-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DXCaCXu22QA8ic7YXxnsyN6mMxncYDvmZAedw7jWuMbhJPdMk5sMtQfla5gqLKK3 aU6pFo9jLjSE/mjmQnldvg== 0000950135-96-004619.txt : 19961104 0000950135-96-004619.hdr.sgml : 19961104 ACCESSION NUMBER: 0000950135-96-004619 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960509 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961101 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENCE JOURNAL CO CENTRAL INDEX KEY: 0000080816 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 050481966 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11813 FILM NUMBER: 96651938 BUSINESS ADDRESS: STREET 1: PROVIDENCE STREET 2: 75 FOUNTAIN ST CITY: PROVIDENCE STATE: RI ZIP: 02902 BUSINESS PHONE: 4012777031 MAIL ADDRESS: STREET 1: 75 FOUNTAIN STREET CITY: PROVIDENCE STATE: RI ZIP: 02902 8-K 1 THE PROVIDENCE JOURNAL COMPANY 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) MAY 9, 1996 THE PROVIDENCE JOURNAL COMPANY (Exact name of registrant as specified in its charter) Commission File Number 0-26928 ------- DELAWARE 05-0481966 - -------------------------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 75 Fountain Street, Providence, RI 02902-9985 - -------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 277-7000 2 Item 2. Acquisition or Disposition of Assets. As previously reported in the Company's Quarterly Report on Form 10-Q filed on May 14, 1996 and amended on June 10, 1996, the Company made the following purchases of additional equity ownership interests, which resulted in the consolidation of these entities in 1996. The Company financed these purchases through borrowings on its revolving credit facilities. Though insignificant to the total assets of the Company, financial information related to these entities is hereby disclosed on this Form 8-K: Increased Ownership Interest in Television Food Network, G.P. On May 14, 1996, the Company purchased the equity partnership interests held by Landmark Programming, Inc. ("Landmark") and Scripps Howard Publishing, Inc. ("Scripps"), two of the partners of Television Food Network, G.P. ("TVFN"), for respective purchase prices of approximately $12.6 million and $11.4 million. Prior to such purchases, Landmark and Scripps each owned a 10.8% and 9.7% general partnership interest, respectively, in TVFN. The Company's investment in TVFN through May 31, 1996, including these purchases and funding of its share of operating losses, totaled $44.7 million, which represents an equity interest of approximately 46%. Following these purchases, the Company now holds three of the five voting seats on the TVFN management committee. As a result of the purchases, TVFN became a controlled subsidiary of the Company and, effective May 1, 1996, was consolidated into the Company's results of operations. TVFN, a general partnership, was formed specifically to own and operate the Television Food Network, a 24-hour advertising-supported cable and satellite network service that provides television programming related to the preparation, enjoyment and consumption of food, as well as programs focusing on nutrition and topical news areas. The Company is managing general partner of TVFN. Increased Ownership Interest in America's Health Network On May 9, 1996, the Company increased its investment in America's Health Network, L.P. and America's Health Network, LLC, the controlling entities of America's Health Network (collectively "AHN") by $17.0 million to $35.3 million which represents an equity interest of approximately 65%, an increase of approximately 6% since December 31, 1995. AHN was consolidated into the Company's results of operations effective January 1, 1996. America's Health Network is a 24-hour basic cable television programming service principally featuring viewer call-in programs designed for health-conscious adults who are active participants in their own health care and the health care of spouses, parents, and children. America's Health Network launched its service on March 25, 1996. -2- 3 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial statements of Businesses Acquired. The financial statements of TVFN and AHN included pursuant to this item are filed as Exhibit 99.1 and Exhibit 99.2, respectively of this Form 8-K and are incorporated herein by reference. (b) Pro Forma Financial Information. The following pro forma financial information included pursuant to this item is filed as Exhibit 99.3 to this Form 8-K and is incorporated herein by reference: A. Unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1995 B. Unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 1996 C. Notes to unaudited pro forma condensed consolidated condensed financial statements. (c) Exhibits. Exhibits required to be filed by Item 601 of Regulation S-K: 2.1 Partnership Interest Purchase and Sale Agreement dated April 2, 1996 between the Company and Landmark Programming, Inc. (incorporated by reference to Exhibit 10.10 of the Company's Registration Statements on Form S-1 (File No. 333-02703)) 2.2 Partnership Interest Purchase and Sale Agreement dated April 2, 1996 between the Company and Scripps Howard Publishing, Inc. (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 (File No. 333-02703)) 2.3 Admission Agreement dated as of April 3, 1996 between PJ Health Programming, Inc. and AHN Partners, L.P. 23.1 Consent of KPMG Peat Marwick LLP. 99.1 Financial statements of Television Food Network, G.P. as of December 31, 1995 and 1994 and for each of the years ended in the three years ended December 31, 1995 and the six months ended June 30, 1996 and 1995 99.2 Financial statements of America's Health Network (a development stage enterprise) as of December 31, 1995 and 1994 and for each of the years then ended and the six months ended June 30, 1996. 99.3 Pro forma financial statements of the Company as follows: A. Unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1995 B. Unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 1996 C. Notes to unaudited pro forma condensed consolidated condensed financial statements. -3- 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 1, 1996 THE PROVIDENCE JOURNAL COMPANY By: /s/ Thomas N. Matlack --------------------------------------------------------------- Thomas N. Matlack Vice President-Finance and Chief Financial Officer (principal financial officer) By: /s/ Robert G. Colucci --------------------------------------------------------------- Robert G. Colucci Corporate Controller (chief accounting officer) By: /s/ John L. Hammond --------------------------------------------------------------- John L. Hammond Vice President-General Counsel and Chief Administrative Officer -4- EX-2.3 2 ADMISSION AGREEMENT DATED APRIL 3, 1996 1 Exhibit 2.3 AHN PARTNERS, L.P. ADMISSION AGREEMENT ADMISSION AGREEMENT, dated as of April __, 1996, by and between PJ Health Programming, Inc., a Delaware corporation (the "Subscriber"), and AHN PARTNERS, L.P., a Delaware limited partnership (the "Company") of which AMERICA'S HEALTH NETWORK, L.L.C., a Delaware limited liability company (the "General Partner"), is the sole general partner. 1. AGREEMENT TO SUBSCRIBE. (a) The Subscriber hereby subscribes for and agrees to purchase, /X/ as a Class A Partner, or / / as a Class B Partner, (i) the interest in the Company (the "First Closing Partnership Interest") set forth opposite the name of the Subscriber on the signature page to this Admission Agreement (expressed in terms of a percentage representing the Post Recoupment Percentage Interest (as defined in the Partnership Agreement [as defined below] to be owned by the Subscriber subject to the terms and conditions of the Partnership Agreement), and the Company hereby agrees to issue and sell such Percentage Interests to the Subscriber, on the terms set forth herein, for the purchase price (the "First Closing Purchase Price") equal to the dollar amount set forth as such opposite the name of the Subscriber on the signature page to this Admission Agreement; and (ii) the interest in the Company (the "Second Closing Partnership Interest"), if any, set forth opposite the name of the Subscriber on the signature page to this Admission Agreement (also expressed in terms of a percentage representing the Post Recoupment Percentage Interest to be owned by the Subscriber subject to the terms and conditions of the Partnership Agreement), and the Company hereby agrees to issue and sell the Second Closing Partnership Interest to the Subscriber, on the terms set forth herein, for the purchase price (the "Second Closing Purchase Price") equal to the dollar amount set forth as such opposite the name of the Subscriber on the signature page to this Admission Agreement. 2 The Subscriber acknowledges that the First Closing Partnership Interest shall be subject to dilution from the sale of the Second Closing Partnership Interest to the Subscriber, if any, and from sales of interests in the Company to other subscribers contemporaneously with the Second Closing (as defined in Section 1(c)). (b) The First Closing Partnership Interest and the Second Closing Partnership Interest are collectively referred to in this Agreement as the "Partnership Interest." The First Closing Purchase Price and the Second Closing Purchase Price shall be payable by wire transfer of immediately available funds to the following bank account of the Company: To: SunTrust Bank, Central Florida, N A. 200 South Orange Avenue Orlando, FL 32801 407-237-4986 ABA# 063102152 For Benefit of: AHN Partners, L.P. 1000 Universal Studios Plaza B-22A Orlando, FL 32819-7610 Account No: 0215-252-137-195 (c) The closing of the purchase and the sale of the First Closing Partnership Interest (the "First Closing") and the closing of the purchase and the sale of the Second Closing Partnership Interest (the "Second Closing," and, together with the First Closing, the "Closings") shall take place at the offices of Blumenthal & Lynne, a Professional Corporation, at 488 Madison Avenue, New York, New York, counsel for the Company, or at such other place as may be agreed upon by the Company, the Subscriber and each of the other persons (the "Other Subscribers") whose names are set forth on Schedule A-1 to the Partnership Agreement as persons who will become Class A Partners of the Company. The First Closing shall take place on April 16, 1996, or other date or other time, as may be agreed upon by the Company, the Subscriber and each of the Other Subscribers; PROVIDED. that with respect to the Subscriber, the First Closing shall be postponed until the fulfillment of the condition referred to in (d) of this Section 1. The Second Closing shall be held on January 6, 1997, or other date or other time, as may be agreed upon by the Company, the Subscriber and each of the Other Subscribers. 2 3 (d) Notwithstanding any other provision of this Agreement to the contrary, the obligations of the Subscriber under this Agreement shall be subject in all respects to the receipt by the Subscriber of the consent of its board of directors to the transactions contemplated hereby. The Company will use its best efforts to obtain such consent from its board of directors on or prior to May 15, 1996. If the Subscriber does not receive such consent on or prior to the end of business on May 15, 1996, then this Agreement and the obligations of the parties contained herein shall terminate and be of no further force and effect. 2. ADOPTION OF THE PARTNERSHIP AGREEMENT. The Subscriber hereby intends that its signature hereon shall constitute an irrevocable subscription to the Company for the Partnership Interest as well as the specific acceptance and adoption of each and every provision of that certain Amended and Restated Limited Partnership Agreement, dated as of April 3, 1996 (the "Partnership Agreement"), which Partnership Agreement is incorporated herein and made a part hereof by reference, and hereby agrees to be bound and governed by the provisions of the Partnership Agreement. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a material inducement to the Subscriber to enter into and perform its obligations under this Agreement, the Company hereby represents and warrants that, except as disclosed in the Disclosure Schedule dated as of the date of this Agreement and attached to this Agreement (the "Disclosure Schedule"): (a) ORGANIZATION. STANDING. ETC. The Company is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite partnership power and authority to own and operate its properties and to carry on its business and to enter into this Agreement and issue the Partnership Interests. The Company has delivered to the Subscriber a complete and correct copy of the Partnership Agreement. The Company has no direct or indirect ownership interest (by way of stock ownership or otherwise) in any other firm, corporation, association or business enterprise. (b) QUALIFICATION TO DO BUSINESS. The Company is duly qualified or licensed and in good standing as a foreign corporation duly authorized to do business in each jurisdiction wherein the ownership of its property or the conduct of its business requires such qualification or license and where the failure to be so qualified or licensed might have a material adverse effect on the Company. The Company has all requisite power and authority to own and operate its properties, to lease the properties it leases and to conduct its business in the manner and in the jurisdictions where now conducted. 3 4 (c) CAPITALIZATION. (i) After giving effect to the issuance of the all partnership interests contemplated by the Partnership Agreement, the respective Post Recoupment Percentage Interests of the Partners will be as set forth in Schedule A-2 to the Partnership Agreement. (ii) Except as set forth in Schedule A-2 to the Partnership Agreement, the Company has neither granted or issued, nor agreed to grant or issue, any option, warrant or other commitment to issue or to acquire any partnership interest. (d) FINANCIAL STATEMENTS. Incorporated as part of the Disclosure Schedule is the unaudited consolidated balance sheet of the Company as of March 31, 1996 (the "Balance Sheet"). The Balance Sheet (i) was compiled from the books and records of the Company regularly maintained by management and used to prepare the financial statements of the Company prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied with prior periods; and (ii) present fairly the financial position of the Company at March 31, 1996 in accordance with GAAP. (e) ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities which are set forth in the Balance Sheet which have arisen in the ordinary course of business in amounts usual and normal, both individually and in the aggregate, for the Company (none of which are liabilities for breach of contract, breach of warranty, torts, infringements, claims or lawsuits), the Company has no material obligations or liabilities (whether accrued, absolute, contingent, unliquidated, or otherwise, whether due or to become due) arising out of actions, inactions or transactions entered into or any state of facts existing at or prior to the date hereof, including without limitation any liabilities for federal state or local taxes arising from the dissolution of America's Health Network, Inc. (f) NO VIOLATION. The performance by the Company and the General Partner of their respective obligations hereunder and the consummation of the transactions contemplated hereby will not (i) violate, conflict with or result in a breach of any provision of the Partnership Agreement; (ii) violate, or be in conflict with, or constitute a default (with or without due notice or lapse of time or both) under, or permit the termination of, or cause the acceleration of the maturity of any debt or obligation of the Company under, require the consent of any other party to, constitute a breach of, create a loss of a material benefit under, or result in the creation or imposition of any lien upon any property or assets of the Company or the General Partner under, any mortgage, indenture, lease, agreement or other instrument to which 4 5 the Company or the General Partner is a party or by which the Company or the General Partner or the assets thereof, may be bound; (iii) violate any statute or law or violate any judgment, decree, order, regulation or rule of any court or governmental authority to which the Company or the General Partner is subject; or (iv) violate any contract, agreement or commitment to which the Company or the General Partner is bound. (g) NO MATERIAL ADVERSE CHANGE. Since December 31,1995, neither the business, operations, property nor affairs of the Company have been materially adversely affected by any occurrence or development, whether or not insured against, and the Company has no knowledge of any threatened occurrence or development which would, individually or in the aggregate, materially adversely affect its properties or assets, its business, operations or affairs. (h) VALIDITY OF THIS AGREEMENT. The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby have been duly authorized and approved by all necessary corporate actions. The execution and delivery of this Agreement will not violate any provision of law and will not conflict with, or result in a breach of any of the terms of, or constitute a default under any agreement, instrument or other restriction to which the Company is a party or by which it is bound. (i) CONSENTS. No consent, approval or authorization of or designation, declaration or filing with any other person, including without limitation any governmental authority, on the part of the Company is required in connection with the valid execution, delivery or performance of this Agreement or the consummation of any transaction contemplated hereby. (j) TITLE TO PROPERTIES; ENCUMBRANCES. The Company has good and marketable title to all of its properties and assets (tangible and intangible), subject to no Liens (as defined below) other than the following: (i) the Company's leases of its office and production facilities; (ii) the Company's license of intangible rights from IVI Publishing, Inc. pursuant to the License Agreement, dated May 25, 1995 and other license agreements entered into in the ordinary course of its business; (iii) deposits under worker's compensation, unemployment insurance and similar laws or secure statutory obligations; and (iv) Liens created in conjunction with equipment leases to secure the lease obligation created thereby. 5 6 As used herein, "Liens" shall mean any mortgage, pledge, security interest, conditional sale or other title retention agreement, encumbrance, lien, easement, claim, right, covenant, restriction, right of way, warrant, option or charge of any kind. (k) CONTRACTS AND COMMITMENTS. The Disclosure Schedule contains a complete list (stated without duplication) of all contracts and commitments of the Company which are material to the operations, business or financial condition of the Company (the "Material Contracts") and which will be enforceable against the Company after the Effective Date (other than agreements with physician/hosts paid at an annual rate of $100,000 or less). The Material Contracts are valid and binding and in full force and effect and there does not exist any default by the Company, or, to the Company's best knowledge, by any other party thereto, or event which with notice or lapse of time or both would constitute a default by the Company, or, to the Company's best knowledge, by any other party thereto, under a Material Contract which default would allow the termination thereof. (l) LITIGATION. There are no actions, suits, proceedings or investigations pending or, to the knowledge of the Company, threatened in any court or before any governmental agency or instrumentality against or affecting the Company or the business, operations, financial condition or properties or assets of the Company, or which would prevent the carrying out of this Agreement or the Partnership Agreement, or any of the transactions contemplated hereby or thereby, or declare the same unlawful or cause the rescission hereof. The Company has not been charged with, nor to its knowledge, is it threatened with or under an investigation with respect to, any charge concerning any violation of any provision of any federal, state or local law, regulation, ordinance, order or administrative ruling, nor is the Company in default with respect to any order, writ, injunction or decree of any court, governmental agency or instrumentality. (m) SECURITIES LAWS. The sale of the Securities, as provided in this Agreement, is exempt from the registration and prospectus delivery requirement of the Securities Act of 1933, as amended (the "Securities Act"), and is registered or qualified (or is exempt from registration or qualification) under the registration or qualification requirements of all applicable state securities laws. Neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemption. (n) DISCLOSURE. None of this Agreement, the Disclosure Schedule, the Memorandum and the Forecast (Memorandum and Forecast being defined in Section 4.1) nor any certificate or other instrument referred to herein or otherwise furnished to the Subscriber by the Company contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained 6 7 herein or therein, in the light of the circumstances under which they were made, not misleading. There is no fact known to the Company relating to the business, affairs, operations, condition or prospects of the Company which materially adversely affects the same and which has not been disclosed to the Subscriber by the Company. 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER. The Subscriber acknowledges that the Partnership Interest is offered pursuant to an exemption from registration under the Securities Act. In connection therewith the Subscriber makes the following representations, warranties and acknowledgements, realizing that they are being relied upon by the Company for purposes of determining the Subscriber's suitability as an investor in the Company and compliance by the Company with applicable Federal and state securities laws and regulations: (a) The Subscriber has read the Confidential Private Placement Memorandum entitled "America's Health Network, G.P." and dated August 1995, together with the supplement thereto dated March 18, 1996 (as so amended, the "Memorandum") and the Forecast Financial Statements of AHN Partners, L P. (together with assumptions) dated March 29, 1996 (the "Forecast"). The Subscriber has such knowledge and expertise in financial and business matters that the Subscriber is capable of evaluating the merits and risks of an investment in the Partnership Interest and the Subscriber is able to bear the economic risk of investment in the Company Interest and the complete loss of the Subscriber's investment. (b) The Subscriber has received and read or reviewed and is familiar with the Partnership Agreement and such other documents which relate to its subscription for the Partnership Interest, and the Subscriber confirms that all documents, agreements, records and books pertaining to the investment in the Company and requested by the Subscriber have been made available or delivered to the Subscriber. (c) The Subscriber has obtained, to the extent the Subscriber has deemed necessary, the Subscriber's own personal professional advice with respect to the risks inherent in investment in the Partnership Interest, the suitability of such investment in light of the Subscriber's financial condition and investment needs, and legal, tax and accounting matters. (d) In connection with the Subscriber's acquisition of the Partnership Interest, the Subscriber has been afforded the opportunity to ask questions of and receive answers from representatives of the General Partner and from persons 7 8 authorized to act on the Company's behalf concerning (i) the terms and conditions of this investment, and (ii) the Company and its operations. In addition, the Subscriber has been afforded the opportunity to obtain any additional information which the Company possesses or could acquire without unreasonable effort or expense which the Subscriber requires in order to verify the accuracy of the information provided by the Company. (e) The Subscriber understands that future operating results of the Company are subject to events over which the Company will have only partial or no control and to various uncertainties inherent in the Company's activities. No representation has been made or could be made as to the amount of future profits or losses of the Company. (f) The Subscriber has adequate means of providing for its current needs and possible business contingencies, has no need for liquidity of investment in the Partnership Interest and has no reason to anticipate any change in business circumstances, financial or otherwise, which may cause or require any sale or distribution of the Partnership Interest. (g) The Subscriber understands that investment in the Company is an illiquid investment. In particular, the Subscriber recognizes that: (i) The Subscriber must bear the economic risk of investment in the Partnership Interest for an indefinite period of time, since the Partnership Interest has not been registered under the Securities Act, and, therefore, cannot be sold unless either it is subsequently registered under the Securities Act or an exemption from such registration is available and a favorable opinion of counsel for the Partnership to that effect is obtained (if requested by the General Partner); (ii) The Subscriber will not have the right to require registration of the Partnership Interest under the Securities Act and will not be entitled to the benefits of Rule 144 thereunder, and (iii) No established market for the Partnership Interest will exist and it is extremely unlikely that any public market for the Partnership Interest will develop. (h) The Subscriber represents that the Partnership Interest is being purchased by it or for its own account, for purposes of investment and not for the account of any other person and not for distribution, assignment or resale to others, and no other person has a direct or beneficial interest in the Partnership Interest. The 8 9 Subscriber understands and acknowledges that the Partnership Interest has not been registered under the Securities Act or under state laws. (i) The Subscriber, if a corporation, partnership, trust or other entity, is authorized and otherwise duly qualified to purchase and hold the Partnership Interest and to enter into this Admission Agreement. a) All information which the Subscriber has provided to the Company concerning the Subscriber's financial position and knowledge of financial and business matters, or, in the case of a corporation, partnership, trust or other entity, concerning the knowledge of financial and business matters of the person(s) making the investment decision on behalf of such entity, is correct and complete as of the date set forth on the signature page hereof, and if there should be any adverse change in such information prior to his, her, or its subscription being accepted, he, she, or it will immediately provide the Company with such information. (k) The Subscriber acknowledges and is aware that the Company has no financial operating history; this is the Company's first venture; and the Partnership Interest involves a high degree of risk of loss by the Subscriber of its entire investment in the Company. (l) The Subscriber is an "accredited investor" as defined in Rule 501 under the Securities Act, inasmuch as the Subscriber is: (Please initial all applicable descriptions) ____ An entity with total assets at the time of purchase in excess of $5,000,000, which was not formed for the purpose of investing in the Company and which is one or more of the following: ____ corporation; ____ partnership; ____ limited liability company; or ____ a tax-exempt organization as described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. ____ A personal (non-business) trust with total assets in excess of $5,000,000, which was not formed for the purpose of investing in the Company and whose decision to invest in the Company has been directed by a person who has such knowledge and experience in 9 10 ____ financial and business maKers that he is capable of evaluating the merits and risks of the investment. ____ Licensed, or subject to supervision, by U.S. Federal or state examining authorities as a "bank," "savings and loan association," "insurance company" or "small business investment company" (as such terrns are used and defined in 17 CFR 230.501(a)). ____ Registered with the U.S. Securities and Exchange Commission (the "Commission") as a broker or dealer or an investment company, or has elected to be treated or qualifies as a "business development company" (within the meaning of Section 2(a)(48) of the Investment Company Act of 1940 or Section 202(a)(22) of the Investment Advisers Act of 1940). ____ Any other entity in which all of the equity owners are persons described above. 5. CONDITIONS OF THE SUBSCRIBER'S OBLIGATIONS. (a) CONDITIONS TO BE MET AT THE FIRST CLOSING. The Subscriber's obligations to purchase the First Closing Partnership Interest and pay the First Closing Purchase Price therefor are subject to the fulfillment to its reasonable satisfaction of the following conditions: (i) The representations and warranties of the Company made in writing by or on behalf of the Company in connection with the transactions contemplated hereby shall be true and correct at and as of the date of the First Closing (the "First Closing Date"). (ii) Each of the other persons (the "Other Subscribers") whose names are set forth on Schedule A to the Partnership Agreement as persons who will become Class A Partners or Class B Partners of the Company has entered into a Subscription Agreement with the Company substantially in the form of this Agreement and each of the Other Partners has paid the First Closing Purchase Price pursuant to the terms and conditions of such Subscription Agreement. (iii) The Subscriber shall have received a certificate executed by the President of the Company, dated as of the Closing Date, certifying that the conditions specified in clauses (i) through (ii) of this Section 5(a) have been fulfilled. 10 11 (iv) All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory in substance and form to the Subscriber, and Subscriber shall have received all such counterpart originals or certified or other copies of the Partnership Agreement and this Agreement as the Subscriber may reasonably request. (b) CONDITIONS TO BE MET AT THE SECOND CLOSING. The Subscriber's obligations to purchase the Second Closing Partnership Interest and pay the Second Closing Purchase Price therefor are subject to the fulfillment to its reasonable satisfaction of the following conditions: (i) The representations and warranties of the Company made in writing by or on behalf of the Company in connection with the transactions contemplated hereby shall be true and correct at and as of the date of the Second Closing (the "Second Closing Date"). * - ----------- * - Denotes confidential material omitted and filed separately with the Securities and Exchange Commission 11 12 * (iv) Access has performed each of the obligations to be performed by it at the Second Closing. (v) The Subscriber shall have received a certificate executed by the President of the Company, dated as of the Closing Date, certifying that the conditions specified in clauses (i) through (iv) of this Section 5(b) have been fulfilled. (vi) All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory in substance and form to the Subscriber. (c) Notwithstanding any other provision of this Agreement to the contrary, if all of the conditions to the Second Closing set forth in Section 5(b) have not been fulfilled, the Subscriber shall have the right, but not the obligation, to purchase up to all or any part of the Second Closing Partnership Interest from the Company at the Second Closing Purchase Price adjusted for the proportion of the Second Closing Partnership Interest that the Subscriber desires to purchase. (d) Any failure on the part of any Subscriber to pay any portion of the First Closing Purchase Price or the Second Closing Purchase Price when due shall render the Subscriber a "Delinquent Partner" under Section 4.2 of the Partnership Agreement and shall enable the Company and its Partners to employ the rights and remedies set forth therein, without limiting such additional rights or remedies as the Company or its Partners may have at law or in equity. - --------- * - Denotes confidential material omitted and filed separately with the Securities and Exchange Commission. 12 13 6. SUBSCRIBER'S INDEMNIFICATION. (a) The Subscriber acknowledges that the Company will rely upon the representations, warranties and agreements of the Subscriber set forth in Section 4, each of which shall survive after the date of the Subscriber's execution and delivery of this Agreement. The Subscriber agrees to hold harmless and indemnify the Company and the General Partner and its officers, directors and stockholders and any other person who may be deemed to control the General Partner from and against all liabilities, damages, losses, costs and expenses (including reasonable attorneys' fees) which it may incur by reason of the failure of the Subscriber to fulfill any of the terms or conditions of this Admission Agreement, or by reason of any inaccuracy or breach of the representations and warranties and agreements made by the Subscriber in Section 4 or in connection with the Partnership Interest in any manner whatsoever. (b) The Company acknowledges that the Subscriber will rely upon the representations, warranties and agreements of the Company set forth in Section 3, each of which shall survive after the date of the Subscriber's execution and delivery of this Agreement. The Company agrees to hold harmless and indemnify the Subscriber from and against all liabilities, damages, losses, costs and expenses (including reasonable attorneys' fees) which it may incur by reason of the failure of the Company to fulfill any of the terms or conditions of this Admission Agreement, or by reason of any inaccuracy or breach of the representations and warranties and agreements made by the Company in Section 3 or in connection with the Partnership Interest in any manner whatsoever. 7. MISCELLANEOUS. (a) The Subscriber agrees that this Admission Agreement shall be binding upon the Subscriber's permitted successors and assigns. Notwithstanding the foregoing, the Subscriber may not assign this Admission Agreement without the prior written consent of the Company. (b) Notwithstanding any of the representations, warranties, acknowledgements or agreements made herein by the Subscriber, the Subscriber does not thereby or in any other manner waive any rights granted to the Subscriber under United States or other applicable securities laws. (c) This Admission Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by such parties. 13 14 (d) This Admission Agreement shall be enforced, governed and construed (both as to validity and performance) in all respects in accordance with the laws of the State of Delaware applicable to agreements made and to be performed wholly in the State of Delaware. (e) Within five days after receipt of a written request from the Company, the Subscriber will provide such information, to execute and deliver such documents and to take, or forbear from taking, such actions as reasonably may be necessary to comply with any and all laws and ordinances to which the Company is subject. (f) All notices sent hereunder shall be in writing. If sent to the Company, such notices shall be addressed to the Company at its address in the Partnership Agreement. If sent to the Subscriber, such notices shall be addressed to the Subscriber at the address (including telecopier number) set forth below opposite its name. (g) The Subscriber and the Company agree that any legal suit, action or proceeding arising out of or relating to this Agreement may be instituted in a state, city or federal court in the State of New York; PROVIDED that the Company may bring suit in the courts of any country or place where the Subscriber or any of its assets may be found and, by execution and delivery of this Agreement, the Subscriber irrevocably submits to such jurisdiction. To the extent permitted by law, the Subscriber irrevocably waives trial by jury and any objection which it may now or hereafter have to the venue of any suit, action or proceeding, arising out of or relating to the Partnership Agreement or this Agreement brought in the State of New York and to the extent permitted by law hereby further irrevocably waives any claim that any such suit, action or proceeding brought in the State of New York has been brought in an inconvenient forum. If any agent appointed by the Subscriber refuses to accept service, the Subscriber agrees that service upon it by certified mail return receipt requested sent to the address specified by the Subscriber below shall constitute sufficient notice. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Company to bring proceeding against the Subscriber in the courts of any other jurisdiction. (h) If the Subscriber defaults in the performance of any of its obligations under this Agreement, the Company shall have all rights and remedies provided at law and equity. All costs and expenses of collection, including attorneys' fees, shall be added to and become part of the obligations of the Subscriber under this Agreement. 14 15 (i) This Admission Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, each party hereto has caused this Admission Agreement to be duly executed on the date indicated beneath its name. AHN PARTNERS, L.P., a Delaware limited partnership By: America's Health Network, LLC, General Partner By:________________________________ Name: Title: PJ HEALTH PROGRAMMING, INC. By:________________________________ Name: Title: 15 16 Name and Address of Subscriber: PJ Health Programming, Inc. c/o The Providence Journal Company 75 Fountain Street, 3rd Floor Providence, Rhode Island 02902 Telephone: (401) 277-7000 Telecopier: (401) 277-8170 First Closing Partnership Interest (expressed as Post Recoupment Percentage Interest): * Purchase Price: * Second Closing Partnership Interest (expressed as Post Recoupment Percentage Interest): * Purchase Price: * - ---------- * - Denotes confidential matierial omitted and filed separately with the Securities and Exchange Commission. 16 17 DISCLOSURE SCHEDULE Material Contracts of the Company are as follows: 1. Letter Agreement, dated as of May 25, 1995, between America's Health Network, Inc. ("AHN, Inc.") and IVI Publishing, Inc. 2. Agreement, dated as of June 8, 1995, between AHN, Inc. and Mayo Foundation for Medical Education and Research. 3. Business Center Lease, dated June 30, 1995, between AHN, Inc. and Universal City Florida Partners ("Universal City"). 4. Consulting Agreement, dated as of July 1, 1995, between AHN, Inc. and The Providence Journal Broadcasting Corp. 5. Sublease Agreement, dated as of August 1, 1995, between AHN, Inc. and Providence Journal Satellite Services, Inc. 6. Telemarketing and Fulfillment Services Agreement, executed on June 20, 1995 and June 28, 1995, between AHN, Inc. and National Call Center, Inc. 7. Fiber Optics Service Agreement, dated February 29, 1996, between AHN, Inc. and Triumph Communications, Inc. ("Triumph"). The Company is seeking the consent of Hughes Communications Galaxy, Inc. ("Hughes") to the assignment of the Sublease Agreement pursuant to which AHN Inc. subleased a transmission signal from Providence Journal Satellite Services, Inc. 17 EX-23.1 3 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit 23.1 Consent of Independent Public Accountants We hereby consent to the use of our report on Television Food Network, G.P. dated February 16, 1996 and our report on America's Health Network (a development stage enterprise), dated March 15, 1996 included in Exhibits 99.1 and 99.2 of this Current Report on Form 8-K. Providence, RI October 31, 1996 /s/ KPMG Peat Marwick LLP EX-99.1 4 FINANCIAL STATEMENT OF TELEVISION FOOD NETWORK GP 1 Exhibit 99.1 TELEVISION FOOD NETWORK, G.P. Financial Statements December 31, 1994 and 1995 (With Independent Auditors' Report Thereon) 2 TELEVISION FOOD NETWORK, G.P. Table of Contents Page ---- Independent Auditors' Report 1 Balance Sheets 2 Statements of Operations 3 Statements of Partners' Capital 4 Statements of Cash Flows 5 Notes to Financial Statements 6 - 12 3 INDEPENDENT AUDITORS' REPORT To the Partners of Television Food Network, G.P.: We have audited the accompanying balance sheets of Television Food Network, G.P. as of December 31, 1994 and 1995 and the related statements of operations, partners' capital, and cash flows and for the years ended December 31, 1994 and 1995 for the period from August 16, 1993 (date of inception) to December 31, 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Television Food Network, G.P. at December 31, 1994 and 1995, and the results of its operations and its cash flows for the period from August 16, 1993 (date of inception) to December 31, 1993, and for the years ended December 31, 1994 and 1995 in conformity with generally accepted accounting principles. Providence, Rhode Island February 16, 1996 4 2 TELEVISION FOOD NETWORK, G.P. Balance Sheets
(Unaudited) December 31, June 30, Assets 1994 1995 1996 ------ ---- ---- ---- Current assets: Cash and cash equivalents $ 1,305,151 533,182 189,994 Investment securities held to maturity, stated at cost which approximates fair value 727,250 3,738,959 3,749,015 Trade accounts receivable 1,188,816 1,857,598 2,265,827 Television program assets, net 1,761,588 2,894,442 3,064,713 Inventory - - 81,434 Prepaid expenses 182,915 262,783 192,927 Launch incentives - 135,346 814,398 Other assets 25,573 406,952 150,319 ----------- ---------- ---------- Total current assets 5,191,293 9,829,262 10,508,627 ----------- ---------- ---------- Property and equipment, net 5,360,710 4,730,111 4,307,745 Television program assets, net 1,263,584 1,996,483 2,178,368 Intangible assets, net 501,898 4,550,208 4,203,773 Launch incentives, net - 611,213 344,304 ----------- ---------- ---------- $12,317,485 21,717,277 21,542,817 =========== ========== ========== Liabilities and Partners' Capital --------------------------------- Current liabilities: Accounts payable $ 476,796 1,051,423 1,049,577 Launch incentives payable - 1,610,270 - Accrued expenses 8,430 21,483 158,739 Accrued salaries and wages 96,055 140,011 88,938 Deferred income - 431,747 435,550 Must carry rights payable - 500,000 500,000 Television program rights payable 125,904 100,976 235,005 ----------- ---------- ---------- Total current liabilities 707,185 3,855,910 2,467,809 Must carry rights payable - 2,550,000 2,550,000 Launch incentives payable - - 337,653 Television program rights payable - 86,529 97,500 ----------- ---------- ---------- Total liabilities 707,185 6,492,439 5,452,962 Commitments Partners' capital 11,610,300 15,224,838 16,089,855 ----------- ---------- ---------- $12,317,485 21,717,277 21,542,817 =========== ========== ==========
See accompanying notes to financial statements 5 3 TELEVISION FOOD NETWORK, G.P. Statements of Operations
From August (Unaudited) 16, 1993 to Six Months December 31, Years ended December 31, Ended June 30, ------------ ---------------------------- --------------------------- 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- Revenues $ 12,908 1,960,665 6,657,207 2,928,260 6,333,541 ----------- ----------- ----------- ----------- ---------- Operating expenses: Programming 2,917,140 8,778,621 10,302,151 5,182,251 5,381,746 General and administrative 2,032,672 6,207,789 4,549,792 2,067,916 2,437,149 Marketing and selling 1,791,145 5,449,688 11,417,851 5,234,066 6,722,365 Depreciation and amortization 42,206 1,058,150 1,535,035 694,564 1,001,897 ----------- ----------- ----------- ----------- ---------- Total operating expenses 6,783,163 21,494,248 27,804,829 13,178,797 15,543,157 ----------- ----------- ----------- ----------- ---------- Loss from operations (6,770,255) (19,533,583) (21,147,622) (10,250,537) (9,209,616) Interest income 121,847 291,291 262,160 128,652 74,633 ----------- ----------- ----------- ----------- ---------- Net loss $(6,648,408) (19,242,292) (20,885,462) (10,121,885) (9,134,983) =========== =========== =========== =========== ==========
See accompanying notes to financial statements. 6 4 TELEVISION FOOD NETWORK, G.P. Statements of Partners' Capital
Managing Class A Class B Partner Partners Partners Total -------- ------------ -------- ------------ Initial Contributions, August 16, 1993 $1,000 25,000,000 - $25,001,000 Net loss - (6,648,408) - (6,648,408) ------ ---------- --- ----------- Partners' capital at December 31, 1993 1,000 18,351,592 - 18,352,592 Contributions - 12,500,000 - 12,500,000 Net loss - (19,242,292) - (19,242,292) ------ ---------- --- ----------- Partners' capital at December 31, 1994 1,000 11,609,300 - 11,610,300 Contributions - 24,500,000 - 24,500,000 Net loss - (20,885,462) - (20,885,462) --- ---------- --- ----------- Partners' capital at December 31, 1995 1,000 15,223,838 - 15,224,838 Contributions (unaudited) - 10,000,000 - 10,000,000 Net loss (unaudited) - (9,134,983) - (9,134,983) --- ----------- --- ----------- Partners' capital at June 30, 1996 (unaudited) $1,000 16,088,855 - 16,089,855 ====== ========== === ===========
See accompanying notes to financial statements. 7 5 TELEVISION FOOD NETWORK, G.P. Statements of Cash Flows
From August (Unaudited) 16, 1993 to Six months December 31, Years Ended December 31, Ended June 30, ------------ ------------------------- ------------------------ 1993 1994 1995 1995 1996 ------------ ----------- ----------- ----------- ---------- Operating activities: Net loss $ (6,648,408) (19,242,292) (20,885,462) (10,121,885) (9,134,983) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 42,206 1,058,150 1,535,035 694,564 1,001,897 Amortization of television program assets 249,292 1,435,275 2,864,775 1,262,072 1,966,158 Amortization of launch incentives - - 1,910,621 - 24,985 Payments for production of television programming - (3,029,238) (3,267,299) (1,285,066) (2,068,314) Payments for launch incentives - - (1,046,910) - (1,709,745) Changes in current assets and liabilities: Accounts receivable (12,908) (1,175,908) (668,782) 256,696 (408,229) Inventory - - - - (81,434) Prepaid expenses (466,970) (135,943) (79,868) (40,504) 69,856 Other assets (43,278) 437,703 (381,379) (6,511) 256,633 Accounts payable 569,849 (93,053) 574,627 164,812 (1,846) Accrued expenses 26,989 (18,559) 13,053 33,230 137,256 Accrued salaries and wages 44,695 51,360 43,956 27,501 (51,073) Deferred income - - 431,747 - 3,804 Other, net - - - (9,162) (275) ------------ ----------- ----------- ----------- ---------- Net cash used in operating activities (6,238,533) (20,712,505) (18,955,886) (9,024,253) (9,995,310) ------------ ----------- ----------- ----------- ---------- Investing activities: Additions to property and equipment (1,348,118) (5,000,609) (652,746) (276,658) (233,096) Additions to intangible assets (472,914) (141,325) - (13,588) - Purchases of securities available for sale - (11,500,000) - - - Proceeds from securities available for sale - 26,059,230 - - - Purchases of securities held to maturity - (2,203,993) (4,511,709) (729,954) (740,710) Maturity of securities held to maturity - 2,250,000 1,500,000 750,000 730,928 (Increase) decrease in short-term investments (15,332,487) - - - - ------------ ----------- ----------- ----------- ---------- Net cash provided by (used in) investing activities (17,153,519) 9,463,303 (3,664,455) (270,200) (242,878) ------------ ----------- ----------- ----------- ---------- Financing activities: Capital contributions 25,001,000 12,500,000 24,500,000 13,500,000 10,000,000 Payments for television program rights (1,023,051) (531,544) (1,401,628) (693,709) (105,000) Payments for must carry rights - - (1,250,000) - - ------------ ----------- ----------- ----------- ---------- Net cash provided by financing activities 23,977,949 11,968,456 21,848,372 12,806,291 9,895,000 ------------ ----------- ----------- ----------- ---------- Net (decrease) increase in cash and cash equivalents 585,897 719,254 (771,969) 3,511,838 (343,188) Cash and cash equivalents at beginning of period - 585,897 1,305,151 1,305,151 533,182 ------------ ----------- ----------- ----------- ---------- Cash and cash equivalents at end of period $ 585,897 1,305,151 533,182 4,816,989 189,994 ============ =========== =========== =========== ========== Supplemental disclosure of non-cash transaction: Obligations incurred for acquisition of television program rights $ 1,680,499 - 1,463,228 1,010,934 250,000 ============ =========== =========== =========== ========== Obligations incurred for acquisition of must carry rights $ - - 3,050,000 - - ============ =========== =========== =========== ========== Obligations incurred for acquisition of launch incentives $ - - 2,657,180 - 437,128 ============ =========== =========== =========== ==========
See accompanying notes to financial statements. 8 6 TELEVISION FOOD NETWORK, G.P. Notes to Financial Statements December 31, 1994 and 1995 (1) Description of Business, Partnership and Basis of Accounting Television Food Network, G.P. (the "Partnership") was formed in 1993 to own and operate the Television Food Network Channel ("TVFN"). TVFN is a television channel devoted to food, its preparation and other related topics. The partnership agreement extends through December 31, 2012. TVFN is managed by its managing general partner, Cable Program Management Co. ("CPMCO"). CPMCO is co-owned by a wholly-owned subsidiary of The Providence Journal Company (Colony Cable Networks, Inc.) and Pacesetter Communications, Inc. ("PCI"). CPMCO contributed $1,000 to the Partnership in exchange for a 10% partnership interest. CPMCO's partnership interest entitles it to distributions only after all other Partners have recovered their capital contributions. In addition to the managing general partner, there are five Class A partners and four Class B partners. Each Class A partner is entitled to one vote on the Management Committee of the Partnership. The managing general partner and the Class B partners are non-voting partners except that in certain circumstances the managing general partner will be allowed a vote in the case of a Management Committee deadlock. Under the original partnership agreement each Class A partner was required to contribute $9,000,000 in cash to the capital of the Partnership for one partnership unit. Each Class A partnership unit will represent a 12% interest in the Partnership. As a result of such purchases, the Class A partners will hold an aggregate of 5 partnership units representing 60% of the total Partnership interest. As of December 31, 1995, four Class A partners had each contributed $12,650,000 in cash and one Class A partner had contributed $11,400,000 in cash. Class B partners are not required to make any cash contributions. The remaining 30% partnership interest is allocated among Class A and Class B partners based upon "subscriber commitments". In general, each Class A (except two) and Class B partner will provide carriage of the TVFN channel to its subscribers and will receive a two percent partnership interest per one million subscribers. Subscriber interests will be adjusted annually during a four year period at which time partnership interests for subscriber commitments will become fixed. The Class A and Class B partners, and their respective partnership interests at December 31, 1995, are as follows:
Class A & B Partners Class B Partners Only -------------------- --------------------- Partner Interest Partner Interest ------- -------- ------- -------- Colony Cable Networks, Inc. 12.24% Adelphia Communications Corporation 1.78% Scripps Howard, Inc. ("Scripps") 11.87% C-TEC Cable System 0.23% Continental Programming Partners I, Inc. 17.13% The Sullivan Group, Inc. 1.18% Tribune Cable Ventures, Inc. 32.28% Times Mirror Cable 1.05% Landmark Programming, Inc. ("Landmark") 12.24%
(Continued) 9 7 TELEVISION FOOD NETWORK, G.P. Notes to Financial Statements, Continued Partnership profits are allocated first to offset previously allocated losses, and then to each partner in proportion to their relative partnership interests. Partnership losses are allocated first to offset previously allocated profits; second, to the extent of cumulative capital contributions; and finally, to Class A partners in proportion to their relative partnership interests. Class B partners are not entitled to any distributions (other than tax distributions as provided for in the partnership agreement) until the Class A partners have recovered their capital contributions. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain 1993 and 1994 amounts have been reclassified to conform to the 1995 presentation. The financial statements as of and for the six months ended June 30, 1996 and 1995 are unaudited; however, they include all adjustments (consisting of normal recurring adjustments) considered necessary by management for a fair presentation of the financial position and results of operations for the period. The result of operations for interim periods are not necessary indicative of the results that may be expected for the entire year. (2) Summary of Significant Accounting Policies (a) Cash and Cash Equivalents Cash equivalents consist of overnight repurchase agreements and money market instruments. For purposes of the statement of cash flows, the Partnership considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. At December 31, 1994 and 1995, the funds held in various operating accounts exceeded Federal Depository Insurance limits by $88,716 and $386,556, respectively. However, management believes the financial institutions utilized by the Partnership have satisfactory credit ratings and the credit risk associated with these deposits is minimal. (b) Investment Securities The Partnership utilizes an outside investment firm to manage its investments. Investments made by the Partnership are generally limited to government securities, with maturities of one year or less, and money market balances. Held-to-maturity securities are recorded at amortized cost, adjusted for amortization or accretion of premiums or discounts. A decline in the market value of any held-to-maturity security below cost that is deemed other than temporary results in an adjustment to the cost basis of the security and is charged to the statement of operations. At December 31, 1994 and 1995, all investment securities were considered to be held-to-maturity and mature within one year. Premiums are amortized over the life of the related held-to-maturity security as an adjustment to yield using the straight line method. Discounts are accreted using the constant-yield method. Dividend and interest income are recognized when earned. At December 31, 1994, all investment securities were pledged as security for the letters of credit discussed in note 7. At December 31, 1995, the investments were pledged to secure the Partnership's payment of must carry right and letters of credit as discussed in notes 5 and 7. 10 8 TELEVISION FOOD NETWORK, G.P. Notes to Financial Statements, Continued (c) Television Program Assets Television program costs consist of costs to acquire program rights, and production costs associated with developed programming. Production costs consist primarily of subcontracted production services, salaries and costs of talent, and costs of set construction. Capitalized production costs are amortized using an accelerated method over three years. Television program rights acquired under license agreements are recorded as assets at the gross value of the related liabilities upon execution of the contract. The rights are amortized using accelerated methods over the lesser of three years or the term of the applicable contract. Television program costs are evaluated periodically and written down to net realizable value when there is an indication that the carrying value is impaired. Program costs classified as current assets represent the total amount estimated to be amortized within a year. Program rights liabilities due to licensers are classified as current or long-term in accordance with the payment terms. Accumulated amortization of television program rights totaled $1,684,567 and $4,551,447 at December 31, 1994 and 1995. Amortization expense of television program costs is included with programming expenses. (d) Launch Incentives Launch incentive are fees paid to cable affiliates in connection with carriage of the Television Food Network. The incentives are amortized over the term of the affiliate agreements. The related amortization is included in marketing and selling costs in the statement of operations. The Partnership has commitments to certain cable affiliates for launch incentive fees of approximately $1,300,000 for systems that are expected to launch during 1996. (e) Property and Equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense as incurred. The Partnership provides for depreciation using the straight-line method over the following estimated useful lives: Leasehold improvements 4 years Furniture and fixtures 3 - 10 years Broadcast equipment 5 - 15 years (f) Intangible Assets Intangible assets consist of purchased must carry rights, network identification costs, and organization costs which are stated at cost. The Partnership provides for amortization, using the straight-line method over thirty six to ninety six months. Amortization of intangible assets charged to operations totaled $35,461, $76,880 and $251,690 in 1993, 1994, and 1995. Accumulated amortization on intangible assets totaled $112,341 and $364,031 at December 31, 1994 and 1995, respectively. (g) Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that the carrying amount of an asset cannot be fully recovered, an impairment loss is recognized. 11 9 TELEVISION FOOD NETWORK, G.P. Notes to Financial Statements, Continued (h) Deferred Income Deferred income consists of under-delivered advertising which is recorded as income as the Company re-runs or otherwise "makes good" on the delivery on the advertising to the customer. (i) Income Taxes In accordance with Internal Revenue Service regulations, the Partnership's profits and losses become those of the individual partners and, accordingly, no income taxes or tax benefit are reflected in the Partnership's financial statements. (j) Financial Instruments Financial instruments of the Company consist of cash and cash equivalents, investments securities held to maturity, accounts receivable and accounts payable. The carrying amounts of these financial instruments approximate their fair value. (k) Advertising Costs The Partnership expenses media adverting and advertising promotion expense as incurred. For the periods ended December 31, 1993, 1994 and 1995, the Company incurred advertising expense of approximately $250,000, $1,200,000 and $1,600,000, respectively. (3) Funding of Future Operations The Partnership has incurred significant operating losses from its inception through December 31, 1995 and Management believes that operating losses will continue to be significant during 1996 and 1997. As such, the Partnership has relied on Class A Partners' capital contributions to fund its operations and is dependent upon the continuing commitment of its partners to provide necessary capital. During 1995, the Partnership made a capital call for additional contributions totaling $3,650,000 from each of its five Class A Partners to be paid in a series of traunches during 1995. All of the five Class A Partners made their capital contributions, except for one Class A Partner who only made contributions totaling $2,400,000. Also during 1995, two of the Class A Partners expressed interest in selling their entire partnership interests as a result of changes in their strategic focus to other types of media investments. Currently, The Providence Journal Company ("PRJ"), through its wholly owned subsidiary Colony Cable Networks, Inc. ("CCNI"), is negotiating with these partners. See note 8. Management's plans to fund future operations consist of drawing on the resources and commitments of its current Class A Partners, or the Partners that will remain if CCNI is successful in acquiring various Class A Partnership interests, to make additional capital contributions sufficient to provide adequate working capital until such time as working capital is derived entirely from operations. 12 10 TELEVISION FOOD NETWORK, G.P. Notes to Financial Statements, Continued (4) Property and Equipment Property and equipment consists of the following at December 31, 1994 and 1995:
1994 1995 ---------- --------- Equipment $3,392,076 3,644,988 Furniture and fixtures 1,182,331 1,572,143 Leasehold improvements 1,774,319 1,784,341 ---------- --------- 6,348,726 7,001,472 Less accumulated depreciation and amortization 988,016 2,271,361 ---------- --------- $5,360,710 4,730,111 ========== =========
Depreciation expense on property and equipment totaled $6,746, $981,270 and $1,283,345 for the periods ended December 31, 1993, 1994 and 1995 respectively. (5) Intangible Assets Intangible assets consist of the following at December 31, 1994 and 1995:
1994 1995 ---------- --------- Organization costs $370,327 370,327 Network identification costs 243,912 243,912 Purchased must carry rights - 4,300,000 -------- --------- 614,239 4,914,239 Less accumulated amortization 112,341 364,031 -------- --------- $501,898 4,550,208 ======== =========
During 1995, the Partnership committed to pay $4,300,000 to a New Jersey television station to waive their right to be carried on a cable system in New York City, thus, opening a channel on this cable system for the carriage of TVFN. The total commitment of $4,300,000 has been recorded as an intangible asset. In 1995, $1,250,000 was paid toward this commitment and the remaining $3,050,000 is to be paid in installments of $425,000 to $500,000 over the next seven years. (6) Related Party Transactions (a) Transactions with Partners As discussed in note (1), certain partners have agreed to provide carriage of the TVFN channel to their subscribers in exchange for partnership interests. As of December 31, 1995, carriage was being provided to approximately 11,600,000 subscribers under these arrangements. Each partner has also entered into noncompetition agreements with the Partnership whereby they have agreed not to participate in any business venture related to, or competitive with, the business of the Partnership. (Continued) 13 11 TELEVISION FOOD NETWORK, G.P. Notes to Financial Statements, Continued (b) PCI The Partnership has agreed to pay an amount up to $950,000 per year to PCI for management personnel expenses, including benefits, which expenses are incurred in connection with the management of the Partnership. Such amount is subject to annual percentage increases as approved by the Management Committee. Amounts incurred by the Partnership under this arrangement for the period ended December 31, 1993, 1994 and 1995, totaled approximately $154,000, $906,000 and $911,000, respectively. There were no amounts owed at December 31, 1994 and 1995. (c) PRJ During the periods ended December 31, 1993, 1994 and 1995, the Partnership paid PRJ $50,000, $150,000 and $85,000, respectively, for administrative and accounting services. Certain employees of PRJ, through CPMCO, assist in managing operations of the Partnership. The Partnership does not reimburse PRJ for any related salaries. Amounts owed to PRJ for administrative and accounting services totaled $12,500 and $7,083 at December 31, 1994 and 1995. The Partnership entered into a sub-lease agreement with PRJ for the use of one C-band primary transponder. The lease is effective from March 1994 through March 1999 and calls for monthly lease payments of $200,000. Upon addition of a second lessee, the monthly lease payment is reduced by $100,000 per month. For each additional third party, the rent is reduced by $10,000 per month. In October 1994, April 1995, and November 1995, PRJ entered into additional sublease agreements with third parties thereby reducing the Partnership's monthly lease payment to $80,000. Rental expense under this lease totaled $1,700,000 and $1,090,000 during the years ended December 31, 1994 and 1995, respectively. Amounts owed to PRJ for lease rental totaled $100,000 and $180,000 at December 31, 1994 and 1995, respectively. (d) "Lets Make Sure Everybody Eats Foundation, Inc." On April 15, 1994, the Partnership entered into a trust agreement with a member of management and an employee of PRJ for the formation of "Lets Make Sure Everybody Eats Foundation, Inc." The Partnership's capacity in this trust is that of a donor. The Partnership entered into a related agreement with several charitable organizations to produce an annual Lets Make Sure Everybody Eats Telethon ("Telethon"). The effective dates of the agreement are from April 1, 1994 to December 31, 1998. The Partnership has the option, in any given year, to cancel production of the Telethon. The Partnership may exercise this option without affecting the Partnership's right to produce future Telethons. Under the terms of the agreement, the Partnership provides administrative services, a production studio, production crew and equipment, and telemarketing support, all at its own expense. During 1994 and 1995, the Partnership incurred costs of approximately $555,000 and $825,000, respectively in conjunction with the Telethon. These costs have been included in operating expenses in the accompanying statement of operations. 14 12 TELEVISION FOOD NETWORK, G.P. Notes to Financial Statements, Continued (7) Operating Leases The Partnership has certain noncancelable operating leases with renewal options for studio and office space and equipment. Future minimum lease payments under noncancelable operating leases, including leases with related parties (see note 5), are due in the following years:
1996 $1,658,160 1997 1,650,342 1998 1,062,887 1999 283,600 2000 and thereafter 236,692 ---------- $4,891,681 ==========
Rental expense for the periods ended December 31, 1993, 1994 and 1995 was approximately $1,017,571, $2,087,288 and $1,877,000, respectively. At December 31, 1993, 1994 and 1995, the Partnership has a letter of credit commitment in an amount of $750,000 in support of leased studio space. (8)Subsequent Events (unaudited) On May 14, 1996, CCNI purchased the equity partnership interests held by Landmark and Scripps for respective purchase prices of approximately $12,650,000 and $11,400,000. On September 26, 1996, PRJ, the parent of one of the Partnership's partners, signed a definitive merger agreement with A. H. Belo Corporation ("Belo") under which PRJ would be merged into Belo. The merger, pending regulatory and shareholder approval, is expected to be consummated in 1997. While management believes that its current financing plans will provide sufficient working capital to fund operations through the break-even period, the impact that this merger will have on these plans is uncertain. EX-99.2 5 AMERICA'S HEALTH NETWORK FINANCIALS 1 Exhibit 99.2 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Combined Financial Statements and Schedules December 31, 1994 and 1995 (With Independent Auditors' Report Thereon) 2 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Table of Contents Page ---- Independent Auditors' Report 1 Combined Balance Sheets 2 Combined Statements of Operations 3 Combined Statements of Ownership Equity 4 Combined Statements of Cash Flows 5 Notes to Combined Financial Statements 6 - 10 3 INDEPENDENT AUDITORS' REPORT To the Board of Directors of America's Health Network: We have audited the accompanying combined balance sheet of America's Health Network (the "Company") (a development stage enterprise) as of December 31, 1994 and 1995 and the related combined statements of operations, ownership equity, and cash flows for the period December 7, 1993 (date of inception) to December 31, 1994, the year ended December 31, 1995 and cumulative through December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of America's Health Network (a development stage enterprise) at December 31, 1994 and 1995 and the results of its operations and its cash flows for the period December 7, 1993 (date of inception) to December 31, 1994 , the year ended December 31, 1995 and cumulative through December 31, 1995, in conformity with generally accepted accounting principles. Providence, Rhode Island March 15, 1996 4 2 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Combined Balance Sheets
(unaudited) December 31, December 31, June 30, 1994 1995 1996 ------------ ------------ ----------- Current assets: Cash and cash equivalents $ 216,348 $ 294,053 $20,182,414 Accounts receivable - - 688 Inventory - - 194,803 Prepaid expenses and other current assets 9,383 1,266,236 1,625,488 Charter affiliate advances - - 2,172,155 ----------- ----------- ----------- Total current assets 225,731 1,560,289 24,175,548 Property and equipment, net 12,060 2,471,853 8,992,448 Organization costs, net 46,399 64,496 - Deposits 351,648 135,040 8,744 Prepaid rent - 2,700,000 2,625,000 Charter affiliate advances - - 4,011,069 Other - 212,500 162,500 ----------- ----------- ----------- $ 635,838 $ 7,144,178 $39,975,309 =========== =========== =========== Current liabilities: Accounts payable $ 123,834 $ 498,703 $ 2,059,376 Accounts payable charter affiliates - - 5,946,154 Accounts payable - construction in process - 493,683 - Accrued expenses and other liabilities 2,912 128,655 485,049 Notes payable to related party - 3,000,000 - ----------- ----------- ----------- Total current liabilities 126,746 4,121,041 8,490,579 ----------- ----------- ----------- Ownership equity: Convertible preferred stock, par value $1.00, 384,848 shares authorized, 91,919 and 384,848 shares issued, at December 31, 1994 and 1995 liquidation of $24.75 per share $ 91,919 384,848 - Common stock, par value $0.01, 1,000,000 shares authorized, 104,520 shares issued at December 31, 1994 and 1995 1,045 1,045 - Additional paid-in capital 2,205,563 8,802,627 - Deficit accumulated during development stage (1,789,435) (6,165,383) - Partners' capital (deficit accumulated during development stage through June 30, 1996 equaled $16,703,790) - - 31,484,730 ----------- ----------- ----------- Total Ownership equity 509,092 3,023,137 31,484,730 ----------- ----------- ----------- $ 635,838 7,144,178 39,975,309 =========== =========== ===========
See accompanying notes to combined financial statements. 5 3 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Combined Statements of Operations
Unaudited ------------------------------ Cumulative Cumulative December 7, December 7, Period December 7, Year ended 1993 Through Six months ended 1993 Through 1993 to December 31, December 31, June 30, June 30, December 31, 1994 1995 1995 1996 1996 ------------------ ------------ ------------ ---------------- ------------ Revenues $ - - - 28,910 28,910 ----------- ---------- ---------- ----------- ----------- Operating expenses: General and administrative 930,248 2,284,438 3,214,686 1,936,755 5,151,441 Sales and marketing - - - 268,903 268,903 Affiliate relations 877,807 660,087 1,537,894 2,812,973 4,350,867 Production - 698,115 698,115 3,592,856 4,290,971 Product merchandising - 509,117 509,117 591,437 1,100,554 Programming - 203,269 203,269 554,520 757,789 Depreciation and amortization 10,376 22,858 33,234 621,480 654,714 ----------- ---------- ---------- ----------- ----------- Total operating expenses 1,818,431 4,377,884 6,196,315 10,378,924 16,575,239 Loss from operations (1,818,431) (4,377,884) (6,196,315) (10,350,014) (16,546,329) Interest and other income, net 28,996 1,936 30,932 214,857 245,789 Interest expense - - - (403,250) (403,250) ----------- ---------- ---------- ----------- ----------- Loss before income taxes (1,789,435) (4,375,948) (6,165,383) (10,538,407) (16,703,790) Income taxes - - - - - ----------- ---------- ---------- ----------- ----------- Net loss $(1,789,435) (4,375,948) (6,165,383) (10,538,407) (16,703,790) =========== ========== ========== =========== ===========
See accompanying notes to combined financial statements. 6 4 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Combined Statements of Ownership Equity
Convertible Additional Preferred Common Paid-in Shares Stock Shares Stock Capital ------ ----------- ------ ------ ---------- Issue of convertible preferred stock 91,919 91,919 - - 2,183,076 Issuance of common stock - - 104,520 1,045 22,487 Net loss - - - - - Balances at December 31, 1994 91,919 91,919 104,520 1,045 2,205,563 Issuance of convertible preferred stock, net of $360,000 of issue costs 292,929 292,929 - - 6,597,064 Net loss - - - - - Balances at December 31, 1995 384,848 384,848 104,520 1,045 8,802,627 Loss through March 19, 1996 (a) - - - - - Conversion of stockholders equity to partner interest (a) (384,848) (384,848) (104,520) (1,045) (8,802,627) Limited partner contribution, net of $1,000,000 of issue costs (a) - - - - - Net loss (a) - - - - - Balances at June 30, 1996 (a) - - - - - Deficit Accumulated During Total General Limited Development Ownership Partner Partners Stage Equity ------- -------- ----------- ------------- Issue of convertible preferred stock - - - 2,274,995 Issuance of common stock - - - 23,532 Net loss - - (1,789,435) (1,789,435) Balances at December 31, 1994 - - (1,789,435) 509,092 Issuance of convertible preferred stock, net of $360,000 of issue costs - - - 6,889,993 Net loss - - (4,375,948) (4,375,948) Balances at December 31, 1995 - - (6,165,383) 3,023,137 Loss through March 19, 1996 (a) - - (1,790,764) (1,790,764) Conversion of stockholders equity to partner interest (a) 1,232,373 - 7,956,147 - Limited partner contribution, net of $1,000,000 of issue costs (a) - 39,000,000 - 39,000,000 Loss from March 20, 1996 (1,232,373) (7,515,270) - (8,747,643) to June 30, 1996 (a) Balances at June 30, 1996 (a) - 31,484,730 - 31,484,730 (a) denotes information which is unaudited.
See accompanying notes to combined financial statements. 7 5 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Combined Statements of Cash Flows
(unauditied) --------------------------- Cumulative Cumulative Period December 7, December 7, Six months December 7, 1993 to Year ended 1993 Through ended 1993 Through December 31, December 31, December 31, June 30, June 30, 1994 1995 1995 1996 1996 ---- ---- ---- ---- ---- Cash flows from operating activities: Net loss $(1,789,435) $(4,375,948) $(6,165,383) $(10,538,407) $(16,703,790) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 10,376 22,858 33,234 621,480 654,714 Transponder services received in exchange for preferred stock - 410,000 410,000 - 410,000 Expense of prepaid rent - - - 75,000 75,000 Change in current assets and liabilities: Accounts receivable - - - (688) (688) Inventory - - - (194,803) (194,803) Prepaid expenses and other current assets (9,383) (956,853) (966,236) (359,252) (1,325,488) Deposits and other long-term assets (351,648) 94,108 (257,540) 126,296 (131,244) Charter affiliates - - - (6,183,224) (6,183,224) Prepaid rent - (3,000,000) (3,000,000) - (3,000,000) Accounts payable 123,834 868,552 992,386 1,066,990 2,059,376 Accounts payable charter affiliates - - - 5,946,154 5,946,154 Accrued expenses and other liabilities 2,912 125,743 128,655 356,394 485,049 ----------- ----------- ----------- ------------ ------------ Net cash used in operating activities (2,013,344) (6,811,540) (8,824,884) (9,084,060) (17,908,944) ----------- ----------- ----------- ------------ ------------ Cash flows from investing activities: Capital expenditures (13,156) (2,471,516) (2,484,672) (7,021,819) (9,506,491) Organization expenditures (55,679) (29,232) (84,911) (55,760) (140,671) ----------- ----------- ---------- ------------ ------------ Net cash used in investing activities (68,835) (2,500,748) (2,569,583) (7,077,579) (9,647,162) ----------- ----------- ---------- ------------ ------------ Cash flows from financing activities: Proceeds from notes payable to related party - 3,000,000 3,000,000 12,000,000 15,000,000 Proceeds from issuance of preferred stock 2,274,995 6,389,993 8,664,988 - 8,664,988 Proceeds from issuance of common stock 23,532 - 23,532 - 23,532 Repayments of notes payable - - - (15,000,000) (15,000,000) Proceeds from issuance of limited partner interest - - - 39,050,000 39,050,000 ----------- ----------- ---------- ------------ ------------ Net cash provided by financing activities 2,298,527 9,389,993 11,688,520 36,050,000 47,738,520 ----------- ----------- ---------- ------------ ------------ Increase in cash 216,348 77,705 294,053 19,888,361 20,182,414 Cash at beginning of the period - 216,348 - 294,053 - ----------- ----------- ---------- ------------ ------------ Cash at end of the period $ 216,348 $ 294,053 $ 294,053 $ 20,182,414 $ 20,182,414 =========== =========== ========== ============ ============ Supplemental disclosures of non-cash activities: During 1995, the Company received $500,000 of transponder services, $90,000 of which is recorded in other assets, in exchange for 20,202 shares of convertible preferred stock.
See accompanying notes to combined financial statements. 8 6 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Notes to Combined Financial Statements December 31, 1994 and 1995 (1) Description of Business and Summary of Significant Accounting Policies (a) Description of Business and Basis of Combination The combined financial statements are intended to present the operations of America's Health Network, Inc. ("AHN Inc.") and AHN Partners, L.P. ("AHN L.P.") (collectively known as "America's Health Network" or "the Company"). AHN Inc. is a corporation formed on December 7, 1993 to develop a basic cable television programming service (the "channel") principally featuring viewer call-in programs designed for health-conscious adults as well as home shopping segments during which medical and health related products will be sold. AHN L.P. has been formed to carry on the operations of the channel. AHN Inc. has been in the development stage from its inception on December 7, 1993. On January 31, 1996, the shareholders of AHN Inc. exchanged their shares in AHN Inc. for membership interests in America's Health Network LLC ("AHN LLC"). AHN LLC has contributed the shares of AHN Inc. to AHN L.P. On March 19, 1996 AHN Inc. was dissolved. AHN LLC is the general partner in AHN L.P. The channel launched on March 25, 1996. The Company is in the process of completing a private placement to raise an estimated $65 million in equity financing in two tranches. The first tranche of $40 million is expected to close in April of 1996, and the second tranche of $25 million is expected to close in January of 1997. As the Company is in the development stage at December 31, 1995 and revenue generating operations did not begin until March 25, 1996, the Company is dependent on the proceeds of the private placement to fund its operations through the break-even period, which is expected to occur in 1998. Management believes that the private placement transaction will provide the necessary working capital to fund the Company through the break-even period (see note 8). All significant intercompany balances and transactions have been eliminated in combination. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements as of and for the six months ended June 30, 1996 and cumulative through June 30, 1996 are unaudited; however, they include all adjustments (consisting of normal recurring adjustments) considered necessary by management for a fair presentation of the financial position and results of operations for these periods. The result of operations for interim periods are not necessary indicative of the results that may be expected for the entire year. The following are the significant accounting policies of the Company. (b) Cash and Cash Equivalents Cash equivalents consist of commercial paper and overnight repurchasing agreements. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. (c) Prepaid Expenses Prepaid expenses consist primarily of a prepaid royalty fee (see note 4(c)) and the current portion of prepaid rent (see note 3). (Continued) 9 7 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Notes to Combined Financial Statements, Continued (d) Property and Equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense as incurred. The Company provides for depreciation using the straight-line method over the following estimated useful lives: Production equipment 5 years Computer equipment 5 years Furniture and fixtures 5-10 years (e) Organization Costs Organization costs are stated at cost. The company provides for amortization using the straight-line method over sixty (60) months. Amortization costs charged to operations totaled $9,280 and $11,135 for the periods December 7, 1993 (date of inception) to December 31, 1994 and December 31, 1995, respectively. (f) Income Taxes For purposes of these combined financial statements, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. (g) Financial Instruments Financial instruments consist of cash, due from officers and employees, accounts payable and notes payable to a related party. The carrying amounts of these financial instruments approximate their fair value. 10 8 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Notes to Combined Financial Statements, Continued (2) Property and Equipment Property and equipment at December 31 consists of the following:
December 31, December 31, 1994 1995 ---- ---- Production equipment $ 2,752 612,911 Computer equipment 7,884 114,131 Furniture and fixtures 2,520 21,727 Construction in progress - sound stage - 1,735,903 ------- --------- 13,156 2,484,672 Less accumulated depreciation 1,096 12,819 ------- --------- $12,060 2,471,853 ======= =========
Depreciation expense on property and equipment charged to operations totaled $1,096 and $11,723 for the periods December 7, 1993 (date of inception) to December 31, 1994 and December 31, 1995. The total remaining cost at December 31, 1995 to build the sound stage, including all related equipment, was approximately $ 5.3 million. (3) Studio Lease On July 1, 1995, the Company entered into an operating lease with an unrelated third party for the use of a building in which the Company will produce programs to be aired on the channel. The term of the agreement is for a period of ten years. As part of the lease, the Company will be responsible to pay all additional operating expenses and property taxes in excess of these costs over the base year, 1996. Total amount of base rent for the lease term is $3,000,000 which was paid in advance and is included in prepaid rent and prepaid expenses. (4) Related Party Transactions (a) Telemarketing and Fulfillment Services Agreement In June 1995, the Company entered into a telemarketing and distribution services agreement with a vendor through which the vendor acquired a warrant to purchase up to a 4% interest (fully diluted) in AHN L.P. from AHN LLC for approximately $1.8 million. The vendor will provide telemarketing, order processing, warehousing and fulfillment services related to the sale of merchandise on the channel for a period of two years with an option to extend for an indefinite number of one year periods at the consent of both parties. The Company will pay the vendor fees on a per transaction basis. The Company paid the vendor $200,000 for an initial set up fee, which is included in the accompanying combined statement of operations. (Continued) 11 9 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Notes to Combined Financial Statements, Continued (b) The Providence Journal Company AHN entered into a sub-lease agreement with The Providence Journal Company ("PRJ"), a convertible preferred shareholder of AHN Inc., for the use of one C-band primary transponder. The lease is effective from November 1995 through October 2000 and calls for monthly lease payments of $110,000. PRJ has since entered into additional sublease agreements with third parties which, per the agreement, reduced the Company's monthly lease payment to $90,000. In exchange for transponder services rendered by PRJ during 1995, AHN Inc. issued PRJ 20,202 shares of convertible preferred stock. The amount recorded as expense pursuant to this agreement totaled $410,000, including $230,000 of contract signing and reservation fees. No amounts were owed to PRJ at December 31, 1995. In December 1995, the Company borrowed $3,000,000 from PRJ under two separate promissory notes. The notes are in the principal amounts of $1,000,000 and $2,000,000, and bear interest at an annual rate of prime plus 2% and 15%, respectively. Both notes are payable at the earlier of June 30, 1996 or the date of the refinancing of AHN Inc. as discussed in Note 1(a), or, at PRJ's option, may be converted into an equity interest in the Company equal to the aggregate amount of principal and interest due (see note 8). Interest expense and accrued interest at December 31, 1995 approximated $9,000. (c) IVI Publishing, Inc. On May 25, 1995, the Company entered into an agreement with IVI Publishing, Inc. ("IVI"), a convertible preferred shareholder of AHN Inc., in which IVI will provide medical and health content for its "Ask the Doctor" programs and other programming, as well as for certain health related products offered for sale to viewers. IVI is the electronic publisher for a major medical and educational research company. In addition to payments for programming and products provided by IVI, AHN is required to make royalty payments over the next five years at amounts ranging from $1,000,000 to $3,250,000 annually to maintain this exclusivity agreement. The royalty payment for year one, which begins on the channel launch date, was paid in December 1995 and is included in prepaid expenses in the accompanying combined balance sheet. In addition to royalty payments, the Company must also pay IVI a deferred royalty payment equal to 0.55% of the Company's gross revenues per year in which the Company achieves 80% of its gross revenue goal. (5) Income Taxes The tax effects of temporary differences that give rise to net deferred tax assets at December 31, 1995 consist primarily of operating costs incurred from December 7, 1993, date of inception, through December 31, 1995, that are capitalized and deferred for income tax purposes. The Company recorded a full valuation allowance against this net deferred tax asset due to the uncertainty surrounding its realization. The amount of the net deferred tax asset and related valuation allowance was $2,475,000 at December 31, 1995. Income tax benefit differed from the amount computed by applying the federal corporate tax rate of 34% to pre-tax income due to the establishment of the full valuation allowance against net deferred tax assets. 12 10 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Notes to Combined Financial Statements, Continued (6) Ownership Equity Shares of convertible preferred stock are entitled to a liquidation preference of $24.75 per share upon the liquidation of AHN Inc., are convertible into shares of common stock on a one-to-one ratio, and are entitled to that number of votes on matters submitted to the shareholders of the Company equal to the number of shares of common stock into which such shares may be converted. At December 31, 1995 there were options and warrants outstanding for 78,234 shares of common stock. The exercise price of these warrants and options varies from $10 to $27.45 per share. (7) Commitments To attract and induce distributors to carry the channel, the Company developed its "Charter Affiliate" program. In order to participate in this program, distributors must provide written notice, by February 29, 1996, to the Company of their intent to do so. Then, to qualify for the benefits of the program, participating distributors are required to launch the channel to a minimum of 250,000 subscribers, or 10% of each distributor's total subscribers, whichever is less, on or before July 1, 1996. Charter affiliates are advanced $3, guaranteed against commissions to be earned over the first three years of distribution, for each subscriber launched by July 1, 1996. For subscribers launched after July 1, 1996, but by December 31, 1996, Charter Affiliates will also receive this advanced guarantee, but it will be prorated for the date of launch through December 31, 1998. For subscribers launched in 1997 and 1998, Charter Affiliates will be guaranteed commissions at the rate of $1 per subscriber per year, but this guarantee will be paid at the rate of $0.0833 per subscriber per month. Charter Affiliates will also receive guaranteed marketing support, depending on the date each Charter Affiliate launches the channel, ranging from $0.25 to $1.00 per subscriber per year. During 1995, the Company did not make any payments or incur any liabilities pursuant to its Charter Affiliate program. (8) Subsequent Events (Unaudited) (a) Recapitalization As discussed in note 1(a), on January 31, 1996, the shareholders of AHN Inc. exchanged their shares in AHN Inc. for membership interests in AHN LLC. The membership units provide the holders the same rights including the options discussed in note 6 as the shares exchanged. On March 19, 1996, AHN LLC contributed the shares of AHN Inc. to AHN L.P. in exchange for the managing partner interest in AHN L.P. AHN L.P. then dissolved AHN Inc., and became the operating entity for America's Health Network. These exchanges resulted in the transfer of the net assets of AHN Inc., the original operating entity, to AHN L.P. The net assets transferred were accounted for by AHN L.P. at the basis of the assets as recorded by AHN Inc. on the date of the dissolution of AHN Inc. On May 10, 1996, AHN L.P. completed the first of two tranches of a private placement to raise an estimated $65 million in equity financing. The first tranche raised $39 million, net of issuance costs. All notes payable to Providence Journal were settled on this date. 13 11 AMERICA'S HEALTH NETWORK (A Development Stage Enterprise) Notes to Combined Financial Statements, Continued The second tranche, estimated to raise $25 million, is expected to close in January of 1997. As AHN L.P. continues to be in the development stage at June 30, 1996, and substantial revenue generation has not occurred, AHN L.P. is dependent upon the proceeds of private equity placements to fund its operations through the break-even period, which is expected to occur in 1998. Management continues to believe that the private placement transactions will provide the necessary working capital to fund AHN L.P. through June 30, 1997. Subsequent to March 19, 1996, the financial statements represent the operations of AHN L.P., which, as successor to AHN Inc., includes the operational history of America's Health Network. The financial information subsequent to March 19, 1996, therefore, is not combined. (b) Partners' Capital Subsequent to March 19, 1996, the equity structure of AHN L.P. represents the partner investments in AHN L.P., as well as losses allocated to the partners. At June 30, 1996, the partners consisted of the Managing Partner, AHN LLC, and limited Preferred Partners. The Preferred Partners are provided with a preferred return of 8% on their capital investment, until such time as the Preferred Partners have received distributions equal to their original capital investment. Profits, losses and distributable cash are allocated to the individual partners based on their capital contributions and capital accounts and are subject to certain special allocations as defined in the limited partnership agreement. Also, subsequent to March 19, 1996, no provision is made for income taxes since the loss of AHN L.P. is included in the income tax returns of the partners. (c) PRJ On September 26, 1996, one of AHN L.P.'s investors, PRJ, signed a definitive merger agreement with A. H. Belo Corporation ("Belo") under the terms of which PRJ would be merged into Belo. The merger, pending regulatory and shareholder approval, is expected to be consummated in 1997. While management of AHN L.P. believes that its current financing plans will provide sufficient working capital to fund operations through the break-even period, the impact that this merger will have on these plans is uncertain. EX-99.3 6 PROVIDENCE JOURNAL FINANCIALS 1 Exhibit 99.3 PRO FORMA FINANCIAL STATEMENTS OF THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES The following unaudited pro forma condensed consolidated financial statements are presented in this Exhibit: A. Unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1995 B. Unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 1996 C. Notes to unaudited pro forma condensed consolidated condensed financial statements. A pro forma balance sheet is not required to be presented because the transactions as described in Item 2 of this Form 8-K have been reflected in the balance sheet of The Providence Journal Company as of June 30, 1996 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 The following unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1995 have been derived from the audited financial statements of the Company, Television Food Network, G.P. and America's Health Network (a development stage enterprise) with adjustments to reflect the consolidation of TVFN and AHN previously accounted for using the equity method of accounting, additional interest expense associated with the acquisition of the additional equity interests in TVFN and AHN, additional amortization expense associated with the increase in asset values related to such acquisitions, and related tax effects of these pro forma adjustments. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1995 has been prepared assuming that the transactions identified in item 2 of this Form 8-K had occurred as of January 1, 1995. The unaudited pro forma condensed consolidated statement of operations is presented for comparative purposes only and is not necessarily indicative of the combined results of operations in the future or the financial results of the Company that would have actually been obtained had the transactions been consummated on January 1, 1995. The unaudited pro forma condensed consolidated statement of operations should be read in conjunction with the historical consolidated financial statements and notes thereto of The Providence Journal Company filed by the Company in its annual report on Form 10-K for the year ended December 31, 1995 and the historical consolidated financial statements and notes thereto of Television Food Network, G.P. and America's Health Network included herein. (CONTINUED) 2 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the year ended December 31, 1995 (Dollars in thousands, except per share data)
America's Health The The Television Network Providence Providence Food (a develop- Journal Co. Journal Co. Network, G.P. ment stage Pro Forma Unaudited (Historical) (Historical) enterprise) Adjustments Pro Forma ------------ ------------ ----------- ----------- --------- Revenues: Broadcasting $ 180,547 - - - $ 180,547 Publishing 128,491 - - - 128,491 Programming and Electronic Media 3,468 6,657 - (1,500)(a) 8,625 ----------- ------- ------ ------ ----------- 312,506 6,657 - (1,500) 317,663 ----------- ------- ------ ------ ----------- Expenses: Operating 161,283 10,302 2,070 (1,500)(a) 172,155 Selling, general, and administrative 86,023 15,968 2,284 - 104,275 Newspaper Consolidation Costs and Newspaper Restructuring Costs 14,222 - - - 14,222 Depreciation and amortization 33,969 1,535 23 676(b) 36,203 Stock-based compensation 2,387 - - - 2,387 Pension expense 1,236 - - - 1,236 ----------- ------- ------ ------ ----------- 299,120 27,805 4,377 (824) 330,478 ----------- ------- ------ ------ ----------- Operating Income (loss) 13,386 (21,148) (4,377) (676) (12,815) Interest expense (11,395) - - (3,321)(c) (14,716) Equity in loss of affiliates (7,835) - - 6,012(d) (1,823) Other income, net 4,797 262 2 - 5,061 ----------- ------- ------ ------ ----------- Loss from continuing operations before income taxes (1,047) (20,886) (4,375) 2,015 (24,293) Income tax expense (benefit) 3,956 - - (7,904)(e) (3,948) ----------- ------- ------ ------ ----------- Loss from continuing operations (5,003) (20,886) (4,375) 9,919 (20,345) Extraordinary items, net (2,086) - - - (2,086) ----------- ------- ------ ------ ----------- Loss before minority interests (7,089) (20,886) (4,375) 9,919 (22,431) Minority interests (2,559) - - 6,525(f) 3,966 ----------- ------- ------ ------ ----------- Net loss (9,648) (20,886) (4,375) 16,444 $ (18,465) =========== ======= ====== ====== =========== Net loss per common share: From continuing operations $ (0.13) $ (0.53) From extraordinary items, net (0.05) (0.05) Minority interests (0.07) 0.10 ----------- ----------- Net loss per common share $ (0.25) $ (0.48) =========== =========== Weighted average shares outstanding 38,506,500 38,506,500 =========== ===========
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 Exhibit 99.3 B. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 The following unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 1996 has been derived from the financial statements of the Company and Television Food Network, G.P. with adjustments to reflect the consolidation of TVFN previously accounted for using the equity method of accounting, additional interest expense associated with the acquisition of the additional equity interests in TVFN and AHN, additional amortization expense associated with the increased in asset values related to such acquisitions, and related tax effects of these pro forma adjustments. The consolidation of AHN has been included in the Company's historical financial results as of January 1, 1995 and as such no pro forma adjustments, with the exception of additional interest expense and related income tax effects, were required to be made.The unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 1996 has been prepared assuming that the transactions identified in item 2 of this Form 8-K had occurred as of January 1, 1995. The unaudited pro forma condensed consolidated statement of operations is presented for comparative purpose only and is not necessarily indicative of the combined results of operations in the future or the financial results of the Company that would have actually been obtained had the transactions been consummated on January 1, 1995. The unaudited pro forma condensed consolidated statement of operations should be read in conjunction with the historical consolidated financial statements and notes thereto of The Providence Journal Company as filed by the Company in its Quarterly Report on Form 10-Q for the six months ended June 30, 1996 and the historical financial statements and notes thereto of Television Food Network, G.P. and AHN included herein. (CONTINUED) 4 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For six months ended June 30, 1996 (Dollars in thousands, except per share data)
The The Television Providence Providence Food Journal Co. Journal Co. Network, G.P. Pro Forma Unaudited (Historical) (Historical) Adjustments Pro Forma ------------ ------------ ----------- --------- Revenues: Broadcasting $ 98,167 - - $ 98,167 Publishing 63,437 - - 63,437 Programming and Electronic Media 4,845 6,334 (2,657)(a),(g) 8,522 ----------- ------- ------- ----------- 166,449 6,334 (2,657) 170,126 ----------- ------- ------- ----------- Expenses: Operating 94,508 5,382 (480)(a) 99,410 Selling, general, and administrative 47,493 9,159 (5,626)(g) 51,026 Newspaper Consolidation Costs and Newspaper Restructuring Costs 2,484 - - 2,484 Depreciation and amortization 20,891 1,002 (230)(b),(g) 21,663 Stock-based compensation 13,336 - - 13,336 Pension expense 428 - - 428 ----------- ------- ------- ----------- 179,140 15,543 (6,336) 188,347 ----------- ------- ------- ----------- Operating loss (12,691) (9,209) 3,679 (18,221) Interest Expense (11,020) - (992)(c) (12,012) Equity in loss of affiliates (2,673) - 1,078(d) (1,595) Other income, net 2,735 75 (22)(a) 2,788 ----------- ------- ------- ----------- Loss from continuing operations before income taxes (23,649) (9,134) 3,743 (29,040) Income tax benefit (5,377) - (1,833)(e) (7,210) ----------- ------- ------- ----------- Loss from continuing operations (18,272) (9,134) 5,576 (21,830) Discontinued operations, net (3,578) - - (3,578) ----------- ------- ------- ----------- Loss before minority interests (21,850) (9,134) 5,576 (25,408) Minority interests 4,043 - 1,423(f) 5,466 ----------- ------- ------- ----------- Net loss $ (17,807) (9,134) 6,999 $ (19,942) =========== ======= ======= =========== Net loss per common share: From continuing operations $ (0.47) $ (0.57) From discontinued operations, net (0.09) (0.09) Minority interests 0.10 0.14 ----------- ----------- Net loss per common share $ (0.46) $ (0.52) =========== =========== Weighted average shares outstanding 38,610,662 38,610,662 =========== ===========
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 Exhibit 99.3 C. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. (Dollars in thousands) (1) Pro Forma Adjustments for the year ended December 31, 1995 (a) To eliminate intercompany activity. (b) To record amortization on step-up in values of intangibles totaling $27,050 at TVFN and AHN over a life of 40 years. (c) To record additional interest expense at an average rate of 8.1% which would have been incurred based on incremental acquisition costs financed by bank borrowings of $41,000. (d) To eliminate equity in loss included in The Providence Journal Company for acquired entities: TVFN at $4,177 and AHN at $1,835. (e) To record the tax effects of the pro forma adjustments plus tax effects of flow through partnership losses of AHN and TVFN. (f) To record minority interests in TVFN and AHN, net of tax. (2) Pro Forma Adjustments for the six months ended June 30, 1996. (Note: AHN was consolidated into The Providence Journal Company as of January 1, 1996; therefore pro forma entries are not required for AHN). (a) To eliminate intercompany activity. (b) To record amortization on step-up in values of intangibles totaling $20,618 at TVFN over a life of 40 years. (c) To record additional interest expense at an average rate of 8.1% which would have been incurred based on incremental acquisition costs financed by bank borrowings of $41,000. (d) To eliminate equity in loss included in The Providence Journal Company for acquired entity: TVFN: $1,078. (e) To record the tax effects of the pro forma adjustments plus tax effects of flow through partnership losses of TVFN. (f) To record minority interests in TVFN, net of tax. (g) To eliminate TVFN statement of operations activity already included in The Providence Journal Company statement of operations subsequent to incremental acquisition that resulted in consolidation. -----END PRIVACY-ENHANCED MESSAGE-----