<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JONES INTERNATIONAL NETWORKS, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7922 84-1470911
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
9697 EAST MINERAL AVENUE, ENGLEWOOD, COLORADO 80112, (303) 792-3111
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
JEFFREY C. WAYNE, PRESIDENT, 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:
<TABLE>
<S> <C>
PATRICIA PETERSON, ESQ. WILLIAM M. HARTNETT, ESQ.
Davis, Graham & Stubbs LLP Cahill Gordon & Reindel
370 17(th) Street, Suite 4700 80 Pine Street
Denver, Colorado 80201 New York, New York 10005
(303) 892-9400
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If 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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Class A Common Stock, $.01 par value.... $86,250,000 $22,770
</TABLE>
(1) Includes a proposed maximum offering price of $11,250,000 for shares subject
to the underwriter's over-allotment option.
(2) Estimated solely for the purposes of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933, as amended.
------------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy them in any state
where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION DATED , 2000
Shares
[LOGO]
Jones International Networks, Ltd.
Class A Common Stock
-----------
Prior to this offering, there has been no public market for our Class A
Common Stock. The initial public offering price of our Class A Common Stock is
expected to be between $ and $ per share. We have made
application to list our Class A Common Stock on The Nasdaq Stock Market's
National Market under the symbol [ ].
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments.
We have outstanding two classes of common stock. The holders of Class A
Common Stock are entitled to one vote for each share, whereas the holders of
Class B Common Stock are entitled to 10 votes for each share. Holders of
Class A Common Stock elect 25% of our directors and holders of Class B Common
Stock elect the remaining 75% of our directors.
INVESTING IN THE CLASS A COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
STARTING ON PAGE 11.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Jones
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of Class A Common Stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
J.P. MORGAN & CO.
The date of this prospectus is , 2000.
<PAGE>
------------------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
PROSPECTUS SUMMARY.................. 4
RISK FACTORS........................ 10
USE OF PROCEEDS..................... 21
DIVIDEND POLICY..................... 21
CAPITALIZATION...................... 22
DILUTION............................ 23
SELECTED CONSOLIDATED FINANCIAL
INFORMATION....................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 27
BUSINESS............................ 48
MANAGEMENT.......................... 64
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS...................... 71
PRINCIPAL SHAREHOLDERS.............. 74
DESCRIPTION OF CAPITAL STOCK........ 77
DESCRIPTION OF INDEBTEDNESS......... 79
SHARES ELIGIBLE FOR FUTURE SALE..... 81
UNDERWRITING........................ 83
NOTICE TO CANADIAN RESIDENTS........ 85
LEGAL MATTERS....................... 86
EXPERTS............................. 86
ADDITIONAL INFORMATION.............. 86
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING) ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES
THAT THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION AND THAT ALL
OF THE OUTSTANDING SHARES OF OUR SERIES A CONVERTIBLE PREFERRED STOCK WILL BE
CONVERTED INTO SHARES OF OUR CLASS A COMMON STOCK CONCURRENT WITH COMPLETION OF
THIS OFFERING. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, WHICH
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
JONES INTERNATIONAL NETWORKS, LTD.
OVERVIEW
We own and operate a leading network radio programming business and two
cable television networks and are developing a complementary Internet business.
Through our traditional media businesses, we create, develop and produce network
radio and cable programming that is distributed to more than 2,450 radio
stations and 1,750 cable systems, respectively, throughout the United States. We
provide advertisers with the ability to reach approximately 64 million weekly
radio listeners and 40 million cable viewing households on a full- or part-time
basis. We currently operate multiple web sites that extend our traditional media
content and personalities to the Internet and allow us to capitalize on Internet
advertising and e-commerce opportunities. As a complement to our programming
businesses, we own and operate a leading network advertising sales business that
provides advertisers with an efficient means to reach national radio and cable
television audiences as well as Internet users. We also provide satellite
services to facilitate the distribution of our programming and that of other
companies.
We expect the demand for radio and cable television programming content to
increase dramatically during the next several years, primarily as a result of
technological advances such as audio and video streaming over the Internet,
satellite radio and digital cable television. The growing popularity of the
Internet creates a need for additional programming content that will attract
viewers to web sites for extended time periods. In this expanding distribution
environment, we believe that there will be strong demand for branded programming
content that can be channeled across multiple media outlets. We believe that we
are well-positioned to benefit from this increased demand for content.
Our portfolio of businesses includes the following:
- PROGRAMMING CONTENT
RADIO. We produce or license over 2,000 hours of original radio
programming weekly. This programming is comprised of twelve 24-hour formats
and 19 syndicated programs. Our radio programming covers a wide variety of
genres, such as country, adult contemporary, talk and Hispanic. It features
well-known syndicated programs such as The Crook & Chase Country Countdown,
Delilah and The Dennis Prager Show.
CABLE TELEVISION. We own and operate two cable television networks,
Great American Country (GAC) and the Product Information Network (PIN). GAC
is a 24-hour country music video network reaching nearly 12 million cable
households. PIN, a joint venture with Cox Communications, Inc., airs
long-form paid programming produced by advertisers and infomercial
providers. PIN reaches more than 30 million households on a full- or
part-time basis.
INTERNET. We have developed multiple web sites that complement our radio
and cable programming content and are developing additional sites. To extend
GAC and our country radio programming content to the Internet, we developed
CountryStars.com, a portal catering to the "country" lifestyle.
RadioDelilah.com and DennisPrager.com are examples of our web sites that
extend our personality-driven radio programs to the Internet. Our web sites
provide valuable cross-promotion and e-commerce opportunities.
4
<PAGE>
- ADVERTISING SALES SERVICES
We currently represent more than 90 network radio programs or services,
including over 60 programs produced by third parties that are distributed to
approximately 6,000 radio stations. In addition, we sell network advertising
for our two cable networks. In early 2000, we expect to begin providing
advertising sales services to our web sites and to web sites owned by third
parties. In addition, we have an exclusive long-term agreement to provide
advertising sales services to Sirius Satellite Radio, one of only two
licensed satellite radio providers in the United States. Sirius is expected
to launch its service in the fourth quarter of 2000 with 100 channels of
digital radio service, of which 50 will carry commercials.
- SATELLITE SERVICES
We provide satellite delivery and production support services for GAC,
PIN and cable channels operated by other companies. We own two satellite
transponders and an uplink facility. Ownership of these assets allows us to
control the distribution of our radio and cable programming. It also
provides us with a cost-effective platform for launching new radio and cable
networks. We generate additional revenues from leasing excess satellite
capacity and providing related support services to other cable programmers.
We believe that our ability to develop and distribute programming content
across multiple forms of media allows us to capitalize on significant operating
synergies arising from our radio, cable television and Internet programming
businesses and to generate strong revenue and cash flow growth. For the nine
months ended September 30, 1999, we generated $44.6 million of revenue,
$7.9 million of EBITDA and $2.0 million of operating income, representing an
increase of 78.7%, 285.6% and 185.7%, respectively, as compared to the nine
month period ending September 30, 1998. Assuming that the acquisitions that we
completed in 1998 and 1999 had been completed on January 1, 1998, our revenue,
EBITDA and operating income for the nine months ended September 30, 1999 would
have been $49.4 million, $9.5 million and $1.9 million, respectively,
representing an increase of 38.4%, 154.5% and 151.8%, respectively, as compared
to the same period in 1998.
COMPETITIVE STRENGTHS
We believe we have the following competitive strengths:
EFFICIENT MEANS FOR ADVERTISERS TO REACH TARGETED AUDIENCES. Through our
varied programming formats, multiple distribution channels and experienced sales
organization, we can aggregate a large, national audience according to specific
demographics, providing advertisers with an efficient, cost-effective means to
reach desired audiences across multiple media platforms.
EXCLUSIVE, PERSONALITY-DRIVEN PROGRAMMING. We have an established history
of identifying and attracting successful on-air personalities and developing
radio and cable television programs that generate a significant and loyal
audience. Our exclusive programming includes such widely recognized shows as
Delilah, The Crook & Chase Country Countdown and Neon Nights.
VALUE CREATION THROUGH CROSS-PROMOTION AND BRANDING. We cross-promote and
brand our programming content in an effort to encourage our audience to seek out
and access our content across multiple platforms. Our cross-promotion strategy
utilizes traditional commericials, as well as in-program and on-air promotions
by our popular personalities. For example, our CountryStars.com web site is
promoted on GAC, our three 24-hour country radio formats and through our four
syndicated country radio programs.
ESTABLISHED NATIONAL ADVERTISING SALES ORGANIZATION. We have a 15 person
sales force with offices in New York, Los Angeles, Chicago, Detroit, Dallas and
Denver and intend to open an office in Nashville in the first half of 2000. With
an average of 16 years of advertising sales experience, our sales force has
established long-term relationships with many national advertisers and
advertising agencies. As a result,
5
<PAGE>
we are well-positioned to assist national advertisers in developing
complementary advertising programs spanning all three of our media platforms.
ABILITY TO LEVERAGE EXISTING INFRASTRUCTURE TO DEVELOP NEW REVENUE
OPPORTUNITIES. We have made a substantial investment in our advertising sales,
affiliate sales, content development and satellite distribution capabilities. We
intend to leverage these resources to develop new program offerings for radio,
cable television and the Internet at a low incremental cost. In addition, we
have an extensive library of audio and video content for distribution across
multiple platforms, including the Internet, in a cost-effective manner.
EXPERIENCED MANAGEMENT TEAM. Our chairman, Glenn R. Jones, a prominent
leader in the cable television industry, was the founder, Chairman and Chief
Executive Officer of Jones Intercable, Inc., a top ten multiple system cable
operator. In addition to Mr. Jones, we have assembled a senior management team
with extensive experience in all areas of our business. With an average of over
20 years of relevant industry experience for our top five executives, we enjoy
long-term relationships with advertisers, advertising agencies, cable and radio
affiliates, the music recording industry and independent producers of network
programming.
OPERATING STRATEGY
Our operating strategy is designed to take advantage of the increasing
demand for programming content while leveraging our core competencies. This
strategy includes the following:
- develop high quality, personality-driven programming;
- increase programming distribution;
- increase advertising sales revenues;
- enhance revenue growth by capitalizing on Internet revenue opportunities;
- develop new cable programming networks;
- leverage cross-media platform synergies;
- recruit and retain experienced management; and
- pursue acquisitions that enhance our existing business or provide access
to new, related businesses.
An important part of our business strategy is to pursue acquisitions and
ventures that enhance our existing businesses or provide entry to new related
businesses. Our recent acquisitions of Broadcast Programming in August 1999 and
MediaAmerica in July 1998 demonstrate this strategy. Broadcast Programming,
which we acquired for $20.9 million, owns and distributes two high-growth
syndicated radio programs, Delilah and Neon Nights, and provides a wide spectrum
of programming and programming consulting services to approximately 800 radio
stations. MediaAmerica, which we acquired for $26.7 million in cash and
$6.0 million of Class A Common Stock, operates a network radio advertising sales
business and owns several syndicated radio programs. This acquisition became the
basis for our in-house advertising sales services business.
BACKGROUND
We are a Colorado corporation incorporated in 1998 and are the successor to
certain affiliated entities that previously conducted our businesses. We are a
holding company. Our operations are conducted through a number of subsidiaries,
including Jones Radio Networks and Broadcast Programming (radio programming),
Great American Country and Product Information Network Venture (cable television
programming), MediaAmerica (advertising sales services) and Jones Direct
(Internet operations). Our principal shareholder is Jones International, Ltd.,
which owns a number of subsidiaries with which we have business dealings. Until
recently, Jones International, Ltd. owned a controlling interest in Jones
Intercable, Inc.
Our corporate offices are located at 9697 East Mineral Avenue, Englewood,
Colorado 80112. Our telephone number is (303) 792-3111.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered................. shares
Common Stock to be outstanding after this
offering................................... shares of Class A Common Stock(1)
shares of Class B Common Stock(2)
Voting rights................................ Holders of Class A Common Stock are entitled
to one vote per share and are entitled to
elect 25% of our directors. Holders of Class
B Common Stock are entitled to ten votes per
share and are entitled to elect 75% of our
directors.
Use of proceeds.............................. We intend to use the net proceeds from the
offering to repay debt, for working capital
and for general corporate purposes, including
acquisitions. General corporate purposes
include developing our Internet business and
making cable programming distribution
payments to cable operators for carrying GAC.
Nasdaq Symbol................................
</TABLE>
- ----------
(1) Class A Common Stock to be outstanding after this offering is based on
shares outstanding as of . This number excludes 343,500 shares
of Class A Common Stock issuable upon exercise of outstanding options under
our stock option plan, and 56,500 shares of Class A Common Stock available
for issuance under our stock option plan pursuant to options that have not
yet been granted.
(2) Class B Common Stock to be outstanding after this offering is based on
shares outstanding as of . Each share of Class B Common Stock is
convertible at any time, at the option of the holder, into one share of
Class A Common Stock.
7
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize certain financial and operating data for our
business. This information should be read with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes to those statements included elsewhere in this
prospectus. The comparability of the historical financial data has been
significantly affected by our recent acquisitions.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------- -------------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE, PER SHARE AND RADIO STATION AFFILIATE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues
Programming content
Radio..................................... $ 6,978 $ 10,200 $ 10,041 $ 6,623 $ 12,353
Cable television.......................... 1,153 12,002 16,892 11,992 19,229
Internet.................................. -- -- -- -- --
Advertising sales services.................. -- -- 5,107 2,362 6,455
Satellite services.......................... 8,523 6,910 6,172 3,988 6,567
--------- --------- --------- --------- ---------
Total revenues............................ 16,654 29,112 38,212 24,965 44,604
--------- --------- --------- --------- ---------
Operating expenses
Programming content
Radio..................................... 4,163 5,816 7,778 5,468 8,098
Cable television.......................... 1,157 9,272 14,231 10,418 15,738
Internet.................................. -- -- -- -- --
Advertising sales services.................. -- -- 1,129 482 2,776
Satellite services.......................... 5,451 4,685 5,240 3,791 3,921
Selling and marketing....................... 1,737 2,918 4,869 3,073 4,772
General and administrative.................. 3,270 4,168 6,728 4,052 7,312
--------- --------- --------- --------- ---------
Total operating expenses.................. 15,778 26,859 39,975 27,284 42,617
--------- --------- --------- --------- ---------
Operating income (loss)................... 876 2,253 (1,763) (2,319) 1,987
--------- --------- --------- --------- ---------
Interest expense, net......................... 4,428 5,569 8,195 5,369 8,881
Other (income) expense, net................... (841) 616 1,228 927 14
Income tax provision (benefit)................ (387) (1,342) 49 15 411
Minority interest............................. (9) 903 215 38 611
--------- --------- --------- --------- ---------
Net loss.................................. $ (2,315) $ (3,493) $(11,450) $ (8,668) $ (7,930)
========= ========= ========= ========= =========
Net loss per common share..................... $ (0.56) $ (0.79) $ (2.13) $ (1.75) $ (1.30)
Weighted average shares outstanding........... 4,103,573 4,400,448 5,372,644 4,949,776 6,094,844
OTHER DATA:
EBITDA(a)..................................... $ 5,352 $ 6,561 $ 4,290 $ 2,039 $ 7,862
Depreciation and amortization:
Satellite services.......................... 3,945 4,100 3,965 2,989 3,006
General and administrative.................. 417 537 1,633 902 2,414
Other....................................... 114 531 668 473 1,079
--------- --------- --------- --------- ---------
Total depreciation and amortization....... 4,476 5,168 6,266 4,364 6,499
Capital expenditures.......................... 2,969 1,367 2,258 1,916 588
Cable programming distribution payments(b).... -- -- 3,064 1,129 3,761
Net cash provided by (used in)
Operating activities........................ 4,776 7,589 (7,310) (7,537) (777)
Investing activities........................ (3,971) (1,156) (35,021) (32,066) (27,313)
Financing activities........................ (807) (2,720) 59,268 58,385 20,100
AUDIENCE DATA (at end of period; unaudited):
Radio station AQH (24-hour formats)(c)........ 2,180 2,296 2,369 -- 2,188
Radio station AQH (syndicated)(c)............. 834 1,048 6,090 -- 12,355
Radio station affiliates(d)................... 1,273 1,484 2,146 2,337 2,499
Great American Country households(e).......... 1,049 1,550 7,131 4,819 10,959
Product Information Network households(e)..... 8,111 11,497 20,634 18,970 28,110
Product Information Network FTREs(f).......... 4,803 7,036 8,647 8,056 11,683
BALANCE SHEET DATA (at end of period):
Cash and cash equivalents(g).................. $ 4 $ 3,717 $ 10,654 $ 12,499 $ 12,664
Working capital (deficiency).................. (6,615) (9,331) 16,047 18,421 9,600
Total assets.................................. 38,298 41,358 110,894 110,973 124,793
Total long-term debt(h)....................... 53,277 45,312 100,000 100,000 100,000
Shareholder's equity (deficit)................ (23,269) (18,206) (11,333) (8,727) 954
</TABLE>
8
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- ---------------
(a) EBITDA is unaudited and represents operating income (loss) plus depreciation
and amortization minus EBITDA attributable to the minority interests in the
PIN Venture, a consolidated 55.3%-owned subsidiary. Management acknowledges
that EBITDA is not a measure of performance or liquidity calculated in
accordance with generally accepted accounting principles. However, EBITDA is
a measure widely used by analysts and investors in the media industry to
determine a company's operating performance and ability to service and incur
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.
(b) Cable programming distribution payments made by GAC to multiple system cable
television operators for carrying GAC programming. These payments are
reflected as intangible assets on the balance sheet and are amortized over
the life of the affiliate agreements (usually 5 to 10 years).
(c) AQH represents the average audience estimated to have listened, for a
minimum of five minutes during any quarter hour, to a radio station
broadcasting our advertising . For the 24-hour formats, the period used to
determine AQH is Monday through Friday, 6am to 7pm. The period used to
determine AQH for syndicated programs is the time during which the
commercials associated with the programs or services are broadcast. These
AQH estimates are derived from data provided by Marketron (a third party
processor) that is based on Arbitron copyrighted and proprietary audience
estimates. They are not estimates produced by Arbitron. Radio advertising is
generally sold on the basis of the listening audience as quantified by AQH.
Beginning in the period ended December 31, 1998, we have excluded the AQH
related to non-recurring specials. AQH (24-hour formats) has been restated
for periods prior to 1998 to reflect our creation in 1998 of a second
selling network resulting from the division of our then-existing network.
This division more accurately reflects our audience to radio advertisers.
The effect of this restatement is to make periods prior to 1998 comparable
to 1998 and later periods. AQH data as of the nine months ended
September 30, 1998, is not available.
(d) Represents the number of non-dulipcating radio station affiliates receiving
our programs at the end of the periods indicated.
(e) Represents the total number of subscribers at the end of the periods
indicated.
(f) FTREs represent the number of full-time revenue equivalent subscribers
receiving PIN at the end of the periods indicated. FTRE weights part-time
subscribers based on the daypart carried and the revenue associated
therewith.
(g) Excludes restricted cash of $10 million at December 31, 1998 and
September 30, 1998.
(h) Includes current and non-current maturities of long-term debt and capital
lease obligations.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS IN ADDITION TO THE
REMAINDER OF THIS PROSPECTUS BEFORE PURCHASING OUR CLASS A COMMON STOCK. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE INTENDED TO HIGHLIGHT RISKS THAT ARE
SPECIFIC TO US AND ARE NOT THE ONLY ONES THAT WE MAY FACE. ADDITIONAL RISKS AND
UNCERTAINTIES, SUCH AS THOSE THAT GENERALLY APPLY TO BUSINESS ENTERPRISES IN OUR
INDUSTRY, MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR OPERATING RESULTS WOULD LIKELY SUFFER. IN THAT CASE, THE TRADING
PRICE OF OUR CLASS A COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS FOR MANY REASONS, INCLUDING THE FACTORS
DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD NOT PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.
WE HAVE A HISTORY OF NET LOSSES.
We cannot assure if or when we will achieve or sustain profitability. We had
net losses of $(2.3) million, $(3.5) million, $(11.5) million and $(7.9) million
and operating income (loss) of $0.9 million, $2.3 million, $(1.8) million and
$2.0 million, for the years ended December 31, 1996, 1997 and 1998 and the nine
months ended September 30, 1999, respectively. Net losses have resulted in an
accumulated deficit of $46.8 million as of September 30, 1999. Failure to
achieve profitability could adversely affect the market price of our Class A
Common Stock, which in turn could adversely affect our ability to raise
additional equity capital. In addition, our ability to incur additional
indebtedness and to make investments depends significantly on our ability to
generate cash flow from operations.
HOLDERS OF CLASS A COMMON STOCK WILL HAVE LIMITED VOTING POWER.
Holders of Class A Common Stock have limited voting rights. Holders of our
Class A Common Stock are entitled to one vote per share, while holders of
Class B Common Stock are entitled to ten votes per share on all matters where
all shareholders vote together as a single class. There is class voting for
directors, with holders of Class A Common Stock entitled to elect approximately
25% of our directors and holders of the Class B Common Stock entitled to elect
approximately 75% of our directors. Following completion of this offering, Glenn
R. Jones, chairman of our board of directors, will beneficially own 100% of the
voting power of our outstanding Class B Common Stock, approximately % of the
voting power of our outstanding Class A Common Stock and approximately % of
the total voting power of all outstanding common stock, considering both classes
together. Thus, Mr. Jones will have the power to elect our entire Board and to
otherwise control all matters requiring shareholder approval, including
transactions involving a change of control, such as a sale or merger, in which
shareholders might otherwise receive a premium over the current market price.
This, in turn, could reduce the market price of the Class A Common Stock. See
"Management--Directors, Executive Officers and Key Employees."
WE ARE CONTROLLED BY ONE SHAREHOLDER, WHOSE INTERESTS MAY DIFFER FROM THOSE OF
OTHER SHAREHOLDERS.
The investment considerations that are important to Mr. Jones may be
different from those that are important to our other shareholders. For example,
the time period over which Mr. Jones expects to realize the benefits of his
investment may differ from that of other shareholders, and his evaluation of our
possible strategic alliances could be affected by their possible dilutive impact
on his voting control.
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WE HAVE A SIGNIFICANT AMOUNT OF DEBT OUTSTANDING AND WE WILL NEED TO INCREASE
OUR CASH FLOWS TO MEET OUR PRINCIPAL REPAYMENT OBLIGATIONS.
After application of a portion of the proceeds of this offering, our
indebtedness will include approximately $65 million of our 11 3/4% Senior
Secured Notes due 2005. We also have the ability to borrow up to $20 million
under our credit facility, which expires June 30, 2000, unless extended. As a
result of our indebtedness:
- substantial amounts of the cash flow from our operations will have to be
used for the payment of principal and interest on our Senior Notes and on
our other indebtedness, if any, and therefore will not be available to use
in our operations;
- it will be more difficult to obtain additional financing in the future on
favorable terms, or at all, to use for working capital, acquisitions,
capital expenditures, refinancing or other purposes; and
- we will be more vulnerable to changes in economic conditions generally and
in our industry and may not be able to withstand competitive pressures,
keep pace with technological developments, make acquisitions, enter into
ventures or capitalize on business opportunities.
Timely payment of the principal of our Senior Notes will require an increase
in cash flows from operations. This, in turn, will require a significant
increase in revenues and will continue to be affected by various factors
discussed in this prospectus, including in this section and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Unless we realize these increases, we may be unable to meet obligations under
our Senior Notes and our other indebtedness. Our cash flow depends upon our
future performance and financial, economic and other factors, some of which are
beyond our control.
If we are unable to generate cash flow from operations in amounts sufficient
for us to be able to pay our debts as they become due, we may be required to
refinance all or a portion of our debt, sell some or all of our assets or sell
additional equity securities at prices that may be dilutive to existing
investors. We may not be able to refinance all or a portion of our debt or sell
our equity securities or assets on a timely basis, on acceptable terms or at
all.
OUR OUTSTANDING DEBT AND RESTRICTIVE TERMS OF OUR INDENTURE MAY MAKE IT MORE
DIFFICULT FOR US TO OBTAIN THE BANK OR OTHER FINANCING WE WILL NEED TO IMPLEMENT
OUR STRATEGY.
Our business strategy will likely require us to incur additional debt to
support our growth. This strategy may not be achievable because of our high
level of debt and the restrictions imposed by the indenture governing our Senior
Notes. The indenture restricts our ability to incur debt, make distributions,
sell assets, create liens, make investments or engage in mergers and
acquisitions. The indenture also restricts our ability to sell a minority
interest in our subsidiaries or operate through joint ventures (such as the PIN
Venture), a form of entity that is typically used in the businesses in which we
operate and which, if not available, limits our ability to respond to market
opportunities. These restrictions reduce our operating flexibility and may
prevent us from expanding our existing businesses or developing or acquiring
businesses.
Banks or other financial institutions may not be willing to lend to us,
particularly in light of the significant amount and terms of our Senior Notes.
Further, they may not be willing to lend on terms that are acceptable to us. Our
inability to obtain bank or other financing could negatively affect our ability
to meet our cash needs and could limit our ability to implement our business
strategy.
WE MAY NOT BE ABLE TO MAINTAIN OR INCREASE DISTRIBUTION OF OUR RADIO
PROGRAMMING.
Our ability to maintain or increase the distribution of our radio
programming is dependent upon, among other factors, our ability to assess
consumer preferences accurately and to develop, acquire and
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distribute radio programming that is attractive to radio stations and their
listeners. We cannot assure you that we will be able to continue to develop or
acquire radio programming that will be accepted in our targeted markets or that
we will be able to enter into new affiliation agreements, or maintain our
existing affiliation agreements, with radio stations. As radio station ownership
is consolidated into larger station groups, more radio station owners may
develop and produce content in-house, thereby reducing their need for the type
of radio programming we provide.
WE DEPEND ON ADVERTISING REVENUES AND MAY NOT BE ABLE TO MAINTAIN OR INCREASE
THESE REVENUES IN THE FUTURE.
We are heavily dependent on advertising revenues. For the nine months ended
September 30, 1999, advertising revenues comprised 80% of our total revenues. In
order to attract advertisers, we must demonstrate that our radio and cable
television networks and Internet sites are able to deliver the type and quantity
of audience that advertisers seek to reach.
In our industry advertising revenue can be adversely affected by competitive
and other conditions, many of which are beyond our control, including:
- general economic downturns;
- the amount of funds that advertisers dedicate to radio, cable television
and Internet advertising, in general and to our networks, in particular;
- the popularity of programming which we provide and ratings achieved by
radio station affiliates that broadcast our radio programming or utilize
our services;
- seasonal fluctuations in advertising revenues in the radio and cable
television industries;
- the number of advertisers who seek audiences within the demographic groups
our programming targets;
- the number of advertisers that require a network to subscribe to a
particular rating service, the cost of that service and whether we
subscribe to that service;
- competition in national and regional markets from radio, television,
Internet and other media;
- regulatory restrictions on advertising of certain products (such as beer,
wine, liquor or cigarettes); and
- the continued popularity of traditional radio and cable television as
entertainment media, particularly in light of competition from other
entertainment sources, including the Internet.
We cannot assure you that we will be able to maintain our existing
advertisers or attract additional advertisers in the future. If we are not able
to do so, our advertising revenues and operating results could be negatively
affected.
GAC's growth contemplates a shift in the source of its advertising revenues
from lower rate direct response advertising to higher rate spot advertising.
This transition will be highly dependent on GAC's ability to expand its
subscriber base, obtain sufficient television ratings from a national rating
service and assemble an effective national advertising sales group. Similarly,
PIN's growth is largely dependent on increasing distribution to cable television
subscribers and, to a lesser extent, increasing the number of hours of
advertising from non-traditional long-form advertisers. We cannot assure you
that GAC and PIN will be successful in these growth efforts.
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WE DEPEND ON OUR DISTRIBUTION OF TELEVISION PROGRAMMING AND MAY NOT BE ABLE TO
MAINTAIN OR INCREASE THIS DISTRIBUTION IN THE FUTURE.
Growth in our television programming business is largely dependent on
increasing the distribution of GAC and PIN through cable television systems and
other video distributors. GAC and PIN compete for a limited number of available
cable channels with a large number of other cable television programmers
supplying a variety of 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 we are not able or willing to match.
A significant amount of cable programming distribution is controlled by
multiple-system operators (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 us could result in a loss of subscribers if the new
owners do not retain our programming; the number of lost subscribers and the
amount of lost revenues could be material.
PIN's affiliation agreements with systems operated by an MSO or with an MSO
do not guarantee PIN carriage and, in many cases, these agreements do not
provide for the distribution of PIN's programming on a full-time basis. Most
affiliation agreements are short-term in nature. Many of the MSOs that carry PIN
may also carry programming with which PIN competes. See "--Product Information
Network has structural, organizational and operating risks."
Some of our affiliation agreements allow MSOs to delete our programming on a
system-by-system basis. Because advertising revenues generated by GAC and PIN
are a function of distribution, which declines when deletions occur, success in
the distribution of our cable television programming will directly affect the
amount of advertising revenues generated by our cable television networks.
Further, distribution also directly affects the amount of license fees generated
by GAC.
Our expansion plans for GAC and PIN are dependent, in part, upon our ability
to retain and expand our distribution to more subscribers under existing
affiliation agreements, to renew existing affiliation agreements and to obtain
affiliation agreements with additional MSOs and video programming distributors.
We cannot assure you that we will be able to negotiate new affiliation
agreements, expand our distribution or retain or renew existing affiliation
agreements.
WE DEPEND ON A CONSISTENT SUPPLY OF MUSIC VIDEOS FROM RECORD COMPANIES.
GAC is highly dependent on timely access to music videos, which provide the
programming content that attracts viewers and advertisers to the network. GAC
relies on record companies to supply these music videos. Record companies could
decide to cease production of videos, reduce the number being produced or could
decide to charge a fee for videos. In the past, a competitor has attempted to
enter into exclusive agreements with record companies which would have
eliminated our access to this supply. If this source of music videos were not to
continue, there may not be a satisfactory replacement source and our content,
distribution and viewership could suffer. We cannot assure you that this or
another competitor may not be successful in the future in limiting our source of
programming through exclusive agreements with record companies. See "--We may
not be able to compete effectively against our competitors."
WE MAY BE UNABLE TO EXECUTE OUR INTERNET STRATEGY.
We anticipate spending significant capital in the future to realize our
Internet strategy and expect to encounter difficulties establishing ourselves in
the Internet market. We have limited experience in creating and distributing
content, selling merchandise and advertising through the Internet. Competition
for Internet users' attention and spending is growing rapidly. The technical
infrastructure of the
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Internet and our Internet businesses may not be able to adequately serve the
increasing consumer demand. This may result in slowed growth or a decline in
visitors to our web sites.
We have not produced any significant Internet revenues to date and we cannot
assure you that we will be able to develop Internet merchandise sales or
advertising revenues in the future. These revenue sources depend on a variety of
factors affecting the Internet in general, as well as our web sites in
particular. We will depend on the continued rapid growth of Internet users and
our ability to attract a large enough share of those users to our web sites to
support our Internet business. If the content of our web sites is not
attractive, the number of visitors to our web sites may be too small to generate
meaningful revenue. Merchandise sales may be hurt if the quality and price of
the merchandise are not attractive or if potential customers are concerned about
the security of their personal information. Advertising sales may also be
affected if there are not enough visitors to the web sites or if the visitors'
demographics are unattractive to potential advertisers.
There is intense competition for qualified employees to create and maintain
web sites. This competition could restrict our ability to develop our Internet
business, delay the development of our web sites or result in higher than
projected staffing costs.
We may be subject to claims for defamation, libel, negligence, copyright or
trademark infringement and personal injury based on the content of our web sites
or other web sites to which they are linked. We may also be subject to product
liability suits for the merchandise that is sold through the web sites.
Government regulations regarding Internet user privacy, pricing, content and
distribution are evolving and new regulations may hurt our Internet business.
WE MAY NOT BE ABLE TO RENEW OUR ADVERTISING SALES AGREEMENTS.
Approximately 60% of our advertising sales services revenues in 1999 come
from the sales of programs produced by companies we do not own. Several of these
advertising sales agreements are scheduled to expire in 2000. Advertising sales
agreements are generally short-term in nature, varying from one to three years
in length, and in many cases include provisions that allow for earlier
termination by the client if we do not attain preset benchmarks. Industry
consolidation may contribute to non-renewal of one or more of these agreements,
as programming clients may consolidate with companies that compete with us or
that provide advertising sales services in-house. We cannot assure you that
existing agreements will be renewed.
WE MAY LOSE REVENUES FROM OUR SATELLITE SERVICES.
Revenues from the provision of satellite services to others, including some
related parties, is subject to uncertainties. Two of our channels are currently
not being leased and lease of this unutilized space in the near future is
uncertain. While we are actively marketing the channels available on our
compressed transponder, there are a number of other companies that are competing
with us to lease transponder capacity, some of whom are offering lower lease
rates. With respect to transponder space that is currently leased, one related
party has indicated that it will terminate some transponder and associated
services that we provide, effective the first quarter of 2000. This will result
in a $75,000 per month loss of revenues. The lease of another of our channels to
a different related party will likely be terminated in 2001. The lease of a
channel to a third party, which yields monthly revenues of $70,000, is currently
in default and it is unlikely that we will receive any further lease payments
under this agreement. It is uncertain that replacement lessees can be found for
lease capacity that is vacated. If third party lessees were no longer paying for
such services, our loss of revenues would be significant. There is no assurance
that other leases could be obtained on similar terms. We cannot provide
assurances that we will be able to maintain or increase our revenues from
satellite leases.
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WE DEPEND ON OUR SATELLITE TRANSPONDERS TO DELIVER OUR CABLE TELEVISION
PROGRAMMING, AND TECHNICAL FAILURE OF OUR SATELLITE TRANSPONDERS WOULD MAKE US
UNABLE TO DELIVER OUR PRODUCT.
We deliver our cable television programming through our own satellite
delivery and production support facilities and depend on the continued effective
operation of our two satellite transponders. These transponders are not likely
to have a meaningful useful life beyond 2004, when we will be required to locate
a replacement to use for our programming. We cannot assure you that we will be
able to enter into new satellite leases at that time on favorable terms.
Our principal satellite transponder agreement provides various protections
to us 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 transponders, the
satellite owner is required to place our programming on a replacement satellite
transponders, there can be no assurance that this would occur. There are a
limited number of domestic communications satellites available for the
transmission of radio and cable television programming. The availability of
transponders in the future is dependent on a number of factors over which we
have no control. These factors include the limited availability of desirable
orbital slots for commercial communications satellites, the successful launches
of additional commercial communications satellites by third parties and the
competition and demand for transponder leases on existing and new satellites.
PRODUCT INFORMATION NETWORK HAS STRUCTURAL, ORGANIZATIONAL AND OPERATING RISKS.
We operate PIN through a joint venture with Cox Communications, Inc.
Because, in certain circumstances, the joint venture requires agreement between
the participants, there is a risk that we and Cox may not agree on significant
aspects of PIN's business plans. Cox, being a major MSO, has goals and
objectives that may be different from ours.
The PIN Venture agreement contains a number of provisions that either allow
or require a partner to withdraw from the venture. Either partner is required to
withdraw if the number of subscribers provided by that partner falls below a
specified level. A reduction in subscribers at specified levels could also
result in monetary penalties. Such a withdrawal would cause a dissolution of the
PIN Venture. The PIN Venture is scheduled to expire on December 31, 2004. See
"--We depend on distribution of television programming and may not be able to
maintain or increase this distribution in the future."
If, for any reason, we were unable to consolidate PIN's results of
operations, our financial statements would change because PIN's revenues and
operating income, if any, would not be included in our consolidated revenues and
operating income.
PIN's operating results are very sensitive to the rates received for the
sale of its airtime and rebates paid to cable system operators. A relatively
small decrease in rates or increase in rebates could cause a disproportionately
large decrease in PIN's operating income.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST OUR COMPETITORS.
All of our businesses are in industries with a high degree of competition,
which has become more intense as a result of industry consolidations and
technological changes.
Our radio network competes for advertising, radio station affiliations and
new radio programs and talent with major network radio distribution companies,
as well as with a large number of smaller independent producers and
distributors. Because the radio programming industry has recently experienced
rapid consolidation, the largest competitors in the industry are under common
ownership with major radio station group owners. These competitors have
recognized brand names, as well as large networks that include affiliates to
which such competitors pay compensation to broadcast the network's programming
and commercials.
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Radio networks also face competition from improving technologies enabling
local stations to pre-record announcements and automate their operations,
thereby reducing costs and improving operational efficiencies. Another
technological advance, satellite radio, expected to launch commercially in late
2000, will permit digital quality radio programming to be broadcast throughout
the continental United States via direct broadcast satellite. We cannot predict
what effect satellite radio will have on us or the radio industry in general.
Our cable television networks compete for the distribution of programming on
cable systems, for viewers and for advertising revenues, with numerous cable and
broadcast television networks that provide a variety of infomercial and
entertainment programming. GAC has one principal direct competitor, Country
Music Television (CMT), a large network with substantial financial resources
that distributes its programming to approximately 51% of the multi-channel
subscribers in the United States. CMT is owned by CBS, which has announced that
it plans to merge with Viacom, a large entertainment company with significant
cable programming holdings, including the MTV network. This transaction could
negatively impact GAC's growth because of the strong presence of Viacom in the
music industry, which will put CMT in a position to package the carriage of its
country music channel with Viacom's other music formats. In addition, CMT has a
substantial number of Direct Broadcast Satellite (DBS) subscribers. GAC to date
has no DBS subscribers. PIN competes for viewers directly with at least two
long-form advertising networks, certain cable shopping channels and at least 30
cable television networks that air long-form advertising, many of which have a
substantial number of viewers. We expect to encounter additional competition for
viewers because of the implementation of technological advances, including the
deployment of digital compression technology and fiber optic cable. The
"multiplexing" of cable services, which allows cable systems to greatly expand
their channel capacity and, as a result, their ability to add new networks.
Our advertising sales services business (MediaAmerica) is also subject to
significant competition, both to attract program provider clients and to sell
commercial inventory to advertisers. We compete 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 several years, many independent
program providers have been acquired by major network distribution companies.
These companies have large amounts of airtime inventory and significant
resources. The formation by certain group radio station owners of radio
networks, such as AMFM, Inc., has adversely affected our advertising revenues in
the past. We cannot assure you that the presence of existing competitors or the
introduction of new competitors will not result in an over-supply of inventory
to the marketplace, leading to depressed pricing and decreased sales of airtime
inventory.
The e-commerce and advertising markets are intensely competitive. We compete
with other music web sites, some of which target the same audience segments that
we target. We also compete for Internet advertising revenues with large web
publishers, search engine companies, advertising networks and other advertising
representation services.
Because there are generally few barriers to entry into our markets, we could
face competition from new competitors offering services similar to ours. Our
radio and television networks also compete with broadcast and cable television,
print, outdoor advertising, the Internet and other forms of media for
advertising dollars. Many of our competitors have greater financial and other
resources and we cannot assure you that we will be able to compete successfully
in the future.
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THE EXPANSION OF OUR BUSINESS MAY TAKE US INTO LINES OF BUSINESS IN WHICH WE DO
NOT HAVE OPERATING EXPERIENCE.
Our business strategy contemplates growth, which may occur through
acquisition or joint venture, as well as internal growth. Business opportunities
may be presented to us that would result in our engagement and investment in
enterprises that are different from the businesses in which we currently operate
and in which we do not have a developed expertise. Acquisitions and joint
ventures entail risks, including integration of companies and melding of
operational philosophies. To the extent we are engaging in businesses in which
we do not have prior experience, these acquisition risks are increased.
Acquisitions and joint ventures could be accomplished through sale of our equity
securities, or of the equity of a particular subsidiary. Such equity issuances
may be dilutive to existing investors. We cannot assure you that our future
operations will only be in businesses in which we are currently engaged or that
any expansion of our existing business or any new businesses in which we may
engage, will be successful.
IF WE CANNOT RETAIN OUR KEY PERSONNEL AND HIRE ADDITIONAL QUALIFIED MANAGEMENT
AND TECHNICAL PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR
OPERATIONS AND PURSUE OUR STRATEGIC OBJECTIVES.
We are dependent on the efforts and abilities of Glenn R. Jones, our
Chairman, and of our senior management, including Jeffrey C. Wayne, President,
Jay B. Lewis, Group Vice President and Chief Financial Officer, Ron Hartenbaum
and Gary Schonfeld, the executives in charge of our radio network and
advertising sales operations, and Edith Hilliard, President of our Broadcast
Programming subsidiary. Except for Messrs. Hartenbaum and Schonfeld and
Ms. Hilliard, we do not have employment agreements with any of our senior
management, and we do not carry key life insurance on any of these employees.
Our success depends, in part, upon our ability to attract and retain
talented performers, producers and other creative personnel. We cannot assure
you that we will continue to be successful in attracting and retaining qualified
creative personnel.
We are also dependent upon the talents and abilities of our advertising
account executives. Our account executives have personal relationships with
national advertisers and their advertising agencies, which are important to our
ability to continue to maintain and increase our share of the advertising
market. We cannot assure that we will continue to be successful in attracting
and retaining qualified sales personnel.
WE MAY DEVELOP NEW CABLE NETWORKS THAT MAY NOT BE ABLE TO DEVELOP SUFFICIENT
DISTRIBUTION TO BE SUCCESSFUL.
We have contemplated, from time to time, the development of new cable
networks which entails certain risks. New networks will compete for distribution
with other more established networks, and are likely to lose money until
distribution reaches certain levels, which may not occur for a significant
period of time, if ever. We may have to expend considerable capital to develop
the networks and to obtain distribution. We cannot assure you that any new cable
network we may develop would be successful.
WE HAVE ENGAGED AND WILL CONTINUE TO ENGAGE IN TRANSACTIONS WITH RELATED
PARTIES.
We have engaged in transactions with related parties, such as loans,
affiliation agreements for the distribution of cable television programming,
satellite transponder leases and production support services, and lease and
service agreements related to certain technical, computer and administrative
services and expect to continue to engage in certain of these transactions in
the future. For the nine months ended September 30, 1999, approximately
$4.2 million, or 9.5%, of our total revenues and
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approximately $4.7 million, or 11.0%, of our total operating expenses involved
related party transactions. The terms of these agreements are not the result of
arm's-length negotiations, and the terms of any transactions with related
parties may not have been, and may not in the future be, as favorable as those
we could obtain from unrelated parties. Our indenture requires that the terms of
any transaction we enter into with any related party after July 10, 1998 and
during the time our Senior Notes are outstanding must be on arms' length terms.
WE MAY BE SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS.
The radio stations, cable television systems and other video distributors to
which we sell our programming are regulated by the Federal Communications
Commission. As a result, the federal laws and FCC regulations that affect these
entities affect us indirectly.
Our satellite delivery and production support services are directly
regulated by the FCC. We hold FCC microwave and earth station uplink licenses
for our delivery and support services. There can be no assurance that these
licenses will be able to be maintained or that additional regulatory burdens
will not be imposed in the future.
POSSIBLE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS.
We regard our original programming as proprietary and rely 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 our proprietary rights. If substantial unauthorized use of our
programming were to occur, our results of operations could be negatively
affected. There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our 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 our current or future
programming infringes on the proprietary rights of others.
OUR STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.
We cannot assure that our Class A Common Stock will not trade at a price
less than the offering price. The securities markets have experienced
significant price and volume fluctuations in recent years that have often been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may hurt the market price of our Class A
Common Stock, particularly because there will be a relatively small public float
of our shares.
In addition, our quarterly and annual results of operations are affected by
a wide variety of factors, many of which are outside our control, and could have
a harmful effect on us and the market price of our Class A Common Stock. It is
possible that our future revenue or operating results will be below the
expectations of public market analysts and investors, which could cause the
price of our Class A Common Stock to decline.
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR STOCK.
Prior to this offering, there has been no public market for our Class A
Common Stock and there can be no assurance that an active public market will
develop or continue after this offering. We have applied for approval for
quotation of our Class A Common Stock on the Nasdaq National Market and expect
to receive approval for quotation on the Nasdaq National Market before the sale
of our Class A Common Stock. Our Class A Common Stock may experience volatility
until trading values become established. As a result, it could be difficult to
make purchases or sales of our Class A Common Stock in the market at any
particular time.
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SHARES ELIGIBLE FOR PUBLIC SALE BY EXISTING STOCKHOLDERS AFTER THIS OFFERING
COULD HURT OUR STOCK PRICE.
The market price for our Class A Common Stock could be negatively affected
by the availability of shares of Class A Common Stock for sale after this
offering or actual sales of substantial amounts of Class A Common Stock after
this offering by existing shareholders. We will have 4,314,999 shares of
Class A Common Stock outstanding upon completion of this offering that are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
These shares may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is available, including the exemption
contained in Rule 144. Furthermore, each of the 1,785,120 shares of our Class B
Common Stock that are currently outstanding is convertible at the election of
their holders into one share of Class A Common Stock. The shares of Class B
Common Stock and the shares of Class A Common Stock into which they may be
converted, are also "restricted securities" within the meaning of and subject to
Rule 144.
Our current shareholders, directors and executive officers have agreed that
for a period of 180 days they will not sell, offer to sell, contract to sell,
pledge or otherwise dispose of any shares of our Class A Common Stock without
the prior written consent of Credit Suisse First Boston Corporation, subject to
certain conditions. Following the expiration of the lock-up agreements,
4,314,999 shares of Class A Common Stock will become available for resale in the
public market, subject to the volume limitations, holding period and other
restrictions of Rule 144. Many of these restrictions do not apply to the
shares held by persons who are not our affiliates.
In addition, as of September 30, 1999, 400,000 shares of our Class A Common
Stock were reserved for issuance under our stock option plan, 343,500 of which
were subject to outstanding options as of that date. We have granted
registration rights to some of our current shareholders relating to 2,746,755
shares of Class A Common Stock, which would facilitate their resale efforts.
Future sales of shares of our Class A Common Stock or the perception that such
sales could occur, could have a harmful effect on the market price of our
Class A Common Stock. See "--There has been no prior public market for our
stock," and "--Our stock price is likely to be volatile and could drop
unexpectedly."
INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price per share is significantly higher than our
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate and substantial dilution of their
investment. See "Dilution."
YEAR 2000 PROBLEMS MAY DISRUPT OUR OPERATIONS.
If our systems are not Year 2000 compliant by January 1, 2000, we 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 our full
complement of programming, which would require us to replace missed air time. We
cannot assure that our failure to be Year 2000 compliant would not adversely
affect our business, financial condition or results of operations.
We have not completed all contingency plans in the event that our systems
are not Year 2000 compliant. In the event we do not finalize our contingency
plans, we may not resolve our Year 2000 issues, if any, in a timely and
efficient manner. This could heighten the risk that the Year 2000 problem may
have an adverse effect on our financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of the Year 2000 Issue."
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FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements. Forward-looking
statements are not statements of historical facts but rather reflect our current
expectations, estimates and predictions about future results and events. We use
words such as "anticipate," "continue," "estimate," "expect," "predict," "may,"
"will," "project," "should," "assume," "believe," "plan," "intend" and similar
expressions to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and other factors, many of which are beyond our ability to control or predict,
that could cause actual results to differ materially from those anticipated in
these forward-looking statements. These risks and uncertainties, including
general risks and uncertainties associated with our substantial leverage and
restrictions imposed by indenture, the development or acquisition of television,
radio and Internet programming that audiences will like, the pace of development
of our Internet business and the Internet in general, dependence on the sale of
advertising airtime and generation of advertising revenues, risks and
uncertainties associated with the satellite delivery and production support
market and technology and those other risks and uncertainties and are described
in "Risk Factors" and elsewhere in this prospectus.
You should not unduly rely on these forward-looking statements. These
statements speak only as to our management's view as of the date of this
prospectus. We are not obligated to update these statements or publicly release
any revisions to them to reflect events or developments after the date of this
prospectus or to reflect the occurrence of unanticipated events. All subsequent
written and oral forward-looking statements attributable to us and to persons
acting on our behalf are qualified in their entirety by the cautionary
statements contained in this section and elsewhere in this prospectus.
20
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of Class A
Common Stock offered by us are estimated to be approximately
$ ($ if the underwriters exercise their over-allotment
option in full), assuming a price to the public of $ per share and after
deducting estimated underwriting discounts and commissions and offering
expenses. We currently expect to use the net proceeds from the offering as
estimated below:
- $39 million to repurchase a portion of our Senior Notes including the
payment of related fees and premiums; and
- the remaining proceeds for working capital and general corporate purposes,
including acquisitions.
We anticipate the following working capital expenditures over the next 12 to 18
months:
- approximately $10 million for development of our Internet business, which
might include expenditures relating to site creation, marketing and
increases in our staff; and
- approximately $8 million for making cable programming distribution
payments to cable system operators for carrying GAC.
Our Senior Notes were issued in July 1998, bear interest at 11 3/4% per
annum and mature in 2005. Under the terms of the indenture, our Senior Notes may
be redeemed with the proceeds of a public equity offering at a purchase price
equal to 111.75% of their principal amount, so long as, after the redemption, at
least $65 million aggregate principal amount of our Senior Notes remains
outstanding. Any such redemption must occur within 90 days of the closing of the
offering.
If we redeem our Senior Notes under this provision of the indenture,
Mr. Glenn R. Jones, who owns $23,650,000 aggregate principal amount of our
Senior Notes, will receive his pro rata share of any redemption payments.
Alternatively, or in conjunction with this redemption, we may elect to
repurchase our Senior Notes in negotiated transactions or in open market
purchases. If we elect one or both of these methods of repurchase, we will not
purchase Senior Notes from Mr. Jones in negotiated transactions. To the extent
that we have not purchased $35 million aggregate principal amount of our Senior
Notes through negotiated purchases or open market transactions, we will exercise
our redemption right under the indenture for the remainder under the indenture.
While the amounts indicated above reflect what we currently expect to spend
on these matters, opportunities may arise that cause us to change the allocation
of proceeds among the categories described, other than debt reduction. Pending
such uses, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not paid any cash dividends. Our policy is to retain future earnings
to provide funds for the operation and expansion of our business. Therefore, we
do not currently intend to pay cash dividends on any of our classes of stock.
Any payment of future cash dividends and the amounts of those dividends will
depend on our earnings, financial requirements and other factors deemed relevant
by our board of directors.
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<PAGE>
CAPITALIZATION
The following table sets forth: (i) our actual capitalization as of
September 30, 1999 giving effect to the issuance after September 30, 1999 of
310,000 shares of Series A Convertible Preferred Stock and the receipt of
approximately $3.9 million of proceeds from that issuance; and (ii) our
capitalization as adjusted to give effect to (a) the conversion of all
outstanding shares of Series A Convertible Preferred Stock into
1,918,000 shares of Class A Common Stock, (b) the termination of the put on
101,124 shares of Class A Common Stock subject to put and (c) the sale in this
offering of shares of our Class A Common Stock at an estimated
offering price of $ per share (less underwriting discounts, commissions and
estimated expenses we expect to pay in connection with this offering and the
application of the proceeds). You should read this table in conjunction with our
historical consolidated financial statements and the related notes thereto and
other information included elsewhere in this prospectus. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total cash and available for sale securities................ $ 20,955 $ 50,955
======== ========
Total debt:
Revolving credit facility(1).............................. -- --
11 3/4% Senior Secured Notes due 2005..................... $100,000 $ 65,000
Minority interests.......................................... 1,178 1,178
Common stock subject to put, Class A Common Stock,
$.01 par value: 101,124 shares issued and outstanding,
historical; no shares issued and outstanding as
adjusted.................................................. 1,213 --
Shareholder's equity (deficit):
Preferred Stock, $.01 par value: 1,918,000 shares
authorized; 1,918,000 shares issued and outstanding,
historical; no shares issued and outstanding as
adjusted(2)............................................. 23,975 --
Class A Common Stock, $.01 par value: 50,000,000 shares
authorized; 4,213,875 shares issued and outstanding,
historical; shares issued and outstanding as
adjusted(3)............................................. 42
Class B Common Stock, $.01 par value: 1,785,120 shares
authorized; 1,785,120 shares issued and outstanding,
historical and as adjusted.............................. 18 18
Other comprehensive income.................................. (18) (18)
Additional paid-in capital.................................. 27,589 121,819
Accumulated deficit......................................... (46,777) (52,394)
-------- --------
Total shareholders' equity............................ 4,829 69,425
-------- --------
Total capitalization............................ $107,220 $135,603
======== ========
</TABLE>
- ----------
(1) We currently have no borrowings outstanding under our credit facility. The
full $20.0 million is available to us. Our credit facility terminates in
June 2000 unless extended.
(2) In September and November 1999, we issued 1,918,000 shares of Series A
Convertible Preferred Stock for an aggregate purchase price of
$23.9 million. The preferred stock automatically converts on a
share-for-share basis into Class A Common Stock upon the completion of this
offering, subject to the effect of the anti-dilution provisions of the
preferred stock.
(3) Excludes 343,500 shares of Class A Common Stock issuable upon exercise of
outstanding options under our stock option plan; and 56,500 shares of
Class A Common Stock available for issuance under our stock option plan
pursuant to options that have not yet been granted.
22
<PAGE>
DILUTION
Purchasers of Class A Common Stock offered by this prospectus will suffer an
immediate and substantial dilution in net tangible book value per share.
Dilution is the amount by which the initial public offering price paid by
purchasers of Class A Common Stock in this offering will exceed the net tangible
book value per share of common stock after the offering. Our pro forma net
tangible book value as of September 30, 1999 was a deficit of approximately
$(63.8) million, or $(7.95) per share of common stock (considering together for
this purpose the Class A Common Stock, Class B Common Stock, Class A Common
Stock subject to put and Class A Common Stock to be issued upon conversion of
Series A Convertible Preferred Stock, including those shares issued in
November 1999). Net tangible book value per share represents the amount of
tangible assets less total liabilities, divided by the number of shares of
common stock outstanding. After giving effect to the sale of the
shares of Class A Common Stock offered hereby (at an assumed initial offering
price of $ per share and after deduction of underwriting discounts and
commissions and estimated offering expenses), our pro forma as adjusted net
tangible book value at September 30, 1999 would have been $ million, or $
per share of common stock. This represents an immediate increase in pro forma
net tangible book value of $ per share of common stock to existing
shareholders and an immediate dilution of $ per share to purchasers of the
Class A Common Stock in this offering.
The following table illustrates the per share dilution to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price..................... $
------
Net tangible book value as of September 30, 1999........ $ (7.95)
Increase in net tangible book value attributable to this
offering..............................................
--------
Net tangible book value after this offering...............
------
Dilution to purchasers in the offering.................... $
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1999, the number of shares of common stock and preferred stock
purchased from us, the total consideration paid to us and the average price per
share paid by existing shareholders and by new investors purchasing Class A
Common Stock in this offering at an assumed initial offering price of
$ (before deducting underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders......... % $ % $
New investors.................
------- ------ ------- ------
Total.......................
======= ====== ======= ======
</TABLE>
- ----------
If the underwriters' over-allotment option is exercised in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of our
common stock outstanding after this offering; and
- the number of shares held by new investors will be increased to
or approximately % of the total number of shares
of our common stock outstanding after this offering.
The above table excludes:
- 343,500 shares of Class A Common Stock issuable upon exercise of
outstanding options at an exercise price of $15.00 per share; and
- 56,500 shares of Class A Common Stock available for issuance under our
stock option plan pursuant to options that have not yet been granted. See
"Management--Stock Option Plan."
To the extent these options are exercised, there may be further dilution to
investors.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables summarize certain financial and operating data for our
business. This information should be read along with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and notes to those statements included
elsewhere in this prospectus. The historical statements of operations and
balance sheet data as of and for each of the years in the five-year period ended
December 31, 1998, have been derived from our consolidated financial data. This
data has been audited by Arthur Andersen, LLP, independent auditors. The
selected financial data as of and for the nine months ended September 30, 1998
and 1999, have been derived from unaudited financial statements. In the opinion
of management, these interim statements include all adjustments, consisting
solely of normal recurring accruals and other adjustments necessary for the fair
presentation of financial position and of the results of operations for those
periods. The result of operations for the nine months ended September 30, 1999
may not be indicative of the results that may be expected for the full year
ending December 31, 1999.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND RADIO STATION AFFILIATE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues
Programming content
Radio................... $ 2,541 $ 5,121 $ 6,978 $ 10,200 $ 10,041 $ 6,623 $ 12,353
Cable television........ 1,946 340 1,153 12,002 16,892 11,992 19,229
Internet................ -- -- -- -- -- -- --
Advertising sales
services................ -- -- -- -- 5,107 2,362 6,455
Satellite services........ 6,805 9,666 8,523 6,910 6,172 3,988 6,567
--------- --------- --------- --------- --------- --------- ---------
Total revenues........ 11,292 15,127 16,654 29,112 38,212 24,965 44,604
--------- --------- --------- --------- --------- --------- ---------
Operating expenses
Programming content
Radio................... 2,068 3,068 4,163 5,816 7,778 5,468 8,098
Cable television........ 1,149 366 1,157 9,272 14,231 10,418 15,738
Internet................ -- -- -- -- -- -- --
Advertising sales
services................ -- -- -- -- 1,129 482 2,776
Satellite services........ 4,546 6,530 5,451 4,685 5,240 3,791 3,921
Selling and marketing..... 1,090 1,374 1,737 2,918 4,869 3,073 4,772
General and
administrative.......... 1,958 2,322 3,270 4,168 6,728 4,052 7,312
--------- --------- --------- --------- --------- --------- ---------
Total operating
expenses............ 10,811 13,660 15,778 26,859 39,975 27,284 42,617
--------- --------- --------- --------- --------- --------- ---------
Operating income
(loss).............. 481 1,467 876 2,253 (1,763) (2,319) 1,987
--------- --------- --------- --------- --------- --------- ---------
Interest expense, net....... 3,401 4,006 4,428 5,569 8,195 5,369 8,881
Other (income) expense,
net....................... (228) 5 (841) 616 1,228 927 14
Income tax provision
(benefit)................. (389) (498) (387) (1,342) 49 15 411
Minority interest........... -- -- (9) 903 215 38 611
--------- --------- --------- --------- --------- --------- ---------
Net loss.............. $ (2,303) $ (2,046) $ (2,315) $ (3,493) $(11,450) $ (8,668) $ (7,930)
========= ========= ========= ========= ========= ========= =========
Net loss per common share
Basic..................... $ (0.56) $ (0.50) $ (0.56) $ (0.79) $ (2.13) $ (1.75) $ (1.30)
Fully diluted............. (0.56) (0.50) (0.56) (0.79) (2.14) (1.75) (1.31)
Basic weighted average
shares outstanding........ 4,103,573 4,103,573 4,103,573 4,400,448 5,372,644 4,949,776 6,094,844
Diluted weighted average
shares outstanding........ 4,103,573 4,103,573 4,103,573 4,400,448 5,361,608 4,946,563 6,074,230
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND RADIO STATION AFFILIATE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(a)................... $ 3,769 $ 5,355 $ 5,352 $ 6,561 $ 4,290 $ 2,039 $ 7,862
Depreciation and
amortization:
Satellite services........ -- 3,672 3,945 4,100 3,965 2,989 3,006
General and
administrative.......... -- 1 417 537 1,633 902 2,414
Other..................... -- 215 114 531 668 473 1,079
--------- --------- --------- --------- --------- --------- ---------
Total depreciation and
amortization.......... -- 3,888 4,476 5,168 6,266 4,364 6,499
Capital expenditures........ 1,641 1,262 2,969 1,367 2,258 1,916 588
Cable programming
distribution
payments(b)............... -- -- -- -- 3,064 1,129 3,761
Net cash provided by (used
in)
Operating activities...... 6,933 364 4,776 7,589 (7,310) (7,537) (777)
Investing activities...... (1,271) (1,873) (3,971) (1,156) (35,021) (32,066) (27,313)
Financing activities...... 8,266 (809) (807) (2,720) 59,268 58,385 20,100
AUDIENCE DATA (at end of
period; unaudited):
Radio station AQH (24-hour
formats)(c)............... 1,340 1,530 2,180 2,296 2,369 -- 2,188
Radio station AQH
(syndicated)(c)........... -- -- 834 1,048 6,090 -- 12,355
Radio station
affiliates(d)............. 925 929 1,273 1,484 2,146 2,337 2,499
Great American Country
households(e)............. -- 14 1,049 1,550 7,131 4,819 10,959
Product Information Network
households(e)............. 1,489 4,825 8,111 11,497 20,634 18,970 28,110
Product Information Network
FTREs(f).................. -- 3,607 4,803 7,036 8,647 8,056 11,683
BALANCE SHEET DATA (at end
of period):
Cash and cash
equivalents(g)............ $ 705 $ 5 $ 4 $ 3,717 $ 10,654 $ 12,499 $ 12,664
Working capital
(deficiency).............. 276 (847) (6,615) (9,331) 16,047 18,421 9,600
Total assets................ 39,196 36,352 38,298 41,358 110,894 110,973 124,793
Total long-term debt(h)..... 52,667 53,476 53,277 45,312 100,000 100,000 100,000
Shareholder's equity
(deficit)................. (16,302) (20,360) (23,269) (18,206) (11,333) (8,727) 954
</TABLE>
- -------------
(a) EBITDA is unaudited and represents operating income (loss) plus depreciation
and amortization minus the EBITDA attributable to the minority interests in
the PIN Venture, a consolidated 55.3%-owned subsidiary. Management
acknowledges that EBITDA is not a measure of performance or liquidity
calculated in accordance with generally accepted accounting principles.
However, EBITDA is a measure widely used by analysts and investors in the
media industry to determine a company's operating performance and ability to
service and incur 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.
(b) Cable programming distribution payments made by GAC to multiple system cable
television operators for carrying GAC programming. These payments are
reflected as intangible assets on the balance sheet and are amortized over
the life of the affiliate agreement (usually 5 to 10 years).
25
<PAGE>
(c) AQH represents the average audience estimated to have listened, for a
minimum of five minutes during any quarter hour, to a radio station
broadcasting our advertising. For the 24-hour formats, the period used to
determine AQH is Monday through Friday, 6am to 7pm. The period used to
determine AQH for syndicated programs is the time during which the
commercials associated with the programs or services are broadcast. These
AQH estimates are derived from data provided by Marketron (a third party
processor) that is based on Arbitron copyrighted and proprietary audience
estimates. They are not estimates produced by Arbitron. Radio advertising is
generally sold on the basis of the listening audience as quantified by AQH.
Beginning in the period ended December 31, 1998, we have excluded the AQH
related to non-recurring specials. AQH (24-hour formats) has been restated
for periods prior to 1998 to reflect our creation in 1998 of a second
selling network resulting from the division of our then-existing network.
This division more accurately reflects our audience to radio advertisers.
The effect of this restatement is to make periods prior to 1998 comparable
to 1998 and later periods. AQH data as of the nine months ended
September 30, 1998, is not available.
(d) Represents the number of non-duplicating radio station affiliates receiving
our programs at the end of the periods indicated.
(e) Represents the total number of subscribers at the end of the periods
indicated.
(f) FTREs represent the number of full-time revenue equivalent subscribers
receiving PIN at the end of the periods indicated. FTRE weights part-time
subscribers based on the daypart carried and the revenue associated
therewith. Amount of FTRE's for 1994 is not available.
(g) Excludes restricted cash of $10 million at December 31, 1998 and
September 30, 1998.
(h) Includes current and non-current maturities of long-term debt and capital
lease obligations.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF RESULTS OF OUR FINANCIAL CONDITION SHOULD BE
READ IN CONJUNCTION WITH OUR HISTORICAL FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS DOCUMENT. THIS DOCUMENT CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SEE "RISK FACTORS." OUR ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN ANY FORWARD-LOOKING
STATEMENT.
OVERVIEW
We create, develop, acquire and produce programming that we distribute to
radio stations, cable television system operators and other video distributors.
We have also recently launched multiple, complementary web sites extending our
programming content and talent to the Internet. Through our leading advertising
sales business, we are able to capitalize on our multi-platform programming
content and our ability to effectively target a nationwide audience, providing
national advertisers with an efficient means to aggregate their desired
demographic groups. We also provide satellite delivery and production support
services for our two cable networks and for certain other cable networks. The
comparison of our results of operations from period to period is affected by the
purchase of the business of MediaAmerica on July 10, 1998 and the purchase of
Broadcast Programming on August 2, 1999.
OPERATING MODEL
Our revenues and operating expenses are derived from radio programming and
cable television programming businesses, advertising sales services and
satellite support services and, beginning in the fourth quarter of 1999, will
include Internet operations.
RADIO PROGRAMMING
Our radio programming revenues consist primarily of advertising revenues
and, to a lesser extent, monthly license fees paid by smaller radio station
affiliates. We provide radio programming and services to radio stations in
exchange for advertising time that we resell to national advertisers who market
their products or services on our radio network and recognize revenues upon
airing advertisements. In smaller markets, we charge radio stations monthly
license fees in addition to advertising time. Revenues from license fees have
remained stable, reflecting our decision to focus on programming targeted at
larger market radio stations that generally are not charged license fees.
Radio programming expenses consist of program licensing, program development
and production costs, distribution and delivery costs and other costs, including
the costs of researching, designing, producing and licensing programs for our
radio network. Radio distribution and delivery costs include satellite
transponder expenses, uplinking charges and other associated costs.
CABLE TELEVISION PROGRAMMING
We provide cable television programming to cable television system operators
and other video distributors, sell advertising time on our two cable networks
and receive a license fee for our country music television network. We recognize
advertising revenues upon airing advertisements. Any amounts received from
customers for advertisements that have not been aired during the period are
recorded as unearned revenues until such time as the advertisements are aired.
GREAT AMERICAN COUNTY. GAC's revenues consist of advertising revenues, as
well as subscriber license fees paid by cable operators who receive the network.
GAC generates advertising revenues by selling airtime to advertisers. GAC's
advertising revenues consist of both direct response and national spot
advertising. Direct response advertising is airtime sold to agencies or national
advertisers who have
27
<PAGE>
developed commercials designed to motivate viewers to call an 800 phone number
to purchase their product or service. Payment for such advertising is typically
guaranteed, regardless of viewer response. Direct response advertising usually
earns significantly lower rates than traditional national spot advertising.
Traditional national spot advertising is typically sold by cable television
networks that can demonstrate an ability to deliver the type and quantity of
viewers that national advertisers seek to target with their advertising. As the
number of GAC subscribers and audience continue to increase, GAC will become a
more attractive advertising vehicle for national spot advertisers. Advertising
revenues are impacted by a variety of factors, including the level of
distribution (number of subscribers), ratings, audience composition
(demographics), advertising market conditions and the amount of advertising
inventory allocated for national advertising.
License fee revenues are earned monthly based on a per subscriber rate set
pursuant to the cable operator's agreement with us and the number of subscribers
that are receiving GAC during the month.
We typically enter into 5 to 10 year contracts with affiliates providing for
carriage of GAC. In order to increase the distribution of GAC, we offer
affiliates a one-time cable programming distribution payment, which is generally
based on the number of subscribers receiving the GAC service. These payments are
capitalized and amortized over the life of the affiliate agreement.
PRODUCT INFORMATION NETWORK. We launched PIN in February 1995 as a joint
venture with Cox Communications, Inc. and, later, with Adelphia Communications
Corp. We now own 55.3% of PIN. Effective April 1, 1997, we consolidated the
results of operations of PIN for financial reporting purposes. As a part of the
organization of PIN and in exchange for their equity interests, Cox and Adelphia
agreed to carry PIN for 10 years.
PIN generates its revenues through the sale of long-form paid advertising
known as infomercials. An infomercial is an advertisement that is paid for by
the advertiser on the basis of the time of day it is aired and the number of
homes reached at that time of day. Infomercials are approximately one half-hour
in length and are often produced in an entertainment format with high production
quality. As PIN increases its distribution to additional households, we believe
PIN will be able to increase the rates we charge for airtime.
PIN compensates cable system operators for carriage of PIN through a rebate
program. Such payments, which are generally in the form of annual rebates per
subscriber, averaged approximately 75% of PIN's net advertising revenues in 1998
attributable to the time that the cable system carries PIN programming.
Because most of the programming on our cable networks is provided to us
without cost, cable television programming expenses consist primarily of program
distribution and delivery costs, such as satellite transponder expenses,
uplinking charges and associated costs.
INTERNET
We currently operate multiple web sites that allow us to capitalize on
Internet advertising and e-commerce opportunities. We anticipate deriving
revenues from our Internet web sites through three primary sources:
- ADVERTISING SALES. Our advertising sales include the sale of "banner ads"
through our network advertising representation services, sponsorship of
events and other special content, "click through" Internet advertising
sold separately or packaged with our other advertising inventory, and
audio and video advertising packaged with "streaming media" and Internet
radio products.
- E-COMMERCE. Our web sites will highlight the availability of products
that are of interest to their site visitors. Visitors who wish to purchase
a particular product will be able to "click" directly to
28
<PAGE>
that product within the web site storefront and will be exposed to other
related products. Most products will be supplied by third parties, such as
catalog distributors and wholesalers with established procurement and
fulfillment capabilities.
- PAY-PER-VIEW. We plan to sell live events on a Pay-Per-View basis to web
site visitors with high-speed, broadband Internet connections. We plan to
begin testing in 2000 and expand to regularly scheduled Pay-Per-View
events in subsequent years.
We are implementing a broad Internet strategy in which we will develop web
sites for many of our radio formats and certain of our syndicated programming.
As a result, Internet expenses will increase substantially beginning in the
fourth quarter of 1999 and into 2000. We have not yet generated revenue from our
Internet business, nor have we incurred significant costs in creating,
developing and operating our Internet business. Over the next 12 to 18 months we
anticipate salary, content development and associated expenses and marketing
expenses to increase as we develop new web sites and expand existing web sites.
ADVERTISING SALES SERVICES
Our advertising sales business produces revenue by charging fees to
advertising sales clients. The fee is generally a percentage of the advertising
revenue generated on the client's national radio programs. By combining our
owned and third party advertising inventory, we have the ability to create
customized advertising networks that allow advertisers to reach their target
markets. We are also developing an Internet advertising sales business, which
will sell national advertising for our own web sites as well as the web sites of
third parties. We believe we will begin to generate Internet advertising sales
revenues in the first half of 2000.
Advertising sales services expenses consist of costs associated with the
selling of advertising time for third party radio programmers and our own radio
and cable networks. These costs are relatively fixed in nature and consist of
research, trafficking and management associates. Our fixed cost structure
enables us to leverage our existing infrastructure, thereby allowing for
expansion of our advertising sales services to cable television and web site
publishers at a marginal incremental cost.
SATELLITE SERVICES
We generate revenues by providing satellite delivery and production support
services, including uplinking, trafficking, playback to related parties, third
parties and for our own programming operations. We recognize satellite delivery
and production support revenues upon the completion of the services or as
provided by contract.
Satellite delivery and production support expenses include satellite
transponder expenses, including depreciation, uplinking charges and other
associated operating costs. These costs are relatively fixed in nature, which
gives us a high degree of operating leverage.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses are incurred to retain and increase the
number of radio station and cable system affiliates, to increase the number of
visitors to our web sites and to sell advertising inventory. These expenses
include salaries, travel and associated expenses related to our sales and
marketing activities, in addition to costs of designing, producing and
distributing marketing, advertising and promotional materials for all segments.
We anticipate increases in selling and marketing expense and associated costs as
we continue to expand the distribution of our radio programming, cable
television programming, Internet business and advertising sales. We intend to
use our radio and cable television content, commercial inventory and on-air
promotions to drive targeted audiences to our
29
<PAGE>
complementary web sites. We also anticipate purchases of third party advertising
time to promote our radio, cable television and Internet programming.
Beginning in the first quarter of 2000, we plan to significantly increase
our operating expenses to develop our Internet advertising representation
business. We intend to hire associates to sell and market Internet advertising
to third party web site publishers.
Historically we have shared a cable television affiliate sales department
with a related company. Because this company is ceasing operations, we
anticipate an increase in cable television affiliate sales expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include personnel and associated costs
for our executive management, management staff and operational support
personnel, in addition to depreciation and amortization expenses. As the result
of the acquisitions of the assets of Broadcast Programming and MediaAmerica, our
amortization expenses related to intangible assets and goodwill have increased
dramatically. In addition, we amortize our cable programming distribution
payments using the straight-line method over the term of our affiliate
agreement. As we continue to grow, we anticipate that our general and
administrative expenses will rise.
OTHER EXPENSE
Total other expenses consist primarily of interest expense, interest income,
equity share of loss (income) of subsidiaries and other miscellaneous items.
30
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage relationship to
total net revenues of, certain items included in our historical unaudited
consolidated statements of operations for the periods indicated and certain
items included in our pro forma consolidated statements of operations for the
periods indicated. This pro forma data gives effect to: (i) the Broadcast
Programming acquisition; (ii) our acquisition of the assets of MediaAmerica;
(iii) our issuance of the Series A Convertible Preferred Stock; and (iv) the
issuance of our $100 million Senior Notes (together the "Pro Forma
Transactions"). Pro forma data also assumes that the transactions above were
completed on January 1, of each respective year, and that the proceeds thereof
were used to repay our credit facility. We have not historically disclosed
non-significant acquisitions, such as Broadcast Programming, and are not
required to do so in the future. We have provided pro forma information related
to the Pro Forma Transactions in order to provide the reader with more
meaningful comparable results.
<TABLE>
<CAPTION>
REPORTED PRO FORMA
NINE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ ------------------------------------
1998 1999 1998 1999
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS AND UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues
Programming content
Radio...................... $ 6,623 27% $12,353 28% $ 12,617 35% $17,326 35%
Cable television........... 11,992 48 19,229 43 11,992 34 19,229 39
Advertising sales services... 2,362 9 6,455 14 7,093 20 6,260 13
Satellite services........... 3,988 16 6,567 15 3,988 11 6,567 13
-------- ---- ------- ---- -------- ---- ------- ----
Total revenues........... 24,965 100 44,604 100 35,690 100 49,382 100
-------- ---- ------- ---- -------- ---- ------- ----
Operating expenses
Programming content
Radio...................... 5,468 22 8,098 18 9,190 26 10,365 21
Cable television........... 10,418 42 15,738 36 10,418 29 15,738 32
Advertising sales services... 482 2 2,776 6 1,888 5 2,776 5
Satellite services........... 3,791 15 3,921 9 3,791 11 3,921 8
Selling and marketing........ 3,073 12 4,772 11 4,695 13 5,287 11
General and administrative... 4,052 16 7,312 16 9,342 26 9,413 19
-------- ---- ------- ---- -------- ---- ------- ----
Total operating
expenses............... 27,284 109 42,617 96 39,324 110 47,500 96
-------- ---- ------- ---- -------- ---- ------- ----
Operating income
(loss)................. (2,319) (9) 1,987 4 (3,634) (10) 1,882 4
-------- ---- ------- ---- -------- ---- ------- ----
Other expense.................. 6,296 25 8,895 20 9,714 27 8,722 18
Income tax provision
(benefit).................... 15 -- 411 1 128 -- 412 1
Minority interest.............. 38 -- 611 1 15 -- 1,066 2
-------- ---- ------- ---- -------- ---- ------- ----
Net loss..................... $ (8,668) (34)% $(7,930) (18)% $(13,491) (37)% $(8,318) (17)%
======== ==== ======= ==== ======== ==== ======= ====
</TABLE>
The unaudited pro forma data reflects the Pro Forma Transactions through the
following adjustments:
a) the elimination of intercompany transactions;
b) the elimination of interest from our credit facility, which was utilized
for the acquisition of Broadcast Programming and was repaid from the
proceeds of the sale of the Series A Convertible Preferred Stock;
c) adjustments to general and administrative expenses of $2.1 million and
$1.3 million for the nine months ended September 30, 1998 and 1999,
respectively, for the amortization of goodwill and intangible assets
related to the Broadcast Programming and MediaAmerica acquisitions; and
d) adjustment to interest expense reflecting interest expense on our Senior
Notes plus the amortization of debt financing costs related to our Senior
Notes minus historical interest expense.
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<PAGE>
QUARTERLY OPERATING RESULTS AND OTHER DATA:
The table below sets forth our quarterly operating data, including radio
station and household data, for each quarter of 1998 and the first three
quarters of 1999. This quarterly information is unaudited but, in our opinion,
reflects all normally recurring adjustments necessary for a fair presentation of
the information for the periods presented when read in conjunction with the
audited consolidated financial statements and notes thereto. Operating results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT RADIO STATION AFFILIATE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues
Programming content
Radio........................................ $ 1,582 $ 2,158 $ 2,884 $ 3,417 $ 2,959 $ 3,906 $ 5,488
Cable television............................. 3,842 4,022 4,127 4,901 5,797 6,846 6,586
Internet..................................... -- -- -- -- -- -- --
Advertising sales services..................... -- -- 2,362 2,745 1,575 2,282 2,598
Satellite services............................. 1,157 971 1,782 2,262 2,174 2,203 2,190
------- -------- -------- -------- -------- -------- --------
Total revenues............................. 6,581 7,151 11,155 13,325 12,505 15,237 16,862
------- -------- -------- -------- -------- -------- --------
Operating expenses
Programming content
Radio........................................ 1,605 1,885 2,130 2,158 2,498 2,662 2,938
Cable television............................. 3,490 3,177 3,673 3,891 5,014 5,324 5,400
Internet..................................... -- -- -- -- -- -- --
Advertising sales services..................... -- -- 482 647 947 945 884
Satellite services............................. 1,205 1,125 1,310 1,600 1,316 1,327 1,278
Selling and marketing.......................... 794 953 1,325 1,797 1,361 1,396 2,015
General and administrative..................... 1,172 920 1,960 2,676 2,083 2,264 2,965
------- -------- -------- -------- -------- -------- --------
Total operating expenses................... 8,266 8,060 10,880 12,769 13,219 13,918 15,480
------- -------- -------- -------- -------- -------- --------
Operating income (loss).................... (1,685) (909) 275 556 (714) 1,319 1,382
------- -------- -------- -------- -------- -------- --------
Other expense.................................... 1,255 1,477 3,564 3,127 2,879 2,881 3,135
Income tax provision/benefit and minority
interest....................................... 261 76 (284) 211 70 396 556
------- -------- -------- -------- -------- -------- --------
$ (1,958)
Net Loss....................................... $(3,201) $(2,462) $ (3,005) $ (2,782) $ (3,663) $(2,3
======= ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(a)........................................ $ (310) $ 310 $ 2,020 $ 2,270 $ 1,218 $ 2,896 $ 3,748
Depreciation and amortization:
Satellite services............................. 1,025 977 986 975 1,019 999 988
General and administrative..................... 176 167 559 731 596 648 1,170
Other.......................................... 158 148 168 196 375 334 370
------- -------- -------- -------- -------- -------- --------
Total depreciation and amortization.......... 1,359 1,292 1,713 1,902 1,990 1,981 2,528
Capital expenditures............................. 145 394 1,377 342 274 168 146
Cable programming distribution payments(b)....... -- -- 1,129 1,935 1,471 672 1,618
Net cash provided by (used in)
Operating activities........................... (8,380) 235 608 227 (2,479) 1,910 (208)
Investing activities........................... (832) 136 (31,370) (2,955) (2,309) (3,826) (21,178)
Financing activities........................... 9,570 (2,001) 50,816 883 -- -- 20,100
AUDIENCE DATA (at end of period; unaudited):
Radio station AQH (24-hour formats)(c)........... -- -- -- 2,369 2,259 2,122 2,188
Radio station AQH (syndicated)(c)................ -- -- -- 6,090 6,386 6,569 12,355
Radio station affiliates(d)...................... -- -- -- 2,146 2,205 2,105 2,499
Great American Country households(e)............. 2,222 3,458 4,819 7,131 8,063 8,659 10,959
Product Information Network households(e)........ 17,806 18,630 18,970 20,634 22,551 24,673 28,110
Product Information Network FTREs(f)............. 7,088 7,682 8,056 8,647 10,159 10,709 11,683
</TABLE>
- -------------
(a) EBITDA is unaudited and represents operating income (loss) plus depreciation
and amortization minus EBITDA attributable to the minority interests in the
PIN Venture, a consolidated 55.3%-owned subsidiary. Management acknowledges
that EBITDA is not a measure of performance or liquidity calculated in
accordance with generally accepted accounting principles. However, EBITDA is
a measure widely used by analysts and investors in the media industry to
determine a company's operating performance and ability to service and incur
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.
32
<PAGE>
(b) Cable programming distribution payments made by GAC to multiple system cable
television operators for carrying GAC programming. These payments are
reflected as intangible assets on the balance sheet and are amortized over
the life of the affiliate agreements (usually 5 to 10 years).
(c) AQH represents the average audience estimated to have listened, for a
minimum of five minutes during any quarter hour, to a radio station
broadcasting our advertising. For the 24-hour formats, the period used to
determine AQH is Monday through Friday, 6am to 7pm. The period used to
determine AQH for syndicated programs is the time during which the
commercials associated with the programs or services are broadcast. These
AQH estimates are derived from data provided by Marketron (a third party
processor) that is based on Arbitron copyrighted and proprietary audience
estimates. They are not estimates produced by Arbitron. Radio advertising is
generally sold on the basis of the listening audience as quantified by AQH.
Beginning in the period ended December 31, 1998, we have excluded the AQH
related to non-recurring specials. AQH (24-hour formats) has been restated
for periods prior to 1998 to reflect our creation in 1998 of a second
selling network resulting from the division of our then-existing network.
This division more accurately reflects our audience to radio advertisers.
The effect of this restatement is to make periods prior to 1998 comparable
to 1998 and later periods. Quarterly AQH data prior to December 31, 1998, is
not available.
(d) Represents the number of non-dulipcating radio station affiliates receiving
our programs at the end of the periods indicated.
(e) Represents the total number of subscribers at the end of the periods
indicated.
(f) FTREs represent the number of full-time revenue equivalent subscribers
receiving PIN at the end of the periods indicated. FTRE weights part-time
subscribers based on the daypart carried and the revenue associated
therewith.
33
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
TOTAL REVENUES. Total revenues increased $19.6 million, or 79%, from
$25.0 million for the nine months ended September 30, 1998 to $44.6 million for
the nine months ended September 30, 1999. This increase was due to strong growth
in our operations, as well as the Broadcast Programming and MediaAmerica
acquisitions. On a pro forma basis, total pro forma revenues increased
$13.7 million, or 38%, from $35.7 million for the nine months ended
September 30, 1998 to $49.4 million for the nine months ended September 30,
1999.
RADIO PROGRAMMING REVENUES. Radio programming revenues increased
$5.7 million, or 87%, from $6.6 million for the nine months ended September 30,
1998 to $12.3 million for the nine months ended September 30, 1999, due
primarily to an increase in radio advertising revenue and the acquisition of the
assets of Broadcast Programming. Broadcast Programming, following its purchase
on August 2, 1999, generated additional advertising and programming license fee
revenues of $1.5 million during the nine months ended September 30, 1999. On a
pro forma basis, radio programming revenues increased $4.7 million, or 37%, from
$12.6 million for the nine months ended September 30, 1998 to $17.3 million for
the nine months ended September 30, 1999.
During the latter half of 1999, we benefited from strong network radio
advertising demand, driven primarily by strong economic conditions and a
significant increase in the use of network radio advertising by Internet
companies. As a result, the network radio advertising market has been strong,
with approximately 36% more in gross network radio advertising booked as of late
October 1999, compared to the amount booked in the comparable period in the
prior year. Due to increased demand for network radio advertising, both our
syndicated radio programs and 24-hour formats have experienced an increase in
advertising rates and inventory sellout percentages. Sales of network radio
advertising for the first nine months of 1998 were adversely affected by the
January 1998 entry of a significant competitor into the market, which added
approximately 20% more network radio advertising inventory coupled with
decreased demand.
CABLE TELEVISION PROGRAMMING REVENUES. Cable television programming
revenues increased $7.2 million, or 60%, from $12.0 million for the nine months
ended September 30, 1998 to $19.2 million for the nine months ended
September 30, 1999. This increase was due to the following:
- GAC's revenues increased $1.7 million, or 100%, as a result of a
$1.5 million, or 198%, increase in advertising revenues and $0.2 million,
or 19%, increase in license fees. Advertising revenues increased due to
higher advertising rates charged for airtime based on a significant
increase in the number of subscribers receiving GAC.
- PIN's revenues increased $5.5 million, or 54%, primarily as a result of an
increase in subscribers receiving PIN.
During 1999, GAC added numerous, significant cable television systems and
advertising markets including Atlanta, Detroit, Minneapolis, Sacramento, Salt
Lake City, Baltimore, Knoxville and Los Angeles. GAC subscribers increased by
6.1 million, or 127%, from September 30, 1998 to September 30, 1999. This
increase in subscribers has allowed GAC to increase its advertising rates.
During 1999, PIN also added a number of significant cable television systems
and advertising markets including Boston, Dallas, Houston, Miami, Salt Lake
City, Las Vegas and Detroit. The number of full-time revenue equivalent
subscribers, or FTRE's, receiving PIN increased by 3.6 million, or 45%, from
September 30, 1998 to September 30, 1999. The number of households receiving PIN
increased by 9.1 million, or 48%, from September 30, 1998 to September 30, 1999.
PIN is developing certain paid programming blocks, which we believe will
generate higher per program advertising revenues as compared to traditional
infomercials.
34
<PAGE>
ADVERTISING SALES REVENUES. Advertising sales revenues increased
$4.1 million, or 173%, from $2.4 million for the nine months ended
September 30, 1998 to $6.5 million for the nine months ended September 30, 1999.
Advertising sales revenues for the nine months ended September 30, 1998 do not
include MediaAmerica revenues, as the MediaAmerica business was not acquired
until July 10, 1998. Accordingly, advertising sales revenues for the nine months
ended September 30, 1998 are not comparable to the nine months ended
September 30, 1999. On a pro forma basis, advertising sales revenues decreased
$0.8 million, or 12%, from $7.1 million for the nine months ended September 30,
1998 to $6.3 million for the nine months ended September 30, 1999. The decrease
is primarily a result of the termination of an agreement to sell network
advertising and other services to a major producer of talk radio programs. This
agreement was terminated in 1998, after we received $2.0 million of revenue in
1998 from: (i) a termination payment of $0.8 million; and (ii) network
advertising inventory sold in the up-front market, resulting in $1.2 million of
advertising revenue in 1998. The decrease was offset by an increase in
advertising sales revenues generated by new customers obtained in the latter
part of 1998 and in 1999 and an increase in advertising revenues of our
advertising sales customers largely attributable to improved advertising rates
and sellout conditions. See discussion of radio market conditions above.
SATELLITE SERVICES REVENUES. Satellite services revenues increased
$2.6 million, or 65%, from $4.0 million for the nine months ended September 30,
1998 to $6.6 million for the nine months ended September 30, 1999. This increase
was driven largely by:
- $2.1 million in revenues from new third party satellite transponder and
earth station agreements that we entered into in the second half of 1998
and second quarter of 1999; and
- $0.5 million increase in satellite services fees charged to affiliated
parties.
TOTAL OPERATING EXPENSES. Total operating expenses increased
$15.3 million, or 56%, from $27.3 million for the nine months ended
September 30, 1998 to $42.6 million for the nine months ended September 30,
1999. As a percentage of total revenues, total operating expenses decreased from
109% for the nine months ended September 30, 1998 to 96% for the nine months
ended September 30, 1999. On a pro forma basis, total operating expenses
increased $8.2 million, or 21%, from $39.3 million for the nine months ended
September 30, 1998 to $47.5 million for the nine months ended September 30,
1999. As a percentage of pro forma total revenues, total pro forma operating
expenses decreased from 110% for the nine months ended September 30, 1998 to 96%
for the nine months ended September 30, 1999.
RADIO PROGRAMMING EXPENSES. Radio programming expenses increased
$2.6 million, or 48%, from $5.5 million for the nine months ended September 30,
1998 to $8.1 million for the nine months ended September 30, 1999. This increase
was primarily due to:
- an increase in the number of syndicated radio programs we offered;
- $0.5 million increase in radio programming expenses, as a result of the
Broadcast Programming acquisition on August 2, 1999; and
- $0.3 million increase in fees paid to license certain radio programming.
As a percentage of radio programming revenues, radio programming expenses
decreased from 83% for the nine months ended September 30, 1998 to 66% for the
nine months ended September 30, 1999. The decrease in radio programming expenses
as a percentage of radio programming revenues is due primarily to the increase
in radio programming revenues resulting from improved advertising rates and
sellout conditions in 1999. In addition, a significant portion of our radio
programming expenses are fixed in nature.
35
<PAGE>
On a pro forma basis, radio programming expenses increased $1.2 million, or
13%, from $9.2 million for the nine months ended September 30, 1998 to
$10.4 million for the nine months ended September 30, 1999. As a percentage of
pro forma radio programming revenues, pro forma radio programming expenses
decreased from 73% for the nine months ended September 30, 1998 to 60% for the
nine months ended September 30, 1999.
CABLE TELEVISION PROGRAMMING EXPENSES. Cable television programming
expenses rose $5.3 million, or 51%, from $10.4 million for the nine months ended
September 30, 1998 to $15.7 million for the nine months ended September 30,
1999. This was primarily due to increases of $4.4 million in rebates to cable
systems receiving PIN, driven by an increase in PIN revenues of $5.5 million
from September 30, 1998 to September 30, 1999. The remaining increase in cable
television expenses resulted from an increase in GAC affiliate sales costs
related to absorption of a higher proportion of total affiliate sales costs; an
increase in management and cable television programming support expenses; an
increase in advertising sales costs from hiring GAC national advertising sales
personnel; and an increase in programming expenses incurred to develop GAC
programming.
For each of the nine months ended September 30, 1998 and 1999, PIN made
rebates of approximately 75% of its advertising revenues to systems receiving
its programming. Rebates paid to cable systems receiving its programming have
remained relatively constant over the comparable periods on a per FTRE's basis.
However, as FTRE's continue to grow, total cable television programming expenses
will increase because PIN will pay out additional rebates to cable systems. As a
percentage of cable television programming revenues, cable television
programming expenses decreased from 87% for the nine months ended September 30,
1998 to 82% for the nine months ended September 30, 1999.
As a result of a related party no longer being in business, we will absorb
substantially all of the costs of the sales operation, which provided us with
cable affiliate sales and certain marketing services. Beginning in the fourth
quarter of 1999, the related party will provide these services only to us. As a
result, we estimate that affiliate sales operating expenses will increase by
approximately $70,000 per month beginning in the fourth quarter of 1999.
ADVERTISING SALES EXPENSES. Advertising sales expenses increased
$2.3 million, or 476%, from $0.5 million for the nine months ended
September 30, 1998 to $2.8 million for the nine months ended September 30, 1999.
Advertising sales expenses for the nine months ended September 30, 1998 do not
include MediaAmerica expenses for the entire period since the MediaAmerica
business was not acquired until July 10, 1998. Accordingly, advertising sales
expenses for the nine months ended September 30, 1998 are not comparable to
those for the nine months ended September 30, 1999. On a pro forma basis,
advertising sales expenses increased $0.9 million, or 47%, from $1.9 million for
the nine months ended September 30, 1998 to $2.8 million for the nine months
ended September 30, 1999. This change is due to certain reclassifications of
expenses. As a percentage of advertising sales revenues, advertising sales
expenses increased from 20% for the nine months ended September 30, 1998 to 43%
for the nine months ended September 30, 1999. On a pro forma basis, advertising
sales expenses increased from 27% for the nine months ended September 30, 1998
to 44% for the nine month ended September 30, 1999.
SATELLITE SERVICES EXPENSES. Satellite services expenses increased
$0.1 million, or 3%, from $3.8 million for the nine months ended September 30,
1998 to $3.9 million for the nine months ended September 30, 1999. This increase
is due primarily to additional third party and affiliate usage of our uplinking
and playback services. As a percentage of satellite services revenues, satellite
services expenses decreased from 95% for the nine months ended September 30,
1998 to 60% for the nine months ended September 30, 1999. Because a significant
portion of the costs of our satellite services are fixed, we increased our
utilization of the excess capacity on our Satcom C-3 transponder. As a result,
the percentage of satellite services expenses in relation to the satellite
services revenues decreased.
36
<PAGE>
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$1.7 million, or 55%, from $3.1 million for the nine months ended September 30,
1998 to $4.8 million for the nine months ended September 30, 1999. This change
was due to increases of:
- $1.0 million in selling and marketing expenses from the MediaAmerica
acquisition in July 1998;
- $0.3 million in marketing expenses to improve the distribution of GAC;
- $0.2 million in marketing expenses related to the operations of Broadcast
Programming following its purchase in August 1999; and
- $0.2 million in marketing expenses to increase the number radio stations
receiving our programming.
As a percentage of total revenues, selling and marketing expenses decreased
from 12% for the nine months ended September 30, 1998 to 11% for the nine months
ended September 30, 1999. Due to the increase in our total revenues, selling and
marketing expenses as a percentage of total revenues decreased.
On a pro forma basis, selling and marketing expenses decreased
$0.6 million, or 13%, from $4.7 million for the nine months ended September 30,
1998 to $5.3 million for the nine months ended September 30, 1999. The decrease
in selling and marketing expenses was due primarily to decreases in salary and
administrative expense allocations from advertising representation expenses. As
a percentage of total pro forma revenue, selling and marketing expenses
decreased from 13% for the nine months ended September 30, 1998 to 11% for the
nine months ended September 30 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $3.2 million, or 80%, from $4.1 million for the nine months ended
September 30, 1998 to $7.3 million for the nine months ended September 30, 1999,
including depreciation and amortization of $0.9 million for the nine months
ended September 30, 1998 and $2.4 million for the nine months ended
September 30, 1999. This change was due to increases of:
- $1.3 million in amortization expenses for GAC cable programming
distribution payments and goodwill from the acquisition of the
MediaAmerica assets;
- $1.2 million in general and administrative expenses arising from the
MediaAmerica acquisition;
- $0.6 million in general and administrative expenses arising from the
Broadcast Programming acquisition; and
- $0.6 million in additional management, operational support and other
expenses.
This increase was offset by an increase in salary and administrative
allocations from general and administrative expenses to operating expenses. As a
percentage of total revenues, general and administrative expenses remained
relatively flat at 16% for the nine months ended September 30, 1998 and 1999.
On a pro forma basis, general and administrative expenses increased
$0.1 million, or 1%, from $9.3 million for the nine month ended September 30,
1998 to $9.4 million for the nine months ended September 30, 1999. As a
percentage of total pro forma revenue, general and administrative expenses
decreased from 26% for the nine months ended September 30, 1998 to 19% for the
nine months ended September 30, 1999.
As a result of the transfer of a controlling interest in Jones Intercable
from Jones International, Ltd. and its affiliates to Comcast Corporation in
April 1999, Jones Intercable no longer shares in many of the administrative and
related expenses which have historically been allocated to the various entities
affiliated with Mr. Jones, including ourselves. Because Jones Intercable was the
largest of such sharing entities, its exclusion from the allocation process has
caused us, beginning in the second half of 1999, to incur
37
<PAGE>
increases in certain overhead and related costs including rent, computer
services, insurance and personnel costs for legal, risk management and human
resources services. We therefore estimate that commencing in early 2000,
operating expenses will most likely increase by approximately $35,000 to $50,000
per month beginning the first quarter of 2000. We have taken certain steps and
will take additional steps to mitigate the impact of this change; however, there
can be no assurance that we will be able to reduce the level of these costs.
OPERATING INCOME (LOSS). Operating income (loss) increased $4.3 million
from a loss of $(2.3) million for the nine months ended September 30, 1998 to a
gain of $2.0 million for the nine months ended September 30, 1999 as a result of
the factors stated above. Pro forma income (loss) increased $5.5 million from
$(3.6) million for the nine months ended September 30, 1998 to $1.9 million for
the nine months ended September 30, 1999. Depreciation and amortization
increased $2.1 million, or 49%, from $4.4 million for the nine months ended
September 30, 1998 to $6.5 million for the nine months ended September 30, 1999.
EBITDA. EBITDA increased $5.8 million, or 286%, from $2.0 million for the
nine months ended September 30, 1998, to 7.8 million for the nine months ended
September 30, 1999. Pro forma EBITDA increased $5.8 million, or 155%, from
$3.7 million for the nine months ended September 30, 1998, to $9.5 million for
the nine months ended September 30, 1999. Pro forma depreciation and
amortization increased $0.9 million, or 12%, from $7.4 million for the nine
months ended September 30, 1998 to $8.3 million for the nine months ended
September 30, 1999.
TOTAL OTHER EXPENSE. Total other expense increased $2.6 million, or 41%,
from $6.3 million for the nine months ended September 30, 1998 to $8.9 million
for the nine months ended September 30, 1999. This change is due primarily to an
increase of $6.1 million in interest expense related to our Senior Notes and an
increase of $0.7 million in interest expense related to the amortization of
offering costs related to our Senior Notes. The increase was partially offset
by:
- a $3.0 million decrease in interest expense related to the repayment of
debts from the proceeds from our Senior Notes;
- a $0.9 million decrease in other expenses; and
- a $0.3 million increase in interest income earned on cash, cash
equivalents and available for sale securities.
In 1998, we incurred debt offering related costs of $0.9 million. No similar
expenses were incurred in 1999.
On a pro forma basis, pro forma total other expense decreased $1.0 million,
or 10%, from $9.7 million for the nine months ended September 30, 1998 to
$8.7 million for the nine months ended September 30, 1999.
NET LOSS. Net loss decreased $0.7 million, or 9%, from $(8.6) million for
the nine months ended September 30, 1998 to $(7.9) million for the nine months
ended September 30, 1999. Pro forma net loss decreased $5.2 million, or 38%,
from $(13.5) million for the nine months ended September 30, 1998 to
$(8.3) million for the nine months ended September 30, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUES. Total revenues increased $9.1 million, or 31%, from
$29.1 million for the year ended December 31, 1997 to $38.2 million for the year
ended December 31, 1998. This increase was due primarily to:
- the acquisition of MediaAmerica in July 1998;
- an increase in GAC advertising revenues; and
- revenues resulting from the consolidation of the PIN Venture.
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RADIO PROGRAMMING REVENUES. Radio programming revenues decreased
$0.2 million, or 2%, from $10.2 million for the year ended December 31, 1997 to
$10.0 million for the year ended December 31, 1998. This increase was primarily
due to a $1.4 million, or 15%, decrease in advertising revenues as offset by a
$1.2 million increase in radio programming revenues as a result of the
MediaAmerica acquisition. Sales of radio advertising for 1998 were adversely
affected by the entry in January 1998 of AMFM, Inc. ("AMFM") to the network
advertising marketplace. 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 our radio network. During 1998, we
realized lower rates as compared to 1997. The decrease was partially offset by
the elimination of $1.0 million in advertising sales representation selling
commissions (contra revenues) charged by MediaAmerica and an $0.2 million
increase in promotion income from MediaAmerica. Licensing revenues remained
relatively stable, reflecting our strategy to focus on radio station affiliates
with significant audiences, which are generally not charged a license fee.
During late 1998, we began to experience improved advertising rate and sellout
conditions and these trends continued into 1999.
CABLE TELEVISION PROGRAMMING REVENUES. Cable television programming
revenues increased $4.9 million, or 41%, from $12.0 million for the year ended
December 31, 1997 to $16.9 million for the year ended December 31, 1998. This
increase was primarily due to:
- the consolidation of the PIN Venture, which resulted in an increase of
$3.3 million in advertising revenues for financial statement reporting
purposes;
- a $0.3 million increase in PIN's advertising revenues, as a result of an
increase in the number of subscribers receiving its programming;
- a $0.9 million increase in GAC advertising revenues due to higher
advertising rates charged for airtime as a result of an increase in the
number of its subscribers; and
- a $0.4 million increase in GAC affiliate fees due to an increase in the
number of its subscribers paying affiliate fees.
The number of subscribers receiving GAC at December 31, 1997 and
December 31, 1998 totaled 1.5 million and 7.1 million, respectively. GAC
subscribers increased by 5.6 million, or 373%, from December 31, 1997 to
December 31, 1998. This increase in subscribers has allowed GAC to increase its
advertising rates as it begins the transition from primarily direct response
advertising to national spot advertising.
The number of full-time revenue equivalent subscribers ("FTRE's") receiving
PIN at December 31, 1997 and December 31, 1998 totaled 7.0 million and
8.6 million, respectively. PIN FTRE's increased by 1.6 million subscribers, or
23%, from December 31, 1997 to December 31, 1998.
ADVERTISING SALES REVENUES. As a result of the acquisition of MediaAmerica,
we generated advertising sales revenues of $5.1 million for the year ended
December 31, 1998.
SATELLITE SERVICES REVENUES. Satellite services revenues decreased
$0.7 million, or 11%, from $6.9 million for the year ended December 31, 1997 to
$6.2 million for the year ended December 31, 1998. This decrease was driven
largely by:
- the expiration in October 1997 of a third party satellite services
agreement, which had generated $2.6 million in satellite delivery revenues
in 1997; and
- the consolidation of the PIN Venture, which for financial statement
reporting purposes resulted in the elimination of $0.4 million in
satellite delivery revenues.
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This decrease was partially offset by:
- new satellite delivery and production support agreements entered into with
third parties in 1998, which resulted in revenues of $1.4 million; and
- an increase in satellite services fees of $0.9 million charged to related
parties.
TOTAL OPERATING EXPENSES. Total operating expenses increased
$13.1 million, or 49%, from $26.9 million for year ended December 31, 1997 to
$40.0 million for the year ended December 31, 1998. This increase was due to
increases in all of our expense areas. As a percentage of total revenues, total
operating expenses increased from 92% for the year ended December 31, 1997 to
105% for the year ended December 31, 1998.
RADIO PROGRAMMING EXPENSES. Radio programming expenses increased
$2.0 million, or 34%, from $5.8 million for the year ended December 31, 1997 to
$7.8 million for the year ended December 31, 1998. Programming expenses rose due
to:
- an increase in the number of formats and syndicated programs we offered;
and
- the acquisition of the MediaAmerica assets.
As a percentage of radio programming revenues, radio programming expenses
increased from 57% for the year ended December 31, 1997 to 77% for the year
ended December 31, 1998.
CABLE TELEVISION PROGRAMMING EXPENSES. Cable television programming
expenses increased $5.0 million, or 53%, from $9.3 million for the year ended
December 31, 1997 to $14.3 million for the year ended December 31, 1998. This
increase was due to the consolidation of the PIN Venture and the increase in
amounts paid to cable systems receiving PIN as a result of an increase in the
number of FTRE's receiving PIN. For the years ended December 31, 1997 and 1998,
the PIN Venture made rebate payments to these systems of approximately
$7.8 million and $10.3 million, respectively. The increase was offset by the
decrease in allocation of the satellite delivery and production support expenses
attributable to PIN and GAC. As a percentage of cable television programming
revenues, cable television programming expenses increased from 77% for the year
ended December 31, 1997 to 84% for the year ended December 31, 1998.
ADVERTISING SALES EXPENSES. As a result of the acquisition of MediaAmerica
in July 1998, we generated advertising sales expenses of $1.1 million for the
year ended December 31, 1998. No such expenses were incurred in 1997.
SATELLITE SERVICES EXPENSES. Satellite services expenses increased
$0.5 million, or 12%, from $4.7 million for the year ended December 31, 1997 to
$5.2 million for the year ended December 31, 1998. This increase was due
primarily to a decrease in the allocation of satellite services expenses to
cable television programming expenses attributable to PIN and GAC, as a result
of the additional satellite services customers. As a percentage of satellite
services revenues, satellite services expenses increased from 68% for the year
ended December 31, 1997 to 85% for the year ended December 31, 1998, primarily
due to the expiration in October 1997 of a third party satellite services
agreement and to increased satellite services expenses.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$2.0 million, or 67%, from $2.9 million for the year ended December 31, 1997 to
$4.9 million for the year ended December 31, 1998. This increase was due to:
- a $1.2 million increase in selling and marketing expenses from the
acquisition of MediaAmerica;
- a $0.7 million increase in marketing expenditures to improve the
distribution of GAC;
- a $0.1 million increase due to the consolidation of the PIN Venture.
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As a percentage of total revenues, selling and marketing expenses increased
from 10% for the year ended December 31, 1997 to 13% for the year ended
December 31, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $2.5 million, or 61%, from $4.2 million for the year ended
December 31, 1997 to $6.7 million for the year ended December 31, 1998. This
increase was primarily due to:
- a $1.7 million increase due to the acquisition of MediaAmerica;
- a $0.3 million increase in goodwill amortization expenses associated with
the MediaAmerica acquisition; and
- a $0.3 million increase in the amortization for GAC cable programming
distribution payments for GAC.
As a percentage of total revenues, general and administrative expenses
increased from 14% for the year ended December 31, 1997 to 18% for the year
ended December 31, 1998.
OPERATING INCOME (LOSS). Operating income (loss) decreased $4.0 million
from $2.3 million for the year ended December 31, 1997 to $(1.8) million for the
year ended December 31, 1998 as a result of the factors stated above.
Depreciation and amortization increased $1.1 million, or 21%, from $5.2 million
for the year ended December 31, 1997 to $6.3 million for the year ended
December 31, 1998.
EBITDA. EBITDA decreased $2.3 million, or 35%, from $6.6 million for the
year ended December 31, 1997, to $4.3 million for the year ended December 31,
1998.
TOTAL OTHER EXPENSE. Total other expense increased $3.2 million, or 52%,
from $6.2 million for the year ended December 31, 1997 to $9.4 million for the
year ended December 31, 1998. The increase was due to:
- a $5.6 million increase in interest expense related to our Senior Notes;
- a $0.6 million increase in other expenses related to our credit facility
outstanding at that time; and
- a $0.4 million increase in expenses incurred in 1998 related to the
MediaAmerica acquisition and our Senior Notes offering.
The increase was offset partially by a write-off of deferred offering costs
of $0.9 million in 1997 for which no similar expense was incurred in 1998. The
increase was also partially offset by the decrease in interest expense related
to the repayment of outstanding notes to Global Group, Inc., Jones Earth
Segment, Inc. and the satellite transponder capital leases, which totaled
$2.5 million.
NET LOSS. Net loss increased $8.0 million, or 228%, from $(3.5) million for
the year ended December 31, 1997 to $(11.5) million for the year ended
December 31, 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
TOTAL REVENUES. Total revenues increased $12.4 million, or 75%, from
$16.7 million for the year ended December 31, 1996 to $29.1 million for the year
ended December 31, 1997. This increase was due primarily to increases in both
cable television and radio programming revenues. The increase in cable
television programming revenues is due primarily to:
- the consolidation of the PIN Venture; and
- an increase in advertising and license fee revenue as a result of a 98%
increase in the number of GAC's subscribers from December 31, 1996 to
December 31, 1997.
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The increase in radio programming revenues was due to a 5% increase in the
number of radio affiliates receiving our programming from December 31, 1996 to
December 31, 1997.
RADIO PROGRAMMING REVENUES. Radio programming revenues increased
$3.2 million, or 46%, from $7.0 million for the year ended December 31, 1996 to
$10.2 million for the year ended December 31, 1997. This increase was due to a
$3.2 million, or 52%, increase in advertising revenues due primarily to an
increase in the rates we charged for our advertising spots as a result of
favorable network radio advertising conditions and increases in AQH for certain
radio programs. Licensing revenues remained relatively stable, reflecting our
strategy to focus on radio station affiliates with significant audiences, which
are generally not charged a license fee.
CABLE TELEVISION PROGRAMMING REVENUES. Cable television programming
revenues increased $10.8 million, or 940%, from $1.2 million for the year ended
December 31, 1996 to $12.0 million for the year ended December 31, 1997. This
increase was primarily due to:
- a $10.4 million increase in advertising revenues from the consolidation of
the PIN Venture; and
- an increase in GAC advertising and license revenues of $0.4 million due
primarily to higher advertising rates charged for airtime on GAC, as a
result of an increase in the number of subscribers receiving GAC's
programming, a decrease in the amount of unsold airtime, and an 84%
increase in the number of direct response spots sold.
SATELLITE SERVICES REVENUES. Satellite services revenues decreased
$1.6 million, or 19%, from $8.5 million for the year ended December 31, 1996 to
$6.9 million as reported for the year ended December 31, 1997. This increase was
primarily due to the expiration in October 1997 of a third party satellite
services agreement and the consolidation of the PIN Venture. The decrease was
partially offset by an increase in satellite services fees charged to related
parties.
TOTAL OPERATING EXPENSES. Total operating expenses increased
$11.1 million, or 70%, from $15.8 million for the year ended December 31, 1996
to $26.9 million for the year ended December 31, 1997. This increase was due to
increases in all of our expense areas.
These increases, excluding radio programming, were primarily due to the
consolidation of the PIN Venture. As a percentage of total 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 for the year ended December 31, 1996 to
$5.8 million for the year ended December 31, 1997. This increase was primarily
due 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 we offered.
Programming distribution expenses, such as 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 we offered. 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.
CABLE TELEVISION PROGRAMMING EXPENSES. Cable television programming
expenses increased $8.1 million, or 701%, from $1.2 million for the year ended
December 31, 1996 to $9.3 million for the year ended December 31, 1997. This
increase was primarily due to the consolidation of the PIN Venture. As a
percentage of cable television programming revenues, cable television
programming expenses decreased from 100% for the year ended December 31, 1996 to
77% for the year ended December 31, 1997.
SATELLITE SERVICES EXPENSES. Satellite services expenses decreased
$0.8 million, or 14%, from $5.5 million for the year ended December 31, 1996 to
$4.7 million for the year ended December 31,
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1997. This decrease was primarily due to the launch in late 1995 of GAC and
allocation of the satellite services expenses attributable to GAC to cable
television programming expenses from satellite services expenses. As a
percentage of satellite services revenues, satellite services 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 for the year ended December 31, 1996 to
$2.9 million for the year ended December 31, 1997. This increase was primarily
due to:
- a $0.7 million increase in marketing expenditures related to our radio
programming marketing activities;
- a $0.1 million increase in marketing expenditures related to our cable
television programming marketing activities; and
- a $0.4 million increase in marketing expenditures 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 for the year ended
December 31, 1996 to $4.2 million for the year ended December 31, 1997. This
increase was primarily due 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.
OPERATING INCOME (LOSS). Operating income increased $1.4 million from
$0.9 million for the year ended December 31, 1996 to $2.3 million for the year
ended December 31, 1997 as a result of the factors stated above. Depreciation
and amortization increased $0.7 million, or 15%, from $4.5 million for the year
ended December 31, 1996 to $5.2 million for the year ended December 31, 1997.
EBITDA. EBITDA increased $1.2 million, or 23%, from $5.4 million for the
year ended December 31, 1996, to $6.6 million for the year ended December 31,
1997.
TOTAL OTHER EXPENSE. Total other expense increased $2.6 million from
$3.6 million for the year ended December 31, 1996 to $6.2 million for the year
ended December 31, 1997. This increase was due to:
- an approximate $0.9 million write-off of deferred offering costs;
- a $1.2 million increase in interest expense relating to a note payable to
Global Group, Inc.; and
- a $0.5 million increase in interest expense relating to advances from
Jones International.
NET LOSS. Net loss increased $1.2 million, or 51%, from $(2.3) million for
the year ended December 31, 1996 to $(3.5) million for the year ended
December 31, 1997.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Advertising revenues in the radio and cable television industries fluctuate
due to seasonality in these industries. We believe 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 acquisitions of the assets
of Broadcast Programming and MediaAmerica, which increases our presence in radio
programming, we expect that our seasonal trend of lower first quarter revenues
will be more significant because radio programming and advertising sales
revenues will be a greater percentage of total revenues. Other than fees paid to
third parties for certain of our radio programming, fees paid in
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connection with the distribution of PIN and the sales commissions paid to
account executives for radio and advertising representation sales, our expenses
have not historically varied significantly, relative to the seasonal fluctuation
of revenues. Our quarterly and annual results of operations are affected by a
wide variety of factors, many of which are outside of our control and could
materially and adversely affect our profitability. These factors include the
timing and volume of advertising on our radio and cable television networks, the
number and size of the radio stations that carry our radio programming, the
number and size of cable systems and video distributors that carry PIN and GAC
and overall economic conditions.
The following table reflects the unaudited percentage of total revenues for
each business segment received in each quarter of each of 1998 and 1999,
adjusted to give effect to our acquisitions of MediaAmerica and Broadcast
Programming as if they had occurred at the beginning of each respective year.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA:
Programming Content
Radio................ 20% 24% 28% 28%
Cable television..... 23% 24% 24% 29%
Advertising sales
services............. 19% 25% 25% 31%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred net losses, primarily as a result of
expenses associated with developing and launching our programming networks. For
the years ended December 31, 1996, 1997, 1998 and for the nine months ended
September 30, 1999, we incurred net losses of $(2.3) million, $(3.5) million,
$(11.5) million, and $(7.9) million, respectively. Net cash provided by (used
in) operating activities for the years ended December 31, 1996, 1997, 1998 and
for nine months ended September 30, 1999 was $4.8 million, $7.6 million, $(7.3)
million and $(0.8) million, respectively. Net cash used in operating activities
for the year ended December 31, 1998 included the net repayment of $8.4 million
of advances from Jones International, Ltd., our parent company.
The implementation of our growth strategies depends on cash generated from
operations and available cash balances, and may require additional equity and/or
debt financings, particularly to make significant acquisitions. We had cash,
cash equivalents and available for sale securities of $17.1 million as of
September 30, 1999. Following this offering, we will have $51.0 million of cash,
cash equivalents and available for sale securities. We believe that our cash
balances, available for sale securities, net proceeds from this offering and
operating cash flow, including the cash flows of, and dividends and
distributions from, our subsidiaries, will be sufficient to fund our cash flow
requirements through 2000.
We will continue to depend significantly upon the earnings and cash flows
of, and dividends and distributions from, our subsidiaries to pay our expenses,
meet our obligations and pay interest and principal on our Senior Notes and our
other indebtedness. While the terms of our joint ventures (including the PIN
Venture) generally require the mutual consent of ourselves and our joint venture
partners to distribute or advance funds to ourselves, there are no significant
contractual restrictions on distributions from our subsidiaries.
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INVESTING ACTIVITIES
For the year ended December 31, 1998 and for the nine months ended
September 30, 1999, net cash used in investing activities was $(35.0) million
and $(27.3) million, respectively.
Our investing activities in 1998 related primarily to the acquisition of the
MediaAmerica assets for cash consideration of $26.7 million. Capital
expenditures of $2.3 million for 1998 were primarily for equipment to further
compress our Satcom C-3 satellite transponder and to add radio formats and
programming. In 1998, we also made programming distribution agreement payments
for GAC of $3.1 million.
In July 1998, we acquired substantially all of the assets and liabilities of
MediaAmerica for $26.7 in cash and $6.0 million in shares of our Class A Common
Stock. The seller also received approximately 142,000 additional shares of
Class A Common Stock, valued at $15 per share, as a working capital adjustment.
MediaAmerica operates an advertising sales business and also owns a number of
radio programming assets.
Our investing activities during the first nine months of 1999 consisted
primarily of:
- $20.9 million for the Broadcast Programming acquisition;
- $3.7 million in cable programming distribution agreement payments for GAC
to add 3.8 million subscribers; and
- $0.6 million for the purchase of property, plant and equipment.
Total purchases of property, plant and equipment for the balance of 1999 are
estimated to be approximately $0.4 million, largely representing the upgrade of
certain radio programming studios and the purchase of satellite receivers. Total
cable programming distribution agreement payments for GAC for the balance of
1999 are estimated to be approximately $2.5 million to $4.0 million.
FINANCING ACTIVITIES
Net cash provided by financing activities for the year ended December 31,
1998 and for the nine months ended September 30, 1999 were $59.3 million and
$20.1 million, respectively.
Net cash provided by (used in) financing activities in 1998 related
primarily to $100.0 million of proceeds from the issuance of our Senior Notes,
$(52.0) million for repayment of a capital lease obligation and other
borrowings, $16.7 million of proceeds from borrowings under a subsidiary's
credit facility and $(4.3) million of deferred offering costs.
Our financing activities for the nine months ended September 30, 1999
consisted of the issuance of $20.1 million of our Series A Convertible Preferred
Stock. In the fourth quarter of 1999, we issued an additional $3.9 million of
Series A Convertible Preferred Stock. We used $20.0 million of the proceeds from
our Series A Convertible Preferred Stock issuance to repay $20.0 million of
indebtedness under our $20.0 million credit facility. The balance will be used
to develop our Internet strategy and for general corporate purposes.
On July 29, 1999, we entered into a $20.0 million credit facility with a
commercial bank to finance the Broadcast Programming acquisition on a short-term
basis. In order to allow us to obtain more favorable terms, Jones International
guaranteed the loan and provided certain collateral as security for the
guaranty. The credit facility bears interest either at the commercial bank's
prime rate minus two percent or a fixed rate (which is approximately equal to
LIBOR) plus .5%. The interest rate was 5.84% per annum at September 30, 1999.
The credit facility will expire on June 30, 2000, unless extended.
As a result of the transfer of a controlling interest in Jones Intercable
from Jones International and its affiliates to Comcast Corporation in
April 1999, Jones Intercable no longer shares in many of
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the administrative and related expenses which have historically been divided
among the various entities affiliated with Mr. Jones, including ourselves.
Because Jones Intercable was the largest of such sharing entities, its exclusion
from the allocation process has caused us, beginning in the second half of 1999,
to incur increases in certain overhead and related costs, including rent,
computer services, insurance and personnel costs for legal, risk management and
human resources services. As a result, we estimate that our operating expenses
will most likely increase by approximately $35,000 to $50,000 per month
beginning the first quarter of 2000.
As a result of a related party no longer being in business, we will absorb
substantially all of the costs of the sales operation that provided cable
affiliate sales and certain marketing services to both us and the affiliate.
Beginning in the fourth quarter of 1999, Jones Network Sales will become wholly-
owned by us and will provide these services only to us. As a result, we estimate
that affiliate sales operating expenses will increase by approximately $70,000
per month beginning in the fourth quarter of 1999. Further, the affiliate will
discontinue the use of certain earth station services provided by us beginning
early in the first quarter of 2000. It is estimated that our loss of revenue as
result of the termination of these services to the affiliate will be
approximately $75,000 per month.
While we have taken certain steps and will take additional steps to mitigate
the impact of these divestitures, there will be no assurance that we will be
able to reduce the level of these costs.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, results of operations, or cash flows due to adverse changes in
financial market prices. We are exposed to market risk through interest rates.
This exposure is directly related to our normal funding and investing
activities.
As of September 30, 1999, approximately $0.3 million of our current
liabilities were subject to changes in interest rates; however, we do not use
derivatives to manage this risk. This exposure is linked primarily to the prime
rate. We believe that a moderate change in the prime rate would not materially
affect our operating results or financial condition.
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.
We initiated an assessment of how the Year 2000 problem could affect our
operations in the summer of 1997 and, in conjunction with related parties,
established a Year 2000 Program Office (the "Y2K Office") to manage the process.
The Y2K Office has implemented the steps needed to address the Year 2000 problem
based upon set priorities and we have implemented solutions and developed
contingency plans for all vital components of our businesses.
We have not incurred any material Year 2000 costs to date. We do not have an
estimate for future Year 2000 project costs; however, we expect that future Year
2000 costs, which may be incurred, will not have a harmful effect on our
financial condition and results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for the year
ending December 31, 1999. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial
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position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as:
- a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment;
- a hedge of the exposure to variable cash flows of a forecasted
transaction; or
- a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction.
We will adopt this statement by December 31, 1999. We do not expect that the
adoption of this statement will have a harmful impact on our financial
statements.
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BUSINESS
OVERVIEW
We own and operate a leading network radio programming business and two
cable television networks and are developing a complementary Internet business.
Through our traditional media businesses, we create, develop and produce network
radio and cable programming that is distributed to more than 2,450 radio
stations and 1,750 cable systems, respectively, throughout the United States. We
provide advertisers the ability to reach an audience of approximately
64 million weekly radio listeners and 40 million cable viewing households on a
full- or part-time basis. We currently operate multiple web sites that extend
our traditional media content and personalities to the Internet and allow us to
capitalize on Internet advertising and e-commerce opportunities. As a complement
to our programming businesses, we own and operate a leading network advertising
sales business that provides advertisers an efficient means to reach national
radio and cable television audiences as well as Internet users. We also provide
satellite services to facilitate the distribution of our programming and that of
other companies.
We expect the demand for radio and cable television programming content to
increase dramatically during the next several years, primarily as a result of
technological advances such as audio and video streaming over the Internet,
satellite radio and digital cable television. The growing popularity of the
Internet creates a need for additional programming content that will attract
viewers to web sites for extended time periods. In this expanding distribution
environment, we believe that there will be strong demand for branded programming
content that can be channeled across multiple media outlets. We believe that we
are well-positioned to benefit from this increased demand for content.
Our portfolio of businesses includes the following:
- PROGRAMMING CONTENT
RADIO. We produce or license over 2,000 hours of original radio
programming weekly. This programming is comprised of twelve 24-hour formats
and 19 syndicated programs. Our radio programming covers a wide variety of
genres, such as country, adult contemporary, talk and Hispanic. It features
well-known syndicated programs such as The Crook & Chase Country Countdown,
Delilah and The Dennis Prager Show.
CABLE TELEVISION. We own and operate two cable television networks, GAC
and PIN. GAC is a 24-hour country music video network reaching nearly
12 million cable households. PIN, a joint venture with Cox Communications,
Inc., airs long-form paid programming produced by advertisers and
infomercial providers. PIN reaches more than 30 million households on a
full- or part-time basis.
INTERNET. We have developed multiple web sites that complement our radio
and cable programming content and are developing additional sites. To extend
GAC and our country radio programming content to the Internet, we have
launched CountryStars.com, a portal catering to the "country" lifestyle.
RadioDelilah.com and DennisPrager.com are examples of our web sites that
extend our personality-driven radio programs to the Internet. Our web sites
provide valuable cross-promotion and e-commerce opportunities.
- ADVERTISING SALES SERVICES
We currently represent more than 90 network radio programs or services,
including over 60 programs produced by third-parties that are distributed to
approximately 6,000 radio stations. In addition, we sell network advertising
for our two cable networks. In early 2000, we expect to begin providing
advertising sales services to our web sites and to web sites owned by third
parties. In addition, we have an exclusive long-term agreement to provide
advertising sales services to Sirius Satellite Radio, one of only two
licensed satellite radio providers in the United States. Sirius is
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expected to launch its service in the fourth quarter of 2000 with 100
channels of digital radio service, of which 50 will carry commercials.
- SATELLITE SERVICES
We provide satellite delivery and production support services for GAC,
PIN and cable channels operated by other companies. We own two satellite
transponders and an uplink facility. Ownership of these assets allows us to
control the distribution of our radio and cable programming. It also
provides us with a cost-effective platform for launching new radio and cable
networks. We generate additional revenues from leasing excess satellite
capacity and providing related support services to other cable programmers.
COMPETITIVE STRENGTHS
We believe we have the following competitive strengths:
WE PROVIDE ADVERTISERS WITH AN EFFICIENT MEANS TO REACH TARGETED AUDIENCES.
Through our radio networks, we provide advertisers the ability to reach an
audience of approximately 64 million weekly radio listeners. Approximately
40 million cable homes receive one of our two cable networks and a growing
audience of Internet users visit our web sites. With our varied programming
formats, multiple distribution channels and experienced sales organization, we
can aggregate a large, national audience according to specific demographics,
providing advertisers with an cost-efficient and effective means to reach
desired audiences across multiple media platforms.
WE HAVE A SUCCESSFUL HISTORY OF DEVELOPING EXCLUSIVE, PERSONALITY DRIVEN
RADIO AND TELEVISION PROGRAMMING. We have an established history of identifying
and attracting successful on-air personalities and developing radio and cable
television programs that generate a significant and loyal audience. Our
exclusive programming includes such widely recognized shows as The Crook & Chase
Country Countdown, Delilah and Neon Nights.
WE CREATE VALUE BY CROSS-PROMOTING OUR PROGRAMMING CONTENT ACROSS ALL OF OUR
MEDIA PLATFORMS. We cross-promote and brand our programming to encourage our
audience to access our content across multiple platforms. Our cross-promotion
strategy utilizes both in-program and on-air promotions by our popular
personalities. Additionally, we use our own traditional advertising inventory to
drive viewership. For example, our CountryStars.com web site is promoted on GAC,
our three 24-hour country radio formats and through our four syndicated country
radio programs.
WE HAVE AN ESTABLISHED ADVERTISING SALES ORGANIZATION AND ARE
WELL-POSITIONED TO OFFER ADVERTISERS ATTRACTIVE PACKAGES ACROSS OUR THREE MEDIA
PLATFORMS. We have a 15 person sales force with offices in New York, Los
Angeles, Chicago, Detroit, Dallas and Denver and intend to open an office in
Nashville in the first half of 2000. With an average of 16 years of advertising
sales experience, our sales force has established long-term relationships with
many national advertisers and advertising agencies. As a result, we are
well-positioned to assist national advertisers in developing complementary
advertising programs spanning all three of our media platforms.
WE HAVE THE ABILITY TO LEVERAGE OUR EXISTING INFRASTRUCTURE AND ASSETS TO
DEVELOP NEW REVENUE OPPORTUNITIES AT A LOW INCREMENTAL COST. We have made a
substantial investment in our advertising sales, affiliate sales, content
development and satellite distribution capabilities. We intend to leverage these
resources to develop new program offerings for radio, cable television and the
Internet at a low incremental cost. In addition, we have an extensive library of
audio and video content for distribution across multiple platforms, including
the Internet, in a cost effective manner.
WE HAVE AN EXPERIENCED MANAGEMENT TEAM WITH STRONG RELATIONSHIPS WITH
ADVERTISERS, CABLE AND RADIO AFFILIATES, AND THE MUSIC RECORDING INDUSTRY. Our
Chairman, Glenn R. Jones, was the founder, Chairman and Chief Executive Officer
of Jones Intercable, Inc., a top ten multiple system cable operator. In
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addition to Mr. Jones, we have assembled a senior management team with extensive
experience in all areas of our business. With an average of more than 20 years
of relevant industry experience for our top five executives, we enjoy long-term
relationships with advertisers, advertising agencies, cable and radio
affiliates, the music recording industry and independent producers of network
programming.
We are currently benefiting from our synergies within the country music
genre. In network radio, we distribute three 24-hour country music formats to
over 400 radio stations, and we distribute four long-form syndicated programs to
more than 800 radio stations. Our networks reach more than 30% of all country
music radio stations in the United States and more than 13 million listeners on
a weekly basis. Our country music cable television network, GAC, reaches nearly
12 million cable households with its country music video programs. Utilizing our
portfolio of brand-name country music radio and cable television shows, we are
creating complementary web sites, including CountryStars.com, CountryDJ.com,
RadioLia.com. We cross-promote these web sites using traditional commercials, as
well as in-program and on-air promotions, to extend our programming recognition
and brand and to realize additional advertising and e-commerce revenue
opportunities. With our country-focused multi-media programming portfolio, our
advertising sales organization is able to offer national advertisers a complete
package of radio, cable television and Internet advertising that targets the
country music audience and lifestyle. We intend to replicate this model with our
other radio formats, such as adult contemporary, Hispanic and talk.
PRINCIPAL BUSINESSES
RADIO PROGRAMMING
We are a leading independent provider of high-quality radio programming to
radio stations nationwide. We distribute radio programming and services to radio
stations in exchange for advertising time on their radio stations that we resell
to national advertisers. This allows us to provide radio stations with a cost
efficient alternative to the talent, time and production expense required to
develop in-house programming. We offer radio stations a wide selection of
24-hour satellite delivered formats, syndicated programming and programming
consulting services. Our high-quality, personality-driven programming expands
our affiliated stations' programming selections and enables them to more
effectively compete in their markets.
Our radio programming operations feature over 90 on-air personalities, the
majority of whom have extensive top 25 market experience. We control the
production of our programming, which allows us to tailor our programs to respond
to current and changing listening preferences. Our high quality, distinctive
content is designed to enable radio stations to improve the quality of their
programming and to differentiate their on-air presentations from other stations
in their local markets. This allows our affiliates to realize higher ratings and
advertising revenues.
To supplement our in-house programming capabilities, we have agreements with
third party programmers to license and distribute their distinctive,
high-quality content. An example of such third party content is "The Music Of
Your Life," a 24-hour program targeted to a mature audience, hosted by Gary
Owens, Wink Martindale and other well-known radio personalities. Agreements with
third party programmers usually provide that the programmer creates and develops
the radio program. Our role is to:
- market the program to radio station affiliates;
- manage the relationship with radio station affiliates;
- sell network advertising; and
- provide technical support and other miscellaneous services.
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We offer our programming to radio stations primarily on a barter basis. In
return for providing the station with programming content, we receive commercial
inventory, which we then sell to network advertisers. In cases where the radio
station affiliate has low ratings, we also receive a monthly license fee. The
amount of commercial inventory we receive is based on the type and length of the
programming. Through our network advertising sales organization, we are able to
aggregate audiences based on the radio stations receiving our programming,
creating a sufficiently large audience of listeners to attract national
advertisers. The commercial inventory is then sold to advertisers, to reach
their target audiences in a cost-efficient and effective manner. We deliver
frequency, reach and the primary measurable demographic targeted by the national
advertisers, the 25 to 54 year-old adult. As a result, we currently sell
advertising to over 100 national advertisers.
Advertisers may buy our commercial inventory in the form of either
"up-front" or "scatter" market purchases. Those advertisers that participate in
the up-front market provide early commitments for national advertising time,
typically lasting 26 to 52 weeks. The quantity and price at which advertising is
sold in the up-front market depends on national advertiser demand, prevailing
advertising market conditions and the ratings of the applicable network. As the
inventory purchased up-front is taken out of the market, the remaining inventory
available in the scatter market is generally purchased at a higher rate. Scatter
purchases are for a specific, and usually shorter, periods of time and are also
for a specific amount of inventory. Typically scatter purchases are sold at
prevailing market rates.
We market our radio programming directly to radio stations through our
12-person affiliate sales group. Our affiliate sales group uses industry market
research and databases to identify prospective radio station affiliates. Using
this data, our salespeople develop relationships with radio station affiliates
in order to serve discrete station programming needs. In addition, our marketing
team assists in the sales effort with marketing campaigns, direct mail, trade
advertising and sales materials. Our presence at industry conventions and trade
shows also allows us to increase awareness of our radio programming and sign up
new affiliates.
We have affiliate agreements with approximately 2,450 radio stations
throughout the United States. Approximately 600 of these stations receive more
than one program. Our programming is generally sold on an exclusive basis to
stations in their city of license. However, we are able to place different
programs within the same market.
Our radio offerings are:
- 24-hour formats;
- long-form syndicated programs;
- short form-syndicated programs; and
- programming and consultation services.
24-HOUR FORMATS. We deliver twelve 24-hour music programs that cover many
of the major music formats used by radio stations nationwide. We have radio
station affiliates in all 50 states and in the 50 largest markets. Our network
is designed to provide complete content for our affiliated radio stations,
replacing their in-house on-air talent and significantly reducing their
production costs. Our "round-the-clock" satellite-delivered programming is aired
live and hosted by professional radio announcers. Examples of this type of
programming include the country, adult contemporary and oldies formats. In order
to present a localized image, our on-air talent record unique liners and
positioning statements for each affiliate, which are delivered via satellite for
broadcast at the local station. In addition, our programming provides stations
with breaks to insert locally sold commercials, news, weather or traffic.
As compensation for providing programming content and services, we receive
one or two minutes per hour of commercial inventory airtime. In situations in
which we receive two minutes per hour of
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inventory, we may also receive a monthly license fee from stations providing a
lower level of audience, as measured by AQH. The typical term of these license
agreements is one to three years. Historically, contract renewals average
between 80% and 85%.
We distribute the following owned or licensed (indicated *) 24-hour radio
programming:
<TABLE>
<CAPTION>
YEAR
LAUNCHED OR
24-HOUR PROGRAM NAME PROGRAM DESCRIPTION LICENSED
- -------------------------------------------------- -------------------------------------------------- ---------------
<S> <C> <C>
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-Registered Trademark-.................. Hot country, personality driven 1993
NAC (New Adult Contemporary)(TM).................. Smooth jazz 1994
Z-Spanish(TM)*.................................... Hispanic contemporary hit radio 1994
The Music of Your Life(TM)*....................... Adult standards 1996
Classic Hit Country(TM)........................... Country artists of the 60's & 70's 1997
Rock Classics(TM)................................. Mainstream classic rock 1997
La Bonita*........................................ Mass appeal adult contemporary Spanish 1999
La Buena*......................................... Hit regional Mexican mixed with Banda ranchera 1999
</TABLE>
LONG-FORM SYNDICATED PROGRAMMING. Long-form syndicated programming is
designed to fill, on a daily or weekly basis, a one- to six-hour time
period, such as:
- 6 am to 10 am;
- 10 am to noon;
- 4 pm to 5 pm;
- 7 pm to midnight; and
- midnight to 6 am.
Our long-form syndicated programs include talk shows hosted by nationally
known personalities, interview shows featuring popular music talent and music
countdown shows. We will continue to develop and acquire new syndicated
programming in order to increase our talent pool and audience size and to
respond to the needs of our affiliate stations. Two examples of our commitment
to develop new programming are Nashville Nights and The Dennis Prager Show. In
July 1998, we launched "Nashville Nights," a long-form country show produced at
a prominent country radio station in Nashville and distributed to over 100 radio
stations via satellite. We are responsible for all sales and marketing efforts
and our 50% venture partner, AMFM, Inc., is responsible for production of the
program. In April 1999, we launched The Dennis Prager Show on a national basis.
We produce this two-hour daily talk show, which focuses on the moral and ethical
implications of current day events and issues. The show is broadcast from
KABC-AM in Los Angeles, California, where Mr. Prager has been on the air for
over 17 years. We distribute the program via satellite to radio station
affiliates nationwide and are responsible for marketing the show to affiliates
and the advertising community. In addition, we produce a newsletter and audio
and video tapes of the program, which are sold to customers worldwide through
telemarketing and our Internet site. We have also added two high-growth
syndicated shows, Delilah and Neon Nights, through our acquisition of Broadcast
Programming.
We target and distribute our long-form programming to larger market radio
stations that typically have bigger AQH. These shows, because they are
personality-driven, tend to garner high ratings in the markets where they are
carried. In return for providing this programming, we receive up to six minutes
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per hour of commercial inventory from our radio station affiliates for each hour
of programming. The typical affiliate agreement for long-form programming is one
year.
We distribute the following owned or licensed (indicated *) long-form radio
programming:
<TABLE>
<CAPTION>
YEAR
LAUNCHED,
ACQUIRED OR
LONG-FORM PROGRAM NAME DESCRIPTION LICENSED
- ------------------------------------------------- ------------------------------------------------- -------------
<S> <C> <C>
Crook & Chase Centerstage Specials(TM)........... Special shows programmed for holidays 1996
The Crook & Chase Country CountDown(TM).......... Country's amiable ambassadors featuring today's 1996
top country songs
Country's Most Wanted............................ In-studio appearances and artist interviews 1998
hardDrive(TM).................................... A Billboard Magazine syndicated program of the 1998
year nominee that features alternative rock
artists and music
The McLaughlin Radio Hour*....................... Hosted by John McLaughlin 1998
Up Close......................................... Weekly music and interviews featuring 1998
album-oriented rock artists
Your Weekend with Jim Brickman................... Lifestyle information and celebrity guests for 1998
adult contemporary stations
Nashville Nights................................. Live evening show from Nashville featuring in 1998
studio performances by country's hottest acts
All Access....................................... Monthly specials recorded live featuring cutting 1998
edge artists
The Dennis Prager Show........................... Monday through Friday show focused on moral and 1999
ethical issues in everyday life
Rhona At Night*.................................. Daily talk show based on sex and relationships, 1999
hosted by Rhona Raskin, a registered clinical
counselor
Delilah.......................................... Monday through Friday show featuring love songs 1999
and personal relationship discussions
Neon Nights...................................... Evening country music show 1999
</TABLE>
SHORT-FORM SYNDICATED PROGRAMMING. Our short-form programs, generally less
than five minutes in duration, consist largely of 60 to 90 second entertainment
news reports that can be interactive with the programming of affiliated radio
stations. The typical affiliate agreement for short-form programming is
approximately one year. We receive one to two minutes of commercial inventory
airtime in return for such programming.
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We distribute the following owned or licensed (indicated *) short-form
programming:
<TABLE>
<CAPTION>
YEAR LAUNCHED
ACQUIRED OR
SHORT-FORM PROGRAM NAME DESCRIPTION LICENSED
- ------------------------------------------------ ------------------------------------------------ -----------------
<S> <C> <C>
Fight Back! With David Horowitz*................ Popular consumer advocate 1998
Oldies Calendar With CharlieTuna................ A daily calendar with information culled from 1998
Charlie's years of interviews with artists
</TABLE>
SERVICES. We also provide radio stations services such as news, information
on current events and comedy services designed to assist on-air talent in
preparation for these shows. Examples include comedy sound bites, song parodies,
fake commercials and show preparation fax services.
We distribute the following owned or licensed (indicated *) services
programming:
<TABLE>
<CAPTION>
YEAR LAUNCHED,
ACQUIRED OR
SERVICE NAME DESCRIPTION LICENSED
- ------------------------------------------------ ------------------------------------------------ -----------------
<S> <C> <C>
American Comedy Network (TM)(ACN)............... Premier comedy service 1998
ACN/PDQ......................................... Satellite version of ACN 1998
Associated Press*............................... Current news 1999
BP Total Radio.................................. Programming consulting service 1999
</TABLE>
We also provide custom programming and consulting services to approximately
800 radio stations, including:
- format change recommendations;
- playlist and talent critiques; and
- other technical and programming consultation services.
CABLE TELEVISION PROGRAMMING
We own and operate two cable networks:
- Great American Country; and
- Product Information Network.
GREAT AMERICAN COUNTRY. GAC is a 24-hour country music video
network launched on December 31, 1995. GAC features a mix of current top
country hits and past country hits that capitalize on the popularity of
country music. GAC is programmed to appeal to the largest, most affluent
market segment of the country music audience--the 25 to 54 age group.
GAC acquires its music videos at no cost from record companies, which
use this method to promote their performing artists. GAC also airs long
form shows, including "Fast Forward," "The Top 15 Country Countdown,"
"Behind the Scenes" and "Inside Country." We believe that the
programming quality of GAC has significantly benefited from our
experience in the country music radio programming business.
GAC derives its revenues from license fees and national advertising. The
typical length of GAC's affiliate agreements is ten years. The monthly
license fee rate card for GAC during 1999 was $.055 per subscriber. GAC's
affiliate agreements typically provide for annual escalators of $.005 per
month per subscriber. Typically, such fees are waived for a period of time
after initial launch as an incentive to attract new affiliates. The fees are
also subject to volume discounts based on the number of subscribers
receiving GAC or the subscriber commitment made by the MSO.
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This strategy has allowed us to supplant our competitors' programming with
GAC in top country markets, including Dallas, Atlanta, Reno, Sacramento,
Cincinnati, Detroit, Baltimore, Knoxville, Chattanooga and Charleston.
GAC began developing its national spot advertising efforts in late 1997
and currently generates over $400,000 per month in advertising revenue.
GAC's advertising sales are impacted by a variety of factors, including the
level of distribution, ratings, prevailing advertising market rates, sellout
rates and number of advertising minutes available for national advertising.
Beginning in January 2000, GAC will begin receiving rating services from
Nielsen. Nielsen ratings will allow us to better identify our viewership at
specific time periods of the day, which in turn will enhance our ability to
sell national spot advertising. We believe that as GAC continues to increase
its subscriber level, we will be able to target a broader group of
advertisers and derive higher advertising revenues based on traditional spot
advertising, as opposed to relying on direct response advertising.
GAC is distributed to nearly 12 million subscribers on a full-time basis
and the subscriber base is growing at a rapid rate. GAC has affiliate
agreements that allow it to seek carriage on all of the cable systems owned
by five of the ten largest MSOs, including:
- Adelphia Communications Corporation;
- AT&T Corporation;
- Comcast Corporation;
- MediaOne Group, Inc.; and
- Time Warner Inc.
GAC also has affiliate agreements with the two cable programming
cooperatives:
- Telesynergy, Inc.; and
- National Cable Television Cooperative, Inc.
PRODUCT INFORMATION NETWORK. PIN is a satellite-delivered long-form
advertising service owned by the PIN Venture, a joint venture with Cox
Communications, Inc. PIN was launched in February 1995 and is
distributed on its own dedicated channel 24-hours a day, seven days per
week.
In September 1995, Adelphia received an interest in the venture in
exchange for a 10-year affiliate agreement to carry PIN on its cable
systems. In April 1997, we acquired an 8.35% equity interest in the PIN
Venture from Adelphia. This acquisition resulted in our owning over 50% of
the venture. On December 31, 1998, we acquired Adelphia's remaining interest
in the PIN Venture, increasing our equity position to 55.3%. Cox is now our
sole joint venture partner in PIN. We are the manager of the PIN Venture and
are responsible for its day-to-day operations.
PIN generates its revenues through the sale of long-form paid
advertising known as infomercials. An infomercial is an advertisement paid
for by the advertiser based on the time of day when the infomercial is
aired. Infomercials are usually one-half hour in length and are often
produced in an entertainment format. PIN's programming is produced and
provided by its advertisers at no cost to PIN. The majority of current
programming consists of traditional infomercials from major infomercial
producers, such as the Guthy Renker Corporation.
PIN compensates cable system operators for carriage through a rebate
program. Such payments, which are generally in the form of annual rebates
per subscriber, averaged approximately 74% of PIN's adjusted net advertising
revenues in 1998 (which are revenues less agency commissions and bad debt
expenses). For 1998, we paid full-time affiliates an average of $1.40 per
full-time subscriber.
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PIN is distributed to subscribers through 337 cable systems and
broadcast affiliates and is carried on a portion of the cable systems of
nine of the ten largest MSO's, including:
- Adelphia Communications Corporation;
- AT&T Corporation;
- Cablevision Systems Corporation;
- Charter Communications Inc.;
- Comcast Corporation;
- Cox Communications Inc.;
- Cable One, Inc.;
- MediaOne Group, Inc.; and
- Time Warner Inc.
PIN's standard affiliation agreement generally requires a one-year
commitment of carriage. However, the Jones Intercable, Cox
Communications Inc. and Adelphia Communications Corp. agreements are
long-term agreements, each with more than five years remaining. As of
September 30, 1999, PIN was distributed on a full- or part-time basis to
cable television systems and broadcast television stations representing
nearly 30 million households.
INTERNET
We have developed multiple web sites that extend our radio and cable
programming content and personalities to the Internet and allow us to capitalize
on advertising and e-commerce opportunities. We have extended our cable
programming such as GAC, to the Internet by developing CountryStars.com, a site
that offers content catering to country music fans and the "country" lifestyle.
Similarly, we have extended our radio programming, such as "Delilah," to the
Internet with our RadioDelilah.com site. This site provides fans the ability to
find out more about Delilah, her radio show and the show's related products. We
have created similar sites for several other of our radio programs, including
"Neon Nights," "Country's Most Wanted" and "The Dennis Prager Show."
We cross-promote our web sites by using our traditional media channels,
through which we drive traffic to our sites by using commercial inventory,
in-programming and on-air promotion. Our show hosts and personalities direct
viewers and listeners to web sites for programming information, personal
appearance schedules and related entertainment links. By utilizing our content
and promotional capabilities to extend our branded programming to the Internet,
we have developed new advertising and e-commerce revenue opportunities in an
effective and cost-efficient manner. In addition, our advertising sales
organization offers national advertisers "one-stop shopping" opportunities to
purchase advertising packages that reach across radio, cable and the Internet.
Based on the initial success of this model, we intend to replicate this strategy
on our other branded radio and television programming.
The primary driver for increasing both advertising sales and e-commerce
revenues is traffic on our web sites. We use our commercial inventory and on-air
promotions to drive visitors to our multiple sites and encourage viewer and
listener participation through the Internet. For example, GAC's popular show
"The Top Fifteen Country Countdown" is tied directly to CountryStars.com. Each
week, thousands of visitors vote for their favorite videos on-line and this data
is used to determine the top 15 videos for that week's show. CountryStars.com
site vistors are also given the opportunity to purchase GAC premium items and
soon will be able to choose from a wide selection of merchandise, including
compact discs, apparel, specialty foods, books, country memorabilia and
collectibles.
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The traffic that we drive to our web sites through our traditional media
allows us to offer advertisers the ability to target a pre-qualified audience
that has demonstrated a focused interest in related content. For example,
advertisers that purchase time on our radio program "Delilah," can extend their
purchase to the RadioDelilah.com site. Because our advertising sales efforts for
radio, cable and the Internet are handled by our in-house sales organization,
this strategy allows us to create cost effective, integrated advertising
packages for our clients.
Our portfolio of Internet sites includes the following:
COUNTRYSTARS.COM. CountryStars.com is a "country" lifestyle portal offering
entertainment, information and shopping related to the country lifestyle. The
site offers fans a variety of news and information about their favorite country
music artists, including:
- daily country music news updates;
- GAC scheduling information, polls, contests and playlists;
- biographies, photos and in-depth interviews with country artists;
- "Country DJ" micro-sites that profile nationally distributed radio hosts;
and
- a country store offering country music and lifestyle products.
RADIODELILAH.COM. Radiodelilah.com is a site designed for listeners and
fans of the Delilah syndicated radio program. Major features of the site
include:
- Delilah's Journal;
- personal information about the people behind the program;
- correspondence from Delilah's listeners;
- audio samples of celebrity interviews;
- a gift shop of Delilah's branded merchandise; and
- links to organizations that deal with personal, emotional and health
issues.
RADIOLIA.COM. Radiolia.com is a web site connected with the Neon Nights
syndicated radio show, hosted by Lia Knight. Major features of the site include:
- artist spotlights that provide information on up-coming celebrity
interviews;
- a celebrity photo gallery and personal information about Lia;
- a correspondence area for listeners and fans, plus polls for web site
visitors;
- information about the radio program; and
- a store from which fans can purchase Lia and Neon Nights branded
merchandise.
DENNISPRAGER.COM. The Dennisprager.com site, associated with The Dennis
Prager Show, features:
- descriptions of the radio program, it's availability and schedule;
- sample issues of the Prager Perspective newsletter and subscription
opportunities;
- information about Mr. Prager's lecture topics, schedules and reviews;
- articles and reviews written by and about Dennis Prager; and
- online purchase opportunities of Mr. Prager's books, audio and video
tapes, articles and CD ROM.
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ADVERTISING SALES SERVICES
Most radio stations carry some form of network or syndicated programming
during part of the day or week. The current demand for syndicated programming
has resulted in a large number of syndicated program producers, some of whom 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 our owned programming, we
have the economies of scale to staff a national sales organization beyond what
some individual producers could independently afford. In addition, we have the
ability to aggregate the commercial broadcast time of these syndicators and
present packages for sale to national advertisers such as General Motors Corp.,
Proctor & Gamble, Warner-Lambert, Amazon.com, A&E Television and GEICO. Our
ability to aggregate time benefits syndicators by giving them access to
advertisers that typically only purchase commercial broadcast time delivering a
specific threshold level of the national audience. Advertisers benefit from the
ease of buying from one professional sales organization that can deliver a
larger audience versus a single producer. The producer pays us a commission for
the sale of the commercial broadcast time and related services such as inventory
management, commercial scheduling, proof-of-performance collection and financial
services.
We represent over 90 programs or services produced by approximately 30
programmers. Such programs include Motley Fool produced by Cox Radio, Newsweek
on Air and NASCAR Motor Racing Network. In general, our advertising sales
agreements have terms of up to five years in duration and provide for
commissions as a percentage of net sales and revenues from the sale of
advertising time after deducting standard advertising agency fees. These
agreements typically give us exclusive network advertising sales rights for the
programming.
Our 15 advertising account executives and sales managers are located in six
major advertising markets in the United States (New York, Los Angeles, Chicago,
Dallas, Detroit and Denver). In the first quarter of 2000, we intend to open a
sales office in Nashville. These account executives market the commercial
broadcast time of our producers and programs via personal selling to national
advertisers and their advertising agencies. The sales team has an average of
16 years experience in the radio advertising sales and sales management arena.
Additionally, we are in the process of developing numerous cross-selling
opportunities and other synergies that arise from the complementary nature of
our services and customer base of national advertisers.
In order to serve our many producers and advertising clients, we have
developed a state of the art, proprietary software system that handles the sales
proposal, airtime inventory management and order processing for our advertising
sales. In addition, our research department continuously analyzes a variety of
data to provide our salespeople with accurate estimates of listening audiences,
creative means to demonstrate the particular advantages of the programs we sell,
and network radio's advantages versus other media forms. We utilize audience
listening data from Arbitron, an independent rating service, to develop our
audience and demographic reports for all of our programs.
In addition to our network radio business, we sell network advertising for
our two cable networks. With the recent launch of our Internet effort, we have
begun providing advertising sales services to our own web sites and to those
owned by third parties. We also have an exclusive long-term agreement to provide
advertising sales services to Sirius Satellite Radio, one of only two licensed
satellite radio providers in the United States. Sirius is expected to launch its
service in the fourth quarter of 2000 with approximately 100 channels of digital
radio service, of which 50 will carry commercials.
SATELLITE SERVICES
We support our distribution of programming with satellite services. We
transmit our radio and cable television programming directly to radio stations,
cable system operators and other video
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distributors via satellite transponders that we either own or lease. We provide
playback services, trafficking and ground-to-satellite transmission of our
programming services from our uplink facility in Englewood, Colorado. Through
digital compression of one of our transponders we have created additional
channel capacity to use either for our own programming or to lease to other
parties.
We own two satellite transponders on strategically positioned GE Americom
satellites, Satcom C-3 and Satcom C-4. Through these transponders, we deliver a
variety of popular cable television programming. We use digital technology in
providing uplink, playback and trafficking services. On Satcom C-3, GAC, PIN and
two related parties lease four of seven available channels. The lease terms are
generally for the remaining life of the satellite. One related party's lease,
however, is 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. We anticipate this option will be exercised. A fifth channel is leased to
a third party through the life of this satellite. This lease is in default due
to nonpayment and it is unlikely we will receive further payments under this
lease. At minimal incremental cost, we could further digitally compress the
transponder to add at least three additional channels.
We have leased the C-4 transponder to an unrelated party. This lease
terminates on December 31, 2002, with an option, exercisable by the lessee, to
extend through October 16, 2004. The lease provides for monthly payments
averaging $160,000.
We continue to market our additional compressible capacity on our Satcom C-3
transponder and related services. We expect that our satellite transponders will
be effective to provide distribution for radio and television programming until
2004, at which time we will be required to locate new satellite transponder
space to use for our programming.
STRATEGY
DEVELOP HIGH QUALITY, PERSONALITY-DRIVEN PROGRAMMING. We believe that the
financial constraints and limited creative resources of many radio stations,
coupled with their need to improve operating efficiencies, create market demand
for additional long-form and short-form radio programming. Specifically, we
believe there are significant market opportunities for personality driven talk
radio such as The Dennis Prager Show and certain types of news and information
programs that we do not currently distribute. We intend to develop and/or
acquire radio programming addressing these market demands.
INCREASE PROGRAMMING DISTRIBUTION. To increase revenues from advertisers,
we will seek to increase the distribution of, and audience for, our programming.
We plan to continue our marketing and sales activities in an effort to increase
the number of our radio station affiliates and the size of our audience. We also
plan to continue to aggressively market our cable television networks to both
cable operators and other multi-channel distributors, including direct broadcast
satellite services systems (DBS) and multi-point/multi-system distribution
systems (MMDS). We also rely on financial incentives and our established
relationships with cable operations.
INCREASE ADVERTISING SALES REVENUES. Our primary revenue growth objective
is to increase our audience by developing new programming and expanding our base
of radio station and cable system affiliates. Our new radio programs are
designed for larger markets, which typically generate higher advertising rates.
As GAC continues to expand its subscriber base, we will be positioned 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, we intend to promote the benefits of long-form advertising
to attract new advertisers and increase PIN's advertising rates.
ENHANCE REVENUE GROWTH BY CAPITALIZING ON INTERNET REVENUE
OPPORTUNITIES. We have a two-part strategy to capitalize on our Internet
opportunities. First, we are developing a group of integrated web sites that
leverage our traditional programming content. Second, we intend to use the
strength of our
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advertising sales force to promote these sites to companies that advertise
through our traditional media forms. Our web sites will be designed to attract
unique customer segments that can be targeted individually or marketed together.
We believe that we can drive significant traffic to our integrated web sites,
using our multiple forms of programming content. Moreover, we intend to create
additional e-commerce opportunities by developing exclusive Internet content
that leverages our existing programming and by establishing strategic
relationships with other Internet content providers.
DEVELOP NEW CABLE PROGRAMMING NETWORKS. We are considering developing,
either internally or through ventures with others, additional satellite
delivered music video networks that will leverage our music programming
experience. We expect such networks will complement GAC, but will be primarily
targeted to digital cable and direct broadcast satellite. We are currently
conducting market research to determine the appropriate music content for these
networks.
LEVERAGE CROSS-MEDIA PLATFORM SYNERGIES. Our cross-promotion strategy
utilizes commercial time and in-program content on our traditional media to
build value and brand recognition of our web sites. Through this strategy we are
able to encourage viewers and listeners to seek out and access our content
across multiple media platforms. For example, CountryStars.com, our country web
site, is promoted to cable television viewers on GAC. These promotions include
tie-ins with specific television programs on GAC that direct visitors to
CountryStars.com. Each week thousands of GAC viewers visit CountryStars.com to
vote for their favorite videos. The results are used to determine the video
play-list for our weekly Top 15 Country Countdown show. GAC viewers also utilize
a search feature on CountryStars.com to find out when their favorite video will
be played, thus increasing visitors to the web site and enhancing the GAC
viewership experience. Similarly, through our three 24-hour country radio
formats, and our long-form syndicated radio programs, we reach a targeted group
of listeners on hundreds of radio stations nationwide.
RECRUIT AND RETAIN EXPERIENCED MANAGEMENT. Our principal objectives in
attracting, retaining, and motivating high-caliber executives include providing
long-term incentives such as stock options, aligning the interests of our
executives with the goals of our shareholders and delivering compensation
through cost- and tax-effective programs.
PURSUE ACQUISITIONS THAT ENHANCE OUR EXISTING BUSINESS OR PROVIDE ACCESS TO
NEW, RELATED BUSINESSES. We intend to expand by acquiring and/or creating
complementary business lines. The MediaAmerica and Broadcast Programming
acquisitions represent examples of this strategy. We believe that additional
opportunities exist both in the development of new programming and in the
acquisition of complementary businesses. We are constantly evaluating new
programming possibilities both in-house and with third parties. These
possibilities include the national syndication of existing programming, the
creation of new programming for syndication and the development of new cable
networks.
COMPETITION
RADIO PROGRAMMING. Our radio network competes for national advertising
revenues and radio station affiliates with major network radio distribution
companies, 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 control large networks that
include affiliates to which the competitors pay to broadcast the network's
commercials. Beginning in early 1997, many of our larger competitors began to
consolidate, thus intensifying competition.
Our largest competitors include ABC Radio Networks, Westwood One/CBS Radio
Networks, Premiere Radio Networks and AMFM.
Radio networks also face competition from local radio stations. With the
advent of new technologies, local radio stations can pre-record their local
announcers and automate their operations. This allows for cost reductions and
greater operating efficiency. A recent technological innovation,
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satellite radio, permits national radio stations to broadcast digital quality
radio programming nationwide via satellite. In February 1997, the FCC auctioned
two satellite radio licenses. These licenses were awarded to Sirius Satellite
Radio (formerly CD Radio) and XM Satellite Radio. Sirius satellite radio service
is expected to be available in late 2000. We cannot predict what effect digital
automation or satellite radio will have on the radio industry or on us.
CABLE TELEVISION NETWORKS. Our cable television networks compete for
distribution, viewers and advertising revenues with hundreds of cable and
broadcast television networks supplying a variety of entertainment and
infomercial programming. GAC's principal direct competitor is Country Music
Television, an advertiser-supported basic cable network owned by CBS, Inc., that
delivers country music videos on a 24-hour basis. GAC also competes with CBS's
The Nashville Network. PIN competes directly with at least two other infomercial
networks, Access Television Network and GRTV, both of which have significant
distribution capabilities. PIN also competes with at least 30 cable television
networks that air infomercial programming, many of which have a substantial
number of subscribers .
With advances in technology, we expect to encounter additional competition
for viewers as technological advances, such as the deployment of fiber optic
cable, digital compression technology and the multiplexing of cable services are
examples of new technologies that allow cable systems to expand their channel
capacity and enhance their ability to add networks.
INTERNET. The e-commerce and Internet advertising markets are competitive.
The volume and variety of companies engaged in e-commerce creates significant
competition for e-commerce dollars. We compete with other music web sites, some
of which target the same audience segments.
ADVERTISING SALES SERVICES. The network advertising representation business
is highly competitive, both in terms of competition to gain program provider
clients and the sale of airtime inventory to national advertisers. Our network
advertising representation business competes with major network radio
distribution companies operating divisions that sell their own company's airtime
inventory and contract with third party radio programmers to sell their national
airtime inventory. Over the last three years, many independent program providers
have been acquired by major network distribution companies. These companies have
large amounts of commercial inventory to sell and also possess significant
resources.
We also compete on behalf of our clients for advertising dollars with other
media such as broadcast and cable television, print, outdoor and Internet. The
primary factors determining success in the radio advertising sales service
industry are strong relationships with advertising agencies and national
advertisers, acquisition and maintenance of representation contracts from
producers with high quality, name brand products and experienced advertising
sales personnel.
We also compete for Internet advertising revenues with large web publishers,
search engine companies, advertising networks and other advertising sales
services. The primary competitors offering Internet advertising sales services
are Doubleclick, 24/7 Media and Flycast. These three companies, whose combined
revenues are currently only 6% of total Internet advertising revenues, have
created networks that represent thousands of affiliated web sites.
SATELLITE SERVICES. We compete in the delivery of domestic satellite
services with satellite owners and resellers, satellite service providers,
microwave carriers and full-service teleports.
Our principal competitors have substantially greater resources, including
Vyvx Teleport, TCI National Digital Television Center, GE Americom and Hughes
Electronics Corp. We believe 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 our markets, we could face future
competition from new competitors offering
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services similar to ours. Many of our competitors have greater resources and
there can be no assurance that we will be able to compete successfully in the
future. Also, technology changes, such as Internet and satellite delivered radio
and television, could cause the entry of new competitors. See "Risk Factors--We
may not be able to compete effectively against our competitors."
GOVERNMENT REGULATION
Although our radio and television networks are not generally directly
regulated by the FCC, the radio stations and cable television systems to which
we sell our programming are regulated. As a result, the federal laws and FCC
regulations that affect these entities indirectly affect us.
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. The FCC also has the power to impose penalties for
violations of its rules or federal statutes. Such regulation may adversely
affect us. Recent federal regulation has resulted in a greater number of radio
group owners seeking to reduce costs.
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 us, as well as the price at which such time is available. Both GAC and PIN
are subject to the FCC's rules requiring closed captioning for the hearing
impaired on all programming beginning in the first quarter of 2000. We expect
that compliance with these rules will not have an adverse effect on our
financial condition. We cannot assure you that material, adverse changes in
regulations affecting us, or the cable television industry in general, will not
occur in the future.
Our satellite delivery and production support services are directly
regulated by the FCC. We hold FCC microwave and earth station uplink licenses
that we utilize to provide delivery and support services. Because these licenses
relate primarily to the technical operation of our microwave and uplink
facilities, which are used for internal purposes and program delivery, there are
only limited regulatory burdens associated with keeping these licenses in good
standing. See "Risk Factors--We may be subject to burdensome government
regulation."
FACILITIES
Our principal executive offices are located in Englewood, Colorado. We
sublease 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, we own 8.4 acres of land in Englewood,
Colorado. We believe our office space, studio space and Earth Segment's
satellite uplink facility are adequate to meet our current needs. The following
table lists the location and square footage of our facilities and indicates
whether there are owned or leased:
<TABLE>
<CAPTION>
ENTITY UTILIZING FACILITY LOCATION SQUARE FOOTAGE OWNED/LEASED
- -------------------------------------------------------- ------------------------ --------------- -------------
<S> <C> <C> <C>
Earth Segment........................................... Englewood, Colorado 13,194 Owned
Company................................................. Englewood, Colorado 7,571 Leased
Jones Radio Network..................................... Englewood, Colorado 17,496 Leased
MediaAmerica............................................ New York, New York 18,868 Leased
MediaAmerica............................................ Chicago, Illinois 224 Leased
MediaAmerica............................................ Milford, Connecticut 1,966 Leased
MediaAmerica............................................ Dallas, Texas 150 Leased
MediaAmerica............................................ Detroit, Michigan 125 Leased
MediaAmerica............................................ Washington, D.C. 350 Leased
MediaAmerica............................................ Los Angeles, CA 108 Leased
Broadcast Programming................................... Seattle, WA 16,560 Leased
</TABLE>
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EMPLOYEES
We refer to our employees as associates. As of September 30, 1999 we had 240
full-time and 86 part-time associates. In addition, we maintain relationships
with independent writers, program hosts, technical personnel and producers. None
of the associates are covered by a collective bargaining agreement and we
believe our employee relations to be good.
LEGAL PROCEEDINGS AFFECTING JONES INTERNATIONAL NETWORKS
From time to time, we are involved in routine legal proceedings incident to
the ordinary course of our business. We believe that the outcome of all such
routine legal proceedings in the aggregate will not have a material adverse
effect on our financial condition or results of operations.
LEGAL PROCEEDINGS AFFECTING OUR CHAIRMAN
Mr. Jones, our Chairman, has been named, along with Jones Intercable, in a
series of lawsuits arising out of purchases by Jones Intercable of four cable
television systems (the "Systems") from limited partnerships managed by Jones
Intercable as general partner. The lawsuits were filed between June and
September 1999 and are being consolidated into one action in the U.S. District
Court for the District of Colorado.
The lawsuits allege, among other things, breach of fiduciary duty in the
purchase of the Systems at prices that did not accurately reflect their market
value and breach of a provision of the limited partnership agreement requiring
that the sales price be determined by the average of three separate independent
appraisals. The plaintiffs have challenged both the independence and the
timeliness of the appraisals. In addition, the complaints allege that the proxy
solicitation materials used in connection with the limited partner voting as the
sales of the Systems contained inadequate and misleading information in
violation of the Securities Exchange Act of 1934. Jones Intercable and
Mr. Jones have filed motions to dismiss the lawsuits, and all matters in respect
of these lawsuits, including discovery, have been stayed pending resolution of
the motions to dismiss. No answers have been filed, and a trial date has not
been set.
We are not a party to any of the lawsuits, and have had no involvement in
any of the matters giving rise to the lawsuits.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information as of December 10, 1999 concerning each
person who is an executive officer or director.
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
- ------------------------------ ----------- ---------------------------------------------------------------------------
<S> <C> <C>
Glenn R. Jones................ 69 Chairman of the Board
Jeffrey C. Wayne.............. 45 President and Director
Jay B. Lewis.................. 41 Group Vice President/Finance, Chief Financial Officer, Treasurer and
Director
Ron Hartenbaum................ 47 President-Jones Radio Network and Director(2)
Gary Schonfeld................ 47 Chief Executive Officer-MediaAmerica(2)
Philip C. Laxar............... 46 Chief Operating Officer-Jones Direct, Ltd.
Amy Mickles................... 31 Controller
Yrma G. Rico.................. 52 Director
Fred A. Vierra................ 68 Director
Timothy J. Burke.............. 49 Director
</TABLE>
- ----------
(1) Upon completion of this offering, the Board will create an Audit and a
Compensation Committee.
(2) Pursuant to an agreement entered into in connection with the acquisition of
MediaAmerica, Messrs. Hartenbaum and Schonfeld together may nominate one
member of our Board of Directors. This right terminates upon the earlier of
July 10, 2007 and the date on which, among other things, the direct or
indirect ownership of Class A Common Stock by Messrs. Hartenbaum and
Schonfeld falls below certain levels.
The principal occupations for at least the past five years of each of our
directors and executive officers and certain 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 our affiliates, including being Chief Executive Officer,
President and a director of JonesKnowledge.com, Inc. He has been our Chairman of
the Board since 1993 and was President from May 1999 to October 1999. For more
than five years, until April 1999, Mr. Jones was Chairman and Chief Executive
Officer of Jones Intercable, Inc., a multiple system cable television operator.
In addition, Mr. Jones is a member of the Board and Education Council of the
National Alliance of Business. In 1994, Mr. Jones was inducted into Broadcasting
and Cable's Hall of Fame. Mr. Jones received a B.S. in Economics from Allegheny
College and a J.D. from the University of Colorado School of Law.
JEFFREY C. WAYNE, who served as President and Chief Operating Officer, Cable
Network Operations, and as Vice President/General Manager for Great American
Country since July 1997, was elected President, Cable Programming Networks and
President/General Manager for Great American Country in January 1998, and was
elected to be our President and a director in October 1999. 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. 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.
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JAY B. LEWIS served as Vice President/Finance and as Chief Financial Officer
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 since
September 1994. From January 1995 to October 1996, Mr. Lewis was Vice President
of Finance and Treasurer of Jones International, our parent 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 ours. Mr. Lewis received a B.S. in
Accounting from the University of Wyoming in 1980.
RON HARTENBAUM co-founded MediaAmerica in 1987, and has been its Chairman
since its formation. Mr. Hartenbaum became the President of Jones Radio Network
and a director upon the consummation of the MediaAmerica 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. 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. Mr. Hartenbaum has a B.A. from Queens
College and an MBA from New York University.
GARY SCHONFELD co-founded MediaAmerica and has served as its President since
its formation in 1987. Mr. Schonfeld became the Chief Executive
Officer--MediaAmerica upon the consummation of the MediaAmerica 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.
PHILIP C. LAXAR has served as Chief Operating Officer for Jones
Direct, Ltd. since April 1999. Mr. Laxar has 18 years experience in the cable
television industry. From 1995 to April 1999, he served as Senior Vice President
of Programming for Jones Intercable. From 1988 to 1995, Mr. Laxar was Senior
Vice President of Programming and Pay-Per-View for KBLCOM Incorporated, a cable
operator. Mr. Laxar has a B.S. in Operations Research from Columbia University
and an MBA in Marketing from New York University.
AMY MICKLES has served as our Controller since July 1999. Ms. Mickles has
been associated with Jones International since February 1995, serving as Senior
Accountant from February 1995 to December 1995, as Accounting Manager from
January 1996 to February 1998 and Director of Financial Accounting from
March 1998 to June 1999. From February 1993 to February 1995, Ms. Mickles was a
Senior Auditor at Banc One Corporation (now Banc One, National Association), and
from August 1991 to February 1993, she was an auditor at Deloitte & Touche LLP.
Ms. Mickles received a B.S. in Accounting from the University of Houston and is
a certified public accountant in the State of Colorado.
YRMA G. RICO, one of our directors, is General Manager of KCEC-TV, Channel
50, in Denver, Colorado, a position she has held since 1992. Ms. Rico was
appointed a director in July 1998. 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, one of our directors, is a consultant to Liberty
Media, Inc., a position he has held since January 1998. Mr. Vierra was appointed
as director in July 1998. From 1994 to January 1998, he served as Vice Chairman
and Chief Executive Officer of Tele-Communications International, Inc. From 1992
to 1994, he served as an Executive Vice President of TCI. Mr. Vierra served as
the President of United Artists Entertainment Company from 1989 to 1991 and as
the President of United Cable Television Corporation from 1982 to 1989, when the
company was merged into United Artists. Mr. Vierra is a member of the Board of
Directors of Flextech plc. Mr. Vierra has previously served as
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a member of the Board of Directors of Turner Broadcasting and the Discovery
Channel. Mr. Vierra has a B.S. in Business Administration from the University of
Tulsa.
TIMOTHY J. BURKE was appointed director in October 1999. Mr. Burke has been
with the Jones International group of companies since 1982, serving as corporate
tax manager, Vice President/Taxation and then Group Vice President
Taxation/Administration of Jones Intercable. Mr. Burke currently is Group Vice
President of Administration and Acting Financial Operations Officer of Jones
International. Prior to joining the Jones International group of companies,
Mr. Burke was employed by Arthur Andersen & Co. (now Arthur Andersen LLP).
Mr. Burke received a B.A. in Accounting and a J.D. from the University of Iowa.
OTHER KEY EMPLOYEES
We also employ the following additional key persons:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----------- -------------------------------------------------------
<S> <C> <C>
Edith Hilliard................ 58 President/General Manager-Broadcast Programming
Phil Barry.................... 47 Vice President/General Manager-Jones Radio Network
Jed Buck...................... 36 Executive Vice President-MediaAmerica/Jones Radio
Network
</TABLE>
EDITH HILLIARD has served as President/General Manager of Broadcast
Programming since 1987. Prior to joining BP in 1987, Ms. Hilliard was President
and owner of Salmon Systems, Inc., which developed and marketed sales management
software for broadcast stations. In 1995, the Puget Sound Radio Broadcasters
Association awarded her the "Crystal Soundie" Lifetime Achievement Award and in
August 1999 RADIO INK named her one of the "Twenty Most Influential Women in
Radio." Ms. Hilliard has a B.A. from Northwest Nazarene College and an M.A. from
University of Idaho.
PHIL BARRY, whose legal name is Phillip H. Baykian, served as Vice President
of Programming of Jones Radio Network since 1991 and was elected Vice
President/General Manager of Jones Radio Network in December 1998. Mr. Barry has
over 25 years in on-air and programming experience. Mr. Barry attended Delta
College at University Center, .
JED BUCK has served as Executive Vice President Media America/Jones Radio
Network since December 1999. He had previously served as Vice President of
Operations of MediaAmerica since January 1997. Mr. Buck joined MediaAmerica in
July 1994 as a National Account Manager. Prior to joining MediaAmerica,
Mr. Buck worked in various sales, marketing and management capacities for the
ABC Radio Networks from 1989-1994. Mr. Buck received a B.S. degree with honors
in Marketing and TV/Radio Management from Syracuse University in 1985. He served
as a Visiting Professor at the S.I. Newhouse School of Public Communications in
1998.
COMPENSATION OF DIRECTORS
We pay directors who are not officers of ours or our affiliates, $2,500 per
quarter and $500 for attending in person each meeting of the board or one of its
committees. All directors are reimbursed for their expenses in attending board
and committee meetings. All directors hold office for a period of one year or
until their successors are elected and qualified, or until their earlier
resignation or removal.
EMPLOYMENT AGREEMENTS
On July 10, 1998, we entered into employment agreements with Ron Hartenbaum
and Gary Schonfeld. These employment agreements are for three years and restrict
them from competing with us
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during the term of employment and for two years after the agreements terminate.
These agreements renew annually unless terminated by the parties. Each agreement
provides for an annual salary of $300,000 and eligibility for a variety of
employee benefits and plans generally made available to our key associates at
their level.
On August 2, 1999, we entered into an employment agreement with Edith
Hilliard. This employment agreement is for three years and automatically renews
for an additional year unless either party gives notice that such party does not
wish to extend the term. The employment agreement has a covenant not to compete
and provides for an annual salary of $150,000 and eligibility for a variety of
employee benefits and plans generally made available to our key associates at
her level.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation for services in all capacities for the years ended December 31,
1996, 1997 and 1998 for our President and our other five most highly compensated
executive officers and key employees whose total annual salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------ ALL OTHER COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2)
- ------------------------------------------ --------- ------------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Jeffrey C. Wayne(3)....................... 1998 $ 170,007 $ 90,275 $ 10,200 $ 20,000
President 1997 76,897(4) -- 37,215 --
1996 -- -- -- --
Jay B. Lewis(5)........................... 1998 175,008 75,000 14,100 50,000
Group Vice President-Finance 1997 150,007 60,000 9,000 --
and Chief Financial Officer 1996 44,287 -- 3,543 --
Ron Hartenbaum............................ 1998 141,667(6) -- -- --
President of Jones Radio Network 1997 -- -- -- --
1996 -- -- -- --
Gary Schonfeld............................ 1998 141,667(6) -- -- --
Chief Executive Officer- 1997 -- -- -- --
MediaAmerica 1996 -- -- -- --
Glenn R. Jones(7)......................... 1998 -- -- -- 50,000
Former President 1997 -- -- -- --
1996 -- -- -- --
Gregory J. Liptak(8)...................... 1998 283,879 75,000 17,033 50,000
Former President 1997 283,879 -- 22,417 --
1996 127,746 38,250 15,566 --
</TABLE>
- ----------
(1) Our 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 our 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 Mr. Wayne, includes $33,615 reimbursed to him for
moving expenses in 1997.
(2) Represent the number of shares of Class A Common Stock underlying stock
options granted to named executives.
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(3) Pursuant to an agreement with Mr. Wayne, in November 1999, Mr. Wayne
received a $250,000 bonus based on attainment of a specified level of
distribution of GAC.
(4) Reflects compensation from commencement of employment in July 1997.
Mr. Wayne was elected President in October 1999.
(5) Mr. Lewis' total compensation for services rendered to us during 1996
represents an allocation to us of the total compensation paid to Mr. Lewis
by Jones International for 1996 based upon the time allocated to our
business.
(6) Represent partial year payments from commencement of employment in
July 1998.
(7) Mr. Jones was our President during 1995 and through October 1996 and has
been Chairman of our Board since our inception. He served as our President
from May 1999 to October 11, 1999. He did not receive any compensation for
services during periods prior to May 1999, when he began receiving a salary
of $100,000 annually.
(8) On April 27, 1999, Mr. Liptak resigned as President, a position he had held
since October 1996. His total compensation for services rendered to us
during 1996 represents an allocation to us of the total compensation paid to
Mr. Liptak by Jones International based upon the time allocated to our
business. From the beginning of 1997, Mr. Liptak devoted all of his time to
our business.
STOCK OPTION PLAN
We have adopted an employee stock option plan that provides for the grant of
stock options and stock appreciation rights (SARs) to employees or individuals
providing services to us. 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 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, subject to maximum periods set forth in the plan.
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 currently covers an aggregate of up to
400,000 shares of our Class A Common Stock, but we are planning to propose to
shareholders an increase to shares. 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 within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
non-statutory stock options that do not qualify as incentive stock options under
Section 422 of the IRC.
We may grant either incentive options or non-qualified options or a
combination of the two. The exercise price of each incentive option must be at
least equal to the fair market value of the Class A Common Stock on the date it
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 it 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 our stock, 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 it is granted.
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<PAGE>
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. A 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 or her 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 to the participants in the plan; and
- 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.
Options to acquire 432,500 shares of Class A Common Stock have been granted
under the plan, of which options for 89,000 shares have been terminated or
forfeited upon resignation of the holders. No options have been exercised. The
following table sets forth information with respect to grants of stock options
during 1998 to the executive officers named in the summary compensation table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
- ---------------------------------------------------------------------------------------------------- ASSUMED ANNUAL
% OF TOTAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO APPRECIATION
ALL EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------
NAME GRANTED(2) IN 1998 ($/SHARE) DATE 5% ANNUAL 10% ANNUAL
- ------------------------------------------------ ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey C. Wayne................................ 20,000 5.80% $ 15.00 07/10/08 $ 188,670 $ 478,110
Jay B. Lewis.................................... 50,000 14.49 15.00 07/10/08 471,675 1,195,307
Ron Hartenbaum.................................. -- -- -- -- -- --
Gary Schonfeld.................................. -- -- -- -- -- --
Glenn R. Jones.................................. 50,000 14.49 15.00 07/10/08 471,675 1,155,307
Gregory J. Liptak(3)............................ 50,000 14.49 15.00 07/10/08 471,675 1,195,307
</TABLE>
- ----------
(1) The dollar amounts shown under these columns are the result of calculations
at 5% and 10% compound growth rates set by the Securities and Exchange
Commission, and therefore are not intended to forecast possible future
appreciation of our stock price. In all cases, the appreciation is
calculated from the award date to the end of the option term.
(2) Represents the number of shares of Class A Common Stock underlying the
options granted.
(3) On April 27, 1999, Mr. Liptak resigned from all of his positions with us.
These options were forfeited upon resignation.
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<PAGE>
In October 1999, an option to purchase 80,000 shares of Class A Common Stock
was granted to Mr. Wayne at an exercise price of $15.00 per share, subject to
receipt of shareholder approval of the increase in shares available under the
plan.
EMPLOYEE INVESTMENT 401(K) PLAN
Our 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, we currently
match 50% of the employees' deferrals up to a maximum of 6% of their annual
compensation. Our 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 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:
- upon retirement either at or after age 65;
- upon death or disability; and
- 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 1998, we contributed approximately $99,000 to the
401(k) plan on behalf of our employees.
DEFERRED COMPENSATION PLAN
Certain of our key employees are eligible to participate in a deferred
compensation plan. A select group of highly compensated or management personnel
selected by our Board are eligible to participate in the deferred compensation
plan. Under the deferred compensation plan, key employees are permitted to defer
receipt of up to 100% of their annual compensation. We currently match 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 pre-selected
investment funds. Both the key employees' contributions and our contributions
are at all times subject to the claims of our general creditors.
Key employees who participate in the deferred compensation plan receive a
distribution of their contributions, our contributions, and earnings
attributable to those contributions on their separation from employment with us
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 1998, we contributed approximately
$33,000 to the deferred compensation plan on behalf of our key employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors, during the first half of 1998, was comprised of
Messrs. Jones, Liptak and Lewis, and effective July 10, 1998, was comprised of
Messrs. Jones, Liptak, Lewis, Hartenbaum and Vierra and Ms. Rico. The Board sets
the compensation of our executive officers. During 1998, Messrs. Jones, Liptak
and Lewis, in addition to serving as executive officers, also served as
directors and officers of a number of our affiliates.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Where applicable, references in this section to amounts paid to or by us
include amounts paid to or by the PIN Venture and Superaudio, entities that are
not wholly owned, as well as our wholly owned subsidiaries.
ADVANCES
Since our inception, we have received advances from Jones International and
related parties to fund our activities. These advances have no maturity date and
accrue interest at the published prime rate plus 2% (approximately 10% per annum
in 1997, 1998 and 1999). We paid interest on these advances of approximately
$868,000, $506,000 and $ for the years ended December 31, 1997, 1998
and 1999, respectively. At December 31, 1999, outstanding advances from Jones
International and related parties were $ million. Jones International is
under no obligation to provide additional financial assistance to us.
PURCHASE OF GALACTIC RADIO AND EARTH SEGMENT
Effective upon the closing of the offering of our Senior Notes in
July 1998, a note payable to Jones Global Group, Inc., a related party, was
converted into 666,667 shares of our Class A Common Stock valued at $15 per
share. Interest expense on this note totaled approximately $1,196,000 and
$413,000 for the years ended December 31, 1997 and 1998, respectively.
Effective September 30, 1996, we purchased all of the common stock of Jones
Earth Segment from Mr. Jones and Jones International. In connection with this
transaction, we assumed Jones Earth Segment's obligations under an approximately
$6.6 million promissory note payable to Jones Intercable. Approximately $627,000
and $156,000 of interest was paid on the note for the years ended December 31,
1997 and 1998, respectively. The note was paid in full in March 1998.
TAX SHARING AGREEMENT
Prior to April 2, 1997, we 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,
less than 80% of our outstanding common stock was owned by Jones International
and, therefore, we are 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. Income tax
benefit (provision) recognized as a result of the tax sharing arrangement were
approximately $1,342,000 and ($49,000) for the years ended December 31, 1997 and
1998, respectively.
SATELLITE SERVICES
We have agreements to provide uplinking, playback, trafficking and related
services to Jones International that terminate on December 31, 2004. We have the
right to terminate the uplinking agreement upon 30-days' written notice. We
received approximately $2,193,000, $2,664,000 and $ for these
services for the years ended December 31, 1997, 1998 and 1999, respectively.
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<PAGE>
Since July 1, 1998, we have also provided additional uplinking, playback,
trafficking and related services to a related party of Jones International in
connection with the lease of an additional channel on one of our satellite
transponders for a monthly fee of $30,000 plus a proportionate share of
expenses.
SATELLITE TRANSPONDER AGREEMENTS
We lease to Jones International one compressed channel on one of our
satellite transponders. We have the right to terminate the lease at any time
upon 30-days' written notice. The monthly payments may be adjusted periodically
through the December 2004 expiration date based on the number of affiliate
customers using the transponder. We received lease payments of approximately
$896,000, $1,174,000 and $ for the years ended December 31, 1997,
1998 and 1999, respectively. Effective July 1, 1998, we leased one additional
channel on the transponder to a related party, Knowledge TV, Inc., at a monthly
lease rental of approximately $59,000. The lease has 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.
We sublease from Jones Satellite Holdings, a subsidiary of Jones
International, an audio channel on a non-preemptible satellite transponder on
the Galaxy V communications satellite for approximately $58,000 per month. Jones
Satellite Holdings has the right to terminate the sublease prior to its
May 2004 expiration date upon 30-days' written notice. Jones Satellite Holdings
leases the transponder from an unrelated party pursuant to a lease that
terminates in 2004. Jones Satellite Holdings charged lease payments of
approximately $696,000 for each of the years ended December 31, 1997, 1998 and
1999.
SALES COMMISSIONS
We earn up to a 3% commission on our sale of airtime for informational
programming on certain network subsidiaries of Knowledge TV, Inc. We received
commissions of approximately $216,000, $176,000 and $ for the years
ended December 31, 1997, 1998 and 1999, respectively. Effective July 1, 1998,
these services are being provided by the PIN Venture, which will receive all
future commissions and will pay for the personnel who perform such services.
A related party, Jones Network Sales, Inc., began providing cable affiliate
sales and marketing services to us in late 1997. This related party charged us
approximately $201,000, $906,000 and $ for the years ended
December 31, 1997, 1998 and 1999, respectively.
LICENSE FEES AND OTHER PAYMENTS FOR CABLE SERVICES
GAC is licensed to certain cable television systems owned or managed by
Jones Intercable. Jones Intercable and its managed partnerships paid total
license fees to us of approximately $853,000, $921,000 and $ for the
years ended December 31, 1997, 1998 and 1999, respectively. This agreement
expires on December 31, 2010. Superaudio also licenses its audio services to
these systems. Jones Intercable and its managed partnerships paid Superaudio
approximately $720,000 for each of the years ended December 31, 1997, 1998 and
1999. As of April 7, 1999, Jones Intercable is no longer a related party due to
the sale by Mr. Jones of his interest in Jones Intercable. Jones Intercable has
continued to license our programming, but related party payments terminated
effective April 7, 1999.
PIN is distributed to Jones Intercable and its managed partnerships and to
Cox and Adelphia. Jones Intercable and its managed partnerships received
incentive payments totaling approximately $1.6 million and $417,000 for the year
ended December 31, 1998 and the partial year ended April 6, 1999. As of
April 7, 1999, Jones Intercable is no longer a related party due to the sale by
Mr. Jones of his controlling interest in Jones Intercable.
72
<PAGE>
COMPUTER SERVICES
A subsidiary of Jones International provides computer hardware and software
services and miscellaneous related support services to us and other parties
related to Jones International. We paid service fees to this subsidiary of
approximately $574,000, $733,000 and $ for the years ended
December 31, 1997, 1998 and 1999, respectively.
OFFICE LEASE AND SUBLEASE
We lease and sublease office space in Englewood, Colorado from parties
related to Jones International on a month-to-month basis. We paid rent and
associated expenses under these leases and subleases of approximately $88,000,
$148,000 and $ for the years ended December 31, 1997, 1998 and 1999,
respectively.
ADMINISTRATIVE SERVICES
We reimburse Jones International and its related parties for certain
administrative services provided by these companies, such as legal, accounting,
purchasing and human resources services. Jones International and these related
parties charge us for these services based upon an allocation of its personnel
expense associated with providing these services. These allocated expenses
totaled approximately $540,000, $1,116,000 and $ for the years ended
December 31, 1997, 1998 and 1999, respectively.
A related party of ours charged us approximately $197,000 for the year ended
December 31, 1998 for the allocated costs of its airplane which we used in
connection with our Senior Notes offering.
TRANSFER OF SATELLITE TRANSPONDER LEASES
In April 1997, we acquired the satellite transponder leases and related
subleases from Jones Space Segment, a related party. These various agreements
were then transferred to a wholly-owned subsidiary, Jones Space Holdings. In
January 1998, we transferred the shares of Jones Space Holdings to Jones Space
Segment for a nominal amount, and we were relieved of the obligations related to
the satellite transponders. Upon the closing of the offering of our Senior Notes
in July 1998, the parties rescinded the transfer of the shares of Jones Space
Holdings to Jones Space Segment. We prepaid the $27.6 capital lease obligations
for such transponders with the proceeds from such offering and now own the
transponders.
MANAGEMENT OWNERSHIP OF CONVERTIBLE PREFERRED EQUITY
An affiliate of Mr. Jones purchased $20.0 million of our Series A
convertible preferred stock in September 1999.
GUARANTY OF CREDIT FACILITY
Jones International has guaranteed our $20.0 million credit facility, which
was used to finance the acquisition of Broadcast Programming. Both the credit
facility and guaranty expire in June 2000 unless extended. As a result of the
guaranty, which is secured, we received more favorable interest and other terms.
On September 30, 1999, we used the proceeds from our Series A convertible
preferred stock offering to repay all amounts outstanding under this credit
facility.
73
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of , 1999,
and as adjusted to give effect to the completion of this offering, regarding
ownership of our Class A Common Stock, Class B Common Stock and Series A
Convertible Preferred Stock by persons (including any group) known to us to be
beneficial owners of more than 5% of such class of stock, our individual
directors, each of the executive officers named in the Summary Compensation
Table and our executive officers and directors as a group. Under the rules of
the Securities and Exchange Commission, a person (or group of persons) is deemed
to be a "beneficial owner" of a security if he or she, directly or indirectly,
has or shares the power to vote or to direct the voting of such security, or the
power to dispose of or to direct the disposition of such security. Accordingly,
more than one person may be deemed to be a beneficial owner of the same
security. A person is also deemed to be a beneficial owner of any security which
that person has the right to acquire within 60 days.
74
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK SERIES A
--------------------------------------------------------------------- CONVERTIBLE
PREFERRED
CLASS A STOCK
---------------------------------------- --------------
PERCENT OF PERCENT OF CLASS B
CLASS CLASS AFTER ---------------------------
NAME AND ADDRESS OF NUMBER OF BEFORE THE THE NUMBER OF PERCENT OF NUMBER OF
BENEFICIAL OWNER(1) SHARES OFFERING OFFERING SHARES CLASS SHARES
- ------------------------------------------ -------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Glenn R. Jones ........................... 3,397,620(3)(4) 78.5% 1,785,120(3)(5) 100% 1,600,000(3)(6)
9697 E. Mineral Avenue
Englewood, CO 80112
Jeffrey C. Wayne ......................... 5,000(7) 0.1 -- -- --
9697 E. Mineral Avenue
Englewood, CO 80112
Jay B. Lewis ............................. 12,500(8) 0.3 -- -- --
9697 E. Mineral Avenue
Englewood, CO 80112
Ron Hartenbaum ........................... 271,456(9) 6.3 -- -- --
11 West 42nd Street
New York, NY 10036
Gary Schonfeld ........................... 271,455(9) 6.3 -- -- --
11 West 42nd Street
New York, NY 10036
Tuxedo Shirt, Inc. ....................... 542,911(9) 12.6 -- -- --
11 West 42nd Street
New York, NY 10036
Adelphia Communications Corporation ...... -- -- --
5 West Third Street 286,785 6.7
Coudersport, PA 16915
Sandler Capital Management ............... -- -- -- -- 160,000
767 Fifth Avenue, 45th Floor
New York, NY 10153
All executive officers and directors 84.82 1,785,100 100 1,600,000
as a group (10 persons)................. 3,686,355(10)
<CAPTION>
PERCENT OF TOTAL
PERCENT OF TOTAL VOTING ECONOMIC
PERCENT OF PERCENT OF POWER INTEREST
CLASS CLASS AFTER ------------------------ ------------------------
NAME AND ADDRESS OF BEFORE THE THE BEFORE THE AFTER THE BEFORE THE AFTER THE
BENEFICIAL OWNER(1) OFFERING OFFERING OFFERING OFFERING OFFERING OFFERING
- ------------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Glenn R. Jones ........................... 83.4% % 94.8% % 84.5% %
9697 E. Mineral Avenue
Englewood, CO 80112
Jeffrey C. Wayne ......................... -- .02 .06
9697 E. Mineral Avenue
Englewood, CO 80112
Jay B. Lewis ............................. -- .05 .02
9697 E. Mineral Avenue
Englewood, CO 80112
Ron Hartenbaum ........................... -- 1.1 3.4
11 West 42nd Street
New York, NY 10036
Gary Schonfeld ........................... -- 1.1 3.4
11 West 42nd Street
New York, NY 10036
Tuxedo Shirt, Inc. ....................... -- 2.3 6.8
11 West 42nd Street
New York, NY 10036
Adelphia Communications Corporation ...... -- 1.2 3.6
5 West Third Street
Coudersport, PA 16915
Sandler Capital Management ............... 8.4 0.7 2.0
767 Fifth Avenue, 45th Floor
New York, NY 10153
All executive officers and directors 83.4 96.0 87.9
as a group (10 persons).................
</TABLE>
75
<PAGE>
- -------------
(1) Directors and executive officers named in the Summary Compensation Table
who are not listed in the table do not beneficially own any of our stock.
(2) Unless otherwise noted, all persons indicated in the table have full voting
and investment power with respect to the share ownership described.
(3) Glenn R. Jones is the Chairman of the Board of Directors 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 Jones Global Group. He is therefore deemed to be the beneficial owner of
all our shares owned by Jones International, Jones Space Segment and Jones
Global Group. By virtue of this ownership, Mr. Jones controls approximately
95% of the total votes to be cast by all shareholders of our shares on
matters not requiring a class vote. 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. The holders of the Series A convertible preferred stock have the
right to convert their shares of Series A convertible Preferred Stock into
shares of Class A Common Stock on a share for share basis at any time, and
Series A convertible preferred stock must be converted upon the completion
of a public offering of our equity securities.
(4) Includes 707,286 shares owned by Mr. Jones, 12,500 shares deemed to be held
by Mr. Jones pursuant to a presently exercisable stock option, 1,594,500
shares held by Jones International, 666,667 shares held by Jones Global
Group and 416,667 shares held by Jones Space Segment.
(5) Includes 263,120 shares owned by Mr. Jones, 1,122,000 shares held by Jones
International and 400,000 shares held by Jones Global Group.
(6) Represents shares held by Jones International Trust LLC, a Colorado limited
liability company, of which Jones International is the managing member.
Through Mr. Jones' ownership of Jones International, he is deemed to be the
beneficial holder of said shares.
(7) Represents shares deemed to be held by Mr. Wayne pursuant to a presently
exercisable stock option.
(8) Represents shares deemed to be held by Mr. Lewis pursuant to a presently
exercisable stock option.
(9) Tuxedo Shirt, Inc. is owned by Messrs. Hartenbaum and Schonfeld, and was
formerly known as MediaAmerica, Inc., the company which sold its
advertising representation business assets to us in 1998. The shares owned
by Tuxedo Shirt, Inc. are beneficially owned 50% by Mr. Hartenbaum and 50%
by Mr. Schonfeld.
(10) Includes 30,250 shares deemed to be held by various executive officers and
directors pursuant to presently exercisable stock options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Following this offering, we will have authorized capital stock of
shares, consisting of shares of Class A Common Stock,
$.01 par value per share, shares of Class B Common Stock, $.01 par
value per share. References to common stock in this prospectus refer
collectively to the Class A Common Stock and Class B Common Stock.
The following summary of certain provisions of the common stock does not
purport to be complete and is subject to, and is qualified in its entirety by,
the provisions of our articles of incorporation and bylaws, where such rights
are set forth in full and applicable law.
COMMON STOCK
As of December 10, 1999, there were 6,101,060 outstanding shares of common
stock, with 4,315,940 shares of Class A Common Stock and 1,785,120 shares of
Class B Common Stock. Upon completion of this offering, the number of shares of
Class A Common Stock will increase to , reflecting conversion of the
outstanding shares of Series A Convertible Preferred Stock. The
holders of the Class A Common Stock and Class B Common Stock are entitled to
vote as separate classes with respect to those matters requiring a class vote
under Colorado law, such as:
- certain amendments to our articles of incorporation which affect a class;
and
- certain mergers or share exchanges.
On all matters requiring a class vote under Colorado law, passage will
require the affirmative vote of the holders of a majority of the shares of each
class, voting separately, and of the total shares entitles to vote thereon.
There is also class voting with respect to the election of directors. The
holders of Class A Common Stock are entitled to elect that number of directors
that constitute 25% of the total membership of our Board (if such number is not
a whole number, the holders of the Class A Common Stock are entitled to elect
the nearest higher whole number of directors that constitute at least 25% of the
Board). Directors elected by the Class A Common Stock may be removed from
office, with or without cause, only by the holders of the Class A Common Stock.
The holders of Class B Common Stock, voting as a separate class, are
entitled to elect all of the directors not specifically entitled to be elected
by the holders of the Class A Common Stock. Directors elected by the Class B
Common Stock may be removed from office, with or without cause, only by the
holders of the Class B Common Stock.
Holders of the common stock are not entitled to cumulative voting in the
election of directors. Any vacancies on the Board may be filled by the remaining
directors regardless of which class of common stock elected the director whose
directorship is being vacated.
The holders of Class A Common Stock and the holders of Class B Common Stock
vote together as a single class on all other matters. In all circumstances where
the shareholders vote together as a single class, the holders of Class A Common
Stock are entitled to one vote per share and the holders of Class B Common Stock
are entitled to ten votes per share.
Upon the completion of this offering:
- the Class A Common Stock will constitute approximately % of the
total outstanding shares of capital stock and will be entitled to cast
approximately % of the votes to be cast in matters to be acted upon
by shareholders not requiring a class vote; and
77
<PAGE>
- the Class B Common Stock will constitute approximately % of the total
outstanding shares of capital stock and will be entitled to cast
approximately % of the votes to be cast in matters to be acted upon
by shareholders not requiring a class vote.
Holders of Class A Common Stock and Class B Common Stock are entitled to
share ratably (i) in all dividends (provided that a stock dividend to holders of
common stock is payable only in shares of Class A Common Stock) if declared by
our Board out of any funds legally available therefor and (ii) in assets
available for distribution upon our liquidation, subject to the prior rights of
creditors. We do not currently anticipate paying any dividends.
The shares of common stock are not subject to redemption or to any liability
for further calls or assessments, and the holders of such shares do not have
preemptive or other rights to subscribe for additional shares.
Our articles of incorporation provide that at any time, and from
time-to-time, a holder of shares of Class B Common Stock shall be entitled to
convert their shares of Class B Common Stock to Class A Common Stock on a
share-for-share basis.
LISTING OF CLASS A COMMON STOCK
Application has been made for the listing of our Class A Common Stock on the
Nasdaq National Market, subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A Common Stock will be
American Securities Transfer & Trust, Inc., Denver, Colorado.
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<PAGE>
DESCRIPTION OF INDEBTEDNESS
SENIOR NOTES
In July 1998, we issued $100 million of 11 3/4% Senior Secured Notes. The
following is a summary of certain provisions of the indenture and our Senior
Notes and does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all of the provisions of the indenture governing
our Senior Notes.
The Senior Notes are our senior obligations. Interest on our Senior Notes is
payable semi-annually on January 1 and July 1 of each year, commencing
January 1, 1999. Our Senior Notes mature on July 1, 2005. Except as described
below, we may not redeem our Senior Notes prior to July 1, 2003. After such
date, we may redeem our Senior Notes, in whole or in part, at a redemption price
of 105.875% of the principal amount to be redeemed for the 12 month period
commencing July 1, 2003 and declining to 100% of the principal amount to be
redeemed for the period after July 1, 2004, together with accrued and unpaid
interest, if any, to the date of redemption.
Prior to July 1, 2001, we may, subject to certain requirements, redeem up to
35% of the aggregate principal amount of our Senior Notes with the cash proceeds
of 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 our Senior Notes remains outstanding immediately after each
such redemption. See "Use of Proceeds" regarding our possible redemption of a
portion of our Senior Notes with proceeds of this offering. Upon the occurrence
of a change of control (as defined in the indenture), we are required to make an
offer to repurchase our Senior 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.
Our Senior Notes are secured by the capital stock of JPN, Inc., our
wholly-owned intermediate holding company, and JPN's direct subsidiaries
(together with JPN, Inc., the "Subsidiary Guarantors"). Each of the Subsidiary
Guarantors has unconditionally guaranteed (the "Guarantees") our Senior Notes.
The Guarantees are senior obligations of the Subsidiary Guarantors and rank
equal in right of payment with all existing and future senior indebtedness of
the Subsidiary Guarantors, other than bank indebtedness and capitalized lease
obligations of the Subsidiary Guarantors, and are ranked senior in right of
payment to all existing and future subordinated obligations of the Subsidiary
Guarantors. All of our subsidiaries, except for our partially owned subsidiaries
PIN and Superaudio, are Subsidiary Guarantors.
The indenture governing our Senior Notes contains a number of covenants
which restrict our ability to engage in certain transactions. For example, there
are limitations on the amount of indebtedness we may incur. Indebtedness may be
incurred so long as the Consolidated Coverage Ratio (as defined in the
indenture) is maintained. There are a number of exceptions to the borrowing
limitation permitting other indebtedness, including:
- $20 million of certain bank indebtedness;
- indebtedness represented by capitalized lease obligations;
- certain other types of financings including refinancing-related
indebtedness; and
- non-bank indebtedness in a principal amount not to exceed $5 million.
The indenture also imposes limitations on Restricted Payments (as defined in
the indenture) which prohibit us from declaring or paying any dividend or making
distributions with respect to our common stock or making investments except in
limited circumstances and then only if we are then able to incur an additional
$1 of senior indebtedness under the limitations of the indenture.
79
<PAGE>
CREDIT FACILITY
On July 29, 1999, we entered into a $20.0 million credit facility with a
commercial bank to finance on a short-term basis, the acquisition of Broadcast
Programming. Jones International guaranteed the loan and provided certain
collateral as security for the guaranty. The credit facility bears interest
either at the bank's prime rate minus two percent or a fixed rate (which is
approximately equal to LIBOR) plus one half of one percent. The interest rate
was 5.84% per annum at September 30, 1999. The credit facility will expire on
June 30, 2000, unless extended. On September 30, 1999, we used a portion of the
proceeds from the offering of our Series A Convertible Preferred Stock to pay
down all amounts outstanding under the credit facility. The full amount of our
credit facility is currently available to us.
80
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding
shares ( shares if the underwriters' over-allotment option is
exercised in full) of Class A Common Stock. Of these securities, all
shares ( shares if the underwriters' over-allotment is
exercised in full) sold by us in this offering will be freely transferable by
persons other than our "affiliates" without restriction under the Securities
Act.
The remaining 6,259,999 shares of Class A Common Stock that will be
outstanding immediately following the offering are currently held by
shareholders, including Glenn R. Jones, and will be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption contained in
Rule 144. We have granted registration rights with respect to (i) 286,785 shares
of Class A Common Stock owned by Adelphia Communications, (ii) 542,911 shares of
Class A Common Stock owned by Tuxedo Shirt, Inc. (which is owned by two of our
executive officers, Ron Hartenbaum and Gary Schonfeld) and (iii) 1,918,000
shares of Class A Common Stock issuable on conversion of our Series A
Convertible Preferred Stock. Both Adelphia and Tuxedo Shirt have rights to
demand registration, as well as "piggyback" registration rights on certain
offerings by us. The rights of holders of the Series A Convertible Preferred
Stock to register their Class A Common Stock become exercisable after six months
from the completion of this offering. An affiliate of Mr. Jones has the right to
demand one registration and the other holders of the Series A Convertible
Preferred Stock have a similar right. For all such registrations, we will pay
all the costs of registration on behalf of the sellers. We and our current
shareholders (including Adelphia, Tuxedo Shirt and the holders of Series A
Convertible Preferred Stock), officers and directors have agreed not to offer to
sell, sell, or contract to sell, pledge or otherwise dispose of such shares for
at least 180 days after the date of this prospectus without the prior written
consent of Credit Suisse First Boston Corporation, subject to certain
exceptions.
Following the expiration of such lock-up agreements, 4,314,999 shares of
Class A Common Stock will become available for resale in the public market, all
of which are subject to the volume limitations, holding period and other
restrictions of Rule 144.
In general, Rule 144 provides that a person (or persons whose shares are
aggregated) who has beneficially owned his or her shares of Class A Common Stock
for at least one year, including an "affiliate" of ours, is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of:
- 1% of the then outstanding shares of our Class A Common Stock; and
- the average weekly trading volume of our Class A Common Stock during the
four calendar weeks preceding each such sale.
A person (or persons whose shares are aggregated) who is not deemed an
"affiliate" of ours and who has beneficially owned shares for at least two years
is entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. Affiliates, including members of our Board and
executive officers, continue to be subject to such limitations.
In addition, shares of our Class A Common Stock are reserved for
issuance under our stock option plan, of which options to purchase 343,500
shares have been granted. As of , , of those options
were exercisable at a price of $15.00 per share.
Also, each of the 1,785,120 shares of Class B Common Stock that are
currently outstanding will be convertible at the election of their holders into
one share of Class A Common Stock. See "Description of Capital Stock." The
shares of Class B Common Stock and the shares of Class A Common Stock into
81
<PAGE>
which they may be converted, are also "restricted securities" within the meaning
of and subject to Rule 144.
Before this offering, there has been no market for our Class A Common Stock,
and the amount, timing and nature of any future sales of our Class A Common
Stock will depend upon:
- market conditions;
- the personal circumstances of the sellers; and
- other factors.
No predictions can be made as to the effect, if any, that public sales of
shares or the availability of shares for sale will have on the market price of
our Class A Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of our Class A Common Stock in the public market, pursuant
to Rule 144 or otherwise, or the perception that such sales could occur, could
have a harmful impact on the market price of our Class A Common Stock. See "Risk
Factors--Shares eligible for public sale by existing stockholders after this
offering could hurt our stock price."
82
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated, , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and J.P. Morgan Securities Inc. are acting as representatives,
the following respective numbers of shares of Class A Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Credit Suisse First Boston Corporation.............................................
Deutsche Bank Securities Inc.......................................................
J.P. Morgan Securities Inc.........................................................
---------
Total............................................................................
---------
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of Class A Common Stock in the offering, if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting underwriters may be
increased or the offering of Class A Common Stock may be terminated.
We have granted to the underwriters a 30-day option to purchase, on a pro
rata basis, up to additional shares at the initial public offering
price less underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of Class A Common Stock.
The underwriters propose to offer the shares of Class A Common Stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per
share. The underwriters and selling group members may allow a discount of
$ per share on sales to other broker/dealers. After the initial
public offering, the public offering price and concession and discount to
dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------ ------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions paid by
us.............................................. $ $ $ $
Expenses payable by us............................ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of Class A Common Stock being offered.
We, our officers and directors and other stockholders have agreed that we
will not offer, sell, contract to sell, announce our intention to sell, pledge
or otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our Class A Common Stock or securities convertible
into or exchangeable or exercisable for any of our Class A Common Stock without
the prior written consent of Credit Suisse First Boston Corporation for a period
of 180 days after the date of this prospectus, except in the case of issuances
pursuant to the exercise of employee stock options outstanding on the date of
this prospectus.
83
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the Class A Common Stock for employees, directors
and certain other persons associated with us who have expressed an interest in
purchasing Class A Common Stock in the offering. The number of shares available
for sale to the general public in the offering will be reduced to the extent
these persons purchase reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act or contribute to payments that the underwriters may be
required to make in connection with those liabilities.
We have made application to list the shares of Class A Common Stock on The
Nasdaq Stock Market's National Market.
Prior to this offering, there has been no public market for our Class A
Common Stock. The initial public offering price was determined by negotiation
between us and representatives of the underwriters. The principal factors that
were considered in determining the public offering price included: the
information set forth in this prospectus and otherwise available to the
representatives; the history and the prospects for the industry in which we
compete; the ability of our management; our prospects for future earnings; the
present state of our development and our current financial condition; the
general condition of the securities markets at the time of this offering; and
the recent market prices of, and the demand for, publicly traded common stock of
generally comparable companies.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions,
penalty bids and passive market-making in accordance with Regulation M under the
Securities Exchange Act of 1934. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Class A Common Stock in the open market
after the distribution has been completed, in order to cover syndicate short
positions. Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the Class A Common Stock originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. In "passive" market-making, market-makers in
the Class A Common Stock who are underwriters or prospective underwriters may,
subject to certain limitations, make bids for or purchases of the Class A Common
Stock until the time, if any, at which a stabilizing bid is made. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Class A Common Stock to be higher than it would otherwise
be in the absence of such transactions. These transactions may be effected on
The Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
84
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Common Stock in Canada is being made only on
a private placement basis exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Class A Common Stock are effected. Accordingly, any resale of
the Class A Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Class A Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Class A Common Stock
without the benefit of a prospectus qualified under such securities laws,
(ii) where required by law, that such purchaser is purchasing as principal and
not as agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. Substantially all of our assets and the assets of our
directors and officers are located outside of Canada and, as a result, it may
not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Common Stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Common Stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from us.
Only one such report must be filed in respect of Class A Common Stock acquired
on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Class A Common Stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Class A Common Stock in their particular circumstances and with respect to the
eligibility of the Class A Common Stock for investment by the purchaser under
relevant Canadian legislation.
85
<PAGE>
LEGAL MATTERS
The validity of the shares of Class A Common Stock being sold in this
offering will be passed upon for us by Davis, Graham & Stubbs LLP, Denver,
Colorado. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
Our audited consolidated financial statements and schedules included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission")
a registration statement on Form S-1 (including all amendments thereto) under
the Securities Act with respect to the shares of Class A Common Stock offered
hereby. As permitted by the rules and regulations of the Commission, this
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. Statements contained in this prospectus as to
the contents of any agreement or other document to which reference is made are
not necessarily complete. With respect to each such agreement or other document
filed as an exhibit to the registration statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified by such reference.
Copies of the registration statement may be examined without charge at the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the following regional offices of the Commission
located at Seven World Trade Center, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any portion of the registration statement can be obtained from the Public
Reference Section of the Commission at its Washington, D.C. address upon payment
of the prescribed fees. The Commission also maintains a World Wide Web site that
contains registration statements, reports, proxy and information statements of
registrants (including us) that file electronically with the Commission. The
address of such World Wide Web site is "http://www.sec.gov."
Upon completion of this offering, we will be subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended, and
in accordance therewith will file reports, proxy statements and other
information with the Commission.
We intend to furnish our shareholders with annual reports containing audited
financial statements and a report of independent certified public accountants.
We will make available quarterly reports for each of the first three quarters of
each fiscal year containing unaudited summary financial information.
86
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Jones International Networks, Ltd. And Subsidiaries Consolidated...................... F-1
Report of Independent Public Accountants.............................................. F-2
Consolidated Statements of Financial Position as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited).................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997
and 1998 and for the nine months ended September 30, 1999 (unaudited)............. F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the fiscal
years ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1999 (unaudited).................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997
and 1998 and for the nine months ended September 30, 1999 (unaudited)............. F-7
Notes to Consolidated Financial Statements.......................................... F-9
</TABLE>
F-1
<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, 1997 and 1998 and
the related consolidated statements of operations, changes in shareholders'
equity (deficit) and cash flows for each of the three years ended December 31,
1998. 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 Jones International
Networks, Ltd. and its subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years
ended December 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 11, 1999
F-2
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1997 1998 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 3,717,169 $ 10,654,013 $12,664,196
Restricted cash.................................................... -- 10,000,000 --
Available for sale securities...................................... -- 2,768,646 4,416,120
Accounts receivable, net of allowance for doubtful accounts of
$157,405, $897,487, and $1,071,699, respectively................. 1,454,763 11,835,108 12,162,171
Receivables from affiliates........................................ -- 238,777 571,618
Prepaid expenses................................................... 54,870 255,723 287,681
Deferred commissions, current (Note 2)............................. 222,302 221,973 244,297
Other current assets............................................... 263,267 178,322 180,344
------------- ------------- -----------
Total current assets........................................... 5,712,371 36,152,562 30,526,427
------------- ------------- -----------
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
Satellite transponders (Note 6).................................... 35,010,454 35,680,188 35,680,188
Furniture, fixtures and equipment.................................. 10,457,665 12,442,773 13,456,264
Leasehold improvements............................................. 374,643 738,838 783,080
------------- ------------- -----------
Total property, plant and equipment............................ 49,559,817 52,578,854 53,636,587
------------- ------------- -----------
Less accumulated depreciation and amortization............... (20,784,095) (25,681,974) (29,549,319)
------------- ------------- -----------
Net property, plant and equipment.............................. 28,775,722 26,896,880 24,087,268
------------- ------------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $171,795, $719,588,
and $1,472,937, respectively (Note 2)............................ 3,125,567 32,397,394 41,257,043
Cable programming distribution agreement payments, net of
accumulated amortization of $0, $326,969,and $1,250,636,
respectively..................................................... -- 4,355,170 9,726,963
Investment in programming, net of accumulated amortization of $0,
$177,777, and $521,670, respectively............................. -- 2,379,402 2,317,431
Other intangible assets, net of accumulated amortization of
$733,428, $1,030,391, and $1,641,268, respectively (Note 2)...... 1,063,888 1,914,043 11,551,541
Investment in affiliates........................................... 577,264 202,942 288,388
Income tax benefit receivable from Jones
International, Ltd. (Note 15).................................... 1,342,111 1,338,402 --
Deferred commissions, long-term (Note 2)........................... 478,676 390,336 381,696
Debt offering costs, net of accumulated amortization of $0,
$245,700, and $801,065, respectively (Note 2).................... 224,744 4,526,428 4,297,711
Other assets....................................................... 57,785 340,475 359,037
------------- ------------- -----------
Total other assets............................................. 6,870,035 47,844,592 70,179,810
------------- ------------- -----------
Total assets................................................... $ 41,358,128 $ 110,894,034 $124,793,505
============= ============= ===========
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part of these consolidated financial statements.
F-3
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1997 1998 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable--trade............................................ $ 1,438,602 $ 2,796,389 $ 4,593,583
Producers' fees payable............................................ -- 5,922,471 5,339,999
Cable programming distribution agreement payments payable.......... -- 1,617,815 4,152,402
Accrued liabilities................................................ 1,300,516 2,047,233 2,050,358
Accounts payable--Jones International, Ltd. (Notes 2 and 4)........ 9,814,874 1,377,731 307,588
Interest payable................................................... 53,619 5,581,250 2,937,500
Deferred revenues (Note 2)......................................... 13,554 752,263 1,537,059
Capital lease obligations (Note 9)................................. 2,422,022 -- --
Other current liabilities.......................................... -- 9,938 7,777
------------- ------------- -----------
Total current liabilities...................................... 15,043,187 20,105,090 20,926,266
------------- ------------- -----------
LONG-TERM LIABILITIES:
Customer deposits and deferred revenues............................ 38,532 340,842 522,185
Capital lease obligation, net of current portion (Note 9).......... 26,335,186 -- --
Long-term debt--affiliated entities (Note 5)....................... 16,554,500 -- --
Senior secured notes............................................... -- 100,000,000 100,000,000
------------- ------------- -----------
Total long-term liabilities.................................... 42,928,218 100,340,842 100,522,185
------------- ------------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES (Note 2).............. 1,593,168 567,283 1,178,034
COMMITMENTS AND CONTINGENCIES (Note 17)
COMMON STOCK SUBJECT TO PUT, Class A
Common Stock, $.01 par value: 101,124 shares
issued and outstanding, respectively............................. -- 1,213,488 1,213,488
SHAREHOLDERS' EQUITY (DEFICIT):
Series A Preferred Equity, $.01 par value: 1,918,000 shares
authorized; 1,608,000 shares issued and outstanding
(Note 8)......................................................... -- -- 20,100,000
Class A Common Stock, $.01 par value: 50,000,000 shares authorized;
2,980,953, 4,202,006 and 4,213,875 shares issued and outstanding,
respectively..................................................... 29,810 42,020 42,139
Class B Common Stock, $.01 par value: 1,785,120 shares authorized;
1,785,120 shares issued and outstanding, respectively............ 17,851 17,851 17,851
Additional paid-in capital......................................... 9,143,375 27,446,955 27,589,264
Accumulated other comprehensive income............................. -- 8,456 (17,907)
Accumulated deficit................................................ (27,397,481) (38,847,951) (46,777,815)
------------- ------------- -----------
Total shareholders' equity (deficit)............................... (18,206,445) (11,332,669) 953,532
------------- ------------- -----------
Total liabilities and shareholders' equity (deficit)............... $ 41,358,128 $ 110,894,034 $124,793,505
============= ============= ===========
</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 OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Radio programming............................. $6,978,303 $10,199,870 $10,041,070 $6,622,987 1$2,352,945
Advertising sales services.................... -- -- 5,106,540 2,362,091 6,454,967
Cable television programming:
Non-affiliated entities..................... 193,204 10,863,512 15,795,632 11,168,280 18,785,560
Affiliated entities (Note 4)................ 960,254 1,138,000 1,096,580 823,526 443,317
---------- ---------- ----------- --------- ---------
Total cable television programming........ 1,153,458 12,001,512 16,892,212 11,991,806 19,228,877
---------- ---------- ----------- --------- ---------
Satellite services:
Non-affiliated entities..................... 3,120,000 2,600,000 1,578,079 678,193 2,789,000
Affiliated entities (Note 4)................ 5,402,680 4,309,818 4,593,620 3,309,854 3,778,245
---------- ---------- ----------- --------- ---------
Total satellite services.................. 8,522,680 6,909,818 6,171,699 3,988,047 6,567,245
---------- ---------- ----------- --------- ---------
Total revenues............................ 16,654,441 29,111,200 38,211,521 24,964,931 44,604,034
---------- ---------- ----------- --------- ---------
OPERATING EXPENSES:
Radio programming............................. 4,162,634 5,816,250 7,778,061 5,468,660 8,097,865
Advertising sales services.................... -- -- 1,128,713 481,914 2,776,242
Cable television programming:
Non-affiliated entities..................... 1,156,922 5,726,418 9,015,421 5,675,572 12,063,341
Affiliated entities (Note 4)................ -- 3,545,930 5,216,110 4,742,764 3,674,566
---------- ---------- ----------- --------- ---------
Total cable television programming........ 1,156,922 9,272,348 14,231,531 10,418,336 15,737,907
Satellite services (Note 4)................... 5,451,966 4,685,470 5,240,168 3,790,908 3,920,801
Selling and marketing......................... 1,737,566 2,916,648 4,868,700 3,072,305 4,772,209
General and administrative (Note 4)........... 3,269,623 4,168,005 6,727,604 4,052,370 7,311,824
---------- ---------- ----------- --------- ---------
Total operating expenses.................. 15,778,711 26,858,721 39,974,777 27,284,493 42,616,848
---------- ---------- ----------- --------- ---------
OPERATING INCOME (LOSS)......................... 875,730 2,252,479 (1,763,256) (2,319,562) 1,987,186
---------- ---------- ----------- --------- ---------
OTHER (INCOME) EXPENSE:
Interest expense (Notes 4, 6 and 9)........... 4,499,898 5,676,896 8,971,139 5,806,819 9,606,566
Interest income............................... (72,151) (107,843) (775,735) (437,597) (725,707)
Write-off of deferred offering costs (Note
2).......................................... -- 938,000 -- -- --
Equity income (loss) of subsidiaries.......... (828,992) (396,155) 57,322 (337) (85,446)
Other expense (income)........................ (11,660) 73,972 1,171,264 926,963 99,345
---------- ---------- ----------- --------- ---------
Total other expense, net.................. 3,587,095 6,184,870 9,423,990 6,295,848 8,894,758
---------- ---------- ----------- --------- ---------
LOSS BEFORE INCOME TAXES AND MINORITY
INTEREST...................................... (2,711,365) (3,932,391) (11,187,246) (8,615,410) (6,907,572)
Income tax provision (benefit) (Note 15)...... (386,912) (1,341,997) 48,531 14,950 411,541
---------- ---------- ----------- --------- ---------
LOSS BEFORE MINORITY INTEREST................... (2,324,453) (2,590,394) (11,235,777) (8,630,360) (7,319,113)
---------- ---------- ----------- --------- ---------
Minority interest in net income (loss) of
consolidated subsidiaries................... (9,051) 902,781 214,693 37,225 610,751
---------- ---------- ----------- --------- ---------
NET LOSS........................................ $(2,315,402) $(3,493,175) $(11,450,470) ($8,667,585) ($7,929,864)
========== ========== =========== ========= =========
ADJUSTMENTS TO ARRIVE AT COMPREHENSIVE LOSS..... -- -- (8,456) (16,898) 26,363
---------- ---------- ----------- --------- ---------
COMPREHENSIVE LOSS.............................. $(2,315,402) $(3,493,175) $(11,442,014) ($8,650,687) ($7,956,227)
========== ========== =========== ========= =========
NET LOSS PER COMMON SHARE....................... $ (0.56) $ (0.79) $ (2.13) $ (1.75) $ (1.30)
========== ========== =========== ========= =========
NET LOSS PER COMMON SHARE--assuming dilution.... $ (0.56) $ (0.79) $ (2.14) $ (1.75) $ (1.31)
========== ========== =========== ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...... 4,103,573 4,400,448 5,372,644 4,949,776 6,094,844
========== ========== =========== ========= =========
</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 CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED EQUITY COMMON STOCK COMMON STOCK
SERIES A CLASS A CLASS B ADDITIONAL
--------------------- ---------------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ---------- --------- ----------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... -- $ -- 1,385,120 $ 13,851 1,385,120 $ 13,851 $ -- ($20,387,790)
Issuance of common stock
in exchange for Earth
Segment................ -- -- 583,333 5,834 -- -- -- (5,834)
Advances to parent
company (Note 2)....... -- -- -- -- -- -- -- (593,816)
Net loss................. -- -- -- -- -- -- -- (2,315,402)
--------- ---------- --------- --------- --------- --------- ---------- ----------
Balance, December 31,
1996................... -- -- 1,968,453 19,685 1,385,120 13,851 -- (23,302,842)
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)
Issuance of common stock
in exchange for
minority interest 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 --
Conversion of the Jones
Global Group Note (Note
5)..................... -- -- -- -- 400,000 4,000 5,996,000 --
Net loss................. -- -- -- -- -- -- -- (3,493,175)
--------- ---------- --------- --------- --------- --------- ---------- ----------
Balance, December 31,
1997................... -- -- 2,980,953 29,810 1,785,120 17,851 9,143,375 (27,397,481)
Conversion of Jones
Global Group Note...... -- -- 666,667 6,667 -- -- 9,993,333 --
Issuance of common stock
for the MediaAmerica,
Inc., acquisition...... -- -- 541,970 5,419 -- -- 8,124,131 --
Issuance of common stock
in exchange for the
ownership interests in
PIN Venture............ -- -- 12,416 124 -- -- 186,116 --
Other comprehensive
income, net of tax:
Unrealized gains on
securities........... -- -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- (11,450,470)
--------- ---------- --------- --------- --------- --------- ---------- ----------
Balance, December 31,
1998................... -- -- 4,202,006 42,020 1,785,120 17,851 27,446,955 (38,847,951)
Issuance of Series A
Preferred Equity....... 1,608,000 20,100,000 -- -- -- -- -- --
Issuance of common stock
to Adelphia............ -- -- 11,869 119 -- -- 142,309 --
Other comprehensive
income, net of tax:
Unrealized loss on
securities........... -- -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- (7,929,864)
--------- ---------- --------- --------- --------- --------- ---------- ----------
Balance, September 30,
1999 (unaudited)....... 1,608,000 $20,100,000 4,213,875 $ 42,139 1,785,120 $ 17,851 $27,589,264 ($46,777,815)
========= ========== ========= ========= ========= ========= ========== ==========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
--------------
<S> <C>
Balance, December 31,
1995................... $(20,360,088)
Issuance of common stock
in exchange for Earth
Segment................ --
Advances to parent
company (Note 2)....... (593,816)
Net loss................. (2,315,402)
------------
Balance, December 31,
1996................... (23,269,306)
Issuance of common stock
in exchange for Jones
Space Segment, Inc.
(Note 1)............... --
Advance to parent company
(Note 2)............... (593,964)
Issuance of common stock
in exchange for
minority interest of
Glenn R. Jones (Note
1)..................... --
Issuance of common stock
for the Product
Information Network
acquisition (Note 1)... 3,150,000
Conversion of the Jones
Global Group Note (Note
5)..................... 6,000,000
Net loss................. (3,493,175)
------------
Balance, December 31,
1997................... (18,206,445)
Conversion of Jones
Global Group Note...... 10,000,000
Issuance of common stock
for the MediaAmerica,
Inc., acquisition...... 8,129,550
Issuance of common stock
in exchange for the
ownership interests in
PIN Venture............ 186,240
Other comprehensive
income, net of tax:
Unrealized gains on
securities........... 8,456
Net loss................. (11,450,470)
------------
Balance, December 31,
1998................... (11,332,669)
Issuance of Series A
Preferred Equity....... 20,100,000
Issuance of common stock
to Adelphia............ 142,428
Other comprehensive
income, net of tax:
Unrealized loss on
securities........... (26,363)
Net loss................. (7,929,864)
------------
Balance, September 30,
1999 (unaudited)....... $ 953,532
============
</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 CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:..........
Net loss..................................... $(2,315,402) $(3,493,175) $(11,450,470) $(8,667,585) $(7,929,864)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 4,476,027 5,167,892 6,266,138 4,364,225 6,499,131
Amortization of debt offering costs........ -- -- -- 120,050 555,365
Equity in (loss) income of subsidiaries.... (828,992) (396,155) 57,322 (337) (85,446)
Distributions received..................... 300,000 100,000 350,000 350,000 --
Write-off of deferred offering costs....... -- 938,000 -- -- --
Write-off of capitalized loan fees......... -- -- -- 569,647 --
Minority interest in net (loss) income..... (9,051) 902,781 214,693 37,225 610,751
Loss on sale of equipment.................. -- 81,209 3,599 2,145 --
Net change in assets and liabilities:
Decrease (increase) in receivables....... 5,317 1,168,733 (4,134,681) (2,861,984) 1,425,349
Increase in receivables from
affiliates............................. (361,809) (538,949) (238,777) (223,433) (332,841)
Decrease (increase) in prepaid expenses
and other current assets............... (495,717) 344,865 157,807 331,386 104,604
Decrease (increase) in deferred
commissions............................ (104,204) 43,880 88,669 (2,639) (13,684)
Decrease in tax benefit receivable from
Jones International, Ltd............... -- -- -- -- 1,338,402
Decrease (increase) in other assets...... (58,983) 78,635 (271,171) (303,856) (345,210)
Increase in accounts payable............. 223,393 1,192,730 1,357,787 1,484,306 1,797,194
Increase (decrease) in producers' fee
payable................................ -- -- 2,043,770 1,637,321 (582,472)
Increase (decrease) in accounts payable
to Jones International, Ltd............ 3,668,270 2,861,899 (8,437,143) (7,294,948) (1,070,143)
Increase (decrease) in interest
payable................................ 215,524 (161,905) 5,527,631 2,590,131 (2,643,750)
Increase in deferred revenues............ 5,500 8,054 738,709 578,885 784,796
Increase (decrease) in accrued
liabilities and other liabilities...... 52,872 112,355 233,806 (455,220) (939,302)
Increase (decrease) in customer
deposits............................... 3,352 (821,378) 181,904 207,479 49,910
---------- ---------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities............................... 4,776,097 7,589,471 (7,310,407) (7,537,202) (777,210)
---------- ---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment................................ (2,969,379) (1,367,026) (2,257,832) (1,915,756) (587,612)
Sale of property, plant and equipment...... -- 255,671 56,890 43,196 --
Purchase of available for sale
securities............................... -- -- (2,760,,190) (2,164,122) (1,673,837)
Purchase of intangible assets and
programming.............................. (1,001,667) (44,646) (295,314) (199,719) (430,154)
Cable programming distribution agreement
payments................................. -- -- (3,064,354) (1,129,444) (3,760,873)
Purchase of MediaAmerica, Inc.............. -- -- (26,700,000) (26,700,000) --
Purchase of Broadcast Programming.......... -- -- -- -- (20,860,131)
---------- ---------- ----------- ----------- -----------
Net cash used in investing activities...... (3,971,046) (1,156,001) (35,020,800) (32,065,845) (27,312,607)
---------- ---------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FORM FINANCING ACTIVITIES:
Increase in deferred offering costs........ (607,505) (505,239) (4,301,684) (4,710,149) --
Increase in capitalized loan fees.......... -- (50,000) -- (519,646) --
Repayment of borrowings.................... (7,991) -- (23,259,000) (6,554,500) --
Repayment of capital lease obligations..... (1,533,031) (1,964,954) (28,757,208) (28,757,208) --
Proceeds from borrowings................... 1,341,968 -- 16,704,500 -- --
Proceeds from issuance of Series A
Preferred Equity Note (Note 8)........... -- -- -- -- 20,100,000
Proceeds from Senior Secured Notes......... -- -- 100,000,000 100,000,000 --
Distributions paid to minority interest.... -- -- (1,118,557) (1,073,410) --
Acquisition of minority interest........... -- (200,000) -- -- --
---------- ---------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................... (806,559) (2,720,193) 59,268,051 58,385,087 20,100,000
---------- ---------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (1,508) 3,713,277 16,936,844 18,782,040 (7,989,817)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 5,400 3,892 3,717,169 3,717,169 20,654,013
---------- ---------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 3,892 $3,717,169 $20,654,013 $22,499,209 $12,664,196
========== ========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.................................. $4,499,898 $5,838,801 $ 3,443,508 $ 3,216,688 $11,456,250
========== ========== =========== =========== ===========
Goodwill....................................... $ 300,000 $3,036,923 $ 5,372,644 $ -- $ --
========== ========== =========== =========== ===========
Income taxes paid.............................. $ -- $ -- $ -- $ -- $ 411,541
========== ========== =========== =========== ===========
SUPPLEMENTAL NON CASH DISCLOSURES
Issuance of Class A Common Stock for GAC equity
agreement.................................... $ -- $ -- $ 1,213,488 $ 1,213,488 $ 142,428
========== ========== =========== =========== ===========
Issuance of Class A Common Stock for the
acquisition of MediaAmerica, Inc............. $ -- $ -- $ 8,129,550 $ 8,129,550 $ --
========== ========== =========== =========== ===========
Conversion of Global Group Note to Class A
Common Stock................................. $ -- $6,000,000 $10,000,000 $10,000,000 $ --
========== ========== =========== =========== ===========
</TABLE>
F-8
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(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 had
acquired certain subsidiaries from the parent of Network Holdings, Jones
International, Ltd. ("Jones International"). Mr. Glenn R. Jones, Chairman and
Chief Executive Officer of New Company, owns 100 percent of Jones International.
The accompanying consolidated 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 ("Notes") by New Company (see Note 14)
and the acquisition by New Company of MediaAmerica, Inc. ("MediaAmerica") (see
Note 3), 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 wholly-owned subsidiary of
New Company. The results of operations and financial condition of New Company
("the Company") reflect all of the operations of the Old 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) sells advertising time on nationally syndicated radio programs,
(iii) provides television and music programming to cable television system
operators and other video distributors, (iv) sells advertising time on its two
television networks and (v) receives license fees for its country music
television network.
On April 1, 1997, the Company acquired Mr. Glenn R. Jones' 19 percent equity
interest in Jones Infomercial Networks, Inc. ("Infomercial Networks"), the
subsidiary through which the Company has invested in a majority interest in the
Product Information Network Venture ("PIN Venture") and Mr. Jones' 19 percent
equity interest in the 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, Informercial Networks and Great American Country 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
accompanying consolidated financial statements have been prepared to include
these acquisitions as though the Company had made them at their inception.
F-9
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(1) ORGANIZATION AND BUSINESS (CONTINUED)
The Company has received advances and loans from Jones International and
related companies to fund its operating and investing activities. Jones
International and such related companies are under no obligation 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/Capstar Programming, LLC ("Jones/ Capstar"). The PIN Venture commenced
operations on February 1, 1995 and is a joint venture which is owned
approximately 55 percent by the Company and 45 percent by a third party (see
Note 3). The PIN Venture owns and operates a 24-hour-a-day cable television
network for the airing of long-form advertising ("infomercials"). 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 is in the
business of providing audio programming services to cable television system
operators. Jones/Capstar commenced operations in July 1998 and is a limited
liability company which is owned 50 percent by the Company and 50 percent by a
third party. Jones/Capstar is in the business of developing, producing and
distributing a syndicated radio program known as "Nashville Nights". Profits,
losses and distributions of these ventures have been and will be allocated in
accordance with the respective ownership interests 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.
INTERIM FINANCIAL INFORMATION (UNAUDITED)--The accompanying statements of
financial position as of September 30, 1999, and the statements of operations,
changes in shareholders' equity (deficit) and cash flows for the nine months
ended September 30, 1998 and 1999, are unaudited. However, in the opinion of
management, these statements include all adjustments, consisting solely of
normal recurring adjustments, necessary for the fair presentation of results for
these interim periods. The results of operations for the nine months ended
September 30, 1999, 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.
RESTRICTED CASH--$10.0 million of the proceeds from the Notes (see Note 6)
was deposited into a Reserve Account. Cash balances in the Reserve Account are
restricted to use for acquisitions and payment of principal or interest on the
Notes. In January 1999, $5.6 million of these funds were used to pay the
January 1, 1999 interest payment on the Notes.
AVAILABLE FOR SALE SECURITIES--Available for sale marketable securities are
carried at fair value, with unrealized holding gains and losses carried as a
separate component of shareholders' deficit. The cost of securities sold is
determined using the first-in, first-out method. At December 31, 1998, the
Company held marketable securities available for sale with an aggregate cost of
$2,760,190 and a net unrealized gain of $8,456.
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. The carrying value of the
F-10
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's accounts receivable and cash accounts are assumed to approximate fair
value due to the short-term nature of these accounts.
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.
RECLASSIFICATION--Certain prior period amounts have been reclassified to
conform to the current year presentation.
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. No such excess
losses were incurred in 1997 or 1998, or during the nine months ended
September 30, 1999.
PROPERTY, PLANT AND EQUIPMENT--Property and equipment are depreciated using
the straight-line method over the estimated useful lives of 3 to 15 years. The
building is depreciated using the straight-line method over an estimated useful
life of 40 years. Leasehold improvements are depreciated using the straight-line
method over the lesser of five years or the term of the lease. Satellite
transponders are depreciated using the straight-line method over the estimated
useful life of 12 years.
GOODWILL--Goodwill consists primarily of the excess purchase price paid in
the PIN Venture acquisition in 1997 and the excess purchase price paid in the
MediaAmerica acquisition in 1998 (see Note 3). Goodwill related to the PIN
Venture acquisition is amortized using the straight-line method over the
estimated economic life of the partnership, which is 18 years. Goodwill related
to the MediaAmerica acquisition is amortized using the straight-line method over
an estimated economic life of 40 years.
OTHER INTANGIBLE ASSETS--Intangible assets consist primarily of radio
programming licensing agreements obtained from a third party in October 1996 and
cable programming distribution agreement payments. Intangible assets are
amortized using the straight-line method over the lesser of 15 years or the term
of the affiliate agreement.
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
for the years ended December 31, 1997 and 1998, or for the nine months ended
September 30, 1999.
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 during 1997.
F-11
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED COMMISSIONS--Sales commissions are amortized using the
straight-line method 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.
DEBT OFFERING COSTS--The Company incurred approximately $4,526,000 of debt
offering costs in the year ended December 31, 1998. Such costs include fees for
financial advisory services, legal counsel, independent public accountants,
regulatory and stock exchange registration fees, and other various costs
associated with the Notes offering. In 1997, the Company incurred $505,000 of
deferred offering costs related to a proposed equity offering. As a result of
the withdrawal of the proposed offering in early 1997, the portion of the
deferred offering costs that were deemed by management as unusable in pursuing
other financing options were expensed. During the year ended December 31, 1997,
$938,000 of such costs was expensed by the Company. The remaining deferred
offering costs of approximately $175,000 are included in debt offering costs in
the accompanying consolidated statements of financial position at December 31,
1997 and are deemed to benefit the Notes Offering completed by the Company which
closed in July 1998 (see Note 6).
CUSTOMER DEPOSITS AND DEFERRED REVENUES--Customer deposits consist of
unearned revenues associated with affiliate fees and refundable advance
payments. Deferred revenues consist of advance payments and a security deposit
paid by a lessee of the Company's satellite transponder.
INCOME TAXES--Prior to April 2, 1997, the Company joined with Jones
International 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 percent of the Company's outstanding common stock was
beneficially (or indirectly) owned by Jones International as of April 2, 1997.
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 to defer such payments until a
subsequent taxable period in which the subsidiary member generated taxable
income and had 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 return was filed and could
accrue interest at the time the deferred benefit amounts originated. 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
year ended December 31, 1998, the Company recorded a tax provision of
approximately $49,000 to adjust estimated tax provisions to actual tax
provisions for the year ended December 31, 1997. This provision was offset
against the income tax benefit receivable from Jones International.
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
F-12
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, advertising sales services revenues, cable television programming
revenues and satellite services 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 from certain
stations based on the radio station's contractual agreement.
Advertising sales services revenues include revenues from the selling of
advertising time on radio programs. The Company recognizes advertising sales
services revenues upon airing of the advertisements.
Cable television programming revenues include advertising and license fees.
The Company generates cable 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 services 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 services revenues upon completion of the services or upon
contractual arrangements.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is effective for the year ending December 31, 1999. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The Company will
F-13
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adopt this statement in 1999. Management of the Company does not expect that the
adoption of this statement will have a material impact on the Company's
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.
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.
The Company initiated an assessment of how the Year 2000 problem could
affect its operations in the summer of 1997 and, in conjunction with related
parties, established a Year 2000 Program Office (the "Y2K Office") to manage the
process. The Y2K Office meets periodically with the Company's management to
inform them of its assessment activities, the Year 2000 priorities it has
identified, remediation recommendations and testing and compliance issues. In
addition, the Y2K Office organizes and meets regularly with a review committee
comprised of representatives from various departments within the Company to
ensure that management from the affected areas participate in the decision
process.
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
F-14
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
implementing and testing its Year 2000 solutions for systems that have been
determined to be first priority for the Company is as follows:
<TABLE>
<CAPTION>
EXPECTED
PROJECT DESCRIPTION COMPLETION DATE
- -------------------------------------------- ------------------------------ ---------------
<S> <C> <C>
Financials.................................. Y2K testing Completed
Contingency planning Completed
Unix Hardware............................... Y2K Upgrade/testing Completed
Y2K contingency planning 4Q99
LAN/WAN..................................... Remediation/testing Completed
Contingency planning 4Q99
Telephony Systems........................... Y2K testing Completed
Contingency planning 4Q99
GAC/PIN..................................... Y2K testing Completed
Contingency planning Completed
Radio....................................... Y2K testing 4Q99
Contingency planning 4Q99
Uplink...................................... Y2K testing Completed
Contingency planning Completed
</TABLE>
In 1999, the Y2K Office will also 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 significant information technology projects due to Year 2000 efforts.
Jones International, the Company's parent, has contacted key vendors of
business application and operating software to determine the compliance of their
software. Several key information systems, including the primary financial
software applications, have been tested and have been determined to be Year 2000
compliant. Additionally, an inventory has been conducted at the Jones
international data center and the Company's Uplink facilities for all
operational support systems and at the corporate office for all desktop computer
hardware and software to ensure all business application and operating software
is identified. The focus during the 4th quarter 1999 has been on final Y2K
testing on the Company's radio studios and on contingency planning.
The Company has not incurred any material Year 2000 costs to date.
Management does not have an estimate for future Year 2000 project costs.
The Company has prepared contingency plans for all vital components of its
businesses. In the event that these plans are not adequate, or other problems
develop when Year 2000 arrives, there could be a material adverse effect on the
Company's financial condition and results of operations.
F-15
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(3) ACQUISITIONS OF PIN VENTURE AND MEDIAAMERICA
From February 1995 until March 31, 1997, the Company owned 50 percent or
less of the PIN Venture. Effective April 1, 1997, the Company acquired from
Adelphia Communications Corporation an 8.35 percent equity interest in the PIN
Venture in exchange for 262,500 shares of the Company's Class A Common Stock.
Effective December 31, 1998, the Company acquired the remaining Adelphia
Communications Corporation equity interest in the PIN Venture, 2.18 percent, in
exchange for 12,416 shares of the Company's Class A Common Stock. As a result of
these transactions, which were accounted for as purchases, the Company now owns
approximately 55.3 percent of the PIN Venture. The Company recorded goodwill of
$13.2 million in conjunction with the acquisitions of the additional interests.
Effective April 1, 1997, the Company consolidated the results of operations of
the PIN Venture for financial reporting purposes.
On July 10, 1998, the Company acquired substantially all assets and assumed
certain liabilities of MediaAmerica for $32.7 million plus a working capital
adjustment of approximately $2.1 million. MediaAmerica provides radio
advertising sales representation services and also owns syndicated radio
programming. The seller of 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. The seller of MediaAmerica also received 141,970 shares of Class A Common
Stock for the working capital adjustment. In addition, the seller of
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 earnings
before interest, taxes, depreciation and amortization ("EBITDA") for the
twelve-month period following the closing are achieved. The acquisition was
accounted for as a purchase. The Company recorded approximately $29.8 million in
goodwill in connection with the acquisition of MediaAmerica.
The seller of MediaAmerica has the right to cause the Company to repurchase
the shares of the Company issued in the MediaAmerica acquisition at any time
after three years from the July 10, 1998 closing. The price would be the fair
market value of the Class A Common Stock on the date of exercise of the put, as
determined by agreement or by an independent investment banking firm. The
Company has a correlative right to require that the seller of MediaAmerica to
sell such shares to the Company at fair market value. Such rights terminate upon
an initial public offering by the Company. Before the seller of MediaAmerica can
require the Company to buy its shares, the Company must have available cash (as
defined); 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 nine months of the exercise of
the call, the Company must pay specified additional consideration.
F-16
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(3) ACQUISITIONS OF PIN VENTURE AND MEDIAAMERICA (CONTINUED)
Certain unaudited condensed pro-forma financial information of the Company
assuming the purchases noted above were completed as of January 1, 1997, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- --------------
<S> <C> <C>
Revenues....................................................... $ 47,295,000 $ 44,564,000
Operating expenses............................................. 40,136,000 46,131,000
Operating income (loss)........................................ 7,159,000 (1,567,000)
Net loss....................................................... (4,841,000) (14,393,000)
Net loss per common share...................................... $ (1.01) $ (2.40)
</TABLE>
(4) 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 Mr. Jones,
Chairman and Chief Executive Officer of 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 9 for
transactions with affiliates related to Superaudio.
CABLE TELEVISION PROGRAMMING REVENUES--The Company earns up to a three
percent commission on the sale of airtime for informational programming on
Knowledge TV, Inc. ("KTV"). As a result of the sale of KTV's distribution
assets, KTV terminated its use of this service as of September 1999. The
unaffiliated purchaser of KTV's distribution assets has entered into an
agreement with the Company to sell airtime for the fourth quarter of 1999. For
the year ended December 31, 1996, 1997 and 1998, the Company received
approximately $241,000, $216,000 and $176,000, respectively, for this service.
For the nine months ended September 30, 1998 and 1999, KTV paid total
commissions to the Company of approximately $135,000 and $121,000, respectively,
for this service.
The Company distributes Great American Country to certain cable television
systems owned or managed by Jones Intercable. Effective April 7, 1999, Jones
Intercable is no longer an affiliate of the Company due to the sale of
Mr. Jones' interest in Intercable. Jones Intercable, through its new
unaffiliated parent, has continued to pay the Company programming license fees
subsequent to the sale of Mr. Jones' interest in Jones Intercable. Jones
Intercable and its affiliated partnerships paid total license fees to the
Company of approximately $719,000, $853,000 and $921,000 for the years ended
December 31, 1996, 1997 and 1998. For the nine months ended September 30, 1998,
Jones Intercable (and its affiliated partnerships) paid total affiliate license
fees to the Company of approximately $688,000 for this programming service. From
January 1, 1999 to April 7, 1999, Jones Intercable and its affiliated
partnerships paid total affiliated fees to the Company of approximately $322,000
for this programming service.
F-17
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(4) TRANSACTIONS WITH AFFILIATED ENTITIES (CONTINUED)
SATELLITE SERVICES REVENUES--Jones Earth Segment, Inc. ("Earth Segment"), a
wholly-owned subsidiary of the Company, provides playback, editing, duplication
and uplinking services primarily to its cable programming network affiliates. As
a result of the sale of KTV's distribution assets in 1999, KTV will terminate
its use of certain earth station services provided by Earth Segment. It is
estimated that the termination of these services will occur early in the first
quarter of 2000. 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, 1996, 1997 and 1998, Earth
Segment charged Jones International and its affiliates approximately $2,248,000,
$2,193,000 and $2,664,000, respectively, for these services. For the nine months
ended September 30, 1998 and 1999, Jones International and its affiliates paid
satellite services fees to Earth Segment of approximately $2,013,000 and
$2,197,000, respectively.
Prior to the consolidation of the PIN Venture, Earth Segment charged the PIN
Venture approximately $726,000 and $201,000 for the years ended December 31,
1996 and 1997, respectively, for these services.
In addition, Jones Space Holdings ("Space Holdings"), a subsidiary of the
Company, subleases a non-preemptible satellite transponder to Jones
International and its affiliates. For the years ended December 31, 1996, 1997,
and 1998, respectively Jones International and its affiliates paid approximately
$852,000, $896,000 and $1,174,000 for these leases. For the nine months ended
September 30, 1998 and 1999, Jones International and its affiliates paid
satellite delivery charges to Space Holdings of approximately $822,000 and
$1,106,000.
Prior to the consolidation of the PIN Venture, satellite transponder lease
revenues of approximately $852,000, and $224,000 were received from the PIN
Venture, for the years ended December 31, 1996 and 1997, respectively.
Also, Jones Galactic Radio ("Galactic Radio"), a subsidiary of the Company,
has a satellite transponder lease agreement with Jones Satellite Holdings
("Satellite Holdings"), a subsidiary of KTV, and in turn subleases the audio
subcarriers on this satellite transponder to Superaudio, a cable audio format
provider, which is a 50% owned joint venture. Superaudio paid $633,000 for each
of the years ended December 31, 1996, 1997 and 1998 for this service. For each
of the nine months ended September 30, 1998 and 1999, Superaudio paid
approximately $474,000 (see "Satellite Delivery and Production Support
Expenses").
CABLE TELEVISION PROGRAMMING EXPENSE--The PIN Venture pays a significant
portion of the revenues generated by its infomercial programming in the form of
system rebates to all cable systems that 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 $5,216,000 for the year ended December 31, 1998.
For the nine months ended September 30, 1998, the PIN Venture paid Jones
Intercable (and its affiliated partnerships), Cox Communications and Adelphia
Communications approximately $4,063,000 for system rebates. Effective
December 31, 1998, the Company acquired the remaining Adelphia Communications
equity interest in the PIN Venture in exchange for 12,416 shares
F-18
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(4) TRANSACTIONS WITH AFFILIATED ENTITIES (CONTINUED)
of the Company's Class A Common Stock. As a result, Adelphia Communications is
no longer an affiliated party to the PIN Venture as of January 1, 1999.
Effective April 7, 1999 Jones Intercable is no longer an affiliate of the
Company due to the sale of Mr. Jones' interest in Jones Intercable. The PIN
Venture has continued to pay rebates to Jones Intercable (and its affiliated
partnerships) and Adelphia Communications subsequent to the change in the
ownership structures. For the three months ended September 30, 1999, the PIN
Venture paid Cox Communications approximately $715,000 for system rebates. From
January 1, 1999 to April 7, 1999, the PIN Venture paid Jones Intercable (and its
affiliated partnerships) approximately $417,000 for system rebates. For the nine
months ended September 30, 1999, the PIN Venture paid Cox Communications
approximately $2,237,000 for system rebates.
Jones Network Sales ("JNS"), a wholly-owned subsidiary of Jones
International, began providing affiliate sales and certain marketing services to
the Company in late 1997. This affiliate charged the Company approximately
$201,000 and $906,000 for the years ended December 31, 1997 and 1998,
respectively, for these services. As a result of the sale of KTV's distribution
of assets in 1999, KTV will terminate its use of JNS services in the fourth
quarter of 1999, after which the Company will incur substantially all operating
costs of JNS. For the nine months ended September 30, 1998 and 1999, the Company
paid JNS approximately $680,000 and $1,020,000, respectively, for these
services.
SATELLITE SERVICES EXPENSE--Jones Galactic Radio, Inc. ("Galactic Radio"), a
wholly-owned subsidiary of the Company, 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 lease 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, 1996, 1997 and 1998, for this
service. For each of the nine months ended September 30, 1998 and 1999, Galactic
Radio paid Satellite Holdings approximately $522,000 for this service. Satellite
Holdings has the right to terminate the license agreement at any time upon
30 days written notice to Galactic Radio. Management anticipates Satellite
Holdings will exercise the right to terminate this license agreement in early
2000 due to the sale of KTV's distribution assets. At this time, Management has
not secured a suitable satellite transponder to replace the Satellite Holdings
transponder currently carrying the Superaudio service. There can be no assurance
that suitable satellite transponder capacity on acceptable terms will be secured
prior to or after Satellite Holdings exercises its right to terminate its
transponder agreement with Superaudio. In the event suitable satellite
transponder capacity cannot be secured on acceptable terms, Superaudio's ability
to distribute its programming will be severely adversely impacted.
GENERAL AND ADMINISTRATIVE EXPENSES--The Company leases and subleases office
space in Englewood, Colorado from affiliates of Jones International. The Company
was charged approximately $32,000, $88,000 and $148,000, for the years ended
December 31, 1996, 1997 and 1998, respectively, for rent and associated
expenses. For the nine months ended September 30, 1998 and 1999, the Company
paid these affiliates approximately $111,000 and $144,000, respectively, for
rent and associated expenses.
F-19
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(4) TRANSACTIONS WITH AFFILIATED ENTITIES (CONTINUED)
An affiliate of Jones International provides computer hardware and software
support services to the Company. This affiliate charged the Company
approximately $385,000, $574,000 and $733,000, for the years ended December 31,
1996, 1997 and 1998, respectively, for such services. For the nine months ended
September 30, 1998 and 1999, the Company paid the affiliate approximately
$506,000 and $575,000, respectively, for such services.
An affiliate of the Company charged the Company approximately $197,000 for
the year ended December 31,1998 for the allocated costs of its airplane which
was used by the Company in connection with the Notes offering.
The Company and its consolidated subsidiaries reimburse Jones International
and its affiliates for certain allocated administrative expenses. These expenses
generally consist of payroll 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 $861,000, $540,000 and $1,116,000, for the years ended
December 31, 1996, 1997 and 1998, respectively, for these administrative
expenses. For the nine months ended September 30, 1998 and 1999, the Company
paid Jones International and its affiliates approximately $833,000 and $770,000,
respectively, for these administrative expenses.
To assist in 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 10 percent per annum in
1996, 1997 and 1998. Jones International's interest rate is calculated using the
published prime rate plus two percent. Jones International charged the Company
interest of approximately $243,000, $868,000 and $506,000, for the years ended
December 31, 1996, 1997 and 1998, respectively. The Company repaid these
advances from borrowings, operating cash flow and/or available cash balances.
Jones International charged interest on its advances to the Company at rates of
approximately 10 percent per annum for the nine months ended September 30, 1998
and 1999. For the nine months ended September 30, 1998 and 1999, the Company
paid Jones International interest of approximately $436,000 and $38,000,
respectively.
Prior to April 2, 1997, the Company joined in filing a consolidated tax
return with Jones International under the terms of a tax allocation agreement
which was terminated subsequent to April 2, 1997. Pursuant to the terms of the
tax allocation agreement, tax benefits were allocated to the Company based on
its pro rata contribution of taxable loss to Jones International's taxable loss.
In 1997 and 1998, Jones International elected to defer the payments of the tax
benefits due to the Company pursuant to the terms of the tax allocation
agreement. In the first quarter of 1999, Jones International elected to make a
$1,335,000 million payment of tax benefits through a reduction of the
intercompany balance between the Company and Jones International. The remaining
intercompany balance was subsequently reimbursed to Jones International in
April 1999.
In the normal course of business, Jones International (1) remits funds on
behalf of the Company to third parties and affiliates in payment for products
and services purchased by the Company, and (2) receives funds on behalf of the
Company in payment for products and services provided by the Company. Starting
in April 1999, these amounts are reimbursed from or to Jones International on a
F-20
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(4) TRANSACTIONS WITH AFFILIATED ENTITIES (CONTINUED)
monthly basis. Due to their short-term nature, such amounts outstanding with
Jones International are classified as a current asset or liability in the
accompanying financial statements.
(5) LONG-TERM DEBT--AFFILIATED ENTITIES
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 approximately $6,555,000. The note was secured by all of Earth
Segment's present and future tangible and intangible property. Interest expense,
which was payable quarterly, totaled approximately $608,000, $627,000 and
$156,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
This note and accrued interest were repaid on March 31, 1998 (see Note 6).
Effective August 15, 1996, the Company purchased all of the outstanding
common stock of Galactic Radio from Jones Global Group, Inc. ("Global Group"),
an affiliate of the Company, for $17.2 million. The Company paid the purchase
price to Global Group 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 to Global Group. 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.
Effective upon the closing of the Notes offering, the remaining $10 million
of the Global Group Note was converted into 666,667 shares of the Company's
Class A Common Stock at a rate of $15 per share.
(6) SENIOR SECURED NOTES
In July 1998, the Company issued $100 million of 11 3/4 percent Senior
Secured Notes (the "Notes"). The Company used the proceeds from the Notes
offering (i) to finance the cash consideration of the acquisition of
MediaAmerica, (ii) to prepay the capital lease obligation relating to the
satellite transponders, (iii) to repay the Radio Holdings LLC credit facility
and (iv) for general corporate purposes, including the payment of fees and
expenses.
Interest on the Notes is payable semi-annually on January 1 and July 1 of
each year, commencing January 1, 1999. The Notes will mature on July 1, 2005.
Except as described below, 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 a redemption price of 105.875 percent of the
principal amount to be redeemed for the 12 month period commencing July 1, 2003
and declining to 100 percent of the principal amount to be redeemed for the
period after July 1, 2004, 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 percent of the aggregate principal amount of the Notes with the cash
proceeds of one or more Equity Offerings (as defined) at a redemption price
equal to 111.75 percent 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 percent of the aggregate principal amount of the Notes remains
outstanding immediately after each such redemption. Upon the occurrence of a
Change of Control (as defined), the Company will be
F-21
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(6) SENIOR SECURED NOTES (CONTINUED)
required to make an offer to repurchase the Notes at a price equal to
101 percent of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase.
The Notes are senior obligations of the Company. The Notes are secured by
the capital stock of JPN, Inc., the Company's wholly-owned intermediate holding
company and JPN's direct subsidiaries. The Notes are unconditionally guaranteed
(the "Guarantees") by each of 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) of the Subsidiary Guarantors, and are ranked senior in
right of payment to all existing and future Subordinated Obligations of the
Subsidiary Guarantors. The Guarantees are not secured.
(7) ACQUISITION OF BROADCAST PROGRAMMING
On August 2, 1999, the Company acquired certain radio programming assets
from Broadcast Electronics, Inc. ("BEI"), a Rhode Island corporation, for
$20 million plus estimated closing adjustments of approximately $860,000, in
cash (the "BP Acquisition"). The closing adjustments are subject to final
adjustments. BEI's radio programming business was conducted through its
Broadcast Programming Division ("BP"), which included the following programs:
Delilah, Neon Nights with Lia Knight and TotalRadio music format services. The
acquisition has been accounted for under the purchase method and accordingly,
the purchase price allocation is preliminary and adjustments may be recorded
through August 2000. The Company recorded approximately $9.6 million in goodwill
and $10.0 million in affiliate and personal service agreements in connection
with the BP Acquisition. The affiliate and personal service agreements are
recorded as intangible assets.
On July 29, 1999, the Company entered into a $20 million credit facility
with a commercial bank to finance the BP Acquisition on a short-term basis (the
"Credit Facility"). In order to allow the Company to obtain more favorable
terms, Jones International has guaranteed the loan and provided certain
collateral as security for the guaranty. The Credit Facility bears interest
either at the commercial bank's prime rate minus two percent or a fixed rate
(which is approximately equal to LIBOR) plus one half of one percent. The
interest rate was 5.84% per annum as of September 30, 1999. The Credit Facility
will expire on June 30, 2000, unless extended. On September 30, 1999, the
Company used the proceeds from the Series A Preferred Equity to pay down all
amounts outstanding under the Credit Facility (see Note 8). The full amount of
the credit facility was available to the Company as of September 30, 1999.
F-22
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) SERIES A PREFERRED EQUITY
Effective September 1999, the Company issued $24.0 million of Series A
Preferred Equity, a portion of which is subject to final documentation. The
issuance of the $20.1 million of the Series A Preferred Equity was closed in
September 1999. Of the remaining $3.9 million, $1.9 million was closed in
October 1999. The remaining $2.0 million was closed in November 1999, subject to
documentation. An affiliate of the Company's Chairman and majority shareholder,
Mr. Jones, purchased $20.0 million of the Series A Preferred Equity. The Company
used $20.0 million of the proceeds from the Series A Preferred Equity issuance
to repay $20.0 million of indebtedness under the Company's $20.0 million Credit
Facility. The balance will be used to develop the Company's Internet strategy
and for general corporate purposes.
The holders of the Series A Preferred Equity are entitled to receive
dividends if and when declared by the Board of Directors. No dividends will be
paid on Class A or Class B Common Stock unless equal dividends have been
declared and paid on the Series A Preferred Equity. Shareholders will have the
right to convert at any time the Series A Preferred Equity into shares of
Class A Common Stock of the company, on a one-for-one basis. The Series A
Preferred Equity will be automatically converted into Class A Common Stock of
the Company upon the completion by the Company of a public offering or a series
of public offerings raising aggregate gross proceeds of at least $20 million.
(9) CAPITAL LEASES
The capital lease obligation was comprised of a satellite transponder lease
agreement which provided two non-preemptible satellite transponders. A portion
of these satellite transponders are subleased to affiliated entities and third
parties. On July 24, 1998, the Company prepaid the entire capital lease
obligation using a portion of the proceeds from the Notes offering (see
Note 6).
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
LONG-TERM DEBT--The fair value of the Company's long-term debt is estimated
based on an estimate of fair value for debt of similar characteristics.
SENIOR SECURED NOTES--The fair value of the Notes were estimated based on
the quoted market prices for the Notes.
CLASS A COMMON STOCK SUBJECT TO PUT--The fair value of the Company's
Class A Common Stock subject to put is estimated based on the estimated purchase
price to buy back the Class A Common Stock (see Note 17).
F-23
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1997 1998
---------------------------- -----------------------------
CARRY FAIR CARRY FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Long-term debt................. $ 16,555,000 $ 16,555,000 $ -- $ --
Senior Secured Notes........... -- -- 100,000,000 64,000,000
Class A Common Stock subject to
put.......................... -- -- 1,213,000 1,020,000
</TABLE>
(11) JOINT VENTURE
The Company is a 50 percent partner in the Superaudio joint venture.
Superaudio provides audio programming services to cable television system
operators.
Certain condensed financial information for Superaudio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total assets........................................ $ 950,000 $ 1,216,000 $ 770,000
Total liabilities................................... 72,000 62,000 64,000
Partners' capital................................... 878,000 1,154,000 706,000
Revenues............................................ 2,379,000 2,132,000 1,789,000
Operating expenses.................................. 1,755,000 1,684,000 1,552,000
Operating income.................................... 624,000 448,000 237,000
Net income.......................................... 632,000 476,000 251,000
</TABLE>
Superaudio reimburses the Company and its affiliates for certain allocated
overhead and administrative expenses. These expenses generally consist of
payroll and related benefits, rent, computer hardware and software support
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, 1996, 1997 and 1998, Jones Intercable and its affiliates paid
Superaudio $720,000 for audio programming.
AUDIO PROGRAMMING EXPENSE--The Company sells certain audio programming and
services to Superaudio. For the years ended December 31, 1996, 1997 and 1998,
the Company charged Superaudio approximately $48,000, $16,000 and $36,000,
respectively, for audio programming and services.
F-24
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) JOINT VENTURE (CONTINUED)
In 1998, the Company began providing programming personnel to Superaudio.
The Company charged Superaudio approximately $276,000 for audio programming and
engineering personnel services for the year ended December 31, 1998.
SATELLITE SERVICES 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 ended December 31, 1998 for this service.
Earth Segment provides playback, editing, duplication and uplinking services
to Superaudio. Earth Segment charges Superaudio 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, 1996, 1997 and 1998, Earth
Segment charged Superaudio approximately $97,000, $128,000 and $118,000,
respectively, for these services.
GENERAL AND ADMINISTRATIVE EXPENSES--An affiliate of Jones International
provides computer hardware and software support services to Superaudio. The
affiliate charged Superaudio approximately $40,000, $23,000 and $26,000 for the
years ended December 31, 1996, 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 $23,000,
$33,000 and $88,000 for the years ended December 31, 1996, 1997 and 1998,
respectively, for these administrative expenses.
(12) 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 Board of Directors. Both classes vote together as a
single class on all matters not requiring a class vote under Colorado law.
(13) STOCK OPTIONS
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 of the Company. The Plan is construed, interpreted and administered
by the Board of Directors or a committee of two of more non-employee directors.
The committee or the Board of Directors determines the individuals to whom
options are granted, the number of shares subject to the options, the exercise
price of the options, 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,
1998, options to purchase 345,000 shares of Class A Common Stock have been
granted and 29,000 shares have been terminated or forfeited upon resignation of
the holders. The options outstanding at December 31, 1998 have an exercise price
of $15 per share and a weighted average remaining contractual life of
9.59 years. At December 31, 1998, none of the options were exercisable.
F-25
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) STOCK OPTIONS (CONTINUED)
The Company accounts for this plan under Accounting Principles Board ("APB")
Opinion No. 25, under which no compensation has been recognized. Had
compensation cost for this plan been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and basic and
diluted earnings per share would have been approximately $11,279,000, $2.16 and
$2.19, respectively. The fair value of each of the option granted is estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1998: risk-free
interest rates of 5.5 percent and an expected life of 7 years. Expected
volatility is negligible due to the lack of public trading of Company's Common
Stock.
(14) NET LOSS PER COMMON SHARE
In February 1997, FASB issued SFAS 128, "Earnings Per Share." This statement
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share.
Earnings per share amounts for all periods are presented below in accordance
with the requirements of SFAS 128.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998
------------ -------------
<S> <C> <C>
Numerator:
Net loss....................................................... $ 3,493,000 $ 11,450,000
Denominator:
Denominator for basic loss per share--weighted-average shares
outstanding.................................................. 4,440,448 5,372,644
Basic loss per share............................................. $ (0.79) $ (2.13)
Denominator:
Denominator for diluted loss per share-weighted-average shares
outstanding.................................................. 4,440,448 5,361,608
Diluted loss per share........................................... $ (0.79) $ (2.14)
</TABLE>
(15) 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 benefit
(provision) recognized as a result of the tax sharing arrangement were
approximately $387,000, $1,342,000 and ($49,000) for the years ended
December 31, 1996, 1997 and
F-26
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) INCOME TAXES (CONTINUED)
1998. The difference between the statutory federal income tax rate and effective
rate is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Computed "expected tax benefit"....................... $ 743,000 $ 1,692,000 $ 3,991,000
State taxes, net of federal benefit................... 72,000 157,000 371,000
Other................................................. 20,000 28,000 (35,000)
---------- ------------ ------------
835,000 1,877,000 4,327,000
Valuation allowance................................... (835,000) (1,877,000) (4,327,000)
---------- ------------ ------------
Tax benefit (provision) before impact of tax sharing
agreement........................................... -- -- --
Impact of tax sharing agreement (through
April 2, 1997)...................................... 387,000 1,342,000 (49,000)
---------- ------------ ------------
Total income tax benefit (provision).................. $ 387,000 $ 1,342,000 $ (49,000)
========== ============ ============
</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>
1997 1998
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carry forwards................................. $ 1,654,000 $ 5,498,000
Future deductible amounts associated with other assets and
liabilities..................................................... 154,000 391,000
------------ ------------
Total........................................................... 1,808,000 5,889,000
DEFERRED TAX LIABILITIES:
Net assets of MediaAmerica........................................ -- (4,200,000)
Property and equipment............................................ (706,000) (753,000)
Valuation allowance............................................... (1,102,000) (936,000)
------------ ------------
Net deferred tax assets........................................... $ -- $ --
============ ============
</TABLE>
At December 31, 1998, the Company had net tax operating loss carryforwards
("NOLs") of approximately $9.8 million which expire between 2007 and 2008.
Although management expects future results of operations to improve, it
recognized 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.
(16) 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
F-27
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) EMPLOYEE INVESTMENT AND DEFERRED COMPENSATION PLANS (CONTINUED)
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, 1996, 1997 and 1998, the Company contributed
approximately $62,000, $83,000 and $99,000, 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 $23,000,
$33,000 and $33,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
(17) COMMITMENTS AND CONTINGENCIES
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, an additional 500,000 subscribers by
December 31, 1998 and an additional 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. As of December 31, 1998, 101,124
shares of Class A Common Stock had been issued to one of the MSOs. Pursuant to
the guidelines of SFAS No. 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 is being amortized using the straight-line method over
the life of the contract (approximately 10 years). Because of a put option
granted to the MSO, the shares issued to that MSO are presented above the
Shareholders' Deficit section of the Statements of Financial Position. 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 would have the option
within 60 days of such date to require the Company to buy back its 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
F-28
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Great American Country service as of December 31, 1998. Based on the number
of subscribers receiving the Great American Country service at December 31,
1998, the estimated purchase price of the Class A Common Stock in the event the
put option is exercised would be approximately $1,020,000.
SATELLITE TRANSPONDER AND EARTH STATION AGREEMENTS--In the second quarter of
1999, the Company received notification from a party leasing three of the
company's satellite transponder channels of its election to terminate the lease
of such channels effective August 31, 1999. Also, effective in the second
quarter of 1999, the Company entered into an agreement to lease a satellite
transponder channel to a third party for the remaining life of the satellite, as
well as to provide other uplinking and earth station services. The Company has
obtained a guarantee from a shareholder of the lessee, which covers lease
payments through May 15, 2000. There can be no assurance that the Company will
receive the lease payments for the full term of this lease.
The Company rents office facilities under various operating lease
agreements. As of December 31, 1998, future minimum lease payments under these
noncancelable operating leases for each of the next five fiscal years and
thereafter, are as follows:
<TABLE>
<CAPTION>
FACILITIES
LEASES
------------
<S> <C>
1999............................................................................ $ 644,520
2000............................................................................ 666,407
2001............................................................................ 671,124
2002............................................................................ 657,650
2003............................................................................ 509,436
Thereafter...................................................................... 1,042,599
------------
$ 4,191,736
============
</TABLE>
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
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 Radio Network, Inc.,
Jones Audio Services, Inc., Jones Radio Network Ventures, Inc.,
MediaAmerica, Inc. and Jones MAI Radio, Inc. and 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 PIN Venture, Superaudio and Jones/Capstar (collectively, the
"Non-Guarantor Subsidiaries").
The Company has not provided separate complete financial statements and
other disclosures of the respective Subsidiary Guarantors 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
F-29
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
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 accounting for the investment in
subsidiaries 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
F-30
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
financial information for the Company and its subsidiaries as of and for the
years ended December 31, 1996, 1997 and 1998, and the nine months ended
September 30, 1998 and 1999.
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 $ 6,519 $ -- $ (18) $ 6,978
Cable television programming...................... -- 1,153 8,038 (8,038) 1,153
Satellite services................................ -- 8,523 -- -- 8,523
--------- --------- --------- --------- ---------
Total revenues.................................. 477 16,195 8,038 (8,056) 16,654
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Radio programming................................. 420 3,761 -- (18) 4,163
Cable television programming...................... -- 1,157 5,922 (5,922) 1,157
Satellite services................................ -- 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 14,697 6,913 (6,931) 15,778
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS)....................... (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
interest........................................ (2,389) (1,526) 1,076 128 (2,711)
Income tax benefit................................ (377) (10) -- -- (387)
--------- --------- --------- --------- ---------
Income (loss) before minority interest............ (2,012) (1,516) 1,076 128 (2,324)
Minority interest in net loss of consolidated
subsidiaries.................................... -- -- -- (9) (9)
--------- --------- --------- --------- ---------
NET INCOME (LOSS)................................... $ (2,012) $ (1,516) $ 1,076 $ 137 $ (2,315)
========= ========= ========= ========= =========
</TABLE>
F-31
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
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>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ (2,012) $ (1,516) $ 1,076 $ 137 $ (2,315)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash expenses (income)...................... 2 4,850 63 (1,276) 3,639
Distributions received.......................... -- 300 -- -- 300
Net change in assets and liabilities............ 2,618 (465) (774) 1,774 3,153
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities.................................. 608 3,169 365 635 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) --
Purchase of intangible assets..................... -- (1,002) -- -- (1,002)
--------- --------- --------- --------- ---------
Net cash used in investing activities......... -- (3,971) (326) 326 (3,971)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs............... (608) -- -- -- (608)
Repayment of borrowings........................... -- (8) -- -- (8)
Repayment of capital lease obligations............ -- (1,533) -- -- (1,533)
Proceeds from borrowings.......................... -- 1,342 -- -- 1,342
Members contributions............................. -- 1,000 -- (1,000) --
--------- --------- --------- --------- ---------
Net cash used in financing activities......... (608) 801 -- (1,000) (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-32
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 1997:
<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....................... $ (25) $ 79 $ 3,663 $ -- $ 3,717
Accounts receivable............................. -- 781 674 -- 1,455
Other current assets............................ -- 783 -- (243) 540
---------- --------- --------- --------- ----------
Total current assets........................ (25) 1,643 4,337 (243) 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.......................... 1,687 3,770 -- (2,777) 2,680
---------- --------- --------- --------- ----------
Total assets................................ $ 1,722 $ 38,102 $ 4,554 $ (3,020) $ 41,358
========== ========= ========= ========= ==========
LIABILITIES AND SHAREHOLDERS'/ MEMBERS' EQUITY
(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 entities................ 10,000 6,554 -- -- 16,554
Capital lease obligations....................... -- 26,335 -- -- 26,335
Other long-term liabilities..................... 3,289 282 -- (3,532) 39
---------- --------- --------- --------- ----------
Total long-term liabilities..................... 13,289 33,171 -- (3,532) 42,928
---------- --------- --------- --------- ----------
Minority interest............................... -- -- -- 1,593 1,593
Shareholders'/members' equity (deficit):
Class A Common Stock.......................... 30 1 -- (1) 30
Class B Common Stock.......................... 18 1 -- (1) 18
General Partners'/Members' Contributions...... -- 1,000 350 (1,350) --
Additional paid-in capital.................... 9,143 12,840 -- (12,840) 9,143
Retained earnings (accumulated deficit)....... (27,397) (15,919) 2,808 13,111 (27,397)
---------- --------- --------- --------- ----------
Total shareholders'/members' equity
(deficit)................................. (18,206) (2,077) 3,158 (1,081) (18,206)
---------- --------- --------- --------- ----------
Total liabilities and shareholders'/
members' equity (deficit)................. $ 1,722 $ 38,102 $ 4,554 $ (3,020) $ 41,358
========== ========= ========= ========= ==========
</TABLE>
F-33
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997:
<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............................... $ -- $ 10,301 $ -- $ (101) $ 10,200
Cable television programming.................... 285 1,230 13,345 (2,858) 12,002
Satellite services.............................. -- 8,241 -- (1,331) 6,910
--------- --------- --------- --------- ---------
Total revenues................................ 285 19,772 13,345 (4,290) 29,112
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Radio programming................................. -- 5,917 -- (101) 5,816
Cable television programming...................... 148 2,585 10,045 (3,506) 9,272
Satellite services................................ -- 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 18,104 11,229 (3,914) 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
interest.......................................... (4,815) (591) 2,144 (670) (3,932)
Income tax provision (benefit)...................... (1,376) (786) -- 820 (1,342)
--------- --------- --------- --------- ---------
Income (loss) before minority interest.............. (3,439) 195 2,144 (1,490) (2,590)
Minority interest in net income of consolidated
subsidiaries...................................... -- -- -- 903 903
--------- --------- --------- --------- ---------
NET INCOME (LOSS)................................... $ (3,439) $ 195 $ 2,144 $ (2,393) $ (3,493)
========= ========= ========= ========= =========
</TABLE>
F-34
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997:
<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)................................. $ (3,439) $ 195 $ 2,144 $ (2,393) $ (3,493)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash expenses............................... 640 4,374 82 1,598 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
Purchase of intangible assets..................... (3) (42) -- -- (45)
--------- --------- --------- --------- ---------
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 capital lease obligation............. -- (1,965) -- -- (1,965)
Acquisition of minority interest.................. (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-35
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 1998:
<TABLE>
<CAPTION>
NON-
THE SUBSIDIARIES GUARANTOR ELIMINATION
COMPANY GUARANTORS SUBSIDIARIES ENTRIES REPORTED
---------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........................ $ 7,881 $ 956 $ 1,817 $ -- $ 10,654
Restricted cash.................................. 10,000 -- -- -- 10,000
Available for sale securities.................... 2,769 -- -- -- 2,769
Accounts receivable.............................. -- 11,088 748 -- 11,836
Other current assets............................. -- 847 47 -- 894
---------- --------- --------- --------- ----------
Total current assets........................... 20,650 12,891 2,612 -- 36,153
---------- --------- --------- --------- ----------
Property, plant and equipment.................... 7 26,598 292 -- 26,897
Goodwill......................................... -- 32,411 -- -- 32,411
Intangible assets................................ 4,515 2,205 3 -- 6,723
Other long-term assets........................... 29,854 (18,974) -- (2,170) 8,710
---------- --------- --------- --------- ----------
Total assets................................... $ 55,026 $ 55,131 $ 2,907 $ (2,170) $ 110,894
========== ========= ========= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Accounts payable................................. $ 983 $ 1,813 $ -- $ -- $ 2,796
Producers' fees payable.......................... -- 5,922 -- -- 5,922
Accrued liabilities.............................. 5,884 2,238 1,124 -- 9,246
Other current liabilities........................ (41,722) 43,577 286 -- 2,141
---------- --------- --------- --------- ----------
Total current liabilities...................... (34,855) 53,550 1,410 -- 20,105
---------- --------- --------- --------- ----------
Senior secured notes............................. 100,000 -- -- -- 100,000
Other long-term liabilities...................... -- 341 -- -- 341
---------- --------- --------- --------- ----------
Total long-term liabilities.................... 100,000 341 -- -- 100,341
---------- --------- --------- --------- ----------
Minority interest................................ -- -- -- 567 567
Common stock subject to put...................... 1,213 -- -- -- 1,213
Shareholders' equity (deficit):
Class A Common Stock........................... 42 -- -- -- 42
Class B Common Stock........................... 18 -- -- -- 18
General Partners' Contributions................ -- 1,000 350 (1,350) --
Additional paid-in capital..................... 27,447 -- -- -- 27,447
Other comprehensive income..................... 9 -- -- -- 9
Retained earnings (accumulated deficit)........ (38,848) 240 1,147 (1,387) (38,848)
---------- --------- --------- --------- ----------
Total shareholders' equity (deficit)......... (11,332) 1,240 1,497 (2,737) (11,332)
---------- --------- --------- --------- ----------
Total liabilities and shareholders' equity
(deficit).................................. $ 55,026 $ 55,131 $ 2,907 $ (2,170) $ 110,894
========== ========= ========= ========= ==========
</TABLE>
F-36
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998:
<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............................... $ -- $ 10,041 $ -- $ -- $ 10,041
Advertising sales services...................... -- 5,107 -- -- 5,107
Cable television programming.................... 173 2,556 14,163 -- 16,892
Satellite services.............................. -- 7,893 -- (1,721) 6,172
---------- --------- --------- --------- ----------
Total revenues................................ 173 25,597 14,163 (1,721) 38,212
---------- --------- --------- --------- ----------
OPERATING EXPENSES:
Radio programming............................... -- 7,778 -- -- 7,778
Advertising sales services...................... -- 1,129 -- -- 1,129
Cable television programming.................... 87 2,825 13,040 (1,721) 14,231
Satellite services.............................. -- 5,240 -- -- 5,240
Selling and marketing........................... 58 4,510 301 -- 4,869
General and administrative...................... 1,132 5,142 454 -- 6,728
---------- --------- --------- --------- ----------
Total operating expenses...................... 1,277 26,624 13,795 (1,721) 39,975
---------- --------- --------- --------- ----------
OPERATING INCOME (LOSS)........................... (1,104) (1,027) 368 -- (1,763)
---------- --------- --------- --------- ----------
OTHER EXPENSE (INCOME):
Interest expense................................ 7,173 1,798 -- -- 8,971
Interest income................................. (615) (33) (128) -- (776)
Equity share of loss (income) of subsidiaries... 3,100 (3,213) -- 170 57
Other expense (income), net..................... 1,190 (31) 12 -- 1,171
---------- --------- --------- --------- ----------
Total other expense (income).................. 10,848 (1,479) (116) 170 9,423
Income (loss) before income taxes and minority
interest...................................... (11,952) 452 484 (170) (11,186)
Income tax provision............................ 1 48 -- -- 49
---------- --------- --------- --------- ----------
Income (loss) before minority interest.......... (11,953) 404 484 (170) (11,235)
---------- --------- --------- --------- ----------
Minority interest in net income of consolidated
subsidiaries.................................. -- -- -- 215 215
---------- --------- --------- --------- ----------
NET INCOME (LOSS)............................... $ (11,953) $ 404 $ 484 $ (385) $ (11,450)
========== ========= ========= ========= ==========
</TABLE>
F-37
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998:
<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)............................... $ (11,953) $ 404 $ 484 $ (385) $ (11,450)
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Non-cash expenses (income).................... 204 5,856 97 385 6,542
Distributions received........................ -- 350 -- -- 350
Net change in assets and liabilities.......... (4,625) 1,979 (106) -- (2,752)
---------- --------- --------- --------- ----------
Net cash provided by (used in) operating
activities................................ (16,374) 8,589 475 -- (7,310)
---------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment....... -- (2,067) (191) -- (2,258)
Sale of property, plant and equipment........... -- 41 16 -- 57
Dividend from joint venture..................... 914 -- -- (914) --
Purchase of investments......................... (2,760) -- -- -- (2,760)
Purchase of intangible assets................... -- (3,359) -- -- (3,359)
Purchase of MediaAmerica, Inc................... (26,700) -- -- -- (26,700)
---------- --------- --------- --------- ----------
Net cash provided by (used in) investing
activities................................ (28,546) (5,385) (175) (914) (35,020)
---------- --------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs............. (4,187) (115) -- -- (4,302)
Advances to/from subsidiaries................... (32,987) 32,987 -- -- --
Repayment of borrowings......................... -- (6,555) -- -- (6,555)
Repayment of capital lease obligations.......... -- (28,757) -- -- (28,757)
Senior secured notes............................ 100,000 -- -- -- 100,000
Dividend paid to partners....................... -- -- (2,146) 2,146 --
Distributions paid to minority interest......... -- 113 -- (1,232) (1,119)
---------- --------- --------- --------- ----------
Net cash provided by (used in) financing
activities................................ 62,826 (2,327) (2,146) 914 59,267
---------- --------- --------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 17,906 877 (1,846) -- 16,937
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... (25) 79 3,663 -- 3,717
---------- --------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 17,881 $ 956 $ 1,817 $ -- $ 20,654
========== ========= ========= ========= ==========
</TABLE>
F-38
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
<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..................................... $ -- $ 6,623 $ -- $ -- $ 6,623
Advertising sales services............................ -- 2,362 -- -- 2,362
Cable television programming.......................... 173 1,705 10,114 -- 11,992
Satellite services.................................... -- 5,352 -- (1,364) 3,988
Total revenues...................................... 173 16,042 10,114 (1,364) 24,965
OPERATING EXPENSES:
Radio programming..................................... -- 5,468 -- -- 5,468
Advertising sales services............................ -- 482 -- -- 482
Cable television programming.......................... 81 2,132 9,569 (1,364) 10,418
Satellite services.................................... -- 3,791 -- -- 3,791
Selling and marketing................................. 58 2,769 246 -- 3,073
General and administrative............................ 812 2,929 311 -- 4,052
Total operating expenses............................ 951 17,571 10,126 (1,364) 27,284
OPERATING LOSS...................................... (778) (1,529) (12) -- (2,319)
--------- --------- --------- --------- ---------
OTHER EXPENSE (INCOME):
Interest expense...................................... 4,009 1,798 -- -- 5,807
Interest income....................................... (247) (77) (114) -- (438)
Write-off of deferred offering costs.................. -- -- -- -- --
Equity share of loss (income) of subsidiaries......... 3,567 (3,562) -- (5) --
Other expense (income), net........................... 881 36 10 -- 927
--------- --------- --------- --------- ---------
Total other expense (income)........................ 8,210 (1,805) (104) (5) 6,296
--------- --------- --------- --------- ---------
Income (loss) before income taxes and minority
interest............................................ (8,988) 276 92 5 (8,615)
Income tax provision.................................. 1 14 -- -- 15
--------- --------- --------- --------- ---------
Income (loss) before minority interest................ (8,989) 262 92 5 (8,630)
Minority interest in net income of consolidated
subsidiaries........................................ -- -- -- 38 38
--------- --------- --------- --------- ---------
NET INCOME (LOSS)..................................... $ (8,989) $ 262 $ 92 $ (33) $ (8,668)
========= ========= ========= ========= =========
Adjustments to arrive at comprehensive loss........... (17) -- -- -- (17)
--------- --------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS)........................... $ (8,972) $ 262 $ 92 $ (33) $ (8,651)
========= ========= ========= ========= =========
</TABLE>
F-39
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
<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)............................... $ (8,989) $ 262 $ 92 $ (33) $ (8,668)
Adjustment to reconcile net loss to net cash
provided (used in) by operating activities:
Non-cash expenses............................. 325 4,666 69 33 5,093
Distributions received........................ -- 350 -- -- 350
Net change in assets and liabilities.......... 2,156 (5,813) (655) -- (4,312)
---------- --------- --------- --------- ----------
Net cash provided by (used in) operating
activities................................ (6,508) (535) (494) -- (7,537)
---------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment....... -- (1,818) (98) -- (1,916)
Purchase of intangible assets................... -- (1,329) -- -- (1,329)
Purchase of MediaAmerica, Inc................... (26,700) -- -- -- (26,700)
Dividend from joint venture..................... 960 -- -- (960) --
Sale of property, plant, and equipment.......... -- 43 -- -- 43
Other........................................... (12,164) -- -- -- (12,164)
---------- --------- --------- --------- ----------
Net cash used in investing activities....... (37,904) (3,104) (98) (960) (42,066)
---------- --------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred offering costs............. (4,710) -- -- -- (4,710)
Increase in capitalized loan fees............... (520) -- -- -- (520)
Advances to/from affiliates..................... (40,291) 40,291 -- -- --
Repayment of borrowings......................... -- (6,555) -- -- (6,555)
Repayment of capital lease obligations.......... -- (28,757) -- -- (28,757)
Proceeds from borrowings........................ 100,000 -- -- -- 100,000
Distributions paid to partners.................. -- -- (2,033) 2,033 --
Distributions paid to minority interest......... -- -- -- (1,073) (1,073)
---------- --------- --------- --------- ----------
Net cash provided by (used in) financing
activities................................ 54,479 4,979 (2,033) 960 58,385
---------- --------- --------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 10,067 1,340 (2,625) -- 8,782
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... (25) 79 3,663 -- 3,717
---------- --------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 10,042 $ 1,419 $ 1,038 $ -- $ 12,499
========== ========= ========= ========= ==========
</TABLE>
F-40
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1999:
<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......................... $ 5,911 $ 2,684 $ 4,069 $ -- $ 12,664
Available for sale securities..................... 4,416 -- -- -- 4,416
Accounts receivable............................... 1 11,877 285 (1) 12,162
Other current assets.............................. 50 1,150 84 -- 1,284
---------- --------- --------- --------- ----------
Total current assets.......................... 10,378 15,711 4,438 (1) 30,526
---------- --------- --------- --------- ----------
Property, plant and equipment..................... 15 23,679 393 -- 24,087
Goodwill.......................................... -- 41,257 -- -- 41,257
Intangible assets................................. 1 23,593 2 -- 23,596
Other long-term assets............................ 34,094 (27,527) 288 (1,528) 5,327
---------- --------- --------- --------- ----------
Total assets.................................. $ 44,488 $ 76,713 $ 5,121 $ (1,529) $ 124,793
========== ========= ========= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Accounts payable.................................. $ 684 $ 2,566 $ 1,344 $ -- $ 4,594
Producers' fees payable........................... -- 5,340 -- -- 5,340
Cable programming distribution payments payable... -- 4,152 -- -- 4,152
Accrued liabilities............................... 3,214 1,695 80 (1) 4,988
Other current liabilities......................... (61,576) 62,723 706 -- 1,853
---------- --------- --------- --------- ----------
Total current liabilities..................... (57,678) 76,476 2,130 (1) 20,927
---------- --------- --------- --------- ----------
Senior secured notes.............................. 100,000 -- -- -- 100,000
Other long-term liabilities....................... -- 522 -- -- 522
---------- --------- --------- --------- ----------
Total long-term liabilities................... 100,000 522 -- -- 100,522
---------- --------- --------- --------- ----------
Minority interests................................ -- -- -- 1,178 1,178
Common stock subject to put....................... 1,213 -- -- -- 1,213
Shareholders' equity (deficit):
Series A Preferred Equity....................... 20,100 -- -- -- 20,100
Class A Common Stock............................ 42 -- -- -- 42
Class B Common Stock............................ 18 -- -- -- 18
General Partners' Contributions................. -- -- 350 (350) --
Additional paid-in capital...................... 27,589 -- -- -- 27,589
Other comprehensive income...................... (18) -- -- -- (18)
Retained earnings (accumulated deficit)......... (46,778) (285) 2,641 (2,356) (46,778)
---------- --------- --------- --------- ----------
Total shareholders' equity (deficit).......... 953 (285) 2,991 (2,706) 953
---------- --------- --------- --------- ----------
Total liabilities and shareholders' equity
(deficit)................................... $ 44,488 $ 76,713 $ 5,121 $ (1,529) $ 124,793
========== ========= ========= ========= ==========
</TABLE>
F-41
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AS OF SEPTEMBER 30, 1999:
<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................................. $ -- $ 12,353 $ -- $ -- $ 12,353
Advertising sales services........................ -- 6,455 -- -- 6,455
Cable television programming...................... -- 3,410 15,819 -- 19,229
Satellite services................................ -- 7,741 -- (1,174) 6,567
--------- --------- --------- --------- ---------
Total revenues.................................. -- 29,959 15,819 (1,174) 44,604
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Radio programming................................. -- 8,098 -- -- 8,098
Advertising sales services........................ -- 2,776 -- -- 2,776
Cable television programming...................... -- 3,015 13,897 (1,174) 15,738
Satellite services................................ -- 3,921 -- -- 3,921
Selling and marketing............................. -- 4,553 219 -- 4,772
General and administrative........................ 1,036 5,858 418 -- 7,312
--------- --------- --------- --------- ---------
Total operating expenses........................ 1,036 28,221 14,534 (1,174) 42,617
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS)......................... (1,036) 1,738 1,285 -- 1,987
--------- --------- --------- --------- ---------
OTHER EXPENSE (INCOME):
Interest expense.................................. 9,607 -- -- -- 9,607
Interest income................................... (568) (67) (91) -- (726)
Equity share of loss (income) of subsidiaries..... (2,239) 865 (85) 1,374 (85)
Other expense (income), net....................... 94 3 2 -- 99
--------- --------- --------- --------- ---------
Total other expense (income).................... 6,894 801 (174) 1,374 8,895
--------- --------- --------- --------- ---------
Income (loss) before income taxes and minority
interests....................................... (7,930) 937 1,459 (1,374) (6,908)
Income tax provision.............................. -- 411 -- -- 411
--------- --------- --------- --------- ---------
Income (loss) before minority interest............ (7,930) 526 1,459 (1,374) (7,319)
Minority interest in net income of consolidated
subsidiaries.................................... -- (3) -- 614 611
--------- --------- --------- --------- ---------
NET INCOME (LOSS)................................. $ (7,930) $ 529 $ 1,459 $ (1,988) $ (7,930)
========= ========= ========= ========= =========
Adjustments to arrive at comprehensive loss....... 26 -- -- -- 26
--------- --------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS)....................... $ (7,956) $ 529 $ 1,459 $ (1,988) $ (7,956)
========= ========= ========= ========= =========
</TABLE>
F-42
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
(CONTINUED)
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
<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)................................... $ (7,930) $ 529 $ 1,459 $ (1,988) $ (7,930)
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Non-cash expenses................................. 1,469 4,127 (4) 1,988 7,580
Net change in assets and liabilities.............. (23,923) 22,519 977 -- (427)
---------- --------- --------- --------- ----------
Net cash provided by (used in) operating
activities.................................... (30,384) 27,175 2,432 -- (777)
---------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........... (12) (396) (180) -- (588)
Cable programming distribution agreements
payments.......................................... -- (3,761) -- -- (3,761)
Purchase of investments............................. (1,674) -- -- -- (1,674)
Purchase of intangible assets....................... -- (430) -- -- (430)
Purchase of Broadcast Programming assets............ -- (20,860) -- -- (20,860)
---------- --------- --------- --------- ----------
Net cash used in investing activities............. (1,686) (25,447) (180) -- (27,313)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Series A Preferred
Equity............................................ 20,100 -- -- -- 20,100
---------- --------- --------- --------- ----------
Net cash provided by financing activities......... 20,100 -- -- -- 20,100
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (11,970) 1,728 2,252 -- (7,990)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 17,881 956 1,817 -- 20,654
---------- --------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 5,911 $ 2,684 $ 4,069 $ -- $ 12,664
========== ========= ========= ========= ==========
</TABLE>
F-43
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) REPORTABLE SEGMENTS
The Company has four reportable segments: radio programming and advertising
sales services, cable television programming, satellite services, and corporate.
The radio programming and advertising sales services segment produces
programming that it distributes to radio stations and sells advertising on
nationally syndicated radio programs. The cable television programming segment
provides cable television programming to cable television system operators and
other video distributors. The satellite services segment provides satellite
delivery, uplinking, trafficking, playback and other services to affiliates and
third parties. The corporate segment includes personnel and associated costs for
the Company's executive and management staff, operational support and other
items such as accounting and financial reporting and debt offering costs.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in Note 2. The Company evaluates
performance based on profit or loss from operations before income taxes not
including nonrecurring gains and losses. The Company accounts for intersegment
sales and transfers as if the sales or transfers were to third parties, that is,
at current market prices.
The Company evaluates performance based on profit or loss from operations
before income taxes not including nonrecurring gains and losses. The Company's
reportable segments are strategic business units that offer different services
and products. They are managed separately because each business requires
different technology and marketing strategies. Reportable segments are presented
below in accordance with the requirements of SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information":
F-44
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) REPORTABLE SEGMENTS (CONTINUED)
REPORTED SEGMENT PROFIT OR LOSS,
AND SEGMENT ASSETS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996:
<TABLE>
<CAPTION>
RADIO
PROGRAMMING
AND CABLE
ADVERTISING TELEVISION SATELLITE
SALES SERVICES PROGRAMMING SERVICES CORPORATE TOTAL
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers...... $ 7,658,000 $ 1,154,000 $ 7,842,000 $ -- $ 16,654,000
Intersegment revenues................ -- -- 3,429,000 -- 3,429,000
Interest income...................... (14,000) (23,000) (35,000) -- (72,000)
Interest expense..................... -- -- 3,765,000 735,000 4,500,000
Depreciation and amortization........ 494,000 24,000 3,957,000 1,000 4,476,000
Equity in loss (income) of
subsidiaries....................... 329,000 503,000 -- -- 832,000
Segment loss......................... (335,000) (1,558,000) 616,000 (1,038,000) (2,315,000)
Capital expenditures................. 1,646,000 72,000 1,251,000 -- 2,969,000
Other significant non-cash item:
Goodwill........................... -- 300,000 -- -- 300,000
Segment assets....................... 5,426,000 1,925,000 30,336,000 4,213,000 41,900,000
RECONCILIATIONS OF REPORTABLE SEGMENT
REVENUE AND ASSETS:
Revenues:
Total revenues for reportable
segments........................... $ 20,083,000
Other revenues....................... --
Elimination of intersegment
revenues........................... (3,429,000)
Total consolidated revenues........ $ 16,654,000
=============
Assets:
Total assets for reportable
segments........................... $ 41,900,000
Elimination of investment in
subsidiaries....................... (3,602,000)
-------------
Total consolidated assets.......... $ 38,298,000
=============
</TABLE>
F-45
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) REPORTABLE SEGMENTS (CONTINUED)
REPORTED SEGMENT PROFIT OR LOSS,
AND SEGMENT ASSETS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
RADIO
PROGRAMMING
AND CABLE
ADVERTISING TELEVISION SATELLITE
SALES SERVICES PROGRAMMING SERVICES CORPORATE TOTAL
-------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers....... $ 10,833,000 $ 12,002,000 $ 6,276,000 $ -- $ 29,111,000
Intersegment revenues................. -- -- 3,387,000 -- 3,387,000
Interest income....................... (6,000) (93,000) (3,000) (6,000) (108,000)
Interest expense...................... -- -- 3,612,000 2,065,000 5,677,000
Depreciation and amortization......... 842,000 222,000 4,100,000 4,000 5,168,000
Equity in loss (income) of
subsidiaries........................ 228,000 168,000 -- -- 396,000
Segment profit........................ 450,000 540,000 (1,571,000) (2,912,000) (3,493,000)
Capital expenditures.................. 1,237,000 28,000 93,000 9,000 1,367,000
Other significant non-cash items:
Goodwill............................ -- 3,037,000 -- -- 3,037,000
Conversion of Global Group Note..... -- -- -- 6,000,000 6,000,000
Segment assets........................ 5,960,000 8,204,000 25,878,000 (1,973,000) 38,069,000
RECONCILIATIONS OF REPORTABLE SEGMENT
REVENUE AND ASSETS:
Revenues:
Total revenues for reportable
segments............................ $ 32,498,000
Other revenues........................ --
Elimination of intersegment
revenues............................ (3,387,000)
-------------
Total consolidated revenues......... $ 29,111,000
=============
Assets:
Total assets for reportable
segments............................ $ 38,069,000
Elimination of investment in
subsidiaries........................ 3,289,000
-------------
Total consolidated assets........... $ 41,358,000
=============
</TABLE>
F-46
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) REPORTABLE SEGMENTS (CONTINUED)
REPORTED SEGMENT PROFIT OR LOSS,
AND SEGMENT ASSETS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
RADIO
PROGRAMMING
AND CABLE
ADVERTISING TELEVISION SATELLITE
SALES SERVICES PROGRAMMING SERVICES CORPORATE TOTAL
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers.... $ 15,780,000 $ 16,719,000 $ 5,540,000 $ 173,000 $ 38,212,000
Intersegment revenues.............. -- -- 3,581,000 -- 3,581,000
Interest income.................... (33,000) (128,000) -- (615,000) (776,000)
Interest expense................... -- -- 1,798,000 7,173,000 8,971,000
Depreciation and amortization...... 1,598,000 697,000 3,966,000 5,000 6,266,000
Equity in loss (income) of
subsidiaries..................... 57,000 -- -- -- 57,000
Segment loss....................... (1,017,000) (775,000) (893,000) (8,765,000) (11,450,000)
Capital expenditures............... 582,000 336,000 1,337,000 3,000 2,258,000
Other significant non-cash item:
Purchase of MediaAmerica......... -- -- -- 8,144,000 8,144,000
Segment assets..................... 48,545,000 12,437,000 23,183,000 55,219,000 139,384,000
RECONCILIATIONS OF REPORTABLE
SEGMENT REVENUE AND ASSETS:
Revenues:
Total revenues for reportable
segments......................... $ 41,793,000
Other revenues..................... --
Elimination of intersegment
revenues......................... (3,581,000)
--------------
Total consolidated revenues...... $ 38,212,000
==============
Assets:
Total assets for reportable
segments......................... $ 139,384,000
Elimination of investment in
subsidiaries..................... (28,490,000)
--------------
Total consolidated assets........ $ 110,894,000
==============
</TABLE>
F-47
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) REPORTABLE SEGMENTS (CONTINUED)
REPORTED SEGMENT PROFIT OR LOSS,
AND SEGMENT ASSETS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
<TABLE>
<CAPTION>
RADIO
PROGRAMMING
AND CABLE
ADVERTISING TELEVISION SATELLITE
SALES SERVICES PROGRAMMING SERVICES CORPORATE TOTAL
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers....... $ 8,985,000 $ 11,992,000 $ 3,988,000 $ -- $ 24,965,000
Intersegment revenues................. -- -- 2,779,000 -- 2,779,000
Interest income....................... (12,000) (115,000) -- (311,000) (438,000)
Interest expense...................... -- -- 1,900,000 3,907,000 5,807,000
Depreciation and amortization......... 969,000 402,000 2,990,000 3,000 4,364,000
Equity in income of subsidiaries...... (1,000) -- -- -- (1,000)
Segment loss.......................... (1,293,000) (688,000) (1,718,000) (4,969,000) (8,668,000)
Capital expenditures.................. 1,216,000 1,000 696,000 3,000 1,916,000
Segment assets........................ 48,477,000 9,741,000 23,823,000 56,425,000 138,466,000
RECONCILIATIONS OF REPORTABLE SEGMENT
REVENUE AND ASSETS:
Revenues:
Total revenues for reportable
segments............................ $ 27,744,000
Other revenues........................ --
Elimination of intersegment
revenues............................ (2,779,000)
--------------
Total consolidated revenues......... $ 24,965,000
==============
Assets:
Total assets for reportable
segments............................ $ 138,466,000
Elimination of investment in
subsidiaries........................ (27,493,000)
--------------
Total consolidated assets........... $ 110,973,000
==============
</TABLE>
F-48
<PAGE>
JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) REPORTABLE SEGMENTS (CONTINUED)
REPORTED SEGMENT PROFIT OR LOSS,
AND SEGMENT ASSETS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
<TABLE>
<CAPTION>
RADIO
PROGRAMMING
AND CABLE
ADVERTISING TELEVISION SATELLITE
SALES SERVICES PROGRAMMING SERVICES CORPORATE TOTAL
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers.... $ 18,808,000 $ 19,229,000 $ 6,567,000 $ -- $ 44,604,000
Intersegment revenues.............. -- -- 2,635,000 -- 2,635,000
Interest income.................... (66,000) (91,000) -- (569,000) (726,000)
Interest expense................... -- -- -- 9,607,000 9,607,000
Depreciation and amortization...... 2,112,000 1,375,000 3,007,000 5,000 6,499,000
Equity in income of subsidiaries... (85,000) -- -- -- (85,000)
Segment income (loss).............. 286,000 (469,000) 2,597,000 (10,344,000) (7,930,000)
Capital expenditures............... 232,000 196,000 144,000 16,000 588,000
Segment assets..................... 65,655,000 20,070,000 20,289,000 105,261,000 211,275,000
RECONCILIATIONS OF REPORTABLE
SEGMENT REVENUE AND ASSETS:
Revenues:
Total revenues for reportable
segments......................... $ 47,239,000
Other revenues..................... --
Elimination of intersegment
revenues......................... (2,635,000)
--------------
Total consolidated revenues...... $ 44,604,000
==============
Assets:
Total assets for reportable
segments......................... $ 211,275,000
Elimination of investment in
subsidiaries..................... (86,481,000)
--------------
Total consolidated assets........ $ 124,794,000
==============
</TABLE>
F-49
<PAGE>
[LOGO]
Jones International Networks, Ltd.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the Class A Common Stock being registered. All amounts are estimates except the
SEC registration fee, the NASD filing fees and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................................ $
NASD filing fee Nasdaq National Market listing fee.......... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving...................................... *
Blue sky fees and expenses (including legal fees)........... *
Transfer agent fees......................................... *
Miscellaneous............................................... *
Total................................................... *
</TABLE>
- ----------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Colorado Business Corporation Act, as amended (the
"Colorado Act"), the Registrant's articles of incorporation, as amended,
eliminate in certain circumstances the liability of our directors 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 Registrant 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 Registrant's articles of incorporation also provide that we 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 Registrant or, while serving as a director or
officer of the Registrant, serving at the request of it 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
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 is
adjudged liable to the corporation. The Colorado Act also prohibits
II-1
<PAGE>
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 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has issued the following securities since May 28, 1998 (its
inception):
a. In May 1998, the Registrant issued one (1) share of its Class A Common
Stock to Jones Network Holdings LLC, a Colorado limited liability company, for
$10. On July 10, 1998, Jones Network Holdings LLC tendered said share of
Class A Common Stock back to the Registrant. On the same date, the Registrant
issued 2,980,953 shares of its Class A Common Stock and 1,785,120 shares of its
Class B common stock to Jones Network Holdings LLC in exchange for the only
assets it held, which consisted of 2,980,953 shares of Class A Common Stock and
1,785,120 shares of Class B common stock of JPN, Inc., a Colorado corporation.
The Registrant also assumed Jones Network Holdings LLC's obligation under a
certain promissory note in the amount of $10 million, plus accrued interest,
payable to Jones Global Group, Inc., an affiliate of the Registrant.
b. Upon the liquidation of Jones Network Holdings LLC in July 1998, it
transferred the shares of Class A Common Stock and Class B common stock of the
Registrant that it held to its members on a one for one basis, as follows:
CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NAME OF TRANSFEREE NUMBER OF SHARES
- ------------------ ----------------
<S> <C>
Jones International, Ltd.................................... 1,594,500
Glenn R. Jones.............................................. 707,286
Jones Space Segment, Inc.................................... 416,667
Adelphia Communications Corporation......................... 262,500
---------
Total................................................... 2,980,953
</TABLE>
CLASS B COMMON STOCK
<TABLE>
<CAPTION>
NAME OF TRANSFEREE NUMBER OF SHARES
- ------------------ ----------------
<S> <C>
Jones International, Ltd.................................... 1,122,000
Glenn R. Jones.............................................. 263,120
Jones Global Group, Inc..................................... 400,000
----------
Total................................................... 1,785,120
</TABLE>
All of the outstanding shares of Class B common stock are convertible at the
election of their holders into shares of Class A Common Stock on a one for one
basis.
c. Also in July 1998, the Registrant converted the $10 million principal of
the aforementioned promissory note payable to Jones Global Group by issuing
666,667 shares of its Class A Common Stock to Jones Global Group, which shares
were valued at $15.00 per share.
d. In connection with the carriage of the Registrant's Great American
Country programming, it is obligated under two separate agreements to issue
shares of its Class A Common Stock to TAL Financial, Inc. and Adelphia
Communications Corporation, based on the achievement of certain
II-2
<PAGE>
milestone subscriber levels by said companies. Based upon these two agreements
the Registrant has as of December , 1999 issued shares of its Class A
Common Stock as follows:
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES
-------- ----------------
<S> <C> <C>
TAL Financial, Inc................................. 07/22/98 101,124
Adelphia Communications Corporation................ 12/31/98 12,416
Adelphia Communications Corporation................ 05/14/99 11,869
</TABLE>
e. In July 1999, the Registrant acquired substantially all of the assets
and liabilities of MediaAmerica, Inc. After such sale, MediaAmerica, Inc.
changed its name to Tuxedo Shirt, Inc. Pursuant to said acquisition, the
Registrant issued to Tuxedo Shirt, Inc., the seller, as partial payment of the
purchase price, 541,970 shares of Class A Common Stock. In October 1999, the
Registrant issued an additional 941 shares of its Class A Common Stock to Tuxedo
Shirt, representing the final working capital adjustment pursuant to said
acquisition. All of the shares issued to Tuxedo Shirt were valued at $15.00 per
share.
f. In September and November 1999, the Registrant issued an aggregate of
1,918,000 shares of Series A convertible preferred stock at a purchase price of
$12.50 per share, to a total of 14 investors, all of whom are "accredited
investors" within the meaning of Regulation D under the Securities Act of 1933.
These investors include an affiliate of Mr. Jones. Each of the outstanding
shares of Series A convertible preferred stock will convert into one share of
Class A Common Stock upon completion of a public equity offering.
g. The Registrant from time to time has granted stock options under its
employee stock option plan (the "Plan") to employees and consultants. As of
December , 1999, options to purchase 512,500 shares of Class A Common Stock
have been granted to 28 persons and 89,000 shares have been terminated or
forfeited upon resignation of the holders. All of the options outstanding have
an exercise price of $15 per share, and none of the options have been exercised.
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act, as amended, as transactions not involving any public offering,
(ii) Regulation D promulgated under the Securities Act, as amended, as limited
offers and sales of securities, or (iii) Rule 701 promulgated under the
Securities Act, as amended. All purchasers of the above securities acquired said
shares for investment purposes only and all stock certificates reflect the
appropriate legends. No underwriters were involved in connection with the sales
of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.(1)
3.2 Amendment to the Registrant's Articles of Incorporation
filed September 30, 1999.(3)
3.3 Bylaws of the Registrant.(1)
4.1 Indenture, dated July 10, 1998, between the Registrant and
United States Trust Company of New York.(1)
4.2 Form of Exchange Note is included as Exhibit A-3 to the
Indenture.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
4.3 Pledge Agreement, dated July 10, 1998, among the Registrant,
United States Trust Company of New York and others.(1)
4.4 Form of Subsidiary Guaranty is included as part of the
Indenture.(1)
4.5* Specimen Class A Common Stock certificate.
5.1* Opinion of Davis, Graham & Stubbs LLP.
10.1 1998 Stock Option Plan.(1)
10.2 Form of Basic Incentive Stock Option Agreement.(1)
10.3 Form of Basic Non-Qualified Stock Option Agreement.(1)
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.).(1)
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.).(1)
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.).(1)
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.(1)
10.8 Affiliate Agreement dated January 1, 1996, among Great
American Country, Inc., Jones Programming Services, Inc.
and Jones Intercable, Inc.(1)
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.(1)
10.10+ Affiliate Agreement dated January 31, 1995, between Product
Information Network Venture and Cox
Communications, Inc.(1)
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.(1)
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.(1)
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.(1)
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.(1)
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.).(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.16+ C-3/C-4 Satellite Transponder Service Agreement dated
July 28, 1989, between GE American Communications, Inc.
and Jones Space Segment, Inc.(1)
10.17 Agreement dated June 2, 1998, among MediaAmerica, Inc., Ron
Hartenbaum, Gary Schonfeld, Jones Network Holdings LLC and
the Registrant.(1)
10.18 Post-Closing Agreement dated July 10, 1998, with
MediaAmerica, Inc., Gary Schonfeld and Ron Hartenbaum.(1)
10.19 Employment Agreement dated July 10, 1998, between Ron
Hartenbaum and the Registrant.(1)
10.20 Employment Agreement dated July 10, 1998, between Gary
Schonfeld and the Registrant.(1)
10.21 Agreement dated as of June 15, 1999 among Broadcast
Electronics, Inc., BEI Holding Corporation and the
Registrant.(2)
10.22 Revolving Credit Facility dated as of July 29, 1999 between
Bank of America, N.A. and the Registrant.(2)
10.23 Form of Registration Rights Agreement dated as of
October 1, 1999 between the Registrant and certain holders
of Series A Convertible Preferred Stock.(3)
21.1 Subsidiaries.(3)
23.1 Consent of Arthur Andersen LLP.(3)
23.2* Consent of Davis, Graham & Stubbs, LLP. (See Exhibit 5.1.)
24.1 Powers of Attorney (included on Signature Page).
27 Financial Data Schedule.(3)
</TABLE>
- ----------
* To be filed by amendment.
(1) Incorporated by reference from the Registrant's Registration Statement No.
333-62077 on Form S-4 filed on August 21, 1998.
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
dated August 6, 1999.
(3) Filed herewith.
+ Portions of this exhibit have been omitted based on a determination dated
November 3, 1998 by the Securities and Exchange Commission that certain
information contained therein shall be afforded confidential treatment.
II-5
<PAGE>
(b) Financial Statement Schedules
See Schedule II, which follows the Part II pages.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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 Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of 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 Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto authorized, in the City of Englewood and the State of
Colorado on the 20th day of December, 1999.
<TABLE>
<S> <C> <C>
JONES INTERNATIONAL NETWORKS, LTD.,
a Colorado corporation
By: /s/ JEFFREY C. WAYNE
-----------------------------------------
Jeffrey C. Wayne
President and Director
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey C. Wayne, Jay B. Lewis, Robert S. Zinn
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits and schedules thereto, including any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933,
together with all schedules and exhibits thereto and other certificates,
instruments, agreements and other documents as may be necessary or appropriate
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as they might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ GLENN R. JONES
-------------------------------------- Chairman of the Board December 20, 1999
(Glenn R. Jones)
/s/ JEFFREY C. WAYNE
-------------------------------------- President and Director December 20, 1999
(Jeffrey C. Wayne) (Principal Executive Officer)
/s/ JAY B. LEWIS Group Vice President/Finance,
-------------------------------------- Treasurer and Director (Chief December 20, 1999
(Jay B. Lewis) Financial Officer)
/s/ AMY MICKLES
-------------------------------------- Controller (Chief Accounting December 20, 1999
(Amy Mickles) Officer)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RONALD HARTENBAUM
-------------------------------------- Director December 20, 1999
(Ronald Hartenbaum)
/s/ YRMA G. RICO
-------------------------------------- Director December 20, 1999
(Yrma G. Rico)
-------------------------------------- Director December , 1999
(Fred A. Vierra)
/s/ TIMOTHY J. BURKE
-------------------------------------- Director December 20, 1999
(Timothy J. Burke)
</TABLE>
II-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Jones International
Networks, Ltd.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Jones International Networks, Ltd. and
subsidiaries as of December 31, 1997 and 1998, and for the years ended
December 31, 1996, 1997 and 1998 included in this registration statement, and
have issued our report thereon dated February 11, 1999. Our audits were made for
the purpose of forming an opinion on these financial statements taken as a
whole. The supplemental schedule included in this registration statement is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part of
the financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of these financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to these financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 11, 1999
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED TO FOR BALANCE
BEGINNING COSTS AND ACCOUNTS AT END OF
CLASSIFICATIONS OF PERIOD EXPENSES WRITTEN-OFF PERIOD
- -------------------------------------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Fiscal Year ended December 31, 1998:
Allowance for Doubtful Accounts............................. $ 157,405 $ 858,765 $(118,683) $ 897,487
Fiscal Year ended December 31, 1997:
Allowance for Doubtful Accounts............................. 286,562 114,357 (243,514) 157,405
Fiscal Year ended December 31, 1996:
Allowance for Doubtful Accounts............................. 224,808 130,381 (68,627) 286,562
</TABLE>
<PAGE>
EXHIBIT INDEX
JONES INTERNATIONAL NETWORKS, LTD.
FORM S-1 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- --------------------- ------
<C> <S> <C>
3.2 Amendment to the Registrant's Articles of Incorporation
filed September 30, 1999..................................
10.23 Form of Registration Rights Agreement dated as of October 1,
1999 between the Registrant and certain holders of Series
A Convertible Preferred Stock.............................
21.1 Subsidiaries................................................
23.1 Consent of Arthur Andersen LLP..............................
27 Financial Data Schedule.....................................
</TABLE>
<PAGE>
Exhibit 3.2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is JONES INTERNATIONAL NETWORKS,
LTD.
SECOND: The following amendments were adopted by the
shareholders of the Corporation by Unanimous Written
Consent dated September 27, 1999, and the number of
votes cast for the amendment by each voting group
entitled to vote separately on the amendment was
sufficient for approval by that voting group:
Paragraphs 6.1 and 6.2 of Article VI of the Articles of
Incorporation of the Corporation be amended by striking out and
eliminating the existing text thereof in its entirety and
substituting the following in its place:
"6.1. AUTHORIZED SHARES. The total number of shares of capital
stock that the Corporation shall have authority to issue is 53,703,120
shares, consisting of three classes of capital stock:
(a) 50,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Stock");
(b) 1,785,120 shares of Class B Common Stock, par value
$.01 per share (the "Class B Stock; and, together with the Class A
Shares, the "Common Stock"); and
(c) 1,918,000 shares of Series A Convertible Preferred
Stock, par value $.01 per share (the "Preferred Stock").
6.2. DESIGNATIONS, PREFERENCES, ETC. The designations,
preferences, powers, qualifications and special or relative rights or
privileges of the capital stock of the Corporation shall be as set forth
in Articles VII and VIII below."
<PAGE>
; and
That a new Article VIII shall be added to the Articles of
Incorporation of the Corporation and that all remaining Articles
succeeding the new Article VIII be renumbered accordingly. The new
Article VIII shall read as follows:
"ARTICLE VIII
8.1. DIVIDENDS. The holders of the Preferred Stock shall be
entitled to receive dividends when, as and if declared by the Board of
Directors. No dividends (in cash, property or shares of the Company)
shall be paid on the Common Stock unless and until equal dividends per
share have been declared and paid on the Preferred Stock.
8.2. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Company, the holders of the Preferred
Stock will be entitled to receive, prior and in preference to the holders
of Common Stock, $12.50 per share of Preferred Stock (as adjusted for any
stock dividends, combinations or splits with respect to the Preferred
Stock), plus any unpaid dividends, and no more. A merger of the Company
in which the Company is not the surviving entity (except a
reincorporation merger or other mere changes of form of the Company) or a
sale of all or substantially all of the Company's assets shall be deemed
to be a liquidation, dissolution or winding up for purposes of this
Section 8.2.
8.3. AUTOMATIC CONVERSION. Each share of the Preferred Stock
shall be automatically converted into that number of shares of Class A
Stock equal to the Preferred Stock Conversion Rate (as defined in Section
8.4) upon the completion by the Company of a public equity offering or a
series of public equity offerings raising aggregate gross proceeds of at
least $20,000,000.
8.4. OPTIONAL CONVERSION. Upon compliance with the procedures
of this Section 8, each one share of Preferred Stock shall be convertible
at the option of the holder thereof at any time into that number of
shares of Class A Stock equal to the Preferred Stock Conversion Rate.
The Preferred Stock Conversation Rate shall be determined by dividing
$12.50 (as may be adjusted for any stock dividends, combinations or
splits of the Preferred Stock) by the "Conversion
<PAGE>
Price." The Conversion Price shall initially be $12.50, subject to
adjustment as hereinafter provided in this Section 8.4.
(A) If the Company shall at any time or from time to
time prior to September 30, 2000, issue any shares of Common
Stock, or preferred stock, warrants, options, rights, or other
securities convertible into or exchangeable or exercisable for
shares of Common Stock (such event being referred to hereinafter
as a "Financing"), without consideration or for a consideration
per share less than the prevailing Conversion Price, then the
Conversion Price in effect immediately prior to each such issuance
shall forthwith be adjusted to a price equal to the consideration
per share received or deemed received by the Company for such
shares or securities convertible or exercisable for shares,
provided, however, that this provision shall not apply to shares
issued pursuant to any option or right to purchase or acquire
Common Stock outstanding on September 30, 1999 or shares which the
Company is contractually bound to issue on such date, regardless
of the actual date of issuance. In the event of an adjustment,
the number of shares of Common Stock issuable upon conversion
shall be increased to the number obtained by dividing the product
of the number of shares of Common Stock issuable upon conversion
before such adjustment, and the Conversion Price in effect
immediately prior to the issuance giving rise to this adjustment
by the new Conversion Price.
Notwithstanding anything contained in this Section 8.4, the
adjustment provided for in the immediately preceding paragraph shall not
apply to: (i) options to acquire shares of Common Stock at the fair
market value thereof at the date of grant and the shares of Common Stock
subject to such options; and (ii) shares of Class A Stock issued upon
conversion of the Preferred Stock.
(B) In the event of the issuance by the Company after
September 30, 2000 and prior to October 1, 2007, of any shares of
Common Stock, or preferred stock, warrants, options, rights of
other securities convertible into or exchangeable or exercisable
for shares of Common Stock, without consideration or for a
consideration per share less than the prevailing Conversion Price,
then the Conversion Price in effect immediately prior to each such
issuance shall forthwith be adjusted to a price equal to the
quotient obtained by dividing (i) an amount equal to the sum of
(a) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued
pursuant to subdivision (iii) of clause (C) below, all of which
shall be
<PAGE>
deemed to have been issued immediately prior to such issuance)
multiplied by the Conversion Price in effect immediately prior to
such issuance, plus (b) the consideration received by the Company
upon such issuance, by (ii) the total number of shares of Common
Stock outstanding (including any shares of Common Stock deemed to
have been issued pursuant to subdivision (iii) of clause (C)
below, all of which shall be deemed to have been issued).
(C) For the purposes of any adjustment of the Conversion
Price pursuant to clauses (A) and (B), the following provisions
shall be applicable:
(i) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the
amount of cash received by the Company therefor, before
deduction for any fees or commissions which may be paid in
connection with any such issuance.
(ii) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair value of such consideration as determined in the good
faith judgment of the Board of Directors of the Company.
(iii) In the case of the issuance of (x) options to
purchase or rights to subscribe for Common Stock, (y)
securities by their terms convertible into or exchangeable
for Common Stock or (z) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for
a consideration equal to the consideration
(determined in the manner provided in subdivisions
(i) and (ii) above), if any, received by the Company
upon the issuance of such options or rights plus the
minimum purchase price provided in such options or
rights for the Common Stock covered thereby;
<PAGE>
(2) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been
issued at the time such securities were issued or
such options or rights were issued and for a
consideration equal to the consideration received by
the Company for any such securities and related
options or rights (excluding any cash received on
account of accrued interest or accrued dividends),
plus the additional consideration, if any, to be
received by the Company upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in each
case to be determined in the manner provided in
subdivisions (i) and (ii) above);
(3) on any change in the number of shares
or exercise price of Common Stock deliverable upon
exercise of any such options or rights or
conversions of or exchange for such convertible or
exchangeable securities, other than a change
resulting from the antidilution provisions thereof,
the Conversion Price shall forthwith be readjusted
to such Conversion Price as would have obtained had
the adjustment made upon the issuance of such
options, rights or securities not converted prior to
such change been made upon the basis of such change;
and
(4) on the expiration of any such options
or rights, the termination of any such rights to
convert or exchange or the expiration of any options
or rights related to such convertible or
exchangeable securities, the Conversion Price shall
forthwith be readjusted to such Conversion Price as
would have obtained had such options, rights,
securities or options or rights related to such
securities not been issued.
(D) If the number of shares of Common Stock outstanding
at any time hereafter is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, then, following the record date fixed for the
determination of
<PAGE>
holders of Common Stock entitled to receive such stock dividend,
subdivision or split-up, such Conversion Price shall be
appropriately decreased so that the number of shares of Common
Stock issuable on conversion shall be increased in proportion to
such increase in outstanding shares.
(E) If at any time hereafter the number of shares of
Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record
date for such combination, the Conversion Price shall be
appropriately increased so that the number of shares of Common
Stock issuable on conversion shall be decreased in proportion to
such decrease in outstanding shares.
(F) If at any time hereafter any reorganization,
reclassification of the capital stock of the Corporation (other
than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend
or subdivision, split-up or combination of shares), consolidation,
merger (including a merger in which the Company is the surviving
entity) or a sale or other disposition of all or substantially all
of the Company's assets shall occur, then each share of Preferred
Stock shall (in lieu of or, in respect of sales of all or
substantially all assets, in addition to, being exercisable for
shares of Common Stock) after such reorganization,
reclassification, consolidation, merger, sale or other disposition
be exercisable into the kind and number of shares of stock or
other securities or property (including cash) of the Company or of
the corporation resulting from such consolidation or surviving
such merger or to which such properties and assets shall have been
sold or otherwise disposed to which the holder of the number of
shares of Common Stock deliverable (immediately prior to the time
of such reorganization, reclassification, consolidation, merger,
sale or other disposition) upon conversion would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions
of this Section shall similarly apply to successive
reorganizations, reclassifications and other transactions
contemplated above.
(G) All calculations under this Section 8.4 shall be
made to the nearest cent ($.01) or to the nearest one-tenth of a
share, as the case may be. No fractional shares or scrip
representing fractions of shares shall be issued upon conversion
of any Preferred Stock. Instead, the number of shares of Class A
Stock received upon conversion shall either be rounded
<PAGE>
up or down to the appropriate number of full shares, depending on
whether the applicable fraction of a share is half or less. If
the fraction is less than half the number of shares shall be
rounded down. If the fraction is half or more, the number of
shares shall be rounded up.
(H) In any case in which the provisions of this Section
8.4 shall require that an adjustment of the Conversion Price shall
become effective immediately after a record date for an event, the
Company may, until the occurrence of such event, defer issuing to
the holder of any Preferred Stock converted after such record date
and before the occurrence of such event the additional shares of
capital stock issuable upon such exercise by reason of the
adjustment required by such event over and above the shares of
capital stock issuable upon exercise before giving effect to such
adjustment; provided, however, the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(I) Whenever the Conversion Price shall be adjusted as
provided in Section 8.4, the Company shall forthwith file, at its
principal office or at such other place as may be designated by
the Company, a statement, signed by its president or chief
financial officer and by its treasurer, showing in detail the
facts requiring such adjustment and the Conversion Price that
shall be in effect after such adjustment. The Company shall cause
a copy of such statement to be sent by first-class, certified
mail, return receipt requested, postage prepaid, to each holder of
the Preferred Stock at such holder's address appearing in the
Company's records.
(J) In the event the Company shall propose to take any
action of the types described in clause (F) of Section 8.4, the
Company shall give notice to each holder of the Preferred Stock,
which notice shall specify the record date, if any, with respect
to any such action and the date on which such action is to take
place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of
such notice) on the Preferred Stock and the number, kind or class
of shares or other securities or property which shall be
deliverable or purchaseable upon the occurrence of such action or
deliverable upon conversion of the Preferred Stock. In the case
of any action that would require the fixing of a record date, such
notice shall be given at least 10 days prior to the date
<PAGE>
so fixed, and in case of all other action, such notice shall be
given at least 15 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(K) The Company will not, by amendment of its Articles
of incorporation or bylaws or through any reorganization, transfer
of assets, reclassification, merger, dissolution, issue or sale of
securities or otherwise, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by the
Company hereunder but will at all times in good faith assist in
the carrying out of all the provisions hereof and in the taking of
all such actions as may be necessary or appropriate in order to
protect the rights of the holders of the Warrants against
impairment.
(L) The Company shall at all time reserve and keep
available for issuance upon the conversion of the shares of
Preferred Stock such number of its authorized but unissued shares
of Class A Stock, free from all preemptive rights therein, as is
reasonably anticipated to be sufficient to permit the conversion
of all outstanding shares of Preferred Stock into Class A Stock
and shall take all action required to increase the authorized
number of shares of Class A Stock if at any time there shall be
insufficient authorized but unissued shares of Class A Stock to
permit such reservation or to permit the conversion of all
outstanding shares of Preferred Stock.
8.5. PROCEDURE. In order to exercise the conversion right, the
holder of each share of Preferred Stock to be converted shall surrender
the certificate representing such share, duly endorsed or assigned to the
Company or in blank, at the office of the Company, accompanied by written
notice that the holder thereof elects to convert Preferred Stock or a
specified portion thereof. Unless the shares issuable on conversion are
to be issued in the same name as the name in which such share of
Preferred Stock is registered, each share surrendered for conversion
shall be accompanied by instruments of transfer, in form satisfactory to
the Company, duly executed by the holder or such holder's duly authorized
attorney-in-fact. As promptly as practicable after the surrender of
certificates for shares of Preferred Stock, the Company shall issue and
shall deliver to such holder a certificate or certificates for the number
of full shares of Class A Stock issuable upon the conversion of such
shares in accordance with the provisions of this Section 8. Each
conversion shall be deemed to have been effected immediately prior to the
close of business on the date of which the certificates
<PAGE>
for shares of Preferred Stock shall have been surrendered and such notice
received as aforesaid.
8.6. VOTING RIGHTS. The holders of the Preferred Stock shall
have one vote for each Class A Stock-equivalent share and shall vote with
holders of the Common Stock (as a single voting group) on all matters
brought before the shareholders, except as otherwise required by law or
these Articles of Incorporation.
8.7. REDEMPTION RIGHTS. The holders of a majority of the
outstanding shares of Preferred Stock may elect, at any time and from
time to time on and after October 1, 2007, to have the Company redeem all
then outstanding Preferred Stock at $12.50 per share (as adjusted for any
stock dividends, combinations or splits with respect to the Preferred
Stock), plus all cumulative and unpaid dividends and any declared, but
unpaid, dividends. The Company may also elect to redeem any or all of
such shares on the same basis. If the Company elects to redeem less than
all such shares, it shall do so on a prorata basis among the holders of
such shares.
8.8. NO REISSUANCE. All shares of Preferred Stock redeemed or
converted pursuant to this Section 8 shall be canceled, shall not be
re-issued and shall be eliminated from the shares which the Company is
authorized to issue."
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares
provided for in the amendment shall be effected, is as
follows:
No change.
JONES INTERNATIONAL NETWORKS, LTD.
By: /s/ Jay B. Lewis
--------------------------------
Jay B. Lewis
Group Vice President
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Exhibit 10.23
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of October 1, 1999 among Jones International Trust
LLC; Edith Hilliard; Penn Capital Management c/o Penn Value Income Fund, Peter
Kaltman, John Hocker, Richard A. Hocker, Penn High Yield Fund, Eugene Gatti,
Penn Cap Block, AK STEEL, University of Chicago, Penn Capital Strategic High
Yield Mutual Fund, and Tip Turner Target Select; Sandler Capital Partners IV,
L.P. and Sandler Capital Partners IV FTE, L.P. (collectively the "Selling
Shareholders") and Jones International Networks, Ltd., a Colorado corporation
(the "Company").
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. (a) The following terms, as used herein,
have the following meanings:
"Capital Stock" means, at any time, the Class A Shares, the Class
B Shares and any other shares of authorized capital stock of the Company.
"Class A Shares" means the shares of Class A Common Stock, par
value $0.01 per share, of the Company received upon conversion of the Company's
Series A Convertible Preferred Stock.
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Public Offering" means the initial completed underwritten public
offering of Class A Shares by the Company pursuant to a registration statement
filed under the Securities Act.
"Registrable Securities" means any Class A Shares owned by the
Selling Shareholder. Class A Shares as to which registration rights have
terminated under Section 5.4 are no longer Registrable Securities.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
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(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Demand Registration 2.1
Demanding Selling Shareholder 2.3(a)(i)
Indemnified Party 4.3
Indemnifying Party 4.3
Inspectors 3.1 (g)
Piggy-Back Registration 2.2
Records 3.1(g)
</TABLE>
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. DEMAND REGISTRATION. (a) At any time commencing six
(6) months after the Public Offering, the Selling Shareholders may make a
written request for registration under the Securities Act of all or part of the
Registrable Securities owned by the Selling Shareholders (a "Demand
Registration"), PROVIDED that the Company shall not be obligated to effect (i)
any Demand Registration covering less than 160,000 Registrable Shares, (ii) more
than one Demand Registration pursuant to the provisions of this Section 2.1 in
any twelve-month period and (iii) more than two Demand Registrations during the
term of this Agreement, one of which may be exercised by Jones International
Trust LLC and one of which may be exercised by holders of a majority of the
Registrable Securities at the time owned by the Selling Shareholders other than
Jones (the "Non-Jones Selling Shareholders"). Any request for a Demand
Registration will specify the aggregate number of shares of Registrable
Securities proposed to be sold by the Selling Shareholders making the demand and
will also specify the intended method of disposition thereof. If the demand by
Non-Jones Selling Shareholders is made by less than all of the Non-Jones Selling
Shareholders, the Company shall give notice promptly of such demand to those
Non-Jones Selling Shareholders that have not participated in such demand. If
any such Non-Jones Selling Shareholders notify the Company prior to filing of
any registration statement pursuant to such demand that they wish to include
some or all of their Registrable Shares in such registration, such persons shall
be considered Demanding Selling Shareholders (as defined herein) with respect to
such registration.
(b) A registration will not count as a Demand Registration until it
has become effective. In addition, if more than 50% of the aggregate number of
Registrable Securities requested to be registered pursuant to this Section 2.1
are excluded from the offering in accordance with Section 2.3, such offering
will not count as a Demand Registration.
(c) If the offering of such Registrable Securities pursuant to such
Demand Registration is an underwritten offering, the Selling Shareholders making
such demand shall select the book-running managing Underwriter and any
additional investment bankers and
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managing Underwriters to be used in connection with the offering, PROVIDED
that such Underwriters and investment bankers must be reasonably satisfactory to
the Company.
SECTION 2.2. PIGGY-BACK REGISTRATION. At any time after the Public
Offering and during the term of this Agreement, if the Company proposes to file
a registration statement under the Securities Act with respect to an offering of
any shares of Capital Stock (i) for the Company's own account (other than a
registration statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC) or (ii) for the account of any of its respective security
holders, then the Company shall give written notice of such proposed filing to
the Selling Shareholders as soon as practicable (but in no event less than 10
days before the anticipated filing date), and such notice shall, subject to
Section 2.3, offer the opportunity to register such number of shares of
Registrable Securities as they may request on the same terms and conditions as
the proposed offering (a "Piggy-Back Registration"). The Selling Shareholders
will have five business days after receipt of any such notice to notify the
Company as to whether they wish to participate in a Piggy-Back Registration and,
if so, the number of Registrable Securities proposed to be included in such
offering. The Company shall use its reasonable efforts to cause the managing
Underwriters of a proposed underwritten offering to permit the Registrable
Securities to be included in a Piggy-Back Registration to be included on the
same terms and conditions as any similar securities of the Company included
therein.
SECTION 2.3. REDUCTION OF OFFERING. (a) Notwithstanding anything
contained in Section 2.1 or 2.2, if the book-running managing Underwriter of an
offering described in Section 2.1 or Section 2.2 states that, in its good faith
judgment either the size of the offering that the Selling Shareholders, the
Company and any other Persons intend to make or the combination of securities
that the Selling Shareholders, the Company and such other Persons intend to
include in such offering are such that the success of the offering is reasonably
likely to be materially and adversely affected by the inclusion of the
Registrable Securities, then:
(i) if the size of the offering is the basis of such
Underwriter's opinion, the aggregate amount of Registrable Securities to be
offered for the account of the Selling Shareholders shall be reduced to the
extent necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such Underwriter, PROVIDED that (x) in the
case of a Demand Registration, the amount of Registrable Securities to be
offered for the account of the Selling Shareholder or Selling Shareholders
making the demand (the "Demanding Selling Shareholders") shall be reduced only
after the amount of securities to be offered for the account of the Company and
any other Persons that are not Selling Shareholders (other than Adelphia
Communications Corporation, Tuxedo Shirt, Inc., Ron Hartenbaum and Gary
Schonfeld, to the extent such shareholders are exercising piggyback registration
rights pursuant to registration rights agreements entered into prior to the date
hereof, who shall, unless otherwise agreed, be subject to proportionate
reduction with the Demanding Selling Shareholder(s) in the manner specified in
2.3(i)(y) below) has been reduced to zero, (y) in the case of a Piggy-Back
Registration, if securities are being offered for the account of Persons other
than the Company (including a Demanding Selling Shareholder), then, unless a
different requirement is imposed pursuant to the provisions of Section 2.3(b),
the proportion by which the aggregate amount of such Registrable Securities
intended to be offered for the account of any Selling Shareholder is reduced
shall not exceed the proportion by which the amount of
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such securities intended to be offered for the account of such other Persons is
reduced, and (z) in the case of a Piggy-Back Registration, if securities are
being offered for the account of the Company, the Company shall be entitled to
offer all securities it wishes to offer, and all other securities to be included
in such offering, including securities to be offered by Selling Shareholders and
any other Person that is not a Selling Shareholder, shall be subject to
proportionate reduction based on the percentage of securities desired to be
offered by each such shareholder; and
(ii) if the combination of securities to be offered is the basis
of such Underwriter's opinion, the Registrable Securities to be included in such
offering shall be reduced as described in clause (i) above, except that in the
case of a Piggy-Back Registration, if the actions described in sub-clauses (y)
and (z) of the proviso in such clause (i) would, in the judgment of the managing
Underwriter, be insufficient to substantially eliminate the adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering.
(b) If a Piggy-Back Registration opportunity occurs as a result of
the exercise of a demand right by a holder (including a Demanding
Selling Shareholder) of shares of the Company similar to the right set
forth in Section 2.1, whether or not the offering is an underwritten
offering, the Company shall have the right to require that the Selling
Shareholders (or any one or more of them) reduce the number of
Registrable Shares of the Selling Shareholders (or any one or more of
them) included in such Piggy-Back Registration, or to cause no such
Registrable Shares to be included in such Piggy-Back Registration.
SECTION 2.4. REGISTRATION EXPENSES. In connection with any Demand
Registration or Piggy-Back Registration, the Company shall pay the following
expenses incurred in connection with such registration: (i) all SEC, stock
exchange and National Association of Securities Dealers, Inc. registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky filings regarding the sale of the Registrable Securities), (iii)
printing expenses, (iv) fees and expenses incurred in connection with the
listing of the Registrable Securities on the NASDAQ National Market System (or,
if no shares of Capital Stock are listed for trading on such system, such other
principal exchange or market where shares of Capital Stock are listed or
otherwise admitted for trading), (v) fees and expenses of counsel and
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independent certified public accountants for the Company (including fees and
expenses associated with the delivery of special audits or comfort letters),
(vi) the reasonable fees and expenses of any additional experts retained by the
Company in connection with such registration and (vii) internal expenses of the
Company (including salaries and expenses of officers and employees). The
Selling Shareholders shall pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities, and shall pay their own
counsel fees and expenses.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. FILINGS; INFORMATION. Whenever the Selling Shareholders
request that any Registrable Securities be registered pursuant to Article II
hereof, the Company will use its reasonable efforts to effect the registration
and sale of such Registrable Securities in accordance with the requested method
of disposition thereof as promptly as reasonably practicable, and in connection
with any such request:
(a) The Company will expeditiously prepare and file with the SEC a
registration statement on any form for which the Company then qualifies and
which the Company shall deem appropriate and available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its reasonable efforts to cause
such filed registration statement to become and remain effective for a period of
not more than nine months (or such shorter period which will terminate when all
Registrable Securities covered by such registration statement have been sold
(but not before the expiration of the period referred to in Section 4(3) of the
Securities Act and Rule 174 thereunder, if applicable)) after the date of the
original filing or such other period as is necessary to comply with the
provisions of the Securities Act, PROVIDED that if the Company shall furnish to
the Selling Shareholders a certificate signed by the Company's Chairman,
President or any Vice President stating that in his or her good faith judgment
it would be detrimental or otherwise disadvantageous to the Company or its
shareholders for such a registration statement to be filed expeditiously, the
Company shall have a period of 120 days in any twelve (12) month period (which
may be extended by the Company, with the consent of the requesting Selling
Shareholders, on the same basis for an additional period of 90 days) within
which to file such registration statement measured from the date of the
Company's receipt of the Selling Shareholders' request for registration in
accordance with Section 2.1.
(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to the Selling
Shareholder and each applicable managing Underwriter, if any, copies thereof,
and thereafter furnish to the Selling Shareholders and each such Underwriter, if
any, such number of copies of such registration statement, amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein) and the prospectus included in such
registration statement (including each preliminary prospectus) as the Selling
Shareholders or each such Underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities.
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(c) After the filing of the registration statement, the Company will
promptly notify the Selling Shareholders of any stop order issued or, to the
Company's knowledge, threatened to be issued by the SEC and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will use reasonable efforts to register or otherwise
qualify the Registrable Securities for offer and sale under such other
securities or blue sky laws of such jurisdictions in the United States as the
Selling Shareholders reasonably request, and to do any and all other acts and
things that may be necessary or advisable to consummate the requested
disposition of the Registrable Securities, PROVIDED that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (d), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction.
(e) The Company will as promptly as practicable notify the Selling
Shareholders, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered in connection with
sales by an Underwriter or dealer, of the occurrence of any event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and promptly make available to the Selling Shareholders and
to the Underwriters any such supplement or amendment. The Selling Shareholders
agree that, upon receipt of any notice from the Company of the occurrence of any
event of the kind described in the preceding sentence, the Selling Shareholders
will forthwith discontinue the offer and sale of Registrable Securities pursuant
to the registration statement covering such Registrable Securities until receipt
by the Selling Shareholders and the Underwriters of the copies of such
supplemented or amended prospectus. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective as provided in Section 3.1(a) hereof by
the number of days during the period from and including the date of the giving
of such notice to the date when the Company shall make available to the Selling
Shareholders such supplemented or amended prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement having representations and closing documents consistent
with underwriting agreements heretofore entered into by the Company) and take
such other actions as are reasonably required in order to expedite or facilitate
the sale of such Registrable Securities.
(g) The Company will make available for inspection by the Selling
Shareholders, any Underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other professional
retained by the Selling Shareholders or Underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by
<PAGE>
any Inspectors in connection with such registration statement. Records which
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such registration statement or (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. The Selling Shareholders agree that they will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Records deemed
confidential.
(h) The Company will otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the SEC thereunder.
(i) The Company will use its reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange or trading
system on which similar securities issued by the Company are then listed.
The Company may require the Selling Shareholders to furnish in writing
to the Company such information regarding the Selling Shareholders, the plan of
distribution of the Registrable Securities and other information as the Company
may from time to time reasonably request or as may be legally required in
connection with such registration.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless, to the extent permitted by law, each Selling
Shareholder, its officers and directors, and each Person, if any, who controls
such Selling Shareholder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by (i) any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Company by or on behalf of such Selling
Shareholder expressly for use therein or (ii) the Selling Shareholder's failure
to comply with a prospectus delivery requirement imposed on it under applicable
law, if
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any, including any failure to deliver, after deliver of a preliminary
prospectus, a prospectus containing corrected, modified or amended disclosure
with respect to any material fact.
SECTION 4.2. INDEMNIFICATION BY THE SELLING SHAREHOLDER. Each
Selling Shareholder agrees to indemnify and hold harmless the Company, its
officers and directors, and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the extent as the foregoing indemnity from the Company to such
Selling Shareholder, but only with reference to information relating to such
Selling Shareholder or the plan of distribution furnished in writing by or on
behalf of such Selling Shareholder expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any amendment
or supplement thereto, or any preliminary prospectus. Each Selling Shareholder
also agrees to indemnify and hold harmless any Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 4.2.
SECTION 4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or Section 4.2, such Person (the "Indemnified Party") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Party") in writing and the Indemnifying Party, upon the request of the
Indemnified Party, shall assume the defense of such proceeding and retain
counsel reasonably satisfactory to such Indemnified Party to represent such
Indemnified Party and any others the Indemnifying Party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any Indemnified Party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Party unless (i) the Indemnifying Party
and the Indemnified Party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnified Party and the Indemnifying Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the Indemnifying Party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm of attorneys ( in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such
reasonable fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties and shall be reasonably
satisfactory to the Indemnifying Party. The Indemnifying Party shall not be
liable for any settlement of any proceeding effected without its prior written
consent, but if settled withsuch consent, or if there be a final judgment for
the plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an Indemnified Party shall have requested an
Indemnifying Party to reimburse the Indemnified Party for fees and expenses of
counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 business days after receipt by such
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Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceedings.
SECTION 4.4. CONTRIBUTION. (a) If the indemnification provided for
in this Article IV is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
such losses, claims, damages or liabilities (i) as between the Company and the
Selling Shareholders on the one hand and the Underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other from the offering of the Registrable Securities, or if such allocation is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits but also the relative fault of the Company and
the Selling Shareholders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between the Company on the one hand and the Selling
Shareholders on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of the Selling Shareholders in connection with
such statements or omissions, as well as any other relevant equitable
considerations.
(b) The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
Underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and the Selling Shareholders on the one hand and of the Underwriters
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and the Selling Shareholders or by the Underwriters. The relative fault
of the Company on the one hand and of the Selling Shareholder son the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such party, and
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(c) The Company and the Selling Shareholders agree that it would not
be just and equitable if contribution pursuant to this Section 4.4 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the
<PAGE>
immediately preceding paragraph. The amount paid or payable by an Indemnified
Party as the result of the losses, claims, damages or liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expense reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Article IV, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
the Selling Shareholders shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities were offered to the public exceeds the amount of any damages which
the Selling Shareholders have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.1. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. The
Selling Shareholders may not participate in any underwritten registered offering
pursuant to a Piggy-Back Registration unless it (a) agrees to sell its
securities on the basis provided in any underwriting arrangements approved by
the Person entitled to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement.
SECTION 5.2 RESTRICTIONS ON PUBLIC SALE BY THE SELLING SHAREHOLDER.
To the extend not inconsistent with applicable law, if any Registrable
Securities are included in a Demand Registration or a Piggy-Back Registration,
the Selling Shareholders will agree not to effect any public sale or
distribution of the issue being registered or a similar security of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, including a sale pursuant to Rule 144, during the 14 days prior to,
and during the 180-day period beginning on, the effective date of such
registration), if and to the extent requested by the managing Underwriter or
Underwriters in the case of an underwritten offering.
SECTION 5.3 SUCCESSORS AND ASSIGNS. The Selling Shareholders may
transfer the rights and obligations under this Agreement only upon the written
consent of the Company.
SECTION 5.4 TERMINATION. The registration rights granted under this
Agreement will terminate on the earlier of (i) the third anniversary of the
closing of the sale of Class A Shares pursuant to the Public Offering and (ii)
with respect to any Selling Shareholder, on the date as of which all of the
shares owned by such Selling Shareholder may be sold without volume restriction
under Rule 144 of the Securities Act. For purposes of this Section 5.4, if a
Selling Shareholder holds securities for one or more accounts which are not
beneficially owned by the same Person, the determination to be made under clause
(ii) shall be made separately for each such account.
SECTION 5.5. NOTICES. All notices, requests, demands, and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (i) mailed, registered
or certified mail, return receipt requested, postage prepaid, (ii) delivered by
hand, (iii) sent by facsimile transmission, or (iv) delivered by courier, to the
following addresses, or at such other address as a party may designate by notice
given in accordance with this Section:
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(a) If to the Company: Jones International Networks, Ltd.
9697 E. Mineral Avenue
Englewood, CO 80112
Attn: Jay B. Lewis
(b) If to the Selling Shareholders: Jones International Trust LLC
9697 E. Mineral Avenue
Englewood, CO 80112
Attn: Timothy J. Burke
Edith Hilliard
2211 Fifth Avenue
Seattle, WA 98121
Penn Capital Management
c/o Penn Value Income Fund
Peter Kaltman
John Hocker
Richard A. Hocker
Penn High Yield Fund
Eugene Gatti
Penn Cap Block
AK STEEL
University of Chicago
Penn Capital Strategic High
Yield Mutual Fund
Tip Turner Target Select
52 Haddonfield-Berlin Road
Suite 1000
Cherry Hill, NJ 08034
Sandler Capital Partners IV, L.P. and
Sandler Capital Partners IV FTE, L.P.
767 Fifth Avenue
45th Floor
New York, NY 10153
Attn: Edward G. Grinacoff
Notices delivered personally or by courier shall be effective upon delivery
to the intended recipient. Notices transmitted by facsimile transmission shall
be deemed to have been given when confirmation of transmission is received.
Notices delivered by registered or certified mail shall be deemed to have been
given on the delivery date set forth on the receipt of registered or certified
mail, or three (3) business days after deposit in the mail, whichever is
earlier.
<PAGE>
SECTION 5.6. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
SECTION 5.7. ENTIRE AGREEMENT, NO WAIVER. This Agreement and the
documents and instruments referred to herein constitute the entire agreements
between the parties hereto pertaining to the subject matter hereof and supersede
all prior and contemporaneous agreements and understandings of the parties, and
there are no warranties, representations or other agreements among the parties
in connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification or waiver or termination of this Agreement
shall be binding unless executed in writing by the parties hereto, except that
any of the terms or provisions of this Agreement may be waived in writing at any
time by the party against whom it is asserted and delivered by that party to
each of the other parties. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions thereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
SECTION 5.8. HEADINGS. The title or headings of the various sections
and paragraphs hereof are intended solely for convenience of reference and are
not intended and shall not be deemed for any purpose whatsoever to modify or
explain or place any construction upon any of the provisions of this Agreement.
SECTION 5.9. USE OF THE PLURAL, ETC. Throughout this Agreement,
wherever the context so requires the singular shall include the plural, and the
masculine gender shall include the feminine and neuter genders, and vice versa.
SECTION 5.10. GOVERNING LAW. The parties agree that this Agreement
has been executed and delivered in the State of Colorado and shall be construed,
enforced and governed by the laws thereof, without giving effect to the
principles of conflicts of law of such State.
SECTION 5.11. NO THIRD PARTY BENEFICIARIES. This Agreement shall not
confer any rights, claims or remedies upon anyone not a party to this Agreement
or the permitted successors and assigns of such a party.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
JONES INTERNATIONAL NETWORKS, LTD.,
a Colorado corporation
By: /s/ Jay B. Lewis
--------------------------------------
Jay B. Lewis
Group Vice President
THE SELLING SHAREHOLDERS:
Jones International Trust LLC
By: Jones Investments LLC, as Managing Member
By: Jones International, Ltd.,
as Managing Member
By: /s/ Timothy J. Burke
--------------------------------
Timothy J. Burke
Group Vice President
Edith Hilliard
/s/ Edith Hilliard
-----------------------------------------
<PAGE>
Penn Capital Management
c/o Penn Value Income Fund
Peter Kaltman
John Hocker
Richard A. Hocker
Penn High Yield Fund
Eugene Gatti
Penn Cap Block
AK STEEL
University of Chicago
Penn Capital Strategic High Yield Mutual Fund
Tip Turner Target Select
By: /s/ Eric J. Green
--------------------------------------------
Title: Vice President
-----------------------------------------
Sandler Capital Partners IV, L.P.
By: Sandler Investment Partners, L.P.,
a General Partner
By: Sandler Capital Management,
a General Partner
By: MJDM Corp.,
a General Partner
By: /s/ Edward G. Grinacoff
--------------------------------------------
Edward G. Grinacoff
President
Sandler Capital Partners IV FTE, L.P.
By: Sandler Investment Partners, L.P.,
a General Partner
By: Sandler Capital Management,
a General Partner
By: MJDM Corp.,
a General Partner
By: /s/ Edward G. Grinacoff
--------------------------------------------
Edward G. Grinacoff
President
<PAGE>
Exhibit 21.1
Subsidiaries
All of the companies listed below are Colorado corporations, unless
otherwise indicated.
BP Programming, Inc.
Galactic/Tempo, a Colorado general partnership
Great American Country, Inc.
JPN, Inc.
Jones Audio Services, Inc.
Jones/Capstar Radio Programming LLC
Jones Direct, Ltd.
Jones Earth Segment, Inc.
Jones Galactic Radio, Inc.
Jones Galactic Radio Partners, Inc.
Jones Infomercial Networks, Inc.
Jones Infomercial Network Ventures, Inc.
Jones Infomercials International, Ltd.
Jones MAI Radio, Inc.
Jones/Owens Radio Programming LLC
Jones Radio Holdings, Inc.
Jones Radio Network, Inc.
Jones Radio Network Ventures, Inc.
Jones Space Holdings, Inc.
MediaAmerica, Inc., a New York corporation
Product Information Network Venture, a Colorado joint venture
<PAGE>
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
this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver, Colorado
December 20, 1999
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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