<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1999
REGISTRATION NO. 333-84191
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ACME COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4833 33-0866283
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2101 E. FOURTH STREET, SUITE 202, SANTA ANA, CALIFORNIA 92705, (714) 245-9499
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMIE KELLNER
CHIEF EXECUTIVE OFFICER
ACME COMMUNICATIONS, INC.
2101 E. FOURTH STREET, SUITE 202
SANTA ANA, CALIFORNIA 92705
(714) 245-9499
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DAVID A. KRINSKY, ESQ. ALVIN G. SEGEL, ESQ.
ALLISON M. KELLER, ESQ. IAN C. WIENER, ESQ.
O'MELVENY & MYERS LLP IRELL & MANELLA LLP
610 NEWPORT CENTER DRIVE, SUITE 1700 1800 AVENUE OF THE STARS, SUITE 900
NEWPORT BEACH, CALIFORNIA 92660-6429 LOS ANGELES, CALIFORNIA 90067-4276
(949) 760-9600 (310) 277-1010
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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 statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Subject to Completion, Dated September 27, 1999
[ACME Communications Logo]
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ACME Communications, Inc.
5,000,000 Shares
Common Stock
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of ACME Communications, Inc.
We anticipate that the initial public offering price will be between $19.00 and
$21.00 per share.
We have applied to list our common stock on the Nasdaq National Market under the
symbol "ACME."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined or
passed upon the adequacy or accuracy of this prospectus. Any representation to
the contrary is a criminal offense.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
PUBLIC OFFERING PRICE $ $
UNDERWRITING DISCOUNTS AND COMMISSIONS $ $
PROCEEDS, BEFORE EXPENSES, TO ACME $ $
</TABLE>
The selling stockholders have granted the underwriters the right to purchase up
to an additional 750,000 shares at the public offering price within 30 days from
the date of this prospectus to cover over-allotments.
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Morgan Stanley Dean Witter
CIBC World Markets
The date of this prospectus is , 1999.
<PAGE> 3
INSIDE FRONT COVER
[ACME COMMUNICATIONS LOGO]
[COLLAGE OF ACTORS ON THE WB NETWORK AND SYNDICATED PROGRAMS]
FRONT GATEFOLD
[A MAP OF THE UNITED STATES IDENTIFYING THE LOCATION OF EACH OF OUR STATIONS AND
THE CALL LETTERS AND CHANNEL OF EACH OF OUR STATIONS]
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock we are selling in this
offering, including the risk factors and our financial statements and related
notes, included elsewhere in this prospectus.
THE COMPANY
We currently own and operate nine broadcast television stations in
medium-sized markets. Our stations cover in the aggregate approximately 5.4% of
total U.S. television households. Each of our stations is a network affiliate of
The WB Television Network, making us the third largest WB Network affiliated
station group in the country. Jamie Kellner, our Chairman and Chief Executive
Officer, is also a founder, Chief Executive Officer and partner of The WB
Network. Mr. Kellner and our other founders formed our company to capitalize on
the opportunity to affiliate with The WB Network.
Since our formation in 1997, we have focused primarily on acquiring
independently-owned stations, under-performing stations and construction permits
for new stations in markets that we believe have the growth potential and
demographic profile to support the successful launch of a new WB Network
affiliate. We believe that medium-sized markets provide advantages such as fewer
competitors and lower operating costs compared to large markets. Because many of
our stations are newly launched, we have experienced losses of $28.4 million for
the six months ended June 30, 1999 as compared to an $11.3 million loss for the
six months ended June 30, 1998. However, we have experienced significant revenue
and broadcast cash flow growth and anticipate further growth. For the six months
ended June 30, 1999, we generated $26.6 million in revenues and $6.5 million in
broadcast cash flow, representing an increase of 37.8% in revenues and 47.0% in
broadcast cash flow over the six months ended June 30, 1998.
Like The WB Network, we target our programming to younger audiences, in
particular, young adults, teens and kids. We believe that these younger
audiences are a growing and increasingly important demographic target for
advertisers, and that our affiliation with The WB Network affords us a
significant competitive advantage over other network affiliated television
broadcasters in attracting these younger audiences. To build and retain our
audience share during non-network hours, we also acquire the broadcast rights to
popular syndicated programming that we believe complements The WB Network
programming. In addition, we broadcast local programming such as news in St.
Louis, local weather updates and local and regional sports programming in
selected markets. We believe this programming enhances our ability to sell
advertising time to local and regional advertisers and increases audience
awareness of our newly launched stations.
The WB Network was created in 1995 and is a more demographically focused
network than ABC, CBS, NBC and Fox. The WB Network provides popular, targeted
prime time programming each season such as 7th Heaven, Dawson's Creek, Buffy the
Vampire Slayer, Felicity and Charmed. In addition to its prime time programming,
The WB Network provides popular animated weekday, and Saturday morning
programming through Kids'WB, including the number one rated kids' show, Pokemon.
Mr. Kellner believes that the future of broadcast television, much like radio,
requires that programming be targeted more directly to specific audiences rather
than attempting to appeal to all demographic groups.
3
<PAGE> 5
THE OFFERING(1)
COMMON STOCK OFFERED BY ACME.... 5,000,000 shares
COMMON STOCK TO BE
OUTSTANDING AFTER
THE OFFERING(2)............... 16,750,000 shares
USE OF PROCEEDS................. We intend to use the net proceeds of this
offering to:
- repay all indebtedness under our
revolving credit facility;
- fund the acquisition of KASY;
- repay debt incurred in connection with
the acquisition of WBDT, WIWB and WBUI;
and
- provide funds for general corporate
purposes, including working capital and
future acquisitions.
RISK FACTORS.................... See "Risk Factors" beginning on page 8 for a
discussion of factors you should carefully
consider before deciding to invest in our
common stock.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL........................ "ACME"
- -------------------------
(1) Does not include 750,000 shares of common stock subject to a 30-day
over-allotment option granted to the underwriters by the selling
stockholders.
(2) Based on the number of shares that will be outstanding after our
reorganization. Excludes approximately 4,200,000 shares of common stock
reserved for issuance pursuant to our 1999 Stock Incentive Plan, 2,783,341
of which are subject to options that will be outstanding before the
consummation of this offering.
Our principal executive offices are located at 2101 E. Fourth Street, Suite
202, Santa Ana, California 92705. Our telephone number is (714) 245-9499.
4
<PAGE> 6
OUR SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
The following table summarizes our historical and pro forma financial data.
The pro forma financial data gives effect to the acquisition of Koplar
Communications, Inc. and the reorganization of our business from a limited
liability company into a C corporation, as if the acquisition and reorganization
had occurred at the beginning of each period indicated. The data presented in
this table are derived from the "Selected Consolidated and Pro Forma Financial
Data" and the financial statements and notes which are included elsewhere in
this prospectus. You should read those sections for a further explanation of the
financial data summarized here.
<TABLE>
<CAPTION>
PRO FORMA
ACME
PRO FORMA COMMUNICATIONS,
ACME TELEVISION ACME ACME TELEVISION INC.(1)
HOLDINGS, LLC COMMUNICATIONS, HOLDINGS, LLC ---------------
------------------- INC.(1) -------------------
YEARS ENDED --------------- SIX MONTHS ENDED SIX MONTHS
DECEMBER 31, YEAR ENDED JUNE 30, ENDED
------------------- DECEMBER 31, ------------------- JUNE 30,
1997 1998 1998 1998 1999 1999
-------- -------- --------------- -------- -------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................. $ 11,347 $ 43,928 $ 43,928 $ 19,327 $ 26,635 $ 26,635
Operating expenses:
Station operating
expenses.................. 10,158 32,973 32,973 15,165 19,990 19,990
Depreciation and
amortization.............. 1,215 11,355 14,579 4,181 8,159 8,565
Corporate................... 1,415 2,627 2,627 1,194 1,483 1,483
Equity-based compensation... -- -- -- -- 10,700 10,700
-------- -------- ----------- -------- -------- -----------
Operating loss................ (1,441) (3,027) (6,251) (1,213) (13,697) (14,103)
Other income (expenses):
Interest income............. 287 231 231 188 27 27
Interest expense............ (6,562) (23,953) (21,478) (11,472) (14,068) (12,840)
Gain on sale of asset....... -- 1,112 1,112 -- -- --
Other....................... -- (380) (380) 10 -- --
-------- -------- ----------- -------- -------- -----------
Loss before taxes and minority
interest.................... (7,716) (26,017) (26,766) (12,487) (27,738) (26,916)
Income tax benefit
(expense)................... -- 2,393 10,702 365 (2,064) 10,748
-------- -------- ----------- -------- -------- -----------
Loss before minority
interest.................... (7,716) (23,624) (16,064) (12,122) (29,802) (16,168)
Minority interest............. 237 1,684 -- 868 1,403 --
-------- -------- ----------- -------- -------- -----------
Net loss...................... $ (7,479) $(21,940) $ (16,064) $(11,254) $(28,399) $ (16,168)
======== ======== =========== ======== ======== ===========
Pro forma basic and diluted
net loss per share.......... n/a n/a $ (1.37) n/a n/a $ (1.38)
Basic and diluted weighted
average shares
outstanding(1).............. n/a n/a 11,750,000 n/a n/a 11,750,000
BALANCE SHEET DATA:
Total assets.................. $220,475 $288,082 n/a $290,439 $330,282 $ 347,931
Long-term debt(2)............. 192,452 220,256 n/a 220,074 277,426 252,670
Total members' capital........ 16,306 1,413 n/a 30,838 (16,286) n/a
Total shareholders' equity.... n/a n/a n/a n/a n/a 31,700
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
ACME TELEVISION HOLDINGS, LLC
---------------------------------------------
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- --------------------
1997 1998 1998 1999
--------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SUPPLEMENTAL FINANCIAL DATA:
Broadcast cash flow and adjusted EBITDA(3):
Operating loss......................................... $ (1,441) $ (3,027) $ (1,213) $(13,697)
Add back:
Equity-based compensation............................ -- -- -- 10,700
Depreciation and amortization........................ 1,215 11,355 4,181 8,159
Time brokerage fees.................................. -- 228 228 --
Amortization of program rights....................... 1,433 5,321 2,195 3,250
Corporate expenses................................... 1,415 2,627 1,194 1,483
Adjusted program payments(3)......................... (1,598) (5,124) (2,152) (3,379)
--------- -------- -------- --------
Broadcast cash flow................................ $ 1,024 $ 11,380 $ 4,433 $ 6,516
Less:
Corporate expenses................................... 1,415 2,627 1,194 1,483
--------- -------- -------- --------
Adjusted EBITDA.................................... $ (391) $ 8,753 $ 3,239 $ 5,033
Broadcast cash flow margin(3)............................ 9.0% 25.9% 22.9% 24.5%
Adjusted EBITDA margin(3)................................ n/m 19.9% 16.8% 18.9%
Cash flows provided by (used in) operations:
Operating activities................................... $ (599) $ 319 $ (89) $ 3,731
Investing activities................................... (191,730) (15,504) (20,790) (48,841)
Financing activities................................... 201,153 7,362 13,949 45,778
Deficiency of earnings to fixed charges(4)............... $ 7,716 $ 23,624 $ 12,122 $ 29,802
</TABLE>
- -------------------------
(1) Reflects our acquisition of Koplar Communications, Inc. and our
reorganization as explained in the pro forma financial information included
elsewhere in this prospectus.
(2) Includes amounts outstanding under our bridge loan, convertible debentures,
10 7/8% senior discount notes and 12% senior secured notes.
(3) We define:
- broadcast cash flow as operating income, plus equity-based compensation,
depreciation and amortization, time brokerage fees, amortization of
program rights, and corporate expenses, less program payments -- the
latter as adjusted to reflect reductions for liabilities relating to
expired rights or rights which have been written-off in connection with
acquisitions;
- adjusted EBITDA as broadcast cash flow less corporate expenses;
- broadcast cash flow margin as broadcast cash flow as a percentage of net
revenues; and
- adjusted EBITDA margin as adjusted EBITDA as a percentage of net
revenues.
We have included broadcast cash flow, broadcast cash flow margin, adjusted
EBITDA and adjusted EBITDA margin data because management believes that
these measures are useful to an investor to evaluate our ability to service
debt and to assess the earning ability of our stations' operations.
However, you should not consider these items in isolation or as substitutes
for net income, cash flows from operating activities or other statement of
operations or cash flows data prepared in accordance with generally
accepted accounting principles. These measures are not necessarily
comparable to similarly titled measures employed by other companies.
(4) Earnings are defined as earnings or loss before minority interest and fixed
charges. Fixed charges are the sum of:
- interest costs, including estimated interest within rental expense; and
- amortization of deferred financing costs
We have disclosed the deficiency of earnings to fixed charges, as earnings
were not adequate to cover fixed charges in each of the periods presented.
6
<PAGE> 8
OUR PREDECESSOR'S SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data of our predecessor,
Channel 32, Incorporated. The data presented in this table are derived from the
financial statements and notes which are included elsewhere in this prospectus.
You should read those sections for a further explanation of the financial data
summarized here.
<TABLE>
<CAPTION>
CHANNEL 32, INCORPORATED (PREDECESSOR)
--------------------------------------------------------
PERIOD FROM
DECEMBER 16, PERIOD FROM
1993 (INCEPTION) YEARS ENDED JUNE 30, JULY 1, 1996
TO JUNE 30, -------------------- TO JUNE 17,
1994 1995 1996 1997
---------------- -------- -------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $ -- $ 288 $ 2,729 $ 1,306
Operating expenses:
Station operating expenses..... 17,626 896 4,736 2,364
Depreciation and
amortization................ -- 234 542 346
-------- ------- ------- -------
Operating loss................... (17,626) (842) (2,549) (1,404)
Other income (expenses):
Interest income................ -- -- 45 --
Interest expense............... (4,691) (200) (3,252) (2,222)
Other.......................... -- -- (259) (10)
-------- ------- ------- -------
Net loss......................... $(22,317) $(1,042) $(6,015) $(3,636)
======== ======= ======= =======
</TABLE>
7
<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. You should also refer to the other information
in this prospectus, including our financial statements and the related notes.
BECAUSE WE ARE HIGHLY LEVERAGED OUR FUTURE CASH FLOWS MIGHT NOT BE SUFFICIENT TO
MEET OUR OBLIGATIONS AND WE MIGHT HAVE MORE DIFFICULTY OBTAINING FINANCING.
Our highly leveraged financial position poses the following risks to
stockholders:
- a substantial portion of our cash flow from operations will be required
to service our indebtedness;
- our ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes, including
acquisitions might be impeded; and
- we are more vulnerable to economic downturns and our ability to withstand
competitive pressures is limited.
Our future cash flow might not be sufficient to meet our obligations and
commitments. If we do not meet our interest obligations under our credit
agreement or indentures or if we otherwise default under these instruments, our
debt may be accelerated under these instruments as well as other debt
instruments we have. In addition, because we are highly leveraged, it could
limit our ability to respond to market conditions or meet extraordinary capital
needs. If we are unable to generate sufficient cash flow from operations to meet
our obligations and commitments, we will be required to refinance or restructure
our indebtedness or raise additional debt or equity capital. Additionally, we
may be required to sell material assets or operations or delay or forego
acquisitions. These alternative strategies might not be effected on satisfactory
terms, if at all.
THE TERMS OF OUR DEBT LIMIT OUR FINANCIAL FLEXIBILITY AND COULD LIMIT OUR GROWTH
OPPORTUNITIES.
Our credit agreement and our subsidiaries' indentures contain restrictive
covenants that may limit our ability to:
- incur additional debt;
- pay dividends;
- merge, consolidate or sell assets;
- make acquisitions or investments; or
- change the nature of our business.
Our credit agreement and indentures also require us to maintain certain
financial covenants, including specified financial tests. Without lender
consents, or if we do not meet these tests, we may not be able to make
acquisitions as planned or meet general or extraordinary capital needs.
8
<PAGE> 10
IF THERE IS A CHANGE OF CONTROL WE MAY BE REQUIRED TO REPAY OUR OUTSTANDING
INDEBTEDNESS.
If we experience a change of control, either with respect to the credit
agreement or either indenture, we might not have sufficient funds to repay all
amounts outstanding under our revolving credit facility and to repurchase the
notes, as may be required. Alternatively, if we are able to satisfy the change
of control provisions, it would require a substantial diversion of cash flow
from our operations and our acquisition plans and could have a material adverse
effect on our economic viability.
OUR HOLDING COMPANY STRUCTURE COULD LIMIT OUR ABILITY TO PAY DIVIDENDS OR MAKE
DEBT PAYMENTS.
We are a holding company with no operations of our own. Therefore, if our
subsidiaries are unable to pay dividends or make distributions to us, we would
be unable to make dividend payments to our stockholders or pay any future
indebtedness. Our subsidiaries' ability to pay dividends and distributions to us
is limited by the terms of our subsidiaries' credit agreement and indentures.
WE EXPECT TO CONTINUE TO EXPERIENCE NET LOSSES FROM OUR OPERATIONS IN THE
FUTURE.
We have incurred losses from continuing operations in each of our fiscal
years since inception and expect to continue to experience net losses in the
foreseeable future. These net losses, which may be greater than our net losses
in the past, are principally a result of interest expense on our outstanding
debt and non-cash charges for depreciation and amortization expense related to
fixed assets and goodwill related to acquisitions.
OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO SUCCESSFULLY ACQUIRE ADDITIONAL
TELEVISION STATIONS.
Our growth could be limited if we are unable to successfully implement our
acquisition plans. Our ability to acquire additional television stations is
affected by the following:
- many competing acquirers have greater resources available to make such
acquisitions than we have;
- desired stations might not be available for purchase;
- we might be unable to obtain The WB Network affiliation for all of the
stations we acquire;
- we might not have the financial resources necessary to acquire additional
stations;
- we might be unable to obtain FCC approval of the assignments or transfers
of control of FCC licenses; and
- the law limits the number and location of broadcasting properties that
any one person or entity, including its affiliates, may own and could
limit our ability to pursue desired stations.
Generally when we sign acquisition agreements, we enter into interim local
marketing agreements with the seller under which we receive all station revenues
and pay all station expenses. Because the seller retains ultimate programming
control, we bear the economic risks of paying station expenses until closing the
acquisition.
9
<PAGE> 11
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ACQUIRED STATIONS, OUR OPERATING
RESULTS WILL BE NEGATIVELY AFFECTED.
Once we acquire a station, we might not be successful in integrating it
into our group or might be required to divert our limited management resources.
As a result, acquisitions could harm our operating results in the short term as
a result of increased capital requirements.
FAILURE OF NEW STATIONS TO PRODUCE PROJECTED REVENUES COULD HARM OUR FINANCIAL
RESULTS AND EXPECTED GROWTH.
If our new stations do not generate operating cash flow within the expected
time periods, it could harm our financial results and our expected growth.
Generally, it takes a few years for our newly acquired or built stations to
generate operating cash flow. Additionally, in most cases, in the first few
years after we acquire or build a station, we have incurred, and expect to
continue incurring losses, resulting in part from significant expenses related
to:
- acquiring syndicated programming;
- improving technical facilities;
- increasing and improving cable distribution;
- hiring new personnel; and
- marketing the station to viewers.
Additionally, there may be a period before we start generating revenues
because it requires time to gain viewer awareness of new station programming and
to attract advertisers.
OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF
OUR MANAGEMENT TEAM.
Our success is largely dependent on the continued services of our senior
management team, which includes Mr. Kellner, Doug Gealy, our President and Chief
Operating Officer, and Tom Allen, our Executive Vice President and Chief
Financial Officer. Although we have employment and consulting agreements with
these executives, we might not be able to retain them. The loss of the services
of key personnel could harm our business. Our success will also be dependent in
part on our ability to attract and retain quality general managers and other
management personnel for our stations.
OUR CHIEF EXECUTIVE OFFICER MIGHT HAVE CONFLICTS OF INTEREST WITH OUR BUSINESS.
Mr. Kellner's consulting agreement provides that he may perform services
for other businesses unaffiliated with ours that, in certain limited
circumstances, may be competitive. Because of Mr. Kellner's experience in the
television broadcast industry, if Mr. Kellner provides services to a competing
business, it could materially affect our operations.
Mr. Kellner's ownership and position at The WB Network could create
conflicts with his position with us if our interests differ from those of The WB
Network. Because Mr. Kellner is both our Chief Executive Officer and The WB
Network's Chief Executive Officer, The WB Network requires that he recuse
himself from any material transaction between The WB Network and us.
Additionally, due to his responsibilities with The WB Network, Mr. Kellner might
have limited time available to devote to us.
10
<PAGE> 12
OUR RELATIONSHIP WITH THE WB NETWORK COULD BE ADVERSELY AFFECTED IF MR. KELLNER
LEAVES THE WB NETWORK.
Mr. Kellner is an owner and the Chief Executive Officer of The WB Network
but he does not have a written employment contract with The WB Network. If Mr.
Kellner leaves The WB Network, our relationship with The WB Network could be
adversely affected.
OUR RATINGS AND REVENUES COULD DECLINE SIGNIFICANTLY IF OUR RELATIONSHIP WITH
THE WB NETWORK, OR THE WB NETWORK'S SUCCESS, CHANGES IN AN ADVERSE MANNER.
If our relationship with The WB Network changes in an adverse manner, or if
The WB Network's success diminishes, it might have a material adverse effect on
our ability to generate advertising revenue on which our business is dependent.
The WB Network's relationships with Time Warner and Tribune Broadcasting are
important to The WB Network's continued success but those relationships might
not continue to exist. Similarly, The WB Network might not renew, or might
adversely change any one of our station affiliation agreements. Additionally,
the ratings of The WB Network programming might not continue to improve or The
WB Network might not continue to provide programming, marketing and other
support to its affiliates on the same basis as currently provided. Finally, by
aligning ourselves closely with The WB Network, we might forego other
opportunities that could provide diversity of our network affiliation and avoid
dependence on any one network.
IF OUR BROADCAST CASH FLOW FROM KPLR DECLINES SIGNIFICANTLY, WE WILL BE UNABLE
TO MEET OUR OBLIGATIONS.
If we experience a significant decline in broadcast cash flow from KPLR we
will not have any positive cash flow and will not be able to fulfill our current
and future obligations and commitments. Due to negative net cash flow at our
start-up stations, broadcast cash flow from KPLR accounted for more than 100% of
our total broadcast cash flow in 1998 and for the six months ended June 30,
1999.
IF OUR SYNDICATED PROGRAMMING COSTS INCREASE OR WE CANNOT OBTAIN POPULAR
PROGRAMS, OUR OPERATING COSTS COULD INCREASE OR OUR RATINGS AND REVENUES COULD
DECLINE.
If we are unable to acquire popular syndicated programming, our ratings and
revenues could decline. One of our most significant operating costs is
syndicated programming. We may be exposed in the future to increased syndicated
programming costs that could adversely affect our operating results. In
addition, syndicated programs that meet our criteria might not be available in
the future or might not be available at prices that are acceptable to us. We
believe that the prices of the most sought after syndicated programming will
continue to increase. Syndicated programming rights are often acquired several
years in advance and may require multi-year commitments, making it difficult to
accurately predict how a program will perform. In some instances, programs must
be replaced before their costs have been fully amortized, resulting in
write-offs that increase station operating costs.
IF WE DO NOT MAINTAIN FAVORABLE AUDIENCE RATINGS IT COULD HARM OUR ABILITY TO
PRODUCE ADVERTISING REVENUE.
If our ratings declined, it could harm our ability to produce advertising
revenue. The broadcast television industry is highly competitive, and cable
television and formerly independent stations now affiliated with new networks
have captured increasing market
11
<PAGE> 13
share and overall viewership from general broadcast network television. We also
face increasing competition from home satellite delivery, direct broadcast
satellite television systems and video delivery systems utilizing telephone
lines. Rating declines resulting from these competitors, it could harm our
ability to attract advertisers.
THE REQUIRED CONVERSION TO DIGITAL TELEVISION WILL IMPOSE SIGNIFICANT COSTS ON
US WHICH MAY NOT BE BALANCED BY CONSUMER DEMAND.
The required conversion of the broadcast industry to provide digitally
transmitted television signals will require us to make significant capital
expenditures which may not be balanced by consumer demand for digital
television. The FCC requires us to provide a digitally transmitted signal by
2002 for all of our stations and, generally, to stop using analog signals on the
stations by 2006. Although we have begun preparations to make the transition to
digital television by entering into lease agreements to install digital
television antennas and transmitters, we are unable to predict how much the
entire transition will cost and how long it will take. Because digital
television is generally available only in some of the top-ten viewing markets,
we are unable to predict what the consumer demand for digital division will be
or when the demand will arise.
FCC REGULATION OF OUR BUSINESS COULD ADVERSELY AFFECT OUR LICENSES AND OUR
ABILITY TO ACQUIRE NEW STATIONS.
Our operations are subject to extensive and changing regulation on an
ongoing basis by Congress, the FCC and the courts. This regulation could limit
our ability to acquire more stations as well as adversely affect our existing
licenses. The prior approval of the FCC is required for the issuance, renewal,
modification, assignment and transfer of control of station permits and
licenses. Our growth is subject to the requirement that the FCC must approve any
acquisitions that require an assignment or transfer of control of an FCC
license. In addition, the FCC licenses we hold are subject to renewal from time
to time. If the FCC finds that we have not complied with certain regulations or
if a party files a complaint, the FCC could refuse to renew one of our FCC
licenses or could issue the FCC license subject to conditions. The non-renewal
or conditional renewal of one or more of our television broadcast licenses could
harm our business.
CHANGES IN FEDERAL LAWS COULD RESULT IN INCREASED COMPETITION FOR OUR STATIONS
Recent and prospective actions by Congress, the FCC and the courts could
cause us to face significant competition in the future. The changes include the:
- relaxation of restrictions on television station ownership;
- relaxation of restrictions on the participation by regional telephone
operating companies in cable television and other direct-to-home video
technologies;
- relaxation of restrictions on the offering of multiple network services
by the existing major television networks; and
- increased restrictions on the use of local marketing agreements.
For example, we own one station and have received FCC approval for the
purchase of another station in Albuquerque. We intend to sell the station we own
in the Albuquerque market at the same time that we purchase the other station.
However, we also intend to operate the station we sell under a local marketing
agreement. Although we have entered into a local marketing agreement for the
station we will sell in Albuquerque, because of the recent FCC rule changes the
FCC could require us to terminate the agreement.
12
<PAGE> 14
NEW FCC REGULATIONS COULD HARM OUR ABILITY TO MAINTAIN CARRIAGE ON CABLE
TELEVISION.
It is possible that new laws or regulations may eliminate, or at least
limit the scope of, our cable carriage rights. Because our television stations
rely on must carry rights and retransmission consent to obtain cable carriage,
either of those results could have a material adverse impact on our operations.
Pursuant to the must carry provisions of the Cable Television Consumer
Protection and Competition Act of 1992, a broadcaster may demand carriage on a
specific channel on cable systems within its market. However, the future of
those must carry rights is uncertain. The current FCC rules relate to only the
carriage of analog television signals. It is not clear what, if any, must carry
rights television stations will have after they make the transition to digital
television.
THE FCC COULD IMPOSE SEVERE PENALTIES ON US IF IT RESCINDS APPROVAL OF OUR
SHORT-FORM CHANGE OF CONTROL APPLICATION, OR IF OUR INTERIM VOTING AGREEMENT
TERMINATES BEFORE FCC FINAL APPROVAL OF OUR LONG-FORM CHANGE OF CONTROL
APPLICATION.
Our reorganization and offering constitute a change of control under FCC
Regulations, for which we have applied for FCC approval. Because approval of our
short-form and long-form FCC change of control applications are subject to
reconsideration or review before our reorganization and this offering, we will
face some risk until the FCC orders granting these applications become final. To
obtain a grant of our short-form application, we have agreed to enter into an
interim voting agreement to prevent a substantial change of control. If the FCC
rescinded its grant of our short-form application, because of an issue with our
interim voting agreement, an appeal or the FCC's reconsideration of its grant
the FCC could force us to pay fines, deny renewal of our licenses, refuse to
approve any of our acquisitions, divest our FCC licenses, restructure our
reorganization or take any other action necessary to come into compliance with
an FCC order.
Until the FCC has issued a final order approving our long-form application,
the interim voting agreement must remain in effect. If our interim voting
agreement terminates before approval of our long-form application, the FCC could
force us to pay fines, deny renewal of our licenses, refuse to approve any of
our acquisitions, divest our FCC licenses, restructure our reorganization or
take any other action necessary to come into compliance with an FCC order. If
the FCC delays a grant or denies this long-form application, we would continue
to be restricted by the provisions of the interim voting agreement.
DURING THE PERIOD THAT THE INTERIM-VOTING AGREEMENT AND THE LONG-TERM VOTING
AGREEMENT ARE IN EFFECT, STOCKHOLDERS WHO PURCHASE STOCK IN THIS OFFERING WILL
NOT INFLUENCE THE ELECTION OF THE BOARD.
Stockholders holding more than 50% of our common stock after this offering
will enter into an interim voting agreement until we receive the FCC final order
approving our long-form change of control application. The same stockholders
will also enter into a separate, long-term voting agreement that will take
effect following that approval. Under the interim voting agreement, Messrs.
Kellner, Gealy and Allen can elect all members of our board of directors. Under
the long-term voting agreement, Messrs. Kellner, Gealy, Allen, Embrescia and
Roberts and investment funds managed by or affiliated with Alta Communications,
BancBoston, CEA Capital and TCW Asset Management Company will be able to elect
at least a majority of our board. While these agreements are in effect our
current senior management, either alone during the period the interim voting
agreement is in effect, or with these stockholders if the long-term agreement
becomes effective, will effectively control
13
<PAGE> 15
ACME. The long-term agreement will terminate, in any event, two years from the
closing of this offering. However, the interim agreement could remain in effect
longer than two years if our long-form application is not approved by the FCC,
or even if approved, it does not become final. As a result, those parties who
purchase stock in this offering will not have influence over the election of our
board during that period.
OUR BOARD'S POWER IS LIMITED BY OUR INTERIM VOTING AGREEMENT.
Under the interim agreement, our management will be prohibited from taking
actions that might not otherwise need approval outside our board. At least 60%
in interest of certain investment funds managed by or affiliated with Alta
Communications, BancBoston, CEA Capital and TCW Asset Management Company must
approve:
- redemption of our shares;
- authorization or issuance of additional shares of our common stock;
- payment or declaration of dividends;
- our merger or consolidation;
- the reorganization or sale of us, our subsidiaries, or any of our
material assets;
- entry into new businesses;
- our consent to enter into bankruptcy;
- incurrence of substantial debt;
- significant capital expenditures;
- any change of control requiring FCC approval;
- significant acquisitions; and
- changes in senior management or senior management compensation.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD HINDER ACQUISITION OF OUR
COMPANY.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change of control of our
company or a change in our management. These provisions could also discourage
proxy contests and make it more difficult for you and other stockholders to
elect directors and take other corporate actions. As a result, these provisions
could limit the price that investors are willing to pay in the future for shares
of our common stock.
WE COULD BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES.
Year 2000 issues are a result of computer software applications using a
two-digit format, as opposed to a four-digit format, to indicate the year. Some
computer software applications might be unable to distinguish between dates
beyond the year 1999, which could cause system failures or miscalculations in
our broadcast and corporate locations that could cause disruptions of
operations, including a temporary inability to produce broadcast signals or
engage in normal business activities. Additionally, year 2000 disruptions at our
suppliers and business partners, including The WB Network, syndicated
programmers, advertisers, communications service providers, utilities and
financial institutions could cause a loss of power and communications links that
are crucial to our operations, but largely beyond our control.
14
<PAGE> 16
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "intend," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative of such terms or other comparable terminology.
Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause our and the television broadcast industry's
actual results, levels of activity, performance, achievements and prospects to
be materially different from those expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors include those
identified under "Risk Factors" in this prospectus.
We are under no duty to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
after the date of this prospectus. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
15
<PAGE> 17
USE OF PROCEEDS
We will receive estimated net proceeds of approximately $92 million from
the sale of shares of common stock in this offering, based on an assumed initial
public offering price of $20.00 per share, the midpoint of the range set forth
on the cover page of this prospectus, and after deducting underwriting discounts
and estimated offering expenses. We expect to use the net proceeds of this
offering to:
- repay all indebtedness outstanding under our revolving credit facility
($39.4 million);
- fund the acquisition of KASY ($24.0 million due at closing);
- repay debt incurred in connection with the acquisition of WBDT, WIWB and
WBUI ($15.0 million); and
- provide funds for general corporate purposes, including working capital
requirements and future acquisitions.
Indebtedness under our revolving credit facility accrues interest at
variable rates and must be repaid in full by September 30, 2002. At June 30,
1999, the weighted average interest rate on revolving credit facility borrowings
was 8.0%. Indebtedness incurred on April 23 and June 23, 1999 to acquire WBDT,
WIWB and WBUI accrues interest at a rate of 22.5% and must be repaid in full on
the earlier of April 23, 2002 or consummation by us of any debt or equity
financings generating net proceeds greater than the outstanding loan balance.
Pending use of the net proceeds as described above, we will invest the net
proceeds in investment grade, short-term marketable securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends or distributions on our
common stock since our inception. We anticipate that, for the foreseeable
future, all earnings will be retained for use in our business and no cash
dividends will be paid on our common stock. Any payment of future cash dividends
on our common stock will be dependent upon the ability of our subsidiaries to
pay dividends or make cash payments or advances to us. Our credit agreement and
our subsidiaries' indentures impose restrictions on our subsidiaries' ability to
make these payments. Our ability to pay future dividends will also be subject to
restrictions under any future debt obligations and other factors that our board
of directors deems relevant.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of June 30, 1999 on an actual basis, and on a pro forma basis
(see the pro forma financial information included elsewhere in this prospectus)
as adjusted to reflect the estimated net proceeds of $92 million from this
offering and the use of those proceeds.
The table should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------
(UNAUDITED)
PRO FORMA
AS
ACTUAL ADJUSTED
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)............................... $ 1,669 $ 13,903
======== =========
Current portion of obligations under lease................. $ 1,277 $ 1,277
Obligations under lease, net of current portion............ 4,078 4,078
Long-term debt:
Revolving credit facility(2)............................. 39,400 --
Bridge loan(2)........................................... 15,000 --
10 7/8% senior discount notes............................ 153,357 153,357
12% senior secured notes................................. 44,913 44,913
Convertible debentures(3)................................ 24,756 --
-------- ---------
Total long-term debt.................................. 277,426 198,270
-------- ---------
Minority interest(3)....................................... 830 --
Members' capital (deficit) / stockholders' equity(3):
Members' capital(3)...................................... 41,532 --
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding actual
and as adjusted....................................... -- --
Common stock, $0.01 par value; 50,000,000 shares
authorized; no shares issued and outstanding actual;
16,750,000 shares issued and outstanding as pro forma
adjusted(2)(3)........................................ -- 168
Additional paid-in capital(2)(3)......................... -- 123,532
Accumulated deficit(3)................................... (57,818) --
-------- ---------
Total members' deficit / stockholders' equity......... (16,286) 123,700
-------- ---------
Total capitalization............................. $267,325 $ 327,325
======== =========
</TABLE>
- -------------------------
(1) Cash and cash equivalents pro forma as adjusted includes estimated net
proceeds of $92 million offset by the following uses:
- $39.4 million to repay revolving credit facility borrowings at June 30,
1999;
- $24.0 million to fund the $25.0 million acquisition price for KASY, net
of $1.0 million paid to the seller in August 1999; and
- $15.0 million to repay the bridge loan plus $366,000 of interest payable.
(2) Adjusted to reflect the issuance of common stock with estimated net proceeds
of $92 million, and the use of proceeds as discussed in (1) above. It is
estimated that 16,750,000 shares will be outstanding upon completion of the
offering.
(3) Adjusted to reflect the reorganization as disclosed in the pro forma
financial statements.
17
<PAGE> 19
DILUTION
Our pro forma net tangible book deficit as of June 30, 1999 was $247.1
million or a deficit of $21.03 per share of common stock. Pro forma net tangible
book deficit per share represents the amount of our total pro forma tangible
assets reduced by the amount of our total pro forma liabilities, divided by the
number of shares of common stock outstanding on a pro forma basis. Our pro forma
net tangible book deficit, as adjusted for the sale of 5,000,000 shares of
common stock to be issued in this offering and the application of the net
proceeds from the sale, and after deducting underwriting discounts and estimated
offering expenses, would have been $155.1 million or a deficit of $9.26 per
share. This represents an immediate decrease in pro forma net tangible book
value deficit of $11.77 per share to stockholders immediately before this
offering and an immediate dilution of $29.26 per share to new investors. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $20.00
Net tangible book deficit per share before the
offering........................................... $(21.03)
Decrease per share attributable to new investors...... 11.77
-------
Pro forma net tangible book value per share after the
offering.............................................. (9.26)
------
Dilution per share to new investors..................... $29.26
======
</TABLE>
The following table summarizes, after giving effect to the offering, the
differences between existing stockholders and new investors with respect to the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid, based on an assumed initial public
offering price of $20.00 per share:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)......... 11,750,000 70.1% $ 60,839,000 37.8% $ 5.18
New investors............. 5,000,000 29.9% 100,000,000 62.2% 20.00
---------- ----- ------------ ----- ------
Total................... 16,750,000 100.0% $160,839,000 100.0% $ 9.60
========== ===== ============ ===== ======
</TABLE>
- -------------------------
(1) Reflects total consideration of issuance of units, issuance of convertible
debentures, accrued interest payable on convertible debentures, and issuance
of minority interest.
18
<PAGE> 20
PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated financial statements of ACME
Communications, Inc. are presented to reflect the acquisition of Koplar
Communications, Inc. and the reorganization of ACME Communications, Inc. The
accompanying pro forma financial information includes:
1. Pro forma balance sheet as of June 30, 1999 for ACME
Communications, Inc., prepared as if the reorganization related
transactions were effective as of that date;
2. Pro forma statement of operations for ACME Communications, Inc. for
the year ended December 31, 1998, prepared as if the Koplar acquisition and
the reorganization had occurred at the beginning of the period; and
3. Pro forma statement of operations for ACME Communications, Inc. for
the six months ended June 30, 1999 for ACME Communications, Inc., prepared
as if the reorganization had occurred at the beginning of the period.
The pro forma balance sheets were derived from the combined unaudited
balance sheet of ACME Communications, Inc. and the unaudited balance sheet of
ACME Television Holdings, LLC as of June 30, 1999.
The pro forma statement of operations for the year ended December 31, 1998
was derived from the audited consolidated statement of operations for ACME
Television Holdings, LLC for the year then ended.
The pro forma statement of operations for the six months ended June 30,
1999 was derived from the unaudited consolidated statement of operations for
ACME Television Holdings, LLC for the period then ended.
The pro forma data are based upon available information and certain
assumptions that management believe are reasonable. The pro forma adjustments
are described in the footnotes to the pro forma financial statements. The
compensation expense related to the conversion of management carry units into
shares of common stock and the acquisition of minority interest in exchange for
shares of common stock is based on preliminary estimates of the fair value of
securities to be issued in the offering. It is possible that the estimates noted
above might require further revisions. The pro forma consolidated financial
statements do not purport to represent what ACME Communication, Inc.'s results
of operations or financial condition would actually have been had the
transactions occurred on such dates or to project ACME Communication, Inc.'s
results of operations or financial condition for any future period or date.
The pro forma financial information should be read in conjunction with the
historical financial statements for ACME Television Holdings, LLC and the
historical balance sheet of ACME Communications, Inc. at June 30, 1999, which
were used to prepare the pro forma financial information. The historical
financial statements of ACME Television Holdings, LLC and the historical balance
sheet of ACME Communications, Inc. are included in this document.
19
<PAGE> 21
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED ADJUSTED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ACME
ACME TELEVISION COMMUNICATIONS,
HOLDINGS, LLC REORGANIZATION INC.
--------------- -------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,669 $ -- $ 1,669
Accounts receivable....................................... 13,151 -- 13,151
Current portion of program rights......................... 6,508 -- 6,508
Prepaid expenses and other current assets................. 798 -- 798
-------- -------- --------
Total current assets................................ 22,126 -- 22,126
Property and equipment, net................................. 25,002 -- 25,002
Program rights, net of current portion...................... 5,757 -- 5,757
Deposits.................................................... 536 -- 536
Deferred income taxes....................................... 3,971 -- 3,971
Intangible assets, net...................................... 261,156 17,649(1) 278,805
Other assets................................................ 11,734 -- 11,734
-------- -------- --------
Total assets........................................ 330,282 17,649 347,931
======== ======== ========
Current liabilities:
Accounts payable.......................................... 4,951 -- 4,951
Accrued liabilities....................................... 7,851 -- 7,851
Current portion of program rights payable................. 6,082 -- 6,082
Current portion of obligations under lease................ 1,277 -- 1,277
-------- -------- --------
Total current liabilities........................... 20,161 -- 20,161
Program rights payable, net of current portion.............. 4,964 -- 4,964
Obligations under lease, net of current portion............. 4,078 -- 4,078
Other liabilities........................................... 5,670 (4,751)(2) 919
Deferred income taxes....................................... 33,439 -- 33,439
Revolving credit facility................................... 39,400 -- 39,400
Bridge loan................................................. 15,000 -- 15,000
Convertible debt............................................ 24,756 (24,756)(2) --
10 7/8% senior discount notes............................... 153,357 -- 153,357
12% senior secured notes.................................... 44,913 -- 44,913
-------- -------- --------
Total liabilities................................... 345,738 (29,507) 316,231
Minority interest........................................... 830 (830)(1) --
Members' capital (deficit) / stockholders' equity:
Members' capital.......................................... 41,532 (41,532)(3) --
Preferred stock........................................... -- -- --
$.01 par value; 10,000,000 shares authorized no shares
issued and outstanding
Common stock............................................ -- -- --
$.01 par value; 0 shares outstanding on a historical
basis; 11,750,000 shares outstanding on a pro forma
basis................................................. 118(4) 118
29,507(2)
18,479(1)
16,343(5)
(118)(4)
41,532(3)
Additional paid in capital................................ -- (74,161)(6) 31,582
(16,343)(5)
Accumulated deficit....................................... (57,818) 74,161(6) --
-------- -------- --------
Total members' deficit / stockholders' equity....... (16,286) 47,986 31,700
-------- -------- --------
Total liabilities and members'
capital / stockholders' equity.................... $330,282 $ 17,649 $347,931
======== ======== ========
</TABLE>
- -------------------------
(1) In conjunction with the reorganization, we will acquire the minority
interest of ACME Intermediate Holdings, LLC. The excess of the estimated
fair value of the securities issued to acquire the minority interest over
the book value of minority interest of approximately $17.6 million will be
allocated to the fair value of the assets acquired, primarily broadcast
licenses and goodwill. For pro forma purposes, the entire excess has been
allocated to broadcast licenses and goodwill, with an amortization period of
20 years.
20
<PAGE> 22
(2) Reflects the conversion of the convertible debt and its accrued interest of
$4.8 million into shares of common stock, pursuant to the original
conversion terms, in conjunction with the reorganization.
(3) In conjunction with the reorganization, members units will be exchanged for
common stock. Accordingly, members' capital has been reclassified to
additional paid in capital.
(4) Estimated number of shares of our common stock outstanding immediately prior
to the consummation of the offering, including approximately 5,386,000
shares issued in exchange for ACME Television Holdings, LLC units,
approximately 924,000 shares issued to acquire minority interest,
approximately 4,088,000 shares issued in the conversion of the convertible
debentures and approximately 1,352,000 shares issued in exchange for
management carry units.
(5) Reflects compensation expense related to the conversion of management carry
units to shares of common stock with an estimated value of $27.0 million
reduced by $10.7 million expensed through June 30, 1999. The actual expense
relating to the shares issued in exchange for the management carry units
will be based on the number of shares actually issued and the offering
price.
(6) Reclassification of accumulated deficit to additional paid in capital to
reflect the reorganization.
21
<PAGE> 23
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED ADJUSTED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ACME
ACME TELEVISION KOPLAR COMMUNICATIONS,
HOLDINGS, LLC ACQUISITION REORGANIZATION INC.
--------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Net revenues.................... $ 43,928 $ -- $ -- $ 43,928
Operating expenses:
Station operating expenses.... 32,973 -- -- 32,973
Depreciation and
amortization................ 11,355 2,496(1) 728(2) 14,579
Corporate..................... 2,627 -- -- 2,627
-------- ------- ----------- -----------
Total operating expenses.... 46,955 2,496 728 50,179
-------- ------- ----------- -----------
Operating loss.............. (3,027) (2,496) (728) (6,251)
Other income (expenses):
Interest income............... 231 -- -- 231
Interest expense.............. (23,953) -- 2,475(3) (21,478)
Gain on sale of asset......... 1,112 -- -- 1,112
Other......................... (380) -- -- (380)
-------- ------- ----------- -----------
Loss before taxes and minority
interest...................... (26,017) (2,496) 1,747 (26,766)
Income tax benefit.............. 2,393 998(4) 7,311(5) 10,702
-------- ------- ----------- -----------
Loss before minority interest... (23,624) (1,498) 9,058 (16,064)
Minority interest............. 1,684 -- (1,684)(6) --
-------- ------- ----------- -----------
Net loss...................... $(21,940) $(1,498) $ 7,374 $ (16,064)
======== ======= =========== ===========
Net loss per share.............. n/a n/a n/a $ (1.37)
======== ======= =========== ===========
Weighted average shares
outstanding................... n/a n/a 11,750,000(7) 11,750,000
======== ======= =========== ===========
</TABLE>
- -------------------------
(1) Represents depreciation of $151,000 and amortization of $2.3 million for the
first three months of 1998 giving effect to the acquisition of KPLR (which
was acquired on March 13, 1998) as if it occurred on January 1, 1998. The
results of operations of KPLR have been included in our operations for the
period from January 1, 1998 to March 31, 1998 pursuant to a local marketing
agreement.
(2) In conjunction with the reorganization, we will acquire the minority
interest of ACME Intermediate Holdings, LLC. The excess of the estimated
fair value of the securities issued to acquire the minority interest over
the book value of minority interest at January 1, 1998 of approximately
$14.6 million will be allocated to the fair value of the net assets
acquired, primarily broadcast licenses and goodwill. For pro forma purposes,
the entire excess has been allocated to broadcast licenses and intangibles
and will be amortized over 20 years. This allocation is subject to
adjustment by us.
(3) Adjustment eliminates interest expense of $2.5 million to give effect to the
exchange of convertible debentures for shares of our common stock in
conjunction with the reorganization as if it occurred as of January 1, 1998.
(4) Tax benefit relating to additional depreciation and amortization expense
relating to KPLR, as described in footnote (1).
22
<PAGE> 24
(5) To adjust the provision for income taxes on pro forma net loss before income
taxes and minority interest, which gives effect to the change in our income
tax status to a C corporation in connection with the reorganization. In
connection with this adjustment, we estimated an effective tax rate of 40%
and recorded a deferred tax benefit based on the deferred tax liabilities on
our books as of December 31, 1998.
(6) In conjunction with the reorganization, the minority interest has been
acquired by us and the allocation of loss to minority interest has been
eliminated.
(7) Estimated number of shares of our common stock outstanding immediately prior
to the consummation of the offering, including shares issued in exchange for
ACME Television Holdings, LLC units, shares issued to acquire minority
interest shares issued in the conversion of the convertible debentures and
shares issued in exchange for the management carry units.
23
<PAGE> 25
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED ADJUSTED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ACME
ACME TELEVISION COMMUNICATIONS,
HOLDINGS, LLC REORGANIZATION INC.
--------------- -------------- ---------------
<S> <C> <C> <C>
Net revenues............................. $ 26,635 $ -- $ 26,635
Operating expenses
Station operating expenses............. 19,990 -- 19,990
Depreciation and amortization.......... 8,159 406(1) 8,565
Corporate.............................. 1,483 -- 1,483
Equity-based compensation.............. 10,700 -- 10,700
-------- ----------- -----------
Total operating expenses............ 40,332 406 40,738
-------- ----------- -----------
Operating income (loss)............. (13,697) (406) (14,103)
Other income (expenses)
Interest income........................ 27 -- 27
Interest expense....................... (14,068) 1,228(2) (12,840)
Gain on sale of assets................. -- -- --
Other.................................. -- -- --
-------- ----------- -----------
Loss before taxes and minority
interest.......................... (27,738) 822 (26,916)
Income tax benefit (expense)...... (2,064) 12,812(3) 10,748
-------- ----------- -----------
Loss before minority interest....... (29,802) 13,634 (16,168)
Minority interest................. 1,403 (1,403)(4) --
-------- ----------- -----------
Net loss.......................... $(28,399) $ 12,231 $ (16,168)
======== =========== ===========
Net loss per share....................... $ n/a $ n/a $ (1.38)
======== =========== ===========
Weighted average shares outstanding...... n/a 11,750,000(5) 11,750,000
======== =========== ===========
</TABLE>
- -------------------------
(1) In conjunction with the reorganization, we will acquire the minority
interest of ACME Intermediate Holdings, LLC. The excess of the estimated
fair value of the securities issued to acquire the minority interest over
the book value of minority interest at January 1, 1999 of approximately
$16.2 million will be allocated to the fair value of the assets acquired,
primarily broadcast licenses and goodwill. For pro forma purposes, the
entire excess has been allocated to broadcast licenses and intangibles and
will be amortized over 20 years.
(2) Adjustment eliminates interest expense, $1.2 million for the six months
ended June 30, 1999, to give effect to the exchange of convertible
debentures for shares of our common stock in conjunction with the
reorganization as if this occurred as of January 1, 1998.
(3) To adjust the provision for income taxes on pro forma net loss before income
taxes and minority interest, which gives effect to the change in our income
tax status to a C corporation in connection with the reorganization. In
connection with this adjustment, we estimated an effective tax rate of 40%
and recorded a deferred benefit based on the deferred tax liabilities on its
books.
(4) In conjunction with the reorganization, the minority interest has been
acquired by us and the allocation of loss to minority interest has been
eliminated.
(5) Estimated number of shares of our common stock outstanding immediately prior
to the consummation of the offering, including shares issued in exchange for
ACME Television Holdings, LLC units, shares issued to acquire minority
interest shares issued in the conversion of the convertible debentures and
shares issued in exchange for management carry units.
24
<PAGE> 26
SELECTED CONSOLIDATED AND PRO FORMA FINANCIAL DATA
The following selected financial data should be read in conjunction with
our consolidated financial statements and accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in the prospectus. The selected consolidated financial data
presented below as of and for the years ended December 31, 1997 and 1998 are
derived from our consolidated financial statements, which have been audited by
KPMG LLP, independent auditors. The selected consolidated financial data
presented below as of June 30, 1999 and for the six months ended June 30, 1998
and 1999 are derived from the unaudited financial statements of ACME Television
Holdings, LLC, which in the opinion of our management, contain all necessary
adjustments of a normal recurring nature, to present the financial statements in
conformity with generally accepted accounting principles. Our results for the
six month period ended June 30, 1999 are not necessarily indicative of the
results for the year ended December 31, 1999. Our selected financial data is not
comparable from period to period because of our acquisition of television
broadcast stations. The pro forma statement of operations data for ACME
Communications, Inc., gives effect to the acquisition of Koplar Communication
Inc. and to our reorganization at the beginning of each period indicated,
whereas the pro forma ACME Communication, Inc. balance sheet data gives effect
only to the reorganization as of the date presented.
<TABLE>
<CAPTION>
PRO FORMA
ACME
PRO FORMA COMMUNICATIONS,
ACME TELEVISION ACME ACME TELEVISION INC.(1)
HOLDINGS, LLC COMMUNICATIONS, HOLDINGS, LLC ---------------
-------------------- INC.(1) ---------------------
YEARS ENDED --------------- SIX MONTHS ENDED SIX MONTHS
DECEMBER 31, YEAR ENDED JUNE 30, ENDED
-------------------- DECEMBER 31, --------------------- JUNE 30,
1997 1998 1998 1998 1999 1999
-------- --------- --------------- --------- --------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................. $ 11,347 $ 43,928 $ 43,928 $ 19,327 $ 26,635 $ 26,635
Operating expenses:
Station operating expenses............. 10,158 32,973 32,973 15,165 19,990 19,990
Depreciation and amortization.......... 1,215 11,355 14,579 4,181 8,159 8,565
Corporate.............................. 1,415 2,627 2,627 1,194 1,483 1,483
Equity-based compensation.............. -- -- -- -- 10,700 10,700
-------- --------- ---------- --------- --------- ----------
Operating loss........................... (1,441) (3,027) (6,251) (1,213) (13,697) (14,103)
Other income (expenses):
Interest income........................ 287 231 231 188 27 27
Interest expense....................... (6,562) (23,953) (21,478) (11,472) (14,068) (12,840)
Gain on sale of asset.................. -- 1,112 1,112 -- -- --
Other.................................. -- (380) (380) 10 -- --
-------- --------- ---------- --------- --------- ----------
Loss before taxes and minority
interest............................... (7,716) (26,017) (26,766) (12,487) (27,738) (26,916)
Income tax benefit (expense)............. -- 2,393 10,702 365 (2,064) 10,748
-------- --------- ---------- --------- --------- ----------
Loss before minority interest............ (7,716) (23,624) (16,064) (12,122) (29,802) (16,168)
Minority interest........................ 237 1,684 -- 868 1,403 --
-------- --------- ---------- --------- --------- ----------
Net loss................................. $ (7,479) $ (21,940) $ (16,064) $ (11,254) $ (28,399) $ (16,168)
======== ========= ========== ========= ========= ==========
Pro forma basic and diluted net loss per
share.................................. n/a n/a $ (1.37) n/a n/a $ (1.38)
Basic and diluted weighted average shares
outstanding(1)......................... n/a n/a 11,750,000 n/a n/a 11,750,000
BALANCE SHEET DATA:
Total assets............................. $220,475 $ 288,082 n/a $ 290,439 $ 330,282 $ 347,931
Long-term debt(2)........................ 192,452 220,256 n/a 220,074 277,426 252,670
Total members' capital................... 16,306 1,413 n/a 30,838 (16,286) n/a
Total shareholders' equity............... n/a n/a n/a n/a n/a 31,700
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
ACME TELEVISION HOLDINGS, LLC
---------------------------------------------
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- --------------------
1997 1998 1998 1999
--------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SUPPLEMENTAL FINANCIAL DATA:
Broadcast cash flow and adjusted EBITDA(3):
Operating loss....................................... $ (1,441) $ (3,027) $ (1,213) $(13,697)
Add back:
Equity-based compensation.......................... -- -- -- 10,700
Depreciation and amortization...................... 1,215 11,355 4,181 8,159
Time brokerage fees................................ -- 228 228 --
Amortization of program rights..................... 1,433 5,321 2,195 3,250
Corporate expenses................................. 1,415 2,627 1,194 1,483
Adjusted program payments(3)....................... (1,598) (5,124) (2,152) (3,379)
--------- -------- -------- --------
Broadcast cash flow.............................. $ 1,024 $ 11,380 $ 4,433 $ 6,516
Less:
Corporate expenses................................. 1,415 2,627 1,194 1,483
--------- -------- -------- --------
Adjusted EBITDA.................................. $ (391) $ 8,753 $ 3,239 $ 5,033
Broadcast cash flow margin(3).......................... 9.0% 25.9% 22.9% 24.5%
Adjusted EBITDA margin(3).............................. n/m 19.9% 16.8% 18.9%
Cash flows provided by (used in) operations:
Operating activities................................. $ (599) $ 319 $ (89) $ 3,731
Investing activities................................. (191,730) (15,504) (20,790) (48,841)
Financing activities................................. 201,153 7,362 13,949 45,778
Deficiency of earnings to fixed charges(4)............. $ 7,716 $ 23,624 $ 12,122 $ 29,802
</TABLE>
- -------------------------
(1) Reflects the acquisition of Koplar Communications, Inc. and our
reorganization as explained in the pro forma financial information included
elsewhere in this prospectus.
(2) Includes amounts outstanding under our bridge loan, convertible debentures,
10 7/8% senior discount notes and 12% senior secured notes.
(3) We define:
- broadcast cash flow as operating income, plus equity-based compensation,
depreciation and amortization, time brokerage fees, amortization of
program rights, and corporate expenses, less program payments -- the
latter as adjusted to reflect reductions for liabilities relating to
expired rights or rights which have been written-off in connection with
acquisitions;
- adjusted EBITDA as broadcast cash flow less corporate expenses;
- broadcast cash flow margin as broadcast cash flow as a percentage of net
revenues; and
- adjusted EBITDA margin as adjusted EBITDA as a percentage of net
revenues.
We have included broadcast cash flow, broadcast cash flow margin, adjusted
EBITDA and adjusted EBITDA margin data because management believes that
these measures are useful to an investor to evaluate our ability to service
debt and to assess the earning ability of our stations' operations.
However, you should not consider these items in isolation or as substitutes
for net income, cash flows from operating activities and other statement of
operations or cash flows data prepared in accordance with generally
accepted accounting principles. These measures are not necessarily
comparable to similarly titled measures employed by other companies.
(4) Earnings are defined as earnings or loss before minority interest and fixed
charges. Fixed charges are the sum of:
- interest costs, including estimated interest within rental expense; and
- amortization of deferred financing costs.
We have disclosed the deficiency of earnings to fixed charges as earnings
were not adequate to cover fixed charges in each of the periods presented.
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<PAGE> 28
OUR PREDECESSOR'S SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data of our predecessor,
Channel 32, Incorporated. The data presented in this table are derived from the
financial statements and notes which are included elsewhere in this prospectus.
You should read those sections for a further explanation of the financial data
summarized here.
<TABLE>
<CAPTION>
CHANNEL 32, INCORPORATED (PREDECESSOR)
--------------------------------------------------------
PERIOD FROM
DECEMBER 16, PERIOD FROM
1993 (INCEPTION) YEARS ENDED JUNE 30, JULY 1, 1996
TO JUNE 30, -------------------- TO JUNE 17,
1994 1995 1996 1997
---------------- -------- -------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $ -- $ 288 $ 2,729 $ 1,306
Operating expenses:
Station operating expenses..... 17,626 896 4,736 2,364
Depreciation and
amortization................ -- 234 542 346
-------- ------- ------- -------
Operating loss................... (17,626) (842) (2,549) (1,404)
Other income (expenses):
Interest income................ -- -- 45 --
Interest expense............... (4,691) (200) (3,252) (2,222)
Other.......................... -- -- (259) (10)
-------- ------- ------- -------
Net loss......................... $(22,317) $(1,042) $(6,015) $(3,636)
======== ======= ======= =======
</TABLE>
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with ACME Television
Holdings, LLC's consolidated financial statements and related notes included
elsewhere in this prospectus.
OVERVIEW
We derive our revenues primarily from the sale of advertising time to
local, regional and national advertisers. Our revenues depend on our ability to
provide popular programming that attracts audiences in the demographic groups
targeted by advertisers, thereby allowing us to sell advertising time at
satisfactory rates. Our revenues also depend significantly on factors such as
the national and local economy and the level of local competition.
Our revenues are generally highest during the fourth quarter of each year,
primarily due to increased expenditures by advertisers in anticipation of
holiday season consumer spending and an increase in viewership during this
period. We generally pay commissions to advertising agencies on local, regional
and national advertising and to national sales representatives on national
advertising. Our revenues reflect deductions from gross revenues for commissions
payable to advertising agencies and national sales representatives.
Our primary operating expenses are programming costs, employee
compensation, advertising and promotion expenditures and depreciation and
amortization. Programming expense consists primarily of amortization of
broadcast rights relating to syndicated programs as well as news production and
sports rights fees. Changes in employee compensation expense result primarily
from increases in total staffing levels, from adjustments to fixed salaries
based on individual performance and inflation and from changes in sales
commissions paid to our sales staff based on levels of advertising revenues.
Advertising and promotion expenses consist primarily of media and related
production costs resulting from the promotion of our stations and programs. This
amount is net of any reimbursement received or due for such advertisement and
promotion from any network, including The WB Network, or other program provider.
The carrying value of long-lived assets, consisting of tangible,
identifiable intangible, and goodwill, is reviewed if the facts and
circumstances suggest that they might 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. There are neither facts nor circumstances that would lead management to
believe that any of our long-lived assets are impaired.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998
Net revenues increased 38% to $26.6 million for the first half of 1999
compared to the first half of 1998. This gain reflects solid growth at our
flagship station KPLR and significant increases in net revenues at our stations
in Portland, Oregon (KWBP), Salt Lake City (KUWB) and Knoxville (WBXX). The
revenue gains in these markets have been driven by improved audience ratings and
market revenue shares at these stations.
Station operating expenses increased 32% to $20.0 million for the first
half of 1999 compared to the first half of 1998. This increase is primarily
related to increased
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<PAGE> 30
programming and staffing related costs at our developing stations, KWBP, KUWB,
KWBQ, WBXX and WTVK.
Depreciation and amortization expense increased 95% to $8.2 million during
the first half of 1999 compared to the first half of 1998. This significant
increase primarily relates to the March 1998 acquisition of KPLR and the
resulting amortization of the intangible assets of that station.
Corporate expenses increased 24% to $1.5 million for the first half of 1999
compared to the first half of 1998. This increase relates primarily to increased
staffing to support the growing operations of our station group.
Equity-based compensation expense during the first half of 1999 totaled
$10.7 million. There was no corresponding expense in the first half of 1998.
This non-cash charge relates to an estimated increase in the value of the
management carry units that were issued in June 1997 to our senior management
members. The increase in the estimated value is in part a result of the
increasing success of The WB Network, our recent operating results and the
increased number of the stations under our ownership and management.
Interest expense for first half of 1999 was $14.1 million, an increase of
23% over the first half of 1998. This increase relates primarily to the
continued increased principal balance of our 10 7/8% senior discount notes and
our 12% senior secured notes, and the April 1999 borrowings under our revolving
credit facility in connection with the acquisition of WBDT, WIWB and WBUI from
Paxson Communications.
We recorded a net income tax expense of $2.1 million during the first half
of 1999 compared to a $365,000 net income tax benefit recorded for the first
half of 1998. This accrual was partially offset by a tax expense that relates to
a accrual of $3.0 million in connection with a benefit of $936,000 relating to a
net operating loss carryforward at KPLR and a reduction of a deferred tax
liability primarily related to KPLR'S FCC license.
Minority interest represents the allocation of the loss for the respective
periods to the minority interest holders of our subsidiary ACME Intermediate
Holdings, LLC.
Our net loss for the six months ended June 30, 1999 was $28.4 million
compared to a net loss for the first half of 1998 of $11.3 million. This $17.1
million increase in our net loss is attributable primarily to increased interest
expense, increased amortization of intangible assets, exclusive of depreciation
and amortization, increased income tax expense and the equity-based compensation
expense, net of improved operating results.
Broadcast cash flow for the first half of 1999 increased 47% to $6.5
million. This increase was driven by significant revenue gains and improved
operating margins at all of our stations. Adjusted EBITDA increased 55% for the
first half of 1999 due to increased broadcast cash flow and a lower rate of
growth of corporate expenses compared to our rate of broadcast cash flow growth.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Net revenues for the year ended December 31,1998 increased $32.6 million,
or 287%, to $43.9 million as compared to $11.3 million for the year ended
December 31, 1997. The most significant reason for this increase is that our
1997 net revenues included only the fourth quarter results of KPLR, which we
began managing on October 1, 1997, compared to 1998, which included KPLR's full
year results. Also favorably impacting the 1998 comparison to 1997 was our
fourth quarter 1997 launch of WBXX, the second quarter 1998 launch of
29
<PAGE> 31
KUWB, increased revenues at KWBP and our acquisition of WTVK, which we began
operating in March 1998.
Operating expenses increased to $47.0 million compared to the prior year's
operating expenses of $12.8 million, or 267%. Station operating and corporate
expenses increased significantly in 1998 due to the significant increase in the
number of stations we added or launched since the third quarter of 1997.
Depreciation and amortization expense for the year includes $9.4 million in
the amortization of intangible assets. As of December 31, 1997, only KWBP and
WBXX stations had been acquired and, accordingly, there was only $1.1 million in
amortization expense for that period.
Interest expense for 1998 was $24.0 million, primarily representing the
amortization of original issuance discount of our 10 7/8% senior discount notes,
12% senior secured discount notes and interest on our 10% convertible
debentures, along with related amortization of prepaid financing costs. The
interest expense of $6.6 million for 1997 represents primarily the interest
expense on the 10 7/8% senior discounted notes and 12% senior secured notes,
which were outstanding only during the fourth quarter of the year and interest
on the convertible debentures, which were issued in June 1997 and therefore were
outstanding for only a little more than six months during 1997.
Station KPLR is our only operating C corporation. During 1993, KPLR, after
deduction of allocable interest charges, generated a net taxable loss. The
deferred tax benefit corresponding to that loss was $2.4 million.
Our net loss for 1998 was $21.9 million compared to a net loss of $7.5
million for 1997. This increased net loss is due primarily to the increased
amortization of intangible assets relating to our newly acquired and launched
stations and the substantially increased interest expense incurred in connection
with the September 1997 issuance of long-term debt to finance our acquisitions.
These increased expenses were offset by improved operating performance which is
attributable to the inclusion of the full year operating results of KPLR.
Our broadcast cash flow for 1998 was $11.4 million, compared to a $1.0
million broadcast cash flow in 1997. This increase is primarily attributable to
the profitable operations of KPLR -- only the fourth quarter operating results
of KPLR are included in our full year 1997 results, whereas KPLR's full year
results are included in our 1998 results. To a lesser extent, the increase in
broadcast cash flow is due to significantly reduced losses at KWBP for 1998.
INCOME TAXES
Historically, we and all of our operating subsidiaries, other than our
subsidiary related to KPLR which is a C corporation, have been organized as
limited liability companies. Accordingly, although we have been subject to
various minimum state taxes, all federal tax attributes have been passed through
to our members. Upon our reorganization into a C corporation, we will be subject
to federal and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Our revolving credit facility allows for borrowings up to a maximum of
$40.0 million, which are dependent upon our meeting certain financial ratio
tests as delineated in the credit agreement. The revolving credit facility can
be used to fund future acquisitions of broadcast stations and for general
corporate purposes. At June 30, 1999, $39.4 million was outstanding and $600,000
was available under the revolving credit facility. Amounts
30
<PAGE> 32
outstanding under our revolving credit facility bear interest at a base rate,
that at our option is either the bank's prime rate or LIBOR, plus a spread. We
will repay all amounts outstanding under our revolving credit facility with a
portion of the net proceeds of this offering.
Cash provided by our operating activities during 1998 was $319,000 and for
the six months ended June 30, 1999 was $3.7 million due to significantly
improved broadcast cash flow.
Cash used in our investing activities during 1998 was $15.5 million and
related partially to the acquisition of WTVK and the purchase of property and
equipment, offset by the net gain related to the acquisition and subsequent sale
of a construction permit in the Springfield, Missouri market. Cash used in
investing activities during the first six months of 1999 was $48.8 million and
related primarily to our acquisitions of WBDT, WIWB and WBUI, the final payment
in connection with our acquisition of KUPX, our investment in a digital tower
joint venture in the Portland, Oregon market and the purchase of property and
equipment.
Cash provided by our financing activities during 1998 was $7.4 million and
related primarily to net borrowings under our revolving credit facility in
connection with our acquisition of WTVK offset by repayments of capital leases.
Cash provided by financing activities during the first six months of 1999 was
$45.8 million consisting of revolving credit borrowings in connection with our
acquisitions of WBDT, WIWB and WBUI, the completion of our acquisition of KUPX,
our digital tower joint venture investment in Portland and capital expenditures.
Cash interest on ACME Intermediate's 12% senior secured notes due 2005,
$71.6 million fully accreted principal amount, will begin accruing in 2002 and
is payable starting in 2003. Cash interest on ACME Television's 10 7/8% senior
discount notes due 2004, $175.0 million fully accreted principal amount, will
begin accruing in 2000 and is payable starting in 2001.
We expect that we will incur approximately $14 million in capital
expenditures over the next twelve months in connection with the build-out,
upgrade and initial digital conversion of our current facilities.
We believe that funds generated from operations will be sufficient to
satisfy our cash requirements for our existing operations for at least the next
twelve months. We expect that any future acquisitions of television stations
would be financed through proceeds from this offering, funds generated from
operations, through borrowings under our revolving credit facility, and through
additional debt and equity financings. However, we cannot guarantee the offering
will be completed or that such additional debt and/or equity financing will be
available or available at rates acceptable to us.
YEAR 2000
Year 2000 issues are a result of computer software applications using a
two-digit format, as opposed to a four-digit format, to indicate the year. Some
computer software applications might then be unable to uniquely distinguish
dates beyond the year 1999, which could cause system failures or miscalculations
at our broadcast and corporate locations that could cause disruption of
operations, including a temporary inability to produce broadcast signals or
engage in normal business activities.
We are in the process of evaluating potential year 2000 issues for both our
information technology and non-information technology systems such as telephone
systems, fax machines, editing equipment, cameras, microphones, etc. All of our
internal software and
31
<PAGE> 33
hardware is purchased, leased or licensed from third party vendors. Most of our
station facilities are new or have been recently upgraded and we have polled all
of our significant software vendors and have been advised by them that their
software is year 2000 compliant.
We have completed the assessment, planning and testing phases and have
commenced the final phase of our year 2000 project implementation. During this
phase, we will fix, retest and implement critical applications that were
discovered to be year 2000 deficient during the preceding phases.
We are not aware of any additional significant upgrades or changes that
will need to be made to our internal software and hardware to become year 2000
ready or any material supplier with year 2000 readiness problems. This is
subject to change as the compliance testing process continues. We expect to be
able to implement the systems and programming changes necessary to address year
2000 information technology and non-information technology readiness issues and,
based on preliminary estimates, we do not believe that the costs of doing so
will have a material effect on our results of operations or financial condition.
As of June 30, 1999, we have spent less than $100,000 on year 2000 activities
and our budgeted expenditures for the remainder of 1999 are less than $75,000 in
total. As we obtain the results of compliance testing, there might be a delay
in, or increased costs associated with the implementation of changes.
RECENT DEVELOPMENTS
On February 19, 1999, we entered into an asset purchase agreement with
Ramar Communications II, Ltd. to acquire the television broadcast assets of
KASY, serving the Albuquerque-Santa Fe, New Mexico market, for approximately
$27.3 million, $25.0 million of which will be paid at closing, less $500,000
which has been deposited into escrow and $1.0 million paid to the seller in
August, 1999. On July 30, 1999, we amended the agreement and paid $1.0 million
of the purchase price to Ramar. In a related transaction, we are selling KWBQ,
our existing station serving the Albuquerque - Santa Fe market, to Ramar for
$100,000. At the closing, Ramar will grant Montecito Communications, LLC, a
limited liability company owned entirely by members of our senior management, an
option to purchase KWBQ for an exercise price of $100,000. We anticipate that
Montecito will assign the option to us immediately after the closing of the sale
of KWBQ. The closings of both the KASY and the KWBQ transactions, which have
been approved by the FCC, are subject to various conditions and are expected to
occur shortly after the completion of this offering. Under the KASY purchase
agreement we are required to close the transaction by October 31, 1999, or the
purchase price will increase by a rate of 10% per annum, retroactive to August
13, 1999 through the actual date of closing. If the transaction does not close
before February 1, 2000, Ramar may keep the $1.0 million and will receive the
$500,000 in escrow as liquidated damages. We also would be required to pay an
additional $1.7 million as liquidated damages pursuant to a local marketing
agreement relating to KASY to which Ramar is a party. After the closing, we
intend to operate KWBQ under a local marketing agreement with Ramar, which was
filed with the FCC prior to the adoption of the new ownership rules on August 5,
1999. Subject to FCC approval, we may purchase the station if Montecito assigns
the option to us. We believe this transaction will allow us to enhance revenues
and cash flows in this market through cross-promotion and achieving operating
efficiencies, including operating both stations from one studio and office
facility.
In September 1999, we closed the swap of Station KUWP in Salt Lake City,
which we operated but did not own, for Station KUPX, which we owned and did not
operate.
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<PAGE> 34
FUTURE NON-RECURRING CHARGES
We expect to incur approximately $19.3 million of non-recurring
compensation expense related charges in connection with this offering. Of these
charges, a $3.0 million cash bonus to be paid in first quarter 2000 will be
earned by senior management upon completion of this offering. In addition, a
non-cash charge of approximately $16.3 million will be incurred in connection
with the exchange of the management carry units for shares of our common stock.
PENDING ADOPTION OF ACCOUNTING STANDARD
The FASB (Financial Accounting Standards Board) has issued FASB statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which we
will be required to adopt for its year ending December 31, 2000. This
pronouncement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, which are collectively referred to as derivatives, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This pronouncement is not expected to have a
significant impact on our financial statements since we currently have no
derivative instruments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our revolving credit facility has a variable interest rate and our interest
expense can therefore be materially affected by future fluctuations in the
applicable interest rate. At June 30, 1999, a hypothetical 100 basis point
increase in the prime rate would result in additional interest expense of
approximately $3.9 million on an annualized basis.
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<PAGE> 35
INDUSTRY OVERVIEW
Commercial television broadcasting. Commercial television broadcasting
began in the United States on a regular basis in the 1940s over a portion of the
broadcast spectrum commonly know as the VHF Band, which consists of very high
frequency broadcast channels numbered 2 through 13. Additional television
channels were later assigned by the FCC under broadcast spectrum commonly known
as the UHF Band, which consists of ultra-high frequency broadcast channels
numbered 14 through 83; 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 designated market area, and the license to
operate a broadcast station in a designated market area is granted by the FCC.
Although UHF and VHF stations compete in the same market, UHF stations have
historically suffered a competitive disadvantage, as UHF signals are more
subject to obstructions such as terrain than VHF signals and VHF stations are
able to provide higher quality signals to a wider area. Over time, the
disadvantage of UHF stations has gradually declined through UHF stations'
carriage on local cable systems and improved receivers and transmitters.
A majority of the commercial television stations in the United States are
affiliated with NBC, CBS or ABC -- the traditional networks -- or with Fox. Each
traditional 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. Fox has operating characteristics
similar to ABC, CBS and NBC, although the hours of network programming provided
for Fox affiliates is less than that provided by the traditional networks. Each
of the traditional networks and Fox sell this advertising time and retain the
revenues. The affiliate typically receives compensation from the traditional
network and retains the revenues from advertising time sold in and between
network programs and in programming the affiliate produces or purchases from
non-network sources.
Stations not affiliated with one of the traditional networks were
historically considered independent stations. Independent stations generally
rely on and broadcast syndicated programming, which is acquired by the station
for cash or occasionally barter. Through the acquisition of syndicated
programming the acquiring station generally obtains exclusive rights to
broadcast a program in the market for a specified period of time or number of
episodes agreed upon between the independent station and the distributor of the
syndicated 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 and sells a portion of the available advertising
time for programming it supplies, in exchange for reduced fees to the station
for such programming.
Like Fox, United Paramount Network and The WB Network have each established
affiliations predominantly with formerly independent stations, and in some
cases, with newly constructed stations. These networks supply their affiliates
with significantly less programming than ABC, CBS and NBC. As a result, these
stations retain a significantly higher portion of their available inventory of
advertising time for their own use than do traditional network affiliates. In
August 1998, Pax Net, an affiliate of Paxson Communications and a seventh
broadcast network, was launched. Unlike the other networks, Pax Net provides
substantially all of the programming to its affiliates, most of which were
previously independent or religious broadcasters or are newly built television
stations.
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<PAGE> 36
Ratings. All television stations in the United States are grouped into 210
television markets that are ranked by size according to the number of households
with televisions in each market. Almost all commercial television stations, and
all of our stations, subscribe to Nielsen Media Research, which periodically
publishes reports on the estimated audience for television stations in the
various television markets throughout the country. These audience reports, which
are based on a randomly selected sample of homes in each market, provide
audience data on the basis of total television households and selected
demographic groupings in 15-minute or half-hour increments for each program and
market. The audience estimates are expressed in terms of the number of
households or demographic groups watching a given program:
- as a percentage of all households or demographic groups in the
market -- the program's rating; and
- as a percentage of households or demographic groups actually viewing
television during that program's time period -- the program's share.
For example, a program generating a 3.5 household rating and a 6 household
share means that 3.5% of the total homes with televisions were watching that
show and of the homes watching television at that time, 6% were watching that
program.
Each specific geographic television market is called a designated market
area. A designated market area 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.
In larger markets, Nielsen measures audience viewing through a combination
of meters connected directly to selected television sets which report the
household rating and share results on a daily basis and weekly diaries of
television viewing that are periodically prepared over a four-week period by the
actual viewers. Nielsen refers to these markets as metered markets. In smaller
markets, only weekly diaries are completed periodically by the actual viewers
and Nielsen refers to these markets as diary markets. The periodic four-week
diary periods are commonly known as sweeps periods and are critical to stations
since they provide independent information to advertisers about the viewing
level of a given station's programming to a multitude of demographic age and
gender groups. Due to the underlying costs of installing meters in a market, the
monthly Nielsen subscription fees for each station in a metered market are
significantly higher than those for diary markets.
While meters do not provide daily demographic ratings, the daily reported
household ratings and shares give the stations in metered markets key
information about the general performance of a given show. Also, results in
metered markets tend to more accurately reflect viewing since measurement is not
totally dependent on the memory of the viewer and timeliness of the diary entry.
Currently, we operate in three metered markets: St. Louis, Portland and
Salt Lake City. All of our other markets are diary markets. Over the past five
years, Nielsen has expanded the number of metered markets from 32 to 46, and we
believe that they will continue to convert markets from diary to metered
markets. In most cases where such conversions have taken place, affiliates of
The WB Network and Fox show immediate increases in ratings and share, which we
believe are related to a number of factors, including more accurate reporting
and a shift in the audience sample to those, usually younger households, more
comfortable with electronic measurement devices.
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<PAGE> 37
Advertising. The advertising rates charged by competing stations within a
designated market depend primarily on four factors:
- the station's ratings of households viewing its programs as a percentage
of total households with televisions in that designated market area;
- audience share of households viewing its programs as a percentage of
households actually watching television at a specific time;
- the time of day the advertising is aired; and
- the demographic qualities of the program's viewers, primarily age and
gender.
Additional factors include:
- the size of the designated market area in which the station operates;
- the number of advertisers competing for available advertising time;
- demographic characteristics of the designated market area served by the
station, the availability and pricing of alternative advertising media in
the designated market area;
- relative ability of competing sales forces; and
- the development of projects and marketing programs that tie advertiser
messages to programming.
All network affiliated stations, including those affiliated with Fox, UPN,
The WB Network and Pax Net are required to carry national and regional spot
advertising sold by their networks. This reduces the amount of advertising time
available for sale directly by the network-affiliated stations.
Advertisers wishing to reach a national audience usually purchase time
directly from the traditional networks, Fox, UPN, The WB Network, Pax Net and
cable networks, or advertise nationwide on an ad hoc basis. National advertisers
who wish to reach a particular regional or local audience buy advertising time
directly from local stations through national advertising sales representative
firms, or in the cases of some large stations groups, from the station group
itself. Local businesses purchase advertising time directly from the station's
local sales staff.
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<PAGE> 38
BUSINESS
COMPANY OVERVIEW
We currently own and operate nine broadcast television stations in
medium-sized markets across the United States. Each of our stations is a network
affiliate of The WB Network, making us the third largest WB Network affiliated
station group in the country. Our television stations broadcast in markets that
cover in aggregate approximately 5.4% of the total U.S. television households.
Mr. Kellner, our Chairman and Chief Executive Officer, is also a founder, Chief
Executive Officer and partner of The WB Network, and was President of Fox
Broadcasting Company from its inception in 1986 through 1993. Mr. Kellner and
our other founders formed our company to capitalize on the opportunity to
affiliate with The WB Network, the fastest growing English-language broadcast
television network in the country. We will continue to expand our station group
by selectively acquiring and building primarily WB Network affiliated stations
in medium-sized markets.
Since our formation in 1997, we have focused primarily on acquiring
independently-owned stations, under-performing stations and construction permits
for new stations in markets that we believe have the growth potential and
demographic profile to support the successful launch of a new WB Network
affiliate. We believe that medium-sized markets provide advantages such as fewer
competitors and lower operating costs compared to large markets. Our strategy is
to capitalize on these advantages and to grow our revenues and cash flow by
focusing on generating local sales. Since we centralize many of our stations'
administrative functions and primarily provide entertainment programming, our
station general managers are able to focus on increasing sales and improving
operating margins. We have experienced significant revenue and broadcast cash
flow growth and we anticipate further growth because many of our stations are
newly launched. For the six months ended June 30, 1999, we generated $26.6
million in revenues and $6.5 million in broadcast cash flow, representing an
increase of 37.8% in revenues and 47.0% in broadcast cash flow over the six
months ended June 30, 1998.
Like The WB Network, we target our programming to younger audiences, in
particular, young adults, teens and kids. We believe that these younger
audiences are a growing and increasingly important demographic target for
advertisers, and that our affiliation with The WB Network affords us a
significant competitive advantage over other network affiliated television
broadcasters in attracting these younger audiences. Since its launch in 1995,
The WB Network is the only English-language broadcast network in the United
States to increase its audience share in these key target demographic groups. To
build and retain our audience share during non-network hours, we also acquire
the broadcast rights to popular syndicated programming that we believe
complements The WB Network programming. In addition, we broadcast local
programming such as news in St. Louis, local weather updates and local and
regional sports programming in selected markets. We believe this programming
will enhance our ability to sell advertising time to local and regional
advertisers and increase audience awareness of our newly launched stations.
OUR STRATEGY
The principal components of our business and growth strategy are:
- Our WB Network Affiliation. Our WB Network affiliation provides our
stations with popular prime time and kids programming and the opportunity
to co-brand our stations with the Warner Bros. brand, which is one of the
most recognized brands in the entertainment industry. We believe that
affiliating and co-branding a start up station with The WB Network gives
that station immediate brand recognition and
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<PAGE> 39
audience awareness. In addition, we believe our stations' affiliation
with The WB Network provides us with a significant competitive advantage
in attracting the younger audiences we believe are a growing and
increasingly important demographic target for advertisers. The
traditional networks attract viewers with a median age ranging from 42 to
53. Fox attracts viewers with a median age of 34 years while the median
age of The WB Network viewers is 27 years of age. We expect that stations
we acquire in new markets will enter into affiliation agreements with The
WB Network.
- Strength of Our Senior Management Team. Our senior management team is one
of the most experienced in the industry with an average of over 20 years
of experience owning and operating broadcast television stations and
selling television advertising time. Mr. Kellner, our Chairman and Chief
Executive Officer, is also a founder, Chief Executive Officer and partner
of The WB Network, and was President of Fox Broadcasting Company from its
inception in 1986 through 1993. Mr. Gealy, our President and Chief
Operating Officer, began his broadcast television career in sales and
since then has held various management positions, including station
general manager and group executive responsible for eight stations. Mr.
Allen, our Executive Vice President and Chief Financial Officer, has
spent 13 years as an executive in the entertainment industry, including
seven years as Chief Financial Officer of Fox Broadcasting Company.
- Popular and Proven Syndicated Programming. While The WB Network
programming provides the foundation of our programming, we also acquire
popular syndicated programming, which is an important part of building
our stations' audience and revenue share. We believe that broadcasting
popular and targeted programming before and after The WB Network prime
time programs builds and retains our audience share during these critical
dayparts. We seek to acquire programming that targets demographic groups
similar to those targeted by The WB Network during its prime time
programming. Our syndicated programming for the 1999 and 2000 seasons
includes newly syndicated programming such as The Drew Carey Show,
Suddenly Susan, Caroline in the City and Spin City, as well as proven
programs such as Friends, Seinfeld and Star Trek: The Next Generation.
- Focus on Sales. To grow our revenues, we aggressively market our
advertising time to local advertisers and also sell advertising time to
regional and national advertisers. We believe that our focus on local
sales enables us to capture existing local advertising revenues and to
create new television advertising revenues by selling to first-time
buyers of television advertising time. Since we centralize many of our
stations' administrative functions and primarily provide entertainment
programming, our station general managers are able to focus on increasing
sales and improving operating margins. Our station general managers have
an average of over 18 years of experience selling television advertising
time and are directly involved in their stations' sales management. When
we acquire or build a station, we focus on building the station's sales
force and provide on-going in-house sales training and development.
- Selective and Opportunistic Expansion in Medium-Sized Markets. We will
continue to expand our group of television stations selectively and
opportunistically by acquiring independently-owned stations,
under-performing stations and construction permits for new stations.
Since our inception in 1997, we have acquired six stations, built three
stations and entered into joint services agreements with two other
stations. We target medium-sized markets because they are typically
characterized by fewer and less sophisticated competing television
station operators and other media, and lower operating costs than larger
markets.
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<PAGE> 40
- Focus on a Young and Growing Audience. We target our programming
primarily to young adults, teens and kids, demographic groups that are
growing in size and purchasing power. For example, in 1998 teens spent
and/or influenced $140 billion in purchases, up from $120 billion in
1997. As a population, teens are growing at approximately twice the rate
of the rest of the U.S. population. Kids also exert indirect influence
over approximately $400 billion each year in purchases such as cars,
vacations and household goods. We believe that our programming strategy
enhances our ability to sell advertising time by providing direct access
to these attractive demographic groups.
- Significant Economic and Operating Efficiencies. We believe that we
benefit from significant economic and operating efficiencies as a result
of the size of our station group. We centralize our graphic design and
production, scheduling, purchasing, national sales and some accounting
and treasury functions at our corporate headquarters. For example,
because we buy syndicated programming on a centralized basis, we believe
that we have access to higher quality syndicated programming at
attractive prices.
PROGRAMMING
We broadcast programs to attract young adults, teens and kids. Our
programming includes:
- The WB Network prime time programming;
- Kids' WB!;
- syndicated programming; and
- local programming.
Prime Time Programming. In prime time, The WB Network is currently ranked
number one among teens. Prime time programming includes: 7th Heaven, Buffy the
Vampire Slayer, Dawson's Creek, Charmed and Felicity. When The WB Network began
broadcasting in 1995, it provided two hours of prime time programming per week.
In the 1999/2000 season, The WB Network will provide 13 hours of prime time
programming Sunday through Friday and has announced plans to provide two hours
of prime time programming on Saturday for the 2000/2001 season.
The bar graphs below present ratings information for The WB Network prime
time programming as reported by Nielsen Television Index and for each of the
broadcast seasons indicated.
[Adult Share Performance Graph]
<TABLE>
<CAPTION>
ADULTS 18-34
------------
<S> <C>
94-95 1.2
95-96 1.3
96-97 1.4
97-98 1.8
98-99 2.0
</TABLE>
[Teen Share Performance Graph]
<TABLE>
<CAPTION>
TEENS 12-17
-----------
<S> <C>
94-95 1.9
95-96 2.6
96-97 3.1
97-98 4.5
98-99 4.2
</TABLE>
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<PAGE> 41
[BAR GRAPH -- The bar graph on the left side presents rating data for adults 18
to 34 years of age for the 1994/1995 through the 1998/1999 broadcast seasons.
The growth achieved in ratings points in the five year period among adults 18 to
34 is included above the bar representing the 1998/1999 broadcast season. The
bar graph on the right side presents rating data for teens 12 to 17 years of age
for the 1994/1995 through the 1998/1999 broadcast seasons. The growth achieved
in ratings points over in the five year period among teens 12 to 17 is included
above the bar representing the 1998/1999 broadcast season.]
Kids' WB! Programming. The WB Network launched Kids' WB! in September 1995
with three hours of programming on Saturdays, and currently provides 19 hours of
kids' programming Monday through Saturday. Kids' WB! programming includes
Pokemon, the number one rated kids animated program. Kids' WB! currently airs
three episodes of Pokemon on Saturday and this fall, will air two episodes on
Saturday and two episodes each day, Monday through Friday. Based on the high
ratings for Pokemon, we believe the significant increase in Pokemon airings will
increase Kids' WB! weekday ratings this fall. Kids' WB! also airs Warner Bros.
produced shows such as Batman Beyond, Animaniacs, Pinky and the Brain and
Superman. Warner Bros.' animated programs also feature popular Looney Toons
characters such as Bugs Bunny, Daffy Duck, Tazmanian Devil, Tweety Bird,
Sylvester, Road Runner and Wile E. Coyote.
The bar graph below presents ratings information for The WB Network's Kids'
WB! Saturday programming as reported by Nielsen Television Index and for each of
the broadcast seasons indicated.
[Kids Share Performance Graph]
<TABLE>
<CAPTION>
SATURDAY: KIDS 2-11
-------------------
<S> <C>
95-96 2.0
96-97 1.7
97-98 2.1
</TABLE>
[BAR GRAPH -- The bar graph presents ratings data for the Kids' WB! Saturday
programming from the 1995/1996 through the 1998/1999 broadcast season. The
growth achieved in ratings points in the three year period among kids 2-11 is
included above the bar representing the 1998/1999 broadcast season.]
Syndicated Programming. In addition to The WB Network programming, our
stations air syndicated programs. Generally, our most profitable programming
time periods are those immediately before and after The WB Network programming.
Consequently, during these time periods, we air programs that are targeted to
the audiences similar in demographics as those that watch The WB Network prime
time programs. These important syndicated programs include Friends, Star Trek:
Next Generation, and Seinfeld, and we have acquired the broadcast rights to The
Drew Carey Show, Suddenly Susan, Caroline in the City, and Spin City. We have
multi-year contracts to air most of our syndicated programming.
Local Programming. Each of our stations airs programming of local interest,
which we believe creates immediate viewership at our start-up stations,
increases local awareness of our stations and expands our advertiser base. At
KWBP, our station in Portland, we air weather updates throughout each evening, a
format we intend to replicate at our other stations. At many of our stations, we
acquire broadcast rights and air certain regional and local sporting events
including games of the St. Louis Cardinals and the St. Louis Blues at KPLR, the
Seattle Mariners and the University of Oregon Ducks at KWBP, the Atlanta Braves
and the Atlanta Hawks at WBXX and the Colorado Rockies at KUWB. In addition,
KPLR airs a nightly 30-minute local newscast.
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<PAGE> 42
OUR STATIONS
The following table provides general information concerning our
stations(1):
<TABLE>
<CAPTION>
MAY 1999 AUDIENCE SHARE
-----------------------------------
TV HOUSEHOLDS(2) ADULTS 18-34 TEENS 12-17
-------------------- ---------------- ---------------- BEGINNING OF
STATION - CHANNEL MARKET PRIME SIGN-ON/ PRIME SIGN-ON/ ACME
MARKETPLACE RANKING NUMBER TIME SIGN-OFF TIME SIGN-OFF OPERATION
----------------- -------- --------- ----- -------- ----- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
KPLR - 11
St. Louis, MO............. 21 1,110,000 14 16 21 23 October 1997
KWBP - 32
Portland, OR.............. 23 994,000 4 4 5 4 February 1997
KUWB - 30
Salt Lake City, UT........ 36 707,000 2 3 4 7 April 1998
KWBQ - 19
Albuquerque-Santa Fe,
NM(3)................... 49 566,000 n/a n/a n/a n/a March 1999
WBDT - 26
Dayton, OH(4)............. 54 504,000 n/a n/a n/a n/a June 1999
WBXX - 20
Knoxville, TN............. 63 447,000 5 6 3 3 October 1997
WIWB - 14
Green Bay-Appleton,
WI(4)................... 69 385,000 n/a n/a n/a n/a June 1999
WBUI - 23
Champaign-Springfield-
Decatur, IL(4).......... 82 335,000 n/a n/a n/a n/a June 1999
WTVK - 46
Ft. Myers-Naples, FL...... 83 330,000 3 3 8 5 March 1998
</TABLE>
- -------------------------
(1) All ownership and statistical information is from BIA Publishing, Inc. and
Nielsen Media Research.
(2) All television stations throughout the United States are grouped into 210
markets that are ranked in size according to the number of households with
televisions in the market for the 1998/1999 season.
(3) KWBQ will be sold once we acquire KASY, also in the Albuquerque-Santa Fe
market. We intend to operate KWBQ under a local marketing agreement. KWBQ
was not reportable in the market in May 1999.
(4) We acquired and began operating these stations in June 1999. Prior to our
acquisition they did not carry The WB Network programming and did not
generate any measurable audience shares in May 1999.
KPLR: ST. LOUIS, MISSOURI
Designated Market Area: 21 TV Households: 1,110,000
Total Age 2+ Population: 2,819,000
Market Description. Thirty-three percent of the total population of St.
Louis is under 25 years of age. The estimated average household income in the
St. Louis market is approximately $45,000 per year. Major employers in the
market include Emerson Electric, May Department Stores, Anheuser-Busch,
Monsanto, Ralston Purina and TWA. The television advertising revenue in the St.
Louis marketplace was estimated at $219.9 million in 1998 and has grown at a
compound annual rate of approximately 6.1% over the past five years.
Station Overview. We began operating KPLR under a local marketing agreement
in October 1997 and acquired the station in March 1998. KPLR signed on the air
in 1959 and has been affiliated with The WB Network since the network's launch.
In addition to carrying The WB Network prime time programming and Kids8 WB!, the
station broadcasts a daily 9pm, half-hour local newscast and also has the
exclusive broadcast rights to air games of the
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<PAGE> 43
St. Louis Cardinals and the St. Louis Blues. In addition, the station's
syndicated programming currently includes Friends, Seinfeld, Sister Sister,
Martin and Cheers. The station has contracted for the future exclusive market
broadcast rights to popular shows such as The Drew Carey Show (9/99), Spin City
(9/00) and Sabrina (9/00). In the May 1999 sweeps period, KPLR was the first or
second most watched station in the market during the Monday through Sunday 5
p.m. to 1 a.m. time period in important demographic audiences such as teens,
persons 12 - 24 years of age, adults 18 - 34 years of age and adults 18 - 49
years of age. On an adults 18 - 49 years of age share basis, the station is
regularly one of the top three performing WB Network affiliates in the country
in prime time. The station has also been the number one ranked WB affiliate in
kids ratings during the last two seasons.
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the St. Louis designated
market area:
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
--------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C>
ACME................. KPLR - 11 WB 18 (LOGO)3
Belo Corporation..... KMOV - 4 CBS 9 -1
Fox.................. KTVI - 2 FOX 11 0
Gannett.............. KSDK - 5 NBC 19 -5
Sinclair Broadcast... KDNL - 30 ABC 11 (LOGO)1
</TABLE>
KWBP: PORTLAND, OREGON
<TABLE>
<S> <C>
Designated Market Area: 23 TV Households: 994,000
Total Age 2(LOGO) Population:
2,493,000
</TABLE>
Market Description. Thirty-two percent of the total population of Portland
is under 25 years of age. The estimated average household income in the Portland
market is approximately $42,000 per year. Major employers in the market include
Intel, Fred Meyer, Providence Health System, U.S. Bank of Oregon, Tektronix and
Safeway. The television advertising revenue in the Portland marketplace was
estimated at $179.8 million in 1998 and has grown at a compound annual rate of
approximately 8.4% over the past five years.
Station Overview. We began operating KWBP under a local marketing agreement
in February 1997 and acquired the station in June 1997. KWBP signed on the air
in 1989 and has been affiliated with The WB Network since the network's launch.
In addition to carrying The WB Network prime time programming and Kids' WB!, the
station's syndicated programming currently includes Star Trek: The Next
Generation, Full House, Xena: Warrior Princess and America's Funniest Home
Videos. To date, the audience share at KWBP has been adversely affected
primarily by the lack of available quality syndicated programming for that
market and, to a lesser extent, due to a transmission site located further away
from the market's population center than our competitors' sites. We have
recently acquired a transmission site that will improve our signal coverage. In
addition, the station has contracted for the future exclusive market broadcast
rights to popular shows such as The Drew Carey Show (9/99), Caroline in the City
(9/99) and King of the Hill (9/01). In the May 1999 sweeps period, KWBP
delivered an average weekly cumulative number of 438,000 households from sign-on
to sign-off, representing an 11% increase over May 1998.
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<PAGE> 44
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Portland designated
market area:
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C>
ACME................... KWBP - 32 WB 3 +1
Belo Corporation....... KGW - 8 NBC 18 -1
BHC Corporation........ KPTV - 12 UPN 8 -4
Fisher Broadcasting.... KATU - 2 ABC 13 +2
Lee Enterprises........ KOIN - 6 CBS 8 +1
Meredith Corporation... KPDX - 49 FOX 16 +1
Paxson
Communications....... KPXG - 22 PAX 1 +1
</TABLE>
KUWB: SALT LAKE CITY, UTAH
<TABLE>
<S> <C>
Designated Market Area: 36 TV Households: 707,000
Total Age 2+ Population: 2,131,000
</TABLE>
Market Description. Forty-four percent of the total population of Salt Lake
City is under 25 years of age. The estimated average household income in the
Salt Lake City market is approximately $43,000 per year. Major employers in the
market include Intermountain Health Care, Brigham Young University, IOMEGA, ICON
Health and Fitness and Smith Food & Drug Centers. Salt Lake City is the site of
the 2002 winter Olympic Games. The television advertising revenue in the Salt
Lake City marketplace was estimated at $155.2 million in 1998 and has grown at a
compound annual rate of approximately 8.6% over the past five years.
Station Overview. We began operating KUWB in April 1998 under a local
marketing agreement and acquired the station in September 1999. KUWB is
currently owned by Paxson Communications, which manages our station in the
market, KUPX. We have agreed to swap KUPX to Paxson Communications in exchange
for KUWB and have received FCC approvals for this transaction. KUWB has been
affiliated with The WB Network since the network's launch. When we began
operating the station, we replaced the primarily religious paid programming and
infomercials that were being run on the station in all non-WB Network time
periods with syndicated programming. This station's syndicated programming
currently includes The Fresh Prince, Cheers, Roseanne and Full House. It also
carries the NBC-affiliated Saturday Night Live and the daytime drama Sunset
Beach. The station has contracted for the future exclusive market broadcast
rights to popular shows such as The Drew Carey Show (9/99), Caroline in the City
(9/99), Spin City (9/00) and Sabrina (9/00). In the May 1999 sweeps period, KUWB
delivered an average weekly cumulative number of 293,000 households from sign-on
to sign-off, an increase of 144,000 homes compared to May 1998. The WB Network
prime time programming contributed significantly to KUWB's success in the
market. In The WB Network prime time, KUWB increased its share of the teen
audience by five share points compared to May 1998 and its adult demographics
gained approximately two share points during the same time period.
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<PAGE> 45
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Salt Lake City
designated market area:
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
--------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ----------------- ------------------
<S> <C> <C> <C> <C>
ACME.................. KUWB - 30 WB 4 13
CBS................... KUTV - 2 CBS 8 0
Fox................... KSTU(1) - 13 FOX 17 -2
KSL - International... KSL - 5 NBC 19 -2
Larry Miller
Broadcasting........ KJZZ - 14 UPN 10 -4
Paxson
Communications...... KUPX - 16 PAX 0 0
United Television..... KTVX - 4 ABC 10 -1
</TABLE>
- -------------------------
(1) The ratings reported by Nielsen for this station include information for
total satellite stations. These satellite stations are fully licensed for
broadcasting on a regular channel assignment but they carry only programming
which duplicates entirely the programming and commercial content of a parent
station. Nielsen viewing credit is generally given to the total satellite
station.
KWBQ: ALBUQUERQUE - SANTA FE, NEW MEXICO
<TABLE>
<S> <C>
Designated Market Area: 49 TV Households: 566,000
Total Age 21 Population: 1,513,000
</TABLE>
Market Description. Thirty-six percent of the total population of
Albuquerque - Santa Fe is under 25 years of age. The estimated average household
income in the Albuquerque - Santa Fe market is approximately $37,000 per year.
Major employers in the market include Intel, Motorola, General Electric, General
Mills, Philips and Levi Strauss. The television advertising revenue in the
Albuquerque - Santa Fe marketplace was estimated at $94.4 million in 1998 and
has grown at a compound annual rate of approximately 9.1% over the past five
years.
Station Overview. We launched KWBQ in March 1999 with The WB Network prime
time programming and Kids' WB!. In addition, the station's syndicated
programming currently includes Full House, Step By Step, The Fresh Prince,
America's Funniest Home Videos and Roseanne. The station has contracted for the
future exclusive market broadcast rights to popular shows such as Star Trek:
Voyager (9/99), Caroline in the City (9/99) and Spin City (9/00). After only two
months of broadcast time, KWBQ entered its first major sweeps period in May
1999. From sign-on to sign-off, KWBQ reached an average of 41,000 households, or
7% of the total designated market area. However, in the Albuquerque - Santa Fe
metropolitan statistical area, KWBQ reached 13% of the households.
Shortly after the completion of this offering, we will acquire KASY, a UPN
affiliated station serving the Albuquerque - Santa Fe market, from Ramar and
sell the KWBQ broadcast license to Ramar. At the closing of these transactions,
Ramar will grant Montecito an option to purchase KWBQ which we anticipate that
Montecito will assign to us. We will continue to operate KWBQ as a WB Network
affiliate under a separate local marketing agreement with Ramar, therefore
allowing us to manage two stations in the market. We plan to aggressively
cross-promote the two stations and operate them from a single studio and office
facility. Subject to FCC approval, we may purchase the station if Montecito
assigns the option to us.
44
<PAGE> 46
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Albuquerque - Santa Fe
designated market area:
<TABLE>
<CAPTION>
SIGN-ON/ SIGN-OFF: MON - SUN 7AM - 1AM
---------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/-SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ----------------- -------------------
<S> <C> <C> <C> <C>
ACME................... KWBQ - 19 WB 0 0
Belo Corporation....... KASA - 2 FOX 10 +1
Hubbard Broadcasting... KOB(1) - 4 NBC 16 -3
Lee Enterprises........ KRQE(1) - 13 CBS 7 +1
Pulitzer
Broadcasting......... KOAT(1) - 7 ABC 12 0
Ramar Communications... KASY(1) - 50 UPN 2 -1
Univision Television
Group................ KLUZ - 41 UNI 4 +1
</TABLE>
- -------------------------
(1) The ratings reported by Nielsen for this station include information for
total satellite stations. These satellite stations are fully licensed for
broadcasting on a regular channel assignment but they carry only programming
which duplicates entirely the programming and commercial content of a parent
station. Nielsen viewing credit is generally given to the total satellite
station.
WBDT: DAYTON, OHIO
<TABLE>
<S> <C>
Designated Market Area: 54 TV Households: 504,000
Total Age 2+ Population: 1,268,000
</TABLE>
Market Description. Thirty-three percent of the total population of Dayton,
Ohio is under 25 years of age. The estimated average household income in the
Dayton market is approximately $43,000 per year. Major employers in the market
include Chrysler Corp/ Acustar Inc., General Motors, Bank One Dayton, American
Matsushita and BF Goodrich. The television advertising revenue in the Dayton
marketplace was estimated at $88.4 million in 1998 and has grown at a compound
annual rate of approximately 5.9% over the past five years.
Station Overview. We acquired WBDT in June 1999 after the May 1999 sweeps
period. WBDT signed on the air in October 1980 and has been affiliated with The
WB Network since our acquisition of the station. WBDT, former Pax Net station,
currently carries a combination of Pax Net and WB Network programming. Pax Net
programming including Dr. Quinn, Diagnosis Murder and Touched by an Angel is
shown during the morning and prime access time periods. The WB Network prime
time programming and Kids' WB! is shown at The WB Network scheduled times. In
addition, the station has contracted for the future exclusive market broadcast
rights to popular shows such as Full House (9/99), Family Matters (9/00), Fresh
Prince (9/99), America's Funniest Home Videos (9/99), Sabrina (9/00), Clueless
(9/00) and Everybody Loves Raymond (9/01). We believe that our programming
changes, in particular the airing of The WB Network and new syndicated programs,
will improve WBDT's ratings.
45
<PAGE> 47
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Dayton designated market
area, prior to our purchase of WBDT, formerly WDPX.
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C>
Cox Broadcasting....... WHIO - 7 CBS 16 +1
Glencairn Ltd.......... WRGT - 45 FOX 10 +1
Paxson
Communications....... WDPX - 26 PAX 1 +1
Sinclair Broadcast..... WKEF - 22 NBC 12 0
STC Broadcasting....... WDTN - 2 ABC 11 -1
Trinity Broadcasting
Network.............. WKOI - 43 Ind. 0 0
</TABLE>
WBXX: KNOXVILLE, TENNESSEE
<TABLE>
<S> <C>
Designated Market Area: 63 TV Households: 447,000
Total Age 2+ Population: 1,098,000
</TABLE>
Market Description. Thirty-one percent of the total population of Knoxville
is under 25 years of age. The estimated average household income in the
Knoxville market is approximately $37,000 per year. Major employers in the
market include the University of Tennessee, TVA, Oakridge National Laboratories,
Alcoa and Nippondenso. The television advertising revenue in the Knoxville
marketplace was estimated at $68.0 million in 1998 and has grown at a compound
annual rate of approximately 7.9% over the past five years.
Station Overview. We launched WBXX in October 1997. In addition to carrying
The WB Network prime time programming and Kids' WB!, the station has broadcast
rights to air games of the Atlanta Braves. In addition, the station's syndicated
programming currently includes Friends, Sister Sister, Full House and Cheers.
The station has contracted for the future exclusive market broadcast rights to
popular shows such as The Drew Carey Show (9/99), Caroline in the City (9/99),
Sabrina (9/00), Spin City (9/00) and Suddenly Susan (9/00). In the May 1999
sweeps period, WBXX delivered an average weekly cumulative number of 135,000
households from sign-on to sign-off, an increase of 3,000 households compared to
May 1998. From May 1998 to May 1999, WBXX was the only station in the market to
increase its average weekly number of households.
In April 1999, we entered into a ten year joint services agreement with
Paxson Communications under which we provide certain sales and operational
services to WPXK, serving the Knoxville, Tennessee market. Through April 2009,
WPXK will carry solely the Pax Net supplied programming and we will share
equally with Paxson Communications the excess of station revenues over certain
operating expenses.
46
<PAGE> 48
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Knoxville designated
market area:
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C>
ACME................... WBXX - 20 WB 5 0
Gannett................ WBIR - 10 NBC 16 -4
Gray Communications.... WVLT - 8 CBS 7 -2
Paxson Communications.. WPXK - 54 PAX 0 0
Raycom Media........... WTNZ - 43 FOX 6 -2
Young Broadcasting..... WATE - 6 ABC 13 +4
</TABLE>
WIWB: GREEN BAY - APPLETON, WISCONSIN
<TABLE>
<S> <C>
Designated Market Area: 69 TV Households: 385,000
Total Age 2+ Population: 982,000
</TABLE>
Market Description. Thirty-four percent of the total population of Green
Bay - Appleton is under 25 years of age. The estimated average household income
in the Green Bay - Appleton market is approximately $41,000 per year. Major
employers in the market include Fort James Corporation, the Oneida Tribe of
Indians of Wisconsin, Schneider National, Humana, Shopko Stores, American
Medical Security, Bellin Memorial Hospital and Procter & Gamble Paper Products.
The television advertising revenue in the Green Bay - Appleton marketplace was
estimated at $53.9 million in 1998 and has grown at a compound annual rate of
approximately 7.4% over the past five years.
Station Overview. We acquired WIWB in June 1999 after the May 1999 sweeps
period. WIWB signed on the air in August 1998 and has been affiliated with The
WB Network since our acquisition of the station. WIWB, a former Pax Net station,
currently carries a combination of Pax Net and WB Network programming. Pax Net
programming including Dr. Quinn, Diagnosis Murder and Touched by an Angel is
shown during the morning and prime access time periods. The WB Network prime
time and Kids' WB! is shown at The WB Network scheduled times. The station has
contracted for the future exclusive market broadcast rights to popular shows
such as Step by Step (9/99), Fresh Prince (9/99), Jerry Springer (9/99), Sabrina
(9/00), Clueless (9/00), Suddenly Susan (9/00), Jamie Foxx (9/00) and Everybody
Loves Raymond (9/01). We believe that our programming changes, in particular the
airing of the WB Network programming and new syndicated programs, will improve
WIWB's ratings.
47
<PAGE> 49
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Green Bay - Appleton
designated market area, prior to our purchase of WIWB, formerly WPXG.
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C>
Ace TV................. WACY - 32 UPN 4 -2
Aires
Telecommunications... WGBA - 26 NBC 16 -2
CBS.................... WFRV - 5 CBS 8 -3
Paxson Communications.. WPXG - 14 PAX 1 +1
SF Broadcasting........ WLUK - 11 FOX 12 +1
Young Broadcasting..... WBAY - 2 ABC 15 -1
</TABLE>
WBUI: CHAMPAIGN - SPRINGFIELD - DECATUR, ILLINOIS
<TABLE>
<S> <C>
Designated Market Area: 82 TV Households: 335,000
Total Age 2+ Population: 814,000
</TABLE>
Market Description. Thirty-three percent of the total population of
Champaign - Springfield - Decatur is under 25 years of age. The estimated
average household income in the Champaign - Springfield - Decatur market is
approximately $42,000 per year. Major employers in the market include ADM,
Staley's, Caterpillar, Mueller, Illinois Power, Kraft and the University of
Illinois. The television advertising revenue in the Champaign - Springfield -
Decatur marketplace was estimated at $42.7 million in 1998 and has grown at a
compound annual rate of approximately 6.6% over the past five years.
Station Overview. We acquired WBUI in June 1999 after the May 1999 sweeps
period. WBUI signed on the air in May 1984 and has been affiliated with The WB
Network since our acquisition of the station. WBUI, a former Pax Net station,
currently carries a combination of Pax Net and WB Network programming. Pax Net
programming including Dr. Quinn, Diagnosis Murder and Touched by an Angel is
shown during the morning and prime access time periods. The WB Network prime
time and Kids' WB! is shown at The WB Network scheduled times. The station has
contracted for the future exclusive market broadcast rights to popular shows
such as Full House (9/99), Star Trek: Voyager (9/99), Fresh Prince (9/99),
Entertainment Tonight (9/99), Sabrina (9/00), Suddenly Susan (9/00), Spin City
(9/00) and Clueless (9/00). We believe that our programming changes, in
particular the airing of The WB Network and new syndicated programs, will
improve WBUI's ratings.
48
<PAGE> 50
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the
Champaign - Springfield - Decatur designated market area, prior to our purchase
of WBUI, formerly WPXU.
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
---------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
Bahakel
Communications..... WRSP(1) - 55 FOX 11 +3
Gannett.............. WICS(1) - 20 NBC 20 -3
LIN Television....... WAND - 17 ABC 12 0
Midwest Television... WCIA(1) - 3 CBS 11 -2
Paxson
Communications..... WPXU - 23 PAX 1 +1
</TABLE>
- -------------------------
(1) The ratings reported by Nielsen for this station include information for
total satellite stations. These satellite stations are fully licensed for
broadcasting on a regular channel assignment but they carry only programming
which duplicates entirely the programming and commercial content of a parent
station. Nielsen viewing credit is generally given to the total satellite
station.
WTVK: FT. MYERS - NAPLES, FLORIDA
<TABLE>
<S> <C>
Designated Market Area: 83 TV Households: 330,000
Total Age 2+ Population: 782,000
</TABLE>
Market Description. Twenty-five percent of the total population of Ft.
Myers - Naples is under 25 years of age. The estimated average household income
in the Ft. Myers - Naples market is approximately $45,000 per year. Major
employers in the market include The Lee County School District, Lee Memorial
Health System, Columbia Healthcare and Publix SuperMarkets. The television
advertising revenue in the Ft. Myers - Naples marketplace was estimated at $56.2
million in 1998 and has grown at a compound annual rate of approximately 7.4%
over the past five years.
Station Overview. We began operating WTVK in March 1998 under a local
marketing agreement and acquired the station in June 1998. WTVK signed on the
air in October 1990 and has been affiliated with The WB Network since our
acquisition of the station. In addition to carrying The WB Network prime time
programming and Kids' WB!, the station's syndicated programming currently
includes Sister Sister, The Nanny, Mad About You, NewsRadio, X-Files and
Stargate. The station has contracted for the future exclusive market broadcast
rights to popular shows such as Star Trek: Voyager (9/99), Drew Carey (9/99),
Sabrina (9/00), Suddenly Susan (9/00), Spin City (9/00) and Caroline in the City
(9/00). In the May 1999 sweeps period WTVK delivered a two household share from
sign-on to sign-off for the third consecutive sweeps period. WTVK delivered an
average weekly household cumulative number of 76,000 in May 1999, an increase of
3,000 households since May 1998. WTVK has increased its share of the teen
audience significantly Monday through Wednesday 8pm to 10pm. In May 1999, WTVK
held an 18 share of the teen audience making it the number one station in the
time period in that demographic.
49
<PAGE> 51
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Ft. Myers - Naples
designated market area:
<TABLE>
<CAPTION>
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C>
ACME................... WTVK - 46 WB 3 +1
Emmis Communications... WFTX - 36 FOX 13 0
Ft. Myers
Broadcasting......... WINK - 11 CBS 11 +1
Montclair
Communications....... WZVN - 26 ABC 6 -3
Waterman Broadcasting.. WBBH - 20 NBC 14 -3
West Coast Christian
TV................... WRXY - 49 Ind. 0 0
</TABLE>
WZPX: GRAND RAPIDS, MICHIGAN
In addition to the nine stations described above, in April 1999, we entered
into a joint sales agreement with DP Media for WZPX, serving the Grand Rapids,
Michigan market. WZPX is a primary affiliate of Pax Net. In connection with this
agreement, WZPX will enter into a secondary affiliation agreement with The WB
Network for five years. Under our joint sales agreement, we sell certain
advertising time for WZPX, and as compensation, we retain a portion of the
excess of station revenues over station operating expenses, if any. We are
obligated to pay any expenses which are not covered by advertising revenues and
40% of all interest expense owed by DP Media with respect to WZPX. DP Media has
the right to sell the station to us at any time during the next four years for
$30.0 million. We have limited rights to acquire the station for that same
amount if DP Media chooses to sell the station.
OUR AFFILIATION AGREEMENTS
Each of our stations has entered into a station affiliation agreement with
The WB Network that provides each station with the exclusive right to broadcast
The WB Network programming in its respective market. These affiliate agreements
generally have three to ten year terms.
Under the affiliation agreements, The WB Network retains the right to
program and sell approximately 75% of the advertising time available during The
WB Network prime time schedule with the remaining 25% available for sale by our
stations. The WB Network retains approximately 50% of the advertising time
available during Kids' WB! programs aired in other dayparts.
In addition to the advertising time retained for sale by The WB Network,
each station is also required to pay annual compensation to The WB Network. The
amount of compensation is determined by taking into account the station's
average ratings among adults ages 18 - 49 during The WB Network prime time
programming, as well as the number of prime time programming hours provided per
week by The WB Network. We participate in cooperative marketing efforts with The
WB Network whereby the network reimburses up to 50% of certain approved
advertising expenditures by a station to promote network programming. Our
affiliation agreements for KPLR, KWBP and WBXX, also entitle those stations to
the most favorable terms agreed to by The WB Network and any affiliate, except
for superstation WGN, during the term of the affiliation agreements, and any
subsequent modifications.
In addition, as part of our acquisition of WBDT, WIWB and WBIU, we entered
into a five-year secondary affiliation agreement with Pax Net at these stations.
We are generally
50
<PAGE> 52
obligated to run the Pax Net prime time programming in certain morning dayparts.
We retain a portion of the advertising time during this programming for local
sales, and Pax Net retains the balance.
ADVERTISING/SALES
Virtually all of our revenues for 1997 and 1998 and the first six months of
1999 consisted of advertising revenues, and no single advertiser accounted for
more than 10% of our gross advertising revenues in these periods. Our
advertising revenues are generated both by local advertising and national spot
advertising.
Local Advertising. Local advertising revenues are generated by both local
merchants and service providers and by regional and national businesses and
advertising agencies located in a particular designated market area. Local
advertising revenues represented 52% of our net advertising revenues in 1997,
53% in 1998 and 55% in the first six months of 1999.
National Spot Advertising. National spot advertising represents time sold
to national and regional advertisers based outside a station's designated market
area. National spot advertising revenues represented 48% of our net advertising
revenues in 1997, 47% in 1998 and 45% in the first six months of 1999. National
spot advertising primarily comes from:
- new advertisers wishing to test a market;
- advertisers who are regional retailers and manufacturers without national
distribution;
- advertisers who need to enhance network advertising in given markets; and
- advertisers wishing to place more advertisements in specified geographic
areas.
OUR COMPETITION
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations in their respective markets and, to a
lesser but an increasing extent, with radio stations, cable television system
operators, newspapers, billboard companies, direct mail and internet sites.
Traditional network and Fox programming generally achieves higher household
audience levels than that of The WB Network and syndicated programming aired by
independent stations which is attributable to a number of factors, including:
- the traditional networks' efforts to reach a broader audience;
- historically, less competition;
- generally better channel positions;
- more network programming being broadcast weekly;
- the traditional networks' cross-promotions; and
- the traditional networks' more established market presence than The WB
Network.
However, because The WB Network provides fewer hours of programmings per
week than the traditional networks, we have a significantly higher inventory of
advertising time for our own use and our programs therefore achieve a share of
television market advertising revenues greater than their share of the market's
audience. We believe that this available advertising time, combined with our
efforts to attract audiences with our programming
51
<PAGE> 53
which are key targets of advertisers and our focus on advertising sales allows
us to compete effectively for advertising revenues within our stations' markets.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory bodies, including the FCC, any of which could possibly have a
material adverse effect on a television station's operations and profits.
Sources of video service other than conventional television stations, the most
common being cable television, can increase competition for a broadcast
television station by bringing distant broadcasting signals not otherwise
available to the station's audience, serving as a distribution system for
national satellite-delivered programming and other non-broadcast programming
originated on a cable system and selling advertising time to local advertisers.
Other principal sources of competition include home video exhibition,
direct-to-home broadcast satellite television, entertainment services and
multichannel multipoint distribution services. Currently, two FCC permitees,
DirecTV and Echostar, provide subscription DBS services via high-power
communications satellites and small dish receivers, and other companies provide
direct-to-home video service using lower powered satellites and larger
receivers.
Other technology advances and regulatory changes affecting programming
delivery through fiber optic telephone lines and video compression could lower
entry barriers for new video channels and encourage the development of
increasingly specialized niche programming. The Telecommunications Act of 1996
permits telephone companies to provide video distribution services via radio
communication, on a common carrier basis, as cable systems or as open video
systems, each pursuant to different regulatory schemes. We cannot predict the
effect that these and other technological and regulatory changes will have on
the broadcast television industry and on the future profitability and value of a
particular broadcast television station.
Broadcast television stations compete with other television stations in
their designated market areas 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 and on an increasing basis acquire
programming that could have been offered to local television stations. Public
broadcasting stations generally compete with commercially-rated broadcasters for
viewers, but do not compete for advertising revenues. Historically, the cost of
programming has increased because of an increase in the number of independent
stations and a shortage of quality programming.
FEDERAL REGULATION OF TELEVISION BROADCASTING
Television broadcasting is a regulated industry and is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended from
time to time. 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 broadcast licenses;
- to decide whether to approve a change of ownership or control of station
licenses;
- to regulate the equipment used by stations; and
- to adopt and implement regulations to carry out the provisions of the
Communications Act.
52
<PAGE> 54
Failure to observe FCC or other governmental rules and policies can result
in the imposition of various sanctions, including monetary forfeitures, the
grant of short, or less than maximum, license renewal terms or, for a
particularly egregious violations, the denial of a license renewal application,
the revocation of a license or denial of FCC consent to acquire additional
broadcast properties.
License Grant, Renewal, Transfer and Assignment. A party must obtain a
construction permit from the FCC to build a new television station. Once a
station is constructed and commences broadcast operations, the permittee will
receive a license which must be renewed by the FCC at the end of each eight-year
license term. The FCC grants renewal of a broadcast license if it finds that the
station has served the public interest, convenience, and necessity and the
licensee has not seriously violated the Communications Act or FCC rules and
policies. If the FCC finds that a licensee has failed to meet these standards,
the FCC may deny renewal or condition renewal. 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 that channel. The FCC may not consider any applicant in making
determinations concerning the grant or denial of the licensee's renewal
application. Although renewal of licenses is granted in the majority of cases
even when petitions to deny have been filed, we cannot be sure our station
licenses will be renewed for a full term or without modification.
Our current licenses expire as follows:
<TABLE>
<CAPTION>
STATION EXPIRATION DATE
------- ----------------
<S> <C>
KPLR.......................................... February 1, 2006
KWBP.......................................... February 1, 2007
KUWB.......................................... October 1, 2006
KWBQ(1)....................................... October 1, 2006
WBDT.......................................... October 1, 2005
WBXX.......................................... August 1, 2005
WIWB.......................................... December 1, 2005
WBUI.......................................... December 1, 2005
WTVK.......................................... February 1, 2005
</TABLE>
- -------------------------
(1) We currently operate under a construction permit. We expect the license to
be granted during the second half of 1999.
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including:
- compliance with various rules limiting common ownership of media
properties;
- the character of the licensee and those persons holding attributable
interests therein; and
- compliance with the Communications Act's limitations on alien ownership.
Character generally refers to the likelihood that the licensee or applicant
will comply with applicable law and regulation. Attributable interests generally
refers to the level of ownership or other involvement in station operations
which would result in the FCC
53
<PAGE> 55
attributing ownership of that station or other media outlet to the person or
entity in determining compliance with FCC ownership limitations.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, an application must be filed with the FCC. If
the application involves a substantial change in ownership or control, the
application must be placed on public notice for a period of no less than 30 days
during which petitions to deny the application may be filed by interested
parties, including certain members of the public. If the FCC grants the
application, interested parties have no less than 30 days from the date of
public notice of the grant to seek reconsideration or review of that grant by
the full commission or, as the case may be, a court of competent jurisdiction.
The full FCC commission has an additional 10 days to set aside on its own motion
any action taken by the FCC's staff. When passing on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer to any party other than the
assignee or transferee specified in the application.
The FCC staff informed us that, so long as we have an interim voting
agreement, our reorganization from a limited liability company into a
corporation and our issuance of shares to the public in the offering will be
deemed to result in a non-substantial change of ownership requiring a short-form
application to the FCC. Accordingly, we applied for FCC approval to complete the
reorganization and offering conditioned on our entry into the interim voting
agreement. The FCC staff granted that application on September 2, 1999.
Interested parties will have 30 days from the date of public notice of that
grant to seek FCC reconsideration or review of the grant of the full commission
or a court. The full commission also has an additional 10 days to reconsider the
grant on its own motion. We cannot predict how long the FCC would take to act
upon a request for reconsideration or review. We expect the period to request
FCC reconsideration to expire in mid-October, 1999. If this offering closes
before the FCC order approving our short-form application becomes final, we
would be at risk of third party challenges to and FCC reconsideration of that
initial approval.
The FCC staff has also informed us that, without the required interim
voting agreement, our reorganization and our issuance of shares to the public in
the offering will result in a substantial change of control requiring a
long-form application to the FCC. Accordingly, in addition to our short-form
application, we have made a long-form application to the FCC to go forward from
the reorganization and offering without the interim voting agreement. We must
receive the final order of the FCC approving the long-form application before we
can terminate the interim voting agreement. That long-form application must be
open to the public for challenge or other comment for 30 days before the FCC
staff can act on it. Interested parties may file petitions to deny the
application on or before that date. The 30-day period runs through September 27,
1999. If the FCC grants the long-form application, interested parties will have
another 30 days from public notice of the grant to seek FCC reconsideration or
review of the grant of the full commission or a court. The full commission also
has an additional 10 days to reconsider the grant on its own motion. We may
decide to go forward with our reorganization and the offering whether or not the
FCC has granted our long-form application. If this offering closes before the
FCC order granting our long-form application becomes final, we would be at risk
of third party challenges to and FCC reconsideration of that initial approval.
Although we believe that it is likely we will receive final FCC orders
approving our reorganization and this offering, third party challenges to or FCC
reconsideration of our applications may require changes to permit approval to
become final. Nor can we assure you that the interim voting agreement will
remain in effect as required by the FCC. If the FCC or a court reconsiders or
reviews the grant of our short-form application and the grant of our
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short-form application is rescinded, or if the interim agreement terminates
without approval of our long-form application, the FCC could force us to divest
our FCC licenses, pay fines, deny renewal of our license, refuse to approve of
any of our acquisitions, order us to restructure our reorganization or order us
to take any other action necessary to come into compliance with an FCC order.
Ownership Restrictions. The officers, directors and equity owners of 5% or
more of our outstanding voting stock or the voting stock of a company holding
one or more broadcast licenses are deemed to have attributable interests in the
broadcast company. However, minority voting stock interests generally will not
be attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. Also, specified 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 if they exercise no control over the management or
policies of the broadcast company.
Under the rules currently in effect, the FCC will not grant a license to
operate a television station, 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. 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 which covers channels 14 - 69 are attributed with only 50% of the
households attributed to stations in the VHF band, which covers channels 2 - 13.
Subject to certain exceptions, the rules generally prohibit, 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 prohibit the common
ownership of an attributable interest in one media outlet and a non-attributable
equity interest in another media outlet, among other significant interests, in
the same market.
The FCC recently adopted amendments to its ownership rules. Among other
things, the new rules:
- determine whether stations are in the same market by reference to a
Nielsen designated market area rather than through a signal overlap among
stations;
- permit common ownership of two television stations in the same designated
market area under certain circumstances;
- permit some radio-television ownership combinations;
- eliminate the cross-interest policy;
- attribute the ownership of a station to parties whose debt and/or equity
holdings in the company exceed 33% of the station's total assets if
certain other factors are present;
- increase the benchmark for certain passive investors from 10% to 20%; and
- treat some local marketing agreements or time brokerage agreements with
television stations as an attributable interest.
Those amendments are not yet effective, nor are the FCC's actions final. We do
not know whether the new rules will become effective in their present form or be
modified in future proceedings.
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Restrictions on Foreign Ownership. The Communications Act prohibits the
issuance of broadcast licenses to, or the holding of a broadcast license by
foreign citizens or any corporation of which more than 20% of the capital stock
is owned of record or voted by non-U.S. citizens or their representatives or by
a foreign government or a representative thereof, or by any corporation
organized under the laws of a foreign country. The Communications Act also
authorizes the FCC to prohibit the issuance of a broadcast license to, or the
holding of a broadcast license by, any corporation controlled by any other
corporation of which more than 25% of the capital stock is owned of record or
voted by aliens. The FCC has interpreted these restrictions to apply to other
forms of business organizations, including partnerships. As a result of these
provisions, the licenses granted to our subsidiaries that hold FCC licenses
could be revoked if more than 25% of our stock were directly or indirectly owned
or voted by aliens. Our certificate of incorporation contains limitations on
alien ownership and control substantially similar to those contained in the
Communications Act. Pursuant to our certificate of incorporation, we have the
right to refuse to sell shares to aliens or to repurchase alien-owned shares at
their fair market value to the extent necessary, in the judgment of our board of
directors, to comply with the alien ownership restrictions.
Programming and Operation. The Communications Act requires broadcasters to
serve the public interest, convenience and necessity. The FCC has gradually
restricted or eliminated many of the more formalized procedures it had developed
to promote the broadcast of programming responsive to the needs of the station's
community of license. Licensees continue to be required, however, to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming will be considered by the FCC when
it evaluates the licensee's renewal application, but these complaints may be
filed and considered at any time.
Stations must also pay regulatory and application fees and follow various
FCC rules that regulate, among other things:
- political advertising;
- children's programming;
- the broadcast of obscene or indecent programming;
- sponsorship identification; and
- technical operations and equal employment opportunity requirements.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short, less than the maximum, renewal terms, or for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
Review of Must Carry Rules. FCC regulations implementing the Cable
Television Consumer Protection and Competition Act of 1992 require each
television broadcaster to elect, at three year intervals beginning October 1,
1993, to either:
- require carriage of its signal by cable systems in the station's market
which is referred to as must carry rules; or
- negotiate the terms on which such broadcast station would permit
transmission of its signal by the cable systems within its market which
is referred to as retransmission consent.
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The United States Supreme Court upheld the must-carry rules in a 1997
decision. These must carry rights are not absolute, and their exercise is
dependent on a variety of factors such as:
- the number of active channels on the cable system;
- the location and size of the cable system; and
- the amount of programming on a broadcast station that duplicates the
programming of another broadcast station carried by the cable system.
Therefore under certain circumstance, a cable system may choose to decline
to carry a given station. We have elected must carry with respect to each of our
stations which are each carried on the related cable system.
Local Marketing Agreements. We have, from time to time, entered into local
marketing agreements, generally in connection with pending station acquisitions.
By using local marketing agreements, we can provide programming and other
services to a station proposed to be acquired before we receive all applicable
FCC and other governmental approvals.
FCC rules and policies generally permit local marketing agreements if the
station licensee retains ultimate responsibility for and control of the
applicable station, including finances, personnel, programming and compliance
with the FCC's rules and policies. We cannot be sure that we will be able to air
all of our scheduled programming on a station with which we have local marketing
agreements or that we will receive the anticipated revenue from the sale of
advertising for such programming.
Under the rules currently in effect, the licensee of a television station
providing programming on another television station under a local marketing
agreement is not considered to have an attributable interest in the other
station. However, the FCC recently adopted rules provide that the licensee of a
television station which provides programming for more than 15% of the time on
another television station serving the same market would be deemed to have an
attributable interest in the latter station for purposes of the national and
local multiple ownership rules. The FCC also adopted a grandfathering policy
providing that local marketing agreements that are in compliance with existing
FCC rules and policies and were entered into before November 5, 1996 would be
permitted to continue in force until the FCC conducts its biennial review of
regulations in 2004. Local marketing agreements entered into after that date but
prior to the FCC action will be grandfathered until August 2001.
None of our local marketing agreements were in existence on the date of
enactment of the Telecommunications Act or on November 5, 1996. Therefore we may
be forced to terminate the KWBQ local marketing agreement in August 2001 if it
has not been previously terminated, unless holding an attributable interest in
KWBQ and KASY would comply with the television duopoly rule or a waiver of the
rule was granted.
Digital Television Services. The FCC has adopted rules for implementing
digital television service in the United States. Implementation of digital
television will improve the technical quality of television signals and provide
broadcasters the flexibility to offer new services, including high-definition
television and data broadcasting.
The FCC has established service rules and adopted a table of allotments for
digital television. Under the table, all eligible broadcasters with a full-power
television station are allocated a separate channel for digital television
operation. Stations will be permitted to phase in their digital television
operations over a period of years following the adoption of a final table of
allotments, after which they will be required to surrender their license to
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broadcast the analog, or non-digital television, signal. Affiliates of the top
four networks in the top ten markets are already required to be on the air with
a digital signal. 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. Our
stations must be on the air with a digital signal by May 1, 2002. Under
applicable law and regulation, television broadcasters must return their analog
license to the government by 2006 unless specified conditions exist, that in
effect, affect the public's limited access to digital television transmissions
in a particular market.
The Communications Act and the FCC's rules impose certain conditions on the
FCC's implementation of digital television service. Among other requirements,
the FCC must:
- limit the initial eligibility for licenses to existing television
broadcast licensees or permittees;
- allow digital television licensees to offer ancillary and supplementary
services; and
- charge appropriate fees to broadcasters that supply ancillary and
supplementary services for which such broadcasters derive certain
nonadvertising revenues.
Equipment and other costs associated with the digital television
transition, including the necessity of temporary dual-mode operations, will
impose some near-term financial costs on television stations providing the
services. The potential also exists for new sources of revenue to be derived
from digital television. We cannot predict the overall effect the transition to
digital television might have on our business.
Children's Television Act. FCC rules limit the amount of commercial matter
that a television station may broadcast during programming directed primarily at
children 12 years old and younger. FCC rules further require television stations
to serve the educational and informational needs of children 16 years old and
younger through the stations' own programming as well as through other means.
Television broadcasters must file periodic reports with the FCC to document
their compliance with foregoing obligations.
Other Pending FCC and Legislative 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 networks. 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. Although the
Telecommunications Act substantially relaxed the dual network rule by providing
that an entity may own more than one television network, none of the four major
national television networks may merge with each other or acquire certain other
networks in existence on February 8, 1996. We cannot predict how or when the FCC
proceeding will be resolved or how those proceedings or the relaxation of the
dual network rule may affect our business.
The Satellite Home Viewer Act allows satellite carriers to deliver
broadcast programming to subscribers who are unable to obtain television network
programming over the air from local television stations. Congress is currently
considering legislation to amend the act to facilitate the ability of satellite
carriers to provide subscribers with programming from a non-local television
station. We cannot predict whether any such legislation will be enacted or what,
if any, impact such legislation may have on us.
The FCC has also initiated a proceeding to reexamine rules that previously
required broadcast licensees to provide equal employment opportunities. If the
FCC does adopt new rules governing equal employment opportunities we may have
additional administrative burdens. However, adoption of any new rules will not
affect our continuing obligation to comply with other federal and state laws
concerning equal employment opportunities.
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Federal regulatory agencies and Congress from time to time consider
proposals for additional or revised rules. We cannot predict the resolution of
these issues or other issues discussed above, although their outcome could, over
a period of time, affect, either adversely or favorable, the broadcasting
industry generally or us specifically.
The foregoing summary of FCC and other governmental regulations is not
intended to be comprehensive. For further information concerning the nature and
extent of federal regulation of broadcast stations, you should refer to the
Communications Act, the Telecommunications Act, other Congressional acts, FCC
rules and the public notices and rulings of the FCC.
EMPLOYEES
At June 30, 1999, we had 309 employees, including 44 at KPLR in St. Louis
who were subject to collective bargaining agreements. We believe that our
relationships with our employees and the unions representing our unionized
employees are good.
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PROPERTIES AND FACILITIES
All of our leased studio, office and tower facilities are leased pursuant
to long-term leases. We believe that all facilities and equipment are adequate,
with minor changes and additions, for conducting operations as presently
contemplated. Set forth below is information with respect to our existing
studios and other facilities. Information as to tower size reflects the height
above average terrain of the antenna radiation center.
<TABLE>
<CAPTION>
MARKET APPROXIMATE SIZE OWNERSHIP
------ ---------------- ---------
<S> <C> <C>
St. Louis, Missouri
Studio and office facilities(1).................. 36,000 sq. ft. Owned
Tower............................................ 1,011 ft. Leased
Portland, Oregon
Studio and office facilities..................... 15,255 sq. ft. Owned
Tower............................................ 1,785 ft. Leased
Knoxville, Tennessee
Studio and office facilities..................... 8,000 sq. ft. Leased
Tower............................................ 2,399 ft. Owned(2)
Salt Lake City, Utah
Studio and office facilities..................... 9,500 sq. ft. Leased
Tower............................................ 3,839 ft. Leased
Ft. Myers - Naples, Florida
Studio and office facilities..................... 5,000 sq. ft. Leased
Tower............................................ 1,000 ft. Leased
Albuquerque - Santa Fe, New Mexico
Studio and office facilities..................... 9,000 sq. ft. Owned
Tower............................................ 1,234 ft. Leased
Dayton, Ohio
Studio and office facilities..................... 14,150 sq. ft Owned
Tower............................................ 485 ft. Owned
Green Bay - Appleton, Wisconsin
Studio and office facilities..................... 2,640 sq. ft. Leased
Tower............................................ 660 ft. Leased
Champaign - Springfield - Decatur, Illinois
Studio and office facilities..................... 9,600 sq. ft. Owned
Tower............................................ 1,030 ft. Owned
</TABLE>
- -------------------------
(1) Excludes 30,000 square feet of apartment space located above the studio and
office facilities.
(2) Tower owned on leased property.
LEGAL PROCEEDINGS
We are currently in a dispute with Edward Koplar in connection with Mr.
Koplar's resignation in the fall of 1998 from his position as Chief Executive
Officer of ACME Television of Missouri, Inc., formerly Koplar Communications,
Inc. Mr. Koplar has claimed that we breached his management agreement, and under
the terms of that agreement has claimed that we owe him $4 million and has
threatened to bring suit against us. We believe that Mr. Koplar's claim is
without merit and that the resolution of this matter will not have a material
adverse effect on our financial condition or results of operations. We have
accrued $350,000 as a reserve relating to this matter.
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In addition, we are currently and from time to time involved in litigation
incidental to the conduct of our business. We maintain comprehensive general
liability and other insurance which we believe to be adequate for the purpose.
We are not currently a party to any lawsuit or proceeding that we believe would
have a material adverse effect on our financial condition or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our executive officers and
directors as of August 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jamie Kellner...... 52 Chairman of the Board and Chief Executive Officer
Doug Gealy......... 39 President, Chief Operating Officer and Director
Tom Allen.......... 46 Executive Vice President, Chief Financial Officer
and Director
Edward Danduran.... 47 Vice President, Controller
James Collis(1).... 36 Director
Thomas Embrescia... 53 Director
Brian McNeill(1)... 43 Director
Michael Roberts.... 50 Director
Darryl Schall(1)... 38 Director
</TABLE>
- -------------------------
(1) Will resign from his position after the pricing of this offering but before
our reorganization and in accordance with our short-term application to the
FCC and has agreed to become a director again after final FCC approval of
our long-form application.
Jamie Kellner is a founder of ACME and has served as our Chief Executive
Officer and Chairman of the Board since 1997. Mr. Kellner is also a founder,
Chief Executive Officer and partner of The WB Network since 1993. Previously,
Mr. Kellner was President of Fox Broadcasting Company since its inception in
1986 to 1993. He currently serves on the board of directors of NELVANA LTD., a
Canadian company internationally recognized for its children's and family
programming, worldwide distribution and merchandise licensing.
Doug Gealy is a founder of ACME and has served as our President and Chief
Operating Officer and as a member of our Board since 1997. Since December of
1996, Mr. Gealy has been involved in development activities for ACME. Before
founding ACME, Mr. Gealy served for one year as Executive Vice President of
Benedek Broadcasting Corporation. From 1991 to 1996, Mr. Gealy was a Vice
President and General Manager of WCMH and its local marketing agreement, WWHO,
both in Columbus, Ohio, and following the acquisition of these stations by NBC,
served as President and General Manager of these stations.
Tom Allen is a founder of ACME and has served as our Executive Vice
President and Chief Financial Officer and as a member of our Board since 1997.
Since June 1996, Mr. Allen has been involved in development activities for ACME.
From August 1993 to May 1996, Mr. Allen was the Chief Operating Officer and
Chief Financial Officer for Virgin Interactive Entertainment. Before that Mr.
Allen served as the Chief Financial Officer of the Fox Broadcasting Company from
1986 to 1993.
Edward Danduran has been our Vice President and Controller since July 1997.
From November 1995 until April 1997, Mr. Danduran was a Financial Consultant for
Virgin Interactive Entertainment, Inc. From 1989 to 1995, Mr. Danduran was the
Chief Financial Officer of Phoneby, a business communications company.
James Collis has served as a member of our Board since July 1999. Mr.
Collis is an Executive Vice President of CEA Management Corp., a corporation
formed to manage CEA Capital Partners USA, L.P. and CEA Capital Partners USA CI,
L.P. Mr. Collis has served in this role since 1997. Before joining CEA
Management Corp., Mr. Collis was a Principal at Chase
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Manhattan Bank beginning in December 1996. Before becoming a Principal, Mr.
Collis was a Vice President of Chase Manhattan Bank beginning in June 1995 and
an associate before that beginning in June 1991. Mr. Collis has also been an
investor in the media and communications industry for nine years and serves on
the board of directors for numerous private media and communication companies.
Thomas Embrescia has served as a member of our Board since we acquired WTVK
from Second Generation Television, Inc. in June 1998. Mr. Embrescia is the
Chairman and principal investor of Second Generation Television, a company he
formed in 1993. In addition, he also serves as chairman or Chief Executive
Officer and is a principal investor in several other media and marketing related
businesses. Mr. Embrescia has over 31 years of experience in the broadcasting
and media industry.
Brian McNeill has served as a member of our Board since July 1999. Since
1996, he has been the managing general partner of Alta Communications, a private
venture capital firm he co-founded, which specializes in the communications
industry. Since 1986, Mr. McNeill has been a general partner of various funds
affiliated with Burr, Egan, Deleage & Co., a major private equity firm which
specializes in investments in the communications and technology industries. He
has served as a director in many private radio and television broadcasting
companies such as Tichenor Media Systems, OmniAmerica Group, Panache
Broadcasting and Shockley Communications and a publicly traded company, Radio
One, Inc.
Michael Roberts has served as a member of our Board since April 1999. Mr.
Roberts is a 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 1981. Mr. Roberts is also the founder of companies
active in commercial real estate development, construction program management
and corporate management consulting. Mr. Roberts is also a Managing Member for
Roberts Wireless Communications, a Sprint affiliate serving Missouri, Southern
Illinois and Kansas.
Darryl Schall has served as a member of our Board since July 1999. Mr.
Schall has been a Senior Vice President of Trust Company of the West since
November 1995. Mr. Schall was Director of Research at Crescent Capital
Corporation from July 1994 until its acquisition by Trust Company of the West in
1995.
COMMITTEES OF OUR BOARD OF DIRECTORS
The board of directors has established an audit committee and a
compensation committee. The audit committee currently consists of Messrs. Schall
and Collis. As required by the FCC, Messrs. Schall and Collis will not serve as
members of our board until final approval of our long-form application. Messrs.
Schall and Collis will resign as board members immediately after pricing but
before our reorganization. During this period, Messrs. Embrescia and Roberts
will serve as the members of the audit committee until Messrs. Schall and Collis
rejoin the board and replace them on the audit committee. The audit committee
will make recommendations to the board of directors regarding the selection of
independent auditors, review the results and scope of the audit and other
services provided by our independent auditors and will review and evaluate our
audit and control functions.
The compensation committee consists of Messrs. Embrescia and McNeill. As
with Messrs. Schall and Collis, Mr. McNeill will not serve as a member of our
board until final approval of our long-form application. During this period Mr.
Roberts will serve as a member of the compensation committee until Mr. McNeill
rejoins the board and replaces him on the compensation committee. The
compensation committee makes recommendations
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regarding our equity compensation plans and makes decisions concerning salaries
and incentive compensation for our employees.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services
on our board of directors or any committee of our board. However, directors may
be reimbursed for expenses they incur in attending board and committee meetings.
All directors are eligible to participate in our 1999 Stock Incentive Plan.
EXECUTIVE COMPENSATION
The following table sets forth compensation earned for the years ended
December 31, 1998 and 1997, the year of our formation, by our Chief Executive
Officer, and our next three most highly paid executive officers.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(3) COMPENSATION(4)
- --------------------------- ---- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Jamie Kellner.............. 1998 $175,000(5) $100,000 $ -- $ --
Chairman of the Board and 1997 -- -- -- --
Chief Executive Officer
Doug Gealy................. 1998 300,000 25,000 5,351 93,900
President and Chief 1997 250,000 50,000 -- 2,449
Operating Officer
Tom Allen.................. 1998 300,000 25,000 -- 6,334
Executive Vice President 1997 145,833 50,000 105,000 2,171
and Chief Financial
Officer
Edward Danduran............ 1998 106,016 20,000 -- 3,000
Vice President,
Controller 1997 67,017 -- -- --
</TABLE>
- -------------------------
(1) We did not have restricted stock, stock appreciation rights or payouts on
long term incentive compensation plans during the periods covered.
(2) Amounts disclosed in the column reflect payments under the incentive
provisions of employment agreements which are described under "Employment
Agreements and Arrangements."
(3) Amounts disclosed in this column include:
(a) For Mr. Gealy, a company leased automobile; and
(b) For Mr. Allen, a signing bonus that was paid upon the closing of
acquisitions of KPLR, KWPB, WBXX and KWBQ.
(4) Amounts disclosed in this column include:
(a) Our contributions under our 401K Savings Plan, a defined contribution
plan;
(b) Reimbursements of COBRA expenses;
(c) Payments on behalf of the named executives for life insurance; and
(d) For Mr. Gealy, reimbursement of moving expenses in the amount of
$86,251.
(5) For Mr. Kellner, this amount is his consulting fee.
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EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
We have entered into a non-exclusive consulting agreement with Mr. Kellner
and full-time exclusive employment agreements with each of Messrs. Gealy and
Allen. Each of the agreements expires on June 16, 2002. We will have the option
to extend the term of these senior management members' employment until
September 29, 2003. If we exercise the extension option, the senior management
member's then current base salary would be increased by 10% for the period of
the extension. If we do not exercise an extension option, vesting of all of the
senior management member's options granted as of the closing of this offering
will accelerate and become immediately exercisable on June 16, 2002. The
employment agreements provide for annual compensation reviews by our
compensation committee, with stipulated minimum annual adjustments equal to
increases in the Consumer Price Index. Mr. Kellner's consulting compensation is
set annually on a discretionary basis by the compensation committee.
As of August 31, 1999, Mr. Kellner's annual consulting fee is $175,000. For
the year, beginning January 1, 2000, Mr. Kellner's annual consulting fee will be
$250,000. Mr. Kellner is entitled to annual cash bonuses as determined by our
compensation committee. In addition, in January 2000, we will pay Mr. Kellner a
$1,070,000 cash bonus.
The employment and consulting agreements require the compensation committee
to recommend to our board of directors for adoption no later than November 30,
1999 a cash incentive plan under which Messrs. Kellner, Gealy and Allen will be
eligible to receive awards. No later than January 1, 2000, each executive will
be awarded cash incentives under such plan if they meet performance targets
during fiscal 2000.
As of August 31, 1999, each of Mr. Gealy's and Mr. Allen's base salary is
$300,000. For the year beginning January 1, 2000, each of Mr. Gealy's and Mr.
Allen's base salary will be $375,000. Mr. Gealy and Mr. Allen are entitled to
annual cash bonuses as determined by our compensation committee. In addition, in
January 2000, we will pay each of Mr. Gealy and Mr. Allen a $802,500 cash bonus.
Mr. Danduran is employed by us pursuant to employment agreement that
expires December 31, 2001. The employment agreement requires Mr. Danduran to
devote substantially all of his business time to our business and precludes Mr.
Danduran from engaging in activities competitive with our business throughout
the term of the employment agreement. As of August 31, 1999, Mr. Danduran's base
salary is $106,016. Mr. Danduran is entitled to an annual cash bonus as
determined by our compensation committee.
1999 STOCK INCENTIVE PLAN
Before this offering, we had long-term incentive compensation plans in
which all general managers and non-founder corporate office executives
participated. The awards generally vested in equal thirds on the third, fourth
and fifth anniversaries of the effective date of the awards. For 1998, we
recorded an expense of $399,000 representing the estimated awards earned during
1998 related to this plan. No awards granted under our long-term incentive
compensation plans have vested and such awards have been converted to discounted
stock options. See "Certain Specific Awards" below for a description of the
discounted options.
In September 1999, we adopted our 1999 Stock Incentive Plan to provide an
additional means to attract, motivate, reward and retain key personnel. The plan
gives the administrator the authority to grant different types of stock and cash
incentive awards and to select participants. While only stock options and
restricted stock awards are contemplated at this time, the other forms of awards
that may be granted give us flexibility to structure future
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incentives. Our employees, officers, directors, and consultants may be selected
to receive awards under the plan. The following summary is qualified by
reference to the complete plan, which is on file with the Securities and
Exchange Commission.
Share Limits. A maximum of 4,200,000 shares of our common stock may be
issued under the plan, or approximately 25.08% of our outstanding shares after
giving effect to the public offering. The aggregate number of shares subject to
stock options and stock appreciation rights granted under the plan to any one
person in a calendar year can not exceed 1,000,000 shares. The aggregate number
of shares subject to all awards granted under the plan to any one person in a
calendar year cannot exceed 1,000,000 shares. Performance-based awards payable
solely in cash that are granted under the plan to any one person in a calendar
year cannot provide for payment of more than $1,000,000.
Each share limit and award under the plan is subject to adjustment for
certain changes in our capital structure, reorganizations and other
extraordinary events. Shares subject to awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
plan.
Awards. Awards under the plan may be in the form of:
- nonqualified stock options;
- incentive stock options;
- stock appreciation rights;
- limited stock appreciation rights, which are stock appreciation rights
limited to specific events, such as in a change of control or other
special circumstances;
- restricted stock;
- performance shares;
- stock units;
- stock bonuses; or
- cash bonuses based on performance.
Awards may be granted individually or in combination with other awards. Any
cash bonuses and certain types of stock-based performance awards under the plan
will depend upon the extent to which performance goals set by the administrator
are met during the performance period.
Awards under the plan generally will be nontransferable, subject to such
exceptions such as a transfer to a family member or to a trust, as authorized by
the administrator.
Nonqualified stock options and other awards may be granted at prices below
the fair market value of the common stock on the date of grant. Restricted stock
awards can be issued for nominal or the minimum lawful consideration. Incentive
stock options must have an exercise price that is at least equal to the fair
market value of the common stock, or 110% of fair market value of the common
stock for any owner of more than 10% of our common stock, on the date of grant.
These and other awards may also be issued solely or in part for services.
Administration. The plan will be administered by our board of directors or
a committee of directors appointed by the board. Currently, our board has
delegated general administrative authority over the plan to our compensation
committee.
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The administrator of the plan has broad authority to:
- designate recipients of awards;
- determine or modify, subject to any required consent, the terms and
provisions of awards, including the price, vesting provisions, terms of
exercise and expiration dates;
- approve the form of award agreements;
- determine specific objectives and performance criteria with respect to
performance awards;
- construe and interpret the plan; and
- reprice, accelerate and extend the exercisability or term, and establish
the events of termination or reversion of outstanding awards.
Change of Control. Upon a change of control event, each option and stock
appreciation right will become immediately exercisable, restricted stock will
immediately vest free of restrictions, and the number of shares, cash or other
property covered by each performance award will be issued to the holder of the
award, unless our board of directors determines to the contrary. Generally
speaking, a change of control event will be triggered under the plan:
- upon our dissolution or liquidation;
- in connection with certain mergers or consolidations of ACME
Communications, Inc. into or with, or upon a sale of all or substantially
all of our assets to another entity other than one of our affiliates
where our stockholders before the transaction own less than 50% of the
surviving entity;
- if a change in ownership of more than 50% of our outstanding common stock
occurs; or
- if a majority of our board of directors changes, other than through
normal appointments and succession, over a period of two years or less.
The administrator of the plan may also provide for alternative settlements of
awards, the assumption or substitution of awards, or other adjustments of
awards, in connection with a change of control or other reorganization of ACME
Communications, Inc.
Plan Amendment, Termination and Term. Our board of directors may amend,
suspend or discontinue the plan at any time, but no such action will affect any
outstanding award in any manner materially adverse to a participant without the
consent of the participant. Plan amendments will generally not be submitted to
stockholders for their approval unless such approval is required by applicable
law.
The plan will remain in existence as to all outstanding awards until such
awards are exercised or terminated. The maximum term of options, stock
appreciation rights and other rights to acquire common stock under the plan is
10 years after the initial date of award, subject to provisions for further
deferred payment in certain circumstances. No award can be granted ten years
after adoption of the plan by our board of directors.
Payment for Shares. The exercise price of options or other awards may
generally be paid in cash or, subject to certain restrictions, shares of common
stock. Subject to any applicable limits, we may finance or offset shares to
cover any minimum withholding taxes due in connection with an award.
Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the plan follow certain basic patterns. Generally,
awards under the plan that are includable in the income of the recipient at the
time of exercise, vesting or
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payment, such as nonqualified stock options, stock appreciation rights,
restricted stock and performance awards, are deductible by us, and awards that
are not required to be included in the income of the recipient, such as
incentive stock options, are not deductible by us.
Generally speaking, Section 162(m) of the Internal Revenue Code provides
that a public company may not deduct compensation, except for compensation that
is commission or performance-based paid to its chief executive officer or to any
of its four other highest compensated officers to the extent that the
compensation paid to such person exceeds $1 million in a tax year. The
regulations exclude from these limits compensation that is paid pursuant to a
plan in effect before the time that a company is publicly held. We expect that
compensation paid under the plan will not be subject to Section 162(m) in
reliance on this transition rule, as long as such compensation is paid or stock
options, stock appreciation rights, and/or restricted stock awards are granted
before the earlier of a material amendment to the plan or our annual
stockholders meeting in the year 2003.
In addition, we may not be able to deduct certain compensation attributable
to the acceleration of payment and/or vesting of awards in connection with a
change of control event should that compensation exceed certain threshold limits
under Section 280G of the Internal Revenue Code.
Non-Exclusive Plan. The plan is not exclusive. Our board of directors (or
its delegate), under Delaware law, may grant stock and performance incentives or
other compensation, in stock or cash, under other plans or authority.
Specific Awards. Approximately 2,783,341 shares are subject to options that
will be outstanding before the consummation of this offering, and the balance of
1,416,659 shares remain available for grant purposes.
The shares covered by currently outstanding options represent the 10-year
stock option grants authorized by our compensation committee in late August
1999. The outstanding option grants consist of:
- Options to acquire 283,500 shares upon conversion of our long-term
incentive compensation plan awards. These options were granted at an
exercise price of $15.00 per share and vest in equal thirds on December
31, 2000, 2001 and 2002.
- Options to acquire approximately an additional 215,750 shares granted as
incentives to employees and other eligible persons. Of these grants,
options to acquire 58,500 shares were granted at an exercise price of
$18.00 per share and options to acquire 157,250 shares were granted at an
exercise price equal to the initial public offering price of our shares
of common stock. These options vest in equal installments over five
years.
- Options to acquire an additional 2,209,091 shares, or approximately 13%
of our common stock after giving effect to this offering, were granted to
Messrs. Kellner, Gealy, and Allen. Of this number, options to acquire
838,635 shares were granted to Mr. Kellner, options to acquire 685,228
shares were granted to Mr. Gealy, and options to acquire 685,228 shares
were granted to Mr. Allen. These options were granted at an exercise
price equal to the initial public offering price of our shares of common
stock and vest in four equal annual installments with the first
installment vesting on the first anniversary of this offering. Vesting of
these options accelerate upon change of control, death, disability and
termination without cause.
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401(K) PLAN
In 1998, we established a 401(k) defined contribution plan which covers all
eligible employees. Participants in the 401(k) are allowed to make
nonforfeitable contributions up to 15% of their annual salary, but may not
exceed the annual maximum contribution limitations established by the Internal
Revenue Service. We currently match 50% of the amounts contributed by each
participant but do not match participant's contributions in excess of 6% of
their contribution per pay period. We contributed and expensed $200,000 to the
401(k) in 1998.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following contains information regarding the beneficial ownership of
our common stock for:
- certain holders or groups of related holders who, individually or as a
group, are the beneficial owners of 5% or more of our common stock;
- the executive officers;
- each director who beneficially owns shares of our common stock;
- our executive officers and directors as a group; and
- those stockholders who will sell shares to the extent the over-allotment
option is exercised.
Unless otherwise noted, the address for each person or entity named below
is c/o ACME Communications, Inc. 2101 E. Fourth Street, Suite 202, Santa Ana,
California 92705.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
Because our reorganization will not be completed until after the date of
this prospectus, we have calculated the conversion of the limited liability
company membership interests into shares of our common stock assuming that the
mid-point of the range of offering price per share on the cover of this
prospectus will be the actual offering price and also assumes our conversion
from a limited liability company into a C corporation immediately before the
closing of this offering. Pursuant to the ACME Television Holdings, LLC
operating agreement, in connection with our reorganization, as the offering
price increases, Messrs. Kellner, Gealy and Allen receive a disproportionately
greater share of our pre-offering equity relative to our other pre-offering
stockholders. Accordingly, if the offering price is higher than $20.00 per
share, Messrs. Kellner, Gealy and Allen will have a greater percentage of our
equity and our other pre-offering stockholders will have a lesser percentage,
both before and after the offering. Similarly, if the offering price is lower
than $20.00 per share, Messrs. Kellner, Gealy and Allen will have a lesser
percentage of our equity and our other pre-offering stockholders will have a
greater percentage. Within the $19.00 - $21.00 per share offering price range,
these percentage differences are not substantial. These differences do not, in
any event, affect the aggregate number of shares and aggregate percentage
ownership of our pre-offering stockholders taken as a group, including Messrs.
Kellner, Gealy and Allen.
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Because this table assumes no exercise of the underwriters' over-allotment
option and because our existing stockholders will only sell to the extent the
option is exercised, the table below does not reflect any shares they may sell.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK BENEFICIALLY
NUMBER OWNED
OF SHARES ----------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------- ------------ -------- -----------
<S> <C> <C> <C>
Jamie Kellner............................................... 619,719 5.27% 3.70%
Doug Gealy.................................................. 449,160 3.82 2.68
Tom Allen................................................... 446,441 3.80 2.67
Edward Danduran............................................. -- * *
James Collis(1)(2).......................................... 1,598,348 13.60 9.54
Thomas Embrescia(3)......................................... 332,403 2.82 1.99
Brian McNeill(1)(4)......................................... 1,598,348 13.60 9.54
Michael Roberts............................................. 490,663 4.18 2.93
Darryl Schall(1)(5)......................................... 1,527,198 13.00 9.12
BancBoston Ventures Inc.(6)................................. 1,608,765 13.69 9.60
Alta Communications, Inc./Burr, Egan, Deleage & Co.,
Inc.(4)................................................... 1,598,348 13.60 9.54
CEA ACME, Inc.(2)........................................... 1,598,348 13.60 9.54
TCW Asset Management Company(5)............................. 1,527,198 13.00 9.12
Peregrine Capital, Inc.(7).................................. 734,846 6.25 4.39
Continental Casualty Company/Loews Corporation(8)........... 877,794 7.47 5.24
American High-Income Trust(9)............................... 273,855 2.33 1.64
ACME Capital Partners(10)................................... 206,808 1.76 1.23
The Lincoln National Life Insurance Company(11)............. 205,384 1.75 1.23
American Variable Insurance Series-High-Yield Bond.......... 136,936 1.17 *
1994 Embrescia FITrust f/b/o F.M. Embrescia(12)............. 68,495 * *
1994 Embrescia FITrust f/b/o M.M. Embrescia(13)............. 68,495 * *
1994 Embrescia FITrust f/b/o A.M. Embrescia(14)............. 68,495 * *
The Value Realization Fund, L.P.(15)........................ 15,395 * *
The Canyon Value Realization Fund (Cayman) Ltd.(15)......... 46,214 * *
Jonathan Pinch & Linda Pinch(16)............................ 50,364 * *
Larry S. Blum Living Trust(17).............................. 20,145 * *
Post Advisory Group(18)..................................... 20,551 * *
All directors and executive officers as a group (9
persons).................................................. 7,062,280 60.09 42.17
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Will resign from his position after the pricing of this offering but before
our reorganization in accordance with our short-form application to the FCC
and has agreed to become a director again after FCC approval of our
long-form application.
(2) Includes 1,221,617 shares held by CEA Capital Partners USA, L.P. and
376,731 shares held by CEA Capital Partners USA CI, L.P. Mr. Collis, one of
our directors, is an Executive Vice President of CEA Management Corp., a
corporation formed to manage CEA Capital Partners USA, L.P. and CEA Capital
Partners USA CI, L.P. and therefore may be deemed to having voting and
investment power over the shares. Mr. Collis and CEA Management Corp. have
no pecuniary interest in and disclaim beneficial ownership of these shares.
The address for CEA Management Corp. is 17 State Street, 35th Floor, New
York, NY 10004.
(3) Includes 68,495 shares held by each of three trusts, 1994 Embrescia FITrust
f/b/o F.M. Embrescia, 1994 Embrescia FITrust f/b/o M.M. Embrescia and 1994
Embrescia FITrust f/b/o A.M. Embrescia, of which Mr. Embrescia is trustee.
Mr. Embrescia is deemed to be the beneficial owner of these shares. The
address for Mr. Embrescia is 1228 Euclid Avenue, Suite 860, Cleveland, OH
44115. Mr. Embrescia has granted the
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underwriters an option to purchase up to 25,636 shares of his common stock
pursuant to the underwriters' over-allotment option.
(4) Includes 399,587 shares held by Alta Subordinated Debt Partners III, LP,
1,172,082 shares held by Alta Communications VI, LP, and 26,679 shares held
by Alta Comm S by S, LLC. Alta Subordinated Debt Partners III, L.P. is
managed by Burr, Egan, Deleage & Co., Inc. and Alta Communications VI, L.P.
and Alta Comm S By S, LLC are indirectly managed by Alta Communications,
Inc. which may be deemed to have investment powers with respect to the
shares held by these partnerships. Mr. McNeill is the general partner of
the general partner of Alta Subordinated Debt Partners III and of Alta
Communications VI and is a member of Alta Comm S by S, and may be deemed to
have investment power with respect to the shares owned by these funds. Mr.
McNeill disclaims beneficial ownership of the shares held by these funds,
except to the extent of his proportionate pecuniary interest therein. The
address for both Alta Communications, Inc. and Burr, Egan, Deleage & Co.,
Inc., which have common ownership, is One Post Office Square, Suite 3800,
Boston, MA 02109.
(5) Includes 1,039,470 shares held by TCW Leveraged Income Trust, LP, and
487,728 shares held by TCW Shared Opportunity Fund II LP, investment funds
for which TCW Asset Management provides investment advisory services. Mr.
Schall is a Senior Vice President of TCW Asset Management and may be deemed
to have investment powers with respect to the shares owned by these funds.
Mr. Schall has no pecuniary interest in and disclaims beneficial ownership
of these shares. The address for TCW Asset Management Company is 11100
Santa Monica Boulevard, Suite 2000, Los Angeles, CA 90025. Affiliates of
TCW Asset Management Company have granted the underwriters an option to
purchase up to 308,479 shares of its common stock pursuant to the
underwriters' over-allotment option.
(6) BankBoston Corporation directly or indirectly has voting control with
respect to the stock of BancBoston Ventures. The address for BancBoston
Ventures Inc. is 100 Federal Street, Boston, MA 02110.
(7) Linda D. Rose and Daniel J. Alderman directly or indirectly have voting
control with respect to the stock of Peregrine Capital, Inc. The address
for Peregrine Capital, Inc. is 9725 SW Beaverton-Hillsboro Hwy., Suite 350,
Beaverton, OR 97005-3366.
(8) Lawrence A. Tisch and Preston R. Tisch directly or indirectly have voting
control with respect to the stock of the Loews Corporation, the parent
corporation of Continental Casualty Company. The address for Continental
Casualty/Loews is 667 Madison Ave., 7th Fl., New York, NY 10021.
Continental Casualty has granted the underwriters an option to purchase up
to 177,306 shares of its common stock pursuant to the underwriters'
over-allotment option.
(9) American High-Income Trust has granted the underwriters an option to
purchase up to 55,321 shares of its common stock pursuant to the
underwriters' over-allotment option. American Variable Insurance
Series-High-Yield Bond has granted the underwriters an option to purchase
up to 27,656 shares of its common stock pursuant to the underwriters'
over-allotment option. The address for both American High-Income Trust and
American Variable Insurance Series-High-Yield Bond is 667 Madison Avenue,
7th Floor, New York, NY 10021.
(10) ACME Capital Partners has granted the underwriters an option to purchase up
to 41,772 shares of its common stock pursuant to the underwriters'
over-allotment option. The address for ACME Capital Partners is 101 E.
Kennedy Blvd., Suite 3300, Tampa, FL 33602.
(11) Lincoln National has granted the underwriters an option to purchase up to
41,487 shares of its common stock pursuant to the underwriters'
over-allotment option. The address for Lincoln National is 200 East Berry
Street 2R02, Fort Wayne, IN 46802.
(12) 1994 Embrescia FITrust f/b/o F.M. Embrescia has granted the underwriters an
option to purchase up to 13,835 shares of its common stock pursuant to the
underwriters' over-allotment option. The address for 1994 Embrescia FITrust
f/b/o F.M. Embrescia is c/o Mr. Embrescia, 1228 Euclid Avenue, Suite 860,
Cleveland, OH 44115.
(13) 1994 Embrescia FITrust f/b/o M. M. Embrescia has granted the underwriters
an option to purchase up to 13,835 shares of its common stock pursuant to
the underwriters' over-allotment option. The address for 1994 Embrescia
FITrust f/b/o M.M. Embrescia is c/o Mr. Embrescia, 1228 Euclid Avenue,
Suite 860, Cleveland, OH 44115.
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(14) 1994 Embrescia FITrust f/b/o A. Embrescia has granted the underwriters an
option to purchase up to 13,835 shares of its common stock pursuant to the
underwriters' over-allotment option. The address for 1994 Embrescia FITrust
f/b/o A. Embrescia is c/o Mr. Embrescia, 1228 Euclid Avenue, Suite 860,
Cleveland, OH 44115.
(15) The Value Realization Fund, L.P. has granted the underwriters an option to
purchase up to 3,109 shares of its common stock pursuant to the
underwriters' over-allotment option. The Canyon Value Realization Fund
(Cayman) Ltd. has granted the underwriters an option to purchase up to
9,337 shares of its common stock pursuant to the underwriters'
over-allotment option. The address for both The Value Realization Fund,
L.P. and The Canyon Value Realization Fund (Cayman) Ltd. is 9665 Wilshire
Blvd., Suite 200, Beverly Hills, CA 90212.
(16) Jonathan Pinch & Linda Pinch have granted the underwriters an option to
purchase up to 10,173 shares of their common stock pursuant to the
underwriters' over-allotment option. The address for Jonathan Pinch & Linda
Pinch is 1228 Euclid Avenue, Suite 860, Cleveland, OH 44115.
(17) Larry S. Blum Living Trust has granted the underwriters an option to
purchase up to 4,069 shares of its common stock pursuant to the
underwriters' over-allotment option. The address for Larry S. Blum Living
Trust is 1228 Euclid Avenue, Suite 860, Cleveland, OH 44115
(18) Post Advisory Group has granted the underwriters an option to purchase up
to 4,150 shares of its common stock pursuant to the underwriters'
over-allotment option. The address for Post Advisory Group is 18880 Century
Park East, Suite 820, Los Angeles, CA 90067.
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CERTAIN TRANSACTIONS
THE WB TELEVISION NETWORK
Our stations have entered into affiliation agreements and, from time to
time, related marketing arrangements with The WB Network. Mr. Kellner is an
owner and the Chief Executive Officer of The WB Network. We believe that the
terms of each of these affiliation agreements or marketing agreements are or
were at least as favorable to us or our affiliates as those that could be
obtained from an unaffiliated party.
AGREEMENTS WITH VARIOUS SELLERS OF STATIONS
Pursuant to June 1995 agreements among Koplar Communications, Inc. the
company from which we acquired KPLR, Roberts Broadcasting, and its owners,
Michael Roberts and his brother Steven Roberts, Roberts Broadcasting cannot:
- transfer its license for WHSL, East St. Louis, Missouri;
- commit any programming time of the station for commercial programming or
advertising; or
- enter into a local marketing agreement with respect to such station until
June 1, 2000.
If the current affiliation agreement for WHSL is terminated, the substitute
format must be substantially similar to the current home shopping network format
or, in the alternative, an infomercial format. Annual payments from KPLR under
the agreements were $200,000 in each of 1995, 1996 and 1997 and subsequent to
our acquisition of KPLR, we paid a total of $300,000 in each of 1998 and 1999.
Both Michael and Steven Roberts are stockholders of our Company and Michael
Roberts is one of our directors.
In connection with our stations in Utah and New Mexico, we entered into
long-term agreements to lease studio facilities and/or transmission tower space
from an affiliate of Michael and Steven Roberts. These leases have terms of
approximately fifteen years and provide for monthly payments aggregating
approximately $25,000, subject to adjustment based on the Consumer Price Index.
In addition, upon consummation of this offering, entities affiliated with
Michael and Steven Roberts have the option to purchase the studio building in
Albuquerque from us at its original cost and to lease it back to us at fair
market value. In October 1998, we paid Michael Roberts an $80,000 finder's fee
in connection with our purchase of the property.
In connection with our purchase of KWBP in June 1997, Peregrine Capital,
Inc., one of our stockholders, acquired 4,400 membership units in our
predecessor, ACME Television Holdings, LLC as part of the purchase price for
KWBP. In addition, we loaned the seller of KWBP, an affiliate of Peregrine
Capital, approximately $119,000. This loan was repaid in July 1999. In January
1998, we purchased the construction permit for KWBQ, formerly KAOU, from an
affiliate of Michael Roberts and Steven Roberts for $10,000. In connection with
our purchase of WTVK in June 1998, Thomas Embrescia one of our directors and
stockholders and his affiliates, collectively acquired 2,062.5 membership units
in our predecessor, ACME Television Holdings, LLC, as part of the purchase price
for WTVK. In connection with our purchase of KUPX, one of our directors, Michael
Roberts and Steven Roberts, each acquired 3,000 membership units in our
predecessor, ACME Television Holdings, LLC, as part of the purchase price for
KUPX in December 1997. In addition, in December 1997, we loaned Michael Roberts
and Steven Roberts $4.0 million, in connection
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with the purchase of KUPX. This loan was repaid in connection with the closing
of the KUPX sale in February 1999.
VOTING AGREEMENTS
To satisfy FCC requirements until our pending long-form change of control
application is approved by the FCC and becomes final, we have entered into an
interim voting agreement with Messrs. Kellner, Gealy, Allen, Embrescia and
Roberts, and certain investment funds managed by or affiliated with Alta
Communications, BancBoston, CEA Capital and TCW Asset Management Company, all of
whom are current stockholders. Under the interim voting agreement, the
stockholders have agreed to vote their common stock to permit Messrs. Kellner,
Gealy and Allen to elect our board of directors but retain approval rights over
some corporate actions. In addition, these stockholders are parties to a
long-term voting agreement that takes effect when we receive the final order by
the FCC for our long-term application. Pursuant to the long-term voting
agreement, if it takes effect, Messrs. Kellner, Gealy, Allen, Embrescia and
Roberts and affiliates of Alta Communications, BancBoston, CEA Capital and TCW
Asset Management Company will be able to elect at least a majority of our board.
If it takes effect, the long-term voting agreement will expire two years from
the closing of this offering. In addition to being stockholders, Messrs.
Kellner, Gealy, Allen, Embrescia and Roberts are all directors.
AGREEMENTS WITH OTHER STOCKHOLDERS AND DIRECTORS
On October 1, 1997, in connection with our acquisition of KWBP, we paid
CEA, Inc., an affiliate of one of our stockholders, CEA Capital Partners, a
broker's fee of approximately $176,000. On the same day, we paid CEA, Inc.,
$132,000 in connection with the purchase of WBXX, $25,000 in connection with the
purchase of the construction permit for KWBQ (formerly KAOU), $45,000 in
connection with the purchase of the construction permit for KUPX (formerly KZAR)
and $889,000 in connection with the purchase of KPLR, as broker's fees in each
of the transactions. Additionally, in connection with the recent acquisition of
WBUI, WIWB and WBDT, we paid CEA, Inc. a broker's fee of $125,000. CEA, Inc.
also received compensation from the seller in connection with the purchase of
WBUI, WIWB and WBDT. One of our directors, Mr. Collis, is an officer of an
affiliate of CEA Capital Partners.
In June and September 1997, we issued 10% convertible debentures with the
right to convert into 24,775,970 membership units to affiliates of Alta
Communications, Banc Boston, CEA Capital Partners and TCW Asset Management
Company, each of which are stockholders. Another of our directors, Mr. Schall,
is an officer of an affiliate of TCW Asset Management Company and Mr. McNeill,
also one of our directors, is an officer of an affiliate of Alta Communications.
In connection with the sale of the 12% senior secured notes in September
1997, we paid CEA, Inc. $165,622 in financing fees and $527,378 in connection
with the sale of the 10 7/8% senior discount notes. Additionally, in connection
with each of the June and September 1997 issuances of membership units and 10%
convertible debentures, we paid CEA, Inc. a financing fee of $440,000 and $1.1
million.
In February 1999, we exercised our option to purchase the property where
KWBP is located for $1.5 million from an affiliate of Peregrine Capital. Before
the purchase, we leased the property from the same affiliate.
We believe that the terms of each of the foregoing transactions are or were
at least as favorable to us or our affiliates as those that could be obtained
from an unaffiliated party.
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FORMATION TRANSACTIONS
In June 1997, we issued to each of Mr. Kellner, Mr. Gealy and Mr. Allen
membership units all at $1,000 per unit with a preferential return at 2.0 times
the rate of return on all non-founder membership units as follows:
- Mr. Kellner acquired 290 membership units;
- Mr. Gealy acquired 160 membership units; and
- Mr. Allen acquired 150 membership units.
In June and September 1997, we issued 1,342.5 membership units, all at
$1,000 per unit, to affiliates of BancBoston, CEA Capital Partners, Alta
Communications, ACME Capital Partners and TCW Asset Management Company with a
preferential return at 1.5 times the rate of return on all of these membership
units.
Also in connection with our formation, we issued to Mr. Kellner an
additional 40 management carry units, to Mr. Gealy 30 management carry units and
to Mr. Allen 30 management carry units in consideration for their founding of,
and services, to us.
BRIDGE LOAN
On April 23, 1999, to finance in part the acquisition of WBDT, WIWB and
WBUI affiliates of certain of our stockholders, Alta Communications, TCW Asset
Management Company, BancBoston and CEA Capital Partners agreed to make a $15.0
million loan to us, $7 million of which was paid on April 23, 1999 and $8
million of which was paid on June 23, 1999. Interest on the loan accrues
beginning at 22.5% per year and escalates quarterly after six months and is due
on the earlier of April 2002 or consummation by us of any debt or equity
financings generating net proceeds greater than the outstanding loan balance. We
anticipate that we will use the proceeds of this offering to repay the investors
in full for the loan. Three of our directors are officers of entities making the
loans. Brian McNeill is an officer of an affiliate of Alta Communications,
Darryl Schall is an officer of an affiliate of TCW Asset Management Company and
James Collis is an officer of an affiliate of CEA Capital Partners.
KWBQ OPTION
In connection with the closing of the KASY purchase and the KWBQ sale, we
anticipate that Ramar Communications will grant Montecito Communications, LLC, a
limited liability company owned entirely by Messrs. Kellner, Gealy and Allen, an
option to purchase KWBQ for an exercise price of $100,000. We anticipate that
Montecito will assign the option to us immediately after the closing of the sale
of KWBQ. We anticipate that the closing of these transactions will take place in
the fourth quarter of 1999.
REGISTRATION RIGHTS
Rights of ACME Television Holdings, LLC Unitholders
We have entered into a registration rights agreement with some of our
existing investors. At any time after the earlier to occur of June 30, 2002 or
180 days after the consummation of this offering, a majority in interest of
these holders may demand that we file a registration statement under the
Securities Act covering all or a portion of the securities of ours held by them.
However, the securities to be registered must have an
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anticipated aggregate public offering price of at least $7.5 million. These
holders can effect two such demand registrations.
When we are eligible to use a Registration Statement on Form S-3 to
register an offering of our securities, these stockholders may request that we
file a registration statement on Form S-3, covering all or a portion of
securities of ours held by them, provided that the aggregate public offering
price is at least $2.0 million. These stockholders can request that we file one
S-3 registration statement per year.
These registration rights will be subject to our right to delay the filing
of a registration statement, not more than once in any 12-month period, for not
more than 90 days.
In addition, these stockholders will have certain piggyback registration
rights. If we propose to register any common stock under the Securities Act,
other than pursuant to the registration rights noted above, these stockholders
may require us to include all or a portion of their securities in such
registration. However, the managing underwriter, if any, of any such offering
has certain rights to limit the number of registrable securities proposed to be
included in such registration.
We would bear all registration expenses incurred in connection with these
registrations. The stockholders would pay all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of its securities.
The registration rights of these stockholders under the registration rights
agreement terminate when that entity may transfer its securities under rule 144
promulgated under the Securities Act or have otherwise been transferred.
Rights of Holders of Membership Units Issued September 1997
In September 1997, ACME Intermediate privately placed 71,634 units
consisting of the 12% senior secured notes and membership units in ACME
Intermediate, pursuant to which certain investors acquired approximately 6% of
the membership interests of ACME Intermediate. Concurrently, an affiliate of TCW
Asset Management Company acquired convertible debentures and preferred
membership units issued by one of our subsidiaries which are convertible into
membership units representing approximately 2% of the membership interests in
ACME Intermediate. In conjunction with the September 1997 private placement, we
entered into the membership unitholders agreement, dated September 30, 1997 with
CIBC Wood Gundy Securities Corp. which provides the purchasers of the membership
units and convertible securities with certain registration rights. As described
in the section entitled "The Reorganization" we will exchange shares of our
common stock for these interests in ACME Intermediate. At any time after the
consummation of this offering, holders of 25% of the common stock issued in
exchange for the securities related to ACME Intermediate may demand that we file
a registration statement under the Securities Act covering all or a portion of
their shares of our common stock. These holders can effect two such demand
registrations.
In addition, these holders will have certain piggyback registration rights.
If we propose to register any common stock under the Securities Act, other than
pursuant to the registration rights noted above, these holders may require us to
include all or a portion of their securities in such registration. However, the
managing underwriter, if any, of such offering has certain rights to limit the
number of registrable securities proposed to be included in such registration.
The holders making the demand would bear all registration expenses incurred
in connection with any demand registrations and we would bear all registration
expenses
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incurred with any other registrations. The holders would pay all underwriting
discounts, selling commissions and stock transfer taxes applicable to the sale
of its securities.
Rights of Certain Acme Communication, Inc. Stockholders
In connection with our reorganization, we intend to enter into a
registration rights agreement with all of our stockholders immediately before
the offering. This agreement will supersede both of the ACME Television Holdings
registration rights agreement and the ACME Intermediate registration rights
agreement. The rights of our current stockholders under the new registration
rights agreement will be substantially similar to the rights of the parties to
the ACME Television Holdings registration rights agreement described above.
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THE REORGANIZATION
Immediately before the closing of the offering, we will complete the
reorganization described below. The FCC granted approval of our short-form
application to complete the reorganization subject to our entry into an interim
voting agreement. We expect the period to request FCC reconsideration of the
grant of our short-form application to expire in mid-October 1999.
First, ACME Communications will issue common stock in exchange for all of
the convertible debentures of ACME Television Holdings, LLC.
Second, ACME Communications will exchange shares of its common stock for
- membership units representing approximately 6% of ACME Intermediate;
and
- all of the convertible debentures and preferred convertible membership
units of ACME Subsidiary Holdings IV, LLC.
Third, ACME Communications Merger Subsidiary, LLC, a wholly-owned
subsidiary of ACME Communications, will merge into ACME Television Holdings,
LLC. In this merger, ACME Television Holdings, LLC's membership units will be
exchanged for shares of common stock of ACME Communications.
Fourth, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will dissolve and its sole asset, a 0.49146% interest
in ACME Intermediate, will be distributed to ACME Television Holdings, LLC.
Last, ACME Subsidiary Holdings IV, LLC will dissolve and its sole asset, a
1.99037% interest in ACME Intermediate, will be distributed to ACME Television
Holdings, LLC. After this dissolution, ACME Communications will own directly or
indirectly 100% of the membership units of each of ACME Television Holdings, LLC
and of ACME Intermediate.
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[Pre-Reorg. Corporate Structure Flow Chart]
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[Post-Reorg. Corporate Structure Flow Chart]
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately before the closing of this offering, our authorized capital
stock will consist of 50,000,000 shares of common stock, $0.01 par value and
10,000,000 shares of preferred stock, $0.01 par value.
As of June 30, 1999, assuming the conversion of our business form into a C
corporation, there were outstanding 11,750,000 shares of common stock, each with
a par value of $0.01, held of record by 32 stockholders.
COMMON STOCK
Subject to the preferences of any preferred stock outstanding at the time,
the holders of our common stock are entitled to receive dividends out of legally
available assets as and when determined by our board. Holders of our common
stock are entitled to one vote for each share held on all matters submitted to a
vote of stockholders. Our certificate of incorporation does not authorize
cumulative voting for the election of our directors, which means that the
holders of a majority of the shares voted can elect all of our directors then
standing for election. Our common stock is not entitled to preemptive rights and
is not subject to conversion or redemption. Upon liquidation, dissolution or
winding-up, the assets legally available for distribution to our stockholders
are distributable ratably among the holders of our common stock after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of our common stock is, and
all shares of our common stock to be outstanding upon completion of this
offering will be upon payment therefore, duly and validly issued, fully paid and
nonassessable.
PREFERRED STOCK
Our board is authorized, subject to any limitations prescribed by Delaware
law, to issue preferred stock in one or more series. Our board can fix the
rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions thereon.
Our board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of our common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, under certain circumstances, have
the effect of delaying, deferring or preventing a change of control. We have no
current plan to issue any shares of preferred stock.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Advance Notice. Our bylaws provide that advance notice of all director
nominations or other business matters proposed to be brought before an annual
meeting of our stockholders be delivered to our secretary at our corporate
office not later than 90 nor more than 120 days prior to the first anniversary
of the preceding year's annual meeting. This provision may make it more
difficult for stockholders to nominate or elect directors or take action opposed
by the board.
Special Meetings. Our bylaws provide that special meetings of the
stockholders may be called only by the board of directors, the chairman of the
board of directors or the
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president. This provision may make it more difficult for stockholders to take
action opposed by the board.
No Stockholder Action by Written Consent. Our certificate of incorporation
provides that stockholders can take action only at an annual or special meeting
of stockholders duly called in accordance with our bylaws. Accordingly, our
stockholders will not be able to take action by written consent in lieu of a
meeting. This provision may have the effect of deterring hostile takeovers or
delaying changes in control or management.
Indemnification of Directors and Officers. Our certificate of incorporation
and bylaws provide indemnification to the fullest extent permitted by law for
expenses, attorney's fees, damages, punitive damages, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by any
threatened, pending or completed proceeding by or in our right by reason of the
fact that the person is or was serving as one of our directors or officers. If
we request any of these indemnitees to act as a director, officer, partner,
venturer, proprietor, employee, agent, or trustee of another enterprise, we will
also indemnify that person. Our certificate of incorporation and bylaws provide
for the advancement of expenses to an indemnified party if the party agrees to
repay those amounts if it is finally determined that the indemnified party is
not entitled to indemnification. In addition, we have entered into
indemnification agreements with each of our directors and executive officers.
Our bylaws authorize us to take steps to ensure that all persons entitled
to the indemnification are properly identified and indemnified, including, if
the board of directors so determines, purchasing and maintaining insurance.
FOREIGN OWNERSHIP RESTRICTIONS
Our certificate of incorporation includes provisions designed to ensure
that our control and management remains with citizens of the United States
and/or corporations formed under the laws of the United States or any of the
states of the United States, as required by the Communications Act.
These provisions include restrictions on transfers of our capital stock by
an alien. For the purpose of these restrictions, an alien is:
- a person who is a citizen of a country other than the United States;
- any entity organized under the laws of a government other than the
government of the United States or any state, territory, or possession of
the United States;
- a government other than the government of the United States or of any
state, territory, or possession of the United States; or
- a representative of, or an individual or entity controlled by, any of the
foregoing.
Specifically, our foreign ownership restrictions provide:
- We cannot issue to an alien any shares of our capital stock if such
issuance would result in the total number of shares of such capital stock
held or voted by aliens, or for or by the account of aliens, to exceed
25% of:
- the total number of all shares of such capital stock outstanding at any
time and from time to time; or
- the total voting power of all shares of such capital stock outstanding
and entitled to vote at any time and from time to time.
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- We cannot permit the transfer on our books of any capital stock to any
alien that would result in the total number of shares of such capital
stock held or voted by aliens, or for or by the account of aliens,
exceeding such 25% limits.
- No alien or aliens, individually or collectively, shall be entitled to
vote or direct or control the vote of more than 25% of:
- the total number of all shares of our capital stock outstanding at any
time and from time to time; or
- the total voting power of all shares of our capital stock outstanding
and entitled to vote at any time and from time to time.
Issuance or transfer of our capital stock in violation of this provision is
prohibited.
Our board of directors have all powers necessary to implement these
provisions and ensure compliance with the alien ownership restrictions of the
Communications Act, including the power to prohibit the transfer of any shares
of our capital stock to any alien and to take or cause to be taken any action it
deems appropriate to implement this prohibition. We will place a legend
regarding restrictions on foreign ownership of the capital stock on certificates
representing our capital stock.
In addition, any shares of our capital stock determined by the board of
directors to be owned beneficially by an alien or aliens will always be subject
to redemption by us by action of the board of directors or any other applicable
provision of law, to the extent necessary, in the judgment of the board of
directors, to comply with the alien ownership restrictions. The terms and
conditions of redemption are as follows:
- the redemption price will be equal to the lower of:
- the fair market value of the shares to be redeemed, as determined by
the board of directors in good faith;
- the alien's purchase price for such shares;
- the redemption price may be paid in cash, securities or any combination
thereof;
- if less than all the shares held by aliens are to be redeemed, the shares
to be redeemed will be selected in any manner determined by the board of
directors to be fair and equitable;
- at least 10 days' prior written notice of the redemption date will be
given to the holders of record of the shares selected to be redeemed
unless waived in writing by any such holder, but the redemption date may
be the date we give written notice to holders if the cash or securities
necessary to effect the redemption have been deposited in trust for the
benefit of those holders and subject to immediate withdrawal by them upon
proper surrender;
- from and after the redemption date, the shares to be redeemed will cease
to be regarded as outstanding and any rights of the holders in respect of
the shares to be redeemed or attaching to such shares of whatever nature,
including any rights to vote or participate in dividends declared on
capital stock of the same class or series as such shares, will cease and
those holders thereafter will be entitled only to receive the cash or
securities payable upon redemption; and
- other terms and conditions as the board of directors determines.
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CERTAIN PROVISIONS OF DELAWARE LAW
We are a Delaware corporation and are subject to the provisions of Section
203 of the Delaware General Corporation Law, an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
business combination with an interested stockholder for a period of three years
after the date of the transaction by which that person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a business combination includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years prior did own, 15% or
more of our voting stock.
VOTING AGREEMENTS
Interim Voting Agreement. To satisfy FCC requirements until our pending
long-form change of control application with the FCC is approved and becomes
final, we will enter into an interim voting agreement with Messrs. Kellner,
Gealy, Allen, Roberts, Embrescia and our initial institutional investors,
certain investment funds managed by or affiliated with Alta Communications,
BancBoston, CEA Capital and TCW Asset Management Company. During the term of
this interim voting agreement, our board of directors will be comprised of five
members.
The parties to this interim voting agreement have agreed to vote their
shares to elect Messrs. Kellner, Gealy and Allen to the board of directors.
Additionally, these institutional investors have also agreed to vote their
shares to elect to our board of directors two individuals designated by Messrs.
Kellner, Gealy and Allen. Those two designees must be qualified under the
Communications Act and the FCC's rules and not be in privity with Messrs.
Kellner, Gealy or Allen. Messrs. Roberts and Embrescia are the two designees and
their qualifications have been approved by the FCC. The parties to the interim
voting agreement have agreed that their shares will be voted in the same manner
as a majority of Messrs. Kellner, Gealy and Allen in their capacities as
stockholders.
In consideration for their agreement to cast their votes as described
above, these institutional investors will retain their approval rights under
existing agreements entered into with respect to their investments in ACME
Television Holdings.
At least 60% in interest of the institutional investors must approve the
following actions:
- redemption of our shares;
- authorization or issuance of additional shares of our common stock;
- payment or declaration of dividends;
- our merger or consolidation;
- the reorganization or sale of us, our subsidiaries, or any of our
material assets;
- entry into new businesses;
- our consent to enter into bankruptcy;
- incurrence of substantial debt;
- significant capital expenditures;
- any change of control requiring FCC approval;
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- significant acquisitions; and
- changes in senior management or senior management compensation.
Long-Term Voting Agreement. Messrs. Kellner, Gealy, Allen, Embrecia and
Roberts and certain investment funds managed by or affiliated with Alta
Communications, BancBoston, CEA Capital and TCW Asset Management Company will
enter into a voting agreement that will become effective upon FCC approval of
our pending long-term change of control application becoming a final order.
Under this agreement, the parties will vote for the election to our board of
three individuals designated by Messrs. Kellner, Gealy and Allen, three
individuals designated by the institutional investors who are parties to that
agreement and each of Messrs. Embrecia and Roberts. In each case, the
designations are subject to reasonable approval of the groups that have not made
the designations. The parties to the agreement will collectively hold more than
50% of our common stock, and the institutional investors as a separate group
will own approximately 38% of our common stock following completion of this
offering. As the institutional investors' aggregate percentage ownership
decreases, and as Messers. Embrescia's and Roberts' percentage ownership
decreases, the number of board members they will be able to designate will
decline. In any event, this agreement will expire two years from the closing of
this offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is U.S. Stock
Transfer Corporation.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "ACME."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 16,750,000 shares of common
stock outstanding. The 5,000,000 shares of common stock to be sold by us in this
offering will be freely tradeable without restriction or limitation under the
Securities Act, except for shares held by our affiliates, as defined under Rule
144 of the Securities Act. Shares of common stock held by our affiliates may be
sold only if registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as Rule 144. Our directors,
executive officers and our existing stockholders have agreed not to sell,
directly or indirectly, any shares owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of Deutsche Bank
Securities Inc. See "Underwriting." Upon the expiration of this 180 day lock-up
period, substantially all of these shares will become eligible for sale, subject
to the restrictions of Rule 144.
RULE 144
In general, under Rule 144, a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year, including
our affiliates, would be entitled to sell, within any three-month period, that
number of shares that does not exceed the greater of 1% of the then-outstanding
shares of common stock and the average weekly trading volume in the common stock
during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the Securities and Exchange Commission,
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provided certain manner of sale and notice requirements and requirements as to
the availability of current public information about us are satisfied. A holder
of restricted securities who is not deemed an affiliate of the issuer and who
has beneficially owned shares for at least two years would be entitled to sell
shares under Rule 144(k) without regard to these limitations. Our affiliates
must comply with the restrictions and requirements of Rule 144, other than the
one-year holding period requirement, in order to publicly sell shares of common
stock. As defined in Rule 144, an affiliate of an issuer is a person who,
directly or indirectly, through the use of one or more intermediaries controls,
or is controlled by, or is under common control with, such issuer.
RULE 701
In general, under Rule 701, any of our employees, consultants or advisors
who purchases or receives shares from us in connection with a compensatory
option plan will be eligible to resell their shares beginning 90 days after the
date of this prospectus. Non-affiliates will be able to sell their shares
subject only to the manner-of-sale provisions of Rule 144. Affiliates will be
able to sell their shares without compliance with the holding period
requirements of Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 11,750,000 shares of our
common stock will be entitled to rights with respect to the registration of
their shares under the Securities Act. See "Certain Transactions -- Registration
Rights." Except for shares purchased by affiliates, registration of their shares
under the Securities Act would result in such shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of the registration.
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering the shares of common stock reserved for
issuance upon exercise of outstanding options. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under the registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market beginning 180 days after the effective
date of the registrant statement of which this prospectus is a part.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of common stock by a
beneficial owner thereof that is a non-U.S. holder. A non-U.S. holder is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a foreign
estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended,
and administrative interpretations as of the date hereof, all of which are
subject to change, including changes with retroactive effect. This discussion
does not address all aspects of U.S. federal income and estate taxation that may
be relevant to Non-U.S. Holders in light of their particular circumstances and
does not address any tax consequences arising under the laws of any state, local
or foreign jurisdiction. You should consult your own tax advisor with respect to
the particular tax consequences to you of owning and disposing of common stock,
including the consequences under the laws of any state, local or foreign
jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends paid to a non-U.S. holder of
common stock generally will be subject to withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. For purposes
of determining whether tax is to be withheld at a 30% rate or at a reduced rate
as specified by an income tax treaty, we ordinarily will presume that dividends
paid on or before December 31, 1999 to an address in a foreign country are paid
to a resident of such country absent knowledge that such presumption is not
warranted.
Under United States Treasury Regulations issued on October 6, 1997, which
are applicable to dividends paid after December 31, 2000, to obtain a reduced
rate of withholding under a treaty, a non-U.S. holder will generally be required
to provide an Internal Revenue Service Form W-8 certifying such non-U.S.
holder's entitlement to benefits under a treaty. The new regulations also
provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a non-U.S. holder that is an
entity should be treated as paid to the entity or those holding an interest in
that entity.
There will be no withholding tax on dividends paid to a non-U.S. holder
that are effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States if a Form 4224 stating that the dividends are
so connected is filed with us. Instead, the effectively connected dividends will
be subject to regular U.S. income tax in the same manner as if the non-U.S.
holder were a U.S. resident. A non-U.S. corporation receiving effectively
connected dividends may also be subject to an additional branch profits tax that
is imposed, under certain circumstances, at a rate of 30%, or such lower rate as
may be specified by an applicable treaty, of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
Under the new regulations, Form W-8 will replace Form 4224.
Generally, we must report to the U.S. Internal Revenue Service the amount
of dividends paid, the name and address of the recipient, and the amount, if
any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
such reports available to tax authorities in the recipient's country of
residence.
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Dividends paid to a non-U.S. holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the non-U.S.
holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information.
Under current United States federal income tax law, backup withholding
imposed at a rate of 31% generally will not apply to dividends paid on or before
December 31, 2000 to a non-U.S. holder at an address outside the United States
unless the payer has knowledge that the payee is a U.S. person. Under the new
regulations, however, a non-U.S. holder will be subject to backup withholding
unless applicable certification requirements are met.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of common stock
unless
- the gain is effectively connected with a trade or business of such holder
in the United States;
- in the case of certain non-U.S. holders who are non-resident alien
individuals and hold the common stock as a capital asset, such
individuals are present in the United States for 183 or more days in the
taxable year of the disposition;
- the non-U.S. holder is subject to a tax pursuant to the provisions of the
Internal Revenue Code regarding the taxation of U.S. expatriates; or
- we are or have been a U.S. real property holding corporation within the
meaning of Section 897(c)(2) of the Internal Revenue Code at any time
within the shorter of the five-year period preceding such disposition or
such holder's holding period. We are not, and do not anticipate becoming,
a U.S. real property holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of common stock by a non-corporate holder through a U.S. office of a
broker unless the disposing holder certifies as to its non-U.S. status or
otherwise establishes an exemption. Generally, U.S. information reporting and
backup withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, unless the broker has documentary evidence that the
holder is a non-U.S. holder, U.S. information reporting requirements, but not
backup withholding, will apply to a payment of disposition proceeds where the
transaction is effected outside the United States by or through an office
outside the United States of a broker that is either
- a U.S. person;
- a foreign person which derives 50% or more of its gross income for
certain periods form the conduct of a trade or business in the United
States
- a controlled foreign corporation for U.S. federal income tax purposes; or
- in the case of payments made after December 31, 2000, a foreign
partnership with connections to the United States, unless such broker has
documentary evidence in its
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files of the holder's non-U.S. status and has no actual knowledge to the
contrary or unless the holder establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual non-U.S. holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
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UNDERWRITING
We intend to offer our common stock through a number of underwriters.
Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and CIBC World Markets Corp. are
acting as representatives of each of the underwriters named below. Subject to
the terms and conditions set forth in an underwriting agreement among us and the
representatives on behalf of the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters severally and not jointly has agreed
to purchase from us, the number of shares of common stock set forth opposite its
name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ..............................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Morgan Stanley & Co. Incorporated...........................
CIBC World Markets Corp.....................................
---------
Total..................................................... 5,000,000
=========
</TABLE>
In the underwriting agreement, the several underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of common stock being sold pursuant to the underwriting agreement if any
of the shares of common stock being sold under the terms of such agreement are
purchased. In a default by an underwriter, the underwriting agreement provides
that, in certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the underwriting agreement may be terminated.
Our shares may not be offered or sold in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing,
or disposing of investments, as principal or agent, for the purposes of their
businesses or otherwise in circumstances which will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995.
Buyers of the shares offered hereby may be required to pay stamp taxes and
other charges in accordance with the laws and practices of the country of
purchase in addition to the initial public offering price.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including certain liabilities under the Securities
Act, or to contribute to payments the underwriters may be required to make in
respect of those liabilities.
The shares of common stock are being offered by the underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
consummation of the reorganization, approval of certain legal matters by counsel
for the underwriters and certain other conditions. The underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common
stock. The underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share of common stock on
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sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of the over-allotment option.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price....................... $ $ $
Underwriting discount....................... $ $ $
Proceeds, before expenses, to ACME.......... $ $ $
Proceeds, before expenses, to the selling
stockholders.............................. $ $ $
</TABLE>
The expenses of the offering, exclusive of underwriting discounts, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National Market listing
fee, printing expenses, legal fees and expenses, accounting fees and expenses,
road show expenses, Blue Sky fees and expenses, transfer agent and registrar
fees and other miscellaneous fees. The expenses of the offering, exclusive of
the underwriting discount, are estimated at $987,000 and are payable by us.
OVER-ALLOTMENT OPTION
The selling stockholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 750,000 additional shares of our common stock at the public
offering price set forth on the cover page of this prospectus, less the
underwriting discount. The underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of our common stock offered hereby. To
the extent that the underwriters exercise this option, each underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of our common stock proportionate to such underwriter's initial amount
reflected in the foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered hereby to be sold to some
of our directors, officers, employees, business associates and related persons.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent that those persons purchase the reserved
shares. Any reserved shares that are not orally confirmed for purchase within
one day of the pricing of the offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
LOCK-UP
We and our executive officers and directors and all existing stockholders
have agreed, for a period of 180 days after the date of this prospectus, not to
offer, sell, contract to sell, loan, pledge, grant any option to purchase, make
any short sale or otherwise dispose of (a) any shares of our common stock, (b)
any options or warrants to purchase any shares of our common stock or (c) any
securities convertible into, exchangeable for or that represent the right to
receive shares of our common stock. Certain gifts, transfers to trusts, and
distributions to partners or shareholders of a stockholder are permitted where
the transferee
92
<PAGE> 94
agrees to be similarly bound. Transfers may also be made where Deutsche Bank
Securities Inc. on behalf of the underwriters consents in advance.
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the representatives. The factors considered in determining the initial
public offering price, in addition to prevailing market conditions, include:
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
- certain of our financial information;
- our history and our prospects;
- the industry in which we compete;
- an assessment of our management and its past and present operations;
- the prospects for, and timing of, our future revenue;
- the present state of our development; and
- the market values and various valuation measures of other companies
engaged in activities similar to ours.
We cannot be sure that an active trading market will develop for our common
stock or that our common stock will trade in the public market subsequent to the
offering at or above the initial public offering price.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing our common stock in
the open market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
93
<PAGE> 95
Neither any of the underwriters nor we make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
any of the underwriters nor we make any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
CERTAIN RELATIONSHIPS AND ARRANGEMENTS
Canadian Imperial Bank of Commerce, an affiliate of CIBC World Markets
Corp., is a primary lender and the agent under our credit agreement. We pay CIBC
a commitment fee on the unused portion of its commitment as a lender under our
credit agreement; CIBC also receives a fee for its services as administrative
agent. As a lender, CIBC may receive more than 10% of the net proceeds of this
offering to repay debt under our credit agreement. Under the Conduct Rules of
the National Association of Securities Dealers, Inc., special considerations
apply where a member or person associated with a member participating in an
offering is paid more than 10% of the net proceeds. Accordingly, this offering
is being made pursuant to Rule 2710(c)(8) of the NASD's Conduct Rules, in
conjunction with which Deutsche Bank Securities Inc., a representative, is
acting as a qualified independent underwriter in pricing this offering,
preparing this prospectus and conducting due diligence.
LEGAL MATTERS
O'Melveny & Myers LLP, Newport Beach, California will pass upon the
validity of the shares of common stock offered by this prospectus. Irell &
Manella LLP, Los Angeles, California will pass upon certain legal matters for
the underwriters.
EXPERTS
The consolidated financial statements and schedules of our predecessor ACME
Television Holdings, LLC as of December 31, 1998 and 1997, and for each of the
years in the two-year period ended December 31, 1998, have been included herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Koplar Communications, Inc. for
each of the years in the two-year period ended December 31, 1998, have been
included herein and in the registration statement in reliance upon the report of
KPMG 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 each of the years
in the two-year period ended June 30, 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock offered by this prospectus. As permitted by the rules and
regulations of the SEC, this prospectus, which is part of the registration
statement, omits certain information included in the registration
94
<PAGE> 96
statement and the exhibits, schedules and undertakings set forth in the
registration statement. For further information pertaining to us and the common
stock offered by this prospectus, reference is made to our registration
statement and its exhibits and schedules. Statements contained in this
prospectus concerning the contents of any contract or any other document
referred to in the prospectus are not necessarily complete. In each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference.
We file reports and other information with the Securities and Exchange
Commission. Such reports and other information, as well as a copy of the
registration statement may be inspected without charge at the SEC's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from such offices upon the payment of the fees
prescribed by the SEC. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval system, including our registration statement and all exhibits and
amendments to our registration statement, are publicly available through the
SEC's Web site at http://www.sec.gov.
95
<PAGE> 97
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACME COMMUNICATIONS, INC.
Balance Sheet as of July 23, 1999 (unaudited)............... F-2
Notes to Balance Sheet (unaudited).......................... F-3
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
Report of KPMG LLP, Independent Auditors.................... F-4
Consolidated Balance Sheets as of December 31, 1997 and 1998
and June 30, 1999 (unaudited)............................. F-5
Consolidated Statements of Operations for each of the years
in the two-year period ended December 31, 1998 and the six
months ended June 30, 1998 and 1999 (unaudited)........... F-6
Consolidated Statements of Members' Capital (Deficit) for
each of the years in the two-year period ended December
31, 1998 and the six months ended June 30, 1999
(unaudited)............................................... F-7
Consolidated Statements of Cash Flows for each of the years
in the two-year period ended December 31, 1998 and the six
months ended June 30, 1998 and 1999 (unaudited)........... F-8
Notes to Consolidated Financial Statements.................. F-9
KOPLAR COMMUNICATIONS, INC. AND SUBSIDIARY
Report of KPMG LLP, Independent Auditors.................... F-26
Consolidated Statements of Operations for each of the years
in the two-year period ended December 31, 1997............ F-27
Consolidated Statements of Cash Flows for each of the years
in the two-year period ended December 31, 1997............ F-28
Notes to Financial Statements............................... F-29
CHANNEL 32 INCORPORATED
Report of KPMG LLP, Independent Auditors.................... F-38
Statements of Operations for each of the years in the
two-year period ended June 30, 1996 and the period from
July 1, 1996 to June 17, 1997 (unaudited)................. F-39
Statements of Cash Flows for each of the years in the
two-year period ended June 30, 1996 and the period from
July 1, 1996 to June 17, 1997 (unaudited)................. F-40
Notes to Financial Statements............................... F-41
</TABLE>
F-1
<PAGE> 98
ACME COMMUNICATIONS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
JULY 23,
1999
-----------
(UNAUDITED)
<S> <C>
ASSETS
Due from affiliates......................................... $1,000
------
Total assets........................................... $1,000
======
STOCKHOLDER'S EQUITY
Stockholder's equity
Common stock, $.01 par value; 1,000 shares authorized;
100 shares issued and outstanding......................... $ 1
Additional paid-in capital.................................. 999
------
Total stockholder's equity............................. $1,000
======
</TABLE>
See accompanying notes to the balance sheet.
F-2
<PAGE> 99
ACME COMMUNICATIONS, INC.
NOTES TO UNAUDITED BALANCE SHEET
(1) DESCRIPTION OF THE BUSINESS AND FORMATION
FORMATION AND PRESENTATION
ACME Communications, Inc. was formed as a wholly-owned subsidiary of ACME
Television Holdings, LLC ("Parent") on July 23, 1999. On September 8, 1999, the
Company received $1,000 from its Parent which represents its contributed
capital. With the exception of the initial nominal capitalization of the
company, the Company has not had any operations or other activities.
ACME Communications, Inc., is contemplating the issuance of common stock in
an initial public offering. Immediately before the closing, ACME Communications,
Inc., will complete a reorganization with ACME Television Holdings, LLC and will
become the successor entity. ACME Communications, Inc. does not guarantee that
it will be able to successfully complete the issuance of common stock in an
initial public offering.
F-3
<PAGE> 100
INDEPENDENT AUDITORS' REPORT
The Board of Advisors
ACME Television Holdings, LLC:
We have audited the accompanying consolidated balance sheets of ACME
Television Holdings, LLC and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and members' capital and cash
flows for the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ACME
Television Holdings, LLC and subsidiaries as of December 31, 1998 and 1997 and
the results of operations and cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
July 28, 1999
F-4
<PAGE> 101
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,824 $ 1,001 $ 1,669
Accounts receivable, net.................................. 888 10,840 13,151
Current portion of program rights......................... 614 6,357 6,508
Prepaid expenses and other current assets................. 3,121 416 798
-------- -------- --------
Total current assets................................... 13,447 18,614 22,126
Property and equipment, net................................. 7,346 16,441 25,002
Program rights, net of current portion...................... 587 8,046 5,757
Deposits.................................................... 143,000 37 536
Deferred income taxes....................................... -- 3,811 3,971
Intangible assets, net...................................... 36,004 222,987 261,156
Other assets................................................ 20,091 18,146 11,734
-------- -------- --------
Total assets........................................... $220,475 $288,082 $330,282
======== ======== ========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 3,363 $ 4,425 $ 4,951
Accrued liabilities....................................... 651 4,210 7,851
Current portion of program rights payable................. 653 7,649 6,082
Current portion of obligations under lease................ 292 1,273 1,277
-------- -------- --------
Total current liabilities.............................. 4,959 17,557 20,161
Program rights payable, net of current portion.............. 1,351 6,512 4,964
Obligations under lease, net of current portion............. 443 4,199 4,078
Other liabilities........................................... 1,047 4,671 5,670
Deferred income taxes....................................... -- 31,241 33,439
Revolving credit facility................................... -- 8,000 39,400
Bridge loan................................................. -- -- 15,000
Convertible debentures...................................... 24,756 24,756 24,756
10 7/8% senior discount notes............................... 130,833 145,448 153,357
12% senior secured notes.................................... 36,863 42,052 44,913
-------- -------- --------
Total liabilities...................................... 200,252 284,436 345,738
-------- -------- --------
Minority interest........................................... 3,917 2,233 830
Members' capital:
Members' capital.......................................... 23,785 30,832 41,532
Accumulated deficit....................................... (7,479) (29,419) (57,818)
-------- -------- --------
Total members' capital (deficit)....................... 16,306 1,413 (16,286)
-------- -------- --------
Total liabilities and members' capital (deficit)....... $220,475 $288,082 $330,282
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 102
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------- -----------------------
1997 1998 1998 1999
------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues........................ $11,347 $ 43,928 $ 19,327 $ 26,635
Operating expenses:
Station operating expenses........ 10,158 32,973 15,165 19,990
Depreciation and amortization..... 1,215 11,355 4,181 8,159
Corporate......................... 1,415 2,627 1,194 1,483
Equity-based compensation......... -- -- -- 10,700
------- -------- -------- --------
Total operating expenses....... 12,788 46,955 20,540 40,332
------- -------- -------- --------
Operating loss............... (1,441) (3,027) (1,213) (13,697)
Other income (expenses):
Interest income................... 287 231 188 27
Interest expense.................. (6,562) (23,953) (11,472) (14,068)
Gain on sale of asset............. -- 1,112 -- --
Other............................. -- (380) 10 --
------- -------- -------- --------
Loss before taxes and minority
interest.......................... (7,716) (26,017) (12,487) (27,738)
Income tax benefit (expense)........ -- 2,393 365 (2,064)
------- -------- -------- --------
Loss before minority interest....... (7,716) (23,624) (12,122) (29,802)
Minority interest.............. 237 1,684 868 1,403
------- -------- -------- --------
Net loss..................... $(7,479) $(21,940) $(11,254) $(28,399)
======= ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 103
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
MEMBERS'
MEMBERS' ACCUMULATED CAPITAL
CAPITAL DEFICIT (DEFICIT)
-------- ----------- ---------
<S> <C> <C> <C>
Balance at December 31, 1996.................... $ -- $ -- $ --
Issuance of units, net........................ 23,785 -- 23,785
Net loss...................................... -- (7,479) (7,479)
------- -------- --------
Balance at December 31, 1997.................... 23,785 (7,479) 16,306
Issuance of units, net........................ 7,047 7,047
Net loss...................................... -- (21,940) (21,940)
------- -------- --------
Balance at December 31, 1998.................... 30,832 (29,419) 1,413
Equity-based compensation..................... 10,700 -- 10,700
Net loss...................................... -- (28,399) (28,399)
------- -------- --------
Balance at June 30, 1999 (unaudited)............ $41,532 $(57,818) $(16,286)
======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE> 104
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------- --------------------
1997 1998 1998 1999
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (7,479) $(21,940) $(11,254) $(28,399)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 1,215 11,355 4,181 8,159
Amortization of program rights............................ 1,433 5,321 2,195 3,250
Amortization of debt issuance costs....................... 445 989 247 337
Amortization of discount on 10 7/8% senior discount
notes................................................... 3,463 14,170 6,934 7,909
Amortization of discount on 12% senior secured notes...... 1,213 5,189 2,503 2,861
Minority interest allocation.............................. (237) (1,684) (868) (1,403)
Equity-based compensation................................. -- -- -- 10,700
Deferred taxes............................................ -- (2,393) (345) (962)
Gain on sale of assets.................................... -- (1,112) -- --
Changes in assets and liabilities:
Increase in accounts receivables, net..................... (888) (5,479) (4,023) (2,311)
(Increase) decrease in prepaid expenses................... (3,060) 364 (691) (353)
(Increase) decrease in due from affiliates................ (7) 7 -- --
Increase in other assets.................................. -- (576) -- --
Increase in accounts payable.............................. 3,363 59 102 526
Increase in deferred tax liability........................ -- -- -- 3,000
Increase in accrued expenses.............................. 651 2,639 5,532 5,215
Payments on programming rights payable.................... (1,758) (6,588) (2,853) (4,227)
Increase (decrease) in other liabilities.................. 1,047 (2) (1,749) (571)
--------- -------- -------- --------
Net cash provided by (used in) operating activities..... (599) 319 (89) 3,731
--------- -------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (6,077) (2,945) (3,934) (4,493)
Purchases of and deposits for station interests........... (175,129) (16,675) (17,635) (41,765)
Cash acquired in acquisition -- St. Louis................. -- 779 779 --
Proceeds from sale of station interest.................... -- 3,337 -- --
Purchase of Sylvan Tower interest......................... -- -- -- (2,583)
Other..................................................... (10,524) -- -- --
--------- -------- -------- --------
Net cash used in investing activities................... (191,730) (15,504) (20,790) (48,841)
--------- -------- -------- --------
Cash flows from financing activities:
Increase in revolving credit facility..................... -- 11,000 12,000 31,400
Increase in bridge loan................................... -- -- -- 15,000
Payments on revolving credit facility..................... -- (3,000) -- --
Payments on capital leases................................ (97) (638) 1,935 (572)
Issuance of members' capital.............................. 19,385 -- -- --
Issuance of convertible debentures........................ 24,756 -- -- --
Issuance of 10 7/8% senior discount notes................. 127,370 -- -- --
Issuance of 12% senior secured notes...................... 35,650 -- -- --
Debt issuance costs....................................... (10,065) -- 14 (50)
Minority interest......................................... 4,154 -- -- --
--------- -------- -------- --------
Net cash provided by financing activities............... 201,153 7,362 13,949 45,778
--------- -------- -------- --------
Net increase (decrease) in cash........................... 8,824 (7,823) (6,930) 668
Cash at beginning of period............................... -- 8,824 8,824 1,001
--------- -------- -------- --------
Cash at end of period..................................... $ 8,824 $ 1,001 $ 1,894 $ 1,669
========= ======== ======== ========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest................................................ $ 514 $ 864 $ 121 $ 630
Taxes................................................... -- 70 18 70
Non-cash transactions:
Purchases of property and equipment in exchange for
capital lease obligations............................. $ -- $ 5,375 $ 2,036 438
Issuance of equity in connection with station
acquisitions.......................................... 4,400 7,047 7,047 --
Use of deposit as consideration for purchase
transaction........................................... -- 143,000 -- --
Exchange of note receivable and option deposit as
purchase consideration for station interest........... $ -- $ -- $ -- $ 7,000
========= ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-8
<PAGE> 105
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
(1) DESCRIPTION OF THE BUSINESS AND FORMATION
FORMATION AND PRESENTATION
The accompanying consolidated financial statements are presented for ACME
Television Holdings, LLC ("ACME" or the "Company") and its majority and
wholly-owned subsidiaries. Segment information is not presented since all of the
Company's revenues are attributed to a single reportable segment.
Information with respect to the six months ended June 30, 1999 and 1998 is
unaudited. The accompanying unaudited consolidated financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company and subsidiaries, for the periods
presented. The results of operations for the six month period are not
necessarily indicative of the results of operations for the full year.
NATURE OF BUSINESS
The Company is a holding company with no assets or independent operations
other than its investment in it's majority-owned subsidiary, ACME Intermediate
Holdings LLC ("ACME Intermediate"). As of June 30, 1999, ACME Intermediate,
through its wholly-owned subsidiary, ACME Television, LLC ("ACME Television"),
owns and/or operates nine commercially licensed broadcast television stations
(the "Stations" or "Subsidiaries") located throughout the United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company
and its 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 generally 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.
F-9
<PAGE> 106
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the related allowance for doubtful
accounts which totaled $696,000, $555,000 and $51,000 at June 30, 1999, December
31, 1998 and 1997, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable and cash. Due to the
short-term nature of these instruments, the carrying value approximates the fair
market value. 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.
PROGRAM RIGHTS
Program rights represent costs incurred for the right to broadcast certain
features and syndicated television programs. Program rights are stated, on a
gross basis, at the lower of amortized cost or estimated realizable value. The
cost of such program rights and the corresponding liability are recorded when
the initial program becomes available for broadcast under the contract.
Generally, program 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 gross
payments under these contracts that are due within one year and after one year
are similarly classified as current and noncurrent liabilities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of maintenance is
expensed when incurred. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the respective assets.
When property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the appropriate accounts and any gain or loss is
included in the results of current operations. The principal lives used in
determining depreciation rates of various assets are as follows:
<TABLE>
<S> <C>
Buildings and Improvements.......................... 20 - 30 years
Broadcast and other equipment....................... 3 - 20 years
Furniture and fixtures.............................. 5 - 7 years
Vehicles............................................ 5 years
</TABLE>
F-10
<PAGE> 107
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
INTANGIBLE ASSETS
Intangible assets consist of broadcast licenses and goodwill, both of which
are amortized on a straight-line basis over a 20-year life.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------------- JUNE 30,
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Broadcast licenses....................... $24,338 $154,351 $184,011
Goodwill................................. 12,427 78,808 93,799
------- -------- --------
Total intangible assets............. 36,765 233,159 277,810
Less: accumulated amortization........... (761) (10,172) (16,654)
------- -------- --------
Net intangible assets............... $36,004 $222,987 $261,156
======= ======== ========
</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 estimated 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.
LOCAL MARKETING AGREEMENTS
In connection with station acquisitions, and pending FCC approval of the
transfer of license assets, we generally enter into local marketing agreements
with the sellers. Under the terms of these agreements, we obtain the right to
program and sell advertising time on 100% of the station's inventory of
broadcast time, incur certain operating expenses and may make payments to the
sellers. As the holder of the FCC license, the seller/licensee retains ultimate
control and responsibility for all programming broadcast on the station. We, in
turn, record revenues from the sale of advertising time and operating expenses
for costs incurred. Included in the accompanying consolidated statements of
operations for the years ended December 31, 1997 and 1998, are net revenues of
$9.5 million and $6.8 million, respectively, that relate to local marketing
agreements. For the period ended June 30, 1999, $125,000 relating to local
marketing agreements is included in net revenue. Payments to the sellers for the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1998 and 1999 were $0, $228,000, $228,000 and $0, respectively. At June 30,
1999, the Company was not obligated for any future payments to sellers.
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
F-11
<PAGE> 108
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
Assets to be Disposed Of." The carrying value of long-lived assets (tangible,
identifiable intangible, and goodwill) 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 other than at its subsidiary ACME Television of
Missouri, Inc. which is a C Corporation subject to federal and state taxation.
Any liability or benefit from the Company's non-taxable entities' consolidated
income or loss is the responsibility of, or benefit to, 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 of the realizable value of programming rights and the evaluation of the
recoverability of intangible assets. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts previously reported for 1997 and 1998 have been
reclassified to conform to the 1999 financial statement presentation.
F-12
<PAGE> 109
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- ---------
1997 1998 1999
------ ------- ---------
<S> <C> <C> <C>
Land........................................ $ -- $ 553 $ 1,158
Buildings and improvements.................. 365 2,529 5,002
Broadcast and other equipment............... 7,201 13,163 21,105
Furniture and fixtures...................... 60 287 703
Vehicles.................................... 61 185 204
Construction in process..................... -- 1,935 702
------ ------- -------
Total.................................. $7,687 $18,652 28,874
Less: accumulated depreciation.............. (341) (2,211) (3,872)
------ ------- -------
Net property and equipment.................. $7,346 $16,441 $25,002
====== ======= =======
</TABLE>
Included in property and equipment are assets acquired under capital leases
with a total cost of $6,645,000 and the associated accumulated depreciation of
$1,121,000 at June 30, 1999.
(4) ACQUISITIONS
On June 17, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Channel 32, Incorporated, relating to the
operations of KWBP, in exchange for $18,675,000 in cash and $4,400,000 of
membership units in the Company. The acquisition was accounted for using the
purchase method. The excess of the purchase price plus the fair value of net
liabilities assumed of approximately $23,478,000, has been recorded as an
intangible broadcast license and is being amortized over a period of 20 years.
In addition, the results of operations (excluding depreciation and amortization)
of 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 station's losses during the period from January 1, 1997 to June
17 1997 (the acquisition date).
On July 29, 1997, the Company entered into a stock purchase agreement to
acquire Koplar Communications, Inc. (KCI). On September 30, 1997, the Company
placed $143 million in to an escrow account (classified as a deposit on the
December 31, 1997 consolidated balance sheet). In connection with this
acquisition, the Company entered into a long-term local marketing agreement with
KPLR and filed the requisite applications with the FCC for the transfer of the
Station's license to the Company.
Pursuant to the local marketing agreement, the Company retained all
revenues generated by the station, bore substantially all operating expenses
(excluding depreciation and amortization) of the station and was obligated to
pay a local marketing agreement fee. These revenues and expenses for the period
October 1 through December 31, 1997 are included in the Company's operating
results for the year ended December 31, 1997.
F-13
<PAGE> 110
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
On March 13, 1998, the Company completed its acquisition of Koplar
Communications, Inc. ("KCI") and acquired all of the outstanding stock of KCI
for a total consideration of approximately $146.3 million. The acquisition was
accounted for using the purchase method. Pursuant to the local marketing
agreement referred to above, all revenues and operating expenses of the station
(excluding depreciation and amortization) for the period from September 30, 1997
to March 31, 1998 (the effective date of the purchase transaction) are included
in the Company's operating results. The purchase transaction was recorded on the
consolidated balance sheet of the Company effective March 31, 1998 and the
Company's results of operations includes revenues and expenses (including
amortization of intangible assets) beginning April 1, 1998.
The fair value of the assets acquired and liabilities assumed relating to
the acquisition of KPLR (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Cash and cash equivalents................................. $ 779
Accounts receivables, net................................. 1,703
Program broadcast rights.................................. 8,490
Property and equipment.................................... 2,233
Prepaid expenses and other current assets................. 416
FCC license............................................... 82,563
Goodwill.................................................. 93,775
Other assets.............................................. 395
--------
Total assets acquired.................................. $190,354
========
Liabilities assumed:
Accounts payable.......................................... $ (1,005)
Accrued liabilities....................................... (1,332)
Program broadcast rights payable.......................... (8,258)
Deferred income taxes..................................... (29,889)
Other liabilities......................................... (3,531)
--------
Total liabilities assumed.............................. $(44,015)
--------
Total purchase price................................... $146,339
========
</TABLE>
On October 7, 1997, the Company acquired Crossville Limited Partnership,
the owner of WINT, in exchange for $13,200,000 in cash. Subsequent to the
acquisition, the Company changed the call letters of the station to WBXX. 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
$13,287,000, has been recorded as an intangible broadcast license and is being
amortized over a period of 20 years.
During 1997, the Company entered into an agreement that provided it with
the right to: (i) acquire 49% of the licensee of KUPX (formerly KZAR) in
exchange for membership units valued at $6 million, and (ii) pay $3 million for
an option to acquire the remaining 51% interest in the licensee of KUPX for $5
million, exercisable immediately after the station commences on-air operations.
On December 15, 1997, the Company acquired the 49%
F-14
<PAGE> 111
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
interest in the licensee of KUPX, paid $3 million to acquire the option and
loaned the sellers $4 million (to be applied to the subsequent majority interest
purchase price). On January 22, 1998, the Company issued $6 million of its
member units to the sellers for the 49% interest in the license of KUPX in
connection with the above transaction. The amount of the issuance was based upon
a fixed dollar amount of consideration. The Company accounted for the 49%
investment using the equity method of accounting. On February 16, 1999, the
Company acquired the remaining 51% interest in KUPX. The $4.0 million loan was
applied against the remaining purchase price of $5 million.
In May 1998 the Company and the majority owners of KUPX entered into an
agreement with another broadcaster in Salt Lake City to (i) swap KUPX for KUWB,
subject to FCC approval (ii) enable the Company to operate KUWB under a local
marketing agreement and (iii) enable the owner of KUWB to operate KUPX under a
local marketing agreement. Pursuant to the LMA's, the Company retains all
operating revenues and expenses (excluding depreciation and amortization) of
KUWB and the owner of KUWB retains all operating revenues and expenses
(excluding depreciation and amortization) of KUPX. In March 1999, the FCC
approved the swap of KUPX for KUWB, which is expected to close during the third
quarter of 1999. The Company intends to account for the swap as a business
combination using fair market value. However, the Company believes that the fair
value of KUWB approximates the historical cost of KUPX.
On August 22, 1997, the Company entered into an agreement with affiliates
of the sellers of KZAR to acquire 100% of the interests in the construction
permit for KAUO for a consideration of $10,000. This agreement was consummated
on January 22, 1998. Subsequently, the call letters of KAUO were changed to
KWBQ. Construction of KWBQ was completed and the station commenced broadcasting
in March 1999.
On June 30, 1998, the Company acquired substantially all the assets and
assumed certain liabilities of WTVK-Channel 46 serving the Fort Myers-Naples,
Florida marketplace for approximately $14.5 million in cash and 1,047 membership
units (valued at approximately $1.0 million). The acquisition was accounted for
using the purchase method. The excess of the purchase price over the fair value
of the net assets assumed of approximately $15.5 million has been recorded as an
intangible broadcast license and goodwill, both of which are being amortized
over a period of 20 years. The Company had entered into a local marketing
agreement with WTVK wherein the Company, effective March 3, 1998, retained all
revenues generated by the station, bore all operating expenses of the station
(excluding depreciation and amortization) and had the right to program the
station (subject to WTVK's ultimate authority for programming) and the station's
existing programming commitments. The local marketing agreement terminated upon
the consummation of the acquisition. Consequently, under the local marketing
agreement the revenues and operating expenses (excluding depreciation and
amortization) of the station are included in the Company's results of operations
from March 3, 1998 to June 30, 1998. The purchase transaction was recorded on
the consolidated balance sheet of the Company on June 30, 1998 and the Company's
results of operations includes revenues and expenses (including amortization of
intangible assets) beginning July 1, 1998.
F-15
<PAGE> 112
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
On April 23, 1999, the Company acquired the non-FCC license assets of three
Paxson Communication Corporation stations serving the Dayton, OH, Green Bay, WI
and Champaign-Decatur, IL markets for $32 million. On June 23, 1999, following
FCC approval of the transfer of the FCC licenses to ACME, the Company acquired
the licenses and completed the acquisition of the three stations by making to
PCC a final payment of $8.0 million. The Company financed this $40 million
transaction by a $25 million borrowing under its Loan Agreement and a $15
million loan from certain of its members (the "Bridge Loan"). The Bridge Loan
bears interest at 22.5% per annum, is unsecured, may be prepaid at any time
without penalty and is due, along with all accrued interest, on April 23, 2002.
On February 19, 1999, the Company entered into an agreement in principle
with Ramar Communications ("Ramar") to acquire Ramar's KASY TV-50, serving the
Albuquerque market for approximately $27 million. In a related transaction, the
Company will concurrently sell to Ramar its station KWBQ, also serving the
Albuquerque market. The Company will also enter into a 10-year local marketing
agreement with Ramar to operate KWBQ. This transaction has been approved by the
FCC and is expected to close in the fourth quarter of 1999.
The unaudited pro forma financial information for the year ended December
31, 1998 and 1997, set forth below reflects the net revenues and net loss
assuming the KWBP, WBXX, KPLR, WTVK and KWBQ transactions had taken place at the
beginning of each respective year. This unaudited pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the acquisitions occurred on January 1, 1998 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Net revenues.......................................... $35,410 $44,275
Net loss.............................................. (24,044) (24,173)
</TABLE>
(5) UNIT OFFERING
On September 30, 1997, ACME Intermediate issued 71,634 Units (the Unit
Offering) consisting of 71,634 membership units (representing 8% of the ACME
Intermediate's outstanding membership equity) and $71,635,000 (par value at
maturity) in 12% senior secured discount notes due 2005 (Intermediate Notes).
Cash interest on the Intermediate Notes is payable semi-annually in arrears,
commencing with the six-month period ending March 31, 2003. 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 $4.2 million of such
net proceeds to minority interest, $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 covenants and restrictions including restrictions on future indebtedness
and restricted payments, as defined, and limitations on liens, investments,
transactions with affiliates and certain asset sales. The
F-16
<PAGE> 113
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
Company was in compliance with all such covenants and restrictions at June 30,
1999, December 31, 1998 and 1997.
The Intermediate Notes are secured by a first priority lien on the limited
liability company interests in ACME Television and ACME Subsidiary Holdings II,
LLC, both of which are direct wholly-owned subsidiaries of ACME Intermediate.
ACME Subsidiary Holdings II, LLC was formed solely to own a 0.5% interest in
ACME Television, has no other assets or operations and does not constitute a
substantial portion of the collateral for the Intermediate Notes.
(6) 10 7/8% SENIOR DISCOUNT NOTES
On September 30, 1997, ACME Television issued 10.875% senior discount notes
due 2004 (Notes) with a face value of $175,000,000 and received $127,370,000 in
gross proceeds from such issuance. These Notes provide for semi-annual cash
interest payments beginning in the fourth year with the first interest payment
due on March 31, 2001. The Notes are subordinated to ACME Television's bank
revolver (see Note 7) and to the ACME Television's capital equipment finance
facilities (see Note 10). The Notes mature on September 30, 2004 and may not be
prepaid without penalty.
The Notes contain certain covenants and restrictions including restrictions
on future indebtedness and limitations on investments, and transactions with
affiliates. ACME Television was in compliance with all such covenants and
restrictions at June 30, 1999, December 31, 1998 and December 31, 1997.
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 seven year term of the notes.
ACME Television's subsidiaries (hereinafter referred to in this section
collectively as Subsidiary Guarantors) are fully, unconditionally, and jointly
and severally liable for ACME Television's notes. The Subsidiary Guarantors are
wholly owned and constitute all of ACME Television's direct and indirect
subsidiaries except for ACME Finance Corporation, a wholly owned finance
subsidiary of ACME Television with essentially no independent operations that is
jointly and severally liable with the Company on the Notes. ACME Television has
not included separate financial statements of the aforementioned subsidiaries
because (i) ACME Television is a holding company with no assets or independent
operations other than its investments in its subsidiaries and (ii) the separate
financial statements and other disclosures concerning such subsidiaries are not
deemed material to investors.
Various agreements to which ACME Television and/or the Subsidiary
Guarantors are parities restrict the activity 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 the Company and
the parties thereto and the Limited Liability Company Agreement (the LLC
Agreement), dated June 17, 1997, as amended, among the Company and the parties
thereto each contain certain restrictions on the ability of the Subsidiary
Guarantors to declare or pay dividends to ACME Television in the absence of the
F-17
<PAGE> 114
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
consent of certain parties thereto. The Indenture governing the Notes prevents
the Subsidiary Guarantors from declaring or paying any dividend or distribution
to ACME Television unless certain financial covenants are satisfied and there
has been no default thereof. The revolving credit facility with Canadian
Imperial Bank Corporation (see Note 7) also prohibits distributions from the
Subsidiary Guarantors to ACME Television except in certain circumstances during
which default has not occurred thereunder.
(7) BANK REVOLVER
On August 15, 1997, ACME Television entered into a $22.5 million revolving
credit facility (the Loan Agreement) with Canadian Imperial Bank Corporation
(CIBC), as agent and lead lender. Under the terms of the Loan Agreement,
advances bear interest at a base rate, that at our option, is either the bank's
prime rate or LIBOR, plus a spread. Commitment fees are charged at a rate of .5%
per annum, paid quarterly, on the unused portion of the facility. On December 2,
1997, the Loan Agreement was amended to provide ACME Television with an
increased credit line to $40 million, more favorable interest rates and a
lengthened term. As of June 30, 1999 there was an outstanding balance of $39.4
million and $600,000 was available under the Loan Agreement. As of December 31,
1998 there was an outstanding balance of $8.0 million and $32.0 million was
available under the Loan Agreement. There was no outstanding balance due at
December 31, 1997.
The Loan Agreement contains certain covenants and restrictions including
restrictions on future indebtedness and limitations on investments and
transactions with affiliates. ACME Television was in compliance with all such
covenants and restrictions at June 30, 1999, December 31, 1998 and December 31,
1997.
Costs associated with the procuring of bank credit facilities, including
loan fees and related professional fees, are included in long-term other assets
and are amortized over the term of the Loan Agreement.
(8) CONVERTIBLE DEBENTURES
On June 30, 1997 and on September 30, 1997 the Company issued convertible
debentures to certain investors in the aggregate amount of $24,756,000. The
debentures bear interest at the rate of 10% per annum, compounded annually.
Accrued interest, along with the principle balance is due and payable on June
30, 2008, or earlier in the event of certain specified events of default or in
connection with a change of control of the Company.
Pursuant to the terms of the debentures, the holders may elect at any time
prior to maturity to convert a portion or all of the then outstanding principal
and accrued interest into membership units of the Company. The conversion rate
is fixed by contract and represents, in the aggregate, and assuming the entire
original principal and interest were converted, an additional 24,756 units of
membership. As of June 30, 1999, December 31, 1998 and 1997, the amount of
accrued interest due to the holders of the convertible debt is $4,751,000,
$3,523,000 and $1,048,000, respectively, and is included in other liabilities on
the Company's balance sheets.
F-18
<PAGE> 115
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
(9) BRIDGE LOAN
On April 23, 1999, the Company entered into a $15.0 million loan agreement
(the Bridge Loan) with Alta Communications VI, L.P., Alta Com S by S, LLC, Alta
Subordinated Debt Partners III, L.P., BANCBOSTON Investments, Inc., CEA Capital
Partners USA, L.P., CEA Capital Partners USA CI, L.P., TCW Shared Opportunity
Fund III, L.P., Shared Opportunity Fund IIB, LLC and TCW Leveraged Income Trust
II, L.P. (the Lenders); the proceeds of which were used solely to invest in ACME
Intermediate. ACME Intermediate funded the acquisition of the property and
equipment assets of Stations WBDT, WBWI and WBUI, with the proceeds.
Of the aggregate $15.0 million, $7.0 million was drawn on April 23, 1999
and the remaining $8.0 million was drawn on June 23, 1999.
The loan bears interest at 22.5%, compounded semi-annually. The interest
rate increases 250 basis points on October 23, 1999 and every 90 days
thereafter, not to exceed 35% per annum. The Company can prepay the loan without
penalty. All principal and interest is due on the earlier of April 23, 2002 or
consummation by the Company of any debt or equity financing generating net
proceeds greater than the outstanding loan balance.
(10) COMMITMENTS AND CONTINGENCIES
OBLIGATIONS UNDER OPERATING LEASES
The Company is obligated under noncancelable operating leases for office
space and its transmission sites. Future minimum lease payments as of the year
ended December 31, 1998, under noncancelable operating leases with initial or
remaining terms of one year or more are:
<TABLE>
<S> <C>
1999................................................. $ 1,125,000
2000................................................. 1,118,000
2001................................................. 1,068,000
2002................................................. 970,000
2003................................................. 916,000
Thereafter........................................... 4,806,000
-----------
Total.............................................. $10,003,000
===========
</TABLE>
Total future minimum lease payments under non-cancelable operating leases
were $10,003,000 and $6,615,000 at December 31, 1998 and 1997, respectively.
Total rental expense under operating leases for the six months ended June
30, 1999 and the twelve months ended December 31, 1998 and 1997 was
approximately $562,000, $967,463 and $166,000, respectively.
F-19
<PAGE> 116
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
OBLIGATIONS UNDER CAPITAL LEASES
As of December 31, 1998, approximately $5.5 million of equipment was leased
under capital equipment facilities. These obligations are reflected as current
obligations under capital leases of $1,273,000 and $292,000, and as non-current
liabilities under capital lease of $4,199,000 and $443,000 at December 31, 1998
and 1997 respectively. These capital lease obligations expire over the next five
years. Future minimum lease payments as of December 31, 1998 under capital
leases are:
<TABLE>
<S> <C>
1999.................................................. $ 1,638,000
2000.................................................. 1,431,000
2001.................................................. 1,371,000
2002.................................................. 1,351,000
2003.................................................. 931,000
-----------
Total............................................... $ 6,722,000
Less: interest:..................................... (1,250,000)
-----------
Present value of minimum lease payments.......... $ 5,472,000
===========
</TABLE>
PROGRAM RIGHTS PAYABLE
Commitments for program 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 $28,265,000
and $7,010,000 as of December 31, 1998 and December 31, 1997, respectively.
Maturities on the Company's program 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:
<TABLE>
<S> <C>
1999................................................. $ 9,316,000
2000................................................. 9,903,000
2001................................................. 8,897,000
2002................................................. 6,322,000
2003................................................. 3,838,000
Thereafter........................................... 4,150,000
-----------
Total.............................................. $42,426,000
===========
</TABLE>
CERTAIN COMPENSATION ARRANGEMENTS
In June 1997, the Company issued an aggregate of 100 management carry units
to certain members of management, which remain outstanding as of June 30, 1999.
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 the Company in the event of termination of each individual's
employment by the Company under certain specified circumstances. These
management carry units are accounted for as a variable plan
F-20
<PAGE> 117
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
resulting in an expense when it is probable that any such distributions will be
made. The Company determined the value of these at the issuance date to be
immaterial. During the six months ended June 30, 1999, the Company recorded an
expense of $10.7 million relating to the units. No expense was recorded relating
to these units in 1998 or 1997
LEGAL PROCEEDINGS
We are currently in a dispute with Edward Koplar in connection with Mr.
Koplar's resignation in the fall of 1998 from his position as Chief Executive
Officer of ACME Television of Missouri, Inc., formerly Koplar Communications,
Inc. Mr. Koplar has claimed that the Company breached his management agreement,
and under the terms of that agreement has claimed that we owe him $4 million and
has threatened to bring suit against us. We believe that Mr. Koplar's claim is
without merit and that the resolution of this matter will not have a material
adverse effect on our financial condition or results of operations. We have
accrued $350,000 as a reserve relating to this matter.
In addition, the Company is party to routine claims and suits brought
against it in the ordinary course of business. In the opinion of management, the
outcome of such routine claims will not have a material adverse effect on the
Company's business, financial condition, results of operations or liquidity.
OTHER
In January 1999, the Company mistakenly merged ACME Television Holdings of
Missouri, Inc. ("Holdings"), a C corporation owning KPLR, into ACME Television,
LLC. The Company is rescinding the merger. If the rescission is held not to be
effective for tax purposes, the Company believes, based on an independent
valuation of Holdings' assets, that the merger would result in a tax liability
to the Company of approximately $3.0 million, which has been accrued in the
financial statements.
(11) INCOME TAXES
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998
-------------- -------
<S> <C>
Current
Federal income taxes...................................... $ --
State income taxes........................................ --
-------
Total current tax expense................................... --
Deferred tax benefit........................................ (2,393)
-------
Total income tax benefit.................................... $(2,393)
=======
</TABLE>
F-21
<PAGE> 118
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
The differences between the income tax benefit and income taxes computed
using the U.S. Federal statutory income tax rates (35%) consist of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998
-------------- -------
<S> <C>
Tax benefit at U.S. Federal rate............................ $(3,471)
State income taxes, net of Federal tax benefit.............. (261)
Nondeductible expenses...................................... 1,430
Other....................................................... $ (91)
-------
Income tax benefit........................................ $(2,393)
=======
</TABLE>
DEFERRED INCOME TAXES
The Company's subsidiary, ACME Television Holdings of Missouri, Inc. is a
"C" Corporation and is subject to state and federal income taxes (see Note 2
"Income Taxes"). The deferred tax asset of $3,811,000 and liability of
$31,241,000 for the year ended December 31, 1998, were related to the following:
<TABLE>
<CAPTION>
1998
---------
LONG
TERM
---------
<S> <C>
Assets:
Allowances and reserves................................... $ 2,211
Net operating loss carryforwards.......................... 1,255
Other..................................................... 345
---------
Deferred tax asset........................................ $ 3,811
Liabilities:
Program Amortization...................................... $ (944)
Intangibles............................................... (30,297)
---------
Deferred tax liability.................................... $ (31,241)
---------
Net deferred tax liability............................. $ (27,430)
=========
</TABLE>
The primary difference in the book basis and tax basis of the Company's
non-taxable entities relates to intangible assets. Intangible assets of the
non-taxable entities had a book and tax basis of approximately $59 million and
$58 million at December 31, 1998, respectively.
(12) RELATED PARTY TRANSACTIONS
The Company's stations have entered into affiliation agreements and, from
time to time, related marketing arrangements with The WB Network. Jamie Kellner
is an owner and the chief executive officer of The WB Network.
Pursuant to June 1995 agreements among Koplar Communications, Inc., Roberts
Broadcasting, Michael Roberts and Steven C. Roberts, Roberts Broadcasting cannot
F-22
<PAGE> 119
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
(i) transfer its license for WHSL, East St. Louis, Illinois, (ii) commit any
programming time of the station for commercial programming or advertising or
(iii) enter into a local marketing agreement with respect to such station until
June 1, 2000. In the event that the current affiliation agreement for WHSL 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 KPLR for these agreements was $200,000 during the first
three years. The Company paid $300,000 in 1998 and will pay $300,000 in 1999
under this agreement.
In connection with our Salt Lake City and New Mexico stations, the Company
has entered into long-term agreements to lease studio facilities and/or
transmission tower space for KUWB, KUPX and KWBQ from an affiliate of Michael
and Steven Roberts. Both Michael and Steven C. Roberts are members of the
Company and Michael Roberts serves on the Company's Board of Advisors. These
leases have terms of approximately fifteen years and provide for monthly
payments aggregating approximately $25,000, subject to adjustment based on the
Consumer Price Index.
On October 1, 1997, in connection with our acquisition of KWBP, we paid
CEA, Inc., an affiliate of one of our stockholders, CEA Capital Partners, a
broker's fee of approximately $176,000. On the same day, we paid CEA, Inc.,
$132,000 in connection with the purchase of WBXX, $25,000 in connection with the
purchase of the construction permit for KWBQ (formerly KAUO), $45,000 in
connection with the purchase of the construction permit for KUPX (formerly KZAR)
and $889,000 in connection with the purchase of KPLR, as broker's fees in each
of the transactions. Additionally, in connection with the recent acquisition of
WBUI, WIWB and WBDT, we paid CEA, Inc. a broker's fee of $125,000. CEA, Inc.
also received compensation from the seller in connection with the purchase of
WBUI, WIWB and WBDT. One of our directors, Mr. Collis, is an officer of an
affiliate of CEA Capital Partners.
In June and September 1997, we issued 10% convertible debentures with the
right to convert into 24,775,970 membership units to affiliates of Alta
Communications, Banc Boston, CEA Capital Partners and TCW Asset Management
Company, each of which are stockholders of our company. Another of our
directors, Mr. Schall, is an officer of an affiliate of TCW Asset Management
Company.
In February 1999, we exercised our option to purchase the property where
KWBP is located for $1.5 million from an affiliate of Peregrine Capital. Before
the purchase, we leased the property from the same affiliate.
In connection with our purchase of KWBP in June 1997, we loaned the seller
of KWBP approximately $119,000. This loan was repaid in July 1999.
(13) DEFINED CONTRIBUTION PLAN
In 1998, the Company established a 401(k) defined contribution plan (the
Plan) which covers all eligible employees (as defined in the Plan). Participants
are allowed to make nonforfeitable contributions up to 15% of their annual
salary, but may not exceed the annual maximum contribution limitations
established by the Internal Revenue Service. The
F-23
<PAGE> 120
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
Company currently matches 50% of the amounts contributed by each participant but
does not match participants' contributions in excess of 6% of their contribution
per pay period. The Company contributed and expensed $200,000 to the Plan for
the year ended December 31, 1998, $97,000 for the six months ended June 30, 1998
and $94,000 for the six months ended June 30, 1999.
(14) MEMBERS' CAPITAL
The Company's membership units are held in various classes, each class of
which entitles the holders to differing levels of distribution. As of December
31, 1997 and 1998, the Company's membership units outstanding were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- -----------------
CLASS UNITS $000'S UNITS $000'S
----- ------- ------ ------- ------
<S> <C> <C> <C> <C>
Management capital......................... 600 600 600 600
Founders Class A........................... 943 943 943 943
Founders Class B........................... 533 533 533 533
Investor................................... 18,210 18,210 16,757 16,757
Sellers.................................... 4,400 4,400 4,400 4,400
Less: Issuance costs....................... -- (901) -- (901)
------- ------ ------- ------
Total.................................... 24,686 23,785 31,733 30,832
======= ====== ======= ======
</TABLE>
Excludes management carry units issued by the Company to its senior management
team.
(15) SUBSEQUENT EVENT -- REORGANIZATION
ACME Communications, Inc. was incorporated on July 23, 1999 and other than
its initial nominal capitalization has had no operations. ACME Communications,
Inc. is contemplating the issuance of common stock in an initial public
offering.
Immediately before the closing of the offering, we will complete the
reorganization described below. Before the following steps may be completed, we
must receive FCC approval, for which we have filed an application. The Company
does not guarantee the offering of common stock or reorganization transactions
will be completed.
First, ACME Communications will issue common stock in exchange for all of
the convertible debentures of ACME Television Holdings, LLC. The convertible
debentures will be converted pursuant to their original conversion terms and as
such, there will not be a gain or loss related to this transaction.
Second, ACME Communications will exchange shares of its common stock for
(a) membership units representing approximately 6% of ACME Intermediate and (b)
all of the convertible debentures and preferred convertible membership units of
ACME Subsidiary Holdings IV, LLC. These transaction will be treated as
acquisitions of minority interests. The fair value of the stock issued to
acquire the minority interests will be allocated to the net assets acquired.
F-24
<PAGE> 121
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
Third, ACME Communications Merger Subsidiary, LLC, a wholly-owned
subsidiary of ACME Communications, will merge into ACME Television Holdings,
LLC. In this merger, ACME Television Holdings, LLC's membership units will be
exchanged for shares of common stock of ACME Communications. This transaction
will be treated as a reorganization at historical cost.
Fourth, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will dissolve and its sole asset, a 0.49146% interest
in ACME Intermediate, will be distributed to ACME Television Holdings, LLC. This
transaction will be treated as a reorganization at historical cost.
Last, ACME Subsidiary Holdings IV, LLC will dissolve and its sole asset, a
1.99037% interest in ACME Intermediate, will be distributed to ACME Television
Holdings, LLC. After this dissolution, ACME Communications will own directly or
indirectly 100% of the membership units of each of ACME Television Holdings, LLC
and of ACME Intermediate. This transaction will be treated as a reorganization
at historical cost.
Also ACME Communications issued options to acquire 283,500 shares of its
common stock upon conversion of the Company's long-term incentive compensation
plan awards granted in 1998. These options were issued at an exercise price of
$15 per share and vest in equal thirds on December 31, 2000, 2001 and 2002.
These options will be valued using the closing price of the offering. The
difference between the accrual under the Company's long-term compensation plan
at the date of the closing and the pro-rata vested portion of the options (using
the original long-term incentive plan award date as the beginning of the vesting
period) will be recorded as an adjustment to equity-based compensation expense.
The remaining value of the options will be recorded on a straight-line basis
over the remaining vesting period. ACME Communications also issued options to
acquire 58,500 shares of its common stock at an exercise price of $18 per share
prior to the offering. The value of these options will also be based on the
closing offering price and will be expensed on a straight-line basis over the
five-year vesting period of the options.
F-25
<PAGE> 122
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Koplar Communications, Inc.:
We have audited the consolidated statements of operations and cash flows of
Koplar Communications, Inc. and subsidiary for the years ended December 31, 1996
and 1997. 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 results of operations and cash flows
of Koplar Communications, Inc. and subsidiary for the years ended December 31,
1996 and 1997 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
July 23, 1999
F-26
<PAGE> 123
KOPLAR COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
------- ---------
<S> <C> <C>
Revenues, net............................................. $27,381 $ 21,488
Operating expenses:
Programming............................................. 11,385 8,458
Selling, general and administrative..................... 11,455 13,896
Depreciation and amortization........................... 702 556
------- ---------
Total operating expenses............................. 23,542 22,910
------- ---------
Operating income (loss).............................. 3,839 (1,422)
------- ---------
Other expense:
Interest expense........................................ 2,155 1,200
Other expense........................................... 663 2,006
------- ---------
Total other expense.................................. 2,818 3,206
------- ---------
Income (loss) before income taxes and extraordinary
item.................................................... 1,021 (4,628)
Provision (benefit) for income taxes...................... 462 (1,081)
------- ---------
Net income (loss) before extraordinary item.......... 559 (3,547)
------- ---------
Extraordinary item:
Loss on early extinguishment of debt, net of taxes of
$868 and $93, respectively........................... (1,359) (146)
------- ---------
Net loss............................................. $ (800) $ (3,693)
======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 124
KOPLAR COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (800) $ (3,693)
Adjustments to reconcile net loss to net cash:
Deferred income taxes................................... (173) (361)
Amortization of programming rights...................... 5,360 4,514
Adjustment to carrying value of programming rights...... 1,500 --
Amortization of deferred financing costs................ 411 47
Loss on early extinguishment of debt.................... 2,227 239
Depreciation and amortization........................... 702 556
Changes in operating assets and liabilities:
Receivables............................................. 643 (544)
Prepaid expenses and other current assets............... (142) 150
Other assets............................................ 44 350
Accounts payable and accrued expenses................... (561) 5,247
Accrued interest........................................ (301) (76)
Income taxes receivable/payable......................... (773) (694)
Other long-term liabilities............................. (182) (58)
-------- --------
Net cash provided by operating activities............ 7,955 5,677
-------- --------
Cash flows from investing activities:
Purchases of property and equipment..................... (687) (293)
Deposits for PCS Auction................................ (468) --
Return of deposits for PCS Auction...................... 468 468
Investment in affiliate................................. (100) (384)
-------- --------
Net cash used in investing activities................ (787) (209)
-------- --------
Cash flows from financing activities:
Repayment of notes payable officer/shareholder.......... (1,168) --
Payment on other debt and obligations under capital
leases............................................... (21) (195)
Payment on programming obligations...................... (5,515) (5,567)
Cash overdraft, net..................................... 1,244 (678)
Repayment of long-term debt............................. (11,640) (13,950)
Proceeds from long-term debt............................ 14,159 --
Proceeds from short-term ACME advances.................. -- 14,899
Payments on revolver, net............................... (4,130) --
Payment on deferred financing costs..................... (318) --
-------- --------
Net cash used in financing activities................ (7,389) (5,491)
-------- --------
Net decrease in cash................................. (221) (23)
Cash, beginning of year................................... 244 23
-------- --------
Cash, end of year......................................... $ 23 $ --
======== ========
Cash paid for interest.................................... $ 1,575 $ 1,216
======== ========
Cash paid for income taxes................................ $ 120 $ --
======== ========
Non-cash transactions:
Programming rights purchased under installment
obligations.......................................... $ 3,430 $ 3,205
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 125
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(1) ORGANIZATION
The Company operates an independent television station in St. Louis,
Missouri (KPLR-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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies
followed in the preparation of these financial statements:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Koplar
Communications, Inc. and subsidiary (collectively, the Company). 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.
CASH AND CREDIT CONCENTRATIONS
The Company maintains several cash accounts, including a lockbox account,
in a 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.
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 and modified accelerated
cost recovery system 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 as incurred.
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.
F-29
<PAGE> 126
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
PROGRAMMING RIGHTS
Programming rights are recorded at cost when the program is available to
the Company for broadcasting. Programming rights and related obligations are
recorded at cost without recognition of any imputed interest charges. 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 for
programs which management expect 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 totaling
approximately $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 $411,000 and $47,000, for the years ended December 31, 1996 and
1997, respectively. In addition, the Company expensed approximately $2,227,000
and $239,000 of deferred financing costs during 1996 and 1997, respectively, as
a result of the Company's refinancing of its long-term debt (see note 6).
Accordingly, the expense related to these transactions has been reflected as an
extraordinary item, net of tax effects, 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
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
F-30
<PAGE> 127
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
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 commercials are broadcast.
The Company receives such revenues net of commissions deducted for advertising
agencies.
BARTER REVENUES
Barter transactions in which the Company accepts products or services in
exchange for commercial airtime 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 arrangements,
which have no impact on earnings. The Company estimates that revenues and costs
associated with these agreements were approximately $2,612,000 and $2,800,000
for 1996 and 1997, respectively.
LOCAL MARKETING AGREEMENTS
The Company entered into a local marketing agreement upon its acquisition
by ACME Television Holdings, LLC (see note 15). As of December 31, 1997,
regulatory approval of the transfer of the Company's License Assets was pending.
Under the terms of the agreement, the Company receives specified periodic
payments to operate KPLR-TV in exchange for the grant to ACME of the right to
program and sell advertising on a specified portion of the station's inventory
of broadcast time. In addition, ACME assumes the obligation to pay all operating
expenses subsequent to September 30, 1998. Accordingly, ACME has recorded all
operating revenues and expenses during the local marketing agreement period from
October 1, 1997 through December 31, 1997. All other non-operating results are
recorded by the Company during the local marketing agreement period.
(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 personal communications system. The
Company expects this product to replace cell phones, beepers and other portable
communications technology. The Company was the successful bidder on a number of
personal communications system licenses. During 1996, $468,000 of the initial
deposit was returned to the Company.
In fourth quarter 1996, another round of personal communications system
bidding was opened by the FCC. The auction was concluded and the deposit was
returned in the first quarter of 1997.
F-31
<PAGE> 128
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1996 and 1997 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1996 1997 USEFUL LIVES
------- ------- --------------
<S> <C> <C> <C>
Land............................................... $ 464 $ 464 --
Buildings and improvements......................... 1,780 1,705 15 to 40 years
Equipment, furniture and fixtures.................. 6,463 6,311 3 to 15 years
------- -------
8,707 8,480
Less accumulated depreciation...................... (6,069) (6,105)
------- -------
$ 2,638 $ 2,375
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1997 was
approximately $702,000 and $556,000, respectively.
(5) NOTE PAYABLE -- REVOLVER
The note payable - revolver was repaid in July 1996 as part of a debt
refinancing with a financial institution (see note 6).
(6) LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 totaled $13,650,000.
Based upon the borrowing rates available to the Company for bank loans with
similar terms and average maturities, the fair value of long-term debt
approximated carrying value.
On July 10, 1996, the Company refinanced certain existing debt and received
a revolving commitment totaling $19,000,000 (the Loan Agreement), of which
approximately $14,266,000 was drawn from the commitment to satisfy certain
existing obligations and refinancing costs.
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 was required to repay the loan and all unpaid interest thereon on July
1, 2001. The loan interest was based on either the alternative base rate or the
adjusted LIBOR rate, as defined in the Loan Agreement.
In order to limit 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
accrued interest, payable monthly at the prime interest rate plus 0.25% - 0.75%
per annum based on certain criteria. In addition, the Company is required to
F-32
<PAGE> 129
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
pay quarterly a commitment fee of 0.5% per annum of the unused portion of the
revolving commitment.
During 1997, in conjunction with the acquisition by ACME, the outstanding
loan balances were paid in full and certain short-term advances were extended to
the Company by ACME. The total of outstanding advances at December 31, 19997 was
approximately $14,899,000.
(7) PROGRAMMING OBLIGATIONS
Programming obligations are generally classified as current or noncurrent
liabilities according to the payment terms of the various contracts.
At December 31, 1997, future minimum payments based on contractual
agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $5,030
1999........................................................ 3,295
2000........................................................ 1,373
------
$9,698
======
</TABLE>
(8) NOTE PAYABLE -- PROGRAMMER
Note payable -- programmer represents an additional amount owed to Warner
Bros. ("WB") in connection with the restructuring of certain programming
obligations in 1994. During 1996, the Company entered into a Stock Purchase,
Option and Repurchase Agreement with WB, under which the Company had an
obligation in the amount of $3,692,000 to WB in addition to the liability
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 14). However, the agreement granted 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). In 1995, $100,000 was paid on the Put Right.
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 was in the amount
of $2,000,000 and at December 31, 1996 and 1997, $1,900,000 was outstanding.
Interest accrues at prime plus 0.5%. Principal of $100,000 plus accrued interest
to date are payable quarterly until the note is satisfied. There was no accrued
interest on Note A at December 31, 1996 and 1997.
Note B was an option note for $2,250,000. At December 31, 1996 and 1997,
$2,250,000 was outstanding on Note B. The programmer was granted an option
callable between
F-33
<PAGE> 130
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
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's "Put Right" was exercisable between January 1, 1997 and
December 31, 2001. If exercised, 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 was no accrued interest on Note B at December 31, 1996
and 1997.
(9) COMMITMENTS
In conjunction with obtaining new programming and other related
considerations, the Company's commitments amounted to approximately $5,395,000
as of December 31, 1997.
The aggregate payments for these commitments over the next five years are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $ 298
1999........................................................ 1,250
2000........................................................ 1,731
2001........................................................ 1,476
2002........................................................ 640
------
$5,395
======
</TABLE>
In January 1995 KPLR-TV became an affiliate of the WB Network. Under the
affiliation agreement, the Company was required to make an annual payment to
Warner Brothers if the ratings and revenue 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, 1996 and 1997.
The Company had an operating lease for certain equipment that requires
annual payments of approximately $42,000 for a remaining period of twelve years.
Total rent expense under operating leases for the years ended December 31, 1996
and 1997 was approximately $123,000 and $115,000, respectively.
(10) NOTES PAYABLE -- OFFICER/SHAREHOLDER
Indebtedness to a shareholder of the Company consists of a promissory note
for $1,023,000 and debentures payable for approximately $145,000, totaling
$1,168,000 at December 31, 1995. The notes and interest were repaid in July 1996
when the Company refinanced certain debt with a financial institution (see note
6).
F-34
<PAGE> 131
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(11) INCOME TAXES
The provisions for income taxes on continuing operations for the years
ended December 31, 1996 and 1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- -------
<S> <C> <C>
Current:
Federal................................................... $ 552 $ (557)
State..................................................... 83 (163)
Deferred:
Federal................................................... (150) (315)
State..................................................... (23) (46)
----- -------
Provision for income tax............................... $ 462 $(1,081)
===== =======
</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 and extraordinary items for the years ended December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
Income before income taxes and extraordinary items.......... $1,021 $(4,628)
------ -------
Tax provision computed at statutory rate.................... $ 347 $(1,574)
Increases (reductions) in taxes due to:
State income taxes (net of federal tax benefit)........... 40 (138)
Investment in affiliate................................... -- 570
Other..................................................... 75 61
------ -------
Actual tax provision........................................ $ 462 $(1,081)
====== =======
</TABLE>
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>
1996 1997
------ ------
<S> <C> <C>
Current deferred income tax asset:
Allowance for doubtful accounts........................... $ (83) $ (97)
Accrued vacation payable.................................. (64) (61)
Bonus payable............................................. (195) --
Charitable contributions carryforward..................... -- (40)
Option Agreement.......................................... -- (175)
Noncurrent deferred income tax liability:
Book over tax basis of fixed assets....................... 22 3
Book over tax basis of programming rights................. 1,918 1,607
------ ------
Net deferred income tax liability......................... $1,598 $1,237
====== ======
</TABLE>
F-35
<PAGE> 132
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(12) 401(K) PLAN
Substantially all employees are eligible to participate in a 401(k) Plan
sponsored by the Company. The plan provides that 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, 1996 and 1997 was approximately $55,000 and $60,000, respectively.
(13) 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 had
been made as December 31, 1997.
(14) 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 a shareholder of the
Company. In 1996 and 1997, the Company advanced approximately $443,000 and
$1,200,000, respectively, to ISW. This amount was included in a loan receivable
balance and is fully reserved.
At December 31, 1996, the remaining balance of loans and interest
receivable by the Company from ISW was approximately $3,251,000 with a
corresponding allowance. Both amounts were written off and removed from the
records in 1997.
During 1996 and 1997, the Company was charged approximately $139,000 in
rent and parking charges by Koplar Properties, Inc., an entity owned by a
shareholder of the Company.
(15) SALE OF COMPANY
On July 29, 1997, the shareholders of the Company (Shareholders) 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 Shareholders, ACME
placed $143,000,000 into an escrow account and ACME and the Shareholders 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 received the economic benefit of the Company's earnings, effective
October 1, 1997. As a result, the consolidated statements of operations reflect
the operating results of the Company through September 30, 1997, as well as any
other non-operating results from October 1, 1997 through December 31, 1997. On
F-36
<PAGE> 133
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
March 13, 1998, ACME acquired all of the outstanding common and preferred stock
of the Company and the local marketing agreement was terminated.
In connection with the ACME transaction, the Company recorded at December
31, 1997 approximately $5,900,000 in non-recurring bonus expense paid to a
certain executive and other employees of the Company. This amount is included in
other selling, general and administrative expense for the year ending December
31, 1997.
F-37
<PAGE> 134
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. effectively as of July 1, 1995) for 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 required 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 years ended June 30, 1995 (Predecessor) and 1996
(Successor) in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective July 1, 1995,
Peregrine Communications, Ltd. acquired all of the outstanding stock of Channel
32, Incorporated in a business combination accounted for as a purchase. As a
result of the acquisition, the financial information for periods after the
acquisition is presented on a different cost basis than for periods before the
acquisition and, therefore is not comparable.
/s/ KPMG LLP
Los Angeles, California
November 13, 1997
F-38
<PAGE> 135
CHANNEL 32 INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1996
JUNE 30, JUNE 30, TO
1995 1996 JUNE 17, 1997
------------- ----------- -------------
(SUCCESSOR)
(PREDECESSOR) (SUCCESSOR) (UNAUDITED)
<S> <C> <C> <C>
Broadcast revenues, net............... $ 288,178 $ 2,728,857 $ 1,305,886
Operating expenses:
Programming and production.......... 622,688 3,273,608 1,303,808
Selling, general and
administrative................... 273,422 1,462,360 1,060,497
Depreciation and amortization....... 234,498 541,878 346,469
----------- ----------- -----------
Total operating expenses......... 1,130,608 5,277,846 2,710,774
----------- ----------- -----------
Operating loss................. (842,430) (2,548,989) (1,404,888)
----------- ----------- -----------
Other income (expense):
Interest expense.................... (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............... (200,112) (3,466,221) (2,231,869)
----------- ----------- -----------
Loss before income taxes.............. (1,042,542) (6,015,210) (3,636,757)
Income taxes.......................... -- -- --
----------- ----------- -----------
Net Loss....................... $(1,042,542) (6,015,210) $(3,636,757)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 136
CHANNEL 32 INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1996
JUNE 30, JUNE 30, TO
1995 1996 JUNE 17, 1997
------------- ----------- -------------
(SUCCESSOR)
(PREDECESSOR) (SUCCESSOR) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(1,042,542) $(6,015,210) $(3,636,757)
Adjustments to reconcile net loss to net
cash:
Depreciation and Amortization......... 288,083 951,377 1,322,513
Changes in assets and liabilities:
Increase in programming rights........ (122,500) (401,559) (380,400)
Increase in accounts receivable....... (59,470) (167,353) 23,242
Increase (decrease) in due from
related
party.............................. -- 14,700 (692,301)
Increase in other assets.............. (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 in accrued expenses.......... 179,117 184,414 182,932
Increase in programming rights
payable............................ 97,437 249,377 308,612
----------- ----------- -----------
Net cash used in operating
activities.................... (412,171) (5,259,536) (2,642,638)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and
equipment.......................... (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.................... (1,222,496) (1,076,519) (355,717)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings.............. 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.................... 1,635,702 6,344,645 3,097,286
----------- ----------- -----------
Net increase in cash............. 1,035 8,590 98,931
Cash, beginning of period............... -- 1,035 9,625
----------- ----------- -----------
Cash, end of period..................... $ 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.......................... 120 -- --
Non-cash transactions:
Acquisition of property and equipment
in exchange for capital lease
obligations........................ 650,000 185,000 --
</TABLE>
See notes to financial statements
F-40
<PAGE> 137
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.
Accordingly, the Company's financial statements subsequent to December 31, 1996
only include the Company's net activity pursuant to such local marketing
agreement.
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 advertising agencies and national
sales representatives.
F-41
<PAGE> 138
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)
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 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
adverting 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.
F-42
<PAGE> 139
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)
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.
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
F-43
<PAGE> 140
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)
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 four original stockholders 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 stockholders 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>
Due from related party, ACME Television of Oregon, LLC relates to the
balance due to the Company pursuant to the local marketing 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.
F-44
<PAGE> 141
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)
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 $6,177,000, 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 of 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-45
<PAGE> 142
INSIDE BACK COVER
[ACME COMMUNICATIONS LOGO]
[LOGO'S OF SOME OF THE KIDS' WB PROGRAMMING AND PHOTOGRAPHS OF SEVERAL CARTOON
CHARACTERS]
<PAGE> 143
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of common stock
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these shares in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 8
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS.......... 15
USE OF PROCEEDS....................... 16
DIVIDEND POLICY....................... 16
CAPITALIZATION........................ 17
DILUTION.............................. 18
PRO FORMA FINANCIAL INFORMATION....... 19
SELECTED CONSOLIDATED AND PRO FORMA
FINANCIAL DATA...................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 28
INDUSTRY OVERVIEW..................... 34
BUSINESS.............................. 37
MANAGEMENT............................ 62
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.... 70
CERTAIN TRANSACTIONS.................. 74
THE REORGANIZATION.................... 79
DESCRIPTION OF CAPITAL STOCK.......... 82
SHARES ELIGIBLE FOR FUTURE SALE....... 86
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF COMMON STOCK..................... 88
UNDERWRITING.......................... 91
LEGAL MATTERS......................... 94
EXPERTS............................... 94
ADDITIONAL INFORMATION................ 94
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
Dealer Prospectus Delivery Obligation:
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. Dealers
are also obligated to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
[ACME Communications Logo]
ACME
Communications, Inc.
5,000,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Morgan Stanley Dean Witter
CIBC World Markets
Prospectus
, 1999
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered. All amounts are estimates except the
SEC registration fee, the NASD filing fees and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 33,569
NASD fee.................................................... 12,575
Nasdaq National Market listing fee.......................... 1,000
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 150,000
Blue sky fees and expenses.................................. 5,000
Transfer agent fees......................................... 5,000
FCC fees.................................................... 7,975
Miscellaneous fees and expenses............................. 96,881
--------
Total..................................................... $987,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and bylaws provide a right to
indemnification to the fullest extent permitted by law for expenses, attorney's
fees, damages, punitive damages, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by any person whether or not the
indemnified liability arises or arose from any threatened, pending or completed
proceeding by or in our right by reason of the fact that such person is or was
serving as a director or officer at our request, as a director, officer,
partner, venturer, proprietor, employee, agent, or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. Our certificate of incorporation and bylaws provide for the
advancement of expenses to an indemnified party upon receipt of an undertaking
by the party to repay those amounts if it is finally determined that the
indemnified party is not entitled to indemnification. In addition, we have
entered into indemnification agreements with each of our directors and executive
officers.
Our bylaws authorize us to take steps to ensure that all persons entitled
to the indemnification are properly identified, indemnified, including, if the
board of directors so determines, purchasing and maintaining insurance.
We have entered into indemnification agreements with each of our directors
and officers. Pursuant to the indemnification agreements, we have agreed to
indemnify each director or officer, to the maximum extent provided by applicable
law, from claims, liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by each director or officer in or arising
out of such person's capacity as our director, officer, employee and/or agent or
any other corporation of which such person is a director or officer at our
request. In addition, each director or officer is entitled to an advance of
expenses to the maximum extent authorized or permitted by law.
To the extent that our board of directors or the stockholders may in the
future wish to limit or repeal our ability to provide indemnification as set
forth in the certificate of incorporation, such repeal or limitation may not be
effective as to directors and officers who are parties to the indemnification
agreements, because their rights to full protection would
II-1
<PAGE> 145
be contractually assured by the indemnification agreements. We anticipate
entering similar contracts, from time to time, with our future directors.
In addition, the Form of Underwriting Agreement filed as Exhibit 1.1 to
this registration statement provides for indemnification by the underwriters of
us and our officers and directors, and by us of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Each of the investors who participated in the Section 4(2) transactions
below were sophisticated investors.
On June 17, 1997, we sold (a) to our initial investors, 6,467 membership
units for an aggregate of $6.5 million and 14,700 convertible debentures for an
aggregate of $14.7 million, (b) 4,400 membership units to Channel 32
Incorporated as partial consideration for the assets of KWBP and (c) 290
management capital units to Mr. Kellner, 160 management capital units to Mr.
Gealy and 150 management capital units to Mr. Allen, (d) 40 management carry
units to Mr. Kellner and 30 management carry units to each of Mr. Gealy and Mr.
Allen in partial consideration for their services as founders of our company. We
relied on Section 4(2) under the Securities Act for an exemption from
registration under the Securities Act.
On September 30, 1997, we sold to our initial investors and additional
investors 13,820.5 membership units for an aggregate of $13.8 million and 10,000
convertible debentures for an aggregate of $10.0 million. We relied on Section
4(2) under the Securities Act (with respect to the membership units) and Rule
144A under the Securities Act (with respect to the convertible debentures) for
exemption from registration under the Securities Act.
In each of the June 1997 and September 1997 issuance of membership units
(other than the units we sold to Channel 32 Incorporated) we paid CEA, Inc. a
financing fee of $440,000 and $1.1 million.
In January 1998, we issued 3,000 membership units to each of Michael
Roberts and Steven Roberts as partial consideration for 49% of membership units
of Roberts Broadcasting of Salt Lake City, LLC. We relied on Section 4(2) under
the Securities Act for exemption from registration under the Securities Act.
In June 1998, we sold 2,500 membership units to the sellers of Second
Generation of Florida, Ltd. in partial consideration for the assets of that
entity. We relied on Section 4(2) under the Securities Act for exemption under
the Securities Act.
II-2
<PAGE> 146
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Reorganization Relating to the
Capitalization of ACME Communications, Inc. by and among the
parties listed in the signature pages thereof.
2.2* Form Exchange Agreement among ACME Communications, Inc. and
the parties listed on the signature pages thereto.
2.3* Form of Agreement of Merger by and among ACME Television
Holdings, LLC, ACME Communications, Inc. and ACME
Communications Merger Subsidiary, LLC.
3.1* Form of Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2 Form of Restated Bylaws of ACME Communications, Inc.
4.1(1) Indenture, dated September 30, 1997, by and among ACME
Intermediate Holdings, LLC and ACME Intermediate Finance,
Inc., as Issuers, and Wilmington Trust Company.
4.2(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.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by
and among ACME Television, LLC and ACME Finance Corporation,
the Guarantors named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, the
Guarantors named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, as
issuers, the Guarantors named therein, and Wilmington Trust
Company.
4.6 Form of Stock Certificate of ACME Communications, Inc.
5.1 Opinion of O'Melveny & Myers LLP regarding the legality of
the securities being registered.
10.1(9) Asset Purchase Agreement, dated April 23, 1999, by and among
Paxson Communications Corporation, Paxson Communications
License Company, LLC, Paxson Communications of Green Bay-14,
Inc., Paxson Communications of Dayton-26, Inc., Paxson
Dayton License, Inc., Paxson Communications of Decatur-23,
Inc., Paxson Decatur License, Inc., ACME Television of Ohio,
LLC, ACME Television Licenses of Ohio, LLC, ACME Television
of Wisconsin, LLC, ACME Television Licenses of Wisconsin,
LLC, ACME Television of Illinois, LLC and ACME Television
Licenses of Illinois, LLC for WDPX(TV), Springfield, Ohio,
WPXG(TV), Suring, WI and WPXU(TV), Decatur, IL.
10.2(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Communications License Company, LLC, Paxson
Communications of Green Bay-14, Inc., and ACME Television of
Wisconsin, LLC for Station WPXG-TV, Suring, Wisconsin.
10.3(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Decatur License, Inc., Paxson Communications of
Decatur-23, Inc., and ACME Television of Illinois, LLC for
Station WPXU-TV, Decatur, Illinois.
10.4(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Dayton License, Inc., Paxson Communications of
Dayton-26, Inc., and ACME Television of Ohio, LLC for
Station WDPX-TV, Springfield, Ohio.
</TABLE>
II-3
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.5(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KWBQ-TV, Santa Fe, New Mexico.
10.5(A)** Amendment to Asset Purchase Agreement, dated July 30, 1999,
by and between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KWBQ-TV, Santa Fe, New Mexico.
10.6(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KASY-TV, Albuquerque, New Mexico.
10.7(7) Purchase Agreement, dated October 30, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.8(7) Option Agreement, dated November 5, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.9(1) Asset Purchase Agreement, dated August 22, 1997, by and
between ACME Television Licenses of New Mexico, LLC and
Minority Broadcasters of Santa Fe, Inc.
10.10(1) Management Agreement, dated August 22, 1997, by and between
Minority Broadcasters of Santa Fe, Inc. and ACME Television
of New Mexico, LLC.
10.11(1) 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.
10.12(8) Membership Purchase Agreement, dated July 10, 1998, by and
between Roberts Broadcasting of Salt Lake City, L.L.C.,
Michael V. Roberts and Steven C. Roberts and ACME Television
Holdings, LLC for a majority interest in Roberts
Broadcasting of Salt Lake City, L.L.C.
10.13(8) Asset Exchange Agreement, dated April 20, 1998 by and among
Paxson Salt Lake City License, Inc., Paxson Communications
of Salt Lake City-30, Inc. and Roberts Broadcasting of Salt
Lake City, L.L.C.
10.14(5) Time Brokerage Agreement, dated April 20, 1998, for KUPX-TV,
by and among Paxson Salt Lake City License, Inc., Paxson
Communications of Salt Lake City-30, Inc. and ACME
Television of Utah, LLC.
10.15(1) Management Agreement, dated August 22, 1997, by and between
Roberts Broadcasting of Salt Lake City, LLC and ACME
Television of Utah, LLC.
10.16(4) Asset Purchase Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.17(4) Time Brokerage Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.18** Station Affiliation Agreement, dated March 15, 1998, by and
between ACME Television Holdings, LLC and The WB Television
Network Partners, L.P.
10.19(4) Agreement, dated January 30, 1998, by and between ACME
Television Licenses of Tennessee, LLC, Ruth Payne Carman
(dba E&R Communications) and the Carman-Holly Partnership.
10.20(5) Assignment Agreement, dated June 16, 1998, by and between
ACME Television Licenses of Tennessee, LLC, Ruth Payne
Carman (dba E&R Communications), Carman-Harrison, LLC and
Donald E. Holley.
10.21(1) Stock Purchase Agreement, dated July 29, 1997, by and among
ACME Television Holdings, LLC, Koplar Communications, Inc.
and the shareholders named therein.
</TABLE>
II-4
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.22(1) 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.
10.23(1) 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.
10.24(1) Station Affiliation Agreement, dated September 24, 1997, by
and between ACME Holdings of St. Louis, LLC and The WB
Television Network Partners, L.P.
10.25(3) Management Agreement between Edward J. Koplar and ACME
Television Licenses of Missouri, Inc.
10.26(1) 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.
10.27(3) Station Affiliation Agreement, dated August 18, 1997, by and
between ACME Holdings of Knoxville, LLC and The WB
Television Network Partners, L.P.
10.28(3) Station Affiliation Agreement, dated June 10, 1997, by and
between ACME Holdings of Oregon, LLC and The WB Television
Network Partners, L.P.
10.29** Joint Sales Agreement by and between ACME Television
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.30** Option Agreement, dated April 23, 1999, by and between ACME
Television Holdings, LLC and DP Media, Inc.
10.31(1) Programming Agreement, dated June 1, 1995, by and among
Koplar Communications, Inc., Roberts Broadcasting Company,
Michael V. Roberts and Steven C. Roberts.
10.32(5) Master Lease Agreement, dated June 30, 1998, by and between
General Electric Capital Corporation and ACME Television,
LLC.
10.33(1) Station Affiliation Commitment Letter dated August 21, 1997,
to ACME Communications, Inc. from The WB Television Network.
10.34 ACME Communications, Inc. 1999 Stock Incentive Plan.
10.35 Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Doug Gealy.
10.36 Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Tom Allen.
10.37* Consulting Agreement, as amended, by and between ACME
Communications, Inc. and Jamie Kellner.
10.38(1) First Amended and Restated Credit Agreement, dated as of
December 2, 1997, by and among ACME Television, LLC, the
Lenders named therein and Canadian Imperial Bank of
Commerce, New York Agency, as agent for the Lenders.
10.39(3) Securities and Pledge Agreement, dated December 2, 1997, by
and between ACME Subsidiary Holdings III, LLC and Canadian
Imperial Bank of Commerce, as agent for the benefit of CIBC,
Inc. and other financial institutions.
10.40** Amendment No. 1 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.41** Amendment No. 2 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.42** Third Amendment to First Amended and Restated Credit
Agreement, dated March 1, 1999.
10.43** Fourth Amendment to First Amended and Restated Credit
Agreement, dated April 23, 1999.
10.43A Fifth Amendment to Credit Agreement, dated September 1999
</TABLE>
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<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.44(3) 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.
10.45(3) 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.
10.46 Form of Registration Rights Agreement, by and among ACME
Communications, Inc. and the parties on the signature pages
thereto.
10.47(1) Note 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.
10.48(2) Note Purchase Agreement, dated September 24, 1997, by and
among ACME Television, LLC, ACME Finance Corporation, CIBC
Wood Gundy Securities Corp. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
10.49(1) 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.
10.50(3) Limited Liability Company Agreement of ACME Television
Holdings, LLC.
10.51(3) First Amendment to Limited Liability Company Agreement of
ACME Television Holdings, LLC.
10.52* Employment Agreement by and between ACME Communications,
Inc. and Ed Danduran.
10.53** Amended and Restated Investment and Loan Agreement, dated as
of June 17, 1999, by and among ACME Television Holdings, LLC
and Jamie Kellner, Douglas Gealy, Thomas Allen, CEA Capital
Partners USA, L.P. CEA ACME, Inc., Alta Communications VI,
L.P., Alta Subordinated Debt Partners III, L.P., Alta-Comm S
by S, LLC, Alta ACME, Inc., BancBoston Ventures, Inc., CEA
Inc. and Alta Inc.
10.54** Form of Convertible Debenture of ACME Television Holdings,
LLC. Due June 30, 2008.
10.55(8) Agreement of Lease, dated May 16, 1986, by and between CBS,
Inc. and Koplar Communications Inc.
10.56(8) Amendment to Agreement of Lease, dated September 2, 1986, by
and between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.57(1) Amended and Restated Lease Agreement, dated July 1, 1986, by
and between KKSN, Inc. and Channel 32 Incorporated.
10.58(8) Tower Lease Agreement, dated August 22, 1997, by and between
Roberts Broadcasting Company of Utah, Inc. and Roberts
Broadcasting Company of Salt Lake City, LLC.
10.59(3) Amendment to Tower Lease Agreement, dated December 9, 1997,
by and between Roberts Broadcasting Company of Utah, Inc.
and Roberts Broadcasting Company of Salt Lake City LLC.
10.60** Lease Agreement, dated January 1, 1997, by and between Mr.
Tom Winter and VCY/America, Inc.
10.61** Assignment and Assumption of Lease and Estoppel Certificate,
dated October 6, 1997.
10.62** Assignment and Assumption of Lease, dated April 23, 1999.
10.63(7) Tower Lease Agreement, dated December 30, 1998, by and
between Roberts Broadcasting Company of New Mexico, LLC and
ACME Television of New Mexico, LLC.
10.64** Tower License Agreement, dated May 21, 1992, by and between
Caloosa Television Corporation and Southwest Florida
Telecommunications, Inc.
</TABLE>
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<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.65 Station Affiliation Agreement, dated April 9, 1998, by and
between ACME Television Licenses of Utah, LLC and The WB
Television Network.
10.66 Station Affiliation Agreement, dated March 4, 1999, by and
between ACME Television Licenses of New Mexico, LLC and The
WB Television Network.
10.67 Station Affiliation Agreement dated May 1, 1999 by and
between ACME Television Licenses of Wisconsin, LLC and The
WB Television Network.
10.68 Station Affiliation Agreement dated May 1, 1999 by and
between ACME Television Licenses of Illinois LLC and The WB
Television Network.
10.69 Station Affiliation Agreement dated May 1, 1999 by and
between ACME Television Licenses of Ohio LLC and The WB
Television Network.
10.70 [Intentionally left blank]
10.71** Bridge Loan Agreement, dated April 23, 1999, by and among
ACME Television Holdings, LLC, Alta Communications VI, L.P.,
Alta Comm S by S, LLC, Alta Subordinated Debt Partners III,
L.P., BancBoston Investments Inc., CEA Capital Partners USA,
L.P., CEA Capital Partners USA CI, L.P., TCW Shared
Opportunity Fund III, L.P., Shared Opportunity Fund IIB, LLC
and TCW Leveraged Income Trust II, L.P.
10.72* Interim Voting Agreement.
10.73* Long-Term Voting Agreement.
10.74(1) Management Agreement, dated February 6, 1997, by and between
Newco of Oregon, Inc. and Channel 32, Incorporated.
10.75(1) Amendment, dated June 17, 1997, to Management Agreement by
and between ACME Television Holdings of Oregon, LLC and
Channel 32, Incorporated.
21.0 Subsidiaries of Registrant.
23.1 Consent of KPMG LLP regarding ACME Television Holdings, LLC
23.2 Consent of KPMG LLP regarding Koplar Communications, Inc.
and Subsidiary.
23.3 Consent of KPMG LLP regarding Channel 32 Incorporated.
23.4 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1** Power of Attorney (included in signature page hereto).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on November
14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4, File No. 333-40281, filed on November 14, 1997.
(3) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4/A, File No. 333-40281, filed on January 16, 1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual Report
on Form 10-K for the For the year ended December 31, 1998.
(8) Incorporated by reference to ACME Television Holdings LLC's Quarterly Report
on Form 10-Q for the period ending March 31, 1999.
II-7
<PAGE> 151
(9) Incorporated by reference to ACME Intermediate Holdings LLC's Report on Form
8-K filed May 7, 1999.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule I -- Condensed Financial Information
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the provisions referenced in Item 14 of this Registration Statement or
otherwise, the Company 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. If a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company 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 hereunder, the Company 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 issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The Company hereby undertakes to provide to the underwriters at the
Closing, as specified in the Underwriting Agreement, certificates in such
denomination and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Santa Ana, State of California, on September 24, 1999.
ACME COMMUNICATIONS, INC.
/s/ THOMAS ALLEN
--------------------------------------
Thomas Allen
Executive Vice President
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Chairman of the Board and September 24, 1999
- --------------------------------------------- Chief Executive Officer
Jamie Kellner (Principal Executive
Officer)
* President and Chief September 24, 1999
- --------------------------------------------- Operating Officer and
Douglas Gealy Director
/s/ THOMAS ALLEN Executive Vice President, September 24, 1999
- --------------------------------------------- Chief Financial Officer
Thomas Allen (Principal Financial and
Accounting Officer) and
Director
* Director September 24, 1999
- ---------------------------------------------
James Collis
* Director September 24, 1999
- ---------------------------------------------
Thomas Embrescia
* Director September 24, 1999
- ---------------------------------------------
Brian McNeill
* Director September 24, 1999
- ---------------------------------------------
Michael Roberts
* Director September 24, 1999
- ---------------------------------------------
Darryl Schall
*By /s/ THOMAS ALLEN
----------------------------------------
Thomas Allen
Attorney-in-fact
</TABLE>
II-9
<PAGE> 153
SCHEDULE I
ACME TELEVISION HOLDINGS, LLC
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4 $ 48
Due from affiliates....................................... 7 --
------- --------
Total current assets................................... 11 48
------- --------
Notes Receivable and accrued interest....................... 211 231
Investment in subsidiaries.................................. 40,806 28,456
Prepaid financing costs..................................... 1,081 959
------- --------
Total assets........................................... $42,109 $ 29,694
======= ========
LIABILITIES AND MEMBERS' CAPITAL
Current Liabilities:
Other current liabilities................................. -- 2
------- --------
Total current liabilities.............................. -- 2
Accrued interest payable.................................... 1,047 3,523
Convertible debentures...................................... 24,756 24,756
------- --------
Total liabilities...................................... $25,803 $ 28,281
======= ========
Members' capital............................................ 23,785 30,832
Accumulated deficit......................................... (7,479) (29,419)
------- --------
Total members' capital................................. 16,306 1,413
Total liabilities and members' capital................. $42,109 $ 29,694
======= ========
</TABLE>
See accompanying notes to the condensed financial statements.
S-1
<PAGE> 154
ACME TELEVISION HOLDINGS, LLC
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Net Revenues................................................ $ -- $ --
Other Income (Expenses)..................................... 4 (13)
Interest income............................................. -- 20
Interest expense............................................ (1,096) (2,575)
------- --------
Net other expenses........................................ (1,092) (2,568)
Equity in the net loss of subsidiaries...................... (6,397) (19,372)
------- --------
Net Loss.................................................. $(7,479) $(21,940)
======= ========
</TABLE>
See accompanying notes to the condensed financial statements.
S-2
<PAGE> 155
ACME TELEVISION HOLDINGS, LLC
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
MEMBERS' ACCUMULATED MEMBERS'
CAPITAL DEFICIT CAPITAL
---------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996....................... $ -- $ -- $ --
Issuance of Units, net........................... 23,785 -- 23,785
Net Loss....................................... -- (7,479) (7,479)
------- -------- --------
Balance at December 31, 1997....................... 23,785 (7,479) 16,306
Issuance of Units, net........................... 7,047 7,047
Net Loss....................................... -- (21,940) (21,940)
------- -------- --------
Balance at December 31, 1998....................... $30,832 $(29,419) $ 1,413
======= ======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
S-3
<PAGE> 156
ACME TELEVISION HOLDINGS, LLC
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (7,479) $(21,940)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of debt issuance costs....................... 34 122
Equity in net loss of subsidiary.......................... 6,397 19,372
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net.......... (211) (20)
(Increase) decrease in prepaid expenses................... -- 25
(Increase) decrease in due from affiliates................ (7) 7
(Increase) other assets................................... -- --
Increase in other current liabilities..................... -- 2
Increase in accrued expenses.............................. 1,047 2,476
-------- --------
Net cash provided by (used in) operating activity...... (219) 44
-------- --------
Cash flows from investing activities:
Purchase of station interests............................. (18,675) --
Investments in and advances to subsidiaries............... (24,128) --
-------- --------
Net cash used in investing activities.................. (42,803) --
-------- --------
Cash flows from financing activities:
Issuance of units......................................... 19,385 --
Debt issuance costs....................................... (1,115) --
Issuance of convertible debt.............................. 24,756 --
-------- --------
Net cash provided by financing activities.............. 43,026 --
-------- --------
Net increase (decrease) in cash........................... 4 44
Cash at beginning of period............................... -- 4
-------- --------
Cash at end of period..................................... $ 4 $ 48
======== ========
Supplemental disclosures of cash flow information:
Non-cash transactions:
Issuance of units as purchase consideration............... 4,400 7,047
Contribution of station interest to subsidiary............ 18,675 --
</TABLE>
See accompanying notes to the condensed financial statements.
S-4
<PAGE> 157
ACME TELEVISION HOLDINGS, LLC
(PARENT COMPANY)
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 ACME Television Holdings, LLC,
does 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 at Item 8 of 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 convertible debt
until June 30, 2008. There are no cash interest payments due on ACME
Intermediate Holdings, LLC's Senior Secured Discount Notes until March 31, 2003.
There are no cash interest payments due on ACME Television, LLC's Senior
Discount Notes until March 31, 2001.
(4) SUBSEQUENT EVENT -- REORGANIZATION
First, ACME Communications will issue common stock in exchange for all of
the convertible debentures of ACME Television Holdings, LLC. The convertible
debentures will be converted pursuant to their original conversion terms and as
such, there will not be a gain or loss related to this transaction.
Second, ACME Communications will exchange shares of its common stock for
(a) membership units representing approximately 6% of ACME Intermediate and (b)
all of the convertible debentures and preferred convertible membership units of
ACME Subsidiary Holdings IV, LLC. These transaction will be treated as
acquisitions of minority interests. The fair value of the stock issued to
acquire the minority interests will be allocated to the net assets acquired.
Third, ACME Communications Merger Subsidiary, LLC, a wholly-owned
subsidiary of ACME Communications, will merge into ACME Television Holdings,
LLC. In this merger, ACME Television Holdings, LLC's membership units will be
exchanged for shares of common stock of ACME Communications. This transaction
will be treated as a reorganization at historical cost.
Fourth, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will dissolve and its sole asset, a 0.49146% interest
in ACME Intermediate, will be distributed to ACME Television Holdings, LLC. This
transaction will be treated as a reorganization at historical cost.
Last, ACME Subsidiary Holdings IV, LLC will dissolve and its sole asset, a
1.99037% interest in ACME Intermediate, will be distributed to ACME Television
Holdings, LLC. After this dissolution, ACME Communications will own directly or
indirectly 100% of the membership units of each of ACME Television Holdings, LLC
and of ACME Intermediate. This transaction will be treated as a reorganization
at historical cost.
S-5
<PAGE> 158
SCHEDULE II.
ACME TELEVISION HOLDINGS, LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ADDITIONS ACQUIRED IN BALANCE AT
ALLOWANCE FOR DOUBTFUL BEGINNING CHARGED TO PURCHASE END OF
ACCOUNTS OF PERIOD EXPENSE TRANSACTIONS(1) DEDUCTIONS PERIOD
- ---------------------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December
31, 1997............ -- -- 51,000 -- 51,000
Year ended December
31, 1998............ 51,000 223,776 280,224 -- 555,000
</TABLE>
- -------------------------
(1) Additions relating to purchase transactions.
Other schedules have been omitted because they are not applicable or not
required or because the information is included elsewhere in the consolidated
financial statements or the related notes.
S-6
<PAGE> 159
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Reorganization Relating to the
Capitalization of ACME Communications, Inc. by and among the
parties listed in the signature pages thereof.
2.2* Form Exchange Agreement among ACME Communications, Inc. and
the parties listed on the signature pages thereto.
2.3* Form of Agreement of Merger by and among ACME Television
Holdings, LLC, ACME Communications, Inc. and ACME
Communications Merger Subsidiary, LLC.
3.1* Form of Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2 Form of Restated Bylaws of ACME Communications, Inc.
4.1(1) Indenture, dated September 30, 1997, by and among ACME
Intermediate Holdings, LLC and ACME Intermediate Finance,
Inc., as Issuers, and Wilmington Trust Company.
4.2(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.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by
and among ACME Television, LLC and ACME Finance Corporation,
the Guarantors named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, the
Guarantors named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, as
issuers, the Guarantors named therein, and Wilmington Trust
Company.
4.6 Form of Stock Certificate of ACME Communications, Inc.
5.1 Opinion of O'Melveny & Myers LLP regarding the legality of
the securities being registered.
10.1(9) Asset Purchase Agreement, dated April 23, 1999, by and among
Paxson Communications Corporation, Paxson Communications
License Company, LLC, Paxson Communications of Green Bay-14,
Inc., Paxson Communications of Dayton-26, Inc., Paxson
Dayton License, Inc., Paxson Communications of Decatur-23,
Inc., Paxson Decatur License, Inc., ACME Television of Ohio,
LLC, ACME Television Licenses of Ohio, LLC, ACME Television
of Wisconsin, LLC, ACME Television Licenses of Wisconsin,
LLC, ACME Television of Illinois, LLC and ACME Television
Licenses of Illinois, LLC for WDPX(TV), Springfield, Ohio,
WPXG(TV), Suring, WI and WPXU(TV), Decatur, IL.
10.2(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Communications License Company, LLC, Paxson
Communications of Green Bay-14, Inc., and ACME Television of
Wisconsin, LLC for Station WPXG-TV, Suring, Wisconsin.
10.3(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Decatur License, Inc., Paxson Communications of
Decatur-23, Inc., and ACME Television of Illinois, LLC for
Station WPXU-TV, Decatur, Illinois.
10.4(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Dayton License, Inc., Paxson Communications of
Dayton-26, Inc., and ACME Television of Ohio, LLC for
Station WDPX-TV, Springfield, Ohio.
10.5(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KWBQ-TV, Santa Fe, New Mexico.
</TABLE>
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.5(A)** Amendment to Asset Purchase Agreement, dated July 30, 1999,
by and between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KWBQ-TV, Santa Fe, New Mexico.
10.6(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KASY-TV, Albuquerque, New Mexico.
10.7(7) Purchase Agreement, dated October 30, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.8(7) Option Agreement, dated November 5, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.9(1) Asset Purchase Agreement, dated August 22, 1997, by and
between ACME Television Licenses of New Mexico, LLC and
Minority Broadcasters of Santa Fe, Inc.
10.10(1) Management Agreement, dated August 22, 1997, by and between
Minority Broadcasters of Santa Fe, Inc. and ACME Television
of New Mexico, LLC.
10.11(1) 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.
10.12(8) Membership Purchase Agreement, dated July 10, 1998, by and
between Roberts Broadcasting of Salt Lake City, L.L.C.,
Michael V. Roberts and Steven C. Roberts and ACME Television
Holdings, LLC for a majority interest in Roberts
Broadcasting of Salt Lake City, L.L.C.
10.13(8) Asset Exchange Agreement, dated April 20, 1998 by and among
Paxson Salt Lake City License, Inc., Paxson Communications
of Salt Lake City-30, Inc. and Roberts Broadcasting of Salt
Lake City, L.L.C.
10.14(5) Time Brokerage Agreement, dated April 20, 1998, for KUPX-TV,
by and among Paxson Salt Lake City License, Inc., Paxson
Communications of Salt Lake City-30, Inc. and ACME
Television of Utah, LLC.
10.15(1) Management Agreement, dated August 22, 1997, by and between
Roberts Broadcasting of Salt Lake City, LLC and ACME
Television of Utah, LLC.
10.16(4) Asset Purchase Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.17(4) Time Brokerage Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.18** Station Affiliation Agreement, dated March 15, 1998, by and
between ACME Television Holdings, LLC and The WB Television
Network Partners, L.P.
10.19(4) Agreement, dated January 30, 1998, by and between ACME
Television Licenses of Tennessee, LLC, Ruth Payne Carman
(dba E&R Communications) and the Carman-Holly Partnership.
10.20(5) Assignment Agreement, dated June 16, 1998, by and between
ACME Television Licenses of Tennessee, LLC, Ruth Payne
Carman (dba E&R Communications), Carman-Harrison, LLC and
Donald E. Holley.
10.21(1) Stock Purchase Agreement, dated July 29, 1997, by and among
ACME Television Holdings, LLC, Koplar Communications, Inc.
and the shareholders named therein.
10.22(1) 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.
10.23(1) 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.
10.24(1) Station Affiliation Agreement, dated September 24, 1997, by
and between ACME Holdings of St. Louis, LLC and The WB
Television Network Partners, L.P.
</TABLE>
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.25(3) Management Agreement between Edward J. Koplar and ACME
Television Licenses of Missouri, Inc.
10.26(1) 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.
10.27(3) Station Affiliation Agreement, dated August 18, 1997, by and
between ACME Holdings of Knoxville, LLC and The WB
Television Network Partners, L.P.
10.28(3) Station Affiliation Agreement, dated June 10, 1997, by and
between ACME Holdings of Oregon, LLC and The WB Television
Network Partners, L.P.
10.29** Joint Sales Agreement by and between ACME Television
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.30** Option Agreement, dated April 23, 1999, by and between ACME
Television Holdings, LLC and DP Media, Inc.
10.31(1) Programming Agreement, dated June 1, 1995, by and among
Koplar Communications, Inc., Roberts Broadcasting Company,
Michael V. Roberts and Steven C. Roberts.
10.32(5) Master Lease Agreement, dated June 30, 1998, by and between
General Electric Capital Corporation and ACME Television,
LLC.
10.33(1) Station Affiliation Commitment Letter dated August 21, 1997,
to ACME Communications, Inc. from The WB Television Network.
10.34 ACME Communications, Inc. 1999 Stock Incentive Plan.
10.35 Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Doug Gealy.
10.36 Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Tom Allen.
10.37* Consulting Agreement, as amended, by and between ACME
Communications, Inc. and Jamie Kellner.
10.38(1) First Amended and Restated Credit Agreement, dated as of
December 2, 1997, by and among ACME Television, LLC, the
Lenders named therein and Canadian Imperial Bank of
Commerce, New York Agency, as agent for the Lenders.
10.39(3) Securities and Pledge Agreement, dated December 2, 1997, by
and between ACME Subsidiary Holdings III, LLC and Canadian
Imperial Bank of Commerce, as agent for the benefit of CIBC,
Inc. and other financial institutions.
10.40** Amendment No. 1 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.41** Amendment No. 2 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.42** Third Amendment to First Amended and Restated Credit
Agreement, dated March 1, 1999.
10.43** Fourth Amendment to First Amended and Restated Credit
Agreement, dated April 23, 1999.
10.43A Fifth Amendment to Credit Agreement, dated September 1999.
10.44(3) 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.
10.45(3) 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.
10.46 Form of Registration Rights Agreement, by and among ACME
Communications, Inc. and the parties on the signature pages
thereto.
10.47(1) Note 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.
</TABLE>
<PAGE> 162
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.48(2) Note Purchase Agreement, dated September 24, 1997, by and
among ACME Television, LLC, ACME Finance Corporation, CIBC
Wood Gundy Securities Corp. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
10.49(1) 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.
10.50(3) Limited Liability Company Agreement of ACME Television
Holdings, LLC.
10.51(3) First Amendment to Limited Liability Company Agreement of
ACME Television Holdings, LLC.
10.52* Employment Agreement by and between ACME Communications,
Inc. and Ed Danduran.
10.53** Amended and Restated Investment and Loan Agreement, dated as
of June 17, 1999, by and among ACME Television Holdings, LLC
and Jamie Kellner, Douglas Gealy, Thomas Allen, CEA Capital
Partners USA, L.P. CEA ACME, Inc., Alta Communications VI,
L.P., Alta Subordinated Debt Partners III, L.P., Alta-Comm S
by S, LLC, Alta ACME, Inc., BancBoston Ventures, Inc., CEA
Inc. and Alta Inc.
10.54** Form of Convertible Debenture of ACME Television Holdings,
LLC. Due June 30, 2008.
10.55(8) Agreement of Lease, dated May 16, 1986, by and between CBS,
Inc. and Koplar Communications Inc.
10.56(8) Amendment to Agreement of Lease, dated September 2, 1986, by
and between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.57(1) Amended and Restated Lease Agreement, dated July 1, 1986, by
and between KKSN, Inc. and Channel 32 Incorporated.
10.58(8) Tower Lease Agreement, dated August 22, 1997, by and between
Roberts Broadcasting Company of Utah, Inc. and Roberts
Broadcasting Company of Salt Lake City, LLC.
10.59(3) Amendment to Tower Lease Agreement, dated December 9, 1997,
by and between Roberts Broadcasting Company of Utah, Inc.
and Roberts Broadcasting Company of Salt Lake City LLC.
10.60** Lease Agreement, dated January 1, 1997, by and between Mr.
Tom Winter and VCY/America, Inc.
10.61** Assignment and Assumption of Lease and Estoppel Certificate,
dated October 6, 1997.
10.62** Assignment and Assumption of Lease, dated April 23, 1999.
10.63(7) Tower Lease Agreement, dated December 30, 1998, by and
between Roberts Broadcasting Company of New Mexico, LLC and
ACME Television of New Mexico, LLC.
10.64** Tower License Agreement, dated May 21, 1992, by and between
Caloosa Television Corporation and Southwest Florida
Telecommunications, Inc.
10.65 Station Affiliation Agreement, dated April 9, 1998, by and
between ACME Television Licenses of Utah LLC and The WB
Television Network.
10.66 Station Affiliation Agreement, dated March 4, 1999, by and
between ACME Television Licenses of New Mexico LLC and The
WB Television Network.
10.67 Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Wisconsin LLC and The WB
Television Network.
10.68 Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Illinois LLC and The WB
Television Network.
10.69 Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Ohio LLC and The WB
Television Network.
10.70 [Intentionally left blank]
</TABLE>
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.71** Bridge Loan Agreement, dated April 23, 1999, by and among
ACME Television Holdings, LLC, Alta Communications VI, L.P.,
Alta Comm S by S, LLC, Alta Subordinated Debt Partners III,
L.P., BancBoston Investments Inc., CEA Capital Partners USA,
L.P., CEA Capital Partners USA CI, L.P., TCW Shared
Opportunity Fund III, L.P., Shared Opportunity Fund IIB, LLC
and TCW Leveraged Income Trust II, L.P.
10.72* Interim Voting Agreement.
10.73* Long-Term Voting Agreement.
10.74(1) Management Agreement, dated February 6, 1997, by and between
Newco of Oregon, Inc. and Channel 32, Incorporated.
10.75(1) Amendment, dated June 17, 1997, to Management Agreement by
and between ACME Television Holdings of Oregon, LLC and
Channel 32, Incorporated.
21.0 Subsidiaries of Registrant.
23.1 Consent of KPMG LLP regarding ACME Television Holdings, LLC
23.2 Consent of KPMG LLP regarding Koplar Communications, Inc.
and Subsidiary.
23.3 Consent of KPMG LLP regarding Channel 32 Incorporated.
23.4 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1** Power of Attorney (included in signature page hereto).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on November
14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4, File No. 333-40281, filed on November 14, 1997.
(3) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4/A, File No. 333-40281, filed on January 16, 1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual Report
on Form 10-K for the For the year ended December 31, 1998.
(8) Incorporated by reference to ACME Television Holdings LLC's Quarterly Report
on Form 10-Q for the period ending March 31, 1999.
(9) Incorporated by reference to ACME Intermediate Holdings LLC's Report on Form
8-K filed May 7, 1999.
<PAGE> 1
EXHIBIT 3.2
FORM OF RESTATED BYLAWS OF
ACME COMMUNICATIONS, INC.
A DELAWARE CORPORATION
ARTICLE 1. OFFICES
1.1 The registered office will be in the City of Wilmington, County of New
Castle, State of Delaware.
1.2 The corporation may also have offices at such other places both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE 2. MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders will be held at such place, within or
without the State of Delaware, as will be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2.2 The Secretary will prepare and make, at least 10 days before every
meeting of stockholders, a complete list of stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list will be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days before the meeting, either at a place within the city where the meeting
is to be held, which place will be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list will
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
ANNUAL MEETINGS
2.3 Annual meetings of stockholders will be held at such date and time as
will be designated from time to time by the Board of Directors and stated in the
notice of the meeting, at which they will elect directors and transact such
other business as may properly be brought before the meeting. At an annual
meeting of the stockholders, only such business will be conducted as will have
been properly brought before the meeting.
SPECIAL MEETINGS
2.4 Special meetings of the stockholders may be called only by the Board of
Directors, the Chairman of the Board, the President or the Chief Financial
Officer and may not be called by any other person or persons. Upon such written
request to the Secretary by any person or persons
1
<PAGE> 2
(other than the Board of Directors) entitled to call a special meeting of the
stockholders, the Secretary will cause notice to be given to the stockholders
entitled to vote that a meeting will be held at a time requested by the person
or persons calling the meeting, not less than 35 days nor more than 60 days
after the receipt of the request. If notice of a special meeting of the
stockholders is not given within 20 days after the Secretary's receipt of the
request, the person or persons entitled to call the meeting may give the notice.
Subject to the provisions of applicable law, only such business will be
considered at a special meeting of the stockholders as will have been stated in
the notice for such meeting.
BUSINESS THAT MAY BE CONDUCTED
2.5 Annual Meetings of the Stockholders.
2.5.1 Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be
made at an annual meeting of the stockholders only (A) pursuant to the
corporation's notice of meeting (or any supplement thereto), (B) by or
at the direction of the Board of Directors or (C) by any stockholder of
the corporation who was a stockholder of record of the corporation at
the time the notice provided for in this Section is delivered to the
Secretary, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section.
2.5.2 For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subsection
2.5.1, the stockholder must have given timely notice thereof in writing
to the Secretary and any such proposed business other than the
nominations of persons for election to the Board of Directors must
constitute a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of
business on the 90th day nor earlier than the close of business on the
120th day before the first anniversary of the preceding year's annual
meeting (provided, however, that if the date of the annual meeting is
more than 30 days before or more than 70 days after such anniversary
date, notice by the stockholder must be so delivered not earlier than
the close of business on the 120th day before such annual meeting and
not later than the close of business on the later of the 90th day before
such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the
corporation). In no event will the public announcement of an adjournment
or postponement of an annual meeting commence a new time period (or
extend any time period) for the giving of a stockholder's notice as
described above. Such stockholder's notice will set forth: (A) as to
each person whom the stockholder proposes to nominate for election as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") and Rule 14a-11 thereunder (and such person's
written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (B) as to any other business that
the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting,
the text of the proposal or business (including the text of any
resolutions proposed for consideration
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and, in the event that such business includes a proposal to amend the
Bylaws of the corporation, the language of the proposed amendment), the
reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (C) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of
such stockholder, as they appear on the corporation's books, and of such
beneficial owner, (2) the class and number of shares of capital stock of
the corporation that are owned beneficially and of record by such
stockholder and such beneficial owner, (3) a representation that the
stockholder is a holder of record of stock of the corporation entitled
to vote at such meeting and intends to appear in person or by proxy at
such meeting to propose such business or nomination, and (4) a
representation whether the stockholder or beneficial owner, if any,
intends or is part of a group that intends (x) to deliver a proxy
statement and/or form of proxy to holders of at least the percentage of
the corporation's outstanding capital stock required to approve or adopt
the proposal or elect the nominee and/or (y) otherwise to solicit
proxies from stockholders in support of such proposal or nomination. The
corporation may require any proposed nominee to furnish such other
information as it may reasonably require to determine the eligibility of
such proposed nominee to serve as a director of the corporation.
2.5.3 Notwithstanding anything in the second sentence of subsection
2.5.2 to the contrary, if the number of directors to be elected to the
Board of Directors at the annual meeting is increased and there is no
public announcement by the corporation naming the nominees for the
additional directorships at least 100 days before the first anniversary
of the preceding year's annual meeting, a stockholder's notice required
by this Section will also be considered timely, but only with respect to
nominees for the additional directorships, if it is delivered to the
Secretary of the corporation at the principal executive offices of the
corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
corporation.
2.6 Special Meetings of the Stockholders. Only such business will be
conducted at a special meeting of the stockholders as will have been brought
before the meeting pursuant to the corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of the stockholders at which directors are to be elected pursuant to the
corporation's notice of meeting (A) by or at the direction of the Board of
Directors or (B) provided that the Board of Directors has determined that
directors will be elected at such meeting, by any stockholder of the corporation
who is a stockholder of record at the time the notice provided for in this
Section is delivered to the Secretary, who is entitled to vote at the meeting
and upon such election, and who complies with the notice procedures set forth in
this Section. If the corporation calls a special meeting of the stockholders for
the purpose of electing one or more directors to the Board of Directors, any
stockholder entitled to vote in such election of directors may nominate a person
or persons (as the case may be) for election to such position(s) as specified in
the corporation's notice of meeting, if the stockholder's notice required by
subsection 2.5.2 is delivered to the Secretary at the principal executive
offices of the corporation not earlier than the close of business on the 120th
day before such special meeting and not later than the close of business on the
later of the 90th day before such special meeting or the 10th day following the
day on which public announcement is first
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made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting. In no event will the public
announcement of an adjournment or postponement of a special meeting commence a
new time period (or extend any time period) for the giving of a stockholder's
notice as described above.
2.7 General.
2.7.1 Only persons who are nominated in accordance with the procedures
set forth in this ARTICLE 2 will be eligible to be elected at an annual
or special meeting of the stockholders of the corporation to serve as
directors and only such business will be conducted at a meeting of the
stockholders as will have been brought before the meeting in accordance
with the procedures set forth in this Section. Except as otherwise
provided by law, the Chairman of the Board, as chairman of the meeting,
will have the power and duty (A) to determine whether a nomination or
any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set
forth in this ARTICLE 2 (including whether the stockholder or beneficial
owner, if any, on whose behalf the nomination or proposal is made or
solicited (or is part of a group which solicited) or did not so solicit,
as the case may be, proxies in support of such stockholder's nominee or
proposal in compliance with such stockholder's representation as
required by this ARTICLE 2) and (B) if any proposed nomination or
business was not made or proposed in compliance with the ARTICLE 2, to
declare that such nomination will be disregarded or that such proposed
business will not be transacted.
2.7.2 For purposes of this ARTICLE 2, "PUBLIC ANNOUNCEMENT" will
include disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
2.7.3 Notwithstanding the foregoing provisions of this ARTICLE 2, a
stockholder will also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this ARTICLE 2. Nothing in this ARTICLE 2 will
be deemed to affect any rights (A) of stockholders to request inclusion
of proposals in the corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act or (B) of the holders of any series of Preferred
Stock to elect directors pursuant to any applicable provisions of the
Certificate of Incorporation.
NOTICE
2.8 Written notice of each annual or special meeting must be given not fewer
than 10 days nor more than 60 days before the date of the meeting, to each
stockholder entitled to vote at such meeting. Such notice must state the place,
date and hour of the meeting and (A) in the case of the annual meeting, those
matters that the Board of Directors, at the time of the mailing of the notice,
intends to present for action by the stockholders, and, subject to the
provisions of applicable law, any other matters properly brought may be
presented at the meeting for action, or (B) in the case of a special meeting,
the purpose or purposes for which the meeting was called,
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but, subject to the provisions of applicable law, no other business may be
presented at the special meeting for action. The notice of any meeting at which
directors are to be elected will include the names of nominees intended at the
time of the notice to be presented by the Board of Directors for election.
2.9 Notice of a stockholders' meeting must be given by mail or by other
means of written communication, addressed to the stockholder at the address of
such stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice. Notice by mail will be
deemed to have been given at the time a written notice is deposited in the
United States mail, postage prepaid. Any other written notice will be deemed to
have been given at the time it is personally delivered to the recipient or is
delivered to a common carrier for transmission, or actually transmitted by the
person giving the notice by electronic means, to the recipient.
QUORUM AND ADJOURNMENT
2.10 Except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, at each meeting of stockholders the presence in person or by proxy
of the holders of a majority in voting power of the outstanding shares of stock
entitled to vote at the meeting will be necessary and sufficient to constitute a
quorum. In the absence of a quorum, the stockholders so present may, by a
majority in voting power thereof, adjourn the meeting from time to time in the
manner provided in Section 2.11 until a quorum will attend.
2.11 Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting will be given to each stockholder of record entitled to vote
at the meeting.
VOTING
2.12 The stockholders entitled to notice of any meeting or to vote at any
such meeting will be only persons in whose name shares stand on the stock
records of the corporation on the record date determined in accordance with
Section 5.7.
2.13 Voting at meetings of stockholders need not be by written ballot. At all
meetings of stockholders for the election of directors, a plurality of the votes
cast will be sufficient to elect. All other elections and questions will, unless
otherwise provided by the Certificate of Incorporation, these Bylaws, the rules
or regulations of any stock exchange applicable to the corporation or as
otherwise provided by law or pursuant to any regulation applicable to the
corporation, be decided by the affirmative vote of the holders of a majority in
voting power of the shares of stock of the corporation which are present in
person or by proxy and entitled to vote thereon.
2.14 Voting will in all cases be subject to the provisions to the following
provisions:
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2.14.1 The stockholders of the corporation will not have the right to
cumulate their votes for the election of directors of the corporation.
2.14.2 Shares held by an administrator, executor, guardian, conservator
or custodian may be voted by such holder either in person or by proxy,
without a transfer of such shares into the holder's name; and shares
standing in the name of a trust may be voted by the trustee of such
trust, either in person or by proxy, but no trustee will be entitled to
vote shares held by such trust without a transfer of such shares into
the trust's name.
2.14.3 Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in the order of the court by
which such receiver was appointed.
2.14.4 Except where otherwise agreed in writing between the parties, a
stockholder whose shares are pledged will be entitled to vote such
shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee will be entitled to vote the shares
so transferred.
2.14.5 Shares standing in the name of a minor may be voted and the
corporation may treat all rights incident thereto as exercisable by the
minor, in person or by proxy, whether or not the corporation has notice,
actual or constructive, of the minor's actual age, unless a guardian of
the minor's property has been appointed and written notice of such
appointment given to the corporation.
2.14.6 Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder of such
other corporation as the bylaws of such other corporation may prescribe
or, in the absence of such provision, as the board of directors of such
other corporation may determine or, in the absence of such
determination, by the chairman of the board, president or any vice
president of such other corporation, or by any other person authorized
to do so by the chairman of the board, president or any vice president
of such other corporation. Shares which are purported to be voted or any
proxy purported to be executed in the name of a corporation (whether or
not any title of the person signing is indicated) will be presumed to be
voted or the proxy executed in accordance with the provisions of this
clause, unless the contrary is shown.
2.14.7 Shares of the corporation owned by its subsidiaries will not be
entitled to vote on any matter.
2.14.8 If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting
agreement or otherwise, or if two or more persons (including
proxyholders) have the same fiduciary relationship respecting the same
shares, unless the Secretary is given written notice to the contrary and
is furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with
respect to voting will have the following effect:
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(a) If only one votes, such act binds all;
(b) If more than one vote, the act of the majority so voting binds
all; or
(c) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that any such
tenancy is held in unequal interests, a majority or even split for the purpose
of this Section will be a majority or even split in interest.
PROXIES
2.15 Each stockholder entitled to vote at a meeting of the stockholders may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy will be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A proxy will be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary.
2.16 A proxy or consent validly delivered to the corporation will mean any
written authorization that is signed by the person executing the proxy, as well
as any electronic transmission (to include without limitation transmissions by
facsimile and by computer messaging systems) that is authorized by a stockholder
or the stockholder's attorney in fact, which gives another person or persons
power to vote with respect to the shares of such stockholder. A stockholder may
authorize another person or persons to act for such stockholder as proxy by
transmitting or authorizing the transmission of a telegram, cablegram, or other
means of electronic transmission to the person who will be the holder of the
proxy or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram, cablegram or other
means of electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. If it is
determined that such telegrams, cablegrams or other electronic transmissions are
valid, the inspectors of election or, if there are no inspectors, such other
persons making that determination will specify the information upon which they
relied. Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to this Section 2.16 may be
substituted or used instead of the original writing or transmission for any and
all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other reproduction will
be a complete reproduction of the entire original writing or transmission.
INSPECTORS OF ELECTION
2.17 In advance of any meeting of stockholders, the Board of Directors will
appoint inspectors of election to act at such meeting and any adjournment
thereof. If inspectors of election are not
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so appointed, or if any persons so appointed fail to appear or refuse to act,
the chairman of any such meeting may, and on the request of any stockholder or
stockholder's proxy will, make such appointment at the meeting. The number of
inspectors will be either one or three. If appointed at a meeting on the request
of one or more stockholders or proxies, the majority of shares present will
determine whether one or three inspectors are to be appointed.
2.18 The duties of such inspectors will include: determining the number of
shares outstanding and the voting power of each; determining the shares
represented at the meeting; determining the existence of a quorum; determining
the authenticity, validity and effect of proxies; receiving votes, ballots or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes
or consents; determining when the polls will close; determining the result; and
doing such acts as may be proper to conduct the election or vote with fairness
to all stockholders. If there are three inspectors of election, the decision,
act or certificate of a majority is effective in all respects as the decision,
act or certificate of all.
CONDUCT OF MEETING
2.19 The Chairman of the Board will preside as chairman at all meetings of
the stockholders. The chairman will conduct each such meeting in a businesslike
and fair manner, but will not be obligated to follow any technical, formal or
parliamentary rules or principles of procedure. The chairman's rulings on
procedural matters will be conclusive and binding on all stockholders, unless at
the time of a ruling a request for a vote is made to the stockholders holding
shares entitled to vote and which are represented in person or by proxy at the
meeting, in which case the decision of a majority of such shares will be
conclusive and binding on all stockholders. Without limiting the generality of
the foregoing, the chairman will have all of the powers usually vested in the
chairman of a meeting of stockholders.
CONSENT OF ABSENTEES
2.20 The transactions of any meeting of stockholders, however called and
noticed, and wherever held, are as valid as though conducted at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, signs a written waiver of
notice, or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents or approvals will be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting will constitute a waiver of notice of and presence at such
meeting, except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters required by the Delaware General
Corporation Law (the "DGCL") to be included in the notice but not so included,
if such objection is expressly made at the meeting. Neither the business to be
transacted at nor the purpose of any regular or special meeting of stockholders
need be specified in any written waiver of notice, consent to the holding of the
meeting or approval of the minutes thereof, except as provided in the DGCL.
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ARTICLE 3. DIRECTORS
POWERS
3.1 Subject to limitations of the Certificate of Incorporation, of these
Bylaws and of the DGCL relating to action required to be approved by the
stockholders or by the outstanding shares, the business and affairs of the
corporation will be managed and all corporate powers will be exercised by or
under the direction of the Board of Directors and it will have the final
authority in matters of strategy and policy matters for the corporation.
The Board of Directors may delegate management duties for the operation
of the business to those persons to whom authority is properly delegated by the
Board of Directors, including officers of the corporation, provided that the
business and affairs of the corporation will be managed and all corporate powers
will be exercised under the ultimate direction of the Board of Directors.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the Board of Directors will have the
following powers in addition to the other powers enumerated in these Bylaws:
3.1.1 To select and remove all officers (in accordance with the
provisions of these Bylaws), agents and employees of the corporation;
prescribe the powers and duties for them as may not be inconsistent with
law, the Certificate of Incorporation or these Bylaws; fix their
compensation and require from them an affidavit providing for the good
faith exercise of their duties only in the best interests of the
corporation.
3.1.2 To conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, the Certificate of Incorporation or these Bylaws,
as they may deem best.
3.1.3 To adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and
of such certificates from time to time as they may deem best.
3.1.4 To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration as may be
lawful.
3.1.5 To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered, in the corporate
name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities
therefor.
3.1.6 To make, repeal, alter, amend and rescind any or all of these
Bylaws.
NUMBER OF DIRECTORS
3.2 The authorized number of directors of the corporation will be not less
than five nor more than nine. Within such limits, the Board of Directors may fix
the exact number of directors by resolution duly adopted by the Board of
Directors. Initially, the exact number of directors will
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be [eight]. No reduction of the authorized number of directors will have the
effect of removing any director before the expiration of the director's term of
office.
ELECTION AND TERM OF OFFICE
3.3 Only persons who are nominated by, or at the direction of the Board of
Directors or the Chairman of the Board, or by a stockholder who has given timely
written notice to the Secretary in accordance with these Bylaws, will be
eligible for election as directors of the corporation.
3.4 For a person to be qualified to serve as a director of the corporation,
such person need not be an employee or stockholder of the corporation during his
or her directorship.
3.5 The directors will be elected at each annual meeting of the
stockholders, but if any such annual meeting is not held or the directors are
not elected thereat, the directors may be elected at any special meeting of
stockholders held for that purpose. Each director will hold office until the
next annual meeting and until a successor has been elected and qualified or
until his or her earlier death, resignation, or removal.
3.6 [Any director may be removed without cause if such removal is approved
by a majority of the outstanding shares entitled to vote at an election of
directors.]
RESIGNATIONS AND VACANCIES
3.7 Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Any newly-created directorship resulting from an increase in the
authorized number of directors or any vacancies in the Board of Directors
occurring by reason of death, resignation, retirement, disqualification or
removal may be filled by a majority of the remaining directors, though less than
a quorum, or by a sole remaining director, and each director so elected will
hold office until the next annual meeting and until such director's successor
has been elected and qualified.
A vacancy or vacancies in the Board of Directors will be deemed to exist
in case of the death, resignation or removal of any director, or if the
authorized number of directors is increased, or if the stockholders fail, at any
annual or special meeting of the stockholders at which any director or directors
are elected, to elect the full authorized number of directors to be voted for at
that meeting.
MEETINGS OF THE BOARD OF DIRECTORS
3.8 Regular or special meetings of the Board of Directors will be held at
any place within or without the State of Delaware which has been designated from
time to time by the Board of Directors. In the absence of such designation,
regular meetings will be held at the principal executive office of the
corporation.
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3.9 Following each annual meeting of stockholders, the Board of Directors
will hold a regular meeting for the purpose of organization, election of
officers and the transaction of other business. Other regular meetings of the
Board of Directors will be held without call on such dates and at such times as
may be fixed by the Board of Directors. Call and notice of all regular meetings
of the Board of Directors are hereby dispensed with.
3.10 Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the Chairman of the Board, the President, the Chief
Financial Officer, the Secretary or by any two directors.
Special meetings of the Board of Directors will be held upon four days'
written notice or 48 hours' notice given personally or by telephone, including a
voice messaging system or other system or technology designed to record and
communicate messages, telegraph, telex, facsimile electronic mail or other
similar means of communication. Any such notice will be addressed or delivered
to each director at such director's address as it is shown upon the records of
the corporation or as may have been given to the corporation by the director for
purposes of notice or, if such address is not shown on such records or is not
readily ascertainable, at the place in which the meetings of the directors are
regularly held.
Notice by mail will be deemed to have been given at the time a written
notice is deposited in the United States mail, first-class postage prepaid. Any
other written notice will be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice will be deemed to have been
given at the time it is communicated, in person or by telephone or wireless, to
the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.
QUORUM
3.11 A majority of the whole Board of Directors constitutes a quorum of the
Board of Directors for the transaction of business, except to adjourn as
provided below in this Article. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum is present
will be regarded as the act of the Board of Directors, unless a greater number
be required by law or by the Certificate of Incorporation. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
PARTICIPATION BY CONFERENCE TELEPHONE
3.12 Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another and all such directors will be deemed to be present
in person at the meeting.
WAIVER OF NOTICE
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3.13 Notice of a meeting need not be given to any director who signs a waiver
of notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents and approvals will be filed with the
corporate records or made a part of the minutes of the meeting.
ADJOURNMENT
3.14 A majority of the directors present, whether or not a quorum is present,
may adjourn any directors' meeting to another time and place. Notice of the time
and place of holding an adjourned meeting need not be given to absent directors
if the time and place be fixed at the meeting adjourned, except as provided in
the next sentence. If the meeting is adjourned for more than 24 hours, notice of
any adjournment to another time or place will be given before the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
FEES AND COMPENSATION
3.15 Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed or
determined by the Board of Directors.
ACTION WITHOUT MEETING
3.16 Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting if all members of the Board of Directors consent
in writing to such action. Such consent or consents will have the same effect as
a unanimous vote of the Board of Directors and will be filed with the minutes of
the proceedings of the Board of Directors.
COMMITTEES
3.17 The Board of Directors may appoint one or more committees, each
consisting of one or more directors, and delegate to such committees any of the
powers and authority of the Board of Directors, except no such committee will
have power or authority in reference to the following:
3.17.1 Approving, adopting or recommending to the stockholders any
action or matter expressly required by the DGCL to be submitted to the
stockholders for approval; or
3.17.2 Adopting, altering, amending or repealing these Bylaws or any of
them.
Any such committee must be designated, and the members or alternate
members thereof appointed, by resolution adopted by a majority of the authorized
number of directors and any such committee may be designated an Executive
Committee or by such other name as the Board of Directors will specify.
Alternate members of a committee may replace any absent member at any meeting of
the committee. The Board of Directors will have the power to prescribe the
manner in which proceedings of any such committee will be conducted. In the
absence of any such prescription, such committee will have the power to
prescribe the manner in which its proceedings will be conducted. Unless the
Board of Directors or such committee otherwise provide, the regular and special
meetings and other actions of any such committee will be
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governed by the provisions of these Bylaws applicable to meetings and actions of
the Board of Directors. Minutes will be kept of each meeting of each committee.
Initially, the Board of Directors will appoint (A) an Audit Committee,
which will make recommendations to the Board of Directors regarding the
selection of the corporation's independent auditors, review the results and
scope of the audit and other services provided by the independent auditors and
will review and evaluate audit and control functions, and (B) a Compensation
Committee, which will make recommendations to the Board of Directors regarding
equity compensation plans, and which will make decisions concerning salaries and
incentive compensation for employees of the corporation.
ARTICLE 4. OFFICERS
OFFICERS
4.1 The officers of the corporation will be a Chairman of the Board, a Chief
Executive Officer, a President, a Chief Operating Officer, a Secretary, a Chief
Financial Officer and a Treasurer. The corporation may also have, at the
discretion of the Board of Directors, one or more Vice Chairmen of the Board,
one or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers as may be elected or appointed in
accordance with the provisions of this Article.
ELECTION
4.2 The officers of the corporation, except such officers as may be elected
or appointed in accordance with the provisions of this ARTICLE 4, will be chosen
annually by, and will serve at the pleasure of, the Board of Directors, and will
hold their respective offices until their resignation, removal, or other
disqualification from service, or until their respective successors will be
elected.
SUBORDINATE OFFICERS
4.3 The Board of Directors may elect, and may empower the Chairman of the
Board, the President and the Chief Financial Officer to appoint, such other
officers as the business of the corporation may require, each of whom will hold
office for such period, have such authority and perform such duties as are
provided in these Bylaws or as the Board of Directors may from time to time
determine.
REMOVAL AND RESIGNATION
4.4 Any officer may be removed, either with or without cause, by the Board
of Directors at any time or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors. Any such removal will be without prejudice
to the rights, if any, of the officer under any contract of employment of the
officer.
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Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation will
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation will not be necessary to make it effective.
VACANCIES
4.5 A vacancy in any office because of death, resignation, removal,
disqualification or any other cause will be filled in the manner prescribed in
these Bylaws for regular election or appointment to such office.
THE CHAIRMAN OF THE BOARD
4.6 The Chairman of the Board will preside at all meetings of the Board of
Directors and he will have and may exercise such powers as are, from time to
time, assigned to him by the Board of Directors and as may be provided by law.
4.7 In the absence of the Chairman of the Board, the Vice Chairman of the
Board, if any, will preside at all meetings of the Board of Directors and he or
she will have and may exercise such powers as are, from time to time, assigned
to him or her by the Board of Directors and as may be provided by law.
THE CHAIRMAN, PRESIDENT AND VICE-PRESIDENTS
4.8 The Chairman of the Board is the general manager and chief executive
officer of the corporation and has, subject to the control of the Board of
Directors, general supervision, direction and control of the business and
officers of the corporation. The Chairman of the Board will preside at all
meetings of the stockholders and at all meetings of the Board of Directors. The
Chairman of the Board has the general powers and duties of management usually
vested in the office of Chairman of the Board and Chief Executive Officer and
general manager of a corporation and such other powers and duties as may be
prescribed by the Board of Directors.
4.9 In the absence or disability of the Chairman of the Board, the President
will perform all the duties of the Chairman of the Board and, when so acting,
will have all the powers of, and be subject to all the restrictions upon, the
Chairman of the Board. The President will have such other powers and perform
such other duties as from time to time may be prescribed for him by the Board of
Directors.
4.10 In the absence or disability of the President, the Chief Financial
Officer will perform all the duties of the President and, when so acting, will
have all the powers of, and be subject to all the restrictions upon, the
President. The Chief Financial Officer will have such other powers and perform
such other duties as from time to time may be prescribed for him by the Board of
Directors.
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THE SECRETARY AND ASSISTANT SECRETARY
4.11 The Secretary will keep or cause to be kept, at the principal executive
office and such other place as the Board of Directors may order, a book of
minutes of all meetings of stockholders, the Board of Directors and its
committees, with the time and place of holding, whether regular or special, and
if special, how authorized, the notice thereof given, the names of those present
at Board of Directors and committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof. The
Secretary will keep, or cause to be kept, a copy of these Bylaws of the
corporation at the principal executive office or such other place as the Board
of Directors may order.
The Secretary will keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, if one
has been appointed, a share register, or a duplicate share register, showing the
names of the stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary will give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors and any committees thereof
required by these Bylaws or by law to be given, will keep the seal of the
corporation in safe custody, and will have such other powers and perform such
other duties as may be prescribed by the Board of Directors.
4.12 The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there be no
such determination, then in the order of their election) will, in absence of the
Secretary or in the event of his or her inability or refusal to act, perform the
duties and exercise the powers of the Secretary and will perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURER
4.13 The Chief Financial Officer is the chief financial officer of the
corporation and will keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation, and will send or cause to be sent to the stockholders of the
corporation such financial statements and reports as are by law or these Bylaws
required to be sent to them. The books of account will at all times be open to
inspection by any director.
The Chief Financial Officer will deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the Board of Directors. The Chief Financial Officer will
disburse the funds of the corporation as may be ordered by the Board of
Directors, will render to the Chairman of the Board, the President and the
directors, whenever they request it, an account of all transactions as Chief
Financial Officer and of the financial condition of the corporation, and will
have such other powers and perform such other duties as may be prescribed by the
Board of Directors.
4.14 The Assistant Treasurer, or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors (or if there be no
such determination, then in the order of their election) will, in absence of the
Chief Financial Officer or in the event of his
15
<PAGE> 16
inability or refusal to act, perform the duties and exercise the powers of the
Chief Financial Officer and will perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE 5. CERTIFICATE OF STOCK
5.1 Every holder of stock in the corporation will be entitled to have a
certificate, signed by, or in the name of the corporation by (A) the Chairman or
Vice Chairman of the Board, or the President or a Vice President and (B) the
Chief Financial Officer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, certifying the number of shares owned by the holder in the
corporation.
5.2 Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon will be specified.
5.3 If the corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights will be set forth in full or summarized on the face or
back of the certificate which the corporation will issue to represent such class
or series of stock, provided that, except as otherwise provided in Section 202
of the DGCL, instead of the foregoing requirements, there may be set forth on
the face or back of the certificate that the corporation will issue to represent
such class or series of stock, a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
5.4 Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate will have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
5.5 The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his or her legal representative, to
advertise the same in such manner as it will require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
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<PAGE> 17
TRANSFER OF STOCK
5.6 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it will be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
5.7 In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of the stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date will not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date: (A) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, will, unless otherwise required by law, not be more than 60 nor less
than 10 days before the date of such meeting; (B) in the case of determination
of stockholders entitled to express consent to corporate action in writing
without a meeting, will not be more than 10 days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors and (C)
in the case of any other action, will not be more than 60 days before such other
action. If no record date is fixed: (A) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders will
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (B) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by law or the Certificate of Incorporation, will be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation in accordance with applicable law, or, if
prior action by the Board of Directors is required by law or the Certificate of
Incorporation, will be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action and (C) the record date
for determining stockholders for any other purpose will be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders will apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
5.8 The corporation will be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares and will not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it will have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
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<PAGE> 18
ARTICLE 6. GENERAL PROVISIONS
MAINTENANCE AND INSPECTION OF RECORDS
6.1 Any stockholder of record, in person or by attorney or other agent,
will, upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose will mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath will be accompanies by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath will be directed to the
corporation at its registered office in the State of Delaware or at its
principal executive office.
6.2 Any director will have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to the director's position as a director. The Court
of Chancery is hereby vested with the exclusive jurisdiction to determine
whether a director is entitled to the inspection sought. The Court may summarily
order the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
ANNUAL REPORT TO STOCKHOLDERS
6.3 At any point at which the corporation has less than 100 holders of
record of its shares, this corporation expressly waives the annual report to
stockholders. Notwithstanding the waiver of such annual report by the
corporation, nothing herein will be interpreted as prohibiting the Board of
Directors from issuing voluntary annual or other periodic reports to
stockholders during such time as the corporation has less than 100 holders of
record.
CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS
6.4 From time to time, the Board of Directors will determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
the payment of money, notes or other evidences of indebtedness that are issued
in the name of or payable to the corporation, and only the persons so authorized
will sign or endorse those instruments.
ENDORSEMENT OF DOCUMENTS; CONTRACTS
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<PAGE> 19
6.5 Subject to the provisions of applicable law, any note, mortgage,
evidence of indebtedness, contract, share certificate, conveyance or other
instrument in writing and any assignment or endorsements thereof executed or
entered into between the corporation and any other person, when signed by the
Chairman of the Board, the President or any Vice President and the Secretary,
any Assistant Secretary, the Chief Financial Officer or any Assistant Treasurer
of the corporation will be valid and binding on the corporation in the absence
of actual knowledge on the part of the other person that the signing officers
had no authority to execute the same. Any such instruments may be signed by any
other person or persons and in such manner as from time to time will be
determined by the Board of Directors, and, unless so authorized by the Board of
Directors, no officer, agent or employee will have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or amount.
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
6.6 The Chairman of the Board, the President, the Chief Financial Officer or
any other officer or officers authorized by the Board of Directors or by the
Chairman of the Board, the President or the Chief Financial Officer, are each
authorized to vote, represent and exercise on behalf of the corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the corporation. The authority herein granted may be
exercised either by any such officer in person or by any other person authorized
so to do by proxy or power of attorney duly executed by said officer.
STOCK PURCHASE PLANS
6.7 The corporation may adopt and carry out a stock purchase plan or
agreement or stock option plan or agreement providing for the issue and sale for
such consideration as may be fixed of its unissued shares, or of issued shares
acquired or to be acquired, to one or more of the employees or directors of the
corporation or of a subsidiary or to a trustee on their behalf and for the
payment for such shares in installments or at one time, and may provide for
aiding any such persons in paying for such shares by compensation for services
rendered, promissory notes or otherwise.
Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the reservation of title until full payment
therefor, the effect of the termination of employment, an option or obligation
on the part of the corporation to repurchase the shares upon termination of
employment, restrictions upon transfer of the shares, the time limits of and
termination of the plan, and any other matters, not in violation of applicable
law, as may be included in the plan as approved or authorized by the Board of
Directors or any committee of the Board of Directors.
CONSTRUCTION AND DEFINITIONS
6.8 Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the DGCL will govern the construction
of these Bylaws.
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AMENDMENTS
6.9 These Bylaws may be amended or repealed either by approval of 66-2/3% of
the outstanding shares of the corporation entitled to vote on such action or by
the approval of the Board of Directors, for those amendments to the Bylaws for
which approval of the Board of Directors alone is sufficient under the DGCL.
FISCAL YEAR
6.10 The fiscal year of the corporation will be fixed by resolution of the
Board of Directors.
DIVIDENDS
6.11 Dividends upon the capital stock of the corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
6.12 Before payment of any dividend, there may be set aside out of any funds
of the corporation available for dividends such sum or sums as the directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purposes as the
directors will think conducive to the interest of the corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
LOANS TO OFFICERS AND EMPLOYEES
6.13 The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors will approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in these Bylaws will be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute
ARTICLE 7. INDEMNIFICATION
RIGHT TO INDEMNIFICATION
7.1 The corporation will indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
any person (an "Indemnitee") who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "PROCEEDING"), by reason of the
fact that such person, or a person for whom he or she is the legal
representative, is or was a director or officer of the corporation or, while a
director or officer of the corporation, is or was serving at the written request
of the corporation as a director, officer, employee or agent
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<PAGE> 21
of another corporation or of a partnership, joint venture, trust, enterprise or
non-profit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such Indemnitee. Notwithstanding the preceding sentence,
except as otherwise provided in Section 7.3, the corporation will be required to
indemnify an Indemnitee in connection with a Proceeding(or part thereof)
commenced by such Indemnitee only if the commencement of such Proceeding(or part
thereof) by the Indemnitee was authorized by the Board of Directors.
PREPAYMENT OF EXPENSES
7.2 The corporation will pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any Proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the Proceedingwill be
made only upon receipt of an undertaking by the Indemnitee to repay all amounts
advanced if it should be ultimately determined that the Indemnitee is not
entitled to be indemnified under this Article or otherwise.
CLAIMS
7.3 If a claim for indemnification of advancement of expenses under this
ARTICLE 7 is not paid in full within 60 days after a written claim therefor by
the Indemnitee has been received by the corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, will be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation will have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or advancement of
expenses under applicable law.
NONEXCLUSIVITY OF RIGHTS
7.4 The rights conferred on any Indemnitee by this Article will not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation, these
Bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
OTHER SOURCES
7.5 The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or non-profit entity will be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or non-profit
entity.
AMENDMENT OR REPEAL
7.6 Any repeal or modification of the foregoing provisions of this Article
will not adversely affect any right or protection hereunder of any Indemnitee in
respect of any act or omission occurring before the time of such repeal or
modification.
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OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES
7.7 This Article will not limit the right of the corporation, to the extent
and in the manner permitted by law, to indemnify and to advance expenses to
persons other than Indemnitees when and as authorized by appropriate corporate
action.
INSURANCE
7.8 The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the law.
INDEMNITY AGREEMENTS
7.9 The corporation may enter into agreements with any director, officer,
employee or agent of the corporation, providing for indemnification to the
fullest extent permissible under the law and the Certificate of Incorporation.
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CERTIFICATE OF SECRETARY
OF
ACME COMMUNICATIONS, INC.
a Delaware corporation
I hereby certify that I am the duly elected and acting Secretary of ACME
Communications, Inc. and that the foregoing Bylaws, comprising __ pages,
constitute the Bylaws of said corporation as duly adopted at a meeting of the
Board of Directors thereof held on ____ __, 1999.
--------------------------------
Thomas Allen, Secretary
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. OFFICES.........................................................................1
ARTICLE 2. MEETINGS OF STOCKHOLDERS........................................................1
ANNUAL MEETINGS....................................................................1
SPECIAL MEETINGS...................................................................1
BUSINESS WHICH MAY BE CONDUCTED....................................................2
NOTICE.............................................................................4
QUORUM AND ADJOURNMENT.............................................................5
VOTING.............................................................................5
PROXIES............................................................................7
INSPECTORS OF ELECTION.............................................................7
CONDUCT OF MEETING.................................................................8
CONSENT OF ABSENTEES...............................................................8
ARTICLE 3. DIRECTORS.......................................................................9
POWERS..............................................................................9
NUMBER OF DIRECTORS.................................................................9
ELECTION AND TERM OF OFFICE........................................................10
RESIGNATIONS AND VACANCIES.........................................................10
MEETINGS OF THE BOARD OF DIRECTORS.................................................10
QUORUM.............................................................................11
PARTICIPATION BY CONFERENCE TELEPHONE..............................................11
WAIVER OF NOTICE...................................................................11
ADJOURNMENT........................................................................12
FEES AND COMPENSATION..............................................................12
ACTION WITHOUT MEETING.............................................................12
COMMITTEES.........................................................................12
ARTICLE 4. OFFICERS.......................................................................13
OFFICERS...........................................................................13
ELECTION...........................................................................13
SUBORDINATE OFFICERS...............................................................13
REMOVAL AND RESIGNATION............................................................13
</TABLE>
-i-
<PAGE> 25
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
VACANCIES..........................................................................13
THE CHAIRMAN OF THE BOARD..........................................................14
THE PRESIDENT AND VICE-PRESIDENTS..................................................14
THE SECRETARY AND ASSISTANT SECRETARY..............................................14
THE TREASURER AND ASSISTANT TREASURER..............................................15
ARTICLE 5. CERTIFICATE OF STOCK...........................................................15
LOST CERTIFICATES..................................................................16
TRANSFER OF STOCK..................................................................16
FIXING RECORD DATE.................................................................16
REGISTERED STOCKHOLDERS............................................................17
ARTICLE 6. GENERAL PROVISIONS.............................................................17
MAINTENANCE AND INSPECTION OF RECORDS..............................................17
ANNUAL REPORT TO STOCKHOLDERS......................................................18
CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS...........................................18
ENDORSEMENT OF DOCUMENTS; CONTRACTS................................................18
REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................................18
STOCK PURCHASE PLANS...............................................................18
CONSTRUCTION AND DEFINITIONS.......................................................19
AMENDMENTS.........................................................................19
FISCAL YEAR........................................................................19
DIVIDENDS..........................................................................19
LOANS TO OFFICERS AND EMPLOYEES....................................................20
ARTICLE 7. INDEMNIFICATION................................................................20
RIGHT TO INDEMNIFICATION...........................................................20
PREPAYMENT OF EXPENSES.............................................................20
CLAIMS.............................................................................20
NONEXCLUSIVITY OF RIGHTS...........................................................21
OTHER SOURCES......................................................................21
AMENDMENT OR REPEAL................................................................21
OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES...................................21
</TABLE>
-ii-
<PAGE> 26
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
INSURANCE..........................................................................21
INDEMNITY AGREEMENTS...............................................................21
</TABLE>
-iii-
<PAGE> 27
FORM OF RESTATED BYLAWS OF
ACME COMMUNICATIONS, INC.
A DELAWARE CORPORATION
<PAGE> 1
EXHIBIT 4.6
FRONT
COMMON STOCK COMMON STOCK
LU
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS AND
RESTRICTIONS ON TRANSFER
CUSIP 004631 10 7
THIS CERTIFIES THAT is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF
ACME COMMUNICATIONS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
BACK
The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Such requests shall be made to the Corporation's Secretary at the principal
office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM [ ] as tenants in common
TEN ENT [ ] as tenants by the entireties
JT TEN [ ] as joint tenants with right of survivorship
and not as tenants in common
<PAGE> 2
UNIF GIFT MIN ACT [ ] Custodian
--------------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act [ ]
--------------
(State)
UNIF TRF MIN ACT [ ] Custodian (until age ______)
---------------------------
(Cust)
--------- under Uniform Transfers
(Minor)
to Minors Act ________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Date
X
X
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ___________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17AD-15.
<PAGE> 1
EXHIBIT 5.1
September 24, 1999
OUR FILE NUMBER
004,990-003
WRITER'S DIRECT DIAL
(310) 553-6700
WRITER'S E-MAIL ADDRESS
ACME Communications, Inc.
2101 East Fourth Street
Suite 202
Santa Ana, California 92705
Ladies and Gentlemen:
ACME Communications, Inc. (the "Company") is registering up to
5,750,000 shares of its common stock, par value $0.01 per share, of which up to
750,000 shares are being sold by several selling stockholders pursuant to an
over-allotment option to be granted to the underwriters (the "Common Shares"),
under the Securities Act of 1933, as amended, pursuant to a Registration
Statement on Form S-1, filed with the Securities and Exchange Commission on July
30, 1999 as amended (the "Registration Statement"). In connection with this
transaction, you have requested our opinion with respect to the matters set
forth below.
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of rendering the opinion expressed below.
We are opining herein as to the effect on the subject transaction of
only the General Corporation Law of the State of Delaware and we express no
opinion with respect to the applicability thereto or the effect thereon of any
other laws or as to any matters of municipal law or any other local agencies
within any state.
Subject to the foregoing and in reliance thereon, it is our opinion
that the Common Shares have been duly authorized by all necessary corporate
action on the part of the Company, and that, upon payment for and delivery of
the Common Shares as contemplated in the Registration Statement and the
countersigning of the certificate or certificates representing the Common Shares
by a duly authorized signatory of the registrar for the Company's common stock,
the Common Shares will be validly issued, fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ O'Melveny & Myers LLP
O'MELVENY & MYERS LLP
<PAGE> 1
EXHIBIT 10.34
ACME COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
1. THE PLAN.
1.1 PURPOSE. The purpose of this Plan is to promote the success of the
Company and the interests of its stockholders by attracting, motivating,
retaining and rewarding certain officers, employees, directors and other
eligible persons with awards and incentives for high levels of
individual performance and improved financial performance of the
Company. Capitalized terms used herein are defined in Section 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
1.2.1 COMMITTEE. This Plan will be administered by and all Awards will
be authorized by the Committee. Action of the Committee with
respect to its authority under this Plan shall be taken pursuant
to a majority vote or by written consent of its members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
express provisions of this Plan and any express limitations on
the delegated authority of a Committee, the Committee will have
the authority to:
(a) determine eligibility and the particular Eligible
Persons who will receive Awards;
(b) grant Awards to Eligible Persons, determine the price at
which securities will be offered or awarded and the
amount of securities to be offered or awarded to any of
such persons, and determine the other specific terms and
conditions of Awards consistent with the express limits
of this Plan, establish the installments (if any) in
which such Awards will become exercisable or will vest,
or determine that no delayed exercisability or vesting
is required, and establish the events of termination or
reversion of such Awards;
(c) approve the forms of Award Agreements, which need not be
identical either as to type of Award or among
Participants;
(d) construe and interpret this Plan and any Award or other
agreements defining the rights and obligations of the
Company and Participants under this Plan, further define
the terms used in this Plan, and prescribe, amend and
rescind rules and regulations relating to the
administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or
terminate any or all outstanding Awards held by Eligible
Persons, subject to any required consent under Section
6.6;
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<PAGE> 2
(f) accelerate or extend the exercisability or extend the
term of any or all outstanding Awards within the maximum
ten-year term of Awards under Section 1.6; and
(g) make all other determinations and take such other action
as contemplated by this Plan or as may be necessary or
advisable for the administration of this Plan and the
effectuation of its purposes.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating
or pursuant to this Plan will be within the absolute discretion
of that entity or body and will be conclusive and binding upon
all persons. Subject only to compliance with the express
provisions hereof, the Board and Committee may act in their
absolute discretion in matters within their authority related to
this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking or
not taking any action under this Plan, the Committee or the
Board, as the case may be, may obtain and may rely upon the
advice of experts, including employees of and professional
advisors to the Corporation.
1.2.5 BIFURCATION OF PLAN ADMINISTRATION; DELEGATION. The Committee
may delegate ministerial, non-discretionary functions to
individuals who are officers or employees of the Company.
1.2.6 NO LIABILITY. No director, officer or agent of the Company will
be liable for any action, omission or decision under the Plan
taken, made or omitted in good faith.
1.3 PARTICIPATION. Awards may be granted by the Committee only to those
persons that the Committee determines to be Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise
eligible, be granted additional Awards if the Committee so determines.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 6.3, the
capital stock that may be delivered under this Plan will be
shares of the Corporation's authorized but unissued Common Stock
and any shares of its Common Stock held as treasury shares. The
shares may be delivered for any lawful consideration.
1.4.2 SHARE LIMITS. The maximum number of shares of Common Stock that
may be delivered pursuant to Awards granted under this Plan will
not exceed 4,200,000 shares (the "SHARE LIMIT"). The maximum
number of shares subject to those Options and Stock Appreciation
Rights that are granted during any calendar year to any one
individual will be limited to 1,000,000 shares and the maximum
individual limit on the number of shares in the aggregate
subject to all Awards that during any calendar year are granted
under this Plan to any one individual will be 1,000,000 shares.
Each of the foregoing numerical limits will be subject to
adjustment as contemplated by this Section 1.4 and Section 6.3.
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<PAGE> 3
1.4.3 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED AWARDS.
No Award may be granted under this Plan unless, on the date of
grant, the sum of (a) the maximum number of shares of Common
Stock issuable at any time pursuant to such Award, plus (b) the
number of shares of Common Stock that have previously been
issued pursuant to Awards granted under this Plan, other than
reacquired shares available for reissue consistent with any
applicable legal limitations, plus (c) the maximum number of
shares of Common Stock that may be issued at any time after such
date of grant pursuant to Awards that are outstanding on such
date, does not exceed the Share Limit. Shares of Common Stock
that are subject to or underlie Awards that expire or for any
reason are canceled or terminated, are forfeited, fail to vest,
or for any other reason are not paid or delivered under this
Plan, as well as reacquired shares, will again, except to the
extent prohibited by law or the terms of this Plan, be available
for subsequent Awards under this Plan. Shares of Common Stock
issued pursuant to the terms hereof (including shares of Common
Stock offset in satisfaction of applicable withholding taxes or
the exercise price of an Award) shall reduce on a
share-for-share basis the number of shares of Common Stock
remaining available under this Plan. Except as limited by law,
if an Award is or may be settled only in cash, such Award need
not be counted against any of the limits under this Section 1.4.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan, the
Committee will determine the number of shares of Common Stock subject to
each Award, the price (if any) to be paid for the shares or the Award
and, in the case of performance share awards, in addition to matters
addressed in Section 1.2.2, the specific objectives, goals and "business
criteria" as such term is used in Section 5.2 that further define the
terms of the performance share award. Each Award will be evidenced by an
Award Agreement signed by the Corporation and, if required by the
Committee, by the Participant.
1.6 AWARD PERIOD. Any Option, SAR, warrant or similar right shall expire and
any other Award shall either vest or be forfeited not more than 10 years
after the date of grant; provided, however, that any payment of cash or
delivery of stock pursuant to an Award may be delayed until a future
date if specifically authorized by the Committee in writing; provided
further that each Award will be subject to earlier termination as
provided in or pursuant to Sections 6.2 and 6.3 of this Plan.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise
expressly provides, no Award will be exercisable or will vest
until at least six months after the initial Award Date, and once
exercisable an Award will remain exercisable until the
expiration or earlier termination of the Award.
1.7.2 PROCEDURE. Any exercisable Award will be deemed to be exercised
when the Corporation receives written notice of such exercise
from the Participant (on a form and in such manner as may be
required by the Committee), together with
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<PAGE> 4
any required payment made in accordance with Section 2.2.2 and
Section 6.5 and any written statement required pursuant to
Section 6.4 of this Plan.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests will
be disregarded, but may be accumulated. The Committee, however,
may determine in the case of Eligible Persons that cash, other
securities, or other property will be paid or transferred in
lieu of any fractional share interests. No fewer than 100 shares
may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for
purchase under the Award.
1.8 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS.
1.8.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly
provided in (or pursuant to) this Section 1.8, by applicable law
and by the Award Agreement, as the same may be amended: (a) all
Awards are non-transferable and will not be subject in any
manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; (b) Awards will be exercised only
by the Participant; and (c) amounts payable or shares issuable
pursuant to an Award will be delivered only to (or for the
account of) the Participant.
1.8.2 EXCEPTIONS. The Committee may permit Awards to be exercised by
and paid only to certain persons or entities related to the
Participant pursuant to such conditions and procedures as the
Committee may establish. Any permitted transfer will be subject
to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate
and/or tax planning purposes and without consideration (other
than nominal consideration). Notwithstanding anything else in
this Section 1.8.2 or in Section 1.8.3 to the contrary,
Incentive Stock Options and Restricted Stock Awards will be
subject to any and all transfer restrictions under the Code
applicable to such awards.
1.8.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and
transfer restrictions in Section 1.8.1 will not apply to:
(a) transfers to the Corporation;
(b) the designation of a beneficiary to receive benefits if
the Participant dies or, if the Participant has died,
transfers to or exercises by the Participant's
beneficiary, or, in the absence of a validly designated
beneficiary, transfers by will or the laws of descent
and distribution;
(c) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by
the Participant's legal representative; or
(d) the authorization by the Committee of "cashless
exercise" procedures with third parties who provide
financing for the purpose of (or who otherwise
facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the
Committee.
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<PAGE> 5
2. OPTIONS.
2.1 GRANTS. One or more Options may be granted under this Plan to any
Eligible Person. Each Option granted will be designated in the
applicable Award Agreement, by the Committee, as either an Incentive
Stock Option, subject to Section 2.4, or a Nonqualified Stock Option.
2.2 OPTION PRICE.
2.2.1 PRICING LIMITS. The purchase price per share of the Common Stock
covered by each Option will be determined by the Committee at
the time of grant of the Award (and in no case will such
purchase price be less than the par value of the Common Stock),
but in the case of Incentive Stock Options the exercise price
shall not be less than 100% and, in the case of an Incentive
Stock Option granted to a Participant described in Section
2.4.4, not less than 110% of the Fair Market Value of the Common
Stock on the date of grant.
2.2.2 PAYMENT PROVISIONS. The purchase price of any shares of Common
Stock purchased on exercise of an Option granted under this Plan
will be paid in full at the time of each purchase in one or a
combination of the following methods:
(a) in cash or by electronic funds transfer;
(b) by certified or cashier's check payable to the order of
the Corporation;
(c) by notice and third party payment in such manner as may
be authorized by the Committee; or
(d) subject to the proviso below, by the delivery of shares
of Common Stock already owned by the Participant,
provided the Committee may in its absolute discretion
limit the Participant's ability to exercise an Option by
delivering previously owned shares, and any shares of
Common Stock delivered that were initially acquired from
the Corporation upon exercise of a stock option must
have been owned by the Participant at least six (6)
months as of the date of delivery.
Shares of Common Stock used to satisfy the exercise
price of an Option will be valued at their Fair Market
Value on the date of exercise. Without limiting the
generality of the foregoing, the Committee may provide
that the Option can be exercised and payment made by
delivering a properly executed exercise notice together
with irrevocable instructions to a broker to promptly
deliver to the Corporation the amount of sale proceeds
necessary to pay the exercise price and, unless
otherwise prohibited by the Committee or applicable law,
any applicable tax withholding under Section 6.5. The
Corporation will not be obligated to deliver
certificates for the shares unless and until it receives
full payment of the exercise price therefor, and all
related withholding obligations under Section 6.5 and
other conditions to exercise have been satisfied.
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<PAGE> 6
2.3 VESTING; LIMITS ON EXERCISE; OTHER LIMITATIONS.
2.3.1 VESTING. Unless the Committee or this Plan otherwise expressly
provides, no Option will be exercisable or will vest until at
least six months after the initial Award Date. Unless otherwise
provided by the Committee in the applicable Award Agreement,
each Option shall become vested and exercisable as to 25% of the
total number of shares subject thereto on or after the first
anniversary of the applicable Award Date and thereafter shall
become vested and exercisable as to an additional 25% of the
total number of shares subject thereto on or after each of the
second, third and fourth anniversaries of the applicable Award
Date, in each case subject to adjustment under Section 6.3 of
this Plan. Unless otherwise provided by the Committee in the
applicable Award Agreement, to the extent that an Option is
vested and exercisable, if the Participant does not in any year
purchase all or any part of the shares to which the Participant
is entitled, the Participant has the right cumulatively
thereafter to purchase, subject to Section 2.2.3, any shares not
so purchased and such right shall continue until the expiration
or earlier termination of the Option under this Plan or the
Award Agreement.
2.4 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
2.4.1 $100,000 LIMIT. To the extent that the aggregate "FAIR MARKET
VALUE" of stock with respect to which incentive stock options
first become exercisable by a Participant in any calendar year
exceeds $100,000, taking into account both Common Stock subject
to Incentive Stock Options under this Plan and stock subject to
incentive stock options under all other plans of the Company or
any parent corporation, such options will be treated as
Nonqualified Stock Options. For this purpose, the "FAIR MARKET
VALUE" of the stock subject to options will be determined as of
the date the options were awarded. In reducing the number of
options treated as incentive stock options to meet the $100,000
limit, the most recently granted options will reduced first. To
the extent a reduction of simultaneously granted options is
necessary to meet the $100,000 limit, the Committee may, in the
manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired
pursuant to the exercise of an Incentive Stock Option.
2.4.2 OTHER CODE LIMITS. Incentive Stock Options may only be granted
to employees of the Corporation or a Subsidiary that satisfies
the other eligibility requirements of the Code. There will be
imposed in any Award Agreement relating to Incentive Stock
Options such other terms and conditions as from time to time are
required in order that the Option be an "incentive stock option"
as that term is defined in Section 422 of the Code.
2.4.3 ISO NOTICE OF SALE REQUIREMENT. Any Participant who exercises an
Incentive Stock Option shall give prompt written notice to the
Corporation of any sale or other transfer of the shares of
Common Stock acquired within one year after the exercise date or
two years after the Award Date.
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<PAGE> 7
2.4.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted
to any person who, at the time the Option is granted, owns (or
is deemed to own under Section 424(d) of the Code) shares of
outstanding stock of the Corporation (or a parent or subsidiary
of the Corporation) possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation
(or a parent or subsidiary of the Corporation), unless the
exercise price of such Option is at least 110% of the Fair
Market Value of the stock subject to the Option and such Option
by its terms is not exercisable after the expiration of five
years from the date such Option is granted.
2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS.
Subject to Section 1.4 and Section 6.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may
authorize, generally or in specific cases only, for the benefit of any
Eligible Person any adjustment in the exercise or purchase price, the
vesting schedule, the number of shares subject to, or the restrictions
upon or the term of, an Award granted under this Plan by cancellation of
an outstanding Option and a subsequent regranting of the Option, by
amendment, by substitution of an outstanding Award, by waiver or by
other legally valid means. Such amendment or other action may result
among other changes in an exercise or purchase price that is higher or
lower than the exercise or purchase price of the original or prior
Award, provide for a greater or lesser number of shares of Common Stock
subject to the Award, or provide for a longer or shorter vesting or
exercise period.
2.6 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted to
Eligible Persons under this Plan in substitution for employee stock
options granted by other entities, in connection with a distribution,
merger or reorganization by or with the granting entity or an affiliated
entity, or the acquisition by the Company, directly or indirectly, of
all or a substantial part of the stock or assets of the employing
entity.
3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS).
3.1 GRANTS. The Committee may grant to any Eligible Person Stock
Appreciation Rights either concurrently with the grant of another Award
or in respect of an outstanding Award, in whole or in part, or
independently of any other Award. Any Stock Appreciation Right granted
in connection with an Incentive Stock Option will contain such terms as
may be required to comply with the provisions of Section 422 of the Code
and the regulations promulgated thereunder, unless the holder otherwise
agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
3.2.1 EXERCISABILITY. Unless the Award Agreement or the Committee
otherwise provides, a Stock Appreciation Right related to
another Award will be exercisable at such time or times, and to
the extent, that the related Award will be exercisable.
3.2.2 EFFECT ON AVAILABLE SHARES. To the extent that a Stock
Appreciation Right is exercised, only the actual number of
delivered shares of Common Stock will be
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<PAGE> 8
chargedagainst the maximum amount of Common Stock that may be
delivered pursuant to Awards under this Plan. The number of
shares subject to the Stock Appreciation Right and the related
Option of the Participant will, however, be reduced by the
number of underlying shares as to which the exercise related,
unless the Award Agreement otherwise provides.
3.2.3 STAND-ALONE SARS. A Stock Appreciation Right granted
independently of any other Award will be exercisable pursuant to
the terms of the Award Agreement but in no event earlier than
six months after the Award Date, except in the case of death or
Total Disability.
3.2.4 PROPORTIONATE REDUCTION If an SAR extends to less than all the
shares covered by the related Award and if a portion of the
related Award is thereafter exercised, the number of shares
subject to the unexercised SAR shall be reduced only if and to
the extent that the remaining number of shares covered by such
related Award is less than the remaining number of shares
subject to such SAR.
3.3 PAYMENT.
3.3.1 AMOUNT. Unless the Committee otherwise provides, upon exercise
of a Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant will
be entitled to receive, subject to Section 6.5, payment of an
amount determined by multiplying:
(a) the difference (which shall not be less than zero)
obtained by subtracting the exercise price per share of
Common Stock under the related Award (if applicable) or
the initial share value specified in the Award from the
Fair Market Value of a share of Common Stock on the date
of exercise of the Stock Appreciation Right, by
(b) the number of shares with respect to which the Stock
Appreciation Right has been exercised.
3.3.2 FORM OF PAYMENT. The Committee, in its sole discretion, will
determine the form in which payment will be made of the amount
determined under Section 3.3.1 above, either solely in cash,
solely in shares of Common Stock (valued at Fair Market Value on
the date of exercise of the Stock Appreciation Right), or partly
in such shares and partly in cash, but the Committee will have
determined that such exercise and payment are consistent with
applicable law. If the Committee permits the Participant to
elect to receive cash or shares (or a combination thereof) on
such exercise, any such election will be subject to such
conditions as the Committee may impose.
3.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any
Eligible Person Stock Appreciation Rights exercisable only upon or in
respect of a change in control or any other specified event ("LIMITED
SARS") and such Limited SARs may relate to or operate in tandem or
combination with, or substitution for, Options, other SARs or other
Awards (or any combination thereof), and may be payable in cash or
shares based on the
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spread between the base price of the SAR and a price based upon or equal
to the Fair Market Value of the Common Stock during a specified period
or at a specified time within a specified period before, after or
including the date of such event.
4. RESTRICTED STOCK AWARDS.
4.1 GRANTS. The Committee may grant one or more Restricted Stock Awards to
any Eligible Person. Each Restricted Stock Award Agreement will specify
the number of shares of Common Stock to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not
less than the minimum lawful consideration under applicable state law)
to be paid by the Participant, the extent (if any) to which and the time
(if ever) at which the Participant will be entitled to dividends, voting
and other rights in respect of the shares prior to vesting, and the
restrictions (which may be based on performance criteria, passage of
time or other factors or any combination thereof) imposed on such shares
and the conditions of release or lapse of such restrictions. Such
restrictions will not lapse earlier than six months after the Award
Date, except to the extent the Committee may otherwise provide. Stock
certificates evidencing shares of Restricted Stock pending the lapse of
the restrictions ("RESTRICTED SHARES") will bear a legend making
appropriate reference to the restrictions imposed hereunder and will be
held by the Corporation or by a third party designated by the Committee
until the restrictions on such shares have lapsed and the shares have
vested in accordance with the provisions of the Award and Section 1.7.
Upon issuance of the Restricted Stock Award, the Participant may be
required to provide such further assurances and documents as the
Committee may require to enforce the restrictions.
4.2 RESTRICTIONS.
4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1 and
1.8, restricted shares comprising any Restricted Stock Award may
not be sold, assigned, transferred, pledged or otherwise
disposed of or encumbered, either voluntarily or involuntarily,
until the restrictions on such shares have lapsed and the shares
have become vested.
4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted
Stock Award will be entitled to cash dividend and voting rights
for all shares issued even though they are not vested, but such
rights will terminate immediately as to any Restricted Shares
which cease to be eligible for vesting.
4.2.3 CASH PAYMENTS. If the Participant has paid or received cash
(including any dividends) in connection with the Restricted
Stock Award, the Award Agreement will specify whether and to
what extent such cash will be returned (with or without an
earnings factor) as to any restricted shares that cease to be
eligible for vesting.
4.3 RETURN TO THE CORPORATION. Unless the Committee otherwise expressly
provides, Restricted Shares that remain subject to restrictions at the
time of termination of
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employment, or are subject to other conditions to vesting that have not
been satisfied by the time specified in the applicable Award Agreement,
will not vest and will be returned to the Corporation in such manner and
on such terms as the Committee provides.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may grant Performance
Share Awards to Eligible Employees based upon such factors as the
Committee deems relevant in light of the specific type and terms of the
award. An Award Agreement will specify the maximum number of shares of
Common Stock (if any) subject to the Performance Share Award, the
consideration (but not less than the minimum lawful consideration) to be
paid for any such shares as may be issuable to the Participant, the
duration of the Award and the conditions upon which delivery of any
shares or cash to the Participant will be based. The amount of cash or
shares or other property that may be deliverable pursuant to such Award
will be based upon the degree of attainment over a specified period of
not more than 10 years (a "PERFORMANCE CYCLE") as may be established by
the Committee of such measure(s) of the performance of the Company (or
any part thereof) or the Participant as may be established by the
Committee. The Committee may provide for full or partial credit, prior
to completion of such performance cycle or the attainment of the
performance achievement specified in the Award, in the event of the
Participant's death, Retirement, or Total Disability, a Change in
Control Event or in such other circumstances as the Committee
(consistent with Section 6.10.3(b), if applicable) may determine.
5.2 SPECIAL PERFORMANCE-BASED SHARE AWARDS. Options or SAR's granted with an
exercise price not less than Fair Market Value at the applicable date of
grant for Section 162(m) purposes to Eligible Employees which otherwise
satisfy the conditions to deductibility under Section 162(m) are deemed
"Qualifying Awards." Without limiting the generality of the foregoing,
and in addition to Qualifying Awards granted under other provisions of
this Plan, other performance-based awards within the meaning of Section
162(m) ("PERFORMANCE-BASED AWARDS"), whether in the form of restricted
stock, performance stock, phantom stock or other rights, the vesting of
which depends on the performance of the Company on a consolidated,
segment, subsidiary, or division basis, with reference to revenue
growth, net earnings (before or after taxes, interest, depreciation,
and/or amortization), cash flow, return on equity or on assets or on net
investment, stock appreciation, total stockholder return, or cost
containment or reduction, or any combination thereof (the "BUSINESS
CRITERIA") relative to preestablished performance goals, may be granted
under this Plan. To the extent so defined, these terms are used as
applied under generally accepted accounting principles and in the
Company's financial reporting. The applicable business criterion or
criteria and the specific performance goals must be approved by the
Committee in advance of applicable deadlines under the Code and while
the performance relating to such goals remains substantially uncertain.
The applicable performance measurement period may not be less than one
(except as provided in Section 1.6) nor more than 10 years. Other types
of performance and non-performance awards may also be granted under the
other provisions of this Plan. The following provisions relate to all
Performance-Based Awards (other than Qualifying Awards) granted under
this Plan:
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5.2.1 ELIGIBLE CLASS. The eligible class of persons for Awards under
this Section 5.2 is executive officers of the Corporation.
5.2.2 MAXIMUM AWARD. Subject to Section 1.4.2, in no event will grants
in any calendar year to any one individual under this Section
5.2 relate to more than [1,000,000] shares or, if payable solely
in cash, a cash amount of more than [$1,000,000].
5.2.3 COMMITTEE CERTIFICATION. To the extent required by Section
162(m), before any Performance-Based Award under this Section
5.2 is paid, the Committee must certify that the material terms
of the Performance-Based Award were satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have
discretion to determine the restrictions or other limitations of
the individual Awards under this Section 5.2 (including the
authority to reduce Awards, payouts or vesting or to pay no
Awards, in its sole discretion, if the Committee preserves such
authority at the time of grant by language to this effect in the
authorizing resolutions or otherwise).
5.2.5 STOCK PAYOUT FEATURES. In lieu of cash payment of an Award, the
Committee may require or allow all or a portion of the Award to
be paid in the form of stock, Restricted Shares, an Option, or
another Award.
5.2.6 ADJUSTMENTS FOR MATERIAL CHANGES. Performance goals or other
features of an Award under this Section 5.2 may provide that
they (a) shall be adjusted to reflect a change in corporate
capitalization, a corporate transaction (such as a
reorganization, combination, separation, or merger) or a
complete or partial corporate liquidation, or (b) shall be
calculated either without regard for or to reflect any change in
accounting policies or practices affecting the Company and/or
the business criteria or performance goals or targets, or (c)
shall be adjusted for any other circumstance or event, or (d)
any combination of (a) through (c), but only to the extent in
each case that such adjustment or determination in respect of
Performance-Based Awards would be consistent with the
requirements of Section 162(m) to qualify as performance-based
compensation.
5.3 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus to any
Eligible Person to reward exceptional or special services, contributions
or achievements in the manner and on such terms and conditions
(including any restrictions on such shares) as determined from time to
time by the Committee. The number of shares so awarded will be
determined by the Committee. The Award may be granted independently or
in lieu of a cash bonus.
5.4 DEFERRED PAYMENTS. The Committee may authorize for the benefit of any
Eligible Person the deferral of any payment of cash or shares that may
become due or of cash otherwise payable under this Plan, and provide for
accredited benefits thereon based upon such deferment, at the election
or at the request of such Participant, subject to the other
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terms of this Plan. Such deferral will be subject to such further
conditions, restrictions or requirements as the Committee may impose,
subject to any then vested rights of Participants.
6. OTHER PROVISIONS.
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
6.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
construed as a commitment that any Award will be granted under
this Plan to an Eligible Person or to Eligible Persons
generally.
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents under this Plan or in any Award) shall
confer upon any Eligible Person or Participant any right to
continue in the employ or other service of the Company,
constitute any contract or agreement of employment or other
service or affect an employee's status as an employee at will,
nor shall interfere in any way with the right of the Company to
change such person's compensation or other benefits, or to
terminate his or her employment or other service, with or
without cause. Nothing in this Section 6.1.2, however, is
intended to adversely affect any express independent right of
such person under a separate employment or service contract
other than an Award Agreement.
6.1.3 PLAN NOT FUNDED. Awards payable under this Plan will be payable
in shares of Common Stock or from the general assets of the
Corporation, and (except as provided in Section 1.4.3) no
special or separate reserve, fund or deposit will be made to
assure payment of such Awards. No Participant, Beneficiary or
other person will have any right, title or interest in any fund
or in any specific asset (including shares of Common Stock) of
the Company by reason of any Award hereunder. Neither the
provisions of this Plan (or of any related documents), nor the
creation or adoption of this Plan, nor any action taken pursuant
to the provisions of this Plan will create, or be construed to
create, a trust of any kind or a fiduciary relationship between
the Company and any Participant, Beneficiary or other person. To
the extent that a Participant, Beneficiary or other person
acquires a right to receive payment pursuant to any Award
hereunder, such right will be no greater than the right of any
unsecured general creditor of the Company.
6.1.4 CHARTER DOCUMENTS. The Articles of Incorporation and By-Laws of
the Corporation, as either of them may lawfully be amended from
time to time, may provide for additional restrictions and
limitations with respect to the Common Stock (including
additional restrictions and limitations on the voting or
transfer of Common Stock) or priorities, rights and preferences
as to securities and interests prior in rights to the Common
Stock. To the extent that these restrictions and limitations are
greater than those set forth in this Plan or any Award
Agreement, such restrictions and limitations shall apply to any
shares of Common Stock
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acquired pursuant to the exercise of Awards and are incorporated herein
by this reference.
6.2 EFFECTS OF TERMINATION OF EMPLOYMENT; TERMINATION OF SUBSIDIARY STATUS;
DISCRETIONARY PROVISIONS.
6.2.1 DISMISSAL FOR CAUSE. Unless otherwise provided in the Award
Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.3, if a Participant is
terminated by the Company for Cause, his or her Option will
terminate on the Severance Date, whether or not then vested
and/or exercisable.
6.2.2 RESIGNATION. Unless otherwise provided in the Award Agreement
and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.3, if a Participant resigns
(other than because of a Total Disability or Retirement):
(a) the Participant will have until the date that is 30 days
after the Severance Date to exercise his or her Option
(or portion thereof) to the extent that it was vested on
the Severance Date;
(b) the Option, to the extent not vested on the Severance
Date, shall terminate on the Severance Date; and
(c) the Option, to the extent not exercised, shall terminate
at the close of business on the last day of the 30-day
period.
6.2.3 LAYOFF OR OTHER INVOLUNTARY TERMINATION. Unless otherwise
provided in the Award Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or
6.3, if a Participant is laid off or otherwise terminated at the
will of the Company (other than in circumstances constituting a
termination because of Total Disability, Retirement, or a
termination by the Company for Cause):
(a) the Participant will have until the date which is three
(3) months after the Severance Date to exercise his or
her Option (or portion thereof) to the extent that it
was vested on the Severance Date;
(b) the Option, to the extent not vested on the Severance
Date, shall terminate on the Severance Date; and
(c) the Option, to the extent not exercised, shall terminate
at the close of business on the last day of the 3-month
period.
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6.2.4 DEATH, DISABILITY, OR RETIREMENT. Unless otherwise provided in
the Award Agreement and subject to earlier termination pursuant
to or as contemplated by Section 1.6 or 6.3, if a Participant's
employment by the Company terminates as a result of Total
Disability or death, or the Participant's Retirement:
(a) the Participant (or his or her Personal Representative
or Beneficiary, in the case of the Participant's Total
Disability or death, respectively), will have until the
date that is 12 months after the Severance Date to
exercise the Participant's Option (or portion thereof)
to the extent that it was vested on the Severance Date;
(b) the Option, to the extent not vested on the Severance
Date, shall terminate on the Severance Date; and
(c) the Option, to the extent not exercised, shall terminate
at the close of business on the last day of the 12-month
period.
6.2.5 EVENTS NOT DEEMED A TERMINATION OF EMPLOYMENT. Unless Company
policy or the Committee otherwise provides, a Participant's
employment relationship with the Company shall not be considered
terminated solely due to any sick leave, military leave, or any
other leave of absence, authorized by the Company or the
Committee. Any Award held by any Eligible Person on approved
leave of absence shall continue to vest, unless the Committee or
Company otherwise provides in connection with the Award, the
particular leave or by Company policy. In no event shall an
Option be exercised after the expiration of the term set forth
in the Award Agreement or the termination of the Option in
accordance with Section 6.3.
6.2.6 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan
and any Award hereunder, if an entity ceases to be a Subsidiary,
a termination of employment will be deemed to have occurred with
respect to each Eligible Person in respect of such Subsidiary
who does not continue as an Eligible Person in respect of
another entity within the Company.
6.2.7 COMMITTEE DISCRETION. Notwithstanding the foregoing provisions
of this Section 6.2, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other
than a discharge for Cause, the Committee may increase the
portion of the Participant's Option available to the
Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, or, subject to the
provisions of Sections 1.6 and 6.3, extend the exercisability
period upon such terms as the Committee determines and expressly
sets forth in or by amendment to the Award Agreement.
6.3 ADJUSTMENTS; ACCELERATION.
6.3.1 ADJUSTMENTS. Subject to Section 6.3.5, upon or in contemplation
of any reclassification, recapitalization, stock split
(including a stock split in the form of a stock dividend) or
reverse stock split; any merger, combination, consolidation or
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other reorganization; any split-up; spin-off, or similar
extraordinary dividend distribution ("spin-off") in respect of
the Common Stock (whether in the form of securities or
property); any exchange of Common Stock or other securities of
the Corporation, or any similar, unusual or extraordinary
corporate transaction in respect of the Common Stock; or a sale
of substantially all the assets of the Corporation as an
entirety ("asset sale"); then the Committee shall, in such
manner, to such extent (if any) and at such time as it deems
appropriate and equitable in the circumstances:
(a) in any of such events, proportionately adjust any or all
of (1) the number of shares of Common Stock or the
number and type of other securities that thereafter may
be made the subject of Awards (including the specific
maxima and numbers of shares set forth elsewhere in this
Plan), (2) the number, amount and type of shares of
Common Stock (or other securities or property) subject
to any or all outstanding Awards, (3) the grant,
purchase, or exercise price of any or all outstanding
Awards, (4) the securities, cash or other property
deliverable upon exercise of any outstanding Awards, or
(5) the performance standards appropriate to any
outstanding Awards, or
(b) in the case of a reclassification, recapitalization,
merger, consolidation, combination, or other
reorganization, spin-off or asset sale, make provision
for a cash payment or for the substitution or exchange
of any or all outstanding Awards or the cash, securities
or property deliverable to the holder of any or all
outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock
upon or in respect of such event.
In this context, the Committee may not make adjustments that
would disqualify Options as Incentive Stock Options without the
written consent of holders of Incentive Stock Options materially
adversely affected thereby.
In any of such events, the Committee may take such action prior
to such event to the extent that the Committee deems the action
necessary to permit the Participant to realize the benefits
intended to be conveyed with respect to the underlying shares in
the same manner as is or will be available to stockholders
generally.
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6.3.2 ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Subject to
Section 6.3.5 and unless prior to a Change in Control Event the
Board determines that, upon its occurrence, benefits under any
or all Awards will not accelerate or determines that only
certain or limited benefits under any or all Awards will be
accelerated and the extent to which they will be accelerated,
and/or establishes a different time in respect of such Change in
Control Event for such acceleration, then upon (or, as may be
necessary to effectuate the purposes of this acceleration,
immediately prior to) the occurrence of a Change in Control
Event:
(a) each Option and Stock Appreciation Right will become
immediately vested and exercisable,
(b) Restricted Stock will immediately vest free of
restrictions, and
(c) each Performance Share Award will become payable to the
Participant.
The Board may override the limitations on acceleration in this
Section 6.3.2 by express provision in the Award Agreement and
may accord any Eligible Person a right to refuse any
acceleration, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Board may approve. Any
acceleration of Awards will comply with applicable legal
requirements and, if necessary to accomplish the purposes of the
acceleration or if the circumstances otherwise require, may be
deemed by the Board to occur (subject to Sections 6.3.4 through
6.3.6) not greater than 30 days before or only upon the
consummation of the event.
6.3.3 POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option
or other right to acquire Common Stock under this Plan has been
fully accelerated as permitted by Section 6.3.2 but is not
exercised in connection with or prior to (a) a dissolution of
the Corporation, (b) an event described in Section 6.3.1 that
the Corporation does not survive, or (c) a Change in Control
Event approved by the Board, the Option or right shall terminate
if the Board has expressly provided through a plan of
reorganization or otherwise for the substitution, assumption,
exchange or other settlement of the Award. If the exercisability
of an Award has been timely accelerated in any of the
circumstances in (a) through (c) above but the Award is not
exercised and no provision has been made for a substitution,
assumption, exchange or other settlement, the Award shall
terminate upon the occurrence of the event.
6.3.4 POSSIBLE RESCISSION OF ACCELERATION. If the vesting of an Option
has been accelerated in anticipation of an event and the
Committee or the Board later determines that the event will not
occur, the Committee may rescind the effect of the acceleration
as to any then outstanding and unexercised or otherwise unvested
Options.
6.3.5 POOLING EXCEPTION. Any discretion with respect to the events
addressed in this Section 6.3, including any acceleration of
vesting, shall be limited to the extent
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required by applicable accounting requirements in the case of a
transaction intended to be accounted for as a pooling of
interests transaction.
6.4 COMPLIANCE WITH LAWS.
6.4.1 GENERAL. This Plan, the granting and vesting of Awards under
this Plan and the offer, issuance and delivery of shares of
Common Stock, the acceptance of promissory notes and/or the
payment of money under this Plan or under Awards are subject to
compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal
securities laws, and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority
as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. In addition, any
securities delivered under this Plan may be subject to any
special restrictions that the Committee may require to preserve
a pooling of interests under generally accepted accounting
principles. The person acquiring any securities under this Plan
will, if requested by the Corporation, provide such assurances
and representations to the Corporation as the Committee may deem
necessary or desirable to assure compliance with all applicable
legal and accounting requirements. The Corporation shall deliver
annually to Participants such financial statements of the
Corporation as are required to satisfy applicable securities
laws.
6.4.2 COMPLIANCE WITH SECURITIES LAWS. No Participant shall sell,
pledge or otherwise transfer shares of Common Stock acquired
pursuant to an Award or any interest in such shares except in
accordance with the express terms of this Plan and the
applicable Award Agreement. Any attempted transfer in violation
of this Section 6.4 shall be void and of no effect. Without in
any way limiting the provisions set forth above, no Participant
shall make any disposition of all or any portion of shares of
Common Stock acquired or to be acquired pursuant to an Award,
except in compliance with all applicable federal and state
securities laws and unless and until:
(a) there is then in effect a registration statement under
the Securities Act covering such proposed disposition
and such disposition is made in accordance with such
registration statement; or
(b) such disposition is made in accordance with Rule 144
under the Securities Act; or
(c) such Participant notifies the Corporation of the
proposed disposition and furnishes the Corporation with
a statement of the circumstances surrounding the
proposed disposition, and, if requested by the
Corporation, furnishes to the Corporation an opinion of
counsel acceptable to the Corporation's counsel, that
such disposition will not require registration under the
Securities Act and will be in compliance with all
applicable state securities laws.
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Notwithstanding anything else herein to the contrary, the
Company has no obligation to register the Common Stock or file
any registration statement under either federal or state
securities laws, nor does the Company make any representation
concerning the likelihood of a public offering of the Common
Stock or any other securities of the Company.
6.5 TAX WITHHOLDING.
6.5.1 TAX WITHHOLDING. Upon any exercise, vesting, or payment of any
Option or upon the disposition of shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of
Section 422 of the Code, the Company shall have the right at its
option to:
(a) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for
payment of the amount of any taxes which the Company may
be required to withhold with respect to such Option
event or payment;
(b) deduct from any amount payable in cash the amount of any
taxes which the Company may be required to withhold with
respect to such cash payment; or
(c) reduce the number of shares of Common Stock to be
delivered by (or otherwise reacquire) the appropriate
number of shares of Common Stock, valued at their then
Fair Market Value, to satisfy such withholding
obligation.
The Committee may in its sole discretion (subject to Section
6.4) grant (either at the time of grant of the Award or
thereafter) to the Participant the right to elect, pursuant to
such rules and subject to such conditions as the Committee may
establish, to have the Corporation utilize the withholding
offset under clause (c) above.
In no event will the vale of shares withheld under (c) above
exceed the minimum amount of required withholding under
applicable law.
6.5.2 TAX LOANS. If so provided in the Award Agreement or otherwise
authorized by the Committee, the Corporation may, to the extent
permitted by law, authorize a loan to an Eligible Person in the
amount of any taxes that the Company may be required to withhold
with respect to shares of Common Stock received (or disposed of,
as the case may be) pursuant to a transaction described in
Section 6.5.1. Such a loan will be for a term not greater than
nine months and at a rate of interest and pursuant to such other
terms and conditions as the Corporation, under applicable law,
may establish.
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6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
6.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole
or in part. No Awards may be granted during any suspension of
this Plan or after termination of this Plan, but the Committee
will retain jurisdiction as to Awards then outstanding in
accordance with the terms of this Plan.
6.6.2 STOCKHOLDER APPROVAL. Any amendment to this Plan shall be
subject to stockholder approval to the extent then required
under Section 422 or 424 of the Code or any other applicable
law, or deemed necessary or advisable by the Board.
6.6.3 AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the express
limits of this Plan, the Committee by agreement or resolution
(a) may waive conditions of or limitations on Awards to Eligible
Persons that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant,
and (b) may make other changes to the terms and conditions of
Awards that do not affect in any manner materially adverse to
the Participant, the Participant's rights and benefits under an
Award, provided that changes contemplated by Section 6.3 or
Section 6.6.5 will not be deemed to constitute changes or
amendments for purposes of this Section 6.6.
6.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of this Plan or change of or affecting
any outstanding Award will, without written consent of the
Participant, affect in any manner materially adverse to the
Participant any rights or benefits of the Participant or
obligations of the Corporation under any Award granted under
this Plan prior to the effective date of such change. Changes
contemplated by Section 6.3 or Section 6.6.5 will not be deemed
to constitute changes or amendments for purposes of this Section
6.6.
6.6.5 ACCOUNTING CHANGES. Notwithstanding the foregoing provisions of
this Section 6.6.3 or Section 6.6.4, if the accounting treatment
under generally accepted accounting principles of any Options
granted hereunder would be materially more adverse to the
Company than anticipated at the time of approval of this Plan or
the Options (including, without limitation, if any Option(s)
would render pooling accounting unavailable to the Company with
respect to any transaction that would, in the absence of such
Option(s), be accounted for as a pooling of interests
transaction) because of a change in those principles or the
interpretation or application thereof by the Corporation's
independent accountants, the Committee may, in the exercise of
its discretion and without the consent of the Participant, amend
the terms of such Options to the extent the Committee deems
necessary to eliminate such effect.
6.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly authorized
by the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not
actually delivered to and held of record
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by the Participant. No adjustment will be made for dividends or other
rights as a stockholder for which a record date is prior to such date of
delivery.
6.8 EFFECTIVE DATE OF THE PLAN. This Plan is effective upon the date of its
approval by the Board (the "EFFECTIVE DATE"), subject to approval by the
stockholders of the Corporation within twelve months after the date of
Board approval.
6.9 TERM OF THE PLAN. Unless earlier terminated by the Board, this Plan will
terminate at the close of business on the day before the 10th
anniversary of the Effective Date (the "TERMINATION DATE"). No Awards
may be granted under this Plan after the Termination Date. Unless
otherwise expressly provided in this Plan or in an applicable Award
Agreement, any Award granted prior to the Termination Date may extend
beyond such date, and all authority of the Committee with respect to
Awards hereunder, including the authority to amend an Award, will
continue during any suspension of this Plan and in respect of Awards
outstanding on the Termination Date.
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
6.10.1 CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents will be governed by, and
construed in accordance with, the laws of the state of Delaware.
6.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
provision invalid and unenforceable, the remaining provisions of
this Plan will continue in effect provided that the essential
economic terms of this Plan and any Award can still be enforced.
6.10.3 PLAN CONSTRUCTION.
(a) RULE 16b-3. It is the intent of the Corporation that
transactions involving the Awards under this Plan, in
the case of Participants who are or may be subject to
Section 16 of the Exchange Act, satisfy to the extent
feasible the requirements for applicable exemptions
under Rule 16 so that such persons (unless they
otherwise agree) will be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of
the Exchange Act in respect of those transactions and
will not be subjected to avoidable liability thereunder.
(b) SECTION 162(m). It is the further intent of the Company
that Options or SARs with an exercise or base price not
less than Fair Market Value on the date of grant and
Performance-Based Awards under Section 5.2 of this Plan
that are granted to or held by a person subject to
Section 162(m) will qualify as performance-based
compensation under Section 162(m) to the extent that the
Committee authorizing the Award (or the payment thereof,
as the case may be) satisfies the administrative
requirements thereof. This Plan shall be interpreted
consistent with such intent.
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6.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate
reference. Such headings will not be deemed in any way material or
relevant to the construction or interpretation of this Plan or any
provision thereof.
6.12 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be deemed to
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the
Common Stock, under any other plan or authority.
6.13 NO RESTRICTION ON CORPORATE POWERS. The existence of the Plan and the
Awards granted hereunder shall not affect or restrict in any way the
right or power of the Board or the stockholders of the Corporation to
make or authorize any adjustment, recapitalization, reorganization or
other change in the Corporation's capital structure or its business, any
merger or consolidation of the Corporation, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting
the Corporation's capital stock or the rights thereof, the dissolution
or liquidation of the Corporation or any sale or transfer of all or any
part of its assets or business, or any other corporate act or
proceeding.
6.14 EFFECT ON OTHER BENEFITS. Payments and other benefits received by a
Participant under an Award made pursuant to this Plan shall not be
deemed a part of a Participant's regular, recurring compensation for
purposes of the termination, indemnity or severance pay law of any
country or state and shall not be included in, nor have any effect on,
the determination of benefits under any other employee benefit plan or
similar arrangement provided by the Corporation or a Subsidiary unless
expressly so provided by such other plan or arrangements. Awards under
this Plan may be made in combination with or in tandem with, or as
alternatives to, grants, awards or payments under any other Corporation
or Subsidiary plan.
7. DEFINITIONS.
"AWARD" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, Performance Share Award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"AWARD AGREEMENT" means any writing setting forth the terms of an Award that has
been authorized by the Committee.
"AWARD DATE" means the date upon which the Committee took the action granting an
Award or such later date as the Committee designates as the Award Date at the
time of the grant of the Award.
"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant, or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means
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the Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
"BOARD" means the Board of Directors of the Corporation.
"CAUSE" means:
(a) any act of theft, embezzlement, fraud, dishonesty, gross
negligence, repeated failure to perform assigned duties, a
breach of fiduciary duty to the Corporation or a breach of or
deliberate disregard of the applicable law or Company policy;
(b) the unauthorized disclosure of any trade secrets or confidential
information of the Corporation;
(c) unfair competition with the Corporation;
(d) inducement of any customer of the Corporation to break any
contract with the Corporation; or
(e) inducement of any principal for whom the Corporation acts as
agent to terminate such agency relationship.
Solely for the purpose of this Plan, a termination of services for Cause
shall be deemed to occur (subject to reinstatement upon a contrary final
determination by the Board or Committee) only if the Company delivers
notice to the Participant of Cause upon or before a termination of
employment and shall be final in all respects on the date the
Participant's service is terminated. For purposes of this definition,
the Corporation includes any affiliate of the Corporation.
"CHANGE IN CONTROL EVENT" means any of the following:
(a) Approval by the stockholders of the Corporation of the
dissolution or liquidation of the Corporation;
(b) Consummation of a merger, consolidation, or other
reorganization, with or into, or the sale of all or
substantially all of the Corporation's business and/or assets as
an entirety to, one or more entities that are not Subsidiaries
or other affiliates of the Company (a "BUSINESS COMBINATION"),
unless (1) as a result of the Business Combination more than 50%
of the outstanding voting power generally in the election of
directors of the surviving or resulting entity or a parent
thereof (the "SUCCESSOR ENTITY") immediately after the
reorganization are, or will be, owned, directly or indirectly,
by holders of the Corporation's voting securities immediately
before the Business Combination; and (2) no Person (excluding
the Successor Entity or an Excluded Person) beneficially owns,
directly or indirectly, more than 50% of the outstanding shares
or the combined voting power of the outstanding voting
securities of the Successor Entity, after giving effect to the
Business Combination, except to the extent that such ownership
existed prior to the Business Combination; and (3) at least 50%
of the members of the board of
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directors of the entity resulting from the Business Combination
were members of the Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
the Business Combination.
(c) Any "PERSON" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act other than an Excluded Person becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation
representing more than 50% of the combined voting power of the
Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation, other
than as a result of (1) an acquisition directly from the
Company, (2) an acquisition by the Company, (3) an acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or a Successor Entity, or (4) an
acquisition by an entity pursuant to a transaction which is
expressly excluded under clause (b) above; or
(d) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the
Board cease to constitute at least a majority thereof, unless
the election, or the nomination for election by the
Corporation's stockholders, of each new Board member was
approved by a vote of at least three-fourths of the Board
members then still in office who were Board members at the
beginning of such period (including for these purposes, new
members whose election or nomination was so approved), but
excluding for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than
the Board.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the Board or one or more committees of director(s) appointed
by the Board to administer this Plan with respect to the Awards within the scope
of authority delegated to the acting Committee by the Board. At least one
committee will be comprised only of two or more directors, each of whom, in
respect of any decision involving both (a) a Participant affected by the
decision who is or may be subject to Section 162(m), and (b) compensation
intended as performance-based compensation within the meaning of Section 162(m),
will be Disinterested; in acting on any transaction with or for the benefit of a
Section 16 Person, the participating members of such Committee also shall be
Non-Employee Directors within the meaning of Rule 16b-3.
"COMMON STOCK" means the shares of the Corporation's Common Stock, par value
$0.01 per share, and such other securities or property as may become the subject
of Awards, or become subject to Awards, pursuant to an adjustment made under
Section 6.3 of this Plan.
"COMPANY" means the Corporation and its Subsidiaries.
"CORPORATION" means Acme Communications, Inc., a Delaware corporation, and its
successors.
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"DISINTERESTED" means a director who is an "outside director" within the meaning
of Section 162(m) and any applicable legal or regulatory requirements.
"EARLY TERMINATION DATE" means the date the Common Stock is first registered
under the Exchange Act and listed or quoted on a recognized national securities
exchange or in the NASDAQ National Market Quotation System.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or employee of
the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible Person, as
determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time
to time.
"EXCLUDED PERSON" means (a) any person described in and satisfying the
conditions of Rule 13d-1(b)(1) under the Exchange Act, (b) the Company, (c) an
employee benefit plan (or related trust) sponsored or maintained by the Company
or the Successor Entity, or (d) any person who is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of more than 10% of the
outstanding shares of Common Stock at the time of adoption of this Plan (or any
affiliate, successor or related party of or to any such person).
"FAIR MARKET VALUE" on any date means:
(a) if the stock is listed or admitted to trade on a national
securities exchange, the closing price of the stock on the
Composite Tape, as published in the Western Edition of The Wall
Street Journal, of the principal national securities exchange on
which the stock is so listed or admitted to trade, on such date,
or, if there is no trading of the stock on such date, then the
closing price of the stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such
shares;
(b) if the stock is not listed or admitted to trade on a national
securities exchange, the last/closing price for the stock on
such date, as furnished by the National Association of
Securities Dealers, Inc. ("NASD") through the NASDAQ National
Market Reporting System or a similar organization if the NASD is
no longer reporting such information;
(c) if the stock is not listed or admitted to trade on a national
securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for
the stock on such date, as furnished by the NASD or a similar
organization; or
(d) if the stock is not listed or admitted to trade on a national
securities exchange, is not reported on the National Market
Reporting System and if bid and asked prices for the stock are
not furnished by the NASD or a similar organization, the value
as established by the Committee at such time for purposes of
this Plan.
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<PAGE> 25
Any determination as to fair market value made pursuant to this
Plan shall be determined without regard to any restriction other
than a restriction which, by its terms, will never lapse, and
shall be conclusive and binding on all persons.
"INCENTIVE STOCK OPTION" means an Option that is designated and intended as an
incentive stock option within the meaning of Section 422 of the Code, the award
of that contains such provisions (including but not limited to the receipt of
stockholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a Nonqualified
Stock Option and will include any Option intended as an Incentive Stock Option
that fails to meet the applicable legal requirements thereof. Any Option granted
hereunder that is not designated as an incentive stock option will be deemed to
be designated a nonqualified stock option under this Plan and not an incentive
stock option under the Code.
"OPTION" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an employee of the Corporation or
a Subsidiary as a Nonqualified Stock Option or an Incentive Stock Option.
"OTHER ELIGIBLE PERSON" means any director of, or any individual consultant or
advisor or agent who renders or has rendered bona fide services (other than
services in connection with the offering or sale of securities of the Company in
a capital raising transaction) to, the Company, and who (to the extent provided
in the next sentence) is selected to participate in this Plan by the Committee.
A person who is neither an employee, officer, nor director who provides bona
fide services to the Company may be selected as an Other Eligible Person only if
such person's participation in this Plan would not adversely affect (a) the
Corporation's eligibility to use Form S-8 to register under the Securities Act,
the offering of shares issuable under this Plan by the Company, or (b) the
Corporation's compliance with any other applicable laws.
"PARTICIPANT" means an Eligible Person who has been granted and holds an Award
under this Plan.
"PERFORMANCE SHARE AWARD" means an Award of a right to receive shares of Common
Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of
which is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the disability
or incompetence of a Participant, has acquired on behalf of the Participant, by
legal proceeding or otherwise, the power to exercise the rights or receive
benefits under this Plan by virtue of having become the legal representative of
the Participant.
"PLAN" means this Acme Communications, Inc. 1999 Stock Incentive Plan, as it may
hereafter be amended from time to time.
"RESTRICTED SHARES" or "RESTRICTED STOCK" means shares of Common Stock awarded
to a Participant under this Plan, subject to payment of such consideration, if
any, and such conditions
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<PAGE> 26
on vesting (which may include, among others, the passage of time, specified
performance objectives or other factors) and such transfer and other
restrictions as are established in or pursuant to this Plan and the related
Award Agreement, for so long as such shares remain unvested under the terms of
the applicable Award Agreement.
"RETIREMENT" means retirement with the consent of the Company or, from active
service as an employee or officer of the Company on or after attaining (a) age
55 with ten or more years of employment with the Company, or (b) age 65.
"RULE 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to the
Exchange Act, as amended from time to time.
"SECTION 16 PERSON" means a person subject to Section 16(a) of the Exchange Act.
"SECTION 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time.
"SEVERANCE DATE" means the date of a Participant's termination of employment
with the Company for any reason whatsoever.
"STOCK APPRECIATION RIGHT" OR "SAR" means a right authorized under this Plan to
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"STOCK BONUS" means an Award of shares of Common Stock granted under this Plan
for no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"TOTAL DISABILITY" means a "total and permanent disability" within the meaning
of Section 22(e)(3) of the Code and, with respect to Awards other than Incentive
Stock Options, such other disabilities, infirmities, afflictions, or conditions
as the Committee may include.
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<PAGE> 27
ACME COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. THE PLAN............................................................................1
1.1 Purpose......................................................................1
1.2 Administration and Authorization; Power and Procedure........................1
1.3 Participation................................................................2
1.4 Shares Available for Awards; Share Limits....................................2
1.5 Grant of Awards..............................................................3
1.6 Award Period.................................................................3
1.7 Limitations on Exercise and Vesting of Awards................................3
1.8 No Transferability; Limited Exception to Transfer Restrictions...............4
2. OPTIONS.............................................................................5
2.1 Grants.......................................................................5
2.2 Option Price.................................................................5
2.3 Vesting; Limits on Exercise; Other Limitations...............................6
2.4 Limitations on Grant and Terms of Incentive Stock Options....................6
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions.............7
2.6 Options and Rights in Substitution for Stock Options Granted by Other
Corporations.................................................................7
3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS).............7
3.1 Grants.......................................................................7
3.2 Exercise of Stock Appreciation Rights........................................8
3.3 Payment......................................................................8
3.4 Limited Stock Appreciation Rights............................................9
4. RESTRICTED STOCK AWARDS.............................................................9
4.1 Grants.......................................................................9
4.2 Restrictions.................................................................9
4.3 Return to the Corporation...................................................10
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.........................................10
5.1 Grants of Performance Share Awards..........................................10
5.2 Special Performance-Based Share Awards......................................10
5.3 Grants of Stock Bonuses.....................................................11
5.4 Deferred Payments...........................................................12
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6. OTHER PROVISIONS...................................................................12
6.1 Rights of Eligible Persons, Participants and Beneficiaries..................12
6.2 Effects of Termination of Employment; Termination of Subsidiary Status;
Discretionary Provisions....................................................13
6.3 Adjustments; Acceleration...................................................15
6.4 Compliance with Laws........................................................17
6.5 Tax Withholding.............................................................18
6.6 Plan Amendment, Termination and Suspension..................................18
6.7 Privileges of Stock Ownership...............................................19
6.8 Effective Date of the Plan..................................................20
6.9 Term of the Plan............................................................20
6.10 Governing Law/Construction/Severability.....................................20
6.11 Captions....................................................................20
6.12 Non-Exclusivity of Plan.....................................................21
6.13 No Restriction on Corporate Powers..........................................21
6.14 Effect on Other Benefits....................................................21
7. DEFINITIONS........................................................................21
</TABLE>
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An extra section break has been inserted above this paragraph. Do not
delete this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
<PAGE> 1
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
This Agreement is entered as of __________, 1999, by and between ACME
Communications, Inc., a Delaware corporation (the "Company") as employer and
Douglas E. Gealy ("Executive"). This Agreement will be effective on the date on
which the Company has closed its initial public offering of shares of its common
stock.
1. EMPLOYMENT.
1.1 TITLE; DUTIES. The Company hereby employs Executive as President and
Chief Operating Officer to perform such management and executive duties
on behalf of the Company as the Chief Executive Officer or Board of
Directors of the Company may from time to time determine. Executive will
have such duties and responsibilities as are generally consistent with
such position in a public company of comparable present and projected
size. Executive will also serve without additional compensation in an
executive capacity for one of more direct or indirect subsidiaries of
the Company if the Board from time to time requests. Executive will
also, subject to Executive's election as such, serve as a member of the
Board, as well as a member of any committee of the Board to which
Executive may be elected or appointed.
1.2 TERM. Executive will be employed until June 16, 2002, unless Executive's
employment is terminated before that date pursuant to the provisions
hereof or extended in accordance with the next sentence. The Company
will have the option to extend the term of Executive's employment until
September 29, 2003. The Company must give Executive notice of its
exercise of its extension option by March 16, 2002. If the extension
option is exercised, Executive's then current Base Salary would be
increased by 10% for the period of the extension. If the extension
option is not exercised, vesting of all of Executive's options granted
as of the date this Agreement becomes effective will accelerate and
become immediately exercisable on June 16, 2002.
2. COMPENSATION
2.1 COMPENSATION. As compensation for his services hereunder, the Company
will pay Executive the following:
2.1.1 BASE SALARY. A base salary ("Base Salary") of $300,000 per annum
payable in monthly installments in accordance with the Company's normal
payroll practices. On January 1, 2000, the Base Salary will increase to
$375,000 per annum. Starting January 1, 2001, (a) the Base Salary will
increase annually as of January 1 by the amount of the increase in the
Consumer Price Index (All Urban Consumers) during the previous year, and
(b) will be reviewed annually by the Company's Compensation Committee to
determine whether an additional increase is appropriate.
2.1.2 PERFORMANCE BONUS. The Company's Compensation Committee will
recommend to the Company's Board of Directors for the Board's adoption
no later than November 30, 1999 a cash incentive plan under which
Executive will be eligible to
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<PAGE> 2
receive awards. No later than January 1, 2000, Executive will be awarded
cash incentives under such plan if Executive meets performance targets
during fiscal 2000.
2.1.3 BONUSES.
(a) On January __, 2000, Executive will receive a $802,500 special,
one-time bonus.
(b) Executive will be eligible to receive additional annual bonuses
to the extent, if any, awarded by the Company's Compensation
Committee.
2.1.4 ADDITIONAL BENEFITS.
(a) During the term of this Agreement, Executive will be entitled to
participate, to the extent he is eligible under the terms and
conditions thereof, in any pension, profit sharing, retirement,
hospitalization, insurance, medical service or other employee
benefit plan generally available to the executives of the
Company which may be in effect from time to time during the
period of his employment hereunder, it being understood that the
Company will pay the entire costs of any health insurance or
disability insurance maintained by the Company for Executive in
accordance with Company's policies generally in effect.
(b) Executive will be provided a leased vehicle to be acquired in a
"trade deal" (i.e. non-cash); provided, however, that the
Compensation Committee will have the discretion to determine the
value of such trade deal.
2.1.5 VACATIONS. Executive shall be entitled to four (4) weeks of paid
vacation (in addition to Company-wide holiday periods) annually, two
weeks of which may be carried forward to the following year.
2.2 REIMBURSEMENT. The Company will reimburse Executive for all expenses
reasonably incurred by him in connection with the performance of his
duties hereunder or in the business of the Company.
3. NON-COMPETITION AND BUSINESS OPPORTUNITIES.
3.1 COMPETITIVE ENTERPRISES. While employed by the Company, and for a period
of twelve (12) months after termination of employee status for any
reason, Executive must not, without the express written consent of the
Board, directly or indirectly, engage in any activity that is, or
participate or invest in or assist (whether as owner, part-owner,
stockholder, partner, director, officer, trustee, employee, agent,
independent contractor or consultant, or in any other capacity) a
Competitive Enterprise. "Competitive Enterprise" means any entity that
operates television stations, cable distribution systems or other video
broadcast or distribution enterprises exclusively in a designated market
area ("DMA") where the Company or any affiliate (as defined in the
Securities Exchange Act of 1934) of the Company owns and/or operates
stations.
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3.1.1 EXCEPTIONS. Notwithstanding the foregoing, nothing in this
Section 3 will prohibit Executive, after termination of Executive's
employee status, from engaging in any activity on behalf of, or being
employed in any capacity by, a group television station operator so long
as no more than 5% of such operator's revenues result from a Competitive
Enterprise. Executive must not, until July 1, 2000, own any equity
interests in any privately-held television enterprise or more than 5% of
the equity interests in any publicly-held television enterprise if, in
either case, such enterprise is engaged in a Competitive Enterprise.
3.1.2 CORPORATE OPPORTUNITY. Executive agrees, while serving as an
officer or employee of the Company, to offer or otherwise make known or
available to the Company without compensation or consideration, any
business prospects, contracts or other business opportunities that
Executive may discover, find, develop or otherwise have available to
acquire, own or manage any television stations, cable distribution
systems or other video broadcast or distribution enterprises that could
deliver WB Network programming for DMAs 20 to 100, excluding any Web
Network opportunities controlled by The WB Network and/or Time Warner
(such prospects, contracts or opportunities are referred to as
"Television Station Opportunities"), and further agrees that any such
Television Station Opportunities will be the property of the Company.
3.1.3 NON-SOLICITATION. Executive must not, until the second
anniversary his employee status is terminated, whether on behalf of a
Competitive Enterprise or otherwise, hire or attempt to hire any officer
or other senior employee of the Company or any affiliate of the Company
or encourage any officer or other senior employee of the Company or any
affiliate of the Company to terminate his or her relationship with the
Company or any affiliate of the Company.
4. TERMINATION.
4.1 DEATH; DISABILITY. If Executive's employment is terminated by reason of
Executive's death or disability, Executive or his estate will be
entitled to one year's Base Salary in effect at the time of his
termination as severance pay, payable in monthly installments in
advance.
4.2 WITHOUT CAUSE. If Executive's employment is terminated by the Company,
without Cause, as defined in clause 4.6 below, he will be entitled to
receive severance pay for a period of eighteen months based upon his
Base Salary in effect at the time of his termination, payable in monthly
installments in advance.
4.3 RESIGNATION; FOR CAUSE. If the Executive's employment is terminated as a
result of his resignation or termination for Cause, he will not be
entitled to any severance payments.
4.4 NO MITIGATION. The Executive has no duty to mitigate any amounts of
severance payable hereunder.
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4.5 DISABILITY DEFINED. "Disability" means that Executive has been
substantially unable, by reason of injury, illness or similar cause
(physical or mental), to have performed his duties and responsibilities
for a period of one hundred and eighty (180) consecutive days or shorter
periods aggregating 180 days in any consecutive twelve (12) month
period, and such person is not anticipated to recover the ability to
perform such duties and responsibilities with the foreseeable future.
4.6 CAUSE DEFINED. "Cause" will be determined by the Company's Board of
Directors and will mean: (A) the conviction of Executive of, or a plea
of guilty or nolo contendere entered by or on behalf of Executive with
respect to, a felony or crime, where such felony or crime involves moral
turpitude or where such conviction or plea is likely to have a material
adverse effect on the Company or upon Executive's ability to perform his
duties as an Executive of the Company; (B) fraud, embezzlement or other
act of dishonesty by Executive with respect to the Company; (C) the
continued willful refusal or neglect of Executive to perform or
discharge any substantial portion of his duties and responsibilities for
a period in excess of thirty (30) days, which willful refusal or neglect
continues for an additional thirty (30) day after written notice to
Executive from the Company with regard thereto; (D) intentional and
willful violation by Executive of any rule, regulation or policy of the
Federal Communications Commission ("FCC") that would reasonably be
expected to (i) result in a material loss to the Company, (ii) result in
the termination, cancellation or suspension of any of the Company's
material FCC licenses or permits, or (iii) otherwise have a material
adverse effect on the Company's business or financial condition; or (iv)
the material breach (after expiration of any notice and cure period) of
this Agreement.
4.7 LIMITATION ON SEVERANCE PAYMENTS. If the vesting of any options or other
awards granted to Executive under any incentive plan upon a change in
control event (as defined under the Company's 1999 Stock Incentive Plan)
together with all other payments and the value of any benefit received
or to be received by Executive would result in all or a portion of such
payments to be subject to excise tax under Section 4999 of the Internal
Revenue Code (the "Code"), then Executive's payments will be either (a)
the full payments or (b) such lesser amount that would result in no
portion of the payments being subject to excise tax under Section 4999
of the Code, whichever of the foregoing amounts, taking into account the
applicable Federal, state, and local employment taxes, income taxes, and
the excise tax imposed by Section 4999 of the Code, results in the
receipt by Executive, on an after-tax basis, of the greatest amount of
the payments notwithstanding that all or some portion of the payments
may be taxable under Section 4999 of the Code. Executive will be
entitled to receive the foregoing full payments, however, only if the
excess of (c) the "parachute payments" as defined in Section 280G(b)(2)
of the Code, over (d) 2.99 times Executive's "base amount" as defined in
Section 280G(b)(3) of the Code exceeds the sum of (x) the greater of (i)
$100,000 or (ii) ten (10) percent of the payments under this Agreement
plus (y) the excise tax imposed under Section 4999 of the Code, plus (z)
the applicable federal, state, and local employment taxes and income
taxes imposed on the excess of (i) the "parachute payments" as defined
in Section 280G(b)(2) of the Code, over (ii) 2.99 times Executive's
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"base amount" as defined in Section 280G(b)(3) of the Code. All
determinations required to be made under this Section will be made by
any nationally recognized accounting firm that is the Company's outside
auditor at the time of such determination (the "ACCOUNTING FIRM"). The
Company will cause the Accounting Firm to provide detailed supporting
calculations of its determinations to the Company and Executive. Notice
must be given to the Accounting Firm within fifteen (15) business days
after an event entitling Executive to a payment under this Agreement.
All fees and expenses of the Accounting Firm will be borne solely by the
Company. The Accounting Firm's determinations must be made with
substantial authority (within the meaning of Section 6662 of the Code).
5. MISCELLANEOUS
5.1 EXECUTIVE'S REPRESENTATIONS AND WARRANTIES. Executive represents and
warrants to the Company that: (A) the Executive has the unfettered right
to enter into this Agreement on the terms and subject to the conditions
hereof and (B) neither the execution and delivery of this Agreement nor
the performance by Executive of any of Executive's obligations hereunder
constitute or will constitute a violation or breach of or a default
under any agreement, arrangement or understanding or any other
restriction of any kind to which Executive is a party or by which
Executive is bound.
5.2 INSURANCE. The Company will have the right to take out life, health,
accident, "Key-man" or other insurance covering Executive in the name of
the Company and at the Company's expense in any amount deemed
appropriate by the Company. Executive will assist the Company in
obtaining such insurance, including, but not limited to, submitting to
any reasonably required medical examination.
5.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings among the parties or any of
them. There are no representations, warranties, agreements or
understandings other than those expressly contained herein. No
termination, alteration, modification, variation or waiver of this
Agreement or any of the provisions hereof shall be effective unless in
writing and signed by the party against whom enforcement thereof is
sought.
5.4 NOTICE. Any notice required, permitted or desired to be given pursuant
to any of the provisions of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if sent by certified or
registered mail, return receipt and postage prepaid, hand delivered,
overnight delivery service or sent by telephone facsimile as follows:
If to the Company, to it at:
ACME Communications, Inc.
2101 E. Fourth Street, Suite 202
Santa Ana, California 92705
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Attention: Tom Allen
Facsimile No.: (714) 832-4307
If to Executive, to him at:
-------------------
-------------------
Either of the parties may at any time and from time to time change the address
to which notice will be sent hereunder by notice to the other party given under
this Section. The date of the giving of any notice sent by mail will be the date
of the posting of the mail; by any other means of delivery it will be the date
of receipt.
5.5 ASSIGNMENT. Neither this Agreement nor the right to receive any payments
hereunder may be assigned by Executive nor Company.
5.6 WAIVER. No course of dealing nor any delay on the part of the Company in
exercising any rights hereunder will operate as a waiver of any such
rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
5.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to
agreements executed and to be performed entirely therein.
5.8 SEVERABILITY. Should any clause, paragraph or part of this Agreement be
held or declared to be void or illegal for any reason, all other
clauses, paragraphs or parts of this Agreement which can be effected
without such illegal clause, paragraph or part shall nevertheless remain
in full force and effect. If, in the opinion of any court, any clause,
paragraph or part of this Agreement is unreasonable or unenforceable,
such court shall have the right, power and authority to excise or modify
such provisions, or portions thereof, of this Agreement as the court
shall find not be reasonable or enforceable and to enforce the remainder
of such clause, paragraph or part as so excised or modified.
5.9 BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the Company, Executive and Executive's heirs and personal
representatives.
5.10 HEADINGS. The headings of the paragraphs of this Agreement are inserted
for convenience only and do not constitute a part hereof or affect in
any way the meaning or interpretation of this Agreement.
5.11 CONFIDENTIALITY. Executive will hold all Confidential Information in a
fiduciary capacity for the benefit of the Company. After termination of
Executive's employment, Executive will not, without the prior written
consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such Confidential
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Information to anyone other than the Company and those designated by it.
"CONFIDENTIAL INFORMATION" means information not known by the trade
generally or not reasonably available to a knowledgeable person in the
trade, even though such information may have been disclosed to one or
more third parties pursuant to consulting agreements, joint research
agreements, or other agreements entered into by the Company.
Confidential Information does not include information that is required
to be disclosed by law, statute, regulation or legal or administrative
process
5.12 OWNERSHIP OF WORK PRODUCT. If Executive conceives of, discovers, invents
or creates inventions, improvements, new contributions, literary
property, material, ideas and discoveries, whether patentable or
copyrightable or not (all of the foregoing being collectively referred
to herein as "WORK PRODUCT"), or receives information about business
opportunities for the Company, unless Company otherwise agrees in
writing, all of the foregoing will be owned by and belong exclusively to
Company and that Executive will have no personal interest therein, if
they are either related in any manner to the business (commercial or
experimental) of Company, or are, in the case of Work Product, conceived
or made on Company's time or with the use of Company's facilities or
materials, or, in the case of business opportunities, are presented to
Executive for the possible interest or participation of Company.
Executive will further, unless Company otherwise agrees in writing, (a)
promptly disclose any such Work Product and business opportunities to
Company; (b) assign to Company, upon request and without additional
compensation, the entire rights to such Work Product and business
opportunities; (c) sign all papers necessary to carry out the foregoing;
and (d) give testimony in support of Executive's inventorship or
creation in any appropriate case. Executive will not to assert any
rights to any Work Product or business opportunity as having been made
or acquired by executive before the date of this Agreement except for
Work Product or business opportunities, if any, disclosed to and
acknowledged by Company in writing before the date of this Agreement.
5.13 REASONABLE REIMBURSEMENT. The Company will reimburse Executive for
reasonable attorney fees in connection with the negotiation of this
Agreement upon its receipt of invoices and such other supporting
documentation reasonably necessary to substantiate the nature and
payment of such expenses.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first above written.
ACME Communications, Inc.
By: _____________________________
Thomas D. Allen
Executive Vice President
_________________________________
Douglas E. Gealy
-8-
<PAGE> 1
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
This Agreement is entered as of __________, 1999, by and between ACME
Communications, Inc., a Delaware corporation (the "Company") as employer and
Thomas D. Allen ("Executive"). This Agreement will be effective on the date on
which the Company has closed its initial public offering of shares of its common
stock.
1. EMPLOYMENT.
1.1 TITLE; DUTIES. The Company hereby employs Executive as President and
Chief Operating Officer to perform such management and executive duties
on behalf of the Company as the Chief Executive Officer or Board of
Directors of the Company may from time to time determine. Executive will
have such duties and responsibilities as are generally consistent with
such position in a public company of comparable present and projected
size. Executive will also serve without additional compensation in an
executive capacity for one of more direct or indirect subsidiaries of
the Company if the Board from time to time requests. Executive will
also, subject to Executive's election as such, serve as a member of the
Board, as well as a member of any committee of the Board to which
Executive may be elected or appointed.
1.2 TERM. Executive will be employed until June 16, 2002, unless Executive's
employment is terminated before that date pursuant to the provisions
hereof or extended in accordance with the next sentence. The Company
will have the option to extend the term of Executive's employment until
September 29, 2003. The Company must give Executive notice of its
exercise of its extension option by March 16, 2002. If the extension
option is exercised, Executive's then current Base Salary would be
increased by 10% for the period of the extension. If the extension
option is not exercised, vesting of all of Executive's options granted
as of the date this Agreement becomes effective will accelerate and
become immediately exercisable on June 16, 2002.
2. COMPENSATION
2.1 COMPENSATION. As compensation for his services hereunder, the Company
will pay Executive the following:
2.1.1 BASE SALARY. A base salary ("Base Salary") of $300,000 per annum
payable in monthly installments in accordance with the Company's normal
payroll practices. On January 1, 2000, the Base Salary will increase to
$375,000 per annum. Starting January 1, 2001, (a) the Base Salary will
increase annually as of January 1 by the amount of the increase in the
Consumer Price Index (All Urban Consumers) during the previous year, and
(b) will be reviewed annually by the Company's Compensation Committee to
determine whether an additional increase is appropriate.
2.1.2 PERFORMANCE BONUS. The Company's Compensation Committee will
recommend to the Company's Board of Directors for the Board's adoption
no later than November 30, 1999 a cash incentive plan under which
Executive will be eligible to
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receive awards. No later than January 1, 2000, Executive will be awarded
cash incentives under such plan if Executive meets performance targets
during fiscal 2000.
2.1.3 BONUSES.
(a) On January __, 2000, Executive will receive a $802,500 special,
one-time bonus.
(b) Executive will be eligible to receive additional annual bonuses
to the extent, if any, awarded by the Company's Compensation
Committee.
2.1.4 ADDITIONAL BENEFITS.
(a) During the term of this Agreement, Executive will be entitled to
participate, to the extent he is eligible under the terms and
conditions thereof, in any pension, profit sharing, retirement,
hospitalization, insurance, medical service or other employee
benefit plan generally available to the executives of the
Company which may be in effect from time to time during the
period of his employment hereunder, it being understood that the
Company will pay the entire costs of any health insurance or
disability insurance maintained by the Company for Executive in
accordance with Company's policies generally in effect.
(b) Executive will be provided a leased vehicle to be acquired in a
"trade deal" (i.e. non-cash); provided, however, that the
Compensation Committee will have the discretion to determine the
value of such trade deal.
2.1.5 VACATIONS. Executive shall be entitled to four (4) weeks of paid
vacation (in addition to Company-wide holiday periods) annually, two
weeks of which may be carried forward to the following year.
2.2 REIMBURSEMENT. The Company will reimburse Executive for all expenses
reasonably incurred by him in connection with the performance of his
duties hereunder or in the business of the Company.
3. NON-COMPETITION AND BUSINESS OPPORTUNITIES.
3.1 COMPETITIVE ENTERPRISES. While employed by the Company, and for a period
of twelve (12) months after termination of employee status for any
reason, Executive must not, without the express written consent of the
Board, directly or indirectly, engage in any activity that is, or
participate or invest in or assist (whether as owner, part-owner,
stockholder, partner, director, officer, trustee, employee, agent,
independent contractor or consultant, or in any other capacity) a
Competitive Enterprise. "Competitive Enterprise" means any entity that
operates television stations, cable distribution systems or other video
broadcast or distribution enterprises exclusively in a designated market
area ("DMA") where the Company or any affiliate (as defined in the
Securities Exchange Act of 1934) of the Company owns and/or operates
stations.
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<PAGE> 3
3.1.1 EXCEPTIONS. Notwithstanding the foregoing, nothing in this
Section 3 will prohibit Executive, after termination of Executive's
employee status, from engaging in any activity on behalf of, or being
employed in any capacity by, a group television station operator so long
as no more than 5% of such operator's revenues result from a Competitive
Enterprise. Executive must not, until July 1, 2000, own any equity
interests in any privately-held television enterprise or more than 5% of
the equity interests in any publicly-held television enterprise if, in
either case, such enterprise is engaged in a Competitive Enterprise.
3.1.2 CORPORATE OPPORTUNITY. Executive agrees, while serving as an
officer or employee of the Company, to offer or otherwise make known or
available to the Company without compensation or consideration, any
business prospects, contracts or other business opportunities that
Executive may discover, find, develop or otherwise have available to
acquire, own or manage any television stations, cable distribution
systems or other video broadcast or distribution enterprises that could
deliver WB Network programming for DMAs 20 to 100, excluding any Web
Network opportunities controlled by The WB Network and/or Time Warner
(such prospects, contracts or opportunities are referred to as
"Television Station Opportunities"), and further agrees that any such
Television Station Opportunities will be the property of the Company.
3.1.3 NON-SOLICITATION. Executive must not, until the second
anniversary his employee status is terminated, whether on behalf of a
Competitive Enterprise or otherwise, hire or attempt to hire any officer
or other senior employee of the Company or any affiliate of the Company
or encourage any officer or other senior employee of the Company or any
affiliate of the Company to terminate his or her relationship with the
Company or any affiliate of the Company.
4. TERMINATION.
4.1 DEATH; DISABILITY. If Executive's employment is terminated by reason of
Executive's death or disability, Executive or his estate will be
entitled to one year's Base Salary in effect at the time of his
termination as severance pay, payable in monthly installments in
advance.
4.2 WITHOUT CAUSE. If Executive's employment is terminated by the Company,
without Cause, as defined in clause 4.6 below, he will be entitled to
receive severance pay for a period of eighteen months based upon his
Base Salary in effect at the time of his termination, payable in monthly
installments in advance.
4.3 RESIGNATION; FOR CAUSE. If the Executive's employment is terminated as a
result of his resignation or termination for Cause, he will not be
entitled to any severance payments.
4.4 NO MITIGATION. The Executive has no duty to mitigate any amounts of
severance payable hereunder.
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<PAGE> 4
4.5 DISABILITY DEFINED. "Disability" means that Executive has been
substantially unable, by reason of injury, illness or similar cause
(physical or mental), to have performed his duties and responsibilities
for a period of one hundred and eighty (180) consecutive days or shorter
periods aggregating 180 days in any consecutive twelve (12) month
period, and such person is not anticipated to recover the ability to
perform such duties and responsibilities with the foreseeable future.
4.6 CAUSE DEFINED. "Cause" will be determined by the Company's Board of
Directors and will mean: (A) the conviction of Executive of, or a plea
of guilty or nolo contendere entered by or on behalf of Executive with
respect to, a felony or crime, where such felony or crime involves moral
turpitude or where such conviction or plea is likely to have a material
adverse effect on the Company or upon Executive's ability to perform his
duties as an Executive of the Company; (B) fraud, embezzlement or other
act of dishonesty by Executive with respect to the Company; (C) the
continued willful refusal or neglect of Executive to perform or
discharge any substantial portion of his duties and responsibilities for
a period in excess of thirty (30) days, which willful refusal or neglect
continues for an additional thirty (30) day after written notice to
Executive from the Company with regard thereto; (D) intentional and
willful violation by Executive of any rule, regulation or policy of the
Federal Communications Commission ("FCC") that would reasonably be
expected to (i) result in a material loss to the Company, (ii) result in
the termination, cancellation or suspension of any of the Company's
material FCC licenses or permits, or (iii) otherwise have a material
adverse effect on the Company's business or financial condition; or (iv)
the material breach (after expiration of any notice and cure period) of
this Agreement.
4.7 LIMITATION ON SEVERANCE PAYMENTS. If the vesting of any options or
other awards granted to Executive under any incentive plan upon a change
in control event (as defined under the Company's 1999 Stock Incentive
Plan) together with all other payments and the value of any benefit
received or to be received by Executive would result in all or a portion
of such payments to be subject to excise tax under Section 4999 of the
Internal Revenue Code (the "Code"), then Executive's payments will be
either (a) the full payments or (b) such lesser amount that would result
in no portion of the payments being subject to excise tax under Section
4999 of the Code, whichever of the foregoing amounts, taking into
account the applicable Federal, state, and local employment taxes,
income taxes, and the excise tax imposed by Section 4999 of the Code,
results in the receipt by Executive, on an after-tax basis, of the
greatest amount of the payments notwithstanding that all or some portion
of the payments may be taxable under Section 4999 of the Code. Executive
will be entitled to receive the foregoing full payments, however, only
if the excess of (c) the "parachute payments" as defined in Section
280G(b)(2) of the Code, over (d) 2.99 times Executive's "base amount" as
defined in Section 280G(b)(3) of the Code exceeds the sum of (x) the
greater of (i) $100,000 or (ii) ten (10) percent of the payments under
this Agreement plus (y) the excise tax imposed under Section 4999 of the
Code, plus (z) the applicable federal, state, and local employment taxes
and income taxes imposed on the excess of (i) the "parachute payments"
as defined in Section 280G(b)(2) of the Code, over (ii) 2.99 times
Executive's
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<PAGE> 5
"base amount" as defined in Section 280G(b)(3) of the Code. All
determinations required to be made under this Section will be made by
any nationally recognized accounting firm that is the Company's outside
auditor at the time of such determination (the "ACCOUNTING FIRM"). The
Company will cause the Accounting Firm to provide detailed supporting
calculations of its determinations to the Company and Executive. Notice
must be given to the Accounting Firm within fifteen (15) business days
after an event entitling Executive to a payment under this Agreement.
All fees and expenses of the Accounting Firm will be borne solely by the
Company. The Accounting Firm's determinations must be made with
substantial authority (within the meaning of Section 6662 of the Code).
5. MISCELLANEOUS
5.1 EXECUTIVE'S REPRESENTATIONS AND WARRANTIES. Executive represents and
warrants to the Company that: (A) the Executive has the unfettered right
to enter into this Agreement on the terms and subject to the conditions
hereof and (B) neither the execution and delivery of this Agreement nor
the performance by Executive of any of Executive's obligations hereunder
constitute or will constitute a violation or breach of or a default
under any agreement, arrangement or understanding or any other
restriction of any kind to which Executive is a party or by which
Executive is bound.
5.2 INSURANCE. The Company will have the right to take out life, health,
accident, "Key-man" or other insurance covering Executive in the name of
the Company and at the Company's expense in any amount deemed
appropriate by the Company. Executive will assist the Company in
obtaining such insurance, including, but not limited to, submitting to
any reasonably required medical examination.
5.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings among the parties or any of
them. There are no representations, warranties, agreements or
understandings other than those expressly contained herein. No
termination, alteration, modification, variation or waiver of this
Agreement or any of the provisions hereof shall be effective unless in
writing and signed by the party against whom enforcement thereof is
sought.
5.4 NOTICE. Any notice required, permitted or desired to be given pursuant
to any of the provisions of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if sent by certified or
registered mail, return receipt and postage prepaid, hand delivered,
overnight delivery service or sent by telephone facsimile as follows:
If to the Company, to it at:
ACME Communications, Inc.
2101 E. Fourth Street, Suite 202
Santa Ana, California 92705
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Attention: Doug Gealy
Facsimile No.: (714) 832-4307
If to Executive, to him at:
-------------------
-------------------
Either of the parties may at any time and from time to time change the address
to which notice will be sent hereunder by notice to the other party given under
this Section. The date of the giving of any notice sent by mail will be the date
of the posting of the mail; by any other means of delivery it will be the date
of receipt.
5.5 ASSIGNMENT. Neither this Agreement nor the right to receive any payments
hereunder may be assigned by Executive nor Company.
5.6 WAIVER. No course of dealing nor any delay on the part of the Company in
exercising any rights hereunder will operate as a waiver of any such
rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
5.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to
agreements executed and to be performed entirely therein.
5.8 SEVERABILITY. Should any clause, paragraph or part of this Agreement be
held or declared to be void or illegal for any reason, all other
clauses, paragraphs or parts of this Agreement which can be effected
without such illegal clause, paragraph or part shall nevertheless remain
in full force and effect. If, in the opinion of any court, any clause,
paragraph or part of this Agreement is unreasonable or unenforceable,
such court shall have the right, power and authority to excise or modify
such provisions, or portions thereof, of this Agreement as the court
shall find not be reasonable or enforceable and to enforce the remainder
of such clause, paragraph or part as so excised or modified.
5.9 BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of the Company, Executive and Executive's heirs and personal
representatives.
5.10 HEADINGS. The headings of the paragraphs of this Agreement are inserted
for convenience only and do not constitute a part hereof or affect in
any way the meaning or interpretation of this Agreement.
5.11 CONFIDENTIALITY. Executive will hold all Confidential Information in a
fiduciary capacity for the benefit of the Company. After termination of
Executive's employment, Executive will not, without the prior written
consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such Confidential
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Information to anyone other than the Company and those designated by it.
"CONFIDENTIAL INFORMATION" means information not known by the trade
generally or not reasonably available to a knowledgeable person in the
trade, even though such information may have been disclosed to one or
more third parties pursuant to consulting agreements, joint research
agreements, or other agreements entered into by the Company.
Confidential Information does not include information that is required
to be disclosed by law, statute, regulation or legal or administrative
process
5.12 OWNERSHIP OF WORK PRODUCT. If Executive conceives of, discovers, invents
or creates inventions, improvements, new contributions, literary
property, material, ideas and discoveries, whether patentable or
copyrightable or not (all of the foregoing being collectively referred
to herein as "WORK PRODUCT"), or receives information about business
opportunities for the Company, unless Company otherwise agrees in
writing, all of the foregoing will be owned by and belong exclusively to
Company and that Executive will have no personal interest therein, if
they are either related in any manner to the business (commercial or
experimental) of Company, or are, in the case of Work Product, conceived
or made on Company's time or with the use of Company's facilities or
materials, or, in the case of business opportunities, are presented to
Executive for the possible interest or participation of Company.
Executive will further, unless Company otherwise agrees in writing, (a)
promptly disclose any such Work Product and business opportunities to
Company; (b) assign to Company, upon request and without additional
compensation, the entire rights to such Work Product and business
opportunities; (c) sign all papers necessary to carry out the foregoing;
and (d) give testimony in support of Executive's inventorship or
creation in any appropriate case. Executive will not to assert any
rights to any Work Product or business opportunity as having been made
or acquired by executive before the date of this Agreement except for
Work Product or business opportunities, if any, disclosed to and
acknowledged by Company in writing before the date of this Agreement.
5.13 REASONABLE REIMBURSEMENT. The Company will reimburse Executive for
reasonable attorney fees in connection with the negotiation of this
Agreement upon its receipt of invoices and such other supporting
documentation reasonably necessary to substantiate the nature and
payment of such expenses.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first above written.
ACME Communications, Inc.
By: _______________________________
Douglas E. Gealy
President
___________________________________
Thomas D. Allen
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<PAGE> 1
EXHIBIT 10.43A
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of
September __, 1999 by and among ACME TELEVISION, LLC, a Delaware limited
liability company (the "Borrower"); CIBC INC., UNION BANK OF CALIFORNIA, N.A.,
BANK OF MONTREAL, CHICAGO BRANCH, and NATIONSBANK, N.A. as Lenders under the
Credit Agreement referred to below (the "Lenders"); and CANADIAN IMPERIAL BANK
OF COMMERCE, as Agent (the "Agent") for the Lenders and such other financial
institutions as are or as become Lenders under, and as defined in the Credit
Agreement referred to below.
RECITALS
A. The Borrower, the Lenders and the Agent are parties to a First Amended
and Restated Credit Agreement dated as of December 2, 1997, as previously
amended by Amendment No. 1 and Amendment No. 2, each dated as of June 30, 1998,
the Third Amendment to Credit Agreement dated as of March 1, 1999 and the Fourth
Amendment to Credit Agreement dated as of April 23, 1999 (as so amended, the
"Credit Agreement"). Capitalized terms used herein without definition have the
meanings assigned to them in the Credit Agreement, unless otherwise provided.
B. The Borrower wishes to enter into various agreements providing for the
following:
(1) the purchase from Ramar Communications II, Ltd. ("Ramar") for
$25,400,000 (with an initial deposit of $1,500,000) of KASY-TV (the "KASY
Acquisition") licensed to Albuquerque, New Mexico ("KASY"), which is
currently subject to an LMA in favor of Lee Enterprises (the "Lee LMA")
and broadcasts as a UPN affiliate;
(2) the sale to Ramar, in a related transaction, of KWBQ-TV (the
"KWBQ Sale") licensed to Santa Fe, New Mexico ("KWBQ") for $100,000,
simultaneously with the grant by Ramar to Montecito Broadcasting
Corporation (a corporation wholly owned by Doug Gealy, Tom Allen and Jamie
Kellner) ("Montecito") of an option to repurchase KWBQ for $100,000 (the
"KWBQ Buy-Back Option"), which option will be assigned to the Borrower;
and
(3) an LMA between Ramar and the Borrower pursuant to which the
Borrower will program KWBQ (the "KWBQ LMA") and will pay Ramar an annual
fee of $370,000 for five years, with payments to be accelerated if the
KWBQ Buy-Back Option is exercised.
C. The Borrower wishes to obtain the consent of the Required Lenders to
the foregoing transactions (the "Transactions") and to certain waivers related
to Permitted
<PAGE> 2
Investments. Subject to certain terms and conditions set forth herein, the Agent
and the Required Lenders are willing to agree to such request.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
I. WAIVER OF LIMITATION FOR PERMITTED INVESTMENTS WITH RESPECT TO THE KASY
ACQUISITION. Subject to the satisfaction of each of the conditions set forth in
SECTION V, the Lenders hereby agree with the Borrower as follows:
A. PERMITTED INVESTMENTS. Solely with respect to the KASY Acquisition,
Subparagraph (o) of the definition of "Permitted Investments" shall be waived
and the Borrower shall be permitted to make a deposit to the Seller of KASY in
the maximum amount of $1,500,000. In all other respects, Subparagraph (o) of the
definition of Permitted Investments shall remain in full force and effect.
B. NO FURTHER AMENDMENTS. Except as specifically amended or waived hereby,
the text of the Credit Agreement and all other Loan Documents shall remain
unchanged and in full force and effect.
II. CONSENTS TO TRANSACTIONS.
A. CONSENTS. Subject to the conditions set forth in SECTION II(B) below,
the Required Lenders hereby consent to (1) the execution and delivery of binding
agreements providing for the KASY Acquisition (which shall constitute a
"Permitted Acquisition" for all purposes of the Credit Agreement), the KWBQ Sale
and the KWBQ LMA (which shall constitute a "Permitted LMA" under the Credit
Agreement), as described in the Recitals to this Amendment and otherwise in a
manner reasonably satisfactory to the Required Lenders, and (2) the consummation
of such Transactions substantially in accordance with such agreements. In
addition, the Required Lenders hereby waive any requirement that the Notes be
repaid or the Commitments reduced from the net proceeds of the KWBQ Sale.
B. CONDITIONS TO CONSENTS. The foregoing consents are subject to the
following express conditions:
(1) The KWBQ Buy-Back Option shall be assigned to the Borrower and
collaterally assigned by the Borrower to the Agent and the Lenders (with
full rights to reassign as necessary upon assignment of the Obligations or
in connection with a foreclosure) to secure the Obligations, with the
written consent of all other parties thereto in form and substance
satisfactory to the Agent, as required by SECTION 2.01 of the Credit
Agreement.
(2) The Acquisition Documents relating to the KASY Acquisition shall
be collaterally assigned by the Borrower to the Agent and the Lenders
(with full rights to reassign as necessary upon assignment of the
Obligation or in connection with a
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<PAGE> 3
foreclosure) to secure the Obligations, with the written consent of all
other parties thereto, as required under SECTION 2.01 of the Credit
Agreement.
(3) The Borrower and its Subsidiaries shall satisfy all of the
conditions to Permitted Acquisitions set forth in the definition of such
term, after the first paragraph thereof in a timely manner unless
otherwise permitted by the Agent. Without limitation of the foregoing, the
Borrower shall (i) deliver to the Agent a fully completed Acquisition
Compliance Checklist together with the Officer's Compliance Certificate
required to be delivered prior to or concurrently with the closing of such
Permitted Acquisition (see SCHEDULE 11.02(A) and SCHEDULE 1 thereto), and
(ii) cause the acquiring Subsidiaries to enter into all Security Documents
required under SECTION 2.01 of the Credit Agreement.
(4) The Borrower shall have received sufficient additional cash
equity from its initial public offering, or from other equity
contributions on terms acceptable to the Required Lenders, the proceeds of
which shall be applied to finance the balance of the KASY Acquisition.
(5) Any Loans requested in connection with the foregoing shall be
subject to the conditions applicable thereto set forth in ARTICLE II of
the Credit Agreement.
(6) The KASY Acquisition shall occur no later than December 31,
1999.
III. REFERENCES IN SECURITY DOCUMENTS; CONFIRMATION OF SECURITY.
All references to the "Credit Agreement" in all Security Documents, and in
any other Loan Documents shall, from and after the date hereof, refer to the
Credit Agreement, as amended by this Amendment, and all obligations of the
Borrower under the Credit Agreement, as amended, shall be secured by and be
entitled to the benefits of said Security Documents and such other Loan
Documents. All Security Documents heretofore executed by the Borrower and its
Subsidiaries shall remain in full force and effect and such Security Documents,
as amended hereby, are hereby ratified and affirmed.
IV. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. The Borrower
hereby represents and warrants to, and covenants and agrees with, the Lenders
that:
A. The execution and delivery of this Amendment have been duly authorized
by all requisite corporate action on the part of the Borrower.
B. The representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct in all material respects on
and as of the date of this Amendment as though made at and as of such date. No
material adverse change has occurred in the assets, liabilities, financial
condition, business or prospects of the Borrower and its Subsidiaries from that
disclosed in the financial statements most recently furnished to the Lenders. No
Default has occurred and is continuing.
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C. Neither the Borrower nor any Affiliate of the Borrower is required to
obtain any consent, approval or authorization from, or to file any declaration
or statement with, any governmental instrumentality or other agency or any other
person or entity in connection with or as a condition to the execution, delivery
or performance of this Amendment or the other Loan Documents contemplated
hereby, if any (the "Documents").
D. This Amendment and the other Documents constitute the legal, valid and
binding obligations of the Borrower and its Affiliates enforceable against them,
jointly and severally, in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the rights and remedies of creditors generally or the application of principles
of equity, whether in any action at law or proceeding in equity, and subject to
the availability of the remedy of specific performance or of any other equitable
remedy or relief to enforce any right thereunder.
E. The Borrower will satisfy all of the conditions set forth in SECTION V.
V. CONDITIONS. The willingness of the Agent and the Lenders to amend the Credit
Agreement and grant the foregoing consents, is subject to the following
conditions precedent and subsequent (in addition to the conditions set forth or
referred to in SECTION II above):
A. The Borrower shall have executed and delivered to the Agent (or shall
have caused to be executed and delivered to the Agent by the appropriate
persons) the following:
1. On or before the date hereof:
(a) This Amendment.
(b) True and complete copies of any required managers', members',
stockholders' and/or directors' consents and/or resolutions, authorizing
the execution and delivery of this Amendment and the other Documents
contemplated hereby, certified by the Manager or Secretary of the
appropriate Company, if needed.
2. Such other supporting documents and certificates as the Agent or its
counsel may reasonably request, within the time period(s) reasonably
designated by the Agent or its counsel.
B. All legal matters incident to the transactions hereby contemplated
shall be reasonably satisfactory to the Agent's counsel.
VI. MISCELLANEOUS.
A. As provided in the Credit Agreement, the Borrower agrees to reimburse
the Agent upon demand for all reasonable fees and disbursements of counsel to
the Agent incurred in connection with the preparation of this Amendment and the
other Documents.
- 4 -
<PAGE> 5
B. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
C. This Amendment may be executed by the parties hereto in several
counterparts hereof and by the different parties hereto on separate counterparts
hereof, all of which counterparts shall together constitute one and the same
agreement. Delivery of an executed signature page of this Amendment by facsimile
transmission shall be effective as an in-hand delivery of an original executed
counterpart hereof.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the Agent, the Borrower and the Lenders have caused
this Amendment to be duly executed as a sealed instrument by their duly
authorized representatives, all as of the day and year first above written.
ACME TELEVISION, LLC
By /s/ THOMAS D. ALLEN
-------------------------------------
Name: Thomas D. Allen
-------------------------------
Title: Executive Vice President
-------------------------------
CANADIAN IMPERIAL BANK OF
COMMERCE, AS AGENT
By /s/ [ILLEGIBLE SIGNATURE]
-------------------------------------
[ILLEGIBLE] , Executive Director
----------------
CIBC World Markets Corp., as Agent
CIBC INC.
By /s/ [ILLEGIBLE SIGNATURE]
-------------------------------------
[ILLEGIBLE] , Executive Director
----------------
CIBC Oppenheimer Corp., as Agent
NATIONSBANK, N.A.
By /s/ SCOTT HARTWIG
-------------------------------------
Scott Hartwig, Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ [ILLEGIBLE SIGNATURE]
-------------------------------------
[ILLEGIBLE], Vice President
-----------
(signatures continued)
<PAGE> 7
BANK OF MONTREAL, CHICAGO BRANCH
By /s/ W.T. CALDER
-------------------------------------
W.T. Calder, Managing Director
<PAGE> 8
JOINDER BY GUARANTORS
The undersigned hereby jointly and severally join in the execution of the
foregoing Fourth Amendment to Credit Agreement dated as of September __, 1999
(the "Amendment") to which this Joinder is attached to confirm their respective
consents to all of the transactions contemplated by the Amendment and all
agreements and instruments executed and delivered in connection therewith and
hereby jointly and severally reaffirm and ratify their respective Guarantees and
all agreements securing such Guarantees, all of which shall in all respects
remain in full force and effect and shall continue to guarantee any and all
indebtedness, obligations and liabilities of the Borrower to the Agent and the
Lenders, whether now existing or hereafter arising, on the same terms and
conditions as are set forth in their respective Guarantees.
ACME Television of Oregon, LLC
ACME Television Licenses of Oregon, LLC
ACME Television of Tennessee, LLC
ACME Television Licenses of Tennessee, LLC
ACME Television of Utah, LLC
ACME Television Licenses of Utah, LLC
ACME Television of New Mexico, LLC
ACME Television Licenses of New Mexico, LLC
ACME Subsidiary Holdings III, LLC
ACME Television of Missouri, Inc.
ACME Television Licenses of Missouri, LLC
ACME Television of Florida, LLC
ACME Television Licenses of Florida, LLC
ACME Television of Illinois, LLC
ACME Television Licenses of Illinois, LLC
ACME Television of Ohio, LLC
ACME Television Licenses of Ohio, LLC
ACME Television of Wisconsin, LLC
ACME Television Licenses of Wisconsin, LLC
By:
----------------------------------------
Duly authorized signatory as to all
<PAGE> 1
EXHIBIT 10.46
ACME COMMUNICATIONS, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated ________,
1999, by and among ACME Communications, Inc., a Delaware corporation (the
"Company") and the persons owning Registrable Securities (as defined in Section
1.2 below) whose signatures appear on the signature page hereto (each a "Holder"
and collectively with each other and their permitted transferees and assigns,
the "Holders") is effective as of and conditioned upon the closing of the
Company's initial public offering of common stock ("IPO").
RECITALS
A. Certain of the Holders previously were parties to the Registration
Rights Agreement, dated as of June 17, 1997, (together with TCW Leveraged Income
Trust, L.P. and TCW Shared Opportunity Fund II, L.P., the "Initial Holders") by
and among such Initial Holders and ACME Television Holdings, LLC ("Holdings")
and certain other Holders were parties to the Membership Unitholders Agreement,
dated September 30, 1997, by and among such other Holders, Holdings and ACME
Intermediate Holdings, LLC ("Intermediate") which agreement also contained
registration rights.
B. It is proposed that Holders will become stockholders of the Company in
exchange for their holdings of securities of Holdings or Intermediate pursuant
to a reorganization to be consummated before the closing of the Company's IPO
(the "Reorganization").
C. This Agreement is intended to replace the Registration Rights Agreement
of Holdings and the Membership Unitholders Agreement of Intermediate and thereby
provide registration rights to the Holders of the Company's Common Stock, par
value $.01 per share ("Common Stock"), as well as provide registration rights to
all other pre-IPO stockholders of the Company.
D. This Agreement is intended as a final expression of any agreements
among the parties hereto with respect to any registration rights with respect to
the securities of the Company or any of its affiliates and is intended to
supersede the Registration Rights Agreement of Holdings, the Membership
Unitholders Agreement of Intermediate and any other agreement regarding
registration rights.
The Company and the Holders, in consideration of the mutual agreements
herein, intending to be legally bound, agree as follows:
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OPTIONAL REGISTRATIONS
1.1 Optional Registrations. If at any time or times after the date hereof, the
Company determines to register any of its equity securities (for whatever
reason) for its own account or the account of any of its stockholders
(whether in connection with a primary offering, a secondary offering or
any combination thereof) under the Securities Act of 1933, as amended (the
"Securities Act") (other than in connection with a registration effected
solely to implement an employee benefit plan or a business combination
transaction or any other similar transaction for which a registration
statement on Form S-4 under the Securities Act or any comparable successor
form is applicable), the Company will promptly give written notice thereof
to the Holders of Registrable Securities (as defined in Section 1.2). In
connection with any such registration, if within thirty (30) days after
receipt by the Holders of such notice, the Company receives a written
request from a Holder or Holders for the inclusion of some or all of the
Registrable Securities owned by it or them in such registration (such
request to state the number of Registrable Securities intended to be
disposed of by such Holder or Holders), the Company will use its best
efforts to include in such registration under the Securities Act all
Registrable Securities which such Holder or Holders requested to be
registered.
1.2 "Registrable Securities" means: (i) any shares of Common Stock held as of
the closing of the IPO by Holders (after giving effect to the
Reorganization), (ii) any shares of Common Stock issuable upon the
exercise or conversion of any outstanding securities of the Company or any
of its affiliates held by Holders (other than stock options and similar
derivative securities held by employees) which are not converted to Common
Stock by the closing of the IPO and (iii) any securities issued or
issuable with respect to such shares by way of a stock dividend or stock
split or in connection with a combination of such shares,
recapitalization, merger, consolidation, reclassification or other
reorganization. Such securities will cease to be Registrable Securities:
(A) when a registration statement with respect to the sale of such
securities has become effective under the Securities Act and such
securities have been disposed of in accordance therewith; (B) when such
securities may be distributed pursuant to the provisions of Rule 144(k)
(or any successor provisions thereto) under the Securities Act; or (C)
when such securities have otherwise been transferred and subsequent
disposition of them by the transferee thereof will not require
registration or qualification under the Securities Act or any similar
state law then in force.
1.3 Conditions. Notwithstanding the foregoing, in the case of an underwritten
offering under this Section 1, the Company will not be required to include
any Holder's securities in the underwritten offering unless such Holder
accepts the terms of the underwriting as agreed upon between the Company
and the underwriters.
1.4 Limitations on Amount. If the managing underwriter of the offering, if
any, advises the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten, then in such
instance the Company may give first priority to those shares to be
registered for the Company's account and may limit the number of
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<PAGE> 3
Registrable Securities included in such offering to the amount which the
managing underwriter, acting in good faith, advises the Company may be
sold. The Company will promptly notify all Holders who requested
registration pursuant to this Section 1 of a determination by the managing
underwriter that such a reduction is necessary, and the number of
Registrable Securities that may be included in the registration and
underwriting will be allocated among the Holders requesting registration
in proportion, as nearly as practicable, to their respective holdings of
Registrable Securities to the extent necessary to reduce the total number
of securities requested to be included in such offering to the number of
securities, if any, recommended by such managing underwriters. All Holders
who have requested registration pursuant to this Agreement will be
entitled to participate in the underwriting before any other holders of
the Company's securities will be entitled to participate in such
underwriting (and no securities requested to be included in such
underwriting for the account of anyone other than the Holders hereunder
will be included unless all Registrable Securities requested to be
included by the Holders in accordance with this Section 1 are so
included).
1.5 Withdrawal. Any Holder will have the right to withdraw its request for
inclusion of its Registrable Securities in any registration statement
pursuant to this Section 1 by giving written notice to the Company of its
request to withdraw. If as a result of the proration provision of Section
1.4, any Holder will not be entitled to include all the Registrable
Securities in an Optional Registration that such Holder has requested to
be included, such Holder may elect to withdraw its request to include
Registrable Securities in such registration; provided, however, that such
election will be irrevocable and, after making such election, a Holder
will no longer have any right to include Registrable Securities in the
registration as to which such election was made, provided such
registration becomes effective within 90 days of the date of such
withdrawal. The Company may withdraw an Optional Registration initiated by
the Company at any time before it becomes effective, provided that the
Company gives prompt notice to the Holders participating in such
registration.
1.6 Expenses. All expenses of such registrations and offerings (other than
underwriting and selling commissions attributable to, and transfer taxes
assessed on, the Registrable Securities), and the reasonable fees and
expenses of not more than one independent counsel for the Holders, will be
borne by the Company. If any Initial Holders are selling Registrable
Securities in a registration statement pursuant to this Section 1, then
the independent counsel will be selected by such Initial Holders.
1.7 Miscellaneous. Without in any way limiting the types of registrations to
which this Section 1 will apply, if the Company effects a "shelf
registration" under Rule 415 promulgated under the Securities Act, or any
other similar rule or regulation ("Rule 415") (other than a shelf
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Securities
and Exchange Commission (the "Commission") under the Securities Act is
applicable), the Company will take all necessary actions, including,
without limitation, the prompt filing of post-effective amendments, to
permit the Holders to dispose of
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<PAGE> 4
their Registrable Securities in such registration in accordance with the
terms of this Section 1.
2. REQUIRED REGISTRATIONS
2.1 Required Registrations. If on any two (2) occasions 180 days after the
consummation of the IPO, Holders holding in the aggregate, 25% of the
Registrable Securities outstanding from time to time (hereinafter referred
to as the "Initiating Holders") notify the Company in writing that they
intend to offer or cause to be offered for public sale all or any portion
of their Registrable Securities with an aggregate anticipated offering
price (before any underwriters' discounts or commissions) of at least an
amount greater than $10,000,000 (any such notice to specify the number of
Registrable Securities to be disposed of and the intended method of
distribution), then the Company will notify all Holders entitled to notice
of a proposed registration under Section 1 above of its receipt of such
notification from the Initiating Holders and will allow such Holders
thirty (30) days to exercise their rights hereunder. Upon the expiration
of such thirty (30) day period (or earlier, with the written consent of
Holders holding in aggregate 25% in interest of the Registrable
Securities), the Company will either: (A) elect to make a registered
primary offering including Registrable Securities on Form S-1 or
equivalent form (including, when the Company is eligible, a Form S-3 with
additional information concerning the business of the Company, its
finances and its management as the Holders or underwriters participating
in an underwritten offering may reasonably request for purposes of
marketing the securities) in which case the rights of such Holders
(including the Initiating Holders) will be as set forth in Section 1 above
(except that the Company will not be permitted to include securities for
its own account unless at least 50% of the total number of securities
requested to be included by the Holders (including the Initiating Holders)
are so included); or (B) use its best efforts to cause such of the
Registrable Securities as may be requested by any Holders (including the
Initiating Holders) to be registered under the Securities Act on Form S-1
or equivalent form (including a Form S-3 as described above) and in
accordance with the terms of this Section 2, all to the extent required to
permit the distribution of such Registrable Securities in accordance with
the intended method set forth in the notification from the Initiating
Holders.
2.2 Conditions. If the Initiating Holders intend to distribute by means of an
underwritten offering the Registrable Securities that, at their request,
are to be registered, the right of any Holder to include its Registrable
Securities in such registration will be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting. All Holders proposing to
distribute Registrable Securities through such underwriting will enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. The Initiating Holders will
select one or more nationally recognized firms of investment bankers, who
will be reasonably acceptable to the Company, to act as the managing
underwriter or underwriters in connection with such offering and will
select any additional investment bankers and managers to be used in
connection with the offering.
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<PAGE> 5
2.3 Limitations on Amount. Notwithstanding any other provision of this
Agreement, if the managing underwriter, if any, advises the Holders and
the Company in writing that marketing factors require a limitation of the
number of securities to be underwritten in any offering effected pursuant
to this Section 2, then the number of securities that may be included in
the underwriting will be allocated: first, among the Holders requesting
registration in proportion, as nearly as practicable, to their respective
holdings of Registrable Securities to the extent necessary to reduce the
total number of securities requested to be included in such offering to
the number of securities, if any, recommended by such managing
underwriters; and second, if the number of Registrable Securities
requested to be registered is less than the number which, in the opinion
of the managing underwriter, can be sold, the Company for its own account
up to the number of securities, in the opinion of the managing
underwriter, can be sold; provided, however, that if the number of
Registrable Securities included in any offering is limited to a number
which would represent less than 50% of the total number of securities for
which registration has been requested hereunder, such offering will not be
counted towards the two required registrations of the Holders under this
Section 2.
2.4 Miscellaneous. If so requested by the Initiating Holders exercising their
rights for a registration under this Section 2, regardless of the
Securities Act form used for such registration, the Company will take such
steps as are required to register such Holders' Registrable Securities for
sale on a delayed or continuous basis under Rule 415, and to keep such
registration effective for 180 days or until all of such Holders'
Registrable Securities registered thereunder are sold, whichever is
shorter.
2.5 Expenses. All expenses of such registrations and offerings (other than
underwriting and selling commissions attributable to, and transfer taxes
assessed on, the Registrable Securities), and the reasonable fees and
expenses of not more than one independent counsel for the Holders, will be
borne by the Company. If any Initial Holders are selling Registrable
Securities in a registration statement pursuant to this Section 2, then
the independent counsel will be selected by such Initial Holders.
2.6 Postponement. The Company may postpone the filing of any registration
statement requested under this Section 2 for a reasonable period of time,
not to exceed an aggregate of ninety (90) days during any twelve (12)
month period, if the Company has made a good faith, reasonable
determination, evidenced by a resolution of its Board of Directors, that
such filing would either: (A) require the disclosure of a material
transaction and such disclosure would have a material adverse effect on
the Company; or (B) otherwise have a material adverse effect on the
Company because of unusual market conditions or other circumstances. The
Company will not be required to cause a registration statement requested
pursuant to this Section 2 to become effective prior to 180 days following
the effective date of a registration statement initiated by the Company,
if the request of the Initiating Holders for registration pursuant to this
Section 2 has been received by the Company subsequent to the giving of
written notice by the Company, pursuant to Section 1 hereof, to the
Holders to the effect that the Company is commencing to prepare a
Company-initiated registration statement; provided, however, that the
Company will use its best efforts to achieve such
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<PAGE> 6
effectiveness promptly following (a) such 180 day period if the request
pursuant to this Section 2 has been made prior to the expiration of such
180 day period or (b) the withdrawal by the Company of the registration
statement. Any registration effected pursuant to this Section 2 and so
designated by the Initiating Holders will be subject to this Section 2,
regardless of the Securities Act form on which such registration is
effected.
3. FORM S-3
3.1 Form S-3. The Company will use its best efforts to become eligible to use
Form S-3 for secondary sales under the Securities Act or a comparable
successor form and to continue to qualify at all times for registration of
its securities on Form S-3 or such successor form. In addition to the
required registration in Section 2.1, any Holders, holding in the
aggregate at least 25% of the Registrable Securities are entitled to
demand that the Company file and cause to be declared effective a
registration statement on Form S-3 that includes only those items and that
information that is required to be included in Parts I and II of such
Form, and does not include any additional or extraneous items of
information (e.g. a lengthy description of the Company or the Company's
business) (an "Ordinary S-3 Registration Statement"). The Holders will be
entitled to have filed and declared effective not more than one Ordinary
S-3 Registration Statements in any twelve (12) consecutive month period.
3.2 Shelf Registration. Notwithstanding the foregoing provision, the Holders
will not be permitted in this Section 3 to demand the Company to file a
registration statement under Rule 415.
3.3 Notice. Pursuant to Section 1 hereof, the Company will give notice to all
Holders of the receipt of a request for registration pursuant to this
Section 3.
3.4 Effectiveness. Subject to the foregoing, the Company will use its best
efforts to effect promptly the registration of all Registrable Securities
on Form S-3 or such successor form to the extent requested by the Holder
or Holders thereof; provided, however, that the Company will not be
obligated to effect such a registration for Registrable Securities having
an aggregate anticipated offering price (before any underwriters'
discounts or commissions) of less than $2,000,000.
3.5 Conditions. If the Holder initially seeking registration under this
Section 3 intends to distribute by means of an underwriting the
Registrable Securities that, by its request, are to be registered, the
right of any Holder to include its Registrable Securities in such
registration will be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in
such underwriting. All Holders proposing to distribute their Registrable
Securities in such underwriting will enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting.
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<PAGE> 7
3.6 Limitations on Amount. Notwithstanding any other provision of this Section
3, if the managing underwriter, if any, advises the Holders and the
Company in writing that marketing factors require a limitation of the
number of securities to be underwritten, then the number of Registrable
Securities that may be included in the underwriting will be allocated
among the Holders requesting registration in proportion, as nearly as
practicable, to their respective holdings of Registrable Securities to the
extent necessary to reduce the total number of securities requested to be
included in such offering to the number of securities, if any, recommended
by such managing underwriters.
3.7 Expenses. All expenses incurred in connection with a registration
requested pursuant to this Section 3 (other than underwriting and selling
commissions attributable to, and transfer taxes assessed on, the
Registrable Securities), and the reasonable fees and expenses of not more
than one independent counsel for the Holders, will be borne by the
Company. If any Initial Holders are selling Registrable Securities in a
registration statement pursuant to this Section 3, then the independent
counsel will be selected by such Initial Holders.
3.9 Postponement. The Company may postpone the filing of any registration
statement requested under this Section 3 for a reasonable period of time,
not to exceed an aggregate of ninety (90) days during any twelve (12)
month period, if the Company has made a good faith, reasonable
determination, evidenced by a resolution of its Board of Directors, that
such filing would either: (A) require the disclosure of a material
transaction and such disclosure would have a material adverse effect on
the Company; or (B) otherwise have a material adverse effect on the
Company because of unusual market conditions or other circumstances. The
Company will not be required to cause more than two (2) registration
statements requested pursuant to this Section 3 to become effective in any
twelve (12) month period. The Company will not be required to cause a
registration statement requested pursuant to this Section 3 to become
effective prior to 180 days following the effective date of a registration
statement initiated by the Company, if the request by the Holder for
registration pursuant to this Section 3 has been received by the Company
subsequent to the giving of written notice by the Company, pursuant to
Section 1 hereof, to the Holders to the effect that the Company is
commencing to prepare a Company-initiated registration statement;
provided, however, that the Company will use its best efforts to achieve
such effectiveness promptly following such 180 day period if the request
pursuant to this Section 3 has been made prior to the expiration of such
180-day period.
4. FURTHER OBLIGATIONS OF THE COMPANY
Whenever under the preceding sections of this Agreement the Company is
required to register any Registrable Securities, it agrees that it will also do
the following:
4.1 Diligently prepare and file with the Commission a registration statement
on the appropriate form under the Securities Act, which registration
statement will comply as to form in all material respects with the
requirements of the applicable form and will
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<PAGE> 8
include all financial statements required by the Commission to be filed
therewith, and diligently prepare and file such amendments and supplements
to said registration statement and the prospectus used in connection
therewith as may be necessary to cause such registration statement to
become effective and remain effective for so long as such registration is
required to remain effective pursuant to the terms hereof.
4.2 Make every reasonable effort to obtain a withdrawal of any order
suspending the effectiveness of a registration statement at the earliest
possible moment.
4.3 Furnish to each selling Holder without charge such number of copies of
each preliminary and final prospectus and such other documents as such
Holder may reasonably request to facilitate the public offering of his
Registrable Securities.
4.4 Enter into any reasonable underwriting agreement containing customary
terms required by the proposed underwriter for the selling Holders, if
any. Make reasonably available for inspection by a representative of, and
counsel for, any underwriter participating in any disposition pursuant to
a registration statement, all relevant financial and other records,
pertinent corporate documents and properties of the Company and cause the
officers, directors and employees of the Company to supply all relevant
information reasonably requested by such representative, counsel or any
such underwriter in connection with any such registration statement.
4.5 Use its best efforts to register or qualify the securities covered by said
registration statement under the securities or "blue-sky" laws of such
jurisdictions as any selling Holder may reasonably request, provided that
the Company will not be required to register or qualify the securities in
any jurisdictions which require it to qualify to do business or subject
itself to general service of process therein.
4.6 Immediately notify each selling Holder, at any time when a prospectus
relating to his Registrable Securities is required to be delivered under
the Securities Act, of the happening of any event as a result of which
such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and, at the
request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.7 Cause all such Registrable Securities to be quoted on the market or listed
on each securities exchange, as applicable, on which similar securities
issued by the Company are then quoted or listed.
4.8 If requested by the Holders in connection with any Required Registration,
the Company will use its best efforts to cause (a) counsel for the Company
to deliver an opinion relating to the registration statement and
Registrable Securities, in customary form,
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<PAGE> 9
(b) its officers to execute and deliver all customary documents and
certificates requested by a representative of the Holders or any
underwriter, as applicable, and (c) its independent public accountants to
provide a comfort letter in customary form.
4.9 Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission.
5. INDEMNIFICATION; CONTRIBUTION
5.1 Indemnification. Incident to any registration statement referred to in
this Agreement, and subject to applicable law, the Company will enter into
a commercially reasonable indemnification arrangement with each
underwriter and will indemnify and hold harmless each Holder (including
its partners, directors, officers, employees and agents) and each person
who either controls such Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is under common control with, or is
controlled by, such Holder, together with the partners, directors,
officers, employees and agents of such controlling persons (collectively,
the "Controlling Persons"), from and against any and all losses, claims,
damages, expenses and liabilities, joint or several (including any
investigation, legal and other expenses incurred in connection with, and
any amount paid in settlement of (subject to Section 6(b) below), any
action, suit or proceeding or any claim asserted), to which any
Controlling Person may become subject under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages, expenses
or liabilities arise out of or are based on any of the following
statements, omissions, or violations (each a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement (including any related preliminary or definitive
prospectus, any amendment or supplement to such registration statement or
prospectus and any documents incorporated in such registration statement
by reference) (collectively, the "Registration Documents"); (ii) any
omission or alleged omission to state in any such Registration Document a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; or (iii) any violation by the Company of the
Securities Act, the Exchange Act, any state securities or "blue sky" laws
or any rule or regulation thereunder in connection with such registration;
provided, however, that the Company will not be liable to the extent that
such loss, claim, damage, expense or liability arises from and is based
on: (A) a Violation which occurs in reliance on and in conformity with
written information furnished to the Company, expressly for use in any
registration statement, by any Holder; or (B) any preliminary prospectus,
to the extent that any such loss, claim, damage or liability results
solely from an untrue statement of a material fact contained in, or the
omission of a material fact from, such preliminary prospectus which untrue
statement or omission was corrected in the amended preliminary prospectus
or in the final prospectus, if a Holder sold Registrable Securities to the
person alleging such loss, claim, damage or liability without sending or
giving, at or prior to the written confirmation of such sale, a copy of
such amended preliminary prospectus or such final prospectus (so long as
the Company had previously furnished
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copies of such amended preliminary prospectus or final prospectus to such
Holder). With respect to a Violation specified in clause (A) above, the
selling Holder who provided such written information will indemnify and
hold harmless the Company (including its partners, directors, officers,
employees and agents), each other Holder of Registrable Securities
(including its partners, directors, officers, employees and agents), and
each Controlling Person of the Company and such other Holder, from and
against any and all losses, claims, damages, expenses and liabilities,
joint or several, to which they, or any of them, may become subject under
the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, to the same extent provided
in the immediately preceding sentence (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of (subject to Section 6(b) below), any action, suit or
proceeding or any claim asserted). In no event, however, will the
liability of a Holder for indemnification under this Section 6(a) exceed
the lesser of: (i) that proportion of the total of such losses, claims,
damages or liabilities indemnified against as is equal to the proportion
of the total amount of securities sold under such registration statement
which is being sold by such Holder; or (ii) the net proceeds received by
such Holder from its sale of Registrable Securities under such
registration statement.
5.2 Indemnification Procedures. Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 6, deliver to the indemnifying party a written notice
of the commencement of such action, and the indemnifying party will have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly notified,
assume the defense thereof with counsel mutually satisfactory to all
parties; provided, however, that an indemnified party will have the right
to retain its own counsel, with the fees and expenses to be paid by the
indemnifying party if, in the reasonable opinion of the indemnified party,
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to the actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable period of
time of the commencement of any such action will relieve such indemnifying
party of liability to the indemnified party under this Section 6 only to
the extent such failure was prejudicial to the indemnifying party's
ability to defend such action, but the omission so to deliver written
notice to the indemnifying party will not relieve the indemnifying party
of any liability that it may have to any indemnified party otherwise than
under this Section 6. The indemnifying party will not be liable for any
amounts paid in settlement of any proceeding effected without its consent,
which consent will not be unreasonably withheld.
5.3 Contribution. If the indemnification provided for in Section 6(a) above
for any reason is held by a court of competent jurisdiction to be
unavailable to an indemnified party in respect of any losses, claims,
damages, expenses or liabilities, then each indemnifying
10
<PAGE> 11
party under this Section 6, in lieu of indemnifying such indemnified party
thereunder, will contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, expenses or
liabilities: (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the other selling Holders
from the offering; or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company and the other selling Holders
in connection with the Violation(s) which resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
selling Holders will be deemed to be in the same respective proportions as
the net proceeds from the offering (before deducting expenses) received by
the Company and the selling Holders, in each case as set forth in the
table on the cover page of the applicable prospectus, bear to the
aggregate public offering price. The relative fault of the Company and the
selling Holders will be determined by reference to, among other things,
whether the Violation relates to information supplied by the Company or
the selling Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 6(c) were determined by
pro rata or per capita allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
the immediately preceding paragraph. In no event, however, will a Holder
be required to contribute any amount under this Section 6(c) in excess of
the lesser of: (i) that proportion of the total of such losses, claims,
damages or liabilities indemnified against equal to the proportion of the
total amount of securities sold under such registration statement which is
being sold by such Holder; or (ii) the net proceeds received by such
Holder from its sale of Registrable Securities under such registration
statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
5.4 Miscellaneous. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in this
Section 6 will be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. The indemnification and contribution provided for in this
Section 6 will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified parties or any
officer, director, employee, agent or Controlling Person of the
indemnified parties.
6. RULE 144 REQUIREMENTS
If the Company becomes, and for so long as it remains, subject to the
reporting requirements of either Section 13 or 15(d) of the Exchange Act, the
Company will use its best efforts to file with the Commission such information
as the Commission may require under
11
<PAGE> 12
either of said Sections; and in such event, the Company will use its best
efforts to provide such current public information as may be required as a
condition to the availability of Rule 144 under the Securities Act (or any
successor or similar exemptive rules hereafter in effect). The Company will
furnish to any Holder upon request a written statement executed by the Company
as to the steps it has taken to comply with the current public information
requirements of Rule 144 or such successor rules.
7. TRANSFER OF REGISTRATION RIGHTS
The registration rights of the Holders under this Agreement may be
transferred to any transferee of the Registrable Securities; provided that such
transferee will give its written consent to be bound by the terms of this
Agreement. Each such transferee will be deemed to be a "Holder" for purposes of
this Agreement. The transferring Holder will notify the Company at the time of
such transfer.
8. MARKET STAND-OFF
Each Holder agrees, if requested by any underwriter, not to sell or
otherwise transfer or dispose of any securities of the Company held by it for up
to 90 days (unless the managing underwriter (if any) reasonably requests a
longer period not to exceed 120 days) following the effective date of any
registration statement of the Company filed under the Securities Act and in
which the Holders participate pursuant to this Agreement, subject to the
condition that all directors and executive officers of the Company enter into
similar agreements.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Holders as follows:
9.1 The execution, delivery and performance of this Agreement by the Company
have been duly authorized by all requisite action, will not violate any
provision of law, any order of any court or other agency of government,
the Certificate of Incorporation, bylaws or any provision of any
indenture, agreement or other instrument to which it or any of its
properties or assets is bound, and will not conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or result
in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company.
9.2 This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy and other laws of general application
relating to creditor's rights or general principles of equity.
10. MISCELLANEOUS
10.1 Survival of Covenants. All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective
12
<PAGE> 13
successors and assigns of the parties hereto (including without limitation
transferees of any Registrable Securities), whether so expressed or not.
10.2 Notices and Demands. Any notice or demand which, by any provision of this
Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required to be
given will be deemed to have been sufficiently given or served and
received for all purposes when delivered in hand, by facsimile
transmission with receipt acknowledged or by express delivery providing
receipt of delivery, to the following addresses and numbers: if to the
Company, 2101 E. Fourth Street, Suite 202, Santa Ana, California 92705, or
at any other address designated by the Company to the Holders in writing;
if to a Holder, at its mailing address or facsimile number shown on the
signature page hereto, or at any other address or facsimile number
designated by such Holder to the Company and the other Holders in writing;
and if to an assignee of a Holder, at its address or facsimile number as
designated to the Company and the other Holders in writing.
10.3 Governing Law. This Agreement will be deemed to be a contract made under,
and will be construed in accordance with, the internal laws of the State
of Delaware.
10.4 Severability. If any provision of this Agreement will be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability will attach only to such provision and will not in any
manner affect or render illegal, invalid or unenforceable any other
provision of this Agreement, and this Agreement will be carried out as if
any such illegal, invalid or unenforceable provision were not contained
herein.
10.5 Successors and Assigns. This Agreement will inure to the benefit and be
binding on the successors, assigns and transferees of each of the parties.
10.6 Amendment. This Agreement may be amended only with the prior written
consent of the Company, the Holders of a majority in interest of the
Registrable Securities and, provided that at the time of such amendment
the Initial Holders hold at least ten percent (10%) of the Registrable
Securities, a majority in interest of the Initial Holders.
10.7 Counterparts. This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed will be deemed to be an original and all of which taken together
will constitute one and the same agreement.
10.8 Headings. The headings in this Agreement are for convenience of reference
only and do not limit or otherwise affect the meaning hereof.
10.9 Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto with respect to their registration rights with respect to any
securities of the Company or any of its subsidiaries or affiliates. There
are no restrictions, promises, warranties or undertakings, other than
13
<PAGE> 14
those set forth or referred to herein with respect to the Registrable
Securities. This Agreement is intended to amend the Registration Rights
Agreement of Holdings and the Membership Unitholders Agreement of
Intermediate and supersede any inconsistent provisions with respect to
such registration rights and to supersede any other agreements between any
Holder and the Company or any of its subsidiaries or affiliates with
respect to registration rights covering any of their respective
securities.
[SIGNATURE PAGES FOLLOW]
14
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement which will be effective as of the closing of the Company's IPO.
ACME COMMUNICATIONS, INC.
By:
------------------------------------
Name: Thomas D. Allen
Title: Chief Financial Officer
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management
Partners, L.P, its general partner
By:
------------------------------------
Name: Brian McNeill
Title: G.P.
ALTA SUBORDINATED DEBT
PARTNERS III, L.P.
By: Alta Subordinated Debt
Management III,
L.P., its general partner
By:
------------------------------------
Name: Brian McNeill
Title: G.P.
ALTA-COMM S BY S, LLC
By:
------------------------------------
Brian McNeill, a member
c/o Alta Communications
One Post Office Square
Suite 3800
15
<PAGE> 16
Boston, MA 02109
Attn: Brian W. McNeill
Tel: (617) 482-8020
Fax: (617) 482-1944
CEA CAPITAL PARTNERS USA, L.P.
By: CEA Management Corp., its authorized
representative
By:
------------------------------------
Name: James J. Collis
Title: Executive Vice President
CEA CAPITAL PARTNERS USA CI, L.P.,
a Cayman Islands limited partnership
By: CEA Management Corp., its authorized
representative
By:
------------------------------------
Name: James J. Collis
Title: Executive Vice President
c/o CEA Capital Partners
17 State Street, 35th Floor
New York, NY 10004
Attn: James Collis
Tel: (212) 425-1400
Fax: (212) 425-1420
BANCBOSTON VENTURES INC.
By:
------------------------------------
Name: Lars A. Swanson
Title: Vice President
c/o BancBoston Capital
175 Federal Street
Boston, MA 02110
Attn: Sanford Anstey
16
<PAGE> 17
Tel: (617) 434-2509
Fax: (617) 434-1153
----------------------------------------
Jamie Kellner
c/o ACME Communications, Inc.
2101 E. Fourth Street, Suite 202
Santa Ana, CA 92705
----------------------------------------
Tom Allen
c/o ACME Communications, Inc.
2101 E. Fourth Street, Suite 202
Santa Ana, CA 92705
----------------------------------------
Doug Gealy
c/o ACME Communications, Inc.
2101 E. Fourth Street, Suite 202
Santa Ana, CA 92705
ACME CAPITAL PARTNERS
By:
------------------------------------
Name: William K. Lisecky
Title: EVP
c/o CEA Inc.
East Kennedy Boulevard
Suite 3300
Tampa, Florida 33602
PEREGRINE CAPITAL, INC.
By: /s/ DANIEL J. ALDERMAN
------------------------------------
Name: Daniel J. Alderman
Title: Executive Vice President
17
<PAGE> 18
----------------------------------------
Thomas J. Embrescia, individually
----------------------------------------
Michael Roberts, individually
----------------------------------------
Steve Roberts, individually
1994 EMBRESCIA FAMILY TRUST F/B/O
MATTHEW EMBRESCIA, KEY TRUST
COMPANY OF OHIO, N.A., TRUSTEE
By:
------------------------------------
Name:
Title:
1994 EMBRESCIA FAMILY TRUST F/B/O
MEGAN EMBRESCIA, KEY TRUST
COMPANY OF OHIO, N.A., TRUSTEE
By:
------------------------------------
Name:
Title:
1994 EMBRESCIA FAMILY TRUST F/B/O
AMANDA EMBRESCIA, KEY TRUST
COMPANY OF OHIO, N.A., TRUSTEE
By:
------------------------------------
Name:
Title:
18
<PAGE> 19
LARRY S. BLUM LIVING TRUST
By:
------------------------------------
Name:
Its: Trustee
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Investment Management Company,
as investment advisor
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company,
as investment advisor
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
CONTINENTAL CASUALTY COMPANY
By:
------------------------------------
Name:
Title:
Its:
19
<PAGE> 20
AMERICAN HIGH-INCOME TRUST
By: Capital Research &
Management Company
as Investment Advisor
By:
------------------------------------
Name:
Title:
Its:
AMERICAN VARIABLE INSURANCE SERIES-
HIGH-YIELD BOND
By: Capital Research &
Management Company
as Investment Advisor
By:
------------------------------------
Name:
Title:
Its:
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By:
------------------------------------
Name:
Title:
Its:
CANYON VALUE REALIZATION
FUND (Cayman) LTD., a Cayman Corporation
By:
------------------------------------
Name:
Title:
Its:
VALUE REALIZATION FUND, L.P.,
a Delaware limited partnership
By: CanPartners Investments III, L.P.,
a California limited partnership
Its: General Partner
By: Canyon Capital Advisors, LLC
a Delaware limited liability
company
Its: General Partner
By:
-------------------------------
Name:
Its:
20
<PAGE> 21
JONATHAN PINCH & LINDA PINCH
----------------------------------------
----------------------------------------
POST TOTAL RETURN FUND, L.P.
By:
------------------------------------
Name:
Title:
Its:
21
<PAGE> 1
EXHIBIT 10.65
STATION AFFILIATION AGREEMENT
Dated as of April 9, 1998
ACME Television Holdings
10829 Olive Boulevard, Suite 202
St. Louis, MO 63141
Attention: Doug Gealy
The following shall comprise the agreement between The WB Television Network
Partners, L.P. dba The WB Television Network ("WB," "we," or "us"), and ACME
Television Licensee of Utah ("Affiliate" or "you") for the affiliation of your
television station KUWB ("Station") with WB for carriage of WB programming. The
Federal Communications Commission ("FCC") has issued a broadcast license
("License") to you to operate Station in Salt Lake City, Utah, the community in
which Station is licensed by the FCC ("Community of License"). All references in
this Agreement to "WB program(s)" and "WB programming" and any variations
thereof shall mean the programming made available by WB under this Agreement.
1. WB Programming: WB will make available to Affiliate WB programs for free
over-the-air broadcast and broadcast by any other means by Station in the
Community of License during the term of this Agreement. During such term,
except as otherwise provided herein, WB grants Affiliate the exclusive
right to have Station broadcast the WB programming in the Community of
License only as scheduled by WB over free over-the-air television and by
such other technological means as are available to Affiliate for broadcast
in the Community of License so long as Station broadcasts the WB
programming for over-the-air television. Notwithstanding the foregoing,
until such time that WB offers exclusivity against importation of WB
programming carried by the signal of WGN to its affiliates, WB may allow
WB programming carried by the signal of WGN to be imported into the
Community of License. WB shall have the sole discretion to select,
schedule, substitute and/or withdraw WB programming or any portion(s)
thereof. WB shall also have the right to authorize any television
broadcasting station, regardless of the community in which it is licensed
by the FCC, to broadcast any presentation of a subject we deem to be of
immediate national significance including, but not limited to, a
Presidential address. Except as provided herein, during the term of this
Agreement Affiliate shall be the sole affiliate of WB for transmission for
exhibition on television of WB programming in the Community of License.
2. Program Carriage:
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<PAGE> 2
(a) We agree to make available for broadcast by Station WB
programming for the hours programmed by WB at the times and dates
scheduled by WB throughout the term of this Agreement. You
acknowledge that the times and roll-out dates set forth in this
Agreement are approximate only and you agree to have Station
broadcast WB programs irrespective of whether WB meets, fails to
meet or otherwise varies from the anticipated program schedule
set forth herein; provided, however, that WB hereby agrees not to
accelerate such anticipated program schedule. WB will not
program the morning or afternoon day-parts (with the exception of
Kids' WB programming) or, access, or late-night day-parts, unless
WB first receives the consent of the WB Affiliate's Council. To
the extent WB makes available such WB programming for broadcast,
this Agreement both obligates us to make available such WB
programs to Station and obligates Station to broadcast such WB
programs over-the-air pursuant to the terms of this Agreement. WB
acknowledges that the sixth night of WB prime time programming
will commence at the start of WB's 1999/2000 broadcast year, and
such sixth night of programming will be broadcast on Friday
night.
(b) Subject to the exceptions set forth in subparagraph 2(e) and the
right of preemption set forth in subparagraph 2(f), Station shall
broadcast WB programs on the dates and at the times scheduled by
WB. Station shall broadcast WB programs in their entirety,
including but not limited to WB commercial announcements, WB
identifications, program promotional material, and credit
announcements contained in such programs, without interruption or
deletion or addition of any kind, except for the commercial
announcements that Station is allowed to add pursuant to
Paragraph 5. Notwithstanding the foregoing, you may substitute
other WB promotional announcements in lieu of program promotional
material that is inaccurate as it pertains to Station's schedule.
No commercial announcement, promotional announcement or public
service announcement will be broadcast by Station during any
interval within a WB program, which interval is designated by WB
as being for the sole purpose of making a station identification
announcement.
(c) The initial Scheduled Program Times of WB programming and the
anticipated roll-out dates of that programming are set forth as
follows (the specified times apply for the Eastern and Pacific Time
Zones; the Mountain and Central Time Zones are one hour earlier for
Prime Time and Latenight programming only, except as otherwise
agreed by us):
Prime Time: Sunday: 7:00 p.m. - 10:00 p.m Monday - Saturday:
8:00 p.m.- 10:00 p.m. As of the commencement of the
1998/1999 Television Broadcast Year, WB is providing
programming for broadcast by its affiliates on five
nights during each calendar week (i.e. Sunday through
Thursday). WB will roll-out one
2
<PAGE> 3
additional night of programming during the 1999/2000
Broadcast Year and one additional night of programming
during the 2000/2001 Broadcast Year.
Children's: Monday through Friday Mornings: One hour of programming
broadcast between: 7:00 a.m. - 8:00 a.m.; or 7:30 a.m. -
8:30 a.m.; or 8:00 a.m. - 9:00 a.m. (at WB's election)
Monday through Friday Afternoons: Two hours of
programming broadcast between: 3:00 p.m. - 5:00 p.m.
Saturday Morning: Four hours of programming broadcast at
8:00 a.m. - 12:00 noon. However, if Affiliate believes
that the Children' programming block should run on
Sunday instead of Saturday, WB will discuss with
affiliate such a move of the programming block from
Saturday to Sunday, and will consider granting such a
move, in good faith, after taking into account the
business interests of WB.
Latenight: 11:00 p.m. - 12:00 midnight Monday through Friday,
commencing on a date to be determined by WB, subject to
the approval of the WB Affiliate's Council
(d) During such time that WB is providing 19 hours of programming per
week to Station 3 hours(of the total of 19 hours) will be
programming which is categorized as Children's
educational/informational programming. However, at such time that
WB provides only 16.5 hours of Children's programming to Station
then WB, at its sole election, may determine to provide only 30
minutes of educational/informational programming per week to
Station.
(e) You confirm that as of the date of this Agreement you have no
commitments, except those listed in Schedule 1 hereto, which
would impede Station's broadcasting all WB programming made
available during the term of this Agreement. If any WB
programming is not broadcast by you because of any such
commitment expressly described in Schedule 1 (but excluding
extensions by exercise of options by Affiliate [but not by the
programming licensor] or otherwise), then such programming shall
be broadcast in a time period upon which you and we shall
mutually agree and which shall be of quality and rating value
comparable to that of the Scheduled Program Times. These programs
will not be considered preempted for purposes of subparagraph
2(f).
(f) Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall be construed to prevent or hinder Affiliate
from (i) rejecting or refusing any WB program which Affiliate
reasonably believes to be unsatisfactory or unsuitable or contrary
to the public interest or (ii) substituting a program which, in
Affiliate's opinion, is of greater local or national importance. In
such an
3
<PAGE> 4
event, you shall provide us with advance written notice of any such
rejection, refusal or substitution, no later than 14 days prior to
the air date of such programming, except where the nature of the
substitute program makes such notice impracticable (e.g., coverage
of breaking news or other unscheduled events) or the programming has
not been made available to you by such date, in which cases you
agree to give us as much advance notice as the circumstances permit.
Such notice shall include a statement of the reasons you believe
that the rejected WB programming is unsatisfactory or unsuitable or
contrary to the public interest, and/or that a substituted program
is of greater local or national importance. In view of the limited
amount of WB programming to be supplied pursuant to this Agreement
(at least until such time as the full WB programming schedule has
been rolled out) you acknowledge that you do not foresee any need to
substitute programming of greater local or national importance for
WB programming, except in those circumstances requiring live
coverage of fast-breaking news events or very infrequent special
events.
To the extent you substitute another program for a WB program as
permitted under subparagraph 2(f)(ii), then you will broadcast such
omitted program and the commercial announcements contained therein
(or any replacement programming provided by WB and the commercial
announcements contained therein) during a time period upon which you
and we shall promptly and mutually agree and which shall be of
quality and rating value comparable to that of the preempted
program's Scheduled Program Time. In the event that the parties do
not promptly agree upon such a time period after reasonable
consultation in good faith and after taking into account the
practical alternatives under the circumstances, then, without
limiting any other rights of WB under this Agreement or otherwise,
we shall have the right to license the broadcast rights to the
applicable omitted programming (or replacement programming) to
another television station located in the Community of License.
Except as provided in Paragraph 2(e), above, in addition, if three
or more episodes of a program series are preempted by you as
permitted hereunder in any thirteen-week period, for any reasons
other than force majeure as provided in Paragraph 6, we shall have
the right, upon 60 days prior written notice, to terminate your
right to broadcast that program series and to withdraw all future
episodes of that series. Such thirteen-week periods shall be
measured consecutively from the first broadcast date of the program
series in question. If we subsequently place such a series on
another station in the Community of License, we reserve the right
not to offer you the broadcast rights to that series for subsequent
broadcast seasons.
In addition to all other remedies, to the extent one or more
episodes of a program series is preempted by you in violation of
(i.e., other than as permitted under) this Paragraph 2, we shall
have the right, upon 30 days prior written notice, to terminate your
right to broadcast the remainder of the program series and withdraw
all future episodes of that series from you.
4
<PAGE> 5
(g) Nothing in this Agreement shall be construed to prevent or hinder
WB from (i) substituting one or more WB programs for previously
scheduled WB programs, in which event WB will make the
substituted programs available to Station pursuant to the
provisions of Paragraph 1 and Paragraph 3; (ii) canceling one or
more WB programs; or (iii) postponing any scheduled roll-out
dates of WB programming. Further, nothing in this Agreement
shall be construed to obligate WB (x) to provide a minimum or
specific number of WB programs; (y) to commence providing WB
programming on any particular date; or (z) to expand the amount
of WB programming pursuant to a specified timetable.
3. Delivery: WB agrees to make available the WB programming for satellite
transmission. WB shall incur no costs regarding the satellite downlink and
broadcast by Station; Station shall incur no up-link costs with regard to
the delivery of the WB programming. WB agrees to provide closed captioning
for substantially all WB programming that is not exempt from captioning
requirements under FCC rules.
4. Promotion:
(a) We will provide you with on-air promotional announcements ("WB
Promos") for WB programming, which WB Promos are intended for
broadcast during Station's broadcast of non-WB programming. You
agree to provide an on-air promotional schedule consistent with
our recommendations, and consistent with Station's reasonable
business judgment. You shall maintain complete and accurate
records of all WB Promos that are broadcast. Upon request by WB
for those records, you shall provide copies of all such records
to WB within two weeks of such request.
(b) You shall budget Station's advertising availabilities in such a
manner as to enable Station to broadcast additional WB Promos
during periods in which Station is deemed a "Subperformer."
Station shall be deemed to be a "Subperformer" from the time its
"sweeps rating" is below the average prime time rating for all WB
affiliated broadcast stations until such time as Station's sweeps
rating is no longer below the average prime time rating for all
WB affiliated broadcast stations. The Station's sweeps rating
means the Station's average A.C. Nielsen rating for the most
recently completed sweeps period for adults 18-49 for all prime
time hours programmed by WB. For such time as Station remains a
Subperformer, Station shall: (i) broadcast, during each one-half
hour of all periods of each day that Station is broadcasting
non-WB programming, at least one (1) 30-second Promo (or Promos
aggregating 30 seconds, to the extent we so elect) for Station's
local, syndicated or WB programming; and (ii) broadcast during
all periods when Station is broadcasting non-WB programming WB
Promos for not less than:
Prime Time Hours Programmed by WB
2 hours - 20% of 100%
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<PAGE> 6
4 hours - 25% "
6 hours - 30% "
8 hours - 35% "
10 hours - 40% "
12 hours* - 45% "
(* 12 or more hours)
(the "Applicable Percentage") of the total, aggregate gross ratings
points ("GRPs") for all the promotional announcements broadcast by
Station ("Aggregate Promotional GRPs") within the periods in which
non-WB programming is being broadcast. The specific WB Promos
broadcast by Station and the number of broadcasts of each WB Promo
may be specified by WB and the broadcast of the WB Promos shall be
made so that the Aggregate Promotional GRPs allocated to WB Promos
are distributed fairly and reasonably across the periods when non-WB
programming is being broadcast. For such time as Station's sweeps
rating ranks Station within the bottom 50% (ranked highest to
lowest) of those WB affiliated broadcast stations that are
Subperformers, then the Applicable Percentage for Station shall be
not less than 55% of 100% of the Aggregate Promotional GRPs. The WB
Promos broadcast during each half-hour of non-WB programming, as
required by this subparagraph 4(b), may be counted toward Station's
Applicable Percentage. Station shall continue to air WB Promos under
this schedule until Station is no longer a Subperformer, as defined
above.
(c) In addition to providing WB Promos, we shall make available for
your use, at reasonable cost, such other promotional and sales
materials as we and you may mutually consider appropriate. You
shall not delete any copyright, trademark, logo or other notice,
or any credit included in any such materials relating to WB, and
you shall not exhibit, display, distribute or otherwise use any
trademark, logo or other material or item delivered pursuant to
this Paragraph 4 or otherwise, except as instructed by us at the
time.
(d) Commencing on the first date that WB programming is aired by Station
and for the remaining term of this Agreement, Station shall identify
itself as a WB affiliate, both on and off-the-air.
5. Commercial Announcements:
(a) With respect to WB programming, the parties to this Agreement shall
be entitled to insert the following number of commercial
announcements (Station's allotment includes station breaks but
excludes 5-second prime time station identification breaks at the
beginning of each hour):
(1) Prime Time (as defined in subparagraph 2(c)) hour (pro-rated
for half-hour programs):
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You shall have the right to insert six 30-second
commercial announcements. WB shall have the right to
insert at least nineteen 30-second commercial
announcements.
(2) Children's:
Weekday half-hour:
You shall have the right to insert six 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert six 30-second commercial
announcements.
Weekend half-hour:
You shall have the right to insert five 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert five 30-second commercial
announcements and one 15-second commercial.
(3) Latenight (as defined in subparagraph 2(c)):
You will receive half the total number of commercial
announcements as specified by WB or less as mutually
agreed to.
(b) If, because of the imposition of any law or regulation, the
amount of commercial advertising, commercial matter or other
non-program time included in WB programming is reduced for any
reason (including but not limited to the adoption or modification
of statutes or regulations or any other governmental action),
then we shall be entitled to reduce the number of commercial
announcements available to you to the extent necessary to provide
WB and Affiliate with the same proportionate amount of commercial
time (inclusive of station breaks with respect to Affiliate) that
each party is entitled to under this Agreement.
(c) Your broadcast over Station of the commercial announcements
included by us in WB programming is of the essence to this
Agreement, and nothing contained in this Agreement (other than in
subparagraph 2(f)) shall limit our rights or remedies relating to
your failure to so broadcast said commercial announcements. You
shall maintain complete and accurate records of all commercial
announcements broadcast as provided herein. Within two weeks
following each request by us therefor, you will submit copies of
all such records to WB.
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6. Force Majeure: WB shall not be liable for failure to make available
any programming or any portion(s) thereof, and Station shall not be
liable for failure to broadcast any such programming or any portion(s)
thereof, by reason of any act of God, equipment failure, action or
claims by any third person, labor dispute, law, governmental regulation
or order, or other cause beyond either party's reasonable control
("force majeure event"). If due to any force majeure event, we
substantially fail to make available all of the programming to be
delivered to Affiliate under the terms of this Agreement, or you
substantially fail to broadcast such programming as scheduled by WB for
four consecutive weeks, or for six weeks in the aggregate during any
12-month period, then the "non-failing" party may terminate this
Agreement upon thirty 30 days prior written notice to the "failing"
party so long as such notice is given at any time prior to the
"non-failing" party's receipt of actual notice that the force majeure
event(s) has ended; provided further, however, that notwithstanding the
above provisions, you shall not have any right to so terminate this
Agreement, upon a force majeure event or otherwise, if we: (i) fail to
make available a minimum or specific number of WB programs; (ii) fail
to commence making available WB programming on any particular date;
(iii) fail to expand the amount of WB programming pursuant to a
specified timetable; (iv) substitute one or more WB programs for
previously scheduled WB programs; (v) cancel one or more WB programs;
or (vi) postpone the roll-out of any WB programming.
7. Assignment or Transfer of Affiliate Agreement and/or Station License:
(a) Assignment or Transfer of Affiliation Agreement: This Agreement
shall not be assigned by Affiliate without the prior written consent
of WB. Any purported assignment by Affiliate without such consent
shall be null and void, shall not be enforceable against WB, and
shall not relieve Affiliate of all its obligations hereunder.
(b) Assignment or Transfer of Station License: If any application is
made to the Federal Communications Commission (FCC) concerning a
purported, attempted or actual transfer of control or assignment of
the Station license, you shall notify us immediately in writing of
the filing of such application. Unless the transfer of control or
assignment is one provided for by Section 73.3540 (f) of the FCC's
current rules and regulations (a "short form" assignment or transfer
of control that does not involve a material assignment or transfer
of control), we shall have the right to terminate this Agreement
upon twenty (20) days' advance notice to you, at any time after the
filing of such application. If WB does not terminate this Agreement
on or before twenty days before the effective date of such transfer,
this Agreement shall be deemed to have been fully assigned to the
transferee or assignee of Station's license and such transferee or
assignee will assume and perform all of the obligations and duties
contained in this Agreement without limitation of any kind, as of
the effective date of transfer. In addition, if Licensee fails,
prior to the effective date of the transfer, to procure in a written
form satisfactory to WB the agreement of the assignee or transferee
to assume and perform this Agreement in its entirety without
limitation of any kind, or fails to
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immediately notify WB of the application to transfer control or
assign the Station license, then Licensee shall remain fully
responsible for the full performance of all provisions of the
Agreement during the full term of the Agreement as set forth in
Paragraph 9, and in the event of non-performance, Licensee shall be
considered in material breach of this Agreement and WB shall have
all rights and remedies available for such breach, including but not
limited to specific performance and damages.
8. Unauthorized Copying: You shall not, and shall not cause or authorize
others to record, copy or duplicate any programming or other material
we furnish pursuant to this Agreement, in whole or in part, and you
shall take all reasonable precautions to prevent any such recording,
copying or duplication. Notwithstanding the foregoing, if Station is
located in the Mountain Time Zone you may pre-record WB programming for
later broadcast at the times scheduled by us. You shall erase all such
pre-recorded programming promptly after its scheduled broadcast.
Notwithstanding the above provisions, Station may make a non-broadcast
quality recording of its entire broadcast day for archival, file and
reference purposes and uses only, which copy shall be kept in Station's
possession at all times.
9. Term:
(a) The term of this Agreement shall commence on April 9, 1998 (the
"Launch Date") and shall continue for 36 months thereafter (the
"initial period"). The term of this Agreement may be extended
for additional successive periods of two years each, by us, in
our sole discretion, giving written notice of such extension to
you at least 120 days prior to the expiration of the then-current
period; provided, however, that if, within 30 days of your
receipt of the notice of extension, you, in your sole discretion,
give us written notice that you reject such extension, then the
extension notice shall not be effective and this Agreement shall
terminate upon expiration of the then-current period.
(b) The "Launch Date" shall be defined as the date on which WB makes WB
programming available to Affiliate for broadcast by Station on a
regularly scheduled basis.
(c) Each "Contract Year" hereunder shall be an annual period during the
term of this Agreement. The First Contract Year is the annual period
beginning with the start date of the term of license; the Second
Contract Year is the annual period commencing one year after the
start date of the term of license, etc.
(d) WB shall, within its sole discretion and without liability, have the
right to terminate this Agreement so long as we (i) provide sixty
days prior written notice to you and (ii) are either: (A) ceasing
operation as a television network; or (B) substantially
restructuring the ownership of the television network.
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(e) Notwithstanding anything to the contrary contained in this
Agreement, upon the termination or expiration of the term of this
Agreement, all of your rights to broadcast or otherwise use any WB
program or any trademark, logo or other material or item hereunder
shall immediately cease and neither you nor Station shall have any
further rights whatsoever with respect to any such program,
trademark, logo, material or item.
10. Applicable Law: The obligations of you and WB under this Agreement are
subject to all applicable federal, state, and local laws, rules and
regulations (including, but not limited to, the Communications Act of
1934, as amended, and the rules, regulations and policies of the FCC)
and this Agreement and all matters or issues collateral thereto shall
be governed by the laws of the State of California without regard to
California's conflict of law rules. The California State Courts and
the U.S. District Courts located in California shall have jurisdiction
over the interpretation of this Agreement or with regard to any dispute
arising under this Agreement. The venue for any such action concerning
this Agreement shall be in the County of Los Angeles, California.
11. Station Acquisition by WB: During the term of this Agreement, WB agrees
that neither we nor Time Warner Inc. nor any of its subsidiary companies
will acquire, as defined by the attribution rules of the FCC, a television
broadcast station licensed in the Community of License. It is acknowledged
that Station WTBS in Atlanta is controlled by a Time Warner affiliated
company.
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12. Change in Operations:
(a) You shall notify WB immediately in writing if application is made to
the FCC to modify in a material manner the transmitter location,
power or frequency of Station such that Station's signal coverage of
its DMA market is materially diminished, or if Station changes its
program format from mainstream entertainment and/or news
programming. We shall have the right to terminate this Agreement,
upon 90 days' prior written notice, within 90 days after receiving
notice of the format change, or if no satisfactory arrangements are
made to cure Station's diminished signal coverage. Applications
related to Station's transition to digital television transmission
are not within the scope of this paragraph.
(b) At any time during the term if Station is off the air, or
operating at less than fifty percent (50%) of its licensed power,
for a period of 12 hours or longer, Station must immediately
notify WB. WB may terminate this agreement upon thirty (30) days
prior written notice in the event that Station is off the air for
a period exceeding seven (7) days or if is operating at less than
fifty percent (50%) of its full licensed power for a period
exceeding seven (7) days.
13. WB Affiliates Council: You, with the other affiliates of WB, shall form a
WB Affiliates Council (the "Council"), which shall be comprised of
representatives from five different affiliates of WB.
14. Non-Liability of Council Members: To the extent the Council and its
members are acting in their capacity as such, then the Council and each
member so acting shall not have any obligation or legal or other
liability whatsoever to you or to WB in connection with this Agreement,
including without limitation, with respect to the Council's or such
member's approval or non-approval of any matter, exercise or
non-exercise of any right or taking of or failing to take any other
action in connection therewith.
15. Warranties and Indemnities:
(a) WB agrees to indemnify, defend and hold Affiliate harmless against
and from all claims, damages, liabilities, costs and expenses
arising out of the use by Station under this Agreement of any WB
program or other material furnished by WB under this Agreement,
provided that Affiliate promptly notifies WB of any claim or
litigation to which this indemnity shall apply, and provided further
that Affiliate cooperates fully with WB in the defense or settlement
of such claim or litigation. Affiliate agrees to indemnify, defend
and hold WB harmless against and from all claims, damages,
liabilities, costs and expenses with respect to Affiliate's
operation of the Station or any material furnished, added or deleted
to or from WB programming by Affiliate. This indemnity shall not
apply to litigation expenses, including attorneys' fees, that the
indemnified party elects to incur on its own behalf. Except as
otherwise provided in this Agreement, neither Affiliate nor WB shall
have any rights against the other for claims by third
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persons, or for the failure to operate facilities or to furnish WB
programs if such failure is the result of a force majeure event as
defined in Paragraph 6. Furthermore, notwithstanding any other
provisions of this Agreement, Affiliate shall not have any rights
against WB for claims by third parties or Affiliate arising out of
any actions or omissions of WB permitted under subparagraph 2(g).
(b) You agree to maintain for Station such licenses, including
performing rights licenses as now are or hereafter may be in
general use by television broadcasting stations and are necessary
for you to broadcast the television programs which we furnish to
you hereunder. We will clear all music in the repertory of
SESAC, ASCAP and BMI used in our programs. You shall obtain and
pay all costs associated with any performing rights licenses
necessary to broadcast such music. You will be responsible for
all music license requirements (and all other permissions) for
any commercial or other material inserted by you within or
adjacent to WB programs in accordance with this Agreement.
(c) You warrant that the License is in good standing and you agree to
comply with all relevant statutes and FCC rules and requirements
so as to maintain the License in good standing. In the event you
are found to have materially violated any laws or FCC rules or
requirements (after the exhaustion of all appeals so long as
Station retains the License during the pendency of such appeal),
the effect of which is that Station is of materially less value
to us as a broadcaster of WB programming than as of the date of
this Agreement, then we shall have the right to terminate this
Agreement upon 30 days prior written notice.
(d) Each party hereto warrants that all information delivered by it to
the other in connection with this Agreement shall be true and
correct in all material respects.
(e) Each party hereto warrants to the other that execution of this
Agreement and performance of its obligations will not violate or
result in a default under (i) any material agreement or
instrument to which it is a party or (ii) any statute, ordinance,
governmental rule or regulation in any material respect, or
order, judgment, injunction, decree or ruling of any court or
administrative agency applicable to it, which default would
materially interfere with the performance of it's obligations
hereunder.
(f) Each party hereto warrants that it is not a party to any legal
action or other proceeding before any court or administrative agency
which could prohibit the performance of it's obligations under this
Agreement.
16. Retransmission Consent: If any law, governmental regulation or other
action permits you to elect to require any cable television system or
other multichannel video program distributor to obtain your consent to
such system's or distributor's retransmission of Station's broadcast of
either Station's signal as a whole or any WB programming included therein,
then Affiliate and WB agree to negotiate in good faith regarding whether
such
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consent is to be given (including without limitation, whether you shall or
shall not, in lieu of requiring consent, elect to require any cable system
to comply with any "must carry" rules, regulations or laws) and, if so,
the terms under which such consent is to be given (including without
limitation, the amount and type of compensation, if any, to be paid by the
system or distributor for such consent and whether any of that
compensation shall be shared between you and us). If WB and Affiliate do
not reach agreement with respect to all of the foregoing matters, then
without elimination to any of WB's other remedies, WB may terminate this
Agreement upon 30 days written notice to Affiliate. Nothing contained
herein shall authorize or allow the dissemination of WB programming by
Station outside of the DMA where Station is located, and any such
dissemination of WB programming outside of Station's DMA is prohibited.
17. Network Non-Duplication Protection: During the term of this Agreement,
Affiliate shall be entitled to network non-duplication protection, as
provided by Sections 76.92 through 76.97 of the FCC's rules, against
the presentation of any WB program by a cable system during the period
commencing one day before and ending fourteen (14) days after receipt
of such WB program by Station. The geographic zone of network
non-duplication protection shall be the Designated Market Area ("DMA")
(as defined by Nielsen) in which your Station is located or any lesser
zone mandated by Sections 76.92 and 73.658(m) of the FCC's rules.
Network non-duplication protection shall extend only to WB programs
that Station is carrying in accordance with the terms of this Agreement
and such protection shall be subject to the terms and provisions of
subparagraph 2(f). You are under no obligation to exercise in whole or
in part the network non-duplication rights granted herein.
Notwithstanding anything to the contrary in this paragraph, no
non-duplication protection is provided against the signal of WGN until
such time that WB offers exclusivity against the signal of WGN to its
affiliates.
18. Affiliation Ratings Payments. Affiliate agrees to pay to WB an annual
payment, based on the Station's television market ratings, for WB prime
time programming, commencing with the initial broadcast by Station of
such programming, all as defined and set forth in the "Annual Ratings
Payment" Exhibit attached hereto. These payments are intended to
compensate WB for the WB programming and are in no way intended to, nor
do they confer on WB, any ownership or other equity interest in
Station. If, subsequent to January 1, 2004, WB modifies the financial
model then in effect between WB and stations affiliated with WB at that
time ("WB Affiliates") or modifies the terms and conditions under which
WB affiliates pay compensation to WB (the "compensation modification"),
including but not limited to a modification of the allocation of
commercial time between the WB affiliates and WB, then: (i) WB will
provide Affiliate with reasonable notice of the compensation
modification; and, (ii) Affiliate shall have the opportunity to either
elect to participate in the compensation modification or to opt out of
the compensation modification by advising WB in writing that Affiliate
has elected not to participate in the compensation modification. Upon
receipt of Affiliate's election, WB may: (i) accept Affiliate's
election to opt out of the compensation modification; or (ii) terminate
this Agreement upon 60 days prior written notice.
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19. Notices and Reports:
(a) In addition to any other reports or forms requested herein, you will
provide to us in writing, in the manner reasonably requested by WB,
such reports covering WB programs broadcast by Station as we may
request from time to time. To the extent we provide you forms for
such purpose, you shall provide such reports on these forms.
(b) All notices, reports or forms required or permitted hereunder to
be in writing shall be deemed given when personally delivered
(including, without limitation, by overnight courier or other
messenger or upon confirmed receipt of facsimile copy) or on the
date of mailing postage prepaid, addressed as specified below, or
addressed to such other address as such party may hereafter
specify in a written notice. Notice to Affiliate shall be to the
address set forth for Affiliate on page 1 of this Agreement.
Additionally, notice will be sent to ACME Television Holdings,
10829 Olive Boulevard, Suite 202, St. Louis, MO 63141,
Attention: Tom Allen. Notice to WB shall be to: The WB
Television Network, 4000 Warner Boulevard, Burbank, California,
91522, Attention: General Counsel.
20. Miscellaneous:
(a) Nothing contained in this Agreement shall create any partnership,
association, joint venture, fiduciary or agency relationship between
the parties hereto.
(b) Nothing contained in this Agreement nor the conduct of any
officer, director, agent or employee of either WB or Affiliate
shall be deemed to create or to constitute ownership by WB, in
whole or in part, of Affiliate, Station or the License or in any
way constitute a derogation of the rights, duties and
responsibilities imposed upon Affiliate. Nothing in this
Agreement shall be deemed to delegate to WB, directly or
indirectly, any right to control the operations of Station.
(c) You shall at all times permit us, in connection with WB programming,
without charge, to place on, maintain and use at Station's premises,
at our expense, such equipment as WB shall reasonably require for
the distribution of WB Network programming. Station shall operate
such equipment for us, to the extent we reasonably request, and no
fee shall be charged by Station therefor.
(d) No waiver of any failure of any condition or of the breach of any
obligation hereunder shall be deemed to be a waiver of any preceding
or succeeding failure of the same or any other condition, or a
waiver of any preceding or succeeding breach of the same or any
other obligation.
(e) Each and all of the rights and remedies of WB and Affiliate under
this Agreement shall be cumulative, and the exercise of one or more
of said rights or remedies
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shall not preclude the exercise of any other right or remedy under
this Agreement, at law or in equity. Notwithstanding anything to the
contrary contained in this Agreement, in no event shall either party
hereto be entitled to recover any lost profits or consequential
damages because of a breach or failure by the other party, and
except as expressly provided in this Agreement to the contrary,
neither WB nor Affiliate shall have any right against the other with
respect to claims by any third person or other third entity.
(f) Paragraph headings are included in this Agreement for convenience
only and shall not be used to interpret this Agreement or any of the
provisions hereof, nor shall they be given any legal or other
effect.
(g) As of the date hereof, this Agreement, including all Exhibits
attached hereto, constitutes the entire understanding between WB
and Affiliate concerning the subject matter hereof and shall not
be amended, modified, changed, renewed, extended or discharged
except by an instrument in writing signed by the parties or as
otherwise expressly provided herein. No inducement,
representations or warranties except as specifically set forth
herein have been made by either party to this Agreement to the
other. This Agreement replaces any and all prior and
contemporaneous agreements, whether oral or written, pertaining
to the subject matter hereof.
(h) This Agreement may be executed in counterparts, with the Agreement
being effective when each party hereto has executed a copy and
delivered that copy to the other party hereto.
(i) WB agrees to make WB programming available to Affiliate in
digital format, on a timetable and in a format determined by WB.
WB will consult with Affiliate concerning its plans for digital
production and delivery, including the transmission format to be
employed. After the inception of Affiliate's broadcasts on its
FCC-assigned digital frequency (the "DTV Channel"), Affiliate
agrees to carry WB programming that is supplied in digital format
on the DTV Channel. WB programming will be treated as
Affiliate's primary network programming on the DTV Channel. It
is acknowledged that Affiliate owns the digital bandwidth in its
DTV Channel, and that Affiliate is not obligated to provide WB
with more than one digital channel in its market.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
THE WB TELEVISION NETWORK PARTNERS ACME TELEVISION LICENSEE
L.P. dba THE WB TELEVISION NETWORK OF UTAH
("WB") ("Affiliate")
By: /s/John Maatta By: /s/ Douglas E. Gealy
--------------------------- -------------------------------
Title: Title: Pres. & COO
---------------------------
Date: 9/7/99 Date: 9/7/99
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ANNUAL RATINGS PAYMENT EXHIBIT
As part of the consideration to WB for the WB programming, Licensee agrees to
make annual payments to WB based on Station's television market ratings (the
"TMR Payments") for adults 18-49 for the prime time broadcast periods of WB
programming commencing with the initial broadcast by Station of WB programming.
Such payments shall partially compensate WB for the WB programming by
calculating the value and/or profitability added to Station as a result of its
affiliation with WB and pay to WB 25% of such added value and/or profitability.
Such payments are not intended to, nor do they, confer in WB any ownership
interest in Station. All defined terms used herein shall have the same meaning
as set forth in the Agreement unless otherwise defined herein. The TMR Payments
shall be calculated and paid as follows:
A. Calculation of TMR Payment Amount: At the end of each successive
Contract Year commencing on the Launch Date, the "Average Rating"
for each such Contract Year shall be determined by taking the
average of Station's television ratings (adults 18-49) for the prior
November, February, and May sweeps periods of such Contract Year as
reported on the Nielsen Station Index ("NSI"), as processed,
refined, re-formatted or re-configured by that application commonly
known as the "SNAP System," but only with respect to those prime
time hours programmed by WB under the Agreement. Based on the
Station's Average Rating for each Contract Year and the number of
hours programmed by WB in that Year, Station shall owe WB the amount
(the "TMR Amount") set forth in the table attached hereto as the
Annual Ratings Payment Exhibit Table. For example, in the
particular case of Station, if the adults 18-49 rating for WB
programmed hours is 2.0 for a particular Contract Year, and WB is
programming 15 hours per week during such Year, then the TMR payment
that will be due and owing for such Year is $9,852. In the event
that either Station or WB contends that the TMR Payment for any
particular Contract Year, as set forth in the Annual Ratings Payment
Exhibit Table, is not an accurate statement of the twenty-five
percent (25%) share of the added value and/or profitability during
WB programmed prime time hours that Station owes to WB, or if the
TMR Payment for any particular Contract Year has increased or
decreased from the prior year's TMR Payment disproportionately in
comparison to the increase or decrease over such period in the
profitability of Station's WB furnished prime time programming
(after giving effect to any increase in the number of WB prime time
programming hours between the two periods), then either WB or
Station may request that the Station's financial results and
operational information be audited and reviewed by WB and the result
of such audit shall determine the level of the TMR Payment for the
given period. Promptly after such audit and review, WB and Station
shall meet to discuss such financial results and operational
information of Station and in good faith adjust the then currently
due TMR Payment to reflect the result of the audit and the intent of
these Payments as set forth in the introductory paragraph to this
Exhibit.
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B. TMR Payment: The TMR Amount for each Contract Year shall be payable
by Licensee to WB within 15 days following WB's delivery to Licensee
of an invoice for the TMR Amount, which invoice shall be delivered
by WB not earlier than the release by NSI or any successor ratings
index of the ratings for the fourth and final sweeps period of such
Contract Year.
C. No NSI Ratings: In the event there are no NSI ratings available,
then Licensee and WB shall use those standard television market
ratings which are generally available and used by national and/or
regional advertisers for purposes of calculating advertising
payments to television stations.
D. Continuing Obligation. Licensee's obligation to make the above TMR
Payments on the basis set forth herein shall survive any termination
of this Agreement by WB, any sale or transfer of any Station assets
and/or any ownership interest in the Station and shall remain
binding on any successor Station owner, which successor remains an
affiliate and is approved by WB in its discretion as otherwise set
forth in the Agreement.
E. Calculation Of Baseline (IF APPLICABLE): It is recognized that
Station is a start-up, and that ratings data is not available to
track Station's historical performance during three previous
ratings periods. The parties have agreed that notwithstanding
anything to the contrary set forth above, the Baseline for the
calculation of the TMR payments will be calculated as follows:
During the __________ 199__ and ___________199__ and ____________
199__ sweeps periods the average ratings (Adults 18-49) for the
nights that are not programmed by WB will set the baseline number
for the computation of the TMR payment. The difference between
the baseline and the average rating for WB programmed nights
during the February, May and November sweeps period will
determine the amount that is due to WB, during the first year and
during all subsequent years. The calculation of ratings under
this paragraph shall be as reported on the Nielsen Station Index
("NSI") as processed, refined, reformatted, or reconfigured by
that application commonly known as the "SNAP System".
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EXHIBIT 10.66
STATION AFFILIATION AGREEMENT
Dated as of March 4, 1999
ACME Television Holdings
10829 Olive Boulevard, Suite 202
St. Louis, MO 63141
Attention: Doug Gealy
The following shall comprise the agreement between The WB Television Network
Partners, L.P. dba The WB Television Network ("WB," "we," or "us"), and ACME
Television Licensee of New Mexico ("Affiliate" or "you") for the affiliation of
your television station KWBQ ("Station") with WB for carriage of WB programming.
The Federal Communications Commission ("FCC") has issued a broadcast license
("License") to you to operate Station in Albuquerque, New Mexico, the community
in which Station is licensed by the FCC ("Community of License"). All references
in this Agreement to "WB program(s)" and "WB programming" and any variations
thereof shall mean the programming made available by WB under this Agreement.
1. WB Programming: WB will make available to Affiliate WB programs for free
over-the-air broadcast and broadcast by any other means by Station in the
Community of License during the term of this Agreement. During such term,
except as otherwise provided herein, WB grants Affiliate the exclusive
right to have Station broadcast the WB programming in the Community of
License only as scheduled by WB over free over-the-air television and by
such other technological means as are available to Affiliate for broadcast
in the Community of License so long as Station broadcasts the WB
programming for over-the-air television. Notwithstanding the foregoing,
until such time that WB offers exclusivity against importation of WB
programming carried by the signal of WGN to its affiliates, WB may allow
WB programming carried by the signal of WGN to be imported into the
Community of License. WB shall have the sole discretion to select,
schedule, substitute and/or withdraw WB programming or any portion(s)
thereof. WB shall also have the right to authorize any television
broadcasting station, regardless of the community in which it is licensed
by the FCC, to broadcast any presentation of a subject we deem to be of
immediate national significance including, but not limited to, a
Presidential address. Except as provided herein, during the term of this
Agreement Affiliate shall be the sole affiliate of WB for transmission for
exhibition on television of WB programming in the Community of License.
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2. Program Carriage:
(a) We agree to make available for broadcast by Station WB
programming for the hours programmed by WB at the times and dates
scheduled by WB throughout the term of this Agreement. You
acknowledge that the times and roll-out dates set forth in this
Agreement are approximate only and you agree to have Station
broadcast WB programs irrespective of whether WB meets, fails to
meet or otherwise varies from the anticipated program schedule
set forth herein; provided, however, that WB hereby agrees not to
accelerate such anticipated program schedule. WB will not
program the morning or afternoon day-parts (with the exception of
Kids' WB programming) or, access, or late-night day-parts, unless
WB first receives the consent of the WB Affiliate's Council. To
the extent WB makes available such WB programming for broadcast,
this Agreement both obligates us to make available such WB
programs to Station and obligates Station to broadcast such WB
programs over-the-air pursuant to the terms of this Agreement. WB
acknowledges that the sixth night of WB prime time programming
will commence at the start of WB's 1999/2000 broadcast year, and
such sixth night of programming will be broadcast on Friday
night.
(b) Subject to the exceptions set forth in subparagraph 2(e) and the
right of preemption set forth in subparagraph 2(f), Station shall
broadcast WB programs on the dates and at the times scheduled by WB.
Station shall broadcast WB programs in their entirety, including but
not limited to WB commercial announcements, WB identifications,
program promotional material, and credit announcements contained in
such programs, without interruption or deletion or addition of any
kind, except for the commercial announcements that Station is
allowed to add pursuant to Paragraph 5. Notwithstanding the
foregoing, you may substitute other WB promotional announcements in
lieu of program promotional material that is inaccurate as it
pertains to Station's schedule. No commercial announcement,
promotional announcement or public service announcement will be
broadcast by Station during any interval within a WB program, which
interval is designated by WB as being for the sole purpose of making
a station identification announcement.
(c) The initial Scheduled Program Times of WB programming and the
anticipated roll-out dates of that programming are set forth as
follows (the specified times apply for the Eastern and Pacific Time
Zones; the Mountain and Central Time Zones are one hour earlier for
Prime Time and Latenight programming only, except as otherwise
agreed by us):
Prime Time: Sunday: 7:00 p.m. - 10:00 p.m Monday - Saturday:
8:00 p.m.- 10:00 p.m. As of the commencement of the
1998/1999 Television Broadcast Year, WB is providing
programming for broadcast by its affiliates on five
nights during each calendar week (i.e.
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Sunday through Thursday). WB will roll-out one
additional night of programming during the 1999/2000
Broadcast Year and one additional night of programming
during the 2000/2001 Broadcast Year.
Children's: Monday through Friday Mornings: One hour of programming
broadcast between: 7:00 a.m. - 8:00 a.m.; or 7:30 a.m. -
8:30 a.m.; or 8:00 a.m. - 9:00 a.m. (at WB's election)
Monday through Friday Afternoons: Two hours of
programming broadcast between: 3:00 p.m. - 5:00 p.m.
Saturday Morning: Four hours of programming broadcast at
8:00 a.m. - 12:00 noon. However, if Affiliate believes
that the Children' programming block should run on
Sunday instead of Saturday, WB will discuss with
affiliate such a move of the programming block from
Saturday to Sunday, and will consider granting such a
move, in good faith, after taking into account the
business interests of WB.
Latenight: 11:00 p.m. - 12:00 midnight Monday through Friday,
commencing on a date to be determined by WB, subject to
the approval of the WB Affiliate's Council
(d) During such time that WB is providing 19 hours of programming per
week to Station 3 hours(of the total of 19 hours) will be
programming which is categorized as Children's
educational/informational programming. However, at such time that
WB provides only 16.5 hours of Children's programming to Station
then WB, at its sole election, may determine to provide only 30
minutes of educational/informational programming per week to
Station.
(e) You confirm that as of the date of this Agreement you have no
commitments, except those listed in Schedule 1 hereto, which
would impede Station's broadcasting all WB programming made
available during the term of this Agreement. If any WB
programming is not broadcast by you because of any such
commitment expressly described in Schedule 1 (but excluding
extensions by exercise of options by Affiliate [but not by the
programming licensor] or otherwise), then such programming shall
be broadcast in a time period upon which you and we shall
mutually agree and which shall be of quality and rating value
comparable to that of the Scheduled Program Times. These programs
will not be considered preempted for purposes of subparagraph
2(f).
(f) Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall be construed to prevent or hinder Affiliate
from (i) rejecting or refusing any WB program which Affiliate
reasonably believes to be unsatisfactory or unsuitable or contrary
to the public interest or (ii) substituting a program
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which, in Affiliate's opinion, is of greater local or national
importance. In such an event, you shall provide us with advance
written notice of any such rejection, refusal or substitution, no
later than 14 days prior to the air date of such programming, except
where the nature of the substitute program makes such notice
impracticable (e.g., coverage of breaking news or other unscheduled
events) or the programming has not been made available to you by
such date, in which cases you agree to give us as much advance
notice as the circumstances permit. Such notice shall include a
statement of the reasons you believe that the rejected WB
programming is unsatisfactory or unsuitable or contrary to the
public interest, and/or that a substituted program is of greater
local or national importance. In view of the limited amount of WB
programming to be supplied pursuant to this Agreement (at least
until such time as the full WB programming schedule has been rolled
out) you acknowledge that you do not foresee any need to substitute
programming of greater local or national importance for WB
programming, except in those circumstances requiring live coverage
of fast-breaking news events or very infrequent special events.
To the extent you substitute another program for a WB program as
permitted under subparagraph 2(f)(ii), then you will broadcast such
omitted program and the commercial announcements contained therein
(or any replacement programming provided by WB and the commercial
announcements contained therein) during a time period upon which you
and we shall promptly and mutually agree and which shall be of
quality and rating value comparable to that of the preempted
program's Scheduled Program Time. In the event that the parties do
not promptly agree upon such a time period after reasonable
consultation in good faith and after taking into account the
practical alternatives under the circumstances, then, without
limiting any other rights of WB under this Agreement or otherwise,
we shall have the right to license the broadcast rights to the
applicable omitted programming (or replacement programming) to
another television station located in the Community of License.
Except as provided in Paragraph 2(e), above, in addition, if three
or more episodes of a program series are preempted by you as
permitted hereunder in any thirteen-week period, for any reasons
other than force majeure as provided in Paragraph 6, we shall have
the right, upon 60 days prior written notice, to terminate your
right to broadcast that program series and to withdraw all future
episodes of that series. Such thirteen-week periods shall be
measured consecutively from the first broadcast date of the program
series in question. If we subsequently place such a series on
another station in the Community of License, we reserve the right
not to offer you the broadcast rights to that series for subsequent
broadcast seasons.
In addition to all other remedies, to the extent one or more
episodes of a program series is preempted by you in violation of
(i.e., other than as permitted under) this Paragraph 2, we shall
have the right, upon 30 days prior written notice, to
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terminate your right to broadcast the remainder of the program
series and withdraw all future episodes of that series from you.
(g) Nothing in this Agreement shall be construed to prevent or hinder
WB from (i) substituting one or more WB programs for previously
scheduled WB programs, in which event WB will make the
substituted programs available to Station pursuant to the
provisions of Paragraph 1 and Paragraph 3; (ii) canceling one or
more WB programs; or (iii) postponing any scheduled roll-out
dates of WB programming. Further, nothing in this Agreement
shall be construed to obligate WB (x) to provide a minimum or
specific number of WB programs; (y) to commence providing WB
programming on any particular date; or (z) to expand the amount
of WB programming pursuant to a specified timetable.
3. Delivery: WB agrees to make available the WB programming for satellite
transmission. WB shall incur no costs regarding the satellite downlink and
broadcast by Station; Station shall incur no up-link costs with regard to
the delivery of the WB programming. WB agrees to provide closed captioning
for substantially all WB programming that is not exempt from captioning
requirements under FCC rules.
4. Promotion:
(a) We will provide you with on-air promotional announcements ("WB
Promos") for WB programming, which WB Promos are intended for
broadcast during Station's broadcast of non-WB programming. You
agree to provide an on-air promotional schedule consistent with
our recommendations, and consistent with Station's reasonable
business judgment. You shall maintain complete and accurate
records of all WB Promos that are broadcast. Upon request by WB
for those records, you shall provide copies of all such records
to WB within two weeks of such request.
(b) You shall budget Station's advertising availabilities in such a
manner as to enable Station to broadcast additional WB Promos
during periods in which Station is deemed a "Subperformer."
Station shall be deemed to be a "Subperformer" from the time its
"sweeps rating" is below the average prime time rating for all WB
affiliated broadcast stations until such time as Station's sweeps
rating is no longer below the average prime time rating for all
WB affiliated broadcast stations. The Station's sweeps rating
means the Station's average A.C. Nielsen rating for the most
recently completed sweeps period for adults 18-49 for all prime
time hours programmed by WB. For such time as Station remains a
Subperformer, Station shall: (i) broadcast, during each one-half
hour of all periods of each day that Station is broadcasting
non-WB programming, at least one (1) 30-second Promo (or Promos
aggregating 30 seconds, to the extent we so elect) for Station's
local, syndicated or WB programming; and (ii) broadcast during
all periods when Station is broadcasting non-WB programming WB
Promos for not less than:
Prime Time Hours Programmed by WB
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2 hours - 20% of 100%
4 hours - 25% "
6 hours - 30% "
8 hours - 35% "
10 hours - 40% "
12 hours* - 45% "
(* 12 or more hours)
(the "Applicable Percentage") of the total, aggregate gross ratings
points ("GRPs") for all the promotional announcements broadcast by
Station ("Aggregate Promotional GRPs") within the periods in which
non-WB programming is being broadcast. The specific WB Promos
broadcast by Station and the number of broadcasts of each WB Promo
may be specified by WB and the broadcast of the WB Promos shall be
made so that the Aggregate Promotional GRPs allocated to WB Promos
are distributed fairly and reasonably across the periods when non-WB
programming is being broadcast. For such time as Station's sweeps
rating ranks Station within the bottom 50% (ranked highest to
lowest) of those WB affiliated broadcast stations that are
Subperformers, then the Applicable Percentage for Station shall be
not less than 55% of 100% of the Aggregate Promotional GRPs. The WB
Promos broadcast during each half-hour of non-WB programming, as
required by this subparagraph 4(b), may be counted toward Station's
Applicable Percentage. Station shall continue to air WB Promos under
this schedule until Station is no longer a Subperformer, as defined
above.
(c) In addition to providing WB Promos, we shall make available for
your use, at reasonable cost, such other promotional and sales
materials as we and you may mutually consider appropriate. You
shall not delete any copyright, trademark, logo or other notice,
or any credit included in any such materials relating to WB, and
you shall not exhibit, display, distribute or otherwise use any
trademark, logo or other material or item delivered pursuant to
this Paragraph 4 or otherwise, except as instructed by us at the
time.
(d) Commencing on the first date that WB programming is aired by Station
and for the remaining term of this Agreement, Station shall identify
itself as a WB affiliate, both on and off-the-air.
5. Commercial Announcements:
(a) With respect to WB programming, the parties to this Agreement shall
be entitled to insert the following number of commercial
announcements (Station's allotment includes station breaks but
excludes 5-second prime time station identification breaks at the
beginning of each hour):
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(1) Prime Time (as defined in subparagraph 2(c)) hour (pro-rated
for half-hour programs):
You shall have the right to insert six 30-second
commercial announcements. WB shall have the right to
insert at least nineteen 30-second commercial
announcements.
(2) Children's:
Weekday half-hour:
You shall have the right to insert six 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert six 30-second commercial
announcements.
Weekend half-hour:
You shall have the right to insert five 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert five 30-second commercial
announcements and one 15-second commercial.
(3) Latenight (as defined in subparagraph 2(c)):
You will receive half the total number of commercial
announcements as specified by WB or less as mutually
agreed to.
(b) If, because of the imposition of any law or regulation, the
amount of commercial advertising, commercial matter or other
non-program time included in WB programming is reduced for any
reason (including but not limited to the adoption or modification
of statutes or regulations or any other governmental action),
then we shall be entitled to reduce the number of commercial
announcements available to you to the extent necessary to provide
WB and Affiliate with the same proportionate amount of commercial
time (inclusive of station breaks with respect to Affiliate) that
each party is entitled to under this Agreement.
(c) Your broadcast over Station of the commercial announcements
included by us in WB programming is of the essence to this
Agreement, and nothing contained in this Agreement (other than in
subparagraph 2(f)) shall limit our rights or remedies relating to
your failure to so broadcast said commercial announcements. You
shall maintain complete and accurate records of all commercial
announcements broadcast as provided herein. Within two weeks
following each request by us therefor, you will submit copies of
all such records to WB.
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6. Force Majeure: WB shall not be liable for failure to make available any
programming or any portion(s) thereof, and Station shall not be liable for
failure to broadcast any such programming or any portion(s) thereof, by
reason of any act of God, equipment failure, action or claims by any third
person, labor dispute, law, governmental regulation or order, or other
cause beyond either party's reasonable control ("force majeure event"). If
due to any force majeure event, we substantially fail to make available
all of the programming to be delivered to Affiliate under the terms of
this Agreement, or you substantially fail to broadcast such programming as
scheduled by WB for four consecutive weeks, or for six weeks in the
aggregate during any 12-month period, then the "non-failing" party may
terminate this Agreement upon thirty 30 days prior written notice to the
"failing" party so long as such notice is given at any time prior to the
"non-failing" party's receipt of actual notice that the force majeure
event(s) has ended; provided further, however, that notwithstanding the
above provisions, you shall not have any right to so terminate this
Agreement, upon a force majeure event or otherwise, if we: (i) fail to
make available a minimum or specific number of WB programs; (ii) fail to
commence making available WB programming on any particular date; (iii)
fail to expand the amount of WB programming pursuant to a specified
timetable; (iv) substitute one or more WB programs for previously
scheduled WB programs; (v) cancel one or more WB programs; or (vi)
postpone the roll-out of any WB programming.
7. Assignment or Transfer of Affiliate Agreement and/or Station License:
(a) Assignment or Transfer of Affiliation Agreement: This Agreement
shall not be assigned by Affiliate without the prior written consent
of WB. Any purported assignment by Affiliate without such consent
shall be null and void, shall not be enforceable against WB, and
shall not relieve Affiliate of all its obligations hereunder.
(b) Assignment or Transfer of Station License: If any application is
made to the Federal Communications Commission (FCC) concerning a
purported, attempted or actual transfer of control or assignment of
the Station license, you shall notify us immediately in writing of
the filing of such application. Unless the transfer of control or
assignment is one provided for by Section 73.3540 (f) of the FCC's
current rules and regulations (a "short form" assignment or transfer
of control that does not involve a material assignment or transfer
of control), we shall have the right to terminate this Agreement
upon twenty (20) days' advance notice to you, at any time after the
filing of such application. If WB does not terminate this Agreement
on or before twenty days before the effective date of such transfer,
this Agreement shall be deemed to have been fully assigned to the
transferee or assignee of Station's license and such transferee or
assignee will assume and perform all of the obligations and duties
contained in this Agreement without limitation of any kind, as of
the effective date of transfer. In addition, if Licensee fails,
prior to the effective date of the transfer, to procure in a written
form satisfactory to WB the agreement of the assignee or transferee
to assume and
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perform this Agreement in its entirety without limitation of any
kind, or fails to immediately notify WB of the application to
transfer control or assign the Station license, then Licensee shall
remain fully responsible for the full performance of all provisions
of the Agreement during the full term of the Agreement as set forth
in Paragraph 9, and in the event of non-performance, Licensee shall
be considered in material breach of this Agreement and WB shall have
all rights and remedies available for such breach, including but not
limited to specific performance and damages.
8. Unauthorized Copying: You shall not, and shall not cause or authorize
others to record, copy or duplicate any programming or other material we
furnish pursuant to this Agreement, in whole or in part, and you shall
take all reasonable precautions to prevent any such recording, copying or
duplication. Notwithstanding the foregoing, if Station is located in the
Mountain Time Zone you may pre-record WB programming for later broadcast
at the times scheduled by us. You shall erase all such pre-recorded
programming promptly after its scheduled broadcast. Notwithstanding the
above provisions, Station may make a non-broadcast quality recording of
its entire broadcast day for archival, file and reference purposes and
uses only, which copy shall be kept in Station's possession at all times.
9. Term:
(a) The term of this Agreement shall commence on March 4, 1999 (the
"Launch Date") and shall continue for 36 months thereafter (the
"initial period"). The term of this Agreement may be extended for
additional successive periods of two years each, by us, in our sole
discretion, giving written notice of such extension to you at least
120 days prior to the expiration of the then-current period;
provided, however, that if, within 30 days of your receipt of the
notice of extension, you, in your sole discretion, give us written
notice that you reject such extension, then the extension notice
shall not be effective and this Agreement shall terminate upon
expiration of the then-current period.
(b) The "Launch Date" shall be defined as the date on which WB makes WB
programming available to Affiliate for broadcast by Station on a
regularly scheduled basis.
(c) Each "Contract Year" hereunder shall be an annual period during the
term of this Agreement. The First Contract Year is the annual period
beginning with the start date of the term of license; the Second
Contract Year is the annual period commencing one year after the
start date of the term of license, etc.
(d) WB shall, within its sole discretion and without liability, have the
right to terminate this Agreement so long as we (i) provide sixty
days prior written notice to you and (ii) are either: (A) ceasing
operation as a television network; or (B) substantially
restructuring the ownership of the television network.
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(e) Notwithstanding anything to the contrary contained in this
Agreement, upon the termination or expiration of the term of this
Agreement, all of your rights to broadcast or otherwise use any WB
program or any trademark, logo or other material or item hereunder
shall immediately cease and neither you nor Station shall have any
further rights whatsoever with respect to any such program,
trademark, logo, material or item.
10. Applicable Law: The obligations of you and WB under this Agreement are
subject to all applicable federal, state, and local laws, rules and
regulations (including, but not limited to, the Communications Act of
1934, as amended, and the rules, regulations and policies of the FCC) and
this Agreement and all matters or issues collateral thereto shall be
governed by the laws of the State of California without regard to
California's conflict of law rules. The California State Courts and the
U.S. District Courts located in California shall have jurisdiction over
the interpretation of this Agreement or with regard to any dispute arising
under this Agreement. The venue for any such action concerning this
Agreement shall be in the County of Los Angeles, California.
11. Station Acquisition by WB: During the term of this Agreement, WB agrees
that neither we nor Time Warner Inc. nor any of its subsidiary companies
will acquire, as defined by the attribution rules of the FCC, a television
broadcast station licensed in the Community of License. It is acknowledged
that Station WTBS in Atlanta is controlled by a Time Warner affiliated
company.
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12. Change in Operations:
(a) You shall notify WB immediately in writing if application is made to
the FCC to modify in a material manner the transmitter location,
power or frequency of Station such that Station's signal coverage of
its DMA market is materially diminished, or if Station changes its
program format from mainstream entertainment and/or news
programming. We shall have the right to terminate this Agreement,
upon 90 days' prior written notice, within 90 days after receiving
notice of the format change, or if no satisfactory arrangements are
made to cure Station's diminished signal coverage. Applications
related to Station's transition to digital television transmission
are not within the scope of this paragraph.
(b) At any time during the term if Station is off the air, or
operating at less than fifty percent (50%) of its licensed power,
for a period of 12 hours or longer, Station must immediately
notify WB. WB may terminate this agreement upon thirty (30) days
prior written notice in the event that Station is off the air for
a period exceeding seven (7) days or if is operating at less than
fifty percent (50%) of its full licensed power for a period
exceeding seven (7) days.
13. WB Affiliates Council: You, with the other affiliates of WB, shall form a
WB Affiliates Council (the "Council"), which shall be comprised of
representatives from five different affiliates of WB.
14. Non-Liability of Council Members: To the extent the Council and its
members are acting in their capacity as such, then the Council and each
member so acting shall not have any obligation or legal or other
liability whatsoever to you or to WB in connection with this Agreement,
including without limitation, with respect to the Council's or such
member's approval or non-approval of any matter, exercise or
non-exercise of any right or taking of or failing to take any other
action in connection therewith.
15. Warranties and Indemnities:
(a) WB agrees to indemnify, defend and hold Affiliate harmless against
and from all claims, damages, liabilities, costs and expenses
arising out of the use by Station under this Agreement of any WB
program or other material furnished by WB under this Agreement,
provided that Affiliate promptly notifies WB of any claim or
litigation to which this indemnity shall apply, and provided further
that Affiliate cooperates fully with WB in the defense or settlement
of such claim or litigation. Affiliate agrees to indemnify, defend
and hold WB harmless against and from all claims, damages,
liabilities, costs and expenses with respect to Affiliate's
operation of the Station or any material furnished, added or deleted
to or from WB programming by Affiliate. This indemnity shall not
apply to litigation expenses, including attorneys' fees, that the
indemnified party elects to incur on its own behalf. Except as
otherwise provided in this Agreement, neither Affiliate nor WB shall
have any rights against the other for claims by third
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persons, or for the failure to operate facilities or to furnish WB
programs if such failure is the result of a force majeure event as
defined in Paragraph 6. Furthermore, notwithstanding any other
provisions of this Agreement, Affiliate shall not have any rights
against WB for claims by third parties or Affiliate arising out of
any actions or omissions of WB permitted under subparagraph 2(g).
(b) You agree to maintain for Station such licenses, including
performing rights licenses as now are or hereafter may be in general
use by television broadcasting stations and are necessary for you to
broadcast the television programs which we furnish to you hereunder.
We will clear all music in the repertory of SESAC, ASCAP and BMI
used in our programs. You shall obtain and pay all costs associated
with any performing rights licenses necessary to broadcast such
music. You will be responsible for all music license requirements
(and all other permissions) for any commercial or other material
inserted by you within or adjacent to WB programs in accordance with
this Agreement.
(c) You warrant that the License is in good standing and you agree to
comply with all relevant statutes and FCC rules and requirements
so as to maintain the License in good standing. In the event you
are found to have materially violated any laws or FCC rules or
requirements (after the exhaustion of all appeals so long as
Station retains the License during the pendency of such appeal),
the effect of which is that Station is of materially less value
to us as a broadcaster of WB programming than as of the date of
this Agreement, then we shall have the right to terminate this
Agreement upon 30 days prior written notice.
(d) Each party hereto warrants that all information delivered by it to
the other in connection with this Agreement shall be true and
correct in all material respects.
(e) Each party hereto warrants to the other that execution of this
Agreement and performance of its obligations will not violate or
result in a default under (i) any material agreement or
instrument to which it is a party or (ii) any statute, ordinance,
governmental rule or regulation in any material respect, or
order, judgment, injunction, decree or ruling of any court or
administrative agency applicable to it, which default would
materially interfere with the performance of it's obligations
hereunder.
(f) Each party hereto warrants that it is not a party to any legal
action or other proceeding before any court or administrative agency
which could prohibit the performance of it's obligations under this
Agreement.
16. Retransmission Consent: If any law, governmental regulation or other
action permits you to elect to require any cable television system or
other multichannel video program distributor to obtain your consent to
such system's or distributor's retransmission of Station's broadcast of
either Station's signal as a whole or any WB programming included therein,
then Affiliate and WB agree to negotiate in good faith regarding whether
such
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consent is to be given (including without limitation, whether you shall or
shall not, in lieu of requiring consent, elect to require any cable system
to comply with any "must carry" rules, regulations or laws) and, if so,
the terms under which such consent is to be given (including without
limitation, the amount and type of compensation, if any, to be paid by the
system or distributor for such consent and whether any of that
compensation shall be shared between you and us). If WB and Affiliate do
not reach agreement with respect to all of the foregoing matters, then
without elimination to any of WB's other remedies, WB may terminate this
Agreement upon 30 days written notice to Affiliate. Nothing contained
herein shall authorize or allow the dissemination of WB programming by
Station outside of the DMA where Station is located, and any such
dissemination of WB programming outside of Station's DMA is prohibited.
17. Network Non-Duplication Protection: During the term of this Agreement,
Affiliate shall be entitled to network non-duplication protection, as
provided by Sections 76.92 through 76.97 of the FCC's rules, against
the presentation of any WB program by a cable system during the period
commencing one day before and ending fourteen (14) days after receipt
of such WB program by Station. The geographic zone of network
non-duplication protection shall be the Designated Market Area ("DMA")
(as defined by Nielsen) in which your Station is located or any lesser
zone mandated by Sections 76.92 and 73.658(m) of the FCC's rules.
Network non-duplication protection shall extend only to WB programs
that Station is carrying in accordance with the terms of this Agreement
and such protection shall be subject to the terms and provisions of
subparagraph 2(f). You are under no obligation to exercise in whole or
in part the network non-duplication rights granted herein.
Notwithstanding anything to the contrary in this paragraph, no
non-duplication protection is provided against the signal of WGN until
such time that WB offers exclusivity against the signal of WGN to its
affiliates.
18. Affiliation Ratings Payments. Affiliate agrees to pay to WB an annual
payment, based on the Station's television market ratings, for WB prime
time programming, commencing with the initial broadcast by Station of such
programming, all as defined and set forth in the "Annual Ratings Payment"
Exhibit attached hereto. These payments are intended to compensate WB for
the WB programming and are in no way intended to, nor do they confer on
WB, any ownership or other equity interest in Station. If, subsequent to
January 1, 2004, WB modifies the financial model then in effect between WB
and stations affiliated with WB at that time ("WB Affiliates") or modifies
the terms and conditions under which WB affiliates pay compensation to WB
(the "compensation modification"), including but not limited to a
modification of the allocation of commercial time between the WB
affiliates and WB, then: (i) WB will provide Affiliate with reasonable
notice of the compensation modification; and, (ii) Affiliate shall have
the opportunity to either elect to participate in the compensation
modification or to opt out of the compensation modification by advising WB
in writing that Affiliate has elected not to participate in the
compensation modification. Upon receipt of Affiliate's election, WB may:
(i) accept Affiliate's election to opt out of the compensation
modification; or (ii) terminate this Agreement upon 60 days prior written
notice.
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19. Notices and Reports:
(a) In addition to any other reports or forms requested herein, you will
provide to us in writing, in the manner reasonably requested by WB,
such reports covering WB programs broadcast by Station as we may
request from time to time. To the extent we provide you forms for
such purpose, you shall provide such reports on these forms.
(b) All notices, reports or forms required or permitted hereunder to be
in writing shall be deemed given when personally delivered
(including, without limitation, by overnight courier or other
messenger or upon confirmed receipt of facsimile copy) or on the
date of mailing postage prepaid, addressed as specified below, or
addressed to such other address as such party may hereafter specify
in a written notice. Notice to Affiliate shall be to the address set
forth for Affiliate on page 1 of this Agreement. Additionally,
notice will be sent to ACME Television Holdings, 10829 Olive
Boulevard, Suite 202, St. Louis, MO 63141, Attention: Tom Allen.
Notice to WB shall be to: The WB Television Network, 4000 Warner
Boulevard, Burbank, California, 91522, Attention: General Counsel.
20. Miscellaneous:
(a) Nothing contained in this Agreement shall create any partnership,
association, joint venture, fiduciary or agency relationship between
the parties hereto.
(b) Nothing contained in this Agreement nor the conduct of any officer,
director, agent or employee of either WB or Affiliate shall be
deemed to create or to constitute ownership by WB, in whole or in
part, of Affiliate, Station or the License or in any way constitute
a derogation of the rights, duties and responsibilities imposed upon
Affiliate. Nothing in this Agreement shall be deemed to delegate to
WB, directly or indirectly, any right to control the operations of
Station.
(c) You shall at all times permit us, in connection with WB programming,
without charge, to place on, maintain and use at Station's premises,
at our expense, such equipment as WB shall reasonably require for
the distribution of WB Network programming. Station shall operate
such equipment for us, to the extent we reasonably request, and no
fee shall be charged by Station therefor.
(d) No waiver of any failure of any condition or of the breach of any
obligation hereunder shall be deemed to be a waiver of any preceding
or succeeding failure of the same or any other condition, or a
waiver of any preceding or succeeding breach of the same or any
other obligation.
(e) Each and all of the rights and remedies of WB and Affiliate under
this Agreement shall be cumulative, and the exercise of one or more
of said rights or remedies
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shall not preclude the exercise of any other right or remedy under
this Agreement, at law or in equity. Notwithstanding anything to the
contrary contained in this Agreement, in no event shall either party
hereto be entitled to recover any lost profits or consequential
damages because of a breach or failure by the other party, and
except as expressly provided in this Agreement to the contrary,
neither WB nor Affiliate shall have any right against the other with
respect to claims by any third person or other third entity.
(f) Paragraph headings are included in this Agreement for convenience
only and shall not be used to interpret this Agreement or any of the
provisions hereof, nor shall they be given any legal or other
effect.
(g) As of the date hereof, this Agreement, including all Exhibits
attached hereto, constitutes the entire understanding between WB
and Affiliate concerning the subject matter hereof and shall not
be amended, modified, changed, renewed, extended or discharged
except by an instrument in writing signed by the parties or as
otherwise expressly provided herein. No inducement,
representations or warranties except as specifically set forth
herein have been made by either party to this Agreement to the
other. This Agreement replaces any and all prior and
contemporaneous agreements, whether oral or written, pertaining
to the subject matter hereof.
(h) This Agreement may be executed in counterparts, with the Agreement
being effective when each party hereto has executed a copy and
delivered that copy to the other party hereto.
(i) WB agrees to make WB programming available to Affiliate in
digital format, on a timetable and in a format determined by WB.
WB will consult with Affiliate concerning its plans for digital
production and delivery, including the transmission format to be
employed. After the inception of Affiliate's broadcasts on its
FCC-assigned digital frequency (the "DTV Channel"), Affiliate
agrees to carry WB programming that is supplied in digital format
on the DTV Channel. WB programming will be treated as
Affiliate's primary network programming on the DTV Channel. It
is acknowledged that Affiliate owns the digital bandwidth in its
DTV Channel, and that Affiliate is not obligated to provide WB
with more than one digital channel in its market.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
THE WB TELEVISION NETWORK PARTNERS ACME TELEVISION LICENSEE
L.P. dba THE WB TELEVISION NETWORK OF NEW MEXICO
("WB") ("Affiliate")
By: /s/John Maatta By: /s/ Douglas E. Gealy
--------------------------- -------------------------------
Title: Title: Pres. & COO
---------------------------
Date: 9/7/99 Date: 9/7/99
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ANNUAL RATINGS PAYMENT EXHIBIT
As part of the consideration to WB for the WB programming, Licensee agrees to
make annual payments to WB based on Station's television market ratings (the
"TMR Payments") for adults 18-49 for the prime time broadcast periods of WB
programming commencing with the initial broadcast by Station of WB programming.
Such payments shall partially compensate WB for the WB programming by
calculating the value and/or profitability added to Station as a result of its
affiliation with WB and pay to WB 25% of such added value and/or profitability.
Such payments are not intended to, nor do they, confer in WB any ownership
interest in Station. All defined terms used herein shall have the same meaning
as set forth in the Agreement unless otherwise defined herein. The TMR Payments
shall be calculated and paid as follows:
A. Calculation of TMR Payment Amount: At the end of each successive
Contract Year commencing on the Launch Date, the "Average Rating"
for each such Contract Year shall be determined by taking the
average of Station's television ratings (adults 18-49) for the prior
November, February, and May sweeps periods of such Contract Year as
reported on the Nielsen Station Index ("NSI"), as processed,
refined, re-formatted or re-configured by that application commonly
known as the "SNAP System," but only with respect to those prime
time hours programmed by WB under the Agreement. Based on the
Station's Average Rating for each Contract Year and the number of
hours programmed by WB in that Year, Station shall owe WB the amount
(the "TMR Amount") set forth in the table attached hereto as the
Annual Ratings Payment Exhibit Table. For example, in the particular
case of Station, if the adults 18-49 rating for WB programmed hours
is 1.6 for a particular Contract Year, and WB is programming 15
hours per week during such Year, then the TMR payment that will be
due and owing for such Year is $5,843. In the event that either
Station or WB contends that the TMR Payment for any particular
Contract Year, as set forth in the Annual Ratings Payment Exhibit
Table, is not an accurate statement of the twenty-five percent (25%)
share of the added value and/or profitability during WB programmed
prime time hours that Station owes to WB, or if the TMR Payment for
any particular Contract Year has increased or decreased from the
prior year's TMR Payment disproportionately in comparison to the
increase or decrease over such period in the profitability of
Station's WB furnished prime time programming (after giving effect
to any increase in the number of WB prime time programming hours
between the two periods), then either WB or Station may request that
the Station's financial results and operational information be
audited and reviewed by WB and the result of such audit shall
determine the level of the TMR Payment for the given period.
Promptly after such audit and review, WB and Station shall meet to
discuss such financial results and operational information of
Station and in good faith adjust the then currently due TMR Payment
to reflect the result of the audit and the intent of these Payments
as set forth in the introductory paragraph to this Exhibit.
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B. TMR Payment: The TMR Amount for each Contract Year shall be payable
by Licensee to WB within 15 days following WB's delivery to Licensee
of an invoice for the TMR Amount, which invoice shall be delivered
by WB not earlier than the release by NSI or any successor ratings
index of the ratings for the fourth and final sweeps period of such
Contract Year.
C. No NSI Ratings: In the event there are no NSI ratings available,
then Licensee and WB shall use those standard television market
ratings which are generally available and used by national and/or
regional advertisers for purposes of calculating advertising
payments to television stations.
D. Continuing Obligation. Licensee's obligation to make the above TMR
Payments on the basis set forth herein shall survive any termination
of this Agreement by WB, any sale or transfer of any Station assets
and/or any ownership interest in the Station and shall remain
binding on any successor Station owner, which successor remains an
affiliate and is approved by WB in its discretion as otherwise set
forth in the Agreement.
E. Calculation Of Baseline (IF APPLICABLE): It is recognized that
Station is a start-up, and that ratings data is not available to
track Station's historical performance during three previous
ratings periods. The parties have agreed that notwithstanding
anything to the contrary set forth above, the Baseline for the
calculation of the TMR payments will be calculated as follows:
During the __________ 199__ and ___________199__ and ____________
199__ sweeps periods the average ratings (Adults 18-49) for the
nights that are not programmed by WB will set the baseline number
for the computation of the TMR payment. The difference between
the baseline and the average rating for WB programmed nights
during the February, May and November sweeps period will
determine the amount that is due to WB, during the first year and
during all subsequent years. The calculation of ratings under
this paragraph shall be as reported on the Nielsen Station Index
("NSI") as processed, refined, reformatted, or reconfigured by
that application commonly known as the "SNAP System".
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EXHIBIT 10.67
STATION AFFILIATION AGREEMENT
Dated as of May 1, 1999
ACME Television Holdings
10829 Olive Boulevard, Suite 202
St. Louis, MO 63141
Attention: Doug Gealy
The following shall comprise the agreement between The WB Television Network
Partners, L.P. dba The WB Television Network ("WB," "we," or "us"), and ACME
Television Licensee of Wisconsin, LLC ("Affiliate" or "you") for the affiliation
of your television station WPXG ("Station") with WB for carriage of WB
programming. The Federal Communications Commission ("FCC") has issued a
broadcast license ("License") to you to operate Station in Green Bay, Wisconsin,
the community in which Station is licensed by the FCC ("Community of License").
All references in this Agreement to "WB program(s)" and "WB programming" and any
variations thereof shall mean the programming made available by WB under this
Agreement.
1. WB Programming: WB will make available to Affiliate WB programs for
free over-the-air broadcast and broadcast by any other means by Station
in the Community of License during the term of this Agreement. During
such term, except as otherwise provided herein, WB grants Affiliate the
exclusive right to have Station broadcast the WB programming in the
Community of License only as scheduled by WB over free over-the-air
television and by such other technological means as are available to
Affiliate for broadcast in the Community of License so long as Station
broadcasts the WB programming for over-the-air television.
Notwithstanding the foregoing, until such time that WB offers
exclusivity against importation of WB programming carried by the signal
of WGN to its affiliates, WB may allow WB programming carried by the
signal of WGN to be imported into the Community of License. WB shall
have the sole discretion to select, schedule, substitute and/or
withdraw WB programming or any portion(s) thereof. WB shall also have
the right to authorize any television broadcasting station, regardless
of the community in which it is licensed by the FCC, to broadcast any
presentation of a subject we deem to be of immediate national
significance including, but not limited to, a Presidential address.
Except as provided herein, during the term of this Agreement Affiliate
shall be the sole affiliate of WB for transmission for exhibition on
television of WB programming in the Community of License.
2. Program Carriage:
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(a) We agree to make available for broadcast by Station WB
programming for the hours programmed by WB at the times and dates
scheduled by WB throughout the term of this Agreement. You
acknowledge that the times and roll-out dates set forth in this
Agreement are approximate only and you agree to have Station
broadcast WB programs irrespective of whether WB meets, fails to
meet or otherwise varies from the anticipated program schedule
set forth herein; provided, however, that WB hereby agrees not to
accelerate such anticipated program schedule. WB will not
program the morning or afternoon day-parts (with the exception of
Kids' WB programming) or, access, or late-night day-parts, unless
WB first receives the consent of the WB Affiliate's Council. To
the extent WB makes available such WB programming for broadcast,
this Agreement both obligates us to make available such WB
programs to Station and obligates Station to broadcast such WB
programs over-the-air pursuant to the terms of this Agreement. WB
acknowledges that the sixth night of WB prime time programming
will commence at the start of WB's 1999/2000 broadcast year, and
such sixth night of programming will be broadcast on Friday
night.
(b) Subject to the exceptions set forth in subparagraph 2(e) and the
right of preemption set forth in subparagraph 2(f), Station shall
broadcast WB programs on the dates and at the times scheduled by
WB. Station shall broadcast WB programs in their entirety,
including but not limited to WB commercial announcements, WB
identifications, program promotional material, and credit
announcements contained in such programs, without interruption or
deletion or addition of any kind, except for the commercial
announcements that Station is allowed to add pursuant to
Paragraph 5. Notwithstanding the foregoing, you may substitute
other WB promotional announcements in lieu of program promotional
material that is inaccurate as it pertains to Station's schedule.
No commercial announcement, promotional announcement or public
service announcement will be broadcast by Station during any
interval within a WB program, which interval is designated by WB
as being for the sole purpose of making a station identification
announcement.
(c) The initial Scheduled Program Times of WB programming and the
anticipated roll-out dates of that programming are set forth as
follows (the specified times apply for the Eastern and Pacific Time
Zones; the Mountain and Central Time Zones are one hour earlier for
Prime Time and Latenight programming only, except as otherwise
agreed by us):
Prime Time: Sunday: 7:00 p.m. - 10:00 p.m Monday - Saturday:
8:00 p.m.- 10:00 p.m. As of the commencement of the
1998/1999 Television Broadcast Year, WB is providing
programming for broadcast by its affiliates on five
nights during each calendar week (i.e. Sunday through
Thursday). WB will roll-out one
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additional night of programming during the 1999/2000
Broadcast Year and one additional night of programming
during the 2000/2001 Broadcast Year.
Children's: Monday through Friday Mornings: One hour of programming
broadcast between: 7:00 a.m. - 8:00 a.m.; or 7:30 a.m. -
8:30 a.m.; or 8:00 a.m. - 9:00 a.m. (at WB's election)
Monday through Friday Afternoons: Two hours of
programming broadcast between: 3:00 p.m. - 5:00 p.m.
Saturday Morning: Four hours of programming broadcast at
8:00 a.m. - 12:00 noon. However, if Affiliate believes
that the Children' programming block should run on
Sunday instead of Saturday, WB will discuss with
affiliate such a move of the programming block from
Saturday to Sunday, and will consider granting such a
move, in good faith, after taking into account the
business interests of WB.
Latenight: 11:00 p.m. - 12:00 midnight Monday through Friday,
commencing on a date to be determined by WB, subject to
the approval of the WB Affiliate's Council
(d) During such time that WB is providing 19 hours of programming per
week to Station 3 hours (of the total of 19 hours) will be
programming which is categorized as Children's
educational/informational programming. However, at such time that
WB provides only 16.5 hours of Children's programming to Station
then WB, at its sole election, may determine to provide only 30
minutes of educational/informational programming per week to
Station.
(e) You confirm that as of the date of this Agreement you have no
commitments, except those listed in Schedule 1 hereto, which
would impede Station's broadcasting all WB programming made
available during the term of this Agreement. If any WB
programming is not broadcast by you because of any such
commitment expressly described in Schedule 1 (but excluding
extensions by exercise of options by Affiliate [but not by the
programming licensor] or otherwise), then such programming shall
be broadcast in a time period upon which you and we shall
mutually agree and which shall be of quality and rating value
comparable to that of the Scheduled Program Times. These programs
will not be considered preempted for purposes of subparagraph
2(f).
(f) Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall be construed to prevent or hinder Affiliate
from (i) rejecting or refusing any WB program which Affiliate
reasonably believes to be unsatisfactory or unsuitable or contrary
to the public interest or (ii) substituting a program which, in
Affiliate's opinion, is of greater local or national importance. In
such an
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event, you shall provide us with advance written notice of any such
rejection, refusal or substitution, no later than 14 days prior to
the air date of such programming, except where the nature of the
substitute program makes such notice impracticable (e.g., coverage
of breaking news or other unscheduled events) or the programming has
not been made available to you by such date, in which cases you
agree to give us as much advance notice as the circumstances permit.
Such notice shall include a statement of the reasons you believe
that the rejected WB programming is unsatisfactory or unsuitable or
contrary to the public interest, and/or that a substituted program
is of greater local or national importance. In view of the limited
amount of WB programming to be supplied pursuant to this Agreement
(at least until such time as the full WB programming schedule has
been rolled out) you acknowledge that you do not foresee any need to
substitute programming of greater local or national importance for
WB programming, except in those circumstances requiring live
coverage of fast-breaking news events or very infrequent special
events.
To the extent you substitute another program for a WB program as
permitted under subparagraph 2(f)(ii), then you will broadcast such
omitted program and the commercial announcements contained therein
(or any replacement programming provided by WB and the commercial
announcements contained therein) during a time period upon which you
and we shall promptly and mutually agree and which shall be of
quality and rating value comparable to that of the preempted
program's Scheduled Program Time. In the event that the parties do
not promptly agree upon such a time period after reasonable
consultation in good faith and after taking into account the
practical alternatives under the circumstances, then, without
limiting any other rights of WB under this Agreement or otherwise,
we shall have the right to license the broadcast rights to the
applicable omitted programming (or replacement programming) to
another television station located in the Community of License.
Except as provided in Paragraph 2(e), above, in addition, if three
or more episodes of a program series are preempted by you as
permitted hereunder in any thirteen-week period, for any reasons
other than force majeure as provided in Paragraph 6, we shall have
the right, upon 60 days prior written notice, to terminate your
right to broadcast that program series and to withdraw all future
episodes of that series. Such thirteen-week periods shall be
measured consecutively from the first broadcast date of the program
series in question. If we subsequently place such a series on
another station in the Community of License, we reserve the right
not to offer you the broadcast rights to that series for subsequent
broadcast seasons.
In addition to all other remedies, to the extent one or more
episodes of a program series is preempted by you in violation of
(i.e., other than as permitted under) this Paragraph 2, we shall
have the right, upon 30 days prior written notice, to terminate your
right to broadcast the remainder of the program series and withdraw
all future episodes of that series from you.
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(g) Nothing in this Agreement shall be construed to prevent or hinder WB
from (i) substituting one or more WB programs for previously
scheduled WB programs, in which event WB will make the substituted
programs available to Station pursuant to the provisions of
Paragraph 1 and Paragraph 3; (ii) canceling one or more WB programs;
or (iii) postponing any scheduled roll-out dates of WB programming.
Further, nothing in this Agreement shall be construed to obligate WB
(x) to provide a minimum or specific number of WB programs; (y) to
commence providing WB programming on any particular date; or (z) to
expand the amount of WB programming pursuant to a specified
timetable.
3. Delivery: WB agrees to make available the WB programming for satellite
transmission. WB shall incur no costs regarding the satellite downlink and
broadcast by Station; Station shall incur no up-link costs with regard to
the delivery of the WB programming. WB agrees to provide closed captioning
for substantially all WB programming that is not exempt from captioning
requirements under FCC rules.
4. Promotion:
(a) We will provide you with on-air promotional announcements ("WB
Promos") for WB programming, which WB Promos are intended for
broadcast during Station's broadcast of non-WB programming. You
agree to provide an on-air promotional schedule consistent with our
recommendations, and consistent with Station's reasonable business
judgment. You shall maintain complete and accurate records of all WB
Promos that are broadcast. Upon request by WB for those records, you
shall provide copies of all such records to WB within two weeks of
such request.
(b) You shall budget Station's advertising availabilities in such a
manner as to enable Station to broadcast additional WB Promos during
periods in which Station is deemed a "Subperformer." Station shall
be deemed to be a "Subperformer" from the time its "sweeps rating"
is below the average prime time rating for all WB affiliated
broadcast stations until such time as Station's sweeps rating is no
longer below the average prime time rating for all WB affiliated
broadcast stations. The Station's sweeps rating means the Station's
average A.C. Nielsen rating for the most recently completed sweeps
period for adults 18-49 for all prime time hours programmed by WB.
For such time as Station remains a Subperformer, Station shall: (i)
broadcast, during each one-half hour of all periods of each day that
Station is broadcasting non-WB programming, at least one (1)
30-second Promo (or Promos aggregating 30 seconds, to the extent we
so elect) for Station's local, syndicated or WB programming; and
(ii) broadcast during all periods when Station is broadcasting
non-WB programming WB Promos for not less than:
Prime Time Hours Programmed by WB
2 hours - 20% of 100%
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4 hours - 25% "
6 hours - 30% "
8 hours - 35% "
10 hours - 40% "
12 hours* - 45% "
(* 12 or more hours)
(the "Applicable Percentage") of the total, aggregate gross ratings
points ("GRPs") for all the promotional announcements broadcast by
Station ("Aggregate Promotional GRPs") within the periods in which
non-WB programming is being broadcast. The specific WB Promos
broadcast by Station and the number of broadcasts of each WB Promo
may be specified by WB and the broadcast of the WB Promos shall be
made so that the Aggregate Promotional GRPs allocated to WB Promos
are distributed fairly and reasonably across the periods when non-WB
programming is being broadcast. For such time as Station's sweeps
rating ranks Station within the bottom 50% (ranked highest to
lowest) of those WB affiliated broadcast stations that are
Subperformers, then the Applicable Percentage for Station shall be
not less than 55% of 100% of the Aggregate Promotional GRPs. The WB
Promos broadcast during each half-hour of non-WB programming, as
required by this subparagraph 4(b), may be counted toward Station's
Applicable Percentage. Station shall continue to air WB Promos under
this schedule until Station is no longer a Subperformer, as defined
above.
(c) In addition to providing WB Promos, we shall make available for
your use, at reasonable cost, such other promotional and sales
materials as we and you may mutually consider appropriate. You
shall not delete any copyright, trademark, logo or other notice,
or any credit included in any such materials relating to WB, and
you shall not exhibit, display, distribute or otherwise use any
trademark, logo or other material or item delivered pursuant to
this Paragraph 4 or otherwise, except as instructed by us at the
time.
(d) Commencing on the first date that WB programming is aired by Station
and for the remaining term of this Agreement, Station shall identify
itself as a WB affiliate, both on and off-the-air.
5. Commercial Announcements:
(a) With respect to WB programming, the parties to this Agreement shall
be entitled to insert the following number of commercial
announcements (Station's allotment includes station breaks but
excludes 5-second prime time station identification breaks at the
beginning of each hour):
(1) Prime Time (as defined in subparagraph 2(c)) hour (pro-rated
for half-hour programs):
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You shall have the right to insert six 30-second
commercial announcements. WB shall have the right to
insert at least nineteen 30-second commercial
announcements.
(2) Children's:
Weekday half-hour:
You shall have the right to insert six 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert six 30-second commercial
announcements.
Weekend half-hour:
You shall have the right to insert five 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert five 30-second commercial
announcements and one 15-second commercial.
(3) Latenight (as defined in subparagraph 2(c)):
You will receive half the total number of commercial
announcements as specified by WB or less as mutually
agreed to.
(b) If, because of the imposition of any law or regulation, the
amount of commercial advertising, commercial matter or other
non-program time included in WB programming is reduced for any
reason (including but not limited to the adoption or modification
of statutes or regulations or any other governmental action),
then we shall be entitled to reduce the number of commercial
announcements available to you to the extent necessary to provide
WB and Affiliate with the same proportionate amount of commercial
time (inclusive of station breaks with respect to Affiliate) that
each party is entitled to under this Agreement.
(c) Your broadcast over Station of the commercial announcements
included by us in WB programming is of the essence to this
Agreement, and nothing contained in this Agreement (other than in
subparagraph 2(f)) shall limit our rights or remedies relating to
your failure to so broadcast said commercial announcements. You
shall maintain complete and accurate records of all commercial
announcements broadcast as provided herein. Within two weeks
following each request by us therefor, you will submit copies of
all such records to WB.
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6. Force Majeure: WB shall not be liable for failure to make available any
programming or any portion(s) thereof, and Station shall not be liable for
failure to broadcast any such programming or any portion(s) thereof, by
reason of any act of God, equipment failure, action or claims by any third
person, labor dispute, law, governmental regulation or order, or other
cause beyond either party's reasonable control ("force majeure event"). If
due to any force majeure event, we substantially fail to make available
all of the programming to be delivered to Affiliate under the terms of
this Agreement, or you substantially fail to broadcast such programming as
scheduled by WB for four consecutive weeks, or for six weeks in the
aggregate during any 12-month period, then the "non-failing" party may
terminate this Agreement upon thirty 30 days prior written notice to the
"failing" party so long as such notice is given at any time prior to the
"non-failing" party's receipt of actual notice that the force majeure
event(s) has ended; provided further, however, that notwithstanding the
above provisions, you shall not have any right to so terminate this
Agreement, upon a force majeure event or otherwise, if we: (i) fail to
make available a minimum or specific number of WB programs; (ii) fail to
commence making available WB programming on any particular date; (iii)
fail to expand the amount of WB programming pursuant to a specified
timetable; (iv) substitute one or more WB programs for previously
scheduled WB programs; (v) cancel one or more WB programs; or (vi)
postpone the roll-out of any WB programming.
7. Assignment or Transfer of Affiliate Agreement and/or Station License:
(a) Assignment or Transfer of Affiliation Agreement: This Agreement
shall not be assigned by Affiliate without the prior written consent
of WB. Any purported assignment by Affiliate without such consent
shall be null and void, shall not be enforceable against WB, and
shall not relieve Affiliate of all its obligations hereunder.
(b) Assignment or Transfer of Station License: If any application is
made to the Federal Communications Commission (FCC) concerning a
purported, attempted or actual transfer of control or assignment of
the Station license, you shall notify us immediately in writing of
the filing of such application. Unless the transfer of control or
assignment is one provided for by Section 73.3540 (f) of the FCC's
current rules and regulations (a "short form" assignment or transfer
of control that does not involve a material assignment or transfer
of control), we shall have the right to terminate this Agreement
upon twenty (20) days' advance notice to you, at any time after the
filing of such application. If WB does not terminate this Agreement
on or before twenty days before the effective date of such transfer,
this Agreement shall be deemed to have been fully assigned to the
transferee or assignee of Station's license and such transferee or
assignee will assume and perform all of the obligations and duties
contained in this Agreement without limitation of any kind, as of
the effective date of transfer. In addition, if Licensee fails,
prior to the effective date of the transfer, to procure in a written
form satisfactory to WB the agreement of the assignee or transferee
to assume and perform this Agreement in its entirety without
limitation of any kind, or fails to
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immediately notify WB of the application to transfer control or
assign the Station license, then Licensee shall remain fully
responsible for the full performance of all provisions of the
Agreement during the full term of the Agreement as set forth in
Paragraph 9, and in the event of non-performance, Licensee shall be
considered in material breach of this Agreement and WB shall have
all rights and remedies available for such breach, including but not
limited to specific performance and damages.
8. Unauthorized Copying: You shall not, and shall not cause or authorize
others to record, copy or duplicate any programming or other material we
furnish pursuant to this Agreement, in whole or in part, and you shall
take all reasonable precautions to prevent any such recording, copying or
duplication. Notwithstanding the foregoing, if Station is located in the
Mountain Time Zone you may pre-record WB programming for later broadcast
at the times scheduled by us. You shall erase all such pre-recorded
programming promptly after its scheduled broadcast. Notwithstanding the
above provisions, Station may make a non-broadcast quality recording of
its entire broadcast day for archival, file and reference purposes and
uses only, which copy shall be kept in Station's possession at all times.
9. Term:
(a) The term of this Agreement shall commence on May 1, 1999 (the
"Launch Date") and shall continue for 10 years thereafter (the
"initial period"). The term of this Agreement may be extended for
additional successive periods of two years each, by us, in our sole
discretion, giving written notice of such extension to you at least
120 days prior to the expiration of the then-current period;
provided, however, that if, within 30 days of your receipt of the
notice of extension, you, in your sole discretion, give us written
notice that you reject such extension, then the extension notice
shall not be effective and this Agreement shall terminate upon
expiration of the then-current period.
(b) The "Launch Date" shall be defined as the date on which WB makes WB
programming available to Affiliate for broadcast by Station on a
regularly scheduled basis.
(c) Each "Contract Year" hereunder shall be an annual period during the
term of this Agreement. The First Contract Year is the annual period
beginning with the start date of the term of license; the Second
Contract Year is the annual period commencing one year after the
start date of the term of license, etc.
(d) WB shall, within its sole discretion and without liability, have the
right to terminate this Agreement so long as we (i) provide sixty
days prior written notice to you and (ii) are either: (A) ceasing
operation as a television network; or (B) substantially
restructuring the ownership of the television network.
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(e) Notwithstanding anything to the contrary contained in this
Agreement, upon the termination or expiration of the term of this
Agreement, all of your rights to broadcast or otherwise use any WB
program or any trademark, logo or other material or item hereunder
shall immediately cease and neither you nor Station shall have any
further rights whatsoever with respect to any such program,
trademark, logo, material or item.
10. Applicable Law: The obligations of you and WB under this Agreement are
subject to all applicable federal, state, and local laws, rules and
regulations (including, but not limited to, the Communications Act of
1934, as amended, and the rules, regulations and policies of the FCC) and
this Agreement and all matters or issues collateral thereto shall be
governed by the laws of the State of California without regard to
California's conflict of law rules. The California State Courts and the
U.S. District Courts located in California shall have jurisdiction over
the interpretation of this Agreement or with regard to any dispute arising
under this Agreement. The venue for any such action concerning this
Agreement shall be in the County of Los Angeles, California.
11. Station Acquisition by WB: During the term of this Agreement, WB agrees
that neither we nor Time Warner Inc. nor any of its subsidiary companies
will acquire, as defined by the attribution rules of the FCC, a television
broadcast station licensed in the Community of License. It is acknowledged
that Station WTBS in Atlanta is controlled by a Time Warner affiliated
company.
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12. Change in Operations:
(a) You shall notify WB immediately in writing if application is made to
the FCC to modify in a material manner the transmitter location,
power or frequency of Station such that Station's signal coverage of
its DMA market is materially diminished, or if Station changes its
program format from mainstream entertainment and/or news
programming. We shall have the right to terminate this Agreement,
upon 90 days' prior written notice, within 90 days after receiving
notice of the format change, or if no satisfactory arrangements are
made to cure Station's diminished signal coverage. Applications
related to Station's transition to digital television transmission
are not within the scope of this paragraph.
(b) At any time during the term if Station is off the air, or
operating at less than fifty percent (50%) of its licensed power,
for a period of 12 hours or longer, Station must immediately
notify WB. WB may terminate this agreement upon thirty (30) days
prior written notice in the event that Station is off the air for
a period exceeding seven (7) days or if is operating at less than
fifty percent (50%) of its full licensed power for a period
exceeding seven (7) days.
13. WB Affiliates Council: You, with the other affiliates of WB, shall form a
WB Affiliates Council (the "Council"), which shall be comprised of
representatives from five different affiliates of WB.
14. Non-Liability of Council Members: To the extent the Council and its
members are acting in their capacity as such, then the Council and each
member so acting shall not have any obligation or legal or other
liability whatsoever to you or to WB in connection with this Agreement,
including without limitation, with respect to the Council's or such
member's approval or non-approval of any matter, exercise or
non-exercise of any right or taking of or failing to take any other
action in connection therewith.
15. Warranties and Indemnities:
(a) WB agrees to indemnify, defend and hold Affiliate harmless against
and from all claims, damages, liabilities, costs and expenses
arising out of the use by Station under this Agreement of any WB
program or other material furnished by WB under this Agreement,
provided that Affiliate promptly notifies WB of any claim or
litigation to which this indemnity shall apply, and provided further
that Affiliate cooperates fully with WB in the defense or settlement
of such claim or litigation. Affiliate agrees to indemnify, defend
and hold WB harmless against and from all claims, damages,
liabilities, costs and expenses with respect to Affiliate's
operation of the Station or any material furnished, added or deleted
to or from WB programming by Affiliate. This indemnity shall not
apply to litigation expenses, including attorneys' fees, that the
indemnified party elects to incur on its own behalf. Except as
otherwise provided in this Agreement, neither Affiliate nor WB shall
have any rights against the other for claims by third
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persons, or for the failure to operate facilities or to furnish WB
programs if such failure is the result of a force majeure event as
defined in Paragraph 6. Furthermore, notwithstanding any other
provisions of this Agreement, Affiliate shall not have any rights
against WB for claims by third parties or Affiliate arising out of
any actions or omissions of WB permitted under subparagraph 2(g).
(b) You agree to maintain for Station such licenses, including
performing rights licenses as now are or hereafter may be in
general use by television broadcasting stations and are necessary
for you to broadcast the television programs which we furnish to
you hereunder. We will clear all music in the repertory of
SESAC, ASCAP and BMI used in our programs. You shall obtain and
pay all costs associated with any performing rights licenses
necessary to broadcast such music. You will be responsible for
all music license requirements (and all other permissions) for
any commercial or other material inserted by you within or
adjacent to WB programs in accordance with this Agreement.
(c) You warrant that the License is in good standing and you agree to
comply with all relevant statutes and FCC rules and requirements
so as to maintain the License in good standing. In the event you
are found to have materially violated any laws or FCC rules or
requirements (after the exhaustion of all appeals so long as
Station retains the License during the pendency of such appeal),
the effect of which is that Station is of materially less value
to us as a broadcaster of WB programming than as of the date of
this Agreement, then we shall have the right to terminate this
Agreement upon 30 days prior written notice.
(d) Each party hereto warrants that all information delivered by it to
the other in connection with this Agreement shall be true and
correct in all material respects.
(e) Each party hereto warrants to the other that execution of this
Agreement and performance of its obligations will not violate or
result in a default under (i) any material agreement or
instrument to which it is a party or (ii) any statute, ordinance,
governmental rule or regulation in any material respect, or
order, judgment, injunction, decree or ruling of any court or
administrative agency applicable to it, which default would
materially interfere with the performance of it's obligations
hereunder.
(f) Each party hereto warrants that it is not a party to any legal
action or other proceeding before any court or administrative agency
which could prohibit the performance of it's obligations under this
Agreement.
16. Retransmission Consent: If any law, governmental regulation or other
action permits you to elect to require any cable television system or
other multichannel video program distributor to obtain your consent to
such system's or distributor's retransmission of Station's broadcast of
either Station's signal as a whole or any WB programming included therein,
then Affiliate and WB agree to negotiate in good faith regarding whether
such
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consent is to be given (including without limitation, whether you shall or
shall not, in lieu of requiring consent, elect to require any cable system
to comply with any "must carry" rules, regulations or laws) and, if so,
the terms under which such consent is to be given (including without
limitation, the amount and type of compensation, if any, to be paid by the
system or distributor for such consent and whether any of that
compensation shall be shared between you and us). If WB and Affiliate do
not reach agreement with respect to all of the foregoing matters, then
without elimination to any of WB's other remedies, WB may terminate this
Agreement upon 30 days written notice to Affiliate. Nothing contained
herein shall authorize or allow the dissemination of WB programming by
Station outside of the DMA where Station is located, and any such
dissemination of WB programming outside of Station's DMA is prohibited.
17. Network Non-Duplication Protection: During the term of this Agreement,
Affiliate shall be entitled to network non-duplication protection, as
provided by Sections 76.92 through 76.97 of the FCC's rules, against the
presentation of any WB program by a cable system during the period
commencing one day before and ending fourteen (14) days after receipt of
such WB program by Station. The geographic zone of network non-duplication
protection shall be the Designated Market Area ("DMA") (as defined by
Nielsen) in which your Station is located or any lesser zone mandated by
Sections 76.92 and 73.658(m) of the FCC's rules. Network non-duplication
protection shall extend only to WB programs that Station is carrying in
accordance with the terms of this Agreement and such protection shall be
subject to the terms and provisions of subparagraph 2(f). You are under no
obligation to exercise in whole or in part the network non-duplication
rights granted herein. Notwithstanding anything to the contrary in this
paragraph, no non-duplication protection is provided against the signal of
WGN until such time that WB offers exclusivity against the signal of WGN
to its affiliates.
18. Affiliation Ratings Payments. Affiliate agrees to pay to WB an annual
payment, based on the Station's television market ratings, for WB prime
time programming, commencing with the initial broadcast by Station of such
programming, all as defined and set forth in the "Annual Ratings Payment"
Exhibit attached hereto. These payments are intended to compensate WB for
the WB programming and are in no way intended to, nor do they confer on
WB, any ownership or other equity interest in Station. If, subsequent to
January 1, 2004, WB modifies the financial model then in effect between WB
and stations affiliated with WB at that time ("WB Affiliates") or modifies
the terms and conditions under which WB affiliates pay compensation to WB
(the "compensation modification"), including but not limited to a
modification of the allocation of commercial time between the WB
affiliates and WB, then: (i) WB will provide Affiliate with reasonable
notice of the compensation modification; and, (ii) Affiliate shall have
the opportunity to either elect to participate in the compensation
modification or to opt out of the compensation modification by advising WB
in writing that Affiliate has elected not to participate in the
compensation modification. Upon receipt of Affiliate's election, WB may:
(i) accept Affiliate's election to opt out of the compensation
modification; or (ii) terminate this Agreement upon 60 days prior written
notice.
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19. Notices and Reports:
(a) In addition to any other reports or forms requested herein, you will
provide to us in writing, in the manner reasonably requested by WB,
such reports covering WB programs broadcast by Station as we may
request from time to time. To the extent we provide you forms for
such purpose, you shall provide such reports on these forms.
(b) All notices, reports or forms required or permitted hereunder to be
in writing shall be deemed given when personally delivered
(including, without limitation, by overnight courier or other
messenger or upon confirmed receipt of facsimile copy) or on the
date of mailing postage prepaid, addressed as specified below, or
addressed to such other address as such party may hereafter specify
in a written notice. Notice to Affiliate shall be to the address set
forth for Affiliate on page 1 of this Agreement. Additionally,
notice will be sent to ACME Television Holdings, 10829 Olive
Boulevard, Suite 202, St. Louis, MO 63141, Attention: Tom Allen.
Notice to WB shall be to: The WB Television Network, 4000 Warner
Boulevard, Burbank, California, 91522, Attention: General Counsel.
20. Miscellaneous:
(a) Nothing contained in this Agreement shall create any partnership,
association, joint venture, fiduciary or agency relationship between
the parties hereto.
(b) Nothing contained in this Agreement nor the conduct of any officer,
director, agent or employee of either WB or Affiliate shall be
deemed to create or to constitute ownership by WB, in whole or in
part, of Affiliate, Station or the License or in any way constitute
a derogation of the rights, duties and responsibilities imposed upon
Affiliate. Nothing in this Agreement shall be deemed to delegate to
WB, directly or indirectly, any right to control the operations of
Station.
(c) You shall at all times permit us, in connection with WB programming,
without charge, to place on, maintain and use at Station's premises,
at our expense, such equipment as WB shall reasonably require for
the distribution of WB Network programming. Station shall operate
such equipment for us, to the extent we reasonably request, and no
fee shall be charged by Station therefor.
(d) No waiver of any failure of any condition or of the breach of any
obligation hereunder shall be deemed to be a waiver of any preceding
or succeeding failure of the same or any other condition, or a
waiver of any preceding or succeeding breach of the same or any
other obligation.
(e) Each and all of the rights and remedies of WB and Affiliate under
this Agreement shall be cumulative, and the exercise of one or more
of said rights or remedies
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shall not preclude the exercise of any other right or remedy under
this Agreement, at law or in equity. Notwithstanding anything to the
contrary contained in this Agreement, in no event shall either party
hereto be entitled to recover any lost profits or consequential
damages because of a breach or failure by the other party, and
except as expressly provided in this Agreement to the contrary,
neither WB nor Affiliate shall have any right against the other with
respect to claims by any third person or other third entity.
(f) Paragraph headings are included in this Agreement for convenience
only and shall not be used to interpret this Agreement or any of the
provisions hereof, nor shall they be given any legal or other
effect.
(g) As of the date hereof, this Agreement, including all Exhibits
attached hereto, constitutes the entire understanding between WB
and Affiliate concerning the subject matter hereof and shall not
be amended, modified, changed, renewed, extended or discharged
except by an instrument in writing signed by the parties or as
otherwise expressly provided herein. No inducement,
representations or warranties except as specifically set forth
herein have been made by either party to this Agreement to the
other. This Agreement replaces any and all prior and
contemporaneous agreements, whether oral or written, pertaining
to the subject matter hereof.
(h) This Agreement may be executed in counterparts, with the Agreement
being effective when each party hereto has executed a copy and
delivered that copy to the other party hereto.
(i) WB agrees to make WB programming available to Affiliate in digital
format, on a timetable and in a format determined by WB. WB will
consult with Affiliate concerning its plans for digital production
and delivery, including the transmission format to be employed.
After the inception of Affiliate's broadcasts on its FCC-assigned
digital frequency (the "DTV Channel"), Affiliate agrees to carry WB
programming that is supplied in digital format on the DTV Channel.
WB programming will be treated as Affiliate's primary network
programming on the DTV Channel. It is acknowledged that Affiliate
owns the digital bandwidth in its DTV Channel, and that Affiliate is
not obligated to provide WB with more than one digital channel in
its market.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
THE WB TELEVISION NETWORK PARTNERS ACME TELEVISION LICENSEE
L.P. dba THE WB TELEVISION NETWORK OF WISCONSIN, LLC
("WB") ("Affiliate")
By: /s/ John Maatta By: /s/ Douglas E. Gealy
--------------------------- -------------------------------
Title: Title: Pres. & COO
---------------------------
Date: 9/7/99 Date: 9/7/99
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ANNUAL RATINGS PAYMENT EXHIBIT
As part of the consideration to WB for the WB programming, Licensee agrees to
make annual payments to WB based on Station's television market ratings (the
"TMR Payments") for adults 18-49 for the prime time broadcast periods of WB
programming commencing with the initial broadcast by Station of WB programming.
Such payments shall partially compensate WB for the WB programming by
calculating the value and/or profitability added to Station as a result of its
affiliation with WB and pay to WB 25% of such added value and/or profitability.
Such payments are not intended to, nor do they, confer in WB any ownership
interest in Station. All defined terms used herein shall have the same meaning
as set forth in the Agreement unless otherwise defined herein. The TMR Payments
shall be calculated and paid as follows:
A. Calculation of TMR Payment Amount: At the end of each successive
Contract Year commencing on the Launch Date, the "Average Rating"
for each such Contract Year shall be determined by taking the
average of Station's television ratings (adults 18-49) for the prior
November, February, and May sweeps periods of such Contract Year as
reported on the Nielsen Station Index ("NSI"), as processed,
refined, re-formatted or re-configured by that application commonly
known as the "SNAP System," but only with respect to those prime
time hours programmed by WB under the Agreement. Based on the
Station's Average Rating for each Contract Year and the number of
hours programmed by WB in that Year, Station shall owe WB the amount
(the "TMR Amount") set forth in the table attached hereto as the
Annual Ratings Payment Exhibit Table. For example, in the particular
case of Station, if the adults 18-49 rating for WB programmed hours
is 1.0 for a particular Contract Year, and WB is programming 15
hours per week during such Year, then the TMR payment that will be
due and owing for such Year is $1,375. In the event that either
Station or WB contends that the TMR Payment for any particular
Contract Year, as set forth in the Annual Ratings Payment Exhibit
Table, is not an accurate statement of the twenty-five percent (25%)
share of the added value and/or profitability during WB programmed
prime time hours that Station owes to WB, or if the TMR Payment for
any particular Contract Year has increased or decreased from the
prior year's TMR Payment disproportionately in comparison to the
increase or decrease over such period in the profitability of
Station's WB furnished prime time programming (after giving effect
to any increase in the number of WB prime time programming hours
between the two periods), then either WB or Station may request that
the Station's financial results and operational information be
audited and reviewed by WB and the result of such audit shall
determine the level of the TMR Payment for the given period.
Promptly after such audit and review, WB and Station shall meet to
discuss such financial results and operational information of
Station and in good faith adjust the then currently due TMR Payment
to reflect the result of the audit and the intent of these Payments
as set forth in the introductory paragraph to this Exhibit.
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B. TMR Payment: The TMR Amount for each Contract Year shall be payable
by Licensee to WB within 15 days following WB's delivery to Licensee
of an invoice for the TMR Amount, which invoice shall be delivered
by WB not earlier than the release by NSI or any successor ratings
index of the ratings for the fourth and final sweeps period of such
Contract Year.
C. No NSI Ratings: In the event there are no NSI ratings available,
then Licensee and WB shall use those standard television market
ratings which are generally available and used by national and/or
regional advertisers for purposes of calculating advertising
payments to television stations.
D. Continuing Obligation. Licensee's obligation to make the above TMR
Payments on the basis set forth herein shall survive any termination
of this Agreement by WB, any sale or transfer of any Station assets
and/or any ownership interest in the Station and shall remain
binding on any successor Station owner, which successor remains an
affiliate and is approved by WB in its discretion as otherwise set
forth in the Agreement.
E. Calculation Of Baseline (IF APPLICABLE): It is recognized that
Station is a start-up, and that ratings data is not available to
track Station's historical performance during three previous
ratings periods. The parties have agreed that notwithstanding
anything to the contrary set forth above, the Baseline for the
calculation of the TMR payments will be calculated as follows:
During the __________ 199__ and ___________199__ and ____________
199__ sweeps periods the average ratings (Adults 18-49) for the
nights that are not programmed by WB will set the baseline number
for the computation of the TMR payment. The difference between
the baseline and the average rating for WB programmed nights
during the February, May and November sweeps period will
determine the amount that is due to WB, during the first year and
during all subsequent years. The calculation of ratings under
this paragraph shall be as reported on the Nielsen Station Index
("NSI") as processed, refined, reformatted, or reconfigured by
that application commonly known as the "SNAP System".
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EXHIBIT 10.68
STATION AFFILIATION AGREEMENT
Dated as of May 1, 1999
ACME Television Holdings
10829 Olive Boulevard, Suite 202
St. Louis, MO 63141
Attention: Doug Gealy
The following shall comprise the agreement between The WB Television Network
Partners, L.P. dba The WB Television Network ("WB," "we," or "us"), and ACME
Television Licensee of Illinois, LLC ("Affiliate" or "you") for the affiliation
of your television station WPXU ("Station") with WB for carriage of WB
programming. The Federal Communications Commission ("FCC") has issued a
broadcast license ("License") to you to operate Station in Champaign, Illinois,
the community in which Station is licensed by the FCC ("Community of License").
All references in this Agreement to "WB program(s)" and "WB programming" and any
variations thereof shall mean the programming made available by WB under this
Agreement.
1. WB Programming: WB will make available to Affiliate WB programs for free
over-the-air broadcast and broadcast by any other means by Station in the
Community of License during the term of this Agreement. During such term,
except as otherwise provided herein, WB grants Affiliate the exclusive
right to have Station broadcast the WB programming in the Community of
License only as scheduled by WB over free over-the-air television and by
such other technological means as are available to Affiliate for broadcast
in the Community of License so long as Station broadcasts the WB
programming for over-the-air television. Notwithstanding the foregoing,
until such time that WB offers exclusivity against importation of WB
programming carried by the signal of WGN to its affiliates, WB may allow
WB programming carried by the signal of WGN to be imported into the
Community of License. WB shall have the sole discretion to select,
schedule, substitute and/or withdraw WB programming or any portion(s)
thereof. WB shall also have the right to authorize any television
broadcasting station, regardless of the community in which it is licensed
by the FCC, to broadcast any presentation of a subject we deem to be of
immediate national significance including, but not limited to, a
Presidential address. Except as provided herein, during the term of this
Agreement Affiliate shall be the sole affiliate of WB for transmission for
exhibition on television of WB programming in the Community of License.
2. Program Carriage:
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(a) We agree to make available for broadcast by Station WB programming
for the hours programmed by WB at the times and dates scheduled by
WB throughout the term of this Agreement. You acknowledge that the
times and roll-out dates set forth in this Agreement are approximate
only and you agree to have Station broadcast WB programs
irrespective of whether WB meets, fails to meet or otherwise varies
from the anticipated program schedule set forth herein; provided,
however, that WB hereby agrees not to accelerate such anticipated
program schedule. WB will not program the morning or afternoon
day-parts (with the exception of Kids' WB programming) or, access,
or late-night day-parts, unless WB first receives the consent of the
WB Affiliate's Council. To the extent WB makes available such WB
programming for broadcast, this Agreement both obligates us to make
available such WB programs to Station and obligates Station to
broadcast such WB programs over-the-air pursuant to the terms of
this Agreement. WB acknowledges that the sixth night of WB prime
time programming will commence at the start of WB's 1999/2000
broadcast year, and such sixth night of programming will be
broadcast on Friday night.
(b) Subject to the exceptions set forth in subparagraph 2(e) and the
right of preemption set forth in subparagraph 2(f), Station shall
broadcast WB programs on the dates and at the times scheduled by WB.
Station shall broadcast WB programs in their entirety, including but
not limited to WB commercial announcements, WB identifications,
program promotional material, and credit announcements contained in
such programs, without interruption or deletion or addition of any
kind, except for the commercial announcements that Station is
allowed to add pursuant to Paragraph 5. Notwithstanding the
foregoing, you may substitute other WB promotional announcements in
lieu of program promotional material that is inaccurate as it
pertains to Station's schedule. No commercial announcement,
promotional announcement or public service announcement will be
broadcast by Station during any interval within a WB program, which
interval is designated by WB as being for the sole purpose of making
a station identification announcement.
(c) The initial Scheduled Program Times of WB programming and the
anticipated roll-out dates of that programming are set forth as
follows (the specified times apply for the Eastern and Pacific Time
Zones; the Mountain and Central Time Zones are one hour earlier for
Prime Time and Latenight programming only, except as otherwise
agreed by us):
Prime Time: Sunday: 7:00 p.m. - 10:00 p.m Monday - Saturday:
8:00 p.m.- 10:00 p.m. As of the commencement of the
1998/1999 Television Broadcast Year, WB is providing
programming for broadcast by its affiliates on five
nights during each calendar week (i.e. Sunday through
Thursday). WB will roll-out one
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additional night of programming during the 1999/2000
Broadcast Year and one additional night of programming
during the 2000/2001 Broadcast Year.
Children's: Monday through Friday Mornings: One hour of programming
broadcast between: 7:00 a.m. - 8:00 a.m.; or 7:30 a.m. -
8:30 a.m.; or 8:00 a.m. - 9:00 a.m. (at WB's election)
Monday through Friday Afternoons: Two hours of
programming broadcast between: 3:00 p.m. - 5:00 p.m.
Saturday Morning: Four hours of programming broadcast at
8:00 a.m. - 12:00 noon. However, if Affiliate believes
that the Children' programming block should run on
Sunday instead of Saturday, WB will discuss with
affiliate such a move of the programming block from
Saturday to Sunday, and will consider granting such a
move, in good faith, after taking into account the
business interests of WB.
Latenight: 11:00 p.m. - 12:00 midnight Monday through Friday,
commencing on a date to be determined by WB, subject to
the approval of the WB Affiliate's Council
(d) During such time that WB is providing 19 hours of programming per
week to Station 3 hours(of the total of 19 hours) will be
programming which is categorized as Children's
educational/informational programming. However, at such time that
WB provides only 16.5 hours of Children's programming to Station
then WB, at its sole election, may determine to provide only 30
minutes of educational/informational programming per week to
Station.
(e) You confirm that as of the date of this Agreement you have no
commitments, except those listed in Schedule 1 hereto, which
would impede Station's broadcasting all WB programming made
available during the term of this Agreement. If any WB
programming is not broadcast by you because of any such
commitment expressly described in Schedule 1 (but excluding
extensions by exercise of options by Affiliate [but not by the
programming licensor] or otherwise), then such programming shall
be broadcast in a time period upon which you and we shall
mutually agree and which shall be of quality and rating value
comparable to that of the Scheduled Program Times. These programs
will not be considered preempted for purposes of subparagraph
2(f).
(f) Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall be construed to prevent or hinder Affiliate
from (i) rejecting or refusing any WB program which Affiliate
reasonably believes to be unsatisfactory or unsuitable or contrary
to the public interest or (ii) substituting a program which, in
Affiliate's opinion, is of greater local or national importance. In
such an
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event, you shall provide us with advance written notice of any such
rejection, refusal or substitution, no later than 14 days prior to
the air date of such programming, except where the nature of the
substitute program makes such notice impracticable (e.g., coverage
of breaking news or other unscheduled events) or the programming has
not been made available to you by such date, in which cases you
agree to give us as much advance notice as the circumstances permit.
Such notice shall include a statement of the reasons you believe
that the rejected WB programming is unsatisfactory or unsuitable or
contrary to the public interest, and/or that a substituted program
is of greater local or national importance. In view of the limited
amount of WB programming to be supplied pursuant to this Agreement
(at least until such time as the full WB programming schedule has
been rolled out) you acknowledge that you do not foresee any need to
substitute programming of greater local or national importance for
WB programming, except in those circumstances requiring live
coverage of fast-breaking news events or very infrequent special
events.
To the extent you substitute another program for a WB program as
permitted under subparagraph 2(f)(ii), then you will broadcast such
omitted program and the commercial announcements contained therein
(or any replacement programming provided by WB and the commercial
announcements contained therein) during a time period upon which you
and we shall promptly and mutually agree and which shall be of
quality and rating value comparable to that of the preempted
program's Scheduled Program Time. In the event that the parties do
not promptly agree upon such a time period after reasonable
consultation in good faith and after taking into account the
practical alternatives under the circumstances, then, without
limiting any other rights of WB under this Agreement or otherwise,
we shall have the right to license the broadcast rights to the
applicable omitted programming (or replacement programming) to
another television station located in the Community of License.
Except as provided in Paragraph 2(e), above, in addition, if three
or more episodes of a program series are preempted by you as
permitted hereunder in any thirteen-week period, for any reasons
other than force majeure as provided in Paragraph 6, we shall have
the right, upon 60 days prior written notice, to terminate your
right to broadcast that program series and to withdraw all future
episodes of that series. Such thirteen-week periods shall be
measured consecutively from the first broadcast date of the program
series in question. If we subsequently place such a series on
another station in the Community of License, we reserve the right
not to offer you the broadcast rights to that series for subsequent
broadcast seasons.
In addition to all other remedies, to the extent one or more
episodes of a program series is preempted by you in violation of
(i.e., other than as permitted under) this Paragraph 2, we shall
have the right, upon 30 days prior written notice, to terminate your
right to broadcast the remainder of the program series and withdraw
all future episodes of that series from you.
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(g) Nothing in this Agreement shall be construed to prevent or hinder WB
from (i) substituting one or more WB programs for previously
scheduled WB programs, in which event WB will make the substituted
programs available to Station pursuant to the provisions of
Paragraph 1 and Paragraph 3; (ii) canceling one or more WB programs;
or (iii) postponing any scheduled roll-out dates of WB programming.
Further, nothing in this Agreement shall be construed to obligate WB
(x) to provide a minimum or specific number of WB programs; (y) to
commence providing WB programming on any particular date; or (z) to
expand the amount of WB programming pursuant to a specified
timetable.
3. Delivery: WB agrees to make available the WB programming for satellite
transmission. WB shall incur no costs regarding the satellite downlink and
broadcast by Station; Station shall incur no up-link costs with regard to
the delivery of the WB programming. WB agrees to provide closed captioning
for substantially all WB programming that is not exempt from captioning
requirements under FCC rules.
4. Promotion:
(a) We will provide you with on-air promotional announcements ("WB
Promos") for WB programming, which WB Promos are intended for
broadcast during Station's broadcast of non-WB programming. You
agree to provide an on-air promotional schedule consistent with
our recommendations, and consistent with Station's reasonable
business judgment. You shall maintain complete and accurate
records of all WB Promos that are broadcast. Upon request by WB
for those records, you shall provide copies of all such records
to WB within two weeks of such request.
(b) You shall budget Station's advertising availabilities in such a
manner as to enable Station to broadcast additional WB Promos
during periods in which Station is deemed a "Subperformer."
Station shall be deemed to be a "Subperformer" from the time its
"sweeps rating" is below the average prime time rating for all WB
affiliated broadcast stations until such time as Station's sweeps
rating is no longer below the average prime time rating for all
WB affiliated broadcast stations. The Station's sweeps rating
means the Station's average A.C. Nielsen rating for the most
recently completed sweeps period for adults 18-49 for all prime
time hours programmed by WB. For such time as Station remains a
Subperformer, Station shall: (i) broadcast, during each one-half
hour of all periods of each day that Station is broadcasting
non-WB programming, at least one (1) 30-second Promo (or Promos
aggregating 30 seconds, to the extent we so elect) for Station's
local, syndicated or WB programming; and (ii) broadcast during
all periods when Station is broadcasting non-WB programming WB
Promos for not less than:
Prime Time Hours Programmed by WB
2 hours - 20% of 100%
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4 hours - 25% "
6 hours - 30% "
8 hours - 35% "
10 hours - 40% "
12 hours* - 45% "
(* 12 or more hours)
(the "Applicable Percentage") of the total, aggregate gross ratings
points ("GRPs") for all the promotional announcements broadcast by
Station ("Aggregate Promotional GRPs") within the periods in which
non-WB programming is being broadcast. The specific WB Promos
broadcast by Station and the number of broadcasts of each WB Promo
may be specified by WB and the broadcast of the WB Promos shall be
made so that the Aggregate Promotional GRPs allocated to WB Promos
are distributed fairly and reasonably across the periods when non-WB
programming is being broadcast. For such time as Station's sweeps
rating ranks Station within the bottom 50% (ranked highest to
lowest) of those WB affiliated broadcast stations that are
Subperformers, then the Applicable Percentage for Station shall be
not less than 55% of 100% of the Aggregate Promotional GRPs. The WB
Promos broadcast during each half-hour of non-WB programming, as
required by this subparagraph 4(b), may be counted toward Station's
Applicable Percentage. Station shall continue to air WB Promos under
this schedule until Station is no longer a Subperformer, as defined
above.
(c) In addition to providing WB Promos, we shall make available for
your use, at reasonable cost, such other promotional and sales
materials as we and you may mutually consider appropriate. You
shall not delete any copyright, trademark, logo or other notice,
or any credit included in any such materials relating to WB, and
you shall not exhibit, display, distribute or otherwise use any
trademark, logo or other material or item delivered pursuant to
this Paragraph 4 or otherwise, except as instructed by us at the
time.
(d) Commencing on the first date that WB programming is aired by Station
and for the remaining term of this Agreement, Station shall identify
itself as a WB affiliate, both on and off-the-air.
5. Commercial Announcements:
(a) With respect to WB programming, the parties to this Agreement shall
be entitled to insert the following number of commercial
announcements (Station's allotment includes station breaks but
excludes 5-second prime time station identification breaks at the
beginning of each hour):
(1) Prime Time (as defined in subparagraph 2(c)) hour (pro-rated
for half-hour programs):
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You shall have the right to insert six 30-second
commercial announcements. WB shall have the right to
insert at least nineteen 30-second commercial
announcements.
(2) Children's:
Weekday half-hour:
You shall have the right to insert six 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert six 30-second commercial
announcements.
Weekend half-hour:
You shall have the right to insert five 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert five 30-second commercial
announcements and one 15-second commercial.
(3) Latenight (as defined in subparagraph 2(c)):
You will receive half the total number of commercial
announcements as specified by WB or less as mutually
agreed to.
(b) If, because of the imposition of any law or regulation, the
amount of commercial advertising, commercial matter or other
non-program time included in WB programming is reduced for any
reason (including but not limited to the adoption or modification
of statutes or regulations or any other governmental action),
then we shall be entitled to reduce the number of commercial
announcements available to you to the extent necessary to provide
WB and Affiliate with the same proportionate amount of commercial
time (inclusive of station breaks with respect to Affiliate) that
each party is entitled to under this Agreement.
(c) Your broadcast over Station of the commercial announcements
included by us in WB programming is of the essence to this
Agreement, and nothing contained in this Agreement (other than in
subparagraph 2(f)) shall limit our rights or remedies relating to
your failure to so broadcast said commercial announcements. You
shall maintain complete and accurate records of all commercial
announcements broadcast as provided herein. Within two weeks
following each request by us therefor, you will submit copies of
all such records to WB.
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6. Force Majeure: WB shall not be liable for failure to make available any
programming or any portion(s) thereof, and Station shall not be liable for
failure to broadcast any such programming or any portion(s) thereof, by
reason of any act of God, equipment failure, action or claims by any third
person, labor dispute, law, governmental regulation or order, or other
cause beyond either party's reasonable control ("force majeure event"). If
due to any force majeure event, we substantially fail to make available
all of the programming to be delivered to Affiliate under the terms of
this Agreement, or you substantially fail to broadcast such programming as
scheduled by WB for four consecutive weeks, or for six weeks in the
aggregate during any 12-month period, then the "non-failing" party may
terminate this Agreement upon thirty 30 days prior written notice to the
"failing" party so long as such notice is given at any time prior to the
"non-failing" party's receipt of actual notice that the force majeure
event(s) has ended; provided further, however, that notwithstanding the
above provisions, you shall not have any right to so terminate this
Agreement, upon a force majeure event or otherwise, if we: (i) fail to
make available a minimum or specific number of WB programs; (ii) fail to
commence making available WB programming on any particular date; (iii)
fail to expand the amount of WB programming pursuant to a specified
timetable; (iv) substitute one or more WB programs for previously
scheduled WB programs; (v) cancel one or more WB programs; or (vi)
postpone the roll-out of any WB programming.
7. Assignment or Transfer of Affiliate Agreement and/or Station License:
(a) Assignment or Transfer of Affiliation Agreement: This Agreement
shall not be assigned by Affiliate without the prior written consent
of WB. Any purported assignment by Affiliate without such consent
shall be null and void, shall not be enforceable against WB, and
shall not relieve Affiliate of all its obligations hereunder.
(b) Assignment or Transfer of Station License: If any application is
made to the Federal Communications Commission (FCC) concerning a
purported, attempted or actual transfer of control or assignment of
the Station license, you shall notify us immediately in writing of
the filing of such application. Unless the transfer of control or
assignment is one provided for by Section 73.3540 (f) of the FCC's
current rules and regulations (a "short form" assignment or transfer
of control that does not involve a material assignment or transfer
of control), we shall have the right to terminate this Agreement
upon twenty (20) days' advance notice to you, at any time after the
filing of such application. If WB does not terminate this Agreement
on or before twenty days before the effective date of such transfer,
this Agreement shall be deemed to have been fully assigned to the
transferee or assignee of Station's license and such transferee or
assignee will assume and perform all of the obligations and duties
contained in this Agreement without limitation of any kind, as of
the effective date of transfer. In addition, if Licensee fails,
prior to the effective date of the transfer, to procure in a written
form satisfactory to WB the agreement of the assignee or transferee
to assume and perform this Agreement in its entirety without
limitation of any kind, or fails to
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immediately notify WB of the application to transfer control or
assign the Station license, then Licensee shall remain fully
responsible for the full performance of all provisions of the
Agreement during the full term of the Agreement as set forth in
Paragraph 9, and in the event of non-performance, Licensee shall be
considered in material breach of this Agreement and WB shall have
all rights and remedies available for such breach, including but not
limited to specific performance and damages.
8. Unauthorized Copying: You shall not, and shall not cause or authorize
others to record, copy or duplicate any programming or other material we
furnish pursuant to this Agreement, in whole or in part, and you shall
take all reasonable precautions to prevent any such recording, copying or
duplication. Notwithstanding the foregoing, if Station is located in the
Mountain Time Zone you may pre-record WB programming for later broadcast
at the times scheduled by us. You shall erase all such pre-recorded
programming promptly after its scheduled broadcast. Notwithstanding the
above provisions, Station may make a non-broadcast quality recording of
its entire broadcast day for archival, file and reference purposes and
uses only, which copy shall be kept in Station's possession at all times.
9. Term:
(a) The term of this Agreement shall commence on May 1, 1999 (the
"Launch Date") and shall continue for 10 years thereafter (the
"initial period"). The term of this Agreement may be extended for
additional successive periods of two years each, by us, in our sole
discretion, giving written notice of such extension to you at least
120 days prior to the expiration of the then-current period;
provided, however, that if, within 30 days of your receipt of the
notice of extension, you, in your sole discretion, give us written
notice that you reject such extension, then the extension notice
shall not be effective and this Agreement shall terminate upon
expiration of the then-current period.
(b) The "Launch Date" shall be defined as the date on which WB makes WB
programming available to Affiliate for broadcast by Station on a
regularly scheduled basis.
(c) Each "Contract Year" hereunder shall be an annual period during the
term of this Agreement. The First Contract Year is the annual period
beginning with the start date of the term of license; the Second
Contract Year is the annual period commencing one year after the
start date of the term of license, etc.
(d) WB shall, within its sole discretion and without liability, have the
right to terminate this Agreement so long as we (i) provide sixty
days prior written notice to you and (ii) are either: (A) ceasing
operation as a television network; or (B) substantially
restructuring the ownership of the television network.
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(e) Notwithstanding anything to the contrary contained in this
Agreement, upon the termination or expiration of the term of this
Agreement, all of your rights to broadcast or otherwise use any WB
program or any trademark, logo or other material or item hereunder
shall immediately cease and neither you nor Station shall have any
further rights whatsoever with respect to any such program,
trademark, logo, material or item.
10. Applicable Law: The obligations of you and WB under this Agreement are
subject to all applicable federal, state, and local laws, rules and
regulations (including, but not limited to, the Communications Act of
1934, as amended, and the rules, regulations and policies of the FCC) and
this Agreement and all matters or issues collateral thereto shall be
governed by the laws of the State of California without regard to
California's conflict of law rules. The California State Courts and the
U.S. District Courts located in California shall have jurisdiction over
the interpretation of this Agreement or with regard to any dispute arising
under this Agreement. The venue for any such action concerning this
Agreement shall be in the County of Los Angeles, California.
11. Station Acquisition by WB: During the term of this Agreement, WB agrees
that neither we nor Time Warner Inc. nor any of its subsidiary companies
will acquire, as defined by the attribution rules of the FCC, a television
broadcast station licensed in the Community of License. It is acknowledged
that Station WTBS in Atlanta is controlled by a Time Warner affiliated
company.
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12. Change in Operations:
(a) You shall notify WB immediately in writing if application is made to
the FCC to modify in a material manner the transmitter location,
power or frequency of Station such that Station's signal coverage of
its DMA market is materially diminished, or if Station changes its
program format from mainstream entertainment and/or news
programming. We shall have the right to terminate this Agreement,
upon 90 days' prior written notice, within 90 days after receiving
notice of the format change, or if no satisfactory arrangements are
made to cure Station's diminished signal coverage. Applications
related to Station's transition to digital television transmission
are not within the scope of this paragraph.
(b) At any time during the term if Station is off the air, or operating
at less than fifty percent (50%) of its licensed power, for a period
of 12 hours or longer, Station must immediately notify WB. WB may
terminate this agreement upon thirty (30) days prior written notice
in the event that Station is off the air for a period exceeding
seven (7) days or if is operating at less than fifty percent (50%)
of its full licensed power for a period exceeding seven (7) days.
13. WB Affiliates Council: You, with the other affiliates of WB, shall form a
WB Affiliates Council (the "Council"), which shall be comprised of
representatives from five different affiliates of WB.
14. Non-Liability of Council Members: To the extent the Council and its
members are acting in their capacity as such, then the Council and each
member so acting shall not have any obligation or legal or other
liability whatsoever to you or to WB in connection with this Agreement,
including without limitation, with respect to the Council's or such
member's approval or non-approval of any matter, exercise or
non-exercise of any right or taking of or failing to take any other
action in connection therewith.
15. Warranties and Indemnities:
(a) WB agrees to indemnify, defend and hold Affiliate harmless against
and from all claims, damages, liabilities, costs and expenses
arising out of the use by Station under this Agreement of any WB
program or other material furnished by WB under this Agreement,
provided that Affiliate promptly notifies WB of any claim or
litigation to which this indemnity shall apply, and provided further
that Affiliate cooperates fully with WB in the defense or settlement
of such claim or litigation. Affiliate agrees to indemnify, defend
and hold WB harmless against and from all claims, damages,
liabilities, costs and expenses with respect to Affiliate's
operation of the Station or any material furnished, added or deleted
to or from WB programming by Affiliate. This indemnity shall not
apply to litigation expenses, including attorneys' fees, that the
indemnified party elects to incur on its own behalf. Except as
otherwise provided in this Agreement, neither Affiliate nor WB shall
have any rights against the other for claims by third
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persons, or for the failure to operate facilities or to furnish WB
programs if such failure is the result of a force majeure event as
defined in Paragraph 6. Furthermore, notwithstanding any other
provisions of this Agreement, Affiliate shall not have any rights
against WB for claims by third parties or Affiliate arising out of
any actions or omissions of WB permitted under subparagraph 2(g).
(b) You agree to maintain for Station such licenses, including
performing rights licenses as now are or hereafter may be in
general use by television broadcasting stations and are necessary
for you to broadcast the television programs which we furnish to
you hereunder. We will clear all music in the repertory of
SESAC, ASCAP and BMI used in our programs. You shall obtain and
pay all costs associated with any performing rights licenses
necessary to broadcast such music. You will be responsible for
all music license requirements (and all other permissions) for
any commercial or other material inserted by you within or
adjacent to WB programs in accordance with this Agreement.
(c) You warrant that the License is in good standing and you agree to
comply with all relevant statutes and FCC rules and requirements
so as to maintain the License in good standing. In the event you
are found to have materially violated any laws or FCC rules or
requirements (after the exhaustion of all appeals so long as
Station retains the License during the pendency of such appeal),
the effect of which is that Station is of materially less value
to us as a broadcaster of WB programming than as of the date of
this Agreement, then we shall have the right to terminate this
Agreement upon 30 days prior written notice.
(d) Each party hereto warrants that all information delivered by it to
the other in connection with this Agreement shall be true and
correct in all material respects.
(e) Each party hereto warrants to the other that execution of this
Agreement and performance of its obligations will not violate or
result in a default under (i) any material agreement or
instrument to which it is a party or (ii) any statute, ordinance,
governmental rule or regulation in any material respect, or
order, judgment, injunction, decree or ruling of any court or
administrative agency applicable to it, which default would
materially interfere with the performance of it's obligations
hereunder.
(f) Each party hereto warrants that it is not a party to any legal
action or other proceeding before any court or administrative agency
which could prohibit the performance of it's obligations under this
Agreement.
16. Retransmission Consent: If any law, governmental regulation or other
action permits you to elect to require any cable television system or
other multichannel video program distributor to obtain your consent to
such system's or distributor's retransmission of Station's broadcast of
either Station's signal as a whole or any WB programming included therein,
then Affiliate and WB agree to negotiate in good faith regarding whether
such
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consent is to be given (including without limitation, whether you shall or
shall not, in lieu of requiring consent, elect to require any cable system
to comply with any "must carry" rules, regulations or laws) and, if so,
the terms under which such consent is to be given (including without
limitation, the amount and type of compensation, if any, to be paid by the
system or distributor for such consent and whether any of that
compensation shall be shared between you and us). If WB and Affiliate do
not reach agreement with respect to all of the foregoing matters, then
without elimination to any of WB's other remedies, WB may terminate this
Agreement upon 30 days written notice to Affiliate. Nothing contained
herein shall authorize or allow the dissemination of WB programming by
Station outside of the DMA where Station is located, and any such
dissemination of WB programming outside of Station's DMA is prohibited.
17. Network Non-Duplication Protection: During the term of this Agreement,
Affiliate shall be entitled to network non-duplication protection, as
provided by Sections 76.92 through 76.97 of the FCC's rules, against the
presentation of any WB program by a cable system during the period
commencing one day before and ending fourteen (14) days after receipt of
such WB program by Station. The geographic zone of network non-duplication
protection shall be the Designated Market Area ("DMA") (as defined by
Nielsen) in which your Station is located or any lesser zone mandated by
Sections 76.92 and 73.658(m) of the FCC's rules. Network non-duplication
protection shall extend only to WB programs that Station is carrying in
accordance with the terms of this Agreement and such protection shall be
subject to the terms and provisions of subparagraph 2(f). You are under no
obligation to exercise in whole or in part the network non-duplication
rights granted herein. Notwithstanding anything to the contrary in this
paragraph, no non-duplication protection is provided against the signal of
WGN until such time that WB offers exclusivity against the signal of WGN
to its affiliates.
18. Affiliation Ratings Payments. Affiliate agrees to pay to WB an annual
payment, based on the Station's television market ratings, for WB prime
time programming, commencing with the initial broadcast by Station of such
programming, all as defined and set forth in the "Annual Ratings Payment"
Exhibit attached hereto. These payments are intended to compensate WB for
the WB programming and are in no way intended to, nor do they confer on
WB, any ownership or other equity interest in Station. If, subsequent to
January 1, 2004, WB modifies the financial model then in effect between WB
and stations affiliated with WB at that time ("WB Affiliates") or modifies
the terms and conditions under which WB affiliates pay compensation to WB
(the "compensation modification"), including but not limited to a
modification of the allocation of commercial time between the WB
affiliates and WB, then: (i) WB will provide Affiliate with reasonable
notice of the compensation modification; and, (ii) Affiliate shall have
the opportunity to either elect to participate in the compensation
modification or to opt out of the compensation modification by advising WB
in writing that Affiliate has elected not to participate in the
compensation modification. Upon receipt of Affiliate's election, WB may:
(i) accept Affiliate's election to opt out of the compensation
modification; or (ii) terminate this Agreement upon 60 days prior written
notice.
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19. Notices and Reports:
(a) In addition to any other reports or forms requested herein, you will
provide to us in writing, in the manner reasonably requested by WB,
such reports covering WB programs broadcast by Station as we may
request from time to time. To the extent we provide you forms for
such purpose, you shall provide such reports on these forms.
(b) All notices, reports or forms required or permitted hereunder to be
in writing shall be deemed given when personally delivered
(including, without limitation, by overnight courier or other
messenger or upon confirmed receipt of facsimile copy) or on the
date of mailing postage prepaid, addressed as specified below, or
addressed to such other address as such party may hereafter specify
in a written notice. Notice to Affiliate shall be to the address set
forth for Affiliate on page 1 of this Agreement. Additionally,
notice will be sent to ACME Television Holdings, 10829 Olive
Boulevard, Suite 202, St. Louis, MO 63141, Attention: Tom Allen.
Notice to WB shall be to: The WB Television Network, 4000 Warner
Boulevard, Burbank, California, 91522, Attention: General Counsel.
20. Miscellaneous:
(a) Nothing contained in this Agreement shall create any partnership,
association, joint venture, fiduciary or agency relationship between
the parties hereto.
(b) Nothing contained in this Agreement nor the conduct of any officer,
director, agent or employee of either WB or Affiliate shall be
deemed to create or to constitute ownership by WB, in whole or in
part, of Affiliate, Station or the License or in any way constitute
a derogation of the rights, duties and responsibilities imposed upon
Affiliate. Nothing in this Agreement shall be deemed to delegate to
WB, directly or indirectly, any right to control the operations of
Station.
(c) You shall at all times permit us, in connection with WB programming,
without charge, to place on, maintain and use at Station's premises,
at our expense, such equipment as WB shall reasonably require for
the distribution of WB Network programming. Station shall operate
such equipment for us, to the extent we reasonably request, and no
fee shall be charged by Station therefor.
(d) No waiver of any failure of any condition or of the breach of any
obligation hereunder shall be deemed to be a waiver of any preceding
or succeeding failure of the same or any other condition, or a
waiver of any preceding or succeeding breach of the same or any
other obligation.
(e) Each and all of the rights and remedies of WB and Affiliate under
this Agreement shall be cumulative, and the exercise of one or more
of said rights or remedies
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shall not preclude the exercise of any other right or remedy under
this Agreement, at law or in equity. Notwithstanding anything to the
contrary contained in this Agreement, in no event shall either party
hereto be entitled to recover any lost profits or consequential
damages because of a breach or failure by the other party, and
except as expressly provided in this Agreement to the contrary,
neither WB nor Affiliate shall have any right against the other with
respect to claims by any third person or other third entity.
(f) Paragraph headings are included in this Agreement for convenience
only and shall not be used to interpret this Agreement or any of the
provisions hereof, nor shall they be given any legal or other
effect.
(g) As of the date hereof, this Agreement, including all Exhibits
attached hereto, constitutes the entire understanding between WB and
Affiliate concerning the subject matter hereof and shall not be
amended, modified, changed, renewed, extended or discharged except
by an instrument in writing signed by the parties or as otherwise
expressly provided herein. No inducement, representations or
warranties except as specifically set forth herein have been made by
either party to this Agreement to the other. This Agreement replaces
any and all prior and contemporaneous agreements, whether oral or
written, pertaining to the subject matter hereof.
(h) This Agreement may be executed in counterparts, with the Agreement
being effective when each party hereto has executed a copy and
delivered that copy to the other party hereto.
(i) WB agrees to make WB programming available to Affiliate in digital
format, on a timetable and in a format determined by WB. WB will
consult with Affiliate concerning its plans for digital production
and delivery, including the transmission format to be employed.
After the inception of Affiliate's broadcasts on its FCC-assigned
digital frequency (the "DTV Channel"), Affiliate agrees to carry WB
programming that is supplied in digital format on the DTV Channel.
WB programming will be treated as Affiliate's primary network
programming on the DTV Channel. It is acknowledged that Affiliate
owns the digital bandwidth in its DTV Channel, and that Affiliate is
not obligated to provide WB with more than one digital channel in
its market.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
THE WB TELEVISION NETWORK PARTNERS ACME TELEVISION LICENSEE
L.P. dba THE WB TELEVISION NETWORK OF ILLINOIS, LLC
("WB") ("Affiliate")
By: /s/ John Maatta By: /s/ Douglas E. Gealy
--------------------------- -------------------------------
Title: Title: Pres. & COO
---------------------------
Date: 9/7/99 Date: 9/7/99
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ANNUAL RATINGS PAYMENT EXHIBIT
As part of the consideration to WB for the WB programming, Licensee agrees to
make annual payments to WB based on Station's television market ratings (the
"TMR Payments") for adults 18-49 for the prime time broadcast periods of WB
programming commencing with the initial broadcast by Station of WB programming.
Such payments shall partially compensate WB for the WB programming by
calculating the value and/or profitability added to Station as a result of its
affiliation with WB and pay to WB 25% of such added value and/or profitability.
Such payments are not intended to, nor do they, confer in WB any ownership
interest in Station. All defined terms used herein shall have the same meaning
as set forth in the Agreement unless otherwise defined herein. The TMR Payments
shall be calculated and paid as follows:
A. Calculation of TMR Payment Amount: At the end of each successive
Contract Year commencing on the Launch Date, the "Average Rating"
for each such Contract Year shall be determined by taking the
average of Station's television ratings (adults 18-49) for the prior
November, February, and May sweeps periods of such Contract Year as
reported on the Nielsen Station Index ("NSI"), as processed,
refined, re-formatted or re-configured by that application commonly
known as the "SNAP System," but only with respect to those prime
time hours programmed by WB under the Agreement. Based on the
Station's Average Rating for each Contract Year and the number of
hours programmed by WB in that Year, Station shall owe WB the amount
(the "TMR Amount") set forth in the table attached hereto as the
Annual Ratings Payment Exhibit Table. For example, in the particular
case of Station, if the adults 18-49 rating for WB programmed hours
is 1.0 for a particular Contract Year, and WB is programming 15
hours per week during such Year, then the TMR payment that will be
due and owing for such Year is $9,057. In the event that either
Station or WB contends that the TMR Payment for any particular
Contract Year, as set forth in the Annual Ratings Payment Exhibit
Table, is not an accurate statement of the twenty-five percent (25%)
share of the added value and/or profitability during WB programmed
prime time hours that Station owes to WB, or if the TMR Payment for
any particular Contract Year has increased or decreased from the
prior year's TMR Payment disproportionately in comparison to the
increase or decrease over such period in the profitability of
Station's WB furnished prime time programming (after giving effect
to any increase in the number of WB prime time programming hours
between the two periods), then either WB or Station may request that
the Station's financial results and operational information be
audited and reviewed by WB and the result of such audit shall
determine the level of the TMR Payment for the given period.
Promptly after such audit and review, WB and Station shall meet to
discuss such financial results and operational information of
Station and in good faith adjust the then currently due TMR Payment
to reflect the result of the audit and the intent of these Payments
as set forth in the introductory paragraph to this Exhibit.
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B. TMR Payment: The TMR Amount for each Contract Year shall be payable
by Licensee to WB within 15 days following WB's delivery to Licensee
of an invoice for the TMR Amount, which invoice shall be delivered
by WB not earlier than the release by NSI or any successor ratings
index of the ratings for the fourth and final sweeps period of such
Contract Year.
C. No NSI Ratings: In the event there are no NSI ratings available,
then Licensee and WB shall use those standard television market
ratings which are generally available and used by national and/or
regional advertisers for purposes of calculating advertising
payments to television stations.
D. Continuing Obligation. Licensee's obligation to make the above TMR
Payments on the basis set forth herein shall survive any termination
of this Agreement by WB, any sale or transfer of any Station assets
and/or any ownership interest in the Station and shall remain
binding on any successor Station owner, which successor remains an
affiliate and is approved by WB in its discretion as otherwise set
forth in the Agreement.
E. Calculation Of Baseline (IF APPLICABLE): It is recognized that
Station is a start-up, and that ratings data is not available to
track Station's historical performance during three previous ratings
periods. The parties have agreed that notwithstanding anything to
the contrary set forth above, the Baseline for the calculation of
the TMR payments will be calculated as follows: During the
__________ 199__ and ___________199__ and ____________ 199__ sweeps
periods the average ratings (Adults 18-49) for the nights that are
not programmed by WB will set the baseline number for the
computation of the TMR payment. The difference between the baseline
and the average rating for WB programmed nights during the February,
May and November sweeps period will determine the amount that is due
to WB, during the first year and during all subsequent years. The
calculation of ratings under this paragraph shall be as reported on
the Nielsen Station Index ("NSI") as processed, refined,
reformatted, or reconfigured by that application commonly known as
the "SNAP System".
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EXHIBIT 10.69
STATION AFFILIATION AGREEMENT
Dated as of May 1, 1999
ACME Television Holdings
10829 Olive Boulevard, Suite 202
St. Louis, MO 63141
Attention: Doug Gealy
The following shall comprise the agreement between The WB Television Network
Partners, L.P. dba The WB Television Network ("WB," "we," or "us"), and ACME
Television Licenses of Ohio, LLC ("Affiliate" or "you") for the affiliation of
your television station WDPX ("Station") with WB for carriage of WB programming.
The Federal Communications Commission ("FCC") has issued a broadcast license
("License") to you to operate Station in Dayton, Ohio, the community in which
Station is licensed by the FCC ("Community of License"). All references in this
Agreement to "WB program(s)" and "WB programming" and any variations thereof
shall mean the programming made available by WB under this Agreement.
1. WB Programming: WB will make available to Affiliate WB programs for
free over-the-air broadcast and broadcast by any other means by Station
in the Community of License during the term of this Agreement. During
such term, except as otherwise provided herein, WB grants Affiliate the
exclusive right to have Station broadcast the WB programming in the
Community of License only as scheduled by WB over free over-the-air
television and by such other technological means as are available to
Affiliate for broadcast in the Community of License so long as Station
broadcasts the WB programming for over-the-air television.
Notwithstanding the foregoing, until such time that WB offers
exclusivity against importation of WB programming carried by the signal
of WGN to its affiliates, WB may allow WB programming carried by the
signal of WGN to be imported into the Community of License. WB shall
have the sole discretion to select, schedule, substitute and/or
withdraw WB programming or any portion(s) thereof. WB shall also have
the right to authorize any television broadcasting station, regardless
of the community in which it is licensed by the FCC, to broadcast any
presentation of a subject we deem to be of immediate national
significance including, but not limited to, a Presidential address.
Except as provided herein, during the term of this Agreement Affiliate
shall be the sole affiliate of WB for transmission for exhibition on
television of WB programming in the Community of License.
2. Program Carriage:
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(a) We agree to make available for broadcast by Station WB
programming for the hours programmed by WB at the times and dates
scheduled by WB throughout the term of this Agreement. You
acknowledge that the times and roll-out dates set forth in this
Agreement are approximate only and you agree to have Station
broadcast WB programs irrespective of whether WB meets, fails to
meet or otherwise varies from the anticipated program schedule
set forth herein; provided, however, that WB hereby agrees not to
accelerate such anticipated program schedule. WB will not
program the morning or afternoon day-parts (with the exception of
Kids' WB programming) or, access, or late-night day-parts, unless
WB first receives the consent of the WB Affiliate's Council. To
the extent WB makes available such WB programming for broadcast,
this Agreement both obligates us to make available such WB
programs to Station and obligates Station to broadcast such WB
programs over-the-air pursuant to the terms of this Agreement. WB
acknowledges that the sixth night of WB prime time programming
will commence at the start of WB's 1999/2000 broadcast year, and
such sixth night of programming will be broadcast on Friday
night.
(b) Subject to the exceptions set forth in subparagraph 2(e) and the
right of preemption set forth in subparagraph 2(f), Station shall
broadcast WB programs on the dates and at the times scheduled by
WB. Station shall broadcast WB programs in their entirety,
including but not limited to WB commercial announcements, WB
identifications, program promotional material, and credit
announcements contained in such programs, without interruption or
deletion or addition of any kind, except for the commercial
announcements that Station is allowed to add pursuant to
Paragraph 5. Notwithstanding the foregoing, you may substitute
other WB promotional announcements in lieu of program promotional
material that is inaccurate as it pertains to Station's schedule.
No commercial announcement, promotional announcement or public
service announcement will be broadcast by Station during any
interval within a WB program, which interval is designated by WB
as being for the sole purpose of making a station identification
announcement.
(c) The initial Scheduled Program Times of WB programming and the
anticipated roll-out dates of that programming are set forth as
follows (the specified times apply for the Eastern and Pacific Time
Zones; the Mountain and Central Time Zones are one hour earlier for
Prime Time and Latenight programming only, except as otherwise
agreed by us):
Prime Time: Sunday: 7:00 p.m. - 10:00 p.m Monday - Saturday:
8:00 p.m.- 10:00 p.m. As of the commencement of the
1998/1999 Television Broadcast Year, WB is providing
programming for broadcast by its affiliates on five
nights during each calendar week (i.e. Sunday through
Thursday). WB will roll-out one
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additional night of programming during the 1999/2000
Broadcast Year and one additional night of programming
during the 2000/2001 Broadcast Year.
Children's: Monday through Friday Mornings: One hour of programming
broadcast between: 7:00 a.m. - 8:00 a.m.; or 7:30 a.m. -
8:30 a.m.; or 8:00 a.m. - 9:00 a.m. (at WB's election)
Monday through Friday Afternoons: Two hours of
programming broadcast between: 3:00 p.m. - 5:00 p.m.
Saturday Morning: Four hours of programming broadcast at
8:00 a.m. - 12:00 noon. However, if Affiliate believes
that the Children' programming block should run on
Sunday instead of Saturday, WB will discuss with
affiliate such a move of the programming block from
Saturday to Sunday, and will consider granting such a
move, in good faith, after taking into account the
business interests of WB.
Latenight: 11:00 p.m. - 12:00 midnight Monday through Friday,
commencing on a date to be determined by WB, subject to
the approval of the WB Affiliate's Council
(d) During such time that WB is providing 19 hours of programming per
week to Station 3 hours(of the total of 19 hours) will be
programming which is categorized as Children's
educational/informational programming. However, at such time that
WB provides only 16.5 hours of Children's programming to Station
then WB, at its sole election, may determine to provide only 30
minutes of educational/informational programming per week to
Station.
(e) You confirm that as of the date of this Agreement you have no
commitments, except those listed in Schedule 1 hereto, which
would impede Station's broadcasting all WB programming made
available during the term of this Agreement. If any WB
programming is not broadcast by you because of any such
commitment expressly described in Schedule 1 (but excluding
extensions by exercise of options by Affiliate [but not by the
programming licensor] or otherwise), then such programming shall
be broadcast in a time period upon which you and we shall
mutually agree and which shall be of quality and rating value
comparable to that of the Scheduled Program Times. These programs
will not be considered preempted for purposes of subparagraph
2(f).
(f) Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall be construed to prevent or hinder Affiliate
from (i) rejecting or refusing any WB program which Affiliate
reasonably believes to be unsatisfactory or unsuitable or contrary
to the public interest or (ii) substituting a program which, in
Affiliate's opinion, is of greater local or national importance. In
such an
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event, you shall provide us with advance written notice of any such
rejection, refusal or substitution, no later than 14 days prior to
the air date of such programming, except where the nature of the
substitute program makes such notice impracticable (e.g., coverage
of breaking news or other unscheduled events) or the programming has
not been made available to you by such date, in which cases you
agree to give us as much advance notice as the circumstances permit.
Such notice shall include a statement of the reasons you believe
that the rejected WB programming is unsatisfactory or unsuitable or
contrary to the public interest, and/or that a substituted program
is of greater local or national importance. In view of the limited
amount of WB programming to be supplied pursuant to this Agreement
(at least until such time as the full WB programming schedule has
been rolled out) you acknowledge that you do not foresee any need to
substitute programming of greater local or national importance for
WB programming, except in those circumstances requiring live
coverage of fast-breaking news events or very infrequent special
events.
To the extent you substitute another program for a WB program as
permitted under subparagraph 2(f)(ii), then you will broadcast such
omitted program and the commercial announcements contained therein
(or any replacement programming provided by WB and the commercial
announcements contained therein) during a time period upon which you
and we shall promptly and mutually agree and which shall be of
quality and rating value comparable to that of the preempted
program's Scheduled Program Time. In the event that the parties do
not promptly agree upon such a time period after reasonable
consultation in good faith and after taking into account the
practical alternatives under the circumstances, then, without
limiting any other rights of WB under this Agreement or otherwise,
we shall have the right to license the broadcast rights to the
applicable omitted programming (or replacement programming) to
another television station located in the Community of License.
Except as provided in Paragraph 2(e), above, in addition, if three
or more episodes of a program series are preempted by you as
permitted hereunder in any thirteen-week period, for any reasons
other than force majeure as provided in Paragraph 6, we shall have
the right, upon 60 days prior written notice, to terminate your
right to broadcast that program series and to withdraw all future
episodes of that series. Such thirteen-week periods shall be
measured consecutively from the first broadcast date of the program
series in question. If we subsequently place such a series on
another station in the Community of License, we reserve the right
not to offer you the broadcast rights to that series for subsequent
broadcast seasons.
In addition to all other remedies, to the extent one or more
episodes of a program series is preempted by you in violation of
(i.e., other than as permitted under) this Paragraph 2, we shall
have the right, upon 30 days prior written notice, to terminate your
right to broadcast the remainder of the program series and withdraw
all future episodes of that series from you.
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(g) Nothing in this Agreement shall be construed to prevent or hinder
WB from (i) substituting one or more WB programs for previously
scheduled WB programs, in which event WB will make the
substituted programs available to Station pursuant to the
provisions of Paragraph 1 and Paragraph 3; (ii) canceling one or
more WB programs; or (iii) postponing any scheduled roll-out
dates of WB programming. Further, nothing in this Agreement
shall be construed to obligate WB (x) to provide a minimum or
specific number of WB programs; (y) to commence providing WB
programming on any particular date; or (z) to expand the amount
of WB programming pursuant to a specified timetable.
3. Delivery: WB agrees to make available the WB programming for satellite
transmission. WB shall incur no costs regarding the satellite downlink and
broadcast by Station; Station shall incur no up-link costs with regard to
the delivery of the WB programming. WB agrees to provide closed captioning
for substantially all WB programming that is not exempt from captioning
requirements under FCC rules.
4. Promotion:
(a) We will provide you with on-air promotional announcements ("WB
Promos") for WB programming, which WB Promos are intended for
broadcast during Station's broadcast of non-WB programming. You
agree to provide an on-air promotional schedule consistent with
our recommendations, and consistent with Station's reasonable
business judgment. You shall maintain complete and accurate
records of all WB Promos that are broadcast. Upon request by WB
for those records, you shall provide copies of all such records
to WB within two weeks of such request.
(b) You shall budget Station's advertising availabilities in such a
manner as to enable Station to broadcast additional WB Promos
during periods in which Station is deemed a "Subperformer."
Station shall be deemed to be a "Subperformer" from the time its
"sweeps rating" is below the average prime time rating for all WB
affiliated broadcast stations until such time as Station's sweeps
rating is no longer below the average prime time rating for all
WB affiliated broadcast stations. The Station's sweeps rating
means the Station's average A.C. Nielsen rating for the most
recently completed sweeps period for adults 18-49 for all prime
time hours programmed by WB. For such time as Station remains a
Subperformer, Station shall: (i) broadcast, during each one-half
hour of all periods of each day that Station is broadcasting
non-WB programming, at least one (1) 30-second Promo (or Promos
aggregating 30 seconds, to the extent we so elect) for Station's
local, syndicated or WB programming; and (ii) broadcast during
all periods when Station is broadcasting non-WB programming WB
Promos for not less than:
Prime Time Hours Programmed by WB
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2 hours - 20% of 100%
4 hours - 25% "
6 hours - 30% "
8 hours - 35% "
10 hours - 40% "
12 hours* - 45% "
(* 12 or more hours)
(the "Applicable Percentage") of the total, aggregate gross ratings
points ("GRPs") for all the promotional announcements broadcast by
Station ("Aggregate Promotional GRPs") within the periods in which
non-WB programming is being broadcast. The specific WB Promos
broadcast by Station and the number of broadcasts of each WB Promo
may be specified by WB and the broadcast of the WB Promos shall be
made so that the Aggregate Promotional GRPs allocated to WB Promos
are distributed fairly and reasonably across the periods when non-WB
programming is being broadcast. For such time as Station's sweeps
rating ranks Station within the bottom 50% (ranked highest to
lowest) of those WB affiliated broadcast stations that are
Subperformers, then the Applicable Percentage for Station shall be
not less than 55% of 100% of the Aggregate Promotional GRPs. The WB
Promos broadcast during each half-hour of non-WB programming, as
required by this subparagraph 4(b), may be counted toward Station's
Applicable Percentage. Station shall continue to air WB Promos under
this schedule until Station is no longer a Subperformer, as defined
above.
(c) In addition to providing WB Promos, we shall make available for
your use, at reasonable cost, such other promotional and sales
materials as we and you may mutually consider appropriate. You
shall not delete any copyright, trademark, logo or other notice,
or any credit included in any such materials relating to WB, and
you shall not exhibit, display, distribute or otherwise use any
trademark, logo or other material or item delivered pursuant to
this Paragraph 4 or otherwise, except as instructed by us at the
time.
(d) Commencing on the first date that WB programming is aired by Station
and for the remaining term of this Agreement, Station shall identify
itself as a WB affiliate, both on and off-the-air.
5. Commercial Announcements:
(a) With respect to WB programming, the parties to this Agreement shall
be entitled to insert the following number of commercial
announcements (Station's allotment includes station breaks but
excludes 5-second prime time station identification breaks at the
beginning of each hour):
(1) Prime Time (as defined in subparagraph 2(c)) hour (pro-rated
for half-hour programs):
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You shall have the right to insert six 30-second
commercial announcements. WB shall have the right to
insert at least nineteen 30-second commercial
announcements.
(2) Children's:
Weekday half-hour:
You shall have the right to insert six 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert six 30-second commercial
announcements.
Weekend half-hour:
You shall have the right to insert five 30-second
commercial announcements (or other material constituting
"commercial matter" under the FCC's regulations). WB
shall have the right to insert five 30-second commercial
announcements and one 15-second commercial.
(3) Latenight (as defined in subparagraph 2(c)):
You will receive half the total number of commercial
announcements as specified by WB or less as mutually
agreed to.
(b) If, because of the imposition of any law or regulation, the
amount of commercial advertising, commercial matter or other
non-program time included in WB programming is reduced for any
reason (including but not limited to the adoption or modification
of statutes or regulations or any other governmental action),
then we shall be entitled to reduce the number of commercial
announcements available to you to the extent necessary to provide
WB and Affiliate with the same proportionate amount of commercial
time (inclusive of station breaks with respect to Affiliate) that
each party is entitled to under this Agreement.
(c) Your broadcast over Station of the commercial announcements
included by us in WB programming is of the essence to this
Agreement, and nothing contained in this Agreement (other than in
subparagraph 2(f)) shall limit our rights or remedies relating to
your failure to so broadcast said commercial announcements. You
shall maintain complete and accurate records of all commercial
announcements broadcast as provided herein. Within two weeks
following each request by us therefor, you will submit copies of
all such records to WB.
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6. Force Majeure: WB shall not be liable for failure to make available any
programming or any portion(s) thereof, and Station shall not be liable for
failure to broadcast any such programming or any portion(s) thereof, by
reason of any act of God, equipment failure, action or claims by any third
person, labor dispute, law, governmental regulation or order, or other
cause beyond either party's reasonable control ("force majeure event"). If
due to any force majeure event, we substantially fail to make available
all of the programming to be delivered to Affiliate under the terms of
this Agreement, or you substantially fail to broadcast such programming as
scheduled by WB for four consecutive weeks, or for six weeks in the
aggregate during any 12-month period, then the "non-failing" party may
terminate this Agreement upon thirty 30 days prior written notice to the
"failing" party so long as such notice is given at any time prior to the
"non-failing" party's receipt of actual notice that the force majeure
event(s) has ended; provided further, however, that notwithstanding the
above provisions, you shall not have any right to so terminate this
Agreement, upon a force majeure event or otherwise, if we: (i) fail to
make available a minimum or specific number of WB programs; (ii) fail to
commence making available WB programming on any particular date; (iii)
fail to expand the amount of WB programming pursuant to a specified
timetable; (iv) substitute one or more WB programs for previously
scheduled WB programs; (v) cancel one or more WB programs; or (vi)
postpone the roll-out of any WB programming.
7. Assignment or Transfer of Affiliate Agreement and/or Station License:
(a) Assignment or Transfer of Affiliation Agreement: This Agreement
shall not be assigned by Affiliate without the prior written consent
of WB. Any purported assignment by Affiliate without such consent
shall be null and void, shall not be enforceable against WB, and
shall not relieve Affiliate of all its obligations hereunder.
(b) Assignment or Transfer of Station License: If any application is
made to the Federal Communications Commission (FCC) concerning a
purported, attempted or actual transfer of control or assignment of
the Station license, you shall notify us immediately in writing of
the filing of such application. Unless the transfer of control or
assignment is one provided for by Section 73.3540 (f) of the FCC's
current rules and regulations (a "short form" assignment or transfer
of control that does not involve a material assignment or transfer
of control), we shall have the right to terminate this Agreement
upon twenty (20) days' advance notice to you, at any time after the
filing of such application. If WB does not terminate this Agreement
on or before twenty days before the effective date of such transfer,
this Agreement shall be deemed to have been fully assigned to the
transferee or assignee of Station's license and such transferee or
assignee will assume and perform all of the obligations and duties
contained in this Agreement without limitation of any kind, as of
the effective date of transfer. In addition, if Licensee fails,
prior to the effective date of the transfer, to procure in a written
form satisfactory to WB the agreement of the assignee or transferee
to assume and perform this Agreement in its entirety without
limitation of any kind, or fails to
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immediately notify WB of the application to transfer control or
assign the Station license, then Licensee shall remain fully
responsible for the full performance of all provisions of the
Agreement during the full term of the Agreement as set forth in
Paragraph 9, and in the event of non-performance, Licensee shall be
considered in material breach of this Agreement and WB shall have
all rights and remedies available for such breach, including but not
limited to specific performance and damages.
8. Unauthorized Copying: You shall not, and shall not cause or authorize
others to record, copy or duplicate any programming or other material we
furnish pursuant to this Agreement, in whole or in part, and you shall
take all reasonable precautions to prevent any such recording, copying or
duplication. Notwithstanding the foregoing, if Station is located in the
Mountain Time Zone you may pre-record WB programming for later broadcast
at the times scheduled by us. You shall erase all such pre-recorded
programming promptly after its scheduled broadcast. Notwithstanding the
above provisions, Station may make a non-broadcast quality recording of
its entire broadcast day for archival, file and reference purposes and
uses only, which copy shall be kept in Station's possession at all times.
9. Term:
(a) The term of this Agreement shall commence on May 1, 1999 (the
"Launch Date") and shall continue for 10 years thereafter (the
"initial period"). The term of this Agreement may be extended for
additional successive periods of two years each, by us, in our sole
discretion, giving written notice of such extension to you at least
120 days prior to the expiration of the then-current period;
provided, however, that if, within 30 days of your receipt of the
notice of extension, you, in your sole discretion, give us written
notice that you reject such extension, then the extension notice
shall not be effective and this Agreement shall terminate upon
expiration of the then-current period.
(b) The "Launch Date" shall be defined as the date on which WB makes WB
programming available to Affiliate for broadcast by Station on a
regularly scheduled basis.
(c) Each "Contract Year" hereunder shall be an annual period during the
term of this Agreement. The First Contract Year is the annual period
beginning with the start date of the term of license; the Second
Contract Year is the annual period commencing one year after the
start date of the term of license, etc.
(d) WB shall, within its sole discretion and without liability, have the
right to terminate this Agreement so long as we (i) provide sixty
days prior written notice to you and (ii) are either: (A) ceasing
operation as a television network; or (B) substantially
restructuring the ownership of the television network.
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(e) Notwithstanding anything to the contrary contained in this
Agreement, upon the termination or expiration of the term of this
Agreement, all of your rights to broadcast or otherwise use any WB
program or any trademark, logo or other material or item hereunder
shall immediately cease and neither you nor Station shall have any
further rights whatsoever with respect to any such program,
trademark, logo, material or item.
10. Applicable Law: The obligations of you and WB under this Agreement are
subject to all applicable federal, state, and local laws, rules and
regulations (including, but not limited to, the Communications Act of
1934, as amended, and the rules, regulations and policies of the FCC) and
this Agreement and all matters or issues collateral thereto shall be
governed by the laws of the State of California without regard to
California's conflict of law rules. The California State Courts and the
U.S. District Courts located in California shall have jurisdiction over
the interpretation of this Agreement or with regard to any dispute arising
under this Agreement. The venue for any such action concerning this
Agreement shall be in the County of Los Angeles, California.
11. Station Acquisition by WB: During the term of this Agreement, WB agrees
that neither we nor Time Warner Inc. nor any of its subsidiary companies
will acquire, as defined by the attribution rules of the FCC, a television
broadcast station licensed in the Community of License. It is acknowledged
that Station WTBS in Atlanta is controlled by a Time Warner affiliated
company.
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12. Change in Operations:
(a) You shall notify WB immediately in writing if application is made to
the FCC to modify in a material manner the transmitter location,
power or frequency of Station such that Station's signal coverage of
its DMA market is materially diminished, or if Station changes its
program format from mainstream entertainment and/or news
programming. We shall have the right to terminate this Agreement,
upon 90 days' prior written notice, within 90 days after receiving
notice of the format change, or if no satisfactory arrangements are
made to cure Station's diminished signal coverage. Applications
related to Station's transition to digital television transmission
are not within the scope of this paragraph.
(b) At any time during the term if Station is off the air, or operating
at less than fifty percent (50%) of its licensed power, for a period
of 12 hours or longer, Station must immediately notify WB. WB may
terminate this agreement upon thirty (30) days prior written notice
in the event that Station is off the air for a period exceeding
seven (7) days or if is operating at less than fifty percent (50%)
of its full licensed power for a period exceeding seven (7) days.
13. WB Affiliates Council: You, with the other affiliates of WB, shall form a
WB Affiliates Council (the "Council"), which shall be comprised of
representatives from five different affiliates of WB.
14. Non-Liability of Council Members: To the extent the Council and its
members are acting in their capacity as such, then the Council and each
member so acting shall not have any obligation or legal or other
liability whatsoever to you or to WB in connection with this Agreement,
including without limitation, with respect to the Council's or such
member's approval or non-approval of any matter, exercise or
non-exercise of any right or taking of or failing to take any other
action in connection therewith.
15. Warranties and Indemnities:
(a) WB agrees to indemnify, defend and hold Affiliate harmless against
and from all claims, damages, liabilities, costs and expenses
arising out of the use by Station under this Agreement of any WB
program or other material furnished by WB under this Agreement,
provided that Affiliate promptly notifies WB of any claim or
litigation to which this indemnity shall apply, and provided further
that Affiliate cooperates fully with WB in the defense or settlement
of such claim or litigation. Affiliate agrees to indemnify, defend
and hold WB harmless against and from all claims, damages,
liabilities, costs and expenses with respect to Affiliate's
operation of the Station or any material furnished, added or deleted
to or from WB programming by Affiliate. This indemnity shall not
apply to litigation expenses, including attorneys' fees, that the
indemnified party elects to incur on its own behalf. Except as
otherwise provided in this Agreement, neither Affiliate nor WB shall
have any rights against the other for claims by third
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persons, or for the failure to operate facilities or to furnish WB
programs if such failure is the result of a force majeure event as
defined in Paragraph 6. Furthermore, notwithstanding any other
provisions of this Agreement, Affiliate shall not have any rights
against WB for claims by third parties or Affiliate arising out of
any actions or omissions of WB permitted under subparagraph 2(g).
(b) You agree to maintain for Station such licenses, including
performing rights licenses as now are or hereafter may be in general
use by television broadcasting stations and are necessary for you to
broadcast the television programs which we furnish to you hereunder.
We will clear all music in the repertory of SESAC, ASCAP and BMI
used in our programs. You shall obtain and pay all costs associated
with any performing rights licenses necessary to broadcast such
music. You will be responsible for all music license requirements
(and all other permissions) for any commercial or other material
inserted by you within or adjacent to WB programs in accordance with
this Agreement.
(c) You warrant that the License is in good standing and you agree to
comply with all relevant statutes and FCC rules and requirements so
as to maintain the License in good standing. In the event you are
found to have materially violated any laws or FCC rules or
requirements (after the exhaustion of all appeals so long as Station
retains the License during the pendency of such appeal), the effect
of which is that Station is of materially less value to us as a
broadcaster of WB programming than as of the date of this Agreement,
then we shall have the right to terminate this Agreement upon 30
days prior written notice.
(d) Each party hereto warrants that all information delivered by it to
the other in connection with this Agreement shall be true and
correct in all material respects.
(e) Each party hereto warrants to the other that execution of this
Agreement and performance of its obligations will not violate or
result in a default under (i) any material agreement or instrument
to which it is a party or (ii) any statute, ordinance, governmental
rule or regulation in any material respect, or order, judgment,
injunction, decree or ruling of any court or administrative agency
applicable to it, which default would materially interfere with the
performance of it's obligations hereunder.
(f) Each party hereto warrants that it is not a party to any legal
action or other proceeding before any court or administrative agency
which could prohibit the performance of it's obligations under this
Agreement.
16. Retransmission Consent: If any law, governmental regulation or other
action permits you to elect to require any cable television system or
other multichannel video program distributor to obtain your consent to
such system's or distributor's retransmission of Station's broadcast of
either Station's signal as a whole or any WB programming included therein,
then Affiliate and WB agree to negotiate in good faith regarding whether
such
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consent is to be given (including without limitation, whether you shall or
shall not, in lieu of requiring consent, elect to require any cable system
to comply with any "must carry" rules, regulations or laws) and, if so,
the terms under which such consent is to be given (including without
limitation, the amount and type of compensation, if any, to be paid by the
system or distributor for such consent and whether any of that
compensation shall be shared between you and us). If WB and Affiliate do
not reach agreement with respect to all of the foregoing matters, then
without elimination to any of WB's other remedies, WB may terminate this
Agreement upon 30 days written notice to Affiliate. Nothing contained
herein shall authorize or allow the dissemination of WB programming by
Station outside of the DMA where Station is located, and any such
dissemination of WB programming outside of Station's DMA is prohibited.
17. Network Non-Duplication Protection: During the term of this Agreement,
Affiliate shall be entitled to network non-duplication protection, as
provided by Sections 76.92 through 76.97 of the FCC's rules, against the
presentation of any WB program by a cable system during the period
commencing one day before and ending fourteen (14) days after receipt of
such WB program by Station. The geographic zone of network non-duplication
protection shall be the Designated Market Area ("DMA") (as defined by
Nielsen) in which your Station is located or any lesser zone mandated by
Sections 76.92 and 73.658(m) of the FCC's rules. Network non-duplication
protection shall extend only to WB programs that Station is carrying in
accordance with the terms of this Agreement and such protection shall be
subject to the terms and provisions of subparagraph 2(f). You are under no
obligation to exercise in whole or in part the network non-duplication
rights granted herein. Notwithstanding anything to the contrary in this
paragraph, no non-duplication protection is provided against the signal of
WGN until such time that WB offers exclusivity against the signal of WGN
to its affiliates.
18. Affiliation Ratings Payments. Affiliate agrees to pay to WB an annual
payment, based on the Station's television market ratings, for WB prime
time programming, commencing with the initial broadcast by Station of such
programming, all as defined and set forth in the "Annual Ratings Payment"
Exhibit attached hereto. These payments are intended to compensate WB for
the WB programming and are in no way intended to, nor do they confer on
WB, any ownership or other equity interest in Station. If, subsequent to
January 1, 2004, WB modifies the financial model then in effect between WB
and stations affiliated with WB at that time ("WB Affiliates") or modifies
the terms and conditions under which WB affiliates pay compensation to WB
(the "compensation modification"), including but not limited to a
modification of the allocation of commercial time between the WB
affiliates and WB, then: (i) WB will provide Affiliate with reasonable
notice of the compensation modification; and, (ii) Affiliate shall have
the opportunity to either elect to participate in the compensation
modification or to opt out of the compensation modification by advising WB
in writing that Affiliate has elected not to participate in the
compensation modification. Upon receipt of Affiliate's election, WB may:
(i) accept Affiliate's election to opt out of the compensation
modification; or (ii) terminate this Agreement upon 60 days prior written
notice.
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19. Notices and Reports:
(a) In addition to any other reports or forms requested herein, you will
provide to us in writing, in the manner reasonably requested by WB,
such reports covering WB programs broadcast by Station as we may
request from time to time. To the extent we provide you forms for
such purpose, you shall provide such reports on these forms.
(b) All notices, reports or forms required or permitted hereunder to be
in writing shall be deemed given when personally delivered
(including, without limitation, by overnight courier or other
messenger or upon confirmed receipt of facsimile copy) or on the
date of mailing postage prepaid, addressed as specified below, or
addressed to such other address as such party may hereafter specify
in a written notice. Notice to Affiliate shall be to the address set
forth for Affiliate on page 1 of this Agreement. Additionally,
notice will be sent to ACME Television Holdings, 10829 Olive
Boulevard, Suite 202, St. Louis, MO 63141, Attention: Tom Allen.
Notice to WB shall be to: The WB Television Network, 4000 Warner
Boulevard, Burbank, California, 91522, Attention: General Counsel.
20. Miscellaneous:
(a) Nothing contained in this Agreement shall create any partnership,
association, joint venture, fiduciary or agency relationship between
the parties hereto.
(b) Nothing contained in this Agreement nor the conduct of any officer,
director, agent or employee of either WB or Affiliate shall be
deemed to create or to constitute ownership by WB, in whole or in
part, of Affiliate, Station or the License or in any way constitute
a derogation of the rights, duties and responsibilities imposed upon
Affiliate. Nothing in this Agreement shall be deemed to delegate to
WB, directly or indirectly, any right to control the operations of
Station.
(c) You shall at all times permit us, in connection with WB programming,
without charge, to place on, maintain and use at Station's premises,
at our expense, such equipment as WB shall reasonably require for
the distribution of WB Network programming. Station shall operate
such equipment for us, to the extent we reasonably request, and no
fee shall be charged by Station therefor.
(d) No waiver of any failure of any condition or of the breach of any
obligation hereunder shall be deemed to be a waiver of any preceding
or succeeding failure of the same or any other condition, or a
waiver of any preceding or succeeding breach of the same or any
other obligation.
(e) Each and all of the rights and remedies of WB and Affiliate under
this Agreement shall be cumulative, and the exercise of one or more
of said rights or remedies
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shall not preclude the exercise of any other right or remedy under
this Agreement, at law or in equity. Notwithstanding anything to the
contrary contained in this Agreement, in no event shall either party
hereto be entitled to recover any lost profits or consequential
damages because of a breach or failure by the other party, and
except as expressly provided in this Agreement to the contrary,
neither WB nor Affiliate shall have any right against the other with
respect to claims by any third person or other third entity.
(f) Paragraph headings are included in this Agreement for convenience
only and shall not be used to interpret this Agreement or any of the
provisions hereof, nor shall they be given any legal or other
effect.
(g) As of the date hereof, this Agreement, including all Exhibits
attached hereto, constitutes the entire understanding between WB and
Affiliate concerning the subject matter hereof and shall not be
amended, modified, changed, renewed, extended or discharged except
by an instrument in writing signed by the parties or as otherwise
expressly provided herein. No inducement, representations or
warranties except as specifically set forth herein have been made by
either party to this Agreement to the other. This Agreement replaces
any and all prior and contemporaneous agreements, whether oral or
written, pertaining to the subject matter hereof.
(h) This Agreement may be executed in counterparts, with the Agreement
being effective when each party hereto has executed a copy and
delivered that copy to the other party hereto.
(i) WB agrees to make WB programming available to Affiliate in digital
format, on a timetable and in a format determined by WB. WB will
consult with Affiliate concerning its plans for digital production
and delivery, including the transmission format to be employed.
After the inception of Affiliate's broadcasts on its FCC-assigned
digital frequency (the "DTV Channel"), Affiliate agrees to carry WB
programming that is supplied in digital format on the DTV Channel.
WB programming will be treated as Affiliate's primary network
programming on the DTV Channel. It is acknowledged that Affiliate
owns the digital bandwidth in its DTV Channel, and that Affiliate is
not obligated to provide WB with more than one digital channel in
its market.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
THE WB TELEVISION NETWORK PARTNERS ACME TELEVISION LICENSES
L.P. dba THE WB TELEVISION NETWORK OF OHIO, LLC
("WB") ("Affiliate")
By: /s/ John Maatta By: /s/ Douglas E. Gealy
--------------------------- -------------------------------
Title: Title: Pres. & COO
---------------------------
Date: 9/7/99 Date: 9/7/99
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ANNUAL RATINGS PAYMENT EXHIBIT
As part of the consideration to WB for the WB programming, Licensee agrees to
make annual payments to WB based on Station's television market ratings (the
"TMR Payments") for adults 18-49 for the prime time broadcast periods of WB
programming commencing with the initial broadcast by Station of WB programming.
Such payments shall partially compensate WB for the WB programming by
calculating the value and/or profitability added to Station as a result of its
affiliation with WB and pay to WB 25% of such added value and/or profitability.
Such payments are not intended to, nor do they, confer in WB any ownership
interest in Station. All defined terms used herein shall have the same meaning
as set forth in the Agreement unless otherwise defined herein. The TMR Payments
shall be calculated and paid as follows:
A. Calculation of TMR Payment Amount: At the end of each successive
Contract Year commencing on the Launch Date, the "Average Rating"
for each such Contract Year shall be determined by taking the
average of Station's television ratings (adults 18-49) for the prior
November, February, and May sweeps periods of such Contract Year as
reported on the Nielsen Station Index ("NSI"), as processed,
refined, re-formatted or re-configured by that application commonly
known as the "SNAP System," but only with respect to those prime
time hours programmed by WB under the Agreement. Based on the
Station's Average Rating for each Contract Year and the number of
hours programmed by WB in that Year, Station shall owe WB the amount
(the "TMR Amount") set forth in the table attached hereto as the
Annual Ratings Payment Exhibit Table. For example, in the particular
case of Station, if the adults 18-49 rating for WB programmed hours
is 2.0 for a particular Contract Year, and WB is programming 15
hours per week during such Year, then the TMR payment that will be
due and owing for such Year is $3.951.00. In the event that either
Station or WB contends that the TMR Payment for any particular
Contract Year, as set forth in the Annual Ratings Payment Exhibit
Table, is not an accurate statement of the twenty-five percent (25%)
share of the added value and/or profitability during WB programmed
prime time hours that Station owes to WB, or if the TMR Payment for
any particular Contract Year has increased or decreased from the
prior year's TMR Payment disproportionately in comparison to the
increase or decrease over such period in the profitability of
Station's WB furnished prime time programming (after giving effect
to any increase in the number of WB prime time programming hours
between the two periods), then either WB or Station may request that
the Station's financial results and operational information be
audited and reviewed by WB and the result of such audit shall
determine the level of the TMR Payment for the given period.
Promptly after such audit and review, WB and Station shall meet to
discuss such financial results and operational information of
Station and in good faith adjust the then currently due TMR Payment
to reflect the result of the audit and the intent of these Payments
as set forth in the introductory paragraph to this Exhibit.
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B. TMR Payment: The TMR Amount for each Contract Year shall be payable
by Licensee to WB within 15 days following WB's delivery to Licensee
of an invoice for the TMR Amount, which invoice shall be delivered
by WB not earlier than the release by NSI or any successor ratings
index of the ratings for the fourth and final sweeps period of such
Contract Year.
C. No NSI Ratings: In the event there are no NSI ratings available,
then Licensee and WB shall use those standard television market
ratings which are generally available and used by national and/or
regional advertisers for purposes of calculating advertising
payments to television stations.
D. Continuing Obligation. Licensee's obligation to make the above TMR
Payments on the basis set forth herein shall survive any termination
of this Agreement by WB, any sale or transfer of any Station assets
and/or any ownership interest in the Station and shall remain
binding on any successor Station owner, which successor remains an
affiliate and is approved by WB in its discretion as otherwise set
forth in the Agreement.
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EXHIBIT 21.0
ACME COMMUNICATIONS, INC
SUBSIDIARIES
<TABLE>
<CAPTION>
ORGANIZED
SUBSIDIARY UNDER LAWS OF
---------- -------------
<S> <C>
ACME Television Holdings, LLC Delaware
ACME Intermediate Holdings, LLC Delaware
ACME Television, LLC Delaware
ACME Subsidiary Holdings, LLC Delaware
ACME Subsidiary Holdings II, LLC Delaware
ACME Subsidiary Holdings III, LLC Delaware
ACME Subsidiary Holdings IV, LLC Delaware
ACME Communications Merger Subsidiary, LLC Delaware
ACME Intermediate Finance, Inc. Delaware
ACME Finance Corporation Delaware
ACME Television of New Mexico, LLC Delaware
ACME Television Licenses of New Mexico, LLC Delaware
ACME Television of Oregon, LLC Delaware
ACME Television Licenses of Oregon, LLC Delaware
ACME Television of Tennessee, LLC Delaware
ACME Television Licenses of Tennessee, LLC Delaware
ACME Television of Utah, LLC Delaware
ACME Television Licenses of Utah, LLC Delaware
Roberts Broadcasting of Salt Lake City, LLC Delaware
ACME Television Holdings of Missouri, Inc. Missouri
ACME Television of Missouri, Inc. Missouri
ACME Television Licenses of Missouri, LLC Missouri
ACME Television of Florida, LLC Delaware
ACME Television Licenses of Florida, LLC Delaware
ACME Television of Ohio, LLC Delaware
ACME Television Licenses of Ohio, LLC Delaware
ACME Television of Wisconsin, LLC Delaware
ACME Television Licenses of Wisconsin, LLC Delaware
ACME Television of Illinois, LLC Delaware
ACME Television Licenses of Illinois, LLC Delaware
ACME Television of Michigan, LLC Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
The Board of Advisors
ACME Television Holdings, LLC:
The audits referred to in our report dated July 28, 1999, included the
related financial statement schedules as of December 31, 1998, and for each of
the years in the two-year period ended December 31, 1998, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Los Angeles, California
September 24, 1999
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Koplar Communications, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
St. Louis, Missouri
September 24, 1999
<PAGE> 1
EXHIBIT 23.3
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.
/s/ KPMG LLP
Los Angeles, California
September 24, 1999
