to any of the procedures described in the Prospectus will constitute a
binding agreement between the undersigned and the Company in accordance with the
terms and subject to the conditions of the Exchange Offer. For purposes of the
Exchange Offer, the undersigned understands that validly tendered Old Notes (or
defectively tendered Old Notes with respect to which the Company has waived such
defect or has caused such defect to be waived) will be deemed to have been
accepted by the Company if, as and when the Company gives oral or written notice
thereof to the Exchange Agent.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby, and that when such tendered Old Notes are accepted for purchase
by the Company, the Company will acquire good title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claim or right. The undersigned and each Beneficial Owner will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or by
the Company to be necessary or desirable to complete the sale, assignment and
transfer of the Old Notes tendered hereby.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall not be affected by, and shall survive the death or incapacity
of, the undersigned and any Beneficial Owner(s), and any obligation of the
undersigned or any Beneficial Owner(s) hereunder shall be binding upon the
heirs, executors, administrators, trustees in bankruptcy, personal and legal
representatives, successors and assigns of the undersigned and such Beneficial
Owner(s).
The undersigned understands that the delivery and surrender of any Old
Notes is not effective, and the risk of loss of the Old Notes does not pass to
the Exchange Agent, until receipt by the Exchange Agent of this Letter of
Transmittal, or a manually signed facsimile hereof, properly completed and duly
executed, together with all accompanying evidences of authority and any other
required documents in form satisfactory to the Company. All questions as to form
of all documents and the validity (including time of receipt) and acceptance of
tenders and withdrawals of Old Notes will be determined by the Company, in its
sole discretion, which determination shall be final and binding.
Unless otherwise indicated herein under "Special Issuance Instructions,"
the undersigned hereby requests that any Old Notes representing principal
amounts not tendered or not accepted for exchange be issued in the name(s) of
the undersigned (and in the case of Old Notes tendered by book-entry transfer,
by credit to the account of DTC), and Exchange Notes issued in exchange for Old
Notes pursuant to the Exchange Offer be issued to the undersigned. Similarly,
unless otherwise indicated herein under "Special Delivery Instructions," the
undersigned hereby requests that any Old Notes representing principal amounts
not tendered or not accepted for exchange and Exchange Notes issued in exchange
for Old Notes pursuant to the Exchange Offer be delivered to the undersigned at
the address shown below the undersigned's signature(s). In the event that the
"Special Issuance Instructions" box or the "Special Delivery Instructions" box
is, or both are, completed, the undersigned hereby requests that any Old Notes
-6-
<PAGE>
representing principal amounts not tendered or not accepted for exchange be
issued in the name(s) of, certificates for such Old Notes be delivered to, and
Exchange Notes issued in exchange for Old Notes pursuant to the Exchange Offer
be issued in the name(s) of, and be delivered to, the person(s) at the
address(es) so indicated, as applicable. The undersigned recognizes that the
Company has no obligation pursuant to the "Special Issuance Instructions" box or
"Special Delivery Instructions" box to transfer any Old Notes from the name of
the registered Holder(s) thereof if the Company does not accept for exchange any
of the principal amount of such Old Notes so tendered.
[_] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD OLD NOTES
TENDERED HEREBY IS AN AFFILIATE OF THE COMPANY, OR ANY SUBSIDIARY
GUARANTOR.
[_] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD OLD NOTES
TENDERED HEREBY IS A BROKER-DEALER WHO ACQUIRED SUCH NOTES DIRECTLY FROM
THE COMPANY, ANY SUBSIDIARY GUARANTOR, OR AN AFFILIATE OF THE COMPANY.
[_] CHECK HERE AND COMPLETE THE LINES BELOW IF YOU OR ANY BENEFICIAL OWNER
FOR WHOM YOU HOLD OLD NOTES TENDERED HEREBY IS A BROKER-DEALER WHO
ACQUIRED SUCH NOTES IN MARKET-MAKING OR OTHER TRADING ACTIVITIES OR IS
OTHERWISE SUBJECT TO PROSPECTUS DELIVERY OBLIGATIONS UNDER THE
SECURITIES ACT OF 1933. IF THE BOX IS CHECKED, THE COMPANY WILL SEND 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO TO YOU OR SUCH BENEFICIAL OWNER AT THE ADDRESS
SPECIFIED IN THE FOLLOWING LINES.
Name:______________________________________
Address:___________________________________
___________________________________________
-7-
<PAGE>
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<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Old Notes in a To be completed ONLY if Old Notes in a
principal amount not tendered or not accepted for principal amount not tendered or not accepted for
exchange are to be issued in the name of, exchange are to be sent to or Exchange Notes are to be
someone other than the person(s) whose signature(s) sent to, someone other than the person(s) whose signature(s)
appear(s) within this Letter of Transmittal or appear(s) within this Letter of Transmittal or
issued to an address different from that shown in issued to an address different from that shown in
the box entitled "Description of Old Notes" within the box entitled "Description of Old Notes" within
this Letter of Transmittal. this Letter of Transmittal.
[_] [_]
Issue: Old Notes Delivery: Old Notes
[_] Exchange Notes [_] Exchange Notes
(check as applicable) (check as applicable)
Name ..................................................... Name .....................................................
(PLEASE PRINT) (PLEASE PRINT)
Address................................................... Address...................................................
(PLEASE PRINT) (PLEASE PRINT)
.......................................................... ..........................................................
(ZIP CODE)
(TAX IDENTIFICATION OR SECURITY NUMBER) (TAX IDENTIFICATION OR SECURITY NUMBER)
(SEE SUBSITUTE FORM W-9 HEREIN) (SEE SUBSITUTE FORM W-9 HEREIN)
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(To be completed by all tendering
Holders of Old Notes regardless of whether Old Notes
are being physically delivered herewith)
This Letter of Transmittal must be signed by the registered Holder(s) exactly as
name(s) appear(s) on certificate(s) for Old Notes or, if tendered by a
participant in DTC, exactly as such participant's name appears on a security
position listing as owner of Old Notes, or by the person(s) authorized to become
registered Holder(s) by endorsements and documents transmitted herewith. If
signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations, or others acting in a fiduciary or
representative capacity, please set forth full title and see Instruction 5.
................................................................................
................................................................................
Signature(s) of Registered Holder(s) or Authorized Signatory
(See guarantee requirement below)
Dated: ....................................................................1998
Name(s):........................................................................
........................................................................
(Please Print)
Capacity (Full Title)...........................................................
Address:........................................................................
................................................................................
(Including Zip Code)
Area Code and
Telephone Number................................................................
Tax Identification or
Social Security Number:.........................................................
(Complete Accompanying Substitute Form W-9)
SIGNATURE GUARANTEE
(IF REQUIRED-SEE INSTRUCTIONS 1 AND 5)
Authorized Signature............................................................
Name of Firm....................................................................
[PLACE SEAL HERE]
- --------------------------------------------------------------------------------
-9-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Signature Guarantees. Signatures on this Letter of Transmittal must
be guaranteed by a recognized member of the Medallion Signature Guarantee
Program or by any other "eligible guarantor institution," as such term is
defined in Rule l7Ad-15 promulgated under the Exchange Act (each of the
foregoing, an "Eligible Institution"), unless the Old Notes tendered hereby are
tendered (i) by a registered Holder of Old Notes (or by a participant in DTC
whose name appears on a security position listing as the owner of such Old
Notes) that has not completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" on this Letter
of Transmittal, or (ii) for the account of an Eligible Institution. If the Old
Notes are registered in the name of a person other than the signer of this
Letter of Transmittal, if Old Notes not accepted for exchange or not tendered
are to be returned to a person other than the registered Holder, or if Exchange
Notes are to be issued in the name of or sent to a person other than the
registered Holder, then the signatures on this Letter of Transmittal
accompanying the tendered Old Notes must be guaranteed by an Eligible
Institution as described above. See Instruction 5.
2. Delivery of Letter of Transmittal and Old Notes. This Letter of
Transmittal is to be completed by Holders if (i) certificates representing Old
Notes are to be physically delivered to the Exchange Agent herewith by such
Holders; (ii) tender of Old Notes is to be made by book-entry transfer to the
Exchange Agent's account at DTC pursuant to the procedures set forth under the
caption "The Exchange Offer - Procedures for Tendering Old Notes" and "Book-
Entry; Delivery and Form" in the Prospectus; or (iii) tender of Old Notes is to
be made according to the guaranteed delivery procedures set forth under the
caption "The Exchange Offer - Guaranteed Delivery Procedures" in the Prospectus.
All physically delivered Old Notes, or a confirmation of a book-entry transfer
into the Exchange Agent's account at DTC of all Old Notes delivered
electronically, as well as a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), any required signature
guarantees and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at its address set forth on the cover page
hereto on or prior to the Expiration Date, or the tendering Holder must comply
with the guaranteed delivery procedures set forth below. DELIVERY OF DOCUMENTS
TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
If a Holder desires to tender Old Notes pursuant to the Exchange Offer and
time will not permit this Letter of Transmittal, certificates representing such
Old Notes and all other required documents to reach the Exchange Agent, or the
procedures for book-entry transfer cannot be completed, on or prior to the
Expiration Date, such Holder must tender such Old Notes pursuant to the
guaranteed delivery procedures set forth under the caption "The Exchange Offer -
Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures,
(i) such tender must be made by or through an Eligible Institution; (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Company, or an Agent's Message with
respect to guaranteed delivery that is accepted by the Company, must be received
by the Exchange Agent, either by hand delivery, mail, telegram, telex, or
facsimile transmission, on or prior to the Expiration Date; and (iii) the
certificates for all tendered Old Notes, in proper form for transfer (or
confirmation of a book-entry transfer of all Old Notes delivered electronically
into the Exchange Agent's account at DTC pursuant to the procedures for such
transfer set forth in the Prospectus), together with a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof) and
any other documents required by this Letter of Transmittal, or in the case of a
book-entry transfer, a properly transmitted Agent's Message, must be received by
the Exchange Agent within two business days after the date of the execution of
the Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OR
AGENT'S MESSAGE DELIVERED THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 2,
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE
SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
EXCHANGE AGENT PRIOR TO SUCH DATE.
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<PAGE>
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their Old
Notes for exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the principal amount represented by Old Notes should
be listed on a separate signed schedule attached hereto.
4. Partial Tenders. (Not applicable to Holders who tender by book-entry
transfer). If Holders wish to tender less than the entire principal amount
evidenced by any Old Note submitted, such Holders must fill in the principal
amount that is to be tendered in the column entitled "Principal Amount
Tendered." The minimum permitted tender is $1,000 in principal amount of Old
Notes. All other tenders must be in integral multiples of $1,000 in principal
amount. In the case of a partial tender of Old Notes, as soon as practicable
after the Expiration Date, new certificates for the remainder of the Old Notes
that were evidenced by such Holder's old certificates will be sent to such
Holder, unless otherwise provided in the appropriate box on this Letter of
Transmittal. The entire principal amount that is represented by Old Notes
delivered to the Exchange Agent will be deemed to have been tendered, unless
otherwise indicated.
5. Signatures on Letter of Transmittal Instruments of Transfer and
Endorsements. If this Letter of Transmittal is signed by the registered
Holder(s) of the Old Notes tendered hereby, the signatures must correspond
exactly with the name(s) as written on the face of the certificate(s). If this
Letter of Transmittal is signed by a participant of DTC whose name is shown as
the owner of the Old Notes tendered hereby, the signature must correspond with
the name shown on the security position listing as the owner of the Old Notes.
If any of the Old Notes tendered hereby are registered in the name of two
or more Holders, all such Holders must sign this Letter of Transmittal. If any
of the Old Notes tendered hereby are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any Old Note or instrument of transfer is
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Company of such person's authority to so act must be
submitted.
When this Letter of Transmittal is signed by the registered Holder(s) of
the Old Notes listed herein and transmitted hereby, no endorsements of Old Notes
or separate instruments of transfer are required unless Exchange Notes are to be
issued, or Old Notes not tendered or exchanged are to be issued, to a person
other than the registered Holder(s), in which case signatures on such Old Notes
or instruments of transfer must be guaranteed by an Eligible Institution.
IF THIS LETTER OF TRANSMITTAL IS SIGNED OTHER THAN BY THE REGISTERED
HOLDER(S) OF THE OLD NOTES LISTED HEREIN, THE OLD NOTES MUST BE ENDORSED OR
ACCOMPANIED BY APPROPRIATE INSTRUMENTS OF TRANSFER, IN EITHER CASE SIGNED
EXACTLY AS THE NAME(S) OF THE REGISTERED HOLDER(S) APPEAR ON THE OLD NOTES AND
SIGNATURES ON SUCH OLD NOTES OR INSTRUMENTS OF TRANSFER ARE REQUIRED AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION, UNLESS THE SIGNATURE IS THAT OF AN
ELIGIBLE INSTITUTION.
6. Special Issuance and Delivery Instructions. If certificates for
Exchange Notes or unexchanged or untendered Old Notes are to be issued in the
name of a person other than the signer of this Letter of Transmittal, or if
Exchange Notes or such Old Notes are to be sent to someone other than the signer
of this Letter of Transmittal or to an address other than that shown herein, the
appropriate boxes on this Letter of Transmittal should be completed. All Old
Notes tendered by book-entry transfer and not accepted for payment will be
returned by crediting the account at DTC designated herein as the account for
which such Old Notes were delivered.
-11-
<PAGE>
7. Transfer Taxes. Except as set forth in this Instruction 7, the
Company will pay or cause to be paid any transfer taxes with respect to the
transfer and sale of Old Notes to it, or to its order, pursuant to the Exchange
Offer. If Exchange Notes, or Old Notes not tendered or exchanged are to be
registered in the name of any persons other than the registered owners, or if
tendered Old Notes are registered in the name of any persons other than the
persons signing this Letter of Transmittal, the amount of any transfer taxes
(whether imposed on the registered Holder or such other person) payable on
account of the transfer to such other person must be paid to the Company or the
Exchange Agent (unless satisfactory evidence of the payment of such taxes or
exemption therefrom is submitted) before the Exchange Notes will be issued.
8. Waiver of Conditions. The conditions of the Exchange Offer may be
amended or waived by the Company, in whole or in part, at any time and from time
to time in the Company's sole discretion.
9. Substitute Form W-9. Each tendering owner of an Old Note (or other
payee) is required to provide the Exchange Agent with a correct taxpayer
identification number ("TIN"), generally the owner's social security or federal
employer identification number, and with certain other information, on
Substitute Form W-9, which is provided hereafter under "Important Tax
Information," and to certify that the owner (or other payee) is not subject to
backup withholding. Failure to provide the information on the Substitute Form W-
9 may subject the tendering owner (or other payee) to a $50 penalty imposed by
the Internal Revenue Service and 31% federal income tax withholding on any
interest on Exchange Notes paid to such holder. The box in Part 3 of the
Substitute Form W-9 may be checked if the tendering owner (or other payee) has
not been issued a TIN and has applied for a TIN or intends to apply for a TIN in
the near future. If the box in Part 3 is checked and the Exchange Agent is not
provided with a TIN by the time of payment, the Exchange Agent will withhold 31%
on all such payments of interest on Exchange Notes until a TIN is provided to
the Exchange Agent.
10. Broker-Dealers Participating in the Exchange Offer, Persons Subject
to Prospectus Delivery Requirements. If no broker-dealer or other person subject
to prospectus delivery obligations checks the last box on page 7 of this Letter
of Transmittal, the Company has no obligation under the Exchange and
Registration Rights Agreement to allow the use of the Prospectus for resales of
the Exchange Notes by broker-dealers or others or to maintain the effectiveness
of the Registration Statement (of which the Prospectus is a part) after the
consummation of the Exchange Offer.
11. Requests for Assistance or Additional Copies. Any questions or
requests for assistance or additional copies of the Prospectus, this Letter of
Transmittal or the Notice of Guaranteed Delivery may be directed to the Exchange
Agent at the telephone numbers and location listed above. A Holder or owner may
also contact such Holder's or owner's broker, dealer, commercial bank or trust
company or nominee for assistance concerning the Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH CERTIFICATES REPRESENTING THE OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
-12-
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, an owner of Old Notes whose tendered Old
Notes are accepted for exchange is required to provide the Exchange Agent with
such owner's current TIN on Substitute Form W-9 below. If such owner is an
individual, the TIN is his or her social security number. If the Exchange Agent
is not provided with the correct TIN, the owner or other recipient of Exchange
Notes may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, any interest on Exchange Notes paid to such owner or other
recipient may be subject to 31% backup withholding tax.
Certain owners of Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that owner must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-8 (a "Form W-8"), signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
Backup withholding is not an additional tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the owner is required to notify the Exchange
Agent of the owner's current TIN (or the TIN of any other payee) by completing
the following form, certifying that the TIN provided on Substitute Form W-9 is
correct (or that such owner is awaiting a TIN), and that (i) the owner has not
been notified by the Internal Revenue Service that the owner is subject to
backup withholding as a result of failure to report all interest or dividends or
(ii) the Internal Revenue Service has notified the owner that the owner is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the owner of the Old
Notes. If the Old Notes are registered in more than one name or are not
registered in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9," for
additional guidance on which number to report.
-13-
<PAGE>
<TABLE>
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<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 PLEASE PROVIDE YOUR TIN Social security number(s) or
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY Employer Identification Number(s)
BY SIGNING AND DATING BELOW
_________________________________
--------------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 - Certification - Under the penalties of perjury, I certify that:
INTERNAL REVENUE SERVICE (1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), and
PAYOR'S REQUEST FOR TAXPAYER (2) I am not subject to backup withholding because: (a) I am exempt from
IDENTIFICATION NUMBER backup withholding or (b) I have not been notified by the Internal
("TIN") Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax
return.
--------------------------------------------------------------------------------------------------
SIGNATURE_________________________ PART 3-
DATE______________________________ Awaiting TIN []
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FROM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31%.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF A WAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in The near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable cash payments made to me will be withheld until I provide a taxpayer
identification number.
Signature__________________________ Date__________________________
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<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
11 3/4% SENIOR SECURED NOTES DUE 2005
OF
JONES INTERNATIONAL NETWORKS, LTD.
PURSUANT TO THE PROSPECTUS
DATED OCTOBER _____, 1998
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
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<CAPTION>
<S> <C> <C>
By Mail via the enclosed envelope: By Overnight Courier or Express Mail: By Hand:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
P.O. Box 841, Peter Cooper Station 770 Broadway, 13th Floor 111 Broadway, Lower Level
New York, NY 10276-0841 New York, NY 10003 New York, NY 10006
Attention: Corporate Trust and Agency Attention: Corporate Trust and Agency Attention: Corporate Trust and Agency
Services Services Services
By Facsimile: Phone Number:
(212)420-6155 (800) 225-2398
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION
VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY.
As set forth under the caption "The Exchange Offer - Guaranteed Delivery
Procedures" in the Prospectus dated October _____, 1998 (the "Prospectus") of
Jones International Networks, Ltd. (the "Company") and in Instruction 2 of the
related Letter of Transmittal (the "Letter of Transmittal" and, together with
the Prospectus, the "Exchange Offer"), this form must be used to accept the
Company's offer to exchange its 11 3/4% Senior Secured Notes due 2005 for its 11
3/4% Senior Secured Notes due 2005 (the "Old Notes") if time will not permit the
Letter of Transmittal, certificates representing such Old Notes and other
required documents to reach the Exchange Agent, or the procedures for book-entry
transfer cannot be completed, on or prior to the Expiration Date. This form must
be delivered by an Eligible Institution (as defined in the Prospectus) by mail
or hand delivery, or transmitted, via facsimile, to the Exchange Agent as set
forth above. All capitalized terms used herein but not defined herein shall have
the meaning ascribed to them in the Prospectus.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions to the Letter of Transmittal, such signature guarantee
must appear in the applicable space provided in the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the Letter of Transmittal
(receipt of which are hereby acknowledged), the principal amount of the Old
Notes specified below pursuant to the guaranteed delivery procedures set forth
under the caption "The Exchange Offer - Guaranteed Delivery Procedures" of the
Prospectus.
The undersigned understands that no withdrawal of a tender of Old Notes may
be made on or after the Expiration Date. The undersigned understands that for a
withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal must be timely received by the Exchange Agent at its address
specified on the cover of this Notice of Guaranteed Delivery prior to the
Expiration Date.
The undersigned understands that delivery of Exchange Notes by the Exchange
Agent in exchange for Old Notes tendered and accepted for exchange pursuant to
the Exchange Offer will be made only after timely receipt by the Exchange Agent
of such Old Notes (or book-entry confirmation of the transfer of such Old Notes
into the Exchange Agent's account at DTC) and a Letter of Transmittal (or
facsimile thereof) with respect to such Old Notes properly completed and duly
executed, with any required signature guarantees and any other documents
required by the Letter of Transmittal or a properly transmitted Agent's Message.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Signature(s) of Registered Holder(s) or Date:___________________________________________________
Authorized
Signatory:____________________________________________ Address:________________________________________________
- ------------------------------------------------------ ---------------------------------------------------------------------------
Name(s) of Registered Holder(s):______________________ Area Code and Telephone No._____________________________
______________________________________________________
- ------------------------------------------------------ If Old Notes will be delivered by book-entry
transfer to DTC, check the box below:
- ------------------------------------------------------ [ ]
Principal Amount of Old Notes Tendered:_______________
DTC Account No.:________________________________________
- ------------------------------------------------------
Certificate No.(s) of Old Notes
(if available)________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as its/their name(s) appear on certificate(s) for Old Notes, or if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Old Notes, or by person(s)
authorized to become Holder(s) by endorsements and documents transmitted with
this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must provide the following
information
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):________________________________________________________________________
________________________________________________________________________________
Capacity:_______________________________________________________________________
________________________________________________________________________________
Address(es):____________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
DO NOT SEND OLD NOTES WITH THIS FORM. NOTES SHOULD BE SENT TO THE EXCHANGE AGENT
TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a recognized member of the Medallion Signature
Guarantee Program or any other "eligible guarantor institution," as such term is
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended (each, an "Eligible Institution"), hereby (i) represents that the
above-named persons are deemed to own the Old Notes tendered hereby within the
meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as
amended ("Rule 14e-4"), (ii) represents that such tender of Old Notes complies
with Rule 14e-4, and (iii) guarantees that the Old Notes tendered hereby in
proper form for transfer (pursuant to the procedures set forth in the Prospectus
under the caption "The Exchange Offer - Guaranteed Delivery Procedures"),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) with any required signature guarantee and any
other documents required by the Letter of Transmittal or a properly transmitted
Agent's Message, will be received by the Exchange Agent at its address set forth
above within two business days after the date of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Letter of Transmittal, or
Agent's Message, and Old Notes to the Exchange Agent within the time period
shown herein. Failure to do so could result in a financial loss to such Eligible
Institution.
Name of Firm:___________________________________________________________________
Authorized Signature:___________________________________________________________
Title:__________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Zip Code)
Area Code and Telephone Number:_________________________________________________
Dated: , 1998
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--
Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to give
the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Give the Give the EMPLOYER
SOCIAL SECURITY IDENTIFICATION
For this type of account: number of -- For this type of account: number of --
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account This individual 6. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identification
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(4)
2. Two or more individuals The actual owner of the 7. Corporate account The corporation
(joint account) account or, if combined
funds, the first individual
on the account
(1)
3. Custodian account of a The minor(2) 8. Association, club The organization
minor (Uniform Gift to religious, charitable,
Minors Act) educational or other
tax-exempt
organization
4. a. The usual revocable The grantor-trustee(1) 9. Partnership account The partnership
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under state law
5. Sole proprietorship The owner(3) 10. A broker or registered The broker or nominee
account nominee
11. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a state or local
government, school
district, or prison) that
receives agricultural
program payments
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you
furnish.
(2) Circle the minor's name and furnish the minor's Social Security
number.
(3) Show your individual name. You may also enter your business name.
You may use your Social Security number or employer identification
number.
(4) List first and circle the name of the legal trust, estate, or
pension trust.
Note: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Obtaining a Taxpayer Identification Number
If you do not have a taxpayer identification number, obtain Form SS-5,
Application for a Social Security Card (for individuals), from your local office
of the Social Security Administration, or Form 554, Application for Employer
Identification Number (for businesses and all other entities), from your local
Internal Revenue Service office and apply for a number.
To complete Substitute Form W-9, if you do not have a taxpayer identification
number, check the box "Awaiting TIN" in Part 3, sign and date the Form, and give
it to the requester. Generally, you will then have 60 days to obtain a taxpayer
identification number and furnish it to the requester. If the requester does not
receive your taxpayer identification number within 60 days, backup withholding,
if applicable, will begin and will continue until you furnish your taxpayer
identification number to the requester.
Payees and Payments Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include the
following:
* A corporation.
* A financial institution.
* An organization exempt from tax under section 501(a), or an individual
retirement account, or a custodial account under section 4031b)(7).
* The United States or any agency or instrumentality thereof.
* A state, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
* A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
* An international organization or any agency or instrumentality thereof.
* A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
* A real estate investment trust.
* A common trust fund operated by a bank under section 584(a).
* An exempt charitable remainder trust, or a trust described in section
4947.
* An entity registered at all times during the tax year under the Investment
Company Act of 1940.
* A foreign central bank of issue.
* A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
* Payments to nonresident aliens subject to withholding under section 1441.
* Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
* Payments of patronage dividends where the amount received is not paid in
money.
* Payments made by certain foreign organizations.
* Payments of interest not generally subject to backup withholding include
the following:
* Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
* Payments of tax-exempt interest (including exempt-interest dividends under
section 652).
* Payments described in section 6049(b)(5) to nonresident aliens.
* Payments on tax-free covenant bonds under section 1451.
* Payments made by certain foreign organizations.
* Mortgage interest paid to you.
EXEMPT PAYEES AND PAYMENTS, --Exempt payees described above should file Form W-9
to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE
FORM, RETURN IT TO THE PAYER AND SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A and 6050N and their regulations.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31 % of taxable interest, dividend,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish
your correct taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--WiIIfuIIy falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
