AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1998
REGISTRATION NO. 333-40277
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACME INTERMEDIATE HOLDINGS, LLC
ACME INTERMEDIATE FINANCE, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4833 52-2050589
DELAWARE 4833 33-0776962
------------------------ ------------------------ ------------------------
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
650 TOWN CENTER DRIVE, SUITE 850
COSTA MESA, CA 92626
(714) 445-5791
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
THOMAS ALLEN
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
650 TOWN CENTER DRIVE, SUITE 850
COSTA MESA, CA 92626
(714) 445-5791
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
EMANUEL FAUST, JR., ESQ.
DICKSTEIN SHAPIRO MORIN & OSHINSKY LLP
2101 L STREET, N.W.
WASHINGTON, DC 20037
(202) 785-9700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statementv
for the same offering. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) OFFERING PRICE(2) PRICE(2) REGISTERED FEE
<S> <C> <C> <C> <C>
12% Senior Secured Discount
Notes due 2005, Series B............. $40,000,425 100% $40,000,425 $12,121(3)
</TABLE>
(1) Gross proceeds from the initial issuance of the Senior Secured Discount
Notes. (2) Estimated pursuant to Rule 457(f) solely for the purpose of
calculating the registration fee. (3) Previously paid on November 14, 1997.
- ------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1998
PROSPECTUS
ACME INTERMEDIATE HOLDINGS, LLC
ACME INTERMEDIATE FINANCE, INC.
OFFER TO EXCHANGE
12% SENIOR SECURED DISCOUNT NOTES
DUE 2005, SERIES A
FOR
12% SENIOR SECURED DISCOUNT NOTES
DUE 2005, SERIES B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MARCH , 1998,
UNLESS EXTENDED
------------------------
ACME Intermediate Holdings, LLC, a Delaware limited liability company (the
'Company'), and ACME Intermediate Finance, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ('ACME Finance' and, together with the
Company, the 'Issuers'), hereby offer to exchange their 12% Senior Secured
Discount Notes Due 2005, Series B (the 'Exchange Notes'), which have been
registered under the Securities Act of 1933, as amended (the 'Securities Act'),
pursuant to a Registration Statement of which this Prospectus is a part, for a
like principal amount of their 12% Senior Secured Discount Notes Due 2005,
Series A (the 'Original Notes'), of which $71,634,000 aggregate principal amount
at maturity is outstanding on the date hereof, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the 'Exchange Offer'). The form and terms
of the Exchange Notes will be the same as the form and terms of the Original
Notes except that (i) the Exchange Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof and (ii)
the holders of the Exchange Notes will not be entitled to certain rights of the
holders of Original Notes under the Registration Rights Agreement (as defined
herein), which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Original Notes and
will be entitled to the benefits of an indenture dated as of September 30, 1997,
governing the Original Notes and the Exchange Notes (the 'Indenture') among the
Issuers and Wilmington Trust Company, as trustee (the 'Trustee'). The Indenture
provides for the issuance of both the Exchange Notes and the Original Notes. The
Exchange Notes and the Original Notes are sometimes referred to herein
collectively as the 'Notes.' While the Issuers are jointly and severally liable
for the obligations under the Notes, ACME Finance has only nominal assets, does
not conduct any operations and was formed solely to act as a co-issuer of the
Notes. The Notes are non-recourse to any parent entity of the Issuers (other
than the Company) and their equity holders.
Cash interest on the Exchange Notes will accrue at a rate of 12% per annum
on the principal amount at maturity of the Exchange Notes through and including
the maturity date, and will be payable semi-annually on March 31 and September
30 of each year, commencing March 31, 2003. Cash interest on the Exchange Notes
will not accrue or be payable prior to September 30, 2002. The Original Notes
were issued at a substantial discount to their principal amount at maturity, and
the holders of the Exchange Notes will be required to include the accretion of
the original issue discount as gross income on a constant yield to maturity
basis in advance of receipt of the cash payments to which such income is
attributable. See 'Certain Federal Income Tax Considerations.'
(continued on next page)
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH HOLDERS OF ORIGINAL NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER AND PROSPECTIVE PURCHASERS OF EXCHANGE NOTES SHOULD CONSIDER IN CONNECTION
WITH SUCH INVESTMENT.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is February , 1998
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of such State.
<PAGE>
(continued from cover)
The Exchange Notes are redeemable at any time and from time to time at the
option of the Issuers, in whole or in part, on or after September 30, 2001, at
the redemption prices set forth herein (expressed as a percentage of the
Accreted Value (as defined herein) thereof) plus accrued and unpaid interest, if
any, to the date of redemption. In addition, on or prior to September 30, 2000,
the Issuers may redeem, at their option, up to 35% of the aggregate principal
amount at maturity of the Notes with the net proceeds of one or more Public
Equity Offerings (as defined herein) at 112% of the Accreted Value thereof, as
long as at least 65% of the aggregate principal amount at maturity of the
Exchange Notes originally issued remains outstanding after each such redemption
and that any such redemption occurs within 90 days of the closing of any such
Public Equity Offering. Upon a Change of Control (as defined herein), the
Issuers will be required to offer to repurchase the Exchange Notes at a purchase
price equal to (i) 101% of the Accreted Value thereof, if the purchase date is
on or prior to September 30, 2002, or (ii) 101% of the principal amount at
maturity thereof, plus accrued and unpaid interest thereon, if any, to the
repurchase date, if such date is after September 30, 2002.
The Exchange Notes are senior secured obligations of the Issuers and will
rank pari passu in right of payment to senior obligations of the Issuers and
senior in right of payment to any current or future subordinated obligations of
the Issuers. The Exchange Notes are secured by a first priority lien on all of
the outstanding membership units of ACME Television, LLC (which represent equity
interests in ACME Television, LLC, and entitle the holder thereof to a pro rata
share of its profits and losses) and all of the Capital Stock (as defined) of
each Subsidiary (as defined) of the Company directly owned by the Company. Such
membership units and Capital Stock may be of no value to holders of Exchange
Notes because holders of such securities would, in the event of bankruptcy or
liquidation of the issuer or pledgor thereof, be entitled only to the assets
which remained after all liabilities of ACME Television LLC and/or such
Subsidiary have been paid in full. In addition, there are limitations on the
ability to dispose of such securities including the absence of an existing
public market for such securities, the effects of a bankruptcy of the pledgor,
and certain transfer restrictions to which such securities are subject,
including regulatory approval requirements for certain transfers. See 'Risk
Factors--Limitation on Security for the Notes.' Holders of Exchange Notes are
not creditors of ACME Television, LLC. The Exchange Notes are effectively
subordinated in right of payment to all existing and future indebtedness and
other liabilities (including trade payables) of Subsidiaries of the Company,
including indebtedness of ACME Television, LLC and its subsidiaries under the
Revolving Credit Facility (as defined herein). After giving pro forma effect to
the Knoxville Acquisition, the Albuquerque Acquisition and Pending Acquisitions
(as defined herein) as of September 30, 1997, such Subsidiaries had
approximately $198.9 million of total liabilities, including approximately
$167.2 million of indebtedness outstanding comprised of $4.2 million of secured
indebtedness (including $3.5 million of indebtedness under the Revolving Credit
Facility), $35.6 million of indebtedness evidenced by the Exchange Notes, and
$127.4 million of indebtedness evidenced by the Television Notes (as defined
herein).
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Issuers contained in the Registration Rights Agreement, dated
as of September 30, 1997 (the 'Registration Rights Agreement'), among the
Issuers and CIBC Wood Gundy Securities Corp., as the initial purchaser (the
'Initial Purchaser') of the Original Notes.
The Issuers will accept for exchange any and all validly tendered Original
Notes on or prior to 5:00 p.m., New York City time, on March , 1998 unless the
Issuers, in their sole discretion, have extended the period of time for which
the Exchange Offer is open (the 'Expiration Date'). Tenders of Original Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Original Notes being tendered for exchange pursuant to the
Exchange Offer. The Original Notes may be tendered only in integral multiples of
$1,000. The Issuers expressly reserve the right to terminate or amend the
Exchange Offer and not to accept for exchange any Original Notes not theretofore
accepted for exchange upon the occurrence of any of the conditions specified
under 'The Exchange Offer--Certain Conditions to the Exchange Offer.' If any
such termination or amendment occurs, the Issuers will give oral or written
notice to the holders of the Original Notes as promptly as practicable. In the
event the Issuers do not accept for exchange any Original Notes, the Issuers
will promptly return such Original Notes to the holders thereof.
The Original Notes were originally issued and sold on September 24, 1997 in
a transaction not registered under the Securities Act in reliance upon the
exemption provided in Rule 144A and Regulation S of the Securities Act (the
'Offering'). Accordingly, the Original Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. The Issuers are making this Exchange Offer
based upon interpretations by the staff (the 'Staff') of the Securities and
Exchange Commission (the
i
<PAGE>
'Commission') as set forth in no-action letters issued to third parties.
However, the Issuers have not sought their own no-action letter and there can be
no assurance that the Staff would make a similar determination with respect to
the Exchange Offer.
Based on these no-action letters, the Issuers believe that the Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Original Notes
may be offered for resale, resold and otherwise transferred by holders thereof
(other than any such holder which is an 'affiliate' of the Issuers within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holder is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes. Each broker-dealer that receives the
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented, may
be used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Original Notes where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period not to exceed 180 days
after the consummation of the Exchange Offer, they will make this Prospectus
available for use in connection with any such resale. See 'Plan of
Distribution.' Any holder that cannot rely upon or does not satisfy the
requirements set forth in such interpretations by the Staff must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a resale transaction.
Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holders of Original Notes will
continue to be subject to the existing restrictions on transfer thereof and the
Issuers will have no further obligation to such holders to provide for the
registration under the Securities Act of the Original Notes except under certain
limited circumstances. To the extent Original Notes are tendered and accepted in
the Exchange Offer, the liquidity of any trading market for untendered and
tendered but unaccepted Original Notes could be adversely affected.
Prior to this Exchange Offer, there has been no public market for the
Original Notes or the Exchange Notes. The Issuers do not intend to list the
Exchange Notes on any securities exchange or to seek approval for quotation
through any automated quotation system. There can be no assurance that an active
market for the Exchange Notes will develop. To the extent that a market for the
Exchange Notes does develop, the market value of the Exchange Notes will depend
on many factors including prevailing interest rates, the Company's operating
results and the markets for similar securities. See 'Risk Factors--Lack of
Public Market for the Exchange Notes; Restrictions on Resale of the Original
Notes.'
The Issuers will not receive any proceeds from this Exchange Offer. The
Issuers have agreed to pay all reasonable expenses incident to this Exchange
Offer (excluding the fees of counsel to the Initial Purchaser) and will
indemnify the Initial Purchaser against certain liabilities, including
liabilities under the Securities Act. No dealer-manager is being used in
connection with this Exchange Offer.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements and information that are
'forward-looking statements' within the meaning of certain provisions of the
federal securities laws. When used in this Prospectus, the words 'intend,'
'estimate,' 'expect,' 'anticipate,' 'believe' and similar expressions are
intended to identify forward-looking statements. Those statements include, among
other things, the discussions of the Company's business strategy and
expectations concerning the Company's market position, future operations,
margins, profitability, liquidity and capital resources, as well as statements
concerning the integration of the Pending Acquisitions and achievement of cost
savings and other synergies in connection therewith. Investors in the Exchange
Notes offered hereby are cautioned that reliance on any forward-looking
statement involves risks and uncertainties, and that although the Issuers
believe that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate, and, as a result, the forward-looking statements based on those
assumptions also could be incorrect. The uncertainties in this regard include,
but are not limited to, those identified in the risk factors discussed herein.
See 'Risk Factors.' In light of these and other uncertainties, the inclusion of
a forward-looking statement herein should not be regarded as a representation by
the Issuers that the Issuers' plans and objectives will be achieved. The Issuers
undertake no obligation to release the results of any revisions to these
forward-looking statements that may be made to reflect future events or
circumstances.
ii
<PAGE>
CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA
Unless otherwise indicated, information set forth herein as to designated
market area, rank, demographic statistics and projected growth, revenue, station
audience and revenue share and number of commercial broadcasters is as reported
by BIA Publications, Inc. ('BIA') in its Investing in Television 1997 (2nd
Edition) (the 'BIA Market Report, 1997') and its BIA Research Television
Analyzer as of January 17, 1998. Unless otherwise indicated, station audience
share and ratings estimates reflect such data from sign-on to sign-off for the
four preceding sweep periods indicated as reflected in the Nielsen Media
Research DMA ratings books for the period indicated. Set forth below are certain
terms commonly used in the broadcast television industry that are used
throughout this Prospectus. Unless the context otherwise requires, such terms
shall have the respective meanings set forth below.
<TABLE>
<S> <C>
Audience share............................ The percentage of total households using television tuned to a
particular station during the time period being measured.
ABC....................................... American Broadcasting Company.
Broadcast cash flow....................... EBITDA plus corporate expenses. Although broadcast cash flow is not
calculated in accordance with GAAP, it is widely used in the
broadcast industry as a measure of a broadcasting company's
performance. Broadcast cash flow should not be considered in
isolation from or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or
liquidity.
Broadcast season.......................... The approximately 35 week period for each network, commencing with
its launch of new programming and premiere episodes of returning
programming, generally beginning in September, and ending with
completion of the May sweep period of the following calendar year.
Cable penetration......................... The number of households within a DMA which are cable subscribers
divided by the number of households which have access to cable.
CBS....................................... CBS, Inc.
Commercial broadcasters................... Stations competing for national, regional and local spot advertising.
Commercial broadcasters do not include low power and public stations,
home shopping stations and stations devoted primarily to religious
broadcasting.
Communications Act........................ Communications Act of 1934, as amended.
DMA or market............................. Designated Market Area. There are 211 DMAs in the United States with
each county in the continental United States assigned uniquely to one
DMA. Ranking of DMAs is based upon Nielsen Media Research estimates
of the number of television households.
EBITDA.................................... Operating income (loss), plus depreciation, amortization and other
noncash charges, including amortization of programming rights, minus
programming payments. Although EBITDA is not calculated in accordance
with GAAP, it is widely used as a measure of a company's ability to
service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from
operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Fox....................................... Fox Broadcasting Company.
FCC....................................... Federal Communications Commission.
LMA....................................... Local marketing agreement, time brokerage agreement or similar
arrangement between a broadcaster and a station licensee pursuant to
which the broadcaster provides programming to, sells advertising time
for and funds operating expenses for the applicable station, manages
certain station activities, and retains the advertising revenues of
such station, in exchange for fees paid to the licensee.
Market revenue............................ Aggregate television advertising revenue of all commercial
broadcasters within the applicable market.
NBC....................................... National Broadcasting Co., Inc.
Prime time................................ Monday through Saturday 8:00 PM to 11:00 PM (EST) and Sunday 7:00 PM
to 11:00 PM (EST).
Rating point.............................. A rating point represents one percent of all television households in
a certain DMA, as measured by A.C. Nielsen Company.
Revenue share............................. The percentage received by a station of the total television
advertising revenues available to commercial broadcasters in the
applicable DMA.
Share point............................... A share point represents one percent of all television households in
a certain DMA using at least one television set at the time of
measurement by A.C. Nielsen Company.
Sweep period.............................. Each of the approximately four week periods in February, May, July
and November used by commercial broadcasters and advertisers to
establish advertising rates based on the broadcaster's ratings for
such periods.
Syndicated programming.................... Programming purchased from production studios to be broadcast during
non-network time periods. Syndicated programming includes both
original programming and previously broadcasted programming.
Telecom Act............................... The Telecommunications Act of 1996.
Television advertising revenue............ Total time sales, including network compensation, national/regional,
local and political advertising for the market and period indicated.
The WB Network............................ The WB Television Network.
UPN....................................... United Paramount Network.
</TABLE>
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and notes hereto included elsewhere in this Prospectus. Unless otherwise
indicated, the information set forth in this Prospectus gives effect to the
Transactions (as defined). See 'The Transactions.' Unless otherwise indicated,
references to the Company refer to ACME Intermediate Holdings, LLC and its
subsidiaries. The Company is a holding company and all of its operations are
conducted through ACME Television, LLC, a Delaware limited liability company and
wholly owned subsidiary of the Company ('ACME Television'), and its
subsidiaries. See 'Certain Definitions and Market and Industry Data' on page iii
of this Prospectus for a description of the sources of demographic, market and
industry data included in this Prospectus.
THE COMPANY
The Company was formed to own or operate broadcast television stations in
growing medium-sized markets ranked between 20 and 75. The Company intends to
affiliate each of its broadcast television stations with The WB Network. The
Company owns, or has entered into agreements to acquire or construct and
operate, television stations in five markets which broadcast in DMAs which cover
in the aggregate 3.9% of the U.S. population. The Company's stations are as
follows:
<TABLE>
<CAPTION>
TOTAL 1997
COMMENCE/ COMMERCIAL MARKET
DMA STATION- LAUNCH BROADCASTERS CABLE REVENUE
MARKET RANK CHANNEL DATE IN MARKET PENETRATION (IN MILLIONS)(1)
- ------------------------------------- --- -------- --------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
St. Louis, MO........................ 21 KPLR-11 On-Air 5 53% $204.5
Portland, OR......................... 24 KWBP-32 On-Air 6 63 161.2
Salt Lake City, UT................... 36 KZAR-16 Apr '98 6 56 141.0
Albuquerque, NM...................... 48 KAUO-19 Sept '98 6 60 85.3
Knoxville, TN........................ 64 WBXX-20 On-Air 5 68 62.1
</TABLE>
- ------------------
(1) 1997 market revenue represents the aggregate television advertising revenue
of all commercial broadcasters in the applicable market during 1997 and does
not represent revenue attributable solely to the Company's stations.
The Company's strategy is to selectively acquire either underperforming
stations or construction permits for new stations and operate its stations as
affiliates of The WB Network. The Company seeks to improve operating results,
maximize revenues and EBITDA and increase value through the following
strategies:
Target Growing Medium-Sized Markets. The Company seeks to acquire and
construct stations in markets with estimated television advertising
revenues of $40 million to $225 million and where its stations can operate
as one of five or six commercial broadcasters. The Company believes that
medium-sized markets are generally less competitive than larger markets
because of the limited number of commercial broadcasters in medium-sized
markets. As a result, the Company believes that operating television
stations in less competitive markets offers greater opportunities to build
and maintain audience share and generate revenues. The Company targets
markets with diversified economies and favorable projections of population
and television advertising revenue growth. The Company's five stations will
operate in markets with an aggregate projected annual population growth
rate through the year 2000 of 1.4%, compared to the projected annual
national population growth rate of 0.8%. The Company's five stations will
operate in markets with an aggregate projected annual television
advertising revenue growth rate through the year 2000 of 5.9% compared to
the projected annual national television advertising growth rate of 5.6%.
The WB Network Affiliation. The Company expects its stations to
benefit from their affiliation with The WB Network. The WB Network has
shown continued ratings growth since its inception. For example, The WB
Network experienced a national prime time household ratings increase of 53%
and a prime time ratings increase of 38% among 18-34 year olds from the
first quarter of 1995 through the fourth quarter of 1997 on nights with The
WB Network programming. In addition, as of November 1997, the 38 former
independent or start-up stations (excluding former affiliates of ABC, NBC,
CBS and Fox) in large and
1
<PAGE>
medium-sized markets (DMAs ranked between 1 and 75) have on average
experienced a prime time household ratings increase of 61% and a prime time
ratings increase of 110% among 18-34 year olds since November 1994
(immediately prior to the launch of The WB Network on January 11, 1995) on
nights with The WB Network programming. Management believes that the
increase in popularity of The WB Network programming results in greater
advertising revenues and enhanced cash flow for network affiliates. The
Company has entered into network affiliation agreements for Station KWBP
and Station WBXX, will assume and extend an existing affiliation agreement
for Station KPLR and has obtained commitments from The WB Network for an
affiliation agreement covering each of its other stations. See
'Business--Affiliation Agreements.'
Selectively Purchase Syndicated Programming. The major production
studios currently supply syndicated programming sufficient to fill
programming requirements for seven broadcast stations in a market. The
Company's stations are one of five or six commercial broadcast stations in
their respective markets. The Company believes that the limited number of
commercial broadcast stations, combined with the ability to centrally
purchase programming for five stations, will allow the Company to acquire
syndicated programming at attractive prices. The Company's Portland and
Knoxville stations have already obtained broadcast rights for syndicated
programming that will premiere during the next three broadcast seasons at
prices which the Company believes are attractive. These programs include
Friends, Full House, M*A*S*H, Star Trek: The Next Generation and The Drew
Carey Show.
Emphasis on Sales. The Company's management has hired, and intends to
continue to hire, station general managers with significant experience in
advertising sales who will be directly involved in station sales and
marketing. The Company believes that by centralizing administrative
functions, each station's general manager will be able to devote a greater
effort to local sales and marketing activities. In addition, the Company
intends to establish a commission-based compensation system for sales
personnel that will include significant incentives for the origination of
new accounts in addition to expanding current relationships.
Creating a Strong Group Identity. The Company intends to establish a
highly professional on-air appearance and identity for each of its
stations. The Company's graphics, animation and music for station imaging
will be created by a centralized corporate graphics department and will
target each station's demographic audience. The Company intends to hire
experienced personnel at the corporate level for these and similar services
that would not otherwise be available at a cost-efficient rate to its
stations on an individual basis.
Centralized Systems and Controls. Management plans to centralize the
Company's scheduling, purchasing, national sales and certain accounting
functions within the corporate office. The Company believes that this will
afford each of the station's general managers more time to focus on local
sales and marketing. Management believes that by centralizing purchasing,
the Company will be able to negotiate lower costs for equipment and
services. For example, the Company has solicited and received proposals for
a group national sales representative agreement at significantly lower
rates than would have been available to its stations on an individual
station basis. In addition, the Company has already purchased syndicated
programming on a multiple station basis and negotiated capital lease
facilities for its stations as a group on terms it considers attractive.
THE WB NETWORK
The WB Network was created by affiliates of Time Warner, Inc. ('Time
Warner'), Tribune Broadcasting ('Tribune') and Jamie Kellner as a new television
broadcast network. The WB Network was formed to provide an alternative to the
prime time and children's programming offered by the other networks. The WB
Network's focus is to provide quality programming to teens, young adults and
families with small children. The WB Network utilizes (i) the strength of Time
Warner, through its Warner Brothers division, as a leading producer of prime
time programming and Saturday morning cartoons, (ii) the network distribution
capabilities of the cable system holdings of Time Warner and the television
station holdings of Tribune, and (iii) the experience of the members of The WB
Network management team, many of whom worked with Mr. Kellner during the launch
of Fox in 1986.
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Since the launch of the network on January 11, 1995, The WB Network has
increased its on-air programming from two hours of prime time programming one
night per week to nine hours of prime time programming four nights per week and
19 hours of children's programming for the 1997-1998 season. The WB Network has
announced plans to provide one additional evening of prime time programming each
season until every night is programmed. As of January 1998, it is estimated that
The WB Network programming is available to approximately 88% of all television
households in the United States.
STATION OVERVIEW
On June 17, 1997, ACME Parent (as defined) acquired Station KWBP, which
serves the Portland, Oregon DMA (the 'Portland Acquisition'), for approximately
$18.7 million in cash and $4.4 million of membership units in ACME Parent. On
October 7, 1997, the Company acquired Station WBXX, which serves the Knoxville,
Tennessee DMA (the 'Knoxville Acquisition') for $13.2 million in cash. On
January 22, 1998, the Company acquired Station KAUO, which will operate in the
Albuquerque, New Mexico DMA (the 'Albuquerque Acquisition') for $10,000 in cash.
The Company has entered into an acquisition agreement dated July 29, 1997 to
acquire Station KPLR, St. Louis, Missouri (the 'St. Louis Acquisition') for an
aggregate purchase price of approximately $146.0 million and has entered into a
time brokerage agreement with respect to Station KPLR (the 'St. Louis LMA'). The
Company has also entered into an agreement to construct and acquire a new
station in the Salt Lake City, Utah market for a purchase price of $14.0
million, plus approximately $4.5 million in construction costs. See 'The
Transactions.'
KPLR-11: ST. LOUIS, MO
Station KPLR operates in the St. Louis market, which is the 21st largest
DMA in the U.S. The St. Louis DMA is projected to have annual television
advertising revenue and population growth of approximately 5.4% and 0.5%,
respectively, through the year 2000. Station KPLR commenced broadcasting in 1959
and has been affiliated with The WB Network since the network's launch in 1995.
The station currently competes against four other commercial broadcasters and
captured approximately 17% of the market's television advertising revenues for
the 1997 calendar year. For the November 1997 sweep period, Station KPLR tied
for third in terms of audience ratings in its market and, among all domestic
broadcast stations affiliated with The WB Network, UPN or operated as an
independent station, was the number two ranked station in the U.S. on the basis
of ratings and audience share. Station KPLR's non-network programming emphasizes
both programs of local appeal, such as St. Louis Cardinals baseball and a 9:00
p.m. newscast, and quality syndicated programs, such as Cheers, Full House,
Living Single, Martin and Seinfeld.
KWBP-32: PORTLAND, OR
Station KWBP operates in the Portland market, which is the 24th largest DMA
in the U.S. The Portland DMA is projected to have annual television advertising
revenue and population growth of approximately 5.9% and 1.8%, respectively,
through the year 2000. Station KWBP competes against five other commercial
broadcasters. Management completed the construction of a new transmission
facility to improve the station's signal and upgraded its studio facility in
January 1998. Station KWBP has been affiliated with The WB Network since the
network's launch in 1995. The station's syndicated programming and future
broadcast rights include Cops, Full House, Hawaii Five-O, Mama's Family, Star
Trek: The Next Generation, The Drew Carey Show and Xena--Warrior Princess.
KZAR-16: SALT LAKE CITY, UT
Station KZAR will operate in the Salt Lake City market, which is the 36th
largest DMA in the U.S. The Salt Lake City DMA is projected to have annual
television advertising revenue and population growth of approximately 6.2% and
1.9%, respectively, through the year 2000. The Salt Lake City market has a
relatively young demographic population, with over 37% of the population under
the age of eighteen, compared to the national average of 26%. Station KZAR will
compete against five other commercial broadcasters. Management anticipates
completing construction of the station and commencing broadcasting in April of
1998.
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KAUO-19: ALBUQUERQUE-SANTA FE, NM
Station KAUO will operate in the Albuquerque market, which is the 48th
largest DMA in the U.S. The Albuquerque DMA is projected to have annual revenue
and population growth of approximately 5.8% and 1.6%, respectively, through the
year 2000. The Albuquerque market has a relatively young demographic population,
with approximately 30% of the population under the age of eighteen. Station KAUO
will compete against five other commercial broadcasters. Management anticipates
completing construction of the station and commencing broadcasting in September
of 1998.
WBXX-20: KNOXVILLE, TN
Station WBXX operates in the Knoxville market, which is the 64th largest
DMA in the U.S. The Knoxville DMA is projected to have annual television
advertising revenue and population growth of approximately 6.1% and 1.4%,
respectively, through the year 2000. Station WBXX will compete against four
other commercial broadcasters. The acquisition and construction of the station
were completed and broadcasting commenced in October of 1997. The station has
purchased syndicated programming and future broadcast rights to several
syndicated programs including Cheers, Friends, Full House, M*A*S*H, Star Trek:
The Next Generation and The Drew Carey Show.
MANAGEMENT AND INVESTORS
The Company's senior management team has extensive experience in the
television industry. Jamie Kellner, the Company's Chairman and Chief Executive
Officer, was formerly the President of Fox and has over 28 years of industry
experience. Mr. Kellner is also currently the Chief Executive Officer of The WB
Network. Doug Gealy, President and Chief Operating Officer, has over 15 years of
experience in television operations and sales. Previously, Mr. Gealy served as
an Executive Vice President for Benedek Broadcasting, overseeing eight
television stations, and has also been General Manager for stations owned by NBC
and Outlet Communications. Tom Allen, Executive Vice President and Chief
Financial Officer, has over eleven years of experience in the media industry,
including seven years as Senior Vice President Finance and Administration of
Fox. While at Fox, Mr. Allen oversaw the financial, administrative and operating
performance of the network. In addition to the senior management team, the
Company has hired and plans to hire general managers with extensive sales
experience to operate each station.
The Company is 92% owned directly or indirectly by ACME Television
Holdings, LLC ('ACME Parent'). The remaining 8% of the Company is owned by
purchasers of the Units (as defined). The principal investors in ACME Parent are
investment funds affiliated with Alta Communications, Inc., BancBoston Ventures
Inc., CEA Capital Partners and The TCW Group, Inc. (collectively the
'Institutional Investors'). The Institutional Investors have extensive
experience in successfully investing in the broadcast television industry and
other broadcast and media industries. In addition, as partial consideration upon
the closing of the acquisition of their respective stations by the Company, two
of the prior owners of the Company's stations received in the aggregate
approximately $10.4 million of membership units in ACME Parent. See 'The
Transactions' and 'Security Ownership of Certain Beneficial Owners and Executive
Officers.'
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THE EXCHANGE OFFER
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The Issuers............................... ACME Intermediate Holdings, LLC and ACME Intermediate Finance, Inc.
The Exchange Offer........................ The Issuers are offering to exchange their Exchange Notes, which have
been registered under the Securities Act, for any and all of their
outstanding Original Notes. The Original Notes may be exchanged for
Exchange Notes only in multiples of $1,000 principal amount. The
Issuers will issue the Exchange Notes on or promptly after the
Expiration Date. The form and terms of the Exchange Notes will be the
same as the form and terms of the Original Notes except that (i) the
Exchange Notes will be registered under the Securities Act, and,
therefore, will not bear legends restricting the transfer thereof and
(ii) the holders of the Exchange Notes will not be entitled to
certain rights of the holders of the Original Notes under the
Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence
the same debt as the Original Notes and both series of Notes will be
entitled to the benefits of the Indenture and treated as a single
class of debt securities. The Issuers will keep the Exchange Offer
open for not less than 30 days or longer if required by applicable
law, after the date of notice of the Exchange Offer is mailed to
holders of the Original Notes. See 'The Exchange Offer--Terms of the
Exchange Offer.'
Based upon interpretations by the Staff of the Commission set forth
in no-action letters issued to third parties, the Issuers believe
that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Original Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such
holder which is an 'affiliate' of the Issuers within the meaning of
Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder is not engaged in,
and does not intend to engage in, and has no arrangement or
understanding with any person to participate in the distribution of
such Exchange Notes. Any holder who tenders Exchange Notes with the
intention to participate, or for the purpose of participating, in a
distribution of the Exchange Notes may not rely upon such
interpretations by the staff of the Commission and, in the absence of
an exemption, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
secondary resale transaction, and any such secondary resale
transaction must be covered by an effective registration statement
containing the selling securityholder information required by Item
507 of the Registration S-K under the Securities Act. Each broker-
dealer that receives the Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented, may be used by a
broker-dealer in connection with resales of Exchange Notes received
in exchange for Original Notes where such Original Notes were
acquired by such broker-dealer as a result of market-
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making activities or other trading activities. The Issuers have
agreed that, for a period not to exceed 180 days after the
consummation of the Exchange Offer, they will make this Prospectus
available, for use in connection with any such resale, to any such
broker-dealer and other persons, if any, with similar prospectus
delivery requirements. See 'Plan of Distribution.' In addition, to
comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they
have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and
complied with. The Issuers have agreed, pursuant to the Registration
Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Exchange Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests in writing.
Expiration Date........................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
March , 1998, unless extended in which case the term 'Expiration Date'
shall mean the latest date and time to which the Exchange Offer is so extended.
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Issuers in whole or in part and from time to
time in their sole discretion. See 'The Exchange Offer--Certain
Conditions to the Exchange Offer.' The Issuers reserve the right to
terminate or amend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such condition. The
Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Original Notes being tendered for exchange.
Procedures for Tendering the Original
Notes................................... Each registered holder of Original Notes (a 'Registered Holder')
wishing to tender such Original Notes in the Exchange Offer must
complete, sign and date the Letter of Transmittal, or facsimile
thereof, in accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with any other required documentation, to
the Exchange Agent at the address set forth herein. Each Registered
Holder whose Original Notes are held through The Depository Trust
Company ('DTC') and wishes to participate in the Exchange Offer may
do so through DTC's Automated Tender Offer Program ('ATOP') by which
each tendering participant will agree to be bound by the Letter of
Transmittal. Any Original Notes not accepted for exchange for any
reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or
termination of the Exchange Offer. See 'The Exchange
Offer--Procedures for Tendering Original Notes.'
Special Procedures for Beneficial
Owners.................................. Any beneficial owner whose Original Notes are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender such Original Notes should contact such
registered holder promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such beneficial owner
wishes to tender on its own behalf, such beneficial owner must, prior
to completing and executing the Letter of Transmittal
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and delivering its Original Notes, either make appropriate
arrangements to register ownership of the Original Notes in such
owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the
Expiration Date. See 'The Exchange Offer--Procedures for Tendering
Original Notes.'
Guaranteed Delivery Procedures............ Holders of Original Notes who wish to tender their Original Notes and
(i) whose Original Notes are not immediately available, (ii) who
cannot deliver their Original Notes, the Letter of Transmittal or any
other required documents to the Exchange Agent (as defined) prior to
the Expiration Date or (iii) who cannot complete the procedure for
book-entry transfer on a timely basis, may effect a tender of their
Original Notes according to the guaranteed delivery procedures set
forth in 'The Exchange Offer--Guaranteed Delivery Procedures.'
Withdrawal Rights......................... Tenders of Original Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. For a withdrawal to
be effective, (i) a written notice of withdrawal must be received by
the Exchange Agent (as defined) at its address set forth herein or
(ii) holders must comply with the appropriate procedures of DTC's
ATOP System. See 'The Exchange Offer--Withdrawal Rights.'
Acceptance of Original Notes and Delivery
of Exchange Notes....................... Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Issuers will accept
for exchange any and all Original Notes validly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant to the Exchange
Offer will be delivered promptly following the Expiration Date. See
'The Exchange Offer--Terms of the Exchange Offer.'
Consequences of Failure to
Exchange................................ Upon consummation of this Exchange Offer, the holders of the Original
Notes will have no further registration or other rights under the
Registration Rights Agreement, except under certain limited
circumstances. Holders of Original Notes who do not exchange their
Original Notes for the Exchange Notes pursuant to the Exchange Offer
will continue to be subject to the restrictions on transfer of such
Original Notes as set forth in the Indenture. In general, Original
Notes that are not exchanged pursuant to the Exchange Offer may not
be offered or sold except pursuant to a registration statement filed
under the Securities Act or an exemption from registration thereunder
and in compliance with applicable state securities laws. See 'The
Exchange Offer--Consequences of Failure to Exchange.'
Certain Tax Considerations................ The exchange of Original Notes for Exchange Notes by tendering
holders will not be a taxable event for federal income tax purposes,
and such holders should not recognize any taxable gain or loss or any
interest income as a result of such exchange.
Use of Proceeds........................... The Issuers will not receive any proceeds from the exchange of Notes
pursuant to the Exchange Offer.
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Registration Rights Agreement............. Pursuant to the Registration Rights Agreement, the Issuers agreed (i)
to use their reasonable best efforts to file, within 45 days after
the date of the original issuance of the Original Notes, a
registration statement (the 'Exchange Offer Registration Statement')
and (ii) to use their reasonable best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the
Securities Act within 150 days after the date of the original
issuance of the Original Notes (the 'Issue Date'). The Exchange Offer
is intended to satisfy the rights of holders of Original Notes under
the Registration Rights Agreement, which rights terminate upon
consummation of the Exchange Offer.
Shelf Registration Statement.............. In the event that, based upon applicable interpretations of the
Securities Act by the Staff of the Commission, the Issuers conclude
that they cannot effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the
Issue Date, or if a holder of the Original Notes is not permitted to
participate in the Exchange Offer or does not receive freely tradable
Exchange Notes pursuant to the Exchange Offer or, under certain
circumstances, if the Initial Purchaser or the holder of a majority
in aggregate principal amount at maturity of Notes so request, the
Issuers will use their reasonable best efforts to cause to become
effective a registration statement (the 'Shelf Registration
Statement') with respect to the resale of the Original Notes and use
their best efforts to keep such Shelf Registration Statement
continuously effective until two years after the Issue Date.
Exchange Agent............................ Wilmington Trust Company is the exchange agent for the Exchange Offer
(the 'Exchange Agent'). The address and telephone number of the
Exchange Agent are set forth in the 'The Exchange Offer--Exchange
Agent.'
EXCHANGE NOTES
Maturity Date............................. September 30, 2005.
Original Issue Discount of Original
Notes................................... A holder of Exchange Notes will be required to include the accretion
of the original issue discount at which the Original Notes were
issued as gross income for U.S. federal income tax purposes prior to
the receipt of the cash payments to which such income is
attributable. See 'Certain U.S. Federal Income Tax Considerations
Relating to the Notes--U.S. Holders--Original Issue Discount on the
Original Notes.'
Interest.................................. Cash interest will not accrue or be payable on the Exchange Notes
prior to September 30, 2002. Thereafter, cash interest on the
Exchange Notes will accrue at a rate of 12% per annum on the
principal amount at maturity of the Exchange Notes through and
including the maturity date, and will be payable semiannually on
March 31 and September 30 of each year, commencing March 31, 2003.
Optional Redemption....................... The Exchange Notes are redeemable at any time and from time to time
at the option of the Issuers, in whole or in part, on or after
September 30, 2001, at the redemption prices set forth herein
(expressed as a percentage of the Accreted Value thereof) plus
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accrued and unpaid interest, if any, to the date of redemption. In
addition, on or prior to September 30, 2000, the Issuers may redeem,
at their option, up to 35% of the aggregate principal amount at
maturity of the Notes with the net proceeds of one or more Public
Equity Offerings (as defined) at 112% of the Accreted Value thereof,
as long as at least 65% of the aggregate principal amount at maturity
of the Notes originally issued remains outstanding after each such
redemption and that such redemption occurs within 90 days of any such
Public Equity Offering. See 'Description of the Notes--Optional
Redemption.'
Change of Control......................... Upon a Change of Control (as defined), the Issuers will be required
to offer to repurchase the Exchange Notes at a purchase price equal
to (i) 101% of the Accreted Value thereof, if the purchase date is on
or prior to September 30, 2002, or (ii) 101% of the principal amount
at maturity thereof, plus accrued and unpaid interest thereon, if
any, to the purchase date, if such date is after September 30, 2002.
See 'Risk Factors--Inability to Satisfy a Change of Control Offer'
and 'Description of the Notes--Change of Control Offer.'
Security.................................. The Exchange Notes are secured by a first priority lien on all of the
outstanding membership units of ACME Television and all of the
Capital Stock of each Subsidiary of the Company directly owned by the
Company. Such membership units of ACME Television, LLC represent
equity ownership interests in ACME Television, LLC entitling a holder
to a pro rata share of profits and losses. Under certain
circumstances, these membership units and the Capital Stock of each
Subsidiary of the Company directly owned by the Company may be of
limited value to holders of Exchange Notes because holders of such
securities would, in the event of bankruptcy or liquidation of the
issuer or pledgor thereof, be entitled only to the assets which
remained after all liabilities of ACME Television, LLC and/or such
Subsidiary have been paid in full. In addition, there are limitations
on the ability to dispose of such securities including the absence of
an existing public market for such securities, the effects of a
bankruptcy of the pledgor, and certain transfer restrictions to which
such securities are subject, including regulatory approval
requirements for certain transfers. See 'Risk Factors--Limitation on
Security for the Notes.' Holders of Exchange Notes are not creditors
of ACME Television, LLC.
Ranking................................... The Exchange Notes are senior secured obligations of the Issuers and
rank pari passu in right of payment to senior obligations of the
Issuers and senior in right of payment to any current or future
subordinated obligations of the Issuers. The Exchange Notes are
effectively subordinated in right of payment to all existing and
future indebtedness and other liabilities, including trade payables,
of Subsidiaries of the Company. After giving pro forma effect to the
Knoxville Acquisition, the Albuquerque Acquisition and Pending Acquisitions
as of September 30, 1997, such Subsidiaries had approximately $198.9
million of indebtedness outstanding comprised of $4.2 million of secured
indebtedness (including $3.5 million of indebtedness under the
Revolving Credit Facility), $35.6 million of indebtedness evidenced
by the Exchange Notes, and $127.4 million of indebtedness evidenced
by the Television Notes
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(as defined herein). The Indenture will permit the Issuers and their
Subsidiaries to incur additional indebtedness (subject to certain
limitations). See 'Description of the Notes.'
Non-Recourse to Equity Holders............ The Exchange Notes are non-recourse to any parent entity or equity
holders of the Issuers (other than the Company).
Restrictive Covenants..................... The Indenture contains certain restrictive covenants with respect to
the Issuers and their Subsidiaries, including limitations on (a) the
sale of assets, including the equity interests of the Subsidiaries,
(b) asset swaps, (c) the payment of Restricted Payments (as defined),
(d) the incurrence of indebtedness and issuance of certain preferred
securities by the Issuers or the Subsidiaries, (e) the issuance of
Equity Interests (as defined) by a Subsidiary, (f) the payment of
dividends on, and the purchase, redemption or retirement of, the
equity interests or subordinated indebtedness of the Issuers, (g)
certain transactions with affiliates, (h) liens, certain
sale-leaseback transactions and the conduct of business and (i)
certain consolidations and mergers. All of these limitations and
prohibitions, however, are subject to a number of important
qualifications. See 'Description of the Notes--Certain Covenants.'
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SUMMARY UNAUDITED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following summary financial data reflect the results of operations of
Channel 32, Incorporated (Predecessor), the prior owner of Station KWBP, for the
years ended June 30, 1995 and 1996 and the period from July 1, 1996 to June 17,
1997, the Company for the nine months ended from September 30, 1997 and Koplar
Communications, Inc. ('Koplar Communications'), the owner of Station KPLR, for
each of the five fiscal years ended December 31, 1992, 1993, 1994, 1995 and 1996
and the nine-month periods ended September 30, 1996 and 1997. The historical
information for Channel 32 for the period from July 1, 1996 to June 17, 1997 and
for Koplar Communications the nine-month periods ended September 30, 1996 and
1997 is unaudited. The capital structure and accounting basis of Koplar
Communications subsequent to its acquisition by the Company will differ from its
historical capital structure and accounting basis.
The following unaudited pro forma consolidated statement of operations data
of the Company for fiscal year 1996 and for the nine months ended September 30,
1997 give effect to the Transactions as if such events had occurred at the
beginning of the periods presented. The following unaudited pro forma
consolidated balance sheet data at September 30, 1997 reflect the consummation
of the Knoxville Acquisition, the Albuquerque Acquisition and Pending
Acquisitions as if such events had occurred on that date. The pro forma
financial information may not be indicative of the results that actually would
have occurred if the transactions and adjustments described in the accompanying
notes had occurred on the dates assumed and do not project the Company's
financial position or results of operations at any future date. See 'Pro Forma
Consolidated Financial Information.'
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HISTORICAL--CHANNEL 32 HISTORICAL PRO FORMA
(PREDECESSOR) THE COMPANY THE COMPANY
--------------------------------- ------------- ----------------------------------
PERIOD FROM NINE MONTHS YEAR NINE MONTHS
JULY 1, 1996 ENDED ENDED ENDED
TO JUNE 17, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997 1997 1996 1997
------- ------- ----------- ------------- ------------ ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net revenues(1)................ $ 288 $ 2,729 $ 1,306 $ 2,155 $ 30,462 $ 23,502
Programming expenses........... 623 3,274 1,304 1,096 14,425 9,554
Selling, general and
administrative expenses...... 273 1,462 1,061 3,173 10,115 14,944
Depreciation and
amortization................. 235 542 346 551 10,964 8,006
------- ------- ----------- ------------- ------------ ----------
Operating income (loss)........ (843) (2,549) (1,405) (2,665) (5,042) (9,002)
Interest expense............... (200) (3,252) (2,222) (573) (20,712) (15,065)
Income (loss) before
discontinued operations and
extraordinary items.......... (1,043) (6,015) (3,637) (3,238) (26,501) (24,395)
Net (loss)..................... (1,043) (6,015) (3,637) (3,238) (26,501) (24,395)
OTHER DATA:
Cash provided by (used in):
Operating activities......... (412) (5,260) (2,643) 4,716 -- --
Investing activities......... (1,222) (1,077) (356) (146) -- --
Financing activities......... 1,636 6,345 3,097 168 -- --
Ratio of earnings to fixed
charges(2)................... (421)% (85)% (64)% (465)% -- --
EBITDA(3)...................... $ (608) $(2,007) $(1,059) $(2,225) $ 8,047 $ (1,620)
EBITDA margin(4)............... (211.1)% (73.5)% (81.1)% (103.2)% 26.4% (6.9)%
Capital expenditures........... $ 979 $ 998 $ 356 $ 2,963 $ -- $ --
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HISTORICAL--KOPLAR
COMMUNICATIONS
HISTORICAL--KOPLAR COMMUNICATIONS -------------------------
--------------------------------------------------- NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ---------- -----------
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net revenues(1)....................... $39,128 $41,500 $33,146 $27,528 $27,260 $ 19,751 $21,347
Programming expenses.................. 22,532 19,592 13,581 9,503 11,365 9,413 8,458
Selling, general and administrative
expenses............................ 17,587 17,614 12,113 11,632 11,318 7,914 13,722
Depreciation and amortization......... 1,321 1,367 1,085 791 702 518 490
------- ------- ------- ------- ------- ---------- -----------
Operating income (loss)............... (2,312) 2,927 6,367 5,602 3,875 1,906 (1,323)
Interest expense...................... (6,462) (9,402) (5,777) (2,842) (2,155) (1,522) (1,117)
Income (loss) before discontinued
operations and
extraordinary items................. (9,246) (6,967) 10,295 1,916 559 (530) (2,722)
Net income (loss)..................... (9,246) (6,967) 58,691 1,916 (800) (530) (2,722)
OTHER DATA:
Cash provided by (used in):
Operating activities................ 10,533 10,623 (55,666) 6,355 8,755 9,672 9,570
Investing activities................ (482) (861) 13,817 (2,498) (787) (680) (346)
Financing activities................ (9,613) (9,555) (18,740) (5,609) (7,389) (5,670) (6,525)
Ratio of earnings to fixed
charges(2).......................... 243% 174% 335% 186% 147% 93% (236)%
EBITDA(3)............................. $ 3,228 $ 5,487 $ 5,071 $ 6,581 $ 5,922 $ (73) $(1,346)
EBITDA margin(4)...................... 8.2% 13.2% 15.3% 23.9% 21.7% (0.4)% (6.3)%
Capital expenditures.................. $ 565 $ 482 $ 839 $ 1,013 $ 687 $ 580 $ 246
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HISTORICAL PRO FORMA
THE COMPANY THE COMPANY
------------------------ ------------------------
AS OF SEPTEMBER 30, 1997 AS OF SEPTEMBER 30, 1997
------------------------ ------------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 27,211 $ 6,001
Working capital............................................... 28,496 10,299
Total assets.................................................. 226,896 251,330
Total debt(5)................................................. 167,226 167,226
Members' capital.............................................. 48,125 54,125
</TABLE>
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(1) Net revenues is defined as total revenues less agency commissions. The
Company receives such revenues net of such commissions, which are deducted
by the agencies. Net revenues for Koplar Communications include
approximately $14.3 million, $15.4 million and $7.1 million for the years
ended December 31, 1992, 1993 and 1994, respectively, relating to the
operations of Station KRBK which was sold on June 29, 1994.
(2) The ratio of earnings to fixed charges is calculated as net income before
taxes, discontinued operations and extraordinary items plus interest
expense, divided by interest expense.
(3) EBITDA is defined as operating income (loss), plus depreciation,
amortization and other noncash charges, including amortization of
programming rights, minus programming payments. Although EBITDA is not
caluclated in accordance with GAAP, it is widely used as a measure of a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
(4) EBITDA expressed as a percentage of net revenues.
(5) Total debt includes the current portion of capital lease obligations and
excludes programming rights payable.
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RISK FACTORS
Holders of Original Notes and prospective purchasers of Exchange Notes
should consider carefully the following factors as well as the other information
and data included in this Prospectus prior to participating in the Exchange
Offer or making an investment in the Exchange Notes.
LEVERAGE AND DEBT SERVICE; REFINANCING REQUIRED
The Company incurred significant debt in connection with the Offering. As
of September 30, 1997, after giving pro forma effect to the Knoxville
Acquisition, the Albuquerque Acquisition and the Pending Acqusitions, the
Company had outstanding consolidated indebtedness of approximately $167.2
million comprised of $4.2 million of secured indebtedness (including $3.5
million of indebtedness under the Revolving Credit Facility), $35.6 million of
indebtedness evidenced by the Exchange Notes, and $127.4 million of indebtedness
evidenced by the Television Notes. The Company's highly leveraged financial
position poses substantial risks to holders of the Exchange Notes, including the
risks that: (i) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to servicing its indebtedness; (ii) the
Company's highly leveraged position may impede its ability to obtain financing
in the future for working capital, capital expenditures and general corporate
purposes, including acquisitions; and (iii) the Company's highly leveraged
financial position may make it more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures. The Company believes that,
based on its current level of operations after giving effect to the
Transactions, it will have sufficient capital to carry on its business and will
be able to make the scheduled interest payments on the Exchange Notes and meet
its other obligations and commitments. However, there can be no assurance that
the future cash flow of the Company will be sufficient to do so. If the Company
is unable to generate sufficient cash flow from operations in the future to make
scheduled interest payments on the Exchange Notes and to meet its other
obligations and commitments, the Company will be required to adopt one or more
alternatives, such as refinancing or restructuring its indebtedness, selling
material assets or operations or seeking to raise additional debt or equity
capital. Furthermore, the Company believes it will be necessary to refinance the
Exchange Notes at or prior to the scheduled maturity date in 2005. There can be
no assurance that any of these actions could be effected on a timely basis or on
satisfactory terms or that these actions would enable the Company to continue to
satisfy its capital requirements. See 'Management's Discussion and Analysis of
Results of Operations and Financial Condition--Liquidity and Capital Resources,'
and 'Description of the Notes.'
LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
The Company is a holding company which has no significant assets other than
its investments in its direct and indirect subsidiaries, and therefore, its
ability to make payments with respect to the Exchange Notes is dependent upon
the receipt of dividends or debt service in respect of intercompany indebtedness
from its direct and indirect subsidiaries. Future acquisitions (including
certain of the Pending Acquisitions) will be made through present or future
subsidiaries of the Company.
The Revolving Credit Facility prohibits, and the Indenture governing the
Television Notes (the 'ACME Television Indenture') significantly restricts, the
distribution of funds by ACME Television and the other Subsidiaries of the
Company to the Company. See 'Description of Certain Indebtedness' and
'Description of the Television Notes.' There can be no assurance that the
agreements governing indebtedness of the Company's Subsidiaries will permit such
Subsidiaries to distribute funds to the Company in amounts sufficient to pay the
Accreted Value or principal or interest on the Exchange Notes when the same
becomes due (whether at maturity, upon acceleration or otherwise). The Exchange
Notes are effectively subordinated in right of payment to all existing and
future claims of creditors of Subsidiaries of the Company, including the lenders
under the Revolving Credit Facility and Capital Lease Facilities (as defined),
the holders of the Television Notes and trade creditors. After giving pro forma
effect to the Knoxville Acquisition, the Albuquerque Acquisition and the Pending
Acquisitions as of September 30, 1997, the Subsidiaries of the Company would
have had approximately $198.9 million of total liabilities, including $167.2
million of indebtedness comprised of $4.2 million of secured indebtedness
(including $3.5 million of indebtedness under the Revolving Credit Facility),
$35.6 million of indebtedness evidenced by the Exchange Notes, and $127.4
million of indebtedness evidenced by the Television Notes.
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ABSENCE OF OPERATING HISTORY
Although the Company's management team has extensive experience in the
television industry, the Company has limited operating history. As of the date
hereof, the Company has acquired three television stations and has entered into
definitive agreements to construct two additional stations. There can be no
assurance that the Company will be able to successfully implement its business
plan, which will depend upon, among other things, the Company's ability to (i)
consummate the Pending Acquisitions (and the construction and upgrades relating
thereto) on a timely basis and on the terms and cost bases currently
contemplated and (ii) successfully operate and manage the acquired businesses.
In addition, the various stations have no consolidated operating history.
Prospective investors, therefore, have limited historical financial information
about the Company upon which to base an evaluation of its performance and an
investment in the Exchange Notes. There can be no assurance that the Company
will be successful in integrating such operations or that such integration will
not divert management resources which in a start-up venture are more limited,
cause temporary disruptions, or otherwise have an adverse effect on the Company
which may be material. See 'Business--The Company.'
RISKS RELATED TO ACQUISITIONS
Consummation of each of the Pending Acquisitions is subject to certain
conditions beyond the Company's control. Such conditions include, among other
things (i) prior approval by the FCC of the assignments or transfers of control
of permits or licenses issued by the FCC, (ii) expiration of any applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the 'HSR Act') and (iii) maintenance of normal broadcast transmission and
operations in the ordinary course until closing. Accordingly, there can be no
assurance as to whether or when any of the Pending Acquisitions will be
consummated or whether they will be consummated on the terms described herein.
There can also be no assurance that the Company will be successful in its plans
to obtain The WB Network affiliation for all of its acquired stations, swap
certain stations or increase the signal strength of certain stations. In the
event that the Pending Acquisitions are not consummated in certain
circumstances, the Company may forfeit escrow deposits in the aggregate amount
of approximately $100,000 and otherwise be subject to claims for breach of such
agreements. See 'Business--The WB Network' and 'Business--The Stations and
Market Overviews.'
The Company intends to continue to pursue the acquisition of additional
television stations. Acquisition of television stations is subject to prior FCC
approval and applicable law which limits the number and location of broadcasting
properties that any one person or entity (including its affiliates) may own. The
market to purchase television stations is highly competitive, and many potential
acquirors may have greater resources than the Company available to effect such
acquisitions. Accordingly, there can be no assurance that the Company will be
able to make future acquisitions at prices acceptable to the Company. In
addition, rapidly growing businesses frequently experience unforeseen expenses
and delays in completing acquisitions, as well as difficulties and complications
in integrating the acquired operations without disruption in the overall
operations. As a result, acquisitions could materially adversely affect the
Company's operating results in the short term as a result of several factors,
including increased capital requirements. In addition, there can be no assurance
that the Company will have the financial resources necessary to acquire
additional stations. See '--Leverage and Debt Service; Refinancing Required.'
In connection with the Salt Lake City and Albuquerque Acquisitions, the
Company intends to undertake significant upgrading or construction of
transmission and studio facilities. Such construction activities are subject to
risks of unforeseen engineering, environmental or geological problems, weather
interference and unanticipated cost increases. Such problems, or difficulties in
obtaining any required permits, approvals or regulatory authorizations, could
delay completion of such facilities and the commencement of broadcasting at the
affected station. Although management believes that it has experience in
overseeing station facilities construction and is capable of managing such
risks, there can be no assurance that it will be able to effectively do so.
Pending receipt of FCC approval of the transfer of voting control of the
company holding the FCC licenses and other assets of Station KPLR, an amount
equal to the cash portion of the purchase for the St. Louis Acquisition ($143.0
million paid at consummation of the closing of the St. Louis LMA subject to
reduction for the amount of long term debt and notes payable of Koplar
Communications ($14.0 million as of January 2, 1998) and subject to certain
other adjustments) was deposited into escrow by the Company pursuant to an
escrow agreement (the 'Escrow Agreement') and the Company entered into the St.
Louis LMA. Pursuant to the Escrow
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Agreement, the sellers of Station KPLR received the escrowed funds on January 2,
1998, in exchange for deposit into the escrow account of all of the outstanding
capital stock of Koplar Communications, together with such other documents and
instruments as the Company may reasonably request in order to transfer such
capital stock to the Company and otherwise consummate the transaction upon
receipt of the required FCC approval. In the event such approval is not obtained
by September 28, 1998, the sellers will be required to cooperate with the
Company, at the Company's request and expense, to effect a disposition of
Station KPLR to a third party, and all proceeds of such disposition (less the
sellers' expenses and the $3.0 million of fees that would have been payable to
Edward J. Koplar pursuant to his management agreement with the Company) will be
payable to the Company. There can be no assurance that, if FCC approval is not
obtained by September 28, 1998, the Company will be able to effect a disposition
of Station KPLR at net proceeds to the Company equal to or greater than the
$146.0 million aggregate purchase consideration to be paid to the sellers of
Station KPLR.
FCC regulations require that LMAs expressly permit station licensees to
retain full management and control of the station, including programming and
personnel. There can be no assurance that early termination or unanticipated
preemptions by a licensee of all or a significant portion of the scheduled
programming for the St. Louis LMA will not occur, or that the licensee will not
otherwise interfere with the Company's intended plan of operations for such
station, including the implementation of cost savings assumed in the Pro Forma
Financial Statements (as defined).
DEPENDENCE ON STATION KPLR
The Company's ability to make payments with respect to the Exchange Notes
is largely dependent on the results of operations and financial condition of
Station KPLR, which experienced declines in revenues and net income in 1995 and
1996. Beginning in late 1990, the television industry and, in particular the St.
Louis, Missouri DMA, experienced a severe decline in television advertising
revenues which, coupled with a continuing rise in fixed, long-term programming
costs and sports broadcast rights fees, caused Station KPLR to experience
significant cash flow difficulties. In response to these difficulties, the owner
of Station KPLR sold substantially all of the assets of a television station
which it owned in Sacramento, California (Station KRBK). Station KRBK accounted
for approximately $7.1 million, or 21.4% of total revenues of Koplar
Communications, Inc. in 1994. The declining revenue and recent losses of Station
KPLR are attributable to the cash flow difficulties of Station KPLR and the
resulting sale of Station KRBK. Although the Company believes that it can
improve the results of operations and financial condition of Station KPLR, there
can be no assurance that the declining revenue and recent losses of Station KPLR
will not continue.
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the continued services of its
senior management team, including, in particular, Messrs. Kellner, Gealy and
Allen. Although the Company believes it can adequately replace key employees in
an orderly fashion should the need arise, there can be no assurance that the
loss of such key personnel would not have a material adverse effect on the
Company. The Company's success will also be dependent in part on its ability to
recruit and retain quality general managers for its stations and other corporate
office personnel.
CERTAIN POTENTIAL CONFLICTS AND VOTING CONTROL; CONTROL OF THE COMPANY AND ACME
PARENT
Full authority for the management of ACME Parent resides in its executive
officers and the Board of Advisors of ACME Parent, which initially consists of
Messrs. Kellner, Gealy and Allen. The Company is controlled by its members
acting by majority vote, with such majority initially held by ACME Parent. ACME
Parent has entered into a consulting agreement with Mr. Kellner and employment
contracts with Messrs. Gealy and Allen, which include non-competition covenants.
However, Mr. Kellner's agreement provides that he may perform services for other
businesses unaffiliated with the Company which, in certain limited
circumstances, may be competitive with the Company. Mr. Kellner is also an owner
and chief executive officer of The WB Network. Certain of the Company's
competitors own stations in other markets which are or may seek to become
affiliates of The WB Network, and Mr. Kellner, as an owner and chief executive
officer of The WB Network may simultaneously be engaged in The WB Network
affiliation agreements with the Company's stations and stations in other markets
owned by the Company's competitors. Upon consummation of certain aspects of the
Salt Lake City Acquisition and the St. Louis Acquisition, Messrs. Roberts and
Koplar, respectively, joined and is expected
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to join, respectively, the Board of Advisors of ACME Parent. Mr. Roberts owns a
broadcast station in the St. Louis DMA which will compete with Station KPLR. See
'Certain Relationships and Related Transactions.' In addition, the Institutional
Investors, voting as a group, have consent rights with respect to certain
actions by the Company. Certain members of the Board of Advisors and certain of
the Institutional Investors have, or in the future may have, interests in other
broadcast television companies or other related investments. There can be no
assurance that the activities of such persons will not compete with those of the
Company, or give rise to conflicts of interest between such persons and the
Company.
The Company LLC Agreement provides for management of the business and
affairs of the Company by its members, acting by majority vote, or by any single
member holding more than 50% of the Company's outstanding membership units (the
'Majority Member'). Following the Offering and for the foreseeable future, ACME
Parent will be the Majority Member, and as such will have exclusive control of
the management of the business and affairs of the Company.
DEPENDENCE ON THE WB NETWORK AFFILIATION
The Company anticipates that all of the Company's television stations will
be affiliates of The WB Network, which for the 1997-1998 broadcast season
provides such stations with 9 hours of prime time programming, and 19 hours of
childrens' programming per week, in return for advertising rights during such
programming. Accordingly, the Company's success is largely dependent on the
continued relationship of its stations with The WB Network and on The WB
Network's continued success as a broadcast network. Although the Company
believes that its relationship with The WB Network is excellent, there can be no
assurance that The WB Network will renew any affiliation agreement as to all or
any of the Company's stations. In addition, The WB Network may fail to renew the
affiliation agreement as to any station in the event it desires to change its
affiliate in the applicable market. Finally, there can be no assurance that The
WB Network programming will continue to generate improved ratings or that The WB
Network will continue to provide programming, marketing and other support to its
affiliates on the same basis as currently provided. See 'Business--Affiliation
Agreements.'
The WB Network was launched in January 1995 and has experienced operating
losses since its inception. Time Warner has reported that such losses are
expected to continue due to the start up nature of the network. The WB Network
utilizes Time Warner's capabilities as a leading producer of prime time
programming and Saturday morning cartoons, and the network distribution
capabilities of the cable system holdings of Time Warner and the television
station holdings of Tribune. Accordingly, The WB Network is dependent on the
continued support of, and its operating relationships with, Time Warner and
Tribune. Although the Company has no reason to believe that such support and
relationships will not continue for the foreseeable future, there can be no
assurance that such support and relationships will continue in their present
form. Any adverse change in The WB Network's support from or relationships with
either Time Warner or Tribune could have a material adverse effect on The WB
Network, which in turn could have a material adverse effect on the Company.
COMPETITION; IMPACT OF NEW TECHNOLOGIES; POTENTIAL COST OF SPECTRUM
The broadcast television industry is highly competitive, and the Company's
success will depend in large part on its ability to successfully compete with
other broadcast television stations and other media for viewers and advertising
revenues. The Company's stations will compete for both viewers and revenues with
network-affiliated and independent broadcast stations, cable television, home
satellite delivery, home video, direct broadcast satellite ('DBS') television
systems and video delivery systems utilizing telephone lines. Many of the
Company's competitors may have greater resources than the Company.
Advances in technology may increase competition for viewers and advertisers
and further fractionalize the video industries, which include broadcast
television. Video compression techniques currently under development are
expected to reduce the bandwidth required for television signal transmission.
Such techniques, and other technological developments, may be available to other
video delivery systems and thus present the potential for providing expanded
programming to targeted audiences. Reductions in the cost of creating additional
channel capacity could lower entry barriers for new channels and encourage the
development of specialized niche programming. The ability to reach narrowly
defined, highly targeted audiences is expected to significantly affect the
competition for advertising revenues. In addition, future competition in the
television industry may include the provision of interactive video and data
services capable of providing two-way interaction with commercial
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video programming, together with information and data services, that may be
delivered by commercial television stations, cable television, DBS and other
video delivery systems. Management cannot predict the effect that these or other
technological changes will have on the broadcast television industry or the
Company's future results of operations.
In recent years, the FCC has adopted policies providing for authorization
of new technologies and a more favorable operating environment for certain
existing technologies that have the potential to provide additional competition
for television stations. Further advances in technology could facilitate the
entry of additional competitors and encourage the development of increasingly
specialized 'niche' programming. In particular, the Company may be affected by
the development and regulation of digital television ('DTV'). FCC policies could
require that the Company convert any and all stations it owns from an analog
transmission capability to a digital transmission capability. The transition may
have to occur by 2006 or earlier. Although the Company is unable to reasonably
project the costs or benefits associated with DTV at this time, DTV will require
significant new capital investments in DTV broadcasting capacity, and no
assurance can be given that the Company will have adequate financial resources
to make such capital investments. In addition, certain members of Congress from
time to time have offered and continue to offer various proposals that would
require a public auction for the spectrum necessary to effect the transition to
DTV. If enacted into law, those proposals could require broadcasters to make a
substantial investment in order to obtain the spectrum for DTV. See 'Business--
Competition.'
RESTRICTIONS IMPOSED BY CERTAIN AGREEMENTS
The Investment and Loan Agreement (the 'Investment Agreement'), dated June
17, 1997, as amended, among ACME Parent and certain of the Institutional
Investors, and the Limited Liability Company Agreement, dated June 17, 1997, as
amended, among ACME Parent and certain of the Institutional Investors (the 'LLC
Agreement'), each contains various covenants which restrict the ability of the
Company and its subsidiaries to, among other things, incur indebtedness for
borrowed money or liens, sell a material portion of its assets, merge or acquire
additional businesses, make loans to or investments in others, enter into
sale-leaseback transactions, amend its organizational documents, change its
accounting policies, engage in affiliate transactions, declare or pay dividends
or sell or issue capital stock. These restrictions will significantly limit the
ability of the Company to take various actions without the consent of the
holders of the requisite percentage of the applicable outstanding securities of
ACME Parent. Such agreements also provide that on June 30, 2002 or upon the
occurrence of certain events, including Jamie Kellner's ceasing to serve as
Chairman and Chief Executive Officer of the Company or as a senior executive
officer of The WB Network, or the cessation of operations by The WB Network, the
Institutional Investors shall have the right to exercise voting control of ACME
Parent (subject to applicable FCC approvals), and to dispose of the Company or
cause the sale of all or substantially all of its assets. See 'The Transactions'
and 'Description of ACME Parent.' In addition, in connection with the St. Louis
Acquisition, the Company has agreed that for a period of five years from the
date of closing, the disposition of Station KPLR by the Company to certain
specified persons will, in certain circumstances (excluding creditors of the
Company exercising any rights under any financing agreement or related agreement
or instrument), require the prior approval of Edward J. Koplar.
REGULATORY MATTERS
The Company's operations are subject to extensive and changing regulation
on an ongoing basis by the FCC, which enforces the Communications Act. The prior
approval of the FCC is required for the issuance, renewal and assignment of
station permits and licenses and the transfer of control of station permits and
licensees. There can be no assurance that the FCC will approve each of the
Pending Acquisitions or any future acquisitions that require an assignment or
transfer of control of an FCC license to the Company. In addition, the FCC
permits and licenses held by the Company are subject to renewal from time to
time. The license for Station KPLR St. Louis, Missouri will expire on February
1, 1998 and a renewal application therefor was filed with the FCC on September
30, 1997 by the licensee, Koplar Television Communications L.L.C. The existing
license remains in effect until the FCC disposes of the renewal application.
Although in substantially all cases such licenses are renewed by the FCC, there
can be no assurance that the license for Station KPLR or any other television
licenses for stations owned or to be owned by the Company will be renewed. Even
if a license is renewed, the FCC could impose burdensome conditions or
restrictions on such renewal. The non-renewal or
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<PAGE>
renewal with conditions of one or more of the Company's television broadcast
licenses could have a material adverse effect on the Company.
Congress and the FCC currently have under consideration and may in the
future adopt new laws or modifications to existing laws, regulations and
policies regarding a wide variety of matters, including station ownership
attribution rules and station ownership limitations, which could directly or
indirectly adversely affect the ownership and operation of the Company's
broadcast properties, as well as the Company's business strategies. In addition,
courts could render decisions in cases to which the Company is not a party but
which ultimately could affect applicable law and thereby adversely affect the
Company.
Recent and prospective actions by the Congress, the FCC and the courts will
likely accelerate the trend toward vertical integration in the media and home
entertainment industries and cause the Company to face significant competition
in the future. Such measures could include the elimination or modification of
certain restrictions on television station ownership, the removal or
modification of restrictions on the participation by regional telephone
operating companies in cable television and other direct-to-home video
technologies, and the elimination or modification of restrictions on the
offering of multiple network services by the existing major television networks.
The Company is unable to predict whether other potential changes in the
regulatory environment could restrict or curtail the ability of the Company to
acquire, operate and dispose of stations in the future or, in general, to
compete with other operators of television station and other media properties.
See 'Business--Regulations.'
INDUSTRY AND ECONOMIC CONDITIONS; SEASONALITY
The profitability of the Company's television stations is subject to
various factors that influence the television broadcasting industry as a whole.
The Company's television stations may be affected by changes in audience tastes,
priorities of advertisers, new laws and governmental regulations and policies,
changes in broadcast technical requirements, technological changes, proposals to
eliminate the tax deductibility of expenses incurred by advertisers and changes
in the willingness of financial institutions and other lenders to finance
television station acquisitions and operations. The Company cannot predict
which, if any, of these or other factors might have a significant impact on the
television broadcasting industry in the future, nor can it predict what impact,
if any, the occurrence of these or other events might have on the Company's
operations. Generally, advertising tends to decline during economic recession or
downturn. Consequently, the Company's broadcasting revenue is likely to be
adversely affected by a recession or downturn in the United States economy or
other events or circumstances that adversely affect advertising activity. In
addition, the Company's operating results in individual geographic markets could
be adversely affected by local regional economic downturns. Seasonal revenue
fluctuations are common in the television broadcasting industry and are due
primarily to fluctuations in advertising expenditures by local and national
advertisers. The Company's first fiscal quarter ending in March is expected to
produce the lowest revenue for the year.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture, the Revolving Credit Facility and the ACME Television
Indenture impose restrictions that, among other things, limit the amount of
additional indebtedness that may be incurred by the Issuers and/or their
Subsidiaries and impose limitations on, among other things, investments, loans
and other payments, certain transactions with affiliates and certain mergers and
acquisitions. The Revolving Credit Facility also requires ACME Television and
its subsidiaries to maintain specified financial ratios and meet certain
financial tests. In addition, it is an event of default under the Revolving
Credit Facility if the St. Louis Acquisition is not completed within nine months
of the Issue Date. The ability of the Issuers and/or their Subsidiaries to
comply with such covenants and restrictions can be affected by events beyond
their control, and there can be no assurance that the Issuers and/or their
Subsidiaries will achieve operating results that would permit compliance with
such provisions. The breach of any of the provisions of the Revolving Credit
Facility would, under certain circumstances, result in defaults thereunder,
permitting the lenders under the Revolving Credit Facility to accelerate the
indebtedness under the Revolving Credit Facility. If ACME Television were unable
to pay the amounts due in respect of the Revolving Credit Facility, the lenders
thereunder could foreclose upon the assets pledged to secure such payment. Any
of such events would adversely affect the Issuers' ability to service the
Exchange Notes. See 'Description of Certain Indebtedness--Revolving Credit
Facility.'
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INABILITY TO SATISFY A CHANGE OF CONTROL OFFER
The Indenture provides that, upon the occurrence of a Change of Control,
the holders of the Exchange Notes will have the right to require the Company to
repurchase the Exchange Notes at a purchase price equal to (i) 101% of the
Accreted Value thereof, if the purchase date is on or prior to September 30,
2002, or (ii) 101% of the principal amount at maturity thereof, plus accrued and
unpaid interest thereon, if any, to the purchase date, if such date is after
September 30, 2002. A Change of Control includes the liquidation or dissolution
of ACME Parent or the Company, the cessation of ACME Parent as the direct or
indirect managing member of the Company, the loss by certain investors of voting
power to elect the Board of ACME Parent during the period prior to an initial
public offering and the failure of certain investors to hold a specified
aggregate percentage of total voting power of ACME Parent membership units. In
addition to the Exchange Notes, the Television Notes and the indebtedness
outstanding pursuant to the Revolving Credit Facility would also be payable in
the event of a Change of Control, and similar provisions may be included in
future indebtedness incurred by the Company and/or the Subsidiary Guarantors. If
a Change of Control were to occur, due to the highly leveraged nature of the
Company and the fact that substantially all of its indebtedness would become
payable, the Company might not have the financial resources to repay all of such
obligations. The Company's failure to make a required repurchase of the Exchange
Notes in the event of a Change of Control would create an Event of Default under
the Exchange Notes. See '--Leverage and Debt Service; Refinancing Required' and
'Description of the Notes--Change of Control Offer.'
LIMITATION ON SECURITY FOR THE NOTES
The Exchange Notes are secured by a first priority lien on membership units
of ACME Television and all of the Capital Stock of each Subsidiary of the
Company directly owned by the Company. See 'Description of the Notes--Security.'
There is no existing public market for such securities, and even if such
securities could be sold, there can be no assurance that the proceeds from the
sale of such securities would be sufficient to satisfy the amounts due on the
Exchange Notes in the event of a default. Absent an acceleration of the Exchange
Notes, the Pledgors (as defined) will be able to vote, as they determine in
their sole discretion, such securities. In the event of a bankruptcy or
liquidation of a Pledgor, the security interest in the Collateral (as defined)
may be of no value to holders of Exchange Notes because holders of such
securities would, in the event of a bankruptcy or liquidation of a subsidiary
(including ACME Television in the case of its membership units), be entitled
only to the assets which remained after all liabilities of such Subsidiary of
the Company have been paid in full. The lien on the Collateral in favor of the
Noteholders is subject to release under certain circumstances. See 'Description
of the Notes--Security.'
The right of the Trustee to dispose of the Collateral upon the occurrence
of an event of default under the Indenture is likely to be significantly
impaired by applicable bankruptcy laws if a bankruptcy proceeding were to be
commenced by or against a Pledgor prior to such disposition. Under Federal
bankruptcy laws, secured creditors, such as the Trustee and the Noteholders, are
prohibited from foreclosing upon collateral held by a debtor in a bankruptcy
case, or from disposing of collateral repossessed from such a debtor, without
bankruptcy court approval. Moreover, applicable Federal bankruptcy laws
generally permit a debtor to continue to retain and to use collateral, including
capital stock, even if the debtor is in default under the applicable debt
instruments, provided that the secured creditor is given 'adequate protection.'
The interpretation of the term 'adequate protection' may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in collateral. Because the term 'adequate protection' is
subject to varying interpretation and because of the broad discretionary powers
of a bankruptcy court, it is impossible to predict (i) if payments under the
Exchange Notes would be made following commencement of and during a bankruptcy
case, (ii) whether or when the Trustee could foreclose upon or sell any
Collateral securing the Exchange Notes, or (iii) whether or to what extent
Noteholders would be compensated for any delay in payment or loss of value of
Collateral securing the Exchange Notes under the doctrine of 'adequate
protection.' Furthermore, in the event a bankruptcy court were to determine that
the value of the Collateral securing the Exchange Notes was not sufficient to
repay all amounts due on the Exchange Notes, the Noteholders would become
holders of 'undersecured claims.' Applicable Federal bankruptcy laws do not
permit the payment and/or accrual of interest, costs and attorneys' fees for
'undersecured claims' during a debtor's bankruptcy case.
19
<PAGE>
The disposition of Capital Stock of any Subsidiary held as Collateral will
also be subject to the prior approval of the FCC to the extent such disposition
constitutes a transfer of control of a license or permit issued by the FCC,
including the licenses and permits held or to be acquired by the Company's
subsidiaries with respect to the Stations. In determining whether to approve a
change in control, the FCC considers, among other things, the financial and
legal qualifications of the prospective acquiror, including compliance with FCC
restrictions on foreign ownership and control, rules limiting the common
ownership of certain attributable interests in broadcast, cable and newspaper
properties and the character qualifications of the prospective acquiror and
persons holding attributable interests in it. There can be no assurance that the
FCC would grant such approval with respect to any particular prospective
acquiror or that such approval, if granted, would not be subject to a
significant delay. See 'Business--Regulation.'
ORIGINAL ISSUE DISCOUNT
The Original Notes were issued with original issue discount. Holders of the
Exchange Notes will be required to include the accretion of the original issue
discount of the Original Notes in gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments to which such income is
attributable. See 'Certain U.S. Federal Income Tax Considerations Relating to
the Notes--Original Issue Discount on the Original Notes' for a more detailed
discussion of the U.S. federal income tax consequences to holders of the
Exchange Notes of the purchase, ownership and disposition of the Exchange Notes.
If a bankruptcy case is commenced by or against the Company under the United
States Bankruptcy Code, the claim of a holder of Exchange Notes with respect to
the principal amount thereof may be limited to an amount equal to the sum of (i)
the purchase price, and (ii) that portion of the original issue discount which
has been amortized as of any such bankruptcy filing.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES; RESTRICTIONS ON RESALE OF THE
ORIGINAL NOTES
There is no existing trading market for the Exchange Notes, and there can
be no assurance regarding the future development of a market for the Exchange
Notes or the ability of holders to sell their Exchange Notes, or the price at
which such holders may be able to sell their Exchange Notes. If such a market
were to develop, the Exchange Notes could trade at prices that may be lower than
the initial offering price of the Original Notes or the Accreted Value of the
Exchange Notes depending on many factors, including prevailing interest rates,
the Company's operating results and the markets for similar securities. The
Initial Purchaser has advised the Issuers that it currently intends to make a
market in the Exchange Notes. The Initial Purchaser is not obligated to do so,
however, and any market-making with respect to the Exchange Notes may be
discontinued at any time without notice. Therefore, there can be no assurance as
to the liquidity of any trading market for the Exchange Notes or that an active
public market for the Exchange Notes will develop. The Issuers do not intend to
apply for listing or quotation of the Exchange Notes on any securities exchange
or stock market. The Original Notes have not been registered under the
Securities Act or any state securities law and, unless exchanged for Exchange
Notes pursuant to the Exchange Offer, may not be offered or sold except pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities law. The
Issuers do not intend to apply for listing or quotation of the Original Notes on
any securities exchange or stock market. The Original Notes are eligible for
trading in the Private Offerings, Resale and Trading through Automated Linkages
(PORTAL) market of the National Association of Securities Dealers, Inc.
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of such Original Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Original Notes desiring to tender such Original
Notes in exchange for the Exchange Notes should allow sufficient time to ensure
timely delivery. Although the Issuers intend to notify holders of defects or
irregularities with respect to tenders of Original Notes, neither the Issuers,
the Exchange Agent nor any other person shall incur any liability for failure to
give such notification.
Holders of the Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes, as set forth in the legend
thereon, as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
20
<PAGE>
In general, the Original Notes may not be offered or sold, unless registered
under the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Upon consummation of this Exchange Offer, the Issuers will
have no further obligation to provide for the registration under the Securities
Act of the Original Notes except under certain limited circumstances. In
addition, any holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Original Notes, where such
Original Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. To the extent
Original Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for the Original Notes not so tendered could be adversely
affected. See 'The Exchange Offer--Consequences of Failure to Exchange.'
SPECIAL NOTE REGARDING PROJECTED FINANCIAL DATA
In connection with the offering and sale by the Initial Purchaser of the
Original Notes pursuant to Rule 144A under the Securities Act, the Issuers
prepared an Offering Memorandum (the 'Offering Memorandum') that was distributed
to prospective investors, including persons that presently may be holders of the
Original Notes. The Offering Memorandum contained certain forecasts of financial
information for the years ending December 31, 1998 through 2002 (the
'Forecasts') that are not included or incorporated by reference in this
Prospectus. The Forecasts have not been and are not expected to be made public
and the Issuers do not intend to update or otherwise revise the Forecasts to
reflect events or circumstances after the date of the Forecasts or reflect the
occurrence of unanticipated events. As with all projected financial information,
the Forecasts are subject to numerous uncertainties, many of which are beyond
the control of the Issuers, and contain assumptions that may not be attainable.
The Forecasts and actual results will vary and those variations may be material.
The Exchange Offer is being made only pursuant to this Prospectus, and no holder
of Original Notes shall rely upon any of the information set forth in the
Offering Memorandum in determining whether to participate in the Exchange Offer.
21
<PAGE>
THE TRANSACTIONS
The Company is a Delaware limited liability company, and 92% of its
membership interests are owned directly or indirectly by ACME Parent and 8% are
owned directly or indirectly by the purchasers of the Units (as defined). See
'Security Ownership of Certain Beneficial Owners and Executive Officers.' The
Company was formed on August 15, 1997. On such date, ACME Parent contributed its
investment in Station KWBP and certain other net assets to the Company, which
the Company immediately contributed to ACME Television and its subsidiaries (the
'Contribution').
[ORGANIZATIONAL CHART GOES HERE]
- ------------------
(1) Includes $6.0 million of membership units issued upon the consummation of
certain aspects of the Salt Lake City Acquisition.
22
<PAGE>
THE ACQUISITIONS
ACME Parent completed the Portland Acquisition on June 17, 1997 for $18.7
million in cash and $4.4 million of membership units in ACME Parent. Certain of
the Institutional Investors, management, and the other members of ACME Parent
contributed or invested the cash portion of the Portland Acquisition. The
Company completed the Knoxville Acquisition on October 7, 1997 for $13.2 million
in cash. The Company completed the Albuquerque Acquisition on January 22, 1998
for $10,000 in cash. ACME Parent or its subsidiaries have also entered into
agreements to acquire two additional television stations (these two stations
collectively are referred to as the 'Pending Acquisitions' and together with the
Portland Acquisition, the Albuquerque Acquisition and the Knoxville Acquisition,
the 'Acquisitions'). On August 15, 1997, ACME Parent consummated the Portland
Contribution by contributing ACME Television of Oregon, LLC ('ACME Oregon'),
ACME Television of Tennessee, LLC ('ACME Tennessee'), and other net assets to
the Company, which the Company immediately contributed to ACME Television and
its subsidiaries. See 'Financial Statements--ACME Intermediate.' The Company
intends to consummate the Pending Acquisitions as soon as practicable. However,
there can be no assurance that all or any of the Pending Acquisitions will be
consummated. The following table sets forth certain information with respect to
the Acquisitions (dollars in millions):
<TABLE>
<CAPTION>
ESTIMATED
PURCHASE CAPITAL TOTAL
STATION MARKET PRIMARY SELLER/OWNER PRICE EXPENDITURES COSTS(2)
- -------------- ---------------------- -------------------------------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
KPLR-11 St. Louis, MO Koplar Communications, Inc. $146.0 $ 0.8 $146.8
KWBP-32 Portland, OR Channel 32, Incorporated 23.1 2.0 25.1
KZAR-16 Salt Lake City, UT Roberts Broadcasting of Salt Lake 14.0 4.5 18.5
City, L.L.C.
KAUO-19 Albuquerque, NM Minority Broadcasters of Santa Fe, -- 4.0 4.0
Inc.(1)
WBXX-20 Knoxville, TN Crossville TV Limited Partnership 13.2 4.5 17.7
------- ------ -------
$196.3 $ 15.8 $212.1
======= ====== =======
</TABLE>
- ------------------
(1) The purchase price for this Acquisition is $10,000.
(2) Excludes estimated transaction costs of $3.0 million associated with the
Acquisitions other than the Portland Acquisition.
The St. Louis Acquisition
ACME Parent has entered into a definitive agreement with Koplar
Communications and its stockholders pursuant to which the Company or a
subsidiary formed for the purpose will acquire for $146.0 million all of the
outstanding capital stock of Koplar Communications, which owns the licensee of
Station KPLR, Channel 11, which is licensed to broadcast in the St. Louis
market. The acquisition of voting control of Koplar Communications by the
Company is subject to approval by the FCC. The $146.0 million acquisition cost
is comprised of the following: (i) $143.0 million of cash, paid at closing of
the St. Louis LMA on September 30, 1997 subject to reduction for the amount of
long-term debt and notes payable of Koplar Communications ($14.0 million as of
January 2, 1998) and certain other adjustments and (ii) $3.0 million of
consulting fees relating to a management agreement to be entered into between
the Company and Mr. Koplar. See 'Management--Executive Compensation.' Pending
receipt of FCC approval, the Company entered into the St. Louis LMA to operate
Station KPLR for a 10-year term with an option for the Company to renew the St.
Louis LMA for an additional 10-year term. During the LMA period, the Company
will retain all revenues generated by the station, bear the operating expenses
of the station and have the right to provide programming for the station subject
to Koplar Communications' ultimate authority for station programming and the
station's existing programming commitments.
23
<PAGE>
The Portland Acquisition and Contribution
On June 17, 1997, ACME Parent acquired for approximately $23.1 million
substantially all of the assets of Channel 32, Incorporated relating to Station
KWBP, Channel 32, which is licensed to broadcast in the Portland market. For the
period from January 1, 1997 to the closing of the acquisition, ACME Parent
operated Station KWBP pursuant to an LMA. The Company completed the construction
of a new transmission facility to improve the station's signal and upgraded its
studio facility at a cost of approximately $2.3 million in January 1998. On
August 15, 1997, ACME Parent consummated the Portland Contribution by
contributing to the Company, which the Company immediately contributed to ACME
Television and its subsidiaries net assets with a book value of $23.9 million as
of June 30, 1997.
The Salt Lake City Acquisition
ACME Parent has entered into and contributed to ACME Television definitive
agreements to acquire for $14.0 million all of the ownership interest in Roberts
Broadcasting of Salt Lake City, L.L.C. ('Roberts Broadcasting'), which holds a
construction permit from the FCC for Station KZAR, Channel 16, which is licensed
to broadcast in the Salt Lake City market. The acquisition of Roberts
Broadcasting is subject to approval by the FCC. The $14.0 million acquisition
price will be paid as follows: (i) the Company acquired 49% of the outstanding
equity interests of Roberts Broadcasting in exchange for $6.0 million in
membership units of ACME Parent, (ii) the Company will acquire for $3.0 million
an option to acquire the remaining 51% of the outstanding equity interests of
Roberts Broadcasting and (iii) subject to completion of construction and receipt
of all required FCC approvals, the Company will exercise its option to acquire
the remaining interest in Roberts Broadcasting for a price equal to the lesser
of $5.0 million or the fair market value of such controlling interest which will
be offset by the repayment of a $4.0 million loan to the sellers of Roberts
Broadcasting to be made by ACME Parent. Pending exercise of the option, the
Company and Roberts Broadcasting will enter into a management agreement,
pursuant to which the Company will construct and acquire programming for the
station. The Company expects the construction costs to be approximately $4.5
million. The Company anticipates that the station will commence on-air broadcast
operations by April 1998.
The Albuquerque Acquisition
The Company acquired from Minority Broadcasters of Santa Fe, Inc.
('Minority Broadcasters') for $10,000 in cash the construction permit from the
FCC for Station KAUO, Channel 19, which is licensed to broadcast in the
Albuquerque-Santa Fe market. The Company expects the construction costs to be
approximately $4.0 million. The Company anticipates that the station will
commence on-air broadcast operations by September 1998. A commercial broadcast
television station in this market currently holds a secondary affiliation
agreement with The WB Network, which management believes will be terminated once
Station KAUO commences broadcasting.
The Knoxville Acquisition
On October 7, 1997, the Company acquired for $13.2 million in cash, all of
the partnership interests of Crossville TV Limited Partnership ('Crossville
Limited'), the licensee of Station WINT, Channel 20, which is licensed to
broadcast in the Knoxville market, and completed the construction of new
transmission facilities and its studio facilities. The construction and upgrade
costs were approximately $4.5 million. Upon consummation of this acquisition,
the Company changed the station's call letters from WINT to WBXX.
24
<PAGE>
THE FINANCINGS
The Company entered into a number of financing arrangements (collectively,
the 'Financings' and, together with the Acquisitions, the 'Transactions'). The
following table sets forth certain financing arrangements for ACME Parent and
its subsidiaries pursuant to the Transactions (dollars in thousands):
<TABLE>
<S> <C>
ACME PARENT:
Convertible Debentures................................................................... $ 20,000
Membership Units(1)...................................................................... 35,400
THE COMPANY:
Offering................................................................................. 40,000
ACME TELEVISION:
Capital Lease Facilities................................................................. 0
Revolving Credit Facility................................................................ 3,500
Television Notes Offering................................................................ 127,370
--------
ACME Parent consolidated total financings............................................. $226,270
========
</TABLE>
- ------------------
(1) Includes $6.0 million of membership units issued upon the consummation of
certain aspects of the Salt Lake City Acquisition.
ACME Parent Equity Contribution
On the Issue Date, ACME Parent issued Convertible Debentures and membership
units for aggregate gross proceeds of approximately $22.5 million, the net
proceeds of which were contributed to the Company, which the Company immediately
contributed to ACME Television and its subsidiaries (the 'Parent Equity
Contribution').
Units Offering
On September 24, 1997, the Issuers sold 71,634 Units (the 'Units')
consisting of $71,634,000 aggregate principal amount at maturity of the Issuers'
12% Senior Secured Discount Notes due 2005 ($40.0 million aggregate initial
Accreted Value (as defined)) and 71,634 Membership Units of the Company (the
'Membership Units'). The Notes and the Membership Units were separately
transferable, subject to various transfer restrictions, immediately after their
issuance and are not tradeable as a Unit after their issuance. The gross
proceeds to the Company of approximately $40.0 million were received on
September 30, 1997, which the Company immediately contributed to ACME Television
and its subsidiaries. The Issuers are currently offering to exchange the
Exchange Notes for the Original Notes pursuant to the conditions set forth in
the registration statement filed by the Issuers, of which this prospectus is a
part.
Television Notes Offering
On September 24, 1997, ACME Television sold (the 'Television Notes
Offering') $175.0 million in aggregate principal amount at maturity of 10 7/8%
Senior Discount Notes due 2004 (the 'Television Notes'). The gross proceeds from
the Television Notes Offering of $127.4 million were received on September 30,
1997. The net proceeds from the Television Notes Offering together with the
proceeds of the other Financings and cash on hand were used to consummate the
St. Louis LMA, the Albuquerque Acquisition and the Knoxville Acquisition and
will be used to consummate the Pending Acquisitions. ACME Television is
currently offering to exchange its Series B Television Notes (the 'Television
Exchange Notes'), which have been registered under the Securities Act, for a
like principal amount of its Series A Television Notes (the 'Television Original
Notes'), sold on the Issue Date, pursuant to the conditions set forth in the
registration statement filed by ACME Television (the 'Television Exchange Offer
Registration Statement').
The Company intends to temporarily invest the net remaining proceeds of the
Offering and the Television Notes Offering in short-term, investment grade
securities prior to the consummation of the Pending Acquisitions. If any of the
Pending Acquisitions are not consummated, the Company intends to use the net
proceeds designated for any such acquisition (and related expenditures) for
working capital, capital expenditures, general corporate purposes, and to
finance future acquisitions.
25
<PAGE>
Revolving Credit Facility
In addition to the Parent Equity Contribution, the Television Notes
Offering and the proceeds of the Offering, ACME Television entered into an
amended and restated $40.0 million revolving credit facility (the 'Revolving
Credit Facility') among ACME Television, as borrower, each of its subsidiaries,
as guarantors, Canadian Imperial Bank of Commerce, New York Agency ('CIBC'), and
the several lenders named therein, the proceeds of which are to be used to fund
future acquisitions and for working capital and general corporate purposes. As
of September 30, 1997, the Revolving Credit Facility bore interest of a rate of
8.6875%.
Capital Lease Facilities
ACME Television intends to enter into capital lease facilities aggregating
$20.0 million in availability (the 'Capital Lease Facilities'). The Capital
Lease Facilities will be used to finance substantially all of the expected
capital expenditures for the construction or upgrade of the Company's stations.
ADDITIONAL ACQUISITION
On January 30, 1998 ACME Television Licenses of Tennessee, LLC entered into
an agreement to acquire an FCC construction permit to build a television station
in the Springfield, Missouri DMA for $2.225 million in cash, and granted to a
third party a 120-day option to acquire such right (and assume all obligations
of the Company incurred in connection with the development of such station,
including any affiliation arrangements with The WB Network) at an agreed premium
to the Company's acquisition and development costs. Such agreement and related
option are subject to approval by the FCC. In the event the option is not
exercised, the Company may elect to build and operate the station or seek to
transfer its interest in such station either for cash, in an asset exchange or a
combination thereof. The Company expects that the option will be exercised, and
has not determined what course it will pursue if the option is not exercised. If
the option expires, the Company believes that potentially attractive
opportunities will exist to transfer the Springfield station rights in exchange
for station rights in other markets, cash or a combination thereof. Accordingly,
the Company has not included the proposed Springfield station in the pro forma
financial information included herein or otherwise included such transaction as
an Acquisition or a Pending Acquisition in this Prospectus, and all references
herein to the Company's stations do not include the proposed Springfield
station. The Company intends to fund the purchase price from available funds,
and such acquisition will not affect the availability of funds for any of the
Pending Acquisitions.
USE OF PROCEEDS
The Issuers will not receive any cash proceeds from the issuance of the
Exchange Notes. In consideration for issuing the Exchange Notes as contemplated
in this Prospectus, the Issuers will receive in exchange Original Notes in like
principal amount, which will be cancelled and as such will not result in any
increase in indebtedness of the Company.
26
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of September 30, 1997:
<TABLE>
<S> <C>
Cash...................................................................................... $ 27,211
========
Revolving Credit Facility(1).............................................................. $ 3,500
Capital lease obligations outstanding (including current portion)(1)...................... 706
Television Notes(1)....................................................................... 127,370
Original Notes (2)........................................................................ 35,650
--------
Total debt.............................................................................. 167,226
Members' capital.......................................................................... 48,125
--------
Total capitalization.................................................................... $215,351
========
</TABLE>
- ------------------
(1) These obligations are direct obligations of the Company's subsidiaries and,
as such, constitute claims against such subsidiaries prior to the Company's
equity interest therein.
(2) Represents the initial Accreted Value of $40.0 million of the Notes less the
allocation of $4.35 million to the Membership Units.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements (the
'Pro Forma Financial Statements') are based on the financial statements of the
Company, Koplar Communications and Channel 32, Incorporated ('Channel 32')
included elsewhere in this Prospectus, adjusted to give effect to the Knoxville
Acquisition, the Albuquerque Acquisition and the Pending Acquisitions. The
unaudited pro forma consolidated statements of operations give effect to the
Transactions as if they had occurred as of the beginning of the periods shown,
and the unaudited pro forma consolidated balance sheet gives effect to the
Knoxville Acquisition, the Albuquerque Acquisition and the Pending Acquisitions
as if they had occurred as of September 30, 1997. The pro forma data are based
upon available information and certain assumptions that management believes are
reasonable. The Pro Forma Financial Statements do not purport to represent what
the Company's result of operations or financial condition would actually have
been had the transactions occurred on such dates or to project the Company's
results of operations or financial condition for any future period or date. The
Pro Forma Financial Statements should be read in conjunction with the financial
statements of the Company and the historical financial statements of Koplar
Communications and Channel 32, the prior owners of Station KPLR and Station
KWBP, respectively, included elsewhere in this Prospectus, and 'Management's
Discussion and Analysis of Results of Operations and Financial Condition.' In
connection with the St. Louis Acquisition, the Company entered into the St.
Louis LMA with Koplar Communications. Edward J. Koplar is the controlling
stockholder, chief executive officer and chief operating officer of Koplar
Communications. In addition, the Company intends to enter into the Management
Agreement with Mr. Koplar, and grant to an affiliate of Mr. Koplar the right to
encode the broadcast signals of Station KPLR and other television stations the
Company owns or operates with such entity's interactive technology. The Company
has also granted to Mr. Koplar approval rights with respect to certain
dispositions of Station KPLR by the Company for a period of five years. In
connection with the Portland Acquisition, the Company entered into an LMA with
Channel 32. See 'Certain Relationships and Related Transactions.' In addition,
Channel 32 obtained $4.4 million of membership units in ACME Parent upon
consummation of the Portland Acquisition. In connection with the Salt Lake City
Acquisition, $3.0 million of membership units in ACME Parent were issued to each
of Steven C. Roberts and Michael V. Roberts. Prior to such arrangements in
connection with the Acquisitions, the Company had no relationships with any of
the owners of such businesses.
The Knoxville Acquisition, the Albuquerque Acquisition and the Pending
Acquisitions will be accounted for using the purchase method of accounting.
After each acquisition, the total consideration of such acquisition will be
allocated to the tangible and intangible assets acquired and liabilities assumed
based upon their respective estimated fair values. The allocation of the
aggregate total consideration included in the Pro Forma Financial Statements is
preliminary as the Company believes further refinement is impractical at this
time. However, the Company does not expect that the final allocation of the
total consideration will materially differ from the preliminary allocations set
forth herein.
28
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- PRO FORMA PRO FORMA
ACME KOPLAR ----------- -----------
INTERMEDIATE COMMUNICATIONS ADJUSTMENTS THE COMPANY
------------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 27,211 $ -- $ (21,210)(1) $ 6,001
Accounts receivable, net............................... 405 7,281 -- 7,686
Due from parent........................................ 14,830 -- -- 14,830
Current portion of programming rights.................. 581 4,889 -- 5,470
Prepaid expenses and other current assets.............. 201 513 -- 714
-------- -------- ---------- ---------
Total current assets......................... 43,228 12,683 (21,210) 34,701
Property and equipment, net............................ 4,177 2,394 -- 6,571
Programming rights, net of current portion............. 590 4,097 -- 4,687
Deposit................................................ 143,016 -- (143,000)(1) 16
Other assets........................................... 13,315 3,148 (3,000)(1) 10,880
(2,583)(2)
Broadcast licenses and other intangibles............... 22,570 -- 171,905 (1) 194,475
-------- -------- --------- ---------
Total assets................................. $226,896 $ 22,322 $ 2,112 $ 251,330
======== ======== ========= =========
LIABILITIES AND MEMBERS' CAPITAL/SHAREHOLDERS' DEFICIT
Accounts payable and accrued liabilities............... $ 10,072 $ 9,289 $ 1,000 (1) $ 14,653
(5,708)(2)
Current portion of programming rights payable.......... 876 5,089 -- 5,965
Current portion of note payable-programmer............. -- 400 (400)(2) --
Note payable to bank................................... 3,500 -- -- 3,500
Current portion of capital lease obligations........... 284 -- -- 284
-------- -------- --------- ---------
Total current liabilities.................... 14,732 14,778 (5,108) 24,402
Programming rights payable, net of current portion..... 597 4,542 -- 5,139
Obligations under lease, net of current portion........ 422 -- -- 422
Note payable-programmer................................ -- 3,455 (3,455)(2) --
Other long-term liabilities............................ -- 2,222 2,000(1) 4,222
Senior secured discount notes.......................... 35,650 -- -- 35,650
Senior discount notes.................................. 127,370 -- -- 127,370
Other long-term debt................................... -- 12,381 (12,381)(2) --
---------- -------- -------- ---------
Total liabilities............................ 178,771 37,378 (18,944) 197,205
Members' capital/shareholders' equity.................. 51,363 46 6,000(1) 57,363
(46)(3)
Accumulated deficit.................................... (3,238) (15,102) 15,102(3) (3,238)
---------- -------- -------- ---------
Total members' capital/shareholders'
deficit.................................... 48,125 (15,056) 21,056 54,125
---------- -------- -------- ---------
Liabilities and members' capital/shareholders'
deficit.............................................. $226,896 $ 22,322 $ 2,112 $ 251,330
======== ======== ======== =========
</TABLE>
(See notes on the following page)
29
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(1) Reflects the allocation of the purchase prices for the Knoxville
Acquisition, the Albuquerque Acquisition and the Pending Acquisitions as
follows (dollars in thousands):
<TABLE>
<CAPTION>
KZAR AND ESTIMATED
KPLR WINT KAUO COSTS TOTAL
-------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Consideration:
Cash...................................... $ 0 $13,200 $ 8,010 $ 0 $ 21,210
Deposits.................................. 143,000 -- -- -- 143,000
ACME Parent Membership Units.............. -- -- 6,000 -- 6,000
Prepaid acquisition costs................. -- -- -- 3,000 3,000
Consulting payments under management
agreement ($1.0 million current and
$2.0 million long-term)................ 3,000 -- -- -- 3,000
-------- ------- ------- ------- --------
Total................................ 146,000 13,200 14,010 3,000 176,210
Less:
Fair value of net tangible assets
acquired............................... 4,305 -- -- -- 4,305
-------- ------- ------- ------- --------
Broadcast licenses........................ $141,695 $13,200 $14,010 $ 3,000 $171,905
======== ======= ======= ======= ========
</TABLE>
(2) Adjustments to record the estimated fair value of net tangible assets
acquired in the St. Louis Acquisition as follows (dollars in thousands):
<TABLE>
<S> <C>
Book value of net assets acquired........................................ $(15,056)
Other assets not acquired................................................ (2,583)
Note payable-programmer not assumed:
Current portion........................................................ 400
Long-term portion...................................................... 3,455
Other long-term note not assumed......................................... 12,381
Accrued liabilities:
Accrued liabilities not assumed........................................ 5,900
Working capital purchase price adjustment.............................. (192)
--------
Fair value of net assets acquired........................................ $ 4,305
========
</TABLE>
(3) Elimination of Station KPLR historical shareholders' deficit.
30
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(1)
------------------------- PRO FORMA PRO FORMA
CHANNEL KOPLAR ----------- -----------
32 COMMUNICATIONS ADJUSTMENTS THE COMPANY
------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................................................ $ 3,202 $ 27,260 $ -- $ 30,462
Operating expenses:
Programming........................................................... 3,060 11,365 -- 14,425
Selling, general and administrative................................... 1,497 11,318 (2,700)(4) 10,115
Depreciation and amortization......................................... 557 702 9,705(5) 10,964
------- -------- --------- ---------
Total operating expenses........................................... 5,114 23,385 7,005 35,504
------- -------- --------- ---------
Operating income (loss)................................................. (1,912) 3,875 (7,005) (5,042)
Interest expense........................................................ (3,330) (2,155) (20,712)(2) (20,712)
5,485(3)
Other, net.............................................................. (491) (699) 443(6) (747)
------- -------- --------- ---------
Income (loss) before income taxes and extraordinary item................ (5,733) 1,021 (21,789) (26,501)
Income tax (expense) benefit............................................ -- (462) 462(7) --
------- -------- --------- ---------
Net income (loss) before extraordinary item............................. $(5,733) $ 559 $ (21,327) $ (26,501)
======= ======== ========= =========
EBITDA(8)(9).......................................................... $ (575) $ 5,922 $ 2,700(4) $ 8,047
======= ======== ========= =========
</TABLE>
- ------------------
(1) The Company was not formed as of December 31, 1996. Accordingly, historical
results have not been presented. The unaudited consolidated statement of
operations for Station KWBP includes the six months ended June 30, 1996 and
the six months ended December 31, 1996.
(2) Reflects (i) interest expense (10.875% per annum) and amortization of
issuance costs (estimated to be $5.8 million amortized over 7 years) on the
Television Notes, (ii) interest expense (12.0% per annum) and amortization
of discount and issuance costs (estimated to be $5.9 million including $4.3
million of the estimated gross proceeds from the sale of Units allocated to
Membership Units over 8 years) on the Notes, and (iii) issuance costs on the
capital lease obligations and bank fees (estimated to be $700,000 amortized
over 5 years).
(3) Reflects adjustment to eliminate historical interest expense.
(4) Reflects the (i) decrease in payroll and payroll related costs of selling,
general and administrative personnel due to termination of employees or
reduction in levels of compensation and (ii) elimination of certain
marketing programs as follows (dollars in thousands):
<TABLE>
<S> <C>
Adjustments to selling, general and administrative expenses:
Reductions of senior executive compensation....................................................... $ 1,750
Reductions of sales force......................................................................... 300
Discontinued marketing programs................................................................... 400
Other reductions.................................................................................. 250
---------
$ 2,700
=========
</TABLE>
The reductions of senior executive compensation reflect the elimination of
the chief executive officer at Koplar Communications and a net reduction in
general manager compensation based on the Company's employment agreement with
the current general manager of Koplar Communications.
(5) Reflects the amortization of $194.1 million of broadcast licenses, relating
to the Acquisitions, over a 20 year period.
(6) Reflects the adjustment to eliminate the reserve recorded by Koplar
Communications on a note receivable from a related party. This note
receivable will not be acquired by the Company.
(7) Reflects adjustment to income tax expense.
(8) EBITDA is defined as operating income (loss), plus depreciation,
amortization and other noncash charges, including amortization of
programming rights, minus programming payments. Although EBITDA is not
calculated in accordance with GAAP, it is widely used as a measure of a
Company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
(9) Pro Forma EBITDA has not been adjusted to reflect the elimination of
payments of certain program obligations relating to programs where Station
KPLR's rights have expired or which are not currently being utilized by
Station KPLR or to reflect the impact of other potential adjustments to the
value of programming rights.
31
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------ PRO FORMA PRO FORMA
ACME KOPLAR ----------- -----------
INTERMEDIATE COMMUNICATIONS ADJUSTMENTS THE COMPANY
------------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.......................................................... $ 2,155 $ 21,347 $ -- $ 23,502
Operating expenses:
Programming..................................................... 1,096 8,458 -- 9,554
Selling, general and administrative............................. 3,173 13,722 (1,951)(3) 14,944
Depreciation and amortization................................... 551 490 6,965(4) 8,006
-------- -------- --------- ---------
Total operating expenses.................................... 4,820 22,670 5,014 32,504
-------- -------- --------- ---------
Operating income (loss)........................................... (2,665) (1,323) (5,014) (9,002)
Interest expense, net............................................. (573) (1,117) (15,065)(1) (15,065)
1,690(2)
Other, net........................................................ -- (1,313) 985(5) (328)
-------- -------- --------- ---------
Income (loss) before income taxes............................... (3,238) (3,753) (17,404) (24,395)
Income taxes (expense) benefit.................................... 1,031 (1,031)(6)
-------- -------- --------- ---------
Net income (loss)................................................. $ (3,238) $ (2,722) $ (18,435) $ (24,395)
======== ======== ========= =========
OTHER DATA:
EBITDA(7)(8).................................................... $ (2,225) $ (1,346) $ 4,951(3) $ (1,620)
======== ======== ========= =========
</TABLE>
- ------------------
(1) Reflects (i) interest expense (10.875% per annum) and amortization of
issuance costs (estimated to be $5.8 million amortized over 7 years) on the
Television Notes, (ii) interest expense (12.0% per annum) and amortization
of discount and issuance costs (estimated to be $5.9 million including $4.3
million of the estimated gross proceeds from the sale of Units allocated to
Membership Units over 8 years) on the Notes, and (iii) issuance costs on the
capital lease obligations and bank fees (estimated to be $700,000 amortized
over 5 years).
(2) Reflects adjustment to eliminate historical interest expense.
(3) Entry records (i) decrease in payroll and payroll related costs of selling,
general and administrative personnel due to termination of employees or
reductions in levels of compensation and (ii) elimination of certain
marketing programs as follows (dollars in thousands):
<TABLE>
<S> <C>
Adjustments to selling, general and administrative expenses:
Reductions of senior executive compensation...................................................... $1,238
Reductions of sales force........................................................................ 225
Discontinued marketing programs.................................................................. 300
Other reductions................................................................................. 188
------
$1,951
======
</TABLE>
Such adjustments do not reflect $5.9 million of non-recurring senior
executive compensation relating to the St. Louis LMA.
The reductions of senior executive compensation reflect the elimination of
the chief executive officer at Koplar Communications and a net reduction in
general manager compensation based on the Company's employment agreement with
the current general manager of Koplar Communications.
(4) Reflects amortization of broadcast licenses as follows: (i) $22.7 million of
Station KWBP broadcast licenses rights for the period from January 1, 1997
to June 16, 1997 (acquisition date) using a 20 year estimated life, and (ii)
$171.9 million broadcast licenses relating to the Knoxville Acquisition, the
Albuquerque Acquisition and the Pending Acquisitions, amortized over an
estimated life of 20 years (including $3.0 million payable pursuant to the
Management Agreement to be entered into with Mr. Koplar upon consummation of
the St. Louis Acquisition, which the Company allocated to broadcast licenses
because it has no right to compel Mr. Koplar to provide any services in
exchange for such payment).
(5) Reflects adjustment to eliminate the reserve recorded by Koplar
Communications on a note receivable from a related party. The note
receivable from related party will not be assumed by the Company.
(6) Reflects adjustment to income tax expense.
(7) EBITDA is defined as operating income (loss), plus depreciation,
amortization and other noncash charges, including amortization of
programming rights, minus programming payments. Although EBITDA is not
calculated in accordance with GAAP, it is widely used as a measure of a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operations and other income or cash flow data prepared in accordance
with GAAP, or as a measure of profitability or liquidity.
(8) Pro forma EBITDA has not been adjusted to reflect the elimination of
payments of certain program obligations on programs where Station KPLR's
rights have expired or which are not currently being utilized by Station
KPLR or to reflect the impact of other potential adjustment to the value of
programming rights.
32
<PAGE>
'
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables contain selected historical consolidated financial
information with respect to ACME Intermediate, Koplar Communications and Channel
32. The selected historical financial data of ACME Intermediate set forth below
as of September 30, 1997 and for the nine months ended September 30, 1997 have
been derived from the audited financial statements of ACME Intermediate included
elsewhere in this Offering Memorandum which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The selected historical
financial data set forth below with respect to Koplar Communications as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 are derived from the audited financial statements included
elsewhere herein. The selected financial data set forth below for Koplar
Communications as of December 31, 1994, 1993 and 1992 and for each of the two
years in the period ended December 31, 1993 are derived from financial
statements not included elsewhere herein. The selected historical financial data
of Channel 32, for the period from December 16, 1993 (inception) to June 30,
1994, for each of the years in the two-year period ended June 30, 1996 are
derived from the financial statements of Channel 32, included elsewhere in this
Offering Memorandum, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected historical financial data
of Channel 32 for the period from July 1, 1996 to June 17, 1997 are derived from
the unaudited financial statements of Channel 32, included elsewhere herein. The
selected historical financial data should be read in conjunction with
'Management's Discussion and Analysis of Results of Operations and Financial
Condition' and the financial statements of ACME Television, Koplar
Communications, and Channel 32 included elsewhere in this Offering Memorandum.
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ACME INTERMEDIATE ENDED
SEPTEMBER
STATEMENT OF OPERATIONS DATA: 30, 1997
------------
<S> <C>
Revenues............................................................................................ $ 2,155
Operating expenses:
Programming....................................................................................... 1,096
Selling, general and administrative............................................................... 3,173
Depreciation and amortization..................................................................... 551
--------
Total operating expenses..................................................................... 4,820
--------
Operating loss............................................................................... (2,665)
--------
Interest expense.................................................................................... (573)
--------
Loss before income taxes..................................................................... (3,238)
Income taxes........................................................................................ --
--------
Net loss..................................................................................... $ (3,238)
========
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
BALANCE SHEET DATA: 1997
-------------
<S> <C>
Cash and cash equivalents.......................................................................... $ 27,211
Working capital.................................................................................... 28,496
Total assets....................................................................................... 226,896
Total debt(1)...................................................................................... 167,226
Members' capital................................................................................... 48,125
</TABLE>
- ------------------
(1) Total debt includes the current portion of capital lease obligations and
excludes programming rights payable.
33
<PAGE>
KOPLAR COMMUNICATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1).............................. $39,128 $41,500 $33,146 $27,528 $27,260 $19,751 $21,347
------- ------- ------- ------- ------- ------- --------
Operating expenses:
Programming............................ 22,532 19,592 13,581 9,503 11,365 9,413 8,458
Selling, general and administrative.... 17,587 17,614 12,113 11,632 11,318 7,914 13,722
Depreciation and amortization.......... 1,321 1,367 1,085 791 702 518 490
------- ------- ------- ------- ------- ------- --------
Total operating expenses............ 41,440 38,573 26,779 21,926 23,385 17,845 22,670
------- ------- ------- ------- ------- ------- --------
Operating income (loss)............. (2,312) 2,927 6,367 5,602 3,875 1,906 (1,323)
------- ------- ------- ------- ------- ------- --------
Other income (expense):
Interest expense....................... (6,462) (9,402) (5,777) (2,842) (2,155) (1,522) (1,117)
Other, net............................. (472) (492) (2,059) (321) (699) (489) (1,313)
Other non-recurring gains(2)........... -- -- 15,036 -- -- -- --
------- ------- ------- ------- ------- ------- --------
Other income (expense).............. (6,934) (9,894) 7,200 (3,163) (2,854) (2,011) (2,430)
------- ------- ------- ------- ------- ------- --------
Income (loss) before income taxes,
discontinued operations and
extraordinary items............... (9,246) (6,967) 13,567 2,439 1,021 (105) (3,753)
Income tax provision (benefit)........... -- -- 3,272 523 462 425 (1,031)
------- ------- ------- ------- ------- ------- --------
Income (loss) before discontinued
operations and extraordinary
items............................. (9,246) (6,967) 10,295 1,916 559 (530) (2,722)
Discontinued operations(3)............... -- -- 1,262 -- --
------- ------- ------- ------- ------- ------- --------
Income (loss) before extraordinary
items............................. (9,246) (6,967) 11,557 1,916 559 (530) (2,722)
Extraordinary items, net of income
taxes(4)............................... -- -- 47,134 (1,359) -- --
------- ------- ------- ------- ------- ------- --------
Net income (loss)...................... $(9,246) $(6,967) $58,691 $ 1,916 $ (800) $ (530) $(2,722)
======= ======= ======= =====-= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 1,464 $ 1,902 $ 80 $ 244 $ 23 $ --
Working capital................................ (83,628) (88,216) 115 (1,709) 3,799 (2,095)
Total assets................................... 49,898 46,538 29,443 29,559 23,313 22,322
Long-term debt and obligations under capital
leases(5).................................... 36,089 35,422 15,561 15,282 13,650 12,381
Stockholders' equity (deficit)................. (60,679) (67,646) (12,339) (11,534) (12,334) (15,056)
</TABLE>
- ------------------
(1) Revenues include approximately $14.3 million, $15.4 million and $7.1 million
for the years ended December 31, 1992, 1993 and 1994, respectively, relating
to the operations of Station KRBK which was sold on June 29, 1994.
(2) Other non-recurring gains are comprised of a gain of $11.4 million on the
sale of a broadcasting facility and $3.6 million realization under a tax
sharing agreement.
(3) Discontinued operations are comprised of income from the operations of
divested subsidiaries.
(4) Extraordinary items for the year ended December 31, 1994 are comprised of:
(i) a $21.5 million gain on forgiveness of programming obligations, (ii) a
$24.8 million gain on forgiveness of senior debt, and (iii) an $800,000 gain
on forgiveness of other obligations. The extraordinary item for the year
ended December 31, 1996 is comprised of $1.4 million loss on early
extinguishment of debt.
(5) Includes the principal balances of the Company's senior notes, revolving
loan agreement and capital lease agreements.
34
<PAGE>
CHANNEL 32
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED YEAR ENDED PERIOD FROM
DECEMBER 31, 1993 JUNE 30, JUNE 30, JULY 1, 1996
(INCEPTION) 1995 1996 TO JUNE 17,
TO JUNE 30, ------------- ------------- 1997
1994 --------------
----------------- (PREDECESSOR) (SUCCESSOR)
(SUCCESSOR)
(PREDECESSOR) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues.......................................... $ -- $ 288 $ 2,729 $ 1,306
Operating expenses:
Programming..................................... 6 623 3,274 1,304
Selling, general and administrative............. 11 273 1,462 1,061
Depreciation and amortization..................... -- 235 542 346
----- ------- ------- --------
Total operating expenses..................... 17 1,131 5,278 2,711
----- ------- ------- --------
Operating income............................. (17) (843) (2,549) (1,405)
----- ------- ------- --------
Other income (expense):
Interest expense.................................. (5) (200) (3,252) (2,222)
Interest income................................... -- -- 45 --
Write-off due to parent........................... -- -- (189) --
Other, net........................................ -- -- (70) (10)
----- ------- ------ --------
Other income (expense)....................... (5) (200) (3,466) (2,232)
----- ------- ------- --------
Loss before income taxes..................... (22) (1,043) (6,015) (3,637)
Income taxes...................................... -- -- -- --
----- ------- ------ --------
Net loss..................................... $ (22) $(1,043) $(6,015) $ (3,637)
===== ======= ======= ========
</TABLE>
- ------------------
(1) Effective July 1, 1995, Peregrine Communications, Ltd. acquired Channel 32,
Incorporated. As a result of the acquisition, the financial information for
the periods after the acquisition ('Successor') is presented on a different
cost basis than for periods prior to the acquisition ('Predecessor') and,
therefore, is not comparable.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion relating to Koplar Communications is based upon
the historical financial statements included elsewhere herein of Koplar
Communications for the years ended December 31, 1994, 1995 and 1996 and for the
nine months ended September 30, 1996 and 1997. The following discussion relating
to Channel 32 is based upon the historical financial statements of Channel 32
for the period from December 16, 1993 (inception) to June 30, 1994, the years
ended June 30, 1995 and 1996 and the period from July 1, 1996 to June 17, 1997.
The results of operations of ACME Television for the nine months ended September
30, 1997 include the operations of Station KWBP, which ACME Parent acquired on
June 17, 1997 and operated by it pursuant to an LMA from January 1, 1997 to the
date of acquisition.
The Company's revenues are primarily derived from the sale of broadcast
advertising time to national, regional and local advertisers and advertising
time exchanged for goods and services. All revenues are stated net of any agency
and national sales representative commissions. The Company receives such
revenues net of such commissions, which are deducted by the agencies and
national sales representatives. Revenues for Channel 32 include the value
associated with barter agreements in which broadcast time is exchanged for
programming rights. Revenue and expenses for Koplar Communications do not
include barter transactions.
The Company's station operating expenses consist of programming expenses;
marketing and selling costs, including commissions paid to the Company's sales
staff and ratings/research data costs; technical and similar operations costs;
and general and administrative expenses. Long-term programming rights are
initially recorded as an asset at cost. Programming expenses include
amortization of long-term programming rights, which the Company assesses the
value of on an ongoing basis. When unamortized costs of long-term programming
rights exceed the estimated undiscounted future revenue, the Company adjusts the
carrying value of such programming rights and such adjustment is reflected as a
programming expense.
The Company expects to have net losses primarily as the result of non-cash
charges attributable to the amortization of intangibles acquired and interest
expense incurred in connection with the purchase of each station.
EBITDA is defined as operating income (loss), plus depreciation,
amortization and other non-cash charges, including amortization of programming
rights, minus programming payments. Although EBITDA is not calculated in
accordance with GAAP, it is widely used as a measure of a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation from or
as a substitute for net income, cash flows from operations and other income or
cash flow data prepared in accordance with GAAP, or as a measure of
profitability or liquidity.
KOPLAR COMMUNICATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- --------------------------------
STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1996 1997
----- ----- ----- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenue............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Programming............................. 41.0 34.5 41.7 47.7 39.6
Selling, general and administrative..... 36.5 42.3 41.5 40.0 64.3
Depreciation and amortization........... 3.3 2.9 2.6 2.6 2.3
----- ----- ----- ----- -----
Operating income (loss)................. 19.2 20.9 14.2 9.7 (6.2)
Interest expense........................ 17.4 10.3 7.9 7.7 5.2
EBITDA.................................. 15.3 23.9 21.7 (0.4%) (6.3%)
</TABLE>
36
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Koplar Communications' net revenues for the nine months ended September 30,
1997 were $21.3 million as compared to $19.8 million for the nine months ended
September 30, 1996, representing a 8.1% increase. This increase was a result of
slightly higher total market revenues and improved Station KPLR ratings during
the 1997 period as compared to the corresponding prior period.
Koplar Communications' programming expenses for the nine months ended
September 30, 1997 were $8.5 million, as compared to $9.4 million for the
corresponding period of the prior year, representing a 10.0% decrease. This
decrease was primarily attributable to a non-recurring adjustment to the
carrying value of certain programming rights in the amount of $1.5 million
during the 1996 period. Amortization of programming rights was $3.6 million and
payments on programming obligations were $4.2 million for the nine months ended
September 30, 1997 compared to amortization of programming rights, including an
adjustment to the carrying value of programming rights, of $5.5 million and
payments of programming obligations of $4.1 million for the prior period.
Koplar Communications' selling, general & administrative expenses for the
nine months ended September 30, 1997 were $13.7 million as compared to $7.9
million for the corresponding period of the prior year, representing a 73.4%
increase. This increase related primarily to non-recurring senior executive
compensation relating to the transactions with ACME Television during 1997.
Depreciation and amortization for the nine months ended September 30, 1997
was $490,000, as compared to $518,000 for the corresponding period of the prior
year.
Interest expense for the nine months ended September 30, 1997 was $1.1
million as compared to $1.5 million for the corresponding period of the prior
year, representing a 27.0% decrease. This decrease was due to the July 1996
refinancing of Koplar Communications' bank debt (revolver and term loan) which
resulted in a reduction in the interest rate applicable to borrowings from
approximately 12% to prime plus 0.75% (9% at December 31, 1996).
Other, net expenses increased to $1.3 million for the nine months ended
September 30, 1997 from $489,000 for the nine months ended September 30, 1996.
This increase of $824,000 is due primarily to a $985,000 provision in 1997 to
reduce the carrying value of a note receivable from ISW, Inc., a company
affiliated with Koplar Communications' majority shareholder.
Income tax benefit for the nine months ended September 30, 1997 was $1.0
million and represented approximately 27.5% of pre-tax income compared to a tax
expense of $425,000 for the corresponding period of the prior year.
EBITDA for the nine months ended September 30, 1997 was ($1.3) million, as
compared to $73,000 for the corresponding period of the prior year.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Koplar Communications' net revenues for the year ended December 31, 1996
were $27.3 million as compared to $27.5 million for the year ended December 31,
1995, representing a 1.0% decrease. Station KPLR experienced a decrease in spot
advertising and other revenue of $900,000 offset by an increase of $700,000
attributable to advertising sales during broadcasts of St. Louis Cardinals
baseball.
Koplar Communications' programming expenses in 1996 were $11.4 million as
compared to $9.5 million during the prior year, representing a 19.6% increase.
This increase was primarily the result of a non-recurring adjustment in the
carrying value of certain programming rights in the amount of $1.5 million
during the 1996 period. Amortization of programming rights, including an
adjustment to the carrying value of programming rights, was $6.9 million and
payments on programming obligations were $5.5 million for the year ended
December 31, 1996 compared to amortization of programming rights of $5.4 million
and payments of programming obligations of $5.2 million for the prior year.
37
<PAGE>
Koplar Communications' selling, general & administrative expenses in 1996
were $11.3 million as compared to $11.6 million for the prior year, representing
a 2.7% decrease.
Depreciation and amortization in 1996 was $702,000 as compared to $791,000
for the prior year. This decrease was related to certain assets becoming fully
depreciated in early 1996.
Interest expense in 1996 was $2.2 million as compared to $2.8 million for
the prior year. This reduction in interest expense was primarily the result of
the refinancing of the Koplar Communications' bank debt at lower interest rates,
which occurred in July 1996.
Other, net expenses in 1996 were $699,000 as compared to $321,000 for the
prior year. This increase primarily relates to provisions in 1996 to reduce the
carrying value of a note receivable from an affiliated company.
Income tax expense in 1996 was $462,000, representing 45.2% of pre-tax
income as compared to $523,000 for 1995, which represented 21.4% of the period's
pre-tax income. The higher effective tax rate incurred in 1996 relates primarily
to the non-deductibility of certain travel and entertainment expenses. The lower
effective tax rate for 1995 relates to the reversal of valuation allowances
attributable to certain of Koplar Communications' deferred tax assets utilized
by it during the period.
As a result of the debt refinancing discussed above, unamortized deferred
financing costs were written off, resulting in a loss or early extinguishment of
debt of $1.4 million, net of taxes of $868,000.
EBITDA for the year ended December 31, 1996 was $5.9 million as compared to
$6.6 million for the corresponding period of the prior year, representing a
10.0% decrease. This decrease is mainly attributable to slight decreases in net
revenues and increases in programming payments during 1996 as compared to 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues in 1995 were $27.5 million compared to revenues in the prior year
of $33.1 million. This decrease in revenues of $5.6 million was primarily
related to the sale of Station KPLR's independent television Station KRBK in
Sacramento, California in June 1994. Station KRBK had contributed $7.1 million
of revenue during 1994. Net of the effects of the sale of Station KRBK, overall
revenue of Koplar Communications increased $1.5 million due primarily to an
increase in Koplar Communications' share of national spot revenue.
Programming expenses for Station KPLR were $9.5 million in 1995 as compared
to $13.6 million during 1994. This $4.1 million decrease primarily relates to
1994 programming expenses of $3.9 million at Station KRBK. Amortization of
programming rights was $5.4 million and payments on programming obligations were
$5.2 million for the year ended December 31, 1995 compared to amortization of
programming rights of $7.3 million and payments of programming obligations of
$9.7 million for the prior year.
Selling, general and administrative expenses during 1995 were $11.6 million
compared to $12.1 million during 1994. This $481,000 decrease primarily relates
to 1994 selling, general and administrative expenses at Station KRBK of $2.6
million offset by approximately $2.1 million in increased expenses at Koplar
Communications relating to expansions in general staffing levels and increased
promotional spending.
Depreciation and amortization expenses were $791,000 in 1995 as compared to
$1.1 million in 1994. This decrease of approximately $400,000 was attributable
to the sale of Station KRBK in June 1994.
Interest expense decreased to $2.8 million in 1995 from $5.8 million in
1994. This reduction of $3.0 million was due to lower borrowings during the 1995
period resulting from the sale of Station KRBK in June 1994, and restructuring
of Koplar Communications' debt obligations during 1994.
Other, net expenses were $321,000 in 1995 as compared to $2.1 million in
1994. This decrease of $1.8 million relates primarily to non-recurring legal,
consulting and other expenses incurred in 1994 in connection with Koplar
Communications' restructuring.
Koplar Communications' tax expense during 1995 was $523,000, representing
21.4% of pre-tax income as compared to an expense of $3.3 million, representing
24.1% of pre-tax income in 1994.
38
<PAGE>
During 1994, Koplar Communications recorded several non-recurring
transactions in connection with Koplar Communications' restructuring including
the gain on the sale of Station KRBK ($11.4 million), the realization of amounts
due under a tax sharing agreement ($3.6 million) and the forgiveness of various
debt, programming and other obligations ($47.1 million, in the aggregate). In
addition, the Company recorded approximately $1.3 million of income from the
operations of Koplar Properties, Inc. and World Events Productions, Ltd. which
were discontinued during 1994.
Koplar Communications' EBITDA was $6.6 million in 1995 as compared to $5.1
million during 1994. This increase of $1.5 million relates primarily to losses
sustained by Station KRBK which was sold in June 1994.
CHANNEL 32
PERIOD FROM JULY 1, 1996 TO JUNE 17, 1997 COMPARED TO THE YEAR ENDED JUNE 30,
1996
Net revenues for the period from July 1, 1996 to June 17, 1997 were $1.3
million, as compared to $2.7 million for year ended June 30, 1996 which
represented a decrease of 51.9%. Channel 32 entered into a LMA with the Company
effective January 1, 1997. Accordingly, there were no significant revenues
subsequent to December 31, 1996.
Programming and production expenses for the period from July 1, 1996 to
June 17, 1997 were $1.3 million, as compared to $3.3 million for the year ended
June 30, 1996, representing a decrease of 60.6%. The decrease in programming
expenses relate primarily to the LMA effective January 1, 1997 and a write-off
of impaired program rights amounting to approximately $780,000 in the prior
period.
Selling, general and administrative expenses for the period from July 1,
1996 to June 17, 1997 were $1.1 million as compared to $1.5 million for the year
ended June 30, 1996, representing a 26.7% decrease. The decrease relating to the
LMA was partially offset by an increase in staffing. In addition, there were
certain outside consulting expenses during the 1996 period, which were not
incurred during the 1997 period.
Depreciation and amortization for the period from July 1, 1996 to June 17,
1997 was $346,000, as compared to $542,000 for the year ended June 30, 1996,
representing a decrease of 36.2%. This resulted primarily from the acceleration
of depreciation and amortization on certain property and equipment in the prior
year.
Interest expense for the period from July 1, 1996 to June 17, 1997 was $2.2
million, as compared to $3.3 million for the year ended June 30, 1996. The
decrease was primarily attributable to the amortization of a significant portion
of the $3.0 million of interest due on the original due date of one of Channel
32's notes payable during the nine months ended March 31, 1996, partially offset
by amortization of extension fees in the 1997 period.
There was no interest income during the period from July 1, 1996 to June
17, 1997 compared to $29,000 for the year ended June 30, 1996.
During the year ended June 30, 1996, approximately $189,000 due from
Channel 32's parent was written off.
Other expenses, net for the period from July 1, 1996 to June 17, 1997 were
$10,000, as compared to $70,000 for the year ended June 30, 1996. This decrease
was primarily related to the loss on sale or disposal of certain equipment of
approximately $55,000 during the 1996 period.
EBITDA for the period from July 1, 1996 to June 17, 1997 was ($1,059,000)
as compared to ($2,007,000) for the year ended June 30, 1996.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Effective July 1, 1995, Peregrine Communications, Ltd acquired Channel 32.
As a result of this acquisition, the financial information for the periods after
the acquisition ('Successor') is presented on a different cost basis than for
periods prior to the acquisition ('Predecessor') and, therefore, may not be
comparable.
39
<PAGE>
Net revenues for the year ended June 30, 1996 ('fiscal 1996') were $2.7
million, as compared to $288,000 for the year ended June 30, 1995 ('fiscal
1995') in 1995. Channel 32 began broadcasting in January 1995 as an affiliate of
The WB Network. Accordingly, the revenues for fiscal 1995 include only
approximately five months of operating results in a start up period compared to
a full year for fiscal 1996.
Programming and production expenses for fiscal 1996 were $3.3 million, as
compared to $623,000 for fiscal 1995. This increase reflects a write-off of
impaired programming of approximately $780,000 and a full year impact of
increased costs relating to improved quality of programming in fiscal 1996.
Selling, general and administrative expenses for fiscal 1996 were $1.5
million, as compared to $273,000 for fiscal 1995. This increase resulted from an
increase in activity associated with the start-up of the station's broadcasting
activities.
Depreciation and amortization expenses for fiscal 1996 were $542,000, as
compared to $235,000 for fiscal 1995. The increase relates to the amortization
of intangible assets resulting from Channel 32's acquisition by Peregrine
Communications, Ltd. and a full year's depreciation and amortization of property
and equipment primarily relating to broadcasting activities.
Interest expense for fiscal 1996 was $3.3 million, as compared to $200,000
for fiscal 1995. Channel 32 issued a note payable in November 1995. Accordingly,
this note was outstanding for nearly eight months during fiscal 1996. In
addition, a significant portion of the $3.0 million additional interest payment
relating to the debt agreement was accrued during fiscal 1996.
Interest income was $45,000 for fiscal 1996 and there was no interest
income for fiscal 1995.
During fiscal 1996, approximately $189,000 due from Station KWBP's parent
was written off.
Other expenses, net for fiscal 1996 were $70,000 and there were no such
expenses in fiscal 1995. This increase relates primarily to the loss of sale or
disposal of certain equipment amounting to approximately $55,000.
EBITDA for fiscal 1996 was ($1.2 million) as compared to ($608,000) for
fiscal 1995.
YEAR ENDED JUNE 30, 1995 COMPARED TO THE PERIOD FROM DECEMBER 16, 1993
(INCEPTION) TO JUNE 30, 1994
Channel 32 began broadcasting in January 1995. Accordingly, the twelve
months ended June 30, 1995 include only five full months of broadcast
operations. For the period from Channel 32's inception (December 1993) through
June 30, 1994, there were only minimal organizational and start up costs.
Accordingly, there is no meaningful comparison of the results of operations
between the two periods.
RESULTS OF OPERATIONS--ACME INTERMEDIATE
During the nine months ended September 30, 1997, the Company generated $2.1
million in revenues, primarily relating to revenues generated pursuant to the
local marketing agreement to operate Station KWBP and revenues generated
subsequent to the acquisition on June 17, 1997.
Programming expenses of $1.1 million and selling, general and
administrative expenses of $3.2 million primarily related to ACME Parent's LMA
with respect to Station KWBP, expenses incurred subsequent to the acquisition on
June 17, 1997 and to modest start-up costs for Station WBXX. Selling, general
and administrative expenses also included corporate overhead allocated from ACME
Parent to ACME Television.
Depreciation and amortization expenses of $551,000 relate primarily to the
depreciation and amortization of fixed assets and amortization of broadcasting
licenses subsequent to the acquisition of Station KWBP on June 17, 1997.
Interest expense of $573,000 relates primarily to interest payments assumed
in conjunction with the LMA relating to Station KWBP and also includes interest
on capital leases and on bank credit facilities.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1997 the Company received gross proceeds of $40.0 million
from the sale of 71,634 Units. ACME Television, LLC also received gross proceeds
from the Offering aggregating $127.4 million on September 30, 1997, and
concurrently placed $143 million in escrow in connection with the St. Louis
Acquisition, which was disbursed on January 2, 1998. As of September 30, 1997,
the Company's cash on hand approximated $27.2 million.
The Company's primary sources of liquidity in addition to its current cash
on hand will be available borrowings under the Revolving Credit Facility and the
Capital Lease Facilities, which are expected to be utilized to fund the Pending
Acquisitions, fund construction and upgrades to the stations acquired and
provide working capital.
The Company is highly leveraged. As of September 30, 1997, the Company has
indebtedness of $167.2 million (including the current portion of capital lease
obligations, excluding programming rights payable). The ability of the Company
to service its indebtedness will depend upon future operating performance, which
is subject to the success of the Company's business strategy, prevailing
economic conditions, regulatory matters, levels of interest rates and financial,
business and other factors, many of which are beyond the Company's control. See
'Risk Factors--Leverage and Debt Service; Refinancing Required,' '--Limitation
on Access to Cash Flow of Subsidiaries; Holding Company Structure.'
The Revolving Credit Facility provides for a five year, senior secured
revolving credit facility with available borrowings (subject to certain
borrowing conditions) of $40.0 million. The Revolving Credit Facility is
intended to be used for general corporate purposes and to fund future
acquisitions. Borrowings under the Revolving Credit Facility are subject to,
among other things, maintenance of minimum operating cash flow, a ratio of
EBITDA to cash interest expense and a maximum amount of senior debt to EBITDA
and total debt to EBITDA. See 'Description of Indebtedness--Revolving Credit
Facility.'
The Intermediate Notes were issued on September 30, 1997 pursuant to an
indenture between ACME Intermediate and Wilmington Trust Company, which contains
certain restrictions on the ability of the Company and its subsidiaries, as
direct and indirect subsidiaries of ACME Intermediate, to take certain actions
or engage in certain types of transactions. The net proceeds of the Intermediate
Notes were used to fund the Intermediate Equity Contribution.
The Investment Agreement and the LLC Agreement each contain restrictions on
the ability of the Subsidiary Guarantors to declare or pay dividends to the
Company in the absence of the consent of certain parties thereto. See 'Risk
Factors--Restrictions Imposed on Certain Agreements.' The Indenture prevents the
Subsidiary Guarantors from declaring or paying any dividend or distribution to
the Company unless no Default or Event of Default has occurred and certain
financial covenants are satisfied. See 'Description of the Notes--Certain
Covenants--Limitation on Restricted Payments.' The Revolving Credit Facility
also prohibits distributions from the Subsidiary Guarantors to the Company
except for certain circumstances provided that a default has not occurred
thereunder. See 'Description of Certain Indebtedness--Revolving Credit
Facility.'
The Company believes that it has adequate resources to complete the Pending
Acquisitions, meet its working capital, maintenance and capital expenditure and
debt service obligations for the foreseeable future. The Company believes that
working capital of the Offering, together with available borrowings under the
Revolving Credit Facility and the Capital Lease Facilities, net proceeds of the
Parent Equity Contribution and the Intermediate Equity Contribution and future
financings, gives and will continue to give the Company the ability to fund
acquisitions and other capital requirements in the future. However, there can be
no assurance that the future cash flows of the Company will be sufficient to
meet all of the Company's obligations and commitments. See 'Risk
Factors--Leverage and Debt Service; Refinancing Required.'
The Company's ability to incur additional indebtedness is limited under the
terms of the Indenture, the Revolving Credit Facility, the LLC Agreement, the
Investment Agreement and the indenture relating to the Intermediate Notes. These
limitations take the form of consent requirements and/or certain leverage ratios
and are dependent upon certain measures of operating profitability. In addition,
under the terms of the Revolving Credit
41
<PAGE>
Facility, the LLC Agreement and the Investment Agreement, capital expenditures
and acquisitions that do not meet certain criteria will require the consent of
certain parties to such agreements.
CAPITAL EXPENDITURES
The Company expects to spend in the aggregate $18.4 million over the next
two years, of which $15.8 million would be used to fund estimated construction
and upgrade costs at the Company's stations, and $2.6 million would be used as
maintenance capital expenditures. See 'The Transactions--Acquisitions.' The
Company believes that maintenance capital expenditures will be approximately
$1.3 million in each of the next several years. There can be no assurance that
the Company's capital expenditure plans will not change in the future.
OTHER
The Company's revenues vary throughout the year. As is typical in the
broadcast television industry, the Company's first quarter generally produces
the lowest revenues for the year, and the fourth quarter generally produces the
highest revenues for the year. The Company's operating results in any period may
be affected by the incurrence of advertising and promotion expenses that do not
necessarily produce commensurate revenues in the short-term until the impact of
such advertising and promotion is realized in future periods.
IMPACT OF INFLATION
The Company believes that inflation will not have a material impact on its
results of operations.
YEAR 2000 ISSUES
The Company utilizes software and related technologies in performing
purchasing, sales and accounting functions related to its business. It is
anticipated that these functions will be affected by the date change in the year
2000. The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems will recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause systems to process critical financial and operational information
incorrectly. The Company, like many other companies, expects to incur
expenditures over the next two years to address this issue. Although a final
cost estimate has not been determined, it is anticipated that such Year 2000
costs will not result in material increases to expenses as such costs are
incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not believe that any of the recent accounting
pronouncements will have a material impact on the Company's financial
statements.
42
<PAGE>
BUSINESS
THE COMPANY
The Company owns all of the outstanding membership units of ACME Television
which was formed to own or operate broadcast television stations in growing
medium-sized markets ranked between 20 and 75. The Company intends to affiliate
each of its broadcast television stations with The WB Network. The Company owns,
or has entered into agreements to acquire or construct and operate, television
stations in five markets which broadcast in DMAs which cover in the aggregate
3.9% of the U.S. population.
The Company's strategy is to selectively acquire either underperforming
stations or construction permits for stations and operate its stations as
affiliates of The WB Network. The Company seeks to improve operating results,
maximize revenue and EBITDA and increase value through the following strategies:
Target Growing Medium-Sized Markets. The Company seeks to acquire and
construct stations in markets with estimated television advertising revenues of
$40 million to $225 million and where its stations can operate as one of five or
six commercial broadcasters. The Company believes that medium-sized markets are
generally less competitive than larger markets because of the limited number of
commercial broadcasters in medium-sized markets. As a result, the Company
believes that operating television stations in less competitive markets offers
greater opportunities to build and maintain audience share and generate
revenues. The Company targets markets with diversified economies and favorable
projections of population and television advertising revenue growth. The
Company's five stations will operate in markets with an aggregate projected
annual population growth rate through the year 2000 of 1.4%, compared to the
projected annual national population growth rate of 0.8%. The Company's five
stations will operate in markets with an aggregate projected annual television
advertising revenue growth rate through the year 2000 of 5.9% compared to the
projected annual national television advertising growth rate of 5.6%.
The WB Network Affiliation. The Company expects its stations to benefit
from their affiliation with The WB Network. The WB Network has shown continued
ratings growth since its inception. For example, The WB Network experienced a
national prime time household ratings increase of 53% and a prime time ratings
increase of 38% among 18-34 year olds from the first quarter of 1995 through the
fourth quarter of 1997 on nights with The WB Network programming. In addition,
as of November 1997, the 38 former independent or start-up stations (excluding
former affiliates of ABC, NBC, CBS and Fox) in large and medium-sized markets
(DMAs ranked between 1 and 75) have on average experienced a prime time
household ratings increase of 61% and a prime time ratings increase of 110%
among 18-34 year olds since November 1994 (immediately prior to the launch of
The WB Network on January 11, 1995) on nights with The WB Network programming.
Management believes that the increase in popularity of The WB Network
programming results in greater advertising revenues and enhanced cash flow for
network affiliates. The Company has entered into network affiliation agreements
for Station KWBP and Station WBXX, will assume and extend an existing
affiliation agreement for Station KPLR and has obtained commitments from The WB
Network for an affiliation agreement covering each of its other stations. See
'Business--Affiliation Agreements.'
Selectively Purchase Syndicated Programming. The major production studios
currently supply syndicated programming sufficient to fill programming
requirements for seven broadcast stations in a market. The Company's stations
are one of five or six commercial broadcast stations in their respective
markets. The Company believes that the limited number of commercial broadcast
stations, combined with the ability to centrally purchase programming for five
stations, will allow the Company to acquire syndicated programming at attractive
prices. The Company's Portland and Knoxville stations have already obtained
broadcast rights for syndicated programming that will premiere during the next
three broadcast seasons at prices which the Company believes are attractive.
These programs include Friends, Full House, M*A*S*H, Star Trek: The Next
Generation and The Drew Carey Show.
Emphasis on Sales. The Company's management has hired, and intends to
continue to hire, station general managers with significant experience in
advertising sales who will be directly involved in station sales and marketing.
The Company believes that by centralizing administrative functions, each
station's general manager will be able to devote a greater effort to local sales
and marketing activities. In addition, the Company intends to
43
<PAGE>
establish a commission-based compensation system for sales personnel that will
include significant incentives for the origination of new accounts in addition
to expanding current relationships.
Creating a Strong Group Identity. The Company intends to establish a
highly professional on-air appearance and identity for each of its stations. The
Company's graphics, animation and music for station imaging will be created by a
centralized corporate graphics department and will target each station's
demographic audience. The Company intends to hire experienced personnel at the
corporate level for these and similar services that would not otherwise be
available at a cost-efficient rate to its stations on an individual basis.
Centralized Systems and Controls. Management plans to centralize the
Company's scheduling, purchasing, national sales and certain accounting
functions within the corporate office. The Company believes that this will
afford each of the station's general managers more time to focus on local sales
and marketing. Management believes that by centralizing purchasing, the Company
will be able to negotiate lower costs for equipment and services. For example,
the Company has solicited and received proposals for a group national sales
representative agreement at significantly lower rates than would have been
available to its stations on an individual station basis. In addition, the
Company has already purchased syndicated programming on a multiple station basis
and negotiated capital lease facilities for its stations as a group on terms it
considers attractive.
THE WB NETWORK
Overview. The WB Network was created by Time Warner, Tribune and Jamie
Kellner as a new television broadcast network. The WB Network was formed to
provide an alternative to the prime time and children's programming offered by
the other networks. The WB Network's focus is to provide quality programming to
teens, young adults and families with small children. The WB Network utilizes
(i) the strength of Time Warner, through its Warner Brothers division, as a
leading producer of prime time programming and Saturday morning cartoons, (ii)
the network distribution capabilities of the cable system holdings of Time
Warner and the television station holdings of Tribune, and (iii) the experience
of the members of The WB Network management team, many of whom worked with Mr.
Kellner during the launch of Fox in 1986.
Since the launch of the network on January 11, 1995, The WB Network has
increased its on-air programming from two hours of prime time programming one
night per week to nine hours of prime time programming four nights per week and
19 hours of children's programming for the 1997-1998 season. The WB Network has
announced plans to provide one additional evening of prime time programming each
season until every night is programmed. As of January 1998, it is estimated that
The WB Network programming is available to approximately 88% of all television
households in the United States.
The WB Network and its affiliates benefit significantly from the Warner
Brothers brand, which is among the most recognized company brands in the world.
Warner Brothers, which owns 66.5% of The WB Network, is a leading producer of
prime time network television shows. In addition to its popular prime time
programming, Warner Brothers is a leading producer of animated programming. Many
of Warner Brothers' animated programs feature popular Looney Toons characters
such as Bugs Bunny, Daffy Duck, Tazmanian Devil, Tweety Bird, Sylvester, Road
Runner and Wile E. Coyote. More recently, Warner Brothers has produced such
shows as Batman: The Animated Series, Animaniacs, Pinky and the Brain, Superman
and Men In Black. The Company believes that Warner Brothers television animation
has played an integral part in the popularity of The WB Network's programming
among children and teenagers.
The WB Network senior management team is headed by Jamie Kellner, who
serves as Chief Executive Officer. Mr. Kellner previously served as President of
Fox from its inception in 1986 to 1993. Many of the same people who served under
Mr. Kellner at Fox currently comprise the senior management at The WB Network,
including: Garth Ancier (Entertainment President), Susanne Daniels (Executive
Vice President of Programming), Bob Bibb and Lew Goldstein (Executive Vice
Presidents of Marketing), Jed Petrick (Senior Vice President of Sales) and Brad
Turell (Senior Vice President of Publicity).
Distribution. The WB Network has increased its coverage of households in
the United States from 77% at network launch in early 1995 to 88% as of January
1998. The WB Network has a three-tiered distribution strategy designed to
increase its coverage of domestic households towards the goal of 100%: (i) DMAs
ranked 1-20 will be served primarily by affiliate stations owned by Tribune;
(ii) DMAs ranked 21-100 will be served primarily by affiliate stations owned by
major middle market broadcasters such as the Company; and (iii) DMAs
44
<PAGE>
ranked 101-211 will be served by WeB, a joint venture designed to provide The WB
Network programming on local cable systems in smaller DMAs.
In July 1997, Sinclair Broadcast Group ('Sinclair') announced its intention
to switch the affiliation of its stations in five markets from UPN to The WB
Network and its intention to renew the existing affiliate agreements for three
other Sinclair stations that are currently affiliated with The WB Network for an
additional ten years.
Strategy and Programming. The WB Network's strategy is to provide quality
programming suitable for children, teens, young adults, and families. In January
1996, 100% of The WB Network's programming during the 8:00-9:00 PM (EST) time
slot has been recognized by the Parent's Television Council as
'family-friendly,' as compared to 43% for ABC, 50% for CBS, and 0% for Fox, NBC,
and UPN. After 9:00 PM, The WB Network offers programming which is more suitable
for adults. In addition, The WB Network utilizes Warner Brothers television
animation to provide cartoons for The WB Network's Saturday morning and weekday
animated children's block, branded as Kids' WB! For the May 1997 sweep period,
Kids' WB! Saturday morning programming was the third highest ranked children's
programming after Fox and ABC. The following table sets forth certain programs
which The WB Network is currently broadcasting or has announced plans to
broadcast:
<TABLE>
<CAPTION>
PRIMETIME: CARTOONS:
- --------------------------------------- ---------------------------------------
<S> <C>
7th Heaven Animaniacs
Buffy the Vampire Slayer Batman/Superman Adventures
Dawson's Creek Bugs 'N' Daffy
Jamie Foxx Captain Planet
Nick Freno Men in Black: The Series
Parent Hood Pinky & The Brain
Alright Already The New Superman
Sister, Sister The Sylvester & Tweety Mysteries
Smart Guy Tiny Toon Adventures
Steve Harvey Show Umptee-3
The Tom Show Batman Tomorrow
Three Histeria
Wayans Brothers Brats of The Dark Nebula
</TABLE>
THE STATIONS AND MARKET OVERVIEWS
KPLR-11: ST. LOUIS, MO
Station KPLR-11 operates as The WB Network affiliate in the St. Louis,
Missouri market, which represents the 21st largest DMA in the U.S. The St. Louis
DMA has approximately 1.1 million television households, a total population of
3.0 million, and an estimated average household income of $40,861 per year. The
Company estimates that the total television advertising market in St. Louis in
1997 was $204.5 million, a 1.8% increase over 1996. Approximately 53% of the
households in the St. Louis market are cable television subscribers. The St.
Louis DMA has five commercial television stations. The Fox, CBS, NBC and The WB
Network affiliates are VHF stations, and the ABC affiliate is a UHF station.
The following table outlines summary information regarding the commercial
television stations in the St. Louis DMA:
<TABLE>
<CAPTION>
CALL AUDIENCE
OWNER LETTERS CHANNEL AFFILIATION SHARE(1)
- ------------------------------------------------------- ------- ------- ----------- --------
<S> <C> <C> <C> <C>
ACME Television........................................ KPLR 11 WB 11%
Fox Television......................................... KTVI 2 Fox 11
Belo Corp.............................................. KMOV 4 CBS 19
Gannett Co., Inc....................................... KSDK 5 NBC 22
Sinclair Broadcast Group............................... KDNL 30 ABC 9
</TABLE>
- ------------------
(1) Represents average audience share from Monday to Sunday in November 1997.
45
<PAGE>
The following table sets forth market revenue and share information for the
St. Louis DMA and Station KPLR (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Television advertising revenues................................ $175,200 $190,400 $200,800 $204,500
Revenue growth................................................. 10.2% 8.7% 5.5% 1.8%
Gross station revenue.......................................... $ 29,845 $ 31,740 $ 31,870 $ 34,263
Station gross revenue growth................................... (2.5% 6.3% 0.4% 7.5%
Station revenue share.......................................... 17.0% 16.7% 15.9% 16.8%
</TABLE>
Station KPLR was constructed in 1959 and is subject to an affiliation
agreement with The WB Network. Station KPLR is a VHF station with one of the
three strongest signals in the market. In addition to network programming,
Station KPLR currently broadcasts a local news program at 9:00 PM, owns the
rights to broadcast St. Louis Cardinals baseball through 1999, and offers
syndicated programming such as Cheers, Full House, Living Single, Martin and
Seinfeld. During the November 1997 sweep period, Station KPLR was ranked as
second among independent and UPN and The WB Network affiliate broadcast stations
in the U.S. Such ranking means that Station KPLR had the highest number of
viewers per thousand viewers in its market, in comparison to the number of
viewers per thousand for such other stations in their respective markets.
KWBP-32: PORTLAND, OR
Station KWBP-32 operates as The WB Network affiliate in the Portland,
Oregon market, which represents the 24th largest DMA in the U.S. The Portland
DMA has approximately 1.0 million television households, a total population of
2.5 million, and an estimated average household income of $38,223 per year. The
Company estimates that the total television advertising market in Portland in
1997 was $161.2 million, a 3.1% increase over 1996. Approximately 63% of the
households in the Portland market are cable television subscribers. The Portland
DMA has six commercial television stations. The ABC, CBS, NBC and UPN affiliates
are VHF stations, and the Fox and The WB Network affiliates are UHF stations.
The following table outlines summary information regarding the commercial
television stations in the Portland DMA:
<TABLE>
<CAPTION>
CALL AUDIENCE
OWNER LETTERS CHANNEL AFFILIATION SHARE(1)
- ------------------------------------------------------- ------- ------- ----------- --------
<S> <C> <C> <C> <C>
ACME Television........................................ KWBP 32 WB 2%
Fisher Broadcasting.................................... KATU 2 ABC 17
Lee Enterprises, Inc................................... KOIN 6 CBS 14
Belo Corp.............................................. KGW 8 NBC 15
BHC Communications..................................... KPTV 12 UPN 9
Meredith Corp.......................................... KPDX 49 Fox 9
</TABLE>
- ------------------
(1) Represents average audience share from Monday to Sunday in November 1997.
The following table sets forth market revenue and share information for the
Portland DMA and Station KWBP (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)
--------------------------------------------------
1994 1995 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Television advertising revenues................................ $139,800 $146,100 $156,400 $161,200
Revenue growth................................................. 16.0% 4.5% 7.0% 3.1%
Gross station revenue(2)....................................... NA $ 307 $ 1,682 $2,680
Station gross revenue growth................................... NA NA 447.9% 59.3%
Station revenue share.......................................... NA 0.2% 1.1% 1.7%
</TABLE>
- ------------------
(1) Station KWBP commenced commercial broadcasting in January 1995.
(2) Station KWBP has historically used a fiscal year end of June 30. Gross
revenues are therefore shown for the twelve month period ending June 30,
1995 and 1996 and exclude barter revenues.
46
<PAGE>
KZAR-16: SALT LAKE CITY, UT
Station KZAR-16, upon its construction, will operate as The WB Network
affiliate in the Salt Lake City, Utah market, which represents the 36th largest
DMA in the U.S. The Salt Lake City DMA has approximately 690,000 television
households, a total population of 2.1 million, and an estimated average
household income of $38,927 per year. The Salt Lake City market has a relatively
young demographic population, with over 37% of the population under the age of
eighteen (according to the National Association of Television Broadcasters in
its 1997 Television Market-By-Market Review ('NAB')) compared to the national
average of 26% (according to the 1990 Bureau of the Census Report). The Company
estimates that the total television advertising market in Salt Lake City in 1997
was $141.0 million, a 4.4% increase over 1996. Approximately 56% of the
households in the Salt Lake City market are cable television subscribers. The
Salt Lake City DMA has six commercial television stations. The ABC, CBS, and NBC
affiliates are VHF stations, and the Fox and UPN affiliates are UHF stations.
Station KZAR, The WB Network affiliate, will also be a UHF station.
The following table outlines summary information regarding the commercial
television stations in the Salt Lake City DMA:
<TABLE>
<CAPTION>
CALL AUDIENCE
OWNER LETTERS CHANNEL AFFILIATION SHARE(1)
- ----------------------------------------------------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C>
ACME Television...................................... KZAR 16 WB not on air
CBS Station Group.................................... KUTV 2 CBS 14%
United Television.................................... KTVX 4 ABC 18
Bonneville International Corp........................ KSL 5 NBC 18
Fox Television....................................... KSTU 13 Fox 14
Larry K. Miller Broadcasting......................... KJZZ 14 UPN 8
</TABLE>
- ------------------
(1) Represents average audience share from Monday to Sunday in November 1997.
The following table sets forth market revenue information for the Salt Lake
City DMA (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Television advertising revenues................................ $116,500 $123,600 $135,000 $141,000
Revenue growth................................................. 18.6% 6.1% 9.2% 4.4%
</TABLE>
Station KZAR will commence broadcasting upon completion of its
construction, which the Company estimates will occur in April 1998. Management
believes that there exists sufficient popular syndicated programming in the
market available for the station to acquire at attractive prices.
KAUO-19: ALBUQUERQUE/SANTA FE, NM
Station KAUO-19, upon its construction, will operate as The WB Network
affiliate in the Albuquerque/Santa Fe, New Mexico market, which represents the
48th largest DMA in the U.S. The Albuquerque/Santa Fe, DMA has approximately
560,000 television households, a total population of 1.6 million, and an
estimated average household income of $34,614 per year. The Albuquerque/Santa Fe
market has a relatively young demographic population, with approximately 30% of
the population under the age of eighteen (according to NAB). The Company
estimates that the total television advertising market in Albuquerque/Santa Fe
in 1997 was $85.3 million, a 3.4% increase over 1996. Approximately 60% of the
households in the Albuquerque/Santa Fe market are cable television subscribers.
The Albuquerque/Santa Fe DMA has six commercial television stations. The ABC,
CBS, NBC and Fox affiliates are VHF stations, and the UPN affiliate is a UHF
station. Station KAUO, The WB Network affiliate, will also be a UHF station.
47
<PAGE>
The following table outlines summary information regarding the commercial
television stations in the Albuquerque DMA:
<TABLE>
<CAPTION>
CALL AUDIENCE
OWNER LETTERS CHANNEL AFFILIATION SHARE(1)
- ----------------------------------------------------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C>
ACME Television...................................... KAUO 19 WB not on air
Belo Corp............................................ KASA 2 Fox 8%
Hubbard Broadcasting Inc............................. KOB 4 NBC 15
Pulitzer Broadcasting Inc............................ KOAT 7 ABC 20
Lee Enterprises Inc.................................. KRQE 13 CBS 14
Ramar Communications Inc............................. KASY 50 UPN 2
</TABLE>
- ------------------
(1) Represents average audience share from Monday to Sunday in November 1997.
The following table sets forth market revenue information for the
Albuquerque/Santa Fe DMA (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Television advertising revenues................................ $ 75,300 $ 78,900 $ 82,500 $85,300
Revenue growth................................................. 27.6% 4.8% 4.6% 3.4%
</TABLE>
The station will commence broadcasting upon completion of the construction,
which the Company estimates will occur in September 1998. Management believes
that there exists sufficient popular syndicated programming in the market
available for the station to acquire at attractive prices. A commercial
broadcast station in this market currently holds a secondary affiliation
agreement with The WB Network, which management believes will be terminated once
Station KAUO commences broadcasting.
S
WBXX-20: KNOXVILLE, TN
Station WBXX-20 operates as The WB Network affiliate in the Knoxville,
Tennessee market, which represents the 64th largest DMA in the U.S. The
Knoxville DMA has approximately 441,000 television households, a total
population of 1.2 million, and an estimated average household income of $33,774
per year. The Company estimates that the total television advertising market in
Knoxville in 1997 was $62.1 million, a 2.5% increase over 1996. Approximately
68% of the households in the Knoxville market are cable television subscribers.
The Knoxville DMA has five commercial television stations. The ABC, CBS, and NBC
affiliates are VHF stations, and the Fox and The WB Network affiliates are UHF
stations.
The following table outlines summary information regarding the commercial
television stations in the Knoxville DMA:
<TABLE>
<CAPTION>
CALL AUDIENCE
OWNER LETTERS CHANNEL AFFILIATION SHARE(1)
- ----------------------------------------------------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C>
ACME Television...................................... WBXX 20 WB --
Young Broadcasting Inc............................... WATE 6 ABC 13%
Gray Communications.................................. WVLT 8 CBS 15
Gannett Co. Inc...................................... WBIR 10 NBC 24
Raycom Media......................................... WTNZ 43 Fox/UPN 6
</TABLE>
- ------------------
(1) Represents average audience share from Monday to Sunday in November 1997.
48
<PAGE>
The following table sets forth market revenue information for the Knoxville
DMA (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Television advertising revenues................................ $ 54,700 $ 54,200 $ 60,600 $62,100
Revenue growth................................................. 16.9% (0.1)% 11.8% 2.5%
</TABLE>
The station re-commenced broadcasting upon the installation of new
transmission facilities, which were completed in October 1997. The station
recently purchased new syndicated programming and rights to future syndicated
programs such as Cheers, Friends, Full House, M*A*S*H, Star Trek: The Next
Generation and The Drew Carey Show. The Company changed the call letters of this
station from WINT to WBXX upon its acquisition by the Company.
AFFILIATION AGREEMENTS
Station KWBP, Station KPLR and Station WBXX have each entered into station
affiliation agreements (the 'KWBP Affiliation Agreement' the 'KPLR Affiliation
Agreement' and the 'WBXX Affiliation Agreement', respectively, and collectively,
the 'Affiliation Agreements') with The WB Network which provide each station the
exclusive right to broadcast The WB Network programming in its DMA.
Under the Affiliation Agreements, The WB Network has retained the right to
program and sell 75% of the advertising time available during the prime time
schedule with the remaining 25% available for sale by the stations, provided
that in the case of the KPLR Affiliation Agreement, the station has the right to
preempt The WB Network programming for St. Louis Cardinals baseball, St. Louis
Blues hockey and University of Missouri basketball broadcasts. The WB Network
retains approximately 50% of the advertising time available during children's
programs and late fringe programs (if and when included in the network's
schedule), with the balance allocated to the applicable station.
In addition to the advertising time reserved for sale by The WB Network,
each station is also required to pay annual compensation to The WB Network
according to formulas designed to result in the payment, to The WB Network of
amounts equal to 25% of the 'added-value' to the station from its affiliation
with The WB Network, as determined by the average station ratings among adults
18-49 during prime time programming provided by The WB Network and the number of
prime time programming hours provided by The WB Network. Pursuant to the
Affiliation Agreements, the Company participates in cooperative marketing with
The WB Network whereby the network reimburses up to 50% of certain approved
advertising expenditures by a station to promote network programming. The
Affiliation Agreements also contain a clause entitling the applicable station to
the benefits of any more favorable terms agreed to by The WB Network with any
affiliate except for superstation WGN during the term of the Affiliation
Agreements, and any subsequent modifications thereto.
The Company has obtained a conditional commitment from The WB Network to
extend the existing Affiliation Agreements to five year terms. The Affiliation
Agreements are subject to termination (i) by The WB Network, upon sixty days
notice, in the event The WB Network ceases operations or is substantially
restructured, (ii) upon the occurrence and continuation for four consecutive
weeks of certain force majeure events causing a failure to provide programs by
The WB Network or a failure to broadcast such programs by the station, (iii)
upon assignment of the applicable station's FCC license without consent to such
assignment by The WB Network; or (iv) upon a material change in the station's
transmitter location, power, frequency or programming format.
The Company has obtained commitments from The WB Network to enter into
affiliation agreements with the Company's remaining stations upon their
acquisition by the Company, on substantially the same terms and conditions as
Stations WBXX, KPLR and KWBP's affiliation agreements with The WB Network, and,
in the case of Station KPLR, to extend the existing agreement to a seven-year
term. Upon completion of the St. Louis Acquisition, the Company intends to enter
into an overriding group affiliation agreement with The WB Network covering all
of its stations. Although the group affiliation agreement supersedes the
individual affiliation agreements of each station, such individual affiliation
agreements will continue in effect and the Company intends to continue to renew
such agreements, allowing the Company the flexibility to dispose of a station
with a surviving affiliation agreement in effect.
49
<PAGE>
INDUSTRY OVERVIEW
Commercial television broadcasting began in the United States on a regular
basis in the 1940s over a portion of the broadcast spectrum commonly known as
the VHF Band (very high frequency broadcast channels numbered 2 through 13
('VHF')). Television channels were later assigned by the FCC under an additional
broadcast spectrum commonly known as the UHF Band (ultra-high frequency
broadcast channels numbered 14 through 83 ('UHF'); channels 70 through 83 have
been reassigned to non-broadcast services). Currently there are a limited number
of channels available for broadcasting in any one DMA, and the license to
operate a broadcast station is granted by the FCC.
Although UHF and VHF stations compete in the same market, UHF stations have
historically suffered a competitive disadvantage, as: (i) UHF signals are more
subject to obstructions such as terrain than VHF signals and (ii) VHF stations
are able to provide higher quality signals to a wider area. Over time, the
disadvantage of UHF stations has gradually declined through: (i) UHF stations'
carriage on local cable systems, (ii) improvement in television receivers, (iii)
improvement in television transmitters, and (iv) increased availability of
quality programming.
All television stations throughout the United States are grouped into
approximately 211 generally recognized DMAs which are ranked in size according
to the estimated number of television households. Each DMA is determined as an
exclusive geographic area consisting of all counties in which the home-market
commercial stations receive the greatest percentage of total viewing hours.
A majority of the commercial television stations in the United States are
affiliated with NBC, CBS, or ABC (the 'Major Networks'). Each Major Network
provides the majority of its affiliates' programming each day without charge in
exchange for a substantial majority of the available advertising time in the
programs supplied. Each Major Network sells this advertising time and retains
the revenue. The affiliate receives compensation from the Major Network and
retains the revenue from advertising time sold in and between network programs
and in programming the affiliate produces or purchases from non-network sources.
Stations which are not affiliated with one of the Major Networks were
previously considered independent stations. Independent stations generally
broadcast syndicated programming, which is acquired by the station for cash or
occasionally barter. The acquisition of syndicated programming generally grants
the acquiring station exclusive rights to broadcast a program in the market for
a specified period of time or a number of episodes agreed upon between the
independent station and the syndicator of the programming. Types of syndicated
programming include feature films, popular television series previously shown on
network television and current television series produced for direct
distribution to television stations. Through barter and cash-plus-barter
arrangements, a national syndicated program distributor typically retains a
portion of the available advertising time for programming it supplies, in
exchange for reduced fees to the station for such programming.
Fox, UPN and The WB Network have each established an affiliation with some
of the formerly independent stations. However, the amount of programming per
week supplied to the affiliates by these networks is significantly less than
that of the Major Networks, and as a result, these stations retain a
significantly higher portion of the available inventory of broadcast time for
their own use than Major Network affiliates.
Television stations derive their revenues primarily from the sale of
national, regional and local advertising. All network-affiliated stations,
including those affiliated with Fox, UPN and The WB Network, are required to
carry spot advertising sold by their networks. This reduces the amount of
advertising available for sale directly by the network-affiliated stations.
Advertisers wishing to reach a national audience usually purchase time
directly from the Major Networks, Fox, UPN and The WB Network, or advertise
nationwide on an ad hoc basis. National advertisers who wish to reach a
particular region or local audience buy advertising time directly from local
stations through national advertising sales representative firms. Additionally,
local businesses purchase advertising time directly from the station's local
sales staff. Advertising rates are based upon factors which include the size of
the DMA in which the station operates, a program's popularity among the viewers
that an advertiser wishes to attract, the number of advertisers competing for
the available time, demographic characteristics of the DMA served by the
station, the availability of alternative advertising media in the DMA,
aggressive and knowledgeable sales forces and the development of projects,
features and marketing programs that tie advertiser messages to programming.
Because broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, may adversely affect
the broadcast business.
50
<PAGE>
COMPETITION
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations and, to a lesser extent, with radio
stations and cable system operators serving the same market. Major Network
programming generally achieves higher household audience levels than those of
Fox, UPN and The WB Network and other syndicated programming aired by
independent stations. This is attributable to a number of factors, including the
Major Networks' efforts to reach a broader audience, generally better signal
carriage when broadcasting over VHF channels versus UHF channels and the greater
amount of network programming being broadcast weekly. However, greater amounts
of advertising time are available for sale during Fox, UPN and The WB Network
programming and non-network syndicated programming, and as a result, the Company
believes that the Company's programming will achieve a share of television
market advertising revenues greater than its share of the market's audience.
Broadcast television stations compete with other television stations in
their DMAs for the acquisition of programming. Generally, cable systems do not
compete with local stations for programming, but various national cable networks
do from time to time acquire programming that could have been offered to local
television stations. Public broadcasting stations generally compete with
commercial broadcasters for viewers, but do not compete for advertising
revenues. Historically, the cost of programming had increased because of an
increase in the number of independent stations and a shortage of quality
programming. However, over the past five years, program prices have stabilized
or declined as a result of recent increases in the supply of programming.
Currently programming studios produce enough programming to fill the broadcast
time on seven commercial stations.
REGULATION
Federal Regulation of Television Broadcasting. Television broadcasting is
subject to the jurisdiction of the FCC under the Communications Act. The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC. The Communications Act empowers the
FCC, among other things, to issue, revoke and modify broadcasting licenses,
determine the locations of stations, regulate the equipment used by stations,
adopt regulations to carry out the provisions of the Communications Act and
impose penalties for violation of such regulations. The Communications Act
provides penalties for violation of such regulations. The Communications Act
prohibits the assignment of a license or the transfer of control of a licensee
without prior approval of the FCC. On February 8, 1996, the President signed
into law the Telecom Act, which substantially amended the Communications Act.
Set forth below is a general description of some of the principal areas of FCC
regulation of the broadcast television industry.
License Grant and Renewal. A party must obtain a construction permit from
the FCC in order to build a new television station. Once a station is
constructed, the permittee will receive a license which must be renewed by the
FCC at the end of each license term. On January 24, 1997, pursuant to the
Telecom Act, the FCC increased the terms of such licenses and their renewal to
eight years. The Telecom Act directs the FCC to grant renewal of a broadcast
license if it finds that the station has served the public interest,
convenience, and necessity and that there have been no serious violations (or
other violations which would constitute a 'pattern of abuse') by the licensee of
the Communications Act or FCC rules and policies. If the FCC finds that a
licensee has failed to meet these standards, and there are no sufficient
mitigating factors, the FCC may deny renewal or condition renewal appropriately,
including renewing for less than a full term. Any other party with standing may
petition the FCC to deny a broadcaster's application for renewal. However, only
if the FCC issues an order denying renewal will the FCC accept and consider
applications from other parties for a construction permit for a new station to
operate on the channel subject to such denial. The FCC may not consider any such
applicant in making determinations concerning the grant or denial of the
licensee's renewal application.
Some of the Pending Acquisitions involve the Company's acquisition of
construction permits for stations not yet constructed. After each station is
built, the Company will apply for a license to 'cover', or replace, the
construction permit. The Company is not aware of any facts or circumstances that
would prevent the issuance or renewal of the licenses for the stations being
acquired. The Communications Act provides that licenses continue in effect until
the FCC disposes of the renewal application.
Local Marketing Agreements. The Company has or intends to enter into LMAs
from time to time in connection with certain of the Pending Acquisitions, and
contemplates utilizing LMAs in connection with future acquisitions. By using
LMAs, the Company gains the ability to provide programming and other services to
a
51
<PAGE>
station proposed to be acquired pending receipt of all applicable FCC approvals
with respect to the actual transfer of control or assignment of the applicable
station license.
FCC rules and policies generally require that the Company's LMAs permit the
station licensee to retain ultimate control of the applicable station, including
programming, and there can be no assurance that the Company will be able to air
all of its scheduled programming on stations with which it has an LMA, or that
in such event, the Company will receive the anticipated revenue from the sale of
advertising for such programming. In addition, LMA's sometimes require that
existing programming contracts of the licensee be honored. Accordingly, there
can be no assurance that early termination of an LMA or unanticipated
preemptions by a licensee of all or a significant portion of the Company's
scheduled programming for a station subject to an LMA will not occur.
Termination of an LMA or material preemptions of programming thereunder could
adversely affect the Company.
Multiple- and Cross-Ownership Restrictions. Current FCC regulations and
policies impose significant restrictions on certain positional and ownership
interests in broadcast companies and other media. The officers, directors and
certain equity owners of a broadcast company are deemed to have 'attributable
interests' in the broadcast company. In the case of a corporation, ownership is
generally attributed to officers, directors and equity holders who own 5% or
more of the company's outstanding voting stock. Institutional investors,
including mutual funds, insurance companies and banks acting in a fiduciary
capacity, may own up to 10% of the outstanding voting stock without being
subject to attribution, provided that such equity holders exercise no control
over the management or policies of the broadcasting company. Limited liability
companies are generally treated as limited partnership for purposes of the FCC
rules. These rules do not attribute limited partnership interests as long as the
partnership certifies that the limited partners are insulated from management in
accordance with the FCC's established criteria; if the certification is properly
made, only the general partner (or managing member) of the partnership is deemed
to have an attributable interest.
Under current FCC rules governing multiple ownership of broadcast stations,
a license to operate a television station will not be granted (unless
established waiver standards are met) to any party (or parties under common
control) that has an attributable interest in another television station with an
overlapping service contour (the 'Duopoly Rule'). FCC regulations also prohibit
one owner from having attributable interests in television broadcast stations
that reach in the aggregate more than 35% of the nation's television households.
For purposes of this calculation, stations in the UHF band (channels 14-69) are
attributed with only 50% of the households attributed to stations in the VHF
band (channels 2-13). The rules further prohibit (with certain qualifications)
the holder of an attributable interest in a television station from also having
an attributable interest in a radio station, daily newspaper or cable television
system serving a community located within the relevant coverage area of that
television station. Separately, the FCC's 'cross-interest' policy may, in
certain circumstances, prohibit the common ownership of an attributable interest
in one media outlet and a non-attributable equity interest in another media
outlet in the same market. In pending rulemaking proceedings, the FCC is
considering, among other possible changes, (i) the modification of its
attribution rules and the 'cross-interest' policy, (ii) the relaxation of the
Duopoly Rule and (iii) specific rules regarding ownership attribution to govern
television LMAs comparable to those currently in force with respect to radio
LMAs.
Review of 'Must-Carry' Rules. FCC regulations implementing the Cable
Television Consumer Protection and Competition Act of 1992 (the '1992 Cable
Act') require each television broadcaster to elect, at three year intervals
beginning October 1, 1993, to either (i) require carriage of its signal by cable
systems in the station's market ('must-carry') or (ii) negotiate the terms on
which such broadcast station would permit transmission of its signal by the
cable systems within its market ('retransmission consent'). The United States
Supreme Court upheld the must-carry rules in a 1997 decision.
Digital Television Services. The FCC has adopted rules for implementing
digital television ('DTV') service in the United States. Implementation of DTV
will improve the technical quality of television signals and will provide
broadcasters the flexibility to offer new services, including high-definition
television ('HDTV') and data broadcasting.
The FCC has established service rules and adopted a Table of Allotments for
digital television. The Table provides all eligible broadcasters a second
broadcast channel to each full-power television station for DTV operation.
Stations will be permitted to phase in their DTV operations over a period of
years following the adoption of a final table of allotments, after which they
will be required to surrender their non-DTV channel. Affiliates of the top four
networks in the top ten markets must be on the air with a digital signal by May
1, 1999.
52
<PAGE>
Affiliates of the top four networks in the next twenty largest markets must be
on the air with a digital signal by November 1, 1999. The FCC has set a target
of 2006 as the end-date of analog broadcasts. Meanwhile, Congress has from time
to time considered proposals that would require incumbent broadcasters to bid at
auction for the additional spectrum required to effect a transition to DTV, or,
alternatively, would assign DTV spectrum to incumbent broadcasters and require
the early surrender of their non-DTV channel for sale by public auction.
The Telecom Act and the FCC's rules impose certain conditions on the FCC's
implementation of DTV service. Among other requirements, the FCC must (i) limit
the initial eligibility for such licenses to existing television broadcast
licensees or permittees; (ii) allow DTV licensees to offer ancillary and
supplementary services; (iii) charge appropriate fees to broadcasters that
supply ancillary and supplementary services for which such broadcasters derive
certain nonadvertising revenues; and (iv) recover at an unspecified time either
the DTV license or the original license (the 'NTSC' license) held by the
broadcaster.
There are details regarding how interference levels will be calculated that
the FCC has not yet ruled on. Conversion to DTV operations could reduce a
station's geographical coverage area after such rules are adopted if the
interference standards are changed. Equipment and other costs associated with
the DTV transition, including the necessity of temporary dual-mode operations,
will impose some near-term financial costs on television stations providing the
service. The potential also exists for new sources of revenue to be derived from
DTV. The Company cannot predict the overall effect the transition to DTV might
have on the Company's business.
Other Pending FCC Proceedings. In 1995, the FCC issued notices of proposed
rulemaking proposing to modify or eliminate most of its remaining rules
governing the broadcast network-affiliate relationship. The network-affiliate
rules were originally intended to limit networks' ability to control programming
aired by affiliates or to set station advertising rates and to reduce barriers
to entry by new networks. These proceedings are pending. The dual network rule,
which generally prevents a single entity from owning more than one broadcast
television network, is among the rules under consideration in these proceedings.
However, the Telecom Act substantially relaxed the dual network rule by
providing that an entity may own more than one television network; however, no
two national television networks in existence on February 8, 1996 may merge or
be acquired by the same party. The Company is unable to predict how or when the
FCC proceedings will be resolved or how those proceedings or the relaxation of
the dual network rule may affect the Company's business.
Pursuant to a Congressional directive contained in the Telecom Act, the FCC
has commenced a proceeding to devise rules and an implementation schedule for
universal closed captioning of video programming.
The FCC continues to enforce strictly its regulations concerning
broadcasters' equal employment obligations, 'indecent' programming, political
advertising, environmental concerns, technical operating matters and antenna
tower maintenance. The FCC also has made clear its intent to enforce equal
employment opportunity guidelines and recruitment efforts and record-keeping
requirements by imposing monetary forfeitures, periodic reporting conditions and
short-term license renewals.
There are additional FCC regulations as well as policies, and regulations
and policies of other federal agencies, affecting the business and operations of
broadcast stations. Proposals for additional or revised rules are considered by
federal regulatory agencies and Congress from time to time. It is not possible
to predict the resolution of these issues or other issues discussed above,
although their outcome could, over a period of time, affect, either adversely or
favorably, the broadcasting industry generally or the Company specifically.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, the Telecom Act or other Congressional
acts or of the regulations and policies of the FCC thereunder. Reference is made
to the Communications Act, the Telecom Act, other Congressional acts, such
regulations and policies, and the public notices promulgated by the FCC for
further information.
EMPLOYEES
At December 31, 1997, the Company had 68 employees, none of which were
subject to collective bargaining agreements and Koplar Communications employed
at Station KPLR approximately 95 employees, 43 of which were subject to
collective bargaining agreements. The Company believes that its relationships
with its employees are good.
53
<PAGE>
PROPERTIES AND FACILITIES
Set forth below is certain information with respect to the Company's
existing and planned studio and other leased facilities. All of the Company's
leased studio, office and tower facilities are or are anticipated to be leased
pursuant to long-term leases that management believes to be adequate.
Information as to tower height reflects the height above average terrain (HAAT)
as reported in the BIA Market Report, 1997.
<TABLE>
<CAPTION>
LOCATION--USE APPROXIMATE SIZE OWNERSHIP
- -------------------------------------------------------------- ---------------- ---------
<S> <C> <C>
St. Louis, MO
Studio and office facilities(1)............................. 36,000 sq. ft. Owned
Tower....................................................... 1,011 ft. Owned
Beaverton, OR
Studio and office facilities................................ 15,255 sq. ft. Leased
Tower....................................................... 1,785 ft. Leased
Knoxville, TN
Studio and office facilities................................ 8,000 sq. ft. Leased
Tower....................................................... 2,795 ft. Leased
Provo, UT
Studio and office facilities................................ 8,000 sq. ft. Leased
Tower....................................................... 2,308 ft. Leased
</TABLE>
- ------------------
(1) Excludes 30,000 square feet of apartment space located above the studio and
office facilities.
In connection with the Albuquerque Acquisition, the Company is currently in
the process of securing leases for studio and office facilities and transmission
facilities. See 'Risk Factors--Risks Related to Acquisitions.' Management
believes that its facilities are adequate for the conduct of its business
presently and for the foreseeable future.
The principal executive offices of the Company and its subsidiaries is 2101
East Fourth Street, Suite 200, Santa Ana, CA, 92705, (714) 245-9499.
LEGAL PROCEEDINGS
The Company expects its operating subsidiaries to be parties to various
legal proceedings from time to time in the course of their business activities.
The Company maintains comprehensive general liability and other insurance which
it believes to be adequate for the purpose. The Company does not know of any
pending legal proceedings involving it or any of the stations to be acquired
which would have a material adverse affect on its financial condition or results
of operations.
The Company's FCC applications for the Salt Lake City, the Albuquerque and
the St. Louis Acquisitions were filed with the FCC on September 19, 1997,
October 8, 1997 and September 30, 1997, respectively. Certain parties in
interest filed a joint request for approval of settlement on January 30, 1998
seeking approval of, among other things, the transfer to ACME Television
Licenses of Tennessee, LLC of an FFC construction permit (and the related
option) to build a television station in the Springfield, Missouri DMA. See
"Additional Acquisition."
The Company's FCC application for the Albuquerque Acquisition was approved
by the FCC on December 22, 1997 and such approval has become final and no longer
subject to review. The Company's FCC application for the purchase of 49% of the
interests to be acquired in the Salt Lake City Acquisition was approved by the
FCC on October 20, 1997 and such approval has become final and no longer subject
to review. The renewal application for the license for Station KPLR was filed by
the licensee, Koplar Television Communications L.L.C., on September 30, 1997.
The existing license remains in effect until the FCC disposes of the renewal
application.
The Company has been advised that a third party has filed an application to
register 'ACME Television' as a service mark under federal law and has claimed
common law rights in such service mark that predate its use by the Company. The
Company is presently considering the alternatives available to it, which include
the filing of a notice of opposition to registration of the service mark for
such third party, negotiations with such third party to acquire its interest in
the mark or agree to simultaneous use of the mark by each party in connection
with its business, or ceasing to use 'ACME Television' as a mark. The Company
cannot at this time predict the outcome of such alternatives, and there can be
no assurance that the Company will be able to continue to use 'ACME Television'
as a service mark.
54
<PAGE>
MANAGEMENT
Full authority for the management of ACME Parent resides in its executive
officers and the Board of Advisors of ACME Parent. The Company is managed by its
Majority Member, ACME Parent, who has exclusive control of the management of the
business and affairs of the Company. Messrs. Kellner, Gealy and Allen each hold
the same executive offices of the Company, ACME Television and ACME Parent. Set
forth below is certain information with respect to the members of the Board of
Advisors of ACME Parent and the current and proposed senior management of the
Company. All ages are set forth as of June 30, 1997. In addition to the current
and proposed members of the Board of Advisors, there will be two additional
board members appointed pursuant to the LLC Agreement. See 'Description of ACME
Parent--LLC Agreement.'
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS/BOARD MEMBERS
Jamie Kellner.......................... 50 Chairman of the Board, Chief Executive Officer and Member of
the Board of Advisors
Douglas Gealy.......................... 37 President, Chief Operating Officer and Member of the Board of
Advisors
Thomas Allen........................... 44 Executive Vice President, Chief Financial Officer and Member of
the Board of Advisors
PROPOSED BOARD MEMBERS
Edward J. Koplar....................... 54 Chief Executive Officer of ACME St. Louis and Member of the
Board of Advisors(1)
Michael V. Roberts..................... 48 Member of the Board of Advisors(2)
GENERAL MANAGERS
Lewis F. Cosby, III.................... 47 General Manager of Station WINT
Stephen W. Dant........................ 48 General Manager of Station KWBP
John J. Greenwood...................... 35 General Manager of Station KAUO
William A. Lanesey..................... 37 General Sales Manager of Station KPLR
</TABLE>
- ------------------
(1) Mr. Koplar is expected to hold these offices upon consummation of the St.
Louis Acquisition.
(2) Mr. Roberts is expected to hold this office upon consummation of the Salt
Lake City Acquisition.
Jamie Kellner--Mr. Kellner is a founder of ACME Parent and serves as its
Chairman, Chief Executive Officer and is a member of its Board of Advisors,
which has exclusive authority to manage its business and affairs. Mr. Kellner is
also a founder, chief executive officer and partner of The WB Television Network
since January 1993. Previously, Mr. Kellner was President of the Fox
Broadcasting Company for over five years. He currently serves on the board of
directors of SMART TV, LLC and NELVANA LTD.
Douglas Gealy--Mr. Gealy is also a founder of ACME Parent and serves as its
President and Chief Operating Officer and a member of the Board of Advisors.
Since June of 1996, Mr. Gealy has been involved in development activities with
respect to ACME Parent. Prior to founding ACME Parent, Mr. Gealy served for one
year as Executive Vice President of a group of eight broadcast television
stations owned by Benedek Broadcasting. Previously, Mr. Gealy was a Vice
President and General Manager of Station WCMH and its LMA WWHO, in Columbus,
Ohio, and following the acquisition of these stations by NBC, served as
President and General Manager of these stations.
Thomas Allen--Mr. Allen is a founder, member of the Board of Advisors,
Executive Vice President and the Chief Financial Officer of ACME Parent. Since
June of 1996, Mr. Allen has been involved in development activities with respect
to the Company. Previously, Mr. Allen was the Chief Operating Officer and Chief
Financial Officer for Virgin Interactive Entertainment, from August 1993 to May
1996. Prior to that, Mr. Allen served as the Chief Financial Officer of the Fox
Broadcasting Company for approximately seven years.
Edward J. Koplar--Mr. Koplar will become a member of the Board of Advisors
of ACME Parent and the Chief Executive Officer of ACME St. Louis, Inc. upon
completion of the St. Louis Acquisition. Since 1979, Mr. Koplar has been the
President for Koplar Communications and its predecessor for Station KPLR,
Channel 11, St. Louis Missouri.
55
<PAGE>
Michael V. Roberts--Mr. Roberts will become a member of the Board of
Advisors pending a waiver by the FCC related to a station in which Mr. Roberts
has an attributable interest in the St. Louis DMA. Mr. Roberts is co-founder of
Roberts Broadcasting which owns several television stations in medium-sized
markets in the U.S. and has served as its Chairman and Chief Executive Officer
since 1989. Mr. Roberts is also the founder of companies active in commercial
real estate development, construction program management and corporate
management consulting. He currently serves on the board of directors of Home
Shopping Network.
Lewis F. Cosby, III--Mr. Cosby joined the Company in August 1997 as the
general manager of Station WINT in Knoxville. From 1988 to 1996, Mr. Cosby was a
partner and general manager of the CBS affiliate in Knoxville. Mr. Cosby has 25
years of experience in the broadcasting industry.
Stephen W. Dant--Mr. Dant has been managing Station KWBP in Portland since
June of 1997. Prior to joining the Company, Mr. Dant acted as a Vice
President--General Manager for Citadel Communications, where he managed the ABC
affiliate in Lincoln, NE. Before Citadel Communications, Mr. Dant managed
stations in medium-sized markets for Davis-Goldfarb Company from 1993 to 1995
and Gateway Communications from 1988 to 1993. Mr. Dant has over 20 years of
experience in the broadcasting industry.
John J. Greenwood--Mr. Greenwood joined the Company in August 1997 to
assist in developing the Company's stations in Knoxville and Salt Lake City. Mr.
Greenwood will ultimately be the general manager for Station KAUO in
Albuquerque. Prior to joining the Company, since 1994, Mr. Greenwood acted as
the general sales manager and general manager for the Fox affiliate in
Montgomery, AL for Woods Communication Corporation. From 1991 to 1994, Mr.
Greenwood worked for Scripps Howard Broadcasting Co. as a sales manager for the
CBS affiliate in Cincinnati, OH.
William A. Lanesey--Mr. Lanesey will join Station KPLR as general sales
manager in September 1997. He has over 14 years of broadcasting sales
experience. Most recently, Mr. Lanesey acted as Vice President of Sales for the
NBC affiliate in Columbus, Ohio from 1991 to 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
COMPENSATION
------------
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- -------------------------------------
OTHER RESTRICTED SECURITIES PAYOUTS
ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($) $ ($) (#) (#)(4)
- ----------------------------- ------- -------- ----- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jamie Kellner,
Chief Executive
Officer(1)................. 1997(2) (3) -- -- -- -- 40.0 --
Douglas Gealy,
Chief Operating
Officer(1)................. 1997(2) 250,000 -- -- -- -- 30.0 --
Thomas Allen,
Chief Financial
Officer(1)................. 1997(2) 133,900 105,000 -- -- -- 30.0 --
</TABLE>
- ------------------
(1) Each of Messrs. Kellner, Gealy and Allen commenced employment with the
Company on June 17, 1997. Mr. Gealy received compensation retroactive to
January 1, 1997.
(2) This table reflects the amount of compensation to be received by the end of
the only completed fiscal year of the Company.
(3) The Consulting Agreement with Mr. Kellner does not provide for annual
compensation; however, the Compensation Committee of ACME Parent has the
discretion to pay Mr. Kellner such compensation pursuant thereto in the
future as it deems appropriate.
(4) This column contains the number of Management Carry Units of ACME Parent
owned by Messrs. Kellner, Gealy and Allen. Ownership of these units entitles
them to certain distribution rights upon achievement of certain returns by
non-management investors and are subject to forfeiture or repurchase by ACME
Parent in the event of the termination of each individual's employment by
ACME Parent under certain specified circumstances. The Management Carry
Units vest over a five-year period, subject to acceleration upon the
occurrence of certain events, such as an initial public offering, a change
in control or a sale of ACME Parent. The dollar value of payouts as a result
of ownership of these units cannot presently be determined.
56
<PAGE>
EXECUTIVE COMPENSATION
ACME Parent has entered into a six-year consulting agreement (the
'Consulting Agreement') with Jamie Kellner, and six-year employment agreements
(the 'Employment Agreements') with each of Messrs. Gealy and Allen, in each case
subject to reduction to five-year terms upon the consummation of an initial
public offering of common stock of a successor to ACME Parent (an 'ACME IPO').
The Employment Agreements provide for an initial base salary of $250,000 each
for Messrs. Allen and Gealy, subject to minimum annual adjustments for increases
in the CPI. The Consulting Agreement does not provide for an initial base fee;
however, the Compensation Committee has the discretion to pay Mr. Kellner such
compensation pursuant thereto in the future as it deems appropriate. Messrs.
Gealy and Allen are required to devote their full business time and attention to
the business of ACME Parent and its subsidiaries. In addition, Messrs. Gealy and
Allen have each agreed that during their respective engagement periods, each
will make available to the Company video broadcast or distribution opportunities
that could deliver The WB Network programming for DMA markets 20 to 100. Mr.
Kellner is not required to devote any minimum time to the performance of his
consulting duties or to make available to ACME Parent all video broadcast or
distribution opportunities of which he may be aware. In connection with their
engagement by ACME Parent, Messrs. Kellner, Gealy and Allen have each agreed
that during such engagement and for a period of three years (subject to certain
exceptions) thereafter, he will not engage in activities competitive with those
of the Company in any DMA in which the Company operates.
In connection with the St. Louis Acquisition, ACME Parent will enter into a
management agreement with Edward J. Koplar (the 'Management Agreement'). The
Management Agreement will have a term of three years, subject to automatic
renewal for successive one year terms unless either party provides notice of
termination. The Management Agreement provides for an annual fee of $1,000,000.
Under the Management Agreement, Mr. Koplar has the right to voluntarily
terminate his services provided thereunder and be paid any remaining consulting
fees that would be payable for the remaining term of the Management Agreement at
the effective date of such termination. In addition, if Mr. Koplar terminates
the Management Agreement for cause, he is entitled to (i) the balance of the
consulting fee which would have been payable to him through the remaining
portion of the term of the Management Agreement, had such termination not
occurred; and (ii) a maximum of $4,000,000, which amount decreases in $1,000,000
increments on each anniversary of the effective date of the Management
Agreement. The Company does not intend to renew the Management Agreement, and
has no right to require Mr. Koplar to provide services pursuant to the
Management Agreement in exchange for compensation payable thereunder. ACME
Parent has also agreed to grant Koplar Interactive Systems International, L.L.C.
('KISI'), an entity controlled by Mr. Koplar, the right to encode the broadcast
signals of any other television stations it owns or operates with KISI's
interactive technology.
LONG-TERM INCENTIVE PLAN
The Company intends to adopt and maintain a long-term incentive
compensation plan in which all general managers of Company stations will be
eligible to participate. It is presently contemplated that such plan will be
structured to provide incentive compensation to general managers based on the
performance of their particular stations and the Company's stations as a whole.
The ultimate terms and conditions of such plan will be determined by the
Company, subject to the approval of ACME Parent and the Institutional Investors.
The Company anticipates that it will adopt a similar plan for certain officers
who were not founders of ACME Parent.
57
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's stations have or will enter into affiliation agreements with
The WB Network and related marketing arrangements. Jamie Kellner is an owner and
the chief executive officer of The WB Network. See 'Business--Affiliation
Agreements.'
In connection with the St. Louis Acquisition, the Company entered into the
St. Louis LMA with Koplar Communications. Edward J. Koplar is the controlling
stockholder, chief executive officer and chief operating officer of Koplar
Communications. See 'The Transactions--The Acquisitions--The St. Louis
Acquisition.' In addition, the Company intends to enter into the Management
Agreement with Mr. Koplar, and grant to an affiliate of Mr. Koplar the right to
encode the broadcast signals of Station KPLR and other television stations the
Company owns or operates with such entity's interactive technology. See
'Management--Executive Compensation.' The Company has also granted to Mr. Koplar
approval rights with respect to certain dispositions of Station KPLR by the
Company for a period of five years.
In connection with the Salt Lake City Acquisition, the Company intends to
enter into long-term agreements to lease studio facilities and transmission
tower space for Station KZAR from an affiliate of Michael V. Roberts upon terms
to be agreed upon prior to the closing of the Offering.
In connection with the Salt Lake City Acquisition, the Company will
reimburse the sellers of Roberts Broadcasting for up to $1.0 million of
development expenses incurred with respect to Station KZAR.
In connection with the Portland Acquisition, the Company entered into an
LMA with Channel 32, Incorporated for Station KWBP.
The owner of the seller of Station KAUO is a member of the immediate family
of Mr. Roberts and Steven C. Roberts.
Pursuant to an agreement among Koplar Communications, an affiliate of
Roberts Broadcasting, Mr. Roberts and Steven C. Roberts, the affiliate of
Roberts Broadcasting cannot (i) transfer its license for Station WHSL, East St.
Louis, Illinois, (ii) commit any programming time of the station for commercial
programming or advertising or (iii) enter into an LMA with respect to such
station until June 1, 1998. Upon the written consent of the affiliate of Roberts
Broadcasting, Mr. Roberts and Steven C. Roberts, these restrictions can be
extended for an additional two year term. In the event that the current
affiliation agreement for this station is terminated, the substitute format must
be substantially similar to the current home shopping network format or, in the
alternative, an infomercial format. The annual payment from Koplar
Communications for these agreements was $200,000 during the first three years
and will be $300,000 during the additional two year term.
In connection with the transactions contemplated by the LLC Agreement, the
Investment Agreement and the Acquisitions, ACME Parent and the Company have paid
or agreed to pay an aggregate of approximately $3.5 million in financial
advisory fees to CEA, Inc. CEA ACME, Inc., and CEA Capital Partners USA, L.P.
are affiliates of CEA Inc.
Immediately prior to the closing of the Offering, The TCW Group, Inc.
exchanged its right to receive a portion of the Membership Units offered in the
Offering for (i) a convertible debenture of ACME Subsidiary Holdings IV, LLC
('Holdings IV'), a subsidiary of ACME Parent, which is convertible into such
Membership Units of the Company, and (ii) preferred membership units of Holdings
IV.
Pursuant to the definitive agreements with respect to the Acquisitions, the
Company has made customary representations and warranties to the sellers and
agreed to indemnify such sellers for breach of such representations and
warranties. The holders of ACME Parent's Seller Units or their affiliates are
beneficiaries of such indemnification.
The Company believes that the terms of each of the foregoing transactions
are or were at least as favorable to the Company or its affiliates as those that
could be obtained from an unaffiliated party.
58
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND EXECUTIVE OFFICERS
Full authority for the management of ACME Parent resides in its executive
officers and the Board of Advisors of ACME Parent. The Company is managed by its
Majority Member, ACME Parent, who has exclusive control of the management of the
business and affairs of the Company. Messrs. Kellner, Gealy and Allen each hold
the same executive offices of the Company, ACME Television and ACME Parent.
Accordingly, the following table sets forth certain information regarding the
beneficial ownership of the Company's membership units after giving effect to
the Transactions by (i) certain holders or groups of related holders who,
individually or as a group, are the beneficial owners of 5% or more of the fully
diluted equity interests of the Company, (ii) the executive officers and the
Majority Member (as defined) of the Company and (iii) the executive officers and
the Majority Member of the Company as a group. The Company LLC Agreement
authorizes the issuance of 895,425 Common Units, 71,364 of which are issuable
upon the consummation of the Offering. The Percentage of Beneficial Ownership
column set forth below reflects ownership percentages based upon capital
contributions. Pursuant to the Company LLC Agreement, distributions are made on
a pro rata basis as determined by the ratio of a member's membership units to
the aggregate membership units of all members.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF BENEFICIAL
NAME(1) TYPE OF INTEREST UNITS OWNERSHIP
- --------------------------------------------------------------- ---------------- ---------- -------------
<S> <C> <C> <C>
ACME Television Holdings, LLC.................................. Common Units 823,791 92.0
Executive Officers and Majority Member:
ACME Television Holdings, LLC.................................. Common Units 823,791 92.0
Jamie Kellner(2) .............................................. Common Units 823,791 92.0
1545 East Valley Road
Montecito, CA 93108
Douglas Gealy(2) .............................................. Common Units 823,791 92.0
10829 Olive Boulevard, Suite 202
St. Louis, MO 63141
Thomas Allen(2) ............................................... Common Units 823,791 92.0
2101 East Fourth Street, Suite 200
Santa Ana, CA 92705
Majority Member and executive officers Common Units 823,791 92.0
as a group (4 persons).......................................
</TABLE>
- ------------------
(1) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all units set forth in the
table.
(2) Messrs. Kellner, Gealy and Allen are each executive officers of the Company,
ACME Television and ACME Parent and members of the Board of Advisors of ACME
Parent. Currently, Messrs. Kellner, Gealy and Allen are the beneficial
owners of the only outstanding voting membership units of ACME Parent and,
therefore, may be deemed to be beneficial owners of the membership units of
the Company held by ACME Parent.
The following table sets forth certain information regarding the beneficial
ownership of ACME Parent's membership units and Convertible Debentures after
giving effect to the Transactions by (i) certain holders or groups of related
holders who, individually or as a group, are the beneficial owners of 5% or more
of the fully diluted equity interests of ACME Parent, (ii) the executive
officers and members of the Board of Advisors of ACME Parent and (iii) the
executive officers and members of the Board of Advisors of ACME Parent as a
group. The LLC Agreement of ACME Parent authorizes the issuance of 50,000
Investor Units, 20,000 of which are issuable upon conversion of the Convertible
Debentures (at a conversion rate equal to $1,000 of principal amount per
Investor Unit), 20,000 Seller Units, 600 Management Capital Units, 942.5 Class A
Founder Units, 533.33 Class B Founder Units, 100 Management Carry Units and 100
Terminated Management Units. The Percentage of Beneficial Ownership column set
forth below reflects ownership percentages determined assuming conversion of the
Convertible Debentures and is based upon capital contributions (or, in the case
of the Convertible Debentures, amounts to be deemed to be capital contributions
upon conversion).
59
<PAGE>
Pursuant to the LLC Agreement, distributions are made in respect of the
various classes of such membership units in accordance with certain priority
distributions and ownership percentages as set forth therein, and vary among the
respective classes of membership units based upon the extent to which holders of
designated classes of such membership units have achieved specified cumulative
distributions. Currently, Messrs. Kellner, Gealy and Allen are the beneficial
owners of the only outstanding voting membership units of ACME Parent. See
'Description of ACME Parent--LLC Agreement.'
<TABLE>
<CAPTION>
PERCENTAGE OF
BENEFICIAL
NUMBER OF OWNERSHIP
UNITS OR ON AN AS
PRINCIPAL CONVERTED
AMOUNTS OF FULLY-DILUTED
NAME(1) TYPE OF INTEREST DEBENTURES BASIS
- ----------------------------------------------- ------------------------ ------------- -------------
<S> <C> <C> <C>
BancBoston Ventures Inc........................ Investor Units 8,491.7 19.5
Class B Founder Units 133.3 0.3
Convertible Debentures $ 1,000,000.0 2.3
Channel 32, Incorporated....................... Seller Units 4,400.0 10.1
ACME Capital Partners(2)(4).................... Class A Founder Units 942.5 2.2
Alta ACME, Inc.(3)(5)(6)....................... Class B Founder Units 133.3 0.3
CEA ACME, Inc.(4).............................. Class B Founder Units 133.3 0.3
Alta Communications VI, L.P.(5)(6)............. Convertible Debentures $ 6,960,315.1 16.0
Alta-Comm S by S, LLC(5)(6).................... Convertible Debentures $ 158,434.9 0.4
Alta Subordinated Debt Partners III, Convertible Debentures $ 2,372,916.7 5.4
L.P.(6) .......................................
CEA Capital Partners USA, L.P.................. Convertible Debentures $ 9,491,666.7 21.8
TCW Shared Opportunity Fund II, L.P.(7)........ Investor Units 1,590.9 3.7
Class B Founder Units 33.3 0.1
TCW Leveraged Income Trust, L.P.(7)............ Convertible Debentures $ 4,772,636.7 11.0
LINC ACME, Corporation(7)...................... Class B Founder Units 100.0 0.2
CIBC Wood Gundy Securities Corp.(8)............ Investor Units 4,593.8 10.5
Steven C. Roberts.............................. Seller Units 3,000.0 6.9
NAMED EXECUTIVE OFFICERS AND BOARD MEMBERS:
Jamie Kellner(9) .............................. Management Capital Units 290.0 0.7
1545 East Valley Road Management Carry Units 40.0 --
Montecito, CA 93108
Douglas Gealy(9) .............................. Management Capital Units 160.0 0.3
10829 Olive Boulevard, Suite 202 Management Carry Units 30.0 --
St. Louis, MO 63141
Thomas Allen(9) ............................... Management Capital Units 150.0 0.3
2101 East Fourth Street, Suite 200 Management Carry Units 30.0 --
Santa Ana, CA 92705
Michael V. Roberts ............................ Seller Units 3,000.0 6.9
1408 North Kingshighway
Suite 300
St. Louis, MO 63113
All members of the Board of Advisors and named
executive officers as a group (4 persons)...... Management Capital Units 600.0 1.4
Management Carry Units 100.0 --
Seller Units 3,000.0 6.9
</TABLE>
(Footnotes on next page)
60
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all units or convertible
debentures set forth in the table.
(2) Certain general partners of ACME Capital Partners may be deemed to have or
share voting or investment power with respect to the membership units held
by ACME Capital Partners. The general partners of ACME Capital Partners
disclaim beneficial ownership with respect to such membership units except
to the extent of their proportionate pecuniary interests therein.
(3) Alta Communications VI, L.P., Alta Subordinated Debt Partners III, L.P. and
Alta--Comm S by S, LLC own all of the shares of Alta ACME, Inc. and
therefore each of these entities may be deemed to have or share voting or
investment power with respect to the membership units held by Alta ACME,
Inc. Alta Communications VI, L.P. owns approximately 73.3% of the shares of
Alta ACME, Inc. and therefore may be deemed to control Alta ACME, Inc. The
principals of Alta Communications VI, L.P., Alta Subordinated Debt Partners
III, L.P. and Alta Comm S by S, LLC disclaim beneficial ownership of all
such membership interests and shares of common stock of Alta ACME, Inc.
except to the extent of their proportionate pecuniary interests therein. In
addition, individually no stockholder, director or officer of Alta ACME,
Inc. is deemed to have or share such voting or investment power.
(4) CEA Capital Partners USA, L.P. owns all of the shares of CEA ACME, Inc. and
therefore may be deemed to have or share voting or investment power with
respect to the membership units held by CEA ACME, Inc. The principals of CEA
Capital Partners USA, L.P. disclaim beneficial ownership of all such
membership units and shares of common stock in CEA ACME, Inc. except to the
extent of their proportionate pecuniary interests therein. J. Patrick
Michael, Jr. owns a controlling interest in the general partner of CEA
Capital Partners USA, L.P. and therefore may be deemed to beneficially own
the Convertible Debentures and membership units held by CEA Capital Partners
USA, L.P. Mr. Michael disclaims beneficial ownership of all such Convertible
Debentures and membership units of CEA Capital Partners USA, L.P. except to
the extent of his proportionate pecuniary interests therein.
(5) Alta Communications VI, L.P. and Alta Comm S by S, LLC are part of an
affiliated group of investment funds referred to collectively as the Alta
Communications Funds. The general partner of Alta Communications VI, L.P. is
Alta Communications VI Management Partners, L.P. Alta Communications VI
Management Partners, L.P. exercises sole voting and investment power with
respect to all of the convertible debentures held of record by Alta
Communications VI, L.P. Alta Communications, Inc. provides investment
advisory services to each of the funds comprising the Alta Communications
Funds. Certain of the principals of Alta Communications, Inc. are partners
of Alta Communications VI Management Partners, L.P. and Alta Comm S by S,
LLC and as such may be deemed to have or share voting or investment power
with respect to the convertible debentures held by Alta Communications VI,
L.P. and Alta Comm S by S, LLC; individually no partner or officer of Alta
Communications VI Management Partners, L.P. is deemed to have or share such
voting or investment power. The principals of Alta Communications, Inc.
disclaim beneficial ownership of all such convertible debentures and shares
of common stock in Alta ACME, Inc. except to the extent of the proportionate
pecuniary interests therein. In addition, certain principals of Alta
Communications, Inc. are affiliated with Burr, Egan, Deleage & Co.
(6) The general partner of Alta Subordinated Debt Partners III, L.P. ('ASDP') is
Alta Subordinated Debt Management III, L.P. Alta Subordinated Debt
Management III, L.P. exercises sole voting and investment power with respect
to all of the securities held of record by ASDP. Burr, Egan, Deleage & Co.,
directly or indirectly, provides investment advisory services to ASDP.
Certain of the principals of Burr, Egan, Deleage & Co. are partners in Alta
Subordinated Debt Management III, L.P. and, as such, may be deemed to have
or share voting or investment power with respect to the securities held by
ASDP; individually no partner or officer of Alta Subordinated Debt
Management III, L.P. is deemed to have or share such voting or investment
power. The principals of Burr, Egan, Deleage & Co. disclaim beneficial
ownership of all of such securities except to the extent of their
proportionate pecuniary interests therein. In addition, certain principals
of Burr, Egan, Deleage & Co. are affiliated with Alta Communications, Inc.
(7) TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P. and
LINC ACME, Corporation are subsidiaries of The TCW Group, Inc.
(8) CIBC Wood Gundy Securities Corp. was the Initial Purchaser in the Offering.
(9) Messrs. Kellner, Gealy and Allen are each executive officers of the Company,
ACME Intermediate and ACME Parent and members of the Board of Advisors of
ACME Parent. The Management Carry Units owned by Messrs. Kellner, Gealy and
Allen entitle them to certain distribution rights upon achievement of
certain returns by non-management investors and are subject to forfeiture or
repurchase by ACME Parent in the event of the termination of each
individual's employment by ACME Parent under certain specified
circumstances.
61
<PAGE>
DESCRIPTION OF ACME PARENT
LLC AGREEMENT
The Limited Liability Company Agreement dated June 17, 1997 of ACME
Television Holdings, LLC, as amended, (the 'LLC Agreement') provides for the
admission of various persons as members of ACME Parent (the 'Members'), and sets
forth the relative interests, rights and obligations of the Members. Each Member
has such economic interest in the distributions, allocations of profits and
losses and other relative rights, duties and powers as set forth in the LLC
Agreement.
The LLC Agreement authorizes the issuance of 50,000 Investor Units, each of
which represents a capital contribution of $1,000 per unit and a preferential
return amount of $1,000 per unit (the 'Investor Units'), 20,000 Seller Units,
each of which represents a capital contribution of $1,000 per unit and a
preferential return amount of $1,000 per unit (the 'Seller Units'), 600
Management Capital Units, each of which represents a capital contribution of
$1,000 per unit and a preferential return amount of $2,000 per unit (the
'Management Capital Units'), 942.5 Class A Founder Units, each of which
represents a capital contribution of $1,000 per unit and a preferential return
amount of $1,500 per unit (the 'Class A Founder Units'), and 533.33 Class B
Founder Units, each of which represents a capital contribution of $1,000 per
unit and a preferential return amount of $1,500 per unit (the 'Class B Founder
Units' together with the Class A Founder Units, the Management Capital Units,
the Seller Units, and the Investor Units, the 'Non-Carry Units'). In addition,
the LLC Agreement authorizes the issuance of 100 Management Carry Units (the
'Management Carry Units'), each representing an initial capital contribution of
$1.00, and 100 Terminated Management Units (the 'Terminated Management Units').
The Management Carry Units, all of which are issued to Messrs. Kellner, Gealy
and Allen, are subject to repurchase, forfeiture and exchange for Terminated
Management Units as set forth in the LLC Agreement. The Management Carry Units
vest over a five-year period, subject to acceleration upon the occurrence of
certain events, such as an initial public offering, a change in control or a
sale of ACME Parent. Terminated Management Units may be issued to holders of
Management Carry Units upon their termination of employment with ACME Parent.
Each outstanding membership unit is entitled to its pro rata share of all
profits and losses of ACME Parent and to participate in distributions made by
ACME Parent from time to time. The LLC Agreement provides that, prior to any
distributions to Management Carry Units, the holders of Non-Carry Units are
entitled to a priority return of their capital contributions ($1,000 per
membership unit), plus varying preferential returns thereon (the 'Priority
Capital Distributions'). After the holders of Non-Carry Units have received
their Priority Capital Distributions, the holders of Non-Carry Units and
Management Carry Units share any residual distributions with the holders of the
Management Carry Units being entitled to receive up to fifty percent (50%) of
any such residual distributions. If any Terminated Management Units are issued
in exchange for Management Carry Units, the holders of Terminated Management
Units will be entitled to participate in distributions after all of the Priority
Distributions have been made.
The membership units include various rights and limitations with respect to
transferability as set forth in the LLC Agreement. In addition, Investor Units
are subject to redemption at any time at the option of the holders of a majority
of interest of the Investor Units after June 30, 2008 or upon any acceleration
or pre-payment of the Convertible Debentures. Each of the other membership
units, except for the Management Carry Units, are subject to redemption at the
option of the holders of a majority in interest of the applicable class of
membership units at any time upon the acceleration or pre-payment of the
Convertible Debentures.
The LLC Agreement vests full and exclusive control of the management of the
business and affairs of ACME Parent in a three member Board of Advisors (the
'Board'), provided that the Board is required to obtain the prior written
consent of the holders of at least 60% in interest of the Class B Founder Units
for any of the following actions: (i) redemption of membership units, (ii)
issuance of additional membership units, (iii) change in number of authorized
membership units, (iv) payment or declaration of any dividend or distribution,
(v) authorization of any merger or consolidation of ACME Parent or any of its
subsidiaries, (vi) authorization of the reorganization, sale or sale of material
assets of ACME Parent or any of its Subsidiaries, (vii) authorization of any
reclassification or recapitalization of the outstanding membership units, (viii)
engagement by ACME Parent or its subsidiaries in any business other than the
business now conducted or contemplated, (ix) alteration, modification or
amendment of the LLC Agreement or the Investment Agreement and (x) application
or consent to appointment of a receiver, trustee, custodian or liquidator;
admission in writing by ACME Parent of the inability to pay debts; general
assignment for benefit of creditors; and any action to take advantage of
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bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation laws; provided that any of the actions in clause (x) above shall
require the prior written consent of members holding all of the Class B Founder
Units and a majority in interest of each class of the Class A Founder Units and
the Management Capital Units, voting separately. The LLC Agreement provides that
the size of the Board will increase to at least five members upon election of
two additional individuals by the holders of a majority of the Management Carry
Units, subject to the approval of the holders of a majority in interest of the
Management Carry Units and at least 60% in interest of the Class B Founder
Units. In addition, Mr. Roberts became a member of the Board of Advisors upon
the issuance to him of Seller Units in connection with the Salt Lake City
Acquisition, and the Company anticipates that Mr. Koplar will become a member of
the Board of Advisors upon consummation of the St. Louis Acquisition.
Messrs. Kellner, Gealy and Allen are the initial members of the Board and
their successors will be appointed by the holders of the Management Carry Units
so long as none of the following events has occurred: (i) June 30, 2002, (ii)
the thirtieth day after Jamie Kellner shall have ceased to act as Chairman and
Chief Executive Officer of ACME Parent or be employed by The WB Network in a
senior management capacity, (iii) the earlier of (A) the one-hundred and
twentieth (120th) day after a clear and unequivocal announcement by Time Warner
or The WB Network of the cessation of operations of The WB Network or (B) the
thirtieth (30th) day after cessation of operation of The WB Network, (iv) the
thirtieth (30th) day after the date Time Warner ceases to own at least
thirty-five percent (35%) of the outstanding equity interests of The WB Network,
(v) the holders of any indebtedness in aggregate amount of $5,000,000 take any
action to accelerate any of the Indebtedness outstanding or foreclose on
collateral pledged in connection therewith or (vi) ACME Parent breaches certain
terms and conditions of the LLC Agreement or the Investment Agreement. If any
one of the aforementioned events occurs and ACME Parent has not consummated an
initial public offering, the holders of a majority in interest of the Class B
Founder Units shall be entitled to remove all members of the existing Board of
Advisors and to elect six members of a reconstituted Board of Advisors made up
of seven members and the holders of a majority in interest of the Management
Capital Units shall be entitled to elect the remaining member of the
reconstituted Board of Advisors. So long as any one of the aforementioned events
has not occurred that has not been waived in writing, Messrs. Kellner, Gealy,
Allen and Koplar will be entitled to two votes on each matter to be voted on at
any meeting of the Board and each other member of the Board will be entitled to
one vote, and all actions to be taken by the Board will be by vote or written
consent of a majority of the votes cast by Board members.
The LLC Agreement also provides for indemnification of the Board of
Advisors, any Affiliate of the members of the Board of Advisors and each person
serving as an officer, employee or other agent of the ACME Parent, including
persons serving at the request of ACME Parent as directors, managers, officers,
employees, agents or trustees of another organization in which ACME Parent has
any interest as a shareholder, creditor or otherwise, with respect to
liabilities incurred acting on behalf of ACME Parent, subject to limitations
imposed thereon by applicable law.
So long as ACME Parent has not consummated an initial public offering, ACME
Parent will have a compensation committee (the 'Compensation Committee')
consisting of five (5) members, three (3) of which shall be appointed by holders
of a majority in interest of the Class B Founder Units, one (1) of which shall
be, so long as he is an officer of ACME Parent, Jamie Kellner, and one (1) of
which shall be an unaffiliated member of the Board of Advisors. Any actions by
the Compensation Committee shall require the affirmative vote of three (3) of
the five (5) members of the Compensation Committee. The Compensation Committee
has the exclusive power and authority to determine annually the appropriate
annual compensation for each of the officers of ACME Parent. Except for Mr.
Kellner, the members of the Compensation Committee have not yet been named.
INVESTMENT AGREEMENT
Pursuant to the Investment Agreement, certain of the Institutional
Investors agreed to purchase $40.0 million in the aggregate of Investor Units
and Convertible Debentures of ACME Parent. The Investment Agreement also
provides that the holders of the Investor Units and Convertible Debentures,
voting together as a class, have the right to consent to certain transactions by
ACME Parent and its subsidiaries, including incurring indebtedness for borrowed
money (other than the Notes and the Revolving Credit Facility), acquisitions of
additional stations or licenses, amendments to its organizational documents and
the making of distributions in respect of its membership units.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below are descriptions of certain indebtedness, to be incurred by
ACME Television and its subsidiaries in connection with the Pending
Acquisitions. Such indebtedness constitutes direct obligations of ACME
Television and its subsidiaries, and, as such constitute claims against such
entities prior to the Company's equity interest therein.
REVOLVING CREDIT FACILITY
On December 2, 1997, ACME Television entered into an amended and restated
revolving credit facility (the 'Revolving Credit Facility') with Canadian
Imperial Bank of Commerce, New York agency, as agent, and the several lenders
party thereto. The Revolving Credit Facility is a five-year senior secured
revolving credit facility with $40.0 million of available borrowings. Proceeds
of borrowings under the Revolving Credit Facility may be used for capital
expenditures, working capital, acquisitions (with the prior approval of the
lenders) and general corporate purposes. All subsidiaries of ACME Television and
any future subsidiaries (other than ACME Finance Corporation) are or will be
guarantors (the 'Bank Guarantors') of the Revolving Credit Facility, which is
collateralized by a security interest in all assets of and stock of the Bank
Guarantors. Borrowings under the Revolving Credit Facility will bear interest,
payable quarterly, at LIBOR or the prime rate (as selected by ACME Television)
plus spreads over such rates that vary with ACME Television's ratio of total
debt to EBITDA.
The Revolving Credit Facility requires prepayments and concurrent
reductions of the commitment from asset sales or other transactions outside the
ordinary course of business (subject to provisions permitting the proceeds of
certain sales to be used to make approved acquisitions within stated time
periods without reducing the commitments of the lenders) and contains covenants
limiting the amounts of indebtedness that ACME Television may incur, requiring
the maintenance of minimum EBITDA, a ratio of EBITDA to cash interest expense
and the maintenance of a maximum amount of senior debt to EBITDA and total debt
to EBITDA and limiting capital expenditures and other restricted payments
without the express consent of the lenders. The Revolving Credit Facility also
contains other customary covenants, representations, warranties, indemnities,
conditions precedent to closing and borrowing, and events of default.
All indebtedness of ACME Television to any affiliate is expressly
subordinated to the repayment of all amounts owed in respect of the Revolving
Credit Facility.
CAPITAL LEASE FACILITIES
ACME Television intends to enter into a five-year capital lease facility
with General Electric Capital Corporation (the 'GECC Capital Lease Facility')
providing for up to $12.5 million of financing to purchase television station
tower, antenna and production equipment. The GECC Capital Lease Facility will be
amortized by sixty equal monthly payments and will contain prepayment penalties
of 5%, 4%, 3% and 2% during the first, second, third and fourth years,
respectively, after its execution date.
ACME Television intends to enter into a second capital lease facility on
terms substantially similar to the GECC Capital Lease Facility with NationsBank
(together with the GECC Capital Lease Facility, the 'Capital Lease Facilities')
providing for up to $7.5 million of financing at such time as such financing is
required pursuant to the Company's capital expenditure plan.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Original Notes were sold by the Issuers to the Initial Purchaser
pursuant to the Purchase Agreement. The Initial Purchaser subsequently resold
the Original Notes (i) to 'qualified institutional buyers' (as defined in Rule
144A under the Securities Act) in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A, (ii) to a
limited number of institutional 'accredited investors' (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that prior to the purchase
of any securities, executed and delivered a signed letter to the Initial
Purchaser containing certain representations and agreements and (iii) outside
the United States in compliance with Regulation S under the Securities Act.
As a condition to the Purchase Agreement, the Issuers entered into the
Registration Rights Agreement pursuant to which the Issuers agreed at their
expense, for the benefit of the holders of the Original Notes, to (i) use their
reasonable best efforts to file, within 45 days after the date of the original
issuance of the Original Notes, a registration statement (the 'Exchange Offer
Registration Statement') with the Commission with respect to a registered offer
to exchange the Original Notes for the Exchange Notes, which have terms
identical in all material respects to the Original Notes, (except that the
Exchange Notes do not contain terms with respect to transfer restrictions) and
(ii) use their reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 150 days
after the Issue Date. Upon the Exchange Offer Registration Statement being
declared effective, the Issuers will offer the Exchange Notes in exchange for
surrender of the Original Notes. The Issuers will keep the Exchange Offer open
for not less than 30 days (or longer if required by applicable law) after the
date notice of the Exchange Offer is mailed to the holders of the Original
Notes. For each Original Note surrendered to the Issuers pursuant to the
Exchange Offer, the holder of such Original Note will receive an Exchange Note
having a principal amount at maturity equal to that of the surrendered Original
Note, which shall be cancelled. Under existing interpretations by the Staff, the
Exchange Notes would in general be freely transferable after the Exchange Offer
without further registration under the Securities Act.
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an 'affiliate' (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Original Notes and (iii) it
is acquiring the Original Notes in the ordinary course of its business (a Holder
unable to make the foregoing representations is referred to as a 'Restricted
Holder'). A Restricted Holder will not be able to participate in the Exchange
Offer and may only sell its Original Notes pursuant to a registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K under the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives Exchange
Notes for its own account pursuant to the Exchange Offer (a 'Participating
Broker-Dealer') must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Original Notes where such Original Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. Based upon interpretations by the Staff of the
Commission, the Issuers believe that Exchange Notes issued pursuant to the
Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Issuers have
agreed that, for a period of 180 days following consummation of the Exchange
Offer, they will make this Prospectus available, for use in connection with any
such resale, to any Participating Broker-Dealer and other persons, if any, with
similar prospectus delivery requirements. Any Participating Broker-Dealer that
resells Exchange Notes may be deemed to be an 'underwriter' within the meaning
of the Securities Act and must deliver a prospectus in connection with such
resales of Exchange Notes. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act. See 'Plan of
Distribution.' In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or sold
unless they have been registered or such securities laws have been
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complied with. The Issuers have agreed, pursuant to the Registration Rights
Agreement and subject to certain specified limitations therein, to register or
qualify the Exchange Notes for offer or sale under the securities or blue sky
laws of such jurisdictions as any holder of the Exchange Notes may request in
writing.
Based upon interpretations by the Staff of the Commission, the Issuers
believe that Exchange Notes issued pursuant to the Exchange Offer may be offered
for resale, resold, and otherwise transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
In the event that (a) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 45th day following the Issue Date
or an initial Shelf Registration Statement is not filed within 30 days following
delivery of a Shelf Notice prior to the filing date, (b) the Exchange Offer
Registration has not been declared effective on or prior to the 150th day
following the Issue Date, (c) the Exchange Offer is not consummated on or prior
to the 180th day following the Issue Date, (d) a Shelf Registration Statement is
not declared effective on or prior to the 180th day following the Issue Date, or
(e) the Exchange Offer Registration Statement ceases to be effective at any time
prior to the time that the Exchange Offer is consummated, the Issuers shall pay
as liquidated damages to each holder of the Original Notes an amount (the
'Damage Amount') equal to 0.50% per annum of the average Accreted Value of the
Original Notes during the first 90 days during which any such default exists,
and the Damage Amount will be increased by an additional 0.25% per annum of the
average Accreted Value of the Original Notes for each 90-day period that any
such Damage Amount continues to accrue; provided that in no event shall the rate
at which the Damage Amount accrues be more than 2%. Upon (w) the filing of the
applicable Registration Statement in the case of clause (a) above, (x) the
effectiveness of the Exchange Offer Registration Statement in the case of clause
(b) above or resumption of effectiveness in the case of clause (e) above, (y)
the consummation of the Exchange Offer in the case of clause (c) above or (z)
the effectiveness of a Shelf Registration Statement in the case of clause (d)
above, the Damage Amount will cease to accrue from the date of such filing,
effectiveness or consummation, as the case may be.
If applicable, in the event that the Shelf Registration Statement ceases to
be effective prior to the second anniversary of the Issue Date for a period in
excess of 45 days whether or not consecutive, in any given year, then, in
addition to any liquidated damages pursuant to the foregoing paragraph, the
Issuers shall pay as additional liquidated damages to each holder of Original
Notes an amount equal to 0.50% per annum of the average Accreted Value of the
Original Notes during the first 90 days following such 46th day in the
applicable year such Shelf Registration Statement ceases to be effective. Such
additional liquidated damages will increase by an additional 0.25% per annum of
the average Accreted Value for each additional 90 days that such Shelf
Registration Statement is not effective, subject to the same aggregate maximum
increase in liquidated damages of 2.0% referred to above. Upon the filing of the
Exchange Offer Registration Statement, the effectiveness of the Exchange Offer
Registration Statement, or the consummation of the Exchange Offer, as the case
may be, liquidated damages on the Original Notes will be reduced to the extent
that such liquidated damages related to the failure of any such event to have
occurred. Upon the effectiveness of a Shelf Registration Statement, the
liquidated damages on the Original Notes shall cease unless and until started
again as described above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Original
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Original Notes or whose Original Notes were tendered but unaccepted
will not have any further registration rights and such Original Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Original Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Original
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Issuers will issue $1,000 principal amount of
Exchange Notes in exchange
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for each $1,000 principal amount of Original Notes accepted in the Exchange
Offer. Holders may tender some or all of their Original Notes pursuant to the
Exchange Offer. However, Original Notes may be tendered only in integral
multiples of $1,000.
The Issuers will keep the Exchange Offer open for not less than 30 days or
longer if required by applicable law, after the date notice of the Exchange
Offer is mailed to holders of the Original Notes.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Original Notes except (i) the Exchange Notes will be registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (ii) the holders of the Exchange Notes will not be entitled
to certain rights of the holders of the Original Notes under the Registration
Rights Agreement, which rights will terminate upon the consummation of the
Exchange Offer. The Exchange Notes will evidence the same debt as the Original
Notes. The Exchange Notes will be issued under and entitled to the benefits of
the Indenture, which also authorized the issuance of the Original Notes, such
that both series will be treated as a single class of debt securities under the
Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
As of the date of this Prospectus, $71,634,000 aggregate principal amount
at maturity of the Original Notes are outstanding. This Prospectus, together
with the Letter of Transmittal, is being sent to all registered holders of
Original Notes. There will be no fixed record date for determining registered
holders of Original Notes entitled to participate in the Exchange Offer.
Holders do not have any appraisal or dissenters' rights under the law or
under the Indenture in connection with the Exchange Offer. The Issuers intend to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement and the applicable requirements of the Exchange Act, and the
rules and regulations of the Commission thereunder.
Original Notes which are not tendered for exchange in the Exchange Offer
will remain outstanding and will be entitled to the rights and benefits such
holders have under the Indenture and, in certain limited circumstances, the
Registration Rights Agreement.
The Exchange Agent will act as agent for the tendering holders for the
purposes of receiving the Exchange Notes from the Issuers. The Issuers expressly
reserve the right to amend or terminate the Exchange Offer, and not to accept
for exchange any Original Notes not theretofore accepted for exchange, upon the
occurrence of any of the conditions specified below under '--Certain Conditions
to the Exchange Offer.'
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Original Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Issuer will pay all
reasonable expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See '--Fees and Expenses.'
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 5:00 p.m., New York City time on
March , 1998, unless the Issuers, in their sole discretion, extend the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Original Notes an announcement thereof, each prior to 5:00 p.m., New
York City time, on the prior business day before the then Expiration Date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting for exchange any Original Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
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'--Certain Conditions to the Exchange Offer' shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of Original Notes. If the Exchange Offer is amended in a
manner determined by the Issuers to constitute a material change, the Issuers
will promptly disclose such amendment by means of a prospectus supplement that
will be distributed to the registered holders, and the Issuers will extend the
Exchange Offer, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such period.
ORIGINAL ISSUE DISCOUNT OF ORIGINAL NOTES
A holder of Exchange Notes will be required to include the accretion of the
original issue discount at which the Original Notes were issued as gross income
for U.S. federal income tax purposes prior to the receipt of the cash payments
to which such income is attributable. See 'Certain U.S. Federal Income Tax
Considerations Relating to the Notes--U.S. Holders--Original Issue Discount on
the Original Notes.'
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Issuers will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Original Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of any Original Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Issuers, might materially impair
the ability of the Issuers to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Issuers, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Issuers or any of their subsidiaries;
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Issuers or any of their
subsidiaries has occurred which, in the reasonable judgment of the Issuers,
might materially impair the ability of the Issuers to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Issuers;
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the reasonable judgment of the Issuers, might materially
impair the ability of the Issuers to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Issuers;
(d) there shall have occurred (i) any general suspension of trading
in, or general limitation on prices for securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit to the Issuers or (iii) a commencement of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States; or, in the case any of the foregoing exists at the time of
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
(e) any governmental approval has not been obtained, which approval
the Issuers shall, in their reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Issuers expressly reserve the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Original Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, all Original Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Issuers. Any Original
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer. The Issuers expressly reserve the right to
amend or terminate the Exchange Offer, and not to accept for exchange any
Original Notes not theretofore accepted for exchange, upon the occurrence of any
of the conditions of the Exchange Offer specified above under '--Certain
Conditions to the Exchange Offer.' The Issuers will give oral or written notice
of any extension, amendment, non-acceptance or termination to the holders of the
Original
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Notes as promptly as practicable, such notice in the case of any extension to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time in their sole discretion. The failure by the Issuers at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Issuers will not accept for exchange any Original Notes
tendered, and no Exchange Notes will be issued in exchange for any such Original
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Exchange Offer Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939 (the 'TIA').
PROCEDURES FOR TENDERING ORIGINAL NOTES
Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed, and mail or otherwise deliver such Letter of Transmittal, or
such facsimile, to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date or, in the alternative, comply with DTC's ATOP procedures
described below in '--Book-Entry Transfer; ATOP.' In addition, either (i)
Original Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of book-entry transfer (a 'Book-Entry
Confirmation') of such Original Notes, if such procedure is available, into the
Exchange Agent's account at DTC (the 'Book-Entry Transfer Facility') pursuant to
the procedure for book-entry transfer described below or properly transmitted
Agent's Message (as defined) must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under '--Exchange Agent' prior to 5:00 p.m., New
York City time, on the Expiration Date. The Letter of Transmittal must be
completed, signed and delivered even if tender instructions are being
transmitted through DTC's ATOP procedures.
Holders of Original Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through ATOP, for which
the transaction will be eligible. DTC participants that are accepting the
Exchange Offer must transmit their acceptances to DTC, which will verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account at
DTC. DTC will then send an Agent's Message to the Exchange Agent for its
acceptance. Each DTC participant transmitting an acceptance of the Exchange
Offer through the ATOP procedures will be deemed to have agreed to be bound by
the terms of this Letter of Transmittal. Nevertheless, in order for such
acceptance to constitute a valid tender of the DTC participant's Original Notes,
such participant must complete and sign a Letter of Transmittal and deliver it
to the Exchange Agent before the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF ORIGINAL NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender such Original Notes should contact the registered holder promptly and
instruct such registered holder of Original Notes to tender on such beneficial
owner's behalf.
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If such beneficial owner wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering its Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such owner's name or obtain a properly
completed bond power from the registered holder of Original Notes. The transfer
of registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled 'Special Issuance
Instructions' or 'Special Delivery Instructions' on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an 'eligible guarantor institution' within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an 'Eligible Institution').
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes listed therein, such Original Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Issuers, provide evidence satisfactory to the Issuers of their authority to so
act which must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Original Notes and withdrawal of tendered
Original Notes will be determined by the Issuers in their sole discretion, which
determination will be final and binding. The Issuers reserve the absolute right
to reject any and all Original Notes not properly tendered or any Original Notes
the Issuers' acceptance of which would, in the opinion of counsel for the
Issuers, be unlawful. The Issuers also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Original Notes. The
Issuers' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such time as the
Issuers shall determine. Although the Issuers intend to notify holders of
defects or irregularities with respect to tenders of Original Notes, neither the
Issuers, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Original Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Original Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable after
the expiration or termination of the Exchange Offer.
In all cases, issuance of Exchange Notes for Original Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Original Notes or a timely Book-Entry
Confirmation of such Original Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Original Notes are
not accepted for exchange for any reason set forth in the terms and conditions
of the Exchange Offer or if Original Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Original Notes will be returned without expense to the tendering holder thereof
(or, in the case of Original Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
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BOOK-ENTRY TRANSFER; ATOP
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish an account with respect to the
Original Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC may make book-entry delivery of the Original Notes by causing
DTC to transfer such Original Notes into the Exchange Agent's account with
respect to the Original Notes in accordance with DTC's procedures for such
transfer. Although delivery of the Original Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, a Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to DTC does not constitute delivery to the
Exchange Agent.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's ATOP to tender.
Accordingly, participants in DTC's ATOP may, in lieu of physically completing
and signing the Letter of Transmittal and delivering it to the Exchange Agent,
electronically transmit their acceptance of the Exchange Offer by causing DTC to
transfer the Original Notes to the Exchange Agent in accordance with the DTC's
ATOP procedures for transfer. The DTC will then send an Agent's Message to the
Exchange Agent.
The term 'Agent's Message' means a message transmitted by DTC, received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that DTC has received an express acknowledgment from a participant in DTC's ATOP
that is tendering Original Notes which are the subject of such book entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that such participant has received and agrees
to be bound by the applicable Notice of Guaranteed Delivery), and that the
agreement may be enforced against such participant.
Each DTC participant transmitting an acceptance of the Exchange Offer
through the ATOP Procedures will be deemed to have agreed to be bound by the
terms of the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date or (iii) who cannot complete the procedure
for book-entry transfer on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Original Notes and the principal amount of Original Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three (3) New York Stock Exchange trading days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof) together with the Original
Notes or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), or properly transmitted Agent's Message as well as all
tendered Original Notes in proper form for transfer or a Book-Entry
Confirmation, as the case may be, and all other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three (3)
New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
For a withdrawal to be effective, (i) a written notice of withdrawal must
be received by the Exchange Agent at one of the addresses set forth below under
'--Exchange Agent' or (ii) holders must comply with the appropriate procedures
of DTC's ATOP system. Any such notice of withdrawal must specify the name of the
person having tendered the Original Notes to be withdrawn, identify the Original
Notes to be withdrawn (including the principal amount of such Original Notes),
and (where certificates for Original Notes have been transmitted) specify the
name in which such Original Notes were registered, if different from that of the
withdrawing holder. If certificates for Original Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Original Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Original Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuers, whose determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Original Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Original Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Original Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Original Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Original Notes may be retendered by following
one of the procedures described under '--Procedures for Tendering' above at any
time on or prior to the Expiration Date.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
<TABLE>
<S> <C>
BY REGISTERED OR BY HAND:
BY CERTIFIED MAIL OR
OVERNIGHT COURIER: Wilmington Trust Company
c/o Harris Trust Company of
Wilmington Trust Company New York,
Corporate Trust Operations as Agent
1100 North Market Street 88 Pine Street
Wilmington, Delaware 19890-0001 19th Flour
Wall Street Plaza
New York, New York 10005
BY FACSIMILE:
Wilmington Trust Company
Corporate Trust Operations
Facsimile: (302) 651-1079
Confirm by Telephone: (302)
651-8869
Attn. Kristin Long
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
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FEES AND EXPENSES; INDEMNIFICATION
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and its affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses but exclude the fees of counsel to
the Initial Purchaser.
The Issuers have agreed to indemnify the Initial Purchaser against certain
liabilities, including liabilities under the Securities Act. In addition, the
Issuers have agreed to indemnify each Participating Broker-Dealer selling
Exchange Notes during the period of 180 days after the consummation of the
Exchange Offer, the officers and directors of each such broker-dealer, and each
person, if any, who controls any such broker-dealer within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities including reasonable
legal fees and expenses caused by, arising out of or based upon any untrue
statement or alleged untrue statement of or any omission or alleged omission to
state therein a material fact contained in the Exchange Offer Registration
Statement or this Prospectus, subject to certain restrictions.
TRANSFER TAXES
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Original Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of Original Notes tendered, or if tendered
Notes are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Original Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Holders who tender their Original Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Issuers to register Exchange Notes in the name of, or request that
Original Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, as reflected in the Issuers' accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer and the unamortized expenses
related to the issuance of the Original Notes will be amortized over the term of
the Notes.
REGULATORY APPROVALS
The Issuers do not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer, other than the effectiveness of the Exchange Offer Registration Statement
under the Securities Act.
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OTHER
Participation in the Exchange Offer is voluntary and holders of Original
Notes should carefully consider whether to accept the terms and conditions
thereof. Holders of the Original Notes are urged to consult their financial and
tax advisors in making their own decision on what action to take with respect to
the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes, as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. To the
extent Original Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Notes not so tendered could be
adversely affected. Upon consummation of this Exchange Offer, the Issuers have
no further obligations to provide for the registration under the Securities Act
of the Original Notes except under certain limited circumstances. These
circumstances involve Exchange Notes provided to the Initial Purchaser for those
Original Notes having the status of an unsold allotment in the initial
distribution and Exchange Notes held by Participating Broker-Dealers. Based on
interpretations by the Staff, Exchange Notes issued pursuant to the Exchange
Offer may be offered for resale, resold or otherwise transferred by holders
thereof (other than any such holder which is an 'affiliate' of the Issuers
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with
respect to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See 'Plan of Distribution.'
DESCRIPTION OF THE TELEVISION NOTES
As used in this 'Description of the Television Notes' section, the 'Notes'
refers to the 10 7/8% Senior Discount Notes due 2004 of ACME Television, LLC and
ACME Finance Corporation. The Television Original Notes were issued, and the
Television Exchange Notes will be issued, under an Indenture, dated as of
September 30, 1997 (as used in this 'Description of the Television Notes'
section, the 'Indenture'), by and among the Issuers and Wilmington Trust
Company, as trustee (as used in this 'Description of the Television Notes'
section, the 'Trustee'). The form and terms of the Television Exchange Notes
will be the same as the form and terms of the Television Original Notes except
that (i) the Television Exchange Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof and (ii)
the holders of the Television Exchange Notes will not be entitled to certain
rights of holders of Television Original Notes as set forth in the Television
Exchange Offer Registration Statement, which rights terminate upon consummation
of the Television Exchange Offer. The Television Exchange Notes and Television
Original Notes are referred to herein collectively as the 'Notes.' The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
'TIA'), as in effect on the date of the Indenture. The Notes are subject to all
such terms, and holders of the Notes are referred to the Indenture and the TIA
for a statement of them. The following is a summary of the material terms and
provisions of the Notes. This summary does not purport to be a complete
description of the Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the Indenture and Form
of Notes are filed as exhibits to the Television Exchange Offer Registration
Statement. As used in this 'Description of the Television Notes' section, the
'Company' refers to ACME Television, LLC, but not its Subsidiaries; and the
'Issuers' refer to the Company and ACME Finance Corporation. Definitions
relating to certain capitalized terms are set forth under '--Certain
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Definitions.' Capitalized terms that are used but not otherwise defined herein
have the meanings ascribed to them in the Indenture and such definitions are
incorporated herein by reference.
GENERAL
The Notes are joint and several obligations of the Issuers. The Notes are
limited to $175.0 million aggregate principal amount at maturity. The Notes are
general senior unsecured obligations of the Issuers, ranking pari passu in right
of payment to all future unsubordinated indebtedness of the Issuers and senior
in right of payment to any subordinated indebtedness of the Issuers. The
Television Original Notes were issued at a substantial discount to their
aggregate principal amount at maturity such that the gross proceeds from the
issuance of the Television Original Notes were approximately $127.4 million.
Based on the issue price thereof, the yield to maturity of the Notes is 10 7/8%
per annum (computed on a semi-annual bond equivalent basis).
The Notes are guaranteed, on a senior unsecured basis, as to payment of
principal, premium, if any, and interest, jointly and severally by the
Guarantors.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on September 30, 2004. Cash interest will not accrue
or be payable on the Notes prior to September 30, 2000. Thereafter, cash
interest on the Notes will accrue at the rate of 10 7/8% per annum and will be
payable semi-annually on each March 31 and September 30, commencing March 31,
2001, to the holders of record of Notes at the close of business on the March 15
and September 15 immediately preceding such interest payment date. Cash interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from September 30, 2000. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Issuers, in whole at any
time or in part from time to time, on or after September 30, 2001 at the
following redemption prices (expressed as percentages of the principal amount of
maturity thereof), together, in each case, with accrued and unpaid interest, if
any, to the redemption date, if redeemed during the twelve-month period
beginning on September 30 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001............................................. 105.438%
2002............................................. 102.719%
2003 and thereafter.............................. 100.000%
</TABLE>
In addition, the Issuers may redeem in the aggregate up to 35% of the
aggregate principal amount at maturity of Notes at any time and from time to
time prior to September 30, 2000 at a redemption price equal to 110.875% of the
Accreted Value thereof, out of the Net Proceeds of one or more Public Equity
Offerings; provided that not less than 65% of the aggregate principal amount at
maturity of Notes is outstanding immediately after the occurrence of any such
redemption and that any such redemption occurs within 90 days following the
closing of any such Public Equity Offering; provided that if the Public Equity
Offering shall be Common Stock of the Parent the proceeds of such Public Equity
Offering must be contributed to the Company as common equity.
In the event of a redemption of fewer than all of the Notes, the Trustee
shall select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, or while such Notes are listed,
or if such Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or in such other manner as the Trustee shall deem fair and
equitable. The Notes will be redeemable in whole or in part upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Registrar of the Notes. On and after any redemption date, Accreted Value will
cease to accrete or interest will cease to accrue, as the case may be, on the
Notes or portions thereof called for redemption unless the Issuers shall fail to
redeem any such Note.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
The Issuers will not, and will not permit any of their Subsidiaries to,
directly or indirectly, incur (as defined) any Indebtedness (including Acquired
Indebtedness); provided that if no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the incurrence of
such Indebtedness, the Issuers may incur Indebtedness (and the Company and its
Subsidiaries may incur Acquired Indebtedness) if after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Issuers' Consolidated Leverage Ratio is less than 7.0 to 1. The
accretion of original issue discount (and any accruals of interest) on the Notes
shall not be deemed an incurrence of Indebtedness for purposes of this covenant.
Notwithstanding the foregoing, the Issuers and their Subsidiaries may incur
Permitted Indebtedness; provided that the Issuers will not incur any Permitted
Indebtedness that ranks junior in right of payment to the Notes that has a
maturity or mandatory sinking fund payment prior to the maturity of the Notes.
The Issuers will not, and will not permit any of their Subsidiaries to,
incur any Indebtedness which by its terms (or by the terms of any agreement
governing such Indebtedness) is subordinated in right of payment to any other
Indebtedness of the Issuers or any of their Subsidiaries unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate in right of payment to the Notes
or the Guarantee of such Subsidiary, as the case may be, pursuant to
subordination provisions that are substantively identical to the subordination
provisions of such Indebtedness (or such agreement) that are most favorable to
the holders of any other Indebtedness of the Company or such Subsidiary, as the
case may be.
Limitation on Restricted Payments
The Issuers will not make, and will not permit any of their Subsidiaries
to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Issuers could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under '--Limitation on Additional
Indebtedness' above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 100% of the Issuer's Cumulative EBITDA minus
1.4 times the Company's Cumulative Consolidated Interest Expense, (2) 100%
of the aggregate Net Proceeds received by the Company from the issue or
sale after the Issue Date of Capital Stock (other than Disqualified Capital
Stock or Capital Stock of the Company issued to any Subsidiary of the
Company) of the Company or any Indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Capital Stock) of the Company which has been so
converted, exercised or exchanged, as the case may be, and (3) without
duplication of any amounts included in clause (c)(2) above, 100% of the
aggregate Net Proceeds received by the Company from any equity contribution
from a holder of the Company's Capital Stock, excluding, in the case of
clauses (c)(2) and (3), any Net Proceeds from a Public Equity Offering to
the extent used to redeem the Notes. For purposes of determining under this
clause (c) the amount expended for Restricted Payments, cash distributed
shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock of
the Company (other than Disqualified Capital Stock), or out of the Net Proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of other shares of Capital Stock of the
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Company (other than Disqualified Capital Stock), (iii) the redemption or
retirement of Indebtedness of the Company subordinated to the Notes in exchange
for, by conversion into, or out of the Net Proceeds of, a substantially
concurrent sale or incurrence of Indebtedness of the Company (other than any
Indebtedness owed to a Subsidiary) that is contractually subordinated in right
of payment to the Notes to at least the same extent as the Indebtedness being
redeemed or retired, (iv) the retirement of any shares of Disqualified Capital
Stock of the Company by conversion into, or by exchange for, shares of
Disqualified Capital Stock of the Company, or out of the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other shares of Disqualified Capital Stock of the Company, (v) Permitted Tax
Distributions and (vi) the forfeit of a deposit that was a Permitted Investment
under clause (viii) of the definition of 'Permitted Investment' at the time such
deposit was made; provided that in calculating the aggregate amount of
Restricted Payments made subsequent to the Issue Date for purposes of clause (c)
of the immediately preceding paragraph, amounts expended pursuant to clauses
(i), (ii) and (vi) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Issuers shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described above were computed, which calculations may
be based upon the Issuers' latest available financial statements, and that no
Default or Event of Default has occurred and is continuing and no Default or
Event of Default will occur immediately after giving effect to any such
Restricted Payments.
Limitation on Liens
The Issuers will not, and will not permit any of their Subsidiaries to,
create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind (other than Permitted Liens) upon any property or asset of the
Issuers or any of their Subsidiaries or any shares of Capital Stock or
Indebtedness of any Subsidiary (other than Indebtedness of a Guarantor pledged
to secure other Indebtedness incurred in accordance with the Indenture) of the
Issuers which owns property or assets, now owned or hereafter acquired, unless
(i) if such Lien secures Indebtedness which is pari passu with the Notes or the
Guarantee of a Guarantor, then the Notes or such Guarantee, as the case may be,
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Indebtedness which is subordinated to the Notes or the Guarantee of a
Guarantor, any such Lien shall be subordinated to a Lien securing the Notes or
such Guarantee, as the case may be, to the same extent as such Indebtedness is
subordinated to the Notes.
Limitation on Investments
The Issuers will not, and will not permit any of their Subsidiaries to,
make any Investment other than (i) a Permitted Investment or (ii) an Investment
that is made as a Restricted Payment in compliance with the 'Limitation on
Restricted Payments' covenant, after the Issue Date.
Limitation on Transactions with Affiliates
The Issuers will not, and will not permit any of their Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (each an
'Affiliate Transaction') or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Issuers and their Wholly
Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Issuers or such Subsidiary, as the case may be, and the terms
of such Affiliate Transaction are at least as favorable as the terms which could
be obtained by the Issuers or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $1 million which is not permitted under
clause (i) above, the Issuers must obtain a resolution of the Board of Directors
of the Issuers certifying that such Affiliate Transaction complies with clause
(ii) above. In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $5 million which is not permitted under
clause (i) above, the Issuers must
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obtain a favorable written opinion as to the fairness of such transaction or
transactions, as the case may be, from an Independent Financial Advisor.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under '--Limitation on Restricted
Payments' above, or (ii) reasonable fees, compensation and equity incentives in
the form of Capital Stock (other than Disqualified Capital Stock) paid to and
indemnity provided on behalf of, officers, directors or employees of the Issuers
or any Subsidiary of the Issuers as determined in good faith by the Company's
Board of Directors or senior management or (iii) any agreement as in effect as
of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement is not
more disadvantageous to the holders in any material respect than the original
agreement as in effect on the Issue Date or (iv) any affiliation agreements with
the WB Television Network.
Limitation on Creation of Subsidiaries
The Issuers shall not create or acquire, nor permit any of their
Subsidiaries to create or acquire, any Subsidiary other than a Subsidiary that
is acquired or created in connection with the acquisition by the Company of a
media related business or asset; provided, however, that each Subsidiary
acquired or created shall at the time it has either assets or stockholder's
equity in excess of $5,000 have evidenced its Guarantee with such documentation
satisfactory in form and substance to the Trustee relating thereto as the
Trustee shall require, including, without limitation, a supplement or amendment
to the Indenture and opinions of counsel as to the enforceability of such
Guarantee, pursuant to which such Subsidiary shall become a Guarantor. See
'--General' and '--Guarantees.'
Limitation on Certain Asset Sales
The Issuers will not, and will not permit any of their Subsidiaries to,
consummate an Asset Sale unless (i) the Issuers or such applicable Subsidiary,
as the case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value of the assets sold or
otherwise disposed of (as determined in good faith by the Board of Directors of
the Company, and evidenced by a board resolution); (ii) not less than 80% of the
consideration received by the Company or such applicable Subsidiary, as the case
may be, is in the form of cash or Cash Equivalents other than in the case where
the Company is undertaking a Permitted Asset Swap; and (iii) the Asset Sale
Proceeds received by the Company or such Subsidiary are applied (a) first, to
the extent the Company or any such Subsidiary, as the case may be, elects, or is
required, to prepay, repay or purchase indebtedness under the Senior Credit
Facility within 180 days following the receipt of the Asset Sale Proceeds from
any Asset Sale; provided that any such repayment shall result in a permanent
reduction of the commitments thereunder in an amount equal to the principal
amount so repaid; (b) second, to the extent of the balance of Asset Sale
Proceeds after application as described above, to the extent the Company elects,
to an investment in assets (including Capital Stock or other securities
purchased in connection with the acquisition of Capital Stock or property of
another Person) used or useful in businesses similar or ancillary to the
business of the Company or any such Subsidiary as conducted on the Issue Date;
provided that (1) such investment occurs or the Company or any such Subsidiary
enters into contractual commitments to make such investment, subject only to
customary conditions (other than the obtaining of financing), within 180 days
following receipt of such Asset Sale Proceeds and (2) Asset Sale Proceeds so
contractually committed are so applied within 270 days following the receipt of
such Asset Sale Proceeds; and (c) third, if on such 180th day in the case of
clauses (iii)(a) and (iii)(b)(1) or on such 270th day in the case of clause
(iii)(b)(2) with respect to any Asset Sale, the Available Asset Sale Proceeds
exceed $5 million, the Company shall apply an amount equal to such Available
Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase price in
cash equal to 100% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the purchase date (an 'Excess Proceeds Offer'). If an
Excess Proceeds Offer is not fully subscribed, the Company may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes.
If the Issuers are required to make an Excess Proceeds Offer, the Issuers
shall mail, within 30 days following the date specified in clause (iii)(c)
above, a notice to the holders stating, among other things: (1) that such
holders have the right to require the Issuers to apply the Available Asset Sale
Proceeds to repurchase such Notes at a purchase price in cash equal to (x) 100%
of the Accreted Value thereof, if the applicable purchase date
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is on or prior to September 30, 2000, or (y) 100% of the principal amount at
maturity thereof, plus accrued and unpaid interest, if any, to the purchase
date, if the purchase date is after September 30, 2000; (2) the purchase date,
which shall be no earlier than 30 days and not later than 45 days from the date
such notice is mailed; (3) the instructions that each holder must follow in
order to have such Notes purchased; and (4) the calculations used in determining
the amount of Available Asset Sale Proceeds to be applied to the purchase of
such Notes.
In the event of the transfer of substantially all of the property and
assets of the Issuers and their Subsidiaries as an entirety to a Person in a
transaction permitted under '--Merger, Consolidation or Sale of Assets' below,
the successor Person shall be deemed to have sold the properties and assets of
the Issuers and their Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale.
The Issuers shall comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of
any securities laws or regulations conflict with the 'Asset Sale' provisions of
the Indenture, the Issuers shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
'Asset Sale' provisions of the Indenture by virtue thereof.
Limitation on Preferred Stock of Subsidiaries
The Issuers will not permit any of their Subsidiaries to issue any
Preferred Stock (except Preferred Stock issued to the Company or a Wholly Owned
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly Owned Subsidiary of the Company) to hold any such Preferred Stock unless
the Company or such Subsidiary would be entitled to incur or assume Indebtedness
under '--Limitation on Additional Indebtedness' above (other than Permitted
Indebtedness) in the aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Issuers will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary of the Company or (ii) permit any
of its direct Subsidiaries to issue any Capital Stock other than to the Issuers
or a Wholly Owned Subsidiary of the Issuers. The foregoing restrictions shall
not apply to either (x) an Asset Sale made in compliance with '--Limitation on
Certain Asset Sales' above or the issuance of Preferred Stock in compliance with
'--Limitation on Preferred Stock of Subsidiaries' above or (y) a Permitted Lien.
In no event will the Company sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of Finance or will Finance sell any Capital Stock.
Limitation on Sale and Lease-Back Transactions
The Issuers will not, and will not permit any of their Subsidiaries to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined in good faith by the Board of
Directors of the Company and evidenced by a board resolution and (ii) the
Issuers could incur the Attributable Indebtedness in respect of such Sale and
Lease-Back Transaction in compliance with '--Limitation on Additional
Indebtedness' above.
Limitation on Conduct of Business
The Issuers and their Subsidiaries will not engage in any businesses which
are not the same, similar or related to the businesses in which the Company and
its Subsidiaries are engaged on the Issue Date.
Limitation on Conduct of Business of ACME Finance Corporation
ACME Finance Corporation ('Finance') will not own any operating assets or
other properties or conduct any business other than to serve as an Issuer and an
obligor on the Notes.
Payments for Consent
The Issuers will not, and will not permit any of their Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes
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unless such consideration is offered to be paid or agreed to be paid to all
holders of the Notes which so consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such consent, waiver or
agreement.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Issuers shall be obligated
to make an offer to purchase (the 'Change of Control Offer') each holder's
outstanding Notes at a purchase price (the 'Change of Control Purchase Price')
equal to (x) 101% of the Accreted Value thereof, if the Change of Control
Payment Date (as defined) is on or prior to September 30, 2000, or (y) 101% of
the principal amount at maturity, plus accrued and unpaid interest, if any, to
the Change of Control Payment Date, if the Change of Control Payment Date is
after September 30, 2000, in each case in accordance with the procedures set
forth below.
Within 20 days of the occurrence of a Change of Control, the Issuers shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 45 days from
the date such notice is mailed (the 'Change of Control Payment Date'));
(3) that any Note not tendered will continue to accrete Accreted Value
or accrue interest, as the case may be;
(4) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrete Accreted Value or accrue
interest, as the case may be, after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount at maturity to the unpurchased
principal amount at maturity of the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Issuers. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Issuers shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount at maturity to any
unpurchased portion of the Notes surrendered; provided that each such new Note
shall be issued in an original principal amount in denominations of $1,000
principal amount at maturity and integral multiples thereof.
The Indenture will provide that, (A) if either Issuer or any Subsidiary
thereof has issued any outstanding (i) indebtedness that is subordinated in
right of payment to the Notes or (ii) Preferred Stock, and such Issuer or such
Subsidiary is required to make a change of control Offer or to make a
distribution with respect to such subordinated indebtedness or Preferred Stock
in the event of a change of control, the Issuers shall not
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consummate any such offer or distribution with respect to such subordinated
indebtedness or Preferred Stock until such time as the Issuers shall have paid
the Change of Control Purchase Price in full to the holders of Notes that have
accepted the Issuers' Change of Control Offer and shall otherwise have
consummated the Change of Control Offer made to holders of the Notes and (B) the
Issuers will not issue Indebtedness that is subordinated in right of payment to
the Notes or Preferred Stock with change of control provisions requiring the
payment of such Indebtedness or Preferred Stock prior to the payment of the
Notes in the event of a Change in Control under the Indenture.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the 'Change
of Control' provisions of the Indenture, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the 'Change of Control' provisions of the
Indenture by virtue thereof.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither of the Issuers will consolidate with, merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets (as an entirety or substantially as an entirety in one transaction
or a series of related transactions), to any Person unless (in the case of the
Company): (i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which the properties and assets of the Company are sold,
assigned, transferred, leased, conveyed or otherwise disposed of shall be a
corporation or a limited liability company organized and existing under the laws
of the United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company under the Indenture and the Notes and the obligations thereunder shall
remain in full force and effect; provided, that at any time the Company or its
successor is a limited liability company, there shall be a co-issuer of the
Notes that is a corporation; (ii) immediately before and immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Consolidated Net
Worth of the Company or the surviving entity as the case may be is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions; and (iv) immediately after giving effect
to such transaction on a pro forma basis the Company or such Person could incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under '--Certain Covenants--Limitation on Additional Indebtedness' above.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuers shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
No Guarantor (other than a Guarantor whose Guarantee is to be released in
accordance with the terms of the Indenture as provided under '--Guarantees')
shall consolidate or merge with or into any other Person unless (i) the Person
surviving such merger (if other than the Guarantors) is a corporation or limited
liability company organized and existing under the laws of the United States or
any State thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of such Guarantor under the
Indenture and such Guarantee and the obligations thereunder shall remain in full
force and effect; (ii) immediately before and immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) immediately after giving effect to such transaction on a
pro forma basis, the Consolidated Net Worth of the Company is at least equal to
the Consolidated Net Worth of the Company immediately before such transaction.
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FULL AND UNCONDITIONAL GUARANTEES
The Notes are fully and unconditionally guaranteed (each, a 'Guarantee') on
a senior basis by the Guarantors. All payments pursuant to the Guarantees by the
Guarantors are senior in right of payment to the prior payment in full of all
subordinated indebtedness of the Guarantor, to the same extent and in the same
manner that all payments pursuant to the Notes are senior in right of payment to
the prior payment in full of all subordinated indebtedness of the Issuers.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under 'Limitation on Certain Asset Sales,' or the Guarantor
merges with or into or consolidates with, or transfers all or substantially all
of its assets to, the Company or another Guarantor in a transaction in
compliance with 'Merger, Consolidation or Sale of Assets,' and such Guarantor
has delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent herein provided for relating to such
transaction have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as 'Events of Default':
(i) default in payment of any Accreted Value, principal of, or
premium, if any, on the Notes whether at maturity, upon redemption or
otherwise;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Issuers or any Subsidiary of the Company in the
observance or performance of any other covenant in the Notes or the
Indenture for 30 days after written notice from the Trustee or the holders
of not less than 25% in aggregate principal amount at maturity of the Notes
then outstanding (except in the case of a default with respect to the
'Change of Control' or 'Merger, Consolidation or Sale of Assets' covenant
which shall constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $5 million or more with respect to any Indebtedness of
the Issuers or any Subsidiary thereof, or the acceleration of any such
Indebtedness aggregating $5 million or more which default shall not be
cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice as provided in the
Indenture, or such acceleration shall not be rescinded or annulled within
20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5 million shall be rendered against
the Issuers or any Subsidiary thereof, and shall not be discharged for any
period of 60 consecutive days during which a stay of enforcement shall not
be in effect; and
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Issuers or any Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of Accreted Value or principal or
premium, if any, or interest on the Notes) if the Trustee considers it to be in
the best interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to either of the Issuers) shall have occurred and
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be continuing, then the Trustee or the holders of not less than 25% in aggregate
principal amount at maturity of the Notes then outstanding may declare the Notes
to be immediately due and payable in an amount equal to the Accreted Value of
the Notes, premium, if any, plus accrued and unpaid interest, if any, to the
date of acceleration and the same shall become immediately due and payable;
provided, however, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the Trustee, the holders of a majority in
aggregate principal amount at maturity of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if (i) all Events of Default,
other than nonpayment of Accreted Value, principal, premium, if any, or interest
that has become due solely because of the acceleration, have been cured or
waived as provided in the Indenture, (ii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iii) if the Issuers have paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (iv) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the above Events of
Default, the Trustee shall have received an officers' certificate and an opinion
of counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, the Accreted Value or
principal and all premium and interest with respect to all of the Notes shall be
due and payable immediately without any declaration or other act on the part of
the Trustee or the holders of the Notes.
The holders of a majority in principal amount at maturity of the Notes then
outstanding shall have the right to waive any existing default or Event of
Default and its consequences or compliance with any provision of the Indenture
or the Notes and to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, subject to certain
limitations provided for in the Indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount at
maturity of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as Trustee, and
unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount at maturity of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 30 days. Notwithstanding the foregoing, such limitations do
not apply to a suit instituted on such Note on or after the respective due dates
expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Issuers may elect either (a) to defease and be
discharged from any and all of its obligations with respect to the Notes (except
for the obligations to register the transfer or exchange of such Notes, to
replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain an
office or agency in respect of the Notes and to hold monies for payment in
trust) ('defeasance') or (b) to be released from its obligations with respect to
the Notes under certain covenants contained in the Indenture ('covenant
defeasance') upon the deposit with the Trustee (or other qualifying trustee), in
trust for such purpose, of money and/or non-callable U.S. government obligations
which through the payment of Accreted Value and interest in accordance with
their terms will provide money, in an amount sufficient to pay the Accreted
Value of, premium, if any, and interest on the Notes, on the scheduled due dates
therefor or on a selected date of redemption in accordance with the terms of the
Indenture. Such a trust may only be established if, among other things, (i) the
Issuers have delivered to the Trustee an opinion of counsel (as specified in the
Indenture) (A) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (B) describing either a private ruling concerning the
Notes or a published ruling of the Internal Revenue Service, to the effect that
holders of the Notes or persons in their positions will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount and in the same manner and at the same times, as would have been the case
if such deposit, defeasance and discharge had not occurred, (ii) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit or insofar as Events of Default from bankruptcy, insolvency or
reorganization events are concerned, at any time in the period ending on the
91st day after the date of deposit; (iii) such defeasance or covenant defeasance
shall not result in a breach or violation of, or constitute a
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default under the Indenture or any other material agreement or instrument to
which the Issuers or any of their Subsidiaries is a party or by which the
Issuers or any of their Subsidiaries is bound; (iv) the Company shall have
delivered to the Trustee an Officers' Certificate stating that the deposit was
not made by the Issuers with the intent of preferring the holders of the Notes
over any other creditors of the Issuers or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Issuers or others;
(v) the Issuers shall have delivered to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
or relating to the defeasance or the covenant defeasance have been complied
with; (vi) the Issuers shall have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and (vii)
certain other customary conditions precedent are satisfied.
MODIFICATION OF INDENTURE
From time to time, the Issuers and the Trustee may, without the consent of
holders of the Notes, amend or supplement the Indenture for certain specified
purposes, including providing for uncertificated Notes in addition to
certificated Notes, and curing any ambiguity, defect or inconsistency, or making
any other change that does not materially and adversely affect the rights of any
holder. The Indenture contains provisions permitting the Issuers and the
Trustee, with the consent of holders of at least a majority in principal amount
at maturity of the outstanding Notes, to modify or supplement the Indenture,
except that no such modification shall, without the consent of each holder
affected thereby, (i) reduce the amount of Notes whose holders must consent to
an amendment, supplement, or waiver to the Indenture, (ii) reduce the rate of or
change the time for payment of interest, including defaulted interest, on any
Note, (iii) reduce the Accreted Value of or premium on or change the stated
maturity of any Note or change the date on which any Notes may be subject to
redemption or repurchase or reduce the redemption or repurchase price therefor,
(iv) make any Note payable in money other than that stated in the Note or change
the place of payment from New York, New York, (v) waive a default on the payment
of the Accreted Value of, interest on, or redemption payment with respect to any
Note, (vi) make any change in provisions of the Indenture protecting the right
of each holder of Notes to receive payment of Accreted Value of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount at maturity of
Notes to waive Defaults or Events of Default; or (vii) modify or change any
provision of the Indenture or the related definitions affecting the ranking of
the Notes or any Guarantee in a manner which adversely affects the holders of
Notes.
REPORTS TO HOLDERS
So long as the Issuers are subject to the periodic reporting requirements
of the Exchange Act, they will continue to furnish the information required
thereby to the Commission and to the holders of the Notes. The Indenture
provides that even if the Issuers are entitled under the Exchange Act not to
furnish such information to the Commission or to the holders of the Notes, they
will nonetheless continue to furnish such information to the Commission and
holders of the Notes.
COMPLIANCE CERTIFICATE
The Issuers will deliver to the Trustee on or before 90 days after the end
of the Issuers' fiscal year and on or before 45 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default, its status and the intended method of cure, if any.
THE TRUSTEE
The Trustee under the Indenture is the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
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TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.
The Notes will be issued in a transaction exempt from registration under
the Act and will be subject to the restrictions on transfer described in 'Notice
to Investors.'
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
'Accreted Value' means, as of any date prior to September 30, 2000, an
amount per $1,000 principal amount at maturity of Notes that is equal to the sum
of (a) $727.83 and (b) the portion of the excess of the principal amount at
maturity of each Note over $727.83 which shall have been amortized on a daily
basis and compounded semiannually on each March 31, and September 30 at the rate
of 10 7/8% per annum from the Issue Date through the date of determination
computed on the basis of a 360-day year of twelve 30-day months; and, as of any
date on or after September 30, 2000, the Accreted Value of each Note shall mean
the aggregate principal amount at maturity of such Note.
'Acquired Indebtedness' means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or is merged into or consolidated with any
other Person or which is assumed in connection with the acquisition of assets
from such Person and, in each case, not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Subsidiary
or such merger, consolidation or acquisition.
'Adjusted Net Assets' of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee, of such Guarantor at such date
and (y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities and after giving effect to any collection from any
Subsidiary of such Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding Indebtedness in respect of the Guarantee, as
they become absolute and matured.
'Affiliate' means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, 'control' (including, with correlative meanings,
the terms 'controlling,' 'controlled by,' and 'under common control with'), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that, for purposes of the covenant described under
'--Certain Covenants--Limitation on Transactions with Affiliates' beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control.
'Asset Acquisition' means (a) an Investment by the Issuers or any
Subsidiary of the Issuers in any other Person pursuant to which such Person
shall become a Subsidiary of the Issuers or any Subsidiary of the Issuers, or
shall be merged with or into the Issuers or any Subsidiary of the Issuers or (b)
the acquisition by the Issuers or any Subsidiary of the Issuers of the assets of
any Person (other than a Subsidiary of the Issuers) which constitute all or
substantially all of the assets of such Person or comprise any division or line
of business of such Person or any other properties or assets of such Person or
any other properties or assets of such Person other than in the ordinary course
of business.
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'Asset Sale' means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and
Lease-Back Transaction), other than to the Company or any of its Wholly Owned
Subsidiaries, in any single transaction or series of related transactions of (a)
any Capital Stock of or other equity interest in any Subsidiary of the Company
or (b) any other property or assets of the Company or of any Subsidiary thereof;
provided that Asset Sales shall not include (i) a transaction or series of
related transactions for which the Company or its Subsidiaries receive aggregate
consideration of less than $500,000 and (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under '--Merger, Consolidation or Sale of Assets.'
'Asset Sale Proceeds' means, with respect to any Asset Sale, (i) cash
received by the Issuers or any Subsidiary of the Issuers from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Subsidiary of the Issuers as a result of such Asset Sale, (d) repayment
of Indebtedness that is required to be repaid in connection with such Asset Sale
and (e) deduction of appropriate amounts to be provided by the Issuers or a
Subsidiary of the Issuers as a reserve, in accordance with GAAP, against any
liabilities associated with the assets sold or disposed of in such Asset Sale
and retained by the Issuers or a Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale,
and (ii) promissory notes and other noncash consideration received by the
Issuers or any Subsidiary of the Issuers from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or noncash
consideration into cash.
'Attributable Indebtedness' in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement and (ii) the present value of the notes
(discounted at the rate borne by the Notes, compounded semi-annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale and Lease-Back Transaction (including any period
for which such lease has been extended).
'Available Asset Sale Proceeds' means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the
first paragraph of '--Certain Covenants--Limitation on Certain Asset Sales'.
'Board of Directors' means (i) in the case of a Person that is a
corporation, the board of directors of such Person and (ii) in the case of any
other Person, the board of directors, board of managers, management committee or
similar governing body or any authorized committee thereof responsible for the
management of the business and affairs of such Person.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
'Capitalized Lease Obligations' means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
'Cash Equivalents' means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation
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('S&P') or Moody's Investors Service, Inc. ('Moody's'); (iii) commercial paper
maturing no more than one year from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1 from S&P or at least P-1
from Moody's; (iv) certificates of deposit or bankers' acceptances maturing
within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above;
and (vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
A 'Change of Control' means the occurrence of any of the following: (i) the
adoption of a plan relating to the liquidation or dissolution of Holdings or the
Company or Holdings shall cease to be the managing member of the Company, (ii)
prior to the consummation of an Initial Public Offering, the Permitted Holders
cease to be the beneficial owners (as defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of at least a majority of
the total voting power of the Common Stock entitled to elect the Board of
Directors of Holdings, (iii) prior to the consummation of an Initial Public
Offering, the Permitted Holders shall cease collectively to control at least a
majority of the voting power of the Board of Directors of Holdings and (iv) in
connection with or after an Initial Public Offering, any Person (including a
Person's Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner of more than 20% of the total voting power of the Common Stock
of Holdings or the Company, and the Permitted Holders beneficially own, in the
aggregate, less than 30% of the total voting power of Holdings or the Company,
as the case may be.
'Common Stock' of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
'Consolidated Interest Expense' means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption 'interest expense' or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to, (i) Redeemable Dividends, whether paid or
accrued, on Subsidiary Preferred Stock, (ii) imputed interest included in
Capitalized Lease Obligations, (iii) all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, (iv) the net costs associated with Interest Rate Agreements and other
hedging obligations, (v) amortization of other financing fees and expenses, (vi)
the interest portion of any deferred payment obligation, (vii) amortization of
discount or premium, if any, and (viii) all other non-cash interest expense
(other than interest amortized to cost of sales)) plus, without duplication, all
net capitalized interest for such period and all interest incurred or paid under
any guarantee of Indebtedness (including a guarantee of principal, interest or
any combination thereof) of any Person, plus the amount of all dividends or
distributions paid on Disqualified Capital Stock (other than dividends paid or
payable in shares of Capital Stock of the Company).
'Consolidated Leverage Ratio' means, with respect to any Person, the ratio
of (i) the sum of the aggregate outstanding amount of Indebtedness of such
Person and its Subsidiaries as of the date of calculation (the 'Transaction
Date') on a consolidated basis determined in accordance with GAAP to (ii) such
Person's EBITDA for the four full fiscal quarters (the 'Four Quarter Period')
ending on or prior to the date of determination for which financial statements
are available. For purposes of this definition, 'EBITDA' shall be calculated
after giving effect on a pro forma basis to (i) the incurrence or repayment of
any Indebtedness of such Person or any of its Subsidiaries (and the application
of the proceeds thereof) giving rise to the need to make such calculation and
any incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring,
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assuming or otherwise being liable for Acquired Indebtedness and also including
any EBITDA (provided that such EBITDA shall be included only to the extent
includable pursuant to the definition of 'Consolidated Net Income') attributable
to the assets which are the subject of the Asset Acquisition or Asset Sale
during the Four Quarter Period) occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date, as if such Asset Sale or Asset Acquisition (including
the incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period; provided that if any such
Asset Acquisition relates to the acquisition of a television broadcast station
which is not an affiliate of a Network and which had a negative Net Income for
the Four Quarter Period, it may be assumed, for purposes of such pro forma
calculation, that the Net Income of such station for such period was zero. If
such Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or any Subsidiary
of such Person had directly incurred or otherwise assumed such guaranteed
Indebtedness.
'Consolidated Net Income' means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the 'other Person') in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the Net Income of such other Person to
be consolidated into the Net Income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions shall be excluded to the extent of such restriction or limitation,
(c)(i) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (ii) any
net gain (but not loss) resulting from an Asset Sale by the Person in question
or any of its Subsidiaries other than in the ordinary course of business shall
be excluded, (d) extraordinary gains and losses shall be excluded, (e) income or
loss attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued) shall be excluded, and (f) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets shall be excluded.
'Consolidated Net Worth' means with respect to any Person at any date, the
consolidated stockholders' equity or members' capital of such Person less the
amount of such stockholders' equity or members' capital attributable to
Disqualified Capital Stock of such Person and its subsidiaries, as determined in
accordance with GAAP.
'Cumulative Consolidated Interest Expense' means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense from
October 1, 1997 to the end of the Company's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
'Cumulative EBITDA' means, with respect to any Person, as of any date of
determination, EBITDA from October 1, 1997 to the end of the Company's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
'Disqualified Capital Stock' means any Capital Stock of a Person or a
Subsidiary thereof which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes, for cash or securities constituting Indebtedness.
Without limitation of the foregoing, Disqualified Capital Stock shall be deemed
to include any Preferred Stock of a Person or a Subsidiary of such Person, with
respect to either of which, under the terms of such Preferred Stock, by
agreement or otherwise, such Person or Subsidiary is obligated to pay current
dividends or distributions in cash during the period prior to the maturity date
of the Notes; provided, however, that (i) Preferred Stock of a Person or any
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer to be made for such Preferred Stock in the event of a
change of control of such Person or Subsidiary which provisions have
substantially the same effect as the provisions of the Indenture described under
'Change of Control,' shall not be deemed to be Disqualified Capital Stock solely
by virtue of such provisions; and (ii) Capital Stock of any limited liability
company or other
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pass through entity for federal income tax purposes shall not be deemed to be
Disqualified Capital Stock solely by virtue of the fact that its holders are
entitled to Permitted Tax Distributions.
'EBITDA' means, with respect to any Person and its Subsidiaries, for any
period, an amount equal to (a) the sum of (i) Consolidated Net Income for such
period, plus (ii) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in computing net
loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such
period (but only including Redeemable Dividends in the calculation of such
Consolidated Interest Expense to the extent that such Redeemable Dividends have
not been excluded in the calculation of Consolidated Net Income), plus (iv)
depreciation for such period on a consolidated basis, plus (v) amortization of
intangibles and television programming obligations (net of cash payments with
respect to television programming obligations) for such period on a consolidated
basis, plus (vi) any other non-cash items reducing Consolidated Net Income for
such period, minus (b) all non-cash items increasing Consolidated Net Income for
such period, all for such Person and its Subsidiaries determined on a
consolidated basis in accordance with GAAP; provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such Person shall be included only (x) if cash income
has been received by such Person with respect to such Investment during each of
the previous four fiscal quarters, or (y) if the cash income derived from such
Investment is attributable to Cash Equivalents.
'Exchange Act' means the Securities Exchange Act of 1934, as amended and
the rules and regulations of the Commission promulgated thereunder.
'fair market value' means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a resolution of the Board of
Directors of the Company delivered to the Trustee.
'GAAP' means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
'incur' means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
'incurrence,' 'incurred,' 'incurrable,' and 'incurring' shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
'Indebtedness' means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations of such Person, (ii) obligations secured by a lien
to which the property or assets owned or held by such Person is subject, whether
or not the obligation or obligations secured thereby shall have been assumed,
(iii) guarantees of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) Disqualified Capital Stock of such Person or any Subsidiary
thereof, and (vi) obligations of any such Person under any currency agreement or
any Interest Rate Agreement applicable to any of the foregoing (if and to the
extent such currency agreement or Interest Rate Agreement obligations would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP). The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the
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maximum liability upon the occurrence of the contingency giving rise to the
obligation; provided that (i) the amount outstanding at any time of any
Indebtedness issued with original issue discount is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) Indebtedness shall not include any liability for federal, state, local
or other taxes. Notwithstanding any other provision of the foregoing definition,
(i) any trade payable arising from the purchase of goods or materials or for
services obtained and (ii) television programming obligations entered into in
the ordinary course of business shall not be deemed to be 'Indebtedness' of the
Company or any of its Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
'Independent Financial Advisor' means an investment banking firm of
national reputation in the United States (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
'Initial Public Offering' means an underwritten public offering of Common
Stock of the Company or a Parent registered under the Securities Act (other than
a public offering registered on Form S-8 under the Securities Act) that results
in net proceeds of at least $25.0 million to the Company or such Parent, as the
case may be.
'Interest Rate Agreement' means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
'Investments' means, with respect of any Person, directly or indirectly,
any advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any Capital Stock,
bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments shall exclude (i) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices of such Person and
(ii) the repurchase of securities of any Person by such Person. For the purposes
of the 'Limitation on Restricted Payments' covenant, the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Issuers or any of their Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of dividends
or distributions in connection with such Investment or any other amounts
received in respect of such Investment; provided that no such payment of
dividends or distributions or receipt of any such other amounts shall reduce the
amount of any Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net Income. If the
Issuers or any Subsidiary of the Issuers sells or otherwise disposes of any
Common Stock of any direct or indirect Subsidiary of the Issuers such that,
after giving effect to any such sale or disposition, the Issuers no longer own,
directly or indirectly, greater than 50% of the outstanding Common Stock of such
Subsidiary, the Issuers shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Subsidiary not sold or disposed of.
'Issue Date' means the date the Television Original Notes were first issued
by the Issuers and authenticated by the Trustee under the Indenture.
'Lien' means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
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'Net Income' means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
'Net Proceeds' means (a) in the case of any sale of Capital Stock by or
equity contribution to any Person, the aggregate net proceeds received by such
Person, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property (valued
at the fair market value thereof, as determined in good faith by the Board of
Directors of such Person, at the time of receipt) and (b) in the case of any
exchange, exercise, conversion or surrender of outstanding securities of any
kind for or into shares of Capital Stock of the Issuers which is not
Disqualified Capital Stock, the net book value of such outstanding securities on
the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder to such Person upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by such Person in connection therewith).
'Network' means (i) each of the American Broadcasting Company, CBS, Inc.,
Fox Broadcasting Company, National Broadcasting Co., Inc., The WB Television
Network, United Paramount Network and (ii) any successor Person of a Person
identified in clause (i) of this definition.
'Officers' Certificate' means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
'Parent' means any Person which owns all or substantially all of the Common
Stock of the Company.
'Permitted Asset Swap' means any transfer of properties or assets by the
Company or any of its Subsidiaries in which 90% of the consideration received by
the transferor consists of properties or assets (other than cash) that will be
used in the business of the transferor; provided, that (i) the aggregate fair
market value (as determined in good faith by the Board of Directors of Holdings)
of the property or assets being transferred by the Company or such Subsidiary is
not greater than the aggregate fair market value (as determined in good faith by
the Board of Directors) of the property or assets received by the Company or
such Subsidiary in such exchange and (ii) the aggregate fair market value (as
determined in good faith by the Board of Directors) of all property or assets
transferred by the Company and any of its Subsidiaries in connection with
exchanges in any period of twelve consecutive months shall not exceed 15% of the
total assets of the Company on the last day of the preceding fiscal year.
'Permitted Holders' means (i) BancBoston Capital, (ii) Alta Communications,
Inc., Alta Communications, VI L.P., Alta-Comm S by S, LLC, Alta Subordinated
Debt Partners III, L.P. (iii) CEA Capital Partners, CEA Capital Partners USA,
L.P. (iv) Trust Company of the West, (v) any Person controlled or managed by a
Person identified in clauses (i)-(iv) of this definition, (vi) Jamie Kellner,
(vii) Douglas Gealy, (viii) Thomas Allen, (ix) ACME Parent and (x) any
partnership, corporation or other entity all of the partners, shareholders,
members or owners of which are any one or more of the foregoing.
'Permitted Indebtedness' means:
(i) Indebtedness of the Company or any Subsidiary of the Company
arising under or in connection with the Senior Credit Facility in an
aggregate principal amount not to exceed $40 million outstanding at any
time;
(ii) Indebtedness under the Notes;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(iv) Indebtedness of the Company to any Wholly Owned Subsidiary and
Indebtedness of any Wholly Owned Subsidiary to the Company or another
Wholly Owned Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Purchase Money Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed $20 million;
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(vi) Interest Rate Agreements;
(vii) Refinancing Indebtedness;
(viii) additional Indebtedness of the Company and its Subsidiaries not
to exceed $5 million in aggregate principal amount at any one time
outstanding;
(ix) fidelity and surety bonds incurred in the ordinary course of
business; and
(x) any guarantee by a Guarantor of Indebtedness of the Company
Incurred in accordance with the Indenture.
'Permitted Investments' means Investments made on or after the Issue Date
consisting of
(i) Investments by the Company, or by a Subsidiary thereof, in the
Company or a Subsidiary of the Company;
(ii) Investments by the Company, or by a Subsidiary thereof, in a
Person, if as a result of such Investment (a) such Person becomes a
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Subsidiary thereof;
(iii) Investments in cash and Cash Equivalents;
(iv) reasonable and customary loans made to employees in connection
with their relocation or for travel expenses or advances not to exceed $1
million in the aggregate at any one time outstanding;
(v) an Investment that is made by the Company or a Subsidiary thereof
in the form of any Capital Stock, bonds, notes, debentures, partnership or
joint venture interests or other securities that are issued by a third
party to the Company or such Subsidiary solely as partial consideration for
the consummation of an Asset Sale that is otherwise permitted under
'--Certain Covenants--Limitation on Certain Asset Sales' above;
(vi) Interest Rate Agreements entered into in the ordinary course of
the Company's or its Subsidiaries business;
(vii) options to purchase television broadcast station licenses and
related assets (or Capital Stock of Persons owning such assets) having an
exercise price of any amount not in excess of $100,000 entered into in
connection with the execution of local marketing agreements and Investments
pursuant to local marketing agreements to operate television broadcast
stations which are combined with such an option;
(viii) deposits made pursuant to legally binding agreements to
acquire, or pursuant to local marketing agreements with options to acquire,
broadcast television station licenses and related assets (or Capital Stock
of Persons owning such assets), in an amount not to exceed 10% of the
purchase price; provided that the station to be acquired will be owned by
the Company or a Subsidiary upon consummation of the contemplated
acquisition and provided, further, that deposits made under this clause
shall cease to be treated as Permitted Investments upon forfeit of such
deposit for any reason; and
(ix) additional Investments not to exceed $1 million at any one time
outstanding.
'Permitted Liens' means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or a Subsidiary of the Company, as
the case may be, shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
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(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(g) Liens securing Purchase Money Indebtedness of the Company or any
Subsidiary; provided, however, that (i) the Purchase Money Indebtedness
shall not be secured by any property or assets of the Company or any
Subsidiary of the Company other than the property and assets so acquired
and (ii) the Lien securing such Indebtedness shall be created within 90
days of such acquisition;
(h) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Subsidiaries, including rights of offset and set-off;
(j) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(k) Liens securing Indebtedness under the Senior Credit Facility;
(l) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under '--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness;' provided that (i) such Liens secured such
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Subsidiary of the Company and
were not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a Subsidiary of the Company
and (ii) such Liens do not extend to or cover any property or assets of the
Company or of any of its Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Subsidiary of the Company
and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Subsidiary of the Company.
'Permitted Tax Distributions' means, subject to the limitations set forth
in clause (v) of the second paragraph under 'Certain Covenants--Limitation on
Restricted Payments,' distributions by the Company to ACME Intermediate
Holdings, LLC ('ACME Intermediate') from time to time in an amount approximately
equal to the income tax liability (or interest or penalties thereon) of the
members of ACME Intermediate and ACME Television Holdings, LLC ('ACME Parent')
resulting from (i) the taxable income of the Company (after taking into account
all of the Company's prior tax losses, to the extent such losses have not
previously been deemed to reduce the taxable income of the Company), based on
the approximate highest combined tax rate that applies to any one of such
members; and (ii) any audit of such member (or the Company or ACME Parent) with
respect to a prior taxable year and paid or payable by such member during the
most recent taxable year, as and to the extent that such amounts are
attributable to the member being allocated more taxable income than was
previously reported to such member as a result of any position taken by the
Company or by ACME Parent in determining and reporting its taxable income for
the year in question.
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'Person' means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
'Preferred Stock' means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
'Property' of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
'Public Equity Offering' means a public offering by the Company or any
Parent of shares of its Common Stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such Common
Stock.
'Purchase Money Indebtedness' means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
'Redeemable Dividend' means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
'Refinancing Indebtedness' means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company pursuant to the first
paragraph of the covenant described under 'Certain Covenants--Limitation on
Additional Indebtedness' or by the Company or its Subsidiaries pursuant to
clause (ii) of the definition of 'Permitted Indebtedness,' but only to the
extent that (i) the Refinancing Indebtedness is subordinated to the Notes to at
least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature
either (a) no earlier than the Indebtedness being refunded, refinanced or
extended, or (b) after the maturity date of the Notes, (iii) the portion, if
any, of the Refinancing Indebtedness that is scheduled to mature on or prior to
the maturity date of the Notes has a weighted average life to maturity at the
time such Refinancing Indebtedness is incurred that is equal to or greater than
the weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to the
maturity date of the Notes, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (a) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended, (b) the amount of accrued and unpaid interest,
if any, and premiums owed, if any, not in excess of preexisting prepayment
provisions on such Indebtedness being refunded, refinanced or extended and (c)
the amount of customary fees, expenses and costs related to the incurrence of
such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred
by the same Person that initially incurred the Indebtedness being refunded,
refinanced or extended, except that the Company may incur Refinancing
Indebtedness to refund, refinance or extend Indebtedness of any Wholly Owned
Subsidiary of the Company.
'Restricted Payment' means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Subsidiary of the Company or any payment made to the direct
or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Subsidiary of the Company (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock) or in options, warrants or other rights to purchase such Capital Stock
(other than Disqualified Capital Stock), and (y) in the case of Subsidiaries of
the Company, dividends or distributions payable to the Company or to a Wholly
Owned Subsidiary of the Company), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company or any
of its Subsidiaries (other than Capital Stock owned by the Company or a Wholly
Owned Subsidiary of the Company, excluding Disqualified Capital Stock) or any
option, warrants or other rights to purchase such Capital Stock, (iii) the
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making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, of any
Indebtedness which is subordinated in right of payment to the Notes (other than
subordinated Indebtedness acquired in anticipation of satisfying a scheduled
sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition), (iv) the making of any
Investment or guarantee of any Investment in any Person other than a Permitted
Investment, and (v) forgiveness of any Indebtedness of an Affiliate of the
Company to the Company or a Subsidiary of the Company. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
'Sale and Lease-Back Transaction' means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
'Senior Credit Facility' means the Credit Agreement to be entered into,
between the Company, the lenders party thereto in their capacities as lenders
thereunder and Canadian Imperial Bank of Commerce, New York Agency, as agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted by the 'Limitation on Additional
Indebtedness' covenant) or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
'Subsidiary' of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the first-named Person for
financial statement purposes.
'Wholly Owned Subsidiary' means any Subsidiary, all of the outstanding
voting securities (other than directors' qualifying shares) of which are owned,
directly or indirectly, by the Company.
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DESCRIPTION OF THE NOTES
The Original Notes were issued, and the Exchange Notes will be issued,
under an Indenture, dated as of September 30, 1997 (the 'Indenture'), by and
among the Issuers and Wilmington Trust Company, as trustee (the 'Trustee'). The
form and terms of the Exchange Notes will be the same as the form and terms of
the Original Notes except that (i) the Exchange Notes will be registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the Exchange Notes will not be entitled to
certain rights of holders of Original Notes under the Registration Rights
Agreement, which rights terminate upon consummation of the Exchange Offer. The
Exchange Notes and Original Notes are referred to herein collectively as the
'Notes.' The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the 'TIA'), as in effect on the date of the Indenture. The Notes are
subject to all such terms, and holders of the Notes are referred to the
Indenture and the TIA for a statement of them. The following is a summary of the
material terms and provisions of the Notes. This summary does not purport to be
a complete description of the Notes and is subject to the detailed provisions
of, and qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the Indenture and Form
of Notes are filed as exhibits to the Exchange Offer Registration Statement of
which this Prospectus is a part. As used in this 'Description of the Notes,' the
'Company' refers to ACME Intermediate Holdings, LLC, but not its Subsidiaries.
Definitions relating to certain capitalized terms are set forth under '--Certain
Definitions.' Capitalized terms that are used but not otherwise defined herein
have the meanings ascribed to them in the Indenture and such definitions are
incorporated herein by reference.
GENERAL
The Notes are joint and several obligations of the Issuers. The Notes are
limited to $71,634,000 aggregate principal amount at maturity. The Notes are
senior secured obligations of the Issuers, pari passu in right of payment to
senior obligations of the Issuers and senior in right of payment to any current
or future subordinated obligations of the Issuers. The Original Notes were
issued at a substantial discount to their aggregate principal amount at
maturity.
SECURITY
Pursuant to a pledge agreement (the 'Pledge Agreement') among the Company,
ACME Subsidiary Holdings II, LLC ('Subsidiary Holdings') and the Trustee, (i)
the Company and Subsidiary Holdings (together, the 'Pledgors') pledged to the
Trustee for the benefit of the holders of the Notes all the membership units in
ACME Television owned by them on the Issue Date or so acquired by them
thereafter, and (ii) the Company pledged all Capital Stock of ACME Television,
ACME Finance, Inc. and Subsidiary Holdings owned by it on the Issue Date or so
acquired by it thereafter and all of the Capital Stock of any other Subsidiary
of the Company acquired by the Company after the Issue Date. Such pledges secure
the payment and performance when due of all of the obligations of the Issuers
under the Indenture and the Notes. Such membership units of ACME Television, LLC
represent equity ownership interests in ACME Television, LLC entitling a holder
to a pro rata share of profits and losses. Under certain circumstances, these
membership units and the Capital Stock of each Subsidiary of the Company
directly owned by the Company may be of limited value to holders of Exchange
Notes because holders of such securities would, in the event of bankruptcy or
liquidation, be entitled only to the assets which remained after all liabilities
of such Subsidiary have been paid in full. In addition, there are various
limitations on the ability to dispose of such securities because there is no
existing public market for such securities, such securities may be subject to
certain transfer restrictions and regulatory approval may be required for
certain transfers. See 'Risk Factors--Limitation on Security for the Notes.'
Holders of Exchange Notes of the Company are not secured creditors of ACME
Television, LLC. As of the Issue Date, the only Subsidiaries of the Company
whose Capital Stock is directly owned by the Company are ACME Television, ACME
Finance, Inc. and Subsidiary Holdings.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture, the Pledgors will be
entitled to receive all cash distributions made upon or with respect to the
collateral pledged by it and to exercise any voting and other consensual rights
pertaining to the collateral pledged by it. Upon the occurrence and during the
continuance of an Event of Default, (a) all rights of the Pledgors to exercise
such voting or other consensual rights will cease, and, subject to receipt of
any required
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approvals from the FCC, all such rights will become vested in the Trustee, which
shall have the sole right to exercise such voting and other consensual rights,
and (b) all rights of the Pledgors to receive all distributions made upon or
with respect to the pledged collateral will cease and such distributions shall
be paid to the Trustee which shall thereupon have the sole right to receive and
hold such distributions as pledged collateral.
Upon the occurrence and during the continuance of an Event of Default, the
Trustee shall foreclose upon the pledged collateral in accordance with
instructions received from holders of a majority of the aggregate principal
amount at maturity of outstanding Notes, or in the absence of such instructions,
in such manner as the Trustee deems appropriate, in each case, as provided in
the Indenture. All funds received by the Trustee upon any foreclosure shall be
distributed by the Trustee in accordance with the provisions of the Indenture.
Upon the full and final payment and performance of all obligations of the
Issuers under the Indenture and the Notes, the pledged collateral shall be
released.
The rights of the Trustee to foreclose upon and dispose of the pledged
collateral is likely to be significantly impaired by applicable bankruptcy law
if a bankruptcy proceeding were to be commenced by or against the Company or
Pledgor prior to the Trustee's having disposed of the pledged collateral. Under
Title XI of the United States Code (the 'Bankruptcy Code'), a secured creditor
such as the Trustee is prohibited from disposing of security upon foreclosure in
a bankruptcy case, even though the debtor is in default under the applicable
debt instruments, without bankruptcy court approval. Moreover, in general, the
Bankruptcy Code prohibits the bankruptcy court from giving such approval if the
secured creditor is given 'adequate protection.' The meaning of the term
'adequate protection' may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
collateral and may include cash payments or the granting of additional security,
if and at such times as the court in its discretion determines, for any
diminution in the value of the collateral as a result of the stay of disposition
during the pendency of the bankruptcy case. In view of the lack of a precise
definition of the term 'adequate protection' and the broad discretionary powers
of a bankruptcy court, it is impossible to predict how long payments under the
Notes could be delayed following commencement of a bankruptcy case, whether or
when the Trustee could dispose of the pledged collateral or whether or to what
extent holders of the Notes would be compensated for any delay in payment or
loss of value of the pledged collateral through the requirement of 'adequate
protection.'
The Indenture and the Pledge Agreement provide that the Capital Stock of
ACME Television and any other Subsidiary whose Capital Stock is pledged as
Collateral will be released from the Lien of the Indenture and the Pledge
Agreement in the event all of the Capital Stock of such Subsidiary of the
Company owned by the Company and its Subsidiaries is sold by the Company and/or
one or more of its Subsidiaries or to a Person who is not an Affiliate of the
Company and the sale complies with the provisions set forth below under
'--Certain Covenants--Limitation on Certain Asset Sales.'
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on September 30, 2005. Cash interest will not accrue
or be payable on the Notes prior to September 30, 2002. Thereafter, cash
interest on the Notes will accrue at the rate of 12% per annum and will be
payable semiannually on each March 31 and September 30, commencing March 31,
2003, to the holders of record of Notes at the close of business on the March 15
and September 15 immediately preceding such interest payment date. Cash interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from September 30, 2002. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
As discussed under 'Exchange Offer--Registration Rights,' pursuant to the
Registration Rights Agreement, the Issuers have agreed, at their expense, for
the benefit of the holders of the Original Notes, either (i) to effect a
registered Exchange Offer under the Securities Act to exchange the Original
Notes for Exchange Notes, which will have terms identical in all material
respects to the Original Notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions) or (ii) in the event that any
changes in law or applicable interpretations of the staff of the Commission do
not permit the Issuers to effect the Exchange Offer, or if for any other reason
the Exchange Offer is not consummated with 180 days of the Issue Date, or under
certain other circumstances, to register the Original Notes for resale under the
Securities Act through a shelf registration statement (a 'Shelf Registration
Statement'). In the event that either (a) the Exchange Offer
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Registration Statement is not filed with the Commission on or prior to the 45th
day following the Issue Date, (b) the Exchange Offer Registration Statement has
not been declared effective on or prior to the 150th day following the Issue
Date, (c) the Exchange Offer is not consummated on or prior to the 180th day
following the Issue Date or (d) a Shelf Registration Statement is not declared
effective on or prior to the 180th day following the Issue Date, the Issuers
shall pay as liquidated damages to each holder of the Original Notes an amount
(the 'Damage Amount') equal to 0.50% per annum of the average Accreted Value of
the Original Notes for the first 90 days during which any such default exists,
and the Damage Amount will be increased by an additional 0.25% per annum of the
average Accreted Value of the Original Notes for each 90-day period that any
such liquidated damages continue to accrue; provided that in no event shall the
Damage Amount be increased by more than 2.0%. Upon (w) the filing of the
Exchange Offer Registration Statement in the case of clause (a) above, (x) the
effectiveness of the Exchange Offer Registration Statement in the case of clause
(b) above, (y) the consummation of the Exchange Offer in the case of clause (c)
above or (z) the effectiveness of a Shelf Registration Statement in the case of
clause (d) above, the Damage Amount will cease to accrue from the date of such
filing, effectiveness or consummation, as the case may be. Any Damage Amounts
will be payable in cash. See 'Exchange Offer--Registration Rights.'
Original Notes that remain outstanding after the consummation of the
Exchange Offer and Exchange Notes issued in connection with the Exchange Offer
will be treated as a single class of securities under the Indenture.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Issuers, in whole at any
time or in part from time to time, on or after September 30, 2001 at the
following redemption prices (expressed as percentages of the Accreted Value
thereof on the applicable redemption date), together, in each case, with accrued
and unpaid interest, if any, to the redemption date, if redeemed during the
twelve-month period beginning on September 30 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001......................................................... 106.000%
2002......................................................... 103.000%
2003 and thereafter.......................................... 100.000%
</TABLE>
In addition, the Issuers may redeem in the aggregate up to 35% of the
aggregate principal amount at maturity of Notes at any time and from time to
time prior to September 30, 2000 at a redemption price equal to 112.0% of the
Accreted Value thereof, out of the Net Proceeds of one or more Public Equity
Offerings; provided that 65% of the aggregate principal amount at maturity of
the Notes originally issued remains outstanding immediately after the occurrence
of any such redemption and that any such redemption occurs within 90 days
following the closing of any such Public Equity Offering.
In the event of a redemption of fewer than all of the Notes, the Trustee
shall select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed,
or if such Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or in such other manner as the Trustee shall deem fair and
equitable. The Notes will be redeemable in whole or in part upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Registrar of the Notes. On and after any redemption date, Accreted Value will
cease to accrete and interest will cease to accrue on the Notes or portions
thereof called for redemption unless the Issuers shall fail to redeem any such
Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, incur (as defined) any Indebtedness (including Acquired
Indebtedness); provided that if no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the incurrence of
such Indebtedness, the Company
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and its Subsidiaries may incur Indebtedness (including Acquired Indebtedness) if
after giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof, the Company's Consolidated Leverage Ratio
is less than 7.0 to 1. The accretion of original issue discount and accrual of
interest on the Notes and the Subsidiary Senior Discount Notes shall not be
deemed an incurrence of Indebtedness for purposes of this covenant.
Notwithstanding the foregoing, the Company and its Subsidiaries may incur
Permitted Indebtedness; provided that the Company will not incur any Permitted
Indebtedness that ranks junior in right of payment to the Notes that has a
maturity or mandatory sinking fund payment prior to the maturity of the Notes.
The Issuers will not incur any Indebtedness which by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated in right of
payment to any other Indebtedness of the Issuers unless such Indebtedness is
also by its terms (or by the terms of any agreement governing such Indebtedness)
made expressly subordinate in right of payment to the Notes pursuant to
subordination provisions that are substantively identical to the subordination
provisions of such Indebtedness (or such agreement) that are most favorable to
the holders of any other Indebtedness of the Issuers.
Limitation on Restricted Payments
The Issuers will not make, and will not permit any of their Subsidiaries
to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Issuers could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under '--Limitation on Additional
Indebtedness' above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 100% of the Company's Cumulative EBITDA
minus 1.4 times the Company's Cumulative Consolidated Interest Expense, (2)
100% of the aggregate Net Proceeds received by the Company from the issue
or sale after the Issue Date of Capital Stock (other than Disqualified
Capital Stock or Capital Stock of the Company issued to any Subsidiary of
the Company) of the Company or any Indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Capital Stock) of the Company which has been so
converted, exercised or exchanged, as the case may be, and (3) without
duplication of any amounts included in clause (c)(2) above, 100% of the
aggregate Net Proceeds received by the Company from any equity contribution
from a holder of the Company's Capital Stock, excluding, in the case of
clauses (c)(2) and (3), any Net Proceeds from a Public Equity Offering to
the extent used to redeem the Notes. For purposes of determining under this
clause (c) the amount expended for Restricted Payments, cash distributed
shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock of
the Company (other than Disqualified Capital Stock), or out of the Net Proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of other shares of Capital Stock of the Company (other than Disqualified Capital
Stock), (iii) the redemption or retirement of Indebtedness of the Company
subordinated to the Notes in exchange for, by conversion into, or out of the Net
Proceeds of, a substantially concurrent sale or incurrence of Indebtedness of
the Company (other than any Indebtedness owed to a Subsidiary) that is
contractually subordinated in right of payment to the Notes to at least the same
extent as the Indebtedness being redeemed or retired, (iv) the retirement of any
shares of Disqualified Capital Stock of the Company by conversion into, or by
exchange for, shares of Disqualified Capital Stock of the Company, or out of the
Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of other shares
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of Disqualified Capital Stock of the Company, (v) Permitted Tax Distributions
and (vi) the forfeit of a deposit that was a Permitted Investment under clause
(viii) of the definition of Permitted Investments at the time such deposit was
made; provided that in calculating the aggregate amount of Restricted Payments
made subsequent to the Issue Date for purposes of clause (c) of the immediately
preceding paragraph, amounts expended pursuant to clauses (i), (ii) and (vi)
shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Issuers shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described above were computed, which calculations may
be based upon the Issuers' latest available financial statements, and that no
Default or Event of Default has occurred and is continuing and no Default or
Event of Default will occur immediately after giving effect to any such
Restricted Payments.
Limitation on Liens
The Issuers will not create, incur or otherwise cause or suffer to exist or
become effective any Liens of any kind (a) (other than Permitted Liens) upon any
property or asset of the Issuers unless (i) if such Lien secures Indebtedness
which is pari passu with the Notes, then the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such obligation
is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which
is subordinated to the Notes, any such Lien shall be subordinated to the Lien
granted to the holders of the Notes to the same extent as such Indebtedness is
subordinated to the Notes and (b) on any of the Collateral (other than Liens
created by the Pledge Agreement).
Limitation on Investments
The Issuers will not, and will not permit any of their Subsidiaries to,
make any Investment other than (i) a Permitted Investment or (ii) an Investment
that is made as a Restricted Payment in compliance with the Limitation on
Restricted Payments' covenant, after the Issue Date.
Limitation on Transactions with Affiliates
The Issuers will not, and will not permit any of their Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (each an
'Affiliate Transaction') or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Issuers and their Wholly
Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Issuers or such Subsidiary, as the case may be, and the terms
of such Affiliate Transaction are at least as favorable as the terms which could
be obtained by the Issuers or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $1 million which is not permitted under
clause (i) above, the Issuers must obtain a resolution of the Board of Directors
of the Issuers certifying that such Affiliate Transaction complies with clause
(ii) above. In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $5 million which is not permitted under
clause (i) above, the Issuers must obtain a favorable written opinion as to the
fairness of such transaction or transactions, as the case may be, from an
Independent Financial Advisor.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under '--Limitation on Restricted
Payments' above, or (ii) reasonable fees, compensation and equity incentives in
the form of Capital Stock (other than Disqualified Capital Stock) paid to and
indemnity provided on behalf of, officers, directors or employees of the Issuers
or any Subsidiary of the Issuers as determined in good faith by the Issuers'
Board of Directors or senior management, (iii) any agreement as in effect as of
the Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not
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more disadvantageous to the holders in any material respect than the original
agreement as in effect on the Issue Date; or (iv) any affiliation agreements
with the WB Television Network.
Limitation on Creation of Subsidiaries
The Company will not create or acquire any direct Subsidiary other than a
Subsidiary the Capital Stock of which is, to the extent owned by the Company,
pledged to the Trustee as set forth under '--Security.'
Limitation on Certain Asset Sales
The Issuers will not, and will not permit any of their Subsidiaries to,
consummate an Asset Sale unless (i) the Issuers or such applicable Subsidiary,
as the case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value of the assets sold or
otherwise disposed of (as determined in good faith by the Board of Directors of
the Company, and evidenced by a board resolution); (ii) not less than 80% of the
consideration received by the Company or such applicable Subsidiary, as the case
may be, is in the form of cash or Cash Equivalents other than in the case where
the Company is undertaking a Permitted Asset Swap; and (iii) the Asset Sale
Proceeds received by the Company or such Subsidiary are applied (a) first, to
the extent the Company or any such Subsidiary, as the case may be, elects, or is
required, to prepay, repay or purchase indebtedness under the Senior Credit
Facility, the Subsidiary Senior Discount Notes and/or any other Indebtedness of
a Subsidiary of the Company incurred in compliance with the Indenture within 180
days following the receipt of the Asset Sale Proceeds from any Asset Sale;
provided that any such repayment shall result in a permanent reduction of the
commitments thereunder in an amount equal to the principal amount so repaid; (b)
second, to the extent of the balance of Asset Sale Proceeds after application as
described above, to the extent the Company elects, to an investment in assets
(including Capital Stock or other securities purchased in connection with the
acquisition of Capital Stock or property of another Person) used or useful in
businesses similar or ancillary to the business of the Company or any such
Subsidiary as conducted on the Issue Date; provided that (1) such investment
occurs or the Company or any such Subsidiary enters into contractual commitments
to make such investment, subject only to customary conditions (other than the
obtaining of financing), within 180 days following receipt of such Asset Sale
Proceeds and (2) Asset Sale Proceeds so contractually committed are so applied
within 270 days following the receipt of such Asset Sale Proceeds; and (c)
third, if on such 180th day in the case of clauses (iii)(a) and (iii)(b)(1) or
on such 270th day in the case of clause (iii)(b)(2) with respect to any Asset
Sale, the Available Asset Sale Proceeds exceed $5 million, the Company shall
apply an amount equal to such Available Asset Sale Proceeds to an offer to
repurchase the Notes, at a purchase price in cash equal to 100% of the Accreted
Value thereof plus accrued and unpaid interest, if any, to the purchase date (an
'Excess Proceeds Offer'). If an Excess Proceeds Offer is not fully subscribed,
the Company may retain the portion of the Available Asset Sale Proceeds not
required to repurchase Notes.
If the Issuers are required to make an Excess Proceeds Offer, the Issuers
shall mail, within 30 days following the date specified in clause (iii)(c)
above, a notice to the holders stating, among other things: (1) that such
holders have the right to require the Issuers to apply the Available Asset Sale
Proceeds to repurchase such Notes at a purchase price in cash equal to (x) 100%
of the Accreted Value thereof, if the applicable purchase date is on or prior to
September 30, 2002, or (y) 100% of the principal amount at maturity thereof,
plus accrued and unpaid interest, if any, to the purchase date, if the purchase
date is after September 30, 2002; (2) the purchase date, which shall be no
earlier than 30 days and not later than 45 days from the date such notice is
mailed; (3) the instructions that each holder must follow in order to have such
Notes purchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the purchase of such Notes.
In the event of the transfer of substantially all of the property and
assets of the Issuers and their Subsidiaries as an entirety to a Person in a
transaction permitted under '--Merger, Consolidation or Sale of Assets' below,
the successor Person shall be deemed to have sold the properties and assets of
the Company and its Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale.
The Issuers shall comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of
any securities laws or regulations conflict with the 'Asset Sale' provisions of
the Indenture, the Company shall comply with the
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applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the 'Asset Sale' provisions of the Indenture by
virtue thereof.
Limitation on Preferred Stock of Subsidiaries
The Issuers will not permit any of its Subsidiaries to issue any Preferred
Stock (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary
of the Company) or permit any Person (other than the Company or a Wholly Owned
Subsidiary of the Company) to hold any such Preferred Stock unless the Company
or such Subsidiary would be entitled to incur or assume Indebtedness under
'--Limitation on Additional Indebtedness' above (other than Permitted
Indebtedness) in the aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Issuers will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary of the Company or (ii) permit any
of its direct Subsidiaries to issue any Capital Stock, other than to the Issuers
or a Wholly Owned Subsidiary of the Issuers. The foregoing restrictions shall
not apply to (x) an Asset Sale made in compliance with '--Limitation on Certain
Asset Sales' above or the issuance of Preferred Stock in compliance with
'--Limitation on Preferred Stock of Subsidiaries' above, (y) Liens securing the
Notes or (z) a Permitted Lien. In no event will the Company sell, pledge,
hypothecate or otherwise convey or dispose of any Capital Stock of Finance
(other than pursuant to the Pledge Agreement) or will Finance sell any Capital
Stock.
Limitation on Sale and Lease-Back Transactions
The Issuers will not, and will not permit any of their Subsidiaries to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined in good faith by the Board of
Directors of the Company and evidenced by a board resolution and (ii) the
Issuers could incur the Attributable Indebtedness in respect of such Sale and
Lease-Back Transaction in compliance with '--Limitation on Additional
Indebtedness' above.
Limitation on Conduct of Business
The Issuers and their Subsidiaries will not engage in any businesses which
are not the same, similar or related to the businesses in which the Company and
its Subsidiaries are engaged on the Issue Date.
Limitation on Conduct of Business of ACME Intermediate Finance, Inc.
ACME Intermediate Finance, Inc. ('Finance') will not own any operating
assets or other properties or conduct any business other than to serve as an
Issuer and an obligor on the Notes.
Impairment of Security Interest
The Indenture provides that the Issuers shall not, and not permit any of
their Subsidiaries to, take or omit to take any action which action or omission
would impair the security interest in favor of the Trustee, on behalf of itself
and the holders of the Notes with respect to the Collateral required to be
pledged under the Indenture, and the Issuers will not create, otherwise incur or
suffer to exist, in favor of any Person (other than the Trustee on behalf of
itself and the holders of the Notes) any interest whatsoever in the Collateral.
Payments for Consent
The Issuers will not, and will not permit any of their Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture, the Pledge Agreement or the Notes unless such consideration is
offered to be paid or agreed to be paid to all holders of the Notes which so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Issuers shall be obligated
to make an offer to purchase (the 'Change of Control Offer') each holder's
outstanding Notes at a purchase price (the 'Change of Control Purchase Price')
equal to (x) 101% of the Accreted Value thereof, if the Change of Control
Payment Date (as
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defined) is on or prior to September 30, 2002, or (y) 101% of the principal
amount at maturity thereof, plus accrued and unpaid interest, if any, to the
Change of Control Payment Date, if the Change of Control Payment Date is after
September 30, 2002, in each case in accordance with the procedures set forth
below.
Within 20 days of the occurrence of a Change of Control, the Issuers shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 45 days from
the date such notice is mailed (the 'Change of Control Payment Date'));
(3) that any Note not tendered will continue to accrete Accreted Value
or accrue interest, as the case may be;
(4) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrete Accreted Value or accrue
interest, as the case may be, after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount at maturity to the unpurchased
principal amount at maturity of the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Issuers. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Issuers shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount at maturity to any
unpurchased portion of the Notes surrendered; provided that each such new Note
shall be issued in an original principal amount at maturity in denominations of
$1,000 and integral multiples thereof.
The Indenture requires that if the Senior Credit Facility is in effect
and/or any Subsidiary Senior Discount Notes are outstanding, or any amounts are
owing thereunder or in respect thereof, at the time of the occurrence of a
Change of Control, prior to the mailing of the notice to holders described in
the second preceding paragraph, but in any event within 20 days following any
Change of Control, the Issuers, on a joint and several basis, covenant to (i)
repay in full all obligations and terminate all commitments under or in respect
of the Senior Credit Facility and/or the Subsidiary Senior Discount Notes, as
the case may be, or offer to repay in full all obligations and terminate all
commitments under or in respect of the Senior Credit Facility and/or the
Subsidiary Senior Discount Notes, as the case may be, and repay the Indebtedness
owed to each such lender and holder who has accepted such offer or (ii) obtain
the requisite consents under the Senior Credit Facility and/or the Subsidiary
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Senior Discount Notes to permit the repurchase of the Notes as described above.
The Issuers must first comply with the covenant described in the preceding
sentence before it shall be required to purchase Notes in the event of a Change
of Control; provided that the Issuers' failure to comply with the covenant
described in the preceding sentence constitutes an Event of Default described in
clause (iii) under '--Events of Default' below if not cured within 30 days after
the notice required by such clause. As a result of the foregoing, a holder of
the Notes may not be able to compel the Issuers to purchase the Notes unless the
Company and ACME Television are able at the time to refinance all of the
obligations under or in respect of the Senior Credit Facility and/or the
Subsidiary Senior Discount Notes or obtain requisite consents under the Senior
Credit Facility and/or the Subsidiary Senior Discount Notes. Failure by the
Issuers to make a Change of Control Offer when required by the Indenture
constitutes a default under the Indenture, and if not cured within 30 days after
notice, constitutes an Event of Default.
The Indenture further provides that, (A) if either Issuer has issued any
outstanding (i) indebtedness that is subordinated in right of payment to the
Notes or (ii) Preferred Stock, and the Issuers are required to make a change of
control offer or to make a distribution with respect to such subordinated
indebtedness or Preferred Stock in the event of a Change of Control, the Issuers
shall not consummate any such offer or distribution with respect to such
subordinated indebtedness or Preferred Stock until such time as the Issuers
shall have paid the Change of Control Purchase Price in full to the holders of
Notes that have accepted the Issuers' Change of Control Offer and shall
otherwise have consummated the Change of Control Offer made to holders of the
Notes and (B) the Issuers will not issue Indebtedness that is subordinated in
right of payment to the Notes or Preferred Stock with change of control
provisions requiring the payment of such Indebtedness or Preferred Stock prior
to the payment of the Notes in the event of a Change in Control under the
Indenture.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the 'Change
of Control' provisions of the Indenture, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the 'Change of Control' provisions of the
Indenture by virtue thereof.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither of the Issuers will consolidate with, merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets (as an entirety or substantially as an entirety in one transaction
or a series of related transactions), to any Person unless (in the case of the
Company): (i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which the properties and assets of the Company are sold,
assigned, transferred, leased, conveyed or otherwise disposed of shall be a
corporation or a limited liability company organized and existing under the laws
of the United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company under the Indenture and the Notes and the obligations thereunder shall
remain in full force and effect; provided, that at any time the Company or its
successor is a limited liability company, there shall be a co-issuer of the
Notes that is a corporation; (ii) immediately before and immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Consolidated Net
Worth of the Company or the surviving entity, as the case may be, is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions; and (iv) immediately after giving effect
to such transaction on a pro forma basis, the Company or such Person could incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under '--Certain Covenants--Limitation on Additional Indebtedness' above.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuers shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
EVENTS OF DEFAULT
The following events are defined in the Indenture as 'Events of Default':
(i) default in payment of any Accreted Value, principal of, or
premium, if any, on the Notes whether at maturity, upon redemption or
otherwise;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Issuers or any Subsidiary of the Company in the
observance or performance of any other covenant in the Notes or the
Indenture for 30 days after written notice from the Trustee or the holders
of not less than 25% in aggregate principal amount at maturity of the Notes
then outstanding (except in the case of a default with respect to the
'Change of Control' or 'Merger, Consolidation or Sale of Assets' covenant
which shall constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $5 million or more with respect to any Indebtedness of
the Issuers or any Subsidiary thereof, or the acceleration of any such
Indebtedness aggregating $5 million or more which default shall not be
cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice as provided in the
Indenture, or such acceleration shall not be rescinded or annulled within
20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5 million shall be rendered against
the Issuers or any Subsidiary thereof, and shall not be discharged for any
period of 60 consecutive days during which a stay of enforcement shall not
be in effect;
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Issuers or any Subsidiary thereof; and
(vii) breach by a Pledgor of any representation or warranty set forth
in the Pledge Agreement, or default by a Pledgor in the performance of any
covenant set forth in the Pledge Agreement, or repudiation by a Pledgor of
any of its obligations under the Pledge Agreement or the unenforceability
of the Pledge Agreement against a Pledgor for any reason which, in any case
or in the aggregate, results in a material impairment of the rights
intended to be afforded thereby.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to either of the Issuers) shall have occurred and be
continuing, then the Trustee or the holders of not less than 25% in aggregate
principal amount at maturity of the Notes then outstanding may declare the Notes
to be immediately due and payable in an amount equal to the Accreted Value of
the Notes, premium, if any, plus accrued and unpaid interest, if any, to the
date of acceleration and (i) the same shall become immediately due and payable
or (ii) if there are any amounts outstanding under the Senior Credit Facility
and or the Subsidiary Senior Discount Notes, shall become immediately due and
payable upon the first to occur of an acceleration under the Senior Credit
Facility or 5 business days after receipt by the Company and the representative
under the Senior Credit Facility and/or the Trustee in respect of the Subsidiary
Senior Discount Notes of a notice of acceleration by the Trustee hereunder;
provided, however, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the Trustee, the holders of a majority in
aggregate principal amount at maturity of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if (i) all Events of Default,
other than nonpayment of Accreted Value
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premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in the Indenture, (ii) to
the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid, (iii) if the Issuers
have paid the Trustee its reasonable compensation and reimbursed the Trustee for
its expenses, disbursements and advances and (iv) in the event of the cure or
waiver of an Event of Default of the type described in clause (vi) of the above
Events of Default, the Trustee shall have received an officers' certificate and
an opinion of counsel that such Event of Default has been cured or waived. No
such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, the Accreted Value or
principal and all premium and interest with respect to all of the Notes shall be
due and payable immediately without any declaration or other act on the part of
the Trustee or the holders of the Notes.
The holders of a majority in principal amount at maturity of the Notes then
outstanding shall have the right to waive any existing default or Event of
Default and its consequences or compliance with any provision of the Indenture
or the Notes and to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, subject to certain
limitations provided for in the Indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount at
maturity of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as Trustee, and
unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount at maturity of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 30 days. Notwithstanding the foregoing, such limitations do
not apply to a suit instituted on such Note on or after the respective due dates
expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Issuers may elect either (a) to defease and be
discharged from any and all of their obligations with respect to the Notes
(except for the obligations to register the transfer or exchange of such Notes,
to replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain
an office or agency in respect of the Notes and to hold monies for payment in
trust) ('defeasance') or (b) to be released from their obligations with respect
to the Notes under certain covenants contained in the Indenture ('covenant
defeasance') upon the deposit with the Trustee (or other qualifying trustee), in
trust for such purpose, of money and/or non-callable U.S. government obligations
which through the payment of Accreted Value and interest in accordance with
their terms will provide money, in an amount sufficient to pay the Accreted
Value of, premium, if any, and interest on the Notes, on the scheduled due dates
therefor or on a selected date of redemption in accordance with the terms of the
Indenture. Such a trust may only be established if, among other things, (i) the
Issuers have delivered to the Trustee an opinion of counsel (as specified in the
Indenture) (A) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (B) describing either a private ruling concerning the
Notes or a published ruling of the Internal Revenue Service, to the effect that
holders of the Notes or persons in their positions will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount and in the same manner and at the same times, as would have been the case
if such deposit, defeasance and discharge had not occurred, (ii) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit or insofar as Events of Default from bankruptcy, insolvency or
reorganization events are concerned, at any time in the period ending on the
91st day after the date of deposit; (iii) such defeasance or covenant defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Issuers or
any of their Subsidiaries is a party or by which the Issuers or any or their
Subsidiaries is bound; (iv) the Issuers shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Issuers with
the intent of preferring the holders of the Notes over any other creditors of
the Issuers or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company or others; (v) the Issuers shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for or relating to the
defeasance or the covenant defeasance have been complied with; (vi) the Issuers
shall have delivered to the
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Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (vii) certain other customary conditions precedent are
satisfied.
MODIFICATION OF INDENTURE
From time to time, the Issuers and the Trustee may, without the consent of
holders of the Notes, amend or supplement the Indenture for certain specified
purposes, including providing for uncertificated Notes in addition to
certificated Notes, and curing any ambiguity, defect or inconsistency, or making
any other change that does not materially and adversely affect the rights of any
holder. The Indenture contains provisions permitting the Issuers and the
Trustee, with the consent of holders of at least a majority in principal amount
at maturity of the outstanding Notes, to modify or supplement the Indenture,
except that no such modification shall, without the consent of each holder
affected thereby, (i) reduce the amount of Notes whose holders must consent to
an amendment, supplement, or waiver to the Indenture, (ii) reduce the rate of or
change the time for payment of interest, including defaulted interest, on any
Note, (iii) reduce the Accreted Value of or premium on or change the stated
maturity of any Note or change the date on which any Notes may be subject to
redemption or repurchase or reduce the redemption or repurchase price therefor,
(iv) make any Note payable in money other than that stated in the Note or change
the place of payment from New York, New York, (v) waive a default on the payment
of the Accreted Value of, interest on, or redemption payment with respect to any
Note, (vi) make any change in provisions of the Indenture protecting the right
of each holder of Notes to receive payment of Accreted Value of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount at maturity of
Notes to waive Defaults or Events of Default; (vii) modify or change any
provision of the Indenture or the related definitions affecting the ranking of
the Notes in a manner which adversely affects the holders of Notes; or (viii)
release any Collateral, except in compliance with the terms of the Indenture.
REPORTS TO HOLDERS
So long as the Issuers are subject to the periodic reporting requirements
of the Exchange Act, they will continue to furnish the information required
thereby to the Commission and to the holders of the Notes. The Indenture
provides that even if the Issuers are entitled under the Exchange Act not to
furnish such information to the Commission or to the holders of the Notes, they
will nonetheless continue to furnish such information to the Commission and
holders of the Notes.
COMPLIANCE CERTIFICATE
The Issuers will deliver to the Trustee on or before 90 days after the end
of the Issuers' fiscal year and on or before 45 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default, its status and the intended method of cure, if any.
THE TRUSTEE
The Trustee under the Indenture is the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.
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The Notes will be issued in a transaction exempt from registration under
the Act and will be subject to the restrictions on transfer described in 'Notice
to Investors.'
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
'Accreted Value' means, as of any date prior to September 30, 2002, an
amount per $1,000 principal amount at maturity of Notes that is equal to the sum
of (a) $558.40 and (b) the portion of the excess of the principal amount at
maturity of each Note over $558.40 which shall have been amortized on a daily
basis and compounded semiannually on each March 31 and September 30 at the rate
of 12% per annum from the Issue Date through the date of determination computed
on the basis of a 360-day year of twelve 30-day months; and, as of any date on
or after September 30, 2002, the Accreted Value of each Note shall mean the
aggregate principal amount at maturity of such Note.
'Acquired Indebtedness' means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or is merged into or consolidated with any
other Person or which is assumed in connection with the acquisition of assets
from such Person and, in each case, not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Subsidiary
or such merger, consolidation or acquisition.
'Affiliate' means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, 'control' (including, with correlative meanings,
the terms 'controlling,' 'controlled by,' and 'under common control with'), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that, for purposes of the covenant described under
'--Certain Covenants--Limitation on Transactions with Affiliates' beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control.
'Asset Acquisition' means (a) an Investment by the Issuers or any
Subsidiary of the Issuers in any other Person pursuant to which such Person
shall become a Subsidiary of the Issuers or any Subsidiary of the Issuers, or
shall be merged with or into the Company or any Subsidiary of the Company or (b)
the acquisition by the Issuers or any Subsidiary of the Issuers of the assets of
any Person (other than a Subsidiary of the Issuers) which constitute all or
substantially all of the assets of such Person or comprise any division or line
of business of such Person or any other properties or assets of such Person or
any other properties or assets of such Person other than in the ordinary course
of business.
'Asset Sale' means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and
Lease-Back Transaction), other than to the Company or any of its Wholly Owned
Subsidiaries, in any single transaction or series of related transactions of (a)
any Capital Stock of or other equity interest in any Subsidiary of the Company
or (b) any other property or assets of the Company or of any Subsidiary thereof;
provided that Asset Sales shall not include (i) a transaction or series of
related transactions for which the Company or its Subsidiaries receive aggregate
consideration of less than $500,000 and (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under '--Merger, Consolidation or Sale of Assets.'
'Asset Sale Proceeds' means, with respect to any Asset Sale, (i) cash
received by the Issuers or any Subsidiary of the Issuers from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Subsidiary of the Issuers as a result of such Asset Sale, (d) repayment
of Indebtedness that is required to be
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repaid in connection with such Asset Sale and (e) deduction of appropriate
amounts to be provided by the Issuers or a Subsidiary of the Issuers as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the Issuers or a
Restricted Subsidiary after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other noncash consideration received by the Issuers or any Subsidiary of the
Issuers from such Asset Sale or other disposition upon the liquidation or
conversion of such notes or noncash consideration into cash.
'Attributable Indebtedness' in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement and (ii) the present value of the notes
(discounted at the rate borne by the Notes, compounded semi-annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale and Lease-Back Transaction (including any period
for which such lease has been extended).
'Available Asset Sale Proceeds' means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the
first paragraph of '--Certain Covenants--Limitation on Certain Asset Sales'.
'Board of Directors' means (i) in the case of a Person that is a
corporation, the board of directors of such Person and (ii) in the case of any
other Person, the board of directors, board of managers, management committee or
similar governing body or any authorized committee thereof responsible for the
management of the business and affairs of such Person.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
'Capitalized Lease Obligations' means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
'Cash Equivalents' means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ('S&P') or Moody's
Investors Service, Inc. ('Moody's'); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
A 'Change of Control' means the occurrence of any of the following: (i) the
adoption of a plan relating to the liquidation or dissolution of Holdings or the
Company, (ii) prior to the consummation of an Initial Public Offering, the
Permitted Holders cease to be the beneficial owners (as defined under Rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of at
least a majority of the total voting power of the Common Stock entitled to elect
the Board of Directors of Holdings, (iii) prior to the consummation of an
Initial
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Public Offering, the Permitted Holders shall cease collectively to control at
least a majority of the voting power of the Board of Directors of Holdings, and
(iv) in connection with or after an Initial Public Offering, any Person
(including a Person's Affiliates and associates), other than a Permitted Holder,
becomes the beneficial owner of more than 20% of the total voting power of the
Common Stock of Holdings or the Company, and the Permitted Holders beneficially
own, in the aggregate, less than 30% of the total voting power of Holdings or
the Company, as the case may be.
'Collateral' means the property of the Pledgors pledged to secure the
payment of the Notes pursuant to the Pledge Agreement.
'Common Stock' of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
'Consolidated Interest Expense' means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption 'interest expense' or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to, (i) Redeemable Dividends, whether paid or
accrued, on Subsidiary Preferred Stock, (ii) imputed interest included in
Capitalized Lease Obligations, (iii) all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, (iv) the net costs associated with Interest Rate Agreements and other
hedging obligations, (v) amortization of other financing fees and expenses, (vi)
the interest portion of any deferred payment obligation, (vii) amortization of
discount or premium, if any, and (viii) all other non-cash interest expense
(other than interest amortized to cost of sales)) plus, without duplication, all
net capitalized interest for such period and all interest incurred or paid under
any guarantee of Indebtedness (including a guarantee of principal, interest or
any combination thereof) of any Person, plus the amount of all dividends or
distributions paid on Disqualified Capital Stock (other than dividends paid or
payable in shares of Capital Stock of the Company); provided that no such
expense relating to the Notes shall be included in the definition of
Consolidated Interest Expense.
'Consolidated Leverage Ratio' means, with respect to any Person, the ratio
of (i) the sum of the aggregate outstanding amount of Indebtedness of such
Person and its Subsidiaries as of the date of calculation (the 'Transaction
Date') on a consolidated basis determined in accordance with GAAP (provided that
the Notes shall not be considered to be outstanding Indebtedness for purposes of
the Consolidated Leverage Ratio) to (ii) such Person's EBITDA for the four full
fiscal quarters (the 'Four Quarter Period') ending on or prior to the date of
determination for which financial statements are available. For purposes of this
definition, 'EBITDA' shall be calculated after giving effect on a pro forma
basis to (i) the incurrence or repayment of any Indebtedness of such Person or
any of its Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Subsidiaries (including any Person who becomes a Subsidiary
as a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any EBITDA (provided that
such EBITDA shall be included only to the extent includable pursuant to the
definition of 'Consolidated Net Income') attributable to the assets which are
the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence, assumption
or liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period; provided that if any such Asset Acquisition relates to
the acquisition of a television broadcast station which is not an affiliate of a
Network and which had a negative Net Income for the Four Quarter Period, it may
be assumed, for purposes of such pro forma calculation, that the Net Income of
such station for such period was zero. If such Person or any of its Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person,
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the preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or any Subsidiary of such Person had directly
incurred or otherwise assumed such guaranteed Indebtedness.
'Consolidated Net Income' means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the 'other Person') in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the Net Income of such other Person to
be consolidated into the Net Income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) for purposes
of calculating Consolidated Net Income in calculating EBITDA (x) for purposes of
determining whether the Company (but not any of its Subsidiaries) is able to
incur Indebtedness pursuant to the first paragraph under '--Certain
Covenants--Limitation on Additional Indebtedness' and (y) for purposes of
determining whether a Restricted Payment identified in clauses (i), (ii), (iii)
and (v) of the definition of Restricted Payment can be made pursuant to
'--Certain Covenants--Limitation on Restricted Payments,' the Net Income of any
Subsidiary of the Person in question that is subject to any restriction or
limitation on the payment of dividends or the making of other distributions
shall be excluded to the extent of such restriction or limitation, (c)(i) the
Net Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition and (ii) any net gain (but not
loss) resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) extraordinary gains and losses shall be excluded, (e) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued) shall be excluded, and (f) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets shall be excluded.
'Consolidated Net Worth' means with respect to any Person at any date, the
consolidated stockholders' equity or Members' Capital of such Person less the
amount of such stockholders' equity attributable to Disqualified Capital Stock
of such Person and its subsidiaries, as determined in accordance with GAAP.
'Cumulative Consolidated Interest Expense' means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense from
October 1, 1997 to the end of the Company's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
'Cumulative EBITDA' means, with respect to any Person, as of any date of
determination, EBITDA from October 1, 1997 to the end of the Company's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
'Disqualified Capital Stock' means any Capital Stock of a Person or a
Subsidiary thereof which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes, for cash or securities constituting Indebtedness.
Without limitation of the foregoing, Disqualified Capital Stock shall be deemed
to include any Preferred Stock of a Person or a Subsidiary of such Person, with
respect to either of which, under the terms of such Preferred Stock, by
agreement or otherwise, such Person or Subsidiary is obligated to pay current
dividends or distributions in cash during the period prior to the maturity date
of the Notes; provided, however, that (i) Preferred Stock of a Person or any
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer to be made for such Preferred Stock in the event of a
change of control of such Person or Subsidiary which provisions have
substantially the same effect as the provisions of the Indenture described under
'Change of Control,' shall not be deemed to be Disqualified Capital Stock solely
by virtue of such provisions and (ii) Capital Stock of any limited liability
company or other pass through entity for federal income tax purposes shall not
be deemed to be Disqualified Capital Stock solely by virtue of the fact that its
holders are entitled to Permitted Tax Distributions.
'EBITDA' means, with respect to any Person and its Subsidiaries, for any
period, an amount equal to (a) the sum of (i) Consolidated Net Income for such
period, plus (ii) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in computing net
loss under clause (i) hereof, plus (iii) Consolidated Interest
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Expense for such period (but only including Redeemable Dividends in the
calculation of such Consolidated Interest Expense to the extent that such
Redeemable Dividends have not been excluded in the calculation of Consolidated
Net Income), plus (iv) depreciation for such period on a consolidated basis,
plus (v) amortization of intangibles and television programming obligations (net
of cash payments with respect to television programming obligations) for such
period on a consolidated basis, plus (vi) any other non-cash items reducing
Consolidated Net Income for such period, minus (b) all non-cash items increasing
Consolidated Net Income for such period, all for such Person and its
Subsidiaries determined on a consolidated basis in accordance with GAAP;
provided, however, that, for purposes of calculating EBITDA during any fiscal
quarter, cash income from a particular Investment of such Person shall be
included only (x) if cash income has been received by such Person with respect
to such Investment during each of the previous four fiscal quarters, or (y) if
the cash income derived from such Investment is attributable to Cash
Equivalents.
'Exchange Act' means the Securities Exchange Act of 1934, as amended and
the rules and regulations of the Commission promulgated thereunder.
'fair market value' means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a resolution of the Board of
Directors of the Company delivered to the Trustee.
'GAAP' means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
'Holdings' means ACME Television Holdings, LLC, a Delaware limited
liability company.
'incur' means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
'incurrence,' 'incurred,' 'incurrable,' and 'incurring' shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
'Indebtedness' means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations of such Person, (ii) obligations secured by a lien
to which the property or assets owned or held by such Person is subject, whether
or not the obligation or obligations secured thereby shall have been assumed,
(iii) guarantees of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) Disqualified Capital Stock of such Person or any Subsidiary
thereof, and (vi) obligations of any such Person under any currency agreement or
any Interest Rate Agreement applicable to any of the foregoing (if and to the
extent such currency agreement or Interest Rate Agreement obligations would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP). The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; providedthat
(i) the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) Indebtedness shall not
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, (i) any trade
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payable arising from the purchase of goods or materials or for services obtained
and (ii) television programming obligations entered into in the ordinary course
of business shall not be deemed to be 'Indebtedness' of the Company or any of
its Subsidiaries for purposes of this definition. Furthermore, guarantees of (or
obligations with respect to letters of credit supporting) Indebtedness otherwise
included in the determination of such amount shall not also be included.
'Independent Financial Advisor' means an investment banking firm of
national reputation in the United States (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
'Initial Public Offering' means an underwritten public offering of Common
Stock of the Company or a Parent registered under the Securities Act (other than
a public offering registered on Form S-8 under the Securities Act) that results
in net proceeds of at least $25.0 million to the Company or such Parent, as the
case may be.
'Interest Rate Agreement' means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
'Investments' means, with respect of any Person, directly or indirectly,
any advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any Capital Stock,
bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments shall exclude (i) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices of such Person and
(ii) the repurchase of securities of any Person by such Person. For the purposes
of the 'Limitation on Restricted Payments' covenant, the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Issuers or any of their Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of dividends
or distributions in connection with such Investment or any other amounts
received in respect of such Investment; provided that no such payment of
dividends or distributions or receipt of any such other amounts shall reduce the
amount of any Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net Income. If the
Issuers or any Subsidiary of the Issuers sells or otherwise disposes of any
Common Stock of any direct or indirect Subsidiary of the Issuers such that,
after giving effect to any such sale or disposition, the Issuers no longer own,
directly or indirectly, greater than 50% of the outstanding Common Stock of such
Subsidiary, the Issuers shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Subsidiary not sold or disposed of.
'Issue Date' means the date the Original Notes were first issued by the
Issuers and authenticated by the Trustee under the Indenture.
'Lien' means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
'Net Income' means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
'Net Proceeds' means (a) in the case of any sale of Capital Stock by or
equity contribution to any Person, the aggregate net proceeds received by such
Person, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property (valued
at the fair market value thereof, as determined in good faith by the Board of
Directors of such Person, at the time of receipt) and
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(b) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of the
Issuers which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to such
Person upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
expenses incurred by such Person in connection therewith).
'Network' means (i) each of the American Broadcasting Company, CBS, Inc.,
Fox Broadcasting Company, National Broadcasting Co., Inc., The WB Television
Network, United Paramount Network and (ii) any successor Person of a Person
identified in clause (i) of this definition.
'Officers' Certificate' means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
'Parent' means any Person which owns all or substantially all of the Common
Stock of the Company.
'Permitted Asset Swap' means any transfer of properties or assets by the
Company or any of its Subsidiaries in which 90% of the consideration received by
the transferor consists of properties or assets (other than cash) that will be
used in the business of the transferor; provided, that (i) the aggregate fair
market value (as determined in good faith by the Board of Directors of Holdings)
of the property or assets being transferred by the Company or such Subsidiary is
not greater than the aggregate fair market value (as determined in good faith by
the Board of Directors) of the property or assets received by the Company or
such Subsidiary in such exchange and (ii) the aggregate fair market value (as
determined in good faith by the Board of Directors) of all property or assets
transferred by the Company and any of its Subsidiaries in connection with
exchanges in any period of twelve consecutive months shall not exceed 15% of the
total assets of the Company on the last day of the preceding fiscal year.
'Permitted Holders' means (i) BancBoston Capital, (ii) Alta Communications,
Inc., Alta Communications, VI L.P., Alta-Comm S by S, LLC, Alta Subordinated
Debt Partners III, L.P. (iii) CEA Capital Partners, CEA Capital Parners USA,
L.P. (iv) Trust Company of the West, (v) any Person controlled or managed by a
Person identified in clauses (i)-(iv) of this definition, (vi) Jamie Kellner,
(vii) Douglas Gealy, (viii) Thomas Allen, (ix) ACME Parent and (x) any
partnership, corporation or other entity all of the partners, shareholders,
members or owners of which are any one or more of the foregoing.
'Permitted Indebtedness' means:
(i) Indebtedness of the Company or any Subsidiary of the Company
arising under or in connection with the Senior Credit Facility in an
aggregate principal amount not to exceed $40 million outstanding at any
time;
(ii) Indebtedness under the Subsidiary Senior Discount Notes;
(iii) Indebtedness under the Notes;
(iv) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(v) Indebtedness of the Company to any Wholly Owned Subsidiary and
Indebtedness of any Wholly Owned Subsidiary to the Company or another
Wholly Owned Subsidiary;
(vi) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Purchase Money Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed $20 million;
(vii) Interest Rate Agreements;
(viii) Refinancing Indebtedness;
(ix) fidelity and surety bonds incurred in the ordinary course of
business; and
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(x) additional Indebtedness of the Company and its Subsidiaries not to
exceed $5 million in aggregate principal amount at any one time
outstanding.
'Permitted Investments' means Investments made on or after the Issue Date
consisting of:
(i) Investments by the Company, or by a Subsidiary thereof, in the
Company or a Subsidiary of the Company;
(ii) Investments by the Company, or by a Subsidiary thereof, in a
Person, if as a result of such Investment (a) such Person becomes a
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Subsidiary thereof;
(iii) Investments in cash and Cash Equivalents;
(iv) reasonable and customary loans made to employees in connection
with their relocation or for travel expenses or advances not to exceed $1
million in the aggregate at any one time outstanding;
(v) an Investment that is made by the Company or a Subsidiary thereof
in the form of any Capital Stock, bonds, notes, debentures, partnership or
joint venture interests or other securities that are issued by a third
party to the Company or such Subsidiary solely as partial consideration for
the consummation of an Asset Sale that is otherwise permitted under
'--Certain Covenants--Limitation on Certain Asset Sales' above;
(vi) Interest Rate Agreements entered into in the ordinary course of
the Company's or its Subsidiaries business;
(vii) options to purchase television broadcast station licenses and
related assets (or Capital Stock of Persons owning such assets) having an
exercise price of any amount not in excess of $100,000 entered into in
connection with the execution of local marketing agreements and Investments
pursuant to local marketing agreements to operate television broadcast
stations which are combined with such an option;
(viii) deposits made pursuant to legally binding agreements to
acquire, or pursuant to local marketing agreements with options to acquire
broadcast television station licenses and related assets (or Capital Stock
of Persons owning such assets), in an amount not to exceed 10% of the
purchase price; provided that the station to be acquired will be owned by
the Company or a Subsidiary upon consummation of the contemplated
acquisition and provided, further, that deposits made under this clause
shall cease to be treated as Permitted Investments upon forfeit of such
deposit for any reason; and
(ix) additional Investments not to exceed $1 million at any one time
outstanding.
'Permitted Liens' means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Issuers shall have set aside on their books
such reserves as may be required pursuant to GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default;
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(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Issuers;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(g) Liens securing Purchase Money Indebtedness of the Issuers;
provided, however, that (i) the Purchase Money Indebtedness shall not be
secured by any property or assets of the Issuers other than the property
and assets so acquired and (ii) the Lien securing such Indebtedness shall
be created within 90 days of such acquisition;
(h) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the
Issuers, including rights of offset and set-off;
(j) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture; and
(k) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under '--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness;' provided that (i) such Liens secured such
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by an Issuer and were not granted in connection with,
or in anticipation of, the incurrence of such Acquired Indebtedness by an
Issuer and (ii) such Liens do not extend to or cover any property or assets
of an Issuer other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of an Issuer and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by an Issuer.
'Permitted Tax Distributions' means, subject to the limitations set forth
in clause (v) of the second paragraph under 'Certain Covenants--Limitation on
Restricted Payments,' distributions by the Company to Holdings and the other
holders of Membership Units from time to time in an amount approximately equal
to the income tax liability for interest or penalties thereon of such holders
and the members of Holdings resulting from (i) the taxable income of the Company
(after taking into account all of the Company's prior tax losses, to the extent
such losses have not previously been deemed to reduce the taxable income of the
Company), based on the approximate highest combined tax rate that applies to any
one of such holders or such members; and (ii) any audit of such member (or the
Company or Holdings) with respect to a prior taxable year and paid or payable by
such member during the most recent taxable year, as and to the extent that such
amounts are attributable to the member being allocated more taxable income than
was previously reported to such member as a result of any position taken by the
Company or by Holdings in determining and reporting its taxable income for the
year in question.
'Person' means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
'Preferred Stock' means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
'Property' of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
'Public Equity Offering' means a public offering by the Company or any
Parent of shares of its Common Stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such Common
Stock.
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'Purchase Money Indebtedness' means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
'Redeemable Dividend' means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
'Refinancing Indebtedness' means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company or its Subsidiaries outstanding on the
Issue Date or other Indebtedness permitted to be incurred by the Company or its
Subsidiaries pursuant to the first paragraph of the covenant described under
'Certain Covenants--Limitation on Additional Indebtedness' or by the Company or
its Subsidiaries pursuant to clause (iii) of the definition of 'Permitted
Indebtedness,' but only to the extent that (i) the Refinancing Indebtedness is
subordinated to the Notes to at least the same extent as the Indebtedness being
refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness
is scheduled to mature either (a) no earlier than the Indebtedness being
refunded, refinanced or extended, or (b) after the maturity date of the Notes,
(iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to
mature on or prior to the maturity date of the Notes has a weighted average life
to maturity at the time such Refinancing Indebtedness is incurred that is equal
to or greater than the weighted average life to maturity of the portion of the
Indebtedness being refunded, refinanced or extended that is scheduled to mature
on or prior to the maturity date of the Notes, (iv) such Refinancing
Indebtedness is in an aggregate principal amount that is equal to or less than
the sum of (a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended, (b) the amount of accrued
and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended, except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly Owned Subsidiary of the Company.
'Restricted Payment' means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Subsidiary of the Company or any payment made to the direct
or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Subsidiary of the Company (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock) or in options, warrants or other rights to purchase such Capital Stock
(other than Disqualified Capital Stock), (y) in the case of Subsidiaries of the
Company, dividends or distributions payable to the Company or to a Wholly Owned
Subsidiary of the Company), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company or any of its
Subsidiaries (other than Capital Stock owned by the Company or a Wholly Owned
Subsidiary of the Company, excluding Disqualified Capital Stock) or any option,
warrants or other rights to purchase such Capital Stock, (iii) the making of any
principal payment on, or the purchase, defeasance, repurchase, redemption or
other acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of any Indebtedness which
is subordinated in right of payment to the Notes (other than subordinated
Indebtedness acquired in anticipation of satisfying a scheduled sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), (iv) the making of any Investment or guarantee
of any Investment in any Person other than a Permitted Investment, and (v)
forgiveness of any Indebtedness of an Affiliate of the Company to the Company or
a Subsidiary of the Company. For purposes of determining the amount expended for
Restricted Payments, cash distributed or invested shall be valued at the face
amount thereof and property other than cash shall be valued at its fair market
value.
'Sale and Lease-Back Transaction' means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
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'Senior Credit Facility' means the Credit Agreement to be entered into
between the Company, the lenders party thereto in their capacities as lenders
thereunder and Canadian Imperial Bank of Commerce, New York Agency, as agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted by the 'Limitation on Additional
Indebtedness' covenant) or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
'Subsidiary' of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the first-named Person for
financial statement purposes.
'Subsidiary Senior Discount Notes' means the 10 7/8% Senior Discount Notes
due 2004 of ACME Television, LLC.
'Wholly Owned Subsidiary' means any Subsidiary, all of the outstanding
voting securities (other than directors' qualifying shares) of which are owned,
directly or indirectly, by the Company.
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BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes will initially be issued only in certificated form
('Certificated Notes'). However, the Exchange Notes are expected, after the
inital issuance thereof, to be eligible to be deposited with, or on behalf of,
The Depository Trust Company ('DTC') in the form of global certificates (the
'Global Notes') and registered in the name of a nominee of DTC.
The Global Notes. The Issuers expect that, pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Exchange
Notes of the individual beneficial interest represented by such Global Note to
the respective accounts for persons who have accounts with DTC and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of persons who have accounts with
DTC ('Participants')) and the records of Participants (with respect to interests
of persons other than Participants). Ownership of beneficial interests in the
Global Notes will be limited to Participants or persons who hold interests
through Participants.
So long as DTC or its nominee is the registered owner or holder of any of
the Global Notes, DTC or such nominee, as the case may be, will be considered
the sole owner of the Exchange Notes represented by the Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments on the Global Notes will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. None of the Issuers or the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in a Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Issuers expect that DTC or its nominee, upon receipt of any payment in
respect of a Global Note, will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the applicable
Global Note as shown on the records of DTC or its nominee. The Issuers also
expect that payments by Participants to owners of beneficial interests in Global
Notes held through such Participants will be governed by standing instructions
and customary practice, as is now the case with Original Notes held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell Exchange Notes to persons in states which required physical
delivery of Certificated Notes, or to pledge such securities, such holder must
transfer its interest in the Global Note in accordance with the normal
procedures of DTC.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
Participants to whose account the DTC interests in the Global Notes are credited
and only in respect of such portion of the Exchange Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Exchange Notes in certificated form, which it will distribute to its
Participants.
DTC has advised the Issuers as follows: DTC is a limited purpose trust
company organized under laws of the State of New York, a member of the Federal
Reserve System, a 'clearing corporation' within the meaning of the Uniform
Commercial Code and a 'clearing agency' registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
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Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among Participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Issuers or any other person will have any
responsibility for the performance by DTC or its Participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue
as a depositary for the Global Notes and a successor depositary is not appointed
by the Issuers within 90 days, Certificated Notes will be issued in exchange for
the Global Notes.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE NOTES
The following is a discussion of certain material U.S. federal income tax
consequences of the Exchange Offer and the acquisition, ownership and
disposition of the Notes. This discussion is for general information purposes
only and does not consider all aspects of U.S. federal income taxation that may
be relevant to the purchase, ownership and disposition of the Notes by a
prospective investor in light of such investor's personal circumstances. This
discussion does not address the U.S. federal income tax consequences of the
acquisition, ownership and disposition of Notes not held as capital assets
within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as
amended (the 'Code'), or the U.S. federal income tax consequences to investors
subject to special treatment under the U.S. federal income tax laws, such as
dealers in securities or foreign currency, tax-exempt entities, financial
institutions, insurance companies, persons that hold the Notes or as part of a
'straddle,' 'hedge,' 'conversion transaction' or other integrated investment,
persons that have a 'functional currency' other than the U.S. dollar, and
investors in pass-through entities. In addition, this discussion does not
describe any U.S. federal alternative minimum tax consequences, and does not
describe any tax consequences arising under U.S. federal gift and estate or
other U.S. federal tax laws (except to the limited extent set forth below under
'Non-U.S. Holders') or under the tax laws of any state, local or foreign
jurisdiction.
This discussion is based upon the Code, existing regulations thereunder,
and current administrative rulings and court decisions. All of the foregoing are
subject to change, possibly on a retroactive basis, and any such change could
affect the continuing validity of this discussion.
Persons considering the Exchange Offer or the purchase of Notes should
consult their own tax advisors concerning the application of U.S. federal
income, estate and other tax laws, as well as the laws of any state, local or
foreign taxing jurisdiction, to their particular situations.
U.S. HOLDERS OF THE NOTES
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is (i) a citizen or resident
(as defined in Section 7701(b)(1) of the Code) of the United States, (ii) a
corporation, partnership or other entity organized under the laws of the United
States or any political subdivision thereof or therein, (iii) an estate the
income of which is subject to U.S. federal income tax regardless of the source,
or (iv) a trust if a court within the United States is able to exercise primary
supervision over the trust's administration and one or more United States
persons have the authority to control all its substantial decisions or, if the
trust was treated as a U.S. person on August 19, 1996, the trust elects to
continue to be treated as a U.S. person under regulations to be issued (a 'U.S.
Holder'). Certain U.S. federal income tax consequences relevant to a holder
other than a U.S. Holder are discussed separately below.
DEBT CHARACTERIZATION OF THE NOTES
The Company and each holder will agree to treat the Notes as indebtedness
for federal income tax purposes, and the following discussion assumes that such
treatment is correct. If the Notes were not respected as debt, they likely would
be treated as equity ownership interests in the Company. In such event, the
Company would not be entitled to claim a deduction for interest payable on the
Notes. As a result, the Company's after-tax cash flow and, consequently, its
ability to make payments with respect to the Notes could be reduced.
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ORIGINAL ISSUE DISCOUNT ON THE ORIGINAL NOTES
The Original Notes were issued with original issue discount ('OID'), and
U.S. Holders of the Notes (including cash basis holders) will be required to
include such OID in income as interest income on a constant yield to maturity
method basis, generally in advance of the receipt of the cash payments to which
such income is attributable and generally in increasing amounts until September
30, 2002. However, U.S. Holders will not be required to include separately in
income cash payments received on the Notes, even if denominated as interest
(other than payments of Penalty Interest, described below).
The total amount of OID with respect to a Note will be equal to the excess
of the 'stated redemption price at maturity' of the corresponding Original Note
over the 'issue price' of such Note. The 'stated redemption price at maturity'
of a Note will be equal to the sum of all payments (other than payments of
Penalty Interest, described below), whether denominated as interest or
principal, required to be made on such Note other than payments of 'qualified
stated interest.' Because interest is not payable on the Notes until March 31,
2003, none of the interest payments will be payments of qualified stated
interest and all such payments will be included in the stated redemption price
at maturity. The 'issue price' of a Note is the first price to the public (not
including bond houses, brokers, or similar persons or organizations acting in
the capacity of underwriters or wholesalers) at which a substantial portion of
the Original Notes were initially sold.
The amount of OID required to be included in a U.S. Holder's income for any
taxable year (regardless of whether the holder uses the cash or accrual method
of accounting) is the sum of the daily portions of OID with respect to the Notes
for each day during the taxable year or portion of the taxable year in which the
holder holds such Note. The daily portion is determined by allocating to each
day in any 'accrual period' a pro rata portion of the OID allocable to that
accrual period. Accrual periods with respect to a Note may be of any length
selected by the holder and may vary in length over the term of the Note as long
as (i) no accrual period is longer than one year and (ii) each scheduled payment
of interest or principal on the Note occurs on either the first or final day of
an accrual period. The amount of OID allocable to each accrual period will be
equal to the product of the adjusted issue price of the Note at the beginning of
an accrual period and the yield to maturity of such Note (determined on the
basis of a compounding assumption that reflects the length of the accrual
period). The adjusted issue price of a Note at the beginning of an accrual
period will be equal to the original issue price of the corresponding Original
Note increased by all previously accrued OID (disregarding any reduction on
account of acquisition premium, described below) and reduced by the amount of
all previous cash payments (other than payments of Penalty Interest, described
below) on the Note. The yield to maturity is that interest rate, expressed as a
constant annual interest rate, that when used in computing the present value of
all payments of principal and interest (other than payments of Penalty Interest,
described below) to be paid in connection with the Notes produces an amount
equal to the issue price of the corresponding Original Notes.
The Notes may be determined to be subject to the rules under the Code
regarding 'applicable high yield discount obligations' ('AHYDO') because their
yield to maturity exceeds the relevant applicable Federal ('AFR') rate by more
than five percentage points. Under Section 163(e) and 163(i) of the Code, a C
corporation that is an issuer of debt obligations subject to the AHYDO rules may
not deduct any portion of OID on the obligations until such portion is actually
paid. A debt obligation is generally subject to the AHYDO rules if (i) its
maturity date is more than five years from the date of issue, (ii) its yield to
maturity equals or exceeds the sum of the AFR plus five percentage points and
(iii) it has 'significant OID.' A debt obligation will have significant OID for
this purpose if, as of the close of any accrual period ending more than five
years after issuance, the total amount of income includable by a holder with
respect to the debt instrument exceeds the sum of (i) the total amount of
'interest' paid under the obligation before the close of such accrual period and
(ii) the product of the issue price of the debt instrument and its yield to
maturity. In addition, if the yield to maturity on an AHYDO obligation exceeds
the sum of the AFR plus six percentage points, a portion of the OID, equal to
the product of the total OID times the ratio of (a) the excess of the yield to
maturity over the sum of the AFR plus six percentage points to (b) the yield to
maturity, will not be deductible by the issuer and will be treated for some
purposes as dividends to the holders of the obligations (to the extent that such
amounts would have been treated as dividends to the holders if they had been
distributions with respect to the issuer's stock). Amounts treated as dividends
will be nondeductible by the issuer, and may qualify for the dividends received
deduction for corporate U.S. Holders, but will be treated as OID and not as
dividends for withholding tax purposes. It is unclear whether the AHYDO rules
would apply to an issuer that is a limited liability company, such as the
Company, and whether or how the
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dividend recharacterization rule would be applied. The Issuers intend to take
the position that the Notes are not subject to the AHYDO rules because for tax
purposes the Issuer is a partnership that is not subject to such rules.
The Issuers will provide certain information to the IRS, and will furnish
annually to record holders of the Notes information with respect to OID accruing
during the calendar year. Because this information will be based upon the
adjusted issue price of the Note as if the holder were the original holder of
the instrument who purchased it at the original price, holders who purchase the
Notes for an amount other than the original issue price will be required to
determine for themselves the amount of OID.
ACQUISITION OR BOND PREMIUM AND MARKET DISCOUNT
A U.S. Holder who purchases a Note for an amount that is greater than its
adjusted issue price but equal to or less than the sum of all amounts payable on
the Note as of the purchase date will be considered to have purchased such Note
at an 'acquisition premium.' The amount of OID that such holder must include in
its gross income with respect to such Note for any taxable year is generally
reduced by the portion of such acquisition premium properly allocable to such
year.
A U.S. Holder who purchases a Note at a cost in excess of its principal
amount will be considered to have purchased the Note at a premium, and may make
an election, applicable to all Notes held by such holder, to amortize such
premium, using a constant yield method, over the remaining term of the Note (or,
if a smaller amortization allowance would result, by computing such allowance
with reference to the amount payable on an earlier call date, and by amortizing
such allowance over the shorter period to such call date).
If a U.S. Holder purchases, subsequent to its original issuance, a Note for
an amount that is less than its 'revised issue price' as of the purchase date,
the amount of the difference generally will be treated as 'market discount,'
unless such difference is less than a specified de minimis amount. The Code
provides that the revised issue price of a Note equals its issue price plus the
amount of OID includable in the income of all holders for periods prior to the
purchase date (disregarding any deduction for acquisition premium) reduced by
the amount of all prior cash payments (other than payments of Penalty Interest
described below) on the Notes. Subject to a de minimis exception, a U.S. Holder
will be required to treat any gain recognized on the sale, exchange, redemption,
retirement or other disposition of the Notes as ordinary income to the extent of
the accrued market discount that has not previously been included in income. In
addition, a U.S. Holder may be required to defer, until the maturity date of the
Note or its earlier disposition in a taxable transaction, the deduction of all
or a portion of the interest expense on any indebtedness incurred or continued
to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the holder
elects to accrue market discount on a constant interest method. A U.S. Holder of
a Note may elect to include market discount in income currently as it accrues
(under either the ratable or constant interest method). This election to include
currently, once made, applies to all market discount obligations acquired in or
after the first taxable year to which the election applies and may not be
revoked without the consent of the IRS. If a U.S. Holder of Notes makes such an
election, the foregoing rules with respect to the recognition of ordinary income
on sales and other dispositions of such instruments, and with respect to the
deferral of interest deductions on debt incurred or maintained to purchase or
carry such debt instruments, would not apply.
ELECTION TO TREAT ALL INTEREST AS OID
A U.S. Holder of a Note may elect, subject to certain limitations, to
include all interest that accrues on the Note in gross income on a
constant-yield basis. For purposes of this election, interest includes stated
interest, OID, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the holder's
basis in the Note immediately after its acquisition, the issue date of the Note
will be the date of its acquisition by the holder, and no payments on the Note
will be treated as payments of qualified stated interest. The election will
generally apply only to the Note with respect to which it is made and may not be
revoked without the consent of the IRS.
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If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Note on which there is market discount, the
electing holder will be treated as having made the election described above
under 'Premium and Market Discount' to include market discount in income
currently over the life of all debt instruments held or thereafter acquired by
such holder.
EXCHANGE NOTES
Neither an exchange of Original Notes for Exchange Notes nor the filing of
a registration statement with respect to the resale of the Notes should be a
taxable event to holders of Original Notes, and holders should not recognize any
taxable gain or loss or any interest income as a result of such an exchange or
such a filing. Each exchanging holder will have the same adjusted tax basis and
holding period in the Exchange Notes as it had in the corresponding Original
Notes immediately prior to the exchange. The Issuers are obligated to pay
additional interest ('Penalty Interest') to the holder under certain
circumstances described under 'Exchange Offer-- Purpose and Effect of the
Exchange Offer.' Any such payments should be treated for tax purposes as
interest, taxable to holders as such payments become fixed and payable.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A holder's adjusted tax basis in a Note will, in general, equal the
holder's cost for the Note, increased by any amounts included in income as OID,
market discount or de minimis market discount which the holder has previously
elected to accrue in gross income on an annual basis and reduced by any
amortized premium which the holder has previously elected to offset against
interest on the Notes and any cash payments (other than payments of Penalty
Interest) in respect of the Note. Upon the sale, exchange, redemption,
retirement or other disposition of a Note, a holder generally will recognize
gain or loss equal to the difference between the amount realized on such sale,
exchange, redemption or retirement and the holder's tax basis in the Note.
Except as described above regarding market discount, gain or loss recognized by
a holder on the sale, exchange, redemption or retirement of a Note will be
capital gain or loss and will, in the case of individuals, be long-term capital
gain or loss subject to a maximum rate of 20% if the Note had been held for more
than eighteen months at the time of such disposition. An individual will be
taxed on his or her net capital gain at a rate of 28% for property held for 18
months or less but more than one year. Special rules (and generally lower
maximum rates) apply for individuals in lower tax brackets. Certain limitations
exist on the deductibility of capital losses by both corporations and
individuals.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, the proceeds of a sale before maturity, and the accrual and payment
of OID on a Note with respect to non-corporate holders. 'Backup withholding' at
a rate of 31% will apply to such payments if the holder fails to provide an
accurate taxpayer identification number, to report all interest and dividends
required to be shown on its Federal income tax returns, or otherwise establish
an exemption. Backup withholding tax is not an additional tax and may be
credited against a U.S. Holder's regular U.S. Federal income tax liability.
NON-U.S. HOLDERS OF THE NOTES
The following discussion is limited to certain U.S. federal income and
estate tax consequences relevant to a holder of a Note that is not a U.S. Holder
(a 'Non-U.S. Holder').
This discussion does not deal with all aspects of U.S. federal income and
estate taxation that may be relevant to the purchase, ownership or disposition
of the Notes by any particular Non-U.S. Holder in light of such Holder's
personal circumstances, including holding the Notes through a partnership.
Final regulations dealing with withholding tax on income paid to foreign
persons and related matters (the 'New Withholding Regulations') were issued by
the Treasury Department on October 6, 1997. The New Withholding Regulations will
generally be effective for payments made after December 31, 1998, subject to
certain transition rules. Prospective Non-U.S. Holders are strongly urged to
consult their own tax advisors with respect to the New Withholding Regulations.
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For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the Note will be considered 'U.S. trade or
business income' if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business and (ii) in the case of a qualified resident
of a country having an applicable income tax treaty with the United States
containing a permanent establishment provision, attributable to a U.S. permanent
establishment (or to a fixed base) in the United States.
STATED INTEREST
Generally, any interest and OID paid to a Non-U.S. Holder of a Note that is
not U.S. trade or business income will not be subject to U.S. federal income tax
if the interest qualifies as 'portfolio interest.' Interest and OID on the Notes
will qualify as portfolio interest if (i) the Non-U.S. Holder does not actually
or constructively own 10% or more of the total voting power of all voting stock
of the Company and is not a 'controlled foreign corporation' with respect to
which the Company is a 'related person' within the meaning of Section
881(c)(3)(C) of the Code, (ii) the Non-U.S. Holder is not a bank for purposes of
Section 881(c)(3)(A) of the Code, and (iii) the beneficial owner, under
penalties of perjury, certifies that the beneficial owner is not a U.S. person
and such certificate provides the beneficial owner's name and address.
The gross amount of payments to a Non-U.S. Holder of interest and OID, if
any, that do not qualify for the portfolio interest exception and that are not
U.S. trade or business income will be subject to U.S. withholding tax at the
rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate
withholding. U.S. trade or business income will be taxed at regular U.S. federal
income tax rates rather than the 30% gross withholding tax rate and, if the
Non-U.S. Holder is a foreign corporation, may be subject to a branch profits
profits,' as adjusted for certain items, unless it qualifies for a lower rate
under an applicable treaty. To claim the benefit of a tax treaty or to claim
exemption from withholding because the income is U.S. trade or business income,
the Non-U.S. Holder must provide a properly executed Form 1001 or 4224 (or such
successor forms as the IRS designates), as applicable, prior to payment of
interest. These forms must be periodically updated.
As described above, OID, if any, accruing on the Notes will be subject to
U.S. withholding tax only if (i) it is not U.S. trade or business income and
(ii) it does not qualify for the portfolio interest exception. In such an
instance, while U.S. tax will be imposed against OID on the Notes prior to
payment, such tax will only be withheld from stated interest payments on the
Notes. However, such additional withholding may result in U.S. withholding tax
on stated interest payments exceeding 30%.
SALE, EXCHANGE OR REDEMPTION OF NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a Note generally will not be subject to U.S. federal income tax,
unless (i) such gain is U.S. trade or business income, (ii) subject to certain
exceptions, the Non-U.S. Holder is an individual who holds the Note as a capital
asset and is present in the United States for 183 days or more in the taxable
year of the disposition or (iii) the Non-U.S. Holder is subject to certain
provisions applicable to certain U.S. expatriated persons.
FEDERAL ESTATE TAX
Notes held (or treated as held) by an individual who is a Non-U.S. Holder
at the time of his or her death will not be subject to U.S. federal estate tax,
provided that any interest on the Notes would have qualified as portfolio
interest if received by such individual at the time of his or her death.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest and OID, if any, that is subject to U.S. withholding tax or that is
exempt from withholding pursuant to a tax treaty or the portfolio interest
exception. Copies of these information returns may also be made available under
the provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding and information reporting
will not apply to payments of principal and interest on the Notes by the Company
to a Non-U.S. Holder if the Holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor
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its paying agent has actual knowledge that the Holder is a U.S. Holder or that
the conditions of any other exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of Notes to or through the
United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. Holder or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a Note
to or through a non-U.S. office of a non-U.S. broker that is not a 'U.S. related
person' will not be subject to information reporting or backup withholding. (For
this purpose, a 'U.S. related person' is (i) a 'controlled foreign corporation'
for U.S. federal income tax purposes or (ii) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a U.S. trade or business.)
In the case of the payment of proceeds from the disposition of Notes to or
through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. Holder).
The New Withholding Regulations will alter the foregoing rules in certain
respects and generally will apply to any payments (including original issue
discount) in respect of a Note or proceeds from the sale of a Note that are made
after December 31, 1998. The New Withholding Regulations provide documentation
procedures designed to simplify compliance by withholding agents. The New
Withholding Regulations generally do not affect the documentation rules
described above, but add other certification options. Under the New Withholding
Regulations, withholding of U.S. federal income tax may apply to payments on a
taxable sale or other disposition of a Note by a Non-U.S. Holder who does not
provide appropriate certification to the withholding agent with respect to such
transaction.
The New Withholding Regulations provide transition rules concerning
existing certificates, such as Internal Revenue Service Form W-8. Valid
withholding certificates that are held on December 31, 1998 will generally
remain valid until the earlier of December 31, 1999 or the date of expiration of
the certificate under the law in effect prior to January 1, 1999. Further,
certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity would otherwise
expire during 1998. Non-U.S. Holders of the Notes should consult their tax
advisors concerning the possible application of the New Withholding Regulations
to amounts of original issue discount that they are required to include in
income as well as the possible application of such regulations to any payments
made on or with respect to the Notes.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
PLAN OF DISTRIBUTION
Each holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an 'affiliate' (as defined
in Rule 405 of the Securities Act) of the Issuers, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Exchange Notes and (iii) it
is acquiring the Exchange Notes in the ordinary course of its business (a Holder
unable to make the foregoing representations is referred to as a 'Restricted
Holder'). A Restricted Holder will not be able to participate in the Exchange
Offer and may only sell its Original Notes pursuant to a registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K under the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
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Each broker-dealer (other than a Restricted Holder) that receives Exchange
Notes for its own account pursuant to the Exchange Offer (a 'Participating
Broker-Dealer') must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Original Notes where such Original Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. Based upon interpretations by the staff of the
Commission, the Issuers believe that Exchange Notes issued pursuant to the
Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Issuers have
agreed that, for a period of 180 days following consummation of the Exchange
Offer, they will make this Prospectus available, for use in connection with any
such resale, to any Participating Broker-Dealer and other persons, if any, with
similar prospectus delivery requirements. During this period the Issuers shall
use their best efforts to keep the Exchange Offer Registration Statement
effective and to amend and supplement this Prospectus, in order to permit such
Prospectus to be delivered by all persons subject to the prospectus delivery
requirements.
Based upon interpretations by the Staff, the Issuers believe that Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold,
and otherwise transferred by a holder thereof (other than a Restricted Holder or
a Participating Broker-Dealer) without compliance with the registration and
prospectus delivery requirements of the Securities Act.
The Issuers will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by Participating Broker-Dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells Exchange
Notes may be deemed to be an 'underwriter' within the meaning of the Securities
Act and must deliver a prospectus in connection with such resales of Exchange
Notes. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an 'underwriter' within the meaning of the
Securities Act.
The Issuers have agreed to pay all expenses incidental to the Exchange
Offer other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
EXPERTS
The consolidated balance sheets of Station KPLR as of December 31, 1996 and
1995 and the consolidated statements of operations, shareholders' deficit and
cash flows for each of the three years in the period ended December 31, 1996,
included in this Prospectus, have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing. The financial statements of
ACME Intermediate Holdings, LLC as of September 30, 1997, and for the nine
months ended September 30, 1997 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of Channel 32, Incorporated for the period from
December 16, 1993 (inception) to June 30, 1994, each of the years in the two
year period ended June 30, 1996 and the period from July 1, 1996 to June 17,
1997 have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
126
<PAGE>
VALIDITY OF EXCHANGE NOTES
The validity of the Exchange Notes will be passed upon for the Company by
Dickstein Shapiro Morin & Oshinsky LLP, 2101 L Street, N.W., Washington, D.C.
20037, counsel to the Company.
AVAILABLE INFORMATION
The Issuers have filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-4 (the 'Exchange Offer
Registration Statement') under the Securities Act with respect to the Exchange
Offer. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in the
Exchange Offer Registration Statement. For further information with respect to
the Issuers and this Exchange Offer, reference is made to the Exchange Offer
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract
or document filed as an exhibit to the Exchange Offer Registration Statement are
not necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Exchange Offer Registration
Statement, each such statement being qualified by such reference.
Copies of the Exchange Offer Registration Statement and all exhibits and
schedules thereto may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
As a result of the Exchange Offer, the Issuers will become subject to the
informational requirements of the Securities and Exchange Act of 1934, as
amended (the 'Exchange Act'). In accordance therewith, the Company will file
certain reports and information with the Commission. The Issuers have also
agreed that, whether or not they are required to do so by the Commission, they
will furnish to the holders of the Notes and file with the Commission (unless
the Commission will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuers were required to file such
forms, and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Issuers were required to file such reports.
The Issuers have also agreed that, if they are not subject to the
information requirements of Sections 13 or 15(d) of the Exchange Act at any time
while the Notes constitute 'restricted securities' within the meaning of the
Securities Act, they will furnish to holders and beneficial owners of the Notes
and to prospective purchasers designated by such holders the information
required to be delivered pursuant to Rule 144(d)(4) under the Securities Act to
permit compliance with Rule 144A in connection with resales of the Notes.
127
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ACME INTERMEDIATE HOLDINGS, LLC
Report of KPMG Peat Marwick LLP............................................................................ F-2
Consolidated Balance Sheet as of September 30, 1997........................................................ F-3
Consolidated Statement of Operations and Members' Capital for the nine months ended September 30, 1997..... F-4
Consolidated Statement of Cash Flows for the nine months ended September 30, 1997.......................... F-5
Notes to Consolidated Financial Statements................................................................. F-6
Financial Information of Registrant........................................................................ F-12
KOPLAR COMMUNICATIONS, INC.
Report of Coopers & Lybrand L.L.P.......................................................................... F-16
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (unaudited)............ F-17
Consolidated Statement of Operations for the years ended December 31, 1994, 1995 and 1996, and the nine
months ended September 30, 1996 (unaudited) and 1997 (unaudited)......................................... F-18
Consolidated Statement of Shareholders' Deficit for the years ended December 31, 1994, 1995 and 1996 and
the nine months ended September 30, 1997 (unaudited)..................................................... F-19
Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and the nine
months ended September 30, 1996 (unaudited) and 1997 (unaudited)......................................... F-20
Notes to Consolidated Financial Statements................................................................. F-21
CHANNEL 32, INCORPORATED
Report of KPMG Peat Marwick LLP............................................................................ F-34
Statement of Operations for the period from December 16, 1993 (inception) to June 30, 1994, and the years
ended June 30, 1995 and 1996, and the period from July 1, 1996 to June 17, 1997 (unaudited).............. F-35
Statement of cash flows for the period from December 16, 1993 (inception) to June 30, 1994, and the years
ended June 30, 1995 and 1996, and the period from July 1, 1996 to June 17, 1997 (unaudited).............. F-36
Notes to Financial Statements.............................................................................. F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Members
ACME Intermediate Holdings, LLC:
We have audited the accompanying consolidated balance sheet of ACME Intermediate
Holdings, LLC and subsidiaries as of September 30, 1997, and the related
consolidated statements of operations and members' capital and cash flows for
the nine month period ended September 30, 1997. In connection with our audit of
the consolidated financial statements, we have also audited the financial
statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ACME Intermediate
Holdings, LLC and subsidiaries as of September 30, 1997 and the results of their
operations and their cash flows for the nine month period ended September 30,
1997, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statement taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Los Angeles, California
November 12, 1997
F-2
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Current assets:
Cash and cash equivalents........................................................................... $ 27,211
Accounts receivable, less allowance for doubtful accounts of $39.................................... 405
Due from affiliates................................................................................. 14,830
Current portion of programming rights............................................................... 581
Prepaid expenses and other current assets........................................................... 201
--------
Total current assets........................................................................... 43,228
--------
Property and equipment, net........................................................................... 4,177
Programming rights, net of current portion............................................................ 590
Note receivable....................................................................................... 1,811
Broadcast licenses, net of accumulated amortization of $335........................................... 22,570
Deposits.............................................................................................. 143,016
Other assets.......................................................................................... 11,504
--------
$226,896
========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable.................................................................................... $ 2,296
Accrued expenses.................................................................................... 7,776
Current portion of programming rights payable....................................................... 876
Notes payable to bank............................................................................... 3,500
Current portion of obligations under lease.......................................................... 284
--------
Total current liabilities...................................................................... 14,732
Programming rights payable, net of current portion.................................................... 597
Obligations under lease, net of current portion....................................................... 422
Senior Subordinated secured notes..................................................................... 35,650
Senior discount notes................................................................................. 127,370
--------
Total liabilities.............................................................................. 178,771
--------
Members' capital...................................................................................... 51,363
Accumulated deficit................................................................................... (3,238)
Total members' capital......................................................................... 48,125
--------
$226,896
========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND MEMBERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Broadcast revenues..................................................................................... $ 2,155
-------
Operating expenses:
Programming.......................................................................................... 1,096
Selling, general and administrative.................................................................. 3,173
Depreciation and amortization........................................................................ 551
-------
Total operating expenses..................................................................... 4,820
Operating loss............................................................................... (2,665)
Interest expense..................................................................................... (573)
-------
Net loss..................................................................................... (3,238)
Parent's contribution................................................................................ 47,201
Unit offering, net................................................................................... 4,162
-------
Members' capital at September 30, 1997....................................................... $48,125
=======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Cash flows from operating activities:
Net loss........................................................................................... $ (3,238)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................................... 551
Changes in assets and liabilities:
Increase in accounts receivable, net.......................................................... (405)
Increase in programming rights................................................................ (102)
Increase in prepaid expenses and other current assets......................................... (201)
Increase in notes receivable.................................................................. (1,811)
Increase in accounts payable.................................................................. 2,296
Increase in accrued expenses.................................................................. 7,776
Decrease in programming rights payable........................................................ (150)
---------
Net cash provided by operating activities.................................................. 4,716
---------
Cash flows from investing activities--
Deposit relating to acquisition agreements......................................................... (143,016)
Purchase of property and equipment................................................................. (2,963)
---------
Net cash used in investing activities......................................................... (145,979)
---------
Cash flows from financing activities:
Contribution from parent........................................................................... 9,296
Increase in other assets........................................................................... (11,504)
Notes payable to bank.............................................................................. 3,500
Issuance of units.................................................................................. 4,162
Issuance of Senior Secured Notes................................................................... 35,650
Issuance of Senior Discount Notes.................................................................. 127,370
---------
Net cash provided by financing activities..................................................... 168,474
---------
Net increase (decrease) in cash............................................................ 27,211
Cash at beginning of period.......................................................................... --
---------
Cash at end of period................................................................................ $ 27,211
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................................................ $ 540
Income taxes.................................................................................... --
=========
Non cash transactions: Contribution of net assets of ACME Television of Oregon, LLC from parent
in exchange for membership units............................................................... $ 23,075
Due form affiliates in exchange for membership units............................................ $ 14,830
=========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(1) DESCRIPTION OF BUSINESS AND FORMATION
ACME Intermediate Holdings, LLC (the Company) was formed on August 8, 1997.
Upon formation, the Company received a contribution from ACME Television
Holdings, LLC (ACME Parent), of ACME Parent's wholly owned subsidiaries--ACME
Television of Oregon, LLC (ACME Oregon) and ACME Television of Tennessee, LLC
(ACME Tennessee) and certain other net assets. This contribution of $25,455,000,
was made in exchange for membership units in the Company and was treated as a
transaction between entities under common control, similar to a pooling of
interests. Accordingly, the transaction was recorded at historical cost and the
Company has reflected the result of operations of the entities contributed for
the period presented. In addition, on September 30, 1997, ACME Parent made an
additional contribution of $21,746,000 in exchange for membership units in the
Company.
ACME Television, LLC's subsidiaries (hereinafter referred to in this
paragraph collectively as 'Subsidiary Guarantors') are fully, unconditionally,
and jointly and severally liable for the Company's senior discount notes
referred to in note 6. The Subsidiary Guarantors are wholly owned and constitute
all of the Company's direct and indirect subsidiaries. The Company has not
included separate financial statements of the aforementioned subsidiaries
because (i) the Company and ACME Television, LLC have no assets or independent
operations other than their investments in their subsidiaries, and (ii) the
separate financial statements and other disclosures concerning such subsidiaries
are not deemed material to investors.
The Subsidiary Guarantors have jointly and severally guaranteed the Notes
(as defined) on a full and unconditional basis, the aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the assets, liabilities, earnings and equity of the Company on a
consolidated basis and the Company has not presented separate financial
statements and other disclosures concerning the Subsidiary Guarantors because
management has determined that such information is not material to investors.
Various agreements to which the Company and/or the Subsidiary Guarantors
are parties restrict the ability of the Subsidiary Guarantors to make
distributions to the Company. The Investment and Loan Agreement (the 'Investment
Agreement'), dated June 17, 1997, as amended, among ACME Parent, and the parties
thereto and the Limited Liability Company Agreement (the 'LLC Agreement'), dated
June 17, 1997, as amended, among ACME Parent and the parties thereto each
contain certain restrictions on the ability of the Subsidiary Guarantors to
declare or pay dividends to the Company in the absence of the consent of certain
parties thereto. The Indenture governing the Notes prevents the Subsidiary
Guarantors from declaring or paying any dividend or distribution to the Company
unless certain events have not occurred and certain financial covenants are
satisfied. The Loan Agreement (as defined) also prohibits distributions from the
Subsidiary Guarantors to the Company except for certain circumstances during
which default has not occurred thereunder.
ACME Parent owns, directly and indirectly, 92% of the outstanding members
units of the Company. The Company owns, directly or indirectly, 100% of the
outstanding members units of ACME Television, LLC.
ACME Oregon was formed on March 5, 1997 to acquire Station KWBP, serving
Portland, Oregon from Channel 32, Incorporated. Prior to the acquisition of
Station KWBP (June 17, 1997), ACME Oregon operated the station and financed its
losses, effective January 1, 1997 pursuant to a Local Marketing Agreement with
the Channel 32, Incorporated. The acquisition was completed on June 17, 1997
(see note 3). ACME Tennessee was formed on April 17, 1997 to acquire Station
WINT, serving Knoxville, Tennessee. This acquisition was completed on October 7,
1997 (See Note 4). The financial statements do reflect start-up expenses
associated with WINT incurred during the quarter ended September 30, 1997.
On July 25, 1997 the Company formed ACME Television Licenses of Missouri,
Inc. (ACME Missouri) for the purpose of acquiring Station KPLR and on October
31, 1997 adopted limited liability company agreements for ACME Television of
Utah, LLC (ACME Utah) and ACME Television of New Mexico, LLC (ACME New Mexico)
for the purpose of acquiring Stations KZAR and KAOU, respectively. These
acquisitions did not occur on or prior to September 30, 1997.
F-6
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company's
subsidiaries. All significant intercompany transactions have been eliminated.
Revenue Recognition
Revenue from the sale of airtime related to advertising and contracted time
is recognized at the time of broadcast. The Company receives such revenues net
of commissions deducted by the advertising agencies and national sales
representatives.
Cash and Cash Equivalents
For purposes of reporting the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Programming Rights
Programming rights represent costs incurred for the right to broadcast
certain features and syndicated television programs. Programming rights are
stated at the lower of amortized cost or estimated realizable value. The cost of
such programming rights and the corresponding liability are recorded when the
initial program becomes available for broadcast under the contract. Programming
rights are amortized over the life of the contract on a straight line basis
related to the usage of the program. The portion of the cost estimated to be
amortized within one year and after one year are reflected in the balance sheets
as current and noncurrent assets, respectively. The payments under these
contracts that are due within one year and after one year are similarly
classified as current and noncurrent liabilities.
Commitments for programming rights that have been executed, but which have
not been recorded in the accompanying financial statements, as the underlying
programming is not yet available for broadcast, were approximately $1,375,000 as
of September 30, 1997.
Property and Equipment
Property and equipment are stated at cost. The cost of maintenance is
expensed.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the respective assets. The principal lives
used in determining depreciation rates of various assets are as follows:
<TABLE>
<S> <C>
Broadcasting and other equipment.................................. 3-15 years
Furniture and fixtures............................................ 5-7 years
Vehicles.......................................................... 5 years
Equipment under capital leases.................................... 5-15 years
</TABLE>
Barter and Trade Transactions
Revenue and expenses associated with barter agreements in which broadcast
time is exchanged for programming rights are recorded at the average rate of the
airtime exchanged. Trade transactions, which represent the exchange of
advertising time for goods or services, are recorded at the estimated fair value
of the products or services received. Barter and trade revenue is recognized
when advertisements are broadcast. Merchandise or services received from airtime
trade sales are charged to expense or capitalized when used or received.
F-7
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Carrying Value of Long-Lived Assets
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.' The carrying value of long-lived assets
(tangible and intangible) is reviewed if the facts and circumstances suggest
that they may be impaired. For purposes of this review, assets are grouped at
the operating company level which is the lowest level for which there are
identifiable cash flows. If this review indicates that an asset's carrying value
will not be recoverable, as determined based on future expected, undiscounted
cash flows, the carrying value is reduced to fair market value.
Income Taxes
The Company is a limited liability company, therefore, no income taxes have
been provided for its operations. Any liability or benefit from the income or
loss is the responsibility of the individual members.
Use of Estimates in the Preparation of Financial Statements
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. These estimates include the allowance for doubtful accounts
net realizable value of programming rights and the evaluation of intangible
assets. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable and cash.
The Company believes that concentrations of credit risk with respect to accounts
receivable, which are unsecured, are limited due to the Company's ongoing
relationship with its clients. The Company provides its estimate of
uncollectible accounts. The Company has not experienced significant losses
relating to accounts receivable.
Certain Compensation Arrangements
ACME Parent has issued Management Carry Units to members of management.
These units entitle holders to certain distribution rights upon achievement of
certain returns by non-management investors and are subject to forfeiture or
repurchase by ACME Parent in the event of termination of each individual's
employment by ACME Parent under certain specified circumstances. The Company has
determined the value of these at the issuance date to be immaterial. These
Management Carry Units will be accounted for as a variable plan resulting in an
expense when it is probable that any such distributions will be made. Any such
expense relating to the Management Carry Units issued by ACME Parent will be
recorded by the Company. As of September 30, 1997, there were 100 Management
Carry Units outstanding and no expense recorded.
(3) ACQUISITION
On June 17, 1997, ACME Parent acquired substantially all of the assets and
assumed certain liabilities of Channel 32, Incorporated, relating to the
operations of Station KWBP, in exchange for $18,675,000 in cash and $4,400,000
of membership units in ACME Parent. The acquisition was accounted for using the
purchase method. The excess of the purchase price over the fair value of net
assets acquired of approximately $22,767,000, has been recorded as broadcast
licenses and is being amortized over a period of 20 years.
F-8
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(3) ACQUISITION--(CONTINUED)
In addition, the results of station KWBP were recorded by the Company
beginning January 1, 1997 pursuant to a Local Marketing Agreement whereby ACME
Oregon effectively operated the station and funded the stations' losses during
the period from January 1, 1997 to June 17, 1997 (the acquisition date). The
unaudited pro forma financial information reflects the net revenue and net loss
assuming the transaction occurred on January 1, 1997. This unaudited pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the acquisition occurred on January 1, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997
-----------------
<S> <C>
Net Revenues............................................ $ 2,155,000
Net Loss................................................ $(3,754,000)
</TABLE>
(4) SUBSEQUENT AND PENDING ACQUISITIONS
On October 7, 1997, ACME Television, LLC acquired Crossville Limited
Partnership, the owners of Station WINT in exchange for $13,200,000 in cash.
On July 29, 1997, ACME Missouri entered into a stock purchase agreement to
acquire Koplar Communications, Inc. (KCI). On September 30, 1997, ACME Missouri
placed $143 million into an escrow account, classified as a deposit or the
accompanying consolidated balance sheet, in connection with this acquisition,
entered into a long-term LMA with Station KPLR and filed a requisition
applications with the FCC for the transfer of the Station's license to ACME
Missouri. The LMA will terminate upon completion of the sale, which is expected
to occur during the first half of 1998. Under the terms of the escrow agreement,
the sellers can elect to withdraw the escrow funds, less certain obligations of
the sellers' to be paid out of escrow, on January 2, 1998 or thereafter. Upon
doing so, the sellers must simultaneously transfer control of KCI's stock into a
separate trust account for the benefit of ACME Missouri.
Pursuant to the LMA entered into on September 30, 1997 relating to Station
KPLR, the Company will retain all revenues generated by the station, bear all
operating expenses of the station and have the right to program the station
subject to KCI's ultimate authority for programming and the station's existing
programming commitments.
In connection with the acquisition of KCI, ACME Parent will enter into a
management agreement with Edward J. Koplar (the 'Management Agreement'),
providing for an annual fee of $1 million over an initial term of three years.
Mr. Koplar will have the right to voluntarily terminate his services thereunder
at any time and be paid any remaining consulting fees that would be payable for
the remaining term of the agreement at the effective date of such termination.
The Company does not intend to renew the Management Agreement and has no right
to require Mr. Koplar to provide services pursuant thereto in exchange for the
compensation payable thereunder. Accordingly, the Company intends to treat the
$3 million payable pursuant to the Management Agreement as additional purchase
price in connection with the acquisition, allocate such amount to broadcast
licenses, and amortize such amount over a 20-year period.
On August 22, 1997, ACME Utah and ACME New Mexico entered into separate
agreements with related sellers to acquire Stations KZAR and KAOU, respectively.
These agreements call for an aggregate purchase price of $14 million for the two
stations, of which $8 million will be paid in cash and $6 million in membership
interests in ACME parent.
(5) DUE FROM AFFILIATE
The Company had $14,876,000 due from ACME Parent as of September 30, 1997.
Subsequent to September 30, 1997, ACME Parent repaid the Company's notes payable
to bank of $3,500,000 and repaid
F-9
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(5) DUE FROM AFFILIATE--(CONTINUED)
substantially all of the remaining balance to the Company. Accordingly, the
Company has recorded the due from affiliate as a current asset.
(6) SENIOR DISCOUNT NOTES
On September 30, 1997, the Company issued Senior Discount Notes (Television
Notes) with a face value of $175 million and received $127,370,000 in gross
proceeds from such issuance. These Television Notes provide for semi-annual cash
interest payments at an annual rate of 10.875% beginning in the fourth year with
the first interest payment due on March 31, 2001. The Television Notes are
subordinated to the Company's bank revolver (see Note 7) and to the Company's
capital equipment finance facilities. The Television Notes mature on September
30, 2004 and may not be prepaid without penalty.
Costs associated with the issuance of these notes, including the
underwriters fees and related professional fees are included in long-term other
assets and will be amortized over the term of the Television Notes.
(7) UNIT OFFERING
On September 30, 1997, the Company issued 71,634 Units (the Unit Offering)
consisting of 71,634 membership units (representing 8% of the Company's
outstanding membership equity) and $71,634,000 (par value at maturity) in 12%
Senior Secured Discount Notes (Intermediate Notes). Cash interest on the
Intermediate Notes is payable semi-annually in arrears, commencing with the
six-month period ending March 31, 2003 and the notes mature on September 30,
2005. The net proceeds from the Unit Offering, after the deduction of
underwriter fees and other related offering costs, were $38.3 million and were
received by the Company on September 30, 1997. The Company has allocated
approximately $3.5 million of such net proceeds to the membership units, $35.6
million to the discounted note payable and $1.5 million to prepaid financing
costs--the latter which is being amortized over the eight year term of the
notes. The Intermediate Notes contain certain convenants and restrictions
including restrictions on future indebtedness and restricted payments, as
defined, and limitations on liens, investments, transactions with affiliates and
certain assets sales. The Company was in compliance with all such convenants and
restrictions at September 30, 1997.
(8) BANK REVOLVER
On August 15, 1997, the Company entered into a $22.5 million revolving
credit facility (the Loan Agreement) with Canadian Imperial Bank Corporation
(CIBC), of which $3.5 million was drawn and outstanding as of September 30,
1997. Under the terms of the Loan Agreement, advances bear interest at either
the alternative base rate or the adjusted LIBOR rate, as defined in the Loan
Agreement.
On October 6, 1997, ACME Parent paid off the outstanding principle and
accrued interest under the Loan Agreement on behalf of the Company.
F-10
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(9) COMMITMENTS AND CONTINGENCIES
Obligations under Leases
The Company is obligated under noncancelable operating leases for office
space and its transmission site. Future minimum lease payments as of September
30, 1997 under noncancelable operating leases with initial or remaining terms of
one year or more are as follows:
<TABLE>
<S> <C>
Three months ended December 31, 1997............................. $ 73,000
Year ending December 31:
1998........................................................... 295,000
1999........................................................... 296,000
2000........................................................... 298,000
2001........................................................... 301,000
2002........................................................... 306,000
Thereafter..................................................... 2,317,000
----------
$3,886,000
==========
</TABLE>
Total rental expense under operating leases for the nine months ended
September 30, 1997 was approximately $83,200.
Programming Rights Payable
Maturities on the Company's programming rights payables (including
commitments not recognized in the accompanying financial statements due to the
lack of current availability for broadcast) for each of the next five years are
as follows:
<TABLE>
<S> <C>
Three months ended December 31, 1997............................. $ 187,000
Year ending December 31:
1998........................................................... 833,000
1999........................................................... 687,000
2000........................................................... 471,000
2001........................................................... 315,000
Thereafter..................................................... 355,000
----------
Total..................................................... $2,848,000
==========
</TABLE>
F-11
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Current assets:
Investment in and advances to subsidiaries...................... $82,278
Prepaid financing costs......................................... 1,731
-------
Total assets................................................. $84,009
=======
Current liabilities:
Due to affiliates............................................... $ 46
-------
Total current liabilities.................................... 46
12% Senior Secured Discount Notes............................... 35,650
-------
Total liabilities............................................ 35,696
-------
Equity:
Members' capital/shareholders' equity........................... 51,551
Accumulated deficit............................................. (3,238)
-------
Total equity................................................. 48,313
-------
Total liabilities and equity................................. $84,009
=======
</TABLE>
See accompanying notes to condensed financial statements.
F-12
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Revenues.......................................................... $ --
Operating expenses................................................ --
-------
Operating income........................................... --
Equity in net loss of subsidiaries................................ (3,238)
-------
Net loss................................................... $(3,238)
=======
</TABLE>
F-13
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Net loss........................................................................................... $ (3,238)
Adjustment to reconcile net loss to net cash used in operating activities:
Equity in net loss of subsidiaries............................................................... 3,238
---------
Net cash used in operating activities......................................................... 0
---------
Cash flows from investing activities:
Investment in and advances to affiliates......................................................... (38,269)
---------
Net cash used in investing activities......................................................... (38,269)
---------
Cash flows from financing activities:
Equity contributions............................................................................. 4,350
Increase in prepaid financing costs.............................................................. (1,731)
Issuance of Senior Secured Discount Notes........................................................ 35,650
---------
Net cash provided from financing activities................................................... 38,269
---------
Net increase in cash........................................................................ 0
Cash at beginning of period................................................................. 0
---------
Cash at end of period....................................................................... $ 0
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................................. 0
Income taxes............................................................................. 0
Noncash transactions:
Contributions of the net assets of ACME Television of Oregon, LLC from Parent in exchange
for membership units..................................................................... $ 23,075
Due from affiliates in exchange for membership units..................................... $ 14,876
=========
</TABLE>
See accompanying notes to condensed financial statements.
F-14
<PAGE>
ACME INTERMEDIATE HOLDINGS, LLC
NOTES TO CONDENSED FINANCIAL INFORMATION
(1) BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of the Registrant do not include
all of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It is
therefore suggested that these Condensed Financial Statements be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this filing.
(2) CASH DIVIDENDS
There have been no cash dividends declared by the Company.
(3) LONG-TERM DEBT
There are no cash interest payments due on the Company's Senior Secured
Discount Notes until March 31, 2003.
F-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Koplar Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Koplar
Communications, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' deficit and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 consolidated financial position of Koplar
Communications, Inc. and Subsidiary as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
March 28, 1997, except for
Note 19, as to which the date is
September 30, 1997.
F-16
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................................... $ 244 $ 23 $ --
Receivables, less allowance for doubtful accounts of $180 and $213 at December 31, 1995
and 1996, and $252 at September 30, 1997, respectively.............................. 7,192 6,549 7,281
Current portion of programming rights.................................................. 5,000 4,700 4,889
Prepaid expenses and other current assets.............................................. 1,382 757 171
Income tax receivable.................................................................. -- 173 --
Deferred income taxes.................................................................. 330 342 1,542
------- ------- -------
Total current assets................................................................ 14,148 12,544 13,883
Property and equipment, net.............................................................. 2,653 2,638 2,394
Programming rights less current portion.................................................. 9,362 6,232 4,097
Deferred financing costs................................................................. 2,607 287 239
Other assets............................................................................. 789 1,612 1,709
------- ------- -------
Total assets........................................................................ $29,559 $23,313 $22,322
======= ======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Note payable--revolver................................................................. $ 4,130 $ -- $ --
Current portion of long-term debt and obligations under capital leases................. 1,221 -- --
Current portion of programming obligations............................................. 5,500 5,300 5,089
Current portion of note payable--programmer............................................ 1,180 400 400
Accounts payable and accrued expenses.................................................. 2,055 1,494 2,552
Cash overdraft......................................................................... -- 1,244 532
Accrued interest....................................................................... 976 112 110
Income taxes payable................................................................... 600 -- --
Other liabilities...................................................................... 195 195 6,095
------- ------- -------
Total current liabilities........................................................... 15,857 8,745 14,989
Long-term obligations:
Long-term debt and obligations under capital leases, less current portion.............. 9,931 13,650 12,381
Programming obligations, less current portion.......................................... 8,932 7,047 4,542
Notes payable--officer/shareholder..................................................... 1,168 -- --
Note payable--programmer, less current portion......................................... 2,412 3,755 3,455
Deferred income taxes.................................................................. 2,101 1,940 1,940
Other liabilities...................................................................... 692 510 282
------- ------- ------
Total liabilities................................................................... 41,093 35,647 37,378
------- ------- ------
Commitments
Shareholders' deficit:
Class A preferred voting stock; $110 par value. Authorized 5,000 shares; issued and
outstanding 863 shares ($1,100 per share liquidation value)......................... 95 95 95
Common nonvoting stock; $1 par value. Authorized 25,000 shares; issued and outstanding
21,206 shares....................................................................... 21 21 21
Paid-in capital........................................................................ 1,041 1,041 1,041
Note receivable--officer/shareholder................................................... (1,111) (1,111) (1,111)
Accumulated deficit.................................................................... (11,580) (12,380) (15,102)
------- ------- -------
Net shareholders' deficit........................................................... (11,534) (12,334) (15,056)
------- ------- -------
Total liabilities and shareholders' deficit......................................... $29,559 $23,313 $22,322
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------------
1994 1995 1996 1996 1997
------- ------- ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................... $33,146 $27,528 $27,260 $ 19,751 $ 21,347
Operating expenses:
Programming...................................... 13,581 9,503 11,365 9,413 8,458
Selling, general and administrative.............. 12,113 11,632 11,318 7,914 13,722
Depreciation and amortization.................... 1,085 791 702 518 490
------- ------- ------- -------- --------
Total operating expenses................. 26,779 21,926 23,385 17,845 22,670
------- ------- ------- -------- --------
Operating income......................... 6,367 5,602 3,875 1,906 (1,323)
------- ------- ------- -------- --------
Other income (expense):
Interest expense................................. (5,777) (2,842) (2,155) (1,522) (1,117)
Gain on sale of broadcasting subsidiary.......... 11,440 -- -- -- --
Realization of amount due under Tax Sharing
Agreement..................................... 3,596 -- -- -- --
Other income..................................... 360 262 121 90 140
Other expense.................................... (2,419) (583) (820) (579) (1,453)
------- ------- ------- -------- --------
Other income (expense)........................... 7,200 (3,163) (2,854) (2,011) (2,430)
------- ------- ------- -------- --------
Income (loss) before income taxes, discontinued
operations and extraordinary items............... 13,567 2,439 1,021 (105) (3,753)
Provision (benefit) for income taxes............... 3,272 523 462 425 (1,031)
------- ------- ------- -------- --------
Income (loss) before discontinued
operations and extraordinary items..... 10,295 1,916 559 (530) (2,722)
Discontinued operations--income from operations of
divested subsidiaries............................ 1,262 -- -- -- --
------- ------- ------- -------- --------
Income (loss) before extraordinary
items.................................. 11,557 1,916 559 (530) (2,722)
Extraordinary items:
Gain on forgiveness of programming obligations,
including interest............................ 21,525 -- -- -- --
Gain on forgiveness of senior debt, including
interest...................................... 24,775 -- -- -- --
Gain on forgiveness of other obligations......... 834 -- -- -- --
Loss on early extinguishment of debt, net of
taxes of $868................................. -- -- (1,359) -- --
------- ------- ------- -------- --------
Net income (loss)........................ $58,691 $ 1,916 $ (800) $ (530) $ (2,722)
======= ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND NINE MONTHS ENDED SEPTEMBER 30,
1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
CLASS A COMMON RECEIVABLE
PREFERRED NONVOTING PAID-IN OFFICER/ ACCUMULATED
VOTING STOCK STOCK CAPITAL SHAREHOLDER DEFICIT TOTAL
------------ --------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994................ $ -- $70 $ -- $ -- $ (67,716) $(67,646)
Merger of Koplar Enterprises, Inc....... 95 (49) -- -- (4,471) (4,425)
--- --- ------- ------- --------- --------
Balance after merger.................... 95 21 -- -- (72,187) (72,071)
Spin-off of World Events Productions,
Ltd. to shareholder................... -- -- 1,041 -- -- 1,041
Sale of Koplar Properties, Inc. to
shareholder........................... -- -- -- (1,111) -- (1,111)
Net income......................... -- -- -- -- 58,691 58,691
--- --- ------- ------- --------- --------
Balance, December 31, 1994.............. 95 21 1,041 (1,111) (13,496) (13,450)
Net income......................... -- -- -- -- 1,916 1,916
--- --- ------- ------- --------- --------
Balance, December 31, 1995.............. 95 21 1,041 (1,111) (11,580) (11,534)
Net loss........................... -- -- -- -- (800) (800)
--- --- ------- ------- --------- --------
Balance, December 31, 1996.............. 95 21 1,041 (1,111) (12,380) (12,334)
Net (loss) (unaudited)............. -- -- -- -- (2,722) (2,722)
--- --- ------- ------- ---------- --------
Balance, September 30, 1997
(unaudited)........................... $ 95 $21 $ 1,041 $(1,111) $ (15,102) $(15,056)
==== === ======= ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 58,691 $ 1,916 $ (800) $(3,566) $(2,722)
-------- -------- -------- ------- -------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Realization of amount due under Tax Sharing
Agreement........................................ (3,596) -- -- -- --
-------- -------- -------- ------- -------
Deferred income taxes.............................. 2,271 (500) (173) -- --
Amortization of programming rights................. 7,333 5,418 5,360 4,006 3,554
Adjustment to carrying value of programming
rights........................................... -- -- 1,500 1,500 --
Amortization of intangible assets.................... 26 -- -- -- --
Amortization of deferred financing costs............. 384 798 411 396 48
Loss on early extinguishment of debt................. -- -- 2,227 2,227 --
Redemption premium on long-term debt................. (2,365) -- -- -- --
Depreciation......................................... 1,085 791 702 518 490
Gain on sale of broadcasting subsidiary.............. (11,440) -- -- -- --
Change in net assets and liabilities of divested
subsidiaries....................................... (1,262) -- -- -- --
Gain on forgiveness of programming obligations,
including interest................................. (21,525) -- -- -- --
Gain on forgiveness of senior debt, including
interest........................................... (24,775) -- -- -- --
Gain on forgiveness of other obligations............. (834) -- -- -- --
Changes in assets and liabilities:
Receivables........................................ 377 (1,100) 643 1,603 (732)
Prepaid expenses and other current assets.......... 468 (11) (142) (109) 118
Other assets....................................... 175 (37) 44 (25) (1,297)
Accounts payable and accrued expenses.............. (2,771) 649 (561) (104) 1,058
Accrued interest................................... 3,520 350 (301) (43) (2)
Income taxes receivable/payable.................... 400 200 (773) (128) 173
Other long-term liabilities........................ (3,137) (203) (182) (169) 5,672
-------- -------- -------- ------- -------
Total adjustments................................ (55,666) 6,355 8,755 9,672 9,570
-------- -------- -------- ------- -------
Net cash provided by operating activities........ 3,025 8,271 7,955 6,106 6,848
-------- -------- -------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment..................... (839) (1,013) (687) (580) (246)
Investment in affiliate................................ -- (250) (100) (100) (100)
Deposit for PCS auction................................ -- (1,235) (468) -- --
Return of deposits from PCS auction.................... -- -- 468 -- --
Proceeds from sale of broadcast subsidiary............. 14,656 -- -- -- --
-------- -------- -------- ------- -------
Net cash provided by (used in) investing
activities....................................... 13,817 (2,498) (787) (680) (346)
-------- -------- -------- ------- -------
Cash flows from financing activities:
Repayment of notes payable--officer/shareholder........ -- -- (1,168) (1,168) --
Payment on other debt and obligations under capital
leases............................................... (895) (124) (21) (18) (300)
Payment on programming obligations..................... (9,740) (5,230) (5,515) (4,067) (4,224)
Cash overdraft......................................... -- -- 1,244 720 (712)
Repayment of long-term debt............................ (20,000) (2,619) (11,640) (10,848) (1,269)
Proceeds from long-term debt........................... 14,000 -- 14,159 14,159 --
Proceeds from (payment on) revolver, net............... 1,766 2,364 (4,130) (4,130) --
Cash paid to shareholder upon divestiture of
subsidiaries......................................... (82) -- -- -- --
Payment on deferred financing costs.................... (3,789) -- (318) (318) --
-------- -------- -------- ------- -------
Net cash used in financing activities.............. (18,740) (5,609) (7,389) (5,670) (6,525)
-------- -------- -------- ------- -------
Net increase (decrease) in cash.................... (1,898) 164 (221) (244) (23)
Cash, beginning of period................................ 1,978 80 244 244 23
-------- -------- -------- ------- -------
Cash, end of period...................................... $ 80 $ 244 $ 23 $ -- $ --
======== ======== ======== ======= =======
Interest paid............................................ $ 1,873 $ 1,725 $ 1,575 $ 1,009 $ 1,055
======== ======== ======== ======= =======
Income taxes paid........................................ $ 1,730 $ 601 $ 120 120 --
======== ======== ======== ======= =======
Noncash transactions:
New programming rights purchased under installment
obligations.......................................... $ 3,909 $ 5,685 $ 3,430 $ 2,044 $ 3,334
======== ======== ======== ======= =======
Sale of KP to shareholder.............................. $ 1,111 -- -- -- --
======== ======== ======== ======= =======
Spin-off of WEP to shareholder......................... $ 1,041 -- -- -- --
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) ORGANIZATION
The Company operates an independent television station in St. Louis,
Missouri (KPLR-TV) and until June 29, 1994, also operated an independent
television station in Sacramento, California (KRBK-TV). The broadcasting license
of KPLR-TV is owned by Koplar Television Co., L.L.C., a 99.9%-owned subsidiary
of Koplar Communications, Inc.
Beginning in late 1990, the television industry and, in particular, the St.
Louis television market experienced a severe decline in advertising revenues
which, coupled with a continuing rise in fixed, long-term programming costs and
sports broadcast rights fees, caused the Company to experience significant cash
flow difficulties. As a result, the Company had been in payment default on its
senior notes with its long-term lenders beginning May 16, 1991. On October 11,
1991, the lenders issued notices of acceleration to the Company of all unpaid
principal, amounting to $35,000,000, plus accrued interest. During 1991, the
Company, because of its cash flow difficulties, also began to delay programming
payments to program distributors, and was consequently in default of these
agreements based on the stated payment terms of the program contracts.
On November 16, 1993, Bankers Trust Company purchased the senior notes from
the long-term lenders. Also, during 1993, management executed an agreement with
Pappas Telecasting Companies (Pappas) to sell substantially all of the assets of
Koplar Communications of California, Inc. (KRBK-TV). In addition, the Company
entered into agreements with Pappas whereby, concurrent with the closing of the
sale, Pappas would extend a loan to the Company and provide management services
to the Company under a management services agreement for a period of seven
years. The agreements with Pappas did not prohibit the Company from seeking and
obtaining alternative sources of financing prior to the closing, in which case
the lending and management agreements could be terminated for a specified fee.
During 1994, the Company completed a refinancing with Foothill Capital
Corporation and the sale of KRBK-TV to Pappas, along with a series of related
restructuring transactions. The proceeds of the refinancing were used, along
with the proceeds from the sale of KRBK-TV, to redeem the Bankers Trust senior
notes, pay the termination fee associated with the management services
agreement, provide up-front payments related to the restructuring of the
Company's programming obligations and pay various other fees and liabilities.
In addition, during 1994, a corporate restructuring of the Company and
related entities was completed whereby Koplar Enterprises, Inc., formerly the
parent of Koplar Communications, Inc. (KCI), was merged into KCI, World Events
Productions, Ltd., a subsidiary of KCI, was spun off to a shareholder, and
Koplar Properties, Inc., a subsidiary of KCI, was sold to a shareholder.
The aforementioned transactions are more fully described in the
accompanying footnotes.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. In management's opinion, all adjustments necessary for a fair
presentation are reflected in the interim periods presented. All adjustments are
of a normal recurring nature.
F-21
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The following is a summary of the significant accounting policies followed
in the preparation of these financial statements:
Basis of Consolidation
The consolidated financial statements include the accounts of Koplar
Communications, Inc. and subsidiary. Accordingly, all references herein to
Koplar Communications, Inc. include the consolidated results of its subsidiary.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Interim Financial Information
The consolidated financial statements as of September 30, 1997 and for the
nine months ended September 30, 1996 and 1997 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the accompanying
consolidated financial position and results of operations and cash flows.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997.
Cash and Credit Concentrations
The Company maintains several cash accounts, including a lockbox account,
in one financial institution. The cash balances in these accounts may at times
exceed insured limits. The majority of the Company's receivables are due from
local and national advertising agencies and are not collateralized.
The Company had a negative cash balance in its account of approximately
$1,244,000 at December 31, 1996 and $532,000 at September 30, 1997,
respectively. These amounts are included in current liabilities as a cash
overdraft.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is
computed using the straight-line method over the estimated useful lives of the
related assets. The accelerated cost recovery system (ACRS) and modified
accelerated cost recovery system (MACRS) are used for income tax purposes.
Renewals and betterments are capitalized to the related asset accounts, while
repair and maintenance costs, which do not improve or extend the lives of the
respective assets, are charged to operations.
When assets are retired or otherwise disposed of, the assets and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recorded in operations.
Programming Rights
Programming rights are recorded at cost when the program is available to
the Company for broadcasting. Agreements define the lives of the rights and the
number of showings. The cost of programming rights is charged against earnings
either on the straight-line basis over the term of the agreement or per play for
certain syndicated contracts based on the number of plays specified in the
contract.
Programming rights and related obligations are recorded at cost without
recognition of any imputed interest charges.
F-22
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Programming rights representing the cost of rights of programs available
for broadcasting at the end of each period and which management expects to be
broadcast in the succeeding fiscal year are shown as a current asset.
The Company assesses the valuation of its programming rights on an ongoing
basis by evaluating the unamortized rights and future programming rights
commitments and comparing the anticipated future number of plays and related
revenue potential with the related unamortized cost. When unamortized cost
exceeds the undiscounted estimated future revenue, the Company will recognize an
adjustment to the related carrying value. During 1996, the Company recorded an
adjustment to the carrying value of certain programming rights of $1,500,000.
Deferred Financing Costs
Financing costs incurred in connection with obtaining financing are
deferred and amortized on a straight-line basis over the term of the borrowings.
Amortization of deferred financing costs, included in interest expense, totaled
approximately $384,000, $798,000 and $411,000, for the years ended December 31,
1994, 1995 and 1996, respectively. In addition, the Company expensed
approximately $2,227,000 of deferred financing costs during 1996 as a result of
the Company's refinancing of its long-term debt (see note 6). Accordingly, the
expense related to this transaction has been reflected as an extraordinary item
in the consolidated statements of operations.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of temporary differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the temporary
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Interest Rate Hedge Agreements
The Company enters into interest rate swap agreements which involve the
exchange of fixed- and floating-rate interest payments periodically over the
life of the agreement without the exchange of the underlying principal amounts.
All of the agreements entered into by the Company relate to outstanding debt
obligations. Accordingly, the Company accounts for these instruments similar to
a hedge agreement and the differential to be paid or received is accrued as
interest rates change and recognized over the life of the agreements as an
adjustment to interest expense.
Revenue Recognition
Revenues from advertisements are recognized as the commercials are
broadcast. The Company receives such revenues net of commissions deducted by
advertising agencies and national sales representatives.
Barter Revenues
Barter transactions in which the Company accepts products or services in
exchange for commercial air time are recorded at the estimated fair values of
the products or services received. Barter revenues are recognized when
commercials are broadcast. The assets or services received in exchange for
broadcast time are recorded when received or used. Certain of the Company's
programming agreements involve the exchange of advertising time for programming.
The Company does not record revenues and cost of revenues related to these
F-23
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
arrangements, which have no impact on earnings. The Company estimates that
revenues and costs associated with these agreements were approximately
$2,696,000, $2,124,000 and $2,612,000 for 1994, 1995 and 1996, respectively.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS
In 1995, the Company placed a refundable deposit of $1,235,000 with the FCC
in order to bid on the regional rights for a new technology, personal
communications system. This product is expected to replace cell phones, beepers
and other portable communications technology. The Company was the successful
bidder on a number of PCS licenses. During 1996, $468,000 of the initial deposit
was returned to the Company. Approximately $767,000 remains on deposit, which is
included in other long-term assets, with the FCC for the obtained licenses.
In fourth quarter 1996, another round of PCS bidding was opened by the FCC.
The Company has a deposit of $467,500 with the FCC which is included in prepaid
expenses and other current assets. The auction was concluded and the deposit was
returned in the first quarter of 1997.
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 and 1996 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1995 1996 USEFUL LIVES
------ ------- ---------------
<S> <C> <C> <C>
Land.............................................................. $ 464 $ 464 --
Buildings and improvements........................................ 1,822 1,780 15 to 40 years
Equipment, furniture and fixtures................................. 6,854 6,463 3 to 15 years
------ -------
9,140 8,707
Less accumulated depreciation..................................... (6,487) (6,069)
------ -------
$2,653 $ 2,638
====== =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was approximately $1,085,000, $791,000 and $702,000, respectively.
(5) NOTE PAYABLE--REVOLVER
The note payable--revolver was repaid in July 1996 as part of a debt
refinancing with Nations Bank. Outstanding checks of $1,179,229, which cleared
against the revolver, are reflected in the note payable--revolver balance at
December 31, 1995.
F-24
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
The Company's long-term debt and obligations under capital leases at
December 31, 1995 and 1996 consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Long-term debt...................................... $11,131 $13,650
Obligations under capital leases.................... 21 --
------- -------
11,152 13,650
Less current portion................................ (1,221) --
------- -------
$ 9,931 $13,650
======= =======
</TABLE>
At December 31, 1995, the Company's long-term debt consisted of a revolving
loan and a term loan to Foothill Capital Corporation. The Company used
$3,000,000 of the term loan proceeds to pay a commitment fee to Foothill for
entering into the financing arrangement. Such arrangement required the payment
of interest monthly at 12%.
On July 10, 1996, the Company refinanced the existing debt maintained by
Foothill with Boatmen's. The Company received a revolving commitment from
Nations Bank of $19,000,000 (the Loan Agreement), of which $14,266,000 was drawn
from the commitment to satisfy certain existing obligations and refinancing
costs. The maximum amount available under the revolving loan commitment is as
follows for the periods outlined:
<TABLE>
<S> <C>
July 10, 1996--June 30, 1997............................... $19,000,000
July 1, 1997--June 30, 1998................................ 18,000,000
July 1, 1998--June 30, 1999................................ 17,000,000
July 1, 1999--June 30, 2000................................ 15,500,000
July 1, 2000--June 30, 2001................................ 14,000,000
</TABLE>
At December 31, 1996, the Company had borrowed $13,650,000 against the
revolving commitment agreement. Under the terms of the Loan Agreement, the
Company shall repay the loan and all unpaid interest thereon on July 1, 2001.
The loan bears interest at either the alternative base rate or the adjusted
LIBOR rate, as defined in the Loan Agreement.
In order to minimize interest rate risk, the Company entered into a
five-year interest rate swap for $5,000,000 of the borrowings, which locked in
an interest rate of approximately 10%. The Company also entered into a
three-year interest rate swap for $2,000,000 of the borrowings, which locked in
an interest rate of approximately 10%. In addition, the Company entered into a
30-day interest rate swap for $5,000,000 of the outstanding borrowings, which
locked in an interest rate of approximately 8.87% at December 31, 1996. The
remaining borrowings accrue interest at the prime interest rate plus 1/4-- 3/4%
per annum based on certain criteria. Interest is payable monthly. In addition,
the Company will pay quarterly a commitment fee of .5% per annum of the unused
portion of the revolving commitment to Nations Bank. Amounts outstanding under
the Loan Agreement are collateralized by substantially all assets of the
Company.
Based upon the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt approximates carrying value.
The Loan Agreement includes various restrictive covenants including
requirements that the Company maintain a specified minimum fixed charge
coverage, maximum funded debt to operating cash flow ratio and maximum funded
obligations ratio. In addition, the agreement places limitations on the amount
of capital expenditures and the amount of capital leases.
F-25
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES--(CONTINUED)
The assets and related obligations under capital leases have been recorded
at amounts equal to the present value of future minimum lease payments. Assets
held under capital leases as of December 31, 1995 are included in equipment at a
cost of approximately $114,000, less accumulated depreciation of approximately
$90,000. There is no remaining lease obligation at December 31, 1996.
On June 29, 1994, utilizing the proceeds from the sale of KRBK and
refinancing of the Company's debt with Foothill, the Company redeemed its senior
notes by making a payment to Bankers Trust Company of $20,000,000 plus a
redemption premium of $3,750,000, net of interest paid through the redemption
date of $1,385,000. Upon redemption of the senior notes, all remaining liability
for principal and interest under the senior notes was forgiven. Accordingly, the
Company has recorded a gain on forgiveness of senior debt and accrued interest
in the amount of $24,775,000, which is reflected as an extraordinary item in the
1994 Consolidated Statement of Operations.
(7) PROGRAMMING OBLIGATIONS
Programming obligations are generally classified as current or noncurrent
liabilities according to the payment terms of the various contracts.
During previous years, the Company was in technical default on its
programming obligations and subsequently reached restructuring agreements with
all of its program distributors in 1994. Under the restructuring agreements, all
prior defaults under the original programming agreements were waived by the
program distributors. The Company received partial forgiveness on outstanding
programming obligations, and all accrued interest on delinquent payments was
also forgiven. The total gain on forgiveness of programming obligations and
accrued interest was $21,525,000 and is reflected as an extraordinary item in
the 1994 Consolidated Statement of Operations. Several of the restructuring
agreements contain provisions under which the Company may be held liable for an
amount greater than the restructured liability amount that is currently recorded
at December 31, 1996. The Company may also be held secondarily liable for
certain of a formerly-owned subsidiary's programming obligations in the event of
that subsidiary's default on the restructured obligations in the future. Also,
certain agreements state that the entire programming obligations amount prior to
restructuring (including accrued interest) becomes payable upon default of the
restructured terms going forward. Additionally, several agreements contain
cross-default provisions whereby default by one company (the Company or KRBK)
causes the other to be in default of their restructured obligations.
At December 31, 1996, future minimum payments based on contractual
agreements are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR,
- ---------------------------------------------------------------
<S> <C>
1997........................................................... $ 5,300
1998........................................................... 4,176
1999........................................................... 2,688
2000........................................................... 183
---------
$12,347
=========
</TABLE>
(8) NOTE PAYABLE--PROGRAMMER
Note payable--programmer represents an additional amount owed to Warner
Brothers ('WB') in connection with the restructuring of certain programming
obligations in 1994 (see note 7). The Company entered
F-26
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(8) NOTE PAYABLE--PROGRAMMER--(CONTINUED)
into a Stock Purchase, Option and Repurchase Agreement with WB, under which the
Company has an obligation in the amount of $3,692,000 to WB in addition to the
liability currently recorded as programming obligations.
Under this agreement, the Company issued a promissory note for $3,092,000
to WB (payable in even installments over 36 months, plus interest at 1% over the
prime rate per annum, payments to begin upon notification by WB to the Company),
and also transferred to WB stock in an entity which is partially owned by the
shareholder of the Company (see note 17). However, the agreement gives the
programmer a 'Put Right' under which the stock may be transferred by WB to the
Company at any time until either June 28, 1997 or the exercise of the First
Option (see below), at which time $600,000 is payable within thirty days. In
1995, $100,000 was paid on the Put Right. At December 31, 1995, the remaining
liability was $3,592,000.
The Company replaced the note payable--programmer with a restructured
agreement on December 31, 1996. The previous note payable and the related
accrued interest were replaced with Note A and Note B. Note A is in the amount
of $2,000,000 and at December 31, 1996, $1,900,000 is outstanding. Interest
accrues at prime plus 1/2%. Principal of $100,000 plus accrued interest to date
are payable quarterly until the note is satisfied. There is no accrued interest
at December 31, 1996.
Note B is an option note for $2,250,000. At December 31, 1996, $2,250,000
was outstanding on Note B. The programmer has an option which can be called
between January 1, 2000 and December 31, 2001. If called, WB would receive 12%
of a related entity's stock instead of cash payments on the $2,250,000
promissory note. The Company has a 'Put Right' which can be exercised between
January 1, 1997 and December 31, 2001. If put, WB would receive 12% of the
related entity's stock instead of cash payments on the $2,250,000 promissory
note. Interest accrues at prime. There is no accrued interest at December 31,
1996.
(9) NOTE RECEIVABLE--SHAREHOLDER
One June 1, 1994, the Company divested Koplar Properties, Inc. and
Subsidiary (KP) to a shareholder of the Company. KP is primarily engaged in the
renting and operating of commercial and residential real estate in the St. Louis
area.
The common stock of KP was sold to the shareholder of the Company in
exchange for a nonrecourse promissory note receivable in an amount equal to the
appraised value of the purchased stock. The amount of this promissory note
receivable was determined based on an independent market value appraisal of the
common stock of KP. The gain on the sale of KP, amounting to $291,000 has been
deferred. The promissory note bears interest at an applicable Federal rate and
is payable in five equal annual installments beginning June 1997. The note
receivable has been classified as a contra-equity account, net of the deferred
gain, for financial statement reporting purposes.
(10) COMMITMENTS
In conjunction with obtaining new programming and other related
considerations the Company has commitments amounting to approximately $5,394,000
for future programming rights and other considerations as of December 31, 1996.
F-27
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(10) COMMITMENTS--(CONTINUED)
The aggregate payments for these commitments over the next five years are
as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................. $ 281
1998............................................................. 1,323
1999............................................................. 1,772
2000............................................................. 1,316
2001............................................................. 702
------
$5,394
======
</TABLE>
In January 1995, the Company entered into an Affiliation Agreement with WB
Communications (Warner Brothers) under which KPLR-TV became an affiliate of the
WB Network. The term of this agreement is for five years and is noncancelable by
the Company. Under this agreement, Warner Brothers provides programming to
KPLR-TV in exchange for a specified number of advertising spots during this
programming which are to be retained and sold by Warner Brothers. With the
launch of the WB Network on January 11, 1995, KPLR-TV is required to broadcast
the network programming during one specified prime-time evening in each week.
Throughout the five-year term of the agreement, the network broadcast
requirements of the agreement increase until the network programming is
broadcast seven nights per week, plus a specified number of weekday morning,
afternoon and late night timeframes.
Under the Affiliation Agreement, the Company is required to make an annual
payment to Warner Brothers if the ratings and revenues in prime time broadcasts
of WB Network programming for the current year exceed ratings and revenues
achieved by the Company in the preceding year. No such payments were payable to
Warner Brothers for the years ended December 31, 1995 and 1996.
The Company has an operating lease for certain equipment that calls for
annual payments of approximately $42,000 for a remaining period of thirteen
years. Total rent expense under operating leases for the years ended December
31, 1994, 1995 and 1996 was approximately $100,000, $116,000 and $123,000,
respectively.
(11) NOTES PAYABLE--OFFICER/SHAREHOLDER
Indebtedness to the shareholder of the Company consists of a promissory
note payable for $1,023,000 and debentures payable for $145,000, totaling
$1,168,000 at December 31, 1995. Unpaid interest on these notes is included in
accrued interest at December 31, 1995. The notes and interest were repaid in
July 1996 when the Company refinanced its Foothill debt with Nations Bank (see
note 6).
F-28
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(12) INCOME TAXES
The provisions for income taxes on continuing operations for the years
ended December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- -----
<S> <C> <C> <C>
Current:
Federal.................................................................... $ 361 $ 876 $ 552
State...................................................................... 640 147 83
Deferred:
Federal.................................................................... 1,980 (436) (150)
State...................................................................... 291 (64) (23)
------ ----- -----
Provision for income taxes.............................................. $3,272 $ 523 $ 462
====== ===== =====
</TABLE>
The difference between the actual tax provision and the amounts obtained by
applying the statutory U.S. Federal income tax rate of 34% to income before
income taxes, discontinued operations and extraordinary items for the years
ended December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Income before income taxes, discontinued operations, and extraordinary
items................................................................... $13,567 $2,439 $1,021
======= ====== ======
Tax provision computed at statutory rate.................................. $ 4,613 $ 829 $ 347
Increases (reductions) in taxes due to:
State income taxes (net of Federal tax benefit)......................... 614 55 40
Increase (decrease) in valuation allowance.............................. (2,301) 0 0
Other................................................................... 346 (361) 75
------- ------ ------
Actual tax provision...................................................... $ 3,272 $ 523 $ 462
======= ====== ======
</TABLE>
In 1994, a valuation allowance related to deferred income tax assets of
approximately $15,441,000 was reversed due primarily to the gains on forgiveness
of debt and discontinued operations. There was no valuation allowance at
December 31, 1994, 1995 and 1996. As a result of the reversal of the valuation
allowance and the exclusion from taxable income of a significant portion of the
gain on forgiveness of obligations, no tax effect has been presented related to
1994 extraordinary items and discontinued operations as the amounts are not
material.
Pursuant to an agreement (Tax Sharing Agreement) entered into by the
Company and Four Seasons Group, Inc. (Four Seasons), a former subsidiary of the
Company which was spun off in 1989, the Company had a claim against Four Seasons
for 50% of all tax deficiencies arising during the periods prior to the
spin-off. During 1994, Koplar Enterprises, Inc. (KE), formerly the parent of
Koplar Communications, Inc., executed an agreement with Four Seasons whereby
Four Seasons acquired a portion of a promissory note payable by KE (the Note),
issued in connection with a prior redemption of certain shares of KE's preferred
stock. Four Seasons exchanged such acquired portion of the Note for the amount
owing by Four Seasons pursuant to the Tax Sharing Agreement, thereby satisfying
KE's obligation to pay such portion of the Note to Four Seasons, and satisfying
Four Seasons' obligation to KE under the Tax Sharing Agreement. KE had not
recorded a benefit related to the Tax Sharing Agreement in prior years since it
was not realizable until payment of the tax obligation by KE and payment by Four
Seasons of certain of its obligations arising from the agreement. During 1994,
the Company has reflected
F-29
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(12) INCOME TAXES--(CONTINUED)
income related to the realization of the amount due under the Tax Sharing
Agreement of approximately $3,596,000.
The tax effect of temporary differences between the tax basis of assets and
liabilities and their corresponding amounts for financial statement reporting
purposes at the tax rates expected to be in effect when such differences reverse
are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Current deferred income tax asset:
Allowance for doubtful accounts.................................................... $ (71) (83)
Accrued vacation payable........................................................... (64) (64)
Bonus payable...................................................................... (195) (195)
Noncurrent deferred income tax liability:
Book over tax basis of fixed assets................................................ 76 22
Book over tax basis of programming rights.......................................... 2,025 1,918
------ -----
Net deferred income tax liability.................................................. $1,771 1,598
====== =====
</TABLE>
During 1996, the Internal Revenue Service (IRS) initiated an audit of the
Company's 1994 Federal income tax returns. Because the IRS has not made a final
determination of any Federal tax liabilities, no estimate of any resulting
liability can be made. In the opinion of management, the proposed adjustments,
if any, from the IRS will not have a material effect on the consolidated
financial position, results of operations or liquidity of the Company.
(13) 401(K) PLAN
Substantially all employees are eligible to participate in a 401(k) Plan
sponsored by the Company. The Company may match a specified percentage of an
employee's contribution up to a defined limit at its discretion. The amount
charged to expense by the Company for the years ended December 31, 1994, 1995
and 1996 was approximately $74,000, $62,000 and $55,000, respectively.
(14) INVESTMENT IN AFFILIATE
In 1995, the Company entered into an agreement with another television
station in St. Louis which provides that the Company make annual payments of
$200,000 to the owners of the station (the Owners) for three years, in return
for programming and other considerations over a three-year period. The agreement
may be extended by the Owners for an additional two years. Under a separate
agreement, the Company has agreed to make up to $3,500,000 in capital
contributions to a limited liability company owned by the Company and the
owners, formed to acquire television stations and invest in other communications
opportunities, as approved by the Company. No such additional contributions have
been made.
(15) MERGER WITH KOPLAR ENTERPRISES, INC.
On June 21, 1994, a plan of merger was adopted whereby KE was merged into
Koplar Communications, Inc. The merger was consummated on June 30, 1994. In
connection with the merger, 862.875 shares of KE Class A Preferred Voting Stock,
par value $110 and 21,206.25 shares of KE Common Nonvoting Stock, par
F-30
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(15) MERGER WITH KOPLAR ENTERPRISES, INC.--(CONTINUED)
value $1, were canceled and identical amounts of Class A Preferred Voting and
Common Nonvoting Stock were issued by the Company to the existing shareholders
of KE.
The Class A Preferred Voting Stock provides for full voting rights on a
one-vote-per-share basis and noncumulative annual dividends of $121 per share
only if, as and when declared by the Board of Directors. The stock is redeemable
at the Company's option at $1,100 per share and has a liquidation value of
$1,100 per share.
(16) DIVESTITURE OF SUBSIDIARIES--DISCONTINUED OPERATIONS
On June 1, 1994, the Company divested two of its subsidiaries, World Events
Productions, Ltd. (WEP) and Koplar Properties, Inc. and Subsidiary (KP). WEP is
primarily engaged in the business of international production and marketing of
television programming, and KP is primarily engaged in the renting and operating
of commercial and residential real estate in the St. Louis area. Both entities
were divested to the shareholder of the Company.
The common stock of WEP was distributed to the Shareholder of the Company
in a tax-free spin-off transaction. The shareholder's deficit of WEP at the date
of divesture was recorded as an increase to additional paid-in capital for the
year ended December 31, 1994, reflecting the fact that WEP's liabilities
exceeded its assets at the time of divestiture.
The common stock of KP was sold to the shareholder of the Company in
exchange for a nonrecourse promissory note receivable as described in Note 9.
Condensed financial information of World Events Productions, Ltd. and
Koplar Properties, Inc. at June 1, 1994 (the date of divestiture) and for the
five months then ended is as follows (in thousands):
<TABLE>
<CAPTION>
WEP KP
------- ------
<S> <C> <C>
Current assets...................................................................... $ 207 293
Noncurrent assets................................................................... 351 2,912
------- ------
$ 558 3,205
======= ======
Current liabilities................................................................. $ 1,421 1,717
Noncurrent liabilities.............................................................. 178 377
Shareholder's equity (deficit)...................................................... (1,041) 1,111
------- ------
$ 558 3,205
======= ======
Revenues............................................................................ $ 613 491
======= ======
Operating income.................................................................... $ 334 94
Interest and other.................................................................. -- 834
------- ------
Income from operations of divested subsidiaries..................................... $ 334 928
======= ======
</TABLE>
The net income of these entities in 1994 through date of divestiture is
recorded as income from operations of divested subsidiaries in the 1994
Consolidated Statement of Operations.
(17) RELATED PARTY TRANSACTIONS
During previous years, the Company advanced funds under a loan agreement to
ISW, Inc. (ISW), a company which is partially owned by the shareholder of the
Company. The amount of the loans receivable and accrued
F-31
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(17) RELATED PARTY TRANSACTIONS--(CONTINUED)
interest amounted to approximately $3,480,000 at December 31, 1993. Prior to
1994, WEP determined collection of the loan and accrued interest was
questionable and established an allowance for the entire amount. In 1996, the
Company advanced $443,210 to ISW. This amount was included in a loan receivable
balance which is fully reserved.
In 1994, prior to its divestiture, WEP transferred these loans and accrued
interest to the Company. Pursuant to a Debt Conversion Agreement dated June 29,
1994, approximately $600,000 of the total receivable was converted by the
Company into ISW common stock. This common stock was then transferred by the
Company to a program distributor pursuant to a programming restructuring
agreement, as described in Note 8. At December 31, 1995 and 1996, the remaining
balance of loans and interest receivable by the Company from ISW is
approximately $2,808,000 and $3,251,000 with a corresponding allowance.
The Company was charged approximately $70,000, $139,200 and $139,200 in
1994, 1995 and 1996, respectively, in rent and parking charges by KP.
(18) SALE OF BROADCAST SUBSIDIARY--KRBK-TV
On November 11, 1993, the Company had entered into an agreement with Pappas
Telecasting Companies (Pappas) to sell substantially all of the assets and
assign specified liabilities of KRBK-TV to Pappas for $22,000,000 plus certain
working capital adjustments as defined in the agreement, payable in cash at
closing. The agreement and transaction was contingent upon successful
restructuring of the programming obligations, among other things. As part of the
arrangement with Pappas, the Company and Pappas had entered into a management
services agreement, as well as a lending agreement which would have been
effective at the time of closing of the sale of KRBK-TV. The Company was seeking
alternative financing at the time these agreements with Pappas were completed.
During 1994, the Company completed restructuring agreements with its
program distributors, as discussed in Note 7. The sale of the assets and
liabilities of KRBK-TV to Pappas took place on June 29, 1994, for a net sale
price of $22,356,000.
Concurrent with the sale transaction, the Company obtained alternative
financing to the proposed Pappas lending agreement, as discussed in Notes 5 and
6. Upon closing of this alternative financing, the lending agreement and
management services agreement were terminated by the Company. As required under
the management services agreement, a total of $7,000,000 plus liquidated damages
and expenses of $700,000 was owed to Pappas, which was applied against the
purchase price for KRBK-TV resulting in net proceeds of $14,656,000.
F-32
<PAGE>
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(18) SALE OF BROADCAST SUBSIDIARY--KRBK-TV--(CONTINUED)
The assets and liabilities of KRBK-TV that were sold to Pappas on June 29,
1994 are reflected below (in thousands):
<TABLE>
<S> <C>
Assets:
Accounts receivable........................................................................ $ 3,224
Prepaid expenses and deposits.............................................................. 163
Programming rights......................................................................... 8,011
Property, plant and equipment.............................................................. 11,149
Accumulated depreciation................................................................... (7,283)
FCC license................................................................................ 1,481
-------
Total assets sold....................................................................... $16,745
=======
Liabilities:
Accounts payable and accrued expenses...................................................... $ 1,211
Capital leases payable..................................................................... 133
Programming obligations.................................................................... 12,185
-------
Total liabilities transferred or assigned............................................... $13,529
=======
</TABLE>
The following summarizes the revenues and expenses included in the 1994
Consolidated Statement of Operations (in thousands):
<TABLE>
<S> <C>
Revenues...................................................................................... $ 7,108
Programming costs............................................................................. (3,986)
Selling, general and administrative........................................................... (2,974)
Other, net.................................................................................... (1,153)
-------
Net loss.................................................................................... $(1,005)
=======
</TABLE>
The Company recorded a gain on the sale of these assets and liabilities in
the amount of $11,440,000, which has been reflected in the accompanying 1994
Consolidated Statement of Operations.
(19) SALE OF COMPANY
On July 29, 1997, the shareholders of the Company (Owners) agreed to sell
all of their shares of the Company's common and preferred stock to ACME
Television Holdings, LLC (ACME) for $146,000,000. On September 30, 1997,
pursuant to the stock purchase agreement between ACME and the Owners, ACME
placed $143,000,000 into an escrow account and ACME and the Owners filed with
the FCC a request to transfer the Company's broadcast license. The Company has
also entered into a local marketing agreement with ACME under the terms of which
ACME receives the economic benefit of the Company's earnings, effective October
1, 1997. In connection with the ACME transaction, the Company has recorded at
September 30, 1997 approximately $5.9 million in non-recurring bonus expense to
certain executives and other employees of the Company. This amount is included
in other current liabilities as of September 30, 1997.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Channel 32, Incorporated:
We have audited the accompanying statements of operations and cash flows of
Channel 32, Incorporated (a wholly owned subsidiary of Peregrine Communications,
Ltd. effective as of July 1, 1995) for the period from December 16, 1993
(inception) to June 30, 1994 (Predecessor) and the years ended June 30, 1995
(Predecessor) and 1996 (Successor). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 results of Channel 32, Incorporated's operations
and its cash flows for the period from December 16, 1993 (inception) to June 30,
1994 (Predecessor) and the years ended June 30, 1995 (Predecessor) and 1996
(Successor) in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
November 13, 1997
F-34
<PAGE>
CHANNEL 32, INCORPORATED (NOTE 1)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 16, PERIOD FROM
1993 (INCEPTION) JUNE 30, JUNE 30, JULY 1, 1996
TO JUNE 30, 1994 1995 1996 TO JUNE 17, 1997
---------------- ------------- ----------- ----------------
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
(UNAUDITED)
<S> <C> <C> <C> <C>
Broadcast revenues, net.......................... $ -- $ 288,178 $ 2,728,857 $ 1,305,886
-------- ----------- ----------- ------------
Operating expenses:
Programming and production..................... 6,676 622,688 3,273,608 1,303,808
Selling, general and administrative............ 10,950 273,422 1,462,360 1,060,497
Depreciation and amortization.................. -- 234,498 541,878 346,469
-------- ----------- ----------- ------------
Total operating expenses............... 17,626 1,130,608 5,277,846 2,710,774
-------- ----------- ----------- ------------
Operating loss......................... (17,626) (842,430) (2,548,989) (1,404,888)
-------- ----------- ----------- ------------
Other income (expense):
Interest expense............................... (4,691) (200,112) (3,252,202) (2,221,688)
Interest income................................ -- -- 44,821 --
Write-off of due from parent................... -- -- (188,586) --
Other expenses, net............................ -- -- (70,254) (10,181)
-------- ----------- ----------- ------------
Other expense, net..................... (4,691) (200,112) (3,466,221) (2,231,869)
Loss before income taxes......................... (22,317) (1,042,542) (6,015,210) (3,636,757)
Income taxes..................................... -- -- -- --
-------- ----------- ----------- ------------
Net loss............................... $(22,317) $(1,042,542) $(6,015,210) $ (3,636,757)
======== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE>
CHANNEL 32, INCORPORATED (NOTE 1)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 16, JUNE 30, JUNE 30, PERIOD FROM
1993 (INCEPTION) ------------- ----------- JULY 1, 1997
TO JUNE 30, 1994 1995 1996 TO JUNE 17, 1997
---------------- ------------- ----------- ----------------
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
Cash flows from operating activities: (UNAUDITED)
<S> <C> <C> <C> <C>
Net loss............................................ $(22,317) $(1,042,542) $(6,015,210) $ (3,636,757)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... -- 288,083 951,377 1,322,513
Changes in assets and liabilities:
(Increase) decrease in programming rights....... -- (122,500) (401,559) (380,400)
(Increase) decrease in accounts receivable,
net.......................................... -- (59,470) (167,353) 23,242
Increase (decrease) in due from related party... -- -- 14,700 (692,301)
(Increase) decrease in other assets............. (3,494) (5,000) (82,646) (357,606)
Increase (decrease) in due to related party..... 63,887 (63,887)
Increase (decrease) in accounts payable......... -- 252,704 (56,523) 651,014
Increase (decrease) in accrued expenses......... 4,691 179,117 184,414 182,932
Increase (decrease) in programming rights
payable...................................... -- 97,437 249,377 308,612
-------- ----------- ----------- ------------
Net cash used in operating activities........ (21,120) (412,171) (5,259,536) (2,642,638)
-------- ----------- ----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment............... (138,297) (978,711) (998,429) (355,717)
Disposal of property and equipment.................. -- -- 236,910 --
Increase in broadcast licenses...................... -- (243,785) (315,000) --
-------- ----------- ----------- ------------
Net cash used in investing activities........ (138,297) (1,222,496) (1,076,519) (355,717)
-------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from borrowings............................ 159,417 1,793,519 8,038,056 3,110,138
Payment of borrowings............................... -- (159,417) (1,793,519) (2,635)
Payments of obligations under capital lease......... -- -- -- (10,217)
Proceeds from issuance of common stock.............. -- 1,600 100,108 --
-------- ----------- ----------- ------------
Net cash provided by financing activities.... 159,417 1,635,702 6,344,645 3,097,286
-------- ----------- ----------- ------------
Net increase in cash......................... -- 1,035 8,590 98,931
Cash at beginning of year............................. -- -- 1,035 9,625
-------- ----------- ----------- ------------
Cash at end of year................................... $ -- $ 1,035 $ 9,625 $ 108,556
======== =========== =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.......................................... $ -- $ 51,845 $ 732,582 $ 370,095
Income taxes...................................... $ -- $ -- $ -- $ --
======== =========== =========== ============
Noncash transactions:
Acquisition of property and equipment in exchange
for capital lease obligations..................... $ -- $ 650,000 $ 185,000 $ --
======== =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
CHANNEL 32, INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND FORMATION
Channel 32, Incorporated was incorporated under the laws of the state of
Oregon on December 16, 1993. Channel 32, Incorporated (the Company) owns and
operates KWBP-TV Channel 32, a television station (and The WB Network affiliate)
in Portland, Oregon. The Company is a wholly owned subsidiary of Peregrine
Communications, Ltd. (Peregrine) subsequent to Peregrine's acquisition of the
Company effective July 1, 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Effective July 1, 1995, Peregrine acquired Channel 32, Incorporated, for
approximately $350,000. The Company paid $315,000 of this amount on behalf of
Peregrine. The acquisition was accounted for using the purchase method of
accounting. The Company has applied push-down accounting reflecting the full
acquisition cost and resulting equity in the accompanying financial statements
subsequent to the acquisition date. As a result of the acquisition, the
financial information for periods after the acquisition (Successor) is presented
on a different cost basis than for the periods prior to the acquisition
(Predecessor) and, therefore, is not comparable. The purchase price has been
allocated to the tangible assets of the Company acquired and liabilities assumed
based on their estimated fair market value at the acquisition date. The net
liabilities assumed plus the purchase price totaled approximately $1,400,000 and
was allocated to broadcast licenses.
The financial statements are presented as if the acquisition occurred on
July 1, 1995, rather than the actual purchase dates which occurred between March
and November 1995. The impact of recording the purchase as of July 1, 1995,
instead of the actual acquisition dates, is not material to the accompanying
financial statements
Local Marketing Agreement
Effective January 1, 1997, the operations of KWBP-TV were transferred to
ACME Television of Oregon, LLC pursuant to a Local Marketing Agreement (LMA).
Accordingly, the Company's financial statements subsequent to December 31, 1996
only include the Company's net activity pursuant to such LMA.
Revenue Recognition
Revenue related to the sale of airtime related to advertising and
contracted time is recognized at the time of broadcast. The Company receives
such revenues net of commissions deducted by the advertising agencies and
national sales representatives.
Cash and Cash Equivalents
For purposes of reporting the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Programming Rights
Programming rights represent costs incurred for the right to broadcast
certain features and syndicated television programs. Programming rights are
stated at the lower of amortized cost or estimated realizable value. The cost of
such programming rights and the corresponding liability are recorded when the
initial program becomes available for broadcast under the contract. Programming
rights are amortized over the life of the contract on an accelerated basis
related to the usage of the program. Programming rights expected to be amortized
during the next fiscal year are classified as current in the balance sheets. The
payments under these
F-37
<PAGE>
CHANNEL 32, INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
contracts that are due within one year and after one year are reflected in the
balance sheets as current and noncurrent liabilities, respectively.
Commitments for programming rights that have been executed, but which have
not been recorded in the accompanying financial statements, as the underlying
programming is not available for broadcast, were approximately $0, $222,249 and
$262,500 as of June 30, 1995, 1996 and March 31, 1997, respectively.
Property and Equipment
Property and equipment are stated at cost. The cost of maintenance is
expensed.
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the respective assets. The principal lives
used in determining depreciation and amortization rates of various assets are as
follows:
<TABLE>
<S> <C>
Buildings.................................................... 39 years
Broadcasting equipment....................................... 5-15 years
Furniture and fixtures....................................... 5-7 years
Vehicles..................................................... 5 years
Equipment under capital leases............................... 5-15 years
</TABLE>
Barter Transactions
Revenue and expenses associated with barter agreements in which broadcast
time is exchanged for programming rights are recorded at the average rate of the
airtime exchanged. Barter transactions, which represent the exchange of
advertising time for goods or services, are recorded at the estimated fair value
of the products or services received. Barter revenue is recognized when
advertisements are broadcast. Merchandise or services received from airtime
trade sales are charged to expense or capitalized when used or received.
Revenues and expenses include approximately $1,267,600 of barter
transaction for the year ended June 30, 1996. The Company did not record
revenues and expenses associated with barter transactions for the year ended
June 30, 1995. The Company does not believe the omission of such barter
transactions for the year ended June 30, 1995 is material to the Financial
Statements taken as a whole.
Carrying Value of Long-Lived Assets
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.' The carrying value of long-lived assets
(tangible and intangible) is reviewed if the facts and circumstances suggest
that they may be impaired. If this review indicates that an asset's carrying
value will not be recoverable, as determined based on future expected
undiscounted cash flows, the carrying value is reduced to fair market value.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. Under SFAS
No. 109 deferred income taxes are recognized for tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities.
F-38
<PAGE>
CHANNEL 32, INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates in the Preparation of Financial Statements
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.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable. The
Company believes that concentrations of credit risk with respect to accounts
receivable, which are unsecured, are limited due to the Company's ongoing
relationship with its clients. The Company provides for its estimate of
uncollectible accounts on a periodic basis. The Company has not experienced
significant losses relating to accounts receivable. For periods ended June 30,
1994, 1995, 1996 and March 31, 1997 and 1996 no customer accounted for more than
10% of revenues.
(3) INTANGIBLE ASSETS
Intangible assets are stated at cost, less accumulated amortization, and
are comprised of broadcast licenses. Broadcast licenses are being amortized on a
straight-line basis over 15 years. The amount of amortization related to
broadcast licenses was approximately $0, $11,000, $97,567, and $93,000 for the
periods ended June 30, 1994, 1995 and 1996 and June 17, 1997, respectively.
(4) STOCKHOLDERS' EQUITY
At June 30, 1995, the Company had 2,000 shares of authorized common stock
with 1,000 shares issued to its 4 original shareholders and an option to
purchase 818 shares representing 45% of the Company, with an exercise price of
$452,000 held by Peregrine (Peregrine Option).
In November 1995, the shareholders approved an increase in the number of
authorized shares to 4,000 shares of common stock. The Company sold 250 shares
of common stock for $100,000 to Aspen TV, LLC and sold an option for $108 to
purchase 51% of the outstanding common stock, or 791 shares, for an exercise
price of $150,000. This option is automatically cancelled and the Company will
be obligated to repurchase the stock sold to Aspen TV, LLC for the sale price
plus interest upon the Company's timely repayment of its debt obligation to
Aspen TV, LLC. The Peregrine Option was cancelled at this time.
(5) RELATED PARTY TRANSACTIONS
Due (to) from related party represent temporary advances in the form of
expenses paid by or on behalf of the Company by Peregrine. The following is a
summary of these amounts:
<TABLE>
<CAPTION>
JUNE 30,
------------------- MARCH 31,
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Due from related party--Peregrine.................................... $14,700 $ -- $ --
Due from related party--ACME Television of Oregon.................... -- -- 692,301
Due to related party--Peregrine...................................... -- (63,887) --
------- -------- ---------
Total.............................................................. $14,700 $(63,887) $ 692,301
======= ======== =========
</TABLE>
F-39
<PAGE>
CHANNEL 32, INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
(5) RELATED PARTY TRANSACTIONS--(CONTINUED)
Due from related party, ACME Television of Oregon, LLC relates to the
balance due to the Company pursuant to the LMA agreement effective January 1,
1997.
(6) INCOME TAXES
The Company did not record any tax benefit during the period from December
16, 1993 (inception) to June 30, 1994, the years ended June 30, 1995 and 1996
and the nine months ended March 31, 1996 and 1997.
The provision for income taxes differs from the amount computed by applying
the Federal statutory income tax rate of 34% to income before income taxes as
shown below:
<TABLE>
<CAPTION>
1994 1995 1996
------- --------- -----------
<S> <C> <C> <C>
Computed 'expected' income tax benefit............................ $(8,000) $(355,000) $(2,100,000)
Increase in valuation allowance................................... 8,000 355,000 2,100,000
------- --------- -----------
Income tax expense (benefit).................................... $ -- $ -- $ --
======= ========= ===========
</TABLE>
Deferred income tax assets and liabilities result from temporary
differences. Temporary differences are differences in the recognition of income
and expenses for income tax and financial reporting purposes that will result in
taxable or deductible amounts in future years. At June 30, 1996 and March 31,
1997, the net deferred income tax assets, related primarily to net operating
loss carryforwards, were approximately $1,158,000 and $6,117,000, respectively.
In 1995, the Company experienced an ownership change as defined in Section 382
of the Internal Revenue Code. This change in ownership restricts the utilization
of the Company's net operating loss (NOL) carryforwards to offset future taxable
income. NOL carryforwards arising subsequent to the change in control are not
subject to the limitation. The amount of NOL carryforwards subject to the
limitation is approximately $1,000,000 with an annual limitation of $75,000. The
carryforwards available at June 30, 1996 expire in 2011.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. At June 30, 1995, 1996 and March 31, 1997, based on the level of
historical taxable income and projections for future taxable losses over the
periods in which the level of deferred tax assets are deductible, management
believes that it is not more likely than not that the Company will not realize
the benefits of these deductible differences.
(7) SALE
On June 17, 1997, ACME Television Holdings, LLC (ACME) acquired certain of
the Company's assets, including the broadcast license of KWBP-TV and assumed
certain liabilities, including all of the Company's programming commitments and
the Company's equipment leases, in exchange for $18,675,000 in cash and
$4,400,000 in ACME Parent membership interests.
In addition, pursuant to a local marketing agreement, ACME effectively
operated the station and funded the losses from January 1, 1997 through June 17,
1997 (the acquisition date). Accordingly, there were no operating revenues or
expenses incurred by the Company subsequent to January 1, 1997.
F-40
<PAGE>
CHANNEL 32, INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE NINE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
(7) RELATED PARTY TRANSACTIONS
Due (to) from related party represent temporary advances in the form of
expenses paid by or on behalf of the Company by Peregrine. The following is a
summary of these amounts:
<TABLE>
<CAPTION>
JUNE 30,
------------------- MARCH 31,
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Due from related party--Peregrine.................................... $14,700 $ -- $ --
Due from related party--ACME Television of Oregon.................... -- -- 692,301
Due to related party--Peregrine...................................... -- (63,877) --
------- -------- ---------
Total.............................................................. $14,700 $(63,877) $ 692,301
======= ======== =========
</TABLE>
Due from related party, ACME Television of Oregon, LLC relates to the
balance due to the Company pursuant to the LMA agreement effective January 1,
1997.
(8) INCOME TAXES
The Company did not record any tax benefit during the period from December
16, 1993 (inception) to June 30, 1994, the years ended June 30, 1995 and 1996
and the nine months ended March 31, 1996 and 1997.
The provision for income taxes differs from the amount computed by applying
the Federal statutory income tax rate of 34% to income before income taxes as
shown below:
<TABLE>
<CAPTION>
1994 1995 1996
------- --------- -----------
<S> <C> <C> <C>
Computed 'expected' income tax benefit............................ $(8,000) $(355,000) $(2,100,000)
Increase in valuation allowance................................... 8,000 355,000 2,100,000
------- --------- -----------
Income tax expense (benefit).................................... $ -- $ -- $ --
======= ========= ===========
</TABLE>
Deferred income tax assets and liabilities result from temporary
differences. Temporary differences are differences in the recognition of income
and expenses for income tax and financial reporting purposes that will result in
taxable or deductible amounts in future years. At June 30, 1996 and March 31,
1997, the net deferred income tax assets, related primarily to net operating
loss carryforwards, were approximately $1,158,000 and $6,117,000, respectively.
In 1995, the Company experienced an ownership change as defined in Section 382
of the Internal Revenue Code. This change in ownership restricts the utilization
of the Company's net operating loss (NOL) carryforwards to offset future taxable
income. NOL carryforwards arising subsequent to the change in control are not
subject to the limitation. The amount of NOL carryforwards subject to the
limitation is approximately $1,000,000 with an annual limitation of $75,000. The
carryforwards available at June 30, 1996 expire in 2011.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. At June 30, 1995, 1996 and March 31, 1997, based on the level of
historical taxable income and projections for future taxable losses over the
periods in which the level of deferred tax assets are deductible, management
believes that it is not more likely than not that the Company will not realize
the benefits of these deductible differences.
(9) SUBSEQUENT EVENT
On June 17, 1997, ACME Television Holdings, LLC (ACME Parent) acquired
certain assets and assumed certain liabilities of Channel 32 Incorporated,
including the broadcast license of KWBP-TV in exchange for $18,675,000 in cash
and $4,400,000 in ACME Parent membership interests.
In addition, the operations of Channel 32 Incorporated were recorded by
ACME Television, Oregon (a subsidiary of ACME Parent) effective January 1, 1997
pursuant to a local marketing agreement whereby ACME effectively operated the
station and funded the losses from January 1, 1997 through June 17, 1997 (the
acquisition date).
F-41
<PAGE>
================================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Definitions and Market and Industry Data......... iv
Prospectus Summary....................................... 1
Risk Factors............................................. 13
Projected Financial Data................................. 21
The Transactions......................................... 22
Use of Proceeds.......................................... 26
Capitalization........................................... 27
Unauditied Pro Forma Consolidated Financial
Information............................................ 28
Selected Historical Consolidated Financial Data.......... 34
Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 37
Business................................................. 44
Management............................................... 56
Certain Relationships and Related Transactions........... 59
Security Ownership of Certain Beneficial Owners and
Executive Officers..................................... 60
Description of ACME Parent............................... 63
Description of Certain Indebtedness...................... 65
Exchange Offer........................................... 66
Description of the Television Notes...................... 75
Description of the Notes................................. 97
Book-Entry; Delivery and Form............................ 120
Certain U.S. Federal Income Tax Considerations Relating
to the Notes........................................... 121
Plan of Distribution..................................... 126
Experts.................................................. 127
Validity of Exchange Notes............................... 128
Available Information.................................... 128
Index to Financial Statements............................ F-1
</TABLE>
UNTIL MAY , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[INSERT LOGO]
ACME INTERMEDIATE HOLDINGS, LLC
ACME FINANCE, INC.
OFFER TO EXCHANGE
12% SENIOR SECURED DISCOUNT NOTES
DUE 2005, SERIES A
FOR
12% SENIOR SECURED DISCOUNT NOTES
DUE 2005, SERIES B
----------------
PROSPECTUS
----------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
WILMINGTON TRUST COMPANY
BY FACSIMILE:
(302) 651-1079
CONFIRMATION BY TELEPHONE:
(302) 651-8869
BY HAND:
88 PINE STREET
19TH FLOOR
WALL STREET PLAZA
NEW YORK, NEW YORK 10005
C/O HARRIS TRUST COMPANY OF NEW YORK,
AS AGENT
BY REGISTERED OR BY CERTIFIED
MAIL OR BY OVERNIGHT COURIER:
1100 NORTH MARKET STREET
WILMINGTON, DELAWARE 19890
ATTENTION: CORPORATE TRUST OPERATIONS
FEBRUARY , 1998
================================================================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ACME Intermediate Holdings, LLC (the 'Company') is a limited liability
company organized under the laws of the State of Delaware. Section 18-108 of the
Delaware Limited Liability Company Act provides that, subject to such standards
and restrictions, if any, as are set forth in its limited liability company
agreement, a limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever.
Article VII of the Company's Limited Liability Company Agreement (the 'LLC
Agreement') provides, among other things, that the Company shall indemnify each
Indemnified Party from and against any and all Losses in any way related to or
arising out of the LLC Agreement, the business of the Company or the action or
inaction of such person hereunder (including, without limitation, the actions or
inactions of the Indemnified Parties upon dissolution of the Company), which may
be imposed on, incurred by or asserted at any time against any such Indemnified
Party, except that no indemnification shall be provided for any Indemnified
Party regarding any matter as to which it shall be finally determined that such
Indemnified Party did not act in good faith and in the reasonable belief that
its action was in the best interests of the Company, or with respect to a
criminal matter, that it had reasonable cause to believe that its conduct was
unlawful. The LLC Agreement defines 'Indemnified Parties' as members of the
Company, any affiliate of the members and each person serving as an officer,
employee or other agent of the Company (including persons who serve at the
Company's request as directors, managers, officers, employees, agents or
trustees of another organization in which the Company has any interest as a
shareholder, creditor or otherwise) and their respective successors and assigns.
The LLC Agreement defines 'Losses' as liabilities, judgments, obligations,
losses, damages, taxes and interest and penalties thereon (other than (i) income
taxes due on income allocated to membership units of the Company; and (ii) taxes
based on fees, compensation or commissions received by an Indemnified Party in
connection with the administration of the Company or the Company's property),
claims, actions, suits or other proceedings (whether civil or criminal, pending
or threatened, before any court of administrative or legislative body, and as
the same are accrued, in which an Indemnified Party may be or may have been
involved as a party or otherwise or with which he or she may be or may have been
threatened, while in office or thereafter), costs, expenses and disbursements
(including, without limitation, legal and accounting fees and expenses) of any
kind and nature whatsoever.
The indemnification provided by the LLC Agreement shall inure to the
benefit of the heirs and personal representatives of the Indemnified Parties.
The determination of whether the Company is authorized to indemnify any
Indemnified Party hereunder and any award of indemnification shall be made in
each instance by its members; provided, however, that as to any matter disposed
of by a compromise payment, pursuant to a consent decree or otherwise, no
indemnification, either for said payment or for any other Losses, shall be
provided unless there has been obtained an opinion in writing of legal counsel
to the effect that the person subject to indemnification hereunder appears to
have acted in good faith and that such indemnification would not protect such
person against any liability to the Company or its members to which he, she or
it would otherwise be subject by reason of gross negligence, willful malfeasance
or fraud in the conduct of his, her or its office or actions not taken in good
faith by such person. Notwithstanding such provisions, if any Indemnified Party
has been wholly successful on the merits in the defense of any action, suit or
proceeding in which it was involved by reason of its position with the Company
or as a result of serving in such capacity, such Indemnified Party shall be
indemnified by the Company against all Losses incurred by such Indemnified Party
in connection therewith. According to the LLC Agreement, the Company shall have
power to purchase and maintain insurance on behalf of any Indemnified Party
against any liability or cost incurred by such Person in any such capacity or
arising out of its status as such, whether or not the Company would have power
to indemnify against such liability or cost.
ACME Intermediate Finance, Inc. (the 'Corporation') is a Delaware
corporation. Section 145 of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any
II-1
<PAGE>
persons who were, are or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, were or are threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Certificate of Incorporation of the Corporation provides that no
director shall be personally liable to the Corporation or its stockholders for
monetary damages for any breach of fiduciary duty by such director as a director
except that a director shall be liable to the extent provided by applicable law
(i) for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit.
Article VIII of the Bylaws of the Corporation provides that the Corporation
shall indemnify and hold harmless each director and officer of the Corporation,
and each person serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, to the fullest extent permitted by the laws of
Delaware, as from time to time in effect the same exists or may hereafter be
amended, against all expense, liability and loss reasonably incurred or suffered
in connection therewith. The Corporation may, by action of its Board of
Directors, indemnify employees or agents of the Corporation with the same scope
and effect. The indemnification obligations set forth in Article VIII shall
inure to the benefit of heirs, executors and administrators of those entitled to
indemnification provided that such proceeding was authorized by the board of
directors. The Board of Directors may also provide any other rights of indemnity
which it may deem appropriate.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnity him under Section 145. The
Corporation's bylaws provide for the maintenance of insurance under the
circumstances described in Section 145.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrants pursuant to the foregoing provisions, the registrants have
II-2
<PAGE>
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <C> <S>
*3.1 -- Certificate of Formation of ACME Intermediate Holdings, LLC
*3.2 -- Limited Liability Company Agreement of ACME Intermediate Holdings, LLC
*3.3 -- Articles of Incorporation of ACME Intermediate Finance, Inc.
*3.4 -- Bylaws of ACME Intermediate Finance, Inc.
*4.1 -- Indenture, dated September 30, 1997, by and among ACME Television, LLC and ACME Finance
Corporation, as Issuers, the Guarantors named therein, and Wilmington Trust Company
*4.2 -- Indenture, dated September 30, 1997, by and among ACME Intermediate Holdings, LLC and ACME
Intermediate Finance, Inc., as Issuers and Wilmington Trust Company, as Trustee.
*4.3 -- Form of Securities (included in Exhibit 4.2)
*5.1 -- Opinion of Dickstein Shapiro Morin & Oshinsky, LLP regarding the legality of the securities being
registered
*10.1 -- Stock Purchase Agreement, dated July 29, 1997, by and among ACME Television Holdings, LLC, Koplar
Communications, Inc. and the shareholders of Koplar Communications, Inc.
*10.2 -- Escrow Agreement, dated September 8, 1997, by and among ACME Television Holdings, LLC, ACME
Television Licenses of Missouri, Inc., Koplar Communications, Inc. the shareholders of Koplar
Communications, Inc. and NationsBank, N.A.
*10.3 -- Time Brokerage Agreement for KPLR-TV, dated September 8, 1997, by and among ACME Television
Licenses of Missouri, Inc., ACME Television Holdings, LLC, Koplar Communications Television, LLC
and Koplar Communications, Inc.
*10.4 -- Membership Contribution Agreement, dated August 22, 1997, by and among ACME Television Holdings,
LLC, Roberts Broadcasting of Salt Lake City, LLC, Michael V. Roberts and Steven C. Roberts
*10.5 -- Asset Purchase Agreement, dated August 22, 1997, by and between ACME Television Licenses of New
Mexico, LLC and Minority Broadcasters of Santa Fe, Inc.
*10.6 -- Purchase Agreement, dated May 28, 1997, by and among ACME Television Licenses of Tennessee, LLC,
ACME Television of Tennessee, LLC, Crossville TV Limited Partnership and the Seller named therein
*10.7 -- Asset Purchase Agreement, dated January 31, 1997, by and between NewCo of Oregon, Inc. and Channel
32 Incorporated
*10.8 -- Amendment, dated April 25, 1997, to Asset Purchase Agreement, by and between ACME Television
Holdings of Oregon, LLC and Channel 32 Incorporated
*10.9 -- Amendment, dated June 2, 1997, to Asset Purchase Agreement, by and between ACME Television
Holdings of Oregon, LLC and Channel 32 Incorporated
*10.10 -- Management Agreement, dated February 6, 1997, by and between NewCo of Oregon, Inc. and Channel 32
Incorporated
*10.11 -- Amendment, dated June 17, 1997, to Management Agreement by and between NewCo of Oregon, Inc. and
Channel 32 Incorporated
*10.12 -- Noncompetition Agreement, dated June 17, 1997, by and among ACME Television Holdings of Oregon,
LLC, Peregrine Communications, Ltd., Peregrine Holdings, Ltd., and Channel 32 Incorporated
*10.13 -- Management Agreement, dated August 22, 1997, by and between Roberts Broadcasting of Salt Lake
City, LLC and ACME Television of Utah, LLC
*10.14 -- Management Agreement, dated August 22, 1997, by and between Minority Broadcasters of Santa Fe,
Inc. and ACME Television of New Mexico, LLC
*10.15 -- Escrow Agreement, dated May 28, 1997, by and among Acme Television Licenses of Tennessee, LLC,
Acme Television of Tennessee, LLC, Crossville TV Limited Partnership, the Sellers names therein
and NationsBank, N.A., as escrow agent
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
*10.16 -- Station Affiliation Agreement, dated August 18, 1997, by and between ACME Holdings of Knoxville,
LLC and The WB Television Network Partners, L.P.
<C> <C> <S>
*10.17 -- Station Affiliation Agreement, dated September 24, 1997, by and between ACME Holdings of St.
Louis, LLC and The WB Television Network Partners, L.P.
*10.18 -- Station Affiliation Agreement, dated June 10, 1997, by and between ACME Holdings of Oregon, LLC
and The WB Television Network Partners, L.P.
*10.19 -- Letter dated August 21, 1997, to ACME Television Holdings from The WB Television Network
*10.20 -- Employment Agreement, dated June 17, 1997, by and between ACME Television Holdings, LLC and
Douglas E. Gealy
*10.21 -- Employment Agreement, dated June 17, 1997, by and between ACME Television Holdings, LLC and Tom
Allen
*10.22 -- Consulting Agreement, dated June 17, 1997, by and between ACME Television Holdings, LLC and Jamie
Kellner
*10.23 -- Commercial Building Lease, dated June 17, 1997, by and between Peregrine Communications, Ltd. and
ACME Television Holdings of Oregon, LLC
*10.24 -- Amended and Restated Lease Agreement, dated July 1, 1996, by and between KKSN, Inc. and Channel 32
Incorporated
*10.25 -- Lease Agreement, dated July 14, 1997, by and between Richardson V. Turner and ACME Television of
Tennessee, LLC
*10.26 -- Agreement of Lease, dated March 20, 1997, by and between Don D. Collins d/b/a Tennessee Valley
Communications and Crossville TV Limited Partnership
*10.27 -- First Modification, dated May 23, 1997, to Agreement of Lease by and between Don D. Collins d/b/a
Tennessee Valley Communications and Crossville TV Limited Partnership
*10.28 -- Studio Lease Agreement by and between Roberts Broadcasting of Salt Lake City, LLC and ACME
Television Holdings, LLC
*10.29 -- Tower Lease Agreement by and between Roberts Broadcasting of Salt Lake City, LLC and ACME
Television Holdings, LLC
*10.30 -- Commercial Lease, dated January 1, 1994, by and between Koplar Properties Inc. and Koplar
Communications, Inc.
*10.31 -- Agreement of Lease, dated May 16, 1986, by and between CBS Inc. and Koplar Communications Inc.
*10.32 -- Amendment, dated September 2, 1986, to Agreement of Lease by and between Viacom Broadcasting of
Missouri Inc., as successor-in-interest to CBS Inc. and Koplar Communications Inc.
*10.33 -- Agreement, dated June 1, 1995, by and among Koplar Communications, Inc., Roberts Broadcasting
Company, Michael V. Roberts and Steven C. Roberts
*10.34 -- First Amended and Restated Credit Agreement by and among ACME Television, LLC, the Lenders named
therein and Canadian Imperial Bank of Commerce, New York Agency, as agent for the Lenders
*10.35 -- Registration Rights Agreement, dated September 30, 1997, by and among ACME Intermediate Holdings,
LLC, ACME Intermediate Finance, Inc. and CIBC Wood Gundy Securities Corp., as Initial Purchaser
*10.36 -- Membership Unitholders Agreement, dated September 30, 1997, by and among ACME Intermediate
Holdings, LLC, ACME Intermediate Finance, Inc. and CIBC Wood Gundy Securities Corp., as Initial
Purchaser
*10.37 -- Purchase Agreement, dated September 24, 1997, by and among ACME Intermediate Holdings, LLC, ACME
Intermediate Finance, Inc. and CIBC Wood Gundy Securities Corp., as Initial Purchaser
*10.38 -- Securities Pledge Agreement, dated September 30, 1997, by and between ACME Intermediate Holdings,
LLC and ACME Intermediate Finance, Inc., as Pledgers, and Wilmington Trust Company, as Trustee
*10.39 -- Limited Liability Company Agreement of ACME Television Holdings, LLC
*10.40 -- Management Agreement between Edward J. Kopler and ACME Television Licenses of Missouri, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
*10.41 -- First Amendment to Limited Liability Company Agreement of ACME Television Holdings, LLC
<C> <C> <S>
*10.42 -- Form of Guaranty by and among ACME subsidiaries, Canadian Imperial Bank of Commerce, as agent, and
the Lenders under the First Amended and Restated Credit Agreement
*10.43 -- Form of Security and Pledge Agreement by and among ACME subsidiaries, Canadian Imperial Bank of
Commerce, as agent, and the Lenders under the First Amended and Restated Credit Agreement
*10.44 -- Amendment to Tower Lease Agreement by and between Roberts Broadcasting of Salt Lake City, LLC and
ACME Television Holdings, LLC
*21.1 -- Subsidiaries of Registrants
*23.1 -- Consent of Dickstein Shapiro Morin & Oshinsky LLP (included in Exhibit 5.1)
23.2 -- Consent of KPMG Peat Marwick LLP regarding ACME Television, LLC
23.3 -- Consent of Coopers & Lybrand L.L.P. regarding Koplar Communications, Inc. and Subsidiary
23.4 -- Consent of KPMG Peat Marwick LLP regarding Channel 32, Incorporated
*24.1 -- Power of attorney from Thomas Allen
*24.2 -- Power of attorney from Douglas Gealy
*24.3 -- Power of attorney from Jamie Kellner
*25.1 -- Statement of Eligibility of Wilmington Trust Company
*27.1 -- Financial Data Schedule
*99.1 -- Form of Letter of Transmittal for Tender of Series A 12% Senior Secured Discount Notes due 2005 in
exchange for Series B Senior Secured Discount Notes due 2005
*99.2 -- Form of Notice of Guaranteed Delivery for Tender of Series A 12% Senior Secured Discount Notes due
2005 in exchange for Series B Senior Secured Discount Notes due 2005
*99.3 -- Letter to Brokers for Tender of Series A 12% Senior Secured Discount Notes due 2005 in exchange
for Series B Senior Secured Discount Notes due 2005
*99.4 -- Letter to Clients for Tender of Series A 12% Senior Secured Discount Notes due 2005 in exchange
for Series B Senior Secured Discount Notes due 2005
*99.5 -- Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of Series A 12% Senior Secured Discount Notes due 2005 in exchange for Series B Senior
Secured Discount Notes due 2005
*99.6 -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
*99.7 -- Consent to be appointed member of Board of Advisors from Edward J. Koplar
*99.8 -- Consent to be appointed member of Board of Advisors from Michael V. Roberts
</TABLE>
* previously filed
(b) Financial Statement Schedules:
None.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issues.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COSTA MESA,
STATE OF CALIFORNIA, AS OF FEBRUARY 9, 1998.
ACME INTERMEDIATE HOLDINGS, LLC
By: /s/ THOMAS ALLEN
----------------------------
Thomas Allen
Executive Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND AS OF THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- ---------------------------------------------- -----------------
<C> <S> <C>
** Chairman and Chief Executive Officer February 9, 1998
- -------------------------------------------
Jamie Kellner
** President and Chief Operating Officer February 9, 1998
- -------------------------------------------
Douglas Gealy
/s/ THOMAS ALLEN Executive Vice President and Chief Financial February 9, 1998
- ------------------------------------------- Officer
Thomas Allen
/s/ THOMAS ALLEN Majority Member February 9, 1998
- -------------------------------------------
ACME TELEVISION HOLDINGS, LLC
By: Thomas Allen
Title: Executive Vice President and Chief
Financial Officer
**By: /s/ THOMAS ALLEN
---------------------------------
Thomas Allen
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COSTA MESA,
STATE OF CALIFORNIA, AS OF February 9, 1998.
ACME INTERMEDIATE FINANCE, INC.
By: /s/ THOMAS ALLEN
-------------------------------
Thomas Allen
Executive Vice President, Chief
Financial Officer,
Chairman of the Board and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND AS OF THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- -----------------
<C> <S> <C>
** Chairman of the Corporation and Chief February 9, 1998
- ------------------------------------------ Executive Officer
Jamie Kellner
** President, Chief Operating Officer, Secretary February 9, 1998
- ------------------------------------------ and Director
Douglas Gealy
/s/ THOMAS ALLEN Executive Vice President, Chief Financial February 9, 1998
- ------------------------------------------ Officer, Chairman of the Board and Director
Thomas Allen
**By: /s/ THOMAS ALLEN
-------------------------------
Thomas Allen
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <C> <S>
*3.1 -- Certificate of Formation of ACME Intermediate Holdings, LLC
*3.2 -- Limited Liability Company Agreement of ACME Intermediate Holdings, LLC
*3.3 -- Articles of Incorporation of ACME Intermediate Finance, Inc.
*3.4 -- Bylaws of ACME Intermediate Finance, Inc.
*4.1 -- Indenture, dated September 30, 1997, by and among ACME Television, LLC and ACME Finance
Corporation, as Issuers, the Guarantors named therein, and Wilmington Trust Company
*4.2 -- Indenture, dated September 30, 1997, by and among ACME Intermediate Holdings, LLC and ACME
Intermediate Finance, Inc., as Issuers and Wilmington Trust Company, as Trustee.
*4.3 -- Form of Securities (included in Exhibit 4.2)
*5.1 -- Opinion of Dickstein Shapiro Morin & Oshinsky, LLP regarding the legality of the securities being
registered
*10.1 -- Stock Purchase Agreement, dated July 29, 1997, by and among ACME Television Holdings, LLC, Koplar
Communications, Inc. and the shareholders of Koplar Communications, Inc.
*10.2 -- Escrow Agreement, dated September 8, 1997, by and among ACME Television Holdings, LLC, ACME
Television Licenses of Missouri, Inc., Koplar Communications, Inc. the shareholders of Koplar
Communications, Inc. and NationsBank, N.A.
*10.3 -- Time Brokerage Agreement for KPLR-TV, dated September 8, 1997, by and among ACME Television
Licenses of Missouri, Inc., ACME Television Holdings, LLC, Koplar Communications Television, LLC
and Koplar Communications, Inc.
*10.4 -- Membership Contribution Agreement, dated August 22, 1997, by and among ACME Television Holdings,
LLC, Roberts Broadcasting of Salt Lake City, LLC, Michael V. Roberts and Steven C. Roberts
*10.5 -- Asset Purchase Agreement, dated August 22, 1997, by and between ACME Television Licenses of New
Mexico, LLC and Minority Broadcasters of Santa Fe, Inc.
*10.6 -- Purchase Agreement, dated May 28, 1997, by and among ACME Television Licenses of Tennessee, LLC,
ACME Television of Tennessee, LLC, Crossville TV Limited Partnership and the Seller named therein
*10.7 -- Asset Purchase Agreement, dated January 31, 1997, by and between NewCo of Oregon, Inc. and Channel
32 Incorporated
*10.8 -- Amendment, dated April 25, 1997, to Asset Purchase Agreement, by and between ACME Television
Holdings of Oregon, LLC and Channel 32 Incorporated
*10.9 -- Amendment, dated June 2, 1997, to Asset Purchase Agreement, by and between ACME Television
Holdings of Oregon, LLC and Channel 32 Incorporated
*10.10 -- Management Agreement, dated February 6, 1997, by and between NewCo of Oregon, Inc. and Channel 32
Incorporated
*10.11 -- Amendment, dated June 17, 1997, to Management Agreement by and between NewCo of Oregon, Inc. and
Channel 32 Incorporated
*10.12 -- Noncompetition Agreement, dated June 17, 1997, by and among ACME Television Holdings of Oregon,
LLC, Peregrine Communications, Ltd., Peregrine Holdings, Ltd., and Channel 32 Incorporated
*10.13 -- Management Agreement, dated August 22, 1997, by and between Roberts Broadcasting of Salt Lake
City, LLC and ACME Television of Utah, LLC
*10.14 -- Management Agreement, dated August 22, 1997, by and between Minority Broadcasters of Santa Fe,
Inc. and ACME Television of New Mexico, LLC
*10.15 -- Escrow Agreement, dated May 28, 1997, by and among Acme Television Licenses of Tennessee, LLC,
Acme Television of Tennessee, LLC, Crossville TV Limited Partnership, the Sellers names therein
and NationsBank, N.A., as escrow agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <C> <S>
*10.16 -- Station Affiliation Agreement, dated August 18, 1997, by and between ACME Holdings of Knoxville,
LLC and The WB Television Network Partners, L.P.
*10.17 -- Station Affiliation Agreement, dated September 24, 1997, by and between ACME Holdings of St.
Louis, LLC and The WB Television Network Partners, L.P.
*10.18 -- Station Affiliation Agreement, dated June 10, 1997, by and between ACME Holdings of Oregon, LLC
and The WB Television Network Partners, L.P.
*10.19 -- Letter dated August 21, 1997, to ACME Television Holdings from The WB Television Network
*10.20 -- Employment Agreement, dated June 17, 1997, by and between ACME Television Holdings, LLC and
Douglas E. Gealy
*10.21 -- Employment Agreement, dated June 17, 1997, by and between ACME Television Holdings, LLC and Tom
Allen
*10.22 -- Consulting Agreement, dated June 17, 1997, by and between ACME Television Holdings, LLC and Jamie
Kellner
*10.23 -- Commercial Building Lease, dated June 17, 1997, by and between Peregrine Communications, Ltd. and
ACME Television Holdings of Oregon, LLC
*10.24 -- Amended and Restated Lease Agreement, dated July 1, 1996, by and between KKSN, Inc. and Channel 32
Incorporated
*10.25 -- Lease Agreement, dated July 14, 1997, by and between Richardson V. Turner and ACME Television of
Tennessee, LLC
*10.26 -- Agreement of Lease, dated March 20, 1997, by and between Don D. Collins d/b/a Tennessee Valley
Communications and Crossville TV Limited Partnership
*10.27 -- First Modification, dated May 23, 1997, to Agreement of Lease by and between Don D. Collins d/b/a
Tennessee Valley Communications and Crossville TV Limited Partnership
*10.28 -- Studio Lease Agreement by and between Roberts Broadcasting of Salt Lake City, LLC and ACME
Television Holdings, LLC
*10.29 -- Tower Lease Agreement by and between Roberts Broadcasting of Salt Lake City, LLC and ACME
Television Holdings, LLC
*10.30 -- Commercial Lease, dated January 1, 1994, by and between Koplar Properties Inc. and Koplar
Communications, Inc.
*10.31 -- Agreement of Lease, dated May 16, 1986, by and between CBS Inc. and Koplar Communications Inc.
*10.32 -- Amendment, dated September 2, 1986, to Agreement of Lease by and between Viacom Broadcasting of
Missouri Inc., as successor-in-interest to CBS Inc. and Koplar Communications Inc.
*10.33 -- Agreement, dated June 1, 1995, by and among Koplar Communications, Inc., Roberts Broadcasting
Company, Michael V. Roberts and Steven C. Roberts
*10.34 -- First Amended and Restated Credit Agreement by and among ACME Television, LLC, the Lenders named
therein and Canadian Imperial Bank of Commerce, New York Agency, as agent for the Lenders
*10.35 -- Registration Rights Agreement, dated September 30, 1997, by and among ACME Intermediate Holdings,
LLC, ACME Intermediate Finance, Inc. and CIBC Wood Gundy Securities Corp., as Initial Purchaser
*10.36 -- Membership Unitholders Agreement, dated September 30, 1997, by and among ACME Intermediate
Holdings, LLC, ACME Intermediate Finance, Inc. and CIBC Wood Gundy Securities Corp., as Initial
Purchaser
*10.37 -- Purchase Agreement, dated September 24, 1997, by and among ACME Intermediate Holdings, LLC, ACME
Intermediate Finance, Inc. and CIBC Wood Gundy Securities Corp., as Initial Purchaser
*10.38 -- Securities Pledge Agreement, dated September 30, 1997, by and between ACME Intermediate Holdings,
LLC and ACME Intermediate Finance, Inc., as Pledgers, and Wilmington Trust Company, as Trustee
*10.39 -- Limited Liability Company Agreement of ACME Television Holdings, LLC
*10.40 -- Management Agreement between Edward J. Kopler and ACME Television Licenses of Missouri, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
*10.41 -- First Amendment to Limited Liability Company Agreement of ACME Television Holdings, LLC
<C> <C> <S>
*10.42 -- Form of Guaranty by and among ACME subsidiaries, Canadian Imperial Bank of Commerce, as agent, and
the Lenders under the First Amended and Restated Credit Agreement
*10.43 -- Form of Security and Pledge Agreement by and among ACME subsidiaries, Canadian Imperial Bank of
Commerce, as agent, and the Lenders under the First Amended and Restated Credit Agreement
*10.44 -- Amendment to Tower Lease Agreement by and between Roberts Broadcasting of Salt Lake City, LLC and
ACME Television Holdings, LLC
*21.1 -- Subsidiaries of Registrants
*23.1 -- Consent of Dickstein Shapiro Morin & Oshinsky LLP (included in Exhibit 5.1)
23.2 -- Consent of KPMG Peat Marwick LLP regarding ACME Television, LLC
23.3 -- Consent of Coopers & Lybrand L.L.P. regarding Koplar Communications, Inc. and Subsidiary
23.4 -- Consent of KPMG Peat Marwick LLP regarding Channel 32, Incorporated
*24.1 -- Power of attorney from Thomas Allen
*24.2 -- Power of attorney from Douglas Gealy
*24.3 -- Power of attorney from Jamie Kellner
*25.1 -- Statement of Eligibility of Wilmington Trust Company
*27.1 -- Financial Data Schedule
*99.1 -- Form of Letter of Transmittal for Tender of Series A 12% Senior Secured Discount Notes due 2005 in
exchange for Series B Senior Secured Discount Notes due 2005
*99.2 -- Form of Notice of Guaranteed Delivery for Tender of Series A 12% Senior Secured Discount Notes due
2005 in exchange for Series B Senior Secured Discount Notes due 2005
*99.3 -- Letter to Brokers for Tender of Series A 12% Senior Secured Discount Notes due 2005 in exchange
for Series B Senior Secured Discount Notes due 2005
*99.4 -- Letter to Clients for Tender of Series A 12% Senior Secured Discount Notes due 2005 in exchange
for Series B Senior Secured Discount Notes due 2005
*99.5 -- Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of Series A 12% Senior Secured Discount Notes due 2005 in exchange for Series B Senior
Secured Discount Notes due 2005
*99.6 -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
*99.7 -- Consent to be appointed member of Board of Advisors from Edward J. Koplar
*99.8 -- Consent to be appointed member of Board of Advisors from Michael V. Roberts
</TABLE>
* previously filed
EXHIBIT 23.2
The Members
ACME Intermediate Holdings, LLC:
We consent to the use of our reports included herein and to the reference to our
firm under the heading 'Experts' in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 9, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated March 28, 1997, except for Note 19, as to which the date is
September 30, 1997, on our audits of the financial statements of Koplar
Communications, Inc. and Subsidiary. We also consent to the reference to our
Firm under the capitions 'Experts.'
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
February 9, 1998
EXHIBIT 23.4
The Board of Directors
Channel 32, Incorporated:
We consent to the use of our reports included herein and to the reference to our
firm under the heading 'Experts' in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 9, 1998
