<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999
REGISTRATION NO. 333-79247
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHOP AT HOME, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TENNESSEE 62-1282758
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
5388 HICKORY HOLLOW PARKWAY
ANTIOCH, TENNESSEE 37013-3128
(615) 263-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE J. PHILLIPS
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
SHOP AT HOME, INC.
5388 HICKORY HOLLOW PARKWAY
ANTIOCH, TENNESSEE 37013-3128
(615) 263-8090
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
C. MICHAEL NORTON MARC WEINGARTEN
WYATT, TARRANT & COMBS SCHULTE ROTH & ZABEL, LLP
1500 NASHVILLE CITY CENTER 900 THIRD AVENUE
NASHVILLE, TENNESSEE 37219 NEW YORK, NEW YORK 10022
(615) 251-6744 (212) 756-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.0025 par value.......... 10,177,500 $10.3125 $104,955,468.75 $29,178.00
</TABLE>
(1) Includes 1,327,500 shares of Common Stock which may be purchased by the
Underwriters pursuant to over-allotment options.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, based on the
average of the high and low prices reported in the Nasdaq National Market on
May 24, 1999.
(3) On May 25, 1999, the Registrant paid the registration fee in connection with
the filing of the initial Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. SHOP AT
HOME MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- JUNE 11, 1999
PROSPECTUS
- --------------------------------------------------------------------------------
8,850,000 Shares
[LOGO] SHOP AT HOME, INC.
Common Stock
- --------------------------------------------------------------------------------
Shop At Home, Inc. is offering 8,000,000 shares and the selling stockholders are
offering 850,000 shares of common stock. Shop At Home will not receive any
proceeds from the sale of shares by the selling stockholders.
Shop At Home sells specialty consumer products, primarily collectibles, through
interactive electronic media, including broadcast, cable and satellite
television, and, increasingly, the Internet.
The shares of Shop At Home are quoted in the Nasdaq National Market under the
symbol "SATH". On June 10, 1999, the last reported sale price in the Nasdaq
National Market was $9.6563 per share.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds, before expenses, to Shop At Home...................... $ $
Proceeds to selling stockholders................................ $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 6 TO 13 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF SHOP AT HOME.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The underwriters may, under some circumstances, purchase up to 1,200,000
additional shares from Shop At Home and up to 127,500 additional shares from the
selling stockholders at the public offering price, less underwriting discounts
and commissions. Delivery and payment for the shares will be
on , 1999.
PRUDENTIAL SECURITIES BANCBOSTON ROBERTSON STEPHENS
FRIEDMAN BILLINGS RAMSEY
SUNTRUST EQUITABLE SECURITIES
MORGAN KEEGAN & COMPANY, INC.
E*OFFERING
, 1999
<PAGE>
[Inside Front Cover]
The inside cover has a large box with a line map showing the states of the
United States against a white background. At the top center are the words "Shop
At Home Distribution Summary." At the top left is a drawing of a communications
satellite and the name "PRIMESTAR" with a yellow dot, and at the upper right is
a different drawing of a communications satellite and the name "ECHOSTAR" with a
yellow dot.
The map has red stars located at San Francisco, Houston, Raleigh,
Bridgeport, Boston and Cleveland with red box captions reading:
KCNS San Francisco
5th Largest DMA
KZJL Houston
11th Largest DMA
WRAY Raleigh/Durham
29th Largest DMA
WSAH Bridgeport
1st Largest DMA
WMFP Boston
6th Largest DMA
WOAC Cleveland
13th Largest DMA
The map has approximately 210 green and blue dots located throughout the
U.S.
A small box at the lower right contains the following text:
[Green dot] Anchorage, AK
[Blue dot] Honolulu, HI
The map has the following text at the bottom:
[Red Star] Owned & Operated Stations
[Blue Dot] Broadcast Affiliate
[Green Dot] Cable Affiliate
[Yellow Dot] Direct Broadcast Satellites
o 135 total markets o 10 of the top 10 markets o 88 of the top 100 markets
"DMA" refers to Designate Market Area
<PAGE>
[Two page spread]
The two page spread contains seven images and pictures arranged around the
blue logo of Shop At Home. The logo consists of the words "Shop At Home Network"
with a lined triangle in the background.
To the left of the logo are two pictures. The upper picture is a screen
shot of a Shop At Home program under the heading "Sports Collectibles," and
showing two show hosts with text describing a Joe DiMaggio autographed bat with
product name, pricing information, website and telephone number information.
The lower picture is a graphic of a webpage titled "collectibles.com" and
showing information regarding product categories and other information. Below
the graphic are the words "(Sample of Proposed Webpage Design)."
Immediately above the logo is a picture of Shop At Home's office facilities
showing the building and two adjacent satellite uplink facilities.
Immediately below the logo is a long shot of Shop At Home's studios showing
its telephone operator banks.
To the right of the logo are three pictures. At the upper right is a long
shot of Shop At Home's buyer's floor. At the center is a picture of Shop At
Home's studios showing two show hosts. At the lower right is a picture of Shop
At Home's telephone operator bank.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 6
Forward-Looking Statements..................... 14
Use of Proceeds................................ 15
Price Range of Common Stock.................... 15
Dividend Policy................................ 16
Capitalization................................. 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 18
PAGE
----
Business....................................... 26
Management..................................... 41
Principal and Selling Stockholders............. 43
Description of Capital Stock................... 45
Description of Notes........................... 48
Underwriting................................... 50
Legal Matters.................................. 51
Experts........................................ 51
Where To Find More Information................. 52
Index to Consolidated Financial Statements..... F-1
</TABLE>
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Shop At Home's Internet address is www.shopathomeonline.com. Information
contained on this website and on our website, www.collectibles.com, is not part
of this prospectus.
The terms "Shop At Home," "we," "our" and "us" refer to Shop At Home, Inc.
and its subsidiaries unless the context suggests otherwise. The term "you"
refers to a prospective investor. The term fiscal 1998 and similar terms refers
to our fiscal year ending on June 30 of that year.
- --------------------------------------------------------------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
jurisdiction where the offer or sale is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date
other than the date on the front cover of this prospectus.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in the common stock of Shop At Home.
Investors should read the entire prospectus carefully.
SHOP AT HOME
We sell specialty consumer products, primarily collectibles, through
interactive electronic media, including broadcast, cable and satellite
television and, increasingly, the Internet. We offer a variety of products such
as sports cards and memorabilia, coins, currency and jewelry, many of which we
sell on an exclusive basis. We produce programming in a digital format in our
new state-of-the-art facilities in Nashville, Tennessee. The programming is
transmitted by satellite to cable television systems, television broadcasting
stations and satellite dish receivers across the country. We also deliver
programming through our website, shopathomeonline.com. We intend to launch our
new website, collectibles.com, in the fall of 1999. We intend for
collectibles.com to be the premier website for the sale of collectible products.
We believe that the emergence of the Internet as a global interactive
communications medium provides us with an opportunity to leverage our
traditional broadcast assets and our significant experience in marketing
specialty consumer products over an electronic medium. Since 1994, we have
increased our revenues from $21.7 million to $100.5 million in 1998 and $110.4
million for the nine months ended March 31, 1999, almost entirely through the
use of traditional television broadcasting. The Internet offers us the potential
to broaden our customer base, the ability to offer an expanded product line, the
capability to use computer technology to reduce the cost of processing and
fulfilling customer orders, and the opportunity to enhance the consumer shopping
experience, which we believe will result in additional repeat customers and
higher sales. In 1997, we established our first website, shopathomeonline.com,
which offers many of the same products sold on our television programming. We
are working with Oracle Corporation, a leading information management software
company, and iXL Enterprises, Inc., a leading Internet services company, to
develop collectibles.com.
To generate traffic to our websites, we plan to enter into other
promotional arrangements with Internet portals in addition to our recent
promotional arrangements with Yahoo! and Go Network, leading Internet portals.
We also market our websites at minimal incremental cost, through
cross-promotional advertising on our television broadcast programming,
introducing our traditional television shoppers to a more interactive and
cost-efficient sales method.
We own and operate six UHF television stations, which are located in the
San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport markets. Five
of our television stations are located in the top 13 television markets in the
United States, including our Bridgeport, Connecticut station which covers a
portion of the New York City metropolitan area market. As of May 24, 1999, our
television programming reached, during all or part of the day, approximately
52.0 million households that receive cable television and direct broadcast
system (DBS) programming. Approximately 8.9 million cable households receive our
programming on essentially a full time basis (20 or more hours per day).
Our products are segmented into three categories: licensed and
authenticated products, consumer and specialty products and jewelry and
lifestyle products. Licensed and authenticated products include sports
collectibles and sports related products, movie memorabilia and other signed and
autographed merchandise. Consumer and specialty products include electronic
equipment, coins and currency and cutlery and knives. Jewelry and lifestyle
products include jewelry, gemstones, health and beauty products, personal care
items and clothing. We believe that our product mix and marketing strategy are
unique in the electronic commerce industry because we feature products with high
average selling prices and emphasize merchandise that is not widely available,
and is purchased primarily by men.
Shop At Home is incorporated in Tennessee and our principal place of
business and executive offices are located at 5388 Hickory Hollow Parkway,
Antioch, Tennessee 37013. Our telephone number is (615) 263-8000, and our
Internet address is www.shopathomeonline.com.
1
<PAGE>
BUSINESS STRATEGY
Our business objective is to become a leading seller of specialty consumer
products, primarily collectibles, through electronic media by implementing the
following strategies:
o Increase Internet Distribution. We plan to increase the distribution of
our programming through the Internet. We will continue to distribute our
programming over our website, shopathomeonline.com, and plan to launch
our new website, collectibles.com, in the fall of 1999. Through this
distribution, we will market our products to a new audience and to an
audience which may not have access to our television programming. To
increase the visibility of our websites and expose more potential
customers to our programming, we will promote our websites on our
television programming and we expect to place information about our
websites on high traffic portals, in addition to our recent promotional
arrangements with Yahoo! and Go Network. This increased visibility will
create additional brand awareness, assisting us in reaching our goal of
establishing collectibles.com as the premier website for collectors.
o Broaden Our Television Programming Reach. We intend to further broaden
the distribution of our programming by continuing to acquire broadcast
television stations in major markets on a cost-effective basis and by
seeking more favorable programming times on those stations and cable
systems on which our programming currently appears. Owning stations in
select markets enables us to increase our viewership by exercising "must
carry" rights with cable system operators in those markets. We also plan
to increase our programming distribution through additional carriage
agreements with cable systems and broadcast television stations owned by
third parties.
o Continue to Offer High Quality, Differentiated Product Mix. We plan to
continue pursuing our strategy of selling products such as sports
memorabilia, coins and other collectible products, some of which are not
readily available through other television programming, Internet or
retail competitors. We believe our emphasis on selling higher priced,
exclusive and authenticated merchandise creates a unique market niche for
us. This enhances our ability to obtain carriage from cable systems and
television broadcasters and to establish relationships with Internet
portals.
o Improve Profit Margins. As our website sales increase as a percentage of
our total sales, the expenses associated with such increased sales can be
contained through the use of technological efficiencies which will offer
the opportunity to improve our profit margins. We also plan to improve
profit margins by taking advantage of our purchasing power to negotiate
lower wholesale prices with vendors and spreading fixed charges over an
increased sales base. We will continue to optimize inventory levels
through a combination of methods which allows us to operate with minimal
working capital requirements, thereby further enhancing margins.
o Leverage Customer Database. Our new integrated computer system, which
should be operational by the end of 1999, will permit us to better manage
and enhance our existing customer database in order to profile and track
the purchasing habits of our customers. This use of the database will
enable us to refine our merchandising decisions to maximize viewer
interest by evaluating the historical purchasing preferences of our
customers. Our new sales systems will enable us to utilize this
information in real time to offer customers additional products which are
complementary to the products they purchase.
o Develop Alternative Sources of Revenue. We believe there are several
opportunities to establish complementary sources of revenue, including:
(a) the sale of advertising on our websites; (b) the introduction of an
out-bound telemarketing program; and (c) the sale of additional products
through direct marketing and package insert programs.
2
<PAGE>
RECENT DEVELOPMENTS
collectibles.com
We are making a significant investment in the development of our new
website, collectibles.com. We plan to launch this website in the fall of 1999,
and we intend for collectibles.com to offer the most diverse selection of
collectible products on the Internet, using advanced multimedia content,
including streaming video and audio.
In April 1999, we entered into an agreement with iXL to develop our
collectibles.com website. Under this agreement, we will pay iXL up to
$3.0 million to construct and customize this website, to create interactive
interfaces, to develop software to manage and facilitate customer transactions
and to provide marketing advice.
Internet Promotional Arrangements
In April 1999, we entered into an agreement with Yahoo!. Under the
agreement, Shop At Home and Yahoo! will cross-promote each other's products and
services. The agreement does not require the payment of any funds from us to
Yahoo!.
In June 1999, we entered into an agreement with Go Network, under which
Shop At Home will be a preferred merchant promoted in the Go Shop collectibles
and jewelry departments. Shop At Home will pay a fixed monthly fee and a
percentage of revenues under the agreement.
Integrated Computer System
In early 1999, we entered into a series of agreements with Oracle to
acquire and install a new integrated computer hardware and software system which
involves virtually all aspects of our business. Oracle's system will enable us
to make more efficient use of our call center operations, our e-mail
capabilities and other methods of contact with our customers. These agreements
also provide for the installation of the computer hardware which will support
our collectibles.com website. The estimated cost of the equipment, software and
installation is $10.0 million.
Television Station Acquisitions
We purchased WBPT(TV), a UHF broadcast television station located in
Bridgeport, Connecticut on June 3, 1999. The signal from this station reaches a
portion of the New York City metropolitan area, the largest market in the United
States. The purchase price for the station was $21.0 million, of which we paid
into escrow approximately $4.8 million. All or part of this escrow amount will
be paid to the seller of the station based upon the future increase in the
number of cable households which receive the station's signal. At closing, the
station was carried in approximately 680,000 households. This number must
increase to 900,000 in six months, or in certain events in 12 months, for the
seller to receive all of the escrow amount. Any amount of the escrow amount not
paid to the seller will be returned to Shop At Home. Under an agreement with the
current owner, our programming has been broadcast on WBPT on substantially a
full-time basis since April 3, 1999. At closing, the call sign of the station
was changed to WSAH.
On May 24, 1999 we entered into a non-binding letter of intent with the
owner of WNTO(TV) to purchase the station for approximately $22.5 million. This
station is located in the Orlando, Florida market, the nation's 22nd largest
market. Under the letter of intent, we have 30 days to complete a due diligence
review of the station which is currently being performed. There can be no
assurance that a definitive agreement will be executed or the sale consummated.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by Shop At Home.................. 8,000,000 shares
Shares offered by selling stockholders.......... 850,000 shares
Total shares outstanding after this offering.... 32,376,737 shares
Use of proceeds by Shop At Home................. We intend to use the net proceeds (1) to repay a bridge loan of
$20.0 million used to purchase WBPT(TV), (2) to develop,
launch and promote the collectibles.com website, (3) to make
acquisitions of additional television stations, (4) to pay the
cost of developing and installing a new computer system and
(5) for general corporate purposes.
Nasdaq National Market symbol................... SATH
</TABLE>
The information above in regard to the number of shares outstanding is as
of June 3, 1999.
You should be aware that the total shares outstanding after this offering
do not include:
o 2,396,200 shares subject to outstanding options with a weighted average
exercise price of $6.03 per share;
o 2,800,000 shares subject to outstanding warrants with a weighted average
exercise price of $1.29 per share;
o 57,400 shares reserved for issuance under our stock option and incentive
plans;
o 106,123 shares reserved for issuance to holders of our Series A Preferred
Stock if they elect to convert their shares; and
o 1,200,000 shares reserved for the exercise of the underwriters'
over-allotment option from us.
RISK FACTORS
You should consider the risk factors before investing in Shop At Home's
common stock and the impact from various events which could adversely affect our
business.
4
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information set forth below should be read in
conjunction with our consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues................................. $21,717 $26,976 $40,675 $68,832 $100,518 $70,457 $110,442
Cost of goods sold (excluding other operating
expenses).................................. 14,278 17,121 24,516 40,626 58,862 40,866 65,869
Other operating expenses..................... 8,406 11,010 16,930 25,882 38,069 26,828 42,461
Other expense (income)....................... 14 (89) (57) (232) (1,703) (1,214) (676)
Interest expense, net........................ 72 216 795 1,080 2,850 741 6,590
------- ------- ------- ------- -------- ------- --------
Net income (loss) before income taxes........ (1,052) (1,282) (1,509) 1,476 2,440 3,236 (3,802)
Income tax expense (benefit)................. -- -- (104) (80) 927 1,238 (1,445)
------- ------- ------- ------- -------- ------- --------
Net income (loss)............................ $(1,052) $(1,282) $(1,405) $ 1,556 $ 1,513 $ 1,998 $ (2,357)
------- ------- ------- ------- -------- ------- --------
------- ------- ------- ------- -------- ------- --------
Weighted average common shares -- basic..... 8,225 9,437 10,284 10,651 14,511 11,593 23,567
Weighted average equivalent shares --
dilutive.................................. 8,225 9,437 10,284 14,268 17,496 14,743 23,567
Basic earnings (loss) per share(1) .......... $ (0.13) $ (0.14) $ (0.14) $ 0.14 $ 0.10 $ 0.17 $ (0.10)
Diluted earnings (loss) per share(1)......... $ (0.13) $ (0.14) $ (0.14) $ 0.12 $ 0.09 $ 0.14 $ (0.10)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------
JUNE 30, 1998 ACTUAL AS ADJUSTED(2)
------------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 11,568 $ 2,485 $ 75,373
Total assets........................................................... 143,770 146,436 219,324
Current liabilities.................................................... 19,212 23,904 23,904
Long-term debt and capital leases, less current portion................ 75,254 75,000 75,000
Redeemable preferred stock............................................. 1,393 1,075 1,075
Stockholders' equity................................................... 44,360 45,512 118,400
</TABLE>
(1) For details of the calculation of basic and dilutive earnings per share, see
Note 12 to the Consolidated Financial Statements.
(2) The balance sheet data, as adjusted, reflects the receipt of the estimated
net proceeds of this offering at an assumed public offering price of $9.6563
per share and assumes that the over-allotment option from us is not
exercised.
5
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information included in this prospectus, before purchasing shares of
common stock of Shop At Home. Each of these risks could adversely affect our
business, operating results and financial condition, as well as adversely affect
the value of an investment in our common stock. This investment involves a high
degree of risk.
RISKS RELATED TO OPERATIONAL MATTERS
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES. There is no
assurance that we can be profitable on a continuing basis. We had net losses of
$1.1 million for fiscal 1994, $1.3 million for fiscal 1995 and $1.4 million for
fiscal 1996. For the nine months ended March 31, 1999, we had a net loss of $2.4
million. As of March 31, 1999, we had an accumulated deficit of approximately
$7.1 million.
As we continue to implement our growth strategy, we intend to devote
significant resources to develop and market our websites and to acquire
additional television stations. We will incur these costs before the anticipated
related revenues. We expect to continue to incur operating and net losses and
negative cash flow from operations, primarily due to our Internet expansion,
through at least the next fiscal year. It is possible that we may not return to
profitability or achieve favorable results.
FAILURE TO MANAGE OUR RAPID GROWTH AND RELATED EXPENSES COULD ADVERSELY
AFFECT OUR BUSINESS. We have experienced rapid growth in revenues in recent
years. For fiscal 1995, 1996, 1997 and 1998, our revenues increased by 24%, 51%,
69% and 46% over revenues for the prior fiscal year. Almost all of the growth in
revenues in these years resulted from expanded carriage of our television
programming on cable systems and broadcast stations. During these periods, we
increased substantially the amounts paid for the carriage of our programming. We
incurred other increased expenses associated with our growth, such as the
opening of our new Nashville facilities, the upgrade of our hardware and
software systems and increased payroll. We anticipate that further expansion of
our facilities, infrastructure and payroll will be necessary to accommodate
increased sales. We must effectively control expenses to operate profitably. We
expect that our growth will continue to place a significant strain on our
management, operational and financial resources.
WE FACE SIGNIFICANT COMPETITION. The sale of consumer products by
electronic media is intensely competitive. The television commerce industry is
dominated by two established competitors, The Home Shopping Network and the QVC
Network. Both of these networks have substantially more television and cable
carriage than we do. We also compete with ValueVision, another broadly
distributed television commerce company. Additionally, we compete with other
companies which sell consumer goods on the Internet. Many of our competitors,
both in television and Internet commerce, have substantially greater financial,
distribution and marketing resources than we do. We generally compete with
traditional store and catalogue retailers, many of whom also have substantially
greater financial, distribution and marketing resources than we do. These
competitors may enter into business combinations, joint ventures and strategic
alliances with each other, which could further enhance their resources.
WE MAY NOT BE ABLE TO INCREASE OUR TELEVISION DISTRIBUTION. Our growth
relies on increasing the television distribution of our programming. This will
require entering into new carriage agreements and acquiring additional
television stations. There can be no assurance that we will be successful in
entering into agreements or acquisitions on terms acceptable to us.
Additionally, there can be no assurance that the money required to enter into
these agreements will be available to us. If we cannot enter into these
agreements, we may be unable to increase our distribution. This could cause our
growth to slow or stop.
OUR BRAND NAMES MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO
SUCCEED. We believe that the importance of brand recognition for
collectibles.com, Shop At Home Network and shopathomeonline.com will increase as
more companies engage in electronic commerce. If vendors do not perceive that we
have an effective marketing and sales channel for their merchandise, or
consumers do not perceive us as offering an entertaining and desirable way to
purchase merchandise, we will be unsuccessful in promoting and maintaining our
brands. We expect to substantially increase our financial commitment to create
and maintain brand loyalty among vendors and consumers with no assurance of
success.
WE COULD EXPERIENCE SYSTEM AND EQUIPMENT FAILURES THAT COULD HARM OUR
BUSINESS. Our success is dependent upon our television programming equipment
and our communications and computer hardware and
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software, substantially all of which is located at our Nashville facilities. We
are in the process of installing new hardware and software at these facilities,
and we may encounter difficulty in such installation, including the integration
of hardware and software provided by different vendors. Significant difficulties
could delay the launch of our collectibles.com website in addition to other
adverse consequences. We will be dependent on these vendors for
post-installation maintenance and support which cannot be assured.
Our equipment and systems are also vulnerable to break-down, natural
disasters, power loss, telecommunication failures and similar events. Our owned
television stations are subject to the same interruptions and failure. Our
computer servers are vulnerable to computer viruses, physical or electronic
break-ins, attempts by third parties deliberately to exceed the capacity of our
systems and similar disruptive problems. These and other problems caused by
third parties could lead to interruptions, delays, loss of data or cessation in
service to our customers.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL. Our success is substantially
dependent upon the ability and expertise of our senior management and other key
employees, including Kent E. Lillie, our President and Chief Executive Officer.
If we lose the services of one or more key employees, our operations could be
adversely affected. There can be no assurance that Mr. Lillie will serve out the
term of his employment and non-compete agreement through February 2004, or
extend his employment beyond such date. There can also be no assurance that the
other key executive officers, even those employed pursuant to employment or non-
compete agreements, will continue their employment.
WE MAY NOT BE ABLE TO HIRE OR RETAIN THE EMPLOYEES REQUIRED TO EXPAND OUR
BUSINESS. Most of our employees work in Nashville, where the current
unemployment rate is very low. This makes it difficult for us to attract and
retain qualified personnel for a variety of positions. The development and
implementation of the computer systems necessary to support our websites require
technical abilities and expertise which are different from the technical skills
necessary for a television programming operation. As a result, we will need to
employ additional highly skilled personnel to develop and maintain our websites.
There can be no assurance that we will be able to hire these employees or that
we will be able to afford the salaries they may demand. If we are unable to
employ these persons within our planned timetable or the costs of such employees
are higher than expected, the introduction of collectibles.com might be delayed,
and our operations generally could be adversely affected.
OUR OPERATING RESULTS MAY FLUCTUATE FROM PERIOD TO PERIOD. Our quarterly
and annual operating results may fluctuate significantly as a result of a
variety of factors, many of which are outside our control. These include:
o our ability to react quickly to consumer trends and the popularity of
some categories of collectible items;
o our ability to acquire desirable products on an exclusive basis;
o technical difficulties or service interruptions;
o the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure;
o general, regional and local financial conditions that may impact our
potential customers and suppliers; and
o the seasonality of our business.
RISKS RELATED TO THE INTERNET
WE HAVE A LIMITED HISTORY OF OPERATIONS ON THE INTERNET AND OUR INTERNET
STRATEGY MAY BE UNSUCCESSFUL. We introduced shopathomeonline.com in 1997 and
plan to launch collectibles.com in the fall of 1999. Our revenues from Internet
commerce have been insignificant to date. We plan to devote significant funds
and resources to develop and promote these websites, including a significant
portion of the proceeds of this offering. In addition to the risks of our
business generally, the risks associated with developing operations in a new and
rapidly evolving market, such as online commerce, include our ability to:
o successfully implement our brand awareness and marketing campaigns;
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o successfully compete against other companies that sell similar products
online;
o develop new strategic and marketing relationships, including agreements
with Internet portals, to advertise and direct customers to our websites;
o continue to develop and upgrade our technology;
o manage growth;
o respond to changes in a rapidly evolving and unpredictable business
environment; and
o attract, retain and motivate qualified personnel.
OUR BUSINESS WILL BE DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF THE
INTERNET INFRASTRUCTURE. The success of our Internet commerce business will
depend in large part upon continuing development of infrastructure for providing
Internet access and services. The Internet could lose its viability due to
delays in the development or adoption of new standards and protocols intended to
handle increased levels of Internet activity. There can be no assurance that the
infrastructure or complementary services will be developed or, if they are
developed, that the Internet will be a viable marketing and sales channel for
the merchandise we offer.
SECURITY BREACHES COULD HARM OUR BUSINESS. A significant barrier to
electronic commerce is the secure transmission of confidential information over
public networks. Currently, a significant number of our customers authorize us
to bill their credit cards to buy our products. For Internet sales we rely on
encryption and authentication technology licensed from third parties to protect
the confidentiality of our customers' information. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
may result in a compromise or breach of the technology used by us to protect
customer transaction data. A party who is able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in
our operations. Our security measures may not prevent security breaches. Our
failure to prevent security breaches could harm our business, damage our
reputation and expose us to a risk of loss or litigation and possible liability.
THE PROTECTION OF OUR DOMAIN NAMES IS UNCERTAIN BECAUSE THE REGULATION OF
DOMAIN NAMES IS SUBJECT TO CHANGE. We hold rights to various Internet domain
names, including shopathomeonline.com and collectibles.com. Regulation of domain
names is expected to change in the near future. We may not be able to acquire or
to maintain appropriate domain names in all countries in which we do business.
Furthermore, regulations governing domain names may not protect our trademarks
and similar proprietary rights. Third parties have domain names similar to ours,
and we may be unable to prevent third parties from acquiring additional domain
names that are similar to ours or that infringe upon or diminish the value of
our trademarks and other proprietary rights.
THE INTERNET IS SUBJECT TO LEGAL UNCERTAINTIES AND POTENTIAL GOVERNMENTAL
REGULATION THAT COULD AFFECT OUR BUSINESS. The application of existing laws to
the Internet, particularly with respect to property ownership, the payment of
sales taxes, libel and personal privacy, is uncertain and may take years to
resolve. Because the Internet and electronic commerce are becoming increasingly
popular, various governments may seek to adopt laws and regulations to control
their use. These laws and regulations could apply to privacy, pricing and the
characteristics and quality of products and services. The growth and development
of electronic commerce may also prompt calls for more stringent consumer
protection laws. These laws may impose additional burdens on companies
conducting business over the Internet. The adoption of any of these laws or
regulations may reduce Internet usage, which, in turn, could decrease the demand
for our products or increase our costs. Several telecommunications carriers have
asked the Federal Communications Commission to regulate telecommunications over
the Internet, regulate Internet service providers and online service providers
and impose access fees on those providers. If the FCC grants these requests, the
costs of communicating on the Internet could increase substantially, which could
reduce Internet usage. Any such request granted by the FCC could harm our
business. In addition, U.S. and foreign laws regulate our ability to use
customer information and to develop, buy and sell mailing lists. New
restrictions in this area could limit our ability to operate as planned and
result in significant compliance costs.
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RISKS RELATED TO OUR CAPITAL STRUCTURE AND THIS OFFERING
WE HAVE SUBSTANTIAL DEBT, AND OUR SENIOR NOTES REQUIRE LARGE INTEREST
PAYMENTS AND THE PAYMENT OF PRINCIPAL IN 2005. Our long term debt consists of
$75.0 million of 11% Senior Secured Notes issued in March 1998. The annual
interest payments on the Notes total approximately $8.3 million, and the entire
principal amount is due in April 2005. This debt could have material
consequences to us and the holders of our securities, including the following:
o a substantial portion of our cash flow from operations, if any, will be
used for the payment of the principal and interest on our debt and will
not be available for other purposes; and
o our ability to obtain additional financing in the future for
acquisitions, working capital, capital expenditures and general corporate
or other purposes may be impaired.
If we are unable to generate sufficient cash flows from operations to pay
our semi-annual interest obligation or the principal at maturity, we may be
required to refinance some or all of this debt. If we are not able to refinance
our debt on acceptable terms or to borrow additional money, we could be forced
to default on our debt obligations.
THE TERMS OF OUR DEBT IMPOSE RESTRICTIONS ON OUR BUSINESS. The Indenture
we entered into when we issued the Notes restricts our ability to do the
following:
o incur additional debt;
o pay dividends;
o make certain payments;
o incur liens;
o issue or sell the stock of some of our subsidiaries;
o use net proceeds from certain asset sales for some purposes other than
repayment of the Notes;
o merge with another company;
o sell substantially all of our assets;
o enter into certain transactions with our affiliates; or
o encumber our assets.
Because of these covenants, our ability to respond to changing business and
economic conditions might be significantly restricted, and we may be prevented
from engaging in transactions that might otherwise be considered beneficial to
us.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION. You will experience
immediate and substantial dilution in pro forma net tangible book value per
share of common stock from the public offering price. As of March 31, 1999, we
had a net tangible book value per share of $1.61, and the net pro forma tangible
book value would have been $3.47 assuming a public offering price of $9.6563 per
share. You would be diluted by $6.19 per share.
OUR STOCK PRICE MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO RESELL YOUR
SHARES AT ATTRACTIVE PRICES. The market price of our common stock has been
subject to significant fluctuations in the past and could be subject to these
fluctuations in the future in response to our operating results and other
factors. For example, during the 52-week period ended March 31, 1999, the
reported closing price of our common stock was as high as $30.06 on February 8,
1999 and as low as $1.88 on October 7, 1998. In addition, the stock market in
recent years has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
individual companies. Such fluctuations, and general economic and market
conditions, may adversely affect the market price of the common stock.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF
THIS OFFERING AND MAY NOT APPLY THEM EFFECTIVELY. Management will have
significant flexibility in applying the net proceeds of this offering to us and
may apply the net proceeds in ways with which you do not agree. The failure of
management to apply these funds effectively could materially harm our business.
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SALES OF SHARES ELIGIBLE FOR FUTURE SALE COULD IMPAIR OUR STOCK PRICE. The
market price of our common stock could drop due to sales of a large number of
shares of our common stock or the perception that such sales could occur. After
the sale of the common stock offered by this prospectus, there will be
32,376,737 shares of common stock outstanding (33,576,737 shares if the
over-allotment option from us is exercised in full), as well as options and
warrants to purchase 5,196,200 shares. The common stock offered by this
prospectus will be freely tradeable without restriction or registration under
the Securities Act by persons other than our "affiliates." The remaining
24,376,737 shares of common stock which will be outstanding following this
offering are also freely transferable without restriction or registration under
the Act, except for 811,226 shares which have been issued by us without
registration within the past one year or 3,819,918 shares which are held by our
"affiliates." Our affiliates are persons which control, are controlled by or are
under common control with us, and generally include our executive officers,
directors and principal stockholders. We cannot predict the effect that future
sales of common stock or the availability of shares for future sale will have on
the market price of our common stock.
Our executive officers, directors and principal stockholders, including the
selling stockholders, have entered into lock-up agreements under which they have
agreed not to offer or sell any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock for a period of
180 days from the date of this prospectus without the prior written consent of
Prudential Securities, on behalf of the underwriters. Prudential Securities may,
at any time and without notice, waive the terms of these lock-up agreements
specified in the underwriting agreement.
OUR PRINCIPAL STOCKHOLDER HAS SIGNIFICANT OWNERSHIP AND HIS INTEREST MAY BE
DIFFERENT FROM AND CONFLICT WITH YOURS. J.D. Clinton will be the beneficial
owner of 4,703,076 shares of our common stock (including options and warrants),
representing approximately 13.6% (13.1% if the over-allotment option from us is
exercised) of the outstanding shares of common stock following this offering.
Mr. Clinton is our largest stockholder, and his ownership could give him the
ability to influence stockholder votes, such as the election of members of the
Board of Directors, amendments to our charter, or approval of a merger, asset
sale or other corporate transaction requiring approval of the stockholders. The
concentration of ownership by Mr. Clinton could delay or prevent a change in
control of Shop At Home, even when a change of control might be in the best
interests of other stockholders.
WE HAVE ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION OF OUR
BUSINESS AT A PREMIUM PRICE. Our Board of Directors, without stockholder
approval, can issue preferred stock. This preferred stock could have dividend,
liquidation, conversion, voting or other rights that could adversely affect the
rights of the holders of common stock. These shares could, under some
circumstances, be utilized as a method of discouraging, delaying or preventing a
change in control of Shop At Home, even if our stockholders believe the change
in control would be in our best interests. In addition, certain other provisions
and agreements could have the same effect, including:
o until December 2000, we are subject to the provisions of the Tennessee
Business Combination Act, which impose restrictions on mergers and other
business combinations between us and any holder of 10% or more of our
common stock;
o the Indenture we entered into in connection with our issuance of the
Notes imposes certain restrictions on our ability to enter into business
combinations and gives the holders of the Notes the right to sell their
Notes back to us at a premium in the event of a change of control; and
o Kent Lillie, our President and CEO, has the right to terminate his
employment within one year after a "change of control" of Shop At Home. A
change of control for this purpose means that some stockholder owns more
of our common stock than J.D. Clinton and his related parties, or that
Mr. Clinton or his designee is not elected to, or is removed from, the
Board of Directors (other than by a mutual agreement of Mr. Clinton and
Mr. Lillie).
RISKS RELATED TO OUR RELATIONSHIPS WITH THIRD PARTIES
WE DEPEND ON TELEVISION AFFILIATION AGREEMENTS WHICH COULD BE TERMINATED OR
NOT RENEWED. Our business is dependent upon affiliation and time brokerage
agreements with television broadcast stations, cable system operators and direct
broadcast satellite systems. We must renegotiate and renew these agreements from
time to time. Most of these agreements give the owner of the station or cable
system the right to
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terminate the agreement at any time on 30 days notice, or the right to preempt
our programs in certain situations. We must compete with other television
programmers for time on these stations and systems, and there is no assurance we
can match the prices our competitors may be willing to pay. There can be no
assurance that any of the agreements can be renewed on acceptable terms, if at
all.
WE DEPEND ON EXCLUSIVITY ARRANGEMENTS WITH OUR VENDORS. Our ability to
maintain our gross profit margins in certain product categories is partially
dependent upon exclusivity agreements with our vendors, such that we are the
only seller, or one of a limited number of sellers, of particular products. Many
of our vendors have not entered into exclusivity agreements with us and may not
be willing to do so. Those vendors that have entered into exclusivity agreements
may terminate such arrangements over time. Vendors with whom we wish to
establish exclusivity agreements may instead enter into exclusivity agreements
with our competitors.
WE RELY ON SERVICE PROVIDERS AND PRODUCT VENDORS. We are dependent upon
certain service providers and product vendors to conduct our business. Because
we have positioned ourselves in the electronic commerce market as the seller of
certain unique products, including sports memorabilia, we depend upon a limited
number of suppliers for such products. This supply cannot be assured. In
addition, we rely on the services of a credit card processor, a provider for our
computer hardware and a significant amount of our software, and a limited number
of telephone service providers and shipping companies. Should we lose or
experience interruptions in the services of any of these service providers or if
certain of our vendor relationships terminate, we may not be able to replace
these providers or vendors.
OUR BUSINESS DEPENDS ON THE AVAILABILITY OF TRANSPONDER ARRANGEMENTS. We
depend upon the continuous availability of transponder time and satellite
capacity. Our programming is transmitted via a non-preemptible satellite
transponder service under an agreement expiring in 2006. The company providing
the service may terminate the agreement upon the occurrence of certain defaults
by us. The satellite could malfunction or otherwise cease operating. An
interruption or termination of transponder service could have a material adverse
effect on us.
IF THE AUTHENTICITY OF OUR COLLECTIBLE PRODUCTS IS CHALLENGED, OUR BUSINESS
MAY BE IMPAIRED. Some of the products we sell are collectibles and memorabilia,
the price of which is dependent upon their unique nature and authenticity. Our
ability to sell collectible products, and our business reputation generally,
could be impaired if our customers have reason to question the authenticity of
these products. Additionally, the failure to ensure that all the products sold
are authentic could result in litigation and possible liability.
RISKS RELATED TO TECHNOLOGY MATTERS
WE MAY EXPERIENCE PROBLEMS FROM COMPUTER SYSTEMS THAT ARE NOT READY ON A
TIMELY BASIS TO PROCESS INFORMATION ASSOCIATED WITH THE YEAR 2000. Computer
systems, software packages, and microprocessor-dependent equipment may cease to
function or may generate erroneous data when the year 2000 arrives. The problem
affects those systems or products that are programmed to accept a two-digit code
in date code fields. To correctly identify the year 2000, a four-digit date code
field will be required to be what is commonly termed "year 2000 compliant." We
may realize exposure and risk if the systems we depend on to conduct day-to-day
operations are not year 2000 compliant. The potential areas of exposure include
electronic data exchange systems operated by third parties with whom we transact
business, certain products purchased from third parties for resale, and
telephone systems and other equipment used internally. In addition, if we fail
to make all of our internal systems year 2000 compliant in a timely manner, or
if certain third parties with whom we do business are not able to make all of
their systems year 2000 compliant, this could have a material adverse effect on
our business, financial condition and results of operations.
IF WE FAIL TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, IT COULD
MATERIALLY HARM OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS. The Internet and
electronic commerce industries are characterized by rapid technological change,
changes in user and customer requirements, frequent new service or product
introductions embodying new technologies and the emergence of new industry
standards and practices that could render our websites and technology obsolete.
Our performance will depend, in part, on our ability to license or acquire
leading technologies, to enhance our existing services and to respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. There can be no assurance that we will be successful
in using new technologies effectively or adapting our websites and technology to
emerging industry standards.
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THE INCREASING NUMBER OF CHANNELS AND WEBSITES POSE A SIGNIFICANT
COMPETITIVE THREAT. In order for our customers to purchase our products, they
must either watch our television programs or access our websites. Significant
and increasing competition exists for the attention of our potential customers.
The Internet consists of hundreds of millions of web pages and is growing at an
exceptional rate. Many of these web pages are used for the sale of consumer
products. The television broadcasting industry also has become increasingly
competitive in recent years. The consumer has ever-growing alternatives to the
traditional over-the-air television broadcast, including cable television,
satellite dishes, multichannel multipoint distribution systems, pay-per-view
programs and the proliferation of video recorders and video movie rentals. These
changes have created smaller television viewing audiences for particular
programs. Further technological developments will likely continue this trend,
putting additional competitive pressures on us.
RISKS RELATED TO LEGAL AND REGULATORY MATTERS
WE ARE IN LITIGATION CONCERNING OUR NAME. We are a party to a lawsuit in
an Illinois Federal District Court concerning the competing claims of our
company and another company to use the name "Shop At Home." Neither our company
nor the adverse party in the litigation has a registered trademark for the name
"Shop At Home." The results of this litigation are difficult to predict and
could be materially adverse to us.
WE MAY BE SUBJECT TO LIABILITY FOR SALES AND OTHER TAXES. We do not
collect sales or other similar taxes from sales made into any states other than
Tennessee, Massachusetts, Colorado and Connecticut. Our business could be
materially harmed if additional sales and similar taxes are imposed on us, or if
penalties are assessed on us for past nonpayment of these taxes. Recently
adopted federal legislation provides that, prior to October 1, 2001, a state
cannot impose sales taxes on products sold on the Internet, unless these taxes
could be charged on non-Internet transactions involving the products. During
this moratorium, it is possible that taxing mechanisms may be developed that
would, following the moratorium, impose increasing sales and similar tax burdens
on us. While there are federal constitutional impediments to the imposition of
sales tax on Internet sales and sales made through our television network, it is
possible that federal legislation could be enacted to permit states to impose
such taxes.
OUR BROADCAST PROPERTIES ARE SUBJECT TO SIGNIFICANT REGULATION THAT MAY BE
COSTLY AND MAY INTERFERE WITH OUR ABILITY TO CONDUCT BUSINESS. Federal law
permits the operation of television broadcast stations only with a license
issued by the FCC. The law empowers the FCC, among other things:
o to determine the frequencies, location and power of broadcast stations;
o to issue, modify, renew and revoke station licenses;
o to approve the assignment or transfer of control of broadcast licenses;
o to regulate the equipment used by stations;
o to impose penalties for violations of the Communications Act or FCC
regulations; and
o to regulate some of a station's programming content.
FCC television licenses are granted or renewed for terms of eight years,
although licenses may be renewed for a shorter period. We must apply for renewal
of each broadcast license. At the time an application is filed for renewal,
petitions to deny the renewal may be filed by interested parties. There can be
no assurance that the licenses for our stations will be renewed at their
expiration dates or, if renewed, will be renewed for the full eight-year term.
The non-renewal or revocation of one or more of our television station licenses
could have a material adverse effect on our operations. Failure to comply with
FCC rules and policies can also result in the imposition of various sanctions,
including monetary forfeitures or, for particularly egregious violations, the
revocation of a license.
FUTURE CHANGES IN LAW COULD ADVERSELY AFFECT OUR BUSINESS. Congress and
the FCC are currently considering new laws, regulations and policies regarding a
wide variety of matters which could affect the operation and ownership of our
broadcast properties. These matters include, for example:
o changes in the FCC's multiple station ownership restrictions;
o spectrum use fees;
o political advertising rates;
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o free political time;
o the rules and policies to be applied in enforcing the FCC's equal
opportunity regulations; and
o the standards to govern the evaluation of television programming directed
toward children, and violent and indecent programming.
We are unable to predict the outcome of future federal legislation or the impact
of any such laws or regulations on our operations.
WE MAY BE UNABLE TO ENFORCE "MUST CARRY" RIGHTS IN SOME MARKETS. Our
inability to enforce our "must carry" rights would limit our ability to expand
our television programming. Cable operators are generally required by federal
law to carry the signals of local commercial television stations. For purposes
of the "must carry" provisions, a broadcast station's market is determined by
the FCC using published industry data. The FCC, however, considers specific
written requests to change a station's market area, including the exclusion of
communities from a television station's market. If successful, the cable company
is then not required to carry the station under its "must carry" obligations.
The FCC has ruled on several of these requests and in many cases, including
cases against us, has excluded particular communities from a market. We are
unable to predict the impact of any future rulings of the FCC with respect to
the exclusion of the carriage of our broadcast stations from any particular
cable systems in our markets.
FAILURE TO OBTAIN "MUST-CARRY" RIGHTS ON DIGITAL TELEVISION CHANNELS COULD
ADVERSELY AFFECT OUR BUSINESS. The FCC has allotted to existing television
stations a second channel on which to provide digital television service, or
DTV. The new digital allocation may result in a signal that does not reach as
many homes as the analog signal currently used by our stations. If "must-carry"
rights are not extended to these DTV channels and DTV channels receive wide
public acceptance, or if our coverage area is reduced, it will impede our
ability to utilize this new service for the broadcast of our electronic commerce
programming.
WE COULD BE LIABLE FOR PRODUCT LIABILITY, LIBEL, VIOLATION OF INTELLECTUAL
PROPERTY AND OTHER LEGAL CLAIMS. Some of the products we sell, such as cutlery
and knives and exercise equipment, can pose a risk of bodily harm to our
customers and others if used in an inappropriate fashion. We face the risk of
claims being made and litigation being filed against us for damages associated
with the use of these products. While we do not expect such litigation or the
payment of damages by us to impose a material risk, the costs and legal fees of
the defense of such matters could be significant. The wide exposure of our
programming increases the risk that we could be subject to lawsuits for
defamation, libel, invasion of privacy, for violations of publicity rights,
trademarks, service marks and other intellectual property rights arising from
the content of our programming. The risk of these types of lawsuits is even
greater for our Internet programming because the law in this area is unsettled,
and we are exposed to the risks of liability under foreign laws where our
Internet programming is available. We could be liable for programming or content
generated by us, our users or our vendors. This liability may require us to
expend substantial resources or to discontinue certain products, programming or
services. The publicity such lawsuits could generate could harm our reputation
or otherwise impact the growth of our business.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
Shop At Home, including, among other things:
o general economic and business conditions, both nationally and in our
markets;
o our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
o anticipated trends in our business;
o existing and future regulations affecting our business;
o our successful implementation of our business strategy;
o fluctuations in our operating results;
o technological changes in the television and Internet industry; and
o other risk factors described under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Shop At Home, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this prospectus. Because of these risks and uncertainties, the
forward-looking events and circumstances discussed in this prospectus may not
occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.
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USE OF PROCEEDS
The net proceeds to us from the sale of the common stock in this offering,
assuming a public offering price of $9.6563 per share, are estimated to be $72.9
million ($83.9 million if the underwriters exercise their over-allotment option
from us in full), after deducting underwriting discounts and commissions, and
estimated offering expenses of $500,000. We intend to use these net proceeds as
follows:
o to repay a bridge loan of $20.0 million used to purchase WBPT(TV);
o to develop and launch the collectibles.com website;
o to make acquisitions of additional television stations;
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. SHOP AT
HOME MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
o to pay the cost of developing and installing a new computer system; and
o for general corporate purposes.
Although from time to time we evaluate potential acquisitions of additional
television stations, we have no present understandings, commitments or
agreements regarding any such acquisition, other than the non-binding letter of
intent to acquire WNTO(TV), located in the Orlando, Florida market. If the
purchase of WNTO(TV) is consummated in accordance with the terms of the letter
of intent, approximately $22.5 million of the net proceeds of this offering
would be used for this purpose.
Pending such uses, we may invest the net proceeds temporarily in
short-term, investment-grade, interest-bearing securities or guaranteed
obligations of the U.S. government. Shop At Home will not receive any proceeds
from the sale of common stock by the selling stockholders.
PRICE RANGE OF COMMON STOCK
Our common stock was quoted in the Nasdaq SmallCap Market from June 1995
until February 9, 1999. Since February 9, 1999, our common stock has been quoted
in the Nasdaq National Market under the symbol "SATH".
The range of market prices for our common stock during the two most recent
fiscal years and for each quarter during the current fiscal year, as reported by
Nasdaq's SmallCap Market and National Market, are shown below. Through the
second quarter of fiscal 1999, the range shown is the high and low bid prices as
reported by the SmallCap Market. For the third quarter of fiscal 1999, the high
and low prices were determined by comparing the high and low bid prices in the
SmallCap Market for the period of January 1, 1999 through February 9, 1999 with
the high and low closing prices on the National Market for the period of
February 10, 1999 through March 31, 1999, and recording the highest and lowest
of those prices. For the fourth quarter of fiscal 1999, the prices shown are the
high and low closing prices on the National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL 1997
First Quarter.............................................................................. $ 4.06 $3.25
Second Quarter............................................................................. 3.75 2.50
Third Quarter.............................................................................. 3.38 2.38
Fourth Quarter............................................................................. 3.56 2.25
FISCAL 1998
First Quarter.............................................................................. 4.13 2.50
Second Quarter............................................................................. 4.69 3.63
Third Quarter.............................................................................. 4.44 2.94
Fourth Quarter............................................................................. 4.00 3.00
FISCAL 1999
First Quarter.............................................................................. 3.81 1.88
Second Quarter............................................................................. 10.69 1.88
Third Quarter.............................................................................. 30.00 7.12
Fourth Quarter (through June 10, 1999)...................................................... 14.88 7.62
</TABLE>
On June 10, 1999, the last reported sale price of Shop At Home's common
stock in the Nasdaq National Market was $9.6563 per share. As of March 31, 1999,
there were approximately 690 record owners of the common stock.
15
<PAGE>
DIVIDEND POLICY
We have not declared or paid and do not anticipate declaring or paying any
dividends on our common stock. Any future determination as to the declaration
and payment of dividends will be made at the discretion of our Board of
Directors and will depend on then existing conditions, including our financial
condition, results of operations, contractual restrictions, capital
requirements, business prospects and such other factors as our Board of
Directors deems relevant. In addition, the terms of the Notes we issued in March
1998 restrict our ability to pay dividends.
CAPITALIZATION
The following table provides the actual capitalization of Shop At Home as
of March 31, 1999. The table also provides the capitalization of Shop At Home as
adjusted to reflect the receipt of the estimated net proceeds to us from this
offering at an assumed public offering price of $9.6563 per share. See "Use of
Proceeds." The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and accompanying notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................ $ 8,821 $ 81,709
-------- ---------
-------- ---------
Long-term debt........................................................................... 75,000 75,000
-------- ---------
Redeemable Series A Preferred Stock, $10.00 par and redemption value; 1,000,000 shares
authorized; 106,123 issued and outstanding............................................. 1,075 1,075
-------- ---------
Stockholders' equity:
Common Stock, $.0025 par value; 100,000,000 shares authorized; 24,324,937 shares issued
and outstanding (32,324,937 as adjusted)............................................ 61 81
Non-Voting Common Stock, $.0025 par value; 30,000,000 shares authorized; none issued
and outstanding..................................................................... -- --
Additional paid-in capital............................................................. 52,585 125,453
Accumulated deficit.................................................................... (7,134) (7,134)
-------- ---------
Total stockholders' equity............................................................... 45,512 118,400
-------- ---------
Total capitalization..................................................................... $121,587 $ 194,475
-------- ---------
-------- ---------
</TABLE>
Our actual and adjusted numbers of outstanding shares of common stock as of
March 31, 1999, do not include 2,396,200 shares of common stock issuable upon
exercise of options under our stock option and incentive plans, 2,800,000 shares
of common stock issuable upon the exercise of outstanding warrants, 106,123
shares issuable if the holders of the Series A Preferred Stock elect to convert
their shares and assumes no exercise of the underwriters' over-allotment option
from us.
Our charter was amended on May 11, 1999 to increase the number of
authorized shares of common stock from 30,000,000 to 100,000,000.
We used a bridge loan of $20.0 million to purchase WBPT(TV) in Bridgeport,
Connecticut, on June 3, 1999. We plan to use a portion of the net proceeds to us
from this offering to pay this bridge loan in full. Since it had not been
incurred on March 31, 1999, the bridge loan is not shown in the above table.
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Shop At Home's consolidated financial statements and notes
thereto included elsewhere in this prospectus. The statements of operations and
balance sheet data set forth below as of and for each of the five years in the
period ended June 30, 1998 are derived from the audited financial statements of
Shop At Home. The statements of operations and balance sheet data as of
March 31, 1999 and for the nine month periods ended March 31, 1998 and 1999 are
derived from the unaudited consolidated financial statements of Shop At Home;
however such information reflects all adjustments (consisting of only normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of consolidated financial position, results of operations and
cash flows of the interim periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.................... $21,717 $26,976 $40,675 $68,832 $100,518 $70,457 $110,442
Cost of goods sold (excluding
other operating expenses)..... 14,278 17,121 24,516 40,626 58,862 40,866 65,869
Other operating expenses........ 8,406 11,010 16,930 25,882 38,069 26,828 42,461
Other expense (income).......... 14 (89) (57) (232) (1,703) (1,214) (676)
Interest expense, net........... 72 216 795 1,080 2,850 741 6,590
------- ------- ------- ------- -------- ------- --------
Net income (loss) before income
taxes......................... (1,052) (1,282) (1,509) 1,476 2,440 3,236 (3,802)
Income tax expense (benefit).... -- -- (104) (80) 927 1,238 (1,445)
------- ------- ------- ------- -------- ------- --------
Net income (loss)............... $(1,052) $(1,282) $(1,405) $ 1,556 $ 1,513 $ 1,998 $ (2,357)
------- ------- ------- ------- -------- ------- --------
------- ------- ------- ------- -------- ------- --------
Weighted average common
shares -- basic............... 8,225 9,437 10,284 10,651 14,511 11,593 23,567
Weighted average equivalent
shares -- dilutive............ 8,225 9,437 10,284 14,268 17,496 14,743 23,567
Basic earnings (loss) per
share(1) ..................... $ (0.13) $ (0.14) $ (0.14) $ 0.14 $ 0.10 $ 0.17 $ (0.10)
Diluted earnings (loss) per
share(1)...................... $ (0.13) $ (0.14) $ (0.14) $ 0.12 $ 0.09 $ 0.14 $ (0.10)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------
JUNE 30, 1998 ACTUAL AS ADJUSTED(2)
-------------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 11,568 $ 2,485 $ 75,373
Total assets.......................................................... 143,770 146,436 219,324
Current liabilities................................................... 19,212 23,904 23,904
Long-term debt and capital leases, less current portion............... 75,254 75,000 75,000
Redeemable preferred stock............................................ 1,393 1,075 1,075
Stockholders' equity.................................................. 44,360 45,512 118,400
</TABLE>
- ------------------
(1) For details of the calculation of basic and dilutive earnings per share, see
Note 12 to the Consolidated Financial Statements.
(2) The balance sheet data, as adjusted, reflects the receipt of the estimated
net proceeds to us from this offering at an assumed public offering price of
$9.6563 per share and assumes that the over-allotment option from us is not
exercised.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Financial Data" and our consolidated financial statements and
related notes included elsewhere in this prospectus.
GENERAL
Shop At Home, founded in 1986, sells specialty consumer products, primarily
collectibles, through interactive electronic media, including broadcast, cable
and satellite television and, increasingly, the Internet. We offer a variety of
products such as sports cards and memorabilia, coins, currency and jewelry, many
of which we sell on an exclusive basis.
Shop At Home receives revenues primarily from the sale of merchandise
marketed through our programming carried by:
o television stations from whom we have purchased broadcast time;
o our television stations, with our programming being carried on cable
television systems under the "must carry" or the retransmission
consent provisions of federal law;
o direct carriage on cable television systems under agreements with
cable system operators;
o direct-to-home satellite programming services;
o direct reception of our satellite transmission by individuals who
own satellite downlink equipment; and
o our website.
An increasing portion of Shop At Home's revenues is received from the sale
of our merchandise through our website, shopathomeonline.com, although such
revenues have not been material to date.
Approximately 94% of our revenues are derived from the sale of products
over our broadcast distribution network. Our products include sports
collectibles and sports related products, movie memorabilia and other signed and
autographed merchandise, electronic equipment, coins and currency, cutlery and
knives, jewelry, gemstones, health and beauty products, personal care items and
clothing. Beginning in 1997, Shop At Home has also received revenues from sales
by its subsidiary, Collector's Edge of Tennessee, Inc. Collector's Edge sells
sports trading cards under licenses from National Football League Properties,
Inc. and National Football Players, Incorporated. Additionally, we receive
revenues from the sale of broadcast time on our owned television stations for
the broadcast of infomercials.
As of March 31, 1999, our programming was viewable during all or part of
each day by approximately 49.5 million cable households, of which approximately
8.2 million cable households received the programming on essentially a full-time
basis (20 or more hours per day) and the remaining 41.3 million cable households
received it on a part-time basis. To measure performance in a manner that
reflects both the growth of Shop At Home and the nature of its access to
part-time cable households, Shop At Home uses a cable household full-time
equivalent method to measure the reach of our programming which accounts for
both the quantity and quality of time available to us. To derive this full-time
equivalent cable household base ("FTE Cable Household"), we have developed a
methodology to assign a relative value of each hour of the day to our overall
sales, which is based on sales in markets where the programming is carried on a
full-time basis. Each hour of the day has a value based on historical sales. FTE
Cable Households have grown from 5.4, 8.3 and 15.3 million at June 30, 1996,
1997 and 1998 respectively, to 16.6 million at March 31, 1999. Shop At Home
believes that the change in the number of FTE Cable Household provides a
consistent measure of the growth of Shop At Home and applies this methodology to
all affiliates. Accordingly, Shop At Home uses the revenue per average FTE Cable
Household as a measure of pricing new affiliate contracts and estimating their
anticipated revenue performance.
When Shop At Home enters a new market, it generally takes about three
months to establish program awareness by the viewers. During this three month
period, Shop At Home normally receives less revenue from sales in the market
than it will expect to receive when the market matures. Shop At Home's
programming is received on more than one channel in many households. Shop At
Home has found that its sales in a market increase when its programming is
available on more than one channel, thereby justifying the additional carriage
costs.
18
<PAGE>
Shop At Home owns and operates six UHF television stations located in the
San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport markets. Five
of our stations are in the top 13 television markets in the United States,
including the Bridgeport, Connecticut station which serves a portion of the New
York City metropolitan area market.
Our business is somewhat seasonal, with our sales made in the last quarter
of the calendar year normally being the highest for the year and the sales made
in the first quarter of the calendar year being the lowest.
Principal elements in Shop At Home's cost structure are (a) cost of goods
sold, (b) transponder and cable costs and (c) salaries and wages. Shop At Home's
cost of goods sold is a direct result of both the product mix and Shop At Home's
ability to negotiate favorable prices from its vendors. Transponder and cable
costs include expenses related to carriage under affiliation and transponder
agreements. Carriage costs have increased in recent periods and Shop At Home
expects this trend will continue as it enters new markets and expands the number
of households and viewable hours for its programming. Carriage costs have also
increased because of general increases in the rates charged for carriage.
Because it takes a period of time for a market's revenue potential to mature,
Shop At Home expects to pay initial carriage cost in excess of its goal of
approximately 15% of revenues from the market. If carriage cost does not
decrease toward this goal as the market matures, management of Shop At Home will
usually attempt to renegotiate the carriage contract, seek an opportunity to
terminate the carriage contract or not renew it. Salaries and wages have
increased with our increased revenues and the addition of staff to support our
growth.
OVERVIEW OF RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net revenue of certain items included in our Statements of
Operations:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------- ---------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (excluding items listed below)............ 60.3 59.0 58.6 58.0 59.6
Salaries and wages........................................... 10.1 8.1 7.4 7.3 7.4
Transponder and cable charges................................ 14.8 17.6 17.7 17.8 17.5
Other general operating and administrative expenses.......... 14.5 10.4 10.6 11.2 9.5
Depreciation and amortization................................ 2.2 1.5 2.2 1.7 3.3
Move-related expenses........................................ -- -- -- -- 0.8
Interest, net................................................ 2.0 1.6 2.8 1.1 6.0
Other income................................................. 0.1 0.3 1.7 1.7 0.6
Income (loss) before income taxes............................ (3.7) 2.1 2.4 4.6 (3.4)
Income tax expense (benefit)................................. (0.3) (0.1) 0.9 1.8 (1.3)
Net income (loss)............................................ (3.5) 2.3 1.5 2.8 (2.1)
</TABLE>
RESULTS OF OPERATIONS
Nine Months Ended March 31, 1999 vs. Nine Months Ended March 31, 1998
Net Revenues. Shop At Home's net revenues for the nine months ended
March 31, 1999 were $110.4 million, an increase of 56.8% over net revenues of
$70.5 million for the same period in the previous year. The core business of
sales through electronic media accounted for 94.4% of net revenues derived from
an average base of 16.1 million FTE Cable Households in the nine months ended
March 31, 1999 compared to an average of 10.1 million FTE Cable Households in
the same period in 1998. During the nine months ended March 31, 1999, Shop At
Home generated revenues per FTE Cable Household of approximately $8.63 compared
with approximately $8.66 per FTE Cable Household for the same period of the
prior year. The major reason for the decrease in revenues per household is that
the net 6.0 million average FTE Cable Households added during the nine months
ended March 31, 1999 had not yet matured. The remaining 5.6% of net revenues
resulted from approximately $6.1 million in net revenues from Collector's Edge.
19
<PAGE>
Also included in net revenues was infomercial income, generated by our
broadcast operations in the Boston, Houston, Cleveland, San Francisco and
Raleigh markets, of $1.3 million compared to approximately $0.9 million in the
comparable 1998 nine month period. This represents a 41.5% increase and is
primarily due to Shop At Home having five stations in the 1999 period compared
to two stations in the 1998 period. Shop At Home also sold approximately
$0.3 million of broadcast time to certain vendors during the 1998 period, but
did not continue this practice in the comparable 1999 period.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the nine months ended March 31, 1999, the
cost of goods as a percentage of net revenues sold increased to 59.6% from 58.0%
in the comparable 1998 period. This increase is mainly due to a greater
percentage of sales of lower-margin product categories, primarily electronics
and coins, which collectively represented approximately 26.0% of revenues for
the nine months ended March 31, 1999 compared to 23.8% of revenues for the
comparable 1998 period.
Salaries and Wages. Salaries and wages for the nine months ended March 31,
1999 were $8.1 million, an increase of 57.3% compared to the same period in
1998. Salaries and wages as a percent of revenues remained consistent in both
years, reflecting the addition of new personnel commensurate with the increase
in revenues.
Transponder and Cable. Transponder and cable costs for the nine months
ended March 31, 1999 were $19.4 million, an increase of $6.8 million or 54.3%
compared to the same period in 1998. The cable component of this expense
category remained constant at 16.3% for both periods. Although the percentage
remained constant, the 1999 period reflects the reduction of cable costs of
KCNS, San Francisco, and WRAY, Raleigh, which were acquired in March 1998 and
therefore not included in the 1999 period. The additional expense in cable costs
is the result of Shop At Home's FTE Cable Household average increasing to 16.1
million from 10.1 million for the nine month periods ending March 31, 1999 and
1998, respectively, and many of these markets had not matured at the end of the
period.
Other General Operating and Administrative Expenses. Other general
operating and administrative expenses for the nine months ended March 31, 1999
were $10.5 million, an increase of $2.6 million or 32.4% compared to the nine
months ended March 31, 1998. As a percentage of revenues, this constituted a
decrease to 9.5% in 1999 from 11.2% in 1998 and was attributable to a number of
factors, including lower legal and consulting expenses, operating supplies costs
and advertising expense.
Depreciation and Amortization. Depreciation and amortization for the nine
months ended March 31, 1999 was $3.6 million, an increase of $2.4 million or
202.5% compared to the nine months ended March 31, 1998. The largest part of
this increase was the $1.6 million of additional license cost amortization and
depreciation for the three new television stations acquired in March 1998 and
approximately $0.3 million of additional depreciation of Shop At Home's new
facilities in Nashville.
Move-Related Expenses. Move-related expenses were approximately $0.9
million in the nine months ended March 31, 1999. These expenses primarily relate
to employee relocation, rental of temporary facilities, the grand opening of
Shop At Home's Nashville headquarters and employee bonuses associated with the
relocation.
Interest. Interest expense for the nine months ended March 31, 1999 was
$6.6 million, an increase of $5.8 million compared to the nine months ended
March 31, 1998. The increase was due to the issuance in March 1998 of
$75.0 million of 11% Senior Secured Notes.
Other Income. Other income decreased to approximately $0.7 million for the
nine months ended March 31, 1999 from $1.2 million for the comparable 1998
period, representing a 44.3% decrease. The major portion of this decrease was
the result of the inclusion of a $0.9 million gain on the sale of Shop At Home's
contractual right to acquire a Knoxville television station.
Income Tax (Benefit) Expense. Income tax (benefit) for the nine months
ended March 31, 1999 was provided at an effective tax rate of 38%.
Net Income (Loss). As a result of the above revenues and expenses, Shop At
Home generated a net loss of approximately $2.4 million for the nine months
ended March 31, 1999, compared to net income of approximately $2.0 for the nine
months ended March 31, 1998.
20
<PAGE>
Fiscal 1998 vs. Fiscal 1997
Net Revenues. Shop At Home's net revenues for the year ended June 30,
1998, were $100.5 million, an increase of $31.7 million or 46.0% over the year
ended June 30, 1997. The increase was primarily attributable to the addition of
approximately 6.7 million FTE Cable Households over the year resulting in a
total of 15.3 million FTE Cable Households at the end of June 1998. For the year
ended June 30, 1998, Shop At Home generated revenues per household of
approximately $9.09 on an average of 11.1 million FTE Cable Households compared
with sales of approximately $10.25 per household on an average of 6.6 million
FTE Cable Households in fiscal 1997. The rapid addition of new households
outpaced the accompanying revenue growth, resulting in lower 1998 sales per
household than 1997. The increase in households is attributable mainly to the
addition of approximately 4.0 million FTE Cable Households and approximately 1.0
million additional FTE Cable Households for the last quarter of fiscal 1998
related to the acquisition of KCNS in San Francisco, California, WRAY in
Raleigh, North Carolina and WOAC in Cleveland, Ohio. In addition, Collector's
Edge contributed approximately $5.3 million in sales during fiscal 1998. Shop At
Home also generated $1.4 million in infomercial revenue from WMFP in Boston and
KZJL in Houston for the year ended June 30, 1998, representing a 40% increase
over the year ended June 30, 1997. This was the result of more active sales of
infomercial time at KZJL and WMFP. No infomercial income was generated from the
newly acquired KCNS, WRAY or WOAC stations during the year.
Cost of Goods Sold. For the fiscal year ended June 30, 1998, the cost of
goods sold decreased slightly to 58.6% from 59.0% in the year ended June 30,
1997. This improvement was attributable to Shop At Home's ability to leverage
its purchasing power due to increased sales, resulting in lower costs in most
categories, especially the sports product line.
Salaries and Wages. Salaries and wages for the year ended June 30, 1998
were $7.4 million, an increase of $1.9 million or 33.8% over the year ended June
30, 1997, which was primarily attributable to the broadening of executive and
technical staffs necessary for the future growth of Shop At Home and variable
labor costs associated with the higher volume of customer calls. Salaries and
wages decreased as a percentage of sales to 7.4% from 8.1%.
Transponder and Cable. Transponder and cable costs for the year ended
June 30, 1998 were $17.8 million, an increase of $5.6 million or 46.6% over the
year ended June 30, 1997. Carriage costs, expressed as a percentage of revenues,
did not change significantly. This was a result of our efforts to control this
expense in line with a target of 15% of sales.
Other General Operating and Administrative Expenses. Other general
operating and administrative expenses for the year ended June 30, 1998 were
$10.7 million, an increase of $3.5 million or 49.3% over the year ended June 30,
1997. The major parts of this increase were $0.7 million of additional credit
card fees, $0.6 million related to the relocation of our new corporate
headquarters to Nashville and general increases related to the increase in sales
volume.
Depreciation and Amortization. Depreciation and amortization expenses for
the year ended June 30, 1998 were $2.2 million, an increase of $1.1 million or
107% over the year ended June 30, 1997. This increase was a combination of
additional amortization related to the added license cost for KCNS, WRAY and
WOAC of approximately $0.5 million and an increase of approximately
$0.4 million in amortization of licenses held by Collector's Edge, which did not
exist in the prior year.
Interest. Interest expense for the year ended June 30, 1998 was $2.8
million, an increase of $1.8 million or 163.9% over the year ended June 30,
1997. The increase was due to the interest expense associated with
$75.0 million of 11% Senior Secured Notes which Shop At Home issued in March
1998.
Income Tax (Benefit) Expense. Income tax expense for the year ended
June 30, 1998 was approximately $0.9 million, which represented an effective tax
rate of 38%.
Net Income. As a result of the above revenues and expenses, Shop At Home
generated net income of approximately $1.5 million for the year ended June 30,
1998, compared to net income of approximately $1.6 million for the year ended
June 30, 1997.
21
<PAGE>
Fiscal 1997 vs. Fiscal 1996
Net Revenues. Shop At Home's net revenues for the year ended June 30,
1997, were $68.8 million, an increase of $28.2 million or 69.2% over the year
ended June 30, 1996. The increase was primarily due to the addition of
approximately 2.6 million FTE Cable Households over the year resulting in a
total of 8.3 million FTE Cable Households at the end of June 1997. For the year
ended June 1997, Shop At Home generated revenue per household of approximately
$10.25 on an average of 6.6 million FTE Cable Households compared with revenues
of approximately $9.50 per household on an average of 4.2 million FTE Cable
Households in fiscal 1996. This increase of 2.6 million FTE Cable Households by
June 1997 was attributable to the expanded coverage through the addition of
approximately 2.0 million cable households reached through Company-owned
stations and approximately 0.6 million FTE Cable Households through affiliation
agreements with cable companies which owned multiple systems. In addition, Shop
At Home generated $1.0 million in infomercial revenue from WMFP in Boston and
KZJL in Houston for the year ended June 30, 1997. This represented a 53.8%
increase over infomercial revenue of the year ended June 30, 1996, and was
mainly attributable to greater sales of infomercial time at KZJL.
Cost of Goods Sold. For the fiscal year ended June 30, 1997, the cost of
goods sold decreased slightly to 59.0% from 60.3% of net revenues in the year
ended June 30, 1996. Shop At Home was able to improve its purchasing power with
the increase in sales. This resulted in lower costs in most categories,
especially the sports product line.
Salaries and Wages. Salaries and wages for the year ended June 30, 1997
were $5.6 million, an increase of $1.5 million or 35.3% over the year ended June
30, 1996. This increase was primarily due to variable labor costs associated
with the higher volume of customer calls and some additions to management.
Salaries and wages decreased significantly as a percentage of revenues (to 8.1%
from 10.1%). This was attributable to escalating sales volumes which out-paced
the added salaries.
Transponder and Cable. Transponder and cable costs for the year ended
June 30, 1997 were $12.1 million, an increase of $6.1 million or 101.1% over the
year ended June 30, 1996. Carriage costs increased as a percentage of sales from
14.8% to 17.6% of net revenues. This was a continuation of a trend that began in
1994 when management decided to use higher cost cable distribution as a means of
increasing carriage.
Other General Operating and Administrative Expenses. Other general
operating and administrative expenses for the year ended June 30, 1997 were $7.1
million, an increase of $1.2 million or 20.8% over the year ended June 30, 1996.
The major components were increases in telephone expenses of approximately $0.3
million and an increase in credit card fees of approximately $0.5 million, both
of which were due to increased sales. While these expenses increased in absolute
dollars, they decreased significantly as a percentage of revenues due to our
rapidly increasing sales volumes.
Depreciation and Amortization. Depreciation and amortization expenses for
the year ended June 30, 1997 were $1.1 million, an increase of approximately
$0.2 million or 20.4% over the year ended June 30, 1996. This increase was a
combination of an increase of approximately $0.2 million in amortization related
to the added license cost for KZJL in Houston and the amortization of
Collector's Edge's NFL licenses, offset by a decrease in depreciation of
approximately $0.1 million.
Interest. Interest expense for the year ended June 30, 1997 was $1.1
million, an increase of approximately $0.3 million or 35.8% over the year ended
June 30, 1996. This increase was the result of indebtedness of $1.4 million
incurred in September 1996 in connection with the acquisition of the final 51.0%
interest in KZJL, and indebtedness incurred and assumed in connection with the
purchase of Collector's Edge.
Income Tax (Benefit) Expense. The income tax benefit for the year ended
June 30, 1997 was approximately $0.1 million, a decline from the tax benefit for
the year ended June 30, 1996. The income tax benefit for the year ended June 30,
1997 was less than the expected expense derived by applying the federal
corporate tax rate to pre-tax earnings, primarily because the deferred tax
valuation allowance of $1.0 million was eliminated in 1997 as management
determined that the ability to realize deferred tax assets was more likely than
not.
22
<PAGE>
Net Income (Loss). As a result of the above revenues and expenses, Shop At
Home generated net income of approximately $1.6 million for the year ended
June 30, 1997, compared to a net loss of approximately $1.4 million for the year
ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Shop At Home's historical capital sources have included an initial public
offering of common stock, proceeds from the private and additional public
placements of common stock, proceeds from the exercise of warrants, bank lines
of credit, public placement of debt, funds from operations and long-term debt
incurred in connection with acquisitions.
As of March 31, 1999, Shop At Home had total current assets of $26.4
million and total current liabilities of $24.0 million, resulting in working
capital of $2.4 million. Shop At Home's positive working capital position was
primarily due to our receipt of net proceeds from the public offering of stock
and debt in March 1998, which we used to fund capital expenditures and general
working capital requirements.
Approximately 85% of Shop At Home's receipts are customer credit card
charges, most of which are collected within three days of shipment. This
facilitates cash flow since Shop At Home usually pays its vendors within
30 days and, as a result, Shop At Home does not need a large amount of working
capital to support a rapid growth in revenues.
During the nine months ended March 31, 1999, Shop At Home used
approximately $4.3 million for operations. The major components of this net use
were the loss of $2.4 million, which included non-cash items of a decrease of
$1.8 million in net deferred tax liabilities, offset by $3.6 million in
depreciation and amortization. In addition, Shop At Home used approximately $5.6
million to support a higher level of receivables, primarily as a result of Shop
At Home offering a greater number of products on installment payments; and
$1.5 million to carry higher inventory levels, primarily sports products;
$1.5 million in additional prepaid expenses and other assets. Approximately
$4.9 million was provided from operations in the form of increased accounts
payable and accrued expenses.
Shop At Home used approximately $10.0 million for investing activities.
Approximately $8.1 million was expended on the completion of the Nashville
facilities, including furniture and fixtures and operating equipment at that
location, and on the transmitter upgrades to KCNS in San Francisco and WRAY in
Raleigh. Shop At Home also spent approximately $1.9 million on other assets,
$1.0 million of which was the escrow deposit for
Approximately $1.9 million was provided to Shop At Home from financing
activities during the nine month period ending March 31, 1999. The principal
source was through the sale of options and warrants which provided approximately
$2.5 million offset in part by approximately $0.4 million of debt repayments and
approximately $0.2 million to repurchase 90,300 shares of common stock.
Shop At Home acquired three broadcast television stations in March 1998:
KCNS located in San Francisco, California market, WRAY located in the Raleigh,
North Carolina market, and WOAC in the Cleveland, Ohio market. In March 1998,
Shop At Home raised a total of approximately $115.0 million from the public
issuance of $75.0 million of Notes and 11.5 million shares of common stock. The
proceeds were used as follows: $73.0 million to acquire the three stations;
$17.0 million primarily to acquire and equip the Nashville facilities;
$11.0 million for the retirement of debt; and the balance for general corporate
purposes.
Shop At Home acquired WBPT(TV) in Bridgeport, Connecticut, on June 3, 1999
at a cost of $21.0 million. Of the total purchase price, approximately $4.8
million was placed in an escrow account. This escrow account will be paid to the
seller of WBPT(TV) if the station increases its cable household reach above that
existing on the closing date. The escrow account will be paid to the seller at
the rate of $22 per additional cable household added, with the final
determination made six months after the closing, or in certain events 12 months
after the closing. In order for the full amount of the escrow account to be paid
to the seller, the cable household reach must increase from 680,000 existing
households as of the closing date to 900,000 cable households. The purchase
price (after applying a $1.0 million escrow deposit) was funded through a bridge
loan to be repaid from the proceeds of this offering. At closing, we changed the
call sign of the station to WSAH.
On May 24, 1999, we entered into a non-binding letter of intent to acquire
WNTO(TV), located in the Orlando, Florida market, for approximately
$22.5 million. There can be no assurance that a definitive
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agreement will be entered into or that this transaction will be consummated. If
consummated, a portion of the net proceeds of this offering will be used to pay
the purchase price of this station.
The acquisition of television stations impacts the results of operations as
follows:
o costs of carriage decrease to the extent that we purchased time on
these stations prior to acquisition;
o costs related to station operations increase;
o depreciation and amortization significantly increase as a result of
the acquisition of these stations;
o interest expense increases as a result of the issuance of debt (if
incurred);
o infomercial income may increase; and
o net revenues increase as a result of additional households.
Shop At Home intends to launch its new website, collectibles.com, in the
fall of 1999. To develop this website, Shop At Home has entered into agreements
with Oracle and iXL. Oracle will provide the internal systems to manage order
entry, accounting, human resources, purchasing and receivables. iXL will provide
all of the interface between the site and the consumer. It is anticipated that
the total cost of these two agreements will approximate $13.0 million. After
collectibles.com is operational, it will require working capital to promote and
develop our website in order to generate sales. Although this cost cannot be
ascertained at this time, it could approximate $10.0 million. Shop At Home
intends to fund these expenditures with the proceeds of this offering.
We believe that funds necessary to meet our capital requirements for the
near future will be available to us from the net proceeds of this offering.
Additional financing may be necessary depending on the timing, number, size and
terms of additional broadcast property acqusitions. The Indenture associated
with the Notes permits us to incur debt which may be used for such future
capital needs. In order to incur this debt we must satisfy certain conditions
imposed by the Indenture, including a limit of $20.0 million on the amount of
senior debt. After the repayment, from the proceeds of this offering, of its
$20.0 million bridge loan to acquire WBPT(TV), Shop At Home expects to negotiate
a $20.0 million revolving credit facility to be available for general corporate
purposes.
YEAR 2000
Computer systems, computer software, and equipment dependent on
microprocessors may cease to function or work incorrectly when the year 2000
arrives. The problem affects those systems and computer products which are
programmed to use a two digit code for the year, and may read the code "00" as
1900 rather than 2000. To prevent critical failures of important computers or
products, this problem, sometimes referred to as the "Y2K" problem, must be
identified and corrected. Systems and equipment that will not experience this
problem are generally referred to as "year 2000 compliant," or "Y2K compliant."
Shop At Home intends to become year 2000 compliant through systems
replacement and believes existing capital budgets are adequate for any remaining
hardware and software replacements.
Shop At Home is supported by redundant IBM RS6000 computers, each of which
communicates directly with our year 2000 compliant backup disk system. The AIX
operating system currently in use is Y2K compliant. The relocation to Nashville
facilitated compliance efforts by requiring the replacement of key network
equipment. Since the move, approximately 90% of local area network application
servers and computers have been upgraded to Windows NT systems, and we are
currently testing the Y2K compliance patch to Windows NT. Additionally, Shop At
Home's telephone system, Aspect software and computer server used in our call
center have been upgraded and are compliant. Our telephone voice response
system, the Internet web server and a software program utilized by the Human
Resources department are being remediated through the replacement of the
telephone voice response system and the installation of the new Oracle computer
system.
A year 2000 committee has been established and part of its task is to
review businesses outside of Shop At Home whose systems are electronically
linked to Shop At Home. Shop At Home has provided many of its vendors with Y2K
compliant software, and management is not presently aware of any material
problems in the year 2000 compliance plans of Shop At Home's major vendors and
service providers. Shop At Home is investigating material vendors and suppliers
to identify any non-compliance issues.
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Shop At Home has spent approximately $2.7 million on new computer hardware
and systems to date. Most of the primary computer systems are being replaced
either as part of the Y2K compliance program or in order to build a system to
support future growth. The total cost of system replacements, including both
hardware and software, will be approximately $10.0 million, in addition to prior
expenditures.
To implement the computer conversion, Shop At Home entered into agreements
with Oracle and iXL. The computer system provided by Oracle will be Y2K
compliant and will provide an integrated computer system for Shop At Home's
business processes. Oracle's system is expected to be installed and operational
by the end of 1999.
To date we have substantially completed the review of our critical internal
hardware and software systems, have identified those vendors which warrant
further examination for potential problems and have mailed inquiries to those
vendors as to their compliance. The following is the timetable for Shop At
Home's year 2000 compliance effort during the remainder of 1999:
<TABLE>
<S> <C>
June.................... Internal problems to be identified and corrected and begin evaluation of the
responses to questionnaires sent to suppliers. Begin testing internal
systems.
July.................... Continue testing internal systems and begin contingency planning.
August.................. Complete contingency planning. Begin contingency testing. Complete the
internal Oracle implementation of new hardware and software.
September............... Continue contingency testing.
October................. Complete all evaluation and testing. Review all portions of Y2K
documentation.
</TABLE>
The worst case scenario for us would be for critical vendors or service
providers to have Y2K problems. These critical vendors and suppliers include
bank card processors, long distance telephone service providers and the
full-time satellite transponder provider. Although these vendors have advised us
that they are in compliance, contingency plans will include identifying
alternative vendors and providers.
Despite the concern among the general public with year 2000 problems,
management does not anticipate major interruptions. The development and testing
of contingency plans should assure that no major interruptions occur. Management
believes its Y2K program is adequate to detect compliance problems in advance,
and that the necessary resources to remedy them are available. The Y2K problem,
however, has many aspects and potential consequences, some of which are not
reasonably foreseeable. Therefore, there can be no assurance that unforeseen
consequences will not occur.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1997, Shop At Home implemented Statement of
Financial Accounting Standards No. 129, Disclosure of Information about Capital
Structure. The Statement consolidates disclosures required by several existing
pronouncements regarding an entity's capital structure. Shop At Home's
disclosures were already in compliance with such pronouncements and,
accordingly, SFAS 129 did not require any change to existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement will become
effective for Shop At Home's annual financial statements for the fiscal year
ending June 30, 1999, and is effective for its interim financial reports. Shop
At Home has no items that would be classified as other comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement will
become effective for Shop At Home's June 30, 1999 fiscal year financial
statements and will impact interim reporting beginning with the quarter ending
September 30, 1999. Shop At Home has determined that its reportable segments
will be the same as currently disclosed, although expanded disclosures will be
required under provisions of the standard.
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BUSINESS
SHOP AT HOME
We sell specialty consumer products, primarily collectibles, through
interactive electronic media including broadcast, cable and satellite television
and, increasingly, the Internet. We offer a variety of products such as sports
cards and memorabilia, coins, currency and jewelry, many of which we sell on an
exclusive basis. We produce programming in a digital format in our new
state-of-the-art facilities in Nashville, Tennessee. The programming is
transmitted by satellite to cable television systems, television broadcasting
stations and satellite dish receivers across the country. We also deliver
programming through our website, shopathomeonline.com. We intend to launch our
new website, collectibles.com, in the fall of 1999. We intend for
collectibles.com to be the premier website for the sale of collectible products.
We believe that the emergence of the Internet as a global interactive
communications medium provides us with an opportunity to leverage our
traditional broadcast assets and our significant experience in marketing
specialty consumer products over an electronic medium. Since 1994, we have
increased our revenues from $21.7 million to $100.5 million in 1998 and $110.4
million for the nine months ended March 31, 1999, almost entirely through the
use of traditional television broadcasting. The Internet offers us the potential
to broaden our customer base, the ability to offer an expanded product line, the
capability to use computer technology to reduce the cost of processing and
fulfilling customer orders, and the opportunity to enhance the consumer shopping
experience, which we believe will result in additional repeat customers and
higher sales. In 1997, we established our first website, shopathomeonline.com,
which offers many of the same products sold on our television programming. We
are working with Oracle and iXL to develop collectibles.com.
To generate traffic on our websites, we plan to enter into other
promotional arrangements with Internet portals in addition to our recent
promotional arrangements with Yahoo! and Go Network. We also can market our
websites at minimal incremental cost, through cross-promotional advertising on
our television broadcast programming, introducing our traditional television
shoppers to a more interactive and cost-efficient sales method.
We own and operate six UHF television stations, which are located in the
San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport markets. Five
of our television stations are located in the top 13 television markets in the
United States, including the Bridgeport, Connecticut station which covers a
portion of the New York City metropolitan area television market. As of May 24,
1999, our television programming reached, during all or part of the day,
approximately 52.0 million households that receive cable television and direct
broadcast system (DBS) programming, many of which receive the programming on
more than one channel. Approximately 8.9 million cable households receive our
programming on essentially a full time basis (20 or more hours per day).
Our products are segmented into three categories: licensed and
authenticated products, consumer and specialty products, and jewelry and
lifestyle products. Licensed and authenticated products include sports
collectibles and sports related products, movie memorabilia and other signed and
autographed merchandise. Consumer and specialty products include electronic
equipment, coins and currency and cutlery and knives. Jewelry and lifestyle
products include jewelry, gemstones, health and beauty products, personal care
items and clothing. We believe that our product mix and marketing strategy are
unique in the electronic commerce industry because we feature products with high
average selling prices and emphasize merchandise that is not widely available,
and is purchased primarily by men.
We are incorporated in Tennessee and our principal place of business and
executives offices are located at 5388 Hickory Hollow Parkway, Antioch,
Tennessee 37013. Our telephone number is (615) 263-8000 and our Internet address
is www.shopathomeonline.com.
INDUSTRY BACKGROUND
Electronic Commerce
Television Programming. Electronic commerce using full-time television
programming has grown to a $3.8 billion industry. The television commerce
industry is dominated by two competitors: The Home Shopping Network and the QVC
Network. These two competitors' combined sales represented approximately 93% of
the broadcast television commerce industry's 1998 revenues and 94% of the
industry's 1997
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revenues. Electronic commerce using television programming is viewable 24 hours
a day in 90% of the United States.
Television station ownership allows a broadcaster to take advantage of the
"must carry" rules of the FCC. Generally, the "must carry" rules require most
cable systems (with the exception of some small systems) to set aside up to
one-third of their channels to carry the broadcast signals of local, full-power
television stations, including those which broadcast programming that allows
consumers to shop at home. These signals must be carried on a continuous,
uninterrupted basis and must be placed in the same numerical channel position as
when broadcast over-the-air, or on a mutually agreeable channel.
In addition, the FCC has adopted rules for implementing digital (including
high-definition) television service, or DTV service. The FCC has allotted to
eligible existing television stations a second channel on which to provide DTV
service. Television stations will be allowed to use these channels according to
their best business judgment. These uses include multiple standard definition
program channels, data transfer, subscription video, interactive materials, and
audio signals, although stations will be required to provide a free digital
video programming service that is at least comparable to today's analog service.
Internet Commerce. The Internet is an increasingly significant global
medium for communications, content and commerce. International Data Corporation
(IDC) estimates that the number of Internet users worldwide grew to
approximately 97 million by the end of 1998 and will grow to approximately 320
million by 2002. Forrester Research estimates that about 33% of all North
American households had access to the Internet at the end of 1998, and this
percentage is expected to grow to 38% by the end of 1999 and to 56% by 2003. We
believe that the growth in Internet usage has been fueled by a number of
factors:
o the growing number of personal computers installed in homes and the
workplace;
o advances in the performance and speed of personal computers and modems;
o improvements in network infrastructure, security and bandwidth;
o readily available access to the Internet; and
o increased awareness of the Internet among businesses and consumers.
The increasing functionality, accessibility and overall usage of the
Internet and online services have made them an attractive commercial medium. The
Internet and other online services are evolving into an alternative sales and
marketing channel to retail stores, mail-order catalogues and television
shopping. Online retailers can interact directly with customers, adjusting their
featured selections, editorial insights, shopping interfaces, pricing and visual
presentations to effectively market their products. We believe that the minimal
cost to originate programming on the Internet, the ability to reach and serve a
large and global group of customers electronically from a central location, and
the potential for personalized low-cost customer interaction all provide
additional economic benefits for online retailers. According to IDC, the number
of Internet buyers worldwide is estimated to increase from 27.6 million in 1998
to 128.4 million in 2002, representing a compounded annual growth rate of 46.9%.
The growing adoption of the Internet represents a significant opportunity
for businesses to conduct commerce over the Internet. The Internet allows
companies to develop one-to-one relationships with customers worldwide without
making significant investments in traditional infrastructure, such as retail
outlets, distribution networks and sales personnel. According to IDC,
transactions on the Internet are expected to increase from approximately $32
billion in 1998 to approximately $426 billion in 2002, with the number of users
that are buyers of products and services rising from 26% to 40% in the same
period.
Increases in consumer purchases on the Internet are expected to be a
significant factor in the growth of electronic commerce. The online shopping
experience offers convenience to the consumer. An online consumer's ability to
comparison shop is greatly enhanced by the ability to access multiple retailers
via the Internet. Online shopping also offers the consumer access to vendors who
sell from larger inventories than traditional retailers. Products commonly sold
on the Internet include software, books, music, CDs, airline tickets and,
increasingly, specialty consumer products and larger household consumer goods.
According to Forrester Research, total retail sales transacted over the
Internet in the United States are expected to increase from $7.8 billion in 1998
to $76.3 billion in 2002, representing a compound annual growth rate of 76.9%.
Forrester Research also projects that the number of U.S. households that shop
online will increase from 8.7 million in 1998 to 30.3 million in 2002.
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Specialty Consumer and Collectible Products. The sale of specialty
consumer products, and the collectibles industry in particular, is a large and
growing segment of the retail industry. In a report issued in January 1999 based
on a survey conducted in the fourth quarter of 1998, Unity Marketing, a market
research firm specializing in the collectibles industry, estimated that there
are approximately 32 million collectors nationwide. Based upon this survey and
the average annual purchases of collectors, we believe that the market for
collectibles in the United States is approximately $82 billion.
The market for collectibles includes a broad range of products sharing in
common a group of consumers interested in acquiring products as collectors'
items. Collectors purchase collectibles for a variety of reasons, including
nostalgia, hobby or investment. Collectibles have traditionally been sold
through specialty retailers, each of whom sells one type, or a limited number of
types, of collectible products. As a result, the market for collectible products
is large and highly fragmented with no dominant industry retailers.
We believe that traditional "brick and mortar" retailers face a number of
challenges in providing a satisfying shopping experience for collectible
products, including:
o the number and amount of inventory that a traditional store-based
retailer can carry in any one location is restricted by the physical
space in the store, thereby limiting customer's options;
o limited shelf space and store layout constraints restrict the
merchandising flexibility of traditional store-based retailers, which
reduces the ability of the merchandisers to blend merchandising
strategies;
o limited floor space and warehousing costs cause store-based retailers to
stock only items that are popular and produce high inventory turns,
resulting in limited options for the consumer; and
o traditional store-based retailers must incur significant costs to build
and inventory new retail outlets near their targeted consumer base, as
well as to train new sales personnel.
Increasingly, collectors are turning to the Internet as a source of
collectible products and information regarding collectibles. Based on the Unity
Marketing survey:
o an estimated 10 million collectors in the United States have used the
Internet as a source for collecting information, to have discussions with
other collectors or to buy, sell or trade collectible products;
o 60% of collectors who use the Internet have used the Internet to buy,
sell or trade collectible products;
o the total number of persons using the Internet to buy, sell or trade
collectibles is projected to reach 18 to 20 million persons by the end of
2000;
o the Internet offers companies the opportunity to expand their customer
base since only 8% of collectors report that they purchase collectible
products regularly through television shopping;
o persons using the Internet in 1998 to purchase collectible products spent
an average of $2,958, compared to $2,417 for collectors using more
traditional means;
o the top four product themes among persons using the Internet to purchase
collectible products are Christmas, teddy bears, Walt Disney-related
products and sports-related products;
o trading cards is the largest category, based on median annual
expenditures, among persons using the Internet to collect;
o 65% of persons using the Internet to purchase collectible products belong
to one or more collectors' clubs and 63% of collectors have attended
special collectors' events or shows; and
o persons using the Internet to purchase collectible products are highly
sociable in their collecting and are very likely to seek out information.
THE SHOP AT HOME SOLUTION
We believe that our electronic commerce platform provides vendors an
opportunity to distribute their specialty consumer products to a mass market
while maintaining appropriate margins, and providing our customers a convenient
and enjoyable shopping experience in a centralized electronic retail
environment. Our focus on specialty and collectible products and our commitment
to excellent customer service will enable us to uniquely address the needs and
desires of our customers. The key components of our solution include:
o a convenient shopping experience in a centralized electronic retail
environment;
o an extensive product selection and specialty merchandising;
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o existing and scalable business resources, including a call center,
customer service center and experienced product buyers;
o helpful and informative shopping services;
o community building features and opportunities for shoppers to interact;
and
o excellent customer service.
BUSINESS STRATEGY
Our business objective is to become a leading seller of specialty consumer
products, primarily collectibles, through electronic media by implementing the
following strategies:
o Increase Internet Distribution. We plan to increase the distribution of
our programming through the Internet. We will continue to distribute our
programming over our website, shopathomeonline.com, and plan to launch
our new website, collectibles.com, in the fall of 1999. Through the
Internet, we will market our products to a new audience and to an
audience which may not have access to our television programming. Since
our programming is produced in a digital format, it is easy for us to use
both audio and video portions of our programming to market our products
on our websites. To increase the visibility of our websites and expose
more potential customers to our programming, we will promote our websites
with our television programming, and we expect to place information about
our websites on high traffic portals in addition to our recent
promotional arrangements with Yahoo! and Go Network. This increased
visibility will create additional brand awareness, assisting us in
reaching our goal of establishing collectibles.com as the premier website
for collectors.
o Broaden Our Television Programming Reach. We intend to further broaden
the distribution of our programming by continuing to acquire broadcast
television stations in major markets on a cost-effective basis and
seeking more favorable programming times on those stations and cable
systems on which our programming currently appears. We are continually
assessing potential acquisitions of broadcast television stations. By
owning and operating stations in select markets, we can broadcast
full-time programming in those markets and thereby increase the brand
awareness of our websites and our quality merchandise. In addition,
owning stations in select markets enables us to increase our viewership
by exercising "must carry" rights with cable system operators in those
markets. We also plan to increase our programming distribution through
additional carriage agreements with cable systems and broadcast
television stations owned by third parties.
o Continue to Offer High Quality, Differentiated Product Mix. We plan to
continue pursuing our strategy of selling products such as sports
memorabilia, coins and other collectible products, some of which are not
readily available through other television programming, Internet or
retail competitors. We believe our emphasis on selling higher priced,
exclusive and authenticated merchandise creates for us a unique market
niche. This enhances our ability to obtain carriage from cable systems
and television broadcasters and establish relationships with Internet
portals.
o Improve Profit Margins. As our website sales increase as a percentage of
our total sales, the expenses associated with such increased sales can be
contained through the use of technological efficiencies which will offer
the opportunity to improve our profit margins. We also plan to improve
profit margins by taking advantage of our purchasing power to negotiate
lower wholesale prices with vendors and spreading fixed charges over an
increased sales base. We will continue to optimize inventory levels
through a combination of methods which allows us to operate with minimal
working capital requirements, thereby further enhancing margins.
o Leverage Customer Database. Our new integrated computer system, which
should be operational by the end of 1999, will permit us to better manage
our existing customer database in order to profile and track the
purchasing habits of our customers. This use of the database will enable
us to refine our merchandising decisions to maximize viewer interest by
evaluating the historical purchasing preferences of customers. Our new
sales systems will enable us to utilize this information in real time to
offer customers additional products which are complementary to the
products they purchase. By combining our database with our Internet
capabilities and our new integrated computer system, we will be able to
identify particular products which coincide with customer purchasing
profiles. We would then be able to provide e-mail notices to customers
about purchasing the products. Additionally, our
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sales systems allow call center operators to market merchandise to our
customers on an out-bound basis.
o Develop Alternative Sources of Revenue. We believe there are several
opportunities to establish complementary sources of revenue, including:
(a) the sale of advertising on our websites; (b) the introduction of an
out-bound telemarketing program; and (c) the sale of additional products
through direct marketing and package insert programs.
RECENT DEVELOPMENTS
collectibles.com
Website development. We are making a significant investment in the
development of our new website, collectibles.com. We plan to launch this website
in the fall of 1999, and we intend for collectibles.com to offer the most
diverse selection of collectible products on the Internet, using advanced
multimedia content, including streaming video and audio. Given that a
significant portion of our revenues is derived from the sale of collectible
merchandise, we see this as an opportunity to generate additional sales to our
existing customers and to promote our products to a completely new audience who
cannot currently view our programming on television. This investment represents
a natural extension from the sale of merchandise through means of traditional
television, and we anticipate that the Internet and our websites will play an
increasing role in our future growth. We plan to continue to cross-promote our
websites and our television programming to fully take advantage of the
capabilities of electronic commerce and our digital programming.
iXL. In April 1999, we entered into an agreement with iXL, under which iXL
has agreed to develop our collectibles.com website. Under this agreement, we
will pay iXL up to $3.0 million to construct and customize our website, to
create interactive interfaces, to develop software to manage and facilitate
customer transactions over the website and to provide website marketing advice.
Internet Promotional Arrangements
Yahoo!. On April 28, 1999, we entered into an agreement with Yahoo!.
According to Media Metrix, yahoo.com is the most visited website, with
approximately 30.9 million unique visitors in April 1999. Under the agreement,
Shop At Home and Yahoo! will cross-promote each other's products and services.
The agreement, which does not require the payment of any funds from us to
Yahoo!, provides for:
o placement of online banner advertising featuring us and our websites on
Yahoo!'s websites;
o inclusion of our current website and our planned website on Yahoo!'s
"Listings Page;"
o links to our websites from Yahoo! web pages;
o placement of our logo on the Yahoo! Auction web pages;
o Yahoo!-organized auctions which feature our collectible products on
Yahoo! Auction;
o products to be supplied by us to Yahoo! for sale on Yahoo!'s Listing Page
and the advertisement of these listings on our television programming;
o co-sponsorship of celebrity and show host chats on Yahoo! Feature Chats;
o broadcast by us of a regularly scheduled hour (the "Totally Yahoo! Hour")
during which we promote and sell Yahoo!-related products; and
o the placement of the Yahoo! logo on certain of our printed materials, the
display of its logo during some of our television programming and our
broadcast of commercial spots for Yahoo!.
Go. On June 9, 1999, we entered into an agreement with Infoseek
Corporation, the owner of the website go.com, a leading internet portal. Go
Network has advised us that it has over 50 million page views per day and over
11 million registered users. Under the agreement, Shop At Home will receive Gold
Merchant status under the Go Shop collectibles and jewelry departments. Shop At
Home will be one of only three Gold Merchants within each of these departments.
Benefits of Gold Merchant status include preferred placement within Go Shop
collectibles and jewelry departments, preferred ranking in product searches, and
banner placements on the Go Shop home page. Under the agreement, we will pay
Infoseek a fixed fee on a monthly basis as well as an amount equal to a
percentage of our revenue attributable to sales
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made through the go.com website. The term of the agreement begins on the earlier
of September 30, 1999 or the launch of collectibles.com and is for a term of one
year, but either party may terminate the transaction after 180 days upon giving
45 days notice.
Integrated Computer System.
Oracle. In early 1999, we entered into a series of agreements with Oracle
to acquire and install a new integrated computer system. This integrated
computer system includes new hardware and software and involves virtually all
aspects of our business. With this integrated Oracle "enterprise solution"
computer system, we will be able to make more efficient use of our call center
operations, our e-mail capabilities and other methods of contact with our
customers. These agreements also provide for the installation of the computer
hardware which will be necessary to support our collectibles.com website. The
estimated cost of the equipment, software and installation is $10.0 million.
Television Station Acquisitions
Acquisition of WBPT(TV), Bridgeport, Connecticut. We purchased WBPT(TV), a
UHF broadcast television station located in Bridgeport, Connecticut on June 3,
1999. The signal from this station reaches into the New York City metropolitan
area, the largest television market in the United States. The purchase price for
the station was $21.0 million; however, we placed approximately $4.8 million of
the purchase price in escrow pending the determination of the number of cable
households which receive the station 180 days after the closing and, in some
events, 360 days after the closing. Under the terms of the acquisition agreement
for the station, the sellers, Paxson Communications of New York-43, Inc. and
Paxson New York License, Inc., are obligated to demonstrate that the station is
received by 900,000 cable homes as of the closing date or on certain dates
thereafter in order to receive the full purchase price. The sellers have filed a
petition with the FCC asking it to amend its rules to provide that WBPT be
considered a part of the Hartford, Connecticut market, in addition to the New
York DMA. The petition has been partially granted by the FCC, but is not yet
final and may be appealed. If the FCC decision is ultimately implemented, we
believe the station will reach over 900,000 households. On June 3, 1999 the
station reached approximately 689,000 cable households. We have changed the call
sign of the station to WSAH. Under an agreement with the sellers, our
programming has been broadcast on WBPT on substantially a full-time basis since
April 3, 1999.
Letter of Intent to Acquire WNTO(TV), Daytona Beach, Florida. On May 24,
1999 we entered into a non-binding letter of intent with the owner of WNTO(TV),
Daytona Beach, Florida to purchase the station for approximately $22.5 million.
This station is located in the Orlando, Florida market, the nation's 22nd
largest market. Under the letter of intent, we have 30 days to complete a due
diligence review of the station, which is currently being performed. There can
be no assurance that we will enter into a definitive agreement.
DISTRIBUTION OF PROGRAMMING
We distribute our programming to viewers by or through:
o our owned and operated television stations;
o television stations with which we have entered into agreements to
purchase broadcast time;
o the carriage of those television broadcasts by cable television systems
under the "must carry" or retransmission consent provisions of federal
law;
o direct carriage on cable television systems under agreements with cable
system operators;
o the direct reception of our satellite transmission by individuals who own
satellite dishes and direct broadcast satellites; and
o our current website.
As of May 24, 1999, our programming is viewable on television during all or
part of each day by approximately 52.0 million individual cable households
throughout North America, including DBS households. Of these households,
approximately 8.9 million households received the programming on essentially a
full-time basis (20 or more hours per day). We estimate (based on a proprietary
formula) that the 52.0 million cable households that receive our programming for
all or part of a day are the equivalent of approximately 18.1 million cable
households receiving our programming on a full-time basis. Our full-time
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programming consists primarily of viewers in the San Francisco, Boston, Houston,
Cleveland, Raleigh, Bridgeport and Nashville markets. These numbers do not
include the number of persons receiving our programming over satellite downlink
equipment or from over-the-air transmission of our signal.
The following table sets forth certain information with respect to our
programming distribution to television cable households at May 24, 1999:
Number of Hours of Programming Available to Households per Day
<TABLE>
<CAPTION>
0 TO 3 3+ TO 6 6+ TO 9 9+ TO 12 OVER 12 TOTAL
------ ------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Number of Households (in millions)................ 5.4 25.4 5.5 4.2 11.5 52.0
</TABLE>
Programming Origination. We originate our programming from our studios and
technical facilities in Nashville, Tennessee. We transmit our programming to
transponders leased or subleased by us on satellites. The satellites retransmit
our signal to (a) broadcast television stations located throughout the United
States, (b) cable television systems and (c) satellite dish receivers.
Our principal satellite transponder is leased on a protected and
non-preemptible basis, which means that the provider of the service has agreed
to furnish us alternative service on another transponder or on another satellite
should our transponder fail for any reason. Under a Services Agreement with B &
P The SpaceConnection, expiring in 2006, either party may terminate the
agreement upon the occurrence of specified defaults.
We also originate programming on our website. Our website,
shopathomeonline.com, is fully interactive and a visitor to this website can
order a product directly from the website. We are now developing a new website,
collectibles.com. We intend for collectibles.com to offer the most diverse
selection of collectible products on the Internet, using advanced multimedia
content, including streaming video and audio. We have engaged the services of
Oracle and iXL to develop a scalable platform that will allow us to use our
experience with selling specialty consumer products, especially collectibles, in
real-time programming. We intend to develop a community for collectors, in which
they can participate in live chat room discussions, observe product
demonstrations and conduct research.
Visitors to collectibles.com will experience a personalized shopping
experience. We plan to ask visitors to register, so that we can implement
certain profiling techniques, including collaborative filtering. This will
permit visitors to receive information customized for their personal preferences
every time they log on to our website. This technology also will be beneficial
in identifying opportunities for out-bound marketing and cross-selling within
our customer base.
collectibles.com will feature a locator service or search feature which
will allow visitors to search for collectible products. Each visitor will be
able to fill out a form with a description of the item needed. The information
will then be posted to an extranet to which our vendors will have access.
Vendors who can fill the request will inform us and the customer will be
notified by us for the purchase.
Visitors to our website will be offered a place to gather information about
collectible products through price guides and editorial content, as well as
discussions with other collectors. We plan to differentiate collectibles.com
from competing websites by offering unique features, including a bonus point
system that will reward visitors for purchasing products and participating in
events on the website. These points will be redeemable for discounts on
merchandise and participation in events, such as celebrity chats or bidding on
exclusive collectibles. The points system is expected to increase repeat traffic
and to develop a more loyal customer base. We plan to offer gift certificates in
any denomination which can be sent to the recipient by e-mail or regular mail.
collectibles.com will use e-mail to provide exceptional customer service.
Customers will be alerted when their packages have been shipped and will be
notified via email about upcoming events, featured products, and promotional
materials. The e-mail system will also allow customers to create a wish list
that they can send to their friends and families. The e-mail will contain an
embedded link that allows the friend or family member to enter the website at
the point of product interest and purchase those items without searching. Once a
purchase has been made, the purchased item will be removed from the list to
prevent repeat purchases by multiple users. A visitor who sees an item that may
be of interest to a friend or family member can send an e-mail message
automatically. This e-mail will also contain a link back to the collectible
product on the website.
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Owned and Operated Stations. The following table sets forth certain
information regarding each of the broadcast stations owned by us:
<TABLE>
<CAPTION>
ACTUAL CABLE HOUSEHOLDS
DMA HOUSEHOLDS(1) REACHED(2)
-------------------- -------------------------
LICENSE (IN THOUSANDS) (IN THOUSANDS)
DATE EXPIRATION RANK OF BROADCAST WHEN
CALL SIGN ACQUIRED DMA MARKET DATE DMA TELEVISION CABLE ACQUIRED JUNE 1, 1999
- ---------------- -------- -------------- ---------- ------- ---------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WSAH............ 6/99 New York(3) 4/07 1 6,813(3) 4,907(3) 680 N/A
KCNS............ 3/98 San Francisco 12/06 5 2,369 1,690 1,229 1,265
WMFP............ 2/95 Boston 4/07 6 2,186 1,727 750 1,573
KZJL............ 12/94(4) Houston 8/06 11 1,666 850 3 725
WOAC............ 3/98 Cleveland 10/05 13 1,476 1,038 205 690
WRAY............ 3/98 Raleigh 12/04 29 834 520 331 370
</TABLE>
- ------------------
(1) Total number of broadcast television households in the DMA in January 1999
according to Nielsen Media Research and total number of cable households in
the DMA in September 1998 according to Nielsen Media Research.
(2) The increase is due to our enforcement of the must carry rights of these
stations and, in some instances, is due to the installation of new broadcast
equipment.
(3) While WSAH, Bridgeport, Connecticut, is inside the New York DMA, the station
only covers a portion of the market. See "Business--Recent
Developments--Television Station Acquisitions."
(4) We acquired a 49% interest in KZJL in December 1994 and the remaining 51% in
September 1996. The station went on the air in June 1995 and has always
broadcast our programming. The "When Acquired" cable household number
reflects the fact that we had only a nominal amount of cable carriage when
the station went on the air.
Affiliations. In 1993, we began an aggressive effort to increase the
distribution of our programming. Since that time, we have been successful in
significantly building a "network" for distribution of our programming and in
building relationships with television stations owned by third parties and
certain owners of multiple cable systems. Our programming is now viewed in more
than 135 television markets, including all of the country's top ten DMAs.
Our affiliation agreements typically have a term of one year and can be
canceled upon 30 days notice by either party. Our experience has been that most
of the affiliation agreements are renewed beyond their original terms. The time
purchased under these agreements is usually preemptible, and we generally pay a
fixed rate for the hours our programming is actually carried. In the event that
we are not operating profitably in a market under a carriage agreement, we will
generally renegotiate the carriage rate or not renew the agreement.
PRODUCTS AND CUSTOMERS
Products and Merchandise. We offer a variety of specialty consumer
products. Our products include sports collectibles and sports related products,
movie memorabilia and other signed and autographed merchandise, electronic
equipment, coins and currency, cutlery and knives, jewelry, gemstones, health
and beauty products, personal care items and clothing. A majority of these items
can be classified as collectible products.
We buy from numerous vendors and believe we have excellent relationships
with most of our vendors. Certain products sold by us are available through
multiple suppliers. We also acquire unique products from a select group of
vendors and believe we will be able to continue to identify sources of specialty
products. We believe offering unique products helps differentiate us from our
competitors. Because of the nature of the collectibles market, we attempt to
sign agreements with vendors in which we are the exclusive distributor of the
vendor's products. We continually monitor product sales and revise our product
offerings in an effort to maintain an attractive and profitable product mix. We
also are continuously evaluating new products and vendors to broaden our
merchandise selection.
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The following table sets forth certain information about the types of
products sold by us during the nine months ended March 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE
OF NET
TYPE OF PRODUCT REVENUES
- ---------------------------------------------------------------------- ------------
<S> <C>
Sports Products....................................................... 31.7%
Plush Toys............................................................ 20.7
Electronics........................................................... 14.8
Coins and Currency.................................................... 11.2
Jewelry and Gemstones................................................. 9.9
Cutlery and Knives.................................................... 7.0
Health and Beauty Products............................................ 2.3
Other Items........................................................... 2.4
------
Total................................................................. 100.0%
------
------
</TABLE>
Programming and Presentation of Merchandise. We segment most of our
programming into product or theme categories. We have the studio and
broadcasting capability to produce multiple live shows simultaneously, and we
occasionally provide multiple broadcasts to differing viewer groups during peak
viewing times. In the past, we have provided one full-time live broadcast on our
main satellite transponder and part-time live, taped or simulcast broadcasts on
two satellite transponders leased from ESPN. The new Nashville facilities allow
us to broadcast an analog and digital signal to our main satellite transponder
in the same transmission signal. We are able to provide specific products to
specific television markets by utilizing our multiple broadcast capabilities to
take advantage of sales trends. We plan to archive our digital programming and
replay the programming on our websites so that visitors to our websites can
download any portion of our video or audio programming they desire.
We can use our digital programming to enhance the presentation of our
merchandise on our websites. We believe having our programming available on our
website will create one of the most advanced multimedia environments of any
retailer on the Internet. The availability of our programming on our websites
will provide visitors with a more comprehensive feel for the products than
visitors might receive from a simple picture and written description.
Our programs use a show host approach with the host conveying information
about the products and demonstrating their use. The viewer may purchase any
product we offer, subject to availability. We seek to differentiate ourselves
from other televised shopping programmers by using an informal, personal style
of presentation and by offering unique, high-end products with a heavy emphasis
on sports and sports related products. Our sale of coins, collectible
sports-related items and other limited availability products provides our
viewers with alternatives to the products offered on other televised shopping
programming. We believe that continued use of such niche programming is
important to our future growth, especially the growth of our Internet sites and
sales generated by them.
Repeat Customers. We place an emphasis on the development of customers who
make multiple purchases from us. We have developed the "Elite Customer Program"
for persons who have purchased more than $10,000 of merchandise during the
lifetime of the customer. Elite Customers are entitled to receive certain
benefits, including special coupons and offers and priority access to certain
"Elite Operators" in our call center for placing orders and customer service. We
currently have approximately 1,000 members of the Elite Customer Program.
Since July 1, 1997, approximately 800,000 persons have made purchases from
us. Of this number, we estimate that approximately 28.2% have made purchases on
more than one occasion.
Returns of Products and Merchandise. We generally offer our customers a
full refund on merchandise returned within 30 days of the date of purchase. For
the nine months ended March 31, 1999, returns were 19.3% of total revenue,
compared to 21.3% for the nine months ended March 31, 1998. During fiscal 1998,
returns were 22.0% of total revenues, compared to 22.2% for fiscal 1997 and
20.1% for fiscal 1996. We believe our return percentage compares favorably with
those of our broadcast-based competitors in the industry. We are developing a
process for the return of products directly to our vendors. We have
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experienced lower return rates of approximately 17.4% for products purchased
over the Internet. As sales from our websites increase as a percentage of our
total sales, we believe our return rate will further decrease.
Shipping. We ship customer orders as promptly as possible after taking the
order, primarily by UPS, Federal Express, or parcel post. We ship either from
our warehouse facility or through selected vendors with which we have drop-ship
agreements. We maintain our own customer service department to address customer
inquiries about ship dates, product, and billing information. When operational,
we believe our new integrated computer system will be able to track a customer's
order from the time the order is placed until the time the order is delivered to
the customer's door.
Customer Relations. Customers can place orders with us 24 hours a day,
seven days a week, over the Internet or via our toll-free number
(800) 366-4010. We use customer sales representatives and an automated
touch-tone ordering system to accept customer orders. A majority of our
customers pay for their purchases by credit card, and we also accept payment by
money order, personal check, certified check, debit card and wire transfer. We
recently developed and implemented an in-house training program designed to
improve the productivity, proficiency and product knowledge of our call center
operators. By the end of the year, we believe we will be able to inform our
customers by e-mail and by telephone of the status of the delivery of the
products they have ordered.
Mechanical, electronic and other items may be covered by manufacturer
warranties. We sell extended warranties on some products. We strive to
continuously improve our customer service and utilize outside agencies to
conduct objective comparisons with our competitors. We periodically survey and
research our customers to solicit ideas for better products, programming, and
service.
Collector's Edge. In March 1997, Collector's Edge was organized as one of
our wholly-owned subsidiaries. Collector's Edge sells sports trading cards,
primarily football cards. Its principal assets are licenses from National
Football League Properties, Inc. and the National Football League Players,
Incorporated. Collector's Edge specializes in the production of these cards
using plastic rather than normal paper stock. Collector's Edge acquired the
assets of a business that previously held the NFL licensing agreements and
produced the sports trading cards for a period of four years. For fiscal 1998,
Collector's Edge had net revenues of approximately $5.3 million, excluding
$0.6 million in over-the-air sales of Collector's Edge product by us. For the
nine months ended March 31, 1999, Collector's Edge had net revenues of
approximately $6.1 million.
The licensing agreement with NFL Properties gives Collector's Edge the
right to use the logos and trademarks of NFL teams on its trading cards. The
licensing agreement with NFL Properties expired on March 31, 1999. Currently,
Collector's Edge is operating under an informal agreement with NFL Properties on
the same terms and conditions and expects a formal agreement to be executed in
the near future. The licensing agreement with NFL Players gives Collector's Edge
the right to use the likenesses of NFL players on its trading cards. This
three-year license expires on February 28, 2000. We expect these licenses to be
renewed in the ordinary course of business.
Collector's Edge produces football cards generally during the professional
football season (September to February), but it sells the cards on a year-round
basis. Collector's Edge previously permitted purchasers to return unsold trading
cards for full credit upon notice from Collector's Edge that it would accept the
return. Collector's Edge recently changed its return policy and now limits the
amount of product eligible for return.
COMPETITION
Competition in Television Commerce. The television commerce industry is
highly competitive and is dominated by The Home Shopping Network and the QVC
Network. Our programming competes directly with The Home Shopping Network, QVC,
ValueVision and other home shopping networks in almost all of our markets. The
Home Shopping Network and QVC are well-established and have substantially
greater financial, distribution and marketing resources than we do. They also
reach a larger percentage of U.S. television households. We are at a competitive
disadvantage in attracting viewers for a number of reasons, including the fact
that our programming is often not carried by cable systems on a full-time basis
and that we may have less desirable television channel positions on cable
systems. We also compete generally with traditional store and catalogue
retailers, many of whom also have substantially greater financial, distribution
and marketing resources than we do. These competitors also may enter into
business combinations, joint ventures and
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strategic alliances with each other, as well as with Internet retailers or
websites which could further enhance their resources.
Competition in Internet Retailing. Internet commerce is also highly
competitive. Many major retailers and marketers now sell their products on the
Internet. Barriers to entry are very low, and new websites can be launched with
commercially available software and relatively low capital investment. Further,
many Internet retailers sell their products below cost in order to attract more
visitors to their websites which they in turn use to receive more favorable
terms on the sale of advertising space on their websites. This business-to-
consumer Internet retail industry is in its infancy and the effect these
competitors may have on our business is difficult to predict.
EMPLOYEES
As of June 1, 1999, we employed approximately 466 persons of which
approximately 348 were full-time employees. We believe our relationship with our
employees is good. Presently no collective bargaining agreements exist between
us and our employees.
TECHNOLOGY
Integrated "Enterprise Solution" Computer System. We are in the process of
installing a computer platform designed by Oracle that will enhance each of our
existing computer systems. This new integrated system will interface with our
telephone center operations, our websites, e-mail and any vendors with which we
have electronic data exchange capabilities. We believe that integrating our
computer systems will permit us to reduce certain costs that support sales. The
integrated system will permit us to improve our communications with and provide
more information to our customers, to our telephone operators and to management.
This system should be operational by the end of 1999.
Our system is being built using two fully redundant Sun Microsystems E5500
database servers running an EMC Symmetrical model 3830 disk subsystem. The disk
system is configured with 400 gigabytes of usable disk space that is mirrored
twice. Total disk space is one terabyte expandable to three terabytes.
Production. We completed the construction of our new Nashville television
studios and technical facilities and moved our headquarters to Nashville in
September 1998. Compared to our previous facilities in Knoxville, Tennessee,
these studios include improved lighting, sets and camera equipment which provide
a better picture to the network of distributors of our programming. The video
systems include digital processing and distribution throughout the facilities,
digital video recorders (tape and disc) and state-of-the-art monitors. We have
also implemented new operational procedures to raise the production values of
our programming. These include better planning and review of the programs,
storing video and graphic elements for later recall, and providing a quality
control point that is staffed 24 hours a day.
Distribution. In order to distribute our programming, our new facilities
have two new satellite uplink transmission systems. These systems provide
powerful, clear programming to our affiliates. These are configured in a way
that provides maximum redundancy for the primary network channel (any of four
transmitters feeding either of two satellite dishes) while permitting secondary
program feeds for other uses. We also are able to distribute our programming
over our Internet website.
Call Center. In January 1997, we completed the installation of an Aspect
Telecommunications Corporation call center telephone system, which increased our
ability to handle higher sales volumes. The system integrates our database with
universal caller ID capability and reduces the time necessary to process calls.
The system can manage over 200 operators and is scalable so that we can handle
an increase in call volume. This telephone system has features that permit
frequent callers and our Elite Customers receive priority so that they do not
wait to speak with one of our operators. When an Elite Customer calls to place
an order, our customer service representatives are notified of the fact and can
make appropriate introductions and explain current sales incentives being
offered to Elite Customers. Once our integrated computer system is operational,
the telephone system will interact with our customer database so that an
operator can view the purchasing history of the caller while speaking with the
customer and will receive a pop-up screen for order entry and customer service.
The integrated computer system will be able to search our customer database for
the purchasing habits of our customers and provide the operator with information
on other products that we sell which may be of interest to the caller.
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Payment and Shipping. Our operations, including customer ordering,
inventory control, credit card processing and check verification are fully
automated, with real-time authorizations at the point of order. Many of our
vendors are connected online through an electronic data interchange program,
which embraces our strategy of having products drop-shipped by vendors where
economically feasible.
Internet Architecture. Our system has been designed around industry
standard architectures to provide for a reliable, scalable electronic commerce
platform. The system is fully hosted at our facilities in Nashville. We will use
commercially available, licensed technologies and software. We have two Sun
Microsystems 450 Internet servers. Our facilities provide redundant T-3
communications lines delivered to the facilities on a Sonnet ring. Our websites
will be able to handle one million transactions per day and 3,000 visitors
simultaneously. Our websites will be fully integrated into our current customer
relationship management system. We currently provide on shopathomeonline.com a
constantly refreshing picture of the current item being offered on our
television programming, along with streaming audio of the programming so that a
visitor can listen to our television programming in real time through the
website. Our websites will be designed to include streaming video of our
programming. We have engaged iXL to assist in the development of our websites.
GOVERNMENTAL REGULATION
The following descriptions do not purport to be comprehensive and reference
should be made to the federal law, the FCC's rules and the public notices and
rulings of the FCC for further information concerning the nature and extent of
federal regulation of broadcast stations.
Introduction. Our television operations are subject to significant
regulation by the FCC. Federal law permits the operation of television broadcast
stations only in accordance with a license issued by the FCC upon a finding that
the grant of such license would serve the public "interest, convenience and
necessity."
The law empowers the FCC, among other things to: determine the frequencies,
location and power of broadcast stations; issue, modify, renew and revoke
station licenses; approve the assignment or transfer of control of broadcast
licenses; regulate the equipment used by stations; impose penalties for
violations of the federal law or FCC regulations; and, to some extent, regulate
a licensee's programming content, including for example, the broadcast of
obscene or indecent material. The FCC has children's programming regulations for
television broadcasters that require the broadcast of at least three hours per
week of programming designed to meet the educational and informational needs of
children age 16 and younger. Failure to observe these or other rules and
policies can result in the imposition of various sanctions, including monetary
forfeitures or, for particularly egregious violations, the revocation of a
license. Our business will be dependent upon our continuing ability to hold
television broadcasting licenses from the FCC.
License Grant and Renewal. FCC licenses generally are granted or renewed
for terms of eight years, although licenses may be renewed for a shorter period.
We must apply for renewal of each broadcast license. At the time an application
is made for renewal of a license, parties in interest may file petitions to deny
such application, and such parties, as well as members of the public, may
comment upon the service the station has provided during the preceding license
term and urge denial of the application. While broadcast licenses typically are
renewed by the FCC even when petitions to deny are filed, there can be no
assurance that the licenses for our stations will be renewed at their expiration
dates or, if renewed, that the renewal terms will be for the maximum eight-year
period. The non-renewal or revocation of one or more of our primary FCC licenses
could have a material adverse effect on our operations.
Multiple Ownership Restrictions. The FCC has promulgated rules that limit
the ability of individuals and entities to own or to have an ownership interest
above a certain level (known as an "attributable" interest) in broadcast
television stations and certain other media entities. These rules include limits
on the number of radio and television stations in which an entity may have an
"attributable" interest both on a local and, in the case of television only, on
a national basis. In the case of corporations holding broadcast licenses, all
officers and directors of a licensee, and stockholders who, directly or
indirectly, have the right to vote 5% or more of the outstanding voting stock of
a licensee, generally are deemed to have an "attributable" interest.
On a local basis, FCC rules generally prohibit an entity from holding an
attributable interest in more than one television station with overlapping
service areas. Additionally, the FCC's cross-ownership rules limit
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combined local ownership of: (1) a radio station and a television station;
(2) a daily newspaper and a broadcast station; and (3) a cable television system
and a television station. A rulemaking proceeding currently pending before the
FCC proposes to liberalize the local ownership limits on television ownership
and to relax the rules prohibiting cross-ownership of radio and television
stations in the same market. There can be no assurance that these rules will be
changed.
On a national basis, the FCC generally prohibits an entity from holding an
attributable interest in television stations collectively reaching more than 35%
of all U.S. television households, subject to a 50% discount for UHF television
stations (thus permitting UHF group owners to reach up to 70% of the national
audience). Expansion of our broadcast operations will continue to be subject to
the FCC's ownership rules and any changes the agency may adopt.
Alien Ownership Restrictions. Federal law restricts the ability of foreign
entities to own or to hold interests in broadcast licensees. Foreign
governments, representatives of foreign governments, non-citizens,
representatives of non-citizens and corporations or partnerships organized under
the laws of a foreign nation are barred from holding broadcast licenses.
Non-citizens, collectively, may directly or indirectly own up to 20% of the
capital stock of a licensee. In addition, a broadcast license may not be granted
to or held by any corporation that is controlled, directly or indirectly, by any
other corporation of which more than one-fourth of its capital stock is owned or
voted by non-citizens or their representatives, by foreign governments of their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license.
Restrictions on alien ownership also apply, in modified form, to other types of
business organizations, including partnerships.
Digital Television. The FCC has adopted rules for implementing digital
(including high-definition) television service or DTV. The FCC has allotted to
existing television stations a second channel on which to provide DTV service.
Television stations will be allowed to use these channels according to their
best business judgment. These uses can include multiple standard definition
program channels, data transfer, subscription video, interactive materials, and
audio signals, although stations will be required to provide a free digital
video programming service that is at least comparable to today's analog service.
Broadcasters will not be required to air "high definition" programming or,
initially, to simulcast their analog programming on the digital channel. All
commercial broadcasters must be on the air with a digital signal by May 1, 2002.
Additionally, the FCC is considering imposing new public interest requirements
on television licensees in exchange for their receipt of DTV channels.
Implementation of DTV is expected to improve the technical quality of
television. Under certain circumstances, however, conversion to DTV operations
may reduce a station's geographical coverage area or provide a competitive
advantage to competing stations in the market. In connection with the conversion
to DTV, we will incur expenses which cannot be quantified at this date, but
which may be substantial. We cannot predict the extent or timing of consumer
demand for DTV services. Under the FCC's current rules and subject to a number
of exceptions, all stations will be required in 2006 to surrender one of their
two channels.
The FCC currently is considering whether or not cable television system
operators should be required to carry local stations' DTV signals in addition to
the currently required carriage of the stations' analog signals. In July 1998,
the FCC issued a Notice of Proposed Rulemaking posing a number of different
options for carriage of digital signals and solicited comments from all
interested parties. The FCC has yet to make a decision on this matter. The FCC
could adopt rules that do not require cable systems to carry DTV signals. Such a
decision could have a material adverse effect on us by depriving us of the
advantages of local television station ownership, especially if DTV receives
wide acceptance.
Closed Captioning. The FCC has adopted rules requiring closed captioning
of all broadcast television programming. The rules require generally that
(a) 95% of all new programming first published or exhibited on or after
January 1, 1998 must be closed captioned within eight years, and (b) 75% of
"old" programming which first aired prior to January 1, 1998 must be closed
captioned within 10 years, subject to certain exemptions. These rules will be
applicable to us and the expense associated with compliance is unknown at this
time.
Equal Employment Opportunities Matters. In April 1998, the U.S. Court of
Appeals for the D.C. Circuit struck down the FCC's equal employment opportunity
regulations as unconstitutional. Recently, the FCC commenced a proceeding in
which it proposed new rules that it suggests would not share the
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constitutional flaws of the former rules. It has invited public comment on its
proposals. We cannot predict whether new rules will be adopted, the form of any
such rules, or the impact of the rules on our operations.
Other Proposed Legislation and Regulation. Congress and the FCC currently
have under consideration, and may in the future adopt, new laws, regulations and
policies regarding a wide variety of matters which could, directly or
indirectly, affect the operation and ownership of our broadcast properties. In
addition to the proposed changes noted above, such matters include, for example:
spectrum use fees; political advertising rates; free political time; potential
restrictions on the advertising of certain products such as alcoholic beverages;
the rules and policies to be applied in enforcing the FCC's equal opportunity
regulations; the standards to govern the evaluation of television programming
directed toward children; and violent and indecent programming. We are unable to
predict the outcome of future federal legislation or the impact of any such laws
or regulations on our operations.
Implementation of the 1992 Cable Act. The Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") included certain
statutory provisions, such as signal carriage, retransmission consent and equal
employment opportunity requirements that directly and indirectly affect
television broadcasting. The 1992 Cable Act includes signal carriage or "must
carry" provisions that require cable operators to carry the signals of local
commercial television stations. A cable system is generally required to devote
up to one-third of its activated channel capacity for the mandatory carriage of
local commercial television stations. The 1992 Cable Act also includes a
retransmission consent provision that prohibits cable operators and other
multi-channel video programming distributors from carrying the signal of
commercial broadcast stations without obtaining their consent in certain
circumstances. The "must carry" and retransmission consent provisions are
related in that a television broadcaster, on a cable system-by-system basis,
must elect once every three years, at fixed times, to either require a cable
system to carry the station subject to certain exceptions, or to waive that
right to mandatory, but uncompensated, carriage and instead negotiate a grant of
retransmission consent to permit the cable system to carry the station's signal,
in most cases in exchange for some form of consideration from the cable
operator.
For purposes of the "must carry" provisions, a broadcast station's market
is determined by the FCC using commercial publications which delineate
television markets based on viewing patterns. The FCC may, however, consider on
a case-by-case basis and acting on specific written requests, changes in the
station's market areas, including the exclusion of communities from a television
station's market. In considering requests for a change in a station's market
area, the FCC takes into account a number of factors including whether or not
the station in question provides coverage to the community and evidence of the
viewing patterns in cable and non-cable households in that community. In recent
months, the FCC has ruled on several such requests, including matters concerning
our stations, and, in some of these cases, has excluded particular communities
from the cable market.
Non-FCC Regulation. Television broadcast stations also may be subject to a
number of other federal, state and local regulations, including those of the
Federal Aviation Administration affecting tower height and marking; federal,
state and local environmental and land use restrictions; general business
regulation; and a variety of local regulatory concerns.
LITIGATION
In May 1997, Signature Financial/Marketing, Inc. ("Signature") filed a
complaint for declaratory judgment in the U.S. District Court for the Northern
District of Illinois seeking a declaratory judgment of non-violation of the
Lanham Act (the federal law governing trademarks) with respect to Signature's
use of the designation "SHOP AT HOME" in connection with the promotion and sale
of goods. The case was precipitated by letters from us to Signature asserting
that the use of the "SHOP AT HOME" mark by Signature in connection with
catalogue sales and sales on the Internet infringed on our right to that
designation and created confusion in the marketplace. In response to the filing
of the declaratory judgment action, we have filed an answer and counterclaim
alleging that the use of the name "SHOP AT HOME" by Signature infringes on our
trademark and requesting compensatory and injunctive relief. Signature has filed
an amendment to its original complaint alleging that the use of the name by us
infringes on the trademark of Signature and requesting compensatory and
injunctive relief. We believe that the likelihood of Signature preventing us
from using the designation of "SHOP AT HOME" for our television programming or
of
39
<PAGE>
Signature recovering damages for such use, is remote. The parties have held
mediation proceedings in an effort to settle this matter, and such settlement
efforts are ongoing.
On May 20, 1999 McDonald's Corporation filed a lawsuit against us and one
of our vendors in the Federal District Court in Nashville, Tennessee. McDonald's
alleges violations of the federal Lanham Act and state law, and seeks injuctive
relief, monetary damages and punitive damages arising from our sale of toys
referred to as McDonald's Teenie Beanie Babies. On May 28, 1999, the Court held
a hearing on McDonald's request that Shop At Home be enjoined from shipping toys
we had previously sold. The Court denied McDonald's request, finding that
McDonald's had failed to demonstrate a substantial likelihood of succeeding on
the merits. While McDonald's was unsuccessful in obtaining relief at this
hearing, it may elect to continue to pursue its lawsuit.
We are subject to routine litigation arising out of the normal and ordinary
operation of our business. We believe that any litigation, other than the
litigation concerning our name, is covered by our insurance or will not have a
material adverse effect on our business.
FACILITIES
Our technical facilities, studios and executive offices are located in a
74,000 square foot building we own in Nashville, Tennessee. Each of our owned
television stations has studio, office and transmitter facilities, all of which
are leased. Collector's Edge leases a facility in Denver, Colorado, which it
uses for offices, production and warehousing.
40
<PAGE>
MANAGEMENT
The following table provides the age and position of each of our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
J.D. Clinton......................................... 54 Chairman of the Board
Kent E. Lillie....................................... 52 President and Chief Executive Officer, Director
Tim M. Engle III..................................... 37 Executive Vice President and Chief Operating Officer
Arthur D. Tek........................................ 49 Executive Vice President and Chief Financial Officer
Everit A. Herter..................................... 57 Executive Vice President of Affiliate Relations
George J. Phillips................................... 37 Executive Vice President, General Counsel and
Secretary
Donna Hilley......................................... 54 Director
A.E. Jolley.......................................... 60 Director
Joseph I. Overholt................................... 52 Director
J. Daniel Sullivan................................... 47 Director
Frank A. Woods....................................... 58 Director
</TABLE>
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 of 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, a
mortgage lending business.
Kent E. Lillie, President and Chief Executive Officer and Director.
Mr. Lillie joined us as President and Chief Executive Officer in September 1993
and has been a Director since that date. Prior to joining us, 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.
Tim M. Engle III, Executive Vice President and Chief Operating Officer.
Mr. Engle has served as Executive Vice President and Chief Operating Officer
since February 1998. From 1995 to 1998, Mr. Engle was Chief Operating Officer of
HLC, Inc., a developer and provider of banking products to corporate clients.
Prior to joining HLC, Inc., Mr. Engle served as Chief Financial Officer for
IBM's Tennessee marketing and sales operation from 1984 to 1995.
Arthur D. Tek, Executive Vice President and Chief Financial Officer.
Mr. Tek joined us in March 1999. Mr. Tek served as Chief Financial Officer of
Paxson Communications Corporation from 1992 until he joined us. Mr. Tek began as
an auditor with Arthur Young & Company in 1975. He spent eight years with CBS,
including four at KMOX(TV) in St. Louis as a Business Manager. He previously
held the position of Chief Financial Officer with SunGroup (a radio station
business) and with Chase Communications (the second largest owner of Fox Network
affiliates during his tenure). Mr. Tek is a member of the board of the Broadcast
Cable Financial Management Association.
Everit A. Herter, Executive Vice President of Affiliate Relations.
Mr. Herter has served as Vice President for Affiliate Relations since July 1997.
Since 1994, he has served us as Director of Affiliate Relations and as a
consultant. Prior to joining us, Mr. Herter was a Senior Vice President and
International Account Director with J. Walter Thompson Co., an international
advertising agency.
George J. Phillips, Executive Vice President, General Counsel and
Secretary. Mr. Phillips joined us in November 1997. Prior to his employment with
us, Mr. 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.
41
<PAGE>
Donna Hilley, Director. Ms. Hilley is the President and Chief Executive
Officer of Sony/ATV Music Publishing, a music publishing company based in
Nashville, Tennessee, and an affiliate of Sony Corporation. Ms. Hilley has held
her current position with Sony/ATV since 1994, but was employed by the same
company and its predecessor, Tree International, since 1973 in a number of
positions. Ms. Hilley is a member of the Board of Directors of SunTrust Bank
N.A., Nashville, Tennessee, and also serves on the boards of the American
Society of Composers, Authors & Publishers (ASCAP), the Country Music
Association, the National Music Publishers Association and the Metropolitan
Nashville Sports Authority. She also serves on the Board of Trustees of Belmont
University.
A.E. Jolley, Director. Mr. Jolley has been a Director since 1986.
Mr. Jolley has been President, Lakeway Containers, Inc., Morristown, Tennessee,
a corrugated container manufacturer, since 1975. 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.
Joseph I. Overholt, Director. Mr. Overholt has been a Director since 1986.
Since 1992, Mr. Overholt has been President and owner of Planet Systems, Inc.,
an Internet service provider. Mr. Overholt has been President and owner of
Skylink Communications, a computer communications company, since 1989.
Mr. Overholt was a Vice President with us from 1986 through August 1993.
J. Daniel Sullivan, Director. Mr. Sullivan has been a Director since 1998.
Mr. Sullivan currently is President and Chief Executive Officer of Quorum
Broadcasting, Inc., a television broadcasting business. Mr. Sullivan served as
the President and CEO of Sullivan Broadcasting Company, a television
broadcasting company from 1995 to 1998. Between 1987 and 1995, Mr. Sullivan was
the President of Clear Channel TV, a subsidiary of Clear Channel Communications,
Inc., a broadcasting company.
Frank A. Woods, Director. Mr. Woods has been a Director since 1993. Since
1991, Mr. Woods has been Chairman of the Board and Director of MediaUSA L.L.C.
(and its predecessor company, MediaOne), Nashville, Tennessee, a communications
consulting and strategic planning firm. Mr. Woods is a principal of The Woods
Group, Nashville, Tennessee, a diversified merchant banking firm.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of June 3, 1999 and as adjusted to reflect the
completion of this offering, by:
o each of our directors and executive officers;
o all executive officers and directors as a group; and
o each person who is known by us to own beneficially more than five percent
of the outstanding shares of the common stock (including the selling
stockholders).
Beneficial ownership includes shares of outstanding common stock and shares
of common stock that a person has a right to acquire within 60 days after the
date of this prospectus. Unless indicated in the footnotes to this table, the
persons named in this table have sole power to direct the voting and investment
with respect to all shares of common stock beneficially owned by them. The
address of each of the persons listed below is in care of us at our address.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED
OFFERING AFTER THE OFFERING
-------------------- SHARES --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
J.D. Clinton/SAH Holdings, L.P.(1)........................ 5,328,076 20.03% 625,000 4,703,076 13.59%
Kent E. Lillie(2)......................................... 1,048,000 4.19 200,000 848,000 2.57
Tim M. Engle III(3)....................................... 21,250 * -- 21,250 *
Arthur D. Tek(4).......................................... 50,000 * -- 50,000 *
Everit A. Herter.......................................... 0 -- -- 0 --
George J. Phillips(5) .................................... 19,000 * -- 19,000 *
Donna Hilley(6)........................................... 10,000 * -- 10,000 *
A.E. Jolley(7)............................................ 536,092 2.20 -- 536,092 1.65
Joseph I. Overholt(8)..................................... 440,000 1.80 25,000 50,000 1.28
J. Daniel Sullivan(9)..................................... 161,000 * -- 161,000 *
Frank A. Woods(10)........................................ 25,000 * -- 25,000 *
All directors and executive officers as a group
(11 persons)............................................ 7,638,418 27.91% 850,000 6,778,418 19.16%
</TABLE>
- ------------------
<TABLE>
<CAPTION>
* Less than 1.0%.
<S> <C>
(1) SAH is a Tennessee limited partnership with Gatehouse Equity Management Corporation (formerly Global Network
Television, Inc.), a Tennessee corporation ("GEM"), as its sole general partner. Mr. Clinton is chairman, a
director and the sole stockholder of GEM. SAH currently owns 2,676,850 shares of our common stock and holds
warrants to purchase from us up to 1,650,000 shares of our common stock. Clinton Investments, L.P., a limited
partnership for which GEM is the sole general partner, owns 387,381 shares of our common stock, and holds
warrants to purchase from us an additional 542,500 shares of our common stock. Mr. Clinton holds options to
purchase from us 25,000 shares of our common stock. Mr. Clinton's wife owns, individually, 7,400 shares of our
common stock. Two trusts, the beneficiaries of whom are members of Mr. Clinton's immediate family, own 29,945
shares of our common stock in the aggregate. GEM owns 9,000 shares of our common stock. All of the listed
shares are assumed to be beneficially owned by Mr. Clinton. Of the 625,000 shares being offered, 325,000
shares are offered by SAH Holdings, L.P., and 300,000 by Clinton Investments, L.P.
(2) Mr. Lillie's holdings include options to purchase from us 625,000 shares of our common stock and 9,000 shares
of common stock held in a retirement account which he controls.
(3) Mr. Engle's holdings include options to purchase from us 18,000 shares of our common stock.
(4) Mr. Tek's holdings include options to purchase from us 30,000 shares of our common stock.
</TABLE>
(Footnotes continued on next page)
43
<PAGE>
(Footnotes continued from previous page)
<TABLE>
<S> <C>
(5) Mr. Phillips's holdings include options to purchase from us 3,000 shares of our common stock.
(6) Ms. Hilley's holdings include options to purchase from us 10,000 shares of our common stock.
(7) Mr. Jolley's holdings include options to purchase from us 25,000 shares of our common stock.
(8) Mr. Overholt's holdings include options to purchase from us 25,000 shares of our common stock.
(9) Mr. Sullivan's holdings include options to purchase from us 15,000 shares of our common stock.
(10) Mr. Woods's holdings include options to purchase from us 25,000 shares of our common stock.
</TABLE>
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock is not intended to be
complete. The description only provides a summary of the material terms of our
capital stock.
We are authorized to issue 100,000,000 shares of common stock, par value
$.0025 per share, 30,000,000 shares of non-voting common stock, par value $.0025
per share, and 1,000,000 shares of preferred stock, par value $10.00 per share.
COMMON STOCK
As of March 31, 1999, there were 24,324,937 shares of common stock
outstanding and held of record by approximately 690 stockholders.
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 deems
advisable, subject to limitations found in the corporate laws of the State of
Tennessee, or in our charter and bylaws. Holders of common stock are not
entitled to preemptive, conversion or redemption rights. 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 entitled to receive such
dividends as may be legally declared by our Board of Directors. We have the
right to, and from time to time, may enter and have entered into borrowing
arrangements or issue other debt instruments, the provisions of which may or do
contain restrictions on payment of dividends and other distributions on the
common stock. In the event of our liquidation or dissolution, the holders of the
common stock are entitled to share equally in all assets remaining after payment
of liabilities and any payment of amounts due to holders of any outstanding
preferred stock.
NON-VOTING COMMON STOCK
Shares of non-voting common stock have the same preferences, limitations
and relative rights as our voting common stock, except that the shares of
non-voting common stock have no voting rights, unless granted by law. There are
no shares of non-voting common stock outstanding.
PREFERRED STOCK
Our 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, by adoption of
Articles of Amendment to our Charter. Our Board of Directors, without
stockholder approval, can issue preferred stock with voting and conversion
rights that could adversely affect the voting power of holders of our common
stock.
We are authorized to issue 140,000 shares of Series A Preferred Stock. As
of March 31, 1999, there were 106,123 shares of Series A Preferred Stock, par
value $10.00 per share, outstanding and held by approximately 45 stockholders of
record. The Series A Preferred Stock is entitled to receive dividends,
preferences, qualifications, limitations, restrictions and the distribution of
assets upon liquidation before our common stock.
Holders of Series A Preferred Stock are entitled to receive, but only when
declared by the Board of Directors, cash dividends at the rate of $.10 per share
per annum. Dividends on each share of Series A Preferred Stock accrue and are
cumulative if declared and not paid. 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, we may not (A) declare or pay any
dividends or make other distributions on the common stock other than (1)
dividends payable in shares of common stock or our other stock junior to the
Series A Preferred Stock ("Junior Stock") or (2) options, warrants or rights to
subscribe for or purchase shares of common stock or Junior Stock as to payment
of dividends and distribution upon our liquidation, dissolution and winding up
or (B) purchase, redeem or otherwise acquire (1) any share of common stock or
Junior Stock or (2) any other shares of our capital stock ranking on a parity
with the Series A Preferred Stock, except by conversion into or exchange for
common stock or Junior Stock.
45
<PAGE>
In the event of our liquidation, dissolution or winding, the holders of
shares of Series A Preferred Stock are entitled to receive out of our assets an
amount equal to $10.00 per share, plus accrued and unpaid dividends. This amount
is payable out of our assets. We must pay this amount before we distribute any
of our assets to the holders of common stock or any preferred stock that is
junior to the Series A Preferred Stock. For these purposes, if we sell all or
substantially all of our assets to a third party, or if we consummate any
transaction with any single purchaser who buys more than fifty (50%) of the
issued and outstanding shares of our common stock, then our liquidation,
dissolution and winding up is deemed to have occurred and the holders of the
Series A Preferred Stock are entitled to receive an amount equal to $10.00 per
share, plus accrued but unpaid dividends.
As long as there are shares of the Series A Preferred Stock outstanding, we
may not issue any capital stock that ranks senior to the Series A Preferred
Stock with respect to liquidation, dissolution and winding up without the
consent of the holders of the Series A Preferred Stock. At any time after
February 28, 2000, any holder of any shares of Series A Preferred Stock may
require us 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 one share of common stock for one share of Series A Preferred
Stock.
The holders of Series A Preferred Stock generally are not entitled to vote.
There are some situations, however, in which the holders of Series A Preferred
Stock are entitled to vote. First, holders of Series A Preferred Stock may vote
if required by Tennessee corporate law. Second, our charter requires the holders
of a majority of shares of the Series A Preferred Stock to consent to (1) 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, (2) 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 (3) the amendment of
any provision of our charter which would materially and adversely affect any
right, preference, privilege or voting power of the Series A Preferred Stock.
Holders of Series A Preferred Stock are not entitled to preemptive rights with
respect to any of our shares or other securities which may be issued, and such
shares are not subject to assessment.
OPTIONS AND WARRANTS
As of June 3, 1999, we had options and warrants issued and outstanding to
the following persons:
o Kent E. Lillie, our President and CEO, currently holds options to
purchase 1,275,000 shares of common stock, of which options for 625,000
shares are currently exercisable. Of these options which may be exercised
by Mr. Lillie, 200,000 of the shares may be purchased at $1.00 per share,
310,000 at $2.875 per share, 5,000 at $3.75 per share, 10,000 at $6.969
per share, and 100,000 at $11.81 per share.
o Our other employees have been issued options for a total of 981,200
shares of common stock, of which options for 136,800 shares are currently
exercisable. Each of these options was issued at the market price of the
common stock on the date the option was issued or repriced.
o Our directors and a former director, other than Mr. Lillie, have been
issued options to purchase 140,000 shares of common stock, all of which
are currently exercisable. Of these 140,000 shares, 50,000 are
exercisable at $2.875 per share, 30,000 at $3.75 per share and 60,000 at
$6.969 per share.
o We have issued warrants to purchase a total of 2,800,000 shares of common
stock at a price of $1.288 per share, all of which are currently
exercisable. The exercise price of these warrants increases by 13.5% per
annum for each year that they are not exercised. Of the warrants, J.D.
Clinton and his affiliates hold warrants to purchase a total of 2,192,500
shares.
The exercise of all of the above options and warrants would result in the
issuance of a total of 5,196,200 shares of common stock, of which a total of
3,701,800 shares could be issued under rights that are currently exercisable.
46
<PAGE>
APPLICATION OF CERTAIN TENNESSEE TAKEOVER STATUTES
Under the Tennessee Business Combination Act, T.C.A. Sections 48-103-201 et
seq., Tennessee "resident domestic corporations" may not enter into a "business
combination" with an "interested stockholder" until the expiration of a
five-year period after the person becomes an interested stockholder. Under the
definitions set out in the statute, we are a "resident domestic corporation."
"Business combination" generally refers to a merger, share exchange, sale of
substantially all of the assets of a corporation, certain issuances of
securities, adoption of a plan of liquidation or dissolution, certain
transactions disproportionately increasing the shares held by a stockholder and
certain loan transactions. An "interested stockholder" is generally defined to
include a person, or an affiliate or associate of such person, who owns,
directly or indirectly, 10% or more of the stock of the corporation. The
five-year limitation is not applicable if the stockholder's becoming an
interested stockholder is approved by the board of directors of the resident
domestic corporation prior to the stock acquisition date or a specific exemption
is applicable. One of the exemptions provides that the stockholders of the
corporation can vote to provide that the statute is not applicable to the
corporation, but the action is not effective until two years after the
stockholder vote. On December 2, 1998, our stockholders voted to make the above
provisions of the statute not applicable to us. This action will take effect on
December 2, 2000.
The Tennessee Control Share Act, T.C.A. Sections 48-103-301 et seq.,
generally provides that any person who acquires control shares of a corporation
may have voting rights only if such rights are approved by the stockholders at
an annual or special meeting. "Control shares," for purposes of the statute,
include various thresholds of ownership, beginning at 20%. This provision,
however, is not applicable to a corporation unless its charter or bylaws contain
an express declaration that control shares are governed by the provision. On
December 2, 1998 our stockholders approved an amendment to our Charter under
which we elected not to be subject to the above described anti-takeover
provisions of the statute, to the extent it is permitted by law to make that
election.
TRANSFER AGENT
The transfer agent and registrar for the common stock is American
Securities Transfer & Trust Company, Denver, Colorado.
47
<PAGE>
DESCRIPTION OF NOTES
GENERAL. We issued our 11% Senior Secured Notes Due 2005 (the "Notes") in
the principal amount of $75.0 million under an Indenture dated March 27, 1998
among us, as issuer, certain of our subsidiaries and Chase Manhattan Bank, as
Trustee (as successor to the original trustee, PNC Bank). The following summary
of the Notes and the Indenture is not intended to be complete. The description
only provides a summary of the material terms of the Notes and the Indenture.
PRINCIPAL, MATURITY AND INTEREST. The Notes will mature on April 1, 2005,
in the principal amount of $75.0 million and are senior secured obligations.
Interest on the Notes accrues at the rate of 11% per annum and is payable
semiannually on each April 1 and October 1. Subject to compliance with the
covenants in the Indenture, we may issue additional notes under the Indenture.
If issued, the additional notes would be treated as the same class as the Notes.
SUBSIDIARY GUARANTEES. Payment of the principal (and premium, if any) and
interest on the Notes, is guaranteed, jointly and severally, on a senior
unsecured basis by all of our subsidiaries.
RANKING. The Notes and the subsidiary guarantees are senior obligations
and rank on an equal basis to the payment of all our other existing and future
senior obligations. We may incur other indebtedness of up to $20.0 million under
a senior credit facility which may be secured by a first priority pledge of the
capital stock of our subsidiaries which own our Boston and Houston television
stations, the assets of those subsidiaries, and our accounts receivable,
inventory and general intangibles. As a result, the Notes and our subsidiary
guarantees will be effectively subordinated to a senior credit facility.
SECURITY. The Notes are secured by (1) a first priority pledge of stock of
SAH Acquisition Corporation II (which owns KCNS, WRAY and WOAC ), (2) a second
and junior pledge of our subsidiaries which own KZJL and WMFP, and (3) a first
priority lien on all assets owned by SAH Acquisition II.
OPTIONAL REDEMPTION. We cannot pay off the Notes prior to April 1, 2002.
After that date, we can redeem the Notes, but if we do so prior to April 1,
2004, we must pay a premium in addition to the principal and accrued interest.
The amount of the premium, as a percentage of the principal amount, is as
follows:
<TABLE>
<CAPTION>
DATE OF REDEMPTION PREMIUM
- ------------------------------------------------------------------------------------------------------- --------
<S> <C>
April 1, 2002 through March 31, 2003................................................................... 5.50%
April 1, 2003 through March 31, 2004................................................................... 2.75%
April 1, 2004 and thereafter........................................................................... 0.00%
</TABLE>
MANDATORY REDEMPTION. We are not required to make mandatory redemption or
sinking fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS. If a change of control occurs at any
time, each holder of the Notes will have the right to require that we purchase
that holder's Notes, at a purchase price in cash equal to 101% of the principal
amount of such Notes, plus unpaid interest, if any, to the date of purchase. The
definition of "change of control" in the Indenture is technical, but generally
includes any of the following:
o acquisition of more than 50% of our voting stock by a non-affiliate;
o a sale or transfer by us of substantially all of our assets;
o the change of a majority of our Board of Directors in a two year period;
or
o our liquidation or dissolution.
The existence of a holder's right to require us to purchase the holder's
Notes upon a change of control may deter a third party from acquiring us.
ASSET SALES. We may not, nor may we permit any of our subsidiaries to,
sell our assets, unless we receive an amount of not less than the fair market
value of the assets, and the consideration must consist of at least 85% cash. If
the assets being sold consist of collateral for the Notes, the consideration
must be paid in all cash and certain other conditions must be met.
48
<PAGE>
CERTAIN COVENANTS. Under the Indenture, we cannot take certain actions
(subject to certain exceptions), including the following:
o incur additional debt;
o pay dividends;
o make certain payments;
o incur liens;
o issue or sell the stock of some of our subsidiaries;
o use the net proceeds from certain asset sales for some purposes other
than repayment of the Notes;
o merge with another company;
o sell substantially all of our assets;
o enter into certain transactions with our affiliates; or
o encumber our assets.
INCURRENCE OF INDEBTEDNESS. We have agreed not to incur any indebtedness,
unless we meet certain financial criteria, except for certain permitted
indebtedness. For these purposes, "permitted indebtedness" includes the
following:
o the senior credit facility of up to $20.0 million;
o indebtedness existing when the Notes were issued;
o indebtedness incurred to replace either of the above;
o subordinated indebtedness which we owe to a subsidiary or is owed by a
subsidiary to us;
o certain hedging obligations; and
o capital leases of up to $3.0 million.
SAH ACQUISITION CORPORATION II. So long as the Notes are outstanding, we
have agreed that the charter of SAH Acquisition Corporation II will provide that
it (1) is a special purpose corporation, organized solely in order to acquire
and to own the assets of KCNS, WRAY and WOAC, including the FCC licenses,
(2) will not own any other assets or conduct any other business other than the
business of KCNS, WRAY and WOAC, (3) will not incur any indebtedness except the
Notes, (4) will not incur any lien on its assets securing any indebtedness other
than the Notes, and (5) will not be permitted to file for bankruptcy.
49
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, BancBoston Robertson
Stephens Inc., Friedman, Billings, Ramsey & Co., Inc., SunTrust Equitable
Securities Corporation, Morgan Keegan & Company, Inc. and E*OFFERING Corp. are
acting as representatives. We and the selling stockholders are obligated to
sell, and the underwriters are obligated to purchase, all of the shares offered
on the cover page of this prospectus, if any are purchased. Subject to the
conditions of the underwriting agreement, each underwriter has severally agreed
to purchase the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------
<S> <C>
Prudential Securities Incorporated...................................................................
BancBoston Robertson Stephens Inc....................................................................
Friedman, Billings, Ramsey & Co., Inc................................................................
SunTrust Equitable Securities Corporation............................................................
Morgan Keegan & Company, Inc.........................................................................
E*OFFERING Corp......................................................................................
---------
Total........................................................................................... 8,850,000
---------
---------
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus, and they have, for a period of 30
days from the date of this prospectus, over-allotment options to purchase up to
1,200,000 additional shares from us and up to 127,500 additional shares from the
selling stockholders. If any additional shares are purchased, the underwriters
will severally purchase the shares in the same proportion as provided in the
table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and these dealers may reallow a concession not
in excess of $ per share to other dealers. After the shares are released for
sale to the public, the representatives may change the offering price and the
concessions.
We and the selling stockholders have agreed to pay the underwriters the
following fees, assuming both no exercise and full exercise of the underwriters'
over-allotment options to purchase additional shares:
<TABLE>
<CAPTION>
TOTAL FEES
------------------------------------------------
FEE WITHOUTEXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTIONS OVER-ALLOTMENT OPTIONS
--------- ---------------------- ----------------------
<S> <C> <C> <C>
Fees paid by us...................................... $ $ $
Fees paid by selling stockholders.................... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $500,000 in
expenses for this offering, including those of the selling stockholders. We and
the selling stockholders have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.
Shop At Home and our executive officers, directors, principal stockholders,
including the selling stockholders, and holders of warrants to purchase our
common stock have entered into lock-up agreements pursuant to which we and they
have agreed not to offer or sell any shares of common stock or securities
convertible into or exchangeable or exercisable for shares of common stock for a
period of 180 days from the date of this prospectus without the prior written
consent of Prudential Securities, on behalf of the underwriters. Prudential
Securities may, at any time and without notice, waive the terms of these lock-up
agreements specified in the underwriting agreement.
50
<PAGE>
Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
o Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising the over-allotment options;
o Stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market; and
o Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also and prior to the pricing of the shares, and until the time when
a stabilizing bid may have been made, some or all of the underwriters who are
market makers in the shares may make bids for or purchases of shares subject to
restrictions, known as passive market making activities.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connections with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
o the Public Offers of Securities Regulations 1995;
o the Financial Services Act 1986; and
o the Financial Services Act 1986, (Investment Advertisement) (Exemptions)
order 1996, as amended.
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our officers, directors, employees and other business
affiliates or related third parties. The number of shares available for sale to
the general public in the offering will be reduced to the extent these persons
purchase the reserved shares.
E*OFFERING Corp. is making a prospectus in electronic format available on
its Internet website. Other than the prospectus in electronic format, the
information on such website is not part of this prospectus or the registration
statement of which the prospectus forms a part and has not been approved and/or
endorsed by Shop At Home or any underwriter in such capacity and should not be
relied on by prospective investors.
LEGAL MATTERS
The legality of this offering will be passed upon for us by Wyatt, Tarrant
& Combs, Nashville, Tennessee. Charles W. Bone, a partner of Wyatt, Tarrant &
Combs, is the beneficial owner of warrants issued by us under which he has the
right to purchase a total of 82,500 shares of our common stock at a current
exercise price of $1.288. Certain legal matters relating to this offering will
be passed upon for the Underwriters by Schulte Roth & Zabel LLP, New York, New
York.
EXPERTS
The financial statements as of June 30, 1997 and 1998 and for each of the
three years in the period ended June 30, 1998 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
51
<PAGE>
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549 or at its Regional Offices in Chicago, Illinois or New York, New
York. You may obtain further information about the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also
available to the public over the Internet at the SEC's website at
http://www.sec.gov. In addition, you may obtain a copy of any of our filings, at
no cost, by writing to or telephoning us at Shop At Home, Inc., 5388 Hickory
Hollow Parkway, Antioch, Tennessee 37013-3128, Telephone (615)263-8000.
This prospectus is part of a registration statement on Form S-3 filed by us
with the SEC under the Securities Act of 1933. As permitted by SEC rules, this
prospectus does not contain all of the information included in the registration
statement and the accompanying exhibits filed with the SEC. You may refer to the
registration statement and our exhibits for more information.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus. If we
subsequently file updating or superseding information in a document that is
incorporated by reference into this prospectus, the subsequent information will
also become part of this prospectus and will take the place of the earlier
information.
We are incorporating by reference the following documents that we have
filed with the SEC:
1. our Quarterly Reports on Form 10-Q, as amended, for the quarters ended
September 30, 1998, December 31, 1998, and March 31, 1999
2. our Current Reports on Form 8-K filed with the SEC on May 12, 1998 and
February 3, 1999;
3. our definitive proxy statement dated October 29, 1998 with respect to
the annual meeting of stockholders held on December 2, 1998;
4. our definitive proxy statement dated March 26, 1999 with respect to the
special meeting of stockholders held on April 28, 1999; and
5. the description of our common stock contained in our registration
statement filed with the SEC under Section 12 of the Exchange Act and
subsequent amendments and reports filed to update such description.
We are also incorporating by reference into this prospectus all of our
future filings with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until this offering has been completed.
You may obtain a copy of any of our filings which are incorporated by
reference, at no cost, by writing to or telephoning us at the following address:
Shop At Home, Inc.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013-3128
Telephone (615)263-8000
Our Internet address is www.shopathomeonline.com. Information contained on
this website and on our website, collectibles.com, is not part of this
prospectus.
52
<PAGE>
SHOP AT HOME, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants......................................................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1998; and March 31, 1999 (unaudited)..................... F-3
Consolidated Statements of Operations for the years ended June 30, 1996, 1997 and 1998; and for the nine
months ended March 31, 1998 and 1999 (unaudited)........................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1996, 1997 and 1998; and for
the nine months ended March 31, 1999 (unaudited)........................................................ F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1997 and 1998; and for the nine
months ended March 31, 1998 and 1999 (unaudited)........................................................ F-6
Notes to Consolidated Financial Statements................................................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Shop At Home, Inc.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Shop At
Home, Inc. and its subsidiaries at June 30, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Knoxville, Tennessee
August 7, 1998
F-2
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 5,078 $ 21,224 $ 8,821
Accounts receivable -- trade, net........................................... 3,293 3,830 9,423
Accounts receivable -- related parties...................................... 3 -- --
Inventories, net............................................................ 3,262 4,332 5,765
Prepaid expenses............................................................ 458 404 1,323
Deferred tax assets......................................................... 1,342 990 1,057
-------- -------- ---------
Total current assets.......................................................... 13,436 30,780 26,389
Note receivable -- related party, net of unamortized discount of $0, $134 and
$104, respectively.......................................................... -- 660 681
Property and equipment, net................................................... 4,434 20,557 27,923
Licenses, net of accumulated amortization of $812, $2,063 and $4,031 for 1997,
1998 and 1999, respectively................................................. 13,423 84,831 83,008
Goodwill, net of accumulated amortization of $76, $188 and $312 for 1997, 1998
and 1999, respectively...................................................... 1,990 2,532 2,408
Other assets.................................................................. 1,127 4,410 6,027
-------- -------- ---------
Total assets.................................................................. $ 34,410 $143,770 $ 146,436
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion -- capital leases........................................... $ 171 $ 161 $ --
Current portion of long-term debt........................................... 2,280 -- --
Accounts payable -- trade................................................... 6,822 9,016 10,981
Accounts payable -- related party........................................... 632 12 --
Credits due to customers.................................................... 3,121 3,987 3,440
Other payables and accrued expenses......................................... 4,944 5,769 9,300
Deferred revenue............................................................ 108 267 183
-------- -------- ---------
Total current liabilities..................................................... 18,078 19,212 23,904
Long-term liabilities:
Capital leases, less current portion........................................ 306 254 --
Long term debt, less current portion........................................ 7,216 75,000 75,000
Deferred income taxes....................................................... 3,613 3,551 945
Redeemable preferred stock:
$10.00 par value, 1,000,000 shares authorized, 137,943 issued and
outstanding at June 30, 1997 and 1998 and 106,123 outstanding at
March 31, 1999 -- redeemable at $10 per share............................ 1,393 1,393 1,075
Commitments (notes 5, 6, 9, 10, and 18)
Stockholders' equity:
Common stock -- $.0025 par value, 30,000,000 shares authorized: 10,714,414
and 23,313,191 shares issued and outstanding at June 30, 1997 and 1998,
respectively; 24,324,937 shares outstanding at March 31, 1999
(unaudited).............................................................. 27 58 61
Additional paid in capital.................................................. 10,067 49,079 52,585
Accumulated deficit......................................................... (6,290) (4,777) (7,134)
-------- -------- ---------
Total liabilities and stockholders' equity.................................... $ 34,410 $143,770 $ 146,436
-------- -------- ---------
-------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED JUNE 30, MARCH 31,
------------------------------ --------------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues......................................... $40,675 $68,832 $100,518 $70,457 $ 110,442
Cost of goods sold (excluding items listed below).... 24,516 40,626 58,862 40,866 65,869
Salaries and wages................................... 4,113 5,564 7,446 5,161 8,120
Transponder and cable charges........................ 6,025 12,118 17,768 12,554 19,370
Other general operating and administrative
expenses........................................... 5,914 7,143 10,667 7,920 10,489
Depreciation and amortization........................ 878 1,057 2,188 1,193 3,609
Move related expenses................................ -- -- -- -- 873
------- ------- -------- ------- ---------
Total operating expenses............................. 41,446 66,508 96,931 67,694 108,330
------- ------- -------- ------- ---------
Income (loss) from operations........................ (771) 2,324 3,587 2,763 2,112
------- ------- -------- ------- ---------
Other income (expense):
Interest, net...................................... (795) (1,080) (2,850) (741) (6,590)
Other income....................................... 57 232 1,703 1,214 676
------- ------- -------- ------- ---------
Total other income (expense)......................... (738) (848) (1,147) 473 (5,914)
------- ------- -------- ------- ---------
Income (loss) before income taxes.................... (1,509) 1,476 2,440 3,236 (3,802)
Income tax expense (benefit)......................... (104) (80) 927 1,238 (1,445)
------- ------- -------- ------- ---------
Net income (loss).................................... $(1,405) $ 1,556 $ 1,513 $ 1,998 $ (2,357)
------- ------- -------- ------- ---------
------- ------- -------- ------- ---------
Basic earnings (loss) per share...................... $ (.14) $ .14 $ .10 $ .17 $ (.10)
------- ------- -------- ------- ---------
------- ------- -------- ------- ---------
Diluted earnings (loss) per share.................... $ (.14) $ .12 $ .09 $ .14 $ (.10)
------- ------- -------- ------- ---------
------- ------- -------- ------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1997, 1998 AND NINE MONTHS ENDED MARCH 31,
1999 (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT
------ ---------- -----------
<S> <C> <C> <C>
Balance, June 30, 1995 (10,144,080 shares)................................... $ 25 $ 8,935 $(6,441)
Issuance of common stock in connection with financing
(100,000 shares)........................................................ -- 250 --
Issuance of common stock in connection with conversion of preferred stock
(2,000 shares).......................................................... -- 21 --
Exercise of employee stock options (126,000 shares)........................ -- 127 --
Issuance of common stock in payment of payable obligations
(203,175 shares)........................................................ 1 609 --
Preferred stock dividend accrued........................................... -- (14) --
Net loss................................................................... -- -- (1,405)
---- -------- -------
Balance, June 30, 1996 (10,575,255 shares)................................... 26 9,928 (7,846)
Exercise of options (100,000 shares)....................................... 1 100 --
Exercise of employee stock options (20,000 shares)......................... -- 20 --
Issuance of common stock in payment of payable obligations
(19,159 shares)......................................................... -- 33 --
Preferred stock dividend accrued........................................... -- (14) --
Net income................................................................. -- -- 1,556
---- -------- -------
Balance, June 30, 1997 (10,714,414 shares)................................... 27 10,067 (6,290)
Exercise of warrants (200,000 shares)...................................... 1 226 --
Exercise of employee stock options (454,600 shares)........................ 1 506 --
Issuance of common stock in payment of a note
(444,177 shares) -- net................................................. 1 1,190 --
Preferred stock dividend accrued........................................... -- (14) --
Tax effect of non-qualified stock options.................................. -- 245 --
Issuance of 11,500,000 shares in connection with public offering, net of
offering costs.......................................................... 28 36,859 --
Net income................................................................. -- -- 1,513
---- -------- -------
Balance, June 30, 1998 (23,313,191 shares)................................... 58 49,079 (4,777)
Issuance of 11,226 shares in consideration of personal guaranty
(unaudited)............................................................. -- 40 --
Purchase and retirement of 90,300 shares (unaudited)....................... -- (203) --
Preferred stock dividend accrued (unaudited)............................... -- (11) --
Exercise of 200,000 warrants (unaudited)................................... -- 226 --
Exercise of 600,000 options (unaudited).................................... 2 1,500 --
Exercise of 259,000 employee stock options (unaudited)..................... 1 750 --
Conversion of 31,820 shares of preferred stock (unaudited)................. -- 318 --
Tax effect of non-qualified stock options (unaudited)...................... -- 886 --
Net loss (unaudited)....................................................... -- -- (2,357)
---- -------- -------
Balance, March 31, 1999 (24,324,937 shares) (unaudited)...................... $ 61 $ 52,585 $(7,134)
---- -------- -------
---- -------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30, NINE MONTHS ENDED MARCH 31,
------------------------------ ---------------------------
1996 1997 1998 1998
------- ------- -------- ---------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $(1,405) $ 1,556 $ 1,513 $ 1,998
Gain on sale of contractual right............... -- -- (900) (900)
Non-cash items included in net income (loss):
Depreciation and amortization................. 878 1,057 2,188 1,193
Loss on sale of equipment..................... 20 3 -- --
Deferred income taxes......................... (104) (80) 290 869
Deferred interest expense..................... -- -- (32) --
Provision for inventory obsolescence.......... 235 710 78 70
Provision for bad debt........................ -- 59 188 188
Changes in current and non-current items:
Accounts receivable........................... 119 (2,968) (1,003) (4,090)
Inventories................................... (553) (1,361) (1,318) (2,139)
Prepaid expenses and other assets............. (197) (241) 755 183
Accounts payable and accrued expenses......... 805 8,915 3,498 3,380
Deferred revenue.............................. 1,017 (1,405) 159 194
------- ------- -------- ---------
Net cash provided (used) by operations.......... 815 6,245 5,416 946
------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable-related party................. -- -- (800) (800)
Repayment of note receivable-related party.... -- -- 12 --
Cash payments for acquisitions................ -- (1,838) -- --
Purchase of property, plant and equipment..... (507) (1,056) (16,800) (6,813)
Proceeds from sale of equipment............... 400 -- -- --
Other assets.................................. -- (1,857) (187) (5,546)
Proceeds from sale of contractual right....... -- -- 900 900
Purchase of licenses.......................... (38) -- (72,635) (71,500)
------- ------- -------- ---------
Net cash used by investing activities........... (145) (4,751) (89,510) (83,759)
------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends.......................... -- (14) -- --
Exercise of options and warrants.............. 128 120 734 669
Common stock issued........................... -- -- 40,250 40,250
Repayments of debt and capital leases......... (1,141) (1,356) (11,551) (11,519)
Proceeds from long-term debt.................. 2,056 2,919 78,000 78,000
Purchase and retirement of common stock....... -- -- -- --
Payment of stock issuance costs............... -- -- (3,363) (2,963)
Payment of debt issuance costs................ -- -- (3,830) --
------- ------- -------- ---------
Net cash provided by financing activities....... 1,043 1,669 100,240 104,437
------- ------- -------- ---------
Net increase (decrease) in cash................. 1,713 3,163 16,146 21,624
Cash beginning of period...................... 202 1,915 5,078 5,078
------- ------- -------- ---------
Cash end of period............................ $ 1,915 $ 5,078 $ 21,224 $ 26,702
------- ------- -------- ---------
------- ------- -------- ---------
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1999
---------------------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ (2,357)
Gain on sale of contractual right............... --
Non-cash items included in net income (loss):
Depreciation and amortization................. 3,609
Loss on sale of equipment..................... --
Deferred income taxes......................... (1,787)
Deferred interest expense..................... (22)
Provision for inventory obsolescence.......... 70
Provision for bad debt........................ --
Changes in current and non-current items:
Accounts receivable........................... (5,593)
Inventories................................... (1,503)
Prepaid expenses and other assets............. (1,536)
Accounts payable and accrued expenses......... 4,930
Deferred revenue.............................. (84)
---------
Net cash provided (used) by operations.......... (4,273)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable-related party................. --
Repayment of note receivable-related party.... --
Cash payments for acquisitions................ --
Purchase of property, plant and equipment..... (8,063)
Proceeds from sale of equipment............... --
Other assets.................................. (1,925)
Proceeds from sale of contractual right....... --
Purchase of licenses.......................... --
---------
Net cash used by investing activities........... (9,988)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends.......................... --
Exercise of options and warrants.............. 2,476
Common stock issued........................... --
Repayments of debt and capital leases......... (415)
Proceeds from long-term debt.................. --
Purchase and retirement of common stock....... (203)
Payment of stock issuance costs............... --
Payment of debt issuance costs................ --
---------
Net cash provided by financing activities....... 1,858
---------
Net increase (decrease) in cash................. (12,403)
Cash beginning of period...................... 21,224
---------
Cash end of period............................ $ 8,821
---------
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------ --------------------------
1996 1997 1998 1998 1999
---- ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Stock issued for inventory and reduction of accounts
payable................................................... $610 $ 33 $ -- $ -- $ --
Cost of equipment purchased through capital lease
obligations............................................... $ 31 $ 437 $ 326 $ 149 $ --
Notes payable issued for acquisitions of Urban Broadcasting
Systems, Inc.............................................. $ -- $1,400 $ -- $ -- $ --
Stock issued in connection with financing (100,000
shares)................................................... $250 $ -- $ -- $ -- $ --
Stock issued in connection with retirement of debt (144,177
shares)................................................... $ -- $ -- $1,190 $ 1,190 $ --
Conversion of preferred stock into common stock............. $ -- $ -- $ -- $ -- $ 318
Stock issued for loan guarantee............................. $ -- $ -- $ -- $ -- $ 40
Tax effect of non-qualified stock options................... $ -- $ -- $ 245 $ -- $ 886
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $795 $ 998 $ 857 $ 803 $ 8,534
---- ------ ------ ------- -------
Taxes..................................................... $ 30 $ 140 $ 432 $ 432 $ --
---- ------ ------ ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. All dollar values in tables and the financial
statements have been expressed in (000s) except for per share data. The
financial information included herein as of March 31, 1999 and for the nine
month periods ended March 31, 1998 and 1999 is unaudited; however such
information reflects all adjustments (consisting of only normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of consolidated financial position, results of operations and cash
flows of the interim periods.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Shop At Home, Inc. and its 100% owned
subsidiaries, MFP, Inc. ("MFP"), Broadcast Cable Satellite Technologies, Inc.
("BCST"), Urban Broadcasting Systems, Inc. ("UBS"), Collector's Edge of
Tennessee, Inc. ("Collector's"), SAH Acquisition Corporation II ("SAH
Acquisition II"), SAH Acquisition Corporation ("SAH AQ") and Partners -- SATH,
L.L.C. ("Partners"), (collectively the "Company"). All material intercompany
balances and transactions have been eliminated in consolidation.
Operations. The Company sells specialty consumer products, primarily
collectibles, through interactive electronic media, including broadcast, cable
and satellite television, and over the Internet. The programming is currently
available on a twenty-four hours a day, seven days a week schedule.
BCST's principal asset consists of ownership of the outstanding shares of
capital stock of UBS. UBS holds the FCC license for television station KZJL,
Channel 61, a full power television station licensed to Houston, Texas. BCST was
acquired in December 1994 (Note 15).
MFP operates a commercial television station, WMFP, Channel 62, serving the
Boston television market area. MFP was acquired in February 1995.
Collector's, formed in February 1997, is a trading card wholesaler whose
main assets are licenses from National Football League Properties, Inc. and
National Football League Players, Incorporated (Note 16).
SAH Acquisition II operates three commercial television stations: KCNS,
Channel 38, serving the San Francisco television market area; WOAC, Channel 67,
serving the Cleveland, Ohio television market area and; WRAY, Channel 30,
serving the Raleigh television market area, all of which were acquired on March
27, 1998. SAH Acquisition II's principal asset consists of its ownership in the
respective television licenses. Partners owns real property located at 5388
Hickory Hollow Parkway, Antioch, Tennessee, the Company's headquarters, studios
and technical facilities. The real property is Partners' only asset. SAH AQ's
principal asset is a 1% membership in Partners.
Cash and Cash Equivalents. For the purpose of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Inventories. Inventories, which consist primarily of products held for
sale such as jewelry and sports collectibles, are stated at the lower of cost or
market with cost being determined on a first-in, first-out (FIFO) basis.
Valuation allowances are provided for carrying costs in excess of estimated
market value.
Accounts Receivable -- Trade. The Company has reduced accounts receivable
to the net realizable value through recording allowances for doubtful accounts
and returns. At June 30, 1997 and 1998, the Company had recorded allowances of
$59 and $535, respectively. At March 31, 1999 the amount recorded was $466
(unaudited).
Property and Equipment. Property and equipment is stated at cost.
Expenditures for repairs and maintenance are expensed as incurred, and additions
and improvements that significantly extend the life of assets are capitalized.
F-8
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Depreciation is computed under straight-line and accelerated methods over
the estimated useful lives of the assets as reflected in the following table:
<TABLE>
<S> <C> <C>
Furniture and fixtures.............................................. 7 Years
Operating equipment................................................. 3-15 Years
Leasehold improvements.............................................. 40 Years
Building............................................................ 40 Years
</TABLE>
FCC Licenses. During fiscal 1998, the Company through its subsidiary SAH
Acquisition II acquired three licenses and in fiscal 1995 acquired two
subsidiaries that own licenses from the Federal Communications Commission under
which they operate television stations. Although FCC licenses are granted for
eight-year periods, they are required to be renewed by the FCC unless (1) the
holder has seriously violated the Telecommunications Act or FCC rules and
regulations; (2) failed to serve the public interest, convenience, and
necessity; or (3) followed a pattern of abuse in violation of FCC rules and
regulations. Accordingly, FCC licenses are historically renewed for indefinite
periods of time giving them indefinite lives. Given the indeterminate lives
afforded by the licensing process and the historical appreciation in value of
the licenses, the Company determined that a life of 40 years would be
appropriate. Amortization of these licenses was $269, $307 and $773 for the
fiscal years ended June 30, 1996, 1997 and 1998 respectively; $236 and $1,602
for the nine months ended March 31, 1998 and 1999, respectively (unaudited).
The Company has allocated the purchase price of its recent acquisitions
based upon independent appraisals. The appraisal of WMFP-Boston resulted in the
recording of some goodwill.
NFL Licenses. In fiscal year 1997, the Company formed Collector's Edge of
Tennessee, Inc. a wholly owned subsidiary engaged in the business of selling
sports trading cards under licenses with National Football League Players,
Incorporated and National Football League Properties, Inc. The value ascribed to
these licenses in connection with their acquisition by Collector's is being
amortized over the contract life of 3 years. Amortization of these licenses was
$162 and $479 for the fiscal years ended June 30, 1997 and 1998, respectively,
and $364 for each of the nine month periods ending March 31, 1998 and 1999
(unaudited).
Goodwill. Goodwill is amortized over 40 years, using the straight-line
method. The amortization period for goodwill was determined based upon the
rationale developed to assign lives to the FCC licenses. Goodwill recorded in
connection with the acquisitions of WMFP and the assets of Collector's
represents the excess purchase price over the fair value of the net identifiable
assets acquired. The amount of goodwill for WMFP was determined by independent
appraisal whereas goodwill for CET was determined by reference to net assets
acquired and further supported by established business relationships, which
represent future revenue streams. Goodwill amortization amounted to $16, $61 and
$112 for fiscal years ended June 30, 1996, 1997 and 1998, respectively; $59 and
$124 for the nine month periods ending March 31, 1998 and 1999 (unaudited).
Management periodically evaluates the net realizability of the carrying amount
of goodwill.
Sales Returns. The Company generally allows customers to return
merchandise for full credit or refund within 30 days from the date of receipt.
Collector's sells to wholesalers and retailers; terms of sale and return
privileges are negotiated on an individual basis.
Revenue Recognition. The Company's principal source of revenue is retail
sales to viewing customers. Other sources of revenue include the sale of air
time on its owned stations (infomercials), the sale of uplink truck services
(fiscal 1996) and miscellaneous income consisting of list rental, credit card
fees and commissions. Product sales are recognized upon shipment of the
merchandise to the customer. Service revenue and air time revenue are recognized
when the service has been provided or the air time has been utilized. Deferred
revenue consists of sales proceeds relative to unshipped merchandise.
F-9
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cost of Goods Sold. Cost of goods sold represents the purchase of
merchandise and inbound freight costs.
Income Taxes. The Company files a consolidated federal income tax return
with its subsidiaries. The companies file separate state returns. The Company
determines deferred tax assets and liabilities based on the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
Earnings (Loss) Per Share. Statement of Financial Accounting Standards
No. 128, Earnings Per Share, requires the presentation of basic EPS and diluted
EPS. Basic income (loss) per share is computed by dividing net income (loss)
available for common stockholders by the weighted average number of shares of
common stock outstanding. Diluted income (loss) per share is computed by
dividing adjusted net income (loss) by the weighted average number of shares of
common stock and assumed conversions of dilutive securities outstanding during
the respective periods. Dilutive securities represented by options, warrants,
redeemable preferred stock and convertible debt outstanding have been included
in the computation. The Company uses the treasury stock method for calculating
the dilutive effect of options and warrants and the if converted method with
respect to the effect of convertible securities.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets. The Company follows Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which
(1) requires that long-lived assets to be held and used be reviewed for
impairment whenever events or circumstances indicate that the carrying value of
an asset may not be recoverable, (2) requires that long-lived assets to be
disposed of be reported at the lower of the carrying amount or the fair value
less costs to sell, and (3) provides guidelines and procedures for measuring
impairment losses.
Stock-Based Compensation. The Company follows the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Certain pro forma disclosures as required by
Statement of Financial Accounting Standards No. 123, Accounting and Disclosure
of Stock-Based Compensation, are included in Footnote 11.
Recent Accounting Pronouncements. Effective December 31, 1997, the Company
implemented Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure. The Statement consolidates disclosures
required by several existing pronouncements regarding an entity's capital
structure. The Company's disclosures are already in compliance with such
pronouncements and, accordingly, SFAS 129 does not require any change to
existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company currently has no
items that would be classified as other comprehensive income. The company plans
to implement SFAS 130 in the presentation of its fiscal year end 1999 financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement
F-10
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Statement is effective for fiscal years beginning after
December 31, 1997. In the initial year of application, comparative information
for earlier years is to be restated. The Company has determined that its
reportable segments will be the same as currently disclosed, although expanded
disclosures will be required under provisions of the standard.
Reclassifications. Certain amounts in the prior years' consolidated
financial statements have been reclassified for comparative purposes to conform
to the current year presentation.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following major classifications:
<TABLE>
<CAPTION>
JUNE 30,
------------------ MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements.......................................... $ 318 $ 346 $ 81
Operating equipment............................................. 5,820 11,294 15,392
Furniture and fixtures.......................................... 191 201 2,050
Building........................................................ -- -- 11,730
Construction in progress........................................ -- 10,185 --
Land............................................................ -- 1,250 1,250
------- ------- -------
6,329 23,276 30,503
Accumulated depreciation........................................ (1,895) (2,719) (2,580)
------- ------- -------
Property, plant and equipment, net.............................. $ 4,434 $20,557 $27,923
------- ------- -------
------- ------- -------
</TABLE>
Depreciation expense totaled $463, $527 and $824 for the fiscal years ended
June 30, 1996, 1997 and 1998, respectively; and $534 and $1,518 for the nine
months ended March 31, 1998 and 1999, respectively (unaudited). Interest
capitalized amounted to $273 for the year ended June 30, 1998 and for the nine
months ended March 31, 1999, was $301 (unaudited).
NOTE 3 -- INVENTORY
The components of inventory are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------- MARCH 31,
1997 1998 1999
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Work in progress.................................................. $ 389 $ 152 $ 246
Finished goods.................................................... 3,571 4,201 5,610
------- ------ -------
3,960 4,353 5,856
Variance allowance................................................ (698) (21) (91)
------- ------ -------
Total........................................................... $ 3,262 $4,332 $ 5,765
------- ------ -------
------- ------ -------
</TABLE>
F-11
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- CAPITAL LEASES
The Company has acquired various equipment under the provisions of
long-term leases.
Future minimum lease payments under capitalized leases are as follows at
June 30, 1998:
<TABLE>
<S> <C>
1999........................................................................ $207
2000........................................................................ 207
2001........................................................................ 73
----
Total minimum lease payments................................................ 487
Less amount representing interest........................................... (72)
----
Present value of minimum lease payments..................................... $415
Less current portion........................................................ (161)
----
Long-term portion........................................................... $254
----
----
</TABLE>
The capital leases had been paid in full by March 31, 1999.
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
11% Senior Secured Notes........................................ $ -- $75,000 $75,000
Various notes payable, repaid from proceeds of stock and debt
offerings..................................................... 9,496 -- --
------- ------- -------
Total long-term debt............................................ 9,496 75,000 75,000
Less current maturities......................................... (2,280) -- --
------- ------- -------
Long-term debt less current portion............................. $ 7,216 $75,000 $75,000
------- ------- -------
------- ------- -------
</TABLE>
The Company had a $5,000 credit line available, which expired March 31,
1999. As of June 30, 1998, none of the line had been drawn upon.
With respect to restrictions on the Company's ability to obtain funds from
its subsidiaries, under Tennessee law a corporation may not pay a cash dividend
if, after giving it effect, (i) the corporation would not be able to pay it
debts as they become due in the usual course of business, or (ii) the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the corporation were to be dissolved at
the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
ISSUANCE OF $75,000 OF 11% SENIOR SECURED NOTES
In March 1998, the Company issued $75,000 of 11% Senior Secured Notes Due
2005 ("Notes"). Interest on the Notes is payable semi-annually on April 1 and
October 1 of each year, commencing October 1, 1998. The Notes are not redeemable
at any time prior to April 1, 2002. On or after April 1, 2002, the Notes will be
redeemable at the option of the Company, in whole or in part, at the redemption
prices, plus accrued and unpaid interest, if any, to the date of redemption.
Upon the occurrence of a change of control, holders of the Notes will have the
right to require the Company to repurchase their Notes, in whole or in part, at
a purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
F-12
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT -- (CONTINUED)
The Notes are secured by a lien on all of the issued and outstanding
capital stock of SAH Acquisition II and the assets of SAH Acquisition II, other
than the FCC licenses held by it. The Notes are also secured by a junior lien on
all of the issued and outstanding capital stock of MFP, Inc., the owner and
operator of WMFP(TV) in Boston, BCST (parent of UBS) and Urban Broadcasting
Systems, Inc., the owner and operator of KZJL(TV) in Houston (the "Other
Broadcast Subsidiaries"). In addition, the obligations of the Company under the
Notes are jointly and severally guaranteed on a senior basis by each of the
Company's subsidiaries.
The Indenture restricts the Company from incurring additional indebtedness
in excess of $20,000, which indebtedness may be secured by a first priority lien
on certain of the Company's assets, including the Company's accounts receivable
and inventory and a first priority lien on the capital stock and other assets of
the Other Broadcast Subsidiaries. The indenture also restricts the Company's
ability to issue preferred stock, incur liens, pay dividends, make certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with any other person, issue or sell stock of subsidiaries, or sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of the Company or encumber the assets of the Company or its subsidiaries.
NOTE 6 -- REDEEMABLE PREFERRED STOCK
The following is a brief summary of the terms and conditions of the Series
A Preferred Stock of the Company issued in connection with the acquisition of
MFP, Inc. This summary is qualified in its entirety by reference to the
Company's charter provisions with respect to the preferred stock.
During fiscal year 1995, the Company issued 140,000 shares of preferred
stock, $10.00 par value, in connection with a merger with MFP, Inc., a Delaware
corporation. The Series A Preferred Stock will rank ahead of the common stock
with respect to dividends, preferences, qualifications, limitations,
restrictions and the distribution of assets upon liquidation. Shares of Series A
preferred stock have no preemptive rights and no voting rights, except those
rights provided by statute. Each holder of Series A preferred stock will have
the option to require the Company to redeem their shares, after 5 years from
date of issuance, for $10.00 per share plus any accumulated and unpaid
dividends. Prior to redemption, Series A preferred stock is convertible into
shares of common stock at a ratio of one share of common stock for one share of
Series A preferred stock.
Holders of shares of Series A preferred stock are entitled to receive, but
only when and if declared by the Board of Directors of the Company out of funds
legally available, cash dividends at the rate of 1% per annum (i.e., $.10 per
share per annum) of par value per share.
Dividends on each share of Series A preferred stock accrue and are
cumulative from (but not including) the date of its original issuance on the
basis of an annual dividend period. For any dividend period, no dividends may be
paid or declared and set apart for payment 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 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 of a liquidation, dissolution and winding up of the Company,
whether voluntary or involuntary, the registered holders of shares of Series A
preferred stock then outstanding shall be entitled to receive out of the assets
of the Company, before any distributions to the holders of common stock or any
other junior stock, an amount equal to the "Liquidation Preference" with respect
to such shares of Series A preferred stock. The Liquidation Preference for the
Series A preferred stock is $10.00 per share, plus an amount equal to all
dividends thereon (whether or not declared) accrued and unpaid through the date
of final distribution. For those 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 percent (50%) of the issued and outstanding shares
of common stock
F-13
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- REDEEMABLE PREFERRED STOCK -- (CONTINUED)
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 payment
of the Liquidation Preference.
No class of the Company's capital stock is presently outstanding that
possesses rights with respect to distributions upon liquidation, dissolution and
winding up senior to the Series A preferred stock. So long as the 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.
As of June 30, 1997 and 1998, the Company was in arrears on its dividend
payments due. These dividend payments are payable only when declared by the
Board of Directors.
NOTE 7 -- COMMON STOCK
In March 1998, the Company issued a total of 11,500,000 shares (including
the underwriters over allotment of 1,500,000) of $.0025 par value common stock
at $3.50 per share. A significant portion of the proceeds of this common stock
issuance, in conjunction with the debt issuance discussed in Note 5, were used
in the acquisition of three television stations (Note 17) and the new Nashville
headquarters and broadcast facility.
In August 1995, the Company issued 100,000 shares of common stock valued at
$250 in connection with the securing of $2,000 of long-term debt. The per share
valuation represented the market price at date of issuance, and the $250 has
been amortized over the 5 year life of the loan as additional interest expense.
In September 1995 the Company issued 2,000 shares in conversion of its
Redeemable Preferred Stock (Note 6); in October 1995 and May 1996, the Company
issued a total of 126,000 shares in connection with the exercise of employee
stock options (Note 11); and during the period of March through June 1996, the
Company issued a total of 203,175 shares of common stock, of which 44,000 shares
of common stock were issued as payment of payable obligations and 159,175 shares
of common stock were issued in exchange for certain sport cards and collectibles
acquired for resale. The recording of each of these issuances was based upon the
market value of the shares at the date of issuance.
The Company also issued shares of common stock in connection with the
acquisition of BCST. In October 1997, the Company issued 444,177 shares of
common stock in connection with the conversion of a 10.75% note payable in the
amount of $1,190 net of $143 of deferred interest. The conversion price and
terms were as originally defined in the $2,000 note referred to above. The
conversion price of $3.00 per share was in excess of the $2.50 market value of
the stock at the time the agreement was executed. This note was being amortized
in monthly installments of $43 and was due September 2000. The conversion of
this note reduced interest expense by approximately $75 in the fiscal year
ending June 30, 1998.
The Company's Board of Directors approved the authorization of 30,000,000
shares of nonvoting common stock, which was approved by shareholders at the
Annual Meeting held March 6, 1998. There are no shares issued for this class of
stock.
During the nine month period ended March 31, 1999 (unaudited), the Company
recorded the following transactions: issued 11,226 shares valued at $40 to J.D.
Clinton in consideration of a personal guaranty to secure interim financing;
purchased and retired a total of 90,300 shares at a total cost of $203; warrants
for 200,000 shares and non-employee options for 600,000 shares were exercised
for $226 and $1,500, respectively; issued 259,000 shares in connection with
employee exercises of options; issued 31,820 shares related to the conversion of
preferred stock into common stock. The Company also received a tax benefit of
$886 from the exercise of non-qualified options and the exercise and
disqualifying disposition of incentive options.
F-14
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
The components of temporary differences and the approximate tax effects
that give rise to the Company's net deferred tax liability at June 30, 1997 and
1998 and net deferred tax asset at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------ MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carry forwards and AMT credits................... $ 390 $ 919 $ 4,863
Accruals............................................................ 1,342 990 1,057
------- ------- -------
Total deferred tax assets............................................. 1,732 1,909 5,920
------- ------- -------
Deferred tax liabilities:
Licenses............................................................ 3,727 3,945 4,798
Depreciation........................................................ 276 525 1,010
------- ------- -------
Total deferred tax liabilities........................................ 4,003 4,470 5,808
------- ------- -------
Net deferred tax assets (liabilities)................................. $(2,271) $(2,561) $ 112
------- ------- -------
------- ------- -------
Current deferred tax asset............................................ $ 1,342 $ 990 $ 1,057
Long-term deferred tax liabilities.................................... (3,613) (3,551) (945)
------- ------- -------
Net deferred tax assets (liabilities)................................. $(2,271) $(2,561) $ 112
------- ------- -------
------- ------- -------
</TABLE>
At March 31, 1999, the Company had $95 of AMT credits available for use in
future periods and $12,547 of net operating loss carry forwards which begin to
expire in 2010.
Income tax expense (benefit) varies from the amount computed by applying
the federal corporate income tax rate of 34% to income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------ --------------------------
1996 1997 1998 1998 1999
----- ------- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" income tax expense
(benefit)........................................ $(500) $ 502 $830 $ 1,100 $(1,293)
Increase (decrease) in income taxes resulting from:
State income tax expense (benefit), net of
federal effect................................ (58) 74 98 129 (151)
Change in valuation allowance.................... 362 (1,043) -- -- --
Nondeductible portion of meals and
entertainment................................. 8 17 38 26 15
Other............................................ 84 370 (39) (17) (16)
----- ------- ---- ------- -------
Actual income tax expense (benefit).............. $(104) $ (80) $927 $ 1,238 $(1,445)
----- ------- ---- ------- -------
----- ------- ---- ------- -------
</TABLE>
F-15
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES -- (CONTINUED)
The components of income tax expense (benefit) for the respective periods
are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
---------------------- --------------------------
1996 1997 1998 1998 1999
----- ----- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
State.............................................. $ -- $ -- $101 $ 195 $ --
Federal............................................ -- -- 536 174 342
----- ----- ---- ------- -------
-- -- 637 369 342
----- ----- ---- ------- -------
Deferred:
State.............................................. (60) 74 46 139 (288)
Federal............................................ (44) (154) 244 730 (1,499)
----- ----- ---- ------- -------
(104) (80) 290 869 (1,787)
----- ----- ---- ------- -------
Total expense (benefit).............................. $(104) $ (80) $927 $ 1,238 $(1,445)
----- ----- ---- ------- -------
----- ----- ---- ------- -------
</TABLE>
In connection with the acquisition of BCST, in 1997, the Company reduced
the valuation allowance for deferred tax assets by $189, representing the effect
of the deferred tax liabilities expected to reverse in the net operating loss
carry forward period. The reduction of the valuation allowance was effected by
reducing intangible asset balances recorded as a result of the acquisitions.
In the fourth quarter of 1997, in connection with budgeting and forecasting
models, management determined that it was more likely than not that the Company
would realize the full value of the recorded deferred tax assets and thus
eliminated the valuation reserve.
Specific factors considered by management included a return to profitable
operations that had been created by a change in strategic direction implemented
by the relatively new ownership and management team. Strategic actions included
acquisition of broadcast properties to take advantage of "must carry" statutes
to increase coverage in major metropolitan markets such as Boston and Houston,
and the use of cable affiliations to expand coverage in other major markets.
Further, emphasis was placed on selling product that yielded a higher margin
from sales.
Recognition of a deferred tax asset is based on management's belief that it
is more likely than not that the tax benefit associated with certain temporary
differences will be realized through the amortization of the license intangible.
NOTE 9 -- COMMITMENTS
Transponder Use Agreement and Purchased Air-Time. In December 1995, the
Company's transponder lease with AT&T's 402R became effective. Shop At Home has
contracted for a "Fully Protected" service which provides that the services
shall be "non-preemptible" on the same transponder; or, if that is not possible,
then on a transponder on the same satellite; and, if that is not possible, then
on a satellite of similar quality and location. The expenses for the transponder
and purchased air time (primarily for cable access fees) were $6,025, $12,118,
and $17,768, for fiscal years ended June 30, 1996, 1997 and 1998, respectively;
and $12,544 and $19,370 for the nine months ended March 31, 1998 and 1999,
respectively (unaudited).
Royalty Commitments. Collector's has minimum contractual commitments to
National Football League Players, Incorporated and National Football League
Properties, Inc., in addition to other minor licensors, which are in the normal
course of its business. The commitments at June 30, 1998 and March 31, 1999,
(unaudited) approximate $1.2 million.
F-16
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- COMMITMENTS -- (CONTINUED)
Lease Commitments. Rental expense for the office and studio and
miscellaneous equipment was $483, $529 and $840 for the fiscal years ended June
30, 1996, 1997 and 1998, respectively; and $497 and $881 for the nine months
ended March 31, 1998 and 1999, (unaudited) respectively, which includes the
Company's Knoxville office and studio space leased from an entity owned by a
director of the Company. Payments under this lease totaled $143, $140 and $149,
in the fiscal years ended June 30, 1996, 1997 and 1998, respectively; $112 and
$76 for the nine months ended March 31, 1998 and 1999, respectively (unaudited).
The Company has agreements with various affiliated television and cable
system operators to purchase air time. The terms of the agreements vary from
week-to-week to one-year periods and are generally cancelable on 30 days notice.
NOTE 10 -- RELATED PARTY TRANSACTIONS
The Company engages in significant transactions with the Company's
directors, significant stockholders, officers or interests of these parties. The
following is a summary of major transactions with these related parties not
disclosed elsewhere in the consolidated financial statements or notes thereto:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
-------------------- -----------------
1996 1997 1998 1998 1999
---- ---- ---- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Other operating expenses:
Lakeway Container (Vendor and Director)..................... 64 6 19 -- --
Airbank (Vendor and Director)............................... 38 22 -- -- --
MediaOne (Vendor and Director).............................. 158 -- -- -- --
</TABLE>
The Company leased its Knoxville office and studio space from William and
Warren, Inc., an entity owned by W. Paul Cowell, a director, and paid total
lease payments of approximately $149 during the fiscal year ended June 30, 1998,
and $76 (unaudited) during the nine months ended March 31, 1999. Management of
the Company determined that these terms and conditions were competitive with
comparable commercial space being leased in the Knoxville market. With the
relocation of its offices and studios to Nashville, Tennessee, the Company gave
notice of termination of the lease as of December 31, 1998.
On August 16, 1995, the Company issued its $2 million 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. 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 sold and 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.
In September 1998, the Company relocated its studios and headquarters to
newly constructed facilities in Nashville, Tennessee. The real property for the
new facility was initially acquired by a limited liability company organized by
individuals related to J.D. Clinton, and that company obtained a construction
loan (the "Facility Loan") in January 1998 from a commercial lender to build the
facility. The loan was guaranteed by the Company and also was personally
guaranteed by Mr. Clinton. The Company 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,
F-17
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
which was to be payable in either cash or in stock of the Company. In March
1998, the Company acquired the facility by acquiring all of the ownership
interest in the limited liability company for a price equal to the balance due
on the Facility Loan, thereby generating no profits for the owners of the
limited liability company. The Company paid the Facility Loan in full upon the
acquisition of the limited liability company, thereby terminating Mr. Clinton's
guaranty. As a result of the agreement to pay a fee to Mr. Clinton for his
guaranty, the Company issued to Mr. Clinton a total of 11,226 shares of Common
Stock. The Company also retained the services of a development company with
respect to the construction and development of the facility, and paid a
development fee of approximately $138 for its services. The development company
is owned by Stephen Sanders, an individual who is related to J.D. Clinton. The
Board of Directors of the Company approved the development agreement and
determined that the agreed upon fee was in an amount considered normal and
typical in the industry for the type of services to be rendered.
In connection with the relocation of the President's primary residence from
Atlanta, Georgia, to Nashville, Tennessee, the Company has made an interest-free
loan to the President in the principal amount of $800.
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 were $10
and the outstanding balance on the lease at December 31, 1997 was $350. James P.
Clinton, the brother of J.D. Clinton, is a principal of Brownsville Auto Leasing
Corporation. This financing transaction was terminated in April 1998, when the
Company acquired the transmitter from the lessor at the price agreed upon in the
lease agreement.
NOTE 11 -- STOCK OPTIONS AND WARRANTS
In 1991, the Company adopted a stock incentive plan for eligible employees.
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 ("SARs") 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 the 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.
Options and SARs granted under the plan become exercisable immediately in
the event 80% or more of the Company's outstanding stock or substantially all of
its assets are acquired by a third party.
No options or SARs may be granted after October 15, 2001. No option that is
an incentive stock option and any corresponding SAR that is related to such
option shall be exercisable after the expiration of ten years from the date such
option or SAR was granted or five years after the expiration in the case of any
such option or SAR that was granted to a 10% stockholder. A maximum of 1,500,000
shares of common stock may be issued under the plan upon the exercise of options
and SARs. No SARs have been issued under the plan.
No compensation expense has been recognized for options granted under the
plan. Had compensation expense for the Company's plan been determined based on
the fair value at the grant dates for awards under
F-18
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- STOCK OPTIONS AND WARRANTS -- (CONTINUED)
the plan consistent with the method of SFAS 123, the Company's net income (loss)
and net income (loss) per share would have been adjusted to the pro forma
amounts indicated in the following table.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
---------------------------------------------------------- --------------------------------------
1996 1997 1998 1998 1999
------------------ ----------------- ----------------- ----------------- ------------------
AS PRO AS PRO AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ------- -------- ------ -------- ------ -------- ------ -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss)............ $(1,405) $(1,431) $1,556 $1,466 $1,513 $1,385 $1,998 $1,910 $(2,357) $(2,558)
Basic earnings (loss) per
share...................... $ (.14) $ (.14) $ .14 $ .14 $ .10 $ .09 $ .17 $ .16 $ (.10) $ (0.11)
Diluted earnings (loss) per
share...................... $ (.14) $ (.14) $ .12 $ .11 $ .09 $ .08 $ .14 $ .13 $ (.10) $ (0.11)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for the grants in the years ended June 30, 1996, 1997 and 1998,
respectively: dividend yield of 0%; expected volatility of 65%; risk-free
interest rate of 5.5%, 6.0% and 6.5%; and expected life of 7.5 years. For the
nine month period ended March 31, 1999, the assumptions used were a dividend
yield of 0%, expected volatility of 76%, risk-free interest rate of 4.4% and
expected life of 7.5 years (unaudited).
A summary of the status of the Company's options as of June 30, 1996, 1997
and 1998, and as of March 31, 1999 (unaudited) and changes during the periods
ending on those dates is presented below:
F-19
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- STOCK OPTIONS AND WARRANTS -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------------------------------------------------- ---------------------------------------
1996 1997 1998 1998 1999
-------------------- --------------------- -------------------- ------------------------- -----------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS
--------- -------- --------- -------- --------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of 1,630,000 $ 1.77 1,785,000 $ 2.01 2,192,500 $ 2.20 2,192,500 $2.20 2,379,000
period.............
Granted............ 325,000 2.84 639,500 (a)2.88 698,000 3.40 698,000 3.40 1,032,000
Exercised.......... (126,000) 1.00 (120,000) 1.00 (454,600) 1.10 (394,600) 1.07 (859,000)
Forfeited.......... (44,000) 2.44 (112,000) 2.81 (56,900) 2.88 (55,900) 2.75 (155,000)
--------- --------- --------- --------- ---------
Outstanding at end of
period............. 1,785,000 $ 2.01 2,192,500 $ 2.20 2,379,000 $ 2.51 2,440,000 $2.73 2,397,000
Options exercisable
at period end...... 1,012,000 1,493,500 1,175,000 1,119,200 948,400
Weighted average fair
value of options
granted during the
period............. $ 2.02 $ 2.04 $ 2.61 $ 2.49 $ 7.06
<CAPTION>
MARCH 31,
------------
1999
------------
WEIGHTED
AVERAGE
EXERCISE
PRICE
-----------
(UNAUDITED)
<S> <C>
Outstanding at
beginning of $2.51
period.............
Granted............ 10.02
Exercised.......... 2.46
Forfeited.......... 3.90
Outstanding at end of
period............. $5.88
Options exercisable
at period end......
Weighted average fair
value of options
granted during the
period.............
</TABLE>
- ------------------
(a) Effective June 19, 1997, the Option Committee repriced all options granted
in fiscal year 1997 to $2.875 with the same terms and conditions. The
options as repriced have been used in all applicable computations.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AT AVERAGE EXERCISABLE AT
MARCH 31, 1999 REMAINING WEIGHTED MARCH 31, 1999 WEIGHTED
AVERAGE AVERAGE
RANGE OF EXERCISE PRICES CONTRACTUAL PRICE EXERCISE PRICE EXERCISE PRICE
- ---------------------------------------- -------------- ----------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
$ 1.00 - $ 1.99......................... 200,000 4 years $ 1.00 200,000 $ 1.00
$ 2.00 - $ 2.99......................... 984,000 7 years 2.83 447,200 2.85
$ 3.00 - $ 3.99......................... 392,000 8 years 3.55 101,200 3.72
$ 5.00 - $ 5.99......................... 8,000 10 years 5.25 -- --
$ 6.00 - $ 6.99......................... 70,000 10 years 6.97 70,000 6.97
$11.00 - $11.99......................... 504,000 10 years 11.81 100,000 11.81
$12.00 - $12.99......................... 2,500 10 years 12.75 -- --
$13.00 - $13.99......................... 236,500 10 years 13.21 30,000 13.00
---------- --------
2,397,000 948,400
---------- --------
---------- --------
</TABLE>
During the year ended June 30, 1998 and the nine months ended March 31,
1999, 100,000 and 580,000 (unaudited) options were granted to directors at an
average exercise price of $3.25 and $11.41 respectively. The compensation
expense related to these grants was $6 for the year ended June 30, 1998 and $13
for the nine months ended March 31, 1999 (unaudited), respectively.
At March 31, 1999 (unaudited), warrants to purchase 2,800,000 shares of
common stock at $1.29 per share are outstanding. These warrants expire June 30,
2001.
F-20
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- EARNINGS (LOSS) PER SHARE
The following table sets forth for the periods indicated the calculation of
net earnings (loss) per share included in the Company's Consolidated Statements
of Operations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30 MARCH 31,
----------------------------- --------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)................................... $(1,405) $ 1,556 $ 1,513 $ 1,998 $(2,357)
Preferred stock dividends........................... (14) (14) (14) (15) (15)
------- ------- ------- ------- -------
Numerator for basic earnings per share -- income
available to common stockholders................. (1,419) 1,542 1,499 1,983 (2,372)
Effect of dilutive securities:
Preferred stock dividends........................ 14 14 14 15 15
Interest on convertible debt..................... -- 175 50 50 --
------- ------- ------- ------- -------
Numerator for diluted earnings per share -- income
available to common stockholders after assumed
conversions...................................... $(1,405) $ 1,731 $ 1,563 $ 2,048 $(2,357)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Denominator:
Denominator for basic earnings per share --
weighted-average shares......................... 10,284 10,651 14,511 11,593 23,567
Effect of dilutive securities:
a) Employee stock options........................ -- 528 436 513 --
b) Non employee options.......................... -- 150 204 229 --
c) Warrants...................................... -- 2,268 2,088 2,112 --
d) Convertible preferred stock................... -- 138 138 138 --
e) Convertible debt.............................. -- 533 119 158 --
Denominator for diluted earnings per share --
adjusted weighted-average shares and assumed
conversions......................................... 10,284 14,268 17,496 14,743 23,567
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Basic earnings (loss) per share....................... $ (.14) $ .14 $ .10 $ .17 $ (.10)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Diluted earnings (loss) per share..................... $ (.14) $ .12 $ .09 $ .14 $ (.10)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
The amounts of dilutive securities set forth below are excluded from the
computations of diluted per share loss in loss years because their inclusion
would be anti-dilutive. They are disclosed here for informational and
comparative purposes only:
<TABLE>
<S> <C> <C> <C> <C> <C>
a) Employee stock options............................. 569 -- -- -- 1,693
b) Non Employee options............................... 190 -- -- -- 98
c) Warrants........................................... 2,321 -- -- -- 2,334
d) Convertible preferred stock........................ 138 -- -- -- 137
e) Convertible debt................................... 590 -- -- -- --
</TABLE>
NOTE 13 -- EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all full-time
employees who have one year of service and are age twenty-one or older.
Participants are permitted to make contributions in an amount equal to 1% to 15%
of their compensation actually paid or received. Employer contributions are
discretionary and allocated to each eligible employee in proportion to his or
her compensation as a percentage of the compensation of all eligible employees.
During 1997 and 1998, the Company did not make contributions to the plan.
F-21
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk include cash on deposit in financial
institutions and accounts receivable. Receivables are due from credit card
companies and ultimate customers. The Company maintains reserves which
management believes are adequate to provide for losses. Management believes the
financial institutions holding the cash to be financially sound.
The home shopping industry is sensitive to general economic conditions and
business conditions affecting consumer spending. The Company's product lines
include jewelry, sports cards, sports memorabilia, collectibles and other unique
items that may make it more sensitive to economic conditions. Collector's
products include various sports cards and memorabilia, some of which are sold
through Shop At Home, Inc.
NOTE 15 -- ACQUISITION OF BROADCAST CABLE AND SATELLITE TECHNOLOGIES, INC.
In September 1996, the Company, through its subsidiary, Broadcast, Cable
and Satellite Technologies, Inc. (BCST), entered into a $1,400 Promissory Note
for the acquisition of the 51% interest in Urban Broadcast Systems, Inc. (UBS)
it did not own. The note bears interest at 6%, interest only in the first year,
principal and interest payable thereafter; and was payable in 132 monthly
installments. The note was collateralized by a pledge of the capital stock of
Urban Broadcast Systems, Inc. and was repaid in March 1998. The additional
purchase price was added to the amount of FCC License originally recorded
because it was the only asset owned by UBS. This transaction culminated in 100%
ownership of the FCC license for station KZJL.
NOTE 16 -- COLLECTOR'S EDGE OF TENNESSEE, INC.
On February 25, 1997, Collector's Edge of Tennessee, Inc. was formed to
acquire the assets of a former trading card wholesaler. Collector's is a trading
card wholesaler, whose principal assets are licenses from National Football
League Properties, Inc. and National Football League Players, Incorporated.
Collector's was initially funded through the purchase by the Company of
$750 of preferred stock and a working capital loan of $400. The preferred stock
was subsequently converted into common stock of Collector's. In addition,
Collector's assumed a term note in the amount of $1.9 million, and borrowed an
additional $1.0 million from a financial institution. The loans were guaranteed
by the Company and collateralized by BCST and repaid in March 1998.
The acquisition of Collector's has been accounted for under the purchase
method. Accordingly, the operating results of Collector's have been included in
the consolidated operating results since the date of acquisition. The purchase
price of $1,150 has been allocated to the net assets acquired based on appraised
fair values at the date of acquisition as follows:
<TABLE>
<S> <C>
Current assets...................................................................... $ 3,324
Licensing costs..................................................................... 1,455
Property and equipment.............................................................. 340
Goodwill............................................................................ 1,185
Accounts payable and accrued liabilities............................................ (2,235)
Notes payable....................................................................... (2,919)
---------
$ 1,150
---------
---------
</TABLE>
NOTE 17 -- ACQUISITION BY SAH ACQUISITION CORPORATION II
On March 27, 1998, SAH Acquisition Corporation II, a wholly-owned
subsidiary of the Company, acquired the assets and broadcast licenses of
television stations KCNS, San Francisco, California; WRAY, Wilson, North
Carolina (Raleigh market); and WOAC, Canton, Ohio (Cleveland market). The
stations were purchased pursuant to an Asset Purchase Agreement dated September
23, 1997 by and between Global Broadcasting Systems, Inc., its affiliate
("Global") and SAH Acquisition Corporation II. The acquisition of the stations
was accounted for by the Company as an acquisition of assets and not the
acquisition of a
F-22
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- ACQUISITION BY SAH ACQUISITION CORPORATION II -- (CONTINUED)
"business," as defined in SEC Rule 210.11-01(d). The Company reached this
conclusion because, with the exception of a de minimis period of time, none of
the acquired stations had been historically operated as a broadcast outlet for
home shopping programming by Global or the predecessor in title, and the Company
concluded that there was no continuity of revenues from those stations from
which relevant historical information could be derived. The total purchase price
paid by SAH II to Global in connection with the acquisition was $52,350. In
connection with the assignment of the Executory Contract, SAH II purchased WOAC
for a total purchase price of $23,500.
At the time SAH II entered into the Asset Purchase Agreement with Global
Broadcasting Systems, Inc. on September 23, 1997, Global Broadcasting was a
party to an asset purchase agreement with Pine Mountain Christian Broadcasting,
Inc., the licensee of WPMC(TV) in Jellico, Tennessee (Knoxville market) and an
entity unrelated to either Global Broadcasting or Shop At Home. Under the terms
of that agreement, Global Broadcasting had the right to acquire WPMC for a
purchase price of $4,100 subject to FCC approval and other normal closing
contingencies, and Global Broadcasting had previously paid $500 into an escrow
account which could be applied toward the satisfaction of the purchase price.
Under the terms of the Asset Purchase Agreement between Global Broadcasting and
SAH II, Global Broadcasting agreed to assign its contractual right to buy WPMC
to SAH II. Under that assignment, SAH II would have been assigned Global
Broadcasting's rights in the $500 escrow payment, effectively requiring Shop At
Home to pay the net purchase price of $3,600 for WPMC.
During this same period of time, Shop At Home was involved in litigation in
Texas with Paxson Communications Corporation concerning the ownership rights in
a television station in that market. Shop At Home and Paxson reached an
agreement settling that litigation, and a part of the settlement was the
agreement of Shop At Home to permit Global Broadcasting to assign its rights to
purchase WPMC to Paxson. In consideration of its agreement to do so, Paxson
agreed to make a payment of $900 to Shop At Home. Under the terms as agreed upon
by the parties, Global Broadcasting agreed to assign Global's rights in the Pine
Mountain agreement directly to Paxson, and that assignment was completed prior
to the date of SAH's acquisition of the assets being sold to it by Global. Upon
the assignment of the executory contract from Global Broadcasting to Paxson,
that transaction was complete and effective, whether or not SAH II thereafter
completed the pending acquisition with Global Broadcasting.
As a result of the completion of assignment of the Pine Mountain agreement
from Global Broadcasting to Paxson, Global Broadcasting agreed to reduce the
consideration payable for the assets being purchased from it by SAH II from
$52,850 to $52,350. Under the terms of the assignment of the executory contract
from Global Broadcasting to Paxson, the $500 escrow payment was returned to
Global Broadcasting. Because of its receipt of this amount from the escrow fund,
Global Broadcasting reduced the payment due to it from SAH II by $500.
Since the purchase price for the assets of Global Broadcasting to SAH II
did not change as a result of the assignment of the executory contract to
Paxson, except to the extent of the $500 escrow payment returned to Global
Broadcasting, Shop At Home did not deem it to be appropriate to allocate any
portion of its purchase price of the assets of Global Broadcasting to its rights
in the Pine Mountain executory contract.
NOTE 18 -- CONTINGENCIES
The Company is subject to claims in the ordinary course of business.
Management does not believe the resolution of such claims will result in a
material adverse effect on the future financial condition, results of
operations, or cash flows of the Company.
NOTE 19 -- INDUSTRY SEGMENTS
As a result of the acquisition of Collector's Edge of Tennessee, Inc.
discussed in Note 16, the Company operates principally in two segments, retail
and wholesale. The retail segment consists of home shopping, which primarily
includes the sale of merchandise through electronic retail. The wholesale
segment includes
F-23
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- INDUSTRY SEGMENTS -- (CONTINUED)
the operations of Collector's Edge of Tennessee, Inc. which sells sports trading
cards to unaffiliated customers. The Company operates almost exclusively in the
United States.
INDUSTRY SEGMENT DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30 MARCH 31,
------------------------------ --------------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Retail............................................. $40,675 $67,872 $ 95,218 $ 64,571 $ 104,214
Wholesale.......................................... -- 960 5,300 5,886 6,228
------- ------- -------- --------- ---------
$40,675 $68,832 $100,518 $ 70,457 $ 110,442
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
Operating profit (loss):
Retail............................................. $ (771) $ 2,305 $ 4,036 $ 2,079 $ 1,720
Wholesale.......................................... -- 19 (449) 684 392
------- ------- -------- --------- ---------
$ (771) $ 2,324 $ 3,587 $ 2,763 $ 2,112
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
Assets:
Retail............................................. $20,287 $29,772 $136,865 $ 137,137 $ 138,314
Wholesale.......................................... -- 4,638 6,905 8,333 8,122
------- ------- -------- --------- ---------
$20,287 $34,410 $143,770 $ 145,470 $ 146,436
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
Depreciation and amortization:
Retail............................................. $ 878 $ 820 $ 1,515 $ 711 $ 3,060
Wholesale.......................................... -- 237 673 482 549
------- ------- -------- --------- ---------
$ 878 $ 1,057 $ 2,188 $ 1,193 $ 3,609
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
Capital expenditures:
Retail............................................. $ 507 $ 1,046 $ 16,771 $ 6,785 $ 8,052
Wholesale.......................................... -- 10 29 28 11
------- ------- -------- --------- ---------
$ 507 $ 1,056 $ 16,800 $ 6,813 $ 8,063
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
</TABLE>
NOTE 20 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following is summarized condensed consolidating financial information
for the Company, segregating the Parent from the guarantor subsidiaries. The
guarantor subsidiaries are wholly owned subsidiaries of the Company and
guarantees are full, unconditional, joint and several. The separate company
financial statement of each guarantor subsidiary has not been included herein
because management does not believe that they would be more meaningful to
investors than the presentation of the condensed consolidating financial
information presented below.
F-24
<PAGE>
CONSOLIDATING BALANCE SHEET DATA
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1998 MARCH 31,
1999
------------------------------------- -------------------------------------- -----------
PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED PARENT
------- ------------ ------------ -------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents..... $ 4,757 $ 321 $ 5,078 $ 20,848 $ 376 $ 21,224 $ 8,738
Accounts receivable........... 7,938 244 3,296 88,307 3,505 3,830 91,771
Inventories................... 2,778 484 3,262 4,061 271 4,332 4,940
Prepaid expenses.............. 384 74 458 301 103 404 599
Deferred tax assets........... 1,342 -- 1,342 990 -- 990 1,057
------- -------- -------- -------- -------- -------- ---------
Total current assets............ 17,199 1,123 13,436 114,507 4,255 30,780 107,105
Notes receivable................ 400 -- -- 1,060 -- 660 681
Property and equipment, net..... 1,321 3,112 4,434 13,756 6,801 20,557 20,431
FCC and NFL licenses, net....... 162 13,261 13,423 157 84,673 84,831 294
Goodwill, net................... 590 254 1,990 574 1,958 2,532 562
Other assets.................... 438 1,835 1,127 4,406 4 4,410 6,027
Investment in subsidiaries...... 10,360 -- -- 10,361 -- -- --
------- -------- -------- -------- -------- -------- ---------
Total assets.................... $30,470 $ 19,585 $ 34,410 $144,821 $ 97,691 $143,770 $ 135,100
------- -------- -------- -------- -------- -------- ---------
------- -------- -------- -------- -------- -------- ---------
Liabilities and Stockholders'
Equity:
Accounts payable and accrued
expenses.................... $14,339 $ 6,065 $ 15,519 $ 17,616 $ 89,031 $ 18,784 $ 21,845
Current portion--capital
leases and long-term debt... 849 1,602 2,451 161 -- 161 --
Deferred revenue.............. 88 20 108 235 31 267 160
------- -------- -------- -------- -------- -------- ---------
Total current liabilities....... 15,276 7,687 18,078 18,012 89,062 19,212 22,005
Long-term debt................ 5,294 2,628 7,522 75,254 400 75,254 74,600
Deferred income taxes......... -- 3,613 3,613 3,659 (63) 3,551 1,249
Redeemable preferred stock.... 1,393 750 1,393 1,393 750 1,393 325
Common stock.................. 27 1 27 58 1 58 59
Additional paid-in capital.... 10,067 9,609 10,067 49,079 9,684 49,079 41,577
Accumulated deficit........... (1,587) (4,703) (6,290) (2,634) (2,143) (4,777) (4,715)
------- -------- -------- -------- -------- -------- ---------
Total liabilities and
stockholders' equity.......... $30,470 $ 19,585 $ 34,410 $144,821 $ 97,691 $143,770 $ 135,100
------- -------- -------- -------- -------- -------- ---------
------- -------- -------- -------- -------- -------- ---------
<CAPTION>
MARCH 31,
1999
---------------------------
SUBSIDIARIES CONSOLIDATED
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Assets:
Cash and cash equivalents..... $ 83 $ 8,821
Accounts receivable........... 4,412 9,423
Inventories................... 825 5,765
Prepaid expenses.............. 724 1,323
Deferred tax assets........... -- 1,057
-------- --------
Total current assets............ 6,044 26,389
Notes receivable................ -- 681
Property and equipment, net..... 7,492 27,923
FCC and NFL licenses, net....... 82,714 83,008
Goodwill, net................... 1,846 2,408
Other assets.................... -- 6,027
Investment in subsidiaries...... -- --
-------- --------
Total assets.................... $ 98,096 $146,436
-------- --------
-------- --------
Liabilities and Stockholders'
Equity:
Accounts payable and accrued
expenses.................... $ 88,636 $ 23,721
Current portion--capital
leases and long-term debt... -- --
Deferred revenue.............. 23 183
-------- --------
Total current liabilities....... 88,659 23,904
Long-term debt................ 400 75,000
Deferred income taxes......... (304) 945
Redeemable preferred stock.... 750 1,075
Common stock.................. 2 61
Additional paid-in capital.... 11,008 52,585
Accumulated deficit........... (2,419) (7,134)
-------- --------
Total liabilities and
stockholders' equity.......... $ 98,096 $146,436
-------- --------
-------- --------
</TABLE>
- ------------------
Intercompany balances have been eliminated in the consolidated totals.
F-25
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS AND CASH FLOW DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------------------------------
1996 1997 1998
------------------------------------- ------------------------------------- -----------------------
PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES
------- ------------ ------------ ------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...... $40,016 $2,317 $ 40,675 $66,858 $2,977 $ 68,832 $ 92,450 $ 8,685
Cost of goods
sold............ 24,516 -- 24,516 40,328 298 40,626 54,980 4,379
Operating
expenses........ 17,128 2,511 16,930 24,944 2,992 25,882 33,958 4,111
------- ------ -------- ------- ------ -------- -------- --------
Income (loss) from
operations...... (1,628) (194) (771) 1,586 (313) 2,324 3,512 195
Interest expense,
net............. (794) (1) (795) (929) (150) (1,080) (2,709) (184)
Other income
(expense)....... 1,107 1 57 1,282 -- 232 2,813 (1,067)
------- ------ -------- ------- ------ -------- -------- --------
Income (loss)
before taxes.... (1,315) (194) (1,509) 1,939 (463) 1,476 3,616 (1,056)
Income tax expense
(benefit)....... (104) -- (104) (100) 20 (80) 1,419 (446)
------- ------ -------- ------- ------ -------- -------- --------
Net income
(loss).......... $(1,211) $ (194) $ (1,405) $ 2,039 $ (483) $ 1,556 $ 2,197 $ (610)
------- ------ -------- ------- ------ -------- -------- --------
------- ------ -------- ------- ------ -------- -------- --------
Cash flows:
Cash provided by
(used in)
operations...... $(1,159) $1,974 $ 815 $ 2,926 $3,319 $ 6,245 $(75,395) $ 80,811
Cash provided by
(used in)
investing
activities...... 1,754 (1,899) (145) 2,515 (8,017) (4,751) (12,763) (76,747)
Cash provided by
(used in)
financing
activities...... 1,075 (32) 1,043 (2,547) 4,967 1,669 104,248 (4,008)
------- ------ -------- ------- ------ -------- -------- --------
Increase (decrease)
in cash......... 1,670 43 1,713 2,894 269 3,163 16,090 56
Cash at beginning
of period....... 193 9 202 1,863 52 1,915 4,757 321
------- ------ -------- ------- ------ -------- -------- --------
Cash at end of
period.......... $ 1,863 $ 52 $ 1,915 $ 4,757 $ 321 $ 5,078 $ 20,847 $ 377
------- ------ -------- ------- ------ -------- -------- --------
------- ------ -------- ------- ------ -------- -------- --------
<CAPTION>
FOR THE YEARS
ENDED JUNE 30, FOR THE NINE MONTHS ENDED MARCH 31,
-------------- -----------------------------------------------------------------------------
1998 1998 1999
-------------- ------------------------------------- -------------------------------------
CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED PARENT SUBSIDIARIES CONSOLIDATED
------------ ------- ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues...... $100,518 $63,893 $ 6,564 $ 70,457 $98,952 $ 11,490 $110,442
Cost of goods
sold............ 58,862 38,217 2,649 40,866 61,952 3,917 65,869
Operating
expenses........ 38,069 24,428 2,400 26,828 36,705 5,756 42,461
-------- ------- -------- -------- ------- -------- --------
Income (loss) from
operations...... 3,587 1,248 1,515 2,763 295 1,817 2,112
Interest expense,
net............. (2,850) (547) (194) (741) (6,547) (43) (6,590)
Other income
(expense)....... 1,703 2,398 (1,184) 1,214 2,889 (2,213) 676
-------- ------- -------- -------- ------- -------- --------
Income (loss)
before taxes.... 2,440 3,099 137 3,236 (3,363) (439) (3,802)
Income tax expense
(benefit)....... 927 1,297 (59) 1,238 (1,283) (162) (1,445)
-------- ------- -------- -------- ------- -------- --------
Net income
(loss).......... $ 1,513 $ 1,802 $ 196 $ 1,998 $(2,080) $ (277) $ (2,357)
-------- ------- -------- -------- ------- -------- --------
-------- ------- -------- -------- ------- -------- --------
Cash flows:
Cash provided by
(used in)
operations...... $ 5,416 $ (590) $ 1,536 $ 946 $(5,066) $ 869 $ (4,273)
Cash provided by
(used in)
investing
activities...... (89,510) (7,170) (76,589) (83,759) (8,825) (1,163) (9,988)
Cash provided by
(used in)
financing
activities...... 100,240 29,437 75,000 104,437 1,782 -- 1,858
-------- ------- -------- -------- ------- -------- --------
Increase (decrease
in cash......... 16,146 21,677 (53) 21,624 (12,109) (294) (12,403)
Cash at beginning
of period....... 5,078 4,757 321 5,078 20,847 377 21,224
-------- ------- -------- -------- ------- -------- --------
Cash at end of
period.......... $ 21,224 $26,434 $ 268 $ 26,702 $ 8,738 $ 83 $ 8,821
-------- ------- -------- -------- ------- -------- --------
-------- ------- -------- -------- ------- -------- --------
</TABLE>
- ------------------
Intercompany balances have been eliminated in the consolidation
NOTE 21 -- SUBSEQUENT EVENT--INCREASE IN AUTHORIZED NUMBER OF SHARES OF COMMON
STOCK (UNAUDITED)
In April 1999, the Company held a special stockholders meeting during which
a resolution was passed which increased the authorized shares of common stock to
100 million shares from 30 million shares.
F-26
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
PRUDENTIAL SECURITIES
BANCBOSTON ROBERTSON STEPHENS
FRIEDMAN BILLINGS RAMSEY
SUNTRUST EQUITABLE SECURITIES
MORGAN KEEGAN & COMPANY, INC.
E*OFFERING
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the issuance and
distribution of the securities to be registered, other than underwriting
discounts and commissions, will be as follows:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- -------------------------------------------------------------- --------
<S> <C>
Securities and Exchange Commission registration fee........... $ 29,178
NASD filing fee............................................... $ 10,996
Nasdaq National Market listing fee............................ $ *
Printing expenses............................................. $ *
Accounting fees and expenses.................................. $ *
Legal fees and expenses....................................... $ *
Blue sky fees and expenses.................................... $ *
Transfer agent's fees and expenses............................ $ *
Miscellaneous................................................. $ *
--------
Total......................................................... $500,000*
--------
--------
</TABLE>
- ------------------
* To be filed by amendment.
All amounts except the Securities and Exchange Commission, registration fee
and NASD filing fee are estimated.
All of the expenses associated with the registration of shares to be
offered for the account of stockholders will be paid by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's charter provides that we shall indemnify our officers,
directors, agents and employees to the fullest extent permitted by the Tennessee
Business Corporation Act ("TBCA"). Section 48-18-502 of the TBCA provides that a
Tennessee corporation may indemnify an individual made a party to a proceeding,
because the individual is or was a director, against liability incurred in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative if the individual's conduct was in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no cause to believe his or her conduct was unlawful.
This indemnity extends to an individual who, while a director of a corporation,
is or was serving at the corporation's request as a director, officer, partner,
trustee, employee or agent of another corporation or enterprise. This indemnity
extends to any liability for expenses, judgments, fines and amounts paid in
settlement in connection with such action, suit or proceeding.
A corporation may not indemnify a director: (a) in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation; or (b) in connection with any other
proceeding charging improper personal benefit to him, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him.
Section 48-18-503 of the TBCA provides that, unless limited by its charter,
a corporation shall indemnify a director who has been successful in the defense
of any action, suit or proceeding, against expenses actually and reasonably
incurred by him or her in connection therewith.
Section 48-18-507 of the TBCA provides that, unless its charter provides
otherwise, an officer of a corporation who is not a director is entitled to
mandatory indemnification under Section 48-18-503 to the same extent as a
director, and a corporation may indemnify an officer, employee, or agent of a
corporation who is not a director to the same extent as a director.
Section 48-18-508 of the TBCA provides that a corporation may purchase and
maintain insurance or behalf of such individuals against liability asserted
against such persons or incurred by such persons in their capacity as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under the statutes.
We have a Directors' and Officers' Liability Insurance Policy issued by Carolina
Casualty Insurance Company. We pay the premiums on this
II-1
<PAGE>
insurance policy. The beneficiaries of this policy are our officers and
directors and, in some instances, us. This policy provides insurance coverage of
up to $5 million, less specified amounts for deductibles, against certain claims
made against our officers and directors. We also have an excess liability policy
issued by Royal & Sun Alliance that covers claims in excess of $5 million but
less than $10 million.
These policies indemnify and pay the loss of each of our officers and
directors arising from certain claims made against any of them in their capacity
as an officer or director unless we indemnify the officers and directors
directly. The insurer also will advance the costs of defending against any such
claim. The policies do not cover losses incurred by an officer or director who,
among other reasons, has acted intentionally or with criminal intent or who has
committed fraud against the Company.
These policies also cover our losses against any claim made against us
based on the securities laws and against losses incurred by us for claims made
against our officers and directors. In the case of claims made against our
officers and directors, we can only recover from the insurers the actual amount
of money we spend to indemnify our officers and directors.
Section 6.6 of the Registrant's Bylaws require the Registrant to indemnify
its officers, directors, employees or agents to the maximum extent permitted by
the TBCA. The section also provides that the Registrant may purchase and
maintain insurance as permitted in Section 48-18-508 of the TBCA.
Pursuant to the Underwriting Agreement to be filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the offering, including
certain liabilities under the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS
The following is a list of exhibits included as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------------------------
<S> <C> <C>
*1 -- Form of Underwriting Agreement dated , 1999 between Prudential Securities
Incorporated, BancBoston Robertson Stephens Inc., Friedman, Billings, Ramsey & Co. Inc.,
SunTrust Equitable Securities Corporation, Morgan Keegan & Company, Inc. and E*OFFERING Corp.
and the Company.
2.1 -- Agreement and Plan of Merger, dated May 17, 1994, among Shop At Home, Inc., SAH Merger Corp.,
and MFP, Inc., filed as Exhibit 2.1 to the Company's Registration Statement on Form S-4 filed
with the Commission on October 26, 1994, and incorporated herein by this reference.
2.2 -- First Amendment to Agreement and Plan Merger, Dated November 11, 1994, among Shop At Home,
Inc., SAH Merger Corp., and MFP, Inc., filed as Exhibit 2.2 to the Company's Registration
Statement on Form S-4 filed with the Commission on December 28, 1994, and incorporated herein
by this reference.
2.3 -- Articles of Merger of SAH Merger Corp. and MFP, Inc., recorded in Tennessee on February 24,
1995, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the
Commission on March 2, 1995, and incorporated herein by this reference.
4.3 -- Specimen of Common Stock certificate, filed as Exhibit 4.8 to the Company's Registration
Statement on Form S-4 filed with the Commission on December 28, 1994, and incorporated herein
by this reference.
4.4 -- Specimen of Preferred Stock certificate, filed as Exhibit 4.9 to the Company's Amendment No. 1
to the Registration Statement on Form S-4 filed with the Commission on January 20, 1995, and
incorporated herein by this reference.
4.6 -- Form of Trust Indenture with PNC Bank, N.A., as Trustee with regard to the 11% Secured Notes
due 2005, containing specimen of the Note, filed as Exhibit 4.6 to the Company's Amendment
No. 2 to the Registration Statement on Form S-1 filed with the Commission on March 21, 1998,
and incorporated herein by this reference.
4.7 -- Form of Security and Pledge Agreement, filed as Exhibit 4.7 to the Company's Amendment No. 2 to
the Registration Statement on Form S-1 filed with the Commission on March 21, 1998, and
incorporated herein by this reference.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------------------------
<S> <C> <C>
**5 -- Opinion regarding legality of the common stock being registered, issued by Wyatt, Tarrant &
Combs
***21 -- Subsidiaries
23.1 -- Consent of Wyatt, Tarrant & Combs, included as part of Exhibit 5
*23.2 -- Consent of PricewaterhouseCoopers LLP
***24 -- Power of Attorney
***27 -- Amended Financial Data Schedule. (For SEC Use Only)
***99 -- Opinion and Financial Statement Schedule II Valuation and Qualifying Accounts
</TABLE>
- ------------------
* Filed herewith
** To be filed by amendment
*** Previously filed
This list of exhibits is also set forth in the Exhibit Index that immediately
precedes such exhibits.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 2 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NASHVILLE, STATE OF TENNESSEE, ON
JUNE 10, 1999.
SHOP AT HOME, INC.
By: /s/ KENT E. LILLIE
----------------------------------
Kent E. Lillie
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- -------------
<S> <C> <C>
* Chairman of the Board June 10, 1999
- ------------------------------------------
J.D. Clinton
* Director June 10, 1999
- ------------------------------------------
Donna Hilley
* Director June 10, 1999
- ------------------------------------------
A.E. Jolley
* Director June 10, 1999
- ------------------------------------------
Joseph I. Overholt
* Director June 10, 1999
- ------------------------------------------
J. Daniel Sullivan
* Director June 10, 1999
- ------------------------------------------
Frank A. Woods
/s/ KENT E. LILLIE President and CEO, Director June 10, 1999
- ------------------------------------------ (principal executive officer)
Kent E. Lillie
/s/ ARTHUR D. TEK Executive Vice President and CFO June 10, 1999
- ------------------------------------------ (principal financial officer)
Arthur Tek
/s/ JOSEPH N. NAWY Vice President, Finance June 10, 1999
- ------------------------------------------ (principal accounting officer)
Joseph Nawy
*By: /s/ GEORGE PHILLIPS June 10, 1999
-------------------------------------
George Phillips
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<S> <C> <C>
*1 -- Form of Underwriting Agreement dated , 1999 between Prudential Securities
Incorporated, BancBoston Robertson Stephens Inc., Friedman, Billings, Ramsey &
Co., Inc., SunTrust Equitable Securities Corporation, Morgan Keegan & Company,
Inc. and E*OFFERING Corp. and the Company.
2.1 -- Agreement and Plan of Merger, dated May 17, 1994, among Shop At Home, Inc., SAH
Merger Corp., and MFP, Inc., filed as Exhibit 2.1 to the Company's Registration
Statement on Form S-4 filed with the Commission on October 26, 1994, and
incorporated herein by this reference.
2.2 -- First Amendment to Agreement and Plan Merger, Dated November 11, 1994, among Shop
At Home, Inc., SAH Merger Corp., and MFP, Inc., filed as Exhibit 2.2 to the
Company's Registration Statement on Form S-4 filed with the Commission on
December 28, 1994, and incorporated herein by this reference.
2.3 -- Articles of Merger of SAH Merger Corp. and MFP, Inc., recorded in Tennessee on
February 24, 1995, filed as Exhibit 4.2 to the Company's Current Report on
Form 8-K filed with the Commission on March 2, 1995, and incorporated herein by
this reference.
4.3 -- Specimen of Common Stock certificate, filed as Exhibit 4.8 to the Company's
Registration Statement on Form S-4 filed with the Commission on December 28,
1994, and incorporated herein by this reference.
4.4 -- Specimen of Preferred Stock certificate, filed as Exhibit 4.9 to the Company's
Amendment No. 1 to the Registration Statement on Form S-4 filed with the
Commission on January 20, 1995, and incorporated herein by this reference.
4.6 -- Form of Trust Indenture with PNC Bank, N.A., as Trustee with regard to the 11%
Secured Notes due 2005, containing specimen of the Note, filed as Exhibit 4.6 to
the Company's Amendment No. 2 to the Registration Statement on Form S-1 filed
with the Commission on March 21, 1998, and incorporated herein by this reference.
4.7 -- Form of Security and Pledge Agreement, filed as Exhibit 4.7 to the Company's
Amendment No. 2 to the Registration Statement on Form S-1 filed with the
Commission on March 21, 1998, and incorporated herein by this reference.
**5 -- Opinion regarding legality of the common stock being registered, issued by Wyatt,
Tarrant & Combs
***21 -- Subsidiaries
23.1 -- Consent of Wyatt, Tarrant & Combs, included as part of Exhibit 5
*23.2 -- Consent of PricewaterhouseCoopers LLP
***24 -- Power of Attorney
***27 -- Amended Financial Data Schedule. (For SEC Use Only)
***99 -- Opinion and Financial Statement Schedule II Valuation and Qualifying Accounts
</TABLE>
- ------------------
* Filed herewith
** To be filed by amendment
*** Previously filed
<PAGE>
Shop At Home, Inc.
8,850,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____________, 1999
PRUDENTIAL SECURITIES INCORPORATED
BANCBOSTON ROBERTSON STEPHENS, INC.
FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INC.
SUNTRUST EQUITABLE SECURITIES CORPORATION
MORGAN KEEGAN & COMPANY, INC.
E*OFFERING CORP.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
Shop At Home, Inc., a Tennessee corporation (the "Company"),
and the persons listed on Schedule 4 hereto, as selling stockholders
(collectively, the "Selling Stockholders") hereby confirm their agreement with
the several underwriters named in Schedule I hereto (the "Underwriters"), for
whom you have been duly authorized to act as representatives (in such
capacities, the "Representatives"), as set forth below. If you are the only
Underwriters, all references herein to the Representatives shall be deemed to
be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained,
the Company and the Selling Stockholders propose to issue and sell to the
several Underwriters an aggregate of 8,850,000 shares (the "Firm Securities")
of the Company's Common Stock, par value $.0025 per share ("Common Stock"). The
Company and the Selling Stockholders also propose to issue and sell to the
several Underwriters not more than 1,327,500 additional shares of Common Stock
if requested by the Representatives as provided in Section 3 of this Agreement.
Any and all shares of Common Stock to be purchased by the Underwriters pursuant
to such option are referred to herein as the "Option Securities", and the Firm
Securities and any Option Securities are collectively referred to herein as the
"Securities".
- ----------------
(1) Plus an option to purchase from Shop At Home, Inc. and the Selling
Stockholders named herein up to 1,327,500 additional shares to cover
over-allotments
<PAGE>
2. (A) Representations and Warranties of the Company and the Seller
Stockholders. The Company and the Selling Stockholders, jointly, and severally,
represent and warrant to, and agree with, each of the several Underwriters
that:
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "Act"). A registration statement on
such Form (File No. 333--___) with respect to the Securities, including a
prospectus subject to completion, has been filed by the Company with the
Securities and Exchange Commission (the "Commission") under the Act, and one or
more amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has
been declared by the Commission to be effective under the Act, either (A) if
the Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter
defined) relating to the Securities, that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements and, if required to be
filed pursuant to Rules 434(c)(2) and 424(b), an Integrated Prospectus (as
hereinafter defined), in either case, containing such information as is
required or permitted by Rule 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no
such amendment shall have been filed, in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act, and in the case of clause (i)(A) or
(i)(B) of this sentence as have been provided to and approved by the
Representatives prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representatives prior to the execution of this
Agreement. The Company may also file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for the purpose of registering
certain additional Securities, which registration shall be effective upon
filing with the Commission. As used in this Agreement, the term "Original
Registration Statement" means the registration statement initially filed
relating to the Securities, as amended at the time when it was or is declared
effective, including (A) all financial schedules and exhibits thereto, (B) all
documents incorporated by reference therein filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and (C) any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus
(as hereinafter defined) or, if required to be filed pursuant to Rule 434(c)(2)
and 424(b), in the Integrated Prospectus; the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission pursuant
to Rule 462(b) under the Act (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in
the Registration Statement or any amendment thereto at the time it was or is
declared effective), including all documents incorporated by reference therein
filed under the Exchange Act; the term "Prospectus" means:
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<PAGE>
(A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Securities that is first filed pursuant
to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term
Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under the Act
and if no prospectus is required to be filed pursuant to Rule
424(b) under the Act, the prospectus included in the
Registration Statement, including, in the case of clauses
(A), (B) or (C) of this sentence, all documents incorporated
by reference therein filed under the Exchange Act;
the term "Integrated Prospectus" means a prospectus first
filed with the Commission pursuant to Rules 434(c)(2) and
424(b) under the Act; and the term "Term Sheet" means any
abbreviated term sheet that satisfies the requirements of
Rule 434 under the Act. Any reference in this Agreement to an
"amendment or supplement" to any Preliminary Prospectus,
Prospectus or Integrated Prospectus or an "amendment" to any
registration statement (including the Registration Statement)
shall be deemed to include any document incorporated by
reference therein that is filed with the Commission under the
Exchange Act after the date of such Preliminary Prospectus,
Prospectus, Integrated Prospectus or registration statement,
as the case may be; any reference herein to the "date" of a
Prospectus that includes a Term Sheet shall mean the date of
such Term Sheet. For purposes of the preceding sentence, any
reference to the "effective date" of an amendment to a
registration statement shall, if such amendment is effected
by means of the filing with the Commission under the Exchange
Act of a document incorporated by reference in such
registration statement, be deemed to refer to the date on
which such document was so filed with the Commission.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus and any amendment or supplement thereto was filed with the
Commission, it (i) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements
of, the Act, the Exchange Act and the respective rules and regulations of the
Commission thereunder, and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement or any amendment thereto
was or is declared effective, it (i) contained or will contain all statements
required to be stated therein in accordance with, and complied or will comply
in all material respects with the requirements of, the Act, the Exchange Act
and the respective rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. When the Prospectus or any Term Sheet that is a part thereof or any
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<PAGE>
Integrated Prospectus or any amendment or supplement to the Prospectus is filed
with the Commission pursuant to Rule 424(b) (or, if the Prospectus or part
thereof or such amendment or supplement is not required to be so filed, when
the Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective), on the date when
the Prospectus is otherwise amended or supplemented and on the Firm Closing
Date and any Option Closing Date (both as hereinafter defined), each of the
Prospectus, and, if required to be filed pursuant to Rules 434(c)(2) and 424(b)
under the Act, the Integrated Prospectus as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act, the Exchange Act and the respective
rules and regulations of the Commission thereunder and (ii) did not or will not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made
in any Preliminary Prospectus or any amendment or supplement thereto, the
Registration Statement or any amendment thereto, the Prospectus or, if required
to be filed pursuant to Rules 434(c)(2) and 424(b) and the Act, the Integrated
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement has not been declared effective (i) the
Company has filed a Rule 462(b) Registration Statement in compliance with and
that is effective upon filing pursuant to Rule 462(b) and has received
confirmation of its receipt and (ii) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in compliance with Rule
111 promulgated under the Act or the Commission has received payment of such
filing fee.
(d) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and its subsidiaries,
taken as a whole.
(e) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement, each of
the Prospectus and any Integrated Prospectus or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it.
(f) The issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and, except as
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<PAGE>
otherwise set forth in each of the Prospectus and any Integrated Prospectus or,
if the Prospectus and any required Integrated Prospectus are not in existence,
the most recent Preliminary Prospectus, are owned beneficially by the Company
free and clear of any security interests, liens, encumbrances, equities or
claims.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in each of the Prospectus and any Integrated
Prospectus or, if the Prospectus and any required Integrated Prospectus are not
in existence, the most recent Preliminary Prospectus. All of the issued shares
of capital stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable. The Firm Securities and the Option
Securities have been duly authorized and at the Firm Closing Date or the
related Option Closing Date (as the case may be), after payment therefor in
accordance herewith, will be validly issued, fully paid and nonassessable. No
holders of outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the Securities,
and no holder of securities of the Company has any right which has not been
fully exercised or waived to require the Company to register the offer or sale
of any securities owned by such holder under the Act in the public offering
contemplated by this agreement.
(h) The capital stock of the Company conforms to the
description thereof contained in each of the Prospectus and any Integrated
Prospectus or, if the Prospectus and any required Integrated Prospectus are not
in existence, the most recent Preliminary Prospectus.
(i) Except as disclosed in the Prospectus or, each of the
Prospectus and any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus), there are not outstanding (A) securities or
obligations of the Company or any of its subsidiaries convertible into or
exchangeable for any capital stock of the Company or any such subsidiary, (B)
warrants, rights or options to subscribe for or purchase from the Company or
any such subsidiary any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of the Company or
any such subsidiary to issue any shares of capital stock, any such convertible
or exchangeable securities or obligations, or any such warrants, rights or
options.
(j) The consolidated financial statements and schedules of
the Company and its consolidated subsidiaries included in the Registration
Statement, each of the Prospectus and any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus are not in existence, the
most recent Preliminary Prospectus) fairly present the financial position of
the Company and its consolidated subsidiaries and the results of operations and
changes in financial condition as of the dates and periods therein specified.
Such financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Financial Information" in each of
the Prospectus and any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus) and in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998, fairly present, on the basis
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<PAGE>
stated in each of the Prospectus and any Integrated Prospectus (or such
Preliminary Prospectus) and such Annual Report, the information included
therein.
(k) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its consolidated subsidiaries and
delivered their report with respect to the audited consolidated financial
statements and schedules included in the Registration Statement of each of the
Prospectus and any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus), are independent public accountants as required by the
Act, the Exchange Act and the related published rules and regulations
thereunder.
(l) The execution and delivery of this Agreement have been
duly authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(m) No legal or governmental proceedings are pending to which
the Company or any of its subsidiaries is a party or to which the property of
the Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or each of the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary Prospectus), and
no such proceedings have been threatened against the Company or any of its
subsidiaries or with respect to any of their respective properties; and no
contract or other document is required to be described in the Registration
Statement or the Prospectus or any Integrated Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein (or, if the
Prospectus and any required Integrated Prospectus are not in existence, the
most recent Preliminary Prospectus) or filed as required.
(n) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained, such as may be
required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii)
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties are bound, or the charter documents or
by-laws of the Company or any of its subsidiaries, or any statute or any
judgment, decree, order, Rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company or any of its
subsidiaries.
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<PAGE>
(o) Subsequent to the respective dates as of which
information is given in the Registration Statement, the Prospectus or any
Integrated Prospectus or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary Prospectus,
neither the Company nor any of its subsidiaries has sustained any material loss
or interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding
and there has not been any material adverse change, or any development
involving a prospective material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth, or results of operations
of the Company or any of its subsidiaries, except in each case as described in
or contemplated by each of the Prospectus and any Integrated Prospectus or, if
the Prospectus and any required Integrated Prospectus are not in existence, the
most recent Preliminary Prospectus.
(p) The Company has not, directly or indirectly, (i) taken
any action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or (ii) since the filing of the Registration Statement (A) sold,
bid for, purchased, or paid anyone any compensation for soliciting purchases
of, the Securities or (B) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company (except
for the sale of Securities by the Selling Stockholders under this Agreement).
(q) The Company has not distributed and, prior to the later
of (i) the Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with the
offering and sale of the Securities other than the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or other materials, if any, permitted by the
Act.
(r) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus),
(1) the Company and its subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material transaction
not in the ordinary course of business; (2) the Company has not purchased any
of its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (3) there has
not been any material change in the capital stock, short-term debt or long-term
debt of the Company and its consolidated subsidiaries, except in each case as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(s) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and marketable
title to all personal property owned by each of them, in each case free and
clear of any security interests, liens, encumbrances, equities, claims and
other defects, except such as do not materially and adversely affect the value
of such property and do not interfere with the use made or proposed to be made
of such property by the Company or such subsidiary, and any real property and
buildings held under lease by the
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<PAGE>
Company or any such subsidiary are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the Company
or such subsidiary, in each case except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(t) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with
their respective businesses, and neither the Company nor any such subsidiary
has received any notice of infringement of or conflict with asserted rights of
any third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(w) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(x) The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has
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<PAGE>
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(y) The Company will conduct its operations in a manner that
will not subject it to registration as an investment company under the
Investment Company Act of 1940, as amended, and this transaction will not cause
the Company to become an investment company subject to registration under such
Act.
(z) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not have a
material adverse effect on the Company and its subsidiaries) and has paid all
taxes required to be paid by it and any other assessment, fine or penalty
levied against it, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being
contested in good faith or as described in or contemplated by the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(aa) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of hazardous or
toxic materials and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to
conduct their respective businesses, and the Company and each such subsidiary
is in compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(bb) Each certificate signed by any officer of the Company
and delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter
as to the matters covered thereby.
(cc) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the Company
nor any such subsidiary owns any shares of stock or any other equity securities
of any corporation or has any equity interest in any firm, partnership,
association or other entity, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
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<PAGE>
(dd) There are no holders of securities of the Company, who,
by reason of the filing of the Registration Statement, have the right (and have
not waived such right) to request the Company to register under the Act, or to
include in the Registration Statement, securities held by them.
(ee) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with management's
general or specific authorizations; (2) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (3) access
to assets is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(ff) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties is bound or may be
affected in any material adverse respect with regard to property, business or
operations of the Company and its subsidiaries.
(B) Each Selling Stockholder represents and warrants to, and
agrees with, each of the several Underwriters that:
(a) Such Selling Stockholder has caused certificates
for the number of Securities to be sold by such Selling Stockholder
hereunder to be delivered to _______________ (the "Custodian"),
endorsed in blank or with blank stock powers duly executed, with a
signature appropriately guaranteed, such certificates to be held in
custody by the Custodian for delivery, pursuant to the provisions of
this Agreement and an agreement dated ____________ among the Custodian
and the Selling Stockholder (including the related Power of Attorney,
the "Custody Agreement"). Such Selling Stockholder has full power to
enter into the Custody Agreement, this Agreement and to sell, assign,
transfer and deliver to the Underwriters the Securities to be sold by
such Selling Stockholder hereunder in accordance with the terms of the
Custody Agreement and this Agreement; and the Custody Agreement and
this Agreement has been duly executed and delivered by such Selling
Stockholder.
(b) Such Selling Stockholder is the lawful owner of
the Securities to be sold by such Selling Stockholder hereunder and
upon sale and delivery of, and payment for, such Securities, as
provided herein, such Selling Stockholder will convey good and
marketable title to such Securities, free and clear of any security
interests, liens, encumbrances, equities, claims or other defects.
(c) Such Selling Stockholder has not, directly or
indirectly, (i) taken any action designed to cause or result in, or
that has constituted or which might
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<PAGE>
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone
any compensation for soliciting purchases of, the Securities or (B)
paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Stockholders under this
Agreement).
(d) To the extent that any statements or omissions
are made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any Integrated Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder
specifically for use therein, such Preliminary Prospectus did, and the
Registration Statement, the Prospectus and Integrated Prospectus and
any amendments or supplements thereto, when they become effective or
are filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Act, the Exchange Act and
the respective rules and regulations of the Commission thereunder and
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they are made, not misleading. Such Selling Stockholder has
reviewed the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) and the Registration
Statement, and the information regarding such Selling Stockholder set
forth therein under the caption "Principal and Selling Stockholders"
is complete and accurate.
(e) The sale by such Selling Stockholder of
Securities pursuant hereto is not prompted by any adverse information
concerning the Company that is not set forth in the Registration
Statement or the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(f) The sale of the Securities to the Underwriters
by such Selling Stockholder pursuant to this Agreement, the compliance
by such Selling Stockholder with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained, such as may be required under state
securities or blue sky laws and, if the registration statement filed
with respect to the Securities (as amended) is not effective under the
Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act and the
Exchange Act, or (ii) conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under
any indenture, mortgage, deed of trust, lease or other agreement or
instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any such Selling Stockholder's respective
properties are bound, or any statute or any judgment, decree, order,
Rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Stockholder.
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(g) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the
Internal Revenue Code of 1986, as amended, with respect to the
transactions herein contemplated, each Selling Stockholder agrees to
deliver to you prior to or on the Firm Closing Date a properly
completed and executed United States Treasury Department Form W-8 or
W-9 (or other applicable form of statement specified by Treasury
Department regulations in lieu thereof).
3. Purchase, Sale and Delivery of the Securities. (a) On the
basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
and the Selling Stockholders agree to issue and sell to each of the
Underwriters, the number of Firm Securities set forth opposite the name of the
Selling Stockholders and the Company in Schedule 1 hereto, and each of the
Underwriters, severally and not jointly, agree to purchase from the Company and
Selling Stockholder, at a purchase price of $_______ per share, the number of
Firm Securities set forth opposite the name of such Underwriter in Schedule 2
hereto. One or more certificates in definitive form for the Firm Securities
that the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representatives request upon notice to the Company at least [48] hours prior to
the Firm Closing Date, shall be delivered by or on behalf of the Company to the
Representatives for the respective accounts of the Underwriters, against
payment by or on behalf of the Underwriters of the purchase price therefor by
wire transfer in same-day funds (the "Wired Funds") to the account of the
Company and the Selling Stockholders. Such delivery of and payment for the Firm
Securities shall be made at the offices of ________________ at 9:30 A.M., New
York time, on ______, 1999, or at such other place, time or date as the
Representatives, the Company and the Selling Stockholders may agree upon or as
the Representatives may determine pursuant to Section 9 hereof, such time and
date of delivery against payment being herein referred to as the "Firm Closing
Date". The Company and the Selling Stockholders will make such certificate or
certificates for the Firm Securities available for checking and packaging by
the Representatives at the offices in New York, New York of the Company's
transfer agent or registrar or of Prudential Securities Incorporated at least
24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company and the Selling Stockholders hereby
grant to the several Underwriters an option to purchase, severally and not
jointly, the Option Securities, in such amounts as are identified on Schedule 3
hereto. The purchase price to be paid for any Option Securities shall be the
same price per share as the price per share for the Firm Securities set forth
above in paragraph (a) of this Section 3. The option granted hereby may be
exercised as to all or any part of the Option Securities from time to time
within thirty days after the date of the Prospectus (or, if such 30th day shall
be a Saturday or Sunday or a holiday, on the next business day thereafter when
the New York Stock Exchange is open for trading). The Underwriters shall not be
under any obligation to purchase any of the Option Securities prior to the
exercise of such option. The Representatives may from time to time exercise the
option granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company and the Selling Stockholders setting forth the
aggregate principal amount of Option Securities as to which the several
Underwriters are then exercising
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<PAGE>
the option and the date and time for delivery of and payment for such Option
Securities. Any such date of delivery shall be determined by the
Representatives but shall not be earlier than two business days or later than
five business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time on such other date as the Representatives, the
Company and the Selling Stockholders may agree upon or as the Representatives
may determine pursuant to Section 9 hereof, is herein called the "Option
Closing Date" with respect to such Option Securities. Upon exercise of the
option as provided herein, the Company and the Selling Stockholders shall
become obligated to sell to each of the several Underwriters, and, subject to
the terms and conditions herein set forth, each of the Underwriters (severally
and not jointly) shall become obligated to purchase from the Company and the
Selling Stockholders, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then exercising the option
as such Underwriter is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional Shares. If the option is exercised as to all or
any portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on
the related Option Closing Date in the manner, and upon the terms and
conditions, set forth in paragraph (a) of this Section 3, except that reference
therein to the Firm Securities and the Firm Closing Date shall be deemed, for
purposes of this paragraph (b), to refer to such Option Securities and Option
Closing Date, respectively.
(c) The Company and the Selling Stockholders hereby
acknowledge that the wire transfer by or on behalf of the Underwriters of the
purchase price for any Shares does not constitute closing of a purchase and
sale of the Shares. Only execution and delivery of a receipt for Shares by the
Underwriters indicates completion of the closing of a purchase of the Shares
from the Company and the Selling Stockholders. Furthermore, in the event that
the Underwriters wire funds to the Company and the Selling Stockholders prior
to the completion of the closing of a purchase of Shares, the Company and the
Selling Stockholders hereby acknowledge that until the Underwriters execute and
deliver a receipt for the Shares, by facsimile or otherwise, the Company and
the Selling Stockholders will not be entitled to the Wired Funds and shall
return the Wired Funds to the Underwriters as soon as practicable (by wire
transfer of same-day funds) upon demand. In the event that the closing of a
purchase of Shares is not completed and the Wired Funds are not returned by the
Company and/or the Selling Stockholders to the Underwriters on the same day the
Wired Funds were received by the Company and/or the Selling Stockholders, the
Company and the Selling Stockholders agree to pay to the Underwriters in
respect of each day the Wired Funds are not returned by it, in same-day funds,
interest on the amount of such Wired Funds in an amount representing the
Underwriters' cost of financing as reasonably determined by Prudential
Securities Incorporated.
(d) It is understood that any of you, individually and not as
one of the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations
hereunder.
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<PAGE>
4. Offering by the Underwriters. Upon your authorization of
the release of the Firm Securities, the several Underwriters propose to offer
the Firm Securities for sale to the public upon the terms set forth in the
Prospectus.
5. (A) Covenants of the Company. The Company covenants and
agrees with each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
possible. If required, the Company will file the Prospectus or any Term Sheet
that constitutes a part thereof, or each of the Prospectus and any amendment or
supplement thereto with the Commission in the manner and within the time period
required by Rule 434 and 424(b) under the Act. During any time when a
prospectus relating to the Securities is required to be delivered under the
Act, the Company (i) will comply with all requirements imposed upon it by the
Act and the Exchange Act and the respective rules and regulations of the
Commission thereunder to the extent necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the provisions hereof
and each of the Prospectus and any Integrated Prospectus, as then amended or
supplemented, and (ii) will not file with the Commission the prospectus or the
amendment referred to in the third sentence of Section 2(a) hereof, any
amendment or supplement to such prospectus or any amendment to the Registration
Statement or any Rule 462(b) Registration Statement of which the
Representatives shall not previously have been advised and furnished with a
copy for a reasonable period of time prior to the proposed filing and as to
which filing the Representatives shall not have given their consent. The
Company will prepare and file with the Commission, in accordance with the rules
and regulations of the Commission, promptly upon request by the Representatives
or counsel for the Underwriters, any amendments to the Registration Statement
or amendments or supplements to the Prospectus and any Integrated Prospectus
that may be necessary or advisable in connection with the distribution of the
Securities by the several Underwriters, and will use its best efforts to cause
any such amendment to the Registration Statement to be declared effective by
the Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus and any Integrated Prospectus or any amendment or
supplement thereto has been filed and will provide evidence satisfactory to the
Representatives of each such filing or effectiveness.
(b) The Company will advise the Representatives, promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
post-effective amendment thereto or any order directed at any document
incorporated by reference in the Registration Statement or the Prospectus, any
required Integrated Prospectus, or any amendment or supplement thereto or any
order preventing or suspending the use of any Preliminary Prospectus, the
Prospectus, any Integrated Prospectus or any amendment or supplement thereto,
(ii) the suspension of the qualification of the Securities for offering or sale
in any jurisdiction, (iii) the institution, threatening or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the
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<PAGE>
Original Registration Statement or any Rule 462(b) Registration Statement, for
amending or supplementing any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus or for additional information. The Company will use its
best efforts to prevent the issuance of any such stop order and, if any such
stop order is issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date
when a prospectus relating to the Securities is required to be delivered under
the Act or (ii) the Option Closing Date, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Prospectus to comply with the
Act, the Exchange Act or the respective rules or regulations of the Commission
thereunder, the Company will promptly notify the Representatives thereof and,
subject to Section 5(a) hereof, will prepare and file with the Commission, at
the Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus or any Integrated Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a conformed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as
a prospectus relating to the Securities is required to be delivered under the
Act, as many copies of each Preliminary Prospectus, the Prospectus or any
Integrated Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request; without limiting the application of
clause (iii) of this sentence, the Company, not later than (A) 6:00 PM, New
York City time, on the date of determination of the public offering price, if
such determination occurred at or prior to 10:00 AM, New York City time on such
date or (B) 2:00 PM, New York City time, on the business day following the date
of determination of the public offering price, if such determination occurred
after 10:00 AM, New York City time, on such date, will deliver to the
Underwriters, without charge, as many copies of the Prospectus and any
amendment or supplement thereto as the Representatives may reasonably request
for purposes of confirming orders that are expected to settle on the Firm
Closing Date.
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<PAGE>
(f) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives a consolidated
earnings statement of the Company and its subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of
the Securities as set forth under "Use of Proceeds" in the Prospectus or any
Integrated Prospectus.
(h) The Company will not, directly or indirectly, without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock
for a period of one hundred and eighty (180) days after the date hereof, except
pursuant to this Agreement and except for issuances pursuant to the exercise of
employee stock options outstanding on the date hereof or pursuant to the terms
of convertible securities of the Company outstanding on the date hereof.
(i) The Company will not, directly or indirectly, (i) take
any action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or (ii) (A) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Securities or (B) pay or agree to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company (except for the sale of Securities by the Selling
Stockholders under this Agreement).
(j) The Company will obtain the agreements described in
Section 7(f) hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the Option
Closing Date, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price of
the Common Stock has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus and any Integrated Prospectus), the Company will,
after notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on
the date of this Agreement and (ii) the time confirmations are sent or given,
as specified by Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included
for quotation on The Nasdaq Stock Market's National Market (the "Nasdaq
National Market") prior to the Firm
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<PAGE>
Closing Date. The Company will ensure that the Securities remain included for
quotation on the Nasdaq National Market following the Firm Closing Date.
(B) Covenants of the Selling Stockholders. The Selling
Stockholders covenant and agree with each of the Underwrites that:
(a) Each Selling Stockholder will not, directly or
indirectly, without the prior written consent of Prudential Securities
Incorporated, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any Securities legally or beneficially owned by
such Selling Stockholder or any securities convertible into, or exchangeable or
exercisable for, Securities for a period of one hundred and eighty (180) days
after the date hereof.
(b) Each Selling Stockholder will not, directly or
indirectly, (i) take any action designed to cause or result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (ii) (A) sell, bid for,
purchase, or pay anyone any compensation for soliciting purchases of, the
Securities or (B) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
6. Expenses. The Company will pay all costs and expenses
incident to the performance of its and the Selling Stockholders' obligations
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs
of printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus, the Prospectus and any Integrated Prospectus and
any amendment or supplement thereto, this Agreement and any blue sky memoranda,
(ii) all arrangements relating to the delivery to the Underwriters of copies of
the foregoing documents, (iii) the fees and disbursements of the counsel,
accountants and any other experts or advisors retained by the Company, (iv)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the
Underwriters relating thereto, (vi) the filing fees of the Commission (and the
National Association of Securities Dealers, Inc.) relating to the Securities,
(vii) the quotation of the Securities on the Nasdaq National Market, (viii)
meetings with prospective investors in the Securities (other than shall have
been specifically approved by the Representatives to be paid for by the
Underwriters) and (ix) advertising relating to the offering of the Securities
(other than shall have been specifically approved by the Representatives to be
paid for by the Underwriters). If the sale of the Securities provided for
herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any
failure, refusal or inability on the part of the Company or the Selling
Stockholders to perform all obligations and satisfy all conditions on its
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<PAGE>
part to be performed or satisfied hereunder other than by reason of a default
by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities. The Company and the
Selling Stockholders shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
7. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities shall be subject, in the Representatives' sole discretion, to the
accuracy of the representations and warranties of the Company and the Selling
Stockholders contained herein as of the date hereof and as of the Firm Closing
Date, as if made on and as of the Firm Closing Date, to the accuracy of the
statements of the Company's officers and the Selling Stockholders made pursuant
to the provisions hereof, to the performance by the Company and the Selling
Stockholders of their covenants and agreements hereunder and to the following
additional conditions:
(a) If the Original Registration Statement or any amendment
thereto filed prior to the Firm Closing Date has not been declared effective as
of the time of execution hereof, the Original Registration Statement or such
amendment and, if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have been declared effective not later than
the earlier of (i) 11:00 A.M., New York time, on the date on which the
amendment to the registration statement originally filed with respect to the
Securities or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the Securities has
been filed with the Commission and (ii) the time confirmations are sent or
given as specified by Rule 462(b)(2), or with respect to the Original
Registration Statement, or such later time and date as shall have been
consented to by the Representatives; if required, the Prospectus or any Term
Sheet that constitutes a part thereof and any Integrated Prospectus and any
amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rule 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto and no order directed at any document
incorporated by reference in the Registration Statement, the Prospectus or any
Integrated Prospectus or any amendment or supplement thereto shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement, the Prospectus or any Integrated Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Wyatt, Tarrant & Combs, counsel for the Company and
the Selling Stockholders, to the effect that:
(i) the Company and each of its subsidiaries listed
in Exhibit 21 of the Registration Statement (the "Subsidiaries") have been duly
incorporated and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation
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<PAGE>
and are duly qualified to transact business as foreign corporations and are in
good standing under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company
and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have
corporate power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus or any Integrated Prospectus, and the Company has corporate power to
enter into this Agreement and to carry out all the terms and provisions hereof
and thereof to be carried out by it;
(iii) the issued shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and [, except for directors' qualifying shares] and as
otherwise set forth in each of the Prospectus and any Integrated Prospectus,
are owned beneficially by the Company free and clear of any perfected security
interests or, to the best knowledge of such counsel, any other security
interests, liens, encumbrances, equities or claims;
(iv) the Company has an authorized, issued and
outstanding capitalization as set forth in each of the Prospectus or any
Integrated Prospectus; all of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities; the
Firm Securities have been duly authorized by all necessary corporate action of
the Company and, when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable; the Securities have been duly included for trading on the Nasdaq
National Market; no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe for
any of the Securities; and no holders of securities of the Company are entitled
to have such securities registered under the Registration Statement;
(v) the statements set forth under the heading
"Description of Capital Stock" in each of the Prospectus and any Integrated
Prospectus, insofar as such statements purport to summarize certain provisions
of the capital stock of the Company, provide a fair summary of such provisions;
and the statements set forth under the headings "Description of Notes,"
"Business - Governmental Regulation" and "Business - Litigation" in each of the
Prospectus and any Integrated Prospectus, insofar as such statements constitute
a summary of the legal matters, documents or proceedings referred to therein,
provide a fair summary of such legal matters, documents and proceedings,
(vi) the execution and delivery of this Agreement
have been duly authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the Company and the
Selling Stockholders;
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<PAGE>
(vii) no legal or governmental proceedings are
pending to which the Company or any of the Subsidiaries is a party or to which
the property of the Company or any of the Subsidiaries is subject that are
required to be described in the Registration Statement, the Prospectus and any
Integrated Prospectus and are not described therein, and, to the best knowledge
of such counsel, no such proceedings have been threatened against the Company
or any of the Subsidiaries or with respect to any of their respective
properties; and no contract or other document is required to be described in
the Registration Statement, the Prospectus and any Integrated Prospectus or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required;
(viii) the issuance, offering and sale of the
Securities to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained and such as may
be required under state securities or blue sky laws, or (B) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument, known to such counsel, to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the charter
documents or by-laws of the Company or any of the Subsidiaries, or any statute
or any judgment, decree, order, Rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and applicable
to the Company or any of the Subsidiaries;
(ix) the Registration Statement is effective under
the Act; any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, and any Integrated Prospectus pursuant to Rules 434
and 424(b) has been made in the manner and within the time period required by
Rules 434 and 424(b); and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no order
directed at any document incorporated by reference in the Registration
Statement, the Prospectus and any Integrated Prospectus or any amendment or
supplement thereto has been issued, and no proceedings for that purpose have
been instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission; and
(x) the Registration Statement originally filed with
respect to the Securities and each amendment thereto and any Rule 462(b)
Registration Statement, the Prospectus and any Integrated Prospectus (in each
case, including the documents incorporated by reference therein but not
including the financial statements and other financial information contained
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the applicable requirements of the Act, the Exchange
Act and the respective rules and regulations of the Commission thereunder.
(xi) If the Company elects to rely on Rule 434, the
Prospectus is not "materially different", as such term is used in Rule 434,
from the prospectus included in the
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Registration Statement at the time of its effectiveness or any effective
post-effective amendment thereto (including such information that is permitted
to be omitted pursuant to Rule 430A).
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus and any Integrated Prospectus, as of its date or the date
of such opinion, included or includes any untrue statement of a material fact
or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials and, as to FCC
matters, to the extent satisfactory in form and scope to counsel for the
Underwriters, upon the opinion of [Wiley & Rein]. The foregoing opinion shall
also state that the Underwriters are justified in relying upon such opinion of
[Wiley & Rein], and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.
References to the Registration Statement, the Prospectus and
any Integrated Prospectus in this paragraph (b) shall include any amendment or
supplement thereto at the date of such opinion.
(c) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Schulte, Roth & Zabel LLP, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities, the
Registration Statement, the Prospectus or any Integrated Prospectus, and such
other related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such matters.
In rendering such opinion, such counsel may rely as to all matters of law upon
the opinion referred to in paragraph (b) above.
(d) The Representatives shall have received from
PricewaterhouseCoopers LLP a letter or letters dated, respectively, the date
hereof and the Firm Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) they are independent accountants with respect to
the Company and its consolidated subsidiaries within the meaning of
the Act, the Exchange Act and the applicable rules and regulations
thereunder;
(ii) in their opinion, the audited consolidated
financial statements and schedules examined by them and included in
the Registration Statement, the Prospectus and any Integrated
Prospectus comply in form in all material respects with the applicable
accounting requirements of the Act, the Exchange Act and the related
published rules and regulations thereunder;
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(iii) on the basis of their limited review in
accordance with standards established by the American Institute of
Certified Public Accountants of any interim unaudited consolidated
condensed financial statements of the Company and its consolidated
subsidiaries as indicated in their reports incorporated in the
Registration Statement, the Prospectus and any Integrated Prospectus,
carrying out certain specified procedures (which do not constitute an
examination made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of significance
with respect to the comments set forth in this paragraph (iii), a
reading of the minute books of the shareholders, the board of
directors and any committees thereof of the Company and each of its
consolidated subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have responsibility for
financial and accounting matters, nothing came to their attention that
caused them to believe that:
(A) the unaudited consolidated condensed financial
statements of the Company and its consolidated subsidiaries
included in the Registration Statement, the Prospectus and
any Integrated Prospectus do not comply in form in all
material respects with the applicable accounting requirements
of the Act, the Exchange Act and the related published rules
and regulations thereunder, or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited
consolidated financial statements included in the
Registration Statement, the Prospectus and any Integrated
Prospectus; and
(B) at a specific date not more than five business
days prior to the date of such letter, there were any changes
in the capital stock or long-term debt of the Company and its
consolidated subsidiaries or any decreases in net current
assets or stockholders' equity of the Company and its
consolidated subsidiaries, in each case compared with amounts
shown on the March 31, 1999 unaudited consolidated balance
sheet included in the Registration Statement, the Prospectus
and any Integrated Prospectus, or for the period from April
1, 1999 to such specified date there were any decreases, as
compared with the comparable period in 1998, in net revenues,
net income before income taxes or total or per share amounts
of net income of the Company and its consolidated
subsidiaries, except in all instances for changes, decreases
or increases set forth in such letter; and
(iv) they have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information that are derived from
the general accounting records of the Company and its consolidated
subsidiaries and are included in the Registration Statement, the
Prospectus and any Integrated Prospectus under the captions
"Prospectus Summary - Summary Financial Data," "Selected Financial
Data" and "Consolidated Financial Statements", in Exhibit II to the
Registration Statement or under "Available Information" item numbers
(1) through (6) incorporated by reference in the Registration
Statement, the Prospectus and any Integrated Prospectus, and have
compared such amounts, percentages and financial information with such
records of the Company and its consolidated subsidiaries and with
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information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives,
make it impractical or inadvisable to proceed with the purchase and delivery of
the Securities as contemplated by the Registration Statement, as amended as of
the date hereof.
References to the Registration Statement, the Prospectus and
any Integrated Prospectus in this paragraph (d) with respect to either letter
referred to above shall include any amendment or supplement thereto at the date
of such letter.
(e) The Representatives shall have received a certificate,
dated the Firm Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that:
(i) the representations and warranties of the
Company in this Agreement are true and correct as if made on
and as of the Firm Closing Date; the Registration Statement,
as amended as of the Firm Closing Date, does not include any
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not
misleading, the Prospectus and any Integrated Prospectus, as
amended or supplemented as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; and the Company has
performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or
prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement or any post-effective amendment
thereto and no order directed at any document incorporated by
reference in the Registration Statement or the Prospectus or
any amendment or supplement thereto has been issued, and no
proceedings for that purpose have been instituted or
threatened or, to the best of the Company's knowledge, are
contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement, the
Prospectus and any Integrated Prospectus, neither the Company
nor any of its Subsidiaries has sustained any material loss
or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding, and
there has not been any material adverse change, or any
development involving a prospective material adverse change,
in the condition (financial or otherwise), management,
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<PAGE>
business prospects, net worth or results of operations of the
Company or any of its subsidiaries, except in each case as
described in or contemplated by the Prospectus and any
Integrated Prospectus.
(f) The Representatives shall have received from each person
who is a director or officer of the Company or who owns _______ shares of
Common Stock an agreement to the effect that such person will not, directly or
indirectly, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of an option to purchase or other sale or disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or exercisable
for, shares of Common Stock for a period of One Hundred and Eighty (180) days
after the date of this Agreement.
(g) The Selling Stockholders shall have furnished to the
Representatives the opinion of [insert name of counsel for the Selling
Stockholders], counsel for the Selling Stockholders, dated the Closing Date, to
the effect that:
(i) each Selling Stockholder has full power to enter
into this Agreement and the Custody Agreement and to sell, transfer
and deliver the Common Stock being sold by such Selling Stockholder
hereunder in the manner provided in this Agreement and to perform its
obligations under the Custody Agreement; the execution and delivery of
this Agreement and the Custody Agreement have been duly authorized by
all necessary action of each Selling Stockholder; this Agreement and
the Custody Agreement have been duly executed and delivered by each
Selling Stockholder; assuming due authorization, execution and
delivery by the Custodian, the Custody Agreement is the legal, valid,
binding and enforceable instrument of such Selling Stockholder,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(ii) the delivery by each Selling Stockholder to the
several Underwriters of certificates for the Securities being sold
hereunder by such Selling Stockholder against payment therefor as
provided herein, will convey good and marketable title to such
Securities to the several Underwriters, free and clear of all security
interests, liens, encumbrances, equities, claims or other defects; and
(iii) the sale of the Securities to the Underwriters
by each Selling Stockholder pursuant to this Agreement, the compliance
by such Selling Stockholder with the other provisions of this
Agreement, the Custody Agreement and the consummation of the other
transactions herein contemplated do not (i) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained and such as
may be required under state securities or blue sky laws, or (ii)
conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under any indenture,
mortgage, deed
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<PAGE>
of trust, lease or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of
such Selling Stockholder's properties are bound, or any statute or any
judgment, decree, order, Rule or regulation of any court or other
governmental authority or any arbitrator applicable to such Selling
Stockholder.
(h) The Representatives shall have received a certificate
from each Selling Stockholder, dated the Closing Date, to the effect that:
(i) the representations and warranties of such
Selling Stockholder in this Agreement are true and correct as if made
on and as of the Closing Date;
(ii) the Registration Statement, as amended as of
the Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein not misleading, and the Prospectus, as amended or
supplemented as of the Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(iii) such Selling Stockholder has performed all
covenants and agreements on its part to be performed or satisfied at
or prior to the Closing Date.
(i) On or before the Firm Closing Date, the Representatives
and counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
(j) Prior to the commencement of the offering of the
Securities, the Securities shall have been included for trading on the Nasdaq
National Market.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company and the Selling Stockholders shall
furnish to the Representatives such conformed copies of such opinions,
certificates, letters and documents in such quantities as the Representatives
and counsel for the Underwriters shall reasonably request.
The respective obligations of the several Underwriters to
purchase and pay for any Option Securities shall be subject, in their
discretion, to each of the foregoing conditions to purchase the Firm
Securities, except that all references to the Firm Securities and the Firm
Closing Date shall be deemed to refer to such Option Securities and the related
Option Closing Date, respectively.
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<PAGE>
8. Indemnification and Contribution.
(a) The Company and each Selling Stockholder jointly and
severally agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Securities Exchange Act of 1934 (the "Exchange
Act") against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter or such controlling person may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement
made by the Company or such Selling Stockholder in Section 2 of this
Agreement;
(ii) any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration
Statement or any amendment thereto or any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or such Selling Stockholder or based upon
written information furnished by or on behalf of the Company or such
Selling Stockholder filed in any jurisdiction in order to qualify the
Securities under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange
(each an "Application");
(iii) the omission or alleged omission to state in
the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus and all Integrated Prospectus or any
amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements
therein not misleading; or
(iv) any untrue statement or alleged untrue
statement of any material fact contained in any audio or visual
materials provided by the Company or based upon written information
furnished by or on behalf of the Company, including without
limitation, slides, videos, films and tape recordings, used in
connection with the marketing of the Securities and including, without
limitation, statements communicated to securities analysts employed by
the Underwriters;
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company and the
Selling Stockholders will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus and all Integrated Prospectus or any amendment or
supplement thereto, or any Application in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
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<PAGE>
Representatives specifically for use therein. This indemnity agreement will be
in addition to any liability which the Company and the Selling Stockholders may
otherwise have. Neither the Company nor any Selling Stockholders will, without
the prior written consent of the Underwriter or Underwriters purchasing, in the
aggregate, more than fifty percent (50%) of the Securities, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not any such Underwriter or any person who
controls any such Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, each Selling Stockholder and
each person, if any, who controls the Company or such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which the Company, any
such director or officer of the Company, such Selling Stockholder or any such
controlling person of the Company or such Selling Stockholder may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any Integrated Prospectus or any
amendment or supplement thereto, or any Application or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, or
the Prospectus or any Integrated Prospectus or any amendment or supplement
thereto, or any Application or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by any Underwriter through the Representatives specifically for
use therein; and, subject to the limitation set forth immediately preceding
this clause, will reimburse, as incurred, any legal or other expenses
reasonably incurred by the Company, any such director, officer or controlling
person or such Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
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<PAGE>
such indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such
action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in
any one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
8, representing the indemnified parties under such paragraph (a) who are
parties to such action or actions) or (ii) the indemnifying party does not
promptly retain counsel satisfactory to the indemnified party or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not
be liable for the costs and expenses of any settlement of such action effected
by such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this Section 8 is unavailable or
insufficient, for any reason, to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof),
each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party on the other from the offering of the
Securities or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or
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<PAGE>
alleged omission to state a material fact relates to information supplied by
the Company, the Selling Stockholders or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct
or prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company, the Selling Stockholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to above in this paragraph (d). Notwithstanding any
other provision of this paragraph (d), no Underwriter shall be obligated to
make contributions hereunder that in the aggregate exceed the total public
offering price of the Securities purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages that such Underwriter has
otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute hereunder are several in proportion to
their respective underwriting obligations and not joint, and contributions
among Underwriters shall be governed by the provisions of the Prudential
Securities Incorporated Master Agreement Among Underwriters. For purposes of
this paragraph (d ), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall
have the same rights to contribution as such Underwriter, and each director of
the Company, each officer of the Company who signed the Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
(e) The liability of each Selling Stockholder under this
Section 8(e) shall not exceed an amount equal to the public offering price of
the Securities sold by such Selling Stockholder to the Underwriters.
9. Default of Underwriters. If one or more Underwriters
default in their obligations to purchase Firm Securities or Option Securities
hereunder and the aggregate number of such Securities that such defaulting
Underwriter or Underwriters agreed but failed to purchase is ten percent or
less of the aggregate number of Firm Securities or Option Securities to be
purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representatives for the
purchase of such Securities by other persons (who may include one or more of
the non-defaulting Underwriters, including the Representatives), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally
in proportion to their respective commitments hereunder to purchase the Firm
Securities or Option Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase. If one or more Underwriters so
default with respect to an aggregate number of Securities that is more than ten
percent of the aggregate number of Firm Securities or Option Securities, as the
case may be, to be purchased by all of the Underwriters at such time hereunder,
and if arrangements satisfactory to the Representatives are not made within 36
hours after such default for the purchase by other persons (who may include one
or more of the non-defaulting Underwriters,
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<PAGE>
including the Representatives) of the Securities with respect to which such
default occurs, this Agreement will terminate without liability on the part of
any non-defaulting Underwriter or the Company other than as provided in Section
10 hereof. In the event of any default by one or more Underwriters as described
in this Section 9, the Representatives shall have the right to postpone the
Firm Closing Date or the Option Closing Date, as the case may be, established
as provided in Section 3 hereof for not more than seven business days in order
that any necessary changes may be made in the arrangements or documents for the
purchase and delivery of the Firm Securities or Option Securities, as the case
may be. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
10. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Selling
Stockholders, the Company, its officers and the several Underwriters set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Selling Stockholders, the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with
respect to the Firm Securities or any Option Securities in the sole discretion
of the Representatives by notice to the Company and the Selling Stockholders
given prior to the Firm Closing Date or the related Option Closing Date,
respectively, in the event that the Company or the Selling Stockholders shall
have failed, refused or been unable to perform all obligations and satisfy all
conditions on their part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or such Option Closing
Date, respectively,
(i) the Company or any of its subsidiaries shall
have, in the sole judgment of the Representatives, sustained
any material loss or interference with their respective
businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or
governmental proceeding or there shall have been any material
adverse change, or any development involving a prospective
material adverse change (including without limitation a
change in management or control of the Company), in the
condition (financial or otherwise), business prospects, net
worth or results of operations of the Company and its
subsidiaries, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(ii) trading in the Common Stock shall have been
suspended by the Commission or the Nasdaq National Market or
trading in securities generally on the Nasdaq National Market
shall have been suspended or minimum or maximum prices shall
have been established on such market system;
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<PAGE>
(iii) a banking moratorium shall have been declared
by New York or United States authorities; or
(iv) there shall have been (A) an outbreak or
escalation of hostilities between the United States and any
foreign power, (B) an outbreak or escalation of any other
insurrection or armed conflict involving the United States or
(C) any other calamity or crisis or material adverse change
in general economic, political or financial conditions having
an effect on the U. S. financial markets that, in the sole
judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the
delivery of the Securities as contemplated by the
Registration Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided
in Section 10 hereof.
12. Information Supplied by Underwriters. The statements set
forth in the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus, the Prospectus or any Integrated
Prospectus (to the extent such statements relate to the Underwriters)
constitute the only information furnished by any Underwriter through the
Representatives to the Company for the purposes of Sections 2(b) and 8 hereof.
The Underwriters confirm that such statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to Prudential
Securities Incorporated, One New York Plaza, New York, New York 10292,
Attention: Equity Transactions Group; and if sent to the Company or the Selling
Stockholders, shall be delivered or sent by mail, telex or facsimile
transmission and confirmed in writing to the Company at Shop At Home, Inc.,
5388 Hickory Hollow Parkway, Antioch, Tennessee, 37013.
14. Successors. This Agreement shall inure to the benefit of
and shall be binding upon the several Underwriters, the Selling Stockholders,
the Company and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall
be deemed a successor because of such purchase.
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<PAGE>
15. Applicable Law. The validity and interpretation of this
Agreement, and the terms and conditions set forth herein, shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All
judicial proceedings arising out of or relating to this Agreement may be
brought in any state or federal court of competent jurisdiction in the State of
New York, and by execution and delivery of this Agreement, the Company and each
Selling Stockholder accepts for itself and in connection with its properties,
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and waives any defense of forum non conveniens and irrevocably agrees to
be bound by any judgment rendered thereby in connection with this Agreement.
The Company and each Selling Stockholder designates and appoints _____________,
and such other persons as may hereafter be selected by the Company and each
Selling Stockholder irrevocably agreeing in writing to so serve, as its agent
to receive on its behalf service of all process in any such proceedings in any
such court, such service being hereby acknowledged by the Company and each
Selling Stockholder to be effective and binding service in every respect. A
copy of any such process so served shall be mailed by registered mail to the
Company and the Selling Stockholders at the Company's address provided in
Section 13 hereof; provided, however, that, unless otherwise provided by
applicable law, any failure to mail such copy shall not affect the validity of
service of such process. If any agent appointed by the Company and each Selling
Stockholder refuses to accept service, the Company and each Selling Stockholder
hereby agrees that service of process sufficient for personal jurisdiction in
any action against the Company or any Selling Stockholder in the State of New
York may be made by registered or certified mail, return receipt requested, to
the Company and the Selling Stockholders at the Company's address provided in
Section 13 hereof, and the Company and the Selling Stockholders hereby
acknowledge that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Company or any Selling Stockholder in the courts of any
other jurisdiction.
17. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute an agreement binding the
Company, the Selling Stockholders and each of the several Underwriters.
Very truly yours,
SHOP AT HOME, INC.
By
--------------------------------
[Title]
SELLING SECURITYHOLDERS
-----------------------------------
(Name)
-----------------------------------
(Name)
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
BANCBOSTON ROBERTSON STEPHENS, INC.
FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INC.
SUNTRUST EQUITABLE SECURITIES CORPORATION
MORGAN KEEGAN & COMPANY, INC.
E*OFFERING CORP.
By PRUDENTIAL SECURITIES INCORPORATED
By
---------------------------------------
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
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SCHEDULE 1
SALE OF FIRM SECURITIES
Number of Firm Securities to be Sold
------------------------------------
Shop At Home, Inc.
================
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SCHEDULE 2
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriter Number of Firm Securities to be Purchased
----------- -----------------------------------------
<S> <C>
Prudential Securities Incorporation
BancBoston Robertson Stephens, Inc.
Friedman, Billings, Ramsey & Company, Inc.
SunTrust Equitable Securities Corporation
Morgan Keegan & Company, Inc.
E*OFFERING Corp.
</TABLE>
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<PAGE>
SCHEDULE 3
OVER-ALLOTMENT OPTION
[Once determined, identify who and in what amounts over-allotment will
be exercised]
-36-
<PAGE>
SCHEDULE 4
SELLING STOCKHOLDERS
-37-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
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We hereby consent to the use in this Pre-effective Amendment 2 to this
Registration Statement on Form S-3 (Registration No. 333-79247) of our reports
dated August 7, 1998, relating to the consolidated financial statements and
financial statement schedule of Shop At Home, Inc. and its subsidiaries, which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Knoxville, Tennessee
June 10, 1999
