SHOP AT HOME INC /TN/, PRE 14A, 1998-01-29

SHOP AT HOME INC /TN/
PRE 14A, 1998-01-29
CATALOG & MAIL-ORDER HOUSES

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<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

SHOP AT HOME, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

C. Michael Norton, Wyatt, Tarrant & Combs,
1500 Nashville City Center, Nashville, Tennessee 37219
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE> 2
SHOP AT HOME, INC.
5210 SCHUBERT ROAD
P.O. BOX 12600
KNOXVILLE, TENNESSEE 37912

----------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, MARCH 6, 1998

----------

Notice is hereby given that the Annual Meeting of Shareholders of Shop
at Home, Inc. (hereinafter called the "Company"), will be held at Loews
Vanderbilt Plaza Hotel, located at 2100 West End Avenue, Nashville, Tennessee,
on March 6, 1998, at 10:00 a.m. local time, for the following purposes:

(1) To consider and to vote upon the approval of an amendment to
the Charter of the Company to provide for staggered three (3)
year terms for directors, to fix the number of directors at a
number of not less than six (6) nor more than nine (9), and to
provide that directors may only be removed by shareholders for
cause.

(2) To consider and to vote upon the election of and to set the
terms of eight (8) directors to serve until the designated
annual meeting and until their successors are duly elected and
qualified;

(3) To consider and to vote upon the approval of an amendment to
the Charter of the Company to authorize a 1:2 reverse stock
split of the Company's Common Stock.

(4) To consider and to vote upon the approval of an amendment to
the Charter of the Company to authorize a total of 30,000,000
shares of Non-Voting Common Stock, par value $.0025.

(5) To consider and to vote upon the approval of the selection of
Coopers & Lybrand L.L.P., Certified Public Accountants,
Knoxville, Tennessee, as the Company's independent accountants
for the 1998 fiscal year; and

(6) To transact such other business as may properly come before
the meeting or any adjournment thereof.

Information regarding the matters to be acted upon at the Annual
Meeting is contained in the Proxy Statement accompanying this Notice. The Annual
Meeting may be adjourned from time to time without notice, other than the
announcement of the adjournment at the Annual Meeting or any adjournment or
adjournments thereof, and any and all business for which notice is hereby given
may be transacted at any such adjourned Annual Meeting.

The Board of Directors has fixed the close of business on January 20,
1997, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the meeting.

By Order of the Board of Directors

George J. Phillips, Secretary
Nashville, Tennessee
February 13, 1998

YOUR REPRESENTATION AT THE MEETING IS IMPORTANT. TO ENSURE YOUR REPRESENTATION,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY. SHOULD YOU DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO
AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT, AT ANY TIME BEFORE IT IS VOTED.

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<S> <C>
Information Concerning the Solicitation...........................................................................1

Security Ownership of Certain Beneficial Owners...................................................................2

PROPOSAL NO. 1 -- AMENDMENT OF CHARTER - CLASSIFICATION OF DIRECTORS..............................................3

PROPOSAL NO. 2 -- ELECTION OF DIRECTORS...........................................................................5
Director Nominees........................................................................................5
Security Ownership of Management and Directors...........................................................7
Other Executive Officers.................................................................................7
Remuneration of Directors and Officers..................................................................10
Summary Compensation....................................................................................10
Option Grants in Last Fiscal Year.......................................................................10
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values..................................11
Report on Repricing Options.............................................................................12
Employment Agreements...................................................................................13
Compensation of Directors...............................................................................14
Omnibus Stock Incentive Plan............................................................................14
Transactions with Management and Directors..............................................................15
Compensation Committee Interlocks and Insider Participation.............................................15
Transactions with Related Parties.......................................................................15
Report on Executive Compensation........................................................................16
Compensation Philosophy and Policies for Executive Officers.............................................16
Base Salary.............................................................................................16
Annual Bonus............................................................................................17
Long-Term Incentives....................................................................................17
Chief Executive Compensation............................................................................18
Stockholder Return Comparisons..........................................................................18

PROPOSAL NO. 3 -- AMENDMENT OF CHARTER - REVERSE STOCK SPLIT.....................................................19
Effects of the Reverse Stock Split......................................................................20
Possible Advantages.....................................................................................20
Possible Disadvantages..................................................................................21
Potential Anti-Takeover Effect of Authorized but Unissued Securities....................................22
Accounting for Reverse Stock Split......................................................................22
Liquidation of Fractional Shares........................................................................23

PROPOSAL NO. 4 -- AMENDMENT OF CHARTER - AUTHORIZE NON-VOTING COMMON STOCK.......................................24
Common Stock............................................................................................24
Preferred Stock.........................................................................................25
Non-Voting Common Stock.................................................................................26

PROPOSAL NO. 5 -- APPOINTMENT OF ACCOUNTANTS.....................................................................26

PROPOSAL NO. 6 -- OTHER BUSINESS.................................................................................27

Other Information.......................................................................................27
Interests of Company Affiliates.........................................................................27
Proposals of Shareholders...............................................................................27
Cost of Solicitation of Proxies.........................................................................27
Annual Report...........................................................................................27
</TABLE>

<PAGE> 4

SHOP AT HOME, INC.
5210 SCHUBERT ROAD
P.O. BOX 12600
KNOXVILLE, TENNESSEE 37912

----------

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS

----------

INFORMATION CONCERNING THE SOLICITATION

The accompanying proxy is solicited by the Board of Directors of Shop
At Home, Inc. (the "Company"), for use at the Annual Meeting of Shareholders to
be held on March 6, 1998, and any adjournments thereof, notice of which is
attached hereto.

This Proxy Statement and the Annual Report of the Company for the
fiscal year ended June 30, 1997, have been mailed on or about February 13, 1998,
to all shareholders of record on January 20, 1998.

The purposes of the Annual Meeting are: [1] to consider and to vote
upon the approval of an amendment to the Charter of the Company to provide for
staggered three year terms for directors, to fix the number of directors at a
number of not less than six nor more than nine, and to provide that directors
may be removed by shareholders only for cause; [2] to consider and to vote upon
the election of eight (8) directors and to set their terms; [3] to consider and
to vote upon the approval of an amendment to the Charter of the Company
authorizing a 1:2 reverse stock split of the Company's Common Stock; [4] to
consider and to vote upon the approval of an amendment to the charter of the
Company to authorize the issuance of 30,000,000 shares of Non-Voting Common
Stock, par value $.0025 per share; [5] to consider and to vote upon the
selection of Coopers & Lybrand L.L.P., Certified Public Accountants, Knoxville,
Tennessee, as the Company's independent accountants for the fiscal year ended
June 30, 1998; and [6] to consider such other business as may properly come
before the meeting or any adjournment thereof.

A shareholder of record who signs and returns a proxy in the
accompanying form may revoke that proxy at any time before the authority granted
thereby is exercised (i) by attending the Annual Meeting and electing to vote in
person, (ii) by filing with the Secretary of the Company a written revocation,
or (iii) by duly executing and filing with the Secretary of the Company a proxy
bearing a later date. Unless so revoked, the shares represented by the proxy
will be voted at the Annual Meeting. Where a choice is specified on the proxy,
the shares represented thereby will be voted in accordance with that
specification. If no specification is made, all shares will be voted: FOR the
approval of the amendment to the Charter of the Company to provide for staggered
terms of directors, to set the number of directors, and to provide that
directors may be removed by the shareholders only for cause; FOR the election of
all director nominees; FOR the amendment to the Charter of the Company to
authorize a 1:2 reverse stock split of the Company's Common Stock; FOR the
amendment to the Charter of the Company to authorize the issuance of 30,000,000
shares of Non-Voting Common Stock; and FOR ratification of the selection of
Coopers & Lybrand L.L.P., Certified Public Accountants, Knoxville, Tennessee, as
the Company's independent accountants for the fiscal year ended June 30, 1998.

The Board of Directors knows of no other matters which are to be
brought to a vote at the Annual Meeting. If, however, any other matter does come
before the meeting, the persons appointed in the proxy, or their substitutes,
will vote in accordance with their best judgment on such matters.

<PAGE> 5

The Board of Directors has fixed the close of business on January 20,
1997 (the "Record Date") as the record date for the Annual Meeting. The
Company's only class of securities entitled to vote is its Common Stock, $.0025
par value per share ("Common Stock"). On the Record Date, the Company had
outstanding 11,742,991 shares of Common Stock. Only shareholders of record at
the close of business on the Record Date will be entitled to vote at the Annual
Meeting. Shareholders will be entitled to one vote for each share held, which
may be given in person or by proxy authorized in writing.

Under the Tennessee Business Corporation Act (the "Act") and the
Company's Bylaws, the presence, in person or by proxy, of a majority of the
outstanding shares of Shop at Home Common Stock is necessary to establish a
quorum of the Company's shareholders for the purpose of taking action at the
Annual Meeting. For these purposes, shares which are present or represented by a
proxy at the Annual Meeting will be counted for quorum purposes, regardless of
whether the holder of the shares or proxy fails to vote on any particular matter
or whether a broker with discretionary authority fails to exercise its
discretionary voting authority with respect to any particular matter.

The directors standing for election must be elected by a plurality of
the votes cast at the Annual Meeting. Any other action to be taken at the Annual
Meeting, including the approval of the Company's independent accountants, must
be approved by a majority of the votes cast. For these voting purposes,
abstentions and broker non-votes will not be counted in determining whether the
directors standing for election have been elected or whether any other action
has been approved.

None of the proposals will give any shareholder of the Company the
right to dissent from such action, and to thereby obtain payment in cash of the
fair value of that shareholder's shares.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following information relates to the Common Stock of the Company
beneficially owned, directly or indirectly, by all persons known to be the
beneficial owners of more than five percent (5%) of the Common Stock as of
January 20, 1998. Unless otherwise noted, the named persons have sole voting and
investment power with respect to the shares indicated.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS
- ---------------------------------------------------------------- -------------------- ----------

<S> <C> <C>
J.D. Clinton and SAH Holdings, L.P.(2).......................... 5,429,700 38.94%

Kent E. Lillie(3)............................................... 730,000 6.06%
</TABLE>

- ----------

(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Proxy
Statement upon the exercise of options and warrants. Each beneficial
owner's percentage ownership is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date of this
Proxy Statement have been exercised.

(2) Mr. Clinton's address is 400 Fifth Avenue South, Suite 205, Naples,
Florida 34102. The address of SAH Holdings, L.P. ("SAH") is 111 South
Washington, Brownsville, Tennessee 38012. SAH is a Tennessee limited
partnership with Global Network Television, Inc., a Tennessee
corporation ("GNT"), as its sole general partner. Mr. Clinton is
chairman, a director and the sole shareholder of GNT. SAH currently
owns 2,867,900 shares of Common Stock of the Company. Clinton
Investments, L.P., a limited partnership for which Global is the sole
general partner, owns 332,500 shares of Common Stock, and holds
warrants to purchase an additional 542,000 shares of Common Stock. Mr.
Clinton holds an option to purchase 10,000 shares of stock from the
Company. Mr. Clinton's wife owns, individually, 6,800 shares of Common
Stock. Two trusts, the beneficiaries of whom are members of Mr.
Clinton's immediate family, own 20,500 shares. SAH holds warrants to
purchase up to 1,650,000 shares of Common Stock from the Company. All
of the listed shares are assumed to be beneficially owned by Mr.
Clinton.

<PAGE> 6

(3) 102 Woodmont Boulevard, Suite 200-228, Nashville, Tennessee 37205. Mr.
Lillie presently owns 414,000 shares of Common Stock, and holds options
currently exercisable to purchase an additional 310,000 shares of
Common Stock from the Company. Mr. Lillie also holds 6,000 shares in a
retirement account. Mr. Lillie's retirement account is also a limited
partner of SAH Holdings, L.P., and holds a 1.57% equity interest in
SAH; however, Mr. Lillie is not considered the beneficial owner of any
shares held by SAH.

PROPOSAL NO. 1
AMENDMENT OF CHARTER
CLASSIFICATION OF DIRECTORS

On January 21, 1998, the Company's Board of Directors unanimously
approved an amendment to the Company's Charter (the "Charter") and has voted to
recommend that the Company's shareholders approve such amendment (the "Directors
Amendment"). If adopted, the Directors Amendment would (i) classify the Board of
Directors into three groups, as nearly equal in number as possible, each of
which, after an interim arrangement, would serve for three years, with one group
being elected each year; (ii) provide that the number of directors may not be
less than six nor more than nine, the precise number to be set by the Board of
Directors; and (iii) provide that directors shall be removed by shareholders
only for cause. The Directors Amendment is designed to assure continuity and
stability in the Board's leadership and policies, particularly in the event of
an unsolicited tender offer. The Directors Amendment also establishes a legal
structure that encourages any potential acquiror to negotiate with the Board
rather than unilaterally attempt to gain control of the Company. The Board
believes that this approach is the one most likely to result in long-term
enhancement of shareholder value. Although there has been no problem in the past
with the continuity or stability of the Board, the Board believes that the
Directors Amendment will help to assure the continuity and stability of the
Company's affairs and policies in the future. If approved, the Directors
Amendment will be effective upon the filing of Articles of Amendment with the
Secretary of State of Tennessee, which filing will be made promptly after the
Annual Meeting.

Before voting on the Directors Amendment, shareholders are urged to
read carefully the following paragraphs of this Proxy Statement, which describe
the amendment and its purposes and effects, and Exhibit A hereto, which sets
forth the full text of the Directors Amendment. The description of the Directors
Amendment is qualified in its entirety by reference to Exhibit A.

Adoption of the Directors Amendment requires that the votes cast
favoring the action exceed the votes cast opposing the action. A failure to
vote, either by not returning the enclosed proxy or checking the "Abstain" box,
will have no effect upon the vote on the Directors Amendment, so long as a
quorum is present at the Annual Meeting either in present or represented by
proxy.

The present Charter is silent on the matter of election of directors
and, accordingly, under applicable law, all directors are to be elected by the
shareholders annually for a term of one year. Directors of the Company are
elected by a plurality of the votes cast in an election of directors at any
annual or special meeting of the shareholders. The Company's Charter does not
permit cumulative voting for directors.

The Directors Amendment would divide the Board into three groups, each
group to be as nearly equal in number as possible. Two directors will be elected
for a term expiring at the next 1998 annual meeting of shareholders, three
directors will be elected for a term expiring at the 1999 annual meeting of
shareholders, and three directors will be elected for a term expiring at the
2000 annual meeting of shareholders (in each case until their respective
successors are elected and qualify). Starting with the next 1998 annual meeting
of shareholders, one group of directors -- approximately one-third of the Board
- -- will be elected each year for a three-year term. The Directors Amendment with
respect to classifying the Board, if adopted, will apply to every election of
directors.

<PAGE> 7

A classified Board will extend the time required to change the
composition of a majority of directors. Presently, a change in composition of
the Board of Directors can be made by shareholders of a majority of the
Company's stock voting at a single meeting. With a classified Board, two annual
meetings normally would be required for holders of a majority of the Company's
stock to elect a majority of the Board of Directors, since only one-third of the
number of directors will be elected at each meeting. Because of the additional
time required to change the composition of the Board, classification of the
Board also may make the removal of incumbent management more difficult.

Since the classified Board will increase the time required for a third
party to obtain control of the Company without the cooperation of the Board of
Directors, it may tend to discourage certain tender offers, including perhaps
some tender offers that some shareholders may feel would be in their best
interest. However, the Board of Directors believes that classification of the
Board will provide the Board with more time to evaluate any takeover proposal
and thus enable it to better protect the interests of the Company and the
remaining shareholders. The Board is not aware of any current specific effort to
attempt to gain control of the Company. Although the Directors Amendment would
not impede an acquisition of the Company approved by the Board, adoption of the
Directors Amendment may affect the ability of the shareholders of the Company to
change the composition of the incumbent Board, to affect its policies generally
and to benefit from transactions which are opposed by the incumbent Board.

Article II, Section 2.2 of the Company's current Bylaws provides that
the number of directors constituting the Board of Directors of the Company shall
be not less than six (6) nor more than twelve (12). Under Tennessee law, the
number of directors may be fixed or changed from time to time by the
shareholders or by the Board of Directors. The Directors Amendment changes the
variable range of the number of directors to not less than six (6) nor more than
nine (9), with the Board of Directors to have the authority to fix the number
within that variable range. This provision, together with the provisions
hereafter discussed regarding the restrictions on removal of incumbent
directors, may make it more difficult for a majority shareholder to obtain
representation quickly by enlarging the Board and filling the directorships with
its own nominees.

Currently, any director may be removed, with or without cause, by a
majority vote of the shares entitled to elect directors, and newly-created
directorships and vacancies may be filled by a majority vote of the Board of
Directors, even if less than a quorum of the Board of Directors remain. The
Directors Amendment provides that a director may be removed only for cause.
Under applicable law, any vacancy on the Board occurring during the course of
the year, including vacancies created by an increase in the number of directors,
shall be filled by a majority vote of the remaining directors, whether or not a
quorum. Directors elected in this manner would, under Tennessee law, hold office
until the next shareholders' meeting at which directors are elected, when they
would be subject to reelection by the shareholders.

These provisions are intended to prevent a majority shareholder from
destablizing the classified Board by removing directors without cause and
replacing them with its own nominees. Removal of directors only for cause may
encourage bidders to negotiate with the Board of Directors prior to launching a
takeover bid. This provision, together with the provision for classification of
the Board of Directors and the other provisions of the Directors Amendment,
would make it more difficult and more time consuming for shareholders to replace
a majority of the directors even when the only reason for a change may be the
performance of the present directors.

The Company's Charter and Bylaws do not currently contain any other
conventional anti-takeover provisions, and the Company has no current plans to
submit further proposals to shareholders with a possible "anti-takeover" effect,
other than the proposal described herein to authorize a 1:2 reverse stock split
of the Company's Common Stock.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL.
PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED "FOR" THE PROPOSAL.

<PAGE> 8

PROPOSAL NO. 2
ELECTION OF DIRECTORS

The Board of Directors proposes the election of the nominees listed
below. Unless contrary instructions are received, it is intended that the shares
represented by the Proxy solicited by the Board of Directors will be voted in
favor of the election as directors of all the nominees named below. If for any
reason any of the nominees is not available for election, the persons named in
the Proxy have advised that they will vote for such substitute nominees as the
Board of Directors of the Company may propose. The Board of Directors has no
reason to expect that any of these nominees will fail to be candidates at the
meeting, and therefore, does not at this time have any substitute nominee under
consideration. The information relating to the eight (8) nominees set forth
below has been furnished to the Company by the individuals named. Six (6) of the
nominees are presently directors of the Company, having been elected at the
Company's annual meeting held on December 6, 1996. On December 31, 1997, the
Company's Board of Directors voted to increase the size of the Board from six
(6) to eight (8) members, and two of the nominees have not previously served as
members of the Board. The Company's Bylaws specify that the Company's President
shall be a member of its Board of Directors.

At the Annual Meeting, eight (8) directors will be elected. If Proposal
No. 1 (described above) is adopted by the shareholders, a classified Board will
be elected so that two directors will hold office until the next 1998 annual
meeting of shareholders, three directors will hold office until the 1999 annual
meeting of shareholders, and three directors will hold office until the 2000
annual meeting of shareholders, and in each case until their respective
successors are elected and qualified.

If Proposal No. 1 is adopted, it is the intention of the persons named
as proxies in the accompanying form of proxy, unless otherwise instructed, to
vote for the election of each nominee set forth below for the term expiring in
the year indicated. If Proposal No. 1 is not adopted, the persons named as
proxies intend to vote, unless instructed otherwise, for the election of each
such nominee to serve for one year.

The Directors shall be elected by a plurality of the votes cast by the
shares entitled to vote in the election at the Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
NOMINEES LISTED BELOW. PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED
"FOR" THE LISTED NOMINEES.

DIRECTOR NOMINEES FOR ELECTION TO TERMS EXPIRING IN 2000

J.D. Clinton, Director and Chairman of the Board. Mr. Clinton has been
a Director and Chairman of the Board since 1993. Mr. Clinton is Chairman,
President and Chief Executive Officer, Independent Southern BancShares, Inc.,
Brownsville, Tennessee, a diversified financial institutions holding company.
Mr. Clinton is Chairman and Director, INSOUTH Bank, Brownsville, Tennessee. Mr.
Clinton is a Director, Southern Financial, Inc. Nashville, Tennessee. Age 54.
Mr. Clinton is a graduate of the University of Memphis.

Kent E. Lillie, President and Chief Executive Officer and Director. Mr.
Lillie joined the Company as President and Chief Executive Officer in September
1993 and has been a Director since such date. Prior to joining the Company, Mr.
Lillie was Vice President and General Manager, WATL-TV, Atlanta, Georgia,
1992-1993, and was Vice President and General Manager, WPTY-TV, Memphis,
Tennessee, 1987-1992. Age 51. Mr. Lillie is a graduate of Sacramento City
College.

Frank A. Woods, Director. Mr. Woods has been a Director since 1993. Mr.
Woods was Chairman of the Board and Director of MediaUSA, Inc., Nashville,
Tennessee, a communications consulting and

<PAGE> 9

strategic planning firm, from 1991 until 1998. Mr. Woods is a principal of The
Woods Group, Nashville, Tennessee, a diversified merchant banking firm. Age 55.
Mr. Woods is a graduate of Vanderbilt University and Vanderbilt University
School of Law.

DIRECTOR NOMINEES FOR ELECTION TO TERMS EXPIRING IN 1999

W. Paul Cowell, Director. Mr. Cowell has been a Director since 1988.
Mr. Cowell was Chairman of the Board of the Company from 1990 through 1993. Mr.
Cowell has been President and Chief Executive Officer, Warren & William, Inc.
(formerly National Book Warehouse, Inc.), a real estate management and holding
company, since 1989. Mr. Cowell has been President and Owner, Book Ends Discount
Book Stores, Inc., since 1987. Mr. Cowell is a Director, Global Christian
Ministries, Inc. Age 53.

A.E. Jolley, Director and Secretary/Treasurer. Mr. Jolley has been
Director and Secretary/Treasurer since 1986. Mr. Jolley has been President,
Lakeway Containers, Inc., Morristown, Tennessee, a corrugated container
manufacturer, since 1975. Mr. Jolley is a Director, Union Planters Bank. Mr.
Jolley is a Director, Kingwood School, Morristown, Tennessee, and Commissioner,
Morristown City Planning Commission. Mr. Jolley is a Member, Board of Trustees,
Walters State Community College. Age 58.

Joseph I. Overholt, Director. Mr. Overholt has been a Director since
1986. Mr. Overholt has been President and Owner of Planet Systems, Inc. a
computer software development company engaged in the satellite delivery of
computer data, since 1992. Mr. Overholt has been President and Owner of Skylink
Communications since 1989. Mr. Overholt was a Vice President of the Company from
1986 through August 1993. Age 48. Mr. Overholt is a graduate of The University
of Tennessee.

DIRECTOR NOMINEES FOR ELECTION TO TERMS EXPIRING IN 1998

J. Daniel Sullivan. Director Nominee. Mr. Sullivan has served as the
President and CEO of Sullivan Broadcasting Company, a television broadcasting
company, since 1995. Between 1987 and 1995, Mr. Sullivan was the President of
Clear Channel TV, a subsidiary of Clear Channel Communications, Inc., a
broadcasting company. Age 46.

Patricia E. Mitchell. Director Nominee. Ms. Mitchell has served as the
President of Turner Original Productions, a motion picture production company
and an affiliate of Time, Inc., since 1995. From 1992 until 1995, Ms. Mitchell
was employed by Turner Broadcasting Systems, Inc., as senior vice president and
executive vice president of TBS Productions, and Ms. Mitchell has substantial
experience in television production work. Ms. Mitchell serves on the advisory
board of the Schlesinger Library on the History of Women at Radcliffe College,
the Board of Trustees of the Sundance Institute, the Advisory Board of the
School of Communications at the University of California at Santa Barbara, the
Atlanta YMCA and the High Museum of Atlanta. Age 54.

The principal business activity of each of the above Directors has been
as shown above during the past five years, except that in some cases the
individual has been employed by a predecessor organization or has undertaken
greater responsibilities with the same employer, a parent company, or a
successor organization.

The Board of Directors has no standing audit, nominating or
compensation committees. The Board of Directors has appointed Kent E. Lillie,
J.D. Clinton and Frank A. Woods to serve as an administrative committee to
administer the Company's Omnibus Stock Incentive Plan.

During the fiscal year ended June 30, 1997, the Board of Directors held
four (4) meetings. No incumbent director attended fewer than 75% of the Board
meetings during the year.

<PAGE> 10

SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS

The following information presents the beneficial ownership of the
Common Stock of the Company as of January 12, 1998, by the Company's directors,
director nominees, the executive officers named in the Remuneration of Directors
and Officers, and by all directors, director nominees and executive officers as
a group.

<S> <C> <C>
J.D. Clinton(2)................................................. 5,429,700 38.94%
Kent E. Lillie(2)............................................... 730,000 6.06%
W. Paul Cowell(3)............................................... 558,400 4.75%
A.E. Jolley(4).................................................. 511,092 4.35%
Joseph I. Overholt(5)........................................... 519,200 4.42%
Frank A. Woods(6)............................................... 10,000 0.09%
Joseph Nawy(7).................................................. 45,000 0.38%
J. Daniel Sullivan.............................................. -- --
Patricia E. Mitchell............................................ -- --
All executive officers and directors
as a group (21 persons)...................................... 7,983,942 55.33%
</TABLE>

- ----------

(2) See Notes in preceding section entitled "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS."

(3) 8205 Walker Road, Knoxville, Tennessee 37938. Mr. Cowell presently owns
413,456 shares of Common Stock in his individual name. Mr. Cowell holds
an option to purchase 10,000 shares of Common Stock from the Company.
In addition, Mr. Cowell is the income beneficiary and has a limited
right to name the beneficiary of the trust which owns 134,944 shares.

(4) 5715 Superior Drive, Morristown, Tennessee 37814. Includes options for
10,000 shares issued by the Company.

(5) 213 Abbey Road, Newport, Tennessee 37821. Includes options for 10,000
shares issued by the Company.

(6) 631 2nd Avenue South, Nashville, Tennessee 37210. Mr. Woods holds an
option to acquire 10,000 shares of Common Stock from the Company.

(7) 5210 Schubert Road, Knoxville, Tennessee 37912. includes options for
40,000 shares issued by the Company.

OTHER EXECUTIVE OFFICERS

The following information relates to the executive officers of the
Company as of the date of this Proxy Statement, other than those executive
officers who also serve as directors of the Company, as noted above. With the
exception of the President and Chief Executive Officer, who has an employment
agreement with a term of five (5) years, and Mr. Nawy and Mr. Gratteau, each of
whom has an employment agreement, the remaining executive officers serve at the
discretion of the Board:

<PAGE> 11

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- ---------- ----------------------------------------------------

<S> <C> <C>
James Bauchiero.......................... 50 Executive Vice President and Chief Financial Officer

Joseph Nawy.............................. 55 Vice President of Finance

George J. Phillips....................... 36 Vice President, General Counsel and Secretary

H. Wayne Lambert......................... 47 Vice President of Information Technologies

Everit Herter............................ 56 Vice President of Affiliate Relations

Henry I. Shapiro......................... 51 Vice President of Merchandise

Kent H. Gratteau, Jr..................... 54 Vice President of Broadcasting & Engineering

Linda O. Ford............................ 33 Vice President of Human Resources

Sandra B. Emery.......................... 52 Vice President of Customer Relations

William M. Anderson...................... 52 Vice President of Sports Operations

Teresa M. McDowell....................... 45 Vice President of Call Center Operations
</TABLE>

James Bauchiero, Executive Vice President and Chief Financial Officer.
Mr. Bauchiero has served as Executive Vice President and Chief Financial Officer
since January 1, 1998. Prior to joining the Company, Mr. Bauchiero was Vice
President and Chief Financial Officer of Orchid International Group, an
automation and robotics designer and fabricator for heavy manufacturing
facilities and manufacturer of metal stamped products. Prior to joining Orchid
in 1996, Mr. Bauchiero was Vice President and Chief Financial Officer of
National Auto/Truckstops, a franchisor of full-service truckstops. Mr. Bauchiero
holds a BS degree in finance and business economics and an MBA from the
University of Southern California.

Joseph Nawy, Vice President of Finance. Mr. Nawy has served as Vice
President of Finance since September 1994. Mr. Nawy has experience in direct
mail, computer operations and distribution, and prior to joining the Company was
involved in business turnaround situations. From 1990 to 1993 Mr. Nawy was the
Chief Operating Officer and Chief Financial Officer of LP Music Group, a
manufacturer and importer of percussion musical instruments. From 1987 to 1990,
Mr. Nawy was the Chief Financial Officer of American Direct Industries, Inc., a
direct mail retailer. Prior to that, Mr. Nawy served in a variety of corporate
positions, and also started his career in public accounting with the firm of
Ernst & Young. Mr. Nawy is a certified public accountant and holds an accounting
degree from New York University.

George J. Phillips, Vice President, General Counsel and Secretary. Mr.
Phillips joined the Company in November, 1997. Prior to his employment with the
Company, Phillips was counselor to the Assistant Attorney General of the Civil
Division of the United States Department of Justice from 1993 through 1997,
where he oversaw the Office of Consumer Litigation. Prior to joining the Justice
Department, Mr. Phillips was in private practice with Baker, Worthington,
Crossley, Stansberry & Woolf in Nashville, Tennessee, from 1989 to 1993. Mr.
Phillips received his undergraduate degree from Duke University and his law
degree from the University of Tennessee.

H. Wayne Lambert, Vice President of Information Technologies. Mr.
Lambert has served as Vice President for the Company since March, 1992.
Immediately before joining the Company, he served as Operations Officer for
National Book Warehouses, Inc., Knoxville, Tennessee. Prior to that employment,

<PAGE> 12

he served as Assistant Controller for the Knoxville News-Sentinel, Knoxville,
Tennessee. Mr. Lambert is a retired Captain of the Tennessee Air National Guard
and a Base Budget Officer. He is a graduate of University of Tennessee.

Everit A. Herter, Vice President of Affiliate Relations. Mr. Herter has
served as Vice President of Affiliate Relations since July 1997. Since 1994, Mr.
Herter has served the Company as Director of Affiliate Relations and as a
consultant. Prior to joining the Company, Mr. Herter was a Senior Vice President
of J. Walter Thompson Co.

Henry I. Shapiro, Vice President of Merchandise. Mr. Shapiro has served
as the Vice President of Merchandise for the Company since January of 1994.
Prior to joining the Company, Mr. Shapiro designed and manufactured jewelry for
leading jewelry retailers, Home Shopping Network and QVC, from 1983 through
1993. Mr. Shapiro attended the Fashion Institute of Technology and Maryland
University. He has served as a consultant for jewelry manufacturers with special
emphasis on the television markets in Thailand, Czechoslovakia, Hong Kong,
Switzerland and Italy.

Kent H. Gratteau, Jr., Vice President of Broadcasting and Engineering.
Mr. Gratteau joined the Company in August 1995, and before that, he served for
ten years as Engineering Manager for KWGN(TV), Denver, Colorado. He is member of
the Society of Motion Picture and Television Engineers and has served that
organization as Section Chairman and on the Board of Managers for the Rocky
Mountain Section. Mr. Gratteau attended the University of Utah and Florida State
University.

Linda O. Ford, Vice President of Human Resources. Ms. Ford has served
as the Vice President of Human Resources for the Company since May of 1996.
Immediately prior to joining the Company, Ms. Ford served as a Human Resources
Consultant for Phillips & Phillips Associates, Inc. From 1993 to 1995, she was
the Manger of Human Resources for National Auto/Truckstops, Inc. From 1989 to
the time she joined National Auto/Truckstops, Inc., Ms. Ford was a Human
Resources Manger for Union Oil Company of California.

Sandra B. Emery, Vice President of Customer Service. Ms. Emery has
served as Vice President of Customer Service for the Company since June 1994.
From 1992 until 1994, she served as Operations Manager of Order Entry and
Customer Service for the Company. Prior to that time, she served as Operations
Director for National Book Warehouse, Inc. Her other experience includes
positions with Jostens' Printing and Publishing Company, R.V. Emery Company and
Carousel of Curios.

William M. Anderson, Vice President of Sports Operations. Mr. Anderson
has served as Vice President of Sports Operations since August 1997. Prior to
that time, he provided periodic consulting services to the Company and was a
self-employed consultant from 1995 to 1997, primarily providing real estate
acquisition, retail site selection and marketing services. From 1993 to 1995,
Mr. Anderson was President of Beaty Title Company, and from 1990 to 1993 was
President of Interior Logic, a commercial office furniture sales and
installation business. In 1994, Mr. Anderson filed a voluntary Chapter 7
bankruptcy proceeding and received a discharge.

Teresa M. McDowell, Vice President of Call Center Operations. Ms.
McDowell has served as Vice President of Call Center Operations since November
1996. From 1994-1996, Ms. McDowell served as Director of Customer Service for
Mark Group, Inc., a catalog sales company. From 1993 until 1994, Ms. McDowell
served as Manager of Customer Relations at the Customer Service Center of
Bedford Fair Industries, Ltd., also a catalog sales company. From 1988 to 1993,
Ms. McDowell was Manager of Administration and Planning for the Atlanta, Georgia
office of Spring Corporation.

<PAGE> 13

REMUNERATION OF DIRECTORS AND OFFICERS

SUMMARY COMPENSATION

The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended June 30, 1997, to those persons who
served as the Company's CEO during the 1997 fiscal year and were the Company's
most highly compensated executive officers (other than the CEO) serving as of
the end of the 1997 fiscal year whose compensation exceeded $100,000 (not more
than four persons are required to be shown) (collectively, the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------- ---------------------
SECURITIES UNDERLY- ALL OTHER
NAME AND OTHER ANNUAL ING OPTIONS COMPENSA-
PRINCIPAL SALARY BONUS COMPENSATION /SAR TION
POSITION YEAR ($) ($) ($) (#) ($)
- ------------------- ------- ----------- ---------- ---------------- --------------------- -------------

<S> <C> <C> <C> <C> <C> <C>
Kent E. Lillie 1997 188,654 155,605 12,000(1) 510,000 ---
President/CEO 1996 120,000 -- 12,000(1) -- ---
1995 120,000 50,000 12,000(1) -- 18,000(2)

Joseph Nawy, 1997 114,393 15,560 6,000(1) 20,000 --
Vice President 1996 96,000 -- 3,500(1) -- 7,423(3)
Finance 1995 76,431(4) -- -- 60,000 --

Thomas C. 1997 122,866 -- 5,000(1) 10,000 --
Sutula, 1996 101,539 -- -- 100,000 --
Executive Vice
President/COO(5)
</TABLE>

- ----------

(1) Other Annual Compensation consists of an automobile allowance.

(2) Other Compensation consists of a housing allowance.

(3) Other Compensation consists of a relocation allowance.

(4) Mr. Nawy's employment began in September 1994.

(5) Mr. Sutula's employment began in July 1995 and terminated in March 1997.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information concerning stock
option and stock appreciation right ("SAR") grants to any Named Executive
Officer who was granted a stock option during the 1997 fiscal year of the
Company.

<PAGE> 14
\

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
----------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS/SARS GRANTED TO OR BASE OPTION TERMS
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------- -------------- -------------- --------- ------------ ------------- -------------

<S> <C> <C> <C> <C> <C> <C>
Kent E. Lillie 500,000 71.5% $2.87 (1) $588,990 $1,386,877

Kent E. Lillie 10,000 1.4 2.87 6/19/02 7,929 17,522

Joseph Nawy 20,000 2.9 2.87 (2) 23,560 55,475
</TABLE>

- -------

(1) Options to acquire 500,000 shares of Common Stock of the Company were
issued July 1, 1996, of which options to purchase 100,000 shares became
exercisable on January 1, 1997, with options to acquire 100,000 shares
to become exercisable on January 1, 1998, 1999, 2000 and 2001. The
options expire on the earlier of thirty (30) days after the termination
of employment or five (5) years from the date the options became
exercisable. These options were originally granted at an exercise price
of $3.75, but were reissued on June 19, 1997, at an exercise price of
$2.87.

(2) Options to acquire 20,000 shares of Common Stock of Registrant were
issued July 1, 1996, of which options to purchase 4,000 shares became
exercisable on July 1, 1997, with options to acquire 4,000 shares to
become exercisable on July 1, 1998, 1999, 2000, and 2001. The options
expire on the earlier of thirty (30) days after the termination of
employment or five (5) years from the date the options become
exercisable. These options were originally granted at an exercise price
of $3.75, but were reissued on June 19, 1997, at an exercise price of
$2.87.

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information with respect to
options exercised by any Named Executive Officer during the 1997 fiscal year of
the Company, and with respect to unexercised options to purchase shares held by
such officers as of the end of the 1997 fiscal year.

AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUE

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXER- IN-THE-MONEY
CISED OPTIONS/SARS OPTIONS/SARS AT
AT JUNE 30, 1997 JUNE 30, 1997
------------------ --------------------
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE(1)
- ---- ------------ --------------------- ------------------ --------------------

<S> <C> <C> <C> <C>
Kent E. Lillie None N/A 410,000/600,000 $543,900/$362,600

Joseph Nawy None N/A 24,000/56,000 $16,512/$24,768
</TABLE>

- ----------

(1) The market value of underlying securities at June 30, 1997, was $2.813 per
share based upon the NASDAQ SmallCap market closing price. "In-the-Money"
options are ones in which the fair market value of the underlying
securities exceeds the exercise price of the options.

<PAGE> 15

REPORT ON REPRICING OF OPTIONS

At the meeting of the Company's Board of Directors on June 19, 1997,
the Board voted to reprice all of the options to purchase shares of its Common
Stock granted to its employees during 1996 to a new option price of $2.87, the
market price of the stock as of the close of business on June 19, 1997,
according to the NASDAQ SmallCap Market. The options eligible to be repriced had
been issued to a total of approximately 43 employees for a total of 652,500
shares. Among the employees holding options subject to repricing, six (6) of the
employees were executive officers whose options subject to repricing totalled
585,000 of the shares. The Board determined that because of the decline in the
market price of the stock from 1996 to 1997, the options were not achieving the
goal of providing an employment incentive to the effected employees.

This repricing of employee stock options is the only repricing of
options ever carried out by the Company. The following table sets out
information concerning the repricing of options held by executive officers of
the Company:
TEN-YEAR OPTION/SAR REPRICINGS

<TABLE>
<CAPTION>
NUMBER OF MARKET EXERCISE LENGTH OF
SECURITIES PRICE PRICE AT ORIGINAL
UNDERLYING OF STOCK AT TIME OF OPTION TERM
OPTIONS/ TIME OF REPRICING REMAINING
SARS REPRICING OR OR NEW AT DATE OF
REPRICED OR AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE AMENDED (#) ($) ($) PRICE ($) AMENDMENT
- ---------------------- ------------- ------------- ------------ ------------ --------- -------------

<S> <C> <C> <C> <C> <C> <C>
Kent E. Lillie June 19, 1997 100,000 $2.87 $3.75 $2.87 54 mos.*
Kent E. Lillie June 19, 1997 100,000 2.87 3.75 2.87 66
Kent E. Lillie June 19, 1997 100,000 2.87 3.75 2.87 78
Kent E. Lillie June 19, 1997 100,000 2.87 3.75 2.87 90
Kent E. Lillie June 19, 1997 100,000 2.87 3.75 2.87 102
Joseph Nawy June 19, 1997 4,000 2.87 3.75 2.87 60
Joseph Nawy June 19, 1997 4,000 2.87 3.75 2.87 72
Joseph Nawy June 19, 1997 4,000 2.87 3.75 2.87 84
Joseph Nawy June 19, 1997 4,000 2.87 3.75 2.87 96
Joseph Nawy June 19, 1997 4,000 2.87 3.75 2.87 108
Henry I. Shapiro June 19, 1997 2,000 2.87 3.75 2.87 60
Henry I. Shapiro June 19, 1997 2,000 2.87 3.75 2.87 72
Henry I. Shapiro June 19, 1997 2,000 2.87 3.75 2.87 84
Henry I. Shapiro June 19, 1997 2,000 2.87 3.75 2.87 96
Henry I. Shapiro June 19, 1997 2,000 2.87 3.75 2.87 108
Kent H. Gratteau, Jr. June 19, 1997 1,000 2.87 3.75 2.87 60
Kent H. Gratteau, Jr. June 19, 1997 1,000 2.87 3.75 2.87 72
Kent H. Gratteau, Jr. June 19, 1997 1,000 2.87 3.75 2.87 84
Kent H. Gratteau, Jr. June 19, 1997 1,000 2.87 3.75 2.87 96
Kent H. Gratteau, Jr. June 19, 1997 1,000 2.87 3.75 2.87 108
Linda O. Ford June 19, 1997 5,000 2.87 3.56 2.87 58
Linda O. Ford June 19, 1997 5,000 2.87 3.56 2.87 70
Linda O. Ford June 19, 1997 5,000 2.87 3.56 2.87 82
Linda O. Ford June 19, 1997 5,000 2.87 3.56 2.87 94
Linda O. Ford June 19, 1997 5,000 2.87 3.56 2.87 106
Teresa McDowell June 19, 1997 5,000 2.87 2.94 2.87 65
Teresa McDowell June 19, 1997 5,000 2.87 2.94 2.87 77
Teresa McDowell June 19, 1997 5,000 2.87 2.94 2.87 89
Teresa McDowell June 19, 1997 5,000 2.87 2.94 2.87 101
Teresa McDowell June 19, 1997 5,000 2.87 2.94 2.87 113
</TABLE>

* rounded to the nearest month

<PAGE> 16

EMPLOYMENT AGREEMENTS

KENT E. LILLIE. On September 25, 1993, the Company executed an
employment agreement with Kent E. Lillie whereby Mr. Lillie commenced employment
as the Company's President and Chief Executive Officer. Under that agreement,
Mr. Lillie was granted options to purchase up to 600,000 shares of Common Stock
at an exercise price of $1.00 per share during the term of the agreement. Of
those options, options to purchase 100,000 shares vested immediately, and
additional options to purchase 100,000 shares vested on each anniversary date of
the agreement. The options expire on the earlier to occur of (a) five years
after the date of vesting or (b) thirty days after termination of Mr. Lillie's
employment with the Company. In the event of a "change of control" of the
Company, as defined in the agreement, the agreement granted Mr. Lillie certain
rights, including the right to resign at any time during the twelve months
following the occurrence of the change of control, and in the event of such
resignation, any options to purchase stock not yet vested would automatically
vest on the date of resignation.

On June 21, 1996, the Board of Directors granted to Mr. Lillie options
to purchase an additional 500,000 shares of the Company's Common Stock at a
price of $3.75 per share. Options to purchase 100,000 shares vested on January
1, 1997, and options to purchase a total of 100,000 shares will vest on January
1 of each year thereafter for another four (4) years. Effective June 19, 1997,
these options were replaced with options having the same terms and conditions,
except for the exercise price which was reduced to $2.87.

Effective July 1, 1997, the Company executed a new employment agreement
with Mr. Lillie to continue his employment as President and Chief Executive
Officer. Under the terms of the agreement, Mr. Lillie will be employed for an
initial term of five (5) years with a base salary of $190,000 per year. The
agreement is automatically renewable for successive two (2) year terms unless
either party terminates the agreement prior to the commencement of the renewal
term. In addition to the base salary, the agreement also provides for a
quarterly bonus of the greater of (i) ten percent (10%) of the increase in the
Company's net operating profit after taxes over the same quarter of the previous
fiscal year, or (ii) five percent (5%) of the "Total Cash Flow" for the quarter.
"Total Cash Flow" means the net operating profit, after taxes, plus depreciation
accrued by the Company for its broadcast station properties. Under the
agreement, Mr. Lillie receives an automobile allowance and other fringe benefits
and allowances. The agreement provides that Mr. Lillie will be granted options
to purchase up to 50,000 shares of the Company's Common Stock at an exercise
price of $2.875 per share. These options will vest on June 30, 2001 and expire
on June 30, 2006. In the event of a "change of control" of the Company, as
defined in the agreement, the agreement grants Mr. Lillie certain rights,
including the right to resign at any time during the twelve months following the
occurrence of the event, and to receive an amount equal to his base salary and
monthly allowances for the twelve (12) months preceding such resignation. In
addition, any options to purchase stock not yet vested shall automatically vest
on the date of such termination. The Company has agreed to pay or reimburse Mr.
Lillie for the relocation of his primary residence from Atlanta, Georgia, to
Nashville, Tennessee, the Company's new headquarters location. The Company also
agreed to make Mr. Lillie a loan in the amount of $800,000 in connection with
the relocation of his residence. All of these loan proceeds have been advanced
to Mr. Lillie. The loan matures on the earlier of (i) the date of Mr. Lillie's
termination from the Company, or (ii) June 30, 2002. Until maturity, payments
equal to ten percent (10%) of bonus payments made to Mr. Lillie in addition to
his base salary are required to be used to repay the loan. The loan does not
bear interest. The agreement also provides that Mr. Lillie will not compete with
the Company for two (2) years following the termination of his employment.

JOSEPH NAWY. The Company and Mr. Nawy entered into a written employment
agreement on August 24, 1994. The agreement established Mr. Nawy's basic
compensation at $96,000 with a structured bonus, and further provides that the
compensation will be reviewed annually and adjusted by mutual consent. The
agreement also provided that Mr. Nawy would be granted options to purchase
60,000 shares of the Company's Common Stock, with 12,000 shares of this total
vesting after one year and an

<PAGE> 17

additional 12,000 shares vested on each anniversary date until fully vested. The
agreement also provides that if Mr. Nawy's employment is terminated for any
reason other than "for cause," he will receive his normal compensation for a
period of 180 days.

COMPENSATION OF DIRECTORS

The Company has not historically paid remuneration to its non-employee
directors for their service as directors. In June, 1997, each director was
granted an option to purchase 10,000 shares of the Common Stock of the Company
at a price of $2.875 per share. These options expire in June 2002 if not
exercised prior to such date. Beginning in 1998, the Company will pay each
director $500 for each meeting attended ($100 if attendance is by telephone),
along with the director's expenses associated with attending the meeting.
Effective January 1, 1998, the Company also granted to each director an option
to purchase 5,000 shares of the Company's Common Stock at an exercise price of
$3.688, the closing market price on the preceding business day.

OMNIBUS STOCK INCENTIVE PLAN

The Company's Omnibus Stock Incentive Plan (the "Plan") was adopted by
the Company's Board of Directors on October 15, 1991, and approved by the
Company's shareholders at the 1991 annual meeting of shareholders. The Plan was
amended at the 1996 annual meeting of shareholders to make certain technical
changes in the Plan.

A special administrative committee of the Board of Directors was
appointed to administer the plan. All employees of the Company are eligible to
receive stock options and/or stock appreciation rights under the Plan. Options
granted under the Plan can be either incentive stock options or nonqualified
stock options. Incentive stock options to purchase Common Stock may be granted
at not less than 100% of fair market value of the Common Stock on the date of
the grant.

SARs generally entitle the participant to receive the excess of the
fair market value of a share of Common Stock on the date of exercise over the
initial value of the SAR. The initial value of the SAR is the fair market value
of a share of Common Stock on the date of the grant.

A maximum of 1,500,000 shares of Common Stock may be issued upon the
exercise of options and SARs.

No option or SAR may be granted after October 15, 2001. No option that
is an incentive stock option and any corresponding SAR that related to such
option shall be exercisable after the expiration of ten (10) years from the date
such option or SAR was granted for five (5) years after the expiration in the
case of any such option or SAR that was granted to a 10% shareholder.

As of December 31, 1997, stock options for 628,100 shares of Common
Stock have been granted under the Plan and were outstanding and unexercised. A
total of 130,400 shares of Common Stock of the Company have been previously
issued upon exercise of stock options issued under the Plan. Mr. Lillie's
options were not granted by the Company pursuant to the Plan. The Company has
never issued any SARs.

<PAGE> 18

TRANSACTIONS WITH MANAGEMENT AND DIRECTORS

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors of the Company does not have a Compensation
Committee. All directors of the Company participate in executive compensation
decisions. The members of the Board of Directors during the fiscal year ended
June 30, 1997, were J.D. Clinton, W. Paul Cowell, A.E. Jolley, Joseph I.
Overholt, Frank A. Woods, and Kent E. Lillie.

TRANSACTIONS WITH RELATED PARTIES

The Company leases its Knoxville office and studio space from William
and Warren, Inc., an entity owned by Paul W. Cowell, a director, and paid total
lease payments of approximately $139,800 during the fiscal year ended June 30,
1997. Management of the Company determined that these terms and conditions were
competitive with comparable commercial space being leased in the Knoxville
market.

On August 16, 1995, the Company issued its $2,000,000 Variable Rate
Convertible Secured Note Due 2000 to Global Network Television, Inc. J.D.
Clinton, a director of the Company is the sole shareholder and Chairman of
Global Network Television, and that corporation is a principal shareholder of
the Company. See "Security Ownership of Certain Beneficial Owners." The loan
carried interest at the prime rate plus 2%, and was payable in 60 monthly
installments. The loan was secured by a security interest in the inventory,
accounts, and certain equipment, furniture and fixtures of the Company, as well
as the stock of MFP, Inc., a subsidiary of the Company, and an assignment of the
proceeds of any sale of the Federal Communications Commission license of
Television Station WMFP, Lawrence, Massachusetts. The note was convertible to
Common Stock of the Company based upon one share of stock for each $3.00 of the
principal balance of the note. On October 1, 1997, the note was transferred to
FBR Private Equity Fund, L.P., which immediately converted the note to 444,177
shares of Common Stock of the Company. Based upon management's knowledge of the
commercial lending market, the terms and rates of the note were considered
competitive. FBR Private Equity Fund, L.P. is an affiliate of Friedman,
Billings, Ramsey & Co., Inc.

During 1998, the Company plans to relocate its studios and headquarters
facilities to Nashville, Tennessee. The new Nashville facility will be owned by
Partners - SATH, L.L.C., a Tennessee limited liability company (the "LLC"). and
leased to the Company. The sole members of the LLC are Steve Sanders and James
P. Clinton, both of whom are related to J.D. Clinton. The LLC has financed the
acquisition and construction of the facility from the proceeds of a loan (the
"Facility Loan") in the principal amount of $6.4 million from a commercial bank.
The Facility Loan is evidenced by a promissory note from the LLC, and is secured
by a first mortgage deed of trust on the facility, the personal guaranty of J.D.
Clinton and the guaranty of the Company. The lease to the Company will be a net
lease with payments in the approximate amount of the debt service on the
Facility Loan, with the Company to have the option to acquire the facility
during and at the end of the lease term. The Company has agreed to pay to Mr.
Clinton an annual fee equal to 1% of the amount of the Facility Loan in
consideration for Mr. Clinton's guaranty, which will be payable in cash or in
stock of the Company.

In connection with the relocation of Kent E. Lillie's primary residence
from Atlanta, Georgia, to Nashville, Tennessee, the Company has made an
interest-free loan to Mr. Lillie in the principal amount of $800,000. See
"MANAGEMENT -- Employment Agreements -- Kent E. Lillie" herein.

In February, 1995, the Company entered into a financing lease
transaction with Brownsville Auto Leasing Corporation whereby the Company leased
the transmitter for WMFP(TV). The monthly principal payments on the lease are
$9,700 and the outstanding balance on the lease at December 31, 1997, was
$349,700. James P. Clinton, the brother of J.D. Clinton, is a principal of
Brownsville Auto Leasing Corporation.

<PAGE> 19

REPORT ON EXECUTIVE COMPENSATION

Decisions on compensation of the Company's executives are made by the
Company's Board of Directors. Each member of the Board, except for Kent E.
Lillie, is a non-employee director. It is the responsibility of the Board to
assure that the executive compensation programs are reasonable and appropriate,
meet their stated purpose and effectively service the interests of the Company
and its stockholders. Pursuant to rules of the Securities and Exchange
Commission designed to enhance disclosure of corporate policies toward executive
compensation, set forth below is the report of the Board of Directors with
respect to executive compensation.

COMPENSATION PHILOSOPHY AND POLICIES FOR EXECUTIVE OFFICERS

The Company believes that the most effective executive compensation
program aligns the interest of the Company's executives with the interests of
its stockholders. The Company's primary corporate mission is to achieve
profitability on a consistent basis and thereby enhance long-term stockholder
value. In pursuit of that mission, the Board seeks to maintain a strong positive
nexus between this mission and its compensation and benefit goals.

The Company's executive compensation program exemplifies the Board's
commitment to that nexus. The Company provides only minimal perquisites to its
executive officers, relying instead upon compensation methods that emphasize
overall Company performance. In addition, the Company maintains no contractual
arrangements with any executive officer, other than its agreement with its
President, its Vice President of Finance, and its Vice President of Broadcasting
& Engineering, thereby enhancing the opportunities for performance-based rewards
to individuals.

The Company's executive compensation program supports the Company's
mission by:

- - Directly aligning the interests of executive officers with the
long-term interests of the Company's stockholders by making Company
stock appreciation over the long term the cornerstone of executive
compensation through awards that can result in the ownership of
substantial amounts of the Company's Common Stock.

- - Providing compensation opportunities that create an environment that
attracts and retains talented executives on a long-term basis.

- - Emphasizing pay for performance by having a meaningful portion of
executive compensation "at risk."

At present, the Company's executive compensation program is comprised
of three primary components: base salary, annual cash incentive (bonus) and
long-term incentive opportunity in the form of stock options. Two of the three
components of the Company's executive compensation plan -- bonus and stock
options -- directly relate to overall performance by the Company. With respect
to the third component -- salary -- the Company seeks to be at or below market,
placing primary emphasis on the opportunities for greater reward through the
availability of performance-based reward mechanisms.

BASE SALARY

The base salary of the Company's President as listed in the Summary
Compensation Table is governed by an Employment Agreement with the Company. As a
part of its search for a President in 1993, the Board determined that in order
to attract an individual with knowledge and experience necessary to implement
the Company's mission, the Company needed to provide that individual with a
certain level of compensation. The Board also determined to place a greater
portion of the compensation package in performance-based compensation (i.e.,
performance bonus and stock options), thereby

<PAGE> 20

providing an incentive for outstanding performance and minimizing the amount of
guaranteed compensation. The Board believes that the Employment Agreement with
Mr. Lillie contains an appropriate mix of guaranteed and performance-based
compensation.

The Company has no other employment agreements with any other
employees, with the exception of Mr. Nawy and Mr. Gratteau. All other executive
officer salaries are evaluated on an annual basis. In determining appropriate
salary levels and salary increases, the Board considers achievement of the
Company's mission, level of responsibility, individual performance, internal
equity and external pay practices. In this regard, the Board attempts to set
base salaries of all executive officers at rates at or below the rates of other
individuals in equivalent positions in the market area. The Board determines
those rates from information gathered by its members.

ANNUAL BONUS

The Board believes that annual bonuses to executive officers encourage
management to focus attention on key operational goals of the Company, and
corporate and business earnings are the main performance measure for awards of
bonuses. In that regard, the agreement with the Company's President provides a
quarterly bonus of the greater of (i) ten percent (10%) of the increase in the
Company's net operating profit after taxes over the same quarter of the previous
fiscal year, or (ii) five percent (5%) of the Total Cash Flow for the quarter.
With respect to the other executive officers of the Company, the Board does not
have a formal annual incentive plan. Instead, the Board has elected to review
the corporate and business performance of the Company on a periodic basis, and
make awards to executive officers if appropriate. In determining appropriate
annual bonuses, the Board considers achievement of the Company's mission, level
of responsibility, individual performance, internal equity, and external pay
practices. In the fiscal year ended June 30, 1997, the Board elected to award
cash bonuses to two executive officers, being Mr. Lillie and Mr. Nawy.

LONG-TERM INCENTIVES

The Company's only current long-term incentive compensation is stock
options that are directly related to improvement in long-term stockholder value.
The Board believes that stock option grants provide an incentive to executive
officers that focuses each officer's attention on managing the Company from the
perspective of an owner with an equity stake in the business. In addition, the
Board believes that stock option grants provide the Company with a mechanism for
recruiting individuals by providing an opportunity for those officers to profit
from the results of their contributions to the Company. These grants also help
ensure that operating decisions are based on long-term results that benefit the
Company and ultimately the Company's stockholders.

The options granted to executive officers provide the right to purchase
shares of Common Stock usually at the fair market value on the date of grant.
Usually, each stock option becomes vested and exercisable over a period of time,
generally five years. The number of shares covered by each grant reflects the
Board's assessment of the executive's level of responsibility, and his or her
past and anticipated contributions to the Company. The size of option grants to
individual executives is designed to reflect the impact the individual has on
decisions that affect the overall success of the Company.

The Company granted stock options for no shares of its Common Stock to
its executive officers in the fiscal year ended June 30, 1993, and the Company
granted stock options for 210,000 shares of its Common Stock to its executive
officers, other than the President, in the fiscal year ended June 30, 1994. In
the fiscal year ended June 30, 1995, the Company awarded executive officers
options to purchase up to 140,000 shares of Common Stock. In the fiscal year
ended June 30, 1996, the Company awarded executive officers options to purchase
up to 225,000 shares of Common Stock. In the fiscal year ended June 30, 1997,
the Company awarded executive officers options to purchase up to 145,000 shares
of Common Stock. Since June 30, 1997, the Company has awarded to its executive
officers additional

<PAGE> 21

options to purchase up to 360,000 shares of Common Stock. These totals are
exclusive of stock options granted to Kent E. Lillie and are net of any options
which expired without being exercised.

CHIEF EXECUTIVE COMPENSATION

The regulations of the Securities Exchange Commission require the Board
to disclose the basis for the compensation of the Company's chief executive
officer relative to the Company's performance. The Company's chief executive
officer is its President, Kent E. Lillie. Mr. Lillie's compensation is governed
by the terms of an Employment Agreement dated September 25, 1993, and a second
Employment Agreement dated July 1, 1997.

The Board's general approach in establishing Mr. Lillie's compensation
was to provide a base salary below market, augmented by an annual bonus based
upon specific corporate-wide performance criteria, and stock options reflective
of the value of that performance. The Board approved a current base salary of
$190,000 as provided by the second Employment Agreement, and a quarterly bonus
based upon the financial performance of the Company. The Board determined, based
upon the information available, that the base salary and annual bonus was below
the market rate and within the Company's overall internal compensation goal. Mr.
Lillie received a bonus of $155,605 for the fiscal year ended June 30, 1997.
Consistent with the goals stated above, that fact reflects the Company's overall
performance during that fiscal year and not Mr. Lillie's performance.

As a part of the first Employment Agreement, Mr. Lillie was granted
options to purchase up to 600,000 shares of stock of the Company at an exercise
price of $1.00 per share. Those options vest over a period of five (5) years,
with 100,000 shares vesting immediately upon employment. The Board granted Mr.
Lillie an option to purchase 500,000 shares of its Common Stock as addition
long-term incentive during the fiscal year ended June 30, 1997. Effective July
1, 1997, the Company and Mr. Lillie entered into a new employment agreement,
under which Mr. Lillie received options to purchase 50,000 shares of the
Company's Common Stock and certain changes were made in the computation of Mr.
Lillie's bonus. See "Employment Agreements" herein.

THE FOREGOING REPORT, ALONG WITH THE REPORT REGARDING THE REPRICING OF OPTIONS,
IS SUBMITTED BY ALL MEMBERS OF THE COMPANY'S BOARD OF DIRECTORS WHOSE MEMBERS
ARE AS FOLLOWS:

J.D. Clinton Kent E. Lillie
W. Paul Cowell Joseph I. Overholt
A.E. Jolley Frank A. Woods

STOCKHOLDER RETURN COMPARISONS

The following line-graph compares the cumulative stockholder returns
for the Company over the past five (5) years with a broad market equity index
and a published industry or line-of-business index. For these purposes, the
Company has chosen the NASDAQ Market Index and the MG Group Index. The MG Group
Index is composed of companies classified as "Other Importers, Wholesalers and
Retailers" by Media General Financial Services, Inc. The chart uses as a
beginning price $1.50 which was the average of the high and low bid of the
Company's Stock on June 30, 1992 (the last trading day prior to fiscal year
1993), and assumes $100 invested on that date.

<PAGE> 22

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SHOP AT HOME, INC., THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30
----------------------------------------------------------------------------------

COMPANY 1992 1993 1994 1995 1996 1997

<S> <C> <C> <C> <C> <C> <C>
Shop at Home, Inc........................ 100.00 181.58 255.26 361.84 510.53 369.74
Peer Group............................... 100.00 117.89 121.85 136.74 196.06 188.79
NASDAQ Market Index - US................. 100.00 122.76 134.61 157.88 198.73 239.40
</TABLE>

PROPOSAL NO. 3
AMENDMENT OF CHARTER
REVERSE STOCK SPLIT

The Board of Directors has proposed and recommended to the stockholders
a proposal to amend the Charter of the Company to effect a reverse stock split
of the Company's Common Stock (the "Reverse Stock Split"). The intent of the
Board of Directors in recommending the Reverse Stock Split is to satisfy a
NASDAQ requirement for listing on the NASDAQ National Market that the Common
Stock of the Company must have a closing bid price at or above $5.00, and also
to increase the long-term marketability and liquidity of the Common Stock.

The Board of Directors believes that the current per share market price
of the Common Stock of below $5.00 impairs the marketability of the Common Stock
to institutional investors and members of the investing public and creates a
negative impression with respect to the Company when compared with the Company's
competitors. Further, the rules of the National Association of Securities
Dealers Inc. Automated Quotation System ("NASDAQ") provide that one of the
conditions to listing on the NASDAQ National Market ("NNM") is a closing bid
price at or above $5.00. The Company's Common Stock is currently listed on the
NASDAQ SmallCap Market, and the Company believes that listing on the NNM will
improve the liquidity and marketability of the Common Stock. While the number of
shares of Common Stock outstanding should not materially affect the
marketability of the Common Stock, the type of investor who acquires it or the
Company's reputation in the financial community, in practice many investors look
upon low priced stock or a stock which is not traded on NNM as more speculative
in nature and, as a matter of policy, avoid investing in these stocks. The
foregoing factors are believed to adversely affect the liquidity of the Common
Stock. However, no assurance can be given that even after the approval and
occurrence of the proposed Reverse Stock Split, that the Company's Common Stock
will be traded for prices that will satisfy NNM requirements.

If the Reverse Stock Split is approved by the stockholders of the
Company, each two shares of the Company's Common Stock ("Old Common Stock") will
be reclassified into one share of new common stock ("New Common Stock") (the
"ratio"). The Reverse Stock Split will become effective upon the approval of the
shareholders and the filing of Articles of Amendment to the Charter of the
Company. By approving the amendment, the shareholders will also provide that the
Board of Directors will cause the amendment to be filed with the Tennessee
Secretary of State's Office and to become effective on a date which is within
ninety (90) days of the date of shareholder approval. The Board of Directors
will use its judgment to determine an appropriate date within that time to make
the amendment effective. The text of the amendment to the Charter is attached
hereto as Exhibit B, and the description of the amendment set out below is
qualified in its entirety by reference to Exhibit B.

<PAGE> 23

EFFECTS OF THE REVERSE STOCK SPLIT

Consummation of a Reverse Stock Split will not alter the number of
authorized shares of Common Stock, which will remain at 30,000,000 shares.
Consummation of the Reverse Stock Split will not alter the par value of Common
Stock, which will remain at $.0025 per share of Common Stock.

If the Reverse Stock Split takes place, a number of outstanding shares
will resume the status of authorized and unissued shares, and these shares will
again be available for issuance. Effective with the Reverse Stock Split, the
conversion rate of certain outstanding options and warrants will be adjusted
proportionately, so that each such outstanding option or warrant would
thereafter cover one-half as many shares of Common Stock. Shares that are no
longer necessary for issuance upon conversion or exercise will become unreserved
and available for future issuance or reservation. Proportionate voting rights
and other rights of stockholders will not be altered by any Reverse Stock Split
(other than as a result of payment in cash in lieu of fractional shares.)

Consummation of a Reverse Stock Split should have no material federal
tax consequences to most stockholders; however, tax effects, which are
especially dependent upon a stockholder's individual circumstances, may be
material; and each stockholder must obtain his or her own tax advice; and this
general description is not tax advice.

The Common Stock is listed for trading on the NASDAQ SmallCap Market.
On the Record Date, the reported closing price of the Common Stock on the
SmallCap Market was $3.938 per share. No assurance can be made as to the future
price of shares of Common Stock.

POSSIBLE ADVANTAGES

The Board believes that a decrease in the number of shares of Common
Stock outstanding without any corresponding alteration of the proportionate
economic interest in the Company represented by individual shareholdings may
increase the trading price of such shares and such higher price would be more
appropriate for the Common Stock. If the Common Stock trades at $5.00 per share
or more, it will meet one of the minimum criteria for listing on the NNM.
However, no assurance can be given that the market price of the Common Stock
will rise in proportion to the reduction in the number of shares outstanding
resulting from any Reverse Stock Split or that even if the Common Stock trades
at $5.00 per share or more, that the Common Stock will be authorized for trading
on the NNM.

Additionally, the Board believes that a more appropriate price for
shares of Common Stock should promote greater interest by the brokerage
community in marketing shares of Common Stock to their customers. The current
per share price of the Common Stock may limit the effective marketability of the
Common Stock because of the reluctance of many brokerage firms and institutional
investors to recommend lower-priced stocks to their clients or to hold them in
their own portfolios. Certain policies and practices of the securities industry
may tend to discourage individual brokers within those firms from dealing in
lower-priced stocks. Some of those policies and practices involve time-consuming
procedures that make the handling of lower-priced stocks economically
unattractive. The brokerage commission on a sale of lower-priced stock may also
represent a higher percentage of the sale price than the brokerage commission on
a higher-priced issue.

Any reduction in brokerage commissions resulting from a Reverse Stock
Split may be offset, however, in whole or in part, by increased brokerage
commissions which will be required to be paid by stockholders selling "odd lots"
created by such Reverse Stock Split.

The increase in the difference between the authorized number of shares
of Common Stock and the number of shares outstanding or committed could have an
advantage of permitting the Company to

<PAGE> 24

issue shares for acquisition, sale of equity, conversion of convertible debt,
and other purposes that could improve the financial position of the Company.

The following table sets forth the number of shares of Common Stock
that would be outstanding (based on the 11,742,991 shares outstanding as of
December 31, 1997) immediately after the Reverse Stock Split. The reduction of
the number of shares outstanding in the Reverse Stock Split has the inverse
effect on authorized and unissued shares. The table does not attempt to account
for cashing out fractional shares.

<TABLE>
<CAPTION>
AUTHORIZED AND UNISSUED SHARES
-------------------------------------------------------
RATIO OF SHARES ISSUED AND BEFORE REVERSE STOCK AFTER REVERSE STOCK
REVERSE STOCK SPLIT OUTSTANDING SPLIT SPLIT
- --------------------------- --------------------------- --------------------------- ------------------------

<S> <C> <C> <C>
None......................... 11,742,991 18,257,009 18,257,009

1-for-2...................... 5,871,495 18,257,009 24,128,505
</TABLE>

The Company's reporting obligations under the Securities Exchange Act
of 1934 should not be affected by the changes in capitalization contemplated
pursuant to the Reverse Stock Split. No significant reduction should be
anticipated in the number of record holders of the Common Stock below its Record
Date level of approximately 688.

POSSIBLE DISADVANTAGES

The Board of Directors is hopeful that the decrease in the number of
shares of Common Stock outstanding will stimulate interest in the Company's
Common Stock and possibly promote greater liquidity. However, the possibility
does exist that such liquidity may be adversely affected by the reduced number
of shares which would be outstanding if the proposed Reverse Stock Split is
effected. The Reverse Stock Split will reduce the number of shares outstanding
to approximately 5,871,495. Fewer publicly held shares may result in lower
trading volume which may reduce financial community interest in the Common
Stock. A lower trading volume for the Common Stock may also depress the Common
Stock market price.

The Board of Directors is hopeful that the proposed Reverse Stock Split
will result in a price level for the shares that will mitigate any reluctance of
brokerage firms to recommend the Common Stock to their clients and diminish the
adverse impact of trading commissions on the potential market for the Company's
shares. However, there can be no assurance that the proposed Reverse Stock Split
will achieve these desired results, nor can there be any assurance that the
price per share of the Common Stock immediately after the proposed Reverse Stock
Split will increase proportionately with the reverse split or that any increase
can be sustained for a prolonged period of time.

Although the Board of Directors is optimistic that the Reverse Stock
Split will increase the market price of the Common Stock above the minimum $5.00
bid price required by the NNM as a condition of listing, no assurance can be
made that the Reverse Stock Split will have this affect or that even if it does
that the Company will satisfy the remaining quantitative requirements for NASDAQ
NNM listing of the Common Stock.

If the Reverse Stock Split takes place, a number of outstanding shares
will resume the status of authorized and unissued shares, which shares will
again be available for issuance. As a result of this increase in authorized and
unissued shares of the Company's Common Stock, additional shares will be
available in the event the Board of Directors determines that it is necessary
and appropriate to raise additional capital through the sale of securities in
the public or private market, enter into a strategic partnership with another
company, grant options to the Company's employees or acquire another

<PAGE> 25

company, business or assets, or in other events. Common Stock would be
authorized to be issued in the discretion of the Board of Directors without
stockholder approval of each issuance.

Except for currently outstanding preferred stock, warrants, options and
option plans, there are no existing agreements or agreements in principle which
call for the issuance of any shares of Common Stock or Preferred Stock.
Additionally, the Company has no existing agreements or agreements in principle
which call for the issuance of any shares of Common Stock or Preferred Stock in
connection with any new financing.

POTENTIAL ANTI-TAKEOVER EFFECT OF AUTHORIZED BUT UNISSUED SECURITIES

The Reverse Stock Split would result in a greater spread between the
number of authorized shares and the number of outstanding shares. The issuance
of shares of Common Stock or Preferred Stock under particular circumstances may
have the effect of discouraging an attempt to change control of the Company,
especially in the event of a hostile takeover bid. The increase in the spread
between authorized and issued Common Stock recommended by the Board of Directors
could have the overall effect of rendering more difficult the accomplishment of
an acquisition of the Company, and to make more difficult the removal of
incumbent management of the Company. Common Stock would be authorized to be
issued in the discretion of the Board of Directors without stockholder approval
of each issuance. The proportionate increase in the authorized number of shares
of Common Stock could have an advantage of permitting the Company to issue
shares for other purposes that could improve the financial position of the
Company. However, the proportionately larger spread between authorized shares
and outstanding shares might be used to increase the stock ownership or voting
rights of persons seeking to obtain control of the Company; and this
anti-takeover effect could benefit incumbent management at the expense of the
stockholders. Issuance of additional shares also could have the effect of
diluting the earnings per share and book value per share of shares of Common
Stock outstanding.

The Company may issue new securities without first offering them to
stockholders. The holders of Common Stock of the Company have no preemptive
rights. Preemptive rights would have given stockholders a right to purchase pro
rata new securities issued by the Company. Preemptive rights protect such
holders from dilution to some extent by allowing holders to purchase shares
according to their percentage ownership in each issuance of new securities.
Therefore, the Company may issue its shares in a manner that dilutes current
stockholders.

ACCOUNTING FOR REVERSE STOCK SPLIT

The Reverse Stock Split will cause the number of "odd-lot" holders to
go up and cause the number of "round-lot" holders of the Common Stock to go
down. The number of round-lot holders is a common measure of a stock's
distribution, and a lower number may reflect more negatively on the Company's
shares. Higher numbers of odd-lot holders may become reluctant to trade their
shares because of any stigma or higher commissions associated with odd-lot
trading. This may negatively impact the average trading volume and thereby
diminish interest in Common Stock by some investors and advisors.

If a Reverse Stock Split is declared, it will require that an amount
equal to the number of fewer shares issued times such shares' par value be
transferred to the Company's Additional Paid-in Capital Account from its Common
Stock Account. The number of shares of Common Stock outstanding will be reduced.
As a consequence, the aggregate par value of the outstanding Common Stock will
be reduced, while the aggregate capital in excess of par value attributable to
the outstanding Common Stock for statutory and accounting purposes will be
increased correspondingly.

The following table illustrates the principal effects of the Reverse
Stock Split to the Company's capital accounts on a pro forma basis as at
September 30, 1997:

<PAGE> 26

<TABLE>
<CAPTION>
PRIOR TO THE AFTER THE 1:2
FINANCIAL DATA REVERSE STOCK SPLIT REVERSE STOCK SPLIT
- ---------------------------------------------------------- ------------------- -------------------

<S> <C> <C>
Stockholders' equity:

Common Stock - $.0025 par value, 30,000,000
shares authorized, 11,074,414 and
5,537,207 issued and outstanding at
September 30, 1997 on actual and pro
forma basis $ 27,686 $ 13,843

Additional paid in capital 10,425,655 10,439,498

Accumulated deficit (5,922,625) (5,922,625)
----------- -----------
Total stockholders' equity $4,530,716 $4,530,716
========== ===========
Book value per common share(1) $.41 $.82
</TABLE>

- ----------

(1) Computed by dividing the total shareholders' equity by the number of
shares of Common Stock outstanding, without any consideration given to
the number of shares which might by issued under any outstanding
options, warrants or conversion rights.

LIQUIDATION OF FRACTIONAL SHARES

At the effective date of the Reverse Stock Split (the "Effective
Date"), if the number of shares owned by a shareholder is not exactly divisible
by two (2), the odd share will be reclassified and changed into a fraction of
one-half of a share of the Company's New Common Stock. These fractional shares
will not be combined into whole shares, but will not be subject to the treatment
of fractional share interests as described below. Shortly after the Effective
Date, the Company will send transmittal forms to the holders of the Old Common
Stock to be used in forwarding their certificates formerly representing shares
of Old Common Stock for (i) surrender and exchange for certificates representing
whole shares of New Common Stock and (ii) cash in lieu of any fraction of a
share of New Common Stock to which such holders would otherwise be entitled.

Any shareholder of the Company which owns only one (1) share of Common
Stock prior to the Reverse Stock Split will, as a result of the Reverse Stock
Split, have that share reduced to one-half of a share. Such a shareholder,
however, will not be required to surrender the fractional share for cash.
Instead, that shareholder will have the option to (i) surrender the fractional
share for cash, as described above, or (ii) the Company will assist the
shareholder to acquire an additional one-half of a share for cash equal to its
market value, and thereby remain a shareholder owning a single share.

American Stock Transfer & Trust Company will act as the Company's
exchange agent (the "Exchange Agent") to act for holders of Old Common Stock in
implementing the exchange of their certificates. Shareholders should not send
stock certificates until shareholders receive a notice requesting them to
transmit them to the Exchange Agent.

If this proposal is approved by stockholders and the Company files the
Articles of Amendment to the Charter, stockholders will be notified and
requested to surrender their certificates representing shares of Old Common
Stock to the Exchange Agent in exchange for certificates representing New Common
Stock. Beginning on the Effective Date, each certificate representing shares of
the Company's Old Common Stock will be deemed for all corporate purposes to
evidence ownership of a proportionate number of shares of New Common Stock and a
right to payment in cash for fractional interests.

The Company will either deposit sufficient cash with its Exchange Agent
or set aside sufficient cash for the purchase of the above-referenced fractional
interests. Stockholders are encouraged to

<PAGE> 27

surrender their certificates to the exchange agent for certificates evidencing
whole shares of the New Common Shares and to claim the sums, if any, due them
for fractional interests, as promptly as possible following the Effective Date.
No interest will accrue or be payable to stockholders on account of such
deposit. The Company shall be entitled to earnings, if any, on funds deposited.

The ownership of a fractional interest will not give the holder thereof
any voting, dividend, or other rights except to receive payment therefor as
described herein. No service charge will be payable by stockholders in
connection with the exchange of certificates or the issuance of cash for
fractional interests, all of which will be borne and paid by the Company.

The number of record holders of the Common Stock on the Record Date was
688. The Company does not anticipate that the payment in cash in lieu of
fractional shares following any Reverse Stock Split would result in a
significant reduction in the number of such holders. Holders of New Common Stock
will continue to be entitled to receive such dividends as may be declared by the
Board of Directors. To date no dividends on the Common Stock have been paid by
the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL. PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED "FOR" THE
PROPOSAL.

PROPOSAL NO. 4
AMENDMENT OF CHARTER
AUTHORIZE NON-VOTING COMMON STOCK

On December 31, 1997, the Board of Directors voted to recommend to the
shareholders the approval of an amendment to the Charter to authorize the
issuance of 30,000,000 shares of Non-Voting Common Stock, par value $.0025 per
share. A full text of the proposed amendment is attached hereto as Exhibit C,
and the description of the amendment set out below is qualified in its entirety
by reference to Exhibit C.

The Charter does not currently authorize the issuance of Non-Voting
Common Stock. The Charter currently authorizes the issuance of 30,000,000 shares
of common stock, par value $.0025 per share ("Common Stock"), and 1,000,000
shares of preferred stock, par value $10.00 ("Preferred Stock").

COMMON STOCK

As of January 20, 1998, 11,742,991 shares of the Company's Common Stock
were outstanding and held of record by approximately 688 shareholders. Shares of
Common Stock may be issued at such time or times and for such consideration (but
not less than par value) as the Board of Directors of the Company deems
advisable, subject to limitations set forth in the laws of the State of
Tennessee, or the Company's Charter or Bylaws. Holders of Common Stock are not
entitled to preemptive or other subscription rights, and are not subject to
assessment or further call. Each share of Common Stock is entitled to one vote
on all matters on which holders of Common Stock are entitled to vote. Holders of
Common Stock are not entitled to convert the shares to any other securities of
the Company. Holders of the Company Common Stock are entitled to receive such
dividends as may be declared, from time to time, by the Board of Directors of
the Company out of funds legally available therefore. The Company has the right
to, and may from time to time, enter into borrowing arrangements or issue other
debt instruments, the provisions of which may contain restrictions on payment of
dividends and other distributions on the Common Stock. In the event of the
voluntary or involuntary liquidation, dissolution, distribution of assets or
winding-up of the Company, holders of Common Stock are entitled to receive
ratably in proportion to the number of shares held, those amounts or assets
available after payment or provision for payment of all indebtedness or other
liabilities to any other person.

<PAGE> 28

PREFERRED STOCK

Under the terms of the Company's Charter, the Company's Board of
Directors has the authority to issue shares of Preferred Stock in one or more
series, and to fix the number, designation, preferences, limitations and
relative rights of the shares of such series, without the further vote or action
of the shareholders. The Company's Board of Directors, without shareholder
approval, can issue Preferred Stock with voting and conversion rights that could
adversely affect the voting power of holders of Common Stock. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company.

At January 20, 1998, there were 137,943 shares of Series A Preferred
Stock ("Series A Preferred Stock"), par value $10.00 per share, outstanding and
held by approximately 36 shareholders of record. The Series A Preferred Stock
ranks ahead of the Common Stock with respect to dividends, preferences,
qualifications, limitations, restrictions and the distribution of assets upon
liquidation. Holders of shares of Series A Preferred Stock are not entitled to
preemptive rights with respect to any shares or other securities of the Company
which may be issued, and such shares are not subject to assessment.

Holders of Series A Preferred Stock are entitled to receive, but only
when, as and if declared by the Board of Directors of the Company, cash
dividends at the rate of 1% per annum of par value per share (i.e., $.10 per
share per annum). Dividends on each share of Series A Preferred Stock accrue and
are cumulative. No dividends may be paid or declared on any Common Stock, or any
other series of Preferred Stock at the time outstanding, unless dividends
properly accumulated in respect to the Series A Preferred Stock and all other
series of Preferred Stock senior to or on a parity therewith for all prior
dividend periods shall have been paid or declared and set apart for payment. In
the event that full cumulative dividends on the Series A Preferred Stock shall
not have been declared and paid when due, or set apart for payment, then, until
such aggregate deficiency shall have been declared and paid, or set apart for
payment, the Company may not (A) declare or pay any dividends or make other
distributions on the Common Stock other than (i) dividends payable in shares of
Common Stock or other stock of the Company junior to the Series A Preferred
Stock ("Junior Stock") or (ii) options, warrants or rights to subscribe for or
purchase shares of Common Stock or Junior Stock or (B) purchase, redeem or
otherwise acquire (i) any share of Common Stock or Junior Stock or (ii) any
other shares of capital stock of the Company ranking on a parity with the Series
A Preferred Stock, except by conversion into or exchange for Common Stock or
Junior Stock.

In the event of a liquidation, dissolution and winding up of the
Company, whether voluntary or involuntary, the holders of shares of Series A
Preferred Stock shall be entitled to receive out of the assets of the Company,
before any distributions to the holders of Common Stock or any Junior Stock, an
amount equal to $10.00 per share, plus dividends accrued and unpaid. After
receipt of this amount, the holders of shares of Series A Preferred Stock will
not be entitled to any further participation in any distributions of the assets
of the Company. For these purposes, a sale of substantially all of the assets of
the Company to a third party, or the consummation by the Company or its
shareholders of any transaction with any single purchaser whereby a change in
control of more than fifty (50%) of the issued and outstanding shares of Common
Stock of the Company occurs, will be considered a liquidation, dissolution and
winding up of the Company entitling the holders of Series A Preferred Stock to
such payment.

So long as Series A Preferred Stock remains outstanding, the Company
may not issue any capital stock, including Preferred Stock of any series, that
ranks senior to the Series A Preferred Stock with respect to liquidation,
dissolution and winding up. At any time after February 24, 2000, any holder of
any shares of Series A Preferred Stock may require the Company to redeem all or
any portion of the Series A Preferred Stock, for a redemption price per share of
$10.00, plus accrued and unpaid dividends. The Series A Preferred Stock is
convertible at any time into shares of Common Stock at a ratio of 1.00 share of
Common Stock for 1.00 share of Series A Preferred Stock.

<PAGE> 29

Except as provided in the following sentence or as expressly required
by applicable law, the holders of Series A Preferred Stock are not entitled to
vote. So long as any shares of Series A Preferred Stock remain outstanding, the
affirmative consent of the holders of a majority of the shares of Series A
Preferred Stock outstanding (voting separately as a class) shall be necessary to
permit (i) the authorization, creation or issuance of a new class of capital
stock or series of Preferred Stock having rights, preferences or privileges
senior to the Series A Preferred Stock, or any increase in the number of
authorized shares of any class of capital stock or series of Preferred Stock
having rights, preferences or privileges senior to the Series A Preferred Stock,
or (ii) the amendment of any provision of the Company's Charter which would
materially and adversely affect any right, preference, privilege or voting power
of the Series A Preferred Stock.

NON-VOTING COMMON STOCK

Holders of Non-voting Common Stock would have the same preferences,
rights, and limitation as holders of Common Stock, with the exception that
holders of Non-Voting Common Stock would have no right to vote on any matter,
except as to matters to which the right to vote is indefeasibly granted by
statute. Accordingly, holders of Non-Voting Common Stock would not be entitled
to preemptive or other subscription rights, and would not subject to assessment
or further call. Holders of Non-Voting Common Stock would not be entitled to
convert the shares to any other securities of the Company. Holders of Non-Voting
Common Stock would be entitled to receive such dividends as may be declared,
from time to time, by the Board of Directors of the Company out of funds legally
available therefore. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding-up of the Company, holders of
Non-Voting Common Stock would be entitled to receive ratably in proportion to
the number of shares held, and in parity with the number of shares of Common
Stock held, those amounts or assets available after payment or provision for
payment of all indebtedness or other liabilities to any other person and the
payment of such liquidation payments as due to the holders of Preferred Stock.

The purpose of the authorization of Non-Voting Common Stock is to
provide the Company with an additional alternative with respect to the issuance
of capital stock, and additional flexibility with respect to its capital
structure. The Board has no immediate plans to issue any shares of Non-Voting
Common Stock.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL. PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED "FOR" THE
PROPOSAL.

PROPOSAL NO. 5
APPOINTMENT OF ACCOUNTANTS

On December 31, 1997, the Board of Directors determined to recommend
the appointment of Coopers & Lybrand L.L.P., Certified Public Accountants,
Knoxville, Tennessee, as the independent accountants of the Company for the
fiscal year ended June 30, 1998, subject to approval by the shareholders.
Coopers & Lybrand served as the Company's independent accountants for the fiscal
year ended June 30, 1997. The Company does not anticipate that representatives
of Coopers & Lybrand will be present at the annual meeting.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL. PROXIES, UNLESS INDICATED TO THE CONTRARY, WILL BE VOTED "FOR" THE
PROPOSAL.

<PAGE> 30

PROPOSAL NO. 6
OTHER BUSINESS

The Board of Directors of the Company currently is unaware of any
proposal to be presented at the Annual Meeting other than the matters specified
in the Notice of Annual Meeting accompanying this Proxy Statement. Should any
other proposal properly come before the Annual Meeting, the persons named in the
enclosed proxy will vote on each such proposal in accordance with their
discretion.

OTHER INFORMATION

INTERESTS OF COMPANY AFFILIATES

None of the Company's directors, executive officers or principal
shareholders, including any of their affiliates has any interest in the matters
to be acted upon at the Annual Meeting, other than the election of directors and
the proposed amendment to the Plan.

PROPOSALS OF SHAREHOLDERS

Shareholders intending to submit proposals for presentation at the 1998
annual meeting of Shareholders of the Company for inclusion in the proxy
statement and form of proxy relating to that meeting should forward those
proposals to George J. Phillips, Secretary, Shop At Home, Inc., 102 Woodmont
Boulevard, Suite 200-228, Nashville, Tennessee 37205. Proposals must be in
writing and must be received by the Company prior to October 16, 1998. Proposals
should be sent to the Company by certified mail, return receipt requested.

COST OF SOLICITATION OF PROXIES

The cost of solicitation of proxies, including expenses in connection
with preparing, assembling and mailing this Proxy Statement, will be borne by
the Company. That solicitation will be made by mail, and may also be made by the
Company's regular officers or employees, personally or by telephone or telegram.
The Company may reimburse brokers, custodians and nominees for their expenses in
sending proxies and proxy material to beneficial owners.

ANNUAL REPORT

The Company's 1997 Annual Report accompanies this Proxy Statement. The
Annual Report does not form any part of the material for the solicitation of
proxies.

<PAGE> 31

EXHIBIT A

PROPOSED AMENDMENT TO CHARTER
OF SHOP AT HOME, INC.
(CLASSIFICATION OF DIRECTORS)

The Charter of the Corporation is amended by inserting as Article 8
thereof the following:

8. The business and affairs of the Corporation shall be managed by a
Board of Directors. The number of directors of the Corporation, not
less than six (6) nor more than nine (9), shall be fixed by the Board
of Directors and, in the absence of the Board fixing the number, shall
be eight. Upon the adoption of this Article, and pursuant to Section
48-18-106 of the Tennessee Business Corporation Act, the directors
shall be divided into three groups, as nearly equal in number as
possible. The initial term of office for members of the first group
shall expire at the next annual meeting of shareholders held in 1998,
the initial term for members in the second group shall expire at the
annual meeting of shareholders held in 1999, and the initial term for
members in third group shall expire at the annual meeting of
shareholders held in 2000. At each annual meeting of shareholders
following such initial terms and elections, directors elected to
succeed those directors whose terms expire shall be elected for a term
of office to expire at the third succeeding annual meeting of
shareholders after their election and shall continue to hold office
until their respective successors are elected and qualified. In the
event of any increase or decrease in the number of directors fixed by
the Board of Directors, any newly-created directorships or any decrease
in directorships shall be so apportioned among the groups by the Board
of Directors so as to make all groups as nearly equal in number as
possible. Directors may be removed by a vote of the shareholders only
for cause.

<PAGE> 32

EXHIBIT B
PROPOSED REVERSE STOCK SPLIT

If proposal 3 is approved, the following will be included in an
amendment to the Charter of the Company, as an addition to paragraph 6.2.1
thereof:

Each issued and outstanding share of common stock of the par
value of $.0025 per share of the Corporation (the "Old Common Stock")
shall automatically and without any action on the part of the holder
thereof, be reclassified as and changed into one-half (1/2) of one
share of common stock of the par value of $.0025 per share (the "New
Common Stock"), subject to the treatment of fractional share interests
as described below. Each holder of a certificate or certificates which
immediately prior to the effective date represented outstanding shares
of Old Common Stock (the "Old Certificates," whether one or more) shall
be entitled to receive upon surrender of such Old Certificates to the
Company's transfer agent for cancellation, a certificate or
certificates (the "New Certificates," whether one or more) representing
the number of whole shares of the New Common Stock into which any for
which the shares of the Old Common Stock formerly represented by such
old certificates so surrendered, are reclassified under the terms
hereof. From and after the effective date, old certificates shall
represent only the right to receive new certificates (and, where
applicable, cash in lieu of fractional shares, as provided below)
pursuant to the provisions hereof. No certificates or scrip
representing fractional share interests in New Common Stock will be
issued, and no such fractional share interest will entitle the holder
thereof to vote, or to any rights of a stockholder of the Corporation.
A holder of Old Certificates shall receive, in lieu of any fraction of
a share of New Common Stock to which the holder would otherwise be
entitled, a cash payment therefor on the basis of the average of the
last reported "bid" and "asked" prices of the Old Common Stock on the
NASDAQ SmallCap Market on the effective date (or in the event the
Corporation's Common Stock is not so traded on the effective date, such
average of the last reported "bid" and "asked" prices on the next
preceding day on which such stock was traded on the NASDAQ SmallCap
Market). The Board of Directors is authorized to make arrangements with
any shareholder owning only one (1) share of Old Common Stock so that
such shareholder will not be required to surrender the fractional share
of New Common Stock, unless such shareholder elects to do so, and may
assist such shareholder to acquire an additional fractional share so as
to own one (1) share of New Common Stock. If more than one Old
Certificate shall be surrendered at one time for the account of the
same stockholder, the number of full shares of New Common Stock for
which new certificates shall be issued shall be computed on the basis
of the aggregate number of shares represented by the old certificates
so surrendered. In the event that the Corporations's transfer agent
determines that a holder of Old Certificates has not tendered all his
certificates for exchange, the transfer agent shall carry forward any
fractional share until all certificates of that holder have been
presented for exchange such that payment for fractional shares to any
one person shall not exceed the value of one share. If any New
Certificate is to be issued in a name other than that in which the Old
Certificates surrendered for exchange are issued, the Old Certificates
so surrendered shall be properly endorsed and otherwise in proper form
for transfer, and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Old Certificates
surrendered, or provide funds for their purchase, or establish to the
satisfaction of the transfer agent that such taxes are not payable.
From and after the effective date, the amount of capital represented by
the shares of the New Common Stock into which and for which the shares
of the Old Common Stock are reclassified under the terms hereof shall
be the same as the amount of capital represented by the shares of Old
Common Stock so reclassified, until thereafter reduced or increased in
accordance with applicable law.

The above amendment shall be effective upon its filing with
the Office of the Secretary of State of Tennessee. The Board of
Directors is authorized to delay filing the amendment after its
approval of the shareholders for a period, not in excess of ninety (90)
days, which it deems to be appropriate or advisable.

<PAGE> 33

EXHIBIT C

PROPOSED AMENDMENT TO THE CHARTER
OF SHOP AT HOME, INC.
(NON-VOTING COMMON STOCK)

Paragraph 6 of the Charter is amended as follows:

(a) Subparagraph 6.1 is amended to read as follows:

6.1 Capital Stock.

The aggregate number and designation of the classes of shares
of capital stock that the Corporation shall have authority to issue are
as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES
CLASS AUTHORIZED PAR VALUE
----- ---------- ---------

<S> <C> <C>
COMMON STOCK 30,000,000 $.0025

NON-VOTING COMMON STOCK 30,000,000 $.0025

PREFERRED STOCK 1,000,000 $10.00
</TABLE>

(b) By adding a new subparagraph 6.2.2 to read as follows:

6.2.2 Non-Voting Common Stock.

The Board of Directors is authorized to issue Non-Voting
Common Stock from time to time. The holders of Non-Voting Common Stock
are entitled to receive dividends, when, as and if declared by the
Board of Directors of the Corporation out of funds legally available
therefore. The holders of outstanding Common Stock shall not be
entitled to vote on any matter unless expressly required by applicable
law. In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of outstanding Non-Voting Common Stock shall be entitled to be
paid out of the net assets of the Corporation, after payment to the
holders of the outstanding Preferred Stock of the amount to which they
are entitled, the balance of such assets according to their respective
rights and on a parity with the Common Stock according to the number of
shares held. Holders of shares of Non-Voting Common Stock are not
entitled to redemption or conversion rights, or preemptive rights with
respect to any shares or other securities of the Corporation which may
be issued. In all respects, except voting rights, holders of NonVoting
Common Stock shall have the same preferences, limitations and relative
rights as the holders of Common Stock.

<PAGE> 34
Appendix A

SHOP AT HOME, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS OF SHOP AT HOME, INC. FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 6, 1998.

The undersigned hereby appoints A. E. Jolley and Joseph I. Overholt,
and each of them, as proxies, with full power of substitution, to vote all
shares of the undersigned as shown below on this proxy at the Annual Meeting of
Shareholders of Shop at Home, Inc. to be held at _________, located at
__________________________, Nashville, Tennessee, on March 6, 1998, _____ a.m.,
local time, and any adjournments thereof.

(1) AMEND THE CHARTER OF THE COMPANY:

To approve staggered three (3) year terms for directors, to fix the
number of directors at a number of not less than six (6) nor more than
nine (9), and to provide that directors may only be removed by
shareholders for cause.

[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)

(2) ELECTION OF DIRECTORS:

[ ] FOR all the following nominees (except as indicated to the
contrary below):

J.D. Clinton, Kent E. Lillie, and Frank A. Woods (to serve
until the 2000 annual meeting if Proposal 1 is approved,
otherwise one year), W. Paul Cowell, A. E. Jolley, and Joseph
I. Overholt (to serve until the 1999 annual meeting if
Proposal 1 is approved, otherwise one year), J. Daniel
Sullivan and Patricia E. Mitchell (to serve until the next
1998 annual meeting if Proposal 1 is approved, otherwise one
year)

[ ] AGAINST THE FOLLOWING NOMINEE(S) (PLEASE PRINT NAME(S)):

--------------------------------------------------------------

[ ] WITHHOLD AUTHORITY (ABSTAIN) TO VOTE FOR THE FOLLOWING
NOMINEES (PLEASE PRINT NAME):

--------------------------------------------------------------

[ ] AGAINST ALL NOMINEES.

[ ] WITHHOLD AUTHORITY (ABSTAIN) to vote for all nominees.

(3) AMEND THE CHARTER OF THE COMPANY:

To approve the amendment to the Charter of the Company to authorize a
1:2 reverse stock split of the Company's Common Stock.

[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)

(4) AMEND THE CHARTER OF THE COMPANY:

To approve the amendment to the Charter of the Company to authorize the
issuance of 30,000,000 shares of Non-Voting Common Stock, par value
$.0025 per share.

[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)

(5) To approve the selection of Coopers & Lybrand L.L.P., Knoxville,
Tennessee, as the Company's independent accountants for the fiscal year
1998.

[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)

(6) In their discretion, to transact such other business as may properly be
brought before the meeting or any adjournment thereof.

[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)

(Please date and sign this proxy on the reverse side.)

<PAGE> 35

Your shares will be voted in accordance with your instructions. If no
choice is specified, shares will be voted FOR the proposed amendment to the
Charter to stagger the terms of directors and make other changes; FOR the
nominees in the election of directors; FOR the proposed amendment to the Charter
of the Company to authorize a 1:2 reverse stock split, FOR the proposed
amendment to the Charter to authorize shares of Non-Voting Common Stock; and FOR
the selection of Coopers & Lybrand.

Date ________________________, 1998. PLEASE SIGN HERE AND RETURN PROMPTLY

------------------------------------

------------------------------------
Please sign exactly as your name
appears at left. If registered in
the names of two or more persons,
each should sign. Executors,
administrators, trustees, guardians,
attorneys, and corporate officers
should show their full titles.

- --------------------------------------------------------------------------------
IF you have changed your address, please PRINT your new address on this line.