AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 2000
REGISTRATION NO. 333-_____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification no.)
5388 HICKORY HOLLOW PARKWAY
ANTIOCH, TENNESSEE 37013-3128
(615) 263-8000
(Address, including zip code, and telephone number,
Including area code, of registrant's principal executive offices)
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GEORGE J. PHILLIPS Copy to:
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL C. MICHAEL NORTON
SHOP AT HOME, INC. WYATT, TARRANT & COMBS
5388 HICKORY HOLLOW PARKWAY 1500 NASHVILLE CITY CENTER
ANTIOCH, TENNESSEE 37013-3128 NASHVILLE, TENNESSEE 37219
(615) 263-8090 (615) 251-6744
-------------------------------------------------------------------
(Name and address, including zip code, and telephone number,
Including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time, after the effective date of this Registration Statement. If the only
securities being registered on this Form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. [ ] If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X] If this Form is filed to
register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] If delivery of the prospectus
is expected to be made pursuant to Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
------------------------------------- ----------------------- -------------------- ------------------- -------------
Title of each Amount Proposed maximum Proposed maximum Amount of
class of securities to be offering price per aggregate registration
to be registered registered share offering price fee
------------------------------------- ----------------------- -------------------- ------------------- -------------
------------------------------------- ----------------------- -------------------- ------------------- -------------
<S> <C> <C> <C> <C>
Common Stock, $.0025 par value 12,970,163(1) $4.25(2) $55,123,193 $14,553
------------------------------------- ----------------------- -------------------- ------------------- -------------
</TABLE>
(1) Shares of common stock that may be offered pursuant to this
registration statement consist of 10,970,163 shares of common stock
issuable upon conversion of or issuance of common stock dividends on
the Series B Convertible Preferred Stock and 2,000,000 shares of common
stock issuable upon exercise of the warrants. For purposes of
estimating the number of shares of common stock to be included in this
registration statement, we included (i) 9,275,362 shares, representing
200% of the number of shares of common stock issuable upon conversion
of the Series B Convertible Preferred Stock, determined as if the
Series B Convertible Preferred Stock were converted in full at the
conversion price of $4.3125 as of July 26, 2000, excluding accrued
dividends; plus (ii)1,694,801 shares, representing 200% of the number
of shares of common stock issuable in lieu of cash dividends payable on
the Series B Convertible Preferred Stock, assuming a dividend
conversion price of $4.2483; plus (iii) 2,000,000 shares, representing
the number of shares of common stock issuable upon exercise of the
warrants; plus (iv) an indeterminate number of shares that may be
issued as the result of any stock split, stock dividend,
recapitalization, exchange or similar transaction pursuant to Rule 416
of the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average high and low prices of
the common stock on July 19, 2000, as reported by the Nasdaq National
Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. SELLING
SECURITYHOLDERS OF SHOP AT HOME MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- July 26, 2000
PROSPECTUS
12,970,163 SHARES
[COMPANY LOGO] SHOP AT HOME, INC.
Common Stock
This prospectus relates to12,970,163 shares of our common stock
which the selling securityholders, including their transferees, pledgees or
donees or their successors, may sell from time to time.
We are registering the shares to permit the selling securityholders to
sell the shares from time to time in the public market. The securityholders may
sell the common stock through ordinary brokerage transactions, directly to
market makers of our shares or through any other means described in the section
"Plan of Distribution" beginning on page 27. We cannot assure you that the
selling securityholders will sell all or any portion of the common stock offered
under this prospectus.
Shop At Home sells specialty consumer products, primarily collectibles,
through interactive electronic media, including broadcast, cable and satellite
television, and, increasingly, the Internet.
The shares of Shop At Home are quoted in the Nasdaq National Market
under the symbol "SATH." On July 25, 2000, the last reported sale price in the
Nasdaq National Market was $4.3125 per share.
You should carefully consider the risks and uncertainties described
below and the other information contained or incorporated by reference in this
prospectus before deciding whether to invest in our common stock. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations.
See "Risk Factors" on pages 3 to 13 for factors that should be
considered before investing in the shares of Shop At Home.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is _______________, 2000
<PAGE>
TABLE OF CONTENTS PAGE
Risk Factors.......................................................3
Available Information.............................................13
Forward-Looking Statements........................................15
Shop At Home .....................................................15
Use of Proceeds...................................................16
Description of Capital Stock......................................16
Selling Shareholders..............................................25
Plan of Distribution..............................................27
Legal Matters.....................................................29
Experts...........................................................29
Our principal executive offices are located at 5388 Hickory Hollow
Parkway, Antioch, Tennessee 37013. Our telephone number is (615) 263-8000. Our
Internet address is www.collectibles.com. Information contained on this website
is not part of this prospectus or any prospectus supplement.
The terms "Shop At Home," "we," "our" and "us" refer to Shop At Home,
Inc., and its subsidiaries unless the context suggests otherwise. The term "you"
refers to a prospective investor. The term fiscal 1999 and similar terms refer
to our fiscal year ending on June 30 of that year.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making offers to sell these securities in any
jurisdiction where the offer or sale is not authorized or in which the person
making such offer or sale is not qualified to do so or to anyone to whom it is
unlawful to make such offer or sale.
You should not assume that the information contained in this prospectus
is accurate as of any date other than the date on the front cover of this
prospectus.
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition
to the other information included in this prospectus, before purchasing shares
of common stock of Shop At Home. Each of these risks could adversely affect our
business, operating results and financial condition, as well as adversely affect
the value of an investment in our common stock. This investment involves a high
degree of risk.
Risk Related to the Series B Preferred Stock
The conversion of the Series B Preferred Stock and the exercise of the
related warrants could result in substantial numbers of additional shares being
issued if our market price declines. The Series B Preferred Stock converts at a
floating rate based on the market price of our common stock, but the conversion
price may not exceed $12.00 per share, subject to adjustment. As a result, the
lower the price of our common stock at the time of conversion, the greater the
number of shares the holder will receive. For additional information regarding
the number of additional shares that may be issued at various assumed conversion
prices, see the table on page 20 under "Description of Capital Stock--Preferred
Stock--Series B Convertible Preferred Stock--Conversion."
To the extent the Series B Preferred Stock is converted or dividends on
the Series B Preferred Stock are paid in shares of common stock rather than
cash, a significant number of shares of common stock may be sold into the
market, which could decrease the price of our common stock and encourage short
sales. Short sales could place further downward pressure on the price of our
common stock. In that case, we could be required to issue an increasingly
greater number of shares of our common stock upon future conversions of the
Series B Preferred Stock, sales of which could further depress the price of our
common stock.
The conversion of and the payment of dividends in shares of common
stock in lieu of cash on the Series B Preferred Stock may result in substantial
dilution to the interests of other holders of our common stock. While no selling
securityholder may convert its Series B Preferred Stock if upon such conversion
the selling securityholder (together with its affiliates) would have acquired a
number of shares of common stock during the 60-day period ending on the date of
conversion which, when added to the holder's shares of common stock previously
owned, would exceed 9.99% of our then outstanding common stock (excluding shares
issuable upon conversion of Series B Preferred Stock which have not been
converted and upon exercise of warrants which have not been exercised), this
restriction does not prevent a selling securityholder from selling a substantial
number of shares in the market. By periodically selling shares into the market,
an individual selling securityholder could eventually sell more than 9.99% of
our outstanding common stock while never holding more than 9.99% at any specific
time.
We may issue additional shares and dilute your ownership percentage.
Some events over which you have no control could result in the issuance of
additional shares of our common stock, which would dilute your ownership
percentage in Shop At Home. We may issue additional shares of common stock or
preferred stock:
to raise additional capital or finance acquisitions,
upon the exercise or conversion of outstanding options, warrants and
shares of convertible preferred stock, and/or
in lieu of cash payment of dividends.
<PAGE>
As of July 20, 2000, other than the warrants issued to the holders of
Series B Preferred Stock, there were outstanding warrants to acquire an
aggregate of 2,275,000 shares of common stock, and there were outstanding
options to acquire an aggregate of 2,879,500 shares of common stock. If
exercised, these securities will dilute your percentage ownership of common
stock. These securities, unlike the common stock, provide for anti-dilution
protection upon the occurrence of stock splits, redemptions, mergers,
reclassifications, reorganizations and other similar corporate transactions,
and, in some cases, major corporate announcements. If one or more of these
events occur, the number of shares of common stock that may be acquired upon
conversion or exercise would increase. In addition, as disclosed in the
preceding risk factor, the number of shares that may be issued upon conversion
of or payment of dividends in lieu of cash on the Series B Preferred Stock could
increase substantially if the market price of our common stock decreases during
the period the Series B Preferred Stock is outstanding.
For example, the number of shares of common stock that we would be
required to issue upon conversion of all 2,000 shares of Series B Preferred
Stock, excluding shares issued as accrued dividends, would increase from
approximately 4.6 million shares, based on the applicable conversion price of
$4.3125 per share as of July 26, 2000, to approximately:
6.2 million shares if the applicable conversion price decreased 25%;
9.3 million shares if the applicable conversion price decreased 50%; or
18.6 million shares if the applicable conversion price decreased 75%.
We may be required to delist our shares from Nasdaq if specific events
occur. In accordance with Nasdaq Rule 4460, which generally requires stockholder
approval for the issuance of securities representing 20% or more of an issuer's
outstanding listed securities, and under the terms of the agreement pursuant to
which we sold the Series B Preferred Stock and related warrants, we must solicit
stockholder approval of the issuance of such preferred shares and warrants,
including the shares of common stock issuable upon conversion of the Series B
Preferred Stock and exercise of the warrants, at a meeting of our stockholders,
which shall occur on or before November 30, 2000. If we obtain stockholder
approval, there is no limit on the amount of shares that could be issued upon
conversion of the Series B Preferred Stock. If we do not obtain stockholder
approval and are not obligated to issue shares because of restrictions relating
to Nasdaq Rule 4460, we may be required to pay a substantial penalty and may be
required to voluntarily delist our shares of common stock from the Nasdaq Stock
Market. In that event, trading in our shares could decrease substantially, and
the price of our shares of common stock may decline. For additional information
regarding the number of additional shares that may be issued at various assumed
conversion prices, see the table on page 20 under "Description of Capital
Stock--Series B Convertible Preferred Stock."
Substantial sales of our common stock could cause our stock price to
fall. If our stockholders sell substantial amounts of our common stock,
including shares issued upon the exercise of outstanding options and upon
conversion of and issuance of common stock dividends on the Series B Preferred
Stock and exercise of the related warrants, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. As of July 20, 2000, we had outstanding 31,264,772 shares of common
stock and warrants and options to acquire an aggregate of 5,154,500 shares of
common stock, of which warrants and options to acquire an aggregate of 3,363,300
shares were vested and exercisable. As of July 20, 2000, of the shares that are
currently outstanding, approximately 28.2 million are freely tradeable in the
public market and approximately 3.1 million are tradeable in the public market
subject to the restrictions, if any, applicable under Rule 144 and Rule 145 of
the Securities Act of 1933, as amended.
<PAGE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of (a) one percent of the number of shares of common stock then
outstanding (which for Shop At Home was 312,647 shares as of July 20, 2000) or
(b) the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
requirements with respect to manner of sale, notice, and the availability of
current public information about us. Under Rule 144(k), a person who is not
deemed to have been our affiliate at any time during the three months preceding
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Sales by stockholders of a substantial amount of our common stock
could adversely affect the market price of our common stock.
We may be required to pay substantial penalties to the holders of the
Series B Preferred Stock and related warrants if specific events occur. In
accordance with the terms of the documents relating to the issuance of the
Series B Preferred Stock and the related warrants, we are required to pay
substantial penalties to a holder of the Series B Preferred Stock under
specified circumstances, including, among others,
the nonpayment of dividends on the Series B Preferred Stock in a timely
manner;
our failure to deliver shares of our common stock upon conversion of
the Series B Preferred Stock or upon exercise of the related warrants
after a proper request;
failure to receive shareholder approval on or before November 30, 2000
of the issuance of the shares of common stock issuable upon
conversion of and in lieu of cash dividends on the Series B Preferred
Stock and upon exercise of the related warrants; or
a registration statement relating to the Series B Preferred Stock and
related warrants has not been declared effective by the SEC on or
before November 7, 2000, or after being declared effective, is
unavailable to cover the resale of the shares of common stock
underlying such securities.
Risks Related to Operational Matters
We have a history of losses and anticipate future losses.. There is no
assurance that we can be profitable on a continuing basis. We had net losses of
$3.3 million for fiscal 1999, along with a net loss of $4.6 million for the nine
months ended March 31, 2000. At March 31, 2000, we had an accumulated deficit of
approximately $12.7 million. If we cannot return to profitability before the
current net operating loss carryforwards expire, we would not be able to use
these losses to offset future taxable earnings in federal and state income
tax calculations.
As we continue to implement our growth strategy, we intend to devote
significant resources to develop and market our website and to acquire
additional television stations. We will incur these costs before receiving the
anticipated related net revenues. We expect to continue to incur operating and
net losses and negative cash flow from operations, primarily due to our Internet
expansion. While management is implementing plans to return the Company to
profitability, it is possible that we may not achieve favorable results. If our
plans fail to return the Company to profitability, or if we are unable to
generate sufficient cash from our business to fund our operational
requirements and business strategy, we might be required to obtain additional
funds through the incurrence of additional indebtedness or the sale of
additional stock. Our current indebtedness agreements impose significant
restrictions on our ability to incur additional debt, and we cannot be assured
that additional investors will purchase our stock at prices which are acceptable
to us, if at all. Failure to obtain these additional funds could have serious
financial and business consequences, such as causing us to default on our
current indebtedness or requiring that we significantly revise and limit our
growth strategy.
<PAGE>
Failure to manage our rapid growth and related expenses could adversely
affect our business. We have experienced rapid growth in net revenues in recent
years. For fiscal 1996, 1997, 1998 and 1999, our net revenues increased by 51%,
69%, 46% and 51% over net revenues for the prior fiscal year. Almost all of the
growth in net revenues in these years resulted from expanded carriage of our
television programming on cable systems and broadcast stations. During these
periods, we increased substantially the amounts paid for the carriage of our
programming. We incurred other increased expenses associated with our growth,
such as the opening of our new Nashville facilities, the upgrade of our hardware
and software systems and increased payroll. We anticipate that with further
expansion of our facilities, infrastructure and payroll will be necessary to
accommodate increased sales. We must effectively control expenses to operate
profitably. We expect that our growth will continue to place a significant
strain on our management, operational and financial resources.
We face significant competition. The sale of consumer products by
electronic media is intensely competitive. The television commerce industry is
dominated by two established competitors, The Home Shopping Network and the QVC
Network. Both of these networks have substantially more television and cable
carriage than we do. We also compete with ValueVision, another broadly
distributed television commerce company. Additionally, we compete with other
companies which sell consumer goods on the Internet. Many of our competitors,
both in television and Internet commerce, have substantially greater financial,
distribution and marketing resources than we do. We generally compete with
traditional store and catalog retailers, many of whom also have substantially
greater financial, distribution and marketing resources than we do. These
competitors may enter into business combinations, joint ventures and strategic
alliances with each other, which could further enhance their resources.
We may not be able to increase our television distribution. Our growth
relies on increasing the television distribution of our programming. This will
require entering into new carriage agreements and acquiring additional
television stations. There can be no assurance that we will be successful in
entering into agreements or acquisitions on terms acceptable to us.
Additionally, there can be no assurance that the money required to enter into
these agreements will be available to us. If we cannot enter into these
agreements, we may be unable to increase our distribution. This could cause our
growth to slow or stop.
Our brand names may not achieve the broad recognition necessary to
succeed. We believe that the importance of brand recognition for
collectibles.com and Shop At Home Network will increase as more companies engage
in electronic commerce. If vendors do not perceive that we have an effective
marketing and sales channel for their merchandise, or consumers do not perceive
us as offering an entertaining and desirable way to purchase merchandise, we
will be unsuccessful in promoting and maintaining our brands. We expect to
substantially increase our financial commitment to create and maintain brand
loyalty among vendors and consumers with no assurance of success.
We could experience system and equipment failures that could harm our
business. Our success is dependent upon our television programming equipment and
our communications and computer hardware and software, substantially all of
which is located at our Nashville facilities. We have recently installed new
hardware and software at these facilities and have experienced a number of
computer related problems during the transition which have negatively affected
operations. We will be dependent on our vendors for post-installation
maintenance and support which cannot be assured.
Our equipment and systems are also vulnerable to break-down, natural
disasters, power loss, telecommunication failures and similar events. Our owned
television stations are subject to the same interruptions and failure. Our
computer servers are vulnerable to computer viruses, physical or electronic
break-ins, attempts by third parties deliberately to exceed the capacity of our
systems and similar disruptive problems. These and other problems caused by
third parties could lead to interruptions, delays, loss of data or cessation in
service to our customers.
Our success depends on our key personnel. Our success is substantially
dependent upon the ability and expertise of our senior management and other key
employees, including Kent E. Lillie, our President and Chief Executive Officer.
If we lose the services of one or more key employees, our operations could be
adversely affected. There can be no assurance that Mr. Lillie will serve out the
term of his employment and non-compete agreement through February 2004, or
extend his employment beyond such date. There can also be no assurance that the
other key executive officers, even those employed pursuant to employment or
non-compete agreements, will continue their employment.
<PAGE>
We may not be able to hire or retain the employees required to expand
our business. Most of our employees work in Nashville, where the current
unemployment rate is very low. This makes it difficult for us to attract and
retain qualified personnel for a variety of positions. The development and
implementation of the computer systems necessary to support our website require
technical abilities and expertise which are different from the technical skills
necessary for a television programming operation. As a result, we will need to
employ additional highly skilled personnel to develop and maintain our website.
There can be no assurance that we will be able to hire these employees or that
we will be able to afford the salaries they may demand. If we are unable to
employ these persons within our planned timetable or the costs of such employees
are higher than expected, our operations generally could be adversely affected.
Our operating results may fluctuate from period to period. Our
quarterly and annual operating results may fluctuate significantly as a result
of a variety of factors, many of which are outside our control. These include:
our ability to react quickly to consumer trends and the popularity of
some categories of collectible items;
our ability to acquire desirable products on an exclusive basis;
technical difficulties or service interruptions;
the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure;
general, regional and local financial conditions that may impact our
potential customers and suppliers; and
the seasonality of our business.
Risks Related to the Internet
We have a limited history of operations on the Internet and our
Internet strategy may be unsuccessful. We introduced shopathomeonline.com in
1997 and launched collectibles.com in November 1999. Our net revenues from
Internet commerce were not significant prior to November 1999. For the quarter
ended March 31, 2000, net revenues from Internet commerce were approximately
$1.5 million, or about 3% of our total net revenues. We plan to devote
significant funds and resources to develop and promote the website. In addition
to the risks of our business generally, the risks associated with developing
operations in a new and rapidly evolving market, such as online commerce,
include our ability to:
successfully implement our brand awareness and marketing campaigns;
successfully compete against other companies that sell similar products
online;
develop new strategic and marketing relationships to advertise and
direct customers to our website;
continue to develop and upgrade our technology;
manage growth;
respond to changes in a rapidly evolving and unpredictable business
environment; and
attract, retain and motivate qualified personnel.
<PAGE>
Our business will be dependent on the development and maintenance of
the Internet infrastructure. The success of our Internet commerce business will
depend in large part upon continuing development of infrastructure for providing
Internet access and services. The Internet could lose its viability due to
delays in the development or adoption of new standards and protocols intended to
handle increased levels of Internet activity. There can be no assurance that the
infrastructure or complementary services will be developed or, if they are
developed, that the Internet will be a viable marketing and sales channel for
the merchandise we offer.
Security breaches could harm our business. A significant barrier to
electronic commerce is the secure transmission of confidential information over
public networks. Currently, a significant number of our customers authorize us
to bill their credit cards to buy our products. For Internet sales we rely on
encryption and authentication technology licensed from third parties to protect
the confidentiality of our customers' information. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
may result in a compromise or breach of the technology used by us to protect
customer transaction data. A party who is able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in
our operations. Our security measures may not prevent security breaches. Our
failure to prevent security breaches could harm our business, damage our
reputation and expose us to a risk of loss or litigation and possible liability.
The protection of our domain names is uncertain because the regulation
of domain names is subject to change. We hold rights to various Internet domain
names, including collectibles.com. Regulation of domain names is expected to
change in the near future. We may not be able to acquire or to maintain
appropriate domain names in all countries in which we do business. Furthermore,
regulations governing domain names may not protect our proprietary rights.
Third parties have domain names similar to ours, and we may be unable to prevent
third parties from acquiring additional domain names that are similar to ours
or that infringe upon or diminish the value of our proprietary rights.
The Internet is subject to legal uncertainties and potential
governmental regulation that could affect our business. The application of
existing laws to the Internet, particularly with respect to property ownership,
the payment of sales taxes, libel and personal privacy, is uncertain and may
take years to resolve. Because the Internet and electronic commerce are becoming
increasingly popular, various governments may seek to adopt laws and regulations
to control their use. These laws and regulations could apply to privacy, pricing
and the characteristics and quality of products and services. The growth and
development of electronic commerce may also prompt calls for more stringent
consumer protection laws. These laws may impose additional burdens on companies
conducting business over the Internet. The adoption of any of these laws or
regulations may reduce Internet usage, which, in turn, could decrease the demand
for our products or increase our costs. Several telecommunications carriers have
asked the Federal Communications Commission to regulate telecommunications over
the Internet, regulate Internet service providers and online service providers
and impose access fees on those providers. If the FCC grants these requests, the
costs of communicating on the Internet could increase substantially, which could
reduce Internet usage. Any such request granted by the FCC could harm our
business. In addition, U.S. and foreign laws regulate our ability to use
customer information and to develop, buy and sell mailing lists. New
restrictions in this area could limit our ability to operate as planned and
result in significant compliance costs.
Risks Related to our Capital Structure
We have substantial debt, and our senior notes require large interest
payments and the payment of principal in 2005. Our long term debt consists of
$75.0 million of 11% Senior Secured Notes issued in March 1998 and a revolving
credit facility through a commercial bank of $20.0 million. The annual interest
payments on the Senior Notes total approximately $8.3 million, and the entire
principal amount is due in July 2005. This debt could have material consequences
to us and the holders of our securities, including the following:
a substantial portion of our cash flow from operations, if
any, will be used for the payment of the principal and
interest on our debt and will not be available for other
purposes; and
<PAGE>
our ability to obtain additional financing in the future for
acquisitions, working capital, capital expenditures and
general corporate or other purposes may be impaired.
If we are unable to generate sufficient cash flows from operations to pay our
interest obligations or the principal at maturity, we may be required to
refinance some or all of this debt. If we are not able to refinance our debt on
acceptable terms or to borrow additional money, we could be forced to default on
our debt obligations.
The terms of our debt impose restrictions on our business. The
Indenture we entered into when we issued the Senior Notes, as well as the
revolving credit agreement for our $20.0 million loan, restrict our ability to
do the following:
incur additional debt;
pay dividends;
make certain payments;
incur liens;
issue or sell the stock of some of our subsidiaries;
use net proceeds from certain asset sales for some purposes other than
repayment of the Senior Notes;
merge with another company;
sell substantially all of our assets;
enter into certain transactions with our affiliates; or
encumber our assets.
Because of these covenants, our ability to respond to changing business and
economic conditions might be significantly restricted, and we may be prevented
from engaging in transactions that might otherwise be considered beneficial to
us.
Our stock price may fluctuate, which may make it difficult to resell
your shares at attractive prices. The market price of our common stock has been
subject to significant fluctuations in the past and could be subject to these
fluctuations in the future in response to our operating results and other
factors. For example, during the 52-week period ended July 25, 2000, the
reported closing price of our common stock was as high as $14.00 on February 11,
2000 and as low as $3.734 on July 11, 2000. In addition, the stock market has
recently experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies. Such fluctuations, and general economic and market conditions, may
adversely affect the market price of the common stock.
<PAGE>
Our principal stockholder has significant ownership and his interest
may be different from and conflict with yours. J.D. Clinton is the beneficial
owner of 4,623,308 shares of our common stock (including options and warrants),
representing approximately 13.8% of the outstanding shares of common stock. To
our knowledge, no other shareholder owns as much as 5% of our shares of common
stock. Mr. Clinton is our largest stockholder, and his ownership could give him
the ability to influence stockholder votes, such as the election of members of
the Board of Directors, amendments to our charter, or approval of a merger,
asset sale or other corporate transaction requiring approval of the
stockholders. The concentration of ownership by Mr. Clinton could delay or
prevent a change in control of Shop At Home, even when a change of control might
be in the best interests of other stockholders.
We have anti-takeover provisions that could prevent an acquisition of
our business at a premium price. Our Board of Directors, without stockholder
approval, can issue preferred stock. This preferred stock could have dividend,
liquidation, conversion, voting or other rights that could adversely affect the
rights of the holders of common stock. These shares could, under some
circumstances, be utilized as a method of discouraging, delaying or preventing a
change in control of Shop At Home, even if our stockholders believe the change
in control would be in our best interests. In addition, certain other provisions
and agreements could have the same effect, including:
the provisions of the Tennessee Business Combination Act,
which impose restrictions on mergers and other business
combinations between us and any holder of 10% or more of our
common stock;
the Indenture we entered into in connection with our issuance
of the Senior Notes imposes certain restrictions on our
ability to enter into business combinations and gives the
holders of the Senior Notes the right to sell their Notes back
to us at a premium in the event of a change of control; and
Kent Lillie, our President and CEO, has the right to terminate
his employment within one year after a "change of control" of
Shop At Home. A change of control for this purpose means that
some stockholder owns more of our common stock than J.D.
Clinton and his related parties, or that Mr. Clinton or his
designee is not elected to, or is removed from, the Board of
Directors (other than by a mutual agreement of Mr. Clinton and
Mr. Lillie).
Risks Related to our Relationships with Third Parties
We depend on television affiliation agreements which could be
terminated or not renewed. Our business is dependent upon affiliation and time
brokerage agreements with television broadcast stations, cable system operators
and direct broadcast satellite systems. We must renegotiate and renew these
agreements from time to time. Most of these agreements give the owner of the
station or cable system the right to terminate the agreement at any time with 30
days notice, or the right to preempt our programs in certain situations. We must
compete with other television programmers for time on these stations and
systems, and there is no assurance we can match the prices our competitors may
be willing to pay. There can be no assurance that any of the agreements can be
renewed on acceptable terms, if at all.
We depend on exclusivity arrangements with our vendors. Our ability to
maintain our gross profit margins in certain product categories is partially
dependent upon exclusivity agreements with our vendors, such that we are the
only seller, or one of a limited number of sellers, of particular products. Many
of our vendors have not entered into exclusivity agreements with us and may not
be willing to do so. Those vendors that have entered into exclusivity agreements
may terminate such arrangements over time. Vendors with whom we wish to
establish exclusivity agreements may instead enter into exclusivity agreements
with our competitors.
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We rely on service providers and product vendors. We are dependent upon
certain service providers and product vendors to conduct our business. Because
we have positioned ourselves in the electronic commerce market as the seller of
certain unique products, including sports memorabilia, we depend upon a limited
number of suppliers for such products. This supply cannot be assured. In
addition, we rely on the services of a credit card processor, a single provider
for our computer hardware and a significant amount of our software, and a
limited number of telephone service providers and shipping companies. Should we
lose or experience interruptions in the services of any of these service
providers or if certain of our vendor relationships terminate, we may not be
able to replace these providers or vendors.
Our business depends on the availability of transponder arrangements.
We depend upon the continuous availability of transponder time and satellite
capacity. Our programming is transmitted by a non-preemptible satellite
transponder service under an agreement expiring in 2005. The company providing
the service may terminate the agreement upon the occurrence of certain defaults
by us. The satellite could malfunction or otherwise cease operating. An
interruption or termination of transponder service could have a material adverse
effect on us.
If the authenticity of our collectible products is challenged, our
business may be impaired. Many of the products we sell are collectibles and
memorabilia, the price of which is dependent upon their unique nature and
authenticity. Our ability to sell collectible products, and our business
reputation generally, could be impaired if our customers have reason to question
the authenticity of these products. Additionally, the failure to ensure that all
the products sold are authentic could result in litigation and possible
liability.
Risks Related to Technology Matters
If we fail to keep pace with rapid technological change, it could
materially harm our ability to attract and retain customers. The Internet and
electronic commerce industries are characterized by rapid technological change,
changes in user and customer requirements, frequent new service or product
introductions embodying new technologies and the emergence of new industry
standards and practices that could render our website and technology obsolete.
Our performance will depend, in part, on our ability to license or acquire
leading technologies, to enhance our existing services and to respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. There can be no assurance that we will be successful
in using new technologies effectively or adapting our website and technology to
emerging industry standards.
The increasing number of channels and websites pose a significant
competitive threat. In order for our customers to purchase our products, they
must either watch our television programs or access our website. Significant and
increasing competition exists for the attention of our potential customers. The
Internet consists of hundreds of millions of web pages and is growing at an
exceptional rate. Many of these web pages are used for the sale of consumer
products. The television broadcasting industry also has become increasingly
competitive in recent years. The consumer has ever-growing alternatives to the
traditional over-the-air television broadcast, including cable television,
satellite dishes, multichannel multipoint distribution systems, pay-per-view
programs and the proliferation of video recorders and video movie rentals. These
changes have created smaller television viewing audiences for particular
programs. Further technological developments will likely continue this trend,
putting additional competitive pressures on us.
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We may experience problems from computer systems associated with the
year 2000. The widespread use of computer programs that rely on two-digit dates
to perform computation and decision-making functions may cause computer systems,
including systems and software used by us and our website, to malfunction in the
year 2000 and may lead to significant business delays and disruptions in our
business and operations. We have completed our plan to minimize the impact of
the year 2000 problem, and to date we have not experienced any significant year
2000 problems. In addition to our internal systems, several systems provided by
third parties are required for the operation of our services, any of which may
contain software code that still might not be year 2000 compliant. These systems
include server software used to operate our network servers, software
controlling routers, switches and other components of our data network, disk
management software used to control our data disk arrays, firewall, security,
monitoring and back-up software, as well as desktop personal computer
applications software. Any failure of third party suppliers to provide year 2000
compliant versions of the products used by us could result in a temporary
disruption of our services or otherwise disrupt our operations. Although to date
we have not experienced any material disruptions in our operations, an
undiscovered failure to achieve year 2000 compliance by third party systems
could result in complete failure or inaccessibility of our services and could
adversely affect our business, financial condition and results of operations.
Risks Related to Legal and Regulatory Matters
We are in litigation concerning our name. We are a party to a lawsuit
in an Illinois Federal District Court concerning the competing claims of our
company and another company to use the name "Shop At Home." Neither our company
nor the adverse party in the litigation has a registered trademark for the name
"Shop At Home." The results of this litigation are difficult to predict and
could be materially adverse to us.
We may be subject to liability for sales and other taxes. We do not
collect sales or other similar taxes from sales made into any states other than
Tennessee, Massachusetts and Colorado. Our business could be materially harmed
if additional sales and similar taxes are imposed on us, or if penalties are
assessed on us for past nonpayment of these taxes. Recently adopted federal
legislation provides that, prior to October 1, 2001, a state cannot impose sales
taxes on products sold on the Internet, unless these taxes could be charged on
non-Internet transactions involving the products. During this moratorium, it is
possible that taxing mechanisms may be developed that would, following the
moratorium, impose increasing sales and similar tax burdens on us. While there
are federal constitutional impediments to the imposition of sales tax on
Internet sales and sales made through our television network, it is possible
that federal legislation could be enacted to permit states to impose such taxes.
Our broadcast properties are subject to significant regulation that may
be costly and may interfere with our ability to conduct business. Federal law
permits the operation of television broadcast stations only with a license
issued by the FCC. The law empowers the FCC, among other things:
to determine the frequencies, location and power of broadcast stations;
to issue, modify, renew and revoke station licenses;
to approve the assignment or transfer of control of broadcast licenses;
to regulate the equipment used by stations;
to impose penalties for violations of the Communications Act or FCC
regulations; and
to regulate some of a station's programming content.
FCC television licenses are granted or renewed for terms of eight
years, although licenses may be renewed for a shorter period. We must apply for
renewal of each broadcast license. At the time an application is filed for
renewal, petitions to deny the renewal may be filed by interested parties. There
can be no assurance that the licenses for our stations will be renewed at their
expiration dates or, if renewed, will be renewed for the full eight-year term.
The non-renewal or revocation of one or more of our television station licenses
could have a material adverse effect on our operations. Failure to comply with
FCC rules and policies can also result in the imposition of various sanctions,
including monetary forfeitures or, for particularly egregious violations, the
revocation of a license.
Future changes in law could adversely affect our business. Congress and
the FCC are currently considering new laws, regulations and policies regarding a
wide variety of matters which could affect the operation and ownership of our
broadcast properties. These matters include, for example:
changes in the FCC's multiple station ownership restrictions;
spectrum use fees;
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political advertising rates;
free political time;
the rules and policies to be applied in enforcing the FCC's equal
opportunity regulations; and
the standards to govern the evaluation of television programming
directed toward children, and violent and indecent programming.
We are unable to predict the outcome of future federal legislation or the impact
of any such laws or regulations on our operations.
We may be unable to enforce "must carry" rights in some markets. Our
inability to enforce our "must carry" rights would limit our ability to expand
our television programming. Cable operators are generally required by federal
law to carry the signals of local commercial television stations. For purposes
of the "must carry" provisions, a broadcast station's market is determined by
the FCC using published industry data. The FCC, however, considers specific
written requests to change a station's market area, including the exclusion of
communities from a television station's market. If successful, the cable company
is then not required to carry the station under its "must carry" obligations.
The FCC has ruled on several of these requests and in many cases, including
cases against us, has excluded particular communities from a market. We are
unable to predict the impact of any future rulings of the FCC with respect to
the exclusion of the carriage of our broadcast stations from any particular
cable systems in our markets.
Failure to obtain "must-carry" rights on digital television channels
could adversely affect our business. The FCC has allotted to existing television
stations a second channel on which to provide digital television service, or
DTV. The new digital allocation may result in a signal that does not reach as
many homes as the analog signal currently used by our stations. If "must-carry"
rights are not extended to these DTV channels and DTV channels receive wide
public acceptance, or if our coverage area is reduced, it will impede our
ability to utilize this new service for the broadcast of our electronic commerce
programming.
We could be liable for product liability, libel, violation of
intellectual property and other legal claims. Some of the products we sell, such
as cutlery and knives and exercise equipment, can pose a risk of bodily harm to
our customers and others if used in an inappropriate fashion. We face the risk
of claims being made and litigation being filed against us for damages
associated with the use of these products. While we do not expect such
litigation or the payment of damages by us to impose a material risk, the costs
and legal fees of the defense of such matters could be significant. The wide
exposure of our programming increases the risk that we could be subject to
lawsuits for defamation, libel, invasion of privacy, for violations of publicity
rights, trademarks, service marks and other intellectual property rights arising
from the content of our programming. The risk of these types of lawsuits is even
greater for our Internet programming because the law in this area is unsettled,
and we are exposed to the risks of liability under foreign laws where our
Internet programming is available. We could be liable for programming or content
generated by us, our users or our vendors. This liability may require us to
expend substantial resources or to discontinue certain products, programming or
services. The publicity such lawsuits could generate could harm our reputation
or otherwise impact the growth of our business.
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AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy the Registration Statement
and any other document we file at the SEC's Public Reference Section, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. Information regarding the
operation of the Public Reference Section can be obtained by calling
1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers,
including us, that file electronically with the SEC. The address of the site is
http://www.sec.gov. Our common stock is listed on the Nasdaq National Market
System, which also maintains an Internet site at http://www.nasdaq.com through
which our reports, proxy statements and other information can be obtained.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. These incorporated documents contain important
business and financial information about us that is not included in or delivered
with this prospectus. The information incorporated by reference is considered to
be part of this prospectus, and later information filed with the SEC will update
and supersede this information.
We incorporate by reference into this prospectus:
Our Annual Report on Form 10-K for the 1999 fiscal year, as amended by
Form 10-K/A filed with the SEC on October 28, 1999;
Our Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, filed with the SEC on October 29, 1999;
Our Quarterly Report on Form 10-Q for the quarter ended December 31,
1999, filed with the SEC on February 2, 2000;
Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
filed with the SEC on April 13, 2000;
Our Current Report on Form 8-K, filed with the SEC on March 15, 2000;
Our Current Report on Form 8-K, filed with the SEC on May 31, 2000;
Our Current Report on Form 8-K, filed with the SEC on July 5, 2000; and
The description of our common stock contained in a registration
statement on Form 8-A filed with the SEC on February 22, 1995, and
any amendment or report filed for the purpose of updating such
description.
All documents filed by us in the future with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, prior
to the filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, shall also be incorporated by reference into this prospectus. Any of
those documents will be considered a part of this prospectus from the date it is
filed with the SEC.
Any statement contained in a document incorporated by reference shall
be considered to be modified or superseded for purposes of this prospectus to
the extent that a statement contained in this prospectus or in any other
subsequently filed document, which also is incorporated by reference, modifies
or supersedes the statement. Any statement that is modified or superseded is not
a part of this prospectus, except in the form as it is modified or superseded.
We will provide without charge to each person, including any beneficial
owner, to whom a prospectus is delivered, upon written or oral request, a copy
of any and all of the documents incorporated by reference in this prospectus,
including any exhibits that are specifically incorporated by reference in that
information. Requests for such copies should be directed to George J. Phillips,
Executive Vice President and General Counsel, Shop At Home, Inc., 5388 Hickory
Hollow Parkway, Antioch, Tennessee 37013; 615.263.8090.
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus, and the information we are incorporating by reference
into it, includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. We have based these forward-looking statements largely on our current
expectations and projections about future events and financial trends affecting
the financial condition of our business. These forward-looking statements are
subject to a number of risks, uncertainties and assumptions about Shop At Home,
including, among other things:
general economic and business conditions, both nationally and in our
markets;
our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
anticipated trends in our business;
existing and future regulations affecting our business;
our successful implementation of our business strategy;
fluctuations in our operating results;
technological changes in the television and Internet industry; and
other risk factors described under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Shop At Home, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this prospectus. Because of these risks
and uncertainties, the forward-looking events and circumstances discussed in
this prospectus may not occur and actual results could differ materially from
those anticipated or implied in the forward-looking statements.
SHOP AT HOME
General
We sell specialty consumer products, primarily collectibles, through
interactive electronic media, including broadcast, cable and satellite
television and, increasingly, the Internet. We offer a variety of products such
as sports cards and memorabilia, coins, currency and jewelry, many of which we
sell on an exclusive basis. We produce programming in a digital format in our
new state-of-the-art facilities in Nashville, Tennessee. The programming is
transmitted by satellite to cable television systems, television broadcasting
stations and satellite dish receivers across the country. We also deliver
programming through our website, collectibles.com. We launched collectibles.com
on November 12, 1999, and we intend for it to become the premier website for the
sale of collectible products.
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We believe that the emergence of the Internet as a global interactive
communications medium provides us with an opportunity to leverage our
traditional broadcast assets and our significant experience in marketing
specialty consumer products over an electronic medium. Since fiscal 1994, we
have increased our net revenues from $21.7 million to $152.0 million in fiscal
1999 and $152.9 million for the nine months ended March 31, 2000, almost
entirely through the use of traditional television broadcasting. The Internet
offers us the potential to broaden our customer base, the ability to offer an
expanded product line, the capability to use computer technology to reduce the
cost of processing and fulfilling customer orders, and the opportunity to
enhance the consumer shopping experience, which we believe will result in
additional repeat customers. In 1997, we established our first website,
shopathomeonline.com, which offered many of the same products sold on our
television programming. We worked with Oracle Corporation, a leading information
management software company, Broadvision, a leading Internet e-business software
company, and others to develop collectibles.com. We discontinued
shopathomeonline.com when collectibles.com was launched. For the quarter ended
March 31, 2000, we generated approximately $1.5 million of net revenues from
sales made through collectibles.com.
To generate traffic to our website, we have entered into other
promotional arrangements with Yahoo! Inc. and the Go Network, each of which
operates a leading Internet portal. We also market our website at minimal
incremental cost, through cross-promotional advertising on our television
broadcast programming, introducing our traditional television shoppers to a more
interactive and cost-efficient sales method. In addition, we have introduced
recently an affiliate program where the owners of other websites are paid a
commission of sales made by us where the customer is referred to us through the
other website. This affiliate program is more cost-effective because we only pay
for sales actually made. As of June 30, 2000, we had entered into agreements
with approximately 3,700 such affiliates, of which approximately 1,300 had
actively referred customers to us. These numbers are expected to increase
rapidly.
We own and operate six UHF television stations, which are located in
the San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport markets.
Five of our television stations are located in the top 13 television markets in
the United States, including the Bridgeport station which covers a portion of
the New York market. As of July 24, 2000, our television programming reached,
during all or part of the day, approximately 60.1 million households that
receive cable television and direct broadcast system programming. Approximately
24.9 million cable households receive our programming on essentially a full-time
basis (20 or more hours per day).
Our products are segmented into two categories: jewelry and lifestyle
products, and sports and collectible products. Jewelry and lifestyle products
include high-end jewelry and gemstones, health and beauty aids, exercise
equipment and electronics. Sports and collectible products include sports and
entertainment memorabilia, trading cards, coins and knives. We believe that our
product mix and marketing strategy are unique in the electronic commerce
industry because we feature products with high average selling prices and
emphasize merchandise that is not widely available.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the
sale of the securities sold pursuant to this prospectus, although we may receive
up to approximately $10.0 million upon payment of the exercise price of the
warrants, which is $5.00 per share, subject to adjustment. If the warrants are
exercised, we intend to use the proceeds primarily for working capital and
general corporate purposes.
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 100,000,000 shares of common stock, $0.0025
par value, 30,000,000 shares of non-voting common stock, $0.0025 par value, and
1,000,000 shares of undesignated preferred stock, $10.00 par value. The
following description of our capital stock does not purport to be complete and
is subject to and qualified in its entirety by our amended and restated charter
and amended and restated bylaws and by the provisions of applicable Tennessee
law, particularly the articles of amendment to our charter relating to the
Series B Preferred Stock.
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Common Stock
As of July 20, 2000, 31,264,772 shares of common stock were
outstanding, held of record by approximately 600 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of common stock will
receive ratably such dividends as the board of directors may declare out of
funds legally available for that purpose. In the event of our liquidation,
dissolution or winding up, the holders of common stock will share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any outstanding preferred stock. The common stock has no preemptive or
conversion rights, other subscription rights, or redemption or sinking fund
provisions. All outstanding shares of common stock are fully paid and
non-assessable. Our board of directors is not classified, and cumulative voting
is not permitted.
Non-Voting Common Stock
Shares of non-voting common stock have the same preferences,
limitations and relative rights as our voting common stock, except that the
shares of non-voting common stock have no voting rights, unless granted by law.
There are no shares of non-voting common stock outstanding.
Preferred Stock
The board of directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to designate the rights, preferences, privileges and restrictions of
each such series. The issuance of preferred stock could have the effect of
restricting dividends on the common stock, diluting the voting power of the
common stock, impairing the liquidation rights of the common stock or delaying
or preventing our change in control without further action by the stockholders.
We currently have two series of preferred stock authorized and outstanding,
consisting of Series A Preferred Stock and Series B Preferred Stock. We have no
present plans to issue any additional shares of preferred stock.
Series A Preferred Stock
We are authorized to issue 140,000 shares of Series A Preferred Stock.
As of July 20, 2000, there were 92,732 shares of Series A Preferred Stock, par
value $10.00 per share, outstanding and held by approximately 17 stockholders of
record. The Series A Preferred Stock is entitled to receive dividends,
preferences, qualifications, limitations, restrictions and the distribution of
assets upon liquidation before our common stock.
Holders of Series A Preferred Stock are entitled to receive, but only
when declared by the Board of Directors, cash dividends at the rate of $.10 per
share per annum.
In the event of our liquidation, dissolution or winding up, the holders
of shares of Series A Preferred Stock are entitled to receive, payable out of
our assets, an amount equal to $10.00 per share, plus accrued and unpaid
dividends. We must pay this amount before we distribute any of our assets to the
holders of common stock or any preferred stock that is junior to the Series A
Preferred Stock.
As long as there are shares of the Series A Preferred Stock
outstanding, we may not issue any capital stock that ranks senior to the Series
A Preferred Stock with respect to liquidation, dissolution and winding up
without the consent of the holders of the Series A Preferred Stock. Any holder
of any shares of Series A Preferred Stock may require us to redeem all or any
portion of the Series A Preferred Stock, for a redemption price per share of
$10.00, plus accrued and unpaid dividends. The Series A Preferred Stock is
convertible at any time into shares of common stock at a ratio of one share of
common stock for one share of Series A Preferred Stock.
<PAGE>
The holders of Series A Preferred Stock generally are not entitled to
vote. There are some situations, however, in which the holders of Series A
Preferred Stock are entitled to vote. First, holders of Series A Preferred Stock
may vote if required by Tennessee corporate law. Second, our charter requires
the holders of a majority of shares of the Series A Preferred Stock to consent
to (1) the authorization, creation or issuance of a new class of capital stock
or series of preferred stock having rights, preferences or privileges senior to
the Series A Preferred Stock, (2) any increase in the number of authorized
shares of any class of capital stock or series of Preferred Stock having rights,
preferences or privileges senior to the Series A Preferred Stock, or (3) the
amendment of any provision of our charter which would materially and adversely
affect any right, preference, privilege or voting power of the Series A
Preferred Stock. Holders of Series A Preferred Stock have no preemptive rights
with respect to any of our shares or other securities which may be issued, and
such shares are not subject to assessment.
Series B Convertible Preferred Stock
General
On June 30, 2000, we issued 2,000 shares of our Series B Convertible
Preferred Stock, $10,000 stated value per share, and warrants to purchase
2,000,000 shares of our common stock with a current warrant exercise price of
$5.00 per share, subject to adjustment, in a private placement to select
institutional investors. The net proceeds of the offering, after expenses, were
approximately $19.3 million. We will receive an additional $10.0 million if the
warrants are exercised in full.
Dividends
The Series B Preferred Stock carries a dividend rate of 6% per annum,
payable semi-annually during the first year and quarterly thereafter or upon
conversion or redemption. At our option, dividends may be paid in cash or shares
of common stock, subject to satisfaction of the conditions described below. If
we choose to pay dividends in shares of our common stock, the number of shares
to be issued in payment of a dividend on the Series B Preferred Stock will be
equal to the accrued dividends divided by the dividend conversion price as
described below. If we do not pay dividends within five business days of the
date the dividends are due, we will be obligated to pay interest on the unpaid
amount at the rate of 18% per annum.
For purposes of this calculation, the dividend conversion price will be
equal to 95% of the average of the closing sale prices of our common stock
during the five consecutive trading days immediately preceding the dividend
date. For example, if the dividend date were July 26, 2000 and we elected to pay
the dividend in shares of our common stock, 95% of the average of the closing
sale prices of our common stock during the five consecutive trading days ending
on July 25, 2000 was $4.2483 per share, and we would have been required to issue
34 shares of common stock per share of Series B Preferred Stock in lieu of a
cash dividend, calculated as follows, where N represents the number of days
since the date of last dividend payment or the issuance date of the Series B
Preferred Stock if dividends have not been paid (assuming N is 90 days):
(0.06) (N/365) ($10,000) = 34
$4.2483
We will not have the right to pay dividends in shares of our common
stock if a triggering event, as described below, has occurred and is continuing.
Triggering events include the following:
the failure of a registration statement covering the resale of
the shares of common stock underlying the Series B Preferred
Stock and related warrants to be declared effective by the SEC
on or prior to November 7, 2000;
<PAGE>
if while the registration statement is required to be
maintained effective, the effectiveness of the registration
statement lapses for any reason, including, without
limitation, the issuance of a stop order, or is unavailable to
a holder of the Series B Preferred Stock for sale of all of
the shares being registered by the registration statement, in
accordance with the terms of the related registration rights
agreement, and such lapse or unavailability continues for a
period of 5 consecutive trading days or for more than an
aggregate of 10 trading days in any 365-day period;
the suspension or delisting from trading of our common stock
on the Nasdaq National Market or the New York Stock Exchange
for a period of five consecutive trading days or for more than
10 trading days in any 365-day period;
our notice to any holder of Series B Preferred Stock of our
intent not to comply with a request for conversion tendered in
accordance with the terms of the articles of amendment
relating to the Series B Preferred Stock;
our failure to issue shares of common stock upon conversion
prior to the 10th business day after the required date of
delivery;
our failure to pay any daily payment due to a triggering event
(explained below);
our failure to issue shares of common stock after a proper
request from a holder of the Series B Preferred Stock, if our
stockholders do not approve issuance of shares of common stock
upon conversion of the Series B Preferred Stock and exercise
of the related warrants and the failure is due to the
limitation on the number of shares we may issue to comply with
Nasdaq Rule 4460;
our failure to receive shareholder approval on or before
November 30, 2000 for the issuance of the common stock upon
conversion of the Series B Preferred Stock, the exercise of
the warrants, and in payment of dividends on the Series B
Preferred Stock;
an event of default under any other document evidencing our
debt which causes the debt to become due or failure to pay any
of our debt at the maturity date; or
our breach of any representation, warranty, covenant or other
term or condition of the documents governing the issuance of
the Series B Preferred Stock unless the breach would not have
a material adverse effect on us and is cured within 10
business days after it occurs.
Maturity Date
The Series B Preferred Stock matures on June 30, 2003, at which time
the shares must be redeemed or converted at our option. If we elect to redeem
any Series B Preferred Stock outstanding on June 30, 2003, the amount required
to be paid will be equal to the liquidation preference of the Series B Preferred
Stock, which equals the price originally paid for such shares plus accrued and
unpaid dividends. If we elect to convert any Series B Preferred Stock
outstanding on that date, we will be required to issue shares in an amount
determined as described below under "Description of Capital Stock--Preferred
Stock--Series B Convertible Preferred Stock--Conversion."
Conversion
<PAGE>
Subject to the conditions described below, we may require the selling
securityholders to convert the Series B Preferred Stock into shares of our
common stock. In addition, beginning on December 31, 2000 or earlier under the
conditions described below, the selling securityholders will have the right to
convert their Series B Preferred Stock into shares of our common stock.
Regardless of whether the selling securityholders elect to convert or we require
conversion, the number of shares of common stock to be issued upon conversion of
a Series B Preferred Share is determined by dividing the sum of $10,000 plus
accrued and unpaid dividends by the applicable conversion price as described
below. The applicable conversion price will be a percentage of the lowest
closing bid price of our common stock for the four consecutive trading days
ending on and including the conversion date, but the conversion price will not
exceed $12.00 per share, subject to adjustment. The conversion percentage equals
100% on July 1, 2000 and then decreases permanently one percentage point on the
first day of every calendar month following July 1, 2000, but the conversion
percentage will never be less than 88%. The lowest closing bid price of our
common stock for the four consecutive trading days ending on July 25, 2000 was
$4.3125.
The following table sets forth the number of shares of common stock we
would be required to issue upon conversion of all 2,000 Series B Preferred Stock
outstanding at an assumed conversion price of $4.3125 per share of common stock
as of July 26, 2000, and the resulting percentage of our total shares of common
stock outstanding after such a conversion. The table also sets forth the number
of shares of common stock we would be required to issue assuming (1) increases
of 25%, 50% and 75% in the assumed conversion price; (2) decreases of 25%, 50%
and 75% in the assumed conversion price; and (3) as of July 26, 2000, the fixed
conversion price of $12.00 per share, subject to adjustment as provided in the
articles of amendment to our charter.
Assumed Conversion Price Approximate Number Percentage of
Per Share of Common Stock of Shares of Common Stock Common Stock
Issuable Upon Conversion(1) After Conversion(2)
$7.5469 (+75%)........... 2.7 million 7.8%
$6.4688 (+50%)........... 3.1 million 9.0%
$5.3906 (+25%)........... 3.7million 10.6%
$4.3125.................. 4.6 million 12.9%
$3.2344 (-25%)........... 6.2 million 16.5%
$2.1563 (-50%)........... 9.3 million 22.9%
$1.0781 (-75%)........... 18.6 million 37.2%
$12.0000 (current maximum).. 1.7 million 5.1%
(1) The number of shares of common stock issuable upon conversion and the
percentage of outstanding common stock after such conversion set forth above do
not take into account any shares of common stock that may be issuable as
dividends on the Series B Preferred Stock or upon exercise of the warrants
issued in connection with the sale of the Series B Preferred Stock. If the
dividends on Series B Preferred Stock had been paid in common stock for the full
$20.0 million stated value of the Series B Preferred Stock over the three-year
term thereof, assuming a constant dividend conversion price of $4.2483, and the
related warrants had been fully exercised as of July 26, 2000, we would have
been required to issue an additional 847,397 shares as payment for accrued
dividends and an additional 2,000,000 shares upon the exercise of the related
warrants.
(2) Calculated based on 31,264,772 shares of common stock issued and outstanding
as of July 20, 2000.
Subject to the conditions discussed below, on the date which is 20 days
after the registration statement related to the Series B Preferred Stock is
declared effective by the SEC, we have the right to require conversion of any or
all of the outstanding Series B Preferred Stock, subject to a volume limitation
equal to 20% of our trading volume between the date we give notice of our
election to convert the Series B Preferred Stock and the date the conversion is
effective (a period of time between 20 and 60 business days). Among the
conditions to our ability to require conversion of the Series B Preferred Stock
are the following:
<PAGE>
a registration statement is effective at all times, with
limited exceptions, during the period between the
effectiveness of the registration statement and the date of
the conversion, covering the resale of that number of shares
required to be registered pursuant to the related registration
rights agreement;
the common stock has been listed on a national market or
exchange since the effective date on the registration
statement and delisting or suspension has not been threatened;
from the date the Series B Preferred Stock was issued through
the required conversion date, there has not been a triggering
event as described under "Description of Capital
Stock--Preferred Stock--Series B Convertible Preferred
Stock--Dividends" or an event that without being cured would
constitute a triggering event or a public announcement of a
pending change of control;
the aggregate amount of Series B Preferred Stock is at least
100 shares;
from the date the Series B Preferred Stock was issued through
the required conversion date, we have timely delivered shares
of common stock upon conversion of the Series B Preferred
Stock and exercise of the related warrants;
on or before November 30, 2000 we have obtained stockholder
approval for the issuance of the common stock issuable upon
conversion of the Series B Preferred Stock and exercise of the
related warrants;
we must have made timely payments on the other debt
obligations we owe, and we cannot change certain of the terms
of such debt instruments which will increase the amount of
such debt or agree to certain more restrictive terms and
conditions;
by October 31, 2000, we must deliver a notice to the holders
of the Series B Preferred Stock that we are a party to a loan
agreement giving us the ability to borrow at least $20.0
million (less the amount of the loan then outstanding), and
that we are in compliance with the terms of the loan
agreement;
we must disclose in our Annual Report on Form 10-K for the
year ended June 30, 2000 that we are in compliance with all
obligations under our loan facilities, or that any
non-compliance has been permanently waived;
we are in compliance in all material respects with the
articles of amendment, the warrants, and the securities
purchase agreement and the registration rights agreement with
regard to the Series B Preferred Stock; and
during the period between the date we give notice of our
election to require conversion and the actual conversion date
we cannot give another notice of our election to require a
conversion.
The selling securityholders do not have the right to convert any of the
Series B Preferred Stock before December 31, 2000. This restriction, however,
will not apply:
with respect to the amount of Series B Preferred Stock we
require the holders to convert;
after the delisting or suspension or the threatened delisting
or suspension from trading of our common stock;
after the occurrence of a change of control or the
announcement of a pending change of control;
<PAGE>
after there has occurred a triggering event as described under
"Description of Capital Stock--Preferred Stock--Series B
Convertible Preferred Stock--Dividends" or an event that
without being cured would constitute a triggering event;
after we issue any other convertible securities or options at
a price which varies or may vary with the market price of our
common stock;
after any date on which we fail to pay the redemption price
for any Series B Preferred Stock in a timely manner in
accordance with a redemption at our election;
if the closing sale price of our common stock is less than
$3.00 per share for any 10 trading days during 15 consecutive
trading days, or is less than $2.50 per share for any three
consecutive trading days;
with respect to any conversion of Series B Preferred Stock at
a price equal to $12.00, subject to adjustment;
on and after the date of the stockholder meeting, but no later
than November 30, 2000, if we fail to obtain stockholder
approval for the issuance of the shares of common stock
issuable upon conversion of and the issuance of the common
stock dividends on the Series B Preferred Stock and exercise
of the related warrants;
if we do not make timely payments on the other debt
obligations we owe, or if we change the terms of such debt
instruments in ways which will increase the amount of such
debt or agree to certain more restrictive terms and
conditions:
after October 31, 2000, if by that date we have not delivered
a notice to the holders of the Series B Preferred Stock that
we are a party to a loan agreement giving us the ability to
borrow at least $20.0 million (less the amount of the loan
then outstanding), and that we are in compliance with the
terms of the loan agreement; or
if we do not disclose in our Annual Report on Form 10-K for
the year ended June 30, 2000 that we are in compliance with
all obligations under our loan facilities, or that any
non-compliance has been permanently waived.
On and after December 31, 2000, the holders of the Series B Preferred
Stock have the right to convert their shares of Series B Preferred Stock without
restriction, except as described in the next paragraph.
In addition, no holder may convert any Series B Preferred Stock
exceeding the number of shares which, upon giving effect to such conversion,
would cause the holder, together with the holder's affiliates, to have acquired
a number of shares of common stock during the 60-day period ending on the date
of conversion which, when added to the number of shares of common stock held at
the beginning of such 60-day period, would exceed 9.99% of our then outstanding
common stock, excluding for purposes of such determination any shares of common
stock issuable upon conversion of the Series B Preferred Stock that have not
been converted and upon exercise of the related warrants that have not been
exercised.
Redemption
<PAGE>
We also have the right, provided specified conditions are satisfied, to
redeem some or all of the outstanding Series B Preferred Stock for cash equal to
a percentage of the price paid for each preferred share plus accrued dividends.
The redemption percentage equals 100% on July 1, 2000 and then increases
permanently one percentage point on the first day of every calendar month
following July 1, 2000, provided that the redemption percentage will never be
greater than 120%. Under the terms of the indenture we entered into in
connection with our issuance in 1998 of $75,000,000 11% Senior Secured Notes Due
2005, we cannot redeem our outstanding shares for cash (subject to certain
exceptions). So long as the Senior Notes are outstanding, the Company does not
expect to redeem for cash any material amount of the Series B Preferred Stock.
The conditions to our right to redeem Series B Preferred Stock include,
among others:
we have timely delivered shares of common stock upon
conversion of the Series B Preferred Stock and exercise of the
related warrants;
a registration statement relating to the Series B Preferred
Stock and warrants has been effective for at least 20 days
prior to the redemption date covering the resale of that
number of shares required to be registered pursuant to the
related registration rights agreement;
the common stock has been listed on a national market or
exchange for at least 20 days prior to the redemption date;
from June 30, 2000 through the date of a redemption at our
election, there has not occurred a triggering event or an
event that without being cured would constitute a triggering
event or a public announcement of a pending change of control;
on or before November 30, 2000 we have obtained stockholder
approval for the issuance of the common stock issuable upon
conversion of and the issuance of common stock dividends on
the Series B Preferred Stock and exercise of the related
warrants;
the redemption must be permitted under our credit agreements;
we must have made timely payments on the other debt
obligations we owe, and we cannot change the terms of such
debt instruments in ways which will increase the amount of
such debt or agree to certain more restrictive terms and
conditions;
by October 31, 2000, we must deliver a notice to the holders
of the Series B Preferred Stock that we are a party to a loan
agreement giving us the ability to borrow at least $20.0
million (less the amount of the loan then outstanding), and
that we are in compliance with the terms of the loan
agreement;
we must disclose in our Annual Report on Form 10-K for the
year ended June 30, 2000 that we are in compliance with all
obligations under our loan facilities, or any non-compliance
has been permanently waived; and
we are in compliance in all material respects with the
articles of amendment, the warrants, and the securities
purchase agreement and the registration rights agreement with
regard to the Series B Preferred Stock.
Rights of Holders of Series B Preferred Stock Upon Occurrence of a
Triggering Event
<PAGE>
If certain of the triggering events as described under "Description of
Capital Stock--Preferred Stock--Series B Convertible Preferred Stock--Dividends"
occur, we are obligated to pay to each holder of Series B Preferred Stock a
payment equal to 2% of the liquidation preference on the outstanding Series B
Preferred Stock on each day during the period of time between the date of such
event until it is cured, but not more than 15 days in any 365-day period. In
addition, the total of all such payments will not exceed $5.0 million (unless a
greater amount is permitted under our credit agreements). This penalty is
applicable to all of the triggering events other than the failure of the
registration statement to be declared effective on or prior to November 27,
2000.
If certain of the triggering events occur, we are also obligated to
adjust the fixed conversion price of $12.00 to the amount which is 68% of the
lowest closing bid price for our common stock during certain periods of time. In
the event the registration statement is not effective on or prior to November 7,
2000, that period of time will be between November 7, 2000 and the date the
registration statement becomes effective. In the event the registration
statement is not effective on or prior to November 27, 2000, the period of time
for determining the lowest closing bid price begins on November 27, 2000 and
ends when the registration statement becomes effective.
In addition, if our stockholders do not approve the issuance of shares
of common stock upon conversion of the Series B Preferred Stock and exercise of
the related warrants, and we fail to issue shares of common stock to a holder of
the Series B Preferred Stock who converts due to the limitation on the number of
shares we may issue to comply with Nasdaq Rule 4460, we are required to notify
each holder of Series B Preferred Stock that we have elected to redeem all
Series B Preferred Stock submitted for redemption or to delist our shares from
the Nasdaq National Market. Any such redemption must be at the greater of:
125% of the price paid for the Series B Preferred Stock plus
accrued dividends; or
the product of the number of shares of common stock into which
the Series B Preferred Stock is convertible multiplied by the
closing sale price of our common stock on the trading day
immediately before the event occurs.
So long as the Senior Notes are outstanding, any redemption of the
Series B Preferred Stock would likely constitute a breach of the terms of the
indenture, making a cash redemption by us unlikely.
Redemption Upon Change of Control
In the event of a merger transaction, a hostile takeover or a sale of
all or substantially all of our assets, each holder of the Series B Preferred
Stock at its option has the right to require us to redeem all or a portion of
such holder's preferred shares at a price equal to 125% of the price paid for
such shares plus accrued dividends.
Liquidation Preference
In the event of our liquidation, the holders of the Series B Preferred
Stock will be entitled to a liquidation preference before any amounts are paid
to the holders of our common stock. The liquidation preference is equal to the
amount originally paid for the Series B Preferred Stock, $10,000 per share, plus
accrued and unpaid dividends on any outstanding Series B Preferred Stock. The
liquidation preference of the Series B Preferred Stock is on an equal basis with
the Series A Preferred Stock.
Voting Rights
Other than as required by law, the holders of the Series B Preferred
Stock have no voting rights except that the consent of holders of at least
two-thirds of the outstanding Series B Preferred Stock will be required to
effect any change in either our amended and restated certificate of
incorporation or certificate of designations that would change any of the rights
of the Series B Preferred Stock or to issue any other additional Series B
Preferred Stock.
Warrants
<PAGE>
Warrants to purchase the 2,000,000 shares of our common stock were
issued in connection with the sale of the Series B Preferred Stock as of June
30, 2000 at an exercise price of $5.00 per share, subject to anti-dilution
adjustments. The exercise price may also be lowered to the average of the
closing bid prices for the 10 trading days immediately preceding and including
June 30, 2001, if such average price is less than $5.00, subject to adjustment.
The warrants expire if not exercised on or prior to June 30, 2003.
As of July 20, 2000, other than the warrants issued to the holders of
the Series B Preferred Stock, there were warrants outstanding to purchase a
total of 2,275,000 shares of our common stock at a price of $1.462 per share.
Registration Rights
The holders of the Series B Preferred Stock and related warrants are
entitled to have the shares of common stock underlying such securities
registered by us under the terms of an agreement between us and the holders of
the Series B Preferred Stock and related warrants. Under the terms of such
agreement, we are required to register at least 200% of the number of shares of
common stock issuable upon conversion of and in lieu of cash dividends on the
Series B Preferred Stock and 100% of the number of shares of common stock
issuable upon the exercise of the related warrants. We are also required to
maintain the effectiveness of the registration statement covering such shares of
common stock until the earlier of:
the date as of which the holders of the Series B Preferred
Stock and warrants may sell all of the shares of common stock
covered by such registration statement under Rule 144(k) of
the Securities Act (generally two years); and
the date on which the holders of the Series B Preferred Stock
and warrants have sold all of the shares of common stock
issued or issuable upon conversion of the Series B Preferred
Stock and exercise of the related warrants.
We will bear all registration expenses, other than underwriting
discounts and commissions, with respect to the registration statement relating
to the Series B Preferred Stock and the related warrants.
Tennessee Anti-Takeover Law
Under the Tennessee Business Combination Act, T.C.A. Sections
48-103-201 et seq., Tennessee "resident domestic corporations" may not enter
into a "business combination" with an "interested stockholder" until the
expiration of a five-year period after the person becomes an interested
stockholder. Under the definitions set out in the statute, we are a "resident
domestic corporation." "Business combination" generally refers to a merger,
share exchange, sale of substantially all of the assets of a corporation,
certain issuances of securities, adoption of a plan of liquidation or
dissolution, certain transactions disproportionately increasing the shares held
by a stockholder and certain loan transactions. An "interested stockholder" is
generally defined to include a person, or an affiliate or associate of such
person, who owns, directly or indirectly, 10% or more of the stock of the
corporation. The five-year limitation is not applicable if the stockholder's
becoming an interested stockholder is approved by the board of directors of the
resident domestic corporation prior to the stock acquisition date or a specific
exemption is applicable.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ComputerShare
Investor Services (formerly American Securities Transfer and Trust, Inc.). The
transfer agent's address is P.O. Box 1596, Denver, Colorado 80201-9975 and its
telephone number is 303-986-5400.
SELLING SHAREHOLDERS
<PAGE>
The shares of common stock being offered by the selling securityholders
are issuable (1) upon conversion of or issuance of common stock dividends on the
Series B Preferred Stock or (2) upon exercise of the related warrants. For
additional information regarding the Series B Convertible Preferred Shares, see
"Description of Capital Stock--Preferred Stock--Series B Convertible Preferred
Stock." We are registering the shares in order to permit the selling
securityholders to offer the shares of common stock for resale from time to
time. Except for the ownership of the Series B Preferred Stock and the warrants,
the selling securityholders have not had any material relationship with us
within the past three years.
The table below lists the selling securityholders and other information
regarding the beneficial ownership of the common stock by each of the selling
securityholders. The second column lists, for each selling securityholder, the
number of shares of common stock, based on its ownership of Series B Preferred
Stock and related warrants, that would have been issuable to the selling
securityholders on July 26, 2000 assuming conversion of all Series B Preferred
Stock, accrued dividends and the exercise of all warrants held by such selling
securityholders on that date, without regard to any limitations on conversions
or exercise. Because conversion of the Series B Preferred Stock is based on a
formula that depends on the market price of our common stock, the numbers listed
in the second column may fluctuate from time to time. The third column lists
each selling securityholder's pro rata portion, based on its ownership of Series
B Preferred Stock, of the 12,970,163 shares of common stock being offered by
this prospectus.
We determined the number of shares of common stock to be offered for
resale by this prospectus by agreement with the selling securityholders and in
order to adequately cover a reasonable increase in the number of shares
required. Our calculation of the number of shares to be offered for resale
assumes a conversion price on July 26, 2000 of $4.3125, which represents 100% of
the lowest closing bid price during the four consecutive trading days through
and including July 25, 2000, the trading date immediately preceding the filing
of the registration statement of which this prospectus forms a part. In
accordance with the terms of the registration rights agreement with the holders
of the Series B Preferred Stock, this prospectus covers the resale of 200% of
the number of shares of common stock issuable upon conversion of the Series B
Preferred Stock, determined as if the Series B Preferred Stock were converted in
full at the assumed conversion price of $4.3125, plus 200% of the number of
shares of common stock issuable in lieu of cash dividends payable on the Series
B Preferred Stock, plus 100% of the number of shares of common stock issuable
upon exercise of the related warrants. Because the conversion of the Series B
Preferred Stock into common stock is based on a formula that depends upon the
market price of our common stock, the number of shares that will actually be
issued upon conversion may be more than the 12,970,163 shares being offered by
this prospectus. The fourth column assumes the sale of all of the shares offered
by each selling securityholder.
Under the articles of amendment to our charter for the Series B
Preferred Stock and under the terms of the warrants, no selling securityholder
may convert Series B Preferred Stock or exercise the warrants, respectively, to
the extent such conversion or exercise would cause such selling securityholder,
together with its affiliates, to have acquired a number of shares of common
stock during the 60-day period ending on the date of conversion which, when
added to the number of shares of common stock held at the beginning of such
60-day period, would exceed 9.99% of our then outstanding common stock,
excluding for purposes of such determination shares of common stock issuable
upon conversion of the Series B Preferred Stock which have not been converted
and upon exercise of the related warrants which have not been exercised. The
number of shares in the second column does not reflect this limitation. The
selling securityholders may sell all, some or none of their shares in this
offering. See "Plan of Distribution."
Name of Selling Common Shares Common Shares Offered Common Shares
Securityholder Beneficially Owned By This Prospectus After Offering
Prior to Offering
HFTP Investment, L.L.C.(1).... 3,328,901 6,485,081 0
Leonardo, L.P.(2)............ 3,328,901 6,485,081 0
------------------------
<PAGE>
(1) Promethean Investment Group, LLC, a New York limited liability company
("Promethean"), serves as investment advisor to HFTP Investment, L.L.C. ("HFTP")
and may be deemed to share beneficial ownership of the shares beneficially owned
by HFTP by reason of shared power to vote and to dispose of the shares
beneficially owned by HFTP. Promethean disclaims beneficial ownership of the
shares beneficially owned by HFTP. Mr. James F. O'Brien, Jr. indirectly controls
Promethean. Mr. O'Brien disclaims beneficial ownership of the shares
beneficially owned by Promethean and HFTP. HFTP is not a registered
broker-dealer. HFTP, however, is under common control with, and therefore an
affiliate of, a registered broker-dealer.
(2) Angelo, Gordon & Co., L.P. ("Angelo Gordon") is a general partner of
Leonardo, L.P. and consequently has voting control and investment discretion
over securities held by Leonardo, L.P. Angelo Gordon disclaims beneficial
ownership of the shares held by Leonardo, L.P. Mr. John M. Angelo, the Chief
Executive Officer of Angelo Gordon, and Mr. Michael L. Gordon, the Chief
Operating Officer of Angelo Gordon, are the sole general partners of AG
Partners, L.P., the sole general partner of Angelo Gordon. As a result, Mr.
Angelo and Mr. Gordon may be considered beneficial owners of any shares deemed
to be beneficially owned by Angelo Gordon. Leonardo, L.P. is not a registered
broker-dealer. Leonardo, L.P., however, is under common control with, and
therefore an affiliate of, a registered broker-dealer.
PLAN OF DISTRIBUTION
We are registering the shares of common stock issuable upon conversion
of, or the issuance of common stock dividends on, the Series B Preferred Stock
and upon exercise of the related warrants to permit the holders of the Series B
Preferred Stock and the related warrants to resell their shares of common stock
from time to time after the date of this prospectus. We will not receive any of
the proceeds from the selling securityholders' sales of the shares of common
stock, although we may receive up to $10.0 million upon exercise of the
warrants. We will bear all fees and expenses incident to our obligation to
register the shares of common stock.
The selling securityholders may sell all or a portion of the common
stock they beneficially own and are offering under this prospectus from time to
time directly through one or more underwriters, broker-dealers or agents. If the
underwriters or broker-dealers sell the common stock for them, the selling
securityholders will be responsible for underwriting discounts or commissions or
agent's commissions. The selling securityholders may sell the common stock in
one or more transactions at fixed prices, at prevailing market prices at the
time of the sale, at varying prices determined at the time of sale, or at
negotiated prices. They may effect the sales in transactions, which may involve
crosses or block transactions,
(1) on any national securities exchange or quotation service listing
or quoting the securities at the time of sale,
(2) in the over-the-counter market,
(3) in transactions other than on these exchanges or systems or in
the over-the-counter market,
(4) through the writing of options, whether such options are listed
on an options exchange or otherwise, or
(5) through the settlement of short sales.
<PAGE>
In connection with sales of the common stock or otherwise, the selling
securityholders may enter into hedging transactions with broker-dealers, which
may in turn engage in short sales of the common stock in the course of hedging
in positions they assume. The selling securityholders may also sell shares of
common stock short and deliver shares of common stock to close out short
positions, or loan or pledge shares of common stock to broker-dealers or other
financial institutions that in turn may sell such shares. If the selling
securityholders effect such transactions by selling shares of common stock to or
through underwriters, broker-dealers or agents, such underwriters,
brokers-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling securityholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, brokers-dealers or agents may be in excess of those
customary in the types of transactions involved).
The selling securityholders may pledge or grant a security interest in
some or all of the shares of common stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time pursuant to this
prospectus. The selling securityholders also may transfer and donate the shares
of common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of the prospectus.
The selling securityholders and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions paid, or any
discounts or concessions allowed to any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of common stock is made, we will distribute a
prospectus supplement, if required, which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
Selling securityholders may sell the shares of common stock under some
state securities laws only through registered or licensed brokers or dealers. In
addition, some states prohibit the sale of the shares of common stock unless
such shares are registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
There can be no assurance that any selling securityholder will sell any
or all of the shares of common stock registered pursuant to the shelf
registration statement, of which this prospectus forms a part.
The selling securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M of the Exchange Act, which may limit the timing of purchases and sales of any
of the shares of common stock by the selling securityholders and any other
participating person. Regulation M may also restrict the ability of any person
engaged in the distribution of the shares of common stock to engage in
market-making activities with respect to the shares of common stock. All of the
foregoing may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making activities with
respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common
stock pursuant to the registration rights agreement estimated to be $100,000 in
total, including, without limitation, Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; but the selling
securityholders will pay all underwriting discounts and selling commissions, if
any. We will indemnify the selling securityholders against liabilities,
including some liabilities under the Securities Act, in accordance with the
registration rights agreement or the selling securityholders will be entitled to
contribution. The selling securityholders will indemnify us against civil
liabilities, including liabilities under the Securities Act that may arise from
any written information the selling securityholders furnish to us for use in
this prospectus, in accordance with the related registration rights agreement,
or we will be entitled to contribution.
Once sold under the registration statement, of which this prospectus
forms a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
<PAGE>
LEGAL MATTERS
The legality of this offering will be passed upon for us by Wyatt,
Tarrant & Combs, Nashville, Tennessee. Charles W. Bone, a partner of Wyatt,
Tarrant & Combs, is the beneficial owner of a warrant we issued under which he
has the right to purchase a total of 82,500 shares of our common stock at a
current exercise price of $1.462 per share.
EXPERTS
The consolidated balance sheets as of June 30, 1998 and 1999 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1999 incorporated by
reference have been incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in auditing and accounting.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the issuance and
distribution of the securities to be registered, other than underwriting
discounts and commissions which will be paid by the selling securityholders,
will be as follows:
DESCRIPTION AMOUNT
Securities and Exchange Commission registration fee ...........$ 14,553
Nasdaq National Market listing fee ..............................17,500
Printing expenses ................................................10,000
Accounting fees and expenses.......................................5,000
Legal fees and expenses...........................................50,000
Miscellaneous...................................................$ 2,947
Total...........................................................$100,000
All amounts except the Securities and Exchange Commission registration fee and
Nasdaq filing fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's charter provides that we shall indemnify our officers,
directors, agents and employees to the fullest extent permitted by the Tennessee
Business Corporation Act ("TBCA"). Section 48-18-502 of the TBCA provides that a
Tennessee corporation may indemnify an individual made a party to a proceeding,
because the individual is or was a director, against liability incurred in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative if the individual's conduct was in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no cause to believe his or her conduct was unlawful.
This indemnity extends to an individual who, while a director of a corporation,
is or was serving at the corporation's request as a director, officer, partner,
trustee, employee or agent of another corporation or enterprise. This indemnity
extends to any liability for expenses, judgments, fines and amounts paid in
settlement in connection with such action, suit or proceeding.
A corporation may not indemnify a director: (a) in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation; or (b) in connection with any other
proceeding charging improper personal benefit to him, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him.
Section 48-18-503 of the TBCA provides that, unless limited by its
charter, a corporation shall indemnify a director who has been successful in the
defense of any action, suit or proceeding, against expenses actually and
reasonably incurred by him or her in connection therewith.
Section 48-18-507 of the TBCA provides that, unless its charter
provides otherwise, an officer of a corporation who is not a director is
entitled to mandatory indemnification under Section 48-18-503 to the same extent
as a director, and a corporation may indemnify an officer, employee, or agent of
a corporation who is not a director to the same extent as a director.
<PAGE>
Section 48-18-508 of the TBCA provides that a corporation may purchase
and maintain insurance or behalf of such individuals against liability asserted
against such persons or incurred by such persons in their capacity as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under the statutes.
We have a Directors' and Officers' Liability Insurance Policy issued by Carolina
Casualty Insurance Company. We pay the premiums on this insurance policy. The
beneficiaries of this policy are our officers and directors and, in some
instances, us. This policy provides insurance coverage of up to $5 million, less
specified amounts for deductibles, against certain claims made against our
officers and directors. We also have an excess liability policy issued by Royal
& Sun Alliance that covers claims in excess of $5 million but less than $20
million.
These policies indemnify and pay the loss of each of our officers and
directors arising from certain claims made against any of them in their capacity
as an officer or director unless we indemnify the officers and directors
directly. The insurer also will advance the costs of defending against any such
claim. The policies do not cover losses incurred by an officer or director who,
among other reasons, has acted intentionally or with criminal intent or who has
committed fraud against the Company.
These policies also cover our losses against any claim made against us
based on the securities laws and against losses incurred by us for claims made
against our officers and directors. In the case of claims made against our
officers and directors, we can only recover from the insurers the actual amount
of money we spend to indemnify our officers and directors.
Section 6.6 of the Registrant's Bylaws require the Registrant to
indemnify its officers, directors, employees or agents to the maximum extent
permitted by the TBCA. The section also provides that the Registrant may
purchase and maintain insurance as permitted in Section 48-18-508 of the TBCA.
ITEM 16. EXHIBITS
The following is a list of exhibits included as part of this Registration
Statement:
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Charter, filed as Exhibit 3(i).4
to the Registrant's Annual Report on Form 10-K filed
with the Commission on August 31, 1999 for the fiscal
year ended June 30, 1999, and incorporated herein by
reference.
3.2 Restated Bylaws, filed as Exhibit 3(ii).1 to the
Registrant's Annual Report on Form 10-K filed with
the Commission on August 31, 1999 for the fiscal year
ended June 30, 1999, and incorporated herein by
reference.
3.3* Articles of Amendment to the Charter, effective April
13, 2000.
3.4 Articles of Amendment to the Charter, effective June
30, 2000, filed as Exhibit 3.1 to the Registrant's
Current Report on Form 8-K filed with the Commission
on July 5, 2000, and incorporated herein by
reference.
4.1 Form of Trust Indenture with PNC Bank, N.A., as
Trustee, with regard to the 11% Secured Notes Due
2005, filed as Exhibit 4.6 to the Registrant's
Amendment No. 2 to the Registration Statement on Form
S-1 filed with the Commission on March 21, 1998, and
incorporated herein by reference.
<PAGE>
4.2 Form of Warrant, filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K filed with
the Commission on July 5, 2000, and incorporated
herein by reference.
5** Opinion regarding legality.
10.1 Registration Rights Agreement, by and between the
Registrant and certain investors, dated June 30,
2000, and filed as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed with the Commission
on July 5, 2000, and incorporated herein by
reference.
10.2 Securities Purchase Agreement, by and between the
Registrant and certain investors, dated June 30,
2000, and filed as Exhibit 10.2 to the Registrant's
Current Report on Form 8-K filed with the Commission
on July 5, 2000, and incorporated herein by
reference.
23.1* Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of Wyatt, Tarrant & Combs, counsel to the
Registrant (included as part of Exhibit 5)
24 Power of Attorney (included on signature page).
* Filed herewith
** To be filed by amendment
This list of exhibits is also set forth in the Exhibit Index that immediately
precedes such exhibits.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales
are being made, a post-effect amendment to this registration statement:
(i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or in the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement.
(iii) to include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement.
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) For the purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, HEREUNTO DULY
AUTHORIZED, IN THE CITY OF NASHVILLE, STATE OF TENNESSEE, ON JULY 25, 2000.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
Kent E. Lillie
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kent E. Lillie and George J. Phillips and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agents or any
of them or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
Signature Title Date
/s/ J.D. CLINTON Chairman of the Board of Directors July 25, 2000
J.D. Clinton
/s/ KENT E. LILLIE President and Chief Executive July 25, 2000
Kent E. Lillie Officer, Director
/s/ A.E. JOLLEY Director July 25, 2000
A.E. Jolley
/s/ JOSEPH I. OVERHOLT Director July 25, 2000
Joseph I. Overholt
/s/ FRANK A. WOODS Director July 25, 2000
Frank A. Woods
/s/ J. DANIEL SULLIVAN Director July 25, 2000
J. Daniel Sullivan
/s/ ARTHUR D. TEK Executive Vice President and July 25, 2000
Arthur D. Tek Chief Financial Officer
/s/ R. STEVEN CHADWELL Vice President of Finance (Chief July 25, 2000
R. Steven Chadwell Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Charter, filed as Exhibit 3(i).4
to the Registrant's Annual Report on Form 10-K filed
with the Commission on August 31, 1999 for the fiscal
year ended June 30, 1999, and incorporated herein by
reference.
3.2 Restated Bylaws, filed as Exhibit 3(ii).1 to the
Registrant's Annual Report on Form 10-K filed with
the Commission on August 31, 1999 for the fiscal year
ended June 30, 1999, and incorporated herein by
reference.
3.3* Articles of Amendment to the Charter, effective April
13, 2000.
3.4 Articles of Amendment to the Charter, effective June
30, 2000, filed as Exhibit 3.1 to the Registrant's
Current Report on Form 8-K filed with the Commission
on July 5, 2000, and incorporated herein by
reference.
4.1 Form of Trust Indenture with PNC Bank, N.A., as
Trustee, with regard to the 11% Secured Notes Due
2005, filed as Exhibit 4.6 to the Registrant's
Amendment No. 2 to the Registration Statement on
Form S-1 filed with the Commission on March 21, 1998,
and incorporated herein by reference.
4.2 Form of Warrant, filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K filed with
the Commission on July 5, 2000, and incorporated
herein by reference.
5** Opinion regarding legality.
10.1 Registration Rights Agreement, by and between the
Registrant and certain investors, dated June 30,
2000, and filed as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed with the Commission
on July 5, 2000, and incorporated herein by
reference.
10.2 Securities Purchase Agreement, by and between the
Registrant and certain investors, dated June 30,
2000, and filed as Exhibit 10.2 to the Registrant's
Current Report on Form 8-K filed with the Commission
on July 5, 2000, and incorporated herein by
reference.
23.1* Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of Wyatt, Tarrant & Combs, counsel to the
Registrant (included as part of Exhibit 5)
24 Power of Attorney (included on signature page).
* Filed herewith
** To be filed by amendment
<PAGE>
Exhibit 3.3
ARTICLES OF AMENDMENT TO THE CHARTER
OF
SHOP AT HOME, INC.
Corporate Control Number: 0174405
Pursuant to the provisions of Sections 48-20-103 and 48-20-106 of the
Tennessee Business Corporation Act, the undersigned Corporation adopts the
following amendments to its Charter:
1. The name of the Corporation is:
Shop At Home, Inc.
2. The Charter of the Corporation is amended by deleting Paragraph 9 of the
Charter in its entirety.
3. The Board of Directors of the Corporation recommended this amendment to the
shareholders of the Corporation and the shareholders approved the amendment
at a duly called and convened meeting held on March 30, 2000.
4. These Articles of Amendment shall be effective upon filing with the Office of
the Secretary of State of the State of Tennessee.
This the 12th day of April, 2000.
SHOP AT HOME, INC.
/s/ Kent E. Lillie
Kent E. Lillie, President
ATTEST:
/s/ George J. Phillips
George J. Phillips, Secretary
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
the Form S-3 Registration Statement and related Prospectus of Shop At Home, Inc.
for the registration of 12,970,163 shares of its common stock and the
incorporation by reference therein of our report dated August 27, 1999, with
respect to the financial statements of Shop At Home, Inc., in its Annual Report
on Form 10-K, as amended, for the year ended June 30, 1999 as filed with the
Securities and Exchange Commission.
PricewaterhouseCoopers LLP
Nashville, Tennessee
July 25, 2000
