UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June
30, 1999
[ ] Transition report pursuant to
section 13 or 15(d) of the
Securities Exchange Act of 1934 For
the transition period from ______ to
______
Commission file number 0-25596
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-1282758
(State of incorporation) (IRS EIN)
5388 Hickory Hollow Parkway
P. O. Box 305249
Nashville, Tennessee 37230-05249
(Address of principal executive offices)
Registrant's telephone number, including area code: (615)263-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $.0025 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) for the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports); and, (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Common Stock held by non-affiliates of the
registrant on August 26, 1999 was $235,735,418
Number of shares of Common Stock outstanding as of August 25, 1999 was
30,397,202
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement in connection with the 1999 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission within 120 days after the end of the Registrant's fiscal year ended
June 30, 1999 is incorporated by reference in Part III of this Annual Report on
Form 10-K.
<PAGE>
SHOP AT HOME, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
INDEX
PART I Page
Item 1. Business 5
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of
Security Holders 19
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 22
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk 31
Item 8. Financial Statements and Supplementary
` Data 32
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 61
PART III
Item 10. Directors and Executive Officers of the
Registrant 62
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain
Beneficial Owners and Management 62
Item 13. Certain Relationships and Related
Transactions 62
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 63
SIGNATURES 70
<PAGE>
FORWARD-LOOKING STATEMENTS
This report 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. Shop At Home, Inc. (the "Company" or "Shop At Home") based
these forward-looking statements largely on its current expectations and
projections about future events and financial trends affecting the financial
condition of its 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 the
Company's markets;
o the Company's expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
o anticipated trends in the Company's business;
o existing and future regulations affecting the Company's business;
o the Company's successful implementation of its business strategy;
o fluctuations in the Company's operating results; and
o technological changes in the television and Internet industry.
In addition, in this report, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Shop At Home, its business or management, are
intended to identify forward-looking statements.
The Company undertakes 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 report. Because of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
<PAGE>
ITEM 1. BUSINESS
Shop At Home
The Company sells specialty consumer products, primarily collectibles,
through interactive electronic media including broadcast, cable and satellite
television and, increasingly, the Internet. The Company offers a variety of
products such as sports cards and memorabilia, coins, currency and jewelry, many
of which it sells on an exclusive basis. The Company produces programming in a
digital format in its 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. Programming is delivered through the Company's website,
shopathomeonline.com. The Company intends to launch its new website,
collectibles.com, in the fall of 1999, and intends for collectibles.com to be
the premier website for the sale of collectible products.
The Company believes that the emergence of the Internet as a global
interactive communications medium provides it with an opportunity to leverage
its traditional broadcast assets and the Company's significant experience in
marketing specialty consumer products over an electronic medium. Since 1994, the
Company has increased its net revenues from $21.7 million to $152.0 million for
the year ended June 30, 1999, almost entirely through the use of traditional
television broadcasting. The Internet offers the Company the potential to
broaden its 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 the Company believes will result in additional repeat
customers and higher sales. In 1997, the Company established its first website,
shopathomeonline.com, which offers many of the same products sold on its
television programming. The Company is working with Oracle Corporation, iXL
Enterprises, Inc. and other vendors to develop collectibles.com.
To generate traffic on its website, the Company plans to enter into
other promotional arrangements with Internet portals in addition to its recent
promotional arrangements with Yahoo! and GO Network. The Company can market its
website at minimal incremental cost, through cross-promotional advertising on
its television broadcast programming, introducing the Company's traditional
television shoppers to a more interactive and cost-efficient sales method.
The Company owns and operates six UHF television stations, which are
located in the San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport
markets. Five of these 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 June 30, 1999, the Company's television households reached, during all or
part of the day, approximately 73 million duplicated cable or 53.5
million unduplicated households as well as direct broadcast system (DBS)
programming, many of which received the programming on more than one channel.
Approximately 9.8 million cable households received the Company's programming
on essentially a full time basis (20 or more hours per day).
The Company's 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. The Company believes that its product mix and marketing
strategy are unique in the electronic commerce industry because it features
products with high average selling prices and emphasizes merchandise that is not
widely available, and is purchased primarily by men.
The Company is incorporated in Tennessee and its principal place of
business and executive offices are located at 5388 Hickory Hollow Parkway,
Antioch, Tennessee 37013. The Company's telephone number is (615) 263-8000 and
its Internet address is www.shopathomeonline.com.
Industry Background
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 revenues.
Television station ownership allows a broadcaster to take advantage of
the "must carry" rules of the Federal Communications Commission (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 broadcasting programming that allows consumers to shop from
their homes. 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. 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. The Company believes 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.
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.
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, airline tickets and,
increasingly, specialty consumer products and larger household consumer goods.
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. Based upon a current survey and the
average annual purchases of collectors, the Company believes that the market for
primary collectibles in the United States is at least $82 billion.
The market for collectibles includes a broad range of products which
share 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.
The Company believes that traditional "brick and mortar" retailers face
a number of challenges in providing a satisfying shopping experience for
collectible products, including inventory restrictions due to physical space,
difficulties in blending merchandising strategies, a tendency to stock only high
volume inventory, in addition to building and personnel costs.
Increasingly, collectors are turning to the Internet as a source of
collectible products and information regarding collectibles.
Business Strategy
The Company's business objective is to become a leading seller of
specialty consumer products, primarily collectibles, through electronic media by
implementing the following strategies:
Increase Internet Distribution. The Company plans to increase the
distribution of its programming through the Internet. The Company plans to
launch its new website, collectibles.com, in the fall of 1999. Through the
Internet, the Company will market its products to a new audience and to an
audience which may not have access to its television programming. Since the
Company's programming is produced in a digital format, it is easy for it to use
both audio and video portions of its programming to market its products on its
website. To increase the visibility of the Company's website and expose more
potential customers to its programming, the Company will promote its website
with its television programming, and it expects to place information about
its website on high traffic portals in addition to its recent promotional
arrangements with Yahoo! and GO Network. The Company will also use
traditional media advertising to promote collectibles.com. This increased
visibility will create additional brand awareness, assisting the Company
in reaching its goal of establishing collectibles.com as the premier website
for collectors.
Broaden The Company's Television Programming Reach. The Company intend
to further broaden the distribution of its programming by seeking more favorable
programming times on the broadcast television stations and cable systems on
which its programming currently appears and by entering into additional carriage
agreements with cable systems and broadcast television stations owned by third
parties. The Company may also continue to acquire broadcast television stations
in major markets on a cost-effective basis, subject to the availability of
financing to do so through additional borrowings, cash flow or the use of stock
as consideration. By owning and operating stations in select markets, the
Company can broadcast full-time programming in those markets and thereby
increase the brand awareness of its website and its quality merchandise. In
addition, owning stations in select markets enables the Company to increase its
viewership by exercising "must carry" rights with cable system operators in
those markets. This strategy has been impacted by a recent decision of the FCC
regarding multiple ownership of television stations. See "Recent Developments -
FCC Cross-Ownership Regulation Changes" herein.
Continue to Offer High Quality, Differentiated Product Mix. The Company
plans to continue pursuing its strategy of selling products such as sports
memorabilia, coins and other collectible products, some of which are no
readily available through other television programming, Internet or retail
competitors. The Company believes its emphasis on selling higher priced,
exclusive and authenticated merchandise creates a unique market niche. This
enhances its ability to obtain carriage from cable systems and television
broadcasters and establish relationships with Internet portals.
Improve Profit Margins. As the Company's website sales increase as a
percentage of the Company's 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 its profit margins. The Company also
plans to improve profit margins by taking advantage of its purchasing power to
negotiate lower wholesale prices with vendors and spreading fixed charges
over an increased sales base. The Company will continue to optimize inventory
levels through a combination of methods which allows it to operate with minimal
working capital requirements, thereby further enhancing margins.
Leverage Customer Database. The Company's new integrated computer
system, which should be operational by the end of 1999, will permit it to better
manage its existing customer database in order to profile and track the
purchasing habits of its customers. This use of the database will enable it
to refine its merchandising decisions to maximize viewer interest by evaluating
the historical purchasing preferences of customers. The Company's new sales
systems will enable it to utilize this information in real time to offer
customers additional products which are complementary to the products they
purchase. By combining the Company's database with its Internet capabilities
and its new integrated computer system, the Company will be able to identify
particular products which coincide with customer purchasing profiles. The
Company would then be able to provide e-mail notices to customer about
purchasing the products. Additionally, the Company's sales systems allow call
center operators to market merchandise to its customers on an out-bound basis.
Develop Alternative Sources of Revenue. The Company believes there are
several opportunities to establish complementary sources of revenue, including:
(1) the sale of advertising on the Company's website; (2) the introduction
of an out-bound telemarketing program; and (3) the sale of additional products
through direct marketing and package insert programs.
Recent Developments
collectibles.com
Website development. The Company is making a significant investment in
the development of its new website, collectibles.com. The Company plans to
launch this website in the fall of 1999, and it intends 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 the Company's revenues are derived from the sale of
collectible merchandise, it sees this as an opportunity to generate additional
sales to the Company's existing customers and to promote its products to a
completely new audience who cannot currently view the Company's programming on
television. This investment represents a natural extension from the sale of
merchandise through means of traditional television, and it anticipates that the
Internet and its website will play an increasing role in the Company's future
growth. The Company plans to continue to cross-promote its website and its
television programming to fully take advantage of the capabilities of electronic
commerce and the Company's digital programming.
iXL. In April 1999, the Company entered into an agreement with iXL,
under which iXL has agreed to develop the collectibles.com website. Under this
agreement, the Company will pay iXL up to $3.0 million to construct and
customize the 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!. In April 1999, the Company entered into an agreement with
Yahoo!. According to Media Metrix, yahoo.com is the most visited website, with
approximately 32.3 million unique visitors in July 1999. Under the agreement,
the Company and Yahoo! will cross-promote each other's products and services.
The agreement, which does not require the payment of any funds from the Company
to Yahoo!, provides for:
o placement of online banner advertising featuring the Company and its
websites on Yahoo!'s websites;
o inclusion of the Company's current website and its planned website on
Yahoo!'s "Listings Page";
o links to the Company's websites from Yahoo! web pages;
o placement of the Company's logo on the Yahoo! Auction web pages;
o Yahoo!-organized auctions which feature the Company's collectible
products on Yahoo! Auction;
o products to be supplied by the Company to Yahoo! for sale on Yahoo!'s
Listing Page and the advertisement of these listings on it
television programming;
o co-sponsorship of celebrity and show host chats on Yahoo! Feature
Chats;
o broadcast of a regularly scheduled hour (the "Totally Yahoo! Hour")
during which the Company promotes and sells Yahoo!-related
products; and
o the placement of the Yahoo! logo on certain of the Company's printed
materials, the display of its logo during some of the Company's
television programming and its broadcast of commercial spots for
Yahoo!.
GO Network. In June 1999, the Company entered into an agreement with
Infoseek Corporation, the owner of the website go.com, a leading Internet
portal. GO Network has advised the Company that it has over 50 million page
views per day and over 11 million registered users. Under the agreement, the
Company will receive Gold Merchant status under the Go Shop collectibles and
jewelry departments. The Company will be one of only three Gold Merchants within
each of these departments. Benefits of Gold Merchant status include preferred
placement within the Go Shop collectibles and jewelry departments, preferred
ranking in product searches, and banner placements on the Go Shop home page.
Under the agreement, the Company will pay Infoseek a fixed fee on a monthly
basis as well as an amount equal to a percentage of the Company's revenue
attributable to sales 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 agreement
after 180 days upon giving 45 days notice.
Integrated Computer System
In early 1999, the Company entered into a series of agreements with
Oracle to acquire and install a new enterprise wide computer system. This
computer system includes new hardware and software and involves virtually all
aspects of the Company's business. With this integrated Oracle "enterprise
solution" computer system, the Company will be able to make more efficient use
of its call center operations, its e-mail capabilities and other methods of
contact with its customers. These agreements also provide for the installation
of the computer hardware which will be necessary to support the Company's
collectibles.com website. The estimated cost of the equipment, software and
installation is $10.0 million.
Television Station Acquisition
The Company purchased the assets of 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 of which $4.8 million was placed in an escrow account.
This account will be paid to the seller if the cable household reach of the
station increases to at least 900,000 households within six months of the date
of purchase (or 12 months in certain events). The Company has changed the call
sign of the station to WSAH. Under an agreement with the seller, the Company's
programming has been broadcast on WBPT on substantially a full-time basis since
April 3, 1999.
FCC Cross-Ownership Regulation Changes
On August 5, 1999, the FCC voted to make certain significant changes in
the restrictions involving the multiple ownership of broadcast stations. At that
time, the FCC voted 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. Under these new rules, a company can own
two television stations in the same market so long as there are at least eight
individually-owned television stations in the market, and the two stations are
not both among the top four stations in the market. In addition, a company can
own single stations in adjacent markets, even if the signals of the stations
overlap one another. The FCC also voted to permit a company to own two
television stations (meeting the above requirements) and up to six radio
stations in the same market, provided there are at least 20 other radio and
television stations owned separately in the market. A company would be
permitted to own four radio stations where there are at least 10 other radio
and television stations owned separately, and would be permitted to own one
radio station notwithstanding the number of other radio and television stations.
Previously, FCC rules generally prohibited an entity from holding an
attributable interest in more than one television station with overlapping
service areas. Additionally, the FCC cross-ownership rules limited 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.
Of the six television stations owned by the Company, each is located in
markets with more than eight television stations, and none of the Company's
stations are among the top four rated stations in their markets. As a result,
any owner of an existing television station in any of the Company's markets,
could acquire the Company's station in that market. In addition, a television
station purchaser could acquire any of the Company's stations, and not be
automatically prohibited from acquiring another station in the same market.
The Company believes that this rule change by the FCC makes the
Company's stations more valuable than when the stations were purchased. On
August 12, 1999 the Company announced that it had retained Yagemann Advisors
LLC, Banc of America Securities LLC and Media Venture Partners to identify
strategic alternatives to maximize shareholder value, including the possible
sale of some or all of the Company's major market stations as well as the sale
of a significant equity ownership interest to a strategic partner. The Company
stated that no decision had been made as to whether or not to pursue any
particular alternative, and there is a possibility that no transaction will
result.
If the Company were to sell one or more of its stations as a result of
this opportunity, it would seek to use a portion of the resulting proceeds to
replace any lost carriage of the Company's programming through the acquisition
of other stations or by agreements with cable televisions companies. A potential
equity investment by a strategic partner could enhance or benefit the Company's
broadcast, Internet and electronic retailing capabilities. The Indenture under
which the Company's 11% Senior Secured Notes due 2005 are issued imposes
restrictions on the ability of the Company to sell its assets or to use the
proceeds of such sales for general corporate purposes. The Company could use
proceeds of such a sale to defease the Notes in order to make any additional
proceeds available for other purposes.
Distribution of Programming
The Company distributes its programming to viewers by or through:
o the Company's owned and operated television stations;
o television stations with which the Company has 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 direct-to-home satellite programming services;
o the direct reception of the Company's satellite transmission by
individuals who own satellite dishes; and
o the Company's current website.
As of June 30, 1999, the Company's programming was viewable on
television during all or part of each day by approximately 53.5 million
individual cable households throughout North America, including DBS households.
Of these households, approximately 9.8 million households received the
programming on essentially a full-time basis (20 or more hours per day). The
Company estimates (based on a proprietary formula) that the 53.5 million cable
households that received the Company's programming for all or part of a day on
June 30, 1999, are the equivalent of approximately 18.5 million cable households
receiving such programming on a full-time basis. The Company's full-time
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 the Company's programming over satellite
downlink equipment or from over-the-air transmission of its signal.
The following table sets forth certain information with respect to the Company's
programming distribution to television cable households at June 30, 1999:
<TABLE>
<CAPTION>
Number of Hours of Programming Available to Households per Day
<S> <C> <C> <C> <C> <C> <C>
0 TO 3 3+ TO 6 6+ TO 9 9+ TO 12 OVER 12 TOTAL
------ ------- ------- -------- ------- -----
Number of Households (in millions) 5.1 26.8 4.4 4.5 12.7 53.5
</TABLE>
Programming Origination. The Company originates its programming from
its studios and technical facilities in Nashville, Tennessee. The Company
transmits its programming to transponders leased or subleased by it on
satellites. The satellites retransmit the Company's signal to (a) broadcast
television stations located throughout the United States, (b) cable television
and DBS systems and (c) satellite dish receivers.
The Company's principal satellite transponder is leased on a protected
and non-preemptible basis, which means that the provider of the service has
agreed to furnish the Company alternative service on another transponder or on
another satellite should the Company's 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.
Recently, the Company has agreed with B & P to change its transponder to a more
desirable satellite and, as a result, is currently re-negotiating its service
agreement. The new agreement may contain different provisions compared to the
existing agreement with B & P.
The Company also originates programming on its website. The Company's
website, shopathomeonline.com, is fully interactive and a visitor to this
website can order a product directly from the website. The Company is now
developing a new website, collectibles.com. The Company intends for
collectibles.com to offer the most diverse selection of primary market
collectible products on the Internet, using advanced multimedia content,
including streaming video and audio. The Company has engaged the services of
Oracle, iXL and other vendors to develop a scalable platform that will allow it
to use the Company's experience with selling specialty consumer products,
especially collectibles, in real-time programming. The Company intends 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. The Company will utilize certain profiling techniques, including
collaborative filtering, to create a personalized "store" for each collector who
registers at collectibles.com. This will permit visitors to receive information
customized for their personal preferences each time they log on to the
Company's website. This technology also will be beneficial in identifying
opportunities for out-bound marketing and cross-selling within the Company's
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 the Company's vendors will have
access. Vendors who can fill the request will inform the Company and the
customer will be notified by the Company for the purchase.
Visitors to the Company's 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. The Company plans 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. The Company plans 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 e-mail 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.
Upon the introduction of collectibles.com, the Company plans to
discontinue selling products through the shopathomeonline.com website.
Owned and Operated Stations. The following table sets forth certain
information regarding each of the broadcast stations owned by the Company:
<TABLE>
<CAPTION>
Actual cable Households
DMA Households(1) Reached (2)
---------------------------- ------------------------------
License (In Thousands) (In Thousands)
Date DMA Expiration Rank of Broadcast When
Call Sign Acquired Market Date DMA Television Cable Acquired June 30, 1999
- ----------- ---------- -------------- ---------- --------- ----------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WSAH 6/99 New York(3) 4/2007 1 6,813(3) 4,907(3) 680 680
KCNS 3/98 San Francisco 12/2000 5 2,369 1,690 1,229 1,268
WMFP 2/95 Boston 4/2007 6 2,186 1,727 750 1,573
KZJL 12/94(4) Houston 8/2006 11 1,666 850 3 736
WOAC 3/98 Cleveland 10/2005 13 1,476 1,038 205 690
WRAY 3/98 Raleigh 12/2004 29 834 520 331 381
</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 the 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.
(4) The Company 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 the Company's programming. The "When Acquired" cable
household number reflects the fact that the Company had only a nominal amount of
cable carriage when the station went on the air.
Affiliations. In 1993, the Company began an aggressive effort to
increase the distribution of its programming. Since that time, the Company has
been successful in significantly building a "network" for distribution of its
programming and in building relationships with television stations owned by
third parties and certain owners of multiple cable systems. The Company's
programming is now viewed in more than 135 television markets, including all of
the country's top ten DMAs.
The Company's affiliation agreements typically have a term of one year
and can be canceled upon 30 days notice by either party. The Company's
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 the Company generally pays a fixed rate for the hours its
programming is actually carried. In the event that the Company is not operating
profitably in a market under a carriage agreement, it will generally seek to
renegotiate the carriage rate or not renew the agreement.
Products and Customers
Products and Merchandise. The Company offers a variety of specialty
consumer products. Its 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 and
gemstones. A majority of these items are be classified as collectible products.
The Company buys products from numerous vendors and believes that it
has excellent relationships with most of its vendors. Certain products sold by
the Company are available through multiple suppliers. The Company also acquires
unique products from a select group of vendors and believes that it will be able
to continue to identify sources of specialty products. The Company believes
offering unique products helps differentiate it from its competitors. Because of
the nature of the collectibles market, the Company attempts to sign agreements
with vendors in which it is the exclusive distributor of the vendor's products.
The Company continually monitors product sales and revises its product offerings
in an effort to maintain an attractive and profitable product mix. The Company
also is continuously evaluating new products and vendors to broaden its
merchandise selection.
During the year ended June 30, 1999, the Company had three vendors from
whom it purchased more than 10% of its total cost of goods sold. These consisted
of an electronics vendor, a coin vendor and a sports vendor which accounted
for approximately 11.2%, 10.7% and 10.3% of the Company's cost of goods sold,
respectively. The Company believes that it could find replacement vendors for
the products sold by these vendors without a material adverse effect on the
Company.
The following table sets forth certain information about the types of
products sold by the Company during the years ended June 30, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Type of Product Percentage of Net Revenues
- --------------------------------------------- ----------------------------------------------------------------
1999 1998 1997
-------------------- ----------------- -------------------
<S> <C> <C> <C>
Sports Products 28.8 % 22.3 % 43.1 %
Plush Toys 19.5 22.2 0.6
Electronics 16.6 11.5 2.7
Coins and Currency 12.7 11.8 14.0
Jewelry and Gemstones 11.4 12.9 15.2
Cutlery and Knives 6.5 13.4 15.2
Health and Beauty Products 2.4 2.0 6.7
Other Items 2.1 3.9 2.5
Total 100.0 % 100.0 % 100.0 %
</TABLE>
Programming and Presentation of Merchandise. The Company segments most
of its programming into product or theme categories. It has the studio and
broadcasting capability to produce multiple live shows simultaneously, and it
occasionally provides multiple broadcasts to differing viewer groups during peak
viewing times. In the past, the Company has provided one full-time live
broadcast on its main satellite transponder and part-time live, taped or
simulcast broadcasts on two satellite transponders leased from ESPN. The new
Nashville facilities allow it to broadcast an analog and digital signal to the
Company's main satellite transponder in the same transmission signal. The
Company is able to provide specific products to specific television markets by
utilizing its multiple broadcast capabilities to take advantage of sales trends.
The Company plans to archive its digital programming and replay the programming
on its website so that visitors to the website can download any portion of the
video or audio programming they desire.
The Company can use its digital programming to enhance the presentation
of its merchandise on the website. The Company believes having its programming
available on its website will create one of the most advanced multimedia
environments of any retailer on the Internet. The availability of the
programming on its websites will provide visitors with a more comprehensive feel
for the products than visitors might receive from a simple picture and written
description.
The Company's programs use a show host approach with the host conveying
information about the products and demonstrating their use. The viewer may
purchase any product the Company offers, subject to availability. The Company
seeks to differentiate itself 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. The sale
of coins, collectible sports-related items and other limited availability
products provides the Company's viewers with alternatives to the products
offered on other televised shopping programming.
Returns of Products and Merchandise. The Company generally offers its
customers a full refund on merchandise returned within 30 days of the date of
purchase. For the year ended June 30, 1999, returns were 18.0% of total revenue,
compared to 22.0% for the year ended June 30, 1998 and 22.2% for the year ended
June 30, 1997. The Company believes its return percentage compares favorably
with those of its broadcast-based competitors in the industry.
Shipping. The Company ships customer orders as promptly as possible
after taking the order, primarily by UPS, Federal Express, or parcel post. The
Company ships either from its warehouse facility or through selected vendors
with which it has drop-ship agreements. The Company maintains its own customer
service department to address customer inquiries about ship dates, product, and
billing information. When operational, the Company believes its 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 the Company 24
hours a day, seven days a week, over the Internet or via the Company's toll-free
number (800) 366-4010. The Company uses customer sales representatives and an
automated touch-tone ordering system to accept customer orders. A majority of
its customers pay for their purchases by credit card, and the Company also
accepts payment by money order, personal check, certified check, debit card and
wire transfer. The Company recently developed and implemented an in-house
training program designed to improve the productivity, proficiency and product
knowledge of its call center operators.
Mechanical, electronic and other items may be covered by manufacturer
warranties. The Company sells extended warranties on some products. It strives
to continuously improve its customer service and utilize outside agencies to
conduct objective comparisons with its competitors. The Company periodically
surveys and researches its customers to solicit ideas for better products,
programming, and service.
Collector's Edge. In March 1997, Collector's Edge was organized as one
of the Company's 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 the year ended
June 30, 1999, Collector's Edge had net revenues of approximately $9.6 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 expires on March 31, 2000. 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. The Company expects 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.
Seasonality. The Company's business is somewhat seasonal, with its
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.
Competition
Competition in Television Commerce. The television commerce industry is
highly competitive and is dominated by The Home Shopping Network and the QVC
Network. The Company's programming competes directly with The Home Shopping
Network, QVC Network, ValueVision and other home shopping networks in almost all
of its markets. The Home Shopping Network and QVC Network are well-established
and have substantially greater financial, distribution and marketing resources
than the Company. They also reach a larger percentage of U.S. television
households. The Company is at a competitive disadvantage in attracting viewers
for a number of reasons, including the fact that its programming is often not
carried by cable systems on a full-time basis and that it may have less
desirable television channel positions on cable systems. The Company also
competes generally with traditional store and catalogue retailers, many of whom
also have substantially greater financial, distribution and marketing resources.
These competitors also may enter into business combinations, joint ventures and
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 the Company's business is difficult to predict.
Employees
As of June 30, 1999, the Company employed approximately 462 persons of
which approximately 348 were full-time employees. It believes its relationship
with its employees is good. Presently, no collective bargaining agreements exist
between the Company and its employees.
Technology
Integrated "Enterprise Solution" Computer System. The Company is in the
process of upgrading its computer platform with an enterprise wide system
designed by Oracle that will enhance each of its existing computer systems. This
new integrated system will interface with the Company's telephone center
operations, its websites, e-mail and any vendors with which it has electronic
data exchange capabilities. The Company believes that integrating its computer
systems will permit it to reduce certain costs that support sales. The
integrated system will permit it to improve its communications with and provide
more information to its customers, to its telephone operators and to management.
This system should be operational by the end of 1999.
The Oracle 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. The Company completed the construction of its new Nashville
television studios and technical facilities and moved its headquarters to
Nashville in September 1998. Compared to its 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 the Company's
programming. The video systems include digital processing and distribution
throughout the facilities, digital video recorders (tape and disc) and
state-of-the-art monitors. The Company has also implemented new operational
procedures to raise the production values of its 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 the Company's programming, its new
facilities have two new satellite uplink transmission systems. These systems
provide powerful, clear programming to its 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. The Company is also able to distribute
its programming over its Internet website.
Call Center. The Company has an Aspect Telecommunications Corporation
call center telephone system. The system integrates the Company's database with
universal caller ID capability and reduces the time necessary to process calls.
The system can now manage over 200 operators and is scalable so that the Company
can handle an increase in call volume. This telephone system has features that
permit frequent callers to receive priority so that they do not wait to speak
with one of the Company's operators. Once the integrated computer system is
operational, the telephone system will interact with the Company's 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 the
Company's customer database for the purchasing habits of its customers and
provide the operator with information on other products that may be of interest
to the caller.
Payment and Shipping. The Company's 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
the Company's vendors are connected online through an electronic data
interchange program, which embraces the Company's strategy of having products
drop-shipped by vendors where economically feasible.
Internet Architecture. The Company's system has been designed around
industry standard architectures to provide for a reliable, scalable electronic
commerce platform. The system is fully hosted at the Company's facilities in
Nashville. The Company uses commercially available, licensed technologies and
software. The Company has two Sun Microsystems 450 Internet servers. The
facilities provide redundant T-3 communications lines delivered to the
facilities on a Sonnet ring. The servers are supported by back-up power
generators. The Company's collectibles.com website will be able to handle one
million transactions per day and 3,000 visitors simultaneously. The website
will be fully integrated into the Company's current customer relationship
management system. The Company currently provides on shopathomeonline.com
a constantly refreshing picture of the current item being offered on television
programming, along with streaming audio of the programming so that a visitor can
listen to television programming in real time through the website. The Company's
new website will be designed to include streaming video of its programming.
ITEM 2. PROPERTIES
The Company's technical facilities, studios and executive offices are
located in a 74,000 square foot building it owns in Nashville, Tennessee.
The Company has recently leased approximately 9,200 square feet in an
office building adjacent to its Nashville facilities in which it plans to locate
personnel and equipment associated with its Internet operations. The adjacent
office building is owned by an entity controlled by J.D. Clinton, who is the
Chairman of the Board and a principal shareholder of the Company. The terms of
the lease are comparable to those available in similar facilities in the area
where they are located.
Each of the Company's owned television stations has studio, office and
transmitter facilities, all of which are leased. Collector's Edge leases a
10,000 square foot facility in Denver, Colorado, which it uses for offices,
production and warehousing.
ITEM 3. LEGAL PROCEEDINGS
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 the Company 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 the Company's right
to that designation and created confusion in the marketplace. In response to the
filing of the declaratory judgment action, the Company has filed an answer and
counterclaim alleging that the use of the name "SHOP AT HOME" by Signature
infringes on the Company's trademark and requesting compensatory and injunctive
relief. Signature has filed an amendment to its original complaint alleging that
the use of the name by the Company infringes on the trademark of Signature and
requesting compensatory and injunctive relief. The Company believes that the
likelihood of Signature preventing it from using the designation of "SHOP AT
HOME" for its television programming or of 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 the
Company and one of the Company's 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 the Company's 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 the
Company be enjoined from shipping toys the Company 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. McDonald's has
continued to pursue its lawsuit and the Company has filed an answer to the
allegations and plans to vigorously pursue the defense of the matter.
The Company is subject to routine litigation arising out of the normal
and ordinary operation of its business. The Company believes that any
litigation, other than the litigation concerning its name, is covered by
insurance or will not have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 28, 1999 the Company held a special meeting of its
shareholders. The meeting was called for the purpose of voting on an amendment
to its Charter increasing the number of authorized shares of common stock from
30,000,000 to 100,000,000. The amendment was approved by the following vote:
Votes for 21,491,486
Votes against 495,404
Abstentions 26,975
<PAGE>
PART II
ITEM 5. MARKET FOR SHOP AT HOME'S COMMON STOCK
The Company's common stock was quoted in the Nasdaq SmallCap Market
from June 1995 until February 9, 1999. Since February 9, 1999, the Company's
common stock has been quoted in the Nasdaq National Market under the symbol
"SATH".
The range of market prices for the Company's common stock during the
two most recent fiscal years, 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 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 14.88 7.62
</TABLE>
As of August 26, 1999, there were approximately 684 record owners of
the common stock.
The Company has not declared or paid any dividends on its common stock
in the last two fiscal years and does not anticipate declaring or paying any
dividends in the foreseeable future. Any future determination as to the
declaration and payment of dividends will be made at the discretion of the
Company's Board of Directors and will depend on then existing conditions,
including its financial condition, results of operations, contractual
restrictions, capital requirements, business prospects and such other factors
as the Board of Directors deems relevant. The terms of the Indenture of Trust
which the Company entered into in March 1998 in connection with its issuance
of the 11% Senior Secured Notes due 2005 ("Notes") restricts its ability to
pay dividends. Under the restriction, the Company cannot pay cash dividends
as long as the Notes are outstanding, unles it meets certain financial
ratios as specified in the Indenture.
ITEM 6. 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 the Company's consolidated financial statements
and notes thereto included elsewhere herein. 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, 1999 are derived from the audited financial statements of
the Company.
For factors affecting the comparability of Selected Financial Data, refer to
Item 7.
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data and ratios)
Statements of Operations Data:
Net revenues $ 151,966 $ 100,757 $ 68,998 $40,675 $ 26,976
Cost of goods sold (excluding other
operating expenses and non-
recurring move related expenses) 91,816 58,862 40,626 24,516 17,121
Other operating expenses 56,430 38,069 25,882 16,930 11,010
Non-recurring move related expenses(1) 986 - - - -
Other expense (income) 65 (900) - (43) (89)
Interest income 643 564 66 14 -
Interest expense 8,964 2,850 1,080 795 216
-------------------------------------------------------------------------------
Income (loss) before income taxes (5,652) 2,440 (1,509) (1,282)
1,476
Income tax expense (benefit) (2,348) 927 (104) -
(80)
===============================================================================
Net income (loss) $ (3,304) $ 1,513 $ 1,556 (1,405) (1,282)
===============================================================================
Weighted average common
shares - basic 23,771 14,511 10,651 10,284 9,437
Weighted average common
shares - dilutive 23,771 17,496 14,268 10,284 9,437
Basic earnings (loss) per share (2) $ (0.14) $ 0.10 $ 0.14 $ (0.14) $ (0.14)
Diluted earnings (loss) per share (2) $ (0.14) $ 0.09 $ 0.12 $ (0.14) $ (0.14)
Cash dividends per share of
common stock $ - $ - $ - $ - $ -
Balance sheet data
Working capital $(17,646) $ 11,568 $ (4,642) $ (3,707) $(4,621)
Total assets 170,697 143,770 34,410 20,287 18,157
Current liabilities 48,364 19,212 18,078 8,981 7,367
Long-term debt and capital leases, less
current portion 75,893 75,254 11,135 7,805 6,865
Redeemable preferred stock 834 1,393 1,393 1,405
1,393
Stockholders' equity 45,297 44,360 2,108 2,520
3,804
</TABLE>
(1) these expenses relate mainly to employee relocation, rental of temporary
facilities, the grand opening of Shop At Home's Nashville headquarters and
employee bonuses associated with the relocation.
(2) for details of the calculation of basic and dilutive earnings per share,
see Note 12 to the consolidated financial statements.
ITEM 7. 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 the Company's consolidated financial
statements and related notes included elsewhere herein.
General
The Company, founded in 1986, sells specialty consumer products,
primarily collectibles, through interactive electronic media, including
broadcast, cable and satellite television and, increasingly, the Internet. It
offers a variety of products such as sports cards and memorabilia, coins,
currency and jewelry, many of which it sells on an exclusive basis.
The Company receives revenues primarily from the sale of merchandise
marketed through its programming carried by:
o television stations from whom the Company has purchased broadcast time;
o the Company's television stations, with its 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 the Company's satellite transmission by individuals who
own satellite downlink equipment; and
o the Company's website.
An increasing portion of the Company's revenues is received from the
sale of its merchandise through its website, shopathomeonline.com, although such
revenues have not been material to date.
Approximately 93.7% of the Company's revenues are derived from the sale
of products on the television network. The Company's products include sports
collectibles and sports related products, plush toys, movie memorabilia and
other signed and autographed merchandise, electronic equipment, coins and
currency, cutlery and knives, jewelry and gemstones. Beginning in 1997, the
Company 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
League Players, Incorporated. Additionally, the Company receives revenues from
the sale of broadcast time on its owned television stations for the broadcast
of infomercials.
As of June 30, 1999, the Company's programming was viewable during all
or part of each day by approximately 53.5 million individual cable households,
of which approximately 9.8 million cable households received the programming on
essentially a full-time basis (20 or more hours per day) and the remaining 43.7
million cable households received it on a part-time basis. To measure
performance in a manner that reflects both the growth of the Company and the
nature of its access to part-time cable households, the Company uses a cable
household full-time equivalent method to measure the reach of its programming
which accounts for both the quantity and quality of time available to it. To
derive this full-time equivalent cable household base ("FTE Cable Household"),
the Company has developed a methodology to assign a relative value of each hour
of the day to its 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 18.5 million at
June 30, 1999. The Company believes that the change in the number of FTE Cable
Household provides a consistent measure of its growth and applies this
methodology to all affiliates. Accordingly, the Company uses the revenue per
average FTE Cable Household as a measure of pricing new affiliate contracts and
estimating their anticipated revenue performance.
When the Company 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.
The Company owns and operates six UHF television stations located in
the San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport markets.
Five of these 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.
Principal elements in the Company's cost structure are (a) cost of
goods sold, (b) transponder and cable costs and (c) salaries and wages. The
Company's cost of goods sold is a direct result of both the product mix and its
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 the Company
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,
the Company 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 the Company 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 the Company's increased revenues and the addition of staff to
support its growth.
Overview of Results of Operations
The following table sets forth for the periods indicated the percentage
relationship to net revenues of certain items included in the Company's
Statements of Operations:
<TABLE>
<CAPTION>
Year Ended June 30,
<S> <C> <C> <C>
1999 1998 1997
Net revenues 100.0% 100.0% 100.0%
Cost of goods sold (excluding items listed below) 60.4 58.4 58.8
Salaries and wages 7.0 7.4 8.1
Transponder and cable charges 17.3 17.7 17.6
Other general operating and administrative expenses 9.7 10.6 10.3
Depreciation and amortization 3.2 2.2 1.5
Non-recurring move-related expenses 0.6 - -
Interest income 0.4 0.6 0.1
Interest expense 5.9 2.8 1.6
Other income - 0.9 -
Income (loss) before income taxes (3.7) 2.4 2.2
Income tax expense (benefit) (1.5) 0.9 (0.1)
Net income (loss) (2.2) 1.5 2.3
</TABLE>
Results of Operations
Fiscal Year 1999 vs. Fiscal Year 1998
Net Revenues. Shop At Home's net revenues for the year ended June 30,
1999 were $152.0 million, an increase of 50.8% over net revenues of $100.8
million for the year ended June 30, 1998. The core business of sales through
electronic media accounted for 93.7% of net revenues derived from an average of
16.6 million FTE Cable Households in the year ended June 30, 1999 compared to an
average of 11.1 million FTE Cable Households for the year ended June 30, 1998.
During the year ended June 30, 1999, Shop At Home generated revenues per FTE
Cable Household of approximately $9.16 compared with approximately $9.09 per FTE
Cable Household for the year ended June 30, 1998. The increase is mainly
attributable to a greater contribution from the non-broadcast business. The
remaining 6.3% of net revenues resulted from approximately $9.6 million in net
revenues from Collector's Edge.
Also included in net revenues was infomercial income generated by Shop
At Home's broadcast operations in the Boston, Houston, Cleveland, San Francisco,
Raleigh and Bridgeport markets, of $1.9 million compared to approximately $1.4
million in the year ended June 30, 1998. This represents a 35.7% increase and is
primarily due to Shop At Home's ownership of five stations during most of 1999,
and six by June 1999, compared to the prior year in which it owned two stations
for the first nine months and five stations for the last three months of fiscal
1998. Shop At Home also sold approximately $0.3 million of broadcast time to
certain vendors during the year ended June 30, 1998, but did not continue this
practice in the year ended June 30, 1999.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the year ended June 30, 1999, the cost of
goods sold as a percentage of net revenues increased to 60.4% from 58.4% for the
year ended June 30, 1998. This increase is mainly due to a greater percentage of
sales of lower-margin product categories, electronics and coins, which
collectively represented approximately 29.4% of revenues for the year ended June
30, 1999 compared to 23.3% of revenues for the year ended June 30, 1998.
Salaries and Wages. Salaries and wages for the year ended June 30, 1999
were $10.6 million, an increase of 42.8% compared to the year ended June 30,
1998. Salaries and wages as a percent of revenues decreased to 7.0% from 7.4%
reflecting the increase in revenues without a corresponding increase in
salaries. In addition, during fiscal 1999, $0.9 million of salaries were
capitalized as a result of the company-wide installation of the Oracle system
and the development of the collectibles.com website.
Transponder and Cable. Transponder and cable costs for the year ended
June 30, 1999 were $26.3 million, an increase of $8.5 million or 48.0% compared
to the year ended June 30, 1998. The cable component of this expense category
was 16.1% in 1999 and 16.2% for 1998. 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. Overall, the increase
in cable costs outpaced the increase in revenues as a result of approximately
1.9 million FTEs added in the quarter ended June 30, 1999, many of which had
not matured.
Other General Operating and Administrative Expenses. Other general
operating and administrative expenses for the year ended June 30, 1999 were
$14.6 million, an increase of $3.9 million or 36.4% compared to the year ended
June 30, 1998. As a percentage of revenues, this constituted a decrease to 9.7%
in 1999 from 10.6% in 1998 and was attributable to a number of factors,
including lower legal and consulting expenses and operating supplies.
Depreciation and Amortization. Depreciation and amortization for the
year ended June 30, 1999 was $4.9 million, an increase of $2.7 million or 125.6%
compared to the year ended June 30, 1998. The largest part of this increase was
the full year of amortization expense on the three television stations acquired
in March 1998 and sepreciation of the new building and related contents that
were acquired September 1998.
Move-Related Expenses. Move-related expenses were approximately $1.0
million in the year ended June 30, 1999 and there was no comparable expense in
the previous year. 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 Expense. Interest expense for the year ended June 30, 1999,
was $9.0 million, an increase of $6.1 million over the year ended June 30, 1998.
The increase was primarily due to the full year effect of the issuance in March
1998 of $75.0 million of 11% Senior Secured Notes due 2005.
Interest Income. Interest income for the year ended June 30, 1999, was
$0.6 million. This income was primarily due to the investment of cash.
Other Income. There was minimal other income for the year ended June
30, 1999 while the year ended June 30, 1998 included a one-time $900 thousand
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 year ended
June 30, 1999 was provided at an effective tax rate of 41.5%.
Fiscal 1998 vs. Fiscal 1997
Net Revenues. Shop At Home's net revenues for the year ended June 30,
1998, were $100.7 million, an increase of $31.8 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 58.4% from 58.8% as a percentage of sales 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 Shop At Home's 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 components of this increase were $0.7 million of additional
credit card fees, and general increases related to the increase in sales volume.
Depreciation and Amortization. Depreciation and amortization for the
year ended June 30, 1998 were $2.2 million, an increase of $1.1 million or
107.0% 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 Expense. Interest expense for the year ended June 30, 1998 was
$2.9 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 due 2005 which Shop At Home issued in March 1998.
Interest Income. Interest income for the year ended June 30, 1998 was
$0.6 million. This income was primarily due to the investment of cash.
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%.
Liquidity and Capital Resources
As of June 30, 1999, Shop At Home had total current assets of $30.7
million and total current liabilities of $48.4 million, resulting in a negative
working capital position of $17.7 million. This represents a $29.2 million
reduction from the working capital position at the end of the prior year. The
major components of the decrease were: (1) the borrowing of $20.0 million on a
short-term basis to acquire the assets of the Bridgeport station with the
acquired assets classified as non-current and (2) expenditures of approximately
$14.1 million to purchase property, plant and equipment offset by approximately
$2.8 million from the exercise of options and warrants.
In July 1999, Shop At Home's working capital position increased by
$44.3 million from the net proceeds of the public offering of 5,828,000 shares
of common stock. The Company used $20.0 million, including $0.6 million of
restricted cash to pay off the short term loan relating to the acquisition of
the assets of the Bridgeport station with the balance available to develop,
launch and promote the collectibles.com website and the installation of a new
computer system.
During the year ended June 30, 1999, Shop At Home used approximately
$0.9 million for operations. The major components of this net use were the loss
of $3.3 million, which included non-cash items of a $2.3 million decrease in net
deferred tax liabilities, offset by $4.9 million in depreciation and
amortization. In addition, Shop At Home used approximately $5.7 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 an increase in
revenues from Collector's; and $3.4 million to carry higher inventory levels,
primarily sports and jewelry products. Approximately $7.3 million was provided
from operations in the form of increased accounts payable and accrued expenses.
Shop At Home used approximately $35.1 million for investing activities.
Approximately $14.1 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 purchased the assets of the Bridgeport station on
June 3, 1999 for $21.0 million of which $14.8 million was allocated to license
cost, $1.4 million to fixed assets and $4.8 million to restricted cash pending
completion of contractual terms.
Approximately $21.8 million was provided to Shop At Home from financing
activities during the year ended June 30, 1999. The principal source was a
bridge loan of $20.0 million, for the purchase of the assets of the Bridgeport
station, and $2.8 million from the sale of options and warrants which were
offset in part by approximately $0.5 million of debt repayments and
approximately $0.2 million to repurchase 90,300 shares of common stock.
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.
The acquisition of television stations impacts the results of
operations as follows:
o costs of carriage decrease to the extent that the Company 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. Upon launch of collectibles.com, the Company intends to
discontinue selling products through shopathomeonline.com. To develop this
website, the Company has entered into agreements with Oracle, iXL and other
vendors. 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 agreements will approximate $13.0 million, approximately
$6.4 million of which has already been incurred. After collectibles.com is
operational, working capital will be required to promote and develop the website
in order to generate sales.
Additional financing may be necessary to operate the Company's business
in the near future. The Indenture associated with the Notes permits the Company
to incur debt which may be used for such future capital needs. In order to incur
this debt the Company must satisfy certain conditions imposed by the Indenture.
Shop At Home expects to negotiate a line of credit of up to $20.0 million to be
available for general corporate purposes. Additionally, it is anticipated that
the line of credit may be used for additional broadcast property acquisitions.
There can be no assurance that the line of credit will be established or that
the Company will have funds available for its future needs.
On August 5, 1999, the Federal Communications Commission (FCC) voted to
make certain significant changes in the restrictions involving the multiple
ownership of broadcast stations. At that time, the FCC voted 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.
Under these new rules, a company can own two television stations in the same
market so long as there are more than eight television stations in the market,
and the two stations are not both among the top four stations in the market.
Of the six television stations owned by the Company, each is located in
a market with more than eight television stations, and none of the Company's
stations are among the top four rated stations in their markets. As a result,
any owner of an existing television station in any of the Company's markets,
could acquire the Company's station in that market.
The Company believes that this rule change by the FCC makes the
Company's stations more valuable than when the stations were purchased. On
August 12, 1999, the Company announced that it had retained Yagemann Advisors
LLC, Banc of America Securities LLC and Media Venture Partners to identify
strategic alternatives to maximize shareholder value, including the possible
sale of some or all of the Company's major market stations as well as the sale
of a significant equity ownership interest to a strategic partner. The Company
stated that no decision had been made as to whether or not to pursue any
particular alternative, and there is a possibility that no transaction will
result.
If the Company were to sell one or more of its stations as a result of
this opportunity, the Company would seek to use a portion of the resulting
proceeds to replace any lost carriage of the Company's programming through the
acquisition of other stations or by agreements with cable television operators.
A potential equity investment by a strategic partner could enhance or benefit
the Company's broadcast, Internet and electronic retailing capabilities. The
Indenture under which the Notes are issued imposes restrictions on the ability
of the Company to sell its assets or to use the proceeds of such sales for
general corporate purposes. The Company could use proceeds of such a sale to
defease the Notes in order to make the additional proceeds available for other
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 its 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
the Company is currently testing the Y2K compliance patch to Windows NT.
Additionally, Shop At Home's telephone system, Aspect software and computer
server used in the Company's call center have been upgraded and are compliant.
The Company's 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 the Company. 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 its major vendors and service
providers. Shop At Home is investigating material vendors and suppliers to
identify any non-compliance issues.
The Company has incurred approximately $5.8 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, is expected to be approximately $4.2
million, in addition to prior expenditures.
To implement the computer conversion, Shop At Home entered into
agreements with its vendors. The computer system provided by the vendors will be
Y2K compliant and will provide an integrated computer system for Shop At Home's
business processes. The enterprise wide system is expected to be installed and
operational by the end of 1999.
To date the Company has substantially completed the review of its
critical internal hardware and software systems, has identified those vendors
which warrant further examination for potential problems and has mailed
inquiries to those vendors as to their compliance. The Company has also
identified and corrected internal problems and begun evaluation of the responses
to questionnaires sent to suppliers, and has begun testing its internal systems
and contingency planning. The following is the timetable for Shop At Home's year
2000 compliance effort during the remainder of 1999:
August........complete contingency planning. begin contingency testing;
continue the internal Oracle implementation of new hardware and
software.
September.....continue contingency testing; complete software upgrades and
testing on all network PC's.
October.......complete all evaluation and testing; review all portions of
Y2K documentation.
The worst case scenario for Shop At Home 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
the Company 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
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 Company adopted the
Statement for the fiscal year ending June 30, 1999. The adoption had no effect
as Shop At Home currently 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 was
adopted with the June 30, 1999 fiscal year financial statements and will impact
interim reporting beginning with the quarter ending September 30, 1999. Shop At
Home determined that its reportable segments are the same as previously
disclosed, although expanded disclosures were required under provisions of the
standard.
In March 1998, the AICPA issued Statement of Position 98-1 (SOP 98-1),
Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 is effective for financial statements for years beginning after
December 15, 1998. SOP 98-1 provides guidance on accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. The Company adopted
the provisions of SOP 98-1 in its fiscal year ending June 30, 1999. The adoption
of this statement resulted in $5.0 million of capitalized software costs and $80
thousand of expensed training costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations, or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, foreign
currency exchange rate risk, commodity price risk, and other relevant market
rate or price risks.
The Company is exposed to some market risk through interest rates,
related to its investment of its current cash and cash equivalents of
approximately $7.1 million as of June 30, 1999. These funds are generally
invested in highly liquid debt instruments with short-term maturities. As such
instruments mature and the funds are re-invested, the Company is exposed to
changes in market interest rates. This risk is not considered material and the
Company manages such risk by continuing to evaluate the best investment rates
available for short-term high quality investments.
The Company is not exposed to market risk through changes in interest
rate on its long-term indebtedness, because the debt is at a fixed rate.
The Company obtains, on consignment, the vast majority of products
which it sells through its programming, and the prices of such products are
subject to changes in market conditions. These products are purchased
domestically, and, consequently, there is no foreign currency exchange risk.
The Company has no activities related to derivative financial
instruments or derivative commodity instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Accountants 33
Consolidated Balance Sheets at June 30, 1999 and June 30, 1998 34-55
Consolidated Statements of Operations for the years ended June 30, 1999,
June 30, 1998, and June 30, 1997 36
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1999, June 30, 1998, and June 30, 1997 37
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, June 30, 1998, and June 30, 1997 38-39
Notes to Consolidated Financial Statements 40-60
<PAGE>
Report of Independent Accountants
Board of Directors and Stockholders
Shop At Home, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing on page 32 present fairly, in all material respects, the financial
position of Shop At Home, Inc. and its subsidiaries at June 30, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1999 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14 (a)(2) on page 63 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these financial statements and financial statement
schedule 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
Nashville, Tennessee
August 27, 1999
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
June 30,
--------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,066 $ 21,224
Restricted cash 5,433 -
Accounts receivable - trade, net 8,969 3,830
Inventories, net 7,234 4,332
Prepaid expenses 919 404
Deferred tax assets 1,097 990
------------------ -----------------
Total current assets 30,718 30,780
NOTE RECEIVABLE-RELATED PARTY, net
of unamortized discount of $96 and $134
for 1999 and 1998, respectively 690 660
PROPERTY and EQUIPMENT, net 35,403 20,557
LICENSES, net of accumulated amortization of $4,646 and
$2,479 for 1999 and 1998, respectively 97,020 84,831
GOODWILL, net of accumulated amortization of $353 and $188
for 1999 and 1998, respectively 2,367 2,532
OTHER ASSETS 4,499 4,410
------------------ -----------------
TOTAL ASSETS $ 170,697 $ 143,770
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
----------------------------------------------------------
1999 1998
------------------------ -----------------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion - capital leases $ 298 $ 161
Loan payable 20,000 -
Accounts payable - trade 15,511 9,016
Accounts payable - related party - 12
Credits due to customers 3,069 3,987
Other payables and accrued expenses 9,375 5,769
Deferred revenue 111 267
------------------------ -----------------------
Total current liabilities 48,364 19,212
LONG-TERM LIABILITIES
Capital leases 893 254
Long-term debt 75,000 75,000
Deferred income taxes 309 3,551
REDEEMABLE PREFERRED STOCK
$10 par value, 1,000,000 shares authorized,
82,038 and 137,943 issued and outstanding in
1999 and 1998, respectively - redeemable at 834 1,393
$10 per share plus unpaid dividends accrued
COMMITMENTS (NOTES 4, 5, 6, 9, 10,13, and 17)
STOCKHOLDERS' EQUITY
Common stock - $.0025 par value,
100,000,000 and 30,000,000 shares authorized
in 1999 and 1998, respectively; 24,557,822 and
23,313,191 shares issued and outstanding in
1999 and 1998, respectively 61 58
Additional paid in capital 53,317 49,079
Accumulated deficit (8,081) (4,777)
------------------------ -----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 170,697 $ 143,770
======================== =======================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended June 30,
-------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
NET REVENUES $ 151,966 $ 100,757 $ 68,998
COST OF GOODS SOLD (excluding items 91,816 58,862 40,626
listed below)
Salaries and wages 10,636 7,446 5,564
Transponder and cable charges 26,303 17,768 12,118
Other general operating and
administrative expenses 14,555 10,667 7,143
Depreciation and amortization 4,936 2,188 1,057
Non-recurring move-related expenses 986 - -
------------------ ------------------ -----------------
Total operating expenses 149,232 96,931 66,508
------------------ ------------------ -----------------
INCOME FROM OPERATIONS 2,734 3,826 2,490
------------------ ------------------ -----------------
OTHER INCOME (EXPENSE)
Interest income 643 564 66
Interest expense (8,964) (2,850) (1,080)
Other income (expense) (65) 900 -
------------------ ------------------ -----------------
Total other income (expense)
(8,386) (1,386) (1,014)
------------------ ------------------ -----------------
INCOME (LOSS) BEFORE INCOME TAXES (5,652) 2,440 1,476
INCOME TAX EXPENSE (BENEFIT) (2,348) 927 (80)
------------------ ------------------ -----------------
NET INCOME (LOSS) $ (3,304) $ 1,513 $ 1,556
================== ================== =================
BASIC EARNINGS (LOSS) PER SHARE $ (.14) $ .10 $ .14
================== ================== =================
DILUTED EARNINGS (LOSS) PER SHARE $ (.14) $ .09 $ .12
================== ================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1999, 1998 and 1997
(In thousands, except share data)
Additional
Common Paid-In Accumulated
Stock Capital Deficit
------------------ ------------------ -----------------
<S> <C> <C> <C>
Balance, June 30, 1996 (10,575,255 shares) $ 26 $ 9,928 $ (7,846)
Exercise of stock 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 stock 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 benefit 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 - 40
Purchase and retirement of 90,300 shares - (203) -
Preferred stock dividend accrued - (14) -
Exercise of 350,000 warrants 1 419 -
Exercise of 600,000 options 1 1,499 -
Exercise of 317,800 employee stock options 1 921 -
Conversion of 55,905 shares of preferred stock - 559 -
Tax benefit of non-qualified stock options - 1,017 -
Net loss - - (3,304)
------------------ ------------------ -----------------
Balance, June 30, 1999 (24,557,822 shares) $ 61 $ 53,317 $ (8,081)
================== ================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
Years Ended June 30,
-------------------------------------------------------------
1999 1998 1997
-------------------- ------------------- ------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,304) $ 1,513 $ 1,556
Gain on sale of contractual right - (900) -
Non-cash items included in net income (loss):
Depreciation and amortization 4,936 2,188 1,057
(Gain)/loss on sale of equipment 65 - 3
Deferred income taxes (2,332) 290
(80)
Deferred interest expense (30) (32) -
Provision for inventory obsolescence 602
78 710
Provision for bad debt 561 188
59
Amortization of debt issuance costs 543 143 -
Changes in current and non-current items:
Accounts receivable (5,700) (1,003) (2,968)
Inventories (3,504) (1,318) (1,361)
Prepaid expenses and other assets 95 755 (241)
Accounts payable and accrued expenses 7,297 3,512 8,915
Deferred revenue (156) 159 (1,405)
-------------------- ------------------- ------------------
Net cash (used) provided by operations (927) 5,573 6,245
-------------------- ------------------- ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Note receivable-related party - (800) -
Proceeds from note receivable-related party - 12 -
Cash payments for acquisitions (543)
- (1,838)
Restricted cash (5,433) -
-
Purchase of property and equipment (14,101)
(16,800) (1,056)
Proceeds from sale of equipment 69
Cash payment for other assets (262) (330)
(1,857)
Proceeds from sale of contractual right - 900 -
Purchase of licenses (14,807) (72,635) -
-------------------- ------------------- ------------------
Net cash used by investing activities (35,077) (89,653) (4,751)
-------------------- ------------------- ------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Purchase and retirement common stock (203) - -
Payment of dividends (14) (14) (14)
Exercise of stock options/warrants 2,842 734 120
Common stock issued - 40,250 -
Repayments of debt and capital leases (495) (11,551) (1,356)
Proceeds of long term debt and loan payable 20,000 78,000 2,919
Payment of stock issuance costs (284) (3,363) -
Payment of debt issuance costs - (3,830) -
-------------------- ------------------- ------------------
Net cash provided by financing activities 21,846 100,226 1,669
-------------------- ------------------- ------------------
NET INCREASE/(DECREASE) IN CASH (14,158) 16,146 3,163
Cash beginning of period 21,224 5,078 1,915
-------------------- ------------------- ------------------
Cash end of period $ 7,066 $ 21,224 $ 5,078
==================== =================== ==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands, except share data)
Years Ended June 30,
-------------------------------------------------------
1999 1998 1997
------------------ ---------------- ----------------
<S> <C> <C> <C>
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accrued liability for purchase of equipment $ 1,874 $ - $ -
------------------ ---------------- ----------------
Tax effect qualified stock options $ 1,017 $ 245 $ -
------------------ ---------------- ----------------
Stock issued for loan guaranty $ 40 $ - $ -
------------------ ---------------- ----------------
Conversion of 55,905 shares of preferred stock into common $ 559 $ - $ -
------------------ ---------------- ----------------
Stock issued for inventory and reduction
of accounts payable $ - $ - $ 33
------------------ ---------------- ----------------
Cost of equipment purchased through
capital lease obligation $ 1,271 $ 326 $ 437
------------------ ---------------- ----------------
Notes payable issued for acquisitions
of BCST and MFP, Inc. $ - $ - $ 1,400
------------------ ---------------- ----------------
Stock issued in connection with retirement
of debt (144,177 shares) $ - $ 1,190 $ -
------------------ ---------------- ----------------
Accrued preferred stock dividend $ 14 $ 14 $ 14
------------------ ---------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 8,711 $ 857 $ 998
------------------ ---------------- ----------------
Taxes $ $ 432 $ 140
-
------------------ ---------------- ----------------
.
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. All dollar values in tables and the financial
statements and footnotes have been expressed in (000s) except for share and per
share data.
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 markets various consumer products through a
televised "Shop At Home" service. The programming is currently broadcast by
satellite on a twenty-four hour 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.
MFP operates a commercial television station, WMFP, Channel 62, serving
the Boston television market area. MFP also operates a commercial TV station,
WSAH, channel 43, serving a portion of the New York City market area. The assets
of WSAH were acquired in June 1999.
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.
SAH Acquisition II operates three commercial television stations: KCNS,
Channel 38, serving the San Francisco television market area; WOAC, Channel 67,
serving the Cleveland television market area and; WRAY, Channel 30, serving the
Raleigh-Durham 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 and broadcasting facility. 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 one year or less to be cash equivalents.
Restricted Cash. Restricted cash represents cash held in escrow of
$4,800 for final settlement of the purchase of assets of WSAH Bridgeport (Note
16) and $600 of cash held for future interest due on the $20,000 short-term
bridge loan (Note 5).
Accounts Receivable--Trade. The Company has reduced accounts receivable
to the net realizable value through recording allowances for doubtful accounts.
At June 30, 1999 and 1998, the Company had recorded allowances of $543, and
$535, respectively.
Inventories. Inventories, which consist primarily of products held
for sale such as jewelry, electronics and sports collectibles, are stated
at the lower of cos 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.
Collector's Inventories. The Collector's inventories of sports cards
represent all of the contract manufacturing costs associated with each release.
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.
On major construction projects requiring a number of months to complete, such as
the construction of the Nashville headquarters, the Company's policy is to
capitalize the interest associated with these projects until completion.
Depreciation is computed under straight-line methods over the estimated
useful lives of the assets as reflected in the following table:
Furniture and fixtures 7 Years
Software costs 3 Years
Operating equipment 5-15 Years
Leasehold improvements 3-15 Years
Building 40 Years
FCC Licenses for Television Stations. During June 1999, the Company
through its subsidiary MFP, Inc., acquired one FCC television license. During
fiscal 1998, the Company through its subsidiary, SAH Acquisition II, acquired
three FCC licenses for television stations and in fiscal 1995 the Company
acquired two subsidiaries that owned FCC television licenses. Although FCC
television licenses are granted for eight-year periods, they are required to be
renewed by the FCC unless (1) the holder has seriously violated the
Telecommuntication's 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 license, the Company determined that a
life of 40 years would be appropriate. Amortization of these licenses was
$2,133, $773 and $307 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
The Company has allocated the purchase price of its 1998 and prior
acquisitions based upon independent appraisals. In each of the appraisals of
broadcast properties, with the exception of WMFP-Boston, the fair value of the
property including the intangible license was in excess of the purchase price,
and accordingly, resulted in no goodwill. The appraisal of WMFP-Boston resulted
in the recording of some goodwill. The Company has allocated the purchase price
of WSAH, based on an estimate in relation to the appraisals of the 1998
acquisitions.
NFL Licenses. In fiscal year 1997, the Company formed Collector's, 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 three years. Amortization of these licenses was $485, $479 and
$162 for the fiscal years ended June 30, 1999, 1998 and 1997, respectively.
Goodwill. Goodwill is amortized over 40 years, using the straight-line
method. The amortization period for goodwill was determined based on 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 represent
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. Goodwill for Collector's was determined by reference to the fair
values of net assets acquired and further supported by established business
relationships which represent future revenue streams. Goodwill amortization
amounted to $165, $112 and $61 for fiscal years ended June 30, 1999, 1998 and
1997, respectively. Management periodically evaluates the net realizability of
the carrying amount of goodwill.
Debt Issue Costs. The Company has $3,121 and $3,643 as of June 30, 1999
and 1998 of debt issuance costs recorded as other assets. These deferred costs
relate to the issuance of the $75,000 of Senior Secured Notes and are being
amortized over the life of the Notes, 7 years. The amortization of $543 and $143
for the fiscal year ended June 30, 1999 and 1998, respectively, has been
recorded as additional interest expense.
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. At June 30, 1999 and 1998, the
Company had recorded credits due to customers of $3,069 and $3,987,
respectively, for actual and estimated returns.
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), wholesale sales of collectible sports
cards 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.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight costs.
Income Taxes. The Company files a consolidated federal income tax return
with its subsidiaries. The Company files separate or consolidated state returns
as required by each jurisdiction. 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 and diluted EPS.
Basic earnings (loss) per share is computed by dividing net income (loss)
available for common shareholders by the weighted average number of shares of
common stock outstanding. Diluted earnings (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 except in periods where such inclusion would be
anti-dilutive. 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 the 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 requires
recognition of impairment losses for long-lived assets whenever events or
changes in circumstances result in the carrying amount of the assets exceeding
the sum of the expected future undiscounted cash flows associated with such
assets. The measurement of the impairment losses recognized is based on the
difference between the fair values and the carrying amounts of the assets. SFAS
121 also requires that long-lived assets held for sale be reported at the lower
of carrying amount or fair value less cost to sell. The Company has not
experienced such 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 Note 11.
Recent Accounting Pronouncements. In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income. The Statement establishes standard
for reporting comprehensive income and its components in a full set of financial
statements. The Company adopted the Statement for the fiscal year ending
June 30, 1999. The adoption had no effect as Shop At Home currently 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 was
adopted for the June 30, 1999 fiscal year financial statements and will impact
interim reporting beginning with the quarter ending September 30, 1999. Shop At
Home determined that its reportable segments are the same as previously
disclosed, although expanded disclosures were required under provisions of the
standard.
In March 1998, the AICPA issued Statement of Position 98-1 (SOP 98-1),
Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 is effective for financial statements for the years beginning
after December 15, 1998. SOP 98-1 provides guidance on accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. The Company adopted
the provisions of SOP 98-1 in its fiscal year ending June 30, 1999. The adoption
of this statement resulted in $5,026 of capitalized software costs, which is
included in construction in progress at June 30, 1999, and $80 of expensed
training costs.
Reclassifications. Certain amounts in the prior years' consolidated
financial statements have been reclassified for comparative purposes to conform
with the current year presentation.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following major classifications:
<TABLE>
<CAPTION>
June 30,
1999 1998
---- ----
<S> <C> <C>
Leasehold improvements $ 144 $ 346
Building 11,651 -
Operating equipment 17,352 10,666
Software 861 628
Furniture and fixtures 2,310 201
Construction in progress 5,026 10,185
Land 1,250 1,250
------------------ ----------------
38,594 23,276
Accumulated depreciation (3,191) (2,719)
------------------ ----------------
Property and equipment, net $ 35,403 $ 20,557
================== ================
</TABLE>
Depreciation expense totaled $2,145 and $824 for the fiscal years ended
June 30, 1999 and 1998, respectively. Interest capitalized amounted to $399 and
$273 for the year ended June 30, 1999 and 1998, respectively.
NOTE 3 -- INVENTORY
The components of inventory at June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
June 30,
1999 1998
---- ----
<S> <C> <C>
Work in progress(Collector's) $ 795 $ 166
Products purchased for resale 5,570 4,095
Finished goods (Collector's) 1,173 92
--------------- ---------------
7,538 4,353
Valuation allowance (304) (21)
--------------- ---------------
Total $ 7,234 $ 4,332
=============== ===============
</TABLE>
NOTE 4 -- CAPITAL LEASES
The Company has acquired various equipment under the provisions of
long-term capital leases.
Future minimum lease payments under capitalized leases are as follows at
June 30, 1999:
2000 $404
2001 404
2002 496
2003 71
2004 47
Thereafter -
----------------
Total minimum lease payments 1,422
Less amount representing interest (231)
----------------
Present value of minimum lease payments 1,191
Less current portion (298)
----------------
Long-term portion $ 893
================
The cost of the assets under these leases is approximately $1,271 and no
depreciation had been taken on these assets as of June 30, 1999 since they have
not yet been placed in service.
NOTE 5 -- INDEBTEDNESS
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. 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.
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 lien on all of
the issued and outstanding capital stock of MFP, Inc., the owner and operator of
WMFP(TV) in Boston and WSAH(TV) in Bridgeport, BCST (parent of UBS) and UBS, 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.
Short Term $20,000 Bridge Loan
The Company secured a $20,000 bridge loan at a 10% interest rate
in June 1999. The proceeds were used on June 3, 1999 in the acquisition of the
assets of WBPT (TV)(now WSAH) in Bridgeport. The loan was subsequently repaid in
July 1999 from proceeds of a public stock offering (Note 20).
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.
The Company originally issued 140,000 shares of preferred stock, $10.00
par value. The Series A Preferred Stock ranks ahead of the common stock with
respect to dividends, preferences, qualifications, limitations, restrictions and
the distribution of assets upon liquidation. 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 has the option to require the
Company to redeem their shares, after five 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 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, 1999 and 1998 the Company was $14 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 April 1999, the Company's shareholders approved an amendment to its
charter which increased the number of authorized shares of common stock to 100
million from 30 million.
The Company's Board of Directors approved the authorization of 30
million shares of nonvoting common stock which was approved by shareholders at
the Annual Meeting held in March 1998. There are no shares issued for this
class of stock.
In March 1998, the Company issued a total of 11.5 million shares
(including the underwriters over-allotment of 1.5 million shares) 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 15) and
acquisition, construction and equipping of the new Nashville headquarters and
broadcast facility.
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 of $3.00 per share was in
excess of the $2.50 market value of the stock at the time the note was issued.
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 terms of the Indenture of Trust which the Company entered into in
March 1998 in connection with its issuance of the 11% Senior Secured Notes
due 2005 ("Notes") restricts its ability to pay dividends. Under the
restriction, the Company cannot pay cash dividends as long as the Notes are
outstanding, unles it meets certain financial ratios as specified in the
Indenture.
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, (1) the corporation would not be able to
pay its debts as they become due in the usual course of business, or (2) the
corporation's total assets would be less that 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.
NOTE 8 -- INCOME TAXES
The components of temporary differences and the approximate tax effects
at June 30, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
June 30,
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
and AMT credits $ 5,918 $ 919
Accruals 1,097 990
------------------- ------------------
Total deferred tax assets $ 7,015 $ 1,909
------------------- ------------------
Deferred tax liabilities:
Licenses and intangibles 5,253 3,945
Depreciation 974 525
------------------- ------------------
Total deferred tax liabilities 6,227 4,470
------------------- ------------------
Net deferred tax assets (liabilities) $ 788 $ (2,561)
=================== ==================
Current deferred tax assets $ 1,097 $ 990
Long-term deferred tax liabilities (309) (3,551)
------------------- ------------------
Net deferred tax assets (liabilities) $ 788 $ (2,561)
=================== ==================
</TABLE>
At June 30, 1999 the Company had $95 of AMT credits available for use in
future periods in addition to $15,324 of net operating loss carryforward, 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>
Years Ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit) $ (1,921) $ 830 $ 502
Increase (decrease) in income taxes
Resulting from:
State income tax expense (benefit), net
of federal effect (224) 98 74
Change in valuation allowance - - (1,043)
Nondeductible portion of meals
and entertainment 45 38 17
Other (248) (39) 370
---------------- ---------------- ----------------
Actual income tax expense (benefit) $ (2,348) $ 927 $ (80)
================ ================ ================
</TABLE>
The components of income tax expense (benefit) for the years ended June
30, 1999, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
State $ (16) $ 101 $ -
Federal - 536 -
-------------- -------------- ---------------
$ (16) 637 -
-------------- -------------- ---------------
Deferred:
State (577) 46 74
Federal (1,755) 244 (154)
-------------- -------------- ---------------
(2,332) 290 (80)
-------------- -------------- ---------------
Total expense (benefit) $ (2,348) $ 927 $ ( 80)
============== ============== ===============
</TABLE>
The Company has allocated deferred tax benefits directly to additional
paid in capital for the years ended June 30, 1999 and 1998 of $1,017 and $245,
respectively. These amounts reflect the tax benefit received from the exercise
and disqualifing dispositions by employees of qualified stock options.
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.
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 margins. The combination of these factors produced a
significant increase in sales and it is anticipated that this momentum would
continue into future years.
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
Oracle. In early 1999, the Company entered into a series of agreements
with Oracle and other vendors to acquire and install a new enterprise wide
computer system. This computer system includes new hardware and software and
involves virtually all aspects of the Company's business. These agreements also
provide for the installation of the computer hardware which will be necessary to
support the Company's collectibles.com website. The estimated cost of the
equipment, software and installation is $10 million of which approximately
$6.2 million has been incurred at June 30, 1999.
iXL. In April 1999, the Company entered into an agreement with iXL, and
other vendors under which they have agreed to develop the collectibles.com
website. Under this agreement, the Company will pay up to $3 million to
construct and customize the website, to create interactive interfaces, to
develop software to manage and facilitate customer transactions over the website
and to provide website marketing advice.
Transponder Use Agreement and Purchased Air-Time. In December 1995, the
Company's transponder lease with Space Connection 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
$26,303, $17,768, and $12,118, for fiscal years ended June 30, 1999, 1998 and
1997, respectively. The Company has recently agreed to change its transponder to
a more desirable satellite, and is currently re-negotiating its transponder
lease.
Royalty Commitments. Collector's has minimum contractual commitments to
National Football League Players, Inc. and National Football League Properties,
Incorporated, in addition to other minor licensors which are in the normal
course of its business. The commitments at June 30, 1999, approximate $1,500,
which will expire during fiscal 2000.
Lease Commitments. Rental expense for the office and studio and
miscellaneous equipment was $1,096, $840 and $529 for the fiscal years ended
June 30, 1999, 1998 and 1997, 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 $82, $149 and $140, in the fiscal
years ended June 30, 1999, 1998 and 1997, respectively.
Future minimum lease payments of noncancelable operating losses are as
follows at June 30, 1999:
2000 $ 2,555
2001 2,527
2002 2,493
2003 2,384
2004 2,221
Thereafter 1,086
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
During the fiscal years ended June 30 1999 and 1998, the Company engaged
in some related party transactions in the normal course of business, none of
which exceeded $25 thousand in total except, as described below.
The Company leased its Knoxville office and studio space from William
and Warren, Inc., and entity owned by W. Paul Cowell, a director of the Company
until December 2, 1998, and paid total lease payments of approximately $82, $149
and $140 during the fiscal years ended June 30, 1999, 1998 and 1997,
respectively. 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 terminated this lease in January, 1999.
On August 16, 1995, the Company issued its $2,000 Variable Rate
Convertible Secured Note Due 2000 to Global Network Television, Inc. J.D.
Clinton, a director and principal shareholder of the Company, is the sole
shareholder and Chairman of Global Network Television (now Gatehouse Equity
Management Corporation). The loan carried interest at the prime rate plus 2%,
and was payable in 60 monthly installments. The note was convertible to common
stock of the Company based upon one share of stock for each $3.00 of the
principal balance of the note. On October 1, 1997, the note was transferred to
FBR Private Equity Fund, L.P., which immediately converted the note to 444,177
shares of common stock of the Company.
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 Shop At Home 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, 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.
In connection with the relocation of the primary residence of Kent E.
Lillie, President of the Company, from Atlanta, Georgia, to Nashville,
Tennessee, the Company made an interest-free loan to Mr. Lillie in the principal
amount of $800. This loan is repayable from a portion of any bonuses paid to Mr.
Lillie by the Company. As of June 30, 1999, a total of $14 of the principal
balance of the note had been repaid. The note is payable in full on June 30,
2002.
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, was 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 1999 the Company's Board of Directors adopted the 1999 Employee
Stock Option Plan which provides for the issuance of up to three million shares
of common stock. Shareholder ratification is still pending.
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 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.
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- --------------------------- -------------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
---------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(3,304) $ (3,603) $ 1,513 $ 1,385 $ 1,556 $ 1,466
Basic earnings (loss) per share $ (.14) $ (.15) $ .10 $ .09 $ .14 $ .14
Diluted earnings (loss) per share $ (.14) $ (.15) $ .09 $ .08 $ .12 $ .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, 1999, 1998
and 1997, respectively: dividend yield of 0%; expected volatility of 76%, 65%
and 65%; risk-free interest rate of 4.5%, 5.5% and 6.0%; and expected life of
7.5 years.
A summary of the status of the Company's options as of June 30, 1999,
1998 and 1997 and changes during the periods ending on those dates is presented
below:
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
---------------------------- ----------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise ExercisePrice
Options Price Options Price Options
-------------- ----------- -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period: 2,379,000 $ 2.51 2,192,500 $ 2.20 1,785,000 $ 2.01
Granted 1,143,000 10.02 698,000 3.40 639,500(1) 2.88
Exercised (917,800) 2.47 (454,600) 1.10 (120,000) 1.00
Forfeited (155,000) 3.90 (56,900) 2.88 (112,000) 2.81
-------------- -------------- -----------
Outstanding at end of period 2,449,200 $ 6.14 2,379,000 $ 2.51 2,192,500 $ 2.20
Options exercisable at period
end 901,800 1,175,000 1,493,500
Weighted average fair value of
options granted during the
year $ 7.78 $ 2.61 $ 2.04
</TABLE>
1) Effective June 19, 1997, the option committee repriced all fiscal
year 1997 options to $2.88 with the same terms and conditions. The
options as modified have been used in all applicable computations.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
WeightedAverage
Remaining WeightedAverage WeightedAverage
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
Range of Exercise Prices at 6/30/99 at 6/30/99
- -------------------------------- -------------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.99 200,000 4 years $ 1.00 200,000 $ 1.00
$2.00 - $2.99 930,200 8 years 2.84 445,600 2.86
$3.00 - $4.99 387,000 7 years 3.55 56,200 3.71
$5.00 - $5.99 8,000 10 years 5.25 - -
$6.00 - $6.99 70,000 5 years 6.97 70,000 6.97
$7.00 - $9.99 46,000 10 years 8.93 - -
$10.00 - $11.99 569,000 10 years 11.70 100,000 11.81
$12.00 - $13.99 239,000 10 years 13.20 30,000 13.00
-------------- ---------------
2,449,200 901,800
============== ===============
</TABLE>
At June 30, 1999, warrants to purchase 2,650,000 shares of common stock
at $1.29 per share are outstanding. These warrants expire June 30, 2001.
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>
Years Ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income (loss) $ (3,304) $ 1,513 $ 1,556
Preferred stock dividends ( 14) (14) (14)
------------- ------------- --------------
Numerator for basic earnings per
share-income (loss) available to
common stockholders (3,318) 1,499 1,542
Effect of dilutive securities:
Preferred stock dividends 14 14 14
Interest on convertible debt - 50 175
============= ============= ==============
Numerator for diluted earnings per
share-income available to
common stockholders after
assumed conversions $(3,304) $ 1,563 $ 1,731
============= ============= ==============
Denominator:
Denominator for basic earnings per
share-weighted-average shares 23,771 14,511 10,651
Effect of dilutive securities:
a) Employee stock options - 436 528
b) Non employee options - 204 150
c) Warrants - 2,088 2,268
d) Convertible preferred stock - 138 138
e) Convertible debt - 119 533
------------- ------------- --------------
Denominator for diluted earnings per
Share-adjusted weighted-average
Shares and assumed conversions 23,771 17,496 14,268
============= ============= ==============
Basic earnings (loss) per share $ (.14) $ .10 $ .14
============= ============= ==============
Diluted earnings (loss) per share $ (.14) $ .09 $ .12
============= ============= ==============
</TABLE>
Although the amounts are excluded from the computations in loss years because
their inclusion would be anti-dilutive they are shown here for informational and
comparative purposes only:
<TABLE>
<S> <C> <C> <C>
a) Employee stock options 1,184 - -
b) Non Employee options 239 - -
c) Warrants 2,389 - -
d) Convertible preferrred stock 121 - -
</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 1999, 1998 and 1997, the Company did not make contributions to the plan.
As of July 1, 1999, the Company has elected to match in the form of company
stock a portion of the employee's contribution up to a maximum of 2.5% of the
employee's annual contribution.
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.
NOTE 15 -- 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 between Global Broadcasting Systems, Inc., and its affiliate ("Global
Broadcasting") and SAH Acquisition II. Under the agreement, Global Broadcasting
agreed to sell KCNS and WRAY to SAH Acquisition II and to assign to SAH
Acquisition II the right to purchase WOAC under a contract which Global
Broadcasting had with a third party. The total purchase price paid by SAH
Acquisition II to Global in connection with the acquisition of KCNS and WRAY was
$52,350, and SAH Acquisition II purchased WOAC for a total purchase price of
$23,500.
The acquisition of the stations was accounted for by the Company as an
acquisition of assets and not the acquisition of a "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.
Global Broadcasting also had a contractual right to acquire WPMC(TV) in
Jellico, Tennessee (Knoxville market) from the licensee of that station. Shop At
Home agreed to a transaction whereby the contractual right to acquire WPMC was
assigned to another party. As part of that assignment, Shop At Home received a
payment $900 from the party which ultimately purchased the station, and also
received a $500 reduction in the purchase price of KCNS and WRAY due to the
return to Global Broadcasting of a $500 escrow deposit it had previously paid in
connection with its agreement to purchase WPMC.
Since the purchase price for the assets of Global Broadcasting to SAH
Acquisition II did not change as a result of the assignment of the contract to
purchase WPMC, 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 WPMC contract.
NOTE 16 - ACQUISITION OF WSAH
On June 3, 1999, MFP, Inc., a wholly-owned subsidiary of Shop At Home,
acquired the assets of WBPT(TV), Bridgeport, Connecticut, and changed its call
sign on that date to WSAH. MFP acquired WSAH at a cost of $21,000, of
which approximately $4,800 was placed in an escrow account. This escrow
account will be paid to the seller of the station 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 $1,000 escrow
deposit) was funded through a bridge loan which was repaid in July 1999 from the
proceeds of Shop At Home's public offering of common stock.
The acquisition of WSAH was accounted for by the Company as an
acquisition of assets and not the acquisition of a "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, the acquired station had not been
historically operated as a broadcast outlet for home shopping and the Company
concluded that there was no continuity of revenues from this station from which
relevant historical information could be derived.
The purchase price of $21.0 million has been preliminarily allocated to
the net assets acquired based on the appraised fair values at the date of
acquisition of other stations' assets previously acquired as follows:
Restricted cash $ 4,800
Property and equipment 1,400
FCC License 14,800
-------------------
Total $ 21,000
===================
NOTE 17 -- 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 18 -- INDUSTRY SEGMENTS
Effective June 30, 1999, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which supercedes
previously issued segment reporting disclosure rules and requires reporting
segment information that is consistent with the way in which management operates
the Company. The segment disclosures for prior years have been restated to
conform with the current year presentation. 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 the operations of Collector's which sells
sports trading cards to unaffiliated customers. The Company operates almost
exclusively in the United States.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Intersegment sales and
transfers are accounted for as if the sales or transfers were with third
parties, that is, at current market prices.
<TABLE>
<CAPTION>
INDUSTRY SEGMENT DATA
Years Ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue:
Retail $ 142,360 $ 95,474 $ 68,038
Wholesale 9,569 5,900 960
Intersegment eliminations 37 (617) -
----------------- ------------------ ----------------
$ 151,966 $ 100,757 $ 68,998
================= ================== ================
Operating profit:
Retail $ 2,303 $ 4,394 $ 2,471
Wholesale 312 (449) 19
Intersegment eliminations 119 (119) -
----------------- ------------------ ----------------
$ 2,734 $ 3,826 $ 2,490
================= ================== ================
Depreciation and amortization:
Retail $ 4,202 $ 1,515 $ 820
Wholesale 734 673 237
----------------- ------------------ ----------------
$ 4,936 $ 2,188 $ 1,057
================= ================== ================
Interest income:
Retail $ 663 $ 606 $ 66
Wholesale - - -
Intersegment eliminations (20) (42) -
----------------- ------------------ ----------------
$ 643 $ 564 $ 66
================= ================== ================
Interest expense:
Retail $ 8,951 $ 2,735 $ 994
Wholesale 33 157 86
Intersegment eliminations (20) (42) -
----------------- ------------------ ----------------
$ 8,964 $ 2,850 $ 1,080
================= ================== ================
Income (loss) before taxes:
Retail $ (6,051) $ 3,167 $ 1,543
Wholesale 280 (608) (67)
Intersegment eliminations 119 (119) -
----------------- ------------------ ----------------
$ (5,652) $ 2,440 $ 1,476
================= ================== ================
Income taxes:
Retail $ (2,460) $ 1,158 $ (80)
Wholesale 112 (231) -
----------------- ------------------ ----------------
$ (2,348) $ 927 $ (80)
================= ================== ================
Identifiable assets:
Retail $ 278,925 $ 237,392 $ 45,417
Wholesale 7,855 6,905 4,638
Intersegment eliminations (116,083) (100,527) (15,645)
----------------- ------------------ ----------------
$ 170,697 $ 143,770 $ 34,410
================= ================== ================
Capital expenditures:
Retail $ 14,089 $ 16,771 $ 1,046
Wholesale 12 29 10
----------------- ------------------ ----------------
$ 14,101 $ 16,800 $ 1,056
================= ================== ================
</TABLE>
Vendor concentration. During the year ended June 30, 1999, the Company
had three vendors from whom it purchased more than 10% of its total cost of
goods sold. These consisted of an electronics vendor, a coin vendor and a sports
vendor which accounted for approximately 11.2%, 10.7% and 10.3% of the Company's
cost of goods sold. The Company believes that it could find replacement vendors
for the products sold by these vendors without a material adverse effect on the
Company.
NOTE 19 -- 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 statements of each guarantor subsidary have not been included
herein because management does not believe that their inclusion would be more
meaningful to investors than the presentation of the condensed consolidating
financial information presented below.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET DATA
June 30, 1999 June 30, 1998
Guarantor Guarantor
Parent Subsidiaries Consolidated(1) Parent Subsidiaries Consolidated(1)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 6,760 $ 306 $ 7,066 $ 20,848 $ 376 $ 21,224
Restricted cash 5,433 - 5,433 - - -
Accounts receivable 92,768 3,413 8,969 88,307 3,505 3,830
Inventories 5,531 1,702 7,234 4,061 271 4,332
Prepaid expenses 850 69 919 301 103 404
Deferred tax assets 1,097 - 1,097 990 - 990
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current assets 112,439 5,490 30,718 114,507 4,255 30,780
Notes receivable 1,090 - 690 1,060 - 660
Property and equipment,
net 26,484 8,919 35,403 13,756 6,801 20,557
FCC and NFL licenses, net 293 96,727 97,020 157 84,674 84,831
Goodwill, net - 2,367 2,367 - 2,532 2,532
Other assets 3,953 546 4,499 4,406 4 4,410
Investment in subsidiaries 27,630 1,400 - 10,935 1,400 -
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total assets $ 171,889 $ 115,449 $ 170,697 $ 142,847 $ 99,666 $ 143,770
============== ================= ============== ================ =============== ================
Liabilities and
Stockholders' Equity:
Accounts payable and
accrued expenses $ 26,387 $ 88,778 $ 27,955 $ 17,616 $ 89,031 $ 18,784
Current portion--capital
leases and long-term
debt 20,298 - 20,298 161 - 161
Deferred revenue 105 6 111 235 31 267
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current liabilities 46,790 88,784 48,364 18,012 89,062 19,212
Long-term debt including,
capital leases 75,893 400 75,893 75,254 400 75,254
Deferred income taxes 898 (588) 309 3,659 (63) 3,551
Redeemable preferred
stock 834 750 834 1,393 750 1,393
Common stock 61 2 61 58 1 58
Additional paid-in capital 53,317 28,278 53,317 47,105 11,659 49,079
Accumulated deficit (5,904) (2,177) (8,081) (2,634) (2,143) (4,777)
============== ================= ============== ================ =============== ================
Total liabilities and
Stockholders' equity $ 171,889 $ 115,449 $ 170,697 $ 142,847 $ 99,666 $ 143,770
============== ================= ============== ================ =============== ================
</TABLE>
(1) Intercompany balances have been eliminated in the consolidated totals.
<TABLE>
<CAPTION>
Consolidating Statement of Operations and Cash Flow Data
June 30, 1999 June 30, 1998 June 30, 1997
Parent Guarantor Consolidated Parent Guarantor Consolidated Parent Guarantor Consolidated
Subsidiaries (1) Subsidiaries (1) Subsidiaries (1)
------------ ------------ ------------ ---------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 135,139 $ 16,791 $ 151,966 $ 92,689 $ 8,685 $ 100,757 $ 68,075 $ 2,977 $ 68,998
Cost of goods sold 85,369 6,528 91,816 54,980 4,379 58,862 40,328 298 40,626
Operating expenses 49,556 7,814 57,416 33,958 4,111 38,069 24,944 2,992 25,882
------------ ------------ ----------- ---------- ------------ ---------- ---------- ----------- ---------
Income (loss) from
operations 214 2,449 2,734 3,751 195 3,826 2,803 (313) 2,490
Interest expense 8,909 76 8,964 2,708 184 2,850 930 150 1,080
Interest income 655 8 643 606 - 564 66 - 66
Other income (expense) 2,902 (2,967) (65) 1,967 (1,068) 900 - - -
------------ ------------ ----------- ---------- ------------ ---------- ---------- ----------- ---------
Income (loss) before
taxes (5,138) (586) (5,652) 3,616 (1,157) 2,440 1,939 (463) 1,476
Income tax expense
(benefit) (2,114) (234) (2,348) 1,400 (473) 927 105 (185) (80)
------------- ------------ ----------- ---------- ------------ ---------- --------- ----------- --------
Net income (loss) $ (3,024) $ (352) $ (3,304) $ 2,216 $ (584) $ 1,513 $ 1,834 $ (278) $ 1,556
============= ============ =========== =========== ============ ========== ========= =========== =========
CASH FLOWS
Cash provided by
(used in) operations $ (18,883) $ 17,956 $ (927) $ (75,394) $ 80,810 $ 5,573 $ 2,926 $ 3,319 $ 6,245
Cash provided by
(used in) investing
activities (17,051) (18,026) (35,077) (12,763) (76,747) (89,653) 2,515 (8,017) (4,751)
Cash provided by
(used in) financing
activities (21,846) - 21,846 104,248 (4,008) 100,226 (2,547) 4,967 1,669
------------- ------------ ----------- ----------- ------------ ---------- ----------- ----------- -------
Increase (decrease) in
cash (14,088) (70) (14,158) 16,091 55 16,146 2,894 269 3,163
Cash at beginning of
period 20,848 376 21,224 4,757 321 5,078 1,863 52 1,915
------------- ------------ ----------- ----------- ------------ ---------- --------- ----------- ---------
Cash at end of period $ 6,760 $ 306 $ 7,066 $ 20,848 $ 376 $ 21,224 $ 4,757 $ 321 $ 5,078
============= ============ =========== =========== ============ ========== ========= =========== =========
</TABLE>
(1) Intercompany balances have been eliminated in the consolidated totals.
<PAGE>
NOTE 20 - SUBSEQUENT EVENTS
Public Offering of Common Stock. In July 1999, the Company completed an
offering of a total of 5,828,000 shares including underwriters' over-allotment,
thereby raising a total of $44.3 million at an offering price, net of
commission, of $7.60 a share. A portion of the proceeds were applied to repay
the short term $20,000 bridge loan.
Reorganization of Shop At Home and Subsidiaries. In July 1999, Shop At
Home reorganized its subsidiaries. The corporate name of MFP, Inc., the owner of
WMFP in Boston and WSAH in Bridgeport, was changed to SAH-Northeast Corporation.
In addition, the license of WMFP was transferred to SAH-Boston License Corp. and
the license of WSAH was transferred to SAH-New York License Corp., each a new
subsidiary of SAH-Northeast Corporation. Broadcast, Cable and Satellite
Technologies, Inc., and Urban Broadcasting Systems, Inc., were merged into
SAH-Houston Corporation. The license of KZJL was transferred to SAH-Houston
License Corporation, a new subsidiary of SAH-Houston Corporation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information with respect to directors and executive officers of the
Company in the Company's definitive Proxy Statement for the 1999 annual Meeting
of Shareholders (the "Proxy Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Remuneration of Directors
and Officers" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information with respect to security ownership by management as set
forth in the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in
the Proxy Statement is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Item 8 of Form
10-K:
1.Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of June 30, 1999 and
1998 Consolidated Statements of Operations for the
years ended June 30,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years
ended June 30, 1999, 1998 and 1997.
Notes to the Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
The other schedules are omitted because the
required information is either inapplicable or
has been disclosed in the consolidated
financial statements and notes thereto.
3. Exhibits
The Index to Exhibits is at page 66.
(b) Reports on Form 8-K
A Form 8-K was filed on June 16, 1999 which reported the
acquisition of the assets of WBPT(TV), Bridgeport, Connecticut.
<TABLE>
<CAPTION>
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(Thousands of Dollars)
Balance at Charged to Balance
beginning Returns and at end
of year Allowances Deductions (1) of year
--------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Year ended June 30, 1999
estimated credits
due to customers $ 3,987 $ 32,610 $ 33,528 $ 3,069
=============== ================ =============== ============
Year ended June 30, 1998
estimated credits
due to customers $ 3,121 $ 28,363 $ 27,497 $ 3,987
=============== ================ =============== ============
Year ended June 30, 1997
estimated credits
due to customers $ 1,100 $ 19,503 $ 17,482 $ 3,121
=============== ================ =============== ============
(1) Merchandise returned
Balance at Balance
beginning Additional at end
of year provisions Reduction of year
--------------- ---------------- --------------- ------------
Year ended June 30, 1999
Accounts receivable
reserves $ 535 $ 561 $ 553 $ 543
=============== ================ =============== ============
Year ended June 30, 1998
Accounts receivable
reserves $ 59 $ 476 (2) $ - $ 535
=============== ================ =============== ============
Year ended June 30, 1997
Accounts receivable
reserves $ - $ 59 $ - $ 59
=============== ================ =============== ============
</TABLE>
(2) net of $288 charged to goodwill as a result of adjustment to originally
recorded purchase transaction.
<PAGE>
<TABLE>
<CAPTION>
Balance at Balance
beginning Additional at end
of year provisions Deductions of year
--------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Year ended June 30, 1999
Inventory reserves $ 21 $ 602 $ 319 $ 304
============== =============== ============== ============
Year ended June 30, 1998
Inventory reserves $ 698 $ 78 $ 755 $ 21
============== =============== ============== ============
Year ended June 30, 1997
Inventory reserves $ 88 $ 710 $ 100 $ 698
============== =============== ============== ============
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
3(i).4 * Restated Charter, recorded August 13, 1999.
3(ii).1* Restated Bylaws, adopted July 21, 1999
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.
10.1 Company's Omnibus Stock Option Plan, filed as Exhibit 10.3 to
the Company's Annual Report on Form 10-K filed with the
Commission for the fiscal year ended June 30, 1992, and
incorporated herein by this reference.
10.4 Form of Transponder Use Agreement dated April 1, 1993 between
Shop At Home, Inc. and B & P The SpaceConnection, filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993, and incorporated herein by
this reference.
10.5 Transponder Use Agreement dated June 6, 1994, between Shop At
Home, Inc. and Broadcast International, Inc., filed as Exhibit
10.5 to the Company's Registration Statement on Form S-4 filed
with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.5 Form of Transponder Lease Agreement dated December 21, 1994,
between Shop At Home, Inc. and Broadcast International, Inc.,
filed as Exhibit 10.7 to the Company's Registration Statement on
Form S-4 filed with the Commission on December 28, 1994, and
incorporated herein by this reference.
10.7 Stock and Warrant Purchase Agreement dated June 9, 1993, between
Shop At Home, Inc., SAH Holdings, L.P., and Global Network
Television, Inc., filed as Exhibit B to the Statement on
Schedule 13D of SAH Holdings, L.P., filed with the Commission
on June 18, 1993, and incorporated herein by this reference.
10.8 First Amendment to Stock and Warrant Purchase Agreement dated
July 12, 1993, between Shop At Home, Inc., SAH Holdings, L.P.,
and Global Network Television, Inc., filed as Exhibit E to the
Statement on Schedule 13D of SAH Holdings, L.P., filed with the
Commission on July 27, 1993, and incorporated herein by this
reference.
10.10 Form of Employment Agreement between Kent E. Lillie and Shop At
Home, Inc., filed as Exhibit B to the Company's Current Report
on Form 8-K filed with the Commission on September 17, 1993, and
incorporated herein by this reference.
10.11 Form of Warrant to Purchase Shares dated September 7, 1993,
between Shop At Home, Inc. and SAH Holdings, L.P., filed as
Exhibit A to the Company's Current Report on Form 8-K filed
with the Commission on September 17, 1993, and incorporated
herein by this reference.
10.12 Form of Option Agreement for options issued to employees,
executive officers and others, filed as Exhibit 10.13 to the
Company's Registrant Statement on Form S-4 filed with the
Commission on December 28, 1994, and incorporated herein by this
reference.
10.32 Lease Agreement dated December 28, 1993, by and between H & C
Communications, Inc. and Broadcast, Cable and Satellite
Technologies, Inc., filed as Exhibit 10.16 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this reference.
10.33 Agreement dated as of December 17, 1993, by and between Blue
Ridge Tower Corporation and Broadcast, Cable and Satellite
Technologies, Inc., filed as Exhibit 10.17 to the Company's
Current Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
10.34 Amendment to Agreement dated December 17, 1993, by and between
Blue Ridge Tower Corporation and Broadcast, Cable and Satellite
Technologies, Inc., filed as Exhibit 10.18 to the Company's
Current Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
10.36 Programming Agreement between Shop At Home, Inc., and MFP, Inc.,
dated November 11, 1994, filed as Exhibit 10.37 to the Company's
Registration Statement on Form S-4 filed with the Commission
on December 28, 1994, and incorporated herein by this reference.
10.43 Employment Agreement between Kent E. Lillie and Shop At Home,
Inc. dated July 1, 1997, filed as Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1997 and filed with the Commission on September 29, 1997, and
incorporated herein by this reference.
10.44 Asset Purchase Agreement dated September 23, 1997, between SAH
Acquisition Corporation II, Global Broadcasting Systems, Inc.,
and Global Broadcasting Systems License Corp., filed as Exhibit
10.44 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 and filed with the
Commission on November 14, 1997, and incorporated herein by this
reference.
10.45 Bill of Sale dated February 24, 1997 from Norwest Credit, Inc.,
to Collector's Edge of Tennessee, Inc, filed as Exhibit 10.45
to the Company's Registration Statement on Form S-1 filed with
the Commission on January 14, 1998, and incorporated herein by
this reference.
10.46 Credit and Security Agreement dated as of February 24, 1997,
between Norwest Credit, Inc., and Collector's Edge of Tennessee,
Inc., filed as Exhibit 10.46 to the Company's Registration
Statement on Form S-1 filed with the Commission on January 14,
1998, and incorporated herein by this reference.
10.47 Loan Agreement dated November 28, 1997, between the Company and
NationsBank of Tennessee, N.A., filed as Exhibit 10.47 to the
Company's Registration Statement on Form S-1 filed with the
Commission on January 14, 1998, and incorporated herein by this
reference.
10.48 Loan Note dated November 28, 1997 made by the Company payable
to NationsBank of Tennessee, N.A., filed as Exhibit 10.48 to
the Company's Registration Statement on Form S-1 filed with
the Commission on January 14, 1998, and incorporated herein
by this reference.
10.49 Amendment No.1 to Company's Omnibus Stock Option Plan filed as
Appendix A to the Company's Proxy Statement on Schedule 14A for
the fiscal year ended June 30, 1996, and filed with the
Commission on November 18, 1996, and incorporated herein by
this reference.
10.50 Form of options issued to directors dated June 19, 1997,
filed as Exhibit 10.50 to the Company's Registration Statement
on Form S-1 filed with the Commission on January 14, 1998, and
incorporated herein by this reference.
10.51 Form of Transponder Use Agreement dated June 25, 1995, between
the Company and B&P The SpaceConnection, filed as Exhibit 10.51
to the Company's Registration Statement on Form S-1 filed with
the Commission on January 14, 1998, and incorporated herein by
this reference.
10.52 Asset Purchase Agreement between Shop At Home, Inc., and Paxson
Communications regarding WBPT(TV), Bridgeport, Connecticut,
dated February 26, 1999, filed as Exhibit 10.46 to the Current
Report on Form 10-Q/A filed May 14, 1999
10.53* 1999 Employee Stock Option Plan
11 Schedule of Computation of Net Income Per Share (in Note 12 to
Consolidated Financial Statements of the Company for the period
ended June 30, 1999, included herein)
21* Subsidiaries of the Company.
27* Financial Data Schedule. (For SEC Use Only)
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie Date: 8/30/99
Kent E. Lillie
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Arthur D. Tek Date: 8/30/99
Arthur D. Tek
Executive Vice President and
Chief Financial Officer
By: /s/ Joseph Nawy Date: 8/30/99
Joseph Nawy
Vice President Finance
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities on the dates indicated.
Date: 8/30/99 /s/ J.D. Clinton
J.D. Clinton, Director
Date: 8/30/99 /s/ Kent E. Lillie
Kent E. Lillie, Director
Date: 8/30/99 /s/ Joseph I. Overholt
Joseph I. Overholt, Director
Date: 8/30/99 /s/ A.E. Jolley
A.E. Jolley, Director
Date: 8/30/99 /s/ Frank A. Woods
Frank A. Woods, Director
Date: 8/30/99 /s/ J. Daniel Sullivan
J. Daniel Sullivan, Director
Date: 8/30/99 /s/ Donna Hilley
Donna Hilley, Director
Exhibit 21 Subsidiaries of the Company
Name State of Incorporation or Organization
SAH Acquisition Corporation Tennessee
SAH Acquisition Corporation II Tennessee
SAH-Northeast Corporation Tennessee
SAH-Boston License Corp. Tennessee
SAH-New York License Corp. Tennessee
SAH-Houston Corporation Tennessee
SAH-Houston License Corp. Tennessee
Partners-SATH, L.L.C. Tennessee
Collectors' Edge of Tennessee, Inc. Tennessee
EXHIBIT 3(i).4 AMENDED AND RESTATED CHARTER OF SHOP AT HOME, INC.
The undersigned corporation, acting through its Board of Directors and
pursuant to Section 48-20-107 of the Tennessee Business Corporation Act, hereby
submits the following Amended and Restated Charter:
1) The name of the Corporation is Shop At Home, Inc.
2) The duration of the Corporation is perpetual.
3) The address of the principal office of the Corporation in the State of
Tennessee shall be 5388 Hickory Hollow Parkway, Antioch, Tennessee 37013,
County of Davidson.
4) The registered office of the Corporation shall be 5288 Hickory Hollow
Parkway, Antioch, Davidson County, Tennessee 37013; and the Corporation's
registered agent at that office shall be George J. Phillips.
5) The Corporation is for profit.
6) The purpose of purposes for which the Corporation is organized are:
(i) To own and operate a shop at home service to be conducted through a
satellite TV broadcast center;
(ii) To engage in any activity permitted by the laws of the State of Tennessee
and the United States. 7)
7.1 Capital Stock
The aggregate number and designation of the classes of shares
of capital stock that the Corporation shall have authority to
issue are as follows:
Class Number of Shares Authorized Par Value
Common Stock 100,000,000 $.0025
Non-Voting 30,000,000 $.0025
Common Stock
Preferred Stock 1,000,000 $10.00
7.2.1 Common Stock
The Board of Directors is authorized to issue Common Stock
from time to time. The holders of Common Stock are entitled to receive
dividends, when, as and if declared by the Board of Directors of the
Corporation out of funds legally available therefore. The holders of
outstanding Common Stock shall be entitled to one (1) vote for each
share of Common Stock standing in his or her name on the books of the
Corporation on all matters submitted to a vote of the Corporation's
shareholders. In the event of the voluntary or Involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of outstanding Common Stock shall be entitled to be paid out of
the net assets of the Corporation, after payment to the holders of the
outstanding Preferred Stock of the amount to which they are entitled,
the balance of such assets according to their respective rights.
Holders of shares of Common Stock are not entitled to redemption or
conversion rights, or preemptive rights with respect to any shares or
other securities of the Corporation which may be issued.
7.2.2 Non-Voting Common Stock
The Board of Directors is authorized to issue Non-Voting
Common Stock from time to time. The holders of Non-Voting Common Stock
are entitled to receive dividends, when, as and if declared by the
Board of Directors of the Corporation out of funds legally available
therefore. The holders of outstanding Common Stock shall not be
entitled to vote on any matter unless expressly required by applicable
law. In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of outstanding Non-Voting Common Stock shall be entitled to be
paid out of the net assets of the Corporation, after payment to the
holders of the outstanding Preferred Stock of the amount to which they
are entitled, the balance of such assets according to their respective
rights and on a parity with the Common Stock according to the number of
shares held. Holders of shares of Non-Voting Common Stock are not
entitled to redemption or conversion rights, or preemptive rights with
respect to any shares or other securities of the corporation which may
be issued. In all respects, except voting rights holders of Non-voting
Common Stock shall have the same preferences, limitations and relative
rights as the holders of Common Stock.
7.2.3 Preferred Stock
The Board of Directors is authorized to issue Preferred Stock
from time to time in one or more series and to provide for the
designation, preferences, limitations and relative rights of the shares
of each series by the adoption Articles of Amendment to the Charter of
the Corporation setting forth:
(a) the maximum number of shares in the series and the
designation of the series, which designation shall
distinguish the shares thereof from the shares of any
other series or class;
(b) whether shares of the series shall have special,
conditional or limited voting rights, or no right to vote,
except to the extent prohibited by law;
(c) whether shares of the series are redeemable or convertible
(A) at the option of the Corporation, a shareholder or
another person or upon the occurrence of a designated
event, (B) for cash, indebtedness, securities or other
property and (C) in a designated amount or in an amount
determined in accordance with a designated formula or by
reference to extrinsic data or events;
(d) any right of holders of shares of the series to
distributions, calculated in any manner, including the
rate or rates of dividends, and whether dividends shall be
cumulative, non-cumulative or partially cumulative;
(e) the amount payable upon the shares of the series in the
event of voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation;
(f) any preference of the shares of the series over the shares
of any other series or class with respect to
distributions, including dividends, and with respect to
distributions upon the liquidation, dissolution or winding
up of the affairs of the Corporations; and
(g) any other preferences, limitations or specified rights now
or hereafter permitted by the laws of the State of
Tennessee and not inconsistent with the provisions of the
paragraph.
All shares of each series shall have preferences, limitations,
and relative rights identical with those of other shares of the same
series and, except to the extent otherwise provided in the description
of the series, of those of other series of the same class.
7.2.3 Articles of Amendment
Before the issuance of any shares of a series, Articles of
Amendment establishing such series shall be filed with and made
effective by the Secretary of State of Tennessee, as required by law.
7.2.4 Priorities of Classes or Series.
For the purpose of the Charter, the shares of any class or
series of the Corporation shall be deemed to rank as follows:
(a) senior to other shares either as to dividends or as to
rights in liquidation, if the holders of such shares
shall be entitled to the receipt of dividends or of
amounts distributable upon the liquidation, dissolution
or winding up, as the case may be, in preference or
priority to holders of such other shares;
(b) on a parity or pari passu with other shares either as to
dividends or as to rights in liquidation, whether or not
the dividend rates, dividend payment dates or redemption
or liquidation prices per share thereof are different
from those of such other shares, if the holders of such
shares shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution
or winding up of the affairs of the Corporation, as the
case may be, in proportion to their respective dividend
rates or prices, without preference or priority one over
the other with respect to the holders of such shares;
and
(c) junior to other shares either as to dividends or as to
rights in liquidation, if such shares shall be Common
Stock or if the holders of such class shall be entitled
to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up of the
affairs of the Corporation, as the case may be in
preference or priority to the holders of such shares.
7.2.5 Liquidation
In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of outstanding Preferred Stock shall be entitled to be paid out
of the net assets of the Corporation before any distribution or payment
shall be made to the holders of the Common Stock but, after payment to
the holders of the outstanding Preferred Stock of the amount to which
they are respectively entitled, the balance of such assets, if any,
shall be paid to the holders of the outstanding Common Stock according
to their respective rights. For purposes of this Paragraph, neither the
consolidation of the Corporation with nor the merger of the Corporation
into any other corporation, nor the sale, lease or other disposition of
all or substantially all of the Corporation's properties or assets
shall, without further corporate action, be deemed a liquidation,
dissolution or winding up of the Corporation.
7.3
<PAGE>
Series A Preferred Stock
The Corporation shall have the authority to issue up to
140,000 shares of Series A Preferred Stock with the following
preferences and rights.
7.3.1 Dividends
The holders of Series A Preferred Stock on each Dividend
Payment Record Date shall be entitled to receive, but only when, as and
if declared by the Board of Directors of the Corporation out of funds
legally available therefore, cash dividends at the rate of 1% per annum
of Par Value per share. Such dividends shall be payable in lawful money
of the United States annually on February 28 of each year, unless
February 28 is not a day on which banks in Knoxville, Tennessee are
required to be open for business, in which case the Dividend Payment
Date will be the next banking day. All dividends with respect to Series
A preferred Stock shall be cumulative and shall accrue from the date or
dates of issue. Accrual of dividends shall not bear interest.
The Board of Directors of the Corporation shall determine the
Dividend Payment Record Date, from time to time, which shall be not
more than 30 days nor less than 10 days preceding the Dividend Payment
Date.
In the event that full cumulative dividends on the Series A
Preferred Stock shall not have been declared and paid when due, or set
apart for payment, then, until such aggregate deficiency shall have
been declared and paid, or set apart for payment, the Corporation shall
not (A) declare or pay any dividends or make other distributions on the
Common Stock other than (i) dividend is payable in shares of Common
Stock or other stock of the Corporation junior to the Series A
Preferred Stock as to the payment of dividends and distributions upon
liquidation, dissolution and winding up of the Corporation (referred to
hereafter as "Junior Stock" or (ii) options, warrants or rights to
subscribe for or purchase shares of Common Stock or Junior Stock or (B)
purchase, redeem or otherwise acquire (i) any share of Common Stock or
Junior Stock (other than with funds previously deposited in trust for
the redemption of shares of Junior Stock pursuant to any sinking fund)
or (ii) any other shares of capital stock of the Corporation ranking on
a parity with the Series A preferred Stock, except by conversion into
or exchange for Common Stock or Junior Stock.
A holder of shares of Series A Preferred Stock surrendered for
conversion or redeemed during the period between any Dividend Payment
Record Date and the corresponding Dividend Payment Date will receive
the dividends payable by the Corporation on such shares of Series A
Preferred Stock, even though the payment date for such dividends may be
subsequent to the date of conversion or redemption.
7.3.2 Liquidation Rights
In the event of a liquidation, dissolution and winding up of
Corporation 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 Corporation, 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 shall be equal to the Par Value per share,
plus an amount equal to all dividends thereon (whether or not declared)
accrued and unpaid through the date of final distribution. After
receipt of the Liquidation Preference, the holders of shares of Series
A Preferred Stock will not be entitled to any further participation in
any distributions of the assets of the Corporation. If, upon any such
liquidation, dissolution and winding up of the Corporation, the assets
of the corporation are insufficient to make full payment to the holders
of shares of the Series A Preferred Stock and to the holders of any
Preferred Stock ranking as to liquidation, dissolution and winding up,
on a parity with the Series A Preferred Stock, then such assets will be
distributed pro rata among the holders of shares of Series A Preferred
Stock and any other series of Preferred Stock of equal rank in
proportion to the amounts of their respective Liquidation Preferences.
For purposes of this Paragraph, a sale of substantially all of
the assets of Corporation to a third party, or the consummation by the
Corporation, or its shareholders, of any transaction with any single
purchaser whereby a change in control of more than fifty (50%) of the
issued and outstanding shares of Common Stock of the Corporation
occurs, will be considered a liquidation, dissolution and winding up of
the Corporation entitling the holders of Series A Preferred Stock to
payment of the Liquidation Preference.
7.3.3 Optional Redemption
At any time after February 28, 2000, any holder of record of
any shares of Series A Preferred Stock may required the Corporation to
redeem all or any portion of the holder's shares of Series A Preferred
Stock, for a redemption price per share equal to the Par Value, plus
accrued and unpaid dividends through the redemption date. To exercise
the redemption right, the holder shall deliver to thirty (30) days
written notice to the Secretary at the Corporation's office.
7.3.4 Conversion
One share of Series A Preferred Stock may, at the option of
the holder thereof, at any time be converted into one (1) share of
Common Stock of the Corporation by delivering, duly endorsed in blank,
the certificates representing the Series A Preferred Stock to be
converted to the Secretary of the Corporation at its office, and at the
same time notifying the Secretary in writing over the holder's
signature and that he desires to convert such stock into Common Stock
pursuant to these provisions. The Secretary shall deliver to such
holder a certificate in due form for the Common Stock. The conversion
ration will be adjusted upon the occurrence of any (i) dividend in
respect to Common Stock that is paid in shares of Common Stock or
securities convertible into shares of Common Stock, (ii) any expansion
or contraction of the number of outstanding common shares of Common
Stock by means of any stock split, reverse stock split, or similar
transaction, (iii) any dividend in respect to Series A Preferred Stock
that is paid in shares of Series A Preferred Stock or securities
convertible into shares of Preferred Stock. (iv) any expansion or
contraction of the number of shares outstanding of Preferred Stock by
means of any stock split, reverse stock split or similar transaction.
7.3.5 Voting Rights
Except as provided in this Charter, or as expressly required
by applicable law, the holders of Series A Preferred Stock are not
entitled to vote on any matter.
So long as any shares of Shop at Home Preferred Stock remain
issued and outstanding, the affirmative consents of the holders of a
majority of the shares of Series A Preferred Stock outstanding at the
time (voting separately as a class together with all other series of
Preferred Stock ranking on a parity with the Series A Preferred Stock
either as to dividends or the distributions of assets upon liquidation,
dissolution and winding up and upon which like voting rights have been
conferred and are exercisable) shall be necessary to permit, effect or
validate (i) the authorization, creation or issuance of a new class of
capital stock or series of Preferred Stock having rights, preferences
or privileges senior to the Series A Preferred Stock, or any increase
in the number of authorized shares of any class of capital stock or
series of Series A Preferred Stock having rights, preferences or
privileges senior to the Series A Preferred Stock, or (ii) the
amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of any provision of the Corporation's Charter which
would materially and adversely affect any right, preference, privilege
or voting power of the Series A Preferred Stock or the holders thereof;
provided that any proposal to authorize any class of capital stock or
any series of Preferred Stock ranking senior with respect to
distributions of assets upon liquidation, dissolution and winding up to
the Shop at Home Preferred Stock shall required the affirmative vote of
all record holders of the Shop at Home Preferred Stock. Any increase in
the number of authorized shares of Common Stock or Shop at Home
Preferred Stock, or the creation and issuance of any other class of
capital stock or series of Shop at Home Preferred Stock, in each case
ranking on a parity with or junior to the Shop at Home Preferred Stock
with respect to the payment of dividends and the distribution of assets
upon liquidation, dissolution and winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or
voting powers.
7.3.6 Preemptive Rights
Holders of shares of Series A Preferred Stock are not entitled
to preemptive rights with respect to any shares or other securities of
the Corporation which may be issued.
8) The shareholders of the corporation shall not have preemptive rights.
9) To the extent permitted by Tennessee law, the provisions of the corporate
takeover statutes in Sections 48-103-101 to 48-103-506 of the Tennessee
Code Annotated do not apply to the Corporation. More specifically, the
Corporation makes the following declarations:
(a) to the extent permitted by Tennessee law, Sections 48-103-101 to
48-103-113 of the Tennessee Investor Protection Act do not apply
to the Corporation;
(b) effective two years after shareholder approval of this Charter
Amendment, the Corporation is exempt for regulation under Sections
48-103-205 and 48-103-206 of the Tennessee Business Combination
Act, pursuant to Section 48-103-207(5) of the Tennessee Business
Combination Act;
(c) control share acquisitions of shares of the Corporation are not
governed by or subject to regulation under Sections 48-103-301 to
48-103-312 of the Tennessee Control Share Acquisition Act,
pursuant to Section 48-103-310 of the Tennessee Control Share
Acquisition Act; and
(d) the Board of Directors is authorized to purchase, directly or
indirectly, any of its shares at a price above the market value of
such shares from any person who holds more than three percent (3%)
of the class of the securities to be purchased, regardless of
whether such person has held such shares for less than two (2)
years; shareholder authorization for such purchases is made to the
extent permitted under Section 48-103-503 of the Tennessee
Greenmail Act.
The undersigned certify as follows:
The above Amended and Restated Charter does not contain an amendment
requiring Shareholder approval.
The above Amended and Restated Charter amends the Charter of the
Corporation by changing its principal office as set forth in Paragraph 3, and by
including the information in Paragraph 4 in compliance with T.C.A. Section
48-12-102. Both of said amendments may be adopted by the Board of Directors
without shareholder consent under T.C.A. Section 48-20-102.
EXHIBIT 3(ii).1 AMENDED AND RESTATED BYLAWS OF SHOP AT HOME, INC.
ARTICLE I
Meetings of Shareholders
1.1 Place of Meetings
All Meetings of the shareholders shall be held at such place, either within
or without the State of Tennessee, as from time to time may be fixed by the
Board of Directors.
1.2 Annual Meetings
The annual meeting of the shareholders, for the election of Directors and
the transaction of such other business as may come before the meeting, shall be
held annually at a time designated by the Board of Directors.
1.3 Special Meetings
A special meeting of the shareholders for any purpose or purposes may be
called at any time by the Chairman of the Board, the President, by a majority of
the Board of Directors or by request to the Corporation's Secretary by holders
of at least ten percent (10%) of all votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting. At a special meeting,
no business shall be transacted and no corporate action shall be taken other
than that stated in the notice of the meeting.
1.4 Notice of Meetings
Written or printed notice stating the place, day and hour of every meeting
of the shareholders and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be mailed not less than ten nor more than
sixty days before the date of the meeting to each shareholder of record entitled
to vote at such meeting, at his address which appears in the share transfer
books of the Corporation. Such further notice shall be given as may be required
by law, but meetings may be held without notice if all the shareholders entitled
to vote at the meeting are present in person or by proxy or if notice is waived
in writing by those not present, either before or after the meeting.
1.5
<PAGE>
Quorum
Any number of shareholders together holding at least a majority of the
outstanding shares of capital stock entitled to vote with respect to the
business to be transacted who shall be present in person or represented by proxy
at any meeting duly called, shall constitute a quorum for the transaction of
business. If less than a quorum shall be in attendance at the time for which a
meeting shall have been called, the meeting may be adjourned from time to time
by a majority of the shareholders present or represented by proxy without notice
other than by announcement at the meeting.
1.6 Voting
At any meeting of the shareholders each shareholder of a class entitled to
vote on any matter coming before the meeting shall, as to such matter, have one
vote, in person or by proxy, for each share of capital stock of such class
standing in his name on the books of the Corporation on the date, not more than
seventy days prior to such meeting, fixed by the Board of Directors as the
record date of the purpose of determining shareholders entitled to vote. Every
proxy shall be in writing, dated and signed by the shareholder entitled to vote
or his duly authorized Attorney in fact.
1.7 Inspectors
An appropriate number of inspectors for any meeting of shareholders may be
appointed by the chairman of such meeting. Inspectors so appointed will open and
close the polls, will receive and take charge of proxies and ballots, and will
decide all questions as to the qualifications of voters, validity of proxies and
ballots, and the number of votes properly cast.
ARTICLE II
Directors
2.1 General Powers
The property, affairs and business of the Corporation shall be managed by
the Board of Directors, and except as otherwise expressly provided by law, the
Articles of Incorporation or these Bylaws, all of the powers of the Corporation
shall be vested in such Board.
2.2 Number of Directors
The number of Directors constituting the Board of Directors shall be not
less than six (6) nor more than twelve (12). The Board of Directors will have
the power to fix or change the number of directors from time to time.
2.3 Election and Removal of Directors; Quorum
(a) Directors shall be elected at each annual meeting of shareholders to
succeed those Directors whose terms have expired and to fill any
vacancies then existing.
(b) Directors shall hold offices for terms of one year and until their
successors are elected. Any Director may be removed from office at a
meeting called expressly for that purpose by the vote of shareholders
holding not less than a majority of the shares entitled to vote at an
election of Directors.
(c) Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of the majority of the remaining Directors though less
than a quorum of the Board, and the term of office of any Director so
elected shall expire on the date fixed for the expiration of the term
of office of the Director to which such Director was so elected.
(d) A majority of the number of Directors elected and serving at the time
of any meeting shall constitute a quorum for the transaction of
business. The act of a majority of Directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Less than a quorum may adjourn any meeting.
2.4 Meetings of Directors
An annual meeting of the Board of Directors shall be held as soon as
practicable after the adjournment of the annual meeting of shareholders at such
place as the Board may designate. Other meetings of the Board of Directors shall
be held at places within or without the State of Tennessee and at times fixed by
resolution of the Board, or upon call of the Chairman of the Board, the
President or any two (2) of the Directors. Meetings may also be held by
telephone connection of a quorum of the Directors.
Action of the Board of Directors may be taken without a meeting. If all
Directors consent to taking such action without a meeting, the affirmative vote
of the number of Directors that would be necessary to authorize or take such
action at a meeting is the act of the Board. The action must be evidenced by one
(1) or more written consents describing the action taken, signed by each
Director in one (1) or more counterparts, indicating each signing Director's
vote or abstention on the action, and shall be included in the minutes or filed
with the corporate records reflecting the action taken.
2.5 Notice of Meeting
The Secretary or officer performing the Secretary's duties shall give not
less than twenty-four (24) hours notice by letter, telegraph or telephone (or in
person) of all meetings of the Board of Directors, provided that notice need not
be given of the annual meeting or of regular meetings held at times and places
fixed by resolution of the Board. Meetings may be held at any time without
notice if all of the Directors are present, or if those not present, waive
notice in writing either before or after the meeting and such waiver is filed in
the minutes of corporate records of the corporation. Notice of an adjourned
meeting need not be given if the time and place to which the meeting is
adjourned are fixed at the meeting at which the adjournment is taken, and if the
period of adjournment does not exceed one (1) month in any one (1) adjournment.
The notice of meetings of the Board need not state the purpose of the meeting. A
Director's attendance at or participation in a meeting waives any required
notice to him of the meeting unless the Director at the beginning of the meeting
(or promptly upon his arrival) objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
2.6 Compensation
By resolution of the Board, Directors may be allowed a fee and expenses for
attendance at all meetings, but nothing herein shall preclude Directors from
serving the Corporation in other capacities and receiving compensation for such
other services.
ARTICLE III
Committees
3.1 Executive Committee
The Board of Directors, by resolution adopted by a majority of the number
of Directors fixed by these Bylaws, may elect an Executive Committee which shall
consist of not less than two Directors, including the President. When the Board
of Directors is not in session, the Executive Committee shall have all power
vested in the Board of Directors by law, by the Articles of Incorporation, or by
these Bylaws, provided that the Executive Committee shall not have power to (i)
approve or recommend to shareholders action that the Tennessee Business
Corporation Act requires to be approved by shareholders; (ii) fill vacancies on
the Board or on any of its committees; (iii) amend the Articles of Incorporation
pursuant to ss. 48-20-101 et seq. of the Tennessee Code Annotated; (iv) adopt,
amend, or repeal the Bylaws; (v) approve a plan of merger not requiring
shareholder approval; (vi) authorize or approve a distribution, except according
to a general formula or method prescribed by the Board of Directors; or (vii)
authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences, and limitations of a
class or series of shares, except that the Board of Directors may authorize a
committee, or a senior executive officer of the Corporation to do so within
limits specifically prescribed by the Board of Directors. The executive
Committee shall report at the next regular or special meeting of the Board of
Directors all action which the Executive Committee may have take on behalf of
the Board since the last regular or special meeting of the Board of Directors.
3.2 Finance Committee
The Board of Directors, by resolution adopted by a majority of the number
of Directors fixed by these Bylaws, may elect a Finance Committee which shall
consist of not less than two Directors. The Finance committee shall consider and
report to the Board with respect to plans for corporate expansion, capital
structure and long-range financial requirements. The Committee shall also
consider and report to the Board with respect to such other matters relating to
the financial affairs of the Corporation as may be requested by the Board or the
appropriate officers of the Corporation. The Committee shall report periodically
to the Board of Directors on all action which it may have taken.
3.3 Other Committees
The Board of Directors, by resolution adopted by a majority of the number
of Directors fixed by these Bylaws, may establish such other standing or special
committees of the Board as it may deem advisable, consisting of not less than
two Directors; and the members, terms and authority of such committees shall be
as set forth in the resolutions establishing the same.
3.4 Meetings
Regular and special meetings of any Committee established pursuant to this
Article may be called and held subject to the same requirements with respect to
time, place and notice as are specified in these Bylaws for regular and special
meetings of the Board of Directors.
3.5 Quorum and Manner of Acting
A majority of the members of any Committee serving at the time of any
meeting thereof shall constitute a quorum for the transaction of business at
such meeting. The action of a majority of those members present at a Committee
meeting at which a quorum is present shall constitute the act of the committee.
3.6 Term of Office
Members of any Committee shall be elected as above provided and shall hold
office until their successors are elected by the Board of Directors or until
such Committee is dissolved by the Board of Directors.
3.7 Resignation and Removal
Any member of a Committee may resign at any time by giving written notice
of his intention to do so to the President or the Secretary of the corporation,
or may be removed, with or without cause, at any time by such vote of the Board
of Directors as would suffice for his election.
3.8 Vacancies
Any vacancy occurring in a Committee resulting from any cause whatever may
be filled by a majority of the number of Directors fixed by these Bylaws.
ARTILCE IV
Officers
4.1 Election of Officers; Terms
The officers of the Corporation shall consist of a President, Treasurer and
a Secretary. Other officers, including a Chairman of the Board, one or more
Vice-Presidents (whose seniority and titles, including Executive Vice-Presidents
and Senior Vice-Presidents, may be specified by the Board of Directors), and
assistant and subordinate officers, may from time to time be elected by the
Board of Directors. All officers shall hold office until the next annual meeting
of the Board of Directors and until their successors are elected. The President
shall be chosen from among the Directors. Any two officers may be combined in
the same person as the Board of Directors may determine.
4.2 Removal of Officers; Vacancies
Any officer of the Corporation may be removed summarily with or without
cause, at any time, by the Board of Directors. Vacancies may be filled by the
Board of Directors.
4.3 Duties
The officers of the corporation shall have such duties as generally pertain
to their offices, respectively, as well as such powers and duties as are
prescribed by law or are hereinafter provided or as from time to time shall be
conferred by the Board of Directors. The Board of Directors may require any
officer to give such bond for the faithful performance of his duties as the
Board may see fit.
4.4 Duties of the Chairman of the Board
The Chairman of the Board shall be a Director, and, except as otherwise
provided in these Bylaws or in the resolutions establishing such committees, he
shall be ex officio a member of all Committees of the Board. The Chairman shall
preside at all corporate meetings and may executive in the name of the
Corporation share certificates, deeds, mortgages, bonds, contracts or other
instruments except in cases where the signing and the execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation or shall be required by law otherwise to be
signed or executed. In addition, he shall perform all duties incident to the
office of the Chairman of the Board and such other duties as from time to time
may be assigned to him by the Board of Directors.
4.5 Duties of the President
The President may be the chief executive officer of the Corporation and
shall be primarily responsible for the implementation of policies of the Board
of Directors. He shall have authority over the general management and direction
of the business and operations of the Corporation and its divisions, if any,
subject only to the ultimate authority of the Board of Directors. He shall be a
Director, and, except as otherwise provided in these Bylaws or in the
resolutions establishing such committees, he shall be ex officio a member of all
Committees of the Board. In the absence of the Chairman and the Vice-Chairman of
the Board, or if there are no such officers the President shall preside at all
corporate meetings. He may sign and execute in the name of the Corporation share
certificates, deeds, mortgages, bonds, contracts or other instruments except in
cases where the signing and the execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent of
the Corporation or shall be required by law otherwise to be signed or executed.
In addition, he shall perform all duties incident to the office of the President
and such other duties as from time to time may be assigned to him by the Board
of Directors.
4.6 Duties of the Vice-Presidents
Each Vice-President, if any, shall have such powers and duties as may from
time to time be assigned to him by the President or the Board of Directors. Any
Vice-President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments authorized by the Board of
Directors, except where the signing and the execution of such documents shall be
expressly delegated by the Board of Directors or the President to some other
officer or agent of the Corporation or shall be required by law or otherwise to
be signed or executed.
4.7 Duties of the Treasurer
The Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation, and shall deposit all
monies and securities of the Corporation in such banks and depositories as shall
be designated by the Board of Directors. He shall be responsible (i) for
maintaining adequate financial accounts and records in accordance with generally
accepted accounting practices; (ii) for the preparation of appropriate operating
budgets and financial statements; (iii) for the preparation and filing of all
tax returns required by law; and (iv) for the performance of all duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board of Directors, the Finance Committee or the
President. The Treasurer may sign and execute in the name of the Corporation
share certificates, deeds, mortgages, bonds, contracts or other instruments,
except in cases where the signing and the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law or otherwise to be signed
or executed.
4.8 Duties of the Secretary
The Secretary shall act as secretary of all meetings of the Board of
Directors and shareholders of the Corporation. When requested, he shall also act
as secretary of the meetings of the committees of the Board. He shall keep and
preserve the minutes of all such meetings in permanent books. He shall see that
all notices required to be given by the Corporation are duly given and served;
shall have custody of the seal of the Corporation and shall affix the seal or
cause it to be affixed to all share certificates of the Corporation and to all
documents the execution of which on behalf of the Corporation under its
corporate seal is duly authorized in accordance with law or the provisions of
these Bylaws; shall have custody of all deeds, leases, contracts and other
important corporate documents; shall have charge of the books, records and
papers of the Corporation relating to its organization and management as a
Corporation; shall see that all reports, statements and other documents required
by law (except tax returns) are properly filed; and shall in general perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board of Directors or the President.
4.9 Compensation
The Board of Directors shall have authority to fix the compensation of all
officers of the Corporation.
ARTICLE V
Capital Stock
5.1 Certificates
The shares of capital stock of the Corporation shall be evidenced by
certificates in forms prescribed by the Board of Directors and executed in any
manner permitted by law and stating thereon the information required by law.
Transfer agents and/or registrars for one or more classes of shares of the
Corporation may be appointed by the Board of Directors and may be required to
countersign certificates representing shares of such class or classes. If any
officer whose signature or facsimile thereof shall have been used on a share
certificate shall for any reason cease to be an officer of the Corporation and
such certificate shall not then have been delivered by the Corporation, the
Board of Directors may nevertheless adopt such certificate and it may then be
issued and delivered as though such person had not ceased to be an officer of
the Corporation.
5.2 Lost, Destroyed and Mutilated Certificates
Holders of the shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate therefor,
and the Board of Directors may in its discretion cause one or more new
certificates for the same number of shares in the aggregate to be issued to such
shareholder upon the surrender of the mutilated certificate or upon satisfactory
proof of such loss or destruction, and the deposit of a bond in such form and
amount and with such surety as the Board of Directors may require.
5.3 Transfer of Shares
The shares of the Corporation shall be transferable or assignable only on
the books of the Corporation by the holder in person or by attorney on surrender
of the certificate for such shares duly endorsed and, if sought to be
transferred by attorney, accompanied by a written power of attorney to have the
same transferred on the books of the Corporation. The Corporation will
recognize, however, the exclusive right of the person registered on its books as
the owner of shares to receive dividends and to vote as such owner.
5.4 Fixing Record Date
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than seventy days prior to the date on
which the particular action, requiring such determination of shareholders, is to
be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notices of the
meeting are mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof unless
the Board of Directors fixes a new record date, which it shall do if the meeting
is adjourned to a date more than 120 days after the date fixed for the original
meeting.
<PAGE>
ARTICLE VI
Miscellaneous Provisions
6.1 Seal
The Board of Directors will choose whether to have a seal.
6.2 Fiscal Year
The fiscal year of the Corporation shall end on such date and shall
consist of such accounting periods as may be fixed by the Board of Directors.
6.3 Checks, Notes and Drafts
Checks, notes, drafts and other orders for the payment of money shall be
signed by such persons as the Board of Directors from time to time may
authorize. When the Board of Directors so authorizes, however, the signature of
any such person may be a facsimile.
6.4 Amendment of Bylaws
Unless proscribed by the Articles of Incorporation, these Bylaws may be
amended or altered at any meeting of the Board of Directors by affirmative vote
of a majority of the number of Directors fixed by these Bylaws. The shareholders
entitled to vote in respect of the election of Directors, however, shall have
the power to rescind, amend, alter or repeal any Bylaws and to enact Bylaws
which, if expressly so provided, may not be amended, altered or repealed by the
Board of Directors.
6.5 Voting of Shares Held
Unless otherwise provided by resolution of the Board of Directors or of
the Executive Committee, if any, the President may from time to time appoint an
attorney or attorneys or agent or agents of the Corporation, in the name and on
behalf of the Corporation, to cast the vote which the Corporation may be
entitled to cast as a shareholder or otherwise in any other corporation, any of
whose securities may be held by the Corporation, at meetings of the holders of
the shares or other securities of such other corporation, or to consent in
writing to any action by any such other corporation; and the President shall
instruct the person or persons so appointed as the manner of casting such votes
or giving such consent and may execute or cause to be executed on behalf of the
Corporation, and under its corporate seal or otherwise, such written proxies,
consents waivers or other instruments as may be necessary or proper in the
premises. In lieu of such appointment the President may himself attend any
meetings of the holders of shares or other securities of any such other
corporation and there vote or exercise any or all power of the Corporation as
the holder of such shares or other securities of such other corporation.
6.6 Indemnification and Directors' and Officers' Liability Insurance
All directors, officers, employees and agents of the Corporation shall be
entitled to indemnification by the Corporation or its insurer for liabilities
and reasonable expenses incurred by such person in the defense of any demand,
suit, judgement, court order, or other proceeding to which such person was a
party because such person was a director, officer, employee or agent of the
Corporation, or who at the Corporation's request, is or was serving as a
director, officer, partner, trustee, employee, or agent of another corporation,
partnership, joint venture, trust employee, joint venture, trust, employee
benefit plan or other enterprise, all to the extent such indemnification is
permitted under Tennessee Code Annotated ss. 48-18-501 et seq. The Corporation
may purchase and maintain insurance on behalf of an individual who is or who was
a director, officer, employee or agent of the Corporation, or who, while a
director, officer employee or agent of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against liability asserted against or incurred
by him in that capacity or arising from his status as a director, officer,
employee or agent whether or not the Corporation would have power to indemnify
him against the same liability under the Tennessee Code Annotated ss. 48-18-502
or ss.48-18-503.
ARTICLE VII
Affiliated and Other Transactions
7.1 Independent Directors
The Board of Directors shall at all times have at least two (2) members
who are Independent Directors. An "Independent Director" is a member of the
Board of Directors who (i) is not an officer or employee of the company, its
subsidiaries, or their Affiliates or Associates, and has not been such an
officer or employee within the last two years, (ii) is not a Promoter of the
Company, (iii) does not legally or beneficially own, directly or indirectly,
five percent or more of any class of the Company's equity securities, and (iv)
is not an Affiliate or Associate of any of the preceding persons. An "Affiliate"
is a person who, directly or indirectly, controls, is controlled by, or is under
common control with the person specified. An "Associate" is used to indicate a
relationship with another person, and includes (i) corporations or legal
entities, other than the Company, of which a person is an officer, director,
partner, or a direct or indirect, legal or beneficial owner of five percent or
more of any class of equity securities, (ii) trusts or estates in which a person
has a substantial beneficial interest or serves as trustee or in a similar
capacity, or (iii) a person's spouse and relatives, by blood or marriage, if the
person is a Promoter of the Company, its subsidiaries, other Affiliates. A
"Promoter" is a person who (i) alone or together with other persons, directly or
indirectly, took the initiative in founding or organizing the Company or
controls the Company, or (ii) directly or indirectly, receives as consideration
for services and/or property rendered, five percent or more of any class of the
company's equity securities or five percent more of the proceeds from the sale
of my class of the Company's equity securities.
7.2 Transactions with Affiliates
All material transactions with Affiliates or Promoters of the Company,
and all loans by the Company to any of its Affiliates or Promoters, shall be on
terms which are as favorable to the Company as those generally available form
unaffiliated third parties and each such transaction must be ratified by a
majority of the Company's Independent Directors who do not have an interest in
the transaction and who had access, at the company's expense, to the Company's
or independent legal counsel. No such transaction shall be entered into when
there are less than two disinterest Independent Directors. These provisions with
regard to loans shall not be applicable to advances to officers, directors and
employees for travel, business expense, and similar ordinary operation
expenditures. Loans made to officers, directors and employees for the purchase
of the Company's securities, or for relocation of officers, directors and
employees, shall be permissible if approved by a majority of the Company's
Independent Directors who do not have an interest in the transaction and who had
access, at the Company's expense, to the Company's or independent legal counsel.
7.3 Issuance of Preferred Stock
The Company shall not issue shares of Preferred Stock, without a vote of
the holders of its Common Stock, unless: (i) the Company does not issue such
shares or Preferred Stock to Promoters or Affiliates of the Company except on
the same terms as such shares are offered to all other existing shareholders or
to new shareholders, or (ii) the issuance of the Preferred Stock is approved by
a majority of the company's Independent Directors who do not have an interest in
the transaction and who had access, at the Company's expense, to the Company's
or independent legal counsel.
7.4 Issuance of Options and Warrants
The Company shall not issue any options or warrants, which are not
qualified under the provisions of Section 422 of the Internal Revenue Code, to
any person for the purchase of Common Stock unless the exercise price is equal
to or greater than 85% of the fair market value of the underlying Common Stock
as determined by the Board of Directors on the date of the grant of such options
and warrants. The Board of Directors may employee an independent appraiser to
determine the fair market value, if deemed advisable by the Board.
The Amended and Restated Bylaws was duly adopted by the Board of Directors
of the Corporation on July 21, 1999.
These Amended and Restated Bylaws shall be effective upon filing with the
Office of the Secretary of State of the State of Tennessee.
This the 11th day of August, 1999.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
Kent E. Lillie
President & Chief Executive Officer
ATTEST:
/s/ George J. Phillips
George J. Phillips
Secretary
THIS AGREEMENT is made and entered into as of the _____________ by and
between SHOP AT HOME, INC., a Tennessee corporation (herein the "Network"), and
___________ (herein "Employee");
W I T N E S S E T H:
WHEREAS, the Network engages in the business of retail sales of
merchandise by sales presentations broadcast directly to potential customers by
cable and satellite television and Internet transmissions commonly known as the
"shop at home business";
WHEREAS, Network employs Employee as _________ and wishes to provide a
mechanism to reward Employee for his or her continued service; and
WHEREAS, the Network has adopted the Shop At Home, Inc. 1999 Stock
Option Plan (herein the "Plan"), which governs and controls the terms of this
Agreement.
NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following
terms shall have the meanings specified below. Capitalized
terms in this Agreement have the meaning ascribed to such
terms in the Plan unless otherwise defined herein.
1.1 "Beneficial Owner" shall have the meaning attributed to that
term under Rule 13d-3 Of the Securities Exchange Act of 1934,
as amended.
1.2 "Change of Control" means: (a) the sale, lease, exchange or
other transfer of all or substantially all of the assets of
the Network (in one transaction or in a series of related
transactions) to a person that is not controlled by the
Network, (b) the approval by the Network's shareholders of
any plan or proposal for the liquidation or dissolution of the
Network, or (c) a change in control of the Network of a nature
that would be required to be reported (assuming such event
has not been "previously reported") in response to Item 1(a)
of the Current Report on Form 8-K, as in effect on the
effective date of the Plan, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, whether or not the
Network is then subject to such reporting requirement;
provided, however, that, without limitation, such a change in
control shall be deemed to have occurred at such time as (i)
any Person becomes after the date this Plan is approved or
ratified by the Network's shareholders the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of 30% or more of the
combined voting power of the Network's outstanding securities
ordinarily having the right to vote at elections of Directors
unless the Board shall have expressly approved the transaction
or acquisition that resulted in such Person becoming the
beneficial owner of such voting power, or (ii) individuals who
constitute the Board of Directors of the Network on the date
this Plan is approved or ratified by the Network's
shareholders cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
Director subsequent to such date whose election, or nomination
for election by the Network's shareholders, was approved by
a vote of at least a majority of the Directors comprising or
deemed pursuant hereto to comprise the Board on the date this
Plan is approved or ratified by the Network's shareholders
(either by a specific vote or by approval of the proxy
statement of the Network in which such person is named as a
nominee for Director) shall be, for purposes of this clause
(ii) considered as though such person were a member of the
Board on the date this Plan is approved or ratified by the
Network's shareholders; or (iii) both J.D. Clinton ceases
to be Chairman of the Board and Kent E. Lillie ceases to be
the Network's Chief Executive Officer or Chairman of the
Board.
1.3 "Disability" means, as defined by and to be construed in
accordance with Code Section 22(e)(3), any medically
determinable physical or mental impairment that is expected to
result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve (12)
months, and that renders Employee unable to engage in any
substantial gainful activity. An Employee shall not be
considered to have a Disability unless Employee furnishes proof
of the existence thereof in such form and manner, and at such
time, as the Board of Directors or the Compensation Committee
of the Board may require.
1.4 "For Cause" shall mean any one of the following:
(a) The Employee commits an act of dishonesty,
embezzlement or fraud against the Network.
(b) The Employee fails to use his/her best
efforts on behalf of the Network, or
conducts himself/herself in a manner
substantially detrimental to the Network.
(c) Employee is convicted of a misdemeanor
involving dishonesty, breach or trust or
moral turpitude, or is convicted of a
felony. (d) Employee engages in the illegal
usage of any drug. (e) Any state or federal
regulatory agency or court of competent
jurisdiction issues an order requiring the
Employee's removal from any duties or
responsibilities for the Network.
2. Stock Options. The Network hereby grants to Employee an
option that is intended to be an incentive stock option
pursuant to Code Section 422 to purchase up
to _________ shares of the Network's Common Stock,
$.0025 par value, at an exercise price of
$_________ per share, expiring the earlier of five (5) years from
the date of vesting or ten (10) years from the date of grant. Such
incentive stock option is granted pursuant to the Plan, and the
exercise price of the option has been determined by the Board of
Directors of the Network to be not less than one hundred percent
(100%) of the fair market value of the stock as of the date of
this Agreement. Pursuant to this Section, options to purchase
____________ shares shall vest on ________, with options to
purchase ____________ shares vesting on _________ of each year
thereafter, and continuing until all options shall have vested
pursuant to the schedule on the first page of this Agreement.
2.1 Termination and Resignation. If the Employee resigns as an
employee of the Network, or the Network terminates
Employee for any reason, all options not yet vested shall
terminate except as provided in Section 2.3. Upon the
occurrence of such termination or resignation, Employee
shall have thirty (30) days to exercise any previously
vested options.
2.2 Disability or Death. Upon the Employee's Disability or
death any options that would vest within one (1) year of
such disability or death shall vest and may be exercised
by the executor, heir or legal representative of the
deceased or by the disabled Employee so long as such
options are exercised within one (1) year of the death or
disability. All other options that do not vest under this
section shall terminate.
2.3 Change of Control. Notwithstanding Section 2.1, in the
event the Employee is terminated for any reason other than
resignation or For Cause within twelve (12) months after
the occurrence of a Change of Control, all the options
that would have vested within one (1) year from the date
of such termination shall vest and the rest shall
terminate. All options vesting under the provisions of
this section will expire unless exercised within ninety
(90) days following the effective date of the Employee's
termination. If the Employee resigns or is terminated For
Cause, then all unvested options shall terminate.
3. Exercise of Options. To exercise these options the Employee
shall complete Exhibit A to this Agreement and must submit it
with the payment for the Exercise Price times the number of
shares being exercised. Upon confirmation that such shares are
exercisable, that the payment presented is good and that such
exercise is in compliance with this Agreement, the Network
will direct its stock transfer agent to send the shares to the
Employee or the Employer's stock brokerage account at the
Employee's direction. These can be sent as actual certificates
or they may be deposited electronically. The Employee agrees
that because the Network wants to avoid even the appearance of
any employee trading the Network's stock based on "insider"
information or for other business reasons, that there may be
times when the Network determines that there should be a
"quiet period" during which employees may not sell stock. By
accepting this Agreement, the Employee agrees not to sell any
shares during such quite periods.
4. Governing Law and Venue. This Agreement is to be construed and
enforced in accordance with and governed by the laws of the
State of Tennessee, notwithstanding any conflicts of law
doctrines of any jurisdiction to the contrary. The Employee
waives any right to bring any action concerning this Agreement
in any court other than the courts found in Davidson County,
Tennessee.
5. Reservation of Shares. The Network shall at all times reserve
and keep available a number of its authorized but unissued
shares of its Common Stock sufficient to permit the exercise
in full of these Options granted under this Agreement.
6. Restrictions on Sale of Stock. The Options granted under this
Agreement are not transferable or assignable except by will or
by the applicable laws of descent and distribution, and only
he or she may exercise them during the Employee's lifetime. If
the Employee is an executive officer of the Network, or is
deemed to be an "affiliate" of the Network, within the meaning
ascribed to that term under Rule 144 of the Securities &
Exchange Commission, the number of shares such person may
transfer during any three month period will be restricted
under the provisions of Rule 144. If the Employee is such a
person, each certificate evidencing any of the shares acquired
by Employee pursuant to the Option shall include a restrictive
legend consistent with such limitation on transfers.
The Options granted shall be registered on the books of the
Network, which shall be kept by it's Corporate Secretary at
its principal office, and shall be transferable only on said
books by the registered owner hereof in person or by duly
authorized attorney upon surrender of an Exercise Form
attached hereto as Exhibit A properly endorsed, and only in
compliance with the provisions of the Plan and this Agreement.
The Network will record any exercises in its books indicating
the number of shares having been exercised and the number of
shares left to be exercised.
7. Capital Adjustments Affecting Stock, Mergers and Consolidations.
A. Capital Adjustments. In the event of a capital adjustment
in the Common Stock resulting from a stock dividend, stock
split, reorganization, merger, consolidation, or a combination
or exchange of shares, the number of shares of under option
shall be automatically adjusted to take into account such
capital adjustment. The price of any share under option shall
be adjusted so that there will be no change in the aggregate
purchase price payable upon exercise of the option.
B. Mergers and Consolidations. In the event the Networ
merges or consolidates with another entity, or all or a substantial
portion of the Network's assets or outstanding
capital stock are acquired (whether by merger,
purchase or otherwise) by a Successor, the kind of
shares that shall be subject to the Plan and to each
outstanding option shall, automatically by virtue of
such merger, consolidation or acquisition, be
converted into and replaced by shares of stock of the
Successor having rights and preferences no less
favorable than the Common Stock, and the number of
shares subject to the option and the purchase price
per share upon exercise of the option shall be
correspondingly adjusted, so that, by virtue of such
merger, consolidation or acquisition, each Employee
shall have the right to purchase [i] that number of
shares of stock of the Successor that have a value
equal, as of the date of such merger, conversion or
acquisition, to the value, as of the date of such
merger, conversion or acquisition, of the shares of
Common Stock of the Network theretofore subject to
Employee's option, [ii] for a purchase price per
share that, when multiplied by the number of shares
of stock of the Successor subject to the option,
equal the aggregate exercise price at which Employee
could have acquired all of the shares of Common Stock
of the Network theretofore optioned to Employee.
C. No Effect on Network's Rights. The granting of an
option pursuant to the Plan shall not affect in any
way the right and power of the Network to make
adjustments, reorganizations, reclassifications, or
changes of its capital or business structure or to
merge, consolidate, dissolve, liquidate, sell or
transfer all or any part of its business or assets.
8. Notification of Sale. The Employee agrees that if the shares
obtained under this Agreement are sold within two (2) years
from the date of grant and one (1) year of the date of
exercise to give the Network's Corporate Secretary, at the
address set out in Section 14 below, the sale price and the
number of shares sold, within ten (10) days from the date of
sale on the form attached hereto as Exhibit B.
9. Limitations of Damages. Employee agrees that notwithstanding
any other provision of this Agreement to the contrary,
Employee's sole and exclusive remedy for breach shall be for
the Network to deliver any shares that are vested, properly
exercisable and are properly exercised under the terms of the
Plan and this Agreement. THE EMPLOYEE AGREES THAT THE NETWORK
SHALL NOT BE LIABLE FOR SUCH EMPLOYEE'S CONSEQUENTIAL DAMAGES
BECAUSE OF THE NETWORK'S BREACH OR ALLEGED BREACH OF THIS
AGREEMENT, INCLUDING SUCH PARTY'S DAMAGES FOR LOST PROFITS,
EVEN IF THOUGH BOTH PARTIES RECOGNIZE SUCH BREACH WOULD COST
THE EMPLOYEE SUCH PROFITS AND CONSEQUENTIAL DAMAGES.
10. Hold Harmless. Employee covenants and agrees that he or she
will indemnify and hold harmless the Network from any and all
losses, damages, liabilities, expenses or claims, including
reasonable attorney fees, resulting from or arising out of any
nonfulfillment by the Employee of any material provision of
this Agreement.
11. Void If Breach. The Network's obligations under this
Agreement are contingent upon the Employee abiding by all agreements,
including but not limited to any non-compete, confidentiality,
non-inducement, non-appearance agreements, with the Network.
Further the Employee agrees that any material breach of such
agreements will cause the Network irreparable harm that is
hard to measure and the Employee therefore agrees that for
such material breach, Network shall be entitled, in addition
to any other available remedies, to immediately terminate this
Agreement. Upon Employee's material breach of such agreements,
Employee agrees that the Network shall be immediately released
from having to perform any of its obligations under this
Agreement, in addition to whatever other relief that the
Network may be entitled to under law or equity arising from
the Employee's breach of such agreements.
12. Waiver of Jury Trial. Employee waives any right to a jury trial in any
dispute concerning this Stock Option Agreement.
13. Assignment. The parties acknowledge that this Agreement has
been entered into due to, among other things, the special
skills of Employee, and agree that this Agreement may not be
assigned or transferred by Employee. The options hereunder may
be exercised only by the Employee during the Employee's
lifetime, or by Employee's representative in the event of
death or disability to the extent the options were exercisable
on the date of death or disability. The Network may assign
this Agreement to its successors and assigns.
14. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given on the
date of receipt if delivered or mailed, first class, certified
mail, postage prepaid, with a copy by facsimile, if any is
provided,:
To Network:
Shop At Home, Inc.
P.O. Box 305249
Nashville, Tennessee 37230-5249
Attention: Corporate Secretary
Telephone Number: (615) 263-8000
Facsimile Number: (615) 263-8911
To Employee:
______________________
______________________
______________________
Telephone Number:
Facsimile Number:
15. Amendments and Modifications. This Agreement may be amended or modified only
by a writing signed by both parties hereto.
16. No Employment Agreement. The parties acknowledge that Employee
is an "employee at will," and that his or her service as an
employee may be terminated at any time by the Network for any
or no reason without penalty. This Agreement is not, and is
not intended by the parties to be, nor is it an agreement for
the continued employment of the Employee by the Network.
17. Employee Responsible for Taxes. The Employee is responsible
for paying any taxes (both Federal and State) on any gain from
the sale of stock obtained from the exercise of stock options.
Employee should consult with his or her tax advisor concerning
any questions about the tax liability arising from the sale of
stock obtained through the exercise of stock options to
determine, among other things, whether the Employee needs to
pay quarterly estimated taxes on any gain.
18. No Rights as Stockholder. This Agreement does not confer any
rights of a stockholder on the Employee, except as to shares
of common stock that are actually delivered to the Employee.
19. Execution in Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, and all of which shall constitute one and the same
instrument.
20. Headings. The headings set out in this Agreement are for
convenience of reference and shall not be deemed a part of
this Agreement and shall not affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
SHOP AT HOME, INC.
By:
Title:
EMPLOYEE:
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