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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
MAY 9, 1996
THE PROVIDENCE JOURNAL COMPANY
(Exact name of registrant as specified in its charter)
Commission File Number 0-26928
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DELAWARE 05-0481966
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
75 Fountain Street, Providence, RI 02902-9985
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (401) 277-7000
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Item 2. Acquisition or Disposition of Assets.
As previously reported in the Company's Quarterly Report on Form 10-Q filed on
May 14, 1996 and amended on June 10, 1996, the Company made the following
purchases of additional equity ownership interests, which resulted in the
consolidation of these entities in 1996. The Company financed these purchases
through borrowings on its revolving credit facilities. Though insignificant to
the total assets of the Company, financial information related to these
entities is hereby disclosed on this Form 8-K:
Increased Ownership Interest in Television Food Network, G.P.
On May 14, 1996, the Company purchased the equity partnership interests held by
Landmark Programming, Inc. ("Landmark") and Scripps Howard Publishing, Inc.
("Scripps"), two of the partners of Television Food Network, G.P. ("TVFN"), for
respective purchase prices of approximately $12.6 million and $11.4 million.
Prior to such purchases, Landmark and Scripps each owned a 10.8% and 9.7%
general partnership interest, respectively, in TVFN. The Company's investment in
TVFN through May 31, 1996, including these purchases and funding of its share of
operating losses, totaled $44.7 million, which represents an equity interest of
approximately 46%. Following these purchases, the Company now holds three of the
five voting seats on the TVFN management committee. As a result of the
purchases, TVFN became a controlled subsidiary of the Company and, effective May
1, 1996, was consolidated into the Company's results of operations.
TVFN, a general partnership, was formed specifically to own and operate the
Television Food Network, a 24-hour advertising-supported cable and satellite
network service that provides television programming related to the preparation,
enjoyment and consumption of food, as well as programs focusing on nutrition and
topical news areas. The Company is managing general partner of TVFN.
Increased Ownership Interest in America's Health Network
On May 9, 1996, the Company increased its investment in America's Health
Network, L.P. and America's Health Network, LLC, the controlling entities of
America's Health Network (collectively "AHN") by $17.0 million to $35.3 million
which represents an equity interest of approximately 65%, an increase of
approximately 6% since December 31, 1995. AHN was consolidated into the
Company's results of operations effective January 1, 1996. America's Health
Network is a 24-hour basic cable television programming service principally
featuring viewer call-in programs designed for health-conscious adults who are
active participants in their own health care and the health care of spouses,
parents, and children. America's Health Network launched its service on March
25, 1996.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of Businesses Acquired. The financial statements of
TVFN and AHN included pursuant to this item are filed as Exhibit 99.1 and
Exhibit 99.2, respectively of this Form 8-K and are incorporated herein by
reference.
(b) Pro Forma Financial Information. The following pro forma financial
information included pursuant to this item is filed as Exhibit 99.3 to this
Form 8-K and is incorporated herein by reference:
A. Unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1995
B. Unaudited pro forma condensed consolidated statement of operations for the
six months ended June 30, 1996
C. Notes to unaudited pro forma condensed consolidated condensed financial
statements.
(c) Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Partnership Interest Purchase and Sale Agreement dated
April 2, 1996 between the Company and Landmark
Programming, Inc. (incorporated by reference to Exhibit
10.10 of the Company's Registration Statements on Form
S-1 (File No. 333-02703))
2.2 Partnership Interest Purchase and Sale Agreement dated
April 2, 1996 between the Company and Scripps Howard
Publishing, Inc. (incorporated by reference to Exhibit
10.11 of the Company's Registration Statement on Form
S-1 (File No. 333-02703))
2.3 Admission Agreement dated as of April 3, 1996 between
PJ Health Programming, Inc. and AHN Partners, L.P.
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Financial statements of Television Food Network, G.P. as
of December 31, 1995 and 1994 and for each of the years
ended in the three years ended December 31, 1995 and the
six months ended June 30, 1996 and 1995
99.2 Financial statements of America's Health Network (a
development stage enterprise) as of December 31, 1995
and 1994 and for each of the years then ended and the
six months ended June 30, 1996.
99.3 Pro forma financial statements of the Company as
follows:
A. Unaudited pro forma condensed consolidated
statement of operations for the year ended December
31, 1995
B. Unaudited pro forma condensed consolidated
statement of operations for the six months ended
June 30, 1996
C. Notes to unaudited pro forma condensed consolidated
condensed financial statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 1, 1996
THE PROVIDENCE JOURNAL COMPANY
By: /s/ Thomas N. Matlack
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Thomas N. Matlack
Vice President-Finance and Chief Financial Officer
(principal financial officer)
By: /s/ Robert G. Colucci
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Robert G. Colucci
Corporate Controller
(chief accounting officer)
By: /s/ John L. Hammond
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John L. Hammond
Vice President-General Counsel and Chief Administrative Officer
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Exhibit 2.3
AHN PARTNERS, L.P.
ADMISSION AGREEMENT
ADMISSION AGREEMENT, dated as of April __, 1996, by and between PJ Health
Programming, Inc., a Delaware corporation (the "Subscriber"), and AHN PARTNERS,
L.P., a Delaware limited partnership (the "Company") of which AMERICA'S HEALTH
NETWORK, L.L.C., a Delaware limited liability company (the "General Partner"),
is the sole general partner.
1. AGREEMENT TO SUBSCRIBE.
(a) The Subscriber hereby subscribes for and agrees to purchase,
/X/ as a Class A Partner, or
/ / as a Class B Partner,
(i) the interest in the Company (the "First Closing
Partnership Interest") set forth opposite the name of the Subscriber
on the signature page to this Admission Agreement (expressed in terms
of a percentage representing the Post Recoupment Percentage Interest
(as defined in the Partnership Agreement [as defined below] to be
owned by the Subscriber subject to the terms and conditions of the
Partnership Agreement), and the Company hereby agrees to issue and
sell such Percentage Interests to the Subscriber, on the terms set
forth herein, for the purchase price (the "First Closing Purchase
Price") equal to the dollar amount set forth as such opposite the name
of the Subscriber on the signature page to this Admission Agreement;
and
(ii) the interest in the Company (the "Second Closing
Partnership Interest"), if any, set forth opposite the name of the
Subscriber on the signature page to this Admission Agreement (also
expressed in terms of a percentage representing the Post Recoupment
Percentage Interest to be owned by the Subscriber subject to the terms
and conditions of the Partnership Agreement), and the Company hereby
agrees to issue and sell the Second Closing Partnership Interest to
the Subscriber, on the terms set forth herein, for the purchase price
(the "Second Closing Purchase Price") equal to the dollar amount set
forth as such opposite the name of the Subscriber on the signature
page to this Admission Agreement.
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The Subscriber acknowledges that the First Closing Partnership Interest shall be
subject to dilution from the sale of the Second Closing Partnership Interest to
the Subscriber, if any, and from sales of interests in the Company to other
subscribers contemporaneously with the Second Closing (as defined in Section
1(c)).
(b) The First Closing Partnership Interest and the Second Closing
Partnership Interest are collectively referred to in this Agreement as the
"Partnership Interest." The First Closing Purchase Price and the Second Closing
Purchase Price shall be payable by wire transfer of immediately available funds
to the following bank account of the Company:
To: SunTrust Bank, Central Florida, N A.
200 South Orange Avenue
Orlando, FL 32801
407-237-4986
ABA# 063102152
For Benefit of:
AHN Partners, L.P.
1000 Universal Studios Plaza B-22A
Orlando, FL 32819-7610
Account No: 0215-252-137-195
(c) The closing of the purchase and the sale of the First Closing
Partnership Interest (the "First Closing") and the closing of the purchase and
the sale of the Second Closing Partnership Interest (the "Second Closing," and,
together with the First Closing, the "Closings") shall take place at the offices
of Blumenthal & Lynne, a Professional Corporation, at 488 Madison Avenue, New
York, New York, counsel for the Company, or at such other place as may be agreed
upon by the Company, the Subscriber and each of the other persons (the "Other
Subscribers") whose names are set forth on Schedule A-1 to the Partnership
Agreement as persons who will become Class A Partners of the Company. The First
Closing shall take place on April 16, 1996, or other date or other time, as may
be agreed upon by the Company, the Subscriber and each of the Other Subscribers;
PROVIDED. that with respect to the Subscriber, the First Closing shall be
postponed until the fulfillment of the condition referred to in (d) of this
Section 1. The Second Closing shall be held on January 6, 1997, or other date or
other time, as may be agreed upon by the Company, the Subscriber and each of the
Other Subscribers.
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(d) Notwithstanding any other provision of this Agreement to the
contrary, the obligations of the Subscriber under this Agreement shall be
subject in all respects to the receipt by the Subscriber of the consent of its
board of directors to the transactions contemplated hereby. The Company will use
its best efforts to obtain such consent from its board of directors on or prior
to May 15, 1996. If the Subscriber does not receive such consent on or prior to
the end of business on May 15, 1996, then this Agreement and the obligations of
the parties contained herein shall terminate and be of no further force and
effect.
2. ADOPTION OF THE PARTNERSHIP AGREEMENT.
The Subscriber hereby intends that its signature hereon shall
constitute an irrevocable subscription to the Company for the Partnership
Interest as well as the specific acceptance and adoption of each and every
provision of that certain Amended and Restated Limited Partnership Agreement,
dated as of April 3, 1996 (the "Partnership Agreement"), which Partnership
Agreement is incorporated herein and made a part hereof by reference, and hereby
agrees to be bound and governed by the provisions of the Partnership Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a material inducement
to the Subscriber to enter into and perform its obligations under this
Agreement, the Company hereby represents and warrants that, except as disclosed
in the Disclosure Schedule dated as of the date of this Agreement and attached
to this Agreement (the "Disclosure Schedule"):
(a) ORGANIZATION. STANDING. ETC. The Company is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite partnership power and authority to own
and operate its properties and to carry on its business and to enter into this
Agreement and issue the Partnership Interests. The Company has delivered to the
Subscriber a complete and correct copy of the Partnership Agreement. The Company
has no direct or indirect ownership interest (by way of stock ownership or
otherwise) in any other firm, corporation, association or business enterprise.
(b) QUALIFICATION TO DO BUSINESS. The Company is duly qualified or
licensed and in good standing as a foreign corporation duly authorized to do
business in each jurisdiction wherein the ownership of its property or the
conduct of its business requires such qualification or license and where the
failure to be so qualified or licensed might have a material adverse effect on
the Company. The Company has all requisite power and authority to own and
operate its properties, to lease the properties it leases and to conduct its
business in the manner and in the jurisdictions where now conducted.
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(c) CAPITALIZATION.
(i) After giving effect to the issuance of the all
partnership interests contemplated by the Partnership Agreement, the respective
Post Recoupment Percentage Interests of the Partners will be as set forth in
Schedule A-2 to the Partnership Agreement.
(ii) Except as set forth in Schedule A-2 to the Partnership
Agreement, the Company has neither granted or issued, nor agreed to grant or
issue, any option, warrant or other commitment to issue or to acquire any
partnership interest.
(d) FINANCIAL STATEMENTS. Incorporated as part of the Disclosure
Schedule is the unaudited consolidated balance sheet of the Company as of March
31, 1996 (the "Balance Sheet"). The Balance Sheet (i) was compiled from the
books and records of the Company regularly maintained by management and used to
prepare the financial statements of the Company prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied with
prior periods; and (ii) present fairly the financial position of the Company at
March 31, 1996 in accordance with GAAP.
(e) ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities which
are set forth in the Balance Sheet which have arisen in the ordinary course of
business in amounts usual and normal, both individually and in the aggregate,
for the Company (none of which are liabilities for breach of contract, breach of
warranty, torts, infringements, claims or lawsuits), the Company has no material
obligations or liabilities (whether accrued, absolute, contingent, unliquidated,
or otherwise, whether due or to become due) arising out of actions, inactions or
transactions entered into or any state of facts existing at or prior to the date
hereof, including without limitation any liabilities for federal state or local
taxes arising from the dissolution of America's Health Network, Inc.
(f) NO VIOLATION. The performance by the Company and the General
Partner of their respective obligations hereunder and the consummation of the
transactions contemplated hereby will not (i) violate, conflict with or result
in a breach of any provision of the Partnership Agreement; (ii) violate, or be
in conflict with, or constitute a default (with or without due notice or lapse
of time or both) under, or permit the termination of, or cause the acceleration
of the maturity of any debt or obligation of the Company under, require the
consent of any other party to, constitute a breach of, create a loss of a
material benefit under, or result in the creation or imposition of any lien upon
any property or assets of the Company or the General Partner under, any
mortgage, indenture, lease, agreement or other instrument to which
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the Company or the General Partner is a party or by which the Company or the
General Partner or the assets thereof, may be bound; (iii) violate any statute
or law or violate any judgment, decree, order, regulation or rule of any court
or governmental authority to which the Company or the General Partner is
subject; or (iv) violate any contract, agreement or commitment to which the
Company or the General Partner is bound.
(g) NO MATERIAL ADVERSE CHANGE. Since December 31,1995, neither the
business, operations, property nor affairs of the Company have been materially
adversely affected by any occurrence or development, whether or not insured
against, and the Company has no knowledge of any threatened occurrence or
development which would, individually or in the aggregate, materially adversely
affect its properties or assets, its business, operations or affairs.
(h) VALIDITY OF THIS AGREEMENT. The execution, delivery and
performance by the Company of this Agreement, and the consummation of the
transactions contemplated hereby have been duly authorized and approved by all
necessary corporate actions. The execution and delivery of this Agreement will
not violate any provision of law and will not conflict with, or result in a
breach of any of the terms of, or constitute a default under any agreement,
instrument or other restriction to which the Company is a party or by which it
is bound.
(i) CONSENTS. No consent, approval or authorization of or designation,
declaration or filing with any other person, including without limitation any
governmental authority, on the part of the Company is required in connection
with the valid execution, delivery or performance of this Agreement or the
consummation of any transaction contemplated hereby.
(j) TITLE TO PROPERTIES; ENCUMBRANCES. The Company has good and
marketable title to all of its properties and assets (tangible and intangible),
subject to no Liens (as defined below) other than the following:
(i) the Company's leases of its office and production
facilities;
(ii) the Company's license of intangible rights from
IVI Publishing, Inc. pursuant to the License Agreement, dated May 25, 1995 and
other license agreements entered into in the ordinary course of its business;
(iii) deposits under worker's compensation,
unemployment insurance and similar laws or secure statutory obligations; and
(iv) Liens created in conjunction with equipment
leases to secure the lease obligation created thereby.
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As used herein, "Liens" shall mean any mortgage, pledge, security interest,
conditional sale or other title retention agreement, encumbrance, lien,
easement, claim, right, covenant, restriction, right of way, warrant, option or
charge of any kind.
(k) CONTRACTS AND COMMITMENTS. The Disclosure Schedule contains a
complete list (stated without duplication) of all contracts and commitments of
the Company which are material to the operations, business or financial
condition of the Company (the "Material Contracts") and which will be
enforceable against the Company after the Effective Date (other than agreements
with physician/hosts paid at an annual rate of $100,000 or less). The Material
Contracts are valid and binding and in full force and effect and there does not
exist any default by the Company, or, to the Company's best knowledge, by any
other party thereto, or event which with notice or lapse of time or both would
constitute a default by the Company, or, to the Company's best knowledge, by any
other party thereto, under a Material Contract which default would allow the
termination thereof.
(l) LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened in any
court or before any governmental agency or instrumentality against or affecting
the Company or the business, operations, financial condition or properties or
assets of the Company, or which would prevent the carrying out of this Agreement
or the Partnership Agreement, or any of the transactions contemplated hereby or
thereby, or declare the same unlawful or cause the rescission hereof. The
Company has not been charged with, nor to its knowledge, is it threatened with
or under an investigation with respect to, any charge concerning any violation
of any provision of any federal, state or local law, regulation, ordinance,
order or administrative ruling, nor is the Company in default with respect to
any order, writ, injunction or decree of any court, governmental agency or
instrumentality.
(m) SECURITIES LAWS. The sale of the Securities, as provided in this
Agreement, is exempt from the registration and prospectus delivery requirement
of the Securities Act of 1933, as amended (the "Securities Act"), and is
registered or qualified (or is exempt from registration or qualification) under
the registration or qualification requirements of all applicable state
securities laws. Neither the Company nor anyone acting on its behalf will take
any action hereafter that would cause the loss of such exemption.
(n) DISCLOSURE. None of this Agreement, the Disclosure Schedule, the
Memorandum and the Forecast (Memorandum and Forecast being defined in Section
4.1) nor any certificate or other instrument referred to herein or otherwise
furnished to the Subscriber by the Company contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained
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herein or therein, in the light of the circumstances under which they were made,
not misleading. There is no fact known to the Company relating to the business,
affairs, operations, condition or prospects of the Company which materially
adversely affects the same and which has not been disclosed to the Subscriber by
the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
The Subscriber acknowledges that the Partnership Interest is offered
pursuant to an exemption from registration under the Securities Act. In
connection therewith the Subscriber makes the following representations,
warranties and acknowledgements, realizing that they are being relied upon by
the Company for purposes of determining the Subscriber's suitability as an
investor in the Company and compliance by the Company with applicable Federal
and state securities laws and regulations:
(a) The Subscriber has read the Confidential Private Placement
Memorandum entitled "America's Health Network, G.P." and dated August 1995,
together with the supplement thereto dated March 18, 1996 (as so amended, the
"Memorandum") and the Forecast Financial Statements of AHN Partners, L P.
(together with assumptions) dated March 29, 1996 (the "Forecast"). The
Subscriber has such knowledge and expertise in financial and business matters
that the Subscriber is capable of evaluating the merits and risks of an
investment in the Partnership Interest and the Subscriber is able to bear the
economic risk of investment in the Company Interest and the complete loss of the
Subscriber's investment.
(b) The Subscriber has received and read or reviewed and is familiar
with the Partnership Agreement and such other documents which relate to its
subscription for the Partnership Interest, and the Subscriber confirms that all
documents, agreements, records and books pertaining to the investment in the
Company and requested by the Subscriber have been made available or delivered to
the Subscriber.
(c) The Subscriber has obtained, to the extent the Subscriber has
deemed necessary, the Subscriber's own personal professional advice with respect
to the risks inherent in investment in the Partnership Interest, the suitability
of such investment in light of the Subscriber's financial condition and
investment needs, and legal, tax and accounting matters.
(d) In connection with the Subscriber's acquisition of the Partnership
Interest, the Subscriber has been afforded the opportunity to ask questions of
and receive answers from representatives of the General Partner and from persons
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authorized to act on the Company's behalf concerning (i) the terms and
conditions of this investment, and (ii) the Company and its operations. In
addition, the Subscriber has been afforded the opportunity to obtain any
additional information which the Company possesses or could acquire without
unreasonable effort or expense which the Subscriber requires in order to verify
the accuracy of the information provided by the Company.
(e) The Subscriber understands that future operating results of the
Company are subject to events over which the Company will have only partial or
no control and to various uncertainties inherent in the Company's activities. No
representation has been made or could be made as to the amount of future profits
or losses of the Company.
(f) The Subscriber has adequate means of providing for its current
needs and possible business contingencies, has no need for liquidity of
investment in the Partnership Interest and has no reason to anticipate any
change in business circumstances, financial or otherwise, which may cause or
require any sale or distribution of the Partnership Interest.
(g) The Subscriber understands that investment in the Company is
an illiquid investment. In particular, the Subscriber recognizes that:
(i) The Subscriber must bear the economic risk of investment
in the Partnership Interest for an indefinite period of time, since the
Partnership Interest has not been registered under the Securities Act, and,
therefore, cannot be sold unless either it is subsequently registered under the
Securities Act or an exemption from such registration is available and a
favorable opinion of counsel for the Partnership to that effect is obtained (if
requested by the General Partner);
(ii) The Subscriber will not have the right to require
registration of the Partnership Interest under the Securities Act and will not
be entitled to the benefits of Rule 144 thereunder, and
(iii) No established market for the Partnership Interest will
exist and it is extremely unlikely that any public market for the Partnership
Interest will develop.
(h) The Subscriber represents that the Partnership Interest is being
purchased by it or for its own account, for purposes of investment and not for
the account of any other person and not for distribution, assignment or resale
to others, and no other person has a direct or beneficial interest in the
Partnership Interest. The
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Subscriber understands and acknowledges that the Partnership Interest has not
been registered under the Securities Act or under state laws.
(i) The Subscriber, if a corporation, partnership, trust or other
entity, is authorized and otherwise duly qualified to purchase and hold the
Partnership Interest and to enter into this Admission Agreement.
a) All information which the Subscriber has provided to the Company
concerning the Subscriber's financial position and knowledge of financial and
business matters, or, in the case of a corporation, partnership, trust or other
entity, concerning the knowledge of financial and business matters of the
person(s) making the investment decision on behalf of such entity, is correct
and complete as of the date set forth on the signature page hereof, and if there
should be any adverse change in such information prior to his, her, or its
subscription being accepted, he, she, or it will immediately provide the Company
with such information.
(k) The Subscriber acknowledges and is aware that the Company has no
financial operating history; this is the Company's first venture; and the
Partnership Interest involves a high degree of risk of loss by the Subscriber of
its entire investment in the Company.
(l) The Subscriber is an "accredited investor" as defined in Rule 501
under the Securities Act, inasmuch as the Subscriber is:
(Please initial all applicable descriptions)
____ An entity with total assets at the time of purchase in
excess of $5,000,000, which was not formed for the purpose
of investing in the Company and which is one or more of the
following:
____ corporation;
____ partnership;
____ limited liability company; or
____ a tax-exempt organization as
described in Section 501(c)(3) of
the Internal Revenue Code of 1986,
as amended.
____ A personal (non-business) trust with total assets in excess
of $5,000,000, which was not formed for the purpose of
investing in the Company and whose decision to invest in the
Company has been directed by a person who has such knowledge
and experience in
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____ financial and business maKers that he is capable of
evaluating the merits and risks of the investment.
____ Licensed, or subject to supervision, by U.S. Federal or
state examining authorities as a "bank," "savings and loan
association," "insurance company" or "small business
investment company" (as such terrns are used and defined in
17 CFR 230.501(a)).
____ Registered with the U.S. Securities and Exchange Commission
(the "Commission") as a broker or dealer or an investment
company, or has elected to be treated or qualifies as a
"business development company" (within the meaning of
Section 2(a)(48) of the Investment Company Act of 1940 or
Section 202(a)(22) of the Investment Advisers Act of 1940).
____ Any other entity in which all of the equity owners are
persons described above.
5. CONDITIONS OF THE SUBSCRIBER'S OBLIGATIONS.
(a) CONDITIONS TO BE MET AT THE FIRST CLOSING. The Subscriber's
obligations to purchase the First Closing Partnership Interest and pay the First
Closing Purchase Price therefor are subject to the fulfillment to its reasonable
satisfaction of the following conditions:
(i) The representations and warranties of the Company made in
writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall be true and correct at and as of the date of the First
Closing (the "First Closing Date").
(ii) Each of the other persons (the "Other Subscribers")
whose names are set forth on Schedule A to the Partnership Agreement as persons
who will become Class A Partners or Class B Partners of the Company has entered
into a Subscription Agreement with the Company substantially in the form of this
Agreement and each of the Other Partners has paid the First Closing Purchase
Price pursuant to the terms and conditions of such Subscription Agreement.
(iii) The Subscriber shall have received a certificate
executed by the President of the Company, dated as of the Closing Date,
certifying that the conditions specified in clauses (i) through (ii) of this
Section 5(a) have been fulfilled.
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(iv) All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Subscriber, and Subscriber shall have received all such counterpart
originals or certified or other copies of the Partnership Agreement and this
Agreement as the Subscriber may reasonably request.
(b) CONDITIONS TO BE MET AT THE SECOND CLOSING. The Subscriber's
obligations to purchase the Second Closing Partnership Interest and pay the
Second Closing Purchase Price therefor are subject to the fulfillment to its
reasonable satisfaction of the following conditions:
(i) The representations and warranties of the Company made in
writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall be true and correct at and as of the date of the
Second Closing (the "Second Closing Date").
*
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* - Denotes confidential material omitted and filed separately with the
Securities and Exchange Commission
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*
(iv) Access has performed each of the obligations to be
performed by it at the Second Closing.
(v) The Subscriber shall have received a certificate executed
by the President of the Company, dated as of the Closing Date, certifying that
the conditions specified in clauses (i) through (iv) of this Section 5(b) have
been fulfilled.
(vi) All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Subscriber.
(c) Notwithstanding any other provision of this Agreement to the
contrary, if all of the conditions to the Second Closing set forth in Section
5(b) have not been fulfilled, the Subscriber shall have the right, but not the
obligation, to purchase up to all or any part of the Second Closing Partnership
Interest from the Company at the Second Closing Purchase Price adjusted for the
proportion of the Second Closing Partnership Interest that the Subscriber
desires to purchase.
(d) Any failure on the part of any Subscriber to pay any portion of
the First Closing Purchase Price or the Second Closing Purchase Price when due
shall render the Subscriber a "Delinquent Partner" under Section 4.2 of the
Partnership Agreement and shall enable the Company and its Partners to employ
the rights and remedies set forth therein, without limiting such additional
rights or remedies as the Company or its Partners may have at law or in equity.
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* - Denotes confidential material omitted and filed separately with the
Securities and Exchange Commission.
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6. SUBSCRIBER'S INDEMNIFICATION.
(a) The Subscriber acknowledges that the Company will rely upon the
representations, warranties and agreements of the Subscriber set forth in
Section 4, each of which shall survive after the date of the Subscriber's
execution and delivery of this Agreement. The Subscriber agrees to hold harmless
and indemnify the Company and the General Partner and its officers, directors
and stockholders and any other person who may be deemed to control the General
Partner from and against all liabilities, damages, losses, costs and expenses
(including reasonable attorneys' fees) which it may incur by reason of the
failure of the Subscriber to fulfill any of the terms or conditions of this
Admission Agreement, or by reason of any inaccuracy or breach of the
representations and warranties and agreements made by the Subscriber in Section
4 or in connection with the Partnership Interest in any manner whatsoever.
(b) The Company acknowledges that the Subscriber will rely upon the
representations, warranties and agreements of the Company set forth in Section
3, each of which shall survive after the date of the Subscriber's execution and
delivery of this Agreement. The Company agrees to hold harmless and indemnify
the Subscriber from and against all liabilities, damages, losses, costs and
expenses (including reasonable attorneys' fees) which it may incur by reason of
the failure of the Company to fulfill any of the terms or conditions of this
Admission Agreement, or by reason of any inaccuracy or breach of the
representations and warranties and agreements made by the Company in Section 3
or in connection with the Partnership Interest in any manner whatsoever.
7. MISCELLANEOUS.
(a) The Subscriber agrees that this Admission Agreement shall be
binding upon the Subscriber's permitted successors and assigns. Notwithstanding
the foregoing, the Subscriber may not assign this Admission Agreement without
the prior written consent of the Company.
(b) Notwithstanding any of the representations, warranties,
acknowledgements or agreements made herein by the Subscriber, the Subscriber
does not thereby or in any other manner waive any rights granted to the
Subscriber under United States or other applicable securities laws.
(c) This Admission Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by such parties.
13
<PAGE> 14
(d) This Admission Agreement shall be enforced, governed and construed
(both as to validity and performance) in all respects in accordance with the
laws of the State of Delaware applicable to agreements made and to be performed
wholly in the State of Delaware.
(e) Within five days after receipt of a written request from the
Company, the Subscriber will provide such information, to execute and deliver
such documents and to take, or forbear from taking, such actions as reasonably
may be necessary to comply with any and all laws and ordinances to which the
Company is subject.
(f) All notices sent hereunder shall be in writing. If sent to the
Company, such notices shall be addressed to the Company at its address in the
Partnership Agreement. If sent to the Subscriber, such notices shall be
addressed to the Subscriber at the address (including telecopier number) set
forth below opposite its name.
(g) The Subscriber and the Company agree that any legal suit, action
or proceeding arising out of or relating to this Agreement may be instituted in
a state, city or federal court in the State of New York; PROVIDED that the
Company may bring suit in the courts of any country or place where the
Subscriber or any of its assets may be found and, by execution and delivery of
this Agreement, the Subscriber irrevocably submits to such jurisdiction. To the
extent permitted by law, the Subscriber irrevocably waives trial by jury and any
objection which it may now or hereafter have to the venue of any suit, action or
proceeding, arising out of or relating to the Partnership Agreement or this
Agreement brought in the State of New York and to the extent permitted by law
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in the State of New York has been brought in an inconvenient
forum. If any agent appointed by the Subscriber refuses to accept service, the
Subscriber agrees that service upon it by certified mail return receipt
requested sent to the address specified by the Subscriber below shall constitute
sufficient notice. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of the Company to bring
proceeding against the Subscriber in the courts of any other jurisdiction.
(h) If the Subscriber defaults in the performance of any of its
obligations under this Agreement, the Company shall have all rights and remedies
provided at law and equity. All costs and expenses of collection, including
attorneys' fees, shall be added to and become part of the obligations of the
Subscriber under this Agreement.
14
<PAGE> 15
(i) This Admission Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each party hereto has caused this Admission Agreement
to be duly executed on the date indicated beneath its name.
AHN PARTNERS, L.P., a Delaware
limited partnership
By: America's Health Network, LLC,
General Partner
By:________________________________
Name:
Title:
PJ HEALTH PROGRAMMING, INC.
By:________________________________
Name:
Title:
15
<PAGE> 16
Name and Address of Subscriber:
PJ Health Programming, Inc.
c/o The Providence Journal Company
75 Fountain Street, 3rd Floor
Providence, Rhode Island 02902
Telephone: (401) 277-7000
Telecopier: (401) 277-8170
First Closing Partnership
Interest (expressed as
Post Recoupment Percentage
Interest): * Purchase Price: *
Second Closing Partnership
Interest (expressed as
Post Recoupment Percentage
Interest): * Purchase Price: *
- ----------
* - Denotes confidential matierial omitted and filed separately with the
Securities and Exchange Commission.
16
<PAGE> 17
DISCLOSURE SCHEDULE
Material Contracts of the Company are as follows:
1. Letter Agreement, dated as of May 25, 1995, between America's
Health Network, Inc. ("AHN, Inc.") and IVI Publishing, Inc.
2. Agreement, dated as of June 8, 1995, between AHN, Inc. and
Mayo Foundation for Medical Education and Research.
3. Business Center Lease, dated June 30, 1995, between AHN, Inc.
and Universal City Florida Partners ("Universal City").
4. Consulting Agreement, dated as of July 1, 1995, between AHN,
Inc. and The Providence Journal Broadcasting Corp.
5. Sublease Agreement, dated as of August 1, 1995, between AHN,
Inc. and Providence Journal Satellite Services, Inc.
6. Telemarketing and Fulfillment Services Agreement, executed on
June 20, 1995 and June 28, 1995, between AHN, Inc. and
National Call Center, Inc.
7. Fiber Optics Service Agreement, dated February 29, 1996,
between AHN, Inc. and Triumph Communications, Inc.
("Triumph").
The Company is seeking the consent of Hughes Communications Galaxy, Inc.
("Hughes") to the assignment of the Sublease Agreement pursuant to which AHN
Inc. subleased a transmission signal from Providence Journal Satellite Services,
Inc.
17
<PAGE> 1
Exhibit 23.1
Consent of Independent Public Accountants
We hereby consent to the use of our report on Television Food Network, G.P.
dated February 16, 1996 and our report on America's Health Network (a
development stage enterprise), dated March 15, 1996 included in Exhibits 99.1
and 99.2 of this Current Report on Form 8-K.
Providence, RI
October 31, 1996
/s/ KPMG Peat Marwick LLP
<PAGE> 1
Exhibit 99.1
TELEVISION FOOD NETWORK, G.P.
Financial Statements
December 31, 1994 and 1995
(With Independent Auditors' Report Thereon)
<PAGE> 2
TELEVISION FOOD NETWORK, G.P.
Table of Contents
Page
----
Independent Auditors' Report 1
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 12
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Partners of
Television Food Network, G.P.:
We have audited the accompanying balance sheets of Television Food Network, G.P.
as of December 31, 1994 and 1995 and the related statements of operations,
partners' capital, and cash flows and for the years ended December 31, 1994 and
1995 for the period from August 16, 1993 (date of inception) to December 31,
1993. These financial statements are the responsibility of the Partnership'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 Television Food Network, G.P.
at December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from August 16, 1993 (date of inception) to December 31,
1993, and for the years ended December 31, 1994 and 1995 in conformity with
generally accepted accounting principles.
Providence, Rhode Island
February 16, 1996
<PAGE> 4
2
TELEVISION FOOD NETWORK, G.P.
<TABLE>
Balance Sheets
<CAPTION>
(Unaudited)
December 31, June 30,
Assets 1994 1995 1996
------ ---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,305,151 533,182 189,994
Investment securities held to maturity, stated
at cost which approximates fair value 727,250 3,738,959 3,749,015
Trade accounts receivable 1,188,816 1,857,598 2,265,827
Television program assets, net 1,761,588 2,894,442 3,064,713
Inventory - - 81,434
Prepaid expenses 182,915 262,783 192,927
Launch incentives - 135,346 814,398
Other assets 25,573 406,952 150,319
----------- ---------- ----------
Total current assets 5,191,293 9,829,262 10,508,627
----------- ---------- ----------
Property and equipment, net 5,360,710 4,730,111 4,307,745
Television program assets, net 1,263,584 1,996,483 2,178,368
Intangible assets, net 501,898 4,550,208 4,203,773
Launch incentives, net - 611,213 344,304
----------- ---------- ----------
$12,317,485 21,717,277 21,542,817
=========== ========== ==========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Accounts payable $ 476,796 1,051,423 1,049,577
Launch incentives payable - 1,610,270 -
Accrued expenses 8,430 21,483 158,739
Accrued salaries and wages 96,055 140,011 88,938
Deferred income - 431,747 435,550
Must carry rights payable - 500,000 500,000
Television program rights payable 125,904 100,976 235,005
----------- ---------- ----------
Total current liabilities 707,185 3,855,910 2,467,809
Must carry rights payable - 2,550,000 2,550,000
Launch incentives payable - - 337,653
Television program rights payable - 86,529 97,500
----------- ---------- ----------
Total liabilities 707,185 6,492,439 5,452,962
Commitments
Partners' capital 11,610,300 15,224,838 16,089,855
----------- ---------- ----------
$12,317,485 21,717,277 21,542,817
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE> 5
3
TELEVISION FOOD NETWORK, G.P.
<TABLE>
Statements of Operations
<CAPTION>
From August (Unaudited)
16, 1993 to Six Months
December 31, Years ended December 31, Ended June 30,
------------ ---------------------------- ---------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 12,908 1,960,665 6,657,207 2,928,260 6,333,541
----------- ----------- ----------- ----------- ----------
Operating expenses:
Programming 2,917,140 8,778,621 10,302,151 5,182,251 5,381,746
General and administrative 2,032,672 6,207,789 4,549,792 2,067,916 2,437,149
Marketing and selling 1,791,145 5,449,688 11,417,851 5,234,066 6,722,365
Depreciation and amortization 42,206 1,058,150 1,535,035 694,564 1,001,897
----------- ----------- ----------- ----------- ----------
Total operating expenses 6,783,163 21,494,248 27,804,829 13,178,797 15,543,157
----------- ----------- ----------- ----------- ----------
Loss from operations (6,770,255) (19,533,583) (21,147,622) (10,250,537) (9,209,616)
Interest income 121,847 291,291 262,160 128,652 74,633
----------- ----------- ----------- ----------- ----------
Net loss $(6,648,408) (19,242,292) (20,885,462) (10,121,885) (9,134,983)
=========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
4
TELEVISION FOOD NETWORK, G.P.
<TABLE>
Statements of Partners' Capital
<CAPTION>
Managing Class A Class B
Partner Partners Partners Total
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Initial Contributions, August 16, 1993 $1,000 25,000,000 - $25,001,000
Net loss - (6,648,408) - (6,648,408)
------ ---------- --- -----------
Partners' capital at December 31, 1993 1,000 18,351,592 - 18,352,592
Contributions - 12,500,000 - 12,500,000
Net loss - (19,242,292) - (19,242,292)
------ ---------- --- -----------
Partners' capital at December 31, 1994 1,000 11,609,300 - 11,610,300
Contributions - 24,500,000 - 24,500,000
Net loss - (20,885,462) - (20,885,462)
--- ---------- --- -----------
Partners' capital at December 31, 1995 1,000 15,223,838 - 15,224,838
Contributions (unaudited) - 10,000,000 - 10,000,000
Net loss (unaudited) - (9,134,983) - (9,134,983)
--- ----------- --- -----------
Partners' capital at June 30, 1996 (unaudited) $1,000 16,088,855 - 16,089,855
====== ========== === ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
5
TELEVISION FOOD NETWORK, G.P.
<TABLE>
Statements of Cash Flows
<CAPTION>
From August (Unaudited)
16, 1993 to Six months
December 31, Years Ended December 31, Ended June 30,
------------ ------------------------- ------------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss $ (6,648,408) (19,242,292) (20,885,462) (10,121,885) (9,134,983)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 42,206 1,058,150 1,535,035 694,564 1,001,897
Amortization of television program assets 249,292 1,435,275 2,864,775 1,262,072 1,966,158
Amortization of launch incentives - - 1,910,621 - 24,985
Payments for production of television programming - (3,029,238) (3,267,299) (1,285,066) (2,068,314)
Payments for launch incentives - - (1,046,910) - (1,709,745)
Changes in current assets and liabilities:
Accounts receivable (12,908) (1,175,908) (668,782) 256,696 (408,229)
Inventory - - - - (81,434)
Prepaid expenses (466,970) (135,943) (79,868) (40,504) 69,856
Other assets (43,278) 437,703 (381,379) (6,511) 256,633
Accounts payable 569,849 (93,053) 574,627 164,812 (1,846)
Accrued expenses 26,989 (18,559) 13,053 33,230 137,256
Accrued salaries and wages 44,695 51,360 43,956 27,501 (51,073)
Deferred income - - 431,747 - 3,804
Other, net - - - (9,162) (275)
------------ ----------- ----------- ----------- ----------
Net cash used in operating activities (6,238,533) (20,712,505) (18,955,886) (9,024,253) (9,995,310)
------------ ----------- ----------- ----------- ----------
Investing activities:
Additions to property and equipment (1,348,118) (5,000,609) (652,746) (276,658) (233,096)
Additions to intangible assets (472,914) (141,325) - (13,588) -
Purchases of securities available for sale - (11,500,000) - - -
Proceeds from securities available for sale - 26,059,230 - - -
Purchases of securities held to maturity - (2,203,993) (4,511,709) (729,954) (740,710)
Maturity of securities held to maturity - 2,250,000 1,500,000 750,000 730,928
(Increase) decrease in short-term investments (15,332,487) - - - -
------------ ----------- ----------- ----------- ----------
Net cash provided by (used in) investing
activities (17,153,519) 9,463,303 (3,664,455) (270,200) (242,878)
------------ ----------- ----------- ----------- ----------
Financing activities:
Capital contributions 25,001,000 12,500,000 24,500,000 13,500,000 10,000,000
Payments for television program rights (1,023,051) (531,544) (1,401,628) (693,709) (105,000)
Payments for must carry rights - - (1,250,000) - -
------------ ----------- ----------- ----------- ----------
Net cash provided by financing activities 23,977,949 11,968,456 21,848,372 12,806,291 9,895,000
------------ ----------- ----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents 585,897 719,254 (771,969) 3,511,838 (343,188)
Cash and cash equivalents at beginning of period - 585,897 1,305,151 1,305,151 533,182
------------ ----------- ----------- ----------- ----------
Cash and cash equivalents at end of period $ 585,897 1,305,151 533,182 4,816,989 189,994
============ =========== =========== =========== ==========
Supplemental disclosure of non-cash transaction:
Obligations incurred for acquisition of television
program rights $ 1,680,499 - 1,463,228 1,010,934 250,000
============ =========== =========== =========== ==========
Obligations incurred for acquisition of must carry
rights $ - - 3,050,000 - -
============ =========== =========== =========== ==========
Obligations incurred for acquisition of launch
incentives $ - - 2,657,180 - 437,128
============ =========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 8
6
TELEVISION FOOD NETWORK, G.P.
Notes to Financial Statements
December 31, 1994 and 1995
(1) Description of Business, Partnership and Basis of Accounting
Television Food Network, G.P. (the "Partnership") was formed in 1993 to own
and operate the Television Food Network Channel ("TVFN"). TVFN is a
television channel devoted to food, its preparation and other related
topics. The partnership agreement extends through December 31, 2012.
TVFN is managed by its managing general partner, Cable Program Management Co.
("CPMCO"). CPMCO is co-owned by a wholly-owned subsidiary of The Providence
Journal Company (Colony Cable Networks, Inc.) and Pacesetter
Communications, Inc. ("PCI"). CPMCO contributed $1,000 to the Partnership
in exchange for a 10% partnership interest. CPMCO's partnership interest
entitles it to distributions only after all other Partners have recovered
their capital contributions.
In addition to the managing general partner, there are five Class A partners
and four Class B partners. Each Class A partner is entitled to one vote on
the Management Committee of the Partnership. The managing general partner
and the Class B partners are non-voting partners except that in certain
circumstances the managing general partner will be allowed a vote in the
case of a Management Committee deadlock.
Under the original partnership agreement each Class A partner was required to
contribute $9,000,000 in cash to the capital of the Partnership for one
partnership unit. Each Class A partnership unit will represent a 12%
interest in the Partnership. As a result of such purchases, the Class A
partners will hold an aggregate of 5 partnership units representing 60% of
the total Partnership interest. As of December 31, 1995, four Class A
partners had each contributed $12,650,000 in cash and one Class A partner
had contributed $11,400,000 in cash. Class B partners are not required to
make any cash contributions.
The remaining 30% partnership interest is allocated among Class A and Class B
partners based upon "subscriber commitments". In general, each Class A
(except two) and Class B partner will provide carriage of the TVFN channel
to its subscribers and will receive a two percent partnership interest per
one million subscribers. Subscriber interests will be adjusted annually
during a four year period at which time partnership interests for
subscriber commitments will become fixed.
<TABLE>
The Class A and Class B partners, and their respective partnership interests
at December 31, 1995, are as follows:
<CAPTION>
Class A & B Partners Class B Partners Only
-------------------- ---------------------
Partner Interest Partner Interest
------- -------- ------- --------
<S> <C> <C> <C>
Colony Cable Networks, Inc. 12.24% Adelphia Communications
Corporation 1.78%
Scripps Howard, Inc. ("Scripps") 11.87% C-TEC Cable System 0.23%
Continental Programming
Partners I, Inc. 17.13% The Sullivan Group, Inc. 1.18%
Tribune Cable Ventures, Inc. 32.28% Times Mirror Cable 1.05%
Landmark Programming, Inc. ("Landmark") 12.24%
</TABLE>
(Continued)
<PAGE> 9
7
TELEVISION FOOD NETWORK, G.P.
Notes to Financial Statements, Continued
Partnership profits are allocated first to offset previously allocated
losses, and then to each partner in proportion to their relative
partnership interests. Partnership losses are allocated first to offset
previously allocated profits; second, to the extent of cumulative capital
contributions; and finally, to Class A partners in proportion to their
relative partnership interests. Class B partners are not entitled to any
distributions (other than tax distributions as provided for in the
partnership agreement) until the Class A partners have recovered their
capital contributions.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain 1993 and 1994 amounts have been reclassified to conform to the 1995
presentation.
The financial statements as of and for the six months ended June 30, 1996
and 1995 are unaudited; however, they include all adjustments (consisting
of normal recurring adjustments) considered necessary by management for a
fair presentation of the financial position and results of operations for
the period. The result of operations for interim periods are not necessary
indicative of the results that may be expected for the entire year.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
Cash equivalents consist of overnight repurchase agreements and money
market instruments. For purposes of the statement of cash flows, the
Partnership considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
At December 31, 1994 and 1995, the funds held in various operating accounts
exceeded Federal Depository Insurance limits by $88,716 and $386,556,
respectively. However, management believes the financial institutions
utilized by the Partnership have satisfactory credit ratings and the
credit risk associated with these deposits is minimal.
(b) Investment Securities
The Partnership utilizes an outside investment firm to manage its
investments. Investments made by the Partnership are generally limited to
government securities, with maturities of one year or less, and money
market balances.
Held-to-maturity securities are recorded at amortized cost, adjusted for
amortization or accretion of premiums or discounts. A decline in the
market value of any held-to-maturity security below cost that is deemed
other than temporary results in an adjustment to the cost basis of the
security and is charged to the statement of operations. At December 31,
1994 and 1995, all investment securities were considered to be
held-to-maturity and mature within one year.
Premiums are amortized over the life of the related held-to-maturity
security as an adjustment to yield using the straight line method.
Discounts are accreted using the constant-yield method. Dividend and
interest income are recognized when earned.
At December 31, 1994, all investment securities were pledged as security
for the letters of credit discussed in note 7. At December 31, 1995, the
investments were pledged to secure the Partnership's payment of must
carry right and letters of credit as discussed in notes 5 and 7.
<PAGE> 10
8
TELEVISION FOOD NETWORK, G.P.
Notes to Financial Statements, Continued
(c) Television Program Assets
Television program costs consist of costs to acquire program rights, and
production costs associated with developed programming. Production costs
consist primarily of subcontracted production services, salaries and
costs of talent, and costs of set construction. Capitalized production
costs are amortized using an accelerated method over three years.
Television program rights acquired under license agreements are recorded
as assets at the gross value of the related liabilities upon execution of
the contract. The rights are amortized using accelerated methods over the
lesser of three years or the term of the applicable contract. Television
program costs are evaluated periodically and written down to net
realizable value when there is an indication that the carrying value is
impaired.
Program costs classified as current assets represent the total amount
estimated to be amortized within a year. Program rights liabilities due
to licensers are classified as current or long-term in accordance with
the payment terms.
Accumulated amortization of television program rights totaled $1,684,567
and $4,551,447 at December 31, 1994 and 1995. Amortization expense of
television program costs is included with programming expenses.
(d) Launch Incentives
Launch incentive are fees paid to cable affiliates in connection with
carriage of the Television Food Network. The incentives are amortized
over the term of the affiliate agreements. The related amortization is
included in marketing and selling costs in the statement of operations.
The Partnership has commitments to certain cable affiliates for launch
incentive fees of approximately $1,300,000 for systems that are expected
to launch during 1996.
(e) Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. The Partnership provides for
depreciation using the straight-line method over the following estimated
useful lives:
Leasehold improvements 4 years
Furniture and fixtures 3 - 10 years
Broadcast equipment 5 - 15 years
(f) Intangible Assets
Intangible assets consist of purchased must carry rights, network
identification costs, and organization costs which are stated at cost.
The Partnership provides for amortization, using the straight-line method
over thirty six to ninety six months. Amortization of intangible assets
charged to operations totaled $35,461, $76,880 and $251,690 in 1993,
1994, and 1995. Accumulated amortization on intangible assets totaled
$112,341 and $364,031 at December 31, 1994 and 1995, respectively.
(g) Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
<PAGE> 11
9
TELEVISION FOOD NETWORK, G.P.
Notes to Financial Statements, Continued
(h) Deferred Income
Deferred income consists of under-delivered advertising which is recorded
as income as the Company re-runs or otherwise "makes good" on the
delivery on the advertising to the customer.
(i) Income Taxes
In accordance with Internal Revenue Service regulations, the Partnership's
profits and losses become those of the individual partners and,
accordingly, no income taxes or tax benefit are reflected in the
Partnership's financial statements.
(j) Financial Instruments
Financial instruments of the Company consist of cash and cash equivalents,
investments securities held to maturity, accounts receivable and accounts
payable. The carrying amounts of these financial instruments approximate
their fair value.
(k) Advertising Costs
The Partnership expenses media adverting and advertising promotion expense
as incurred. For the periods ended December 31, 1993, 1994 and 1995, the
Company incurred advertising expense of approximately $250,000,
$1,200,000 and $1,600,000, respectively.
(3) Funding of Future Operations
The Partnership has incurred significant operating losses from its inception
through December 31, 1995 and Management believes that operating losses
will continue to be significant during 1996 and 1997. As such, the
Partnership has relied on Class A Partners' capital contributions to fund
its operations and is dependent upon the continuing commitment of its
partners to provide necessary capital.
During 1995, the Partnership made a capital call for additional contributions
totaling $3,650,000 from each of its five Class A Partners to be paid in a
series of traunches during 1995. All of the five Class A Partners made
their capital contributions, except for one Class A Partner who only made
contributions totaling $2,400,000.
Also during 1995, two of the Class A Partners expressed interest in selling
their entire partnership interests as a result of changes in their
strategic focus to other types of media investments. Currently, The
Providence Journal Company ("PRJ"), through its wholly owned subsidiary
Colony Cable Networks, Inc. ("CCNI"), is negotiating with these partners.
See note 8.
Management's plans to fund future operations consist of drawing on the
resources and commitments of its current Class A Partners, or the Partners
that will remain if CCNI is successful in acquiring various Class A
Partnership interests, to make additional capital contributions sufficient
to provide adequate working capital until such time as working capital is
derived entirely from operations.
<PAGE> 12
10
TELEVISION FOOD NETWORK, G.P.
Notes to Financial Statements, Continued
<TABLE>
(4) Property and Equipment
Property and equipment consists of the following at December 31, 1994 and
1995:
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
Equipment $3,392,076 3,644,988
Furniture and fixtures 1,182,331 1,572,143
Leasehold improvements 1,774,319 1,784,341
---------- ---------
6,348,726 7,001,472
Less accumulated depreciation and amortization 988,016 2,271,361
---------- ---------
$5,360,710 4,730,111
========== =========
</TABLE>
Depreciation expense on property and equipment totaled $6,746, $981,270
and $1,283,345 for the periods ended December 31, 1993, 1994 and 1995
respectively.
<TABLE>
(5) Intangible Assets
Intangible assets consist of the following at December 31, 1994 and 1995:
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
Organization costs $370,327 370,327
Network identification costs 243,912 243,912
Purchased must carry rights - 4,300,000
-------- ---------
614,239 4,914,239
Less accumulated amortization 112,341 364,031
-------- ---------
$501,898 4,550,208
======== =========
</TABLE>
During 1995, the Partnership committed to pay $4,300,000 to a New Jersey
television station to waive their right to be carried on a cable system in
New York City, thus, opening a channel on this cable system for the
carriage of TVFN. The total commitment of $4,300,000 has been recorded as
an intangible asset. In 1995, $1,250,000 was paid toward this commitment
and the remaining $3,050,000 is to be paid in installments of $425,000 to
$500,000 over the next seven years.
(6) Related Party Transactions
(a) Transactions with Partners
As discussed in note (1), certain partners have agreed to provide carriage
of the TVFN channel to their subscribers in exchange for partnership
interests. As of December 31, 1995, carriage was being provided to
approximately 11,600,000 subscribers under these arrangements. Each
partner has also entered into noncompetition agreements with the
Partnership whereby they have agreed not to participate in any business
venture related to, or competitive with, the business of the Partnership.
(Continued)
<PAGE> 13
11
TELEVISION FOOD NETWORK, G.P.
Notes to Financial Statements, Continued
(b) PCI
The Partnership has agreed to pay an amount up to $950,000 per year to PCI
for management personnel expenses, including benefits, which expenses are
incurred in connection with the management of the Partnership. Such
amount is subject to annual percentage increases as approved by the
Management Committee. Amounts incurred by the Partnership under this
arrangement for the period ended December 31, 1993, 1994 and 1995,
totaled approximately $154,000, $906,000 and $911,000, respectively.
There were no amounts owed at December 31, 1994 and 1995.
(c) PRJ
During the periods ended December 31, 1993, 1994 and 1995, the Partnership
paid PRJ $50,000, $150,000 and $85,000, respectively, for administrative
and accounting services. Certain employees of PRJ, through CPMCO, assist
in managing operations of the Partnership. The Partnership does not
reimburse PRJ for any related salaries. Amounts owed to PRJ for
administrative and accounting services totaled $12,500 and $7,083 at
December 31, 1994 and 1995.
The Partnership entered into a sub-lease agreement with PRJ for the use of
one C-band primary transponder. The lease is effective from March 1994
through March 1999 and calls for monthly lease payments of $200,000.
Upon addition of a second lessee, the monthly lease payment is reduced
by $100,000 per month. For each additional third party, the rent is
reduced by $10,000 per month. In October 1994, April 1995, and November
1995, PRJ entered into additional sublease agreements with third parties
thereby reducing the Partnership's monthly lease payment to $80,000.
Rental expense under this lease totaled $1,700,000 and $1,090,000 during
the years ended December 31, 1994 and 1995, respectively. Amounts owed
to PRJ for lease rental totaled $100,000 and $180,000 at December 31,
1994 and 1995, respectively.
(d) "Lets Make Sure Everybody Eats Foundation, Inc."
On April 15, 1994, the Partnership entered into a trust agreement with a
member of management and an employee of PRJ for the formation of "Lets
Make Sure Everybody Eats Foundation, Inc." The Partnership's capacity
in this trust is that of a donor.
The Partnership entered into a related agreement with several charitable
organizations to produce an annual Lets Make Sure Everybody Eats Telethon
("Telethon"). The effective dates of the agreement are from April 1, 1994
to December 31, 1998. The Partnership has the option, in any given year,
to cancel production of the Telethon. The Partnership may exercise this
option without affecting the Partnership's right to produce future
Telethons. Under the terms of the agreement, the Partnership provides
administrative services, a production studio, production crew and
equipment, and telemarketing support, all at its own expense. During 1994
and 1995, the Partnership incurred costs of approximately $555,000 and
$825,000, respectively in conjunction with the Telethon. These costs have
been included in operating expenses in the accompanying statement of
operations.
<PAGE> 14
12
TELEVISION FOOD NETWORK, G.P.
Notes to Financial Statements, Continued
<TABLE>
(7) Operating Leases
The Partnership has certain noncancelable operating leases with renewal
options for studio and office space and equipment. Future minimum lease
payments under noncancelable operating leases, including leases with
related parties (see note 5), are due in the following years:
<CAPTION>
<S> <C>
1996 $1,658,160
1997 1,650,342
1998 1,062,887
1999 283,600
2000 and thereafter 236,692
----------
$4,891,681
==========
</TABLE>
Rental expense for the periods ended December 31, 1993, 1994 and 1995 was
approximately $1,017,571, $2,087,288 and $1,877,000, respectively. At
December 31, 1993, 1994 and 1995, the Partnership has a letter of credit
commitment in an amount of $750,000 in support of leased studio space.
(8)Subsequent Events (unaudited)
On May 14, 1996, CCNI purchased the equity partnership interests held by
Landmark and Scripps for respective purchase prices of approximately
$12,650,000 and $11,400,000.
On September 26, 1996, PRJ, the parent of one of the Partnership's partners,
signed a definitive merger agreement with A. H. Belo Corporation ("Belo")
under which PRJ would be merged into Belo. The merger, pending regulatory
and shareholder approval, is expected to be consummated in 1997.
While management believes that its current financing plans will provide
sufficient working capital to fund operations through the break-even
period, the impact that this merger will have on these plans is uncertain.
<PAGE> 1
Exhibit 99.2
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Combined Financial Statements and Schedules
December 31, 1994 and 1995
(With Independent Auditors' Report Thereon)
<PAGE> 2
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Table of Contents
Page
----
Independent Auditors' Report 1
Combined Balance Sheets 2
Combined Statements of Operations 3
Combined Statements of Ownership Equity 4
Combined Statements of Cash Flows 5
Notes to Combined Financial Statements 6 - 10
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
America's Health Network:
We have audited the accompanying combined balance sheet of America's Health
Network (the "Company") (a development stage enterprise) as of December 31, 1994
and 1995 and the related combined statements of operations, ownership equity,
and cash flows for the period December 7, 1993 (date of inception) to December
31, 1994, the year ended December 31, 1995 and cumulative through December 31,
1995. 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 audit 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 audit provides 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 America's Health Network (a
development stage enterprise) at December 31, 1994 and 1995 and the results of
its operations and its cash flows for the period December 7, 1993 (date of
inception) to December 31, 1994 , the year ended December 31, 1995 and
cumulative through December 31, 1995, in conformity with generally accepted
accounting principles.
Providence, Rhode Island
March 15, 1996
<PAGE> 4
2
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
<TABLE>
Combined Balance Sheets
<CAPTION>
(unaudited)
December 31, December 31, June 30,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 216,348 $ 294,053 $20,182,414
Accounts receivable - - 688
Inventory - - 194,803
Prepaid expenses and other current assets 9,383 1,266,236 1,625,488
Charter affiliate advances - - 2,172,155
----------- ----------- -----------
Total current assets 225,731 1,560,289 24,175,548
Property and equipment, net 12,060 2,471,853 8,992,448
Organization costs, net 46,399 64,496 -
Deposits 351,648 135,040 8,744
Prepaid rent - 2,700,000 2,625,000
Charter affiliate advances - - 4,011,069
Other - 212,500 162,500
----------- ----------- -----------
$ 635,838 $ 7,144,178 $39,975,309
=========== =========== ===========
Current liabilities:
Accounts payable $ 123,834 $ 498,703 $ 2,059,376
Accounts payable charter affiliates - - 5,946,154
Accounts payable - construction in process - 493,683 -
Accrued expenses and other liabilities 2,912 128,655 485,049
Notes payable to related party - 3,000,000 -
----------- ----------- -----------
Total current liabilities 126,746 4,121,041 8,490,579
----------- ----------- -----------
Ownership equity:
Convertible preferred stock, par value $1.00,
384,848 shares authorized, 91,919 and 384,848
shares issued, at December 31, 1994 and 1995
liquidation of $24.75 per share $ 91,919 384,848 -
Common stock, par value $0.01, 1,000,000 shares
authorized, 104,520 shares issued at December 31,
1994 and 1995 1,045 1,045 -
Additional paid-in capital 2,205,563 8,802,627 -
Deficit accumulated during development stage (1,789,435) (6,165,383) -
Partners' capital (deficit accumulated during
development stage through June 30, 1996 equaled
$16,703,790) - - 31,484,730
----------- ----------- -----------
Total Ownership equity 509,092 3,023,137 31,484,730
----------- ----------- -----------
$ 635,838 7,144,178 39,975,309
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 5
3
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
<TABLE>
Combined Statements of Operations
<CAPTION>
Unaudited
------------------------------
Cumulative Cumulative
December 7, December 7,
Period December 7, Year ended 1993 Through Six months ended 1993 Through
1993 to December 31, December 31, June 30, June 30,
December 31, 1994 1995 1995 1996 1996
------------------ ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ - - - 28,910 28,910
----------- ---------- ---------- ----------- -----------
Operating expenses:
General and administrative 930,248 2,284,438 3,214,686 1,936,755 5,151,441
Sales and marketing - - - 268,903 268,903
Affiliate relations 877,807 660,087 1,537,894 2,812,973 4,350,867
Production - 698,115 698,115 3,592,856 4,290,971
Product merchandising - 509,117 509,117 591,437 1,100,554
Programming - 203,269 203,269 554,520 757,789
Depreciation and amortization 10,376 22,858 33,234 621,480 654,714
----------- ---------- ---------- ----------- -----------
Total operating expenses 1,818,431 4,377,884 6,196,315 10,378,924 16,575,239
Loss from operations (1,818,431) (4,377,884) (6,196,315) (10,350,014) (16,546,329)
Interest and other income, net 28,996 1,936 30,932 214,857 245,789
Interest expense - - - (403,250) (403,250)
----------- ---------- ---------- ----------- -----------
Loss before income taxes (1,789,435) (4,375,948) (6,165,383) (10,538,407) (16,703,790)
Income taxes - - - - -
----------- ---------- ---------- ----------- -----------
Net loss $(1,789,435) (4,375,948) (6,165,383) (10,538,407) (16,703,790)
=========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 6
4
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
<TABLE>
Combined Statements of Ownership Equity
<CAPTION>
Convertible Additional
Preferred Common Paid-in
Shares Stock Shares Stock Capital
------ ----------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Issue of convertible
preferred stock 91,919 91,919 - - 2,183,076
Issuance of
common stock - - 104,520 1,045 22,487
Net loss - - - - -
Balances at
December 31,
1994 91,919 91,919 104,520 1,045 2,205,563
Issuance of convertible
preferred stock,
net of $360,000
of issue costs 292,929 292,929 - - 6,597,064
Net loss - - - - -
Balances at
December 31,
1995 384,848 384,848 104,520 1,045 8,802,627
Loss through
March 19, 1996 (a) - - - - -
Conversion of
stockholders
equity to partner
interest (a) (384,848) (384,848) (104,520) (1,045) (8,802,627)
Limited partner
contribution, net
of $1,000,000 of
issue costs (a) - - - - -
Net loss (a) - - - - -
Balances at June 30,
1996 (a) - - - - -
Deficit
Accumulated
During Total
General Limited Development Ownership
Partner Partners Stage Equity
------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Issue of convertible
preferred stock - - - 2,274,995
Issuance of
common stock - - - 23,532
Net loss - - (1,789,435) (1,789,435)
Balances at
December 31,
1994 - - (1,789,435) 509,092
Issuance of convertible
preferred stock,
net of $360,000
of issue costs - - - 6,889,993
Net loss - - (4,375,948) (4,375,948)
Balances at
December 31,
1995 - - (6,165,383) 3,023,137
Loss through
March 19, 1996 (a) - - (1,790,764) (1,790,764)
Conversion of
stockholders
equity to partner
interest (a) 1,232,373 - 7,956,147 -
Limited partner
contribution, net
of $1,000,000 of
issue costs (a) - 39,000,000 - 39,000,000
Loss from March 20, 1996 (1,232,373) (7,515,270) - (8,747,643)
to June 30, 1996 (a)
Balances at June 30,
1996 (a) - 31,484,730 - 31,484,730
<FN>
(a) denotes information which is unaudited.
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 7
5
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
<TABLE>
Combined Statements of Cash Flows
<CAPTION>
(unauditied)
---------------------------
Cumulative Cumulative
Period December 7, December 7, Six months December 7,
1993 to Year ended 1993 Through ended 1993 Through
December 31, December 31, December 31, June 30, June 30,
1994 1995 1995 1996 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,789,435) $(4,375,948) $(6,165,383) $(10,538,407) $(16,703,790)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 10,376 22,858 33,234 621,480 654,714
Transponder services received in exchange
for preferred stock - 410,000 410,000 - 410,000
Expense of prepaid rent - - - 75,000 75,000
Change in current assets and liabilities:
Accounts receivable - - - (688) (688)
Inventory - - - (194,803) (194,803)
Prepaid expenses and other current assets (9,383) (956,853) (966,236) (359,252) (1,325,488)
Deposits and other long-term assets (351,648) 94,108 (257,540) 126,296 (131,244)
Charter affiliates - - - (6,183,224) (6,183,224)
Prepaid rent - (3,000,000) (3,000,000) - (3,000,000)
Accounts payable 123,834 868,552 992,386 1,066,990 2,059,376
Accounts payable charter affiliates - - - 5,946,154 5,946,154
Accrued expenses and other liabilities 2,912 125,743 128,655 356,394 485,049
----------- ----------- ----------- ------------ ------------
Net cash used in operating activities (2,013,344) (6,811,540) (8,824,884) (9,084,060) (17,908,944)
----------- ----------- ----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures (13,156) (2,471,516) (2,484,672) (7,021,819) (9,506,491)
Organization expenditures (55,679) (29,232) (84,911) (55,760) (140,671)
----------- ----------- ---------- ------------ ------------
Net cash used in investing activities (68,835) (2,500,748) (2,569,583) (7,077,579) (9,647,162)
----------- ----------- ---------- ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable to related party - 3,000,000 3,000,000 12,000,000 15,000,000
Proceeds from issuance of preferred stock 2,274,995 6,389,993 8,664,988 - 8,664,988
Proceeds from issuance of common stock 23,532 - 23,532 - 23,532
Repayments of notes payable - - - (15,000,000) (15,000,000)
Proceeds from issuance of limited partner interest - - - 39,050,000 39,050,000
----------- ----------- ---------- ------------ ------------
Net cash provided by financing activities 2,298,527 9,389,993 11,688,520 36,050,000 47,738,520
----------- ----------- ---------- ------------ ------------
Increase in cash 216,348 77,705 294,053 19,888,361 20,182,414
Cash at beginning of the period - 216,348 - 294,053 -
----------- ----------- ---------- ------------ ------------
Cash at end of the period $ 216,348 $ 294,053 $ 294,053 $ 20,182,414 $ 20,182,414
=========== =========== ========== ============ ============
Supplemental disclosures of non-cash activities:
During 1995, the Company received $500,000 of transponder services, $90,000 of
which is recorded in other assets, in exchange for 20,202 shares of
convertible preferred stock.
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 8
6
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Notes to Combined Financial Statements
December 31, 1994 and 1995
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business and Basis of Combination
The combined financial statements are intended to present the
operations of America's Health Network, Inc. ("AHN Inc.") and AHN
Partners, L.P. ("AHN L.P.") (collectively known as "America's Health
Network" or "the Company"). AHN Inc. is a corporation formed on
December 7, 1993 to develop a basic cable television programming
service (the "channel") principally featuring viewer call-in programs
designed for health-conscious adults as well as home shopping segments
during which medical and health related products will be sold. AHN
L.P. has been formed to carry on the operations of the channel.
AHN Inc. has been in the development stage from its inception on
December 7, 1993. On January 31, 1996, the shareholders of AHN Inc.
exchanged their shares in AHN Inc. for membership interests in
America's Health Network LLC ("AHN LLC"). AHN LLC has contributed the
shares of AHN Inc. to AHN L.P. On March 19, 1996 AHN Inc. was
dissolved. AHN LLC is the general partner in AHN L.P. The channel
launched on March 25, 1996.
The Company is in the process of completing a private placement to
raise an estimated $65 million in equity financing in two tranches.
The first tranche of $40 million is expected to close in April of
1996, and the second tranche of $25 million is expected to close in
January of 1997. As the Company is in the development stage at
December 31, 1995 and revenue generating operations did not begin
until March 25, 1996, the Company is dependent on the proceeds of the
private placement to fund its operations through the break-even
period, which is expected to occur in 1998. Management believes that
the private placement transaction will provide the necessary working
capital to fund the Company through the break-even period (see note
8).
All significant intercompany balances and transactions have been
eliminated in combination.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The financial statements as of and for the six months ended June 30,
1996 and cumulative through June 30, 1996 are unaudited; however, they
include all adjustments (consisting of normal recurring adjustments)
considered necessary by management for a fair presentation of the
financial position and results of operations for these periods. The
result of operations for interim periods are not necessary indicative
of the results that may be expected for the entire year.
The following are the significant accounting policies of the Company.
(b) Cash and Cash Equivalents
Cash equivalents consist of commercial paper and overnight
repurchasing agreements. For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(c) Prepaid Expenses
Prepaid expenses consist primarily of a prepaid royalty fee (see note
4(c)) and the current portion of prepaid rent (see note 3).
(Continued)
<PAGE> 9
7
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Notes to Combined Financial Statements, Continued
(d) Property and Equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred. The
Company provides for depreciation using the straight-line method over
the following estimated useful lives:
Production equipment 5 years
Computer equipment 5 years
Furniture and fixtures 5-10 years
(e) Organization Costs
Organization costs are stated at cost. The company provides for
amortization using the straight-line method over sixty (60) months.
Amortization costs charged to operations totaled $9,280 and $11,135
for the periods December 7, 1993 (date of inception) to December 31,
1994 and December 31, 1995, respectively.
(f) Income Taxes
For purposes of these combined financial statements, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities
is recognized in the period that includes the enactment date.
(g) Financial Instruments
Financial instruments consist of cash, due from officers and
employees, accounts payable and notes payable to a related party. The
carrying amounts of these financial instruments approximate their fair
value.
<PAGE> 10
8
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Notes to Combined Financial Statements, Continued
<TABLE>
(2) Property and Equipment
Property and equipment at December 31 consists of the following:
<CAPTION>
December 31, December 31,
1994 1995
---- ----
<S> <C> <C>
Production equipment $ 2,752 612,911
Computer equipment 7,884 114,131
Furniture and fixtures 2,520 21,727
Construction in progress - sound stage - 1,735,903
------- ---------
13,156 2,484,672
Less accumulated depreciation 1,096 12,819
------- ---------
$12,060 2,471,853
======= =========
</TABLE>
Depreciation expense on property and equipment charged to operations
totaled $1,096 and $11,723 for the periods December 7, 1993 (date of
inception) to December 31, 1994 and December 31, 1995.
The total remaining cost at December 31, 1995 to build the sound stage,
including all related equipment, was approximately $ 5.3 million.
(3) Studio Lease
On July 1, 1995, the Company entered into an operating lease with an
unrelated third party for the use of a building in which the Company will
produce programs to be aired on the channel. The term of the agreement is
for a period of ten years. As part of the lease, the Company will be
responsible to pay all additional operating expenses and property taxes in
excess of these costs over the base year, 1996. Total amount of base rent
for the lease term is $3,000,000 which was paid in advance and is included
in prepaid rent and prepaid expenses.
(4) Related Party Transactions
(a) Telemarketing and Fulfillment Services Agreement
In June 1995, the Company entered into a telemarketing and
distribution services agreement with a vendor through which the vendor
acquired a warrant to purchase up to a 4% interest (fully diluted) in
AHN L.P. from AHN LLC for approximately $1.8 million. The vendor will
provide telemarketing, order processing, warehousing and fulfillment
services related to the sale of merchandise on the channel for a
period of two years with an option to extend for an indefinite number
of one year periods at the consent of both parties. The Company will
pay the vendor fees on a per transaction basis. The Company paid the
vendor $200,000 for an initial set up fee, which is included in the
accompanying combined statement of operations.
(Continued)
<PAGE> 11
9
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Notes to Combined Financial Statements, Continued
(b) The Providence Journal Company
AHN entered into a sub-lease agreement with The Providence Journal
Company ("PRJ"), a convertible preferred shareholder of AHN Inc., for
the use of one C-band primary transponder. The lease is effective
from November 1995 through October 2000 and calls for monthly lease
payments of $110,000. PRJ has since entered into additional sublease
agreements with third parties which, per the agreement, reduced the
Company's monthly lease payment to $90,000. In exchange for
transponder services rendered by PRJ during 1995, AHN Inc. issued PRJ
20,202 shares of convertible preferred stock. The amount recorded as
expense pursuant to this agreement totaled $410,000, including
$230,000 of contract signing and reservation fees. No amounts were
owed to PRJ at December 31, 1995.
In December 1995, the Company borrowed $3,000,000 from PRJ under two
separate promissory notes. The notes are in the principal amounts of
$1,000,000 and $2,000,000, and bear interest at an annual rate of
prime plus 2% and 15%, respectively. Both notes are payable at the
earlier of June 30, 1996 or the date of the refinancing of AHN Inc.
as discussed in Note 1(a), or, at PRJ's option, may be converted into
an equity interest in the Company equal to the aggregate amount of
principal and interest due (see note 8). Interest expense and accrued
interest at December 31, 1995 approximated $9,000.
(c) IVI Publishing, Inc.
On May 25, 1995, the Company entered into an agreement with IVI
Publishing, Inc. ("IVI"), a convertible preferred shareholder of AHN
Inc., in which IVI will provide medical and health content for its
"Ask the Doctor" programs and other programming, as well as for
certain health related products offered for sale to viewers. IVI is
the electronic publisher for a major medical and educational research
company. In addition to payments for programming and products provided
by IVI, AHN is required to make royalty payments over the next five
years at amounts ranging from $1,000,000 to $3,250,000 annually to
maintain this exclusivity agreement. The royalty payment for year one,
which begins on the channel launch date, was paid in December 1995 and
is included in prepaid expenses in the accompanying combined balance
sheet.
In addition to royalty payments, the Company must also pay IVI a
deferred royalty payment equal to 0.55% of the Company's gross
revenues per year in which the Company achieves 80% of its gross
revenue goal.
(5) Income Taxes
The tax effects of temporary differences that give rise to net deferred tax
assets at December 31, 1995 consist primarily of operating costs incurred
from December 7, 1993, date of inception, through December 31, 1995, that
are capitalized and deferred for income tax purposes. The Company recorded
a full valuation allowance against this net deferred tax asset due to the
uncertainty surrounding its realization. The amount of the net deferred tax
asset and related valuation allowance was $2,475,000 at December 31, 1995.
Income tax benefit differed from the amount computed by applying the
federal corporate tax rate of 34% to pre-tax income due to the
establishment of the full valuation allowance against net deferred tax
assets.
<PAGE> 12
10
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Notes to Combined Financial Statements, Continued
(6) Ownership Equity
Shares of convertible preferred stock are entitled to a liquidation
preference of $24.75 per share upon the liquidation of AHN Inc., are
convertible into shares of common stock on a one-to-one ratio, and are
entitled to that number of votes on matters submitted to the shareholders
of the Company equal to the number of shares of common stock into which
such shares may be converted.
At December 31, 1995 there were options and warrants outstanding for 78,234
shares of common stock. The exercise price of these warrants and options
varies from $10 to $27.45 per share.
(7) Commitments
To attract and induce distributors to carry the channel, the Company
developed its "Charter Affiliate" program. In order to participate in this
program, distributors must provide written notice, by February 29, 1996, to
the Company of their intent to do so. Then, to qualify for the benefits of
the program, participating distributors are required to launch the channel
to a minimum of 250,000 subscribers, or 10% of each distributor's total
subscribers, whichever is less, on or before July 1, 1996.
Charter affiliates are advanced $3, guaranteed against commissions to be
earned over the first three years of distribution, for each subscriber
launched by July 1, 1996. For subscribers launched after July 1, 1996, but
by December 31, 1996, Charter Affiliates will also receive this advanced
guarantee, but it will be prorated for the date of launch through December
31, 1998. For subscribers launched in 1997 and 1998, Charter Affiliates
will be guaranteed commissions at the rate of $1 per subscriber per year,
but this guarantee will be paid at the rate of $0.0833 per subscriber per
month. Charter Affiliates will also receive guaranteed marketing support,
depending on the date each Charter Affiliate launches the channel, ranging
from $0.25 to $1.00 per subscriber per year. During 1995, the Company did
not make any payments or incur any liabilities pursuant to its Charter
Affiliate program.
(8) Subsequent Events (Unaudited)
(a) Recapitalization
As discussed in note 1(a), on January 31, 1996, the shareholders of AHN
Inc. exchanged their shares in AHN Inc. for membership interests in AHN
LLC. The membership units provide the holders the same rights including
the options discussed in note 6 as the shares exchanged. On March 19,
1996, AHN LLC contributed the shares of AHN Inc. to AHN L.P. in exchange
for the managing partner interest in AHN L.P. AHN L.P. then dissolved AHN
Inc., and became the operating entity for America's Health Network. These
exchanges resulted in the transfer of the net assets of AHN Inc., the
original operating entity, to AHN L.P. The net assets transferred were
accounted for by AHN L.P. at the basis of the assets as recorded by AHN
Inc. on the date of the dissolution of AHN Inc.
On May 10, 1996, AHN L.P. completed the first of two tranches of a private
placement to raise an estimated $65 million in equity financing. The first
tranche raised $39 million, net of issuance costs. All notes payable to
Providence Journal were settled on this date.
<PAGE> 13
11
AMERICA'S HEALTH NETWORK
(A Development Stage Enterprise)
Notes to Combined Financial Statements, Continued
The second tranche, estimated to raise $25 million, is expected to close in
January of 1997. As AHN L.P. continues to be in the development stage at
June 30, 1996, and substantial revenue generation has not occurred, AHN
L.P. is dependent upon the proceeds of private equity placements to fund
its operations through the break-even period, which is expected to occur in
1998. Management continues to believe that the private placement
transactions will provide the necessary working capital to fund AHN L.P.
through June 30, 1997.
Subsequent to March 19, 1996, the financial statements represent the
operations of AHN L.P., which, as successor to AHN Inc., includes the
operational history of America's Health Network. The financial information
subsequent to March 19, 1996, therefore, is not combined.
(b) Partners' Capital
Subsequent to March 19, 1996, the equity structure of AHN L.P. represents
the partner investments in AHN L.P., as well as losses allocated to the
partners. At June 30, 1996, the partners consisted of the Managing Partner,
AHN LLC, and limited Preferred Partners. The Preferred Partners are
provided with a preferred return of 8% on their capital investment, until
such time as the Preferred Partners have received distributions equal to
their original capital investment. Profits, losses and distributable cash
are allocated to the individual partners based on their capital
contributions and capital accounts and are subject to certain special
allocations as defined in the limited partnership agreement.
Also, subsequent to March 19, 1996, no provision is made for income taxes
since the loss of AHN L.P. is included in the income tax returns of the
partners.
(c) PRJ
On September 26, 1996, one of AHN L.P.'s investors, PRJ, signed a definitive
merger agreement with A. H. Belo Corporation ("Belo") under the terms of
which PRJ would be merged into Belo. The merger, pending regulatory and
shareholder approval, is expected to be consummated in 1997.
While management of AHN L.P. believes that its current financing plans will
provide sufficient working capital to fund operations through the
break-even period, the impact that this merger will have on these plans is
uncertain.
<PAGE> 1
Exhibit 99.3
PRO FORMA FINANCIAL STATEMENTS OF THE PROVIDENCE JOURNAL COMPANY AND
SUBSIDIARIES
The following unaudited pro forma condensed consolidated financial statements
are presented in this Exhibit:
A. Unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1995
B. Unaudited pro forma condensed consolidated statement of operations for the
six months ended June 30, 1996
C. Notes to unaudited pro forma condensed consolidated condensed financial
statements.
A pro forma balance sheet is not required to be presented because the
transactions as described in Item 2 of this Form 8-K have been reflected in the
balance sheet of The Providence Journal Company as of June 30, 1996 filed with
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.
A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1995
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1995 have been derived from the
audited financial statements of the Company, Television Food Network, G.P. and
America's Health Network (a development stage enterprise) with adjustments to
reflect the consolidation of TVFN and AHN previously accounted for using the
equity method of accounting, additional interest expense associated with the
acquisition of the additional equity interests in TVFN and AHN, additional
amortization expense associated with the increase in asset values related to
such acquisitions, and related tax effects of these pro forma adjustments. The
unaudited pro forma condensed consolidated statement of operations for the year
ended December 31, 1995 has been prepared assuming that the transactions
identified in item 2 of this Form 8-K had occurred as of January 1, 1995. The
unaudited pro forma condensed consolidated statement of operations is presented
for comparative purposes only and is not necessarily indicative of the combined
results of operations in the future or the financial results of the Company
that would have actually been obtained had the transactions been consummated on
January 1, 1995. The unaudited pro forma condensed consolidated statement of
operations should be read in conjunction with the historical consolidated
financial statements and notes thereto of The Providence Journal Company filed
by the Company in its annual report on Form 10-K for the year ended December
31, 1995 and the historical consolidated financial statements and notes
thereto of Television Food Network, G.P. and America's Health Network included
herein.
(CONTINUED)
<PAGE> 2
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(Dollars in thousands, except per share data)
<CAPTION>
America's
Health The
The Television Network Providence
Providence Food (a develop- Journal Co.
Journal Co. Network, G.P. ment stage Pro Forma Unaudited
(Historical) (Historical) enterprise) Adjustments Pro Forma
------------ ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Broadcasting $ 180,547 - - - $ 180,547
Publishing 128,491 - - - 128,491
Programming and Electronic Media 3,468 6,657 - (1,500)(a) 8,625
----------- ------- ------ ------ -----------
312,506 6,657 - (1,500) 317,663
----------- ------- ------ ------ -----------
Expenses:
Operating 161,283 10,302 2,070 (1,500)(a) 172,155
Selling, general, and administrative 86,023 15,968 2,284 - 104,275
Newspaper Consolidation Costs and
Newspaper Restructuring Costs 14,222 - - - 14,222
Depreciation and amortization 33,969 1,535 23 676(b) 36,203
Stock-based compensation 2,387 - - - 2,387
Pension expense 1,236 - - - 1,236
----------- ------- ------ ------ -----------
299,120 27,805 4,377 (824) 330,478
----------- ------- ------ ------ -----------
Operating Income (loss) 13,386 (21,148) (4,377) (676) (12,815)
Interest expense (11,395) - - (3,321)(c) (14,716)
Equity in loss of affiliates (7,835) - - 6,012(d) (1,823)
Other income, net 4,797 262 2 - 5,061
----------- ------- ------ ------ -----------
Loss from continuing operations
before income taxes (1,047) (20,886) (4,375) 2,015 (24,293)
Income tax expense (benefit) 3,956 - - (7,904)(e) (3,948)
----------- ------- ------ ------ -----------
Loss from continuing operations (5,003) (20,886) (4,375) 9,919 (20,345)
Extraordinary items, net (2,086) - - - (2,086)
----------- ------- ------ ------ -----------
Loss before minority interests (7,089) (20,886) (4,375) 9,919 (22,431)
Minority interests (2,559) - - 6,525(f) 3,966
----------- ------- ------ ------ -----------
Net loss (9,648) (20,886) (4,375) 16,444 $ (18,465)
=========== ======= ====== ====== ===========
Net loss per common share:
From continuing operations $ (0.13) $ (0.53)
From extraordinary items, net (0.05) (0.05)
Minority interests (0.07) 0.10
----------- -----------
Net loss per common share $ (0.25) $ (0.48)
=========== ===========
Weighted average shares outstanding 38,506,500 38,506,500
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
<PAGE> 3
Exhibit 99.3
B. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1996
The following unaudited pro forma condensed consolidated statement of operations
for the six months ended June 30, 1996 has been derived from the financial
statements of the Company and Television Food Network, G.P. with adjustments to
reflect the consolidation of TVFN previously accounted for using the equity
method of accounting, additional interest expense associated with the
acquisition of the additional equity interests in TVFN and AHN, additional
amortization expense associated with the increased in asset values related to
such acquisitions, and related tax effects of these pro forma adjustments. The
consolidation of AHN has been included in the Company's historical financial
results as of January 1, 1995 and as such no pro forma adjustments, with the
exception of additional interest expense and related income tax effects, were
required to be made.The unaudited pro forma condensed consolidated statement of
operations for the six months ended June 30, 1996 has been prepared assuming
that the transactions identified in item 2 of this Form 8-K had occurred as of
January 1, 1995. The unaudited pro forma condensed consolidated statement of
operations is presented for comparative purpose only and is not necessarily
indicative of the combined results of operations in the future or the financial
results of the Company that would have actually been obtained had the
transactions been consummated on January 1, 1995. The unaudited pro forma
condensed consolidated statement of operations should be read in conjunction
with the historical consolidated financial statements and notes thereto of The
Providence Journal Company as filed by the Company in its Quarterly Report on
Form 10-Q for the six months ended June 30, 1996 and the historical financial
statements and notes thereto of Television Food Network, G.P. and AHN included
herein.
(CONTINUED)
<PAGE> 4
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For six months ended June 30, 1996
(Dollars in thousands, except per share data)
<CAPTION>
The
The Television Providence
Providence Food Journal Co.
Journal Co. Network, G.P. Pro Forma Unaudited
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Broadcasting $ 98,167 - - $ 98,167
Publishing 63,437 - - 63,437
Programming and Electronic Media 4,845 6,334 (2,657)(a),(g) 8,522
----------- ------- ------- -----------
166,449 6,334 (2,657) 170,126
----------- ------- ------- -----------
Expenses:
Operating 94,508 5,382 (480)(a) 99,410
Selling, general, and administrative 47,493 9,159 (5,626)(g) 51,026
Newspaper Consolidation Costs and
Newspaper Restructuring Costs 2,484 - - 2,484
Depreciation and amortization 20,891 1,002 (230)(b),(g) 21,663
Stock-based compensation 13,336 - - 13,336
Pension expense 428 - - 428
----------- ------- ------- -----------
179,140 15,543 (6,336) 188,347
----------- ------- ------- -----------
Operating loss (12,691) (9,209) 3,679 (18,221)
Interest Expense (11,020) - (992)(c) (12,012)
Equity in loss of affiliates (2,673) - 1,078(d) (1,595)
Other income, net 2,735 75 (22)(a) 2,788
----------- ------- ------- -----------
Loss from continuing operations
before income taxes (23,649) (9,134) 3,743 (29,040)
Income tax benefit (5,377) - (1,833)(e) (7,210)
----------- ------- ------- -----------
Loss from continuing operations (18,272) (9,134) 5,576 (21,830)
Discontinued operations, net (3,578) - - (3,578)
----------- ------- ------- -----------
Loss before minority interests (21,850) (9,134) 5,576 (25,408)
Minority interests 4,043 - 1,423(f) 5,466
----------- ------- ------- -----------
Net loss $ (17,807) (9,134) 6,999 $ (19,942)
=========== ======= ======= ===========
Net loss per common share:
From continuing operations $ (0.47) $ (0.57)
From discontinued operations, net (0.09) (0.09)
Minority interests 0.10 0.14
----------- -----------
Net loss per common share $ (0.46) $ (0.52)
=========== ===========
Weighted average shares outstanding 38,610,662 38,610,662
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
<PAGE> 5
Exhibit 99.3
C. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
(Dollars in thousands)
(1) Pro Forma Adjustments for the year ended December 31, 1995
(a) To eliminate intercompany activity.
(b) To record amortization on step-up in values of intangibles totaling
$27,050 at TVFN and AHN over a life of 40 years.
(c) To record additional interest expense at an average rate of 8.1% which
would have been incurred based on incremental acquisition costs
financed by bank borrowings of $41,000.
(d) To eliminate equity in loss included in The Providence Journal Company
for acquired entities: TVFN at $4,177 and AHN at $1,835.
(e) To record the tax effects of the pro forma adjustments plus tax
effects of flow through partnership losses of AHN and TVFN.
(f) To record minority interests in TVFN and AHN, net of tax.
(2) Pro Forma Adjustments for the six months ended June 30, 1996.
(Note: AHN was consolidated into The Providence Journal Company as of
January 1, 1996; therefore pro forma entries are not required for
AHN).
(a) To eliminate intercompany activity.
(b) To record amortization on step-up in values of intangibles totaling
$20,618 at TVFN over a life of 40 years.
(c) To record additional interest expense at an average rate of 8.1% which
would have been incurred based on incremental acquisition costs
financed by bank borrowings of $41,000.
(d) To eliminate equity in loss included in The Providence Journal Company
for acquired entity: TVFN: $1,078.
(e) To record the tax effects of the pro forma adjustments plus tax
effects of flow through partnership losses of TVFN.
(f) To record minority interests in TVFN, net of tax.
(g) To eliminate TVFN statement of operations activity already included in
The Providence Journal Company statement of operations subsequent to
incremental acquisition that resulted in consolidation.
