<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. 4TH 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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- ---------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Common stock, $0.01 par value...................... $115,000,000 $31,970
- ---------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes shares subject to the underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
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
EXPLANATORY NOTE
This registration statement contains a prospectus relating to a public
offering in the United States and Canada and a separate international offering
(excluding Canada). We are selling a total of shares of common stock,
in the United States and Canada and internationally. In addition,
we and the selling stockholders have granted the underwriters an option to
purchase a combined additional shares of common stock to cover any
over-allotments. Immediately following this explanatory note is the complete
prospectus for the United States and Canada offering. After such prospectus are
the following alternate pages for the international offering: a front cover
page, an "Underwriting" section and a back cover page. The international
prospectus omits the "Notice to Canadian Residents" section. Each alternate page
for the international offering included herein is labeled "Alternate Page For
International Prospectus." All other pages of the prospectus are the same for
both offerings.
<PAGE> 3
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 , 1999
[LOGO]
- --------------------------------------------------------------------------------
ACME Communications, Inc.
Shares
Common Stock
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of ACME Communications, Inc.
No public market currently exists for our common stock. We anticipate that the
initial public offering price will be between $ and $ per
share.
We are selling all of the shares of common stock offered under this
prospectus. The U.S. underwriters are offering shares in the United
States and Canada and the international underwriters are offering shares
outside the United States and Canada.
We intend to apply 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 9.
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>
We and the selling stockholders have granted the underwriters the right to
purchase up to an additional shares at the public offering price within
30 days from the date of this prospectus to cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payments in Baltimore,
Maryland on , 1999.
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Morgan Stanley Dean Witter
CIBC World Markets
The date of this Prospectus is , 1999.
<PAGE> 4
INSIDE FRONT COVER
[ACME COMMUNICATIONS LOGO]
[COLLAGE OF THE WB NETWORK AND SYNDICATED PROGRAMMING LOGOS]
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> 5
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. As used in this prospectus, unless
the context otherwise requires, "we," "us," "our" or "ACME" refers to ACME
Communications, Inc., the issuer of the common stock, its predecessor company
and its subsidiaries.
Unless otherwise indicated, the information in this prospectus assumes the
underwriters will not exercise their over-allotment option. In addition, unless
otherwise indicated, information throughout this prospectus gives effect to the
conversion of our business from a limited liability company into a C
corporation, and the conversion of the outstanding membership interests of the
limited liability company into shares of common stock immediately before the
closing of this offering.
THE COMPANY
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 Television 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. population.
Jamie 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 anticipate further growth because many of our stations are newly
launched. For the three months ended March 31, 1999, we generated $11.1 million
in revenues and $2.6 million in broadcast cash flow, representing an increase of
43.4% in revenues and 53.0% in broadcast cash flow over the three months ended
March 31, 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
1
<PAGE> 6
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 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 January 1997
KUWB - 30
Salt Lake City, UT(3)...... 36 707,000 2 3 4 7 April 1998
KWBQ - 19
Albuquerque-Santa Fe,
NM(4).................... 49 566,000 n/a n/a n/a n/a March 1999
WBDT - 26
Dayton, OH(5).............. 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(5).................... 69 385,000 n/a n/a n/a n/a June 1999
WBUI - 23
Champaign-Springfield-
Decatur, IL(5)........... 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) 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.
(3) We operate but do not currently own KUWB. We own, but do not operate
KUPX - also in the Salt Lake City market. We and the owner of KUWB have
agreed to swap our stations, which we expect to occur in the third quarter
of 1999.
(4) 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.
(5) 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.
THE WB TELEVISION NETWORK
The WB Network was created by Time Warner, Inc., Tribune Broadcasting and
Mr. Kellner as a new broadcast television network in 1995. The WB Network
enhances distribution for Time Warner's Warner Bros. unit, a leading producer of
prime time and kids programming. For Tribune, The WB Network provides an
important source of programming and branding for their formerly independent
stations. The WB Network's focus is to provide quality programming to young
adults, teens and kids. The WB Network has a highly experienced management team,
several of whom worked with Mr. Kellner at Fox
2
<PAGE> 7
Broadcasting Company and contributed to the launch and development of the Fox
network. The WB Network is a more demographically focused network than ABC, CBS,
NBC and Fox. 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.
Over the last five years, The WB Network is the only English-language
broadcast network in the country to increase its ratings and has increased its
audience share for young adults from a three share to a six share and teens from
a six share to a 14 share. The WB Network's success is due in large part to its
ability to provide 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!. Programming on Kids'
WB! includes the number one rated kids show, Pokemon, as well as Batman Beyond
and Animaniacs. In the 1999/2000 season, The WB Network will provide 13 hours of
prime time programming Sunday through Friday and 19 hours of kids programming
Monday through Saturday. In addition, The WB Network has announced plans to
provide two hours of prime time programming on Saturday for the 2000/2001
season.
OUR SENIOR MANAGEMENT TEAM
Our highly experienced senior management team has 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. Doug 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. Tom Allen, our 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.
OUR BUSINESS AND GROWTH 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 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.
We expect that stations we acquire in new markets will enter into
affiliation agreements with The WB Network.
- 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. 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.
3
<PAGE> 8
- 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. 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.
- 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. 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.
OUR HISTORY
Our predecessor, ACME Television Holdings, LLC, was formed in April 1997,
as a Delaware limited liability company. We own approximately 92% of ACME
Intermediate Holdings, LLC ("ACME Intermediate"), which in turns owns 100% of
ACME Television, LLC ("ACME Television"). ACME Television is the holding company
of all of our operating subsidiaries and the subsidiaries that hold our
stations' Federal Communications Commission, or FCC, licenses. Immediately
before the closing of this offering, we will convert our business from a limited
liability company to a C corporation. After our reorganization, we will own 100%
of ACME Intermediate. For more information, see "The Reorganization."
Consummation of the reorganization is conditioned on receipt of FCC approval. We
have filed the necessary application with the FCC regarding our change of
control as a result of our reorganization.
4
<PAGE> 9
THE OFFERING(1)
The offering of shares of our common stock in the United States and
Canada and the offering of shares of our common stock outside the United
States and Canada are collectively referred to in this prospectus as this
"offering."
COMMON STOCK OFFERED BY
ACME....................... shares
COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING(2)................ 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 for
general corporate purposes, including working
capital and future acquisitions.
RISK FACTORS................. See "Risk Factors" beginning on page 9 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 shares of common stock subject to a 30-day
over-allotment option granted to the underwriters by us and the selling
stockholders.
(2) Based on the number of shares that will be outstanding after our
reorganization. Excludes approximately shares of common stock
reserved for issuance pursuant to our 1999 Stock Incentive Plan,
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.
5
<PAGE> 10
OUR SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes our financial data. The share information
gives effect to the conversion of our business from a limited liability company
into a C corporation at the beginning of each period indicated. The data
presented in this table are derived from the "Selected Consolidated 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>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- -------------------
1997 1998 1998 1999
--------- -------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................ $ 11,347 $ 43,928 $ 7,757 $ 11,123
--------- -------- ------- --------
Operating expenses:
Station operating expenses........................ 10,158 32,973 5,951 8,430
Depreciation and amortization..................... 1,215 11,355 848 3,766
Corporate......................................... 1,415 2,627 589 721
Equity-based compensation......................... -- -- -- 2,500
--------- -------- ------- --------
Operating income (loss)............................. (1,441) (3,027) 369 (4,294)
Other income (expenses):
Interest income..................................... 287 231 45 9
Interest expense.................................... (6,562) (23,953) (5,500) (6,466)
Gain on sale of assets.............................. -- 1,112 -- --
Other............................................... -- (380) 5 5
--------- -------- ------- --------
Loss before taxes and minority interest............. (7,716) (26,017) (5,081) (10,746)
Income tax benefit (expense)........................ -- 2,393 (20) 745
--------- -------- ------- --------
Loss before minority interest....................... (7,716) (23,624) (5,101) (10,001)
Minority interest................................... 237 1,684 358 723
--------- -------- ------- --------
Net loss............................................ $ (7,479) $(21,940) $(4,743) $ (9,278)
========= ======== ======= ========
SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION(1):
Pro forma net loss.................................. $ (7,479) $(14,484) $(2,834) $ (5,998)
Pro forma basic and diluted net loss per share......
Basic and diluted weighted average shares
outstanding(2)....................................
OTHER OPERATING DATA:
Broadcast cash flow(3).............................. $ 1,024 $ 11,380 $ 1,721 $ 2,633
Broadcast cash flow margin(3)....................... 9.0% 25.9% 22.2% 23.7%
EBITDA(3)........................................... $ (391) $ 8,752 $ 1,132 $ 1,911
EBITDA margin(3).................................... NM 19.9% 14.6% 17.2%
Amortization of program rights...................... $ 2,573 $ 10,942 $ 1,612 $ 2,420
Adjusted program payments(3)........................ (2,738) (10,746) (1,754) (2,481)
Time brokerage fees................................. -- 228 57 --
Cash flows provided by (used in) operations:
Operating activities.............................. $ (599) $ 319 $ 1,732 $ 1,419
Investing activities.............................. (191,730) (15,504) (6,916) (6,108)
Financing activities.............................. 201,153 7,362 (70) 4,642
ADJUSTED STATEMENT OF OPERATIONS AND OTHER DATA(4):
Adjusted interest expense........................... $(25,103) $(10,301)
Adjusted net loss................................... (13,857) (15,107)
Adjusted net loss per share.........................
Adjusted basic and diluted weighted average shares
outstanding(5)....................................
</TABLE>
6
<PAGE> 11
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, AS OF MARCH 31, 1999
------------------- ----------------------
1997 1998 ACTUAL AS ADJUSTED
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $220,475 $288,082 $290,902 $389,222
Long-term debt......................................... 192,452 220,256 230,390 192,734
Total shareholders' equity (deficiency)................ 16,306 1,413 (5,365) 131,005
</TABLE>
- -------------------------
(1) Our supplemental pro forma financial information gives effect to our
reorganization. Supplemental pro forma net loss represents the results of
operations adjusted to reflect (A) a provision for income taxes on
historical net loss before income taxes and minority interest which gives
effect to the change in our income tax status to a C corporation and (B) the
impact of the tax adjustment on the net loss allocated to minority
interests. There was no impact on the results for the year ended December
31, 1997, as all deferred tax assets would have been fully offset by a
valuation allowance. The supplemental pro forma tax benefit for the periods
subsequent to December 31, 1997, are based on an estimated combined federal
and state income tax rate of 40%. Supplemental pro forma net loss per share
has been computed by dividing supplemental pro forma net loss by the
weighted average shares of common stock outstanding during the period
(giving effect to our reorganization as if it had occurred at the beginning
of the period).
(2) See note 1 to our consolidated financial statements.
(3) We define broadcast cash flow as operating income, plus depreciation and
amortization, program amortization, non-cash equity based compensation, time
brokerage fees and corporate overhead, less program payments -- the latter
as adjusted to reflect reductions for impaired or expired rights in
connection with acquisitions. We define broadcast cash flow margin as
broadcast cash flow as a percentage of net revenues. We define EBITDA as
broadcast cash flow less corporate expenses. We define EBITDA margin as
EBITDA as a percentage of net revenues. We have included broadcast cash
flow, broadcast cash flow margin, EBITDA and EBITDA margin data because
these measures are widely used in the television broadcasting industry to
evaluate a television broadcast company's operating performance. However,
you should not consider broadcast cash flow, broadcast cash flow margin,
EBITDA and EBITDA margin 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 as a measure of liquidity or profitability. These measures are
not necessarily comparable to similarly titled measures employed by other
companies.
(4) The adjusted data give effect to this offering and application of the net
proceeds of this offering to repay all amounts outstanding under the
revolving credit facility ($12.9 million at March 31, 1999), as if the
offering and the application of net proceeds had occurred as of January 1,
1998 in the case of the adjusted statement of operations data and March 31,
1999 in the case of the adjusted balance sheet data. The adjusted statement
of operations data includes adjustments to the supplemental pro forma
financial information as follows: a reduction of interest expense of
$914,000 for 1998 and $446,000 for the quarter ended March 31, 1999 and
related decreases in income tax benefits of $366,000 for 1998 and $178,000
for the quarter ended March 31, 1999, and a reduction in the loss allocation
to minority interests of $44,000 for 1998 and $22,000 for the quarter ended
March 31, 1999.
We will record a compensation charge of approximately $27.5 million relating
to the following: (A) a $3.0 million bonus to be paid to our senior
management in the first quarter of 2000 and (B) a non-cash charge of $24.5
million as a result of the exchange of management carry units in our
predecessor for shares of our common stock in connection with our
reorganization and this offering (compensation calculated as the difference
between the expense recorded by us relating to management carry units ($2.5
million through March 31, 1999) and the fair value of the common stock). The
adjusted statement
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<PAGE> 12
of operations data exclude this compensation charge since this will be a
non-recurring charge. The adjusted balance sheet data reflect the estimated
cash and equity effects of this compensation charge.
(5) Based on weighted average number of shares of common stock outstanding for
all periods presented (giving effect to our reorganization as if it had
occurred at the beginning of the period), including the number of shares to
be issued in the offering and the number of shares exchanged for the
management carry units, assuming the offering and issuances occurred on
January 1, 1998.
8
<PAGE> 13
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually occurs,
our business could be harmed. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. You should
also refer to the other information in this prospectus, including our financial
statements and the related notes.
WE ARE HIGHLY LEVERAGED AND OUR FUTURE CASH FLOWS MAY NOT BE SUFFICIENT TO MEET
OUR OBLIGATIONS.
After giving effect to this offering as if it had occurred on March 31,
1999, we had outstanding consolidated indebtedness of approximately $198.4
million and $40.0 million available under our revolving credit facility. Our
highly leveraged financial position poses substantial risks to stockholders,
including the risks that:
- a substantial portion of our cash flow from operations will be required
to service our indebtedness;
- our highly leveraged position may impede our ability to obtain financing
in the future for working capital, capital expenditures and general
corporate purposes, including acquisitions; and
- our highly leveraged financial position may make us more vulnerable to
economic downturns and may limit our ability to withstand competitive
pressures.
Our ability to pay interest and principal on our indebtedness, along with
any future amounts outstanding under our revolving credit facility, will depend
on our future operating performance and events outside of our control.
Additionally, interest on amounts outstanding under our revolving credit
facility will fluctuate with certain prevailing interest rates which could
adversely affect us if interest rates were to increase.
If we are unable to generate sufficient cash flow from operations in the
future to meet our obligations and commitments, we will be required to adopt one
or more alternatives, such as refinancing or restructuring our indebtedness,
selling material assets or operations or seeking to raise additional debt or
equity capital.
OUR FINANCIAL FLEXIBILITY IS LIMITED AND THERE MAY BE ADVERSE CONSEQUENCES IF WE
DO NOT COMPLY WITH OUR RESTRICTIVE COVENANTS.
Our revolving credit facility allows for revolving credit borrowings of up
to $40.0 million, reducing quarterly beginning in 2000 and terminating entirely
in 2002. As of July 15, 1999, we had approximately $39.4 million outstanding
under our revolving credit facility. Although we plan to repay all amounts
outstanding under our revolving credit facility with a portion of the net
proceeds of this offering, we anticipate that we will use our revolving credit
facility to fund future acquisitions and other capital requirements. 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 will be 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 be payable starting in 2001.
The indenture governing the 12% senior secured notes, the indenture
governing the 10 7/8% senior discount notes and the credit agreement governing
our revolving credit facility contain various restrictive covenants which, with
specified exceptions, limit our ability to enter into affiliate transactions,
pay dividends, incur additional indebtedness, consolidate,
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<PAGE> 14
merge, or effect certain asset sales, make specified investments, acquisitions
and loans or change the nature of our business and require us to meet certain
financial requirements, for example with respect to EBITDA levels. These
restrictions and financial requirements, in combination with our leveraged
balance sheet, could limit our ability to respond to market conditions or to
meet extraordinary capital needs, or could adversely effect our ability to
finance our future operations, capital needs, or to engage in other business
activities which could be in our interest.
If we were to experience a decline in our operating results, we could
experience difficulty in complying with the covenants governing our
indebtedness. The failure to comply with such covenants could result in an event
of default under these agreements, thereby triggering acceleration of the
indebtedness incurred under the agreements as well as indebtedness under other
instruments containing cross-acceleration or cross-default provisions.
OUR OUTSTANDING INDEBTEDNESS MAY ACCELERATE IF THERE IS A CHANGE OF CONTROL.
The indebtedness under our revolving credit facility may be accelerated,
and we also could be required to make an offer to repurchase the 12% senior
secured notes and the 10 7/8% senior discount notes upon a change of control.
Under the credit agreement, a change of control is defined as the failure of
certain stockholders to own, through their interest in us, at least 50.1% of the
economic value of ACME Television. Under the terms of the indentures, a change
of control is defined as any event that would cause the current stockholders, in
aggregate, to hold less than 30%, and any other person to hold more than 20%, of
our outstanding stock. Under the terms of both the 12% senior secured notes and
the 10 7/8% senior discount notes, we could be required to make an offer to
repurchase the notes at 101% of their accreted value, plus any accrued and
unpaid interest, at the time of a change of control. If we experience a change
of control, either with respect to the credit agreement or either indenture, we
may 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.
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF NET LOSSES, WHICH WE EXPECT
TO CONTINUE IN THE FUTURE.
We were formed in April 1997 as a limited liability company. We have
incurred losses from continuing operations in each of our fiscal years since
inception. We expect to continue to experience net losses in the foreseeable
future, principally as 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, which may be greater than our net
losses in the past.
WE MAY NOT BE ABLE TO GROW THROUGH ACQUISITIONS.
To date, we have acquired nine television stations and entered into
definitive agreements to acquire two additional television stations that will be
swapped for two stations we already own. We intend to continue to pursue the
acquisition of additional television stations. Our business will be harmed if we
are unable to successfully implement our acquisition plans. We cannot be sure
that we will be successful in integrating the acquired stations or that such
integration will not divert our limited management resources.
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<PAGE> 15
Our ability to acquire additional television stations involves risks
including:
- we may be unable to obtain required approval by the FCC of the
assignments or transfers of control of licenses issued by the FCC;
- 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;
- the market to purchase television stations is highly competitive, and
many potential acquirers have greater resources available to make such
acquisitions than we have;
- desired stations may not be available for purchase;
- we may be unable to obtain The WB Network affiliation for all of the
stations we acquire in the future; and
- we may not have the financial resources necessary to acquire additional
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.
WE INCUR IMMEDIATE LOSSES ON NEW STATIONS.
Generally, it takes a few years for our newly acquired or built stations to
generate operating cash flow. During the initial period after acquisition or
construction, we incur significant expenses related to:
- acquiring syndicated programming;
- improving technical facilities;
- increasing and improving cable distribution;
- hiring new personnel; and
- marketing the station to viewers.
In addition, it requires time to gain viewer awareness of new station
programming and to attract advertisers. Accordingly, we have incurred, and
expect to continue to incur, with newly acquired or built stations, losses at a
station in the first few years after we acquire or build the station. This
requires our established stations to generate revenues and cash flow sufficient
to meet our business plan.
Rapidly growing businesses frequently experience unforeseen expenses and
delays in completing acquisitions, as well as difficulties and complications in
integrating the acquired operations without disrupting overall operations. As a
result, acquisitions could harm our operating results in the short term as a
result of several factors, including increased capital requirements.
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 Messrs. Kellner, Gealy and Allen. Although we
believe we can
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<PAGE> 16
adequately replace key employees in an orderly fashion should the need arise,
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 MAY HAVE CONFLICTS OF INTEREST WITH OUR BUSINESS.
We have entered into a consulting agreement with Mr. Kellner that includes
non-competition covenants. However, Mr. Kellner's agreement provides that he may
perform services for other businesses unaffiliated with ours which, in certain
limited circumstances, may be competitive. If one of the businesses Mr. Kellner
provides services to were competing with us, it could materially affect us in an
adverse manner.
Mr. Kellner is also an owner and the Chief Executive Officer of The WB
Network. Mr. Kellner's ownership and position at The WB Network may create
conflicts with his position with us. 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
network and us. Due to his responsibilities with The WB Network, Mr. Kellner may
have limited time available to devote to us.
OUR RELATIONSHIP WITH THE WB NETWORK IS CRITICAL TO OUR SUCCESS.
All of our television stations are affiliates of The WB Network and we
anticipate that almost all television stations we acquire will become affiliates
of The WB Network. Accordingly, our success largely depends on our stations'
continued relationship with The WB Network and on The WB Network's continued
success as a broadcast network. The WB Network's relationships with Time Warner
and Tribune Broadcasting are important to The WB Network's continued success and
we cannot be sure that those relationships will continue to exist. In addition,
we cannot be sure that The WB Network will renew, or will not adversely change
any of our station affiliation agreements. We cannot be sure that the ratings of
The WB Network programming will continue to improve or that The WB Network will
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 may forego other opportunities that could provide
diversity of our network affiliation and avoid dependence on any one network.
WE RELY ON BROADCAST CASH FLOW FROM KPLR.
Our ability to fulfill our current and future obligations and commitments
is dependent on the operating cash flow from KPLR. 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 quarter ended March
31, 1999. A significant decline in broadcast cash flow from KPLR would have a
material adverse effect on our financial results.
SYNDICATED PROGRAMMING COSTS MAY INCREASE AND REQUIRED PROGRAMS MAY NOT BE
AVAILABLE.
One of our most significant operating costs is syndicated programming. We
may be exposed in the future to increased syndicated programming costs that may
adversely affect our operating results. In addition, syndicated programs that
meet our criteria may not be available in the future or may 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.
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<PAGE> 17
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.
WE FACE SIGNIFICANT AND INCREASING COMPETITION.
Market Competition
The broadcast television industry is highly competitive, and our success
depends in large part on our ability to compete successfully with other network
affiliated and independent broadcast television stations and other media for
viewers and advertising revenues. The ability of broadcast television stations
to generate advertising revenues depends to a significant degree upon audience
ratings. Through the 1970s, network television broadcasting generally enjoyed
dominance in viewership and television advertising revenues, because
network-affiliated television stations competed principally with each other in
local markets. Beginning in the 1980s, however, this dominance began to decline.
Technological innovation and the resulting proliferation of programming
alternatives, such as independent broadcast stations, cable television and other
multi-channel competitors, pay-per-view and home videos have fragmented
television viewing audiences and subjected television broadcast stations to new
types of competition. Since the mid-1980s, cable television and formerly
independent stations now affiliated with new networks have captured increasing
market share and overall viewership from general broadcast network television.
Cable-originated programming in particular has emerged as a significant
competitor for broadcast television programming. We also face increasing
competition from home satellite delivery, direct broadcast satellite television
systems and video delivery systems utilizing telephone lines. Many of our
competitors have longer operating histories and greater resources than us.
Competition From New Technologies
Advances in technology may increase competition for viewers and advertising
revenue. For example, advances in video compression technology could lower entry
barriers for new video channels and encourage the development of increasingly
specialized "niche" programming. This may increase the number of competitors
targeting the same demographic group as us. Future competition in the television
industry may include the provision of interactive video and data services
capable of providing two-way interaction with commercial video programming,
together with information and data services, that may be delivered by commercial
television stations, cable television, direct broadcast satellite television and
other video delivery systems. We cannot predict the effect that these or other
technological changes will have on the broadcast television industry or on our
future results of operations.
WE ARE UNCERTAIN OF THE COSTS AND REVENUE IMPACT OF THE TRANSITION TO DIGITAL
TELEVISION.
In recent years, the FCC has adopted policies providing for authorization
of new technologies and a more favorable operating environment for certain
existing technologies that have the potential to provide additional competition
for television stations. For example, we may be affected by the development and
regulation of digital television, or DTV. All of the stations we own or are
under contract to acquire have been allocated a DTV channel. FCC policies
require that we deliver a digitally transmitted signal on these channels by
2002, terminate our analog signals and return our licenses to operate on the
analog frequencies to the FCC by 2006 (unless specified conditions exist that,
in effect, reflect the public's ability
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<PAGE> 18
to receive DTV transmissions in a particular market). Although we have entered
into lease agreements for some of our currently owned stations providing for
options to operate and install digital television antennas and transmitters at
the stations, we are unable to project accurately the costs or benefits
associated with DTV at this time. DTV will require significant new capital
investments in DTV broadcasting capacity, and we may not have adequate financial
resources to make such capital investments. While DTV technology is currently
available in some of the top-ten viewing markets, a successful transition may
take many years. Although we are required by the FCC to convert to DTV, we are
unable to predict the extent or timing of consumer demand for digital services.
Additionally, the extent to which cable channels will be required to carry
broadcast stations' new digital channels is not clear. Therefore, if the FCC
imposes limited or no carriage requirements on cable systems to carry DTV
signals, it could adversely effect our operations.
WE RELY ON ADVERTISING SALES FOR MOST OF OUR REVENUES.
We derive substantially all of our revenues from advertisers in diverse
industries. The loss of our major advertisers, or a reduction in their
advertising expenditures or a general decrease in advertising rates, could harm
our business. For example, the 1998 strike at General Motors resulted in
significant decreases in its television advertising expenditures, which resulted
in decreases in our revenues.
OUR REVENUES ARE AFFECTED BY SEASONAL TRENDS.
The revenues and cash flows of our television stations are subject to
various seasonal factors that influence the television broadcasting industry as
a whole. Like other broadcasters, we have higher revenues and cash flows in the
second and fourth quarters of the year when television viewing and advertising
is higher compared to the first and third quarters.
GOVERNMENT REGULATION OF THE BROADCASTING INDUSTRY AND THE CABLE TELEVISION
INDUSTRY COULD HARM OUR BUSINESS.
Our operations are subject to extensive and changing regulation on an
ongoing basis by the Congress, the FCC and the courts. The prior approval of the
FCC is required for the issuance, renewal, modification, assignment and transfer
of control of station permits and licenses. We cannot be sure that the FCC will
approve any future acquisitions that require an assignment or transfer of
control of an FCC license to us. In addition, the FCC construction permits and
licenses we hold are subject to renewal from time to time. Although in
substantially all cases licenses are renewed by the FCC, we cannot be sure that
the license for any television station owned or that will be owned by us will be
renewed or, if renewed, will not be issued subject to certain conditions. The
non-renewal or conditional renewal of one or more of our television broadcast
licenses could harm our business.
Recent and prospective actions by the Congress, the FCC and the courts
could cause us to face significant competition in the future. Such measures
could include the elimination or modification of:
- restrictions on television station ownership;
- restrictions on the participation by regional telephone operating
companies in cable television and other direct-to-home video
technologies;
- restrictions on the offering of multiple network services by the existing
major television networks; and
- restrictions in the use of local marketing agreements.
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<PAGE> 19
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. In the future, the FCC may restrict or prohibit the right of one
party to have a local marketing agreement in a market where it also owns a
commercial television station, a circumstance that would force us either to sell
the station we will own in Albuquerque or to terminate the local marketing
agreement in that market. Either result could adversely affect our financial
performance. We could incur a loss on any forced sale of a station. We are
unable to predict whether other potential changes in the regulatory environment
could restrict or curtail our ability to acquire, operate and dispose of
stations in the future or, in general, to compete with other television stations
and other media.
We believe that the growth and success of our television operations has
depended and will continue to depend upon our access to households served by
cable television systems. 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. These
"must carry" rights are not absolute, and their exercise depends on variables
such as the number of activated channels on a cable system, the location and
size of a cable system, and the amount of duplicative programming on a broadcast
station. Therefore, under certain circumstances, a cable system can decline to
carry a given station. Our television stations are currently exercising their
"must carry" rights and are currently carried by the local cable operators.
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 DTV. Various proposals on that issue are currently being
reviewed by the FCC and Congress. Some of those proposals would defer cable
carriage of DTV signals until complete conversion of station operations from
analog transmissions to DTV. Adoption of that proposal or others being
considered by the FCC could reduce public access to our stations' programming in
one or more of the markets we serve. It is impossible to predict how the issue
will be resolved. It is possible that new laws or regulations may eliminate, or
at least limit the scope of, our cable carriage rights. Either of those results
could have a material adverse impact on our operations.
AFTER THIS OFFERING, OUR EXISTING INVESTORS AND SENIOR MANAGEMENT MAY HAVE THE
ABILITY TO CONTROL A MAJORITY OF OUR BOARD.
Messrs. Kellner, Gealy and Allen and affiliates of Alta Communications,
BancBoston, CEA Capital, TCW Asset Management Company will enter into a voting
agreement that will become effective upon completion of this offering. This
agreement provides that the parties will vote for the election to our board of
three individuals designated by a majority in interest of Messrs. Kellner, Gealy
and Allen and three individuals designated by a majority in interest of the four
institutional investors. The parties to the agreement will collectively hold
approximately % of our stock, and the institutional investors as a group
will own approximately % of our stock, following completion of this offering.
Accordingly, the parties to this agreement may be able to elect a majority of
our board and effectively control our company so long as they continue to hold a
significant percentage of our stock. As the institutional investors' aggregate
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.
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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. These provisions:
- authorize us to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by the board of directors without
prior stockholder approval, with rights senior to those of common stock,
subject to any limitations that may be imposed by the terms of our
indebtedness;
- prohibit stockholder action by written consent instead of at a meeting;
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting;
- prohibit stockholders from calling special meetings; and
- restrict transfers of our common stock to non-U.S. citizens and entities.
WE COULD BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES.
Year 2000, or Y2K, 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 which could cause disruptions of
operations, including, a temporary inability to produce broadcast signals or
engage in normal business activities. All of our internal software and 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 Y2K compliant.
We may also be at risk from Y2K disruptions at our suppliers and business
partners, including The WB Network, syndicated programmers, advertisers,
communications service providers, utilities and financial institutions. These
possible risks include loss of power and communications links which are crucial
to our operations, but largely beyond our control.
At this point in time 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 Y2K ready, and we are not aware of any material supplier with
Y2K readiness problems, but this is subject to change as the compliance testing
process continues. We cannot be sure that there will not be a delay in, or
increased costs associated with the implementation of such changes. In addition,
disruptions in the economy generally resulting from Y2K issues could also
materially adversely affect us.
OUR COMMON STOCK HAS NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock. The trading market price of our common stock may decline below the
initial public offering price. The initial public offering price will be
determined by negotiations between us and the representatives of the
underwriters. See "Underwriting" for a discussion of the factors
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<PAGE> 21
considered in determining the initial public offering price. In addition, an
active public market for our common stock may not develop or be sustained after
this offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock. As a result,
purchasers of common stock in this offering will suffer immediate and
substantial dilution. This dilution will reduce the net tangible book value of
the shares sold in this offering, since these investments will be at a
substantially higher per share price than they were for our existing
stockholders. The dilution will be per share in the net tangible book
value of the common stock from the initial public offering price. If additional
shares are sold by the underwriters following exercise of their over-allotment
option, or if outstanding options to purchase shares of common stock are
exercised, there will be further dilution.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price of our common stock
to decline. After this offering, we will have outstanding shares of
common stock. All the shares sold in this offering will be freely tradable. Of
the remaining shares of common stock outstanding after this offering,
shares will be eligible for sale in the public market beginning 181
days after the date of this prospectus. The remaining shares will
become available at various times thereafter. We also intend to register up to
additional shares of our common stock after this offering for sale
pursuant to our 1999 Stock Incentive Plan.
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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.
USE OF PROCEEDS
We will receive estimated net proceeds of approximately $92 million from
the sale of shares of common stock in the offering, based on an assumed initial
public offering price of $ 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 ($25.0 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 March 31,
1999, the weighted average interest rate on revolving credit facility borrowings
was 8.1%. Indebtedness incurred in connection with the acquisition of WBDT, WIWB
and WBUI accrues interest at a rate of 22.5% and must be repaid in full by April
23, 2002.
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 cash dividends in the
future on our common stock will be dependent upon the ability of our
subsidiaries to pay dividends or otherwise make cash payments or advances to us
and restrictions, if any, under present and any future debt obligations, as well
as other factors that our board of directors deems relevant. The revolving
credit facility and the indentures related to notes at our subsidiaries impose
restrictions on our subsidiaries' ability to make these payments.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 1999 (1) on an actual basis, and (2) on a pro
forma basis as adjusted to reflect (a) the application of the estimated net
proceeds of $92 million from this offering, (b) the acquisitions of KASY, WDPX,
WPXG and WPXU, (c) the estimated compensation expense of $27.5 million relating
primarily to the exchange of management carry units by our senior management
team, (d) the acquisition of the minority interests of ACME Intermediate in
exchange for shares of common stock and (e) the conversion of convertible
debentures and related accrued interest into common stock.
The table should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------
PRO FORMA
AS
ACTUAL ADJUSTED
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)............................... $ 954 $ 15,054
Current portion of obligations under lease................. 1,304 1,304
Obligations under lease, net of current portion............ 4,348 4,348
Long-term debt:
Revolving credit facility................................ 12,900 --
10 7/8% Senior discount notes............................ 149,298 149,298
12% Senior secured notes................................. 43,436 43,436
Convertible debentures(2)................................ 24,756 --
-------- ---------
Total long-term debt.................................. 230,390 192,734
-------- ---------
Minority interest(3)....................................... 1,510 --
Stockholders' equity (deficiency)(4):
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; shares issued and outstanding
actual; shares issued and outstanding as
adjusted(5)...........................................
Additional paid-in capital(6)............................ 33,332 197,245
Accumulated deficit(6)................................... (38,697) (66,240)
-------- ---------
Total stockholders' equity (deficiency)............... (5,365) 131,005
-------- ---------
Total capitalization............................. $232,187 $ 329,391
======== =========
</TABLE>
- -------------------------
(1) Cash and cash equivalents pro forma as adjusted includes estimated net
proceeds of $92 million offset by the repayment of the following: (a) $12.9
million of revolving credit facility borrowings at March 31, 1999, (b) $25.0
million of debt to be incurred in the acquisition of KASY, and (c) $40.0
million of debt incurred in the acquisitions of WBDT, WIWB and WBUI of which
$15.0 million was funded from a loan by certain of our investors and $25.0
million was funded from borrowings under our revolving credit facility.
(2) Reflects the conversion of convertible debt and accrued interest of $4.1
million into shares of our common stock in connection with the
reorganization.
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(3) Reflects the acquisition of minority interest in ACME Intermediate in
exchange for shares of our common stock with an estimated value of
$ in connection with the closing of this offering.
(4) Adjusted to reflect the conversion of our predecessor's limited liability
membership units into shares of our common stock.
(5) Based on actual number of shares outstanding as of March 31, 1999 after
giving effect to the reorganization and as adjusted to reflect
shares issued in this offering. Excludes an aggregate of to be
issued at the offering price under our 1999 Stock Incentive Plan.
(6) Reflects a compensation charge of $27.5 million relating to a non-cash
charge of $24.5 million as a result of the exchange of management carry
units for shares of our common stock (compensation calculated as the
difference between the expense recorded by us relating to management carry
units and the fair value of the common stock) and a $3.0 million bonus to be
paid to our senior management in the first quarter of 2000.
20
<PAGE> 25
DILUTION
Our net tangible book value (deficit) as of March 31, 1999 was $( )
million or $( ) per share of common stock. Net tangible book value (deficit)
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the number of shares of common stock
outstanding. Our net tangible book value, on a pro forma basis, as adjusted for
the sale of shares of common stock in this offering by us and the
application of the net proceeds from the sale, and after deducting underwriting
discounts and estimated offering expenses, would have been $ million or $
per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ 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......... $ .
Net tangible book value (deficit) per share before the
offering........................................... $ ( .)
Increase per share attributable to new investors...... .
-------
Pro forma net tangible book value per share after the
offering.............................................. .
------
Dilution per share to new investors..................... $ .
======
</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 $ 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)..... .% $ .% $ .
New investors................ .% .% .
------ ----- ------- ------
Total...................... 100.0% $ 100.0% $ .
====== ===== ======= ======
</TABLE>
- -------------------------
(1) Reflects our reorganization as if it had occurred as of the inception of
ACME Television Holdings, LLC.
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<PAGE> 26
SELECTED CONSOLIDATED 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 March 31, 1998 and 1999 and for the three months ended
March 31, 1998 and 1999 are derived from our unaudited financial statements,
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 quarterly results for the period
ended March 31, 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.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- -------------------
1997 1998 1998 1999
--------- -------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................... $ 11,347 $ 43,928 $ 7,757 $ 11,123
--------- -------- ------- --------
Operating expenses:
Station operating expenses........................... 10,158 32,973 5,951 8,430
Depreciation and amortization........................ 1,215 11,355 848 3,766
Corporate............................................ 1,415 2,627 589 721
Equity-based compensation............................ -- -- -- 2,500
--------- -------- ------- --------
Operating income (loss)................................ (1,441) (3,027) 369 (4,294)
Other income (expenses):
Interest income........................................ 287 231 45 9
Interest expense....................................... (6,562) (23,953) (5,500) (6,466)
Gain on sale of assets................................. -- 1,112 -- --
Other.................................................. -- (380) 5 5
--------- -------- ------- --------
Loss before taxes and minority interest................ (7,716) (26,017) (5,081) (10,746)
Income tax benefit (expense)........................... -- 2,393 (20) 745
--------- -------- ------- --------
Loss before minority interest.......................... (7,716) (23,624) (5,101) (10,001)
Minority interest...................................... 237 1,684 358 723
--------- -------- ------- --------
Net loss............................................... $ (7,479) $(21,940) $(4,743) $ (9,278)
========= ======== ======= ========
SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION(1):
Pro forma net loss..................................... $ (7,479) $(14,484) $(2,834) $ (5,998)
Pro forma basic and diluted net loss per share.........
Basic and diluted weighted average shares
outstanding(2).......................................
OTHER OPERATING DATA:
Broadcast cash flow(3)................................. $ 1,024 $ 11,380 $ 1,721 $ 2,633
Broadcast cash flow margin(3).......................... 9.0% 25.9% 22.2% 23.7%
EBITDA(3).............................................. $ (391) $ 8,752 $ 1,132 $ 1,911
EBITDA margin(3)....................................... NM 19.9% 14.6% 17.2%
Amortization of program rights......................... $ 2,573 $ 10,942 $ 1,612 $ 2,420
Adjusted program payments(3)........................... (2,738) (10,746) 1,754 (2,481)
Time brokerage fees.................................... -- 228 57 --
Cash flows provided by (used in) operations:
Operating activities................................. $ (599) $ 319 $ 1,732 $ 1,419
Investing activities................................. (191,730) (15,504) (6,916) (6,108)
Financing activities................................. 201,153 7,362 (70) 4,642
ADJUSTED STATEMENT OF OPERATIONS AND OTHER DATA(4):
Adjusted interest expense.............................. $(25,103) $(10,301)
Adjusted net loss...................................... (13,857) (15,107)
Adjusted net loss per share............................
Adjusted basic and diluted weighted average shares
outstanding(5).......................................
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, AS OF MARCH 31, 1999
------------------------ -------------------------
1997 1998 ACTUAL AS ADJUSTED
--------- --------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $220,475 $288,082 $290,902 $389,222
Long-term debt................................... 192,452 220,256 230,390 192,734
Total shareholders' equity (deficiency).......... 16,306 1,413 (5,365) 131,005
</TABLE>
- -------------------------
(1) Our supplemental pro forma financial information gives effect to our
reorganization. Supplemental pro forma net loss represents the results of
operations adjusted to reflect (A) a provision for income taxes on
historical net loss before income taxes and minority interest which gives
effect to the change in our income tax status to a C corporation and (B) the
impact of the tax adjustment on the net loss allocated to minority
interests. There was no impact on the results for the year ended December
31, 1997, as all deferred tax assets would have been fully offset by a
valuation allowance. The supplemental pro forma tax benefit for the periods
subsequent to December 31, 1997 are based on an estimated combined federal
and state income tax rate of 40%. Supplemental pro forma net loss per share
has been computed by dividing supplemental pro forma net loss by the
weighted average shares of common stock outstanding during the period
(giving effect to our reorganization as if it had occurred at the beginning
of the period).
(2) See note 1 to our consolidated financial statements.
(3) We define broadcast cash flow as operating income, plus depreciation and
amortization, program amortization, non-cash equity based compensation, time
brokerage fees and corporate overhead, less program payments -- the latter
as adjusted to reflect reductions for impaired or expired rights in
connection with acquisitions. We define broadcast cash flow margin as
broadcast cash flow as a percentage of net revenues. We define EBITDA as
broadcast cash flow less corporate expenses. We define EBITDA margin as
EBITDA as a percentage of net revenues. We have included broadcast cash
flow, broadcast cash flow margin, EBITDA and EBITDA margin data because
these measures are widely used in the television broadcasting industry to
evaluate a television broadcast company's operating performance. However,
you should not consider broadcast cash flow, broadcast cash flow margin,
EBITDA and EBITDA margin 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 as a measure of liquidity or profitability. These measures are
not necessarily comparable to similarly titled measures employed by other
companies.
(4) The adjusted data give effect to this offering and application of the net
proceeds of this offering to repay all amounts outstanding under the
revolving credit facility ($12.9 million at March 31, 1999), as if the
offering and the application of net proceeds had occurred as of January 1,
1998 in the case of the adjusted statement of operations data and March 31,
1999 in the case of the adjusted balance sheet data. The adjusted statement
of operations data include adjustments to the supplemental pro forma
financial information as follows: a reduction of interest expense of
$914,000 for 1998 and $446,000 for the quarter ended March 31, 1999 and
related decreases in income tax benefits of $366,000 for 1998 and $178,000
for the quarter ended March 31, 1999, and a reduction in the loss allocation
to minority interests of $44,000 for 1998 and $22,000 for the quarter ended
March 31, 1999.
We will record a compensation charge of approximately $27.5 million relating
to the following: (A) a $3.0 million bonus to be paid to our senior
management in the first quarter of 2000 and (B) a non-cash charge of $24.5
million as a result of the exchange of management carry units in our
predecessor for shares of our common stock in connection with our
reorganization and this offering (compensation calculated as the difference
between the expense recorded by us relating to management carry units ($2.5
million through March 31, 1999) and the fair value of the common stock). The
adjusted statement of operations data excludes this compensation charge
since this will be a non-recurring charge. The adjusted balance sheet data
reflect the estimated cash and equity effects of this compensation charge.
(5) Based on weighted average number of shares of common stock outstanding for
all periods presented (giving effect to our reorganization as if it had
occurred during the period), including the number of shares to be issued in
the offering and the number of shares exchanged for the management carry
units, assuming the offering and issuances occurred on January 1, 1998.
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<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
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.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 compared to Quarter Ended March 31, 1998
Net revenues increased to $11.1 million for the quarter compared to $7.8
million in the same period of 1998, or 43%. The significant increase in net
revenues is attributable to growth at all of our stations, including those that
were in operation during the first quarter of 1998 and those which were signed
on or acquired after March 31, 1998.
Operating costs for the quarter ended March 31, 1999 were $15.4 million, an
increase of $8.0 million, or 109%, over the corresponding quarter of 1998.
Station operating expenses increased by $2.5 million, or 42%, in the aggregate,
during the quarter primarily due to the continued development and growth of our
stations, including the acquisition of new programming, the increase in the size
of our sales staff to support our sales growth and the impact of our start-up
stations since March 1998. Corporate expense increased from $589,000 to
$721,000, or 22%, reflecting primarily increased employment costs for the
additional staff needed to manage our growing company. A first-time $2.5 million
provision for equity-based compensation expense was recorded in the first
quarter of 1999 relating to equity issued in June 1997 to our senior management
team. Depreciation and amortization expense increased by $2.9 million from the
quarter ended March 31, 1998 to the quarter ended March 31, 1999 due primarily
to the amortization of intangible assets at KPLR and
24
<PAGE> 29
KUWB, which we began to amortize subsequent to March 31, 1998, and to higher
depreciation of property, plant and equipment related to our continued build-out
and upgrade of our studio and broadcast facilities since the first quarter of
1998.
Interest expense for the three months ended March 31, 1999 was $6.5 million
compared to interest expense of $5.5 million for the corresponding quarter of
the prior year. This increase of $1.0 million, or 18%, is attributable primarily
to increases in the principle balances of both the 10 7/8% senior discount notes
and the 12% senior secured notes due to the continued amortization of original
issuance discount, interest on amounts outstanding under our revolving credit
facility for the WTVK acquisition and other advances during the first quarter of
1999 and interest on increased capital lease financings.
We recorded a net income tax benefit of $745,000 of which $770,000 related
to KPLR. This tax benefit relates to a net operating loss carryforward 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 first quarters
of 1998 and 1999 to the minority holders in ACME Intermediate.
Our net loss for the quarter ended March 31, 1999 was $9.3 million compared
to a net loss for the first quarter of 1998 of $4.7 million. This $4.5 million
increase in our net loss is attributable primarily to increased interest expense
and amortization of intangibles, and the equity-based compensation expense, net
of improved operating results (exclusive of depreciation and amortization) at
the stations.
Our broadcast cash flow for the quarter ended March 31, 1999 increased
$912,000, or 53%, to $2.6 million compared to $1.7 million in the corresponding
period in 1998. This increase was driven primarily by the increased revenue
gains at all of our stations which outpaced the growth in operating expenses. As
a percentage of net revenues, broadcast cash flow margin increased to 24% for
the three months ended March 31, 1999 from 22% for the three months ended March
31, 1998.
EBITDA for the quarter ended March 31, 1999 increased $779,000, or 69%, to
$1.9 million compared to $1.1 million in the first quarter of 1998. This
increase was primarily driven by increased broadcast cash flow of $912,000,
offset by an increase in corporate expense during the quarter ended March 31,
1999 of $132,000 from the quarter ended March 31, 1998.
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 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 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
25
<PAGE> 30
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 only
outstanding for a little more than six months during 1997.
Our operations related to KPLR, our only operating C corporation, after
deduction of allocable interest charges, generated a net taxable loss, and a
corresponding deferred tax benefit of $2.4 million for 1998.
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 operating
stations and the substantially increased interest expense incurred in connection
with the September 1997 issuance of long-term debt to finance our acquisitions,
offset by improved operating performance attributable to the inclusion of full
year results related to 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 of 1997 is included
in the full year 1997 results whereas the full year results are included in
1998. To a lesser extent, significantly reduced losses in 1998 compared to 1997
at KWBP also contributed to the increase in broadcast cash flow.
INCOME TAXES
Historically, we and all of our other 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. Our operations related to KPLR, after deduction of allocable
interest charges, generated a net taxable loss, and a corresponding deferred tax
benefit of $2.4 million. 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 of up to a maximum of
$40.0 million, dependent upon our meeting certain financial ratio tests in the
credit agreement. The revolving credit facility can be used to fund future
acquisitions of broadcast stations and for general corporate purposes. At March
31, 1999, $12.9 million was outstanding and $27.1 million was available under
the revolving credit facility. Amounts outstanding under our revolving credit
facility bear interest at a base rate, at our option, of the bank's prime rate
or LIBOR, plus a spread. At July 15, 1999, we had $39.4 million outstanding
under our revolving credit facility. Most of the increase in the revolver
balance since March 31, 1999 was used for the acquisitions of WBDT, WIWB and
WBUI in April 1999. We will repay all amounts outstanding under our revolving
credit facility with a portion of the net proceeds of this offering.
26
<PAGE> 31
Cash provided by our operating activities during 1998 was $319,000 and for
the quarter ended March 31, 1999 was $1.4 million.
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 three months of 1999 was $6.1 million and
related primarily to our investment in a digital tower joint venture in the
Portland, Oregon market, the purchase of property and equipment and the final
payment in connection with our acquisition of KUPX.
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 three months of 1999 was
$4.6 million consisting of revolving credit borrowings in connection with the
completion of our acquisition of KUPX, our digital tower joint venture
investment in Portland and capital expenditures.
We expect that we will incur approximately $12 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 the proceeds from this offering, internally generated funds
from operations and borrowings under our revolving credit facility, if
necessary, 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 funds generated
from operations, through borrowings under our revolving credit facility, and
through additional debt and equity financings. However there is no guarantee
that such additional debt and/or equity financing will be available or available
at rates acceptable to us.
YEAR 2000
The 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 which 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 Y2K issues for both our
information technology and non-information technology systems such as
telephone/PBX systems, fax machines, editing equipment, cameras, microphones,
etc). All of our internal software and 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 Y2K compliant.
We have completed our assessment and planning phase of our Y2K readiness
project, and have commenced the testing phase of our Y2K project which consists
of independently verifying that the systems are, in fact, Y2K compliant. In
addition to testing internal systems for compliance, this phase also includes
polling key suppliers, such as program suppliers, utilities, etc., to determine
their Y2K readiness. At the conclusion of the testing phase, we will commence
the final phase of our Y2K project, implementation. During this phase, we will
fix, retest and implement critical applications that were discovered to be Y2K
deficient during the preceding phases.
27
<PAGE> 32
At this point in time, 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 Y2K ready, nor are we aware of any material supplier with Y2K
readiness problem, but 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 Y2K 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 March 31, 1999, we have spent less than
$100,000 on Y2K activities and have budgeted expenditures less than $50,000 in
total on Y2K activities. However, we cannot be sure that there will not be a
delay in, or increased costs associated with the implementation of such 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, $500,000 of which
has been deposited into escrow. 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 August 13, 1999. We expect
to enter into an amendment with Ramar, pursuant to which we will deposit an
additional $1.0 million into escrow and extend the closing deadline under the
KASY purchase agreement until either the closing of this offering or January 31,
2000, as Ramar determines. If the closing occurs after October 31, 1999, we will
pay Ramar approximately $550,000 plus additional costs based on the number of
days which elapse between October 31, 1999 and the closing date. After the
closing, we intend to operate KWBQ under a local marketing agreement with Ramar.
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 from one facility.
In June 1999, we acquired WDPX, serving the Dayton, Ohio market, WPXG,
serving the Green Bay-Appleton, Wisconsin market, and WPXU, serving the
Champaign-Springfield-Decatur, Illinois market, from Paxson Communications
Corporation for $40.0 million. We converted all three stations from Pax Net
primary affiliates to The WB Network primary affiliates in June 1999 and changed
the call letters for the stations to WBDT, WIWB and WBUI. We agreed to run Pax
Net prime time programming on these three stations in certain non-prime time
periods on a secondary affiliation basis for five years. The $40.0 million
purchase price was paid in cash and financed by a $25.0 million borrowing under
our revolving credit facility and a $15.0 million loan from some of our
investors. We anticipate that both the revolving credit facility and the $15.0
million loan will be repaid with the proceeds of this offering.
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
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<PAGE> 33
station operating expenses, if any. 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 the same amount if DP Media chooses to sell
the station.
In April 1999, we received FCC approval to consummate the swap of KUPX,
serving the Salt Lake City, Utah market, which we currently own but do not
manage, for KUWB, serving the same market. We currently manage but do not own
KUWB. We expect this swap to be finalized in the third quarter of 1999. We
intend to account for the swap as a non-monetary transaction using our
historical cost. We believe that the fair value of KUWB approximates the
historical cost of KUPX.
FUTURE NON-RECURRING CHARGES
We expect to incur approximately $27.5 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 $24.5 million will be incurred in connection
with the exchange of senior 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, (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 March 31, 1999, a hypothetical 100 basis point
increase in the prime rate would result in additional interest expense of
approximately $1.3 million on an annualized basis.
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<PAGE> 34
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 (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
(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 ("UPN") 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> 35
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 ("Nielsen"), 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 using electronic measurement devices.
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<PAGE> 36
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, features 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> 37
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. population. 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 three months ended March 31, 1999, we generated $11.1
million in revenues and $2.6 million in broadcast cash flow, representing an
increase of 43.4% in revenues and 53.0% in broadcast cash flow over the three
months ended March 31, 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
33
<PAGE> 38
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.
- 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. 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.
- 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 scheduling,
purchasing, national sales and some accounting and treasury functions at
our corporate headquarters. For example, because we buy
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<PAGE> 39
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.
[BARGRAPH]
[Two bar graphs presenting ratings and share information for The WB Network
prime time programming. The bar graph on the left side presents rating and share
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 over 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 and
share 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, as well as Warner Bros.
produced shows such as Batman Beyond, Animaniacs, Pinky and the Brain and
Superman. Many of 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.
[BARGRAPH]
[One bar graph presenting ratings and share information for The WB
Network's Kids' WB! Saturday programming from the 1995/1996 through the
1998/1999 broadcast season. The growth achieved in ratings points over in the
four year period among teens 12 to 17 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. 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
that watch The WB
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<PAGE> 40
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 St. Louis Blues (KPLR), the
Seattle Mariners and the University of Oregon Ducks (KWBP), the Atlanta Braves
and the Atlanta Hawks (WBXX) and the Colorado Rockies (KUWB). In addition, KPLR
airs a nightly 30-minute local newscast.
OUR STATIONS
Unless otherwise indicated, all ownership and statistical information is
from BIA Publications, Inc. and Nielsen Media Research.
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 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 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 both prime time and
kids' dayparts.
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<PAGE> 41
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 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 1
</TABLE>
KWBP: PORTLAND, OREGON
<TABLE>
<S> <C>
Designated Market Area: 23 TV Households: 994,000
Total Age 2 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 January 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.
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>
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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 expect to acquire the station during the third quarter
of 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 acquired 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, up 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.
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 (Paxson
Communications local
marketing
agreement).......... KUPX - 16 PAX 0 0
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
(ACME local
marketing
agreement).......... KUWB - 30 WB 4 13
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
38
<PAGE> 43
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 service area, KWBQ reached 13% of the households.
Shortly after the completion of this offering, we will acquire KASY serving
the Albuquerque - Santa Fe market from Ramar. KASY is currently a UPN affiliated
station. Concurrent with our purchase of KASY, we will sell the KWBQ broadcast
license to Ramar. At the closing, Ramar will grant Montecito 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.
Under the KASY purchase agreement we are required to close the transaction by
August 13, 1999. We expect to enter into an amendment with Ramar, pursuant to
which we will deposit an additional $1.0 million into escrow and extend the
closing deadline under the KASY purchase agreement until either the closing date
of this offering or January 31, 2000, as Ramar determines. If the closing occurs
after October 31, 1999, we will pay Ramar approximately $550,000 plus additional
costs based on the number of days which elapse between October 31, 1999 and the
closing date. 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 in a single facility.
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<PAGE> 44
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 (9/99), 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.
40
<PAGE> 45
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.
41
<PAGE> 46
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
Raycom Media........... WTNZ - 43 FOX 6 -2
Young Broadcasting..... WATE - 6 ABC 13 +4
Paxson
Communications....... WPXK - 54 PAX 0 0
</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.
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<PAGE> 47
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
SF Broadcasting........ WLUK - 11 FOX 12 +1
Paxson
Communications....... WPXG - 14 PAX 1 +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. 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.
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<PAGE> 48
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.
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<PAGE> 49
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
Calusa Television...... WEVU - 7 UPN 0 0
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. 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. Pursuant to the affiliation agreements, 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. The affiliation agreements, with the exception
of the Ft. Myers agreement, also entitle the 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
45
<PAGE> 50
obligated to run the Pax Net prime time programming in certain morning dayparts.
We retain national spot and local advertising time during this programming, and
Pax Net retains network national advertising time.
ADVERTISING/SALES
Virtually all of our revenues for 1997 and 1998 and the first three 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 53% in the first quarter 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 47% in the first three 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, outdoor (i.e. 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 more advertising time is available for local station sale
during The WB Network programs and non-network syndicated programs, our programs
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 which are
key targets of advertisers and our focus on advertising sales allows us to
compete effectively for advertising revenues within our stations' markets.
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<PAGE> 51
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 ("DBS") entertainment services and
multichannel multipoint distribution services ("MMDS"). 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, which amended the Communications Act of 1934, 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 are unable to 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
Introduction. 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, decide whether to approve a change of ownership or
control of station licenses, regulate the equipment used by stations, and adopt
and implement regulations to carry out the provisions of the Communications Act.
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" (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 in order 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
license term. On January 24, 1997, pursuant to the
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<PAGE> 52
Telecommunications Act of 1996 (which in turn amended the Communications Act),
the FCC increased the original terms of such licenses and their renewal to eight
years. The Telecommunications Act directs the FCC to grant renewal of a
broadcast license if it finds that the station has served the public interest,
convenience, and necessity and that there have been no serious violations (or
other violations which would constitute a "pattern of abuse") by the licensee of
the Communications Act or FCC rules and policies. If the FCC finds that a
licensee has failed to meet these standards, and there are no sufficient
mitigating factors, the FCC may deny renewal or condition renewal appropriately,
including renewing for less than a full term. Any other party with standing may
petition the FCC to deny a broadcaster's application for renewal. However, only
if the FCC issues an order denying renewal will the FCC accept and consider
applications from other parties for a construction permit for a new station to
operate on the channel subject to such denial. The FCC may not consider any
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
that the licenses of our stations will be renewed for a full term or without
modification. Following are the expiration dates of our current licenses:
<TABLE>
<CAPTION>
STATION EXPIRATION DATE
------- ----------------
<S> <C>
KPLR.......................................... February 1, 2006
KWBP.......................................... February 1, 2007
KUWB(1)....................................... October 1, 2006
KWBQ.......................................... 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 operate KUWB and own KUPX. The expiration date for KUPX and KUWB are the
same. We plan to swap ownership of these stations.
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. The reference to
"character" generally refers to the likelihood that the licensee or applicant
will comply with applicable law and regulation; the reference to "attributable"
interests generally refers to the level of ownership or other involvement in
station operations which would result in the FCC 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 appropriate 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
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<PAGE> 53
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.
Our reorganization from a limited liability company into a corporation will
be deemed to result in a non-substantial change of ownership. As a result, we
must receive FCC approval before we can complete our reorganization. We have
filed an application with the FCC to obtain the necessary approval.
Ownership Restrictions. The officers, directors and certain equity owners
of a company holding one or more broadcast licenses are deemed to have
"attributable interests" in the broadcast company. In the case of a C
corporation, ownership is generally attributed to officers, directors and equity
holders who own directly or indirectly 5% or more of the company's outstanding
voting stock except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. Certain 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, provided that such equity holders exercise no control
over the management or policies of the broadcast company.
Under current FCC rules, a license to operate a television station will not
be granted (unless established waiver standards are met) to any party (or
parties under common control) that has an attributable interest in another
television station with an overlapping service contour (the "Duopoly Rule"). FCC
regulations also prohibit one owner from having attributable interests in
television broadcast stations that reach in the aggregate more than 35% of the
nation's television households. For purposes of this calculation, stations in
the UHF band (channels 14 - 69) are attributed with only 50% of the households
attributed to stations in the VHF band (channels 2 - 13). The rules further
prohibit (with certain qualifications and subject to waiver standards) the
holder of an attributable interest in a television station from also having an
attributable interest in a radio station, daily newspaper or cable television
system serving a community located within the relevant coverage area of that
television station. Separately, the FCC's "cross-interest" policy may, in
certain circumstances, prohibit the common ownership of an attributable interest
in one media outlet and a non-attributable equity interest in another media
outlet, among other significant interests, in the same market. In pending
rulemaking proceedings, the FCC is considering, among other possible changes,
(1) the modification of its attribution rules and the "cross-interest" policy,
and (2) the relaxation of Duopoly Rule.
In those proceedings, the FCC also sought comment on whether the FCC should
modify its attribution rules by (1) raising the attribution stock benchmark from
5% to 10%; (2) raising the attribution stock benchmark for passive investors
from 10% to 20%; (3) restricting the availability of the single majority
shareholder exemption; and (4) attributing certain interests such as non-voting
stock, debt instruments and certain holdings by limited liability corporations
in certain circumstances. More recently, the FCC has solicited comment on
proposed rules that would (1) treat an otherwise nonattributable equity or debt
interest in a licensee as an attributable interest where the interest holder is
a program supplier or the owner of a broadcast station in the same market and
the equity and/or debt holding is greater than a specified benchmark; (2) in
certain circumstances, treat the licensee of a broadcast station that sells
advertising time on another station in the same market pursuant to a joint
service agreement as having an attributable interest in the station whose
advertising is being sold; and (3) change the standard for defining a television
market and allow a party to hold an attributable interest in more than one
television station in the market.
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<PAGE> 54
Restrictions on Foreign Ownership. The Communications Act prohibits the
issuance of broadcast licenses to, or the holding of a broadcast license by, 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, collectively, aliens. The Communications Act also authorizes
the FCC, if the FCC determines that it would be in the public interest, to
prohibit the issuance of a broadcast license to, or the holding of a broadcast
license by, any corporation directly or indirectly controlled by any other
corporation of which more than 25% of the capital stock is owned of record or
voted by aliens. The FCC staff has interpreted this provision to require finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited circumstances. 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 which hold FCC licenses could be revoked if, among other
restrictions imposed by the FCC, 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 that are substantially similar to
those contained in the Communications Act. Pursuant to the Certificate of
Incorporation, the Company has 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 the 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
in the past to promote the broadcast of certain types 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 such 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 (i) require carriage of its signal by cable systems in the
station's market ("must carry") or (ii) negotiate the terms on which such
broadcast station would permit transmission of its signal by the cable systems
within its market ("retransmission consent"). The United States Supreme Court
upheld the must-carry rules in a 1997 decision. 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
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<PAGE> 55
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 gain the ability to provide programming
and other services to a station proposed to be acquired before and pending
receipt of all applicable FCC and other governmental approvals with respect to
the transfer of control of the station licensee or assignment of the applicable
station license.
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 in such event, we will receive the anticipated revenue from
the sale of advertising for such programming.
At present, the licensee of a television station providing programming on
another television station pursuant to a local marketing agreement is not
considered to have an attributable interest in the other station. However, in
connection with its ongoing rulemaking proceeding regarding the television
Duopoly Rule, the FCC has proposed to adopt rules providing 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. In its pending rulemaking proceeding regarding
the television Duopoly Rule, the FCC has proposed to adopt a grandfathering
policy providing that, in the event that television local marketing agreements
become attributable interests, 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 original term of the
local marketing agreement expires. Under the FCC's proposal, television local
marketing agreements that are entered into, renewed, or assigned after November
5, 1996 would have to be terminated if local marketing agreements are made
attributable interests and the local marketing agreements in question resulted
in a violation of the television multiple ownership rules.
The Duopoly Rule currently prevents us from acquiring the licenses of
television stations in those markets where we already own a television station.
As a result, if the FCC were to decide that the provider of programming services
under a television local marketing agreements should be treated as having an
attributable interest in the station receiving the programming, and if it did
not relax its television Duopoly Rule, we could be required to modify or
terminate those of our local marketing agreements in markets where we already
own a station, as none were in existence on the date of enactment of the
Telecommunications Act or on November 5, 1996.
Digital Television Services. The FCC has adopted rules for implementing DTV
service in the United States. Implementation of DTV will improve the technical
quality of television signals and will provide broadcasters the flexibility to
offer new services, including high-definition television ("HDTV") and data
broadcasting.
The FCC has established service rules and adopted a Table of Allotments for
DTV. Under the Table, all eligible broadcasters with a full-power television
station are allocated a separate channel for DTV operation. Stations will be
permitted to phase in their DTV operations over a period of years following the
adoption of a final table of allotments, after which they will be required to
surrender their license to broadcast the analog, or non-DTV, signal. Affiliates
of the top four networks in the top ten markets are already required to be on
the air with a
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<PAGE> 56
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 of their
analog license to the government by 2006 (unless certain specified conditions
exist, which in effect, affect the public's limited access to DTV transmissions
in a particular market.
The Communications Act and the FCC's rules impose certain conditions on the
FCC's implementation of DTV service. Among other requirements, the FCC must:
- limit the initial eligibility for licenses to existing television
broadcast licensees or permittees;
- allow DTV 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 DTV 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 DTV. We cannot predict
the overall effect the transition to DTV 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. However, the
Telecommunications Act substantially relaxed the dual network rule by providing
that an entity may own more than one television network; however, no two
national television networks in existence on February 8, 1996 may merge or be
acquired by the same party. We are unable to 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 ("SHVA") 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 SHVA to facilitate the ability of satellite
carriers to provide subscribers with programming from a non-local television
station. We are unable to predict whether any such legislation will be enacted
or what, if any, impact such legislation may have on our company.
The FCC has also initiated a proceeding to reexamine rules which previously
required broadcast licensees to provide equal employment opportunities. The
reexamination was prompted by a court decision which voided the FCC's rules. 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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Proposals for additional or revised rules are considered by federal
regulatory agencies and Congress from time to time. We are unable to predict the
resolution of these issues or other issues discussed above, although their
outcome could, over a period of time, affect, either adversely or 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 March 31, 1999, we had 237 employees, including 42 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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<PAGE> 58
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 (HAAT) 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. Leased
Salt Lake City, Utah
Studio and office facilities..................... 9,500 sq. ft. Leased
Tower............................................ 3,839 ft. Leased
Tower(2)......................................... 2,779 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............................................ 682 ft. Leased
Champaign - Springfield - Decatur, Illinois
Studio and office facilities..................... 9,600 sq. ft. Owned
Tower............................................ 1,046 ft. Owned
</TABLE>
- -------------------------
(1) Excludes 30,000 square feet of apartment space located above the studio and
office facilities.
(2) Station owned but not operated by us. We sublease this tower from Paxson
Communications.
LEGAL PROCEEDINGS
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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<PAGE> 59
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our executive officers and
directors as of July 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jamie Kellner...... 51 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.... 46 Vice President, Controller
James Collis....... 36 Director
Thomas Embrescia... 53 Director
Brian McNeill...... 43 Director
Michael Roberts.... 50 Director
Darryl Schall...... 38 Director
</TABLE>
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. Prior to joining CEA
Management Corp., Mr. Collis was a Vice President of The Chase Manhattan Bank.
Mr. Collis has 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.
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<PAGE> 60
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
1986, Mr. McNeill has been a general partner of 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. From 1979 to 1986, he
worked at the Bank of Boston where he started and managed the broadcast lending
group.
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 1989. Mr. Roberts is also the founder of companies
active in commercial real estate development, construction program management
and corporate management consulting.
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.
Shortly before or after the closing of this offering, we expect to appoint
a ninth director to our Board.
COMMITTEES OF OUR BOARD OF DIRECTORS
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of Messrs. Schall and
Collis. 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. The
compensation committee makes recommendations 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.
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<PAGE> 61
EXECUTIVE COMPENSATION
The following table sets forth compensation earned for the years ended
December 31, 1998 and 1997 (year of 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.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
We have entered into a five-year non-exclusive consulting agreement with
Mr. Kellner which expires June 30, 2002, and five-year full-time exclusive
employment agreements with each of Messrs. Gealy and Allen that expire June 30,
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 July 30, 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
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<PAGE> 62
is entitled to annual cash bonuses as determined by our compensation committee.
In addition, in January 2000, we will pay Mr. Kellner a $1.2 million cash bonus.
As of July 30, 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 $900,000 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 July 30, 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 amounts are vested and earned portions were
converted to discounted options. See "Certain Specific Awards" below for a
description of the options granted in lieu of these discounted awards.
In August 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 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 SEC.
Share Limits. A maximum of shares of our common stock may be
issued under the plan, or approximately % 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 shares. The aggregate
number of shares subject to all awards granted under the plan to any one person
in a calendar year cannot exceed 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 $ .
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 (SARs), limited
stock appreciation rights (these are SARs 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
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<PAGE> 63
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 (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.
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
(including cash payments) 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.
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<PAGE> 64
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, SARs 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 after 2009.
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 payment (such as nonqualified stock options, SARs,
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 certain
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, SARs, 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.
Certain Specific Awards. Approximately shares are subject to
currently outstanding options, and the balance of 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 on ,
1999. Of these outstanding options, options for shares of our common
stock from our discontinued long-term compensation incentive plan have an
exercise price ranging from $ to $ and options to purchase
shares of our common stock have an exercise price equal to the public offering
price set forth on the cover of this Prospectus. Each grant is effective upon
consummation of this offering. Options with respect to our discontinued
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<PAGE> 65
long-term compensation incentive plan vest and all other options vest in
equal installments over years.
We will also grant stock options equal to an aggregate of 12% of our common
stock, after giving effect to this offering to Mr. Kellner,
to Mr. Gealy and to Mr. Allen. The exercise price
will be equal to the price to the public of this offering and will vest in equal
installments over four years, starting from the date of this offering.
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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PRINCIPAL STOCKHOLDERS
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; and
- our executive officers and directors as a group.
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. Because this table assumes no
exercise of the underwriters' over-allotment options, 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 OWNED(2)(3)
NUMBER --------------------------------------------------------------------
OF SHARES AFTER OFFERING AFTER OFFERING AFTER OFFERING
NAME AND ADDRESS OF BENEFICIALLY BEFORE AT LOWEST POINT AT MID-POINT AT HIGHEST POINT
BENEFICIAL OWNER(1) OWNED OFFERING OF RANGE OF RANGE OF RANGE
------------------- ------------ -------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Jamie Kellner......................... 5.27%
Doug Gealy............................ 3.82
Tom Allen............................. 3.80
Edward Danduran....................... -- *
James Collis(4)(5).................... 13.60
Thomas Embrescia(6)................... 2.82
Brian McNeill(7)(8)................... 13.60
Michael Roberts....................... 4.18
Darryl Schall(9)(10).................. 13.00
BancBoston Ventures Inc.(11).......... 13.69
Alta Communications(8)................ 13.60
CEA ACME, Inc.(5)(12)................. 15.36
TCW Asset Management Company(11)...... 13.00
Peregrine Capital, Inc.(13)........... 6.25
Continental Casualty/Loews(14)........ 7.47
All directors and executive officers
as a group (8 persons)..............
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) 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. 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.
(2) The relative percentage ownership of our existing stockholders assumes an
actual offering price equal to the mid-point of the range of offering price
on the cover of this prospectus, and also assumes our conversion from a
limited liability company into a C corporation immediately before the
closing of this offering. The table below shows the percentage of common
stock beneficially owned after this offering: (a) if the offering price
were $ (the lowest point of the offering price range), (b) if the
offering price were $ (the mid-point of the offering price range),
and (c) if the offering price were $ (the highest point of the
offering price
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range). However, the aggregate number of shares and aggregate percentage
ownership of our existing stockholders will not change.
(3) Assumes the underwriters' over-allotment option is not exercised.
(4) Includes shares held by CEA ACME, Inc. 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. Mr. Collis has no pecuniary interest in and disclaims
beneficial ownership of these shares.
(5) The address for CEA ACME, Inc. is 17 State Street, 35th Floor, New York, NY
10004.
(6) Includes shares of common stock held by trusts of which Mr. Embrescia is
trustee. Mr. Embrescia is deemed to be the beneficial owner of these
shares.
(7) Includes shares held by entities affiliated with Alta ACME,
Inc. Mr. McNeill is general partner of Burr, Egan, Deleage & Co. which
manages Alta ACME, Inc. Mr. McNeill has no pecuniary interest in and
disclaims beneficial ownership of these shares.
(8) Includes shares held by Alta Comm VI, LP and shares held
by Alta Comm S by S, LLC, affiliates of Alta Communications. The address
for Alta Communications is 1 Post Office Square, Suite 3800, Boston, MA
02109.
(9) Includes shares held by investment funds that are clients of
TCW Asset Management Company, L.P., of which Mr. Schall is a Senior Vice
President. Mr. Schall has no pecuniary interest in and disclaims beneficial
ownership of these shares.
(10) Includes shares held by investment funds that are clients of
TCW Asset Management Company. The address for TCW Asset Management Company
is 11100 Santa Monica Boulevard, Suite 2000, Los Angeles, CA 90025.
(11) Includes shares held by investment funds that are clients of
BancBoston Ventures Inc. The address for BancBoston Ventures Inc. is 100
Federal Street, Boston, MA 02110.
(12) Includes shares held by ACME Capital Partners. CEA ACME, Inc. is
the managing general partner of ACME Capital Partners and disclaims
beneficial ownership of these shares.
(13) The address for Peregrine Capital, Inc. is 9725 SW Beaverton-Hillsboro
Hwy., Suite 350, Beaverton, OR 97005-3366.
(14) The address for Continental Casualty/Loews is 667 Madison Ave., 7th Fl.,
New York, NY 10021.
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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 an agreement 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 (a) transfer its
license for WHSL, East St. Louis, Illinois, (b) commit any programming time of
the station for commercial programming or advertising or (c) 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. The annual payment under the agreement was
$200,000 in each of 1995, 1996 and 1997 and subsequent to our acquisition of
KPLR, we paid $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 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, 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
1998. In addition, in December 1998, we loaned Michael Roberts and Steven
Roberts $4.0 million, in connection with the purchase of KUPX. This loan was
repaid in connection with the closing of the KUPX sale in February 1999.
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
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KBXX, $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 in our predecessor, ACME
Television Holdings, LLC, to affiliates of Alta Communications, Banc Boston, CEA
Capital Partners and TCW Asset Management Company, each of which are
stockholders in our company. Another of our directors, Mr. Schall, is an officer
of an affiliate of TCW Asset Management Company.
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
the KWBP corporate office is located for $1.5 million from an affiliate of
Peregrine Holdings. Before the purchase we leased the property from the same
affiliate, from which we purchased KWBP.
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.
FORMATION TRANSACTIONS
In June 1997, we issued to each of Mr. Kellner, Mr. Gealy and Mr. Allen
membership units with a preferential return at 2.0 times the rate of return on
all non-founder membership units. Mr. Kellner acquired 290 membership units, Mr.
Gealy acquired 160 membership units and Mr. Allen acquired 150 membership units,
all at $1,000 per unit. 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
non-founder 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 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 made a $15.0 million
loan to us. Interest on the loan accrues beginning at 22.5% per year and
escalates quarterly after six months and is due in April 2002. 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.
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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 third quarter of 1999.
REGISTRATION RIGHTS
Before completion of this offering, we will enter into an amended and
restated registration rights agreement with all of our existing stockholders on
substantially the same terms as our current registration rights agreements
described below.
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 (a) June 30, 2002
or (b) 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 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. , and
have exercised these rights in connection with this offering.
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
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September 27, 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. , and have exercised
these rights in connection with this offering.
The holders making the demand would bear all registration expenses incurred
in connection with any demand registrations and we would bear all registration
expenses 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.
THE REORGANIZATION
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 the necessary application.
First, a subsidiary of ACME Communications, Inc. 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. After this merger, ACME Communications will own 100% of the
membership units of ACME Television Holdings, LLC.
Second, ACME Communications will issue common stock in exchange for all of
the convertible debentures of ACME Television Holdings, LLC.
Third, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will be merged into ACME Communications, which will be
the surviving corporation.
As a result of the mergers, ACME Communications will acquire membership
units representing approximately 92% of ACME Intermediate, which were held by
ACME Subsidiary Holdings, LLC and ACME Television Holdings, LLC.
Fourth, 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 membership units of another
subsidiary of ACME Television Holdings, LLC that owns approximately 2% of ACME
Intermediate, thereby acquiring 100% of ACME Intermediate.
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
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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 March 31, 1999, assuming the conversion of our business form into a C
corporation, and the simultaneous conversion of limited liability company
membership interests into shares of common stock, there were outstanding
shares of common stock, each with a par value of $0.01, held of
record by 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 therefor, 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 of our
company. 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.
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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 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 of our company.
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 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) a person who
is a citizen of a country other than the United States; (b) 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; (c) a government other
than the government of the United States or of any state, territory, or
possession of the United States, or (d) a representative of, or an individual or
entity controlled by, any of the foregoing.
Specifically, our foreign ownership restrictions provide:
- We shall not 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 (a) the total number of all shares of such capital stock
outstanding at any time and from time to time or (b) the total voting
power of all shares of such capital stock outstanding and entitled to
vote at any time and from time to time. We shall not 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.
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- No Alien or Aliens, individually or collectively, shall be entitled to
vote or direct or control the vote of more than 25% of (a) the total
number of all shares of our capital stock outstanding at any time and
from time to time or (b) 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 shall have all powers necessary to implement these
provisions of our certificate of incorporation and to ensure compliance with the
alien ownership restrictions (the "Alien Ownership Restrictions") of the
Communications Act, including, without limitation, the power to prohibit the
transfer of any shares of our capital stock to any Alien and to take or cause to
be taken such action as it deems appropriate to implement such prohibition,
including placing a legend regarding restrictions on foreign ownership of the
capital stock on certificates representing such 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 shall 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 such redemption are as follows:
- the redemption price shall be equal to the lower of (a) the fair market
value of the shares to be redeemed, as determined by the board of
directors in good faith, and (b) such 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 shall 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 shall be
given to the holders of record of the shares selected to be redeemed
(unless waived in writing by any such holder), provided that the
redemption date may be the date on which written notice shall be given to
holders if the cash or securities necessary to effect the redemption
shall have been deposited in trust for the benefit of such holders and
subject to immediate withdrawal by them upon proper surrender;
- from and after the redemption date, the shares to be redeemed shall cease
to be regarded as outstanding and any and all rights of the holders in
respect of the shares to be redeemed or attaching to such shares of
whatever nature (including without limitation any rights to vote or
participate in dividends declared on capital stock of the same class or
series as such shares) shall cease and terminate, and the holders thereof
thereafter shall be entitled only to receive the cash or securities
payable upon redemption; and
- such other terms and conditions as the board of directors shall
determine.
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
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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 AGREEMENT
Messrs. Kellner, Gealy and Allen and affiliates of Alta Communications,
BancBoston, CEA Capital and TCW Asset Management Company will enter into a
voting agreement that will become effective upon the completion of this
offering. Under this agreement, the parties will vote for the election to our
board of three individuals designated by Messrs. Kellner, Gealy and Allen and
three individuals designated by the four institutional investors. In each case,
the designations are subject to reasonable approval of the group that has not
made the designations. The parties to the agreement will collectively hold
approximately % of our common stock, and the institutional investors as a
separate group will own approximately % following completion of this
offering. As the institutional investors' aggregates 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 shares of common
stock outstanding (assuming that the underwriters do not exercise their
over-allotment option). The 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
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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, 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 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
(the "Code"), 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. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them 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 (the "New
Regulations"), 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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<PAGE> 78
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 (i) the gain is effectively connected with a trade or business of such
holder in the United States, (ii) 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, (iii) the Non-U.S. Holder is subject to a tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) we are or have been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the 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 (i) a U.S. person, (ii) 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, (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes or (iv) in
the case of payments made after December 31, 2000, a foreign partnership with
certain connections to the United States, unless such broker has documentary
evidence in its 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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<PAGE> 79
UNDERWRITING
We intend to offer our common stock in the United States and Canada 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 (the "U.S. Representatives") of each
of the underwriters named below (the "U.S. Underwriters"). Subject to the terms
and conditions set forth in an underwriting agreement (the "U.S. Underwriting
Agreement") among us and the U.S. Representatives on behalf of the U.S.
Underwriters, we have agreed to sell to the U.S. Underwriters, and each of the
U.S. 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
========
</TABLE>
We intend to offer our common stock outside of the United States and
Canada. Deutsche Bank AG London, Merrill Lynch International, Morgan Stanley &
Co. International Limited and CIBC World Markets International Limited are
acting as representatives (the "International Representatives" and together with
the U.S. Representatives, the "Representatives") for certain international
underwriters (collectively, the "International Underwriters", and together with
the U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions
set forth in the international underwriting agreement (the "International
Underwriting Agreement") between us and the International Representatives on
behalf of the International Underwriters, and concurrently with the sale of
shares of common stock to the U.S. Underwriters pursuant to the U.S.
Underwriting Agreement, we have agreed to sell to the International
Underwriters, and each of the International Underwriters severally and not
jointly has agreed to purchase from us, an aggregate of shares of
common stock. The public offering price per share of common stock and the
underwriting discount per share of common stock are identical under the U.S.
Underwriting Agreement and the International Underwriting Agreement.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of our common stock, directly or indirectly, only in the
U.S. (including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction (the "United States"),
in Canada and to U.S. persons, which term shall mean, for purposes of this
paragraph: (a) any individual who is a resident of the United States or (b) any
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of common stock in the United States
or to any U.S. persons or to any person who it believes intends to reoffer,
resell or deliver the shares in the United States or to any U.S. persons, and
(ii) cause any dealer to whom it may sell such shares at any concession to agree
to observe a similar restriction.
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<PAGE> 80
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
common stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the several U.S. Underwriters and International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such 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 U.S.
Underwriting Agreement and the International Underwriting Agreement provide
that, in certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the such agreements may be terminated. The
closing with respect to the sale of shares of common stock to be purchased by
the U.S. Underwriters and the International Underwriters are conditioned upon
one another.
We 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 several 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 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 $ and are payable by us.
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<PAGE> 81
OVER-ALLOTMENT OPTION
We and 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 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 (1) any shares of our common stock, (2)
any options or warrants to purchase any shares of our common stock, or (3) 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 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, are the
valuation multiples of publicly traded companies that the Representatives
believe to be comparable to us, certain of our financial information, our
history, our prospects, the industry in which we compete, and an assessment of
our management, its past and present operations, the prospects for, and timing
of, our future revenue, the present state of our development, and the above
factors in relation to market values and various valuation measures of other
companies engaged in activities similar to ours. There can be no assurance 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
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<PAGE> 82
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.
Neither ACME nor any of the Underwriters makes 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
ACME nor any of the Underwriters makes 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 ("CIBC"), an affiliate of CIBC Word
Markets Corp. and CIBC World Markets International Limited, is a primary lender
and the agent under our credit agreement. We pay CIBC a commitment fee on the
unused portion of the 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" (as defined by the NASD)
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.
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<PAGE> 83
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of our common stock in Canada is being made
only on a private placement basis exempt from the requirement that we prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of our common stock are effected. Accordingly, any resale
of our common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Canadian purchasers are advised to
seek legal advice prior to any resale of our common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of our common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as agent
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The shares of our common stock being offered are those of a foreign issuer
and Ontario purchasers will not receive the contractual right of action
prescribed by section 32 of the Regulation under the Securities Act (Ontario).
As a result, Ontario purchasers must rely on other remedies that may be
available, including common law rights of action for damages or rescission or
rights of action under the civil liability provisions of the U.S. federal
securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named in this
prospectus may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
us or such persons. All or a substantial portion of our assets and such persons
may be located outside of Canada and, as a result, it may not be possible to
satisfy a judgment against us or such persons in Canada or to enforce a judgment
obtained in Canadian courts against us or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of shares of our common stock to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any of our common stock acquired by such purchaser pursuant to this
offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from us. Only one such report must be filed in respect of all shares of our
common stock acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of our common stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
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<PAGE> 84
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 ACME Communications,
Inc. 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 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.
Upon approval of our common stock for listing on the Nasdaq National
Market, such reports, proxy and information statements and other information may
also be inspected at the office of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
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<PAGE> 85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of KPMG LLP, Independent Auditors.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for each of the years
in the two-year period ended December 31, 1998 and the
three months ended March 31, 1998 and 1999 (unaudited).... F-4
Consolidated Statements of Stockholders' Equity (Deficiency)
for each of the years in the two-year period ended
December 31, 1998 and the three months ended March 31,
1999 (unaudited).......................................... F-5
Consolidated Statements of Cash Flows for each of the years
in the two-year period ended December 31, 1998 and the
three months ended March 31, 1998 and 1999 (unaudited).... F-6
Notes to Consolidated Financial Statements.................. F-7
KOPLAR COMMUNICATIONS, INC. AND SUBSIDIARY
Report of KPMG LLP, Independent Auditors.................... F-23
Consolidated Statements of Operations for each of the years
in the two-year period ended December 31, 1997............ F-24
Consolidated Statements of Cash Flows for each of the years
in the two-year period ended December 31, 1997............ F-25
Notes to Financial Statements............................... F-26
CHANNEL 32 INCORPORATED
Report of KPMG LLP, Independent Auditors.................... F-35
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-36
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-37
Notes to Financial Statements............................... F-38
</TABLE>
F-1
<PAGE> 86
When the Reorganization referred to in note 14 has been consummated, we
will be in a position to render the following report.
/s/ KPMG LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ACME Communications, Inc.:
We have audited the accompanying consolidated balance sheets of ACME
Communications, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations and stockholders' equity
(deficiency) 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
Communications, Inc. 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.
Los Angeles, California
July 28, 1999, except as to
note 14, which is as of
, 1999
F-2
<PAGE> 87
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- MARCH, 31
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 8,824 $ 1,001 $ 954
Accounts receivable, net.................................. 888 10,840 9,245
Current portion of program rights......................... 614 6,357 6,591
Prepaid expenses and other current assets................. 3,121 416 645
-------- -------- --------
Total current assets................................... 13,447 18,614 17,435
Property and equipment, net................................. 7,346 16,441 18,420
Program rights, net of current portion...................... 587 8,046 6,858
Deposits.................................................... 143,000 37 616
Deferred income taxes....................................... -- 3,811 3,811
Intangible assets, net...................................... 36,004 222,987 229,528
Other assets................................................ 20,091 18,146 14,234
-------- -------- --------
Total assets........................................... $220,475 $288,082 $290,902
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable.......................................... $ 3,363 $ 4,425 $ 3,187
Accrued liabilities....................................... 651 4,210 7,373
Current portion of program rights payable................. 653 7,649 6,913
Current portion of obligations under lease................ 292 1,273 1,304
-------- -------- --------
Total current liabilities.............................. 4,959 17,557 18,777
Program rights payable, net of current portion.............. 1,351 6,512 5,804
Obligations under lease, net of current portion............. 443 4,199 4,348
Other liabilities........................................... 1,047 4,671 4,967
Deferred income taxes....................................... -- 31,241 30,471
Revolving credit facility................................... -- 8,000 12,900
Convertible debentures...................................... 24,756 24,756 24,756
10 7/8% senior discount notes............................... 130,833 145,448 149,298
12% senior secured notes.................................... 36,863 42,052 43,436
-------- -------- --------
Total liabilities...................................... 200,252 284,436 294,757
-------- -------- --------
Minority interest........................................... 3,917 2,233 1,510
Stockholder's equity (deficiency):
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding.............. -- -- --
Common stock, $ par value, shares
authorized, shares issued and
outstanding............................................... -- -- --
Additional paid-in capital.................................. 23,785 30,832 33,332
Accumulated deficit......................................... (7,479) (29,419) (38,697)
-------- -------- --------
Total stockholders' equity (deficiency)................ 16,306 1,413 (5,365)
-------- -------- --------
Total liabilities and stockholders' equity
(deficiency)......................................... $220,475 $288,082 $290,902
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 88
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- ----------------------
1997 1998 1998 1999
------- -------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues......................... $11,347 $ 43,928 $ 7,757 $ 11,123
------- -------- ------- --------
Operating expenses:
Station operating expenses......... 10,158 32,973 5,951 8,430
Depreciation and amortization...... 1,215 11,355 848 3,766
Corporate.......................... 1,415 2,627 589 721
Equity-based compensation.......... -- -- -- 2,500
------- -------- ------- --------
Total operating expenses........ 12,788 46,955 7,388 15,417
------- -------- ------- --------
Operating income (loss)....... (1,441) (3,027) 369 (4,294)
Other income (expenses):
Interest income...................... 287 231 45 9
Interest expense..................... (6,562) (23,953) (5,500) (6,466)
Gain on sale of assets............... -- 1,112 -- --
Other................................ -- (380) 5 5
------- -------- ------- --------
Loss before taxes and minority
interest........................... (7,716) (26,017) (5,081) (10,746)
Income tax benefit (expense)......... -- 2,393 (20) 745
Loss before minority interest........ (7,716) (23,624) (5,101) (10,001)
Minority interest............... 237 1,684 358 723
------- -------- ------- --------
Net loss...................... $(7,479) $(21,940) $(4,743) $ (9,278)
======= ======== ======= ========
Supplemental pro forma financial
information (Unaudited) (Note 1):
Net loss before taxes and minority
interest, as presented............. $(7,716) $(26,017) $(5,081) $(10,746)
Pro forma income tax benefit......... -- 10,407 2,032 4,298
------- -------- ------- --------
Pro forma loss before minority
interest........................... (7,716) (15,610) (3,049) (6,448)
Pro forma minority interest.......... 237 1,126 215 450
------- -------- ------- --------
Pro forma net loss................... $(7,479) $(14,484) $(2,834) $ (5,998)
======= ======== ======= ========
Pro forma basic and diluted net loss
per share.......................... $ $ $ $
======= ======== ======= ========
Shares used in the calculation of
basic and diluted net loss per
share..............................
======= ======== ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 89
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
---------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
------ ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... $ $ -- $ -- $ --
Issuance of common stock,
net.................... 23,785 -- 23,785
Net Loss............... -- (7,479) (7,479)
------ ------- ------- -------- --------
Balance at December 31,
1997...................... 23,785 (7,479) 16,306
Issuance of common stock,
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
(unaudited)............ 2,500 -- 2,500
Net Loss (unaudited)... -- (9,278) (9,278)
------ ------- ------- -------- --------
Balance at March 31, 1999
(unaudited)............... $ $33,332 $(38,697) $ (5,365)
====== ======= ======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 90
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- ------------------
1997 1998 1998 1999
--------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (7,479) $(21,940) $(4,743) $(9,278)
Adjustments to reconcile net loss to net cash:
provided by operating activities:
Depreciation and amortization............................. 1,215 11,355 848 3,766
Amortization of program rights............................ 590 10,484 1,009 1,582
Amortization of debt issuance costs....................... 445 989 611 739
Amortization of discount on Senior Discount Notes......... 3,463 14,170 3,463 3,850
Amortization of discount on Senior Secured Notes.......... 1,213 5,189 1,212 1,384
Minority interest allocation.............................. (237) (1,684) (358) (736)
Equity-based compensation................................. -- -- -- 2,500
Deferred taxes............................................ -- (2,393) -- (770)
Gain on sale of assets.................................... -- (1,112) -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net.......... (888) (5,479) (323) 1,595
(Increase) decrease in prepaid expenses................... (3,060) 364 779 (249)
(Increase) decrease in due from affiliates................ (7) 7 (15) --
Increase in deposits...................................... -- -- -- (80)
(Increase) other assets................................... (576) -- --
Increase (Decrease) in accounts payable................... 3,363 59 (42) (1,238)
Increase in accrued expenses.............................. 651 2,639 442 682
Payments on programming rights payable.................... (915) (11,751) (1,151) (2,072)
Increase (decrease) in other liabilities.................. 1,047 (2) -- (256)
--------- -------- ------- -------
Net cash provided by (used in) operating activities..... (599) 319 1,732 1,419
--------- -------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (6,077) (2,945) (2,970) (2,171)
Purchases of and deposits for station interests........... (175,129) (16,675) (4,725) (1,509)
Cash acquired in acquisition -- St. Louis................. -- 779 779 --
Proceeds from sale of station interest.................... -- 3,337 -- --
Purchase of Sylvan Tower interest......................... -- -- -- (2,428)
Other..................................................... (10,524) -- -- --
--------- -------- ------- -------
Net cash used in investing activities................... (191,730) (15,504) (6,916) (6,108)
--------- -------- ------- -------
Cash flows from financing activities:
Increase in notes payable to bank......................... -- 11,000 -- 4,900
Payments of notes payable to banks........................ -- (3,000) -- --
Payments on capital leases................................ (97) (638) (70) (258)
Issuance of common stock.................................. 19,385 -- -- --
Issuance of convertible debentures........................ 24,756 -- -- --
Issuance of Senior Discount Notes......................... 127,370 -- -- --
Issuance of Senior Secured Notes.......................... 35,650 -- -- --
Debt issuance costs....................................... (10,065) -- -- --
Minority interest......................................... 4,154 -- -- --
--------- -------- ------- -------
Net cash provided by (used in) financing activities..... 201,153 7,362 (70) 4,642
--------- -------- ------- -------
Net increase (decrease) in cash........................... 8,824 (7,823) (5,254) (47)
Cash at beginning of period............................... -- 8,824 8,824 1,001
--------- -------- ------- -------
Cash at end of period..................................... $ 8,824 $ 1,001 $ 3,570 $ 954
========= ======== ======= =======
Supplemental disclosures of cash flow information:
Cash Payments for:
Interest.................................................. $ 514 $ 864 $ 24 $ 372
Taxes..................................................... -- 70 -- 25
Non-Cash Transactions:
Purchases of property and equipment in exchange for
capital lease obligations............................... $ -- $ 5,375 $ -- $ 438
Issuance of equity in purchase transactions............... 4,400 7,047 6,000 --
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-6
<PAGE> 91
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
(1) DESCRIPTION OF THE BUSINESS AND FORMATION
PRESENTATION
The accompanying consolidated financial statements are presented for ACME
Communications, Inc. ("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 three months ended March 31, 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 three month period are not
necessarily indicative of the results of operations for the full year.
FORMATION AND REORGANIZATION
Our predecessor, ACME Television Holdings, LLC was formed on April 24,
1997. The Company was incorporated on July 23, 1999. For a description of the
reorganization of ACME Television Holdings, LLC into the Company, see Note 14.
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.
ACME Intermediate, through its wholly-owned subsidiary, ACME Television, owns
and/or operates six 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.
F-7
<PAGE> 92
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
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.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the related allowance for doubtful
accounts which totaled $599,000, $555,000 and $51,000 at March 31, 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 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 rare reflected in the balance sheets as
current and noncurrent assets, respectively. The payments under these contracts
that are due within one year and after one year are similarly classified as
current and noncurrent liabilities.
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
F-8
<PAGE> 93
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
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>
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. At March 31, 1999,
December 31, 1998 and 1997, the total accumulated amortization for intangible
assets was $13,310,000, $10,172,000 and $761,000, respectively.
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.
CARRYING VALUE OF LONG-LIVED ASSETS
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The carrying value of long-lived assets
(tangible and intangible) is reviewed if the facts and circumstances suggest
that they may be impaired. For purposes of this review, assets are grouped at
the operating company level, which is the lowest level for which there are
identifiable cash flows. If this review indicates that an asset's carrying value
will not be recoverable, as determined based on future expected, undiscounted
cash flows, the carrying value is reduced to fair market value.
INCOME TAXES
The Company is a limited liability company, therefore, no income taxes have
been provided for its operations 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.
F-9
<PAGE> 94
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
BASIC AND DILUTED NET LOSS PER SHARE
The Company computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, basic and diluted net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding for the
period. The calculation of diluted net loss per share excludes shares of common
stock issuable upon exercise of employee stock options as the effect of the
exercise would be antidilutive.
PRO FORMA FINANCIAL INFORMATION
Pro forma net earnings represents the results of operations adjusted to
reflect (i) a provision for income taxes on historical earnings before income
taxes, which gives effect to the change in the Company's income tax status to a
C corporation as a result of the public sale of its common stock and (ii) the
impact on the net loss allocated to minority interests. When the Company
terminates its limited liability corporation status, which is expected to occur
immediately prior to the consummation of the offering, it will record an
earnings benefit resulting from the establishment of net deferred tax assets.
The amount of the benefit to be recorded (approximately $400,000 at March 31,
1999) will be dependent upon temporary differences existing at the date of
termination of the Company's limited liability corporation status.
Pro forma net loss per share has been computed by dividing pro forma net
loss by the weighted average number of shares of common stock outstanding during
the period.
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-10
<PAGE> 95
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH
DECEMBER 31, 31,
----------------- ---------
1997 1998 1999
------ ------- ---------
<S> <C> <C> <C>
Land........................................ $ -- $ 553 $ 869
Buildings & Improvements.................... 365 2,529 3,202
Broadcast and Other Equipment............... 7,201 13,163 14,000
Furniture and Fixtures...................... 60 287 271
Vehicles.................................... 61 185 185
Construction in process..................... -- 1,935 2,734
------ ------- -------
Total.................................. $7,687 $18,652 $21,261
Less Accumulated Depreciation............... (341) (2,211) (2,841)
------ ------- -------
Net Property and equipment.................. $7,346 $16,441 $18,420
====== ======= =======
</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
$1,099,000 at March 31, 1999.
(4) ACQUISITIONS
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 asset and is 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 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 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.
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
F-11
<PAGE> 96
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
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 relating to KPLR, the Company
retained all revenues generated by the station, bore substantially all operating
expenses 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.
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
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............................................... 93,775
Goodwill.................................................. 82,563
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>
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
F-12
<PAGE> 97
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
commences on-air operations. On December 15, 1997, the Company acquired the 49%
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 with the equity method of accounting. In February 16, 1999, the
Company acquired the remaining 51% interest in KUPX. The $4 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 enable the owner of KUWB to operate KUPX under a local
marketing agreement. 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 non-monetary transaction using its historical cost.
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 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 asset and is being amortized over a period of 20 years. In addition,
the results 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 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 asset and is being amortized
over a period of 20 years.
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
F-13
<PAGE> 98
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
into a 10-year local marketing agreement with Ramar to operate KWBQ. This
transaction is subject to FCC approval.
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 DEC. 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. In connection with the
reorganization the minority interest will be acquired by the Company. See Note
14. 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 Company was in compliance with all such covenants and
restrictions at 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.
The consolidated financial statements of ACME Television are included herein.
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
F-14
<PAGE> 99
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
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 9). 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 March 31, 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 (as defined). 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
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 either the alternative base rate or the adjusted LIBOR
rate, as defined in the Loan Agreement. Commitment fees are charged at a rate of
.5% per annum, paid quarterly, of the unused portion of the facility. On
December 2, 1997, the Loan Agreement was amended to provide
F-15
<PAGE> 100
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
ACME Television with an increased credit line to $40 million, more favorable
interest rates and a lengthened term. As of March 31, 1999 there was an
outstanding balance of $12.9 million and $27.1 million available under the Loan
Agreement. As of December 31, 1998 there was an outstanding balance of $8.0
million and $32.0 million 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 March 31, 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 March 31, 1999, December 31, 1998 and 1997, the amount of
accrued interest due to the holders of the convertible debt is $4,134,000,
$3,523,000 and $1,048,000, respectively, and is included in other liabilities on
the Company's balance sheets.
(9) 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,
F-16
<PAGE> 101
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
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 three months ended
March 31, 1999 and the twelve months ended December 31, 1998 and 1997 was
approximately $281,000, $967,463 and $166,000, respectively.
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.
F-17
<PAGE> 102
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
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
The Company has issued Management Carry Units to certain members of
management. These units entitle holders to certain distribution rights upon
achievement of certain returns by non-management investors and are subject to
forfeiture or repurchase by the Company in the event of termination of each
individual's employment by the Company under certain specified circumstances.
The Company has determined the value of these at the issuance date to be
immaterial. These Management Carry Units will be accounted for as a variable
plan resulting in an expense when it is probable that any such distributions
will be made. The Company will record any such expense relating to the
Management Carry Units issued by the Company. As of December 31, 1998 and 1997
there were 100 Management Carry Units outstanding. During the quarter ended
March 31, 1999, the Company recorded an expense of $2.5 million relating to the
units.
LEGAL PROCEEDINGS
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.
(10) INCOME TAXES
The income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998
-------------- -------
<S> <C>
Current
Federal income taxes...................................... $ --
State income taxes........................................ --
-------
Total current tax expense (benefit)......................... --
Deferred tax benefit........................................ (2,393)
-------
Total income tax expense (benefit).......................... $(2,393)
=======
</TABLE>
F-18
<PAGE> 103
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 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 expense (benefit) at U.S. Federal rate.................. $(3,471)
State income taxes, net of Federal tax expense (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.
(11) RELATED PARTY TRANSACTIONS
The Company's stations have entered into affiliation agreements and, from
time to time, related marketing arrangements with The WB Network and related
marketing arrangements. Jamie Kellner is an owner and the chief executive
officer of The WB Network.
Pursuant to an agreement among Koplar Communications, Roberts Broadcasting,
Michael Roberts and Steven C. Roberts, Roberts Broadcasting cannot (i) transfer
its license for WHSL, East St. Louis, Illinois, (ii) commit any programming time
of the station for
F-19
<PAGE> 104
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
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 the Company for
these agreements was $200,000 during the first three years (paid by the prior
owner of KPLR). The Company paid $300,000 in 1998 and will pay $300,000 in 1999
under this agreement.
In connection with ACME Utah and ACME New Mexico, the Company has entered
into long-term agreements to lease studio facilities and/or transmission tower
space for KUWB and KWBQ from an affiliate of Michael and Steven Roberts. Both
Michael and Steven C. Roberts are members of ACME Parent and Michael Roberts is
a proposed Member of ACME Parent'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 KBXX, $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 in our predecessor, ACME
Television Holdings, LLC, to affiliates of Alta Communications, Banc Boston, CEA
Capital Partners and TCW Asset Management Company, each of which are
stockholders in 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
the KWBP corporate office is located for $1.5 million from an affiliate of the
seller of KWBP. Before the purchase we leased the property from the same
affiliate, from which we purchased KWBP.
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.
(12) 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 Company currently matches 50%
of the amounts contributed by each participant but does
F-20
<PAGE> 105
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
not match participants' contributions in excess of 6% of their contribution per
pay period. The Company contributed and expensed $200,000 to the Plan in 1998,
$43,000 for the three months ended March 31, 1998 and $48,000 for the three
months ended March 31, 1999.
(13) 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,
1998
DECEMBER 31, AND MARCH 31,
1997 1999
----------------- -----------------
CLASS UNITS $000'S UNITS $000'S
----- ------- ------ ------- ------
<S> <C> <C> <C> <C>
Founders Class A........................... 943 943 943 943
Founders Class B........................... 533 533 533 533
Investor................................... 18,210 18,210 16,757 16,757
Sellers.................................... 10,400 10,400 12,900 12,900
------- ------ ------- ------
Total.................................... 30,086 30,086 31,133 31,133
======= ====== ======= ======
</TABLE>
Excludes membership units held by the Company's senior management team.
(14) SUBSEQUENT EVENT -- REORGANIZATION
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.
First, a subsidiary of ACME Communications, Inc. 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. After this merger, ACME Communications will own 100% of the
membership units of ACME Television Holdings, LLC.
Second, ACME Communications will issue common stock in exchange for all of
the convertible debentures of ACME Television Holdings, LLC.
Third, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will be merged into ACME Communications, which will be
the surviving corporation.
As a result of the mergers, ACME Communications will own membership units
representing approximately 92% of ACME Intermediate.
Third, ACME Communications will exchange shares of its common stock for (a)
membership units held by current owners of approximately 6% of ACME Intermediate
and (b) all of the convertible debentures and preferred membership units of
another
F-21
<PAGE> 106
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
subsidiary of ACME Television Holdings, LLC that owns approximately 2% of ACME
Intermediate. Consequently, ACME Communications will own 100% of ACME
Intermediate.
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
In addition, the Company established the 1999 Incentive Stock Option Plan
under which awards of stock options may be granted. An aggregate of
shares of the Company's common stock will be reserved for issuance under the
plan.
(15) SUBSEQUENT EVENTS -- ACQUISITION (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 revolver 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.
F-22
<PAGE> 107
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-23
<PAGE> 108
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-24
<PAGE> 109
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-25
<PAGE> 110
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 (ACRS) and modified
accelerated cost recovery system (MACRS) are used for income tax purposes.
Renewals and betterments are capitalized to the related asset accounts, while
repair and maintenance costs, which do not improve or extend the lives of the
respective assets, are charged to operations 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-26
<PAGE> 111
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-27
<PAGE> 112
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 (LMA) 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 LMA period from October
1, 1997 through December 31, 1997. All other non-operating results are recorded
by the Company during the LMA 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
PCS licenses. During 1996, $468,000 of the initial deposit was returned to the
Company.
In fourth quarter 1996, another round of PCS bidding was opened by the FCC.
The auction was concluded and the deposit was returned in the first quarter of
1997.
F-28
<PAGE> 113
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-29
<PAGE> 114
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-30
<PAGE> 115
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-31
<PAGE> 116
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-32
<PAGE> 117
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-33
<PAGE> 118
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-34
<PAGE> 119
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.
/s/ KPMG LLP
Los Angeles, California
November 13, 1997
F-35
<PAGE> 120
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>
F-36
<PAGE> 121
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 consolidated financial statements
F-37
<PAGE> 122
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-38
<PAGE> 123
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-39
<PAGE> 124
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-40
<PAGE> 125
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-41
<PAGE> 126
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-42
<PAGE> 127
INSIDE BACK COVER
[ACME COMMUNICATIONS LOGO]
[LOGO'S OF SOME OF THE KIDS' WB PROGRAMMING AND PHOTOGRAPHS OF SEVERAL LOONEY
TOONS CHARACTERS]
<PAGE> 128
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.................... 1
RISK FACTORS.......................... 9
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS.......... 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 21
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
INDUSTRY OVERVIEW..................... 30
BUSINESS.............................. 33
MANAGEMENT............................ 55
PRINCIPAL STOCKHOLDERS................ 62
CERTAIN TRANSACTIONS.................. 64
THE REORGANIZATION.................... 67
DESCRIPTION OF CAPITAL STOCK.......... 68
SHARES ELIGIBLE FOR FUTURE SALE....... 71
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF COMMON STOCK..................... 73
UNDERWRITING.......................... 75
NOTICE TO CANADIAN RESIDENTS.......... 79
LEGAL MATTERS......................... 80
EXPERTS............................... 80
ADDITIONAL INFORMATION................ 80
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.
[LOGO]
ACME
Communications, Inc.
Shares
Common Stock
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Morgan Stanley Dean Witter
CIBC World Markets
Prospectus
, 1999
<PAGE> 129
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.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Subject to Completion, Dated , 1999
[LOGO]
- --------------------------------------------------------------------------------
ACME Communications, Inc.
Shares
Common Stock
- --------------------------------------------------------------------------------
THIS IS AN INITIAL PUBLIC OFFERING OF COMMON STOCK OF ACME COMMUNICATIONS, INC.
NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR COMMON STOCK. WE ANTICIPATE THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER
SHARE.
WE ARE SELLING ALL OF THE SHARES OF COMMON STOCK OFFERED UNDER THIS
PROSPECTUS. THE INTERNATIONAL UNDERWRITERS ARE OFFERING SHARES OUTSIDE
THE UNITED STATES AND CANADA AND THE U.S. UNDERWRITERS ARE OFFERING
SHARES IN THE UNITED STATES AND CANADA.
WE INTEND TO APPLY 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 9.
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>
WE AND THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO
PURCHASE UP TO AN ADDITIONAL SHARES AT THE PUBLIC OFFERING PRICE WITHIN
30 DAYS FROM THE DATE OF THIS PROSPECTUS TO COVER OVER-ALLOTMENTS.
THE UNDERWRITERS ARE SEVERALLY UNDERWRITING THE SHARES BEING OFFERED. THE
UNDERWRITERS EXPECT TO DELIVER THE SHARES AGAINST PAYMENTS IN BALTIMORE,
MARYLAND ON , 1999.
IN THIS PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
Deutsche Bank
Merrill Lynch International
Morgan Stanley Dean Witter
CIBC World Markets
The date of this Prospectus is , 1999.
<PAGE> 130
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
We intend to offer our common stock outside of the United States and Canada
through a number of underwriters. Deutsche Bank AG London, Merrill Lynch
International, Morgan Stanley & Co. International Limited and CIBC World Markets
International Limited are acting as representatives (the "International
Representatives") of each of the underwriters named below (the "International
Underwriters"). Subject to the terms and conditions set forth in an underwriting
agreement (the "International Underwriting Agreement") among us and the
International Representatives on behalf of the International Underwriters, we
have agreed to sell to the International Underwriters, and each of the
International 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 AG London ....................................
Merrill Lynch International.................................
Morgan Stanley & Co. International Limited..................
CIBC World Markets International Limited....................
--------
Total.....................................................
========
</TABLE>
We intend to offer our common stock in the United States and Canada.
Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and CIBC World Markets Corp. are
acting as representatives (the "U.S. Representatives" and together with the
International Representatives, the "Representatives") for certain international
underwriters (collectively, the "U.S. Underwriters", and together with the
International Underwriters, the "Underwriters"). Subject to the terms and
conditions set forth in the underwriting agreement (the "U.S. Underwriting
Agreement") between us and the U.S. Representatives on behalf of the U.S.
Underwriters, and concurrently with the sale of shares of common stock to
the International Underwriters pursuant to the International Underwriting
Agreement, we have agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters severally and not jointly has agreed to purchase from us, an
aggregate of shares of common stock. The public offering price per
share of common stock and the underwriting discount per share of common stock
are identical under the U.S. Underwriting Agreement and the International
Underwriting Agreement.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of our common stock, directly or indirectly, only in the
U.S. (including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction (the "United States"),
in Canada and to U.S. persons, which term shall mean, for purposes of this
paragraph: (a) any individual who is a resident of the United States or (b) any
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of common stock in the United States
or to any U.S. persons or to any person who it believes intends to reoffer,
resell or deliver the shares in the United States or to any U.S. persons, and
(ii) cause any dealer to whom it may sell such shares at any concession to agree
to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
common stock as may be mutually agreed. The
75
<PAGE> 131
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
price of any shares so sold shall be the initial public offering price, less an
amount not greater than the selling concession.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the several U.S. Underwriters and International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such 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 U.S.
Underwriting Agreement and the International Underwriting Agreement provide
that, in certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the such agreements may be terminated. The
closing with respect to the sale of shares of common stock to be purchased by
the U.S. Underwriters and the International Underwriters are conditioned upon
one another.
Pursuant to the Agreement Between, each International Underwriter has
represented and agreed that (a) it has not offered or sold and, prior to the
date six months after the closing date for the sale of our shares to the
International Underwriters, will not offer or sell any shares 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 have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to our shares
in, from, or otherwise involving the United Kingdom; and (c) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the offering of our shares to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, or to any person to whom
such document may lawfully be issued or passed on.
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 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 several 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 sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
76
<PAGE> 132
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
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 $ and are payable by us.
OVER-ALLOTMENT OPTION
We and 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 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 (1) any shares of our common stock, (2)
any options or warrants to purchase any shares of our common stock, or (3) 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 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, are the
valuation multiples of publicly traded companies that the Representatives
believe to be
77
<PAGE> 133
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
comparable to us, certain of our financial information, our history, our
prospects, the industry in which we compete, and an assessment of our
management, its past and present operations, the prospects for, and timing of,
our future revenue, the present state of our development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to ours. There can be no assurance 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.
Neither ACME nor any of the Underwriters makes 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
ACME nor any of the Underwriters makes 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 ("CIBC"), an affiliate of CIBC Word
Markets Corp. and CIBC World Markets International Limited, 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" (as defined by the NASD) 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.
78
<PAGE> 134
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
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 ACME Communications,
Inc. 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 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.
Upon approval of our common stock for listing on the Nasdaq National
Market, such reports, proxy and information statements and other information may
also be inspected at the office of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
79
<PAGE> 135
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
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.................... 1
RISK FACTORS.......................... 9
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS.......... 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 21
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
INDUSTRY OVERVIEW..................... 30
BUSINESS.............................. 33
MANAGEMENT............................ 55
PRINCIPAL STOCKHOLDERS................ 62
CERTAIN TRANSACTIONS.................. 64
THE REORGANIZATION.................... 67
DESCRIPTION OF CAPITAL STOCK.......... 68
SHARES ELIGIBLE FOR FUTURE SALE....... 71
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF COMMON STOCK..................... 73
UNDERWRITING.......................... 75
LEGAL MATTERS......................... 79
EXPERTS............................... 79
ADDITIONAL INFORMATION................ 79
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
There are restrictions on the offer and sale of the common stock in the United
Kingdom. All applicable provisions of the Financial Services Act of 1986 and the
Public Offers of Securities Regulations 1995 with regard to anything done by any
person in relation to the common stock, in, from or otherwise involving the
United Kingdom must be complied with. See "Underwriting."
[LOGO]
ACME
Communications, Inc.
Shares
Common Stock
Deutsche Bank
Merrill Lynch International
Morgan Stanley Dean Witter
CIBC World Markets
Prospectus
, 1999
<PAGE> 136
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........................................ $31,970
NASD fee.................................................... $12,000
Nasdaq National Market listing fee.......................... $
Printing and engraving expenses............................. $
Legal fees and expenses..................................... $
Accounting fees and expenses................................ $
Blue sky fees and expenses.................................. $
Transfer agent fees......................................... $
Miscellaneous fees and expenses............................. $
-------
Total..................................................... $
=======
</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
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<PAGE> 137
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
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) 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 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 4(2)
under the Securities Act 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 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 4(2) under the Securities Act for exemption under the
Securities Act.
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<PAGE> 138
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 Merger Agreement by and among ACME Television
Holdings, LLC, ACME Subsidiary Holdings, LLC and ACME
Communications, Inc.
3.1* Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2* 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 Television Holdings, 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>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
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, 998, 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>
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<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(1) 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(1) 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., dated April 23,
1999.
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* 1999 Stock Incentive Plan.
10.35* Employment Agreement, as amended, by and between ACME
Communications, Inc. and Doug Gealy.
10.36* 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, 1998.
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* Registration Rights Agreement, dated as of ,
1999, 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>
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<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 by and between ACME Television
of Utah and The WB Television Network.
10.66* Station Affiliation Agreement by and between ACME Television
of New Mexico and The WB Television Network.
10.67* Station Affiliation Agreement by and between ACME Television
of Wisconsin and The WB Television Network.
10.68* Station Affiliation Agreement by and between ACME Television
of Illinois and The WB Television Network.
10.69* Station Affiliation Agreement by and between ACME Television
of Ohio and The WB Television Network.
10.70* Station Affiliation Agreement by and between ACME Television
of Michigan and Pax Net.
</TABLE>
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<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* Voting Agreement.
21.0 Subsidiaries of Registrant.
23.1* Form of Consent of KPMG LLP regarding ACME Communications,
Inc.
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.
(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 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 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.
(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
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<PAGE> 143
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> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa Ana,
State of California, on this day of July 30, 1999.
ACME COMMUNICATIONS, INC.
/s/ THOMAS ALLEN
--------------------------------------
Thomas Allen
Executive Vice President
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jamie Kellner, Douglas Gealy and Thomas Allen,
and each of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement, and any registration
statement relating to the offering covered by this Registration Statement and
filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this 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>
/s/ JAMIE KELLNER Chairman of the Board and Chief July 30, 1999
- --------------------------------------------- Executive Officer (Principal
Jamie Kellner Executive Officer)
/s/ DOUGLAS GEALY President and Chief Operating July 30, 1999
- --------------------------------------------- Officer and Director
Douglas Gealy
/s/ THOMAS ALLEN Executive Vice President, Chief July 30, 1999
- --------------------------------------------- Financial Officer (Principal
Thomas Allen Financial and Accounting
Officer) and Director
/s/ JAMES COLLIS Director July 30, 1999
- ---------------------------------------------
James Collis
/s/ THOMAS EMBRESCIA Director July 30, 1999
- ---------------------------------------------
Thomas Embrescia
</TABLE>
II-9
<PAGE> 145
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ BRIAN MCNEILL Director July 30, 1999
- ---------------------------------------------
Brian McNeill
/s/ MICHAEL ROBERTS Director July 30, 1999
- ---------------------------------------------
Michael Roberts
/s/ DARRYL SCHALL Director July 30, 1999
- ---------------------------------------------
Darryl Schall
</TABLE>
II-10
<PAGE> 146
SCHEDULE I
ACME COMMUNICATIONS, INC.
(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 STOCKHOLDERS' EQUITY
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
======= ========
Common stock, $ par value, shares
authorized, shares issued and
outstanding............................................... -- --
Additional paid-in capital.................................. 23,785 30,832
Accumulated deficit......................................... (7,479) (29,419)
------- --------
Total stockholders' equity............................. 16,306 1,413
Total liabilities and stockholders' equity............. $42,109 $ 29,694
======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
S-1
<PAGE> 147
ACME COMMUNICATIONS, INC.
(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 consolidated financial statements.
S-2
<PAGE> 148
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... $-- $-- $ -- $ -- $ --
Issuance of common stock, net.... -- -- 23,785 -- 23,785
Net Loss....................... -- -- -- (7,479) (7,479)
--- --- ------- -------- --------
Balance at December 31, 1997....... -- -- 23,785 (7,479) 16,306
Issuance of common stock, 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 consolidated financial statements.
S-3
<PAGE> 149
ACME COMMUNICATIONS, INC.
(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 (used in) 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 equity as purchase consideration.............. 4,400 7,047
Contribution of station interest to subsidiary............ 18,675 --
</TABLE>
See accompanying notes to the consolidated financial statements.
S-4
<PAGE> 150
ACME COMMUNICATIONS, INC.
(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 Communications, Inc.,
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
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 applications.
First, a subsidiary of ACME Communications, Inc. 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. After this merger, ACME Communications will own 100% of the
membership units of ACME Television Holdings, LLC.
Second, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will be merged into ACME Communications, which will be
the surviving corporation.
As a result of the mergers, ACME Communications will acquire membership
units representing approximately 92% of ACME Intermediate, which were held by
ACME Subsidiary Holdings, LLC and ACME Television Holdings, LLC.
Third, ACME Communications will exchange shares of its common stock for
membership units representing approximately 8% of ACME Intermediate, thereby
acquiring 100% of ACME Intermediate.
Concurrent with the mergers, ACME Communications will issue common stock in
exchange for (a) all of the convertible debentures of ACME Television Holdings,
LLC and (b) all of the convertible debentures and preferred membership units of
another subsidiary of ACME Television Holdings, LLC.
After the mergers and exchanges, ACME Communications will own 100% of ACME
Intermediate.
S-5
<PAGE> 151
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
S-6
<PAGE> 152
SCHEDULE II.
ACME COMMUNICATIONS, INC 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
Three months ended
March 31, 1999...... 555,000 44,000 -- -- 599,000
</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-7
<PAGE> 153
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Merger Agreement by and among ACME Television
Holdings, LLC, ACME Subsidiary Holdings, LLC and ACME
Communications, Inc.
3.1* Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2* 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 Television Holdings, 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> 154
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
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, 998, 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.
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
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(1) 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(1) 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., dated April 23,
1999.
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* 1999 Stock Incentive Plan.
10.35* Employment Agreement, as amended, by and between ACME
Communications, Inc. and Doug Gealy.
10.36* 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, 1998.
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.
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.46* Registration Rights Agreement, dated as of , 1999,
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.
10.65* Station Affiliation Agreement by and between ACME Television
of Utah and The WB Television Network.
10.66* Station Affiliation Agreement by and between ACME Television
of New Mexico and The WB Television Network.
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.67* Station Affiliation Agreement by and between ACME Television
of Wisconsin and The WB Television Network.
10.68* Station Affiliation Agreement by and between ACME Television
of Illinois and The WB Television Network.
10.69* Station Affiliation Agreement by and between ACME Television
of Ohio and The WB Television Network.
10.70* Station Affiliation Agreement by and between ACME Television
of Michigan and Pax Net.
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* Voting Agreement.
21.0 Subsidiaries of Registrant.
23.1* Form of Consent of KPMG LLP regarding ACME Communications,
Inc.
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.
(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 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 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 10.29
JOINT SALES AGREEMENT
This Agreement is dated as of April 23, 1999 by and between DP Media of
Battle Creek, Inc., a Florida corporation (hereinafter "DP Media"), and ACME
Television Holdings, LLC, a Delaware limited liability company (hereinafter
"ACME").
WHEREAS, DP Media is the licensee of television station WZPX-TV,
licensed to Battle Creek, Michigan (the "Station"); and
WHEREAS, ACME is desirous of selling time on the Station, and DP Media
is prepared to allow ACME to sell such time in accordance with the terms and
conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, the parties hereby agree as follows:
1. SALE OF TIME.
(a) Commencing on the Effective Date of this Agreement, ACME
shall be entitled to sell time during all programming on the Station except
that:
(i) ACME shall be limited to sales of local
advertising time during the commercial availabilities provided to the Station
during the Station's broadcast of PAX TV Network programming and UPN Network
programming (although ACME shall be free to sell such time to local, regional,
or national advertisers);
(ii) ACME shall have no right to sell time during the
broadcast of Worship Network programming; and
(iii) on or before the Effective Date, DP Media shall
enter into a Secondary Affiliation Agreement with The WB Television Network (the
"WB Network") which will include terms and conditions standard to such
agreements and consistent with the terms of this Agreement as well as the
following: (1) commercial time sold during children's programming will be
divided evenly between the WB Network and the Station and (2) at all other
times, the Station shall be able to sell up to eight (8) minutes of commercial
time for each hour of WB Network programming.
(b) Notwithstanding anything to the contrary in this
Agreement, ACME shall have no obligation to hire any of DP Media's employees in
selling time to the Station, and, to the extent that ACME deems the hire of such
employees appropriate or necessary, the parties will make whatever arrangements
are mutually satisfactory.
2. TERM. The term of this Agreement (the "Term") will commence at
12:01 a.m. on October 1, 1999 (the "Effective Date") and shall terminate at
11:59 p.m. on September 30, 2004, unless sooner terminated in accordance with
the terms of this Agreement: provided, that ACME may unilaterally establish an
earlier Effective Date upon 30 days prior written notice to DP Media.
<PAGE> 2
3. ASSUMPTION OF EXISTING CONTRACTS.
(a) Upon commencement of the Term, ACME will honor all
advertising contracts requiring the broadcast of commercial matter on the
Station after the Effective Date (the "Pre-Existing Contracts") on the Station
which are in good standing at the commencement of the Term, including those
Pre-Existing Contracts involving trade or barter already received by DP Media
(provided that the net balance of the fair value of advertising time owed to
advertisers under trade and barter contracts versus the fair value of goods and
services to be received under trade and barter contracts ("Trade Balance") does
not exceed $5,000 owed by the Station). ACME will collect DP Media's accounts
receivable on such Pre-Existing Contracts for the benefit of and distribution to
DP Media with the understanding that such revenues shall not be deposited in or
constitute a part of the Revenue Account described in Section 4 hereof. On or
before the Effective Date, DP Media will provide to ACME a list of all such
Pre-Existing Contracts and a schedule showing the Trade Balance. ACME shall not
be obligated to employ counsel or any collection agency or to initiate any
litigation or use any extraordinary means of collection.
(b) Upon termination or expiration of this Agreement (except
in the case of a termination on the closing of the sale of the Station to ACME),
DP Media will assume the obligations of ACME's advertising contracts for time on
the Station, including trade or barter agreements entered into during the Term
hereof (which will be identified in a separate document to be given to DP Media
upon such termination or expiration) but not to exceed a $5,000 Trade Balance
limit. All revenue received by either party which relates to the broadcast of
advertisements on the Station sold during the Term or any renewal thereof will
be deposited in the Revenue Account described in Section 4 hereof and
distributed to the parties in accordance with the provisions of that secion.
4. RETENTION AND USE OF REVENUE.
(a) All revenues received by ACME or DP Media from the sale
of time on the Station during the Term, including but not limited to any revenue
received by DP Media under any network affiliation agreement, shall be deposited
into an account (the "Revenue Account") with a bank selected by ACME and DP
Media. Monies in the Revenue Account will be utilized solely to pay the
Station's reasonable operating expenses as set forth in Schedule I annexed
hereto. DP Media will have sole authority to write checks against the Revenue
Account, but only to the extent such operating expenses are listed on Schedule I
or are otherwise approved in advance by ACME in writing.
(b) ACME shall timely pay or reimburse DP Media for, as the
case may be, all reasonable operating expenses of the Station incurred as set
forth in Schedule I on a monthly basis, except that payment of any portion of DP
Media's annual interest expense with respect to the Station (which, as of the
date hereof, is $433,633 annually or $36,136.08 monthly with the latter figure
hereinafter referred to as the "Monthly Interest") shall be as specified in
subsection (c) of this section. To the extent the monies in the Revenue Account
are insufficient to pay those operating expenses (exclusive of Monthly
Interest), ACME shall make a deposit of such additional funds as may be
necessary to enable those expenses to be paid in a timely fashion.
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<PAGE> 3
(c) If and to the extent Station operations generate
positive cashflow, such monies shall be distributed between ACME and DP Media in
accordance with the following allocation: ninety percent (90%) to ACME and ten
percent (10%) to DP Media. Any of the foregoing monies allocated to ACME from
the Station's cashflow in a particular month shall be used to pay up to forty
percent (40%) of the Monthly Interest. As an illustration, if the Station's
cashflow in any particular month is $200,000, then, in that event, $14,454.43 of
ACME's allocation shall be used to pay the Monthly Interest in that month(i.e.,
40% of $36,136.08). For purposes of this section, the term "cashflow" means all
gross revenue received by ACME and DP Media (which is to be deposited in the
Revenue Account pursuant to subsection (a) of this section) less the operating
expenses listed on Schedule I but before any payment or deduction for
depreciation, income taxes (but not real estate, sales, employee or similar
taxes listed on Schedule I), and/or interest and amortization on any long-term
debt.
(d) ACME's obligation to pay up to forty percent (40%) of
the Monthly Interest as specified in subsection (c) of this section shall be
applied on an annual basis (from May 1 to April 30 of each year of the Term,
hereinafter referred to as an "Annual Period"). Accordingly, any cashflow
allocated to ACME in any one month and not applied to payment of the Monthly
Interest in that month shall be applied in any succeeding month during that
Annual Period to cover any shortfall in ACME's ability to cover its share of the
Monthly Interest for a prior month. As an illustration, if the cashflow
allocated to ACME in any one month is $20,454.43, or $6,000 more than 40% of the
Monthly Interest in that month, ACME shall contribute that $6,000 in the
succeeding month to the payment of the Monthly Interest if the cashflow
allocated to ACME in that succeeding month is less than $14,454.43. As a further
illustration, if the cashflow allocated to ACME in any one month is $10,454.43,
or $4,000 less than 40% of the Monthly Interest in that month, ACME shall
contribute an additional $4,000 in the next succeeding month to the payment of
the Monthly Interest if the cashflow allocated to ACME in such succeeding month
exceeds $14,454.43.
(e) Notwithstanding any other provision in this Agreement,
no distributions to ACME or DP Media shall be made until the expiration of the
first Annual Period (other than distributions, if any, for reimbursement of
operating expenses pursuant to subsection 4(a)). Within thirty (30) days after
that first Annual Period, ACME will prepare and deliver to DP Media a statement
reflecting the Station's cashflow and the monies to be paid to each party. In
the absence of any notice of disagreement from DP Media within ten (10) days
after receipt of such statement by DP Media, ACME's calculation will be deemed
binding on the parties, and the distribution will be made on that tenth day in
accordance with ACME's statement. Any disputes which the parties cannot resolve
within forty-five (45) days after expiration of the Annual Period shall be
referred to a mutually-agreeable and independent certified public accountant,
whose decision will be final and binding on the parties. After the expiration of
the first Annual Period, distributions will be made to each of the parties at
the end of each sixth-month period in accordance with the same procedure
utilized for the first Annual Period. At the end of each Annual Period within
the Term, ACME shall be entitled to a reimbursement from DP Media to the extent
that the monthly contributions charged to ACME for its portion of the Monthly
Interest exceed what ACME might otherwise be liable for if the cashflow
distributions and payments of Monthly Interest were paid at the end of the
Annual Period. As an illustration, if
3
<PAGE> 4
ACME contributes $150,000 toward the payment of the Monthly Interest in the
course of an Annual Period but is allocated only $125,000 in cashflow in
accordance with the formula under subsection (c) of this section, then, in that
event, DP Media will make a payment in cash to ACME of $25,000 within thirty
(30) days after the expiration of the Annual Period in question.
(f) Except as specifically set forth in subsection (c) of
this section, DP Media shall remain solely responsible for the payment of the
Monthly Interest, and, in accordance with that responsibility, DP Media shall
ensure that any monies in the Revenue Account at any time (whether attributable
to payments under the PAX TV Network affiliation agreement or otherwise) shall
always equal the Monthly Interest, less any amount of such expense allocable
from ACME's share of cashflow in accordance with the formula set forth in
subsection (c) of this section. In no event, however, shall ACME have any
obligation of any kind or nature pursuant to this Agreement to the party to whom
the Monthly Interest payments are made. That obligation shall remain solely the
obligation of DP Media.
5. DP MEDIA'S RETENTION OF CONTROL. Notwithstanding anything to the
contrary in this Agreement, DP Media shall retain sole responsibility for and
authority over the operation of the Station during the Term of the Agreement,
including policies relating to programming, personnel, and financing. In
accordance with the foregoing authority, DP Media has the right to accept or
reject any advertising proffered by ACME, to preempt any such advertising in
order to broadcast material deemed by DP Media to be of greater national,
regional or local interest, and to take any other actions which DP Media deems
necessary for compliance with the laws of the United States and the State of
Michigan, and the rules, regulations and policies of the FCC.
6. INDEMNIFICATION.
(a) ACME shall indemnify and hold DP Media harmless from and
against any and all claims, losses, costs, liabilities, damages, forfeitures and
expenses (including reasonable legal fees and other expenses incidental thereto)
of every kind, nature and description (collectively, "Damages") resulting from
(i) ACME's breach of any representation, warranty, covenant or agreement
contained in this Agreement, (ii) any action taken by ACME or its employees and
agents with respect to the Station, or (iii) any failure by ACME or its
employees and agents to take any action with respect to the Station, including,
without limitation, Damages relating to violations of the Copyright Act, the Act
or any rule, regulation or policy of the FCC, forfeitures imposed by the FCC,
slander, defamation or other claims relating to programming provided by ACME and
ACME's broadcast and sale of advertising time on the Station.
(b) DP Media shall indemnify and hold ACME harmless from and
against any and all Damages resulting from (i) DP Media's breach of any
representation, warranty, covenant or agreement contained in this Agreement or
(ii) any action taken by DP Media or its employees and agents with respect to
the Station, or any failure by DP Media or its employees and agents to take any
action with respect to the Station, or (iii) any failure by DP Media or its
employees and agents to take any action with respect to the Station, including,
without limitation, Damages relating to violations of the Copyright Act, the Act
or any rule, regulation or policy of the FCC, forfeitures imposed by the FCC,
slander, defamation or other claims relating to programming provided by DP Media
and DP Media's broadcast and sale of advertising time on the Station.
4
<PAGE> 5
(c) Neither DP Media nor ACME shall be entitled to
indemnification pursuant to this section unless such claim for indemnification
is asserted in writing delivered to the other party within the time frame set
forth in subsection (e) of this section.
(d) The procedure for indemnification shall be as follows:
(i) The party claiming indemnification (the
"Claimant") shall promptly give written notice to the party from which
indemnification is claimed (the "Indemnifying Party") of any claim, whether
between the parties or brought by a third party, specifying in reasonable detail
the factual basis for the claim. If the claim relates to an action, suit, or
proceeding filed by a third party against Claimant, such notice shall be given
by Claimant no later than ten (10) business days after written notice of such
action, suit, or proceeding was received by Claimant: provided, that the failure
to timely give notice shall not extinguish the Claimant's right to
indemnification unless and only to the extent that such failure materially
adversely affects the Indemnifying Party's rights.
(ii) With respect to claims solely between the
parties, following receipt of notice from the Claimant of a claim, the
Indemnifying Party shall have thirty (30) days to make such investigation of the
claim as the Indemnifying Party deems necessary or desirable. For purposes of
such investigation, the Claimant agrees to make available to the Indemnifying
Party or its authorized representatives the information relied upon by the
Claimant to substantiate the claim. If the Claimant and the Indemnifying Party
agree in writing at or prior to the expiration of the 30-day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
claim, the Indemnifying Party shall immediately pay to the Claimant the full
amount of the claim or such amount as agreed to by the parties. If the Claimant
and the Indemnifying Party do not agree within the 30-day period (or any
mutually agreed upon extension thereof), the Claimant may seek to exercise any
remedy available to it in law or equity.
(iii) With respect to any claim by a third party as to
which the Claimant is entitled to indemnification under this Agreement, the
Indemnifying Party shall have the right, at its own expense, to assume control
of the defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifying Party does not
assume control, it shall be bound by the results obtained by the Claimant with
respect to such claim: provided, that the Claimant shall not settle any third
party claim without first giving the Indemnifying Party ten (10) business days'
prior notice of the terms of such settlement.
(iv) If a claim, whether between the parties or by a
third party, requires immediate action, the parties will make every commercially
reasonable effort to reach a decision with respect thereto as expeditiously as
possible.
(v) The indemnification rights provided herein shall
extend to the shareholders, directors, officers, employees, representatives and
successors and assigns of any
5
<PAGE> 6
Claimant (although, for the purpose of the procedures set forth in this section,
any indemnification claims by such parties shall be made by and through the
Claimant).
(e) The representations and warranties of the parties under
this Agreement shall survive for one (1) year after termination of this
Agreement. Any claim for indemnification must be made prior to the expiration of
that one-year period.
7. TERMINATION.
(a) This Agreement may be terminated as set forth below by
either DP Media or ACME by written notice to the other, if the party seeking to
terminate is not then in material default or material breach hereof, upon the
occurrence of any of the following:
(i) subject to the provisions of Section 8, this
Agreement is declared invalid or illegal in whole or substantial part by an
order or decree of an administrative agency or court of competent jurisdiction
and such order or decree has become "Final" (meaning that it is no longer
subject to further administrative or judicial reconsideration or review);
(ii) the other party is in material breach of its
obligations under this Agreement and has failed to cure such breach within ten
(10) business days of receipt of written notice from the non-breaching party;
(iii) the mutual consent of both parties;
(iv) a material change in FCC rules, policies or
precedent that would cause this Agreement to be in violation thereof, and (x)
such change is in effect and not the subject of an appeal or further
administrative reconsideration or review and (y) this Agreement cannot be
reformed, in a manner acceptable to ACME and DP Media, to remove and/or
eliminate the violation; or
(v) upon the sale of the Station to ACME.
(b) During any period prior to the effective date of any
termination of this Agreement, ACME and DP Media shall cooperate in good faith
to ensure that the Station's operations will continue, to the extent feasible,
in accordance with the terms of this Agreement and in a manner that will
minimize, to the extent feasible, the resulting disruption of the Station's
ongoing operations.
8. SEVERABILITY. If the FCC or any court of competent jurisdiction
should declare any section or other provision of this Agreement invalid in an
order which has become Final, then, in that event, such section or other
provision shall be deemed void and of no further force and effect, but the other
provisions of the Agreement shall remain in effect and binding on the parties:
provided, that if the section or other provision voided is material to the
intent and purpose of this Agreement, the parties shall make every commercially
reasonable effort to amend the Agreement in a manner that will preserve such
intent and purpose; and, provided further, that if the Agreement cannot be
amended to preserve the Agreement's intent and purpose because a material
section or other provision which has been rendered void, then, in that event,
either party may terminate the Agreement upon ten (10) business days' prior
notice to the other party.
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<PAGE> 7
9. ASSIGNMENT. No party to this Agreement shall have the right to
assign the Agreement, in whole or in part, without the prior written consent of
the other party: provided, that ACME may assign its rights and obligations under
this Agreement to any other party that is controlled by, controlling or under
common control with ACME; and, provided further, that in the event of such
assignment, ACME shall remain liable for the performance of such assignee's
obligations under this Agreement. This Agreement shall be binding on and inure
to the benefit of each party hereto and its successors and permitted assigns.
10. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among and between the parties and supersedes and all prior and
contemporaneous agreements and understandings with respect to the subject matter
hereof. This Agreement may not be amended, and no provision may be waived,
except by a writing executed by both parties. Any waiver shall be applicable
only to the specific instance covered by such waiver and shall not be deemed to
apply to any other instance.
11. CONSTRUCTION. The Agreement shall be interpreted in accordance
with the laws of the State of Michigan without regard to conflict of laws
principles.
12. NOTICES. Any notice, demand or request required or permitted to
be given under the provisions of this Agreement shall be in writing and shall be
deemed to have been duly delivered on the date of personal delivery or the date
of receipt if sent by an overnight courier service (charges prepaid) or mailed
by certified mail-return receipt requested (postage prepaid), and shall be
deemed to have been received on the date of personal delivery or on the date set
forth on the return receipt, to the following addresses or to such other address
as any party may provide to the other parties pursuant to this paragraph:
If to DP Media:
DP Media of Battle Creek, Inc.
Suite 204
231 Bradley Place
Palm Beach, FL 44380
Attn: Devon Paxson
Tel: (561) 833-1096
Fax: (561) 833-8616
with a copy to:
Alan C. Campbell, Esq.
Irwin Campbell & Tannenwald, P.C.
Suite 200
1730 Rhode Island Avenue, N.W.
Washington, D.C. 20036
Tel: (202) 728-0401, ext. 110
Fax: (202) 728-0534
7
<PAGE> 8
If to ACME:
ACME Television Holdings, LLC
Suite 202
10829 Olive Boulevard
St. Louis, MO 63141
Attn: Douglas Gealy
Tel: (314) 989-0566
Fax: (314) 989-0616
ACME Television Holdings, LLC
Suite 202
2101 East 4th Street
Santa Ana, CA 92705
Attn: Tom Allen
Tel: (714) 245-9499
Fax: (714) 245-9494
with a copy to:
Lewis J. Paper, Esq.
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, DC 20036
Tel: (202) 828-2265
Fax: (202) 887-0689
13. PRESS RELEASE. Buyer and Seller shall jointly prepare, and
determine the timing of, any press release or other announcement to the public
relating to the execution of this Agreement. No party hereto will issue any
press release or make any other public announcement relating to the transactions
contemplated hereby without the prior consent of the other party hereto, except
that any party may make any disclosure required to be made by it under
applicable law if it determines in good faith that it is appropriate to do so
and gives prior notice to the other party.
14. COUNTERPART SIGNATURES. This Agreement may be executed in
counterparts, and all counterparts shall be collectively deemed one and the same
document.
[The Remainder of This Page Intentionally Left Blank]
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed the Agreement with the
intention of it being effective as of the date first written above.
DP MEDIA OF BATTLE CREEK, INC.
By: /s/ Roslyck Paxson
-------------------------------------
Roslyck Paxson
Vice President
ACME TELEVISION HOLDINGS, LLC
By: /s/ Douglas Gealy
-------------------------------------
Douglas Gealy
President
9
<PAGE> 1
EXHIBIT 10.30
OPTION AGREEMENT
BETWEEN
DP MEDIA OF BATTLE CREEK, INC.
AND
ACME TELEVISION HOLDINGS, LLC
FOR
WZPX-TV
BATTLE CREEK, MICHIGAN
<PAGE> 2
OPTION AGREEMENT
This OPTION AGREEMENT is dated this 23rd day of April 1999 by and
between DP Media of Battle Creek, Inc., a Florida corporation ("Seller"), and
ACME Television Holdings, LLC, a Delaware limited liability company ("Buyer").
RECITALS
WHEREAS, Seller holds a license issued by the Federal Communications
Commission (the "FCC") for television station WZPX-TV in Battle Creek, Michigan
(the "Station"); and
WHEREAS, simultaneously with the execution of this Option Agreement,
Seller and Buyer are executing a Joint Sales Agreement ("JSA") which authorizes
Buyer to sell advertising time on the Station; and
WHEREAS, Seller is willing to provide Buyer with a conditional option
(the "Call Option") to (1) acquire the assets used and useful in the operation
of the Station (the "Station Assets") or (2) enter into a Time Brokerage
Agreement, Local Marketing Agreement or other similar agreement (a "Programming
Agreement") that would enable Buyer to provide programming over the Station, all
in accordance with the terms and conditions of this Agreement; and
WHEREAS, Buyer is desirous of providing Seller with an unconditional
option (the "Put Option") to require Buyer's purchase of the Station Assets in
accordance with the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, the undersigned parties, intending to
be legally bound, hereby agree as follows:
1. CALL OPTION.
(a) CONVEYANCE OF OPTION. In exchange for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by Seller, Seller hereby grants to Buyer an exclusive,
irrevocable Call Option to (i) purchase all the Station Assets free and
clear of all liens, security interests, and encumbrances of any kind or
nature whatsoever and (ii) enter into a Programming Agreement with
Seller for use of he Station's facilities.
(b) PURCHASE PRICE. The purchase price for the Station
Assets (the "Purchase Price") shall be Thirty Million Dollars
($30,000,000).
(c) MANNER OF EXERCISE.
(i) Buyer's Call Option is conditioned upon receipt
of written notice from Seller of its proposal either to (A)
assign the Station Assets to an unaffiliated third party (a
"Sales Event") or (B) enter into a Programming Agreement with an
unaffiliated third party (a "Programming Event"). For purposes
hereof, a transaction between Seller and Paxson Communications
Corporation or an affiliated company (collectively, "PCC") shall
not be deemed to be a Sales Event or a Programming Event.
Notwithstanding any other provision of this
<PAGE> 3
Agreement, Buyer's right to exercise its Call Option is
expressly subject to and conditional upon Buyer being in
compliance in all material respects with its obligations under
the JSA.
(ii) Upon receipt of written notice from Seller of a
Sales Event, Buyer shall have a period of thirty (30) days (the
"Exercise Period") within which to exercise its Call Option.
Buyer shall exercise its Call Option by signing and delivering
to Seller the Asset Purchase Agreement (the "Purchase
Agreement"), annexed hereto as Exhibit A, with Buyer's
authorized signature. Neither party shall have any right to
modify the Purchase Agreement except for those modifications
which are necessary to reflect changes occurring over time and
in the ordinary course of business: provided, that Buyer shall
not be obligated to assume any contract entered into by Seller
after the effective date of this Agreement (except for those
contracts approved in writing by Buyer, which approval which
shall not be unreasonably withheld, or contracts previously
approved by Buyer pursuant to the JSA). Buyer's Call Option
shall terminate and expire if Buyer fails to deliver the
executed Purchase Agreement within the Exercise Period. Seller
shall be required to execute the Purchase Agreement within five
(5) business days after its receipt of the executed Purchase
Agreement from Buyer. The Purchase Agreement shall require,
among other provisions, that Buyer shall make a payment of
Twenty-Four Million Dollars ($24,000,000) (the "Initial
Payment") to Seller at a closing (the "First Closing") to be
held within thirty (30) days after delivery of the executed
Purchase Agreement to Seller. Simultaneously upon receipt of the
Initial Payment, Seller shall assign, transfer, and convey to
Buyer all of the Station Assets other than FCC licenses and
authorizations, as well as those other assets expressly excluded
from conveyance at the First Closing under the Purchase
Agreement (collectively, the "Remaining Assets"), to Buyer free
and clear of any and all liens, security interests, and
encumbrances of any kind or nature whatsoever (except those
expressly permitted by the Purchase Agreement). The Remaining
Assets shall be assigned, transferred, and conveyed to Buyer at
a subsequent closing (the "Second Closing") to be held in
accordance with the terms and conditions of the Purchase
Agreement. At the Second Closing, Seller shall convey the
Remaining Assets to Buyer in exchange for Buyer's payment to
Seller of Six Million Dollars ($6,000,000). All of the Remaining
Assets assigned, transferred and conveyed to the Buyer at the
Second Closing shall be free and clear of any and all liens,
security interests and encumbrances of any kind or nature
whatsoever (except those expressly permitted by the Purchase
Agreement).
(iii) Upon receipt of written notice from Seller of a
Programming Event, Buyer shall have the same Exercise Period
within which to exercise its Call Option to enter into an
agreement with Seller that is identical in all material respects
with the terms and conditions of the terms of any Programming
Agreement that reflects a bona fide proposal from a third party
(not PCC) and is attached to the aforementioned notice from
Seller for the provision of programming on the Station. Buyer's
Call Option shall terminate and expire if Buyer fails to agree
in writing to enter into such an agreement with Seller within
the Exercise Period that is consistent in all material respects
with the terms and conditions of any document attached to the
aforementioned notice from Seller. Buyer's Call Option to
purchase the Station in accordance with subsection (c)(i)
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<PAGE> 4
of this section will remain in effect if Seller provides notice
under this paragraph and Buyer enters into the particular third
party Programming Agreement.
(iv) Notwithstanding anything to the contrary in this
Agreement, upon any transfer, conveyance or assignment of all or
substantially all of the Station Assets by Seller to PCC during
the Term hereof, PCC and Buyer shall simultaneously enter into
an agreement on mutually acceptable terms which (1) grants to
Buyer the right to match the financial terms of any bona fide
written offer from an unaffiliated third party to acquire the
Station from PCC, (2) provides that Buyer's right of first
refusal shall be in effect for the period of five (5) years
following the acquisition of the Station Assets by PCC and (3)
provides that Buyer's right of first refusal shall not apply to
any transaction involving a sale to a single unaffiliated party
of all or substantially all of the capital stock or assets of
PCC or a sale to a single unaffiliated third party of 50 percent
or more of all of the television broadcast stations licensed to
PCC.
(d) BONA FIDE OFFER. Buyer shall have no obligation to enter
into any Purchase Agreement or Programming Agreement, and Buyer's Call
Option shall not in any way be terminated or otherwise affected, unless
any notice to be provided by Seller under this section includes a
document which incorporates a bona fide proposal from an independent
third party (unaffiliated with PCC or Seller) that is ready, able and
willing to proceed with the transaction described in such document.
(e) DURATION. The Call Option may be exercised at any time
during the period beginning on May 1, 1999 and ending on April 30, 2003.
2. PUT OPTION.
(a) CONVEYANCE OF OPTION. In exchange for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by Buyer, Buyer hereby grants to Seller an exclusive,
irrevocable Put Option to require Buyer to purchase the Station Assets
(except contracts entered into by Seller after the date hereof as set
forth in subsection (c) of this section), free and clear of all liens,
security interests, and other encumbrances of any kind or nature
whatsoever.
(b) PURCHASE PRICE. The purchase price shall be identical to
the Purchase Price for the exercise of the Call Option and is
hereinafter referred to as the "Purchase Price."
(c) MANNER OF EXERCISE FOR PURCHASE. Seller may exercise the
Put Option by delivering to Buyer an executed copy of the Purchase
Agreement, which shall include only those modifications as may be
necessary to reflect changes occurring over time and in the ordinary
course of business, such as revised equipment schedules and contracts to
be assumed: provided, that Buyer shall not be obligated to assume any
contract entered into after the date of this Agreement (except for those
contracts approved by Buyer in writing, which approval shall not be
unreasonably withheld, or contracts previously approved by Buyer
pursuant to the JSA); and, provided further, that, in addition to the
Purchase Price, Buyer shall be required to pay up to Five Hundred
Thousand Dollars ($500,000) of third party costs incurred by PCC for the
construction and installation of the Station's digital television
equipment in exchange for assignment and conveyance of
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<PAGE> 5
the digital equipment to Buyer as specified in the Purchase Agreement.
Buyer shall be required to execute the Purchase Agreement within thirty
(30) days after Buyer's receipt of the Purchase Agreement from Seller
(the "Acceptance Date"). Buyer shall make the Initial Payment to Seller
at the First Closing, which shall be held on the Acceptance Date.
Simultaneous with the delivery of the Initial Payment, Seller shall
assign, transfer and convey to Buyer the Station Assets (other than the
Remaining Assets) free and clear of any and all liens, security
interests, and encumbrances of any kind or nature whatsoever, except
those expressly permitted in the Purchase Agreement. The Remaining
Assets shall be assigned, transferred, and conveyed to Buyer at a
subsequent closing (the "Second Closing") to be held in accordance with
the terms and conditions of the Purchase Agreement. At the Second
Closing, Seller shall convey the Remaining Assets to Buyer in exchange
for Buyer's payment to Seller of Six Million Dollars ($6,000,000). All
of the Remaining Assets assigned, transferred and conveyed to the Buyer
at the Second Closing shall be free and clear of any and all liens,
security interests and encumbrances of any kind or nature whatsoever
(except those expressly permitted by the Purchase Agreement).
(d) The Put Option may be exercised by Seller at any time
beginning on May 1, 1999 and ending on April 30, 2003.
3. LIMITATIONS ON SELLER. Seller shall not enter into any stock
purchase agreement, merger agreement, asset purchase agreement, time brokerage
agreement, local marketing agreement, option agreement or any other similar
agreement of any kind or nature which is in any way inconsistent with Seller's
obligations under this Agreement or would adversely affect Buyer's rights under
this Agreement.
4. GOVERNMENTAL APPROVALS.
(a) Notwithstanding anything to the contrary in this
Agreement, no Station Assets shall be conveyed from Seller to Buyer
unless and until all prior and necessary government approvals have been
secured, including but not limited to (i) the prior approval of the FCC
and (ii) the expiration of any waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR").
(b) Within five (5) business days after Buyer's exercise of
the Call Option for a purchase of the Station Assets or the Acceptance
Date for Buyer's acknowledgement of Seller's exercise of the Put Option,
the parties shall file an appropriate application with the FCC (the
"Application") requesting the FCC's approval for the assignment of the
FCC licenses and other authorizations to Buyer. Seller and Buyer shall
cooperate with each other in the preparation and in the prosecution of
the Application. Each party will timely respond to any request for
information or amendment from the FCC. Each party will also cooperate
with the other in the vigorous defense against any petition to deny,
complaint, or other objection filed with the FCC or any governmental
authority with respect to the FCC's approval of the Application or the
consummation of the transaction contemplated hereby. Each party will
promptly provide the other party with copies of any and all pleadings,
letters, and other communications to or from the FCC with respect to the
Application.
(c) Within ten (10) business days after the filing of the
Application, the parties will jointly prepare and file any necessary
documents under HSR. The parties
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<PAGE> 6
will cooperate with each other in the prosecution of that filing in the
same manner as contemplated by subsection (b) in this section in
conjunction with the Application.
(d) Any and all filing fees with the FCC under the HSR shall
be divided equally between the parties. The parties will otherwise bear
and be responsible for their own respective expenses and costs,
including attorneys' fees.
5. REMEDIES.
(a) The FCC licenses of the Station and the broadcast
business made possible thereby are unique assets not readily available
on the open market. For that reason, Seller acknowledges that monetary
damages alone would not be adequate to compensate Buyer for a material
breach hereof and that specific performance is an appropriate remedy for
Buyer in the event of such a material breach (including but not limited
to Seller's obligation to produce complete and accurate schedules to the
Purchase Agreement). Buyer shall have the right to seek specific
performance of this Agreement or the Purchase Agreement. The rights
afforded Buyer by this paragraph shall be in addition to any and all
other rights Buyer may have at law or equity. If any action is brought
by Buyer to enforce this Agreement or the Purchase Agreement, Seller
shall waive the defense that there is an adequate remedy at law.
(b) If Buyer breaches this Agreement, then, in that event,
Seller shall be entitled to any and all remedies available to Seller at
law or equity.
6. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer as follows:
(a) Seller is a corporation duly formed, validly existing
and in good standing under the laws of the State of Florida.
(b) Seller has and will have upon the exercise of the Call
Option or the Put Option full power and authority to consummate this
Agreement and the Purchase Agreement and to consummate the transactions
contemplated hereby and thereby. This Agreement constitutes, and any
other instruments contemplated hereby when executed will constitute, the
legal, valid and binding obligations of Seller, enforceable in
accordance with their terms, except as may be affected by bankruptcy and
insolvency laws and court-applied equitable principles.
(c) Except as otherwise expressly stated in this Agreement,
the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, and compliance with the terms,
conditions and provisions of this Agreement, with or without the giving
of notice or the passage of time, or both, will not: (i) contravene any
provision of Seller's articles of incorporation or other organizational
documents, (ii) subject to the consent of Seller's institutional lender,
conflict with or result in a breach of or constitute a default under any
of the terms, conditions or provisions of any indenture, mortgage, loan
or credit agreement or any other agreement or instrument to which the
Seller is a party or by which Seller or any of the Station Assets may be
bound or affected, or any decree, judgment or order of any court or
governmental department, commission, board, agency or instrumentality,
domestic or foreign, or any applicable law, ordinance,
5
<PAGE> 7
rule, policy or regulation, including but not limited to the
Communications Act of 1934, as amended ("the Act"), and the rules and
policies of the FCC promulgated thereunder.
(d) No representation or warranty by Seller in this
Agreement or in the Purchase Agreement contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make this statement or facts contained herein
or therein not misleading.
7. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
(a) Buyer is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of
Delaware.
(b) Buyer has and will have upon the exercise of the Call
Option or the Put Option full power and authority to consummate this
Agreement and the Purchase Agreement and to consummate the transactions
contemplated hereby and thereby. This Agreement constitutes, and any
other instruments contemplated hereby when executed will constitute, the
legal, valid and binding obligations of Buyer, enforceable in accordance
with their terms, except as may be affected by bankruptcy and insolvency
laws and court-applied equitable principles.
(c) Except as otherwise expressly stated in this Agreement,
the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, and compliance with the terms,
conditions and provisions of this Agreement, with or without the giving
of notice or the passage of time, or both, will not (i) contravene any
provision of Buyer's operating agreement or other organizational
documents, (ii) subject to the consents of Buyer's lenders, conflict
with or result in a breach of or constitute a default under any of the
terms, conditions or provisions of any indenture, mortgage, loan or
credit agreement or any other agreement or instrument to which the Buyer
is a party or by which Buyer may be bound or affected, or any decree,
judgment or order of any court or governmental department, commission,
board, agency or instrumentality, domestic or foreign, or any applicable
law, ordinance, rule, policy or regulation, including but not limited to
the Act and the rules and policies of the FCC promulgated thereunder.
(d) No representations or warranty by Buyer in this
Agreement or in the Purchase Agreement contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make this statement or facts contained herein
or therein not misleading.
8. COVENANTS OF SELLER.
So long as this Agreement is in effect, and subject to the terms
of the JSA, Seller covenants that it will not, without the Buyer's prior written
approval:
(a) create or incur, assume or suffer to exist any
indebtedness, obligation or liability, whether matured or unmatured,
liquidated or unliquidated, direct or contingent, except for
indebtedness incurred in the ordinary course of business not to exceed
Ten
6
<PAGE> 8
Thousand Dollars ($10,000) in the aggregate at any one time (except for
the pre-existing obligation to pay Monthly Interest as defined in the
JSA);
(b) create, assume or suffer to exist, directly or
indirectly, any security interest, mortgage, deed of trust, pledge,
lien, charge, option, warrant, or other encumbrance or future ownership
interest of any nature whatsoever upon any of its properties or assets,
now owned or hereafter as acquired, except for:
(i) any existing security interest, mortgage, deed
of trust, pledge or lien in connection with Seller's
pre-existing loan obligation referred to in the JSA,
(ii) liens for taxes or assessments either not
delinquent or the validity of which are being contested in good
faith by appropriate legal or administrative proceedings and as
to which adequate reserves shall have been set aside on its
books, in conformity with generally accepted accounting
principles,
(iii) materialmen's, mechanics', carriers', workmen's,
repairmen's, warehousemen's or other like liens arising in the
ordinary course of business and either not yet due and payable
or being contested in good faith by appropriate legal
proceedings and as to which adequate reserves shall have been
set aside on its books, in conformity with generally accepted
accounting principles,
(iv) deposits or pledges to secure payment of
workers' compensation, unemployment insurance or other social
security benefits or obligations, or
(v) any judgment lien, unless the judgment it
secures shall not have been discharged, vacated, reversed, or
execution thereof stayed pending appeal within thirty (30) days
after the entry thereof, or shall not have been discharged,
vacated or reversed within thirty (30) days after the expiration
of any such stay; or
(vi) any security interest, mortgage, deed of trust,
pledge or lien in connection with any new, additional or
replacement institutional financing.
(c) sell, transfer, lease or otherwise dispose of any
material Station Assets except in connection with the acquisition of
replacement property of equivalent kind and value;
(d) enter into any consolidation or merger with, or into any
acquisition of all or substantially all of the properties or assets of
any person or entity;
(e) change in any material respect the nature or character
of its business as intended, or engage in any activity not reasonably
related to such business;
(f) enter into any contract or commitment relating to its
ownership or assets except for contracts involving aggregate payments of
less than Five Thousand Dollars ($5,000) and contracts which can be
terminated without penalty on thirty (30) days' notice or less, or amend
or terminate any material contract or lease (or waive any substantial
right thereunder);
7
<PAGE> 9
(g) transfer or grant any right under, or enter into any
settlement regarding the breach or infringement of, any license, patent,
copyright, trademark, service mark, trade name, franchise, or similar
right, or modify any existing right relating to the Seller;
(h) enter into any agreement to assign to any person the
Station's FCC licenses, any assets related thereto; or
(i) enter into any agreement or take any other action that
would interfere with, or prevent, Seller's ability to assign and
transfer the Station Assets to Buyer as contemplated hereunder or under
the Purchase Agreement.
9. COVENANTS OF BUYER. So long as this Agreement is in effect,
Buyer will not knowingly take any action that would prevent Buyer from
fulfilling its obligations hereunder, including any action that would disqualify
Buyer as the assignee of the FCC licenses for the Station or make the
consummation of the transactions contemplated by this Agreement conditional on
the grant of a waiver by the FCC of any rule or policy.
10. EFFECTUATION OF AGREEMENT.
(a) Seller and Buyer will each use commercially reasonable
efforts, and otherwise take any and all reasonable action, including the
execution of documents reasonably acceptable to the parties, to
effectuate the purposes of this Agreement and to consummate the
transactions contemplated hereby.
(b) Each party will notify the other promptly (and in any
event within five (5) business days) of the threat of, or the assertion
or commencement of any claim, suit, action, arbitration, legal,
administrative or other proceeding, or governmental investigation or tax
audit affecting the Station or the Company.
11. MISCELLANEOUS.
(a) Notwithstanding anything to the contrary in this
Agreement, Seller shall have no right to terminate this Agreement after
the First Closing.
(b) Neither party may assign its rights and obligations
under this Agreement to any other party without the prior written
consent of the other party: provided, that Buyer shall have the right to
assign its rights and obligations under this Agreement to any third
party as long as Buyer remains liable for Buyer's obligations hereunder.
(c) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns.
(d) This Agreement, along with the other agreements and
documents referenced herein, constitute the entire understanding of the
parties with respect to the subject matter hereof and supersede any and
all prior or contemporaneous agreements or understandings. No amendment,
waiver of compliance with any provision or condition hereof, or consent
pursuant to this Agreement, will be effective unless evidenced by an
instrument in writing signed by the parties.
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<PAGE> 10
(e) The headings of this Agreement are for convenience only
and will not control or affect the meaning or construction of the
provisions of this Agreement.
(f) The construction and performance of this Agreement will
be governed by the laws of Michigan without regard to its principles for
choice of law.
(g) Any notice, demand or request required or permitted to
be given under the provisions of this Agreement shall be in writing and
shall be deemed to have been duly delivered on the date of personal
delivery or the date of receipt if sent by an overnight courier service
(charges prepaid) or mailed by certified mail-return receipt requested
(postage prepaid), and shall be deemed to have been received on the date
of personal delivery or on the date set forth on the return receipt, to
the following addresses or to such other address as any party may
provide to the other parties pursuant to this paragraph:
If to DP Media:
DP Media of Battle Creek, Inc.
Suite 204
231 Bradley Place
Palm Beach, FL 44380
Attn: Devon Paxson
Tel: (561) 833-1096
Fax: (561) 833-8616
with a copy to:
Alan C. Campbell, Esq.
Irwin Campbell & Tannenwald, P.C.
Suite 200
1730 Rhode Island Avenue, N.W.
Washington, D.C. 20036
Tel: (202) 728-0401, ext. 110
Fax: (202) 728-0534
If to ACME:
ACME Television Holdings, LLC
Suite 202
10829 Olive Boulevard
St. Louis, MO 63141
Attn: Douglas Gealy
Tel: (314) 989-0566
Fax: (314) 989-0616
ACME Television Holdings, LLC
Suite 202
2101 East 4th Street
Santa Ana, CA 92705
Attn: Tom Allen
Tel: (714) 245-9499
Fax: (714) 245-9494
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<PAGE> 11
with a copy to:
Lewis J. Paper, Esq.
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, DC 20036
Tel: (202) 828-2265
Fax: (202) 887-0689
(h) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which
together will constitute one and the same instrument.
(i) After the date hereof, Buyer shall be afforded
reasonable opportunity to inspect the Station Assets and the books and
records of Seller relating to the Station upon reasonable request.
(j) Buyer and Seller will each use commercially reasonable
efforts to keep confidential (except for such disclosure to attorneys,
bankers, underwriters, investors, and other agents and representatives
as may be appropriate in the furtherance of the transactions
contemplated hereby and except for such filings with the FCC as may be
required) all information of a confidential nature obtained in
connection with the transactions contemplated by this Agreement, and in
the event that such transactions are not consummated, each party will
return to the other party or parties such documents and other material
obtained from the other party or parties in connection therewith (along
with copies or duplicates thereof).
(k) Buyer and Seller shall jointly prepare, and determine
the timing of, any press release or other announcement to the public
relating to the execution of this Agreement. No party hereto will issue
any press release or make any other public announcement relating to the
transactions contemplated hereby without the prior consent of the other
party hereto, except that any party may make any disclosure required to
be made by it under applicable law if it determines in good faith that
it is appropriate to do so and gives prior notice to the other party.
(l) Except as otherwise stated herein, each party shall bear
its own costs incurred by it in connection with the transactions
contemplated by this Agreement.
(m) Prior to the consummation of the Purchase Agreement,
Buyer shall not directly or indirectly control, supervise or direct or
attempt to control, supervise or direct the operations of the Station or
Seller. Such operations, including ultimate control of the Station's
programs, employees and finances, shall remain the sole responsibility
of Seller.
(n) Notwithstanding anything to the contrary in this
Agreement, a sale of the Station Assets to any party other than Buyer,
regardless of whether that party is PCC or any other third party, shall
not by itself result in a termination of the JSA or Seller's Secondary
Affiliation Agreement with the WB Television Network (which is
referenced in the JSA).
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement with
the intent of it being effective as of the date first written above.
DP MEDIA OF BATTLE CREEK, INC.
By: /s/ Roslyck Paxson
-------------------------------------
Roslyck Paxson
Vice President
ACME TELEVISION HOLDINGS, LLC
By: /s/ Douglas Gealy
-------------------------------------
Douglas Gealy
President
The following Exhibit has been intentionally omitted by the Registrant.
LIST OF EXHIBITS
- ----------------
Exhibit A Form of Asset Purchase Agreement
A copy of the omitted Exhibit will be provided to the Securities and
Exchange Commission upon request.
11
<PAGE> 1
EXECUTION COPY
EXHIBIT 10.40
AMENDMENT NO. 1
THIS AMENDMENT NO. 1 is dated as of June 30, 1998 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
CIBC 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 (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 has requested that certain amendments be made to the
Credit Agreement.
C. Subject to certain terms and conditions set forth herein, the Agent
and the 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:
1. AMENDMENTS TO CREDIT AGREEMENT.
Subject to the satisfaction of each of the conditions set forth in
SECTION 6, the Lenders hereby agree with the Borrower that the Credit Agreement
shall be amended as follows:
A. RECITALS: The first sentence of clause C of the Recitals is deleted
in its entirety and substituted with the following to reflect correct facts
relating to the Senior Notes:
"On September 24, 1997, the Borrower and ACME Finance Corporation, a
Delaware corporation wholly-owned by the Borrower ("ACME Finance" and,
together with the Borrower, the "Issuers"), offered (the "Offering") as
their joint and several obligation $175,000,000 in 10.875% Senior
Discount Notes due 2004, Series A which are issued pursuant to an
Indenture dated as of September 30, 1997 between the Issuers, the
Borrower's Subsidiaries (as guarantors) and Wilmington Trust Company, as
trustee (the "Indenture"), and were exchanged for $175,000,000 in
10.875% Senior Discount Notes due 2004, Series B pursuant to an Exchange
Offer effected by ACME Television, LLC and ACME Finance Corporation on
February 11, 1998 (the "Senior Notes")."
<PAGE> 2
B. SECTION 6.05(a). ANNUAL FINANCIAL STATEMENTS AND REPORTS. Section
6.05(a) of the Credit Agreement is amended by inserting immediately after the
words "Within one hundred twenty (120) days after the end of fiscal year 1997
and within ninety (90) days after the end of each subsequent fiscal year, the
consolidated (or, if applicable, combined) balance sheets and statements of
income, equity and cash flows of the Borrower and each Holding Company," the
following:
"Operating Company and License Company, together with consolidating
balance sheets and income statements for each Holding Company and each
Operating Company and License Company owned directly by the Borrower,"
C. SECTION 6.05(b). QUARTERLY FINANCIAL STATEMENTS AND REPORTS. With
respect to each fiscal quarter ending on or after December 31, 1997 for which
the Borrower is required to file Form 10-Q reports with the SEC, if the Borrower
timely files the same with the SEC (as required by applicable law) and timely
provides to the Agent copies thereof as required by Section 6.05(j) of the
Credit Agreement, unless the Agent requests otherwise in writing, the Borrower
shall not be required to furnish to the Agent the quarterly financial statements
required under Section 6.05(b) of the Credit Agreement, provided, however, the
Borrower shall nevertheless be required to furnish the quarterly schedule of
Capital Expenditures otherwise required thereunder. In addition, the Borrower
and each Holding Company (and if a Holding Company does not exist for any
Station, each Operating Company and License Company related to such Station)
agree to provide to the Agent (with copies for each Lender) within 45 days after
the end of each month, consolidated balance sheets and statements of income for
the Borrower and each Holding Company, together with supporting schedules,
prepared in accordance with GAAP (except for the absence of notes) and certified
by an authorized representative of the Borrower, such balance sheets to be as
the end of such month and such income statements to be for the month then ended
and for the period from the beginning of the then current fiscal year to the end
of such month (subject to normal audit and year-end adjustments), with a
comparison of month to month actual results to results for the comparable period
of the preceding fiscal year and projected results set forth in the Budget for
such period for each Station on the air.
D. SECTION 6.11. PERMITTED RESTRUCTURING; ACQUISITION RESTRUCTURINGS.
(i) Clause (b) of Section 6.11 of the Credit Agreement is amended to
read in its entirety as follows:
"(b) Within forty-five (45) days following the consummation of
the transactions contemplated by the Roberts Member Agreement,
cause (i) the FCC Licenses held by Roberts Broadcasting (which
shall either be for KUWB-TV if the Roberts Asset Exchange
Agreement has been consummated, or for KUPX-TV if the Roberts
Asset Exchange has not been consummated) to be transferred from
Roberts Broadcasting to ACME Utah, (ii) the assets used in
operating such Station to be transferred from Roberts
Broadcasting to ACME Television of Utah, LLC, and (iii) the
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<PAGE> 3
concurrent dissolution of Roberts Broadcasting, and provide to
the Agent satisfactory evidence thereof; provided that, in the
event the transactions contemplated by the Roberts Asset Exchange
Agreement have not occurred before or simultaneously with the
consummation of the transactions contemplated by the Roberts
Member Agreement, the requirements hereunder shall be suspended
pending consummation of the transactions contemplated by the
Roberts Asset Exchange Agreement, but in any event suspended for
no longer than one hundred twenty (120) days following the
consummation of the transactions under the Roberts Member
Agreement."
(ii) Clause (c)(iii) of Section 6.11 of the Credit Agreement is amended
by deleting the date "December 15, 1997" therein and substituting in its place
the date "January 15, 1998".
E. ARTICLE VIII. DEFAULTS/NO NEED OF HOLDING COMPANY.
(i) Clause (m)(iii) of Article VIII of the Credit Agreement is amended
by adding at the end thereof the following:
"of each of the Operating Companies and License Companies for
each Station where no Holding Company exists for such Station or"
(ii) Clause (m)(iv) of Article VIII of the Credit Agreement is amended
by revising the parenthetical phrase at the end thereof and adding a proviso
thereafter as follows:
"(in each case except for de minimus membership interests in
limited liability companies held by other Companies, excluding
ACME Finance, as specified in SCHEDULE 4.19, for purposes of
avoiding being treated for tax purposes as a single member
limited liability company); provided, however, for all
acquisitions closing on or after June 5, 1998, the Borrower shall
not be required to form Holding Companies in connection therewith
but shall cause Operating Companies which are wholly-owned direct
Subsidiaries of Borrower to own all Station assets (other than
FCC Licenses) and License Companies which are wholly-owned direct
Subsidiaries of the Borrower to hold FCC Licenses relating to
such Stations, and, in such cases, the Borrower shall be in
default hereunder if it shall cease to own and control, directly
or indirectly, all of the issued and outstanding equity interests
of each of such License Companies and Operating Companies (in
each case except for de minimus membership interests in limited
liability companies held by other Companies, excluding ACME
Finance, as specified in SCHEDULE 4.19, for purposes of avoiding
being treated for tax purposes as a single member limited
liability companies);"
F. ARTICLE XI. DEFINITIONS.
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<PAGE> 4
(i) The definition of "ACME Subsidiary III" in Article XI of the Credit
Agreement is amended to add "and ACME Television Licenses of Missouri, LLC",
ACME Television of Florida, LLC and ACME Television Licenses of Florida, LLC at
the end thereof. In addition, the structural chart attached to SCHEDULE 4.19
(Capitalization) of the Credit Agreement is hereby amended and restated to read
in its entirety as Exhibit C attached hereto and made a part hereof.
(ii) The definition of "Adjusted EBITDA" in Article XI of the Credit
Agreement is deleted in its entirety and substituted with the following:
"ADJUSTED EBITDA. For any period, EBITDA for such period;
adjusted during any such period during which the Borrower or its
Subsidiaries acquired or disposed of any Station or other
property (including, for purposes hereof, acquisitions of cash
flow accomplished through LMAs permitted under clause (a) of the
definition of "Permitted LMA" set forth below) other than in the
ordinary course, as permitted under this Agreement, by (a)
excluding therefrom the portion thereof attributable to any
Station or other property sold or disposed of by any Company
other than in the ordinary course of business during such period
as if such Station or other property were not owned at any time
by the Companies during such period, and (b) including therein
the portion thereof attributable to any Station or other property
(by Permitted Acquisition or Permitted LMA) acquired by any
Company other than in the ordinary course of business during such
period as if such Station or property were owned by the Companies
at all times during such period, such portion to include pro
forma adjustments for any net cost and expense reductions
relating to such Station specified in the related Schedule of
Cost Reductions provided prior to the consummation of such
Acquisition or under SECTION 3.01(l), as applicable, provided
that the Required Lenders shall have consented to such
adjustments in writing. For purposes of this definition, the
portion of EBITDA attributable to any Station or other property
for any period shall be determined in a manner consistent in all
relevant respects with the method used to determine EBITDA, but
on a non-consolidated basis. The determination of EBITDA of any
Station shall account for only those items included in the
definition of EBITDA that are directly attributable to such
Station and the operation thereof and shall not include, for any
period prior to the acquisition thereof by any Company thereof,
any corporate overhead or similar charges of the prior owner of
such Station."
(iii) The definition of "Cash Interest Expense" in Article IX of the
Credit Agreement is deleted in its entirety and substituted with the following:
"CASH INTEREST EXPENSE. For any period Interest Expense for such
period which is payable, or currently paid, in cash, plus to the
extent added back to Net Income in the determination of EBITDA,
LMA fees payable or currently paid for such period for each
Station under an Acquisition Agreement (as originally executed)
to be purchased within 12 months after the date such Acquisition
Agreement was entered into with respect to such Station."
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<PAGE> 5
(iv) The definition of "EBITDA" in Article IX of the Credit Agreement is
deleted in its entirety and substituted with the following:
"EBITDA. For any period, Net Income for such period plus, to the
extent deducted in the determination of such Net Income and not
restored in accordance with the definition of such term, (a)
Interest Expense, (b) depreciation, (c) amortization, (d) taxes
in respect of income and profits expensed during such period, (e)
the recognition of expenses related to the amortization of
program license and rental fees, (f) LMA fees for each Station
under contract to be purchased within 12-months after the date
the Acquisition Agreement was entered into with respect to such
Station (up to an aggregate of $300,000 for all Stations in any
consecutive 12-month period) and (g) other non-cash expenses; in
each case, for such period and determined on a consolidated
basis, after eliminating intercompany items, in accordance with
GAAP, minus Programming Payments made during such period, but
excluding therefrom any payments made in respect of restructured
programming liabilities in connection with the KPLR Acquisition,
but not in excess of those listed on SCHEDULE 11.01."
(v) The definition of "License Companies" in Article XI of the Credit
Agreement is deleted in its entirety and substituted with the following:
"LICENSE COMPANIES. Collectively, the wholly-owned Subsidiaries
of each of the Holding Companies or of the Borrower (in each case
except for de minimus membership interests held by another Person
for the sole purpose of avoiding being treated for tax purposes
as a single member limited liability company), formed for the
sole purpose of holding one or more FCC Licenses."
(vi) The definition of "Operating Companies" in Article XI of the Credit
Agreement is deleted in its entirety and substituted with the following:
"OPERATING COMPANIES. Collectively, the wholly-owned Subsidiaries
of each of the Holding Companies or of the Borrower (in each
case, except for de minimus membership interests held by another
Person for the sole purpose of avoiding being treated for tax
purposes as a single member limited liability company), formed
for the sole purpose of owning all assets of and operating a
Station."
(vii) The first introductory paragraph to the definition of "Permitted
Acquisition" is amended to read as follows:
"PERMITTED ACQUISITION. The acquisition by the Borrower, or any
Operating Company and License Company (in each case owned
directly by the Borrower), whether by way of the purchase of
assets or stock, by merger or consolidation or otherwise, of
substantially all of the assets of or ownership interests in a
television
-5-
<PAGE> 6
broadcast property (each, an "Acquisition"), which Acquisition
shall have either (1) been approved in writing by the Required
Lenders in their sole and absolute discretion prior to the
execution of the Acquisition Agreement relating thereto or (2)
been one of no more than two acquisitions consummated in any
consecutive 12-month period pursuant to this clause (2), with (A)
the total Purchase Price for either acquisition consummated
pursuant to this clause (2) in such 12-month period not exceeding
$15,000,000, (B) the Purchase Price of all acquisitions
consummated pursuant to this clause (2) in such period not
exceeding $20,000,000 in the aggregate, and (C) each Station
acquired in such period pursuant to this clause (2) having not
greater than ($500,000) in negative EBITDA for the most recent
consecutive 12-month period prior to the consummation of such
acquisition for which financial statements are available. Without
in any way limiting the discretion of the Required Lenders if
their consent is required or other criteria set forth above, all
Permitted Acquisitions (whether pursuant to clause (1) or (2)
above) also will be subject to the fulfillment of the following
conditions:"
(viii) Subparagraph (o) of the definition of "Permitted Investments" is
amended to read as follows:
"(o) Deposits made pursuant to letters of intent (if refundable)
or legally binding agreements (if non-refundable) to acquire
television broadcast station licenses and related assets (or
capital stock of Persons owning such assets), which acquisitions
when consummated will constitute "Permitted Acquisitions"
hereunder, in an amount not to exceed five percent (5%) of the
Purchase Price; provided that the Station to be acquired will be
operated and its assets owned by an Operating Company and its FCC
license held by a License Company upon consummation of the
contemplated Acquisition."
(ix) The definition of "Permitted Restructurings" is deleted in its
entirety and substituted with the following:
"PERMITTED RESTRUCTURINGS. (a) The formation of new Delaware
limited liability companies ("the Delaware Entities") with names
and functions identical to those of the respective existing
Oregon Subsidiaries and Tennessee Subsidiaries and the merger of
each existing Oregon Subsidiary and each existing Tennessee
Subsidiary into the new Delaware Entity of the same name, in each
case with such Delaware Entity being the surviving company, and
(b) the merger of any existing Holding Company into the Borrower
in each case with the Borrower being the surviving company."
(x) A new definition of "Purchase Price" in Article XI of the Credit
Agreement is added to read as follows:
-6-
<PAGE> 7
"PURCHASE PRICE. Shall mean with respect to any acquisition, an
amount equal to the sum of (i) the aggregate consideration,
whether cash, property or securities paid or delivered and to be
paid or delivered by any Company in connection with such
acquisition, plus (ii) the aggregate amount of liabilities of the
acquired business (net of current assets of the acquired
business) that would be reflected on a balance sheet (if such
were to be prepared) of the Companies after giving affect to such
acquisition."
(xi) The definition of "Utah Acquisition" in Article XI of the Credit
Agreement is deleted in its entirety and substituted with the following:
"UTAH ACQUISITION. The acquisition of KUWB Assets pursuant to, and as
defined in, the Asset Exchange Agreement 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., dated as of April 20,
1998 (as originally executed, the "Roberts Asset Exchange Agreement"),
such acquisition to occur in exchange for certain of the assets of
Roberts Broadcasting of Salt Lake City, L.L.C. ("Roberts Broadcasting"),
which holds a license from the FCC for Station KUPX-TV (formerly
KZAR-TV, Channel 16), licensed to Salt Lake City, Utah. Pursuant to the
Membership Contribution Agreement dated as of August 22, 1997 by and
among Roberts Broadcasting, Michael V. Roberts and Steven C. Roberts and
ACME Television Holdings of Utah, LLC (as originally executed, the
"Roberts Member Agreement"), ACME Television Licenses of Utah, LLC
("ACME Utah"), as assignee of ACME Television Holdings, L.L.C., has
obtained a forty-nine percent (49%) membership interest in Roberts
Broadcasting, and exercised its Option, as defined in the Option
Agreement referred to in the foregoing Membership Contribution
Agreement, providing for the transfer to ACME Utah of the remaining
fifty-one percent (51%) in membership interests in Roberts Broadcasting,
in the first quarter of 1999."
G. SCHEDULE 6.05. Exhibit A to Schedule 6.05 (Compliance Certificate) is
hereby deleted in its entirety and substituted with Exhibit A to Schedule 6.05
attached hereto as Exhibit A.
H. SCHEDULE 11.02(a): Schedule 11.02(a) of the Credit Agreement is
amended by appending Exhibit B attached hereto ("Acquisition Compliance
Checklist") to Schedule 11.02(a).
2. 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.
3. 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 Agreement, and all obligations of the
Borrower under the Credit Agreement, as amended, shall be
-7-
<PAGE> 8
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.
4. 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 Agreement 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 Agreement 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 from that disclosed in the
financial statements most recently furnished to the Lenders. No Event of
Default, or condition or event which would, with notice or the lapse of time or
both, result in an Event of Default, has occurred and is continuing.
C. Neither the Borrower nor any Affiliate 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 Agreement or the other Documents.
D. This Agreement 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
5.
5. CONDITIONS.
The willingness of the Agent and the Lenders to amend the Credit
Agreement, is subject to the following conditions precedent and subsequent:
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:
-8-
<PAGE> 9
1. On or before the date hereof:
(a) This Agreement.
(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 Agreement 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. The Borrower shall have provided to the Agent and the Lenders
opinions of the Borrower's counsel in form and substance satisfactory to the
Agent with respect to this Agreement (delivered as of the date hereof).
C. All legal matters incident to the transactions hereby contemplated
shall be reasonably satisfactory to the Agent's counsel.
D. Payment by the Borrower of all outstanding fees due to Edwards &
Angell, LLP.
6. 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 Agreement and the
other Documents.
B. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
C. This Agreement 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 Agreement by facsimile
transmission shall be effective as an in hand delivery of an original executed
counterpart hereof.
*THE NEXT PAGES ARE THE SIGNATURE PAGES*
-9-
<PAGE> 10
EXECUTION COPY
IN WITNESS WHEREOF, the Agent, the Borrower and the Lenders have caused
this Agreement 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 Allen
--------------------------------------
Name: Thomas D. Allen
Title: Exec. V.P.
CANADIAN IMPERIAL BANK OF
COMMERCE, AS AGENT
By: /s/ Mathew Jones
-------------------------------------
Mathew B.Jones
Authorized Signatory
CIBC INC.
By: /s/ Mathew Jones
-------------------------------------
Mathew B.Jones
Authorized Signatory
<PAGE> 11
NATIONSBANK, N.A.
By: /s/ Mary E. Garrity
------------------------------------
Mary Garrity, Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Christine P. Ball
-------------------------------------
Christine Ball, Vice President
BANK OF MONTREAL, CHICAGO BRANCH
By: /s/ W.T.Calder
-------------------------------------
Tom Calder, Director
<PAGE> 12
JOINDER BY GUARANTORS
The undersigned hereby jointly and severally join in the execution of the
foregoing First Amendment No. 1 dated as of June __, 1998 (the "Agreement") to
which this Joinder is attached to confirm their respective consents to all of
the transactions contemplated by the Agreement 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 Holdings of Oregon, LLC
ACME Television of Oregon, LLC
ACME Television Licenses of Oregon, LLC
ACME Television Holdings of Tennessee, LLC
ACME Television of Tennessee, LLC
ACME Television Licenses of Tennessee, LLC
ACME Television Holdings of Utah, LLC
ACME Television of Utah, LLC
ACME Television Licenses of Utah, LLC
ACME Television Holdings of New Mexico, LLC
ACME Television of New Mexico, LLC
ACME Television Licenses of New Mexico, LLC
ACME Subsidiary Holdings III, LLC
ACME Television Holdings of Missouri, Inc.
ACME Television of Missouri, Inc.
ACME Television Licenses of Missouri, LLC
ACME Television of Florida, LLC
ACME Television Licenses of Florida, LLC
By: /s/ Thomas Allen
------------------------------------
Duly authorized signatory as to all
The following Exhibits have been intentionally omitted by the Registrant
List of Exhibits
Exhibit A Financial Exhibits
Exhibit B Officers Certificate
Exhibit C Capitalization
A copy of any omitted Exhibit will be provided to the Securities and Exchange
Commission upon request.
<PAGE> 1
EXHIBIT 10.41
AMENDMENT NO. 2
THIS AMENDMENT NO. 2 is dated as of June 30, 1998 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
CIBC 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 dated as of June 30, 1998, 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 has requested that certain financial covenant levels be
amended in the Credit Agreement.
C. Subject to certain terms and conditions set forth herein, the Agent
and the 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:
1. AMENDMENTS TO CREDIT AGREEMENT.
Subject to the satisfaction of each of the conditions set forth in
SECTION 4, the Lenders hereby agree with the Borrower that the Credit Agreement
shall be amended as follows:
A. MINIMUM EBITDA. The minimum EBITDA level in Section 5.01 of the
Credit Agreement is amended for the periods ending June 30, 1998 and September
30, 1998 to be $3,600,000 and $5,500,000, respectively. All of the other levels
of minimum EBITDA set forth in Section 5.01 shall remain unchanged.
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.
<PAGE> 2
2. 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 Agreement, 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.
3. 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 Agreement 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 Agreement 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 from that disclosed in the
financial statements most recently furnished to the Lenders. No Event of
Default, or condition or event which would, with notice or the lapse of time or
both, result in an Event of Default, has occurred and is continuing.
C. Neither the Borrower nor any Affiliate 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 Agreement or the other Documents.
D. This Agreement 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
4.
<PAGE> 3
4. CONDITIONS.
The willingness of the Agent and the Lenders to amend the Credit
Agreement, is subject to the following conditions precedent and subsequent:
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 Agreement.
(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 Agreement 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.
5. 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 Agreement and the
other Documents.
B. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
C. This Agreement 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 Agreement by facsimile
transmission shall be effective as an in hand delivery of an original executed
counterpart hereof.
-2-
<PAGE> 4
IN WITNESS WHEREOF, the Agent, the Borrower and the Lenders have caused
this Agreement 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 Allen
--------------------------------------
Name: Thomas Allen
Title: Executive Vice President and
Chief Financial Officer
CANADIAN IMPERIAL BANK OF
COMMERCE, AS AGENT
By /s/ Harold Birk
-------------------------------------
Harold Birk, Director
CIBC Oppenheimer Corp., as agent
CIBC INC.
By /s/ Harold Birk
-------------------------------------
Harold Birk, Director
CIBC Oppenheimer Corp., as agent
NATIONSBANK, N.A.
By /s/ Mary E. Garrity
--------------------------------------
Mary Garrity, Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ Christine P. Ball
--------------------------------------
Christine Ball, Vice President
(signatures continued)
-3-
<PAGE> 5
BANK OF MONTREAL, CHICAGO BRANCH
By /s/ W. T. Calder
--------------------------------------
Tom Calder, Director
<PAGE> 6
JOINDER BY GUARANTORS
The undersigned hereby jointly and severally join in the execution of the
foregoing Amendment No. 2 dated as of [June 30, 1998] (the "Agreement") to which
this Joinder is attached to confirm their respective consents to all of the
transactions contemplated by the Agreement 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 Holdings of Oregon, LLC
ACME Television of Oregon, LLC
ACME Television Licenses of Oregon, LLC
ACME Television Holdings of Tennessee, LLC
ACME Television of Tennessee, LLC
ACME Television Licenses of Tennessee, LLC
ACME Television Holdings of Utah, LLC
ACME Television of Utah, LLC
ACME Television Licenses of Utah, LLC
ACME Television Holdings of New Mexico, LLC
ACME Television of New Mexico, LLC
ACME Television Licenses of New Mexico, LLC
ACME Subsidiary Holdings III, LLC
ACME Television Holdings of Missouri, Inc.
ACME Television of Missouri, Inc.
ACME Television Licenses of Missouri, LLC
ACME Television of Florida, LLC
ACME Television Licenses of Florida, LLC
By: /s/ Thomas Allen
-------------------------------------
Duly authorized signatory as to all
<PAGE> 1
EXHIBIT 10.42
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of March 1, 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 (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
$25,000,000 (with an initial deposit of $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 $350,000 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 related financial
covenant amendments. Subject to certain terms and conditions set forth herein,
the Agent and the Required Lenders are willing to agree to such request.
<PAGE> 2
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
I. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of each of the
conditions set forth in SECTION V (and solely in the case of the amendment to
SECTION 5.03, the consummation of the Transactions), the Lenders hereby agree
with the Borrower that the Credit Agreement shall be amended as follows:
A. MINIMUM EBITDA. SECTION 5.01 of the Credit Agreement is hereby
amended for all periods after the date hereof to read in its entirety as
follows:
For each period four (4) fiscal quarters ending on and after March 31,
1999, maintain EBITDA of not less than the following amounts:
<TABLE>
<CAPTION>
FOUR FISCAL
QUARTERS ENDING MINIMUM EBITDA
<S> <C>
March 31, 1999 $ 9,000,000
June 30, 1999 $ 9,500,000
September 30, 1999 $10,500,000
December 31, 1999 $12,500,000
March 31, 2000 $12,500,000
June 30, 1999 $16,000,000
September 30, 1999 $20,000,000
December 31, 1999 $24,000,000
March 31, 2001 $24,000,000
June 30, 2001 $26,000,000
September 30, 2001 $28,000,000
December 31, 2001 $30,000,000
March 31, 2002 $30,000,000
June 30, 2002 $33,000,000
September 30, 2002 $36,000,000
</TABLE>
B. MAXIMUM SECURED DEBT LEVERAGE. SECTION 5.03 of the Credit Agreement
is hereby amended for all periods after the date hereof to read in its entirety
as follows:
As of each Quarterly Date indicated below, maintain a ratio of Secured
Debt to Adjusted EBITDA for the period of four (4) fiscal quarters then ended as
follows:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
MAXIMUM RATIO OF SECURED
QUARTERLY DATE(S) DEBT TO ADJUSTED EBITDA
----------------- -----------------------
<S> <C>
March 31, 1999 and June 30, 1999 3.50:1.00
September 30, 1999 4.25:1.00
December 31, 1999 3.50:1.00
March 31, 2000 and thereafter 3.00:1.00
</TABLE>
provided, however, that in the event that the Borrower's Permitted Acquisition
of KASY-TV is consummated after the delivery of the financial statements and
compliance report required to be provided under SECTION 6.05 for the fiscal
quarter ended June 30, 1999 but prior to the delivery of the financial
statements and compliance report required under such SECTION 6.05 for the fiscal
quarter ended September 30, 1999 (but in any event, no later than November 15,
1999), then the maximum permitted ratio of Secured Debt to Adjusted EBITDA
applicable as of the date of such consummation, for purposes of complying with
the conditions to such Permitted Acquisition and any Loans requested in
connection therewith, shall be 4.50:1.00.
C. 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
to secure the Obligations, with the written consent of all other parties
thereto.
(2) The Acquisition Documents relating to the KASY Acquisition
shall be collaterally assigned by the Borrower to the Agent and the
Lenders to secure the Obligations, with the written consent of all other
parties thereto, as required under SECTION 2.01 of the Credit Agreement.
-3-
<PAGE> 4
(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 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 EXHIBIT B
thereto).
(4) The Borrower shall have received at least $6,000,000 in
additional cash equity contributions, the proceeds of which shall be
applied to finance a portion 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.
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 Agreement, 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 Agreement 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 Agreement 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.
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 Agreement or the other Loan Documents contemplated
hereby, if any (the "Documents").
-4-
<PAGE> 5
D. This Agreement 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. 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 Agreement.
(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 Agreement 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 Agreement and the
other Documents.
B. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
C. This Agreement 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
-5-
<PAGE> 6
signature page of this Agreement by facsimile transmission shall be effective as
an in-hand delivery of an original executed counterpart hereof.
<PAGE> 7
IN WITNESS WHEREOF, the Agent, the Borrower and the Lenders have caused
this Agreement 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 Allen
--------------------------------------
Name: Thomas Allen
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
CANADIAN IMPERIAL BANK OF
COMMERCE, AS AGENT
By /s/ Harold Birk
-------------------------------------
Harold Birk, Executive Director
CIBC Oppenheimer Corp., as Agent
CIBC INC.
By /s/ Harold Birk
--------------------------------------
Harold Birk, 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/ Christine P. Ball
--------------------------------------
Christine Ball, Vice President
(signatures continued)
<PAGE> 8
BANK OF MONTREAL, CHICAGO BRANCH
By /s/ C.T. Young
--------------------------------------
Christopher T. Young, Director
<PAGE> 9
JOINDER BY GUARANTORS
The undersigned hereby jointly and severally join in the execution of the
foregoing Third Amendment to Credit Agreement dated as of March 1, 1999 (the
"Agreement") to which this Joinder is attached to confirm their respective
consents to all of the transactions contemplated by the Agreement 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
By: /s/ Thomas Allen
-------------------------------------
Duly authorized signatory as to all
<PAGE> 1
EXHIBIT 10.43
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of April 23, 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 and the Third Amendment to Credit Agreement (the "Third Amendment")
dated as of March 31, 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 acquisition in two stages (collectively, the "Paxson
Acquisitions") of the following broadcast television stations;
WDPX-TV, serving the Springfield and Dayton, Ohio markets,
WPXG-TV, serving the Suring and Green Bay, Wisconsin markets, and
WPXU-TV, serving the Decatur and Champaign, Illinois markets,
from Paxson Communications Corporation and its operating subsidiaries
(collectively, "PCC"), pursuant to (a) the acquisition of all assets
other than FCC Licenses and FAA authorizations for an initial payment of
$32,000,000, (b) the execution and delivery of time brokerage
agreements, concurrently with such initial payment, pending receipt of
the necessary FCC approvals for the transfer of such FCC Licenses ("FCC
Transfer Approvals") and (c) payment of $8,000,000 as the balance of the
aggregate purchase price for the acquired Stations upon receipt of the
FCC Transfer Approvals, all consistent with the terms and conditions of
a certain letter of intent dated as of March 22, 1999 (the "Paxson
Letter of Intent");
(2) the execution and delivery by a PCC subsidiary and ACME
Television of Tennessee, LLC of a Joint Sales Agreement with respect to
WPXK-TV, serving the Jellico and Knoxville, Tennessee markets (the
"Paxson JSA") ; and
<PAGE> 2
(3) arrangement by the Borrower of a secondary programming
distribution agreement between The WB Television Network ("WB") and D P
Media of Battle Creek, Inc. ("D P Media") providing that WZPX-TV,
serving the Grand Rapids and Battle Creek, Michigan markets, will
broadcast programming distributed by WB, which will be provided by a
designated Subsidiary of the Borrower, all consistent with the terms and
conditions of a certain letter of intent dated as of March 22, 1999 (the
"D P Media Letter of Intent").
C. Under the D P Media Letter of Intent, Acme Holdings has agreed to
enter into, or cause to be executed, (1) a Joint Sales Agreement with D P Media
and ACME Television of Michigan, LLC, a Subsidiary of Borrower relating to
WZPX-TV and (2) an option agreement (the "D P Option Agreement") providing a
right by D P Media to require Acme Television of Michigan, LLC to purchase the
assets and properties constituting WZPX-TV at any time prior to April, 2004 and
a right on the part of Acme Television of Michigan, LLC to purchase such assets
if D P Media elects to sell WZPX-TV, at an aggregate purchase price of
$30,000,000, in each case also to be exercised in two stages (the "D P Media
Acquisition"), which D P Option Agreement will not be binding upon the Borrower
or any of its Subsidiaries; all consistent with the terms and conditions of the
D P Media Letter of Intent.
D. The Borrower wishes to cause ACME Television of Michigan, LLC, to
enter into an assignment agreement with Acme Holdings providing for the
assignment to the Borrower of all of the rights and obligations of Acme Holdings
under the D P JSA (as hereinafter defined), (the "D P JSA Assignment").
E. The Borrower wishes to obtain the consent of the Required Lenders to
the transactions described in Recitals B and D (the "Transactions") and to
certain related financial covenant amendments. Subject to certain terms and
conditions set forth herein, 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. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of each of the
conditions set forth in SECTION V, and effective on the date of the First
Closing under the Paxson Acquisition Agreement (as hereinafter defined), the
Lenders hereby agree with the Borrower that the Credit Agreement shall be
amended as follows:
A. MINIMUM EBITDA.
(1) SECTION 5.01 of the Credit Agreement is hereby amended by
inserting the letter and characters "(a)" at the beginning of the first
sentence thereof and by adding at the end of such designated SECTION
5.01(a) the following:
For purposes of calculating EBITDA for the periods of four (4) fiscal
quarters ending on June 30, 1999 and September 30, 1999, Net Income
shall not include the net income or
-2-
<PAGE> 3
loss of, or attributable to, WDPX-TV, WPXG-TV, WPXU-TV or WZPX-TV the
Paxson Stations or the D P Station.
(2) SECTION 5.01 is further amended by adding a new subsection
(b) thereof reading in its entirety as follows:
(b) Not permit EBITDA allocable to WDPX-TV, WPXG-TV, WPXU-TV and
WZPX-TV to be less than (i) ($1,100,000) in the fiscal quarter ended
June 30, 1999 or (ii) ($1,400,000) in the fiscal quarter ended September
30, 1999.
B. MAXIMUM SECURED DEBT LEVERAGE.
(1) SECTION 5.03 of the Credit Agreement is hereby amended by
deleting the table set forth therein and substituting therefor the
following:
<TABLE>
<CAPTION>
MAXIMUM RATIO OF SECURED
QUARTERLY DATE(S) DEBT TO ADJUSTED EBITDA
----------------- -----------------------
<S> <C>
March 31, 1999 3.50:1.00
June 30, 1999 and September 30, 1999 5.25:1.00
December 31, 1999 3.50:1.00
March 31, 2000 and thereafter 3.00:1.00
</TABLE>
(2) SECTION 5.03 of the Credit Agreement is hereby amended adding
at the end thereof the following:
For purposes of calculating Adjusted EBITDA for the periods of four (4)
fiscal quarters ending on June 30, 1999 and September 30, 1999, Net
Income shall not include the net income or loss of WDPX-TV, WPXG-TV,
WPXU-TV or WZPX-TV.
C. 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. KASY AND RELATED CONSENTS AMENDED. The consents set forth in SECTION
II of the Third Amendment permitting the consummation of the KASY Acquisition
(as a "Permitted Acquisition"), the KWBQ Sale and the KWBQ LMA are hereby
amended to provide that the Borrower has withdrawn its request to consummate
such transactions and that such transactions will not be effected until consent
is again sought and obtained from the Lenders. The Borrower hereby represents
and warrants that the maximum liability of the Borrower and its Subsidiaries
under the agreements entered into to date with respect to such transactions, in
the event the Borrower fails to close thereunder, is $500,000, which is
currently on deposit with the escrow agent designated by the parties. The
Borrower's counsel shall provide an opinion in connection with this Fourth
Amendment and the Paxson Acquisitions providing such additional legal
-3-
<PAGE> 4
assurances as the Agent shall reasonably request with respect to the
Borrower's liability in the event the Borrower fails to close
thereunder.
B. CONSENTS TO TRANSACTIONS. Subject to the conditions set forth in
SECTION II(C) below, the Required Lenders hereby consent to the following:
(1) the execution and delivery of an Asset Purchase Agreement
dated as of the date hereof by and among (a) 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. and Paxson Decatur License, Inc. and (b) 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, (all Subsidiaries of the Borrower formed for the purpose
of acquiring the Stations referred to therein) (the "Paxson Acquisition
Agreement"), providing for the Paxson Acquisitions (each of which shall
constitute a "Permitted Acquisition" for all purposes of the Credit
Agreement);
(2) in connection with the Paxson Acquisitions and as required
under the Paxson Acquisition Agreement, the execution and delivery of
(a) each of the Time Brokerage Agreements referred to therein (each of
which constitutes a "Permitted LMA" since it is being executed in
anticipation of a Permitted Acquisition), in the form called for therein
(the "Paxson LMAs") and (b) each of the Secondary Affiliation Agreements
(as defined in the Paxson Acquisition Agreement) to be entered into
after the "Second Closing" thereunder;
(3) the execution and delivery of the Paxson JSA;
(4) the execution and delivery of the Joint Sales Agreement dated
as of the date hereof by and between D P Media of Battle Creek, Inc. and
Acme Television of Michigan, LLC (the "D P JSA"), together with the D P
JSA Assignment as described in the Recitals to this Amendment; and
(5) the consummation of such Transactions substantially in
accordance with the foregoing agreements.
The Borrower has not submitted a request for the consent of the Required
Lenders to the D P Acquisition, nor is any such consent contemplated at this
time.
C. CONDITIONS TO CONSENTS. The foregoing consents are subject to the
following express conditions:
(1) The Paxson LMAs, the Paxson Acquisition Agreement, the Paxson
JSA, the D P JSA and all agreements and instruments related thereto or
executed from time to time thereunder (collectively, the "Paxson and D P
Media Transaction Documents") shall be collaterally assigned to the
Agent and the Lenders (with full rights to reassign as
-4-
<PAGE> 5
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 under SECTION 2.01 of the Credit Agreement.
(2) The rights and obligations of ACME Holdings under the D P JSA
shall be freely assignable by Acme Holdings to Borrower.
(3) The aggregate monthly LMA payments due and payable under the
Paxson LMAs shall not exceed the amounts set forth in the Paxson Letter
of Intent.
(4) 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 (it being understood that:
(a) certain real estate collateral requirements may be
deferred in the Agent's discretion for full satisfaction on or
before May 22, 1999,
(b) the updated Projections submitted in connection
therewith may not reflect full future compliance with financial
covenants (but no waiver of such compliance shall be implied
therefrom) and
(c) the Companies shall be permitted to consummate the
Paxson Acquisitions and the D P Acquisition upon receipt of the
applicable FCC Transfer Approvals and prior to so-called "Final
Orders" if required under the Paxson Acquisition Agreement.
(5) 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 (with all
attachments) required to be delivered prior to or concurrently with the
closing of such Permitted Acquisition (see SCHEDULE 11.02(a) to the
Credit Agreement and EXHIBIT A thereto), and (ii) cause the acquiring
Subsidiaries to enter into all Security Documents required under SECTION
2.01 of the Credit Agreement.
(6) Prior to the First Closing under (and as defined in) the
Paxson Acquisition Agreement, the Borrower shall have received at least
$7,000,000 in additional cash equity contributions, the proceeds of
which shall be applied to finance a portion of the Paxson Acquisitions,
and shall have obtained a commitment for an additional $8,000,000 in
cash equity to finance the balance of the purchase price, which
commitment shall be evidenced by documents satisfactory in from and
substance to the Agent.
(7) Prior to the Second Closing under (and as defined in) the
Paxson Acquisition Agreement, the Borrower shall have received at least
$8,000,000 in additional cash equity contributions, the proceeds of
which shall be applied to finance a portion of the Paxson Acquisitions.
-5-
<PAGE> 6
(8) 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.
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.
C. Neither the Borrower nor any Affiliate of the Borrower, including
each of the Subsidiaries party to the Paxson Acquisition Documents, 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, (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.
-6-
<PAGE> 7
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; and
(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, opinions 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.
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
Amendment. 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.
-7-
<PAGE> 8
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 Allen
--------------------------------------
Name: Thomas Allen
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, AS AGENT
By /s/ Harold Birk
--------------------------------------
Harold Birk, Executive Director
CIBC Oppenheimer Corp., as Agent
CIBC INC.
By /s/ Harold Birk
-------------------------------------
Harold Birk, 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
---------------------------------------
Christine Ball, Vice President
(signatures continued)
<PAGE> 9
BANK OF MONTREAL, CHICAGO BRANCH
By /s/ C.T. Young
--------------------------------------
Christopher T. Young, Director
<PAGE> 10
JOINDER BY GUARANTORS
The undersigned hereby jointly and severally join in the execution of the
foregoing Fourth Amendment to Credit Agreement dated as of April 23, 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
By: /s/ Thomas Allen
--------------------------------------
Duly authorized signatory as to all
<PAGE> 1
EXHIBIT 10.53
ACME TELEVISION HOLDINGS, LLC
----------------------
AMENDED AND RESTATED INVESTMENT AND LOAN AGREEMENT
----------------------
Dated June 17, 1997, as amended
and restated on
September 30, 1997
<PAGE> 2
ACME Television Holdings, LLC
Investment and Loan Agreement
Dated June 17, 1997, as amended
and restated on
September __, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. TERMS OF PURCHASE; PAYMENT TERMS.................................................................2
1.1 Purchase and Sale................................................................................2
1.2 Terms of the Debentures..........................................................................3
1.3 Terms of the Investor Units and the Class B Founder Units........................................5
1.4 Purchase Right on Additional Securities..........................................................5
1.5 Put Right........................................................................................6
1.6 Refinancing......................................................................................8
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................................8
2.1 Organization, Existence and Authority............................................................9
2.2 Authorization....................................................................................9
2.3 Non-Contravention................................................................................9
2.4 Ownership.......................................................................................10
2.5 Subsidiaries....................................................................................10
2.6 Financial Statements; Projections...............................................................11
2.7 Acquisition Transactions........................................................................11
2.8 Licenses, Permits, etc..........................................................................12
2.9 FCC Licenses....................................................................................12
2.10 Absence of Undisclosed Liabilities..............................................................13
2.11 Absence of Certain Developments.................................................................13
2.12 Accounts Receivable.............................................................................13
2.13 Title to Properties.............................................................................13
2.14 Tax Matters. ...................................................................................14
2.15 Contracts and Commitments.......................................................................15
2.16 Intellectual Property...........................................................................16
2.17 Litigation and Compliance with Laws.............................................................16
2.18 Investment Company..............................................................................17
2.19 Employee Benefit Programs.......................................................................17
2.20 Labor Laws......................................................................................18
2.21 Solvency........................................................................................18
2.22 Environmental Matters...........................................................................18
2.23 Information Supplied to Lenders and Investors...................................................19
(i)
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.24 Broker's Fee....................................................................................20
2.25 Offerees........................................................................................20
2.26 Anti-Israel Boycott.............................................................................20
2.27 Transactions with Affiliates....................................................................20
2.28 Small Business Concern, Etc.....................................................................20
SECTION 3. CLOSING CONDITIONS OF INVESTORS.................................................................21
3.1 Opinions of Company Counsel.....................................................................21
3.2 Authorization...................................................................................22
3.3 Delivery of Documents...........................................................................22
3.4 No Violation or Injunction......................................................................24
3.5 No Litigation...................................................................................24
3.6 No Adverse Change...............................................................................24
3.7 Lenders and Investors Approval..................................................................24
3.8 All Proceedings Satisfactory....................................................................24
3.9 Satisfactory Due Diligence......................................................................25
3.10 SBIC Deliveries.................................................................................25
3.11 Representations and Warranties..................................................................25
SECTION 4. FINANCIAL AND PRINCIPAL OPERATING COVENANTS.....................................................26
4.1 Indebtedness....................................................................................26
4.2 Liens...........................................................................................27
4.3 Capital Expenditures............................................................................28
4.4 Revenue and EBITDA Levels.......................................................................29
4.5 Issuance of Securities..........................................................................29
4.6 Equity Interest Distributions and Redemptions; Debt Payments....................................29
4.7 Change of Control...............................................................................30
4.8 Affiliated Transactions.........................................................................30
4.9 Sale of Assets and Certain Fundamental Changes..................................................30
4.10 No Amendments to Organizational Documents or this Agreement.....................................31
4.11 Restrictions on Other Agreements................................................................31
4.12 Change in Senior Management.....................................................................31
4.13 Annual Updates; Number of Members; Use of Proceeds; Regulatory Violation;
Economic Impact Information Amendment...........................................................31
SECTION 5. OPERATING AND REPORTING COVENANTS...............................................................33
5.1 Financial Statements; Minutes...................................................................33
5.2 Existence, Foreign Qualification and Conduct of Business........................................34
5.3 Payment of Taxes, Compliance with Laws, Etc.....................................................34
5.4 Adverse Changes.................................................................................34
5.5 Insurance.......................................................................................34
5.6 Maintenance of Properties.......................................................................35
(ii)
</TABLE>
<PAGE> 4
<TABLE>
Page
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<S> <C>
5.7 Employee Matters................................................................................35
5.8 Budget and Strategic Plan.......................................................................35
5.9 Pending Acquisition Documents, Additional Instruments and Assurance.............................35
5.10 Management Rights...............................................................................35
5.11 FCC Licenses....................................................................................36
SECTION 6. SALES COVENANT AND FCC COOPERATION..............................................................36
6.1 Sales Covenant..................................................................................36
6.2 FCC Cooperation.................................................................................38
SECTION 7. EVENTS OF DEFAULT; REMEDIES.....................................................................40
7.1 Events of Default...............................................................................40
7.2 Remedies on Default, Etc........................................................................41
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE LENDERS AND THE
INVESTORS.......................................................................................42
8.1 Representation of the Lenders and the Investors.................................................42
SECTION 9. INTERCREDITOR MATTERS...........................................................................43
SECTION 10. INDEMNIFICATION.................................................................................43
SECTION 11. DEFINITIONS.....................................................................................45
SECTION 12. GENERAL.........................................................................................50
12.1 Amendments, Waivers and Consents................................................................50
12.2 Survival of Covenants; Assignability of Rights..................................................50
12.3 Governing Law; Limitation of Litigation; Dispute Resolution.....................................51
12.4 Section Headings................................................................................52
12.5 Counterparts....................................................................................52
12.6 Notices and Demands.............................................................................52
12.7 Severability....................................................................................54
12.8 Expenses........................................................................................54
12.9 Integration.....................................................................................55
12.10 No Event of Default.............................................................................55
(iii)
</TABLE>
<PAGE> 5
AMENDED AND RESTATED
INVESTMENT AND LOAN AGREEMENT
AGREEMENT made on the 17th day of June, 1997 as amended and restated on
September __, 1997 by and among ACME TELEVISION HOLDINGS, LLC, a Delaware
limited liability company (the "Company"), Jamie Kellner, individually
("Kellner"), Douglas Gealy, individually ("Gealy"), Thomas Allen, individually
("Allen" and together with Kellner and Gealy, the "Management"), CEA CAPITAL
PARTNERS USA, L.P., a Delaware limited partnership ("CEA"), CEA ACME, INC., a
Delaware corporation ("CEA INC."), ALTA COMMUNICATIONS VI, L.P., a Delaware
limited partnership ("ALTA VI"), ALTA SUBORDINATED DEBT PARTNERS III, L.P., a
Delaware limited partnership, ("ALTA SDP"), ALTA-COMM S BY S, LLC, a Delaware
limited liability company ("ALTA S BY S"), ALTA ACME, INC., a Delaware
corporation ("ALTA INC."), BANCBOSTON VENTURES INC., a Massachusetts corporation
("BancBoston"), TCW SHARED OPPORTUNITY FUND II, L.P. ("TCW Shared Opportunity")
and LINC ACME, Corporation ("LINC", and together with CEA INC., ALTA INC.,
BancBoston and TCW Shared Opportunity, the "Investors"). CEA, ALTA VI, ALTA SDP,
ALTA S BY S and TCW LEVERAGED INCOME TRUST, L.P. ("TCW Leveraged Income"),
collectively referred to herein as the "Lenders." Unless otherwise expressly
stated herein or unless the context otherwise requires, all references to the
Company shall include all subsidiaries on a consolidated basis.
WITNESSETH
WHEREAS, subject to the terms and conditions hereof, (i) the Company has
agreed to sell and the Lenders and the Investors have agreed to purchase certain
Convertible Debentures (the "Debentures," which term shall also include any
securities delivered in exchange or replacement for any of them), (ii) the
Company has agreed to sell and the Investors have agreed to purchase certain
units of membership interests in the Company (the "Investor Units," which term
shall also include any securities delivered in exchange for any of them), and
(iii) the Company has agreed to sell and the Lenders and the Investors have
agreed to purchase Class B Founder Units of the Company;
WHEREAS, the proceeds from the sale and purchase of the Debentures, the
Investor Units and the Class B Founder Units being issued on the date hereof and
issued from time to time shall be used by the Company to fund the acquisition
(the "Station Acquisitions") of the FCC Licenses and all other assets (the
"Station Assets") used in the operation of broadcast television stations (the
"Stations") located in a number of locations, as approved from time to time by
the Lenders and the Investors as set forth in this Agreement, which such
Stations are intended to operate as affiliates of The WB Television Network
Partners, L.P., dba The WB Television Network (the "WB Network"); and
WHEREAS, the Lenders and the Investors desire to have the right to
purchase additional Debentures and Investor Units in the future to fund any
future Station Acquisitions.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
<PAGE> 6
SECTION 1. TERMS OF PURCHASE; PAYMENT TERMS
1.1 Purchase and Sale.
(a) Sale and Purchase; Initial Closing. Subject to and in reliance
upon the representations, warranties, terms and conditions of this Agreement,
the Company agrees to issue and sell to CEA, ALTA VI, ALTA SDP and ALTA S BY S
(the "Initial Lenders") and CEA INC., ALTA INC. and BancBoston (the "Initial
Investors"), and the Initial Lenders and the Initial Investors, respectively,
agree to purchase, Debentures, Investor Units and the Class B Founder Units for
an aggregate purchase price of $21,000,000. Such purchase and sale shall take
place at a closing (the "Initial Closing") to be held at such place, on such
date (the "Initial Closing Date"), and at such time and in such manner as shall
be mutually agreed upon by the Company, the Initial Lenders and the Initial
Investors. At the Initial Closing, the Company will issue the Debentures, the
Investor Units and the Class B Founder Units as set forth in Schedule I hereto
against delivery to the Company of a certified or bank cashier's check or wire
transfer of the purchase price set forth opposite the name of each Initial
Lender and Initial Investor on Schedule I hereto (the "Purchase Price"). The
Investor Units and the Class B Founder Units issued hereunder or upon conversion
of the Debentures, shall be as described in and subject to the terms of the
Company's Limited Liability Company Agreement (the "LLC Agreement"), as amended
attached hereto as Exhibit A. In addition, contemporaneously with the sale of
the Debentures, the Investor Units and the Class B Founder Units hereunder, the
Company has agreed to issue and sell certain membership interests of the Company
designated as Seller Units to Channel 32 Incorporated, certain membership
interests of the Company designated as Management Capital Units and certain
membership interests of the Company designated as Management Carry Units to the
Management and certain membership interests of the Company designated as
Founders Units to certain other persons and entities, in each case as defined
in, and in accordance and subject to, the terms of the LLC Agreement.
(b) Use of Proceeds. The Company agrees to use the full net
proceeds from the sale of the Debentures, the Investor Units and the Class B
Founder Units issued at the Initial Closing solely to fund the payment of the
cash purchase price for the acquisition of Station Assets for broadcast
television station KWBP-TV located in Salem, Oregon (the "Oregon Acquisition")
and related transaction fees, expenses and working capital. The Company agrees
to use the net proceeds from the sale of Debentures, the Investor Units and the
Class B Founder Units issued at the Subsequent Closing to fund the payment of
the cash purchase price of the Pending Acquisitions and related transaction
fees, expenses and working capital.
(c) Sale and Purchase; Subsequent Closing. Subject to and in
reliance upon the representations, warranties, terms and conditions of this
Agreement, the Company agrees to issue and sell to the Lenders and the
Investors, and the Lenders and the Investors, respectively, agree to purchase,
Debentures, Investor Units and the Class B Founder Units for an aggregate
purchase price of $14,371.849. Such purchase and sale shall take place at a
closing (the "First Subsequent Closing") to be held at such place, on such date
(the "First Subsequent Closing Date"), and at such time and in such manner as
shall be mutually agreed upon by the Company, the Lenders and the Investors. At
the First Subsequent Closing, the Company will issue the
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<PAGE> 7
Debentures, the Investor Units and Class B Founder Units as set forth in
Schedule II hereto against delivery to the Company of a certified or bank
cashier's check or wire transfer of the purchase price set forth opposite the
name of each Lender and Investor on Schedule II hereto (the "Purchase Price").
The Investor Units and the Class B Founder Units issued hereunder or upon
conversion of the Debentures, shall be as described in and subject to the terms
of the Company's Limited Liability Company Agreement (the "LLC Agreement"), as
amended attached hereto as Exhibit A.
1.2 Terms of the Debentures. The Debentures shall be dated the date of
issuance, be in the form of Exhibit B hereto, and have the following terms:
(a) Interest. The Debentures shall bear interest on the unpaid
principal amount thereof from the date of issuance thereof at the rate of ten
percent (10%) per annum, which interest shall accrue daily and compound annually
on December 31st and shall be due and payable on any payment of the Debentures,
whether as a result of maturity, prepayment, acceleration or otherwise. For
purposes of this Agreement, all interest and amounts that accrue and compound
thereon shall be hereinafter referred to as the "Interest."
(b) Principal Payments. The principal balance of the Debentures,
without set-off, deduction or counterclaim, together in each case with all
accrued Interest thereon, shall be due and payable in full on June 30, 2008.
(c) Conversion. The principal amount of, including accrued
interest on, the Debentures held by each of the Lenders are convertible in whole
into membership interests of the Company designated as Investor Units at the
election of such Lender. The Capital Contribution (as such term is defined in
the LLC Agreement) attributable to the Investor Units issued upon conversion of
the Debentures shall be equal to the principal amount of the Debentures and the
holders of such Investor Units shall be entitled to receive any Preferential
Capital Distributions (as such term is defined in the LLC Agreement) or other
distributions made after the date of their conversion as if they held such
Investor Units from the date of the initial issuance of their Debentures;
provided, however, that the aggregate Preferential Capital Distributions payable
on such Investor Units for the period through the date of conversion shall not
exceed the principal amount of the Debentures plus all accrued but unpaid
interest thereon at the per annum rate of nine percent (9%), compounded
annually, less any interest actually paid on the Debentures prior to conversion.
Upon conversion of the Debentures in accordance with this subsection (c), the
Debentures shall be cancelled and the Company shall have no further obligation
in respect thereof. Upon the delivery of the Debentures to the Company, marked
cancelled, the Lenders shall be deemed to be members of the Company holding
their respective Investor Units. The Company shall take all other action that
the Lenders request to evidence and effectuate the Lenders becoming members of
the Company holding Investor Units. The Company has authorized and has reserved
and covenants to continue to reserve, a sufficient number of Investor Units for
issuance upon conversion of the Debentures.
(d) Payments on the Debentures. All payments of principal of and
accrued Interest on the Debentures shall be made by the Company in lawful money
of the United States of America in immediately available funds not later than
12:00 p.m., Boston time, on the date
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<PAGE> 8
such payment is due, or, if such date is not a Business Day, then on the next
succeeding Business Day, at the address of the Lenders stated in Schedule I
hereto or, at such other addresses of which the Company shall have received
written notice or, at the Company's or any Lender's election, by crediting such
Lender's account at a bank designated by such Lender in writing to the Company.
(e) Prepayment. The outstanding principal amount of the Debentures
may be prepaid, in whole or in part, together with all accrued and unpaid
interest thereon at the option of the Company or as provided in Section 1.6
hereof; provided, however, that in connection with any prepayment of the
Debentures and notwithstanding anything in this Agreement to the contrary, the
holders of Investor Units shall be entitled to redeem a portion of their
Investor Units which together with any Debentures held by them and being prepaid
is comparable to the portion of the Debentures being prepaid.
(f) Stay, Extension and Usury Laws. For so long as any of the
Debentures remain outstanding, the Company covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Agreement; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Lenders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
Notwithstanding anything herein or in the Debentures which may be to the
contrary, in no event, contingency, or circumstances whatsoever shall the
interest or any amount deemed to be interest payable by the Company hereunder
with respect to the Debentures exceed the maximum amount permitted by applicable
law and, to the extent that any payments in excess of such permitted amount are
finally determined to have been received by the Lenders, such excess shall be
considered payments in respect of the principal of the Debentures and, if the
principal of the Debentures has been paid in full, shall be refunded to the
Company. All sums paid or agreed to be paid to the Lenders for the use,
forbearance, or detention of the Debentures shall, to the extent permitted by
law, be amortized, prorated, allocated, and spread throughout the entire term of
the Debentures.
1.3 Terms of the Investor Units and the Class B Founder Units. The
Investor Units and the Class B Founder Units to be issued pursuant to this
Agreement shall be issued in accordance with and subject to the terms of the LLC
Agreement.
1.4 Purchase Right on Additional Securities.
(a) The Company agrees that it will not sell or issue any
membership interests in the Company ("Membership Interests"), or bonds,
certificates of indebtedness, debentures or other securities convertible into or
exchangeable for Membership Interests, or options, warrants or rights carrying
any rights to purchase Membership Interests ("Additional Securities"), other
than Senior Debt or High-Yield Debt permitted under Section 4.1 hereof,
Management Carry
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<PAGE> 9
Units, the Seller Units and the Founder Units (as those terms are defined in the
LLC Agreement) issued in accordance with the terms of this Agreement, unless the
issuance of such Additional Securities has been authorized under Section 4.5
hereof. In order to sell any Additional Securities, the Company shall first
submit a written offer (the "Sales Offer") to each of the Lenders and Investors
and the holders of Management Capital Units and Founder Units identifying the
terms of the proposed sale (including cash price, number or aggregate principal
amount of securities and all other material terms) and offers each of them the
opportunity to purchase its pro rata share of the Additional Securities, which
shall be determined based upon their relative Non-Carry Distribution Percentages
(as defined in the LLC Agreement and determined on an as converted basis, the
"Pro Rata Share") and subject to increase for over-allotment ratably among the
participating parties if any party does not fully exercise its rights hereunder.
The Sales Offer shall specify the total principal amount of capital which the
Company intends to raise, the Station Acquisition to be funded with such
capital, the capital expenditures or other matters to be financed with such
capital, the proposed closing date for such financing (each a "Subsequent
Closing"), any exceptions contemplated to a bring-down of the representations,
warranties and covenants set forth in this Agreement after giving effect to
consummation of such Station Acquisition, and five year projections for such
Pending Acquisition (as such term is defined in Section 2.2 hereof) as well as
five year projections and a balance sheet for the Company on a pro forma basis
which shall be based upon the Company's then current financial condition and the
then current projections which have been delivered to, and accepted by, the
Lenders and the Investors after giving effect to such Pending Acquisition and
any related financing ("Pending Acquisition Pro Formas"). The Lenders, the
Investors and the holders of Management Capital Units and Founder Units shall
have a period of 30 days from receipt of the Sales Offer during which the
Company's offer shall remain open and irrevocable. Any Additional Securities so
offered which are not purchased pursuant to such Sales Offer may be sold to a
third party on terms and conditions, including price, not more favorable to the
third party than those set forth in such Sales Offer at any time within 90 days
following the date of such offer, but may not be sold to any other person or
after such 90- day period without renewed compliance with this Section 1.4.
(b) Notwithstanding anything in Section 1.4(a) or elsewhere in
this Agreement, until the Lenders and the Investors shall have purchased
Debentures and/or Investor Units with an aggregate purchase price equal to
$53,333,334, (i) the Additional Securities offered to the Lenders and the
Investors shall be Debentures and Investor Units having the same terms as the
Debentures and Investor Units issued at the Initial Closing, with the Lenders
and the Investors having the right to purchase Debentures or Investor Units, at
their option, (ii) the holders of Management Capital Units and Founder Units
shall not have the right to receive a Sales Offer or to purchase any Additional
Securities hereunder, (iii) the obligation of the Lenders and the Investors to
purchase Debentures and Investor Units with respect to any Sales Offer they have
accepted shall be conditioned upon the fulfillment of the conditions set forth
in Section 1.4(c), and (iv) if the Lenders and the Investors holding a majority
in interest of the Debentures and Investor Units (determined on an as converted
basis) accept any Sales Offer and any of the other Lenders and/or Investors do
not purchase their Future Financing Percentage (as set forth in Schedule III
hereto) of the Additional Securities, the accepting Lenders and Investors have a
right of over-allotment and, to the extent such Additional Securities are not
fully subscribed for by the accepting Lenders and/or Investors, such Lenders and
Investors shall have the right to
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<PAGE> 10
designate third party institutional investors to whom such Additional Securities
may be sold. The third party designated to purchase such Additional Securities
shall be subject to the consent of a majority in Capital Contributions of the
holders of Management Capital Units and Founder Units, which consent shall not
be unreasonably withheld.
(c) The purchase of any Additional Securities by the Lenders and
by the Investors is subject to the fulfillment of the following conditions on or
before such purchase: (a) the Company shall have furnished to the Lenders and
the Investors the Sales Offer; (b) the Company shall have delivered to the
Lenders and the Investors the agreements, documents and instruments required to
be delivered pursuant to Section 3.3(b); (c) the Company shall have complied
with all of the conditions set forth in Sections 3.1, 3.2 and 3.4 through 3.9,
3.10 and 3.11; (d) the Company shall have executed and delivered to the Lenders
and the Investors any Additional Securities purchased at such Subsequent
Closing; and (e) the full net proceeds from the sale of Additional Securities
shall be used solely for the purposes set forth in the Sales Offer, including
the acquisition of Stations, and such purposes shall have been authorized in
accordance with the terms of this Agreement.
Each of the Lenders and the Investors, respectively, may assign or Transfer (as
defined in the LLC Agreement) its rights under this Section 1.4 to any Affiliate
of such Lender or Investor which thereupon shall be deemed a "Lender" or an
"Investor" hereunder, as the case may be.
1.5 Put Right.
(a) Exercise of Put. The Company irrevocably grants to the Lenders
and the Investors the right (the "Put Option") to require the Company to
purchase all of the Debentures, Class B Founder Units and/or Investor Units then
held by any such Lender or Investor. The Put Option may be exercised (i) by
holders of a majority in interest of the Class B Founder Units, Debentures and
the Investor Units (determined on an as converted basis) with respect to all of
the Debentures, Class B Founder Units and Investor Units, at any time after the
occurrence of a Sales Event (as defined in the LLC Agreement) or any other sale
of the Company or all or substantially all of the assets of the Company or (ii)
by a majority in interest of the Lenders with respect to the Debentures held by
the Lenders, within three (3) months of the maturity date for the Debentures.
The exercising parties (the "Put Parties") shall deliver a written notice of
exercise (the "Put Notice") to the Company, which shall include their proposal
as to the Put Price (as defined below).
(b) Determination of Put Price. The cash consideration to be paid
to the Put Parties upon exercise of the Put Option (the "Put Price") shall be an
amount equal to the aggregate amount the Put Parties would have received on
account of their Debentures and/or Investor Units (treating all Debentures on an
as converted basis) upon a hypothetical liquidation of the Company following a
sale of all or substantially all of the assets of the Company for an aggregate
cash sale price equal to the Net Equity Value of the Company.
"Net Equity Value" of the Company shall mean the greater of (a) the fair
market value of the Company as determined below (whether in connection with a
Sale Transaction (as defined below), by agreement of the parties or pursuant to
appraisal) and (b) if the Put Option occurs or
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<PAGE> 11
results in connection with a recapitalization, refinancing or similar
transaction with respect to the Company, the aggregate value ascribed to the
Company in such transaction. In connection with a Put Option occurring or
resulting in connection with a sale or transfer to a third party of all or
substantially all of the membership interests or assets of the Company or a
merger or consolidation of the Company with or into another Person (a "Sale
Transaction"), the Net Equity Value of the Company shall be an amount in cash
equal to the aggregate consideration paid or payable (taking into account an
appropriate discount factor for any deferred consideration) to the Company, its
senior executives and the holders of outstanding membership interests in the
Company as consideration for such membership interests or assets, regardless of
how such consideration is paid. In the event that the Put Option does not occur
or result in connection with a Sale Transaction, for a period of fifteen (15)
days following delivery of the Put Notice, the Put Parties and the Company shall
in good faith seek to reach agreement as to the fair market value of the
Company. If the Put Parties and the Company reach such agreement, such fair
market value shall be the fair market value of the Company for purposes of this
Section 1.5. If the Put Parties and the Company are unable to reach agreement
within such 15-day period, the fair market value of the Company shall be
determined by an appraisal process and the Company and the Put Parties shall,
within three (3) Business Days after the expiration of such 15-day period, each
select an independent, non-affiliated investment banking firm of recognized
national standing or a brokerage firm having not less than five (5) years of
experience in the television broadcasting industry (each an "Independent
Appraiser"). Within twenty (20) days after selection, each Independent Appraiser
shall prepare and deliver to the Company, the Lenders and the Investors an
appraisal of the fair market value of the Company in accordance with the terms
set forth below and, in the absence of manifest error or fraud and so long as
the lower appraisal is no less than 90% of the higher appraisal, the two
appraisals shall be averaged and the result shall be the fair market value of
the Company. If the lower appraisal is less than 90% of the higher appraisal,
the two Independent Appraisers shall, within three (3) Business Days thereafter,
choose a third Independent Appraiser who shall deliver its own appraisal of the
fair market value of the Company within twenty (20) days thereafter. The two
appraisals that are closest in value shall then be averaged and the result
shall, in the absence of manifest error or fraud, be the fair market value of
the Company (unless the third appraisal is equal to the average of the first two
appraisals, in which case it shall be the fair market value of the Company). All
appraisals hereunder will appraise the fair market value of the Company (i) as a
going concern and without regard to the lack of marketability or illiquidity of
the Company's securities or other considerations relating to the nonpublic
status of the Company's securities, (ii) on the basis of what a willing buyer,
with recourse to any necessary financing, would pay to a willing seller who is
under no compunction to sell, (iii) assuming a form of transaction which will
maximize such value and (iv) taking into account the current and anticipated
developments in the regulatory environment. All costs of any appraisals shall be
borne by the Company. If the Company fails to meet its obligations under this
Section 1.5 by the date of the Put Closing, the Put Parties shall continue to
have all of the rights and benefits of this Agreement until the Net Equity Value
has been determined and their Debentures and Investor Units have been
repurchased in full.
(c) Closings After Exercise of Put Option. The closing of the
purchase and sale of any Debentures and/or Investor Units following exercise of
the Put Option (the "Put Closing") shall take place at 10:00 A.M. (Boston time)
on the earlier of (i) a date mutually agreed by the Company and the Put Parties
and (ii) the 120th day (or if such date is not a Business Day,
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<PAGE> 12
on the next succeeding Business Day) following receipt by the Company of the Put
Notice, at the offices of Alta Communications, Inc., as agent for the Put
Parties.
At the Put Closing, each Put Party shall deliver to the Company its Debentures
and/or Investor Units with duly executed stock powers or other appropriate
instruments of assignment attached, and the Company shall deliver to each Put
Party in cash or by wire transfer of clearing house funds the purchase price for
the Debentures and/or Investor Units, plus interest thereon at the rate of ten
percent (10%) per annum from the date of the Put Notice.
1.6 Refinancing. In the event that by June 30, 1998, the Company has not
completed any Station Acquisitions other than the Oregon Acquisition and/or does
not have applications pending before the FCC regarding the acquisition of three
(3) or more television broadcast stations, Lenders and the Investors holding a
majority in interest of the Debentures and the Investor Units shall have the
right to require the Company to promptly secure Bank Debt or High-Yield Debt (as
such terms are defined in Section 4.1 hereof) in an amount sufficient to prepay
fifty percent (50%) of the Debentures and redeem fifty percent (50%) of the
Investor Units, the Seller Units, the Management Capital Units and the Founder
Units and to effect such prepayment and redemption.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Lenders and the Investors to enter into the
Agreement, the Company hereby agrees with the Lenders and the Investors and
represents and warrants to the Lenders and the Investors, as of June 30, 1997,
after giving effect to the Oregon Acquisition and the transactions contemplated
hereby and in the LLC Agreement as effected on June 30, 1997, that:
2.1 Organization, Existence and Authority. The Company has been duly
formed and is validly existing as a limited liability company in good standing
under the laws of Delaware. The Company is qualified to do business in each
jurisdiction in which such qualification is required and the failure to so
qualify would have a material adverse effect on the financial condition or
results of operations of the Company. The Company has all requisite
organizational power and authority to conduct its business as presently
conducted and to enter into, execute, deliver and perform all of its duties and
obligations under this Agreement and all related instruments and agreements
executed in connection herewith. A true and complete copy of the Company's
Certificate of Formation (the "Certificate"), as amended to date, certified by
the Secretary of State of Delaware, and of the LLC Agreement, as amended to
date, certified by the Company's Secretary have previously been delivered to the
Lenders and the Investors, are complete and correct, and no amendments thereto
are pending. The Company is not in violation of any term of its Certificate or
the LLC Agreement, or, in any material respect, of any term of any agreement,
instrument, judgment, decree, order, statute, any rule or government regulation
applicable to the Company or to which the Company is a party, which would, in
any individual instance, or in any series of related instances, have a material
adverse effect on the Company.
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2.2 Authorization. This Agreement and all documents and instruments
executed by the Company pursuant hereto, including the Debentures and the
Investor Units, are valid and binding obligations of the Company, enforceable in
accordance with their 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. The execution, delivery and performance of this
Agreement and all documents and instruments contemplated hereby, the issuance
and delivery of the Debentures and the issuance of, the Investor Units, the
Seller Units, the Management Capital Units, the Management Carry Units, the
Founders Units and any securities issuable upon conversion thereof have been
duly authorized by all necessary corporate action of the Company. No consent,
approval or authorization of, or designation, declaration or filing with, any
Governmental Authority or other person or entity is required to be obtained by
the Company in connection with the execution, delivery and performance of this
Agreement or the issuance, delivery, payment, redemption or conversion of the
Debentures or of the Investor Units in accordance with the terms of this
Agreement, or the performance or consummation of the Oregon Acquisition, except
for such as shall be obtained or made prior to and effective as of the
applicable closing of such acquisition.
2.3 Non-Contravention. The execution, delivery and performance by the
Company of this Agreement and the other agreements executed pursuant hereto and
the consummation of the transactions contemplated hereby including without
limitation the issuance and delivery of the Debentures and the Investor Units,
do not and will not: (a) conflict with or result in any default under any
material contract, obligation or commitment of the Company or any provision of
the Certificate, the LLC Agreement, or corporate restriction applicable to it;
(b) result in the creation of any lien, charge or encumbrance of any nature upon
any of the properties or assets of the Company; or (c) violate any instrument,
agreement, judgment, decree or order, or any statute, rule or regulation of any
federal, state or local government or agency, applicable to the Company or to
which the Company is a party.
2.4 Ownership. Schedule 2.4 sets forth the capitalization of the Company,
including all equity and debt interests and warrants, options or other rights to
purchase or acquire, or which are convertible into, the same, (i) immediately
after giving effect to the contribution of the assets required pursuant to the
Oregon Acquisition, and (ii) immediately after the execution and delivery of the
LLC Agreement in the form attached hereto as Exhibit A and the execution of this
Agreement, the agreements related hereto and contemplated hereby and the
performance of the transactions contemplated hereby and thereby. To the
Company's knowledge, all such ownership interests of the respective members are
owned, of record and beneficially, by the applicable owner free and clear of any
adverse claims, liens, encumbrances or other restrictions other than as
specifically provided herein or in the documents contemplated hereby or in the
LLC Agreement. Except as set forth in the LLC Agreement, the Company has not
issued any warrants, options or other rights to purchase or acquire any of, or
any securities convertible into, or options to acquire securities convertible
into, any membership interest in the Company or any capital stock or any other
equity interest of the Company's members, and, except as provided in the LLC
Agreement and in this Agreement, the Company does not have any obligations to
repurchase or redeem any of its outstanding membership interests.
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<PAGE> 14
2.5 Subsidiaries. Except as provided in Schedule 2.5, the Company does
not own or have, nor has it previously owned or had, any direct or indirect
interest in, control over or loan or advance to, any Person, corporation,
partnership, joint venture or other entity of any kind. Each of the subsidiaries
of the Company on Schedule 2.5, is a duly organized, validly existing limited
liability company in good standing under the laws of the state in which such
subsidiary was formed and is duly qualified to do business as a foreign limited
liability company and in good standing in each jurisdiction in which the failure
to be so qualified could have a material adverse effect on the Company. Each
subsidiary on Schedule 2.5 has full organizational power and authority to own or
lease its properties and to conduct their businesses as currently conducted. All
of the ownership interests in the subsidiaries are owned beneficially and of
record by the Company and/or a wholly-owned subsidiary of the Company, free of
any Liens and said ownership interests have been duly and validly issued and are
outstanding, fully paid and non-assessable. The copies of the organizational
documents of the subsidiaries set forth on Schedule 2.5, as amended to date,
which have been furnished to counsel for the Lenders and the Investors prior to
the date hereof are complete and correct, and no amendments thereto are pending.
None of the subsidiaries are in violation of any term of their respective
organizational documents. There are no outstanding warrants, options or other
rights to purchase or acquire any ownership interests in any of the Company's
subsidiaries, or any outstanding securities convertible into such interests or
outstanding warrants, options or other rights to acquire any such convertible
securities.
2.6 Financial Statements; Projections. The Company has heretofore
furnished to the Lenders and the Investors statements of operation and the
related balance sheets for the fiscal year ended December 31, 1996, for Channel
32 Incorporated, the previous owner of the assets acquired pursuant to the
Oregon Acquisition, and Management's five year projections for the Company, a
copy of each of which is attached hereto as Schedule 2.6. Nothing has come to
the attention of the Management of the Company since such dates which would
indicate that the financial statements for Channel 32 Incorporated were not true
and correct in all material respects as of the date thereof. The projections for
Pending Acquisitions and the Pending Acquisition Pro Formas provided pursuant to
Section 5.1 shall be true and correct when delivered. The projections included
in Schedule 2.6 hereto and any Pending Acquisition Pro Formas subsequently
provided pursuant to Section 5.1 represent and/or shall represent the Company's
good faith estimates of the Company's future performance based upon assumptions
which are set forth therein and which the Company in good faith believes were
reasonable when made and continue to believe to be reasonable and the Company
makes no other representations in respect of such projections.
2.7 Acquisition Transactions.
(a) The Company represents and warrants that the Oregon
Acquisition has been consummated in accordance with the terms of the Asset
Purchase Agreement attached as Exhibit D-1. The Company represents and warrants
that the copies of the Asset Purchase Agreement and the Management Agreement in
connection with the Oregon Acquisition, as attached hereto as Exhibit D-1, are
true, complete, in full force and effect without amendment, modification or
waiver (except as previously disclosed to the Investors and the Lenders in
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writing), have not been breached by any of the parties thereto or amended or
superseded and are valid, binding and enforceable obligations of the respective
parties thereto.
(b) Attached hereto as Exhibit D-2 are all of the letters of
intent, purchase and sale agreements, time brokerage, local marketing and
programming agreements, escrow agreements, deposit agreements and all such other
material agreements to which the Company is a party and which are currently in
effect with respect to any proposed Station Acquisitions by the Company. The
Company represents and warrants that neither the Company nor any of its
Affiliates have any other agreements, arrangements or understandings, whether
written or oral, regarding acquisitions of television stations (or any deposits,
rights of first refusal or understandings with respect thereto), other than the
acquisitions evidenced by the documents attached as Exhibit D-2, this Agreement
and the LLC Agreement.
(c) All agreements, instruments, schedules and exhibits relating
to any Station Acquisition which is scheduled to close concurrently with any
Subsequent Closing (each, a "Pending Acquisition") ("Pending Acquisition
Documents") delivered to the Lenders and the Investors pursuant to Section
5.9(a) shall be, when delivered, in full force and effect without amendment,
modification or waiver, shall be valid, binding and enforceable obligations of
the parties thereunder and shall not have been breached by any of the parties
thereto or otherwise amended or superseded.
2.8 Licenses, Permits, etc. The Company holds all authorizations,
approvals, orders, certificates, franchises, permits and licenses (including,
without limitation, all FCC Licenses) to conduct its business as presently
conducted or necessary to permit the Company to own its properties and to
conduct its business as presently conducted and which the failure to so hold
could have a material adverse effect (collectively, "Licenses") and to enter
into, execute, deliver and perform all of its duties and obligations under this
Agreement and all related instruments and agreements executed in connection
therewith. Schedule 2.8 correctly sets forth all the Licenses (including the FCC
Licenses) which are held by the Company, and correctly sets forth the issuer and
termination date of each License. To the Company's knowledge, each License was
duly and validly issued by the issuer thereof pursuant to procedures which
complied with all requirements of applicable law. The Company is in compliance
in all material respects with the terms of each License. No rights of the
Company under any License conflict with the valid rights of others, except for
such conflicts which could not reasonably be expected to have a material adverse
effect. To the Company's knowledge, no event has occurred which permits, or
after notice or lapse of time or both would permit, the revocation or
termination of any License or any applicable regulatory approvals, which
revocation or termination could have a material adverse effect.
2.9 FCC Licenses. The Company holds, free and clear of all Liens, all FCC
Licenses required for and/or used in the ownership and operation of the
television station which is the subject of the Oregon Acquisition (the
"Station") as presently operated, including, without limitation, all commercial
broadcast station and auxiliary licenses, permits, authorizations and other
certificates required by the FCC rules, regulations and policies (the "FCC
Rules") and the Communications Act of 1934, 47 U.S.C. Section 151 et. seq., as
amended (the "Communications Act") (collectively, the "FCC Licenses"). The FCC
has granted an initial order, subject to an appeal
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period, approving the Oregon Acquisition. The FCC Licenses are and after giving
effect to the Oregon Acquisition will be valid and in full force and effect,
unimpaired by any act, omission or condition which could have a material adverse
effect (other than the fact that the FCC approval for the Oregon Acquisition is
not yet final and non-appealable). The Company has timely filed all applications
for renewal or extension of all FCC Licenses, and all such applications have
been granted without the imposition of any material adverse conditions. Except
for actions or proceedings affecting the broadcasting industry generally and
except as disclosed on Schedule 2.9, no petition, action, investigation, notice
of violation or apparent liability, notice of forfeiture, orders to show cause,
complaint or proceeding is pending or, to the Company's knowledge, threatened
before the FCC or any other Governmental Authority with respect to the Company
or the Station or seeking to revoke, cancel, suspend or modify any of the
material FCC Licenses held by the Company or any subsidiary. Except as otherwise
expressly contemplated by this Agreement, no prior FCC consent is required in
connection with the execution, delivery and performance of this Agreement and
the agreements and instruments contemplated hereby or in connection with any
Subsequent Closing. Except as set forth in Schedule 2.9 hereto, the Company does
not have any knowledge of any fact that is likely to result in the denial of an
application for renewal, or the revocation, material adverse modification,
nonrenewal or suspension of any of the FCC Licenses, or the issuance of a
cease-and-desist order, or the imposition of any administrative or judicial
sanction with respect to the Station. Each of the Company and the Station is in
compliance in all material respects with the terms of the FCC Licenses and all
applicable filing and operating requirements of 47 C.F.R. Part 73 and all other
applicable FCC Rules and the Communications Act.
2.10 Absence of Undisclosed Liabilities. Except as and to the extent
disclosed in the most recent financial statements delivered to the Lenders and
the Investors under this Agreement or any Schedule thereto, the Company does not
have any material liability or liabilities arising out of any transaction or
state of facts existing prior to the date hereof and required to be disclosed in
a balance sheet prepared in accordance with general accepted accounting
principles ("GAAP") and the Company has no other material contingent liability
or liabilities arising out of any transaction or state of facts existing prior
to the date hereof which are not specifically disclosed elsewhere in this
Agreement or the Schedules hereto.
2.11 Absence of Certain Developments. Since the date of the Company's
formation and except as disclosed in Schedule 2.11, there has been: (a) no
material adverse change in the condition or reasonably foreseeable prospects
(financial or otherwise) of the Company or in the assets, liabilities,
properties or business of the Company or to the best knowledge of the Company,
the WB Network; (b) no declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any ownership interest in the Company; (c) no waiver of any
valuable right of the Company or cancellation of any material debt or claim held
by the Company; (d) no material loan by the Company to any officer, director,
employee or shareholder of the Company, or any agreement or commitment therefor;
(e) no increase, direct or indirect, in the compensation paid or payable to any
officer, director, employee, agent or shareholder of the Company (other than
salary increases in the ordinary course of business consistent with past
practice); (f) no material loss, destruction or damage to any property of the
Company, whether or not insured; (g) no labor trouble involving the Company and
no material change in the senior management or other key personnel of the
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<PAGE> 17
Company, or the terms and conditions of their employment, and (h) except as
contemplated by this Agreement, no acquisition or disposition of any assets (or
any contract or arrangement therefor), time brokerage or local marketing
agreement or any other material transaction by the Company outside the ordinary
course of business.
2.12 Accounts Receivable. Except as disclosed elsewhere in this Agreement
or the Schedules hereto, to the best knowledge of the Company, all of the
accounts receivable of the Company represent bona fide completed sales made in
the ordinary course of business are valid and enforceable claims subject to no
set-off or counterclaim and collectible in the ordinary course and are subject
to the reserves set forth in the Financial Statements with respect thereto are
appropriate under GAAP. The Company has no accounts receivable from any of its
members of its Board of Advisors, officers, employees or members.
2.13 Title to Properties. Except as disclosed in Schedule 2.13, the
Company has good and marketable title to all of its properties and assets, free
and clear of any Liens, and such properties and assets constitute all of the
assets necessary for the conduct of the Company's business as presently
conducted. All owned and leased real estate of the Company is listed on Schedule
2.13. A true and complete copy of each real property lease to which the Company
is a party has been delivered to the Lenders and the Investors, and each such
lease is in full force and effect. No material default or event of default on
the part of the Company exists under any such lease, and the Company has not
received any written notice of default under any such lease or any indication in
writing that the owner of the leased property intends to terminate such lease.
The Company is not in violation of any zoning, land-use, building or safety law,
ordinance, regulation or requirement or other law or regulation applicable to
the operation of its owned or leased properties, except for such violations
which could not have a material adverse effect, nor has it received any written
notice of violation with which it has not complied. All real property occupied
pursuant to leases, and all tangible personal property owned or leased by the
Company and required for the purpose of carrying on its business and operations
as currently conducted are in good operating condition and repair, ordinary wear
and tear excepted, and no material portion of any such real or personal property
has suffered any damage by fire or other casualty which has not heretofore been
completely repaired and restored to its original condition.
2.14 Tax Matters. Except as set forth in Schedule 2.14 hereto:
(a) The Company has paid or caused to be paid all federal, state,
local, foreign, and other taxes, including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes, franchise
taxes, employment and payroll-related taxes, withholding taxes, transfer taxes,
and all deficiencies, or other additions to tax, interest, fines and penalties
owed by it (collectively, "Taxes"), required to be paid by it through the date
hereof, except for Taxes being contested by the Company in good faith by
appropriate proceedings and for which an appropriate reserve has been
established under GAAP. All Taxes and other assessments and levies which the
Company is required to withhold or collect have been withheld and collected and
have been paid over to the proper Governmental Authorities. The Company has, in
accordance with applicable law, timely and properly filed all federal, state,
local and foreign tax returns required to be filed by it through the date hereof
and all such returns correctly and accurately set forth the amount of any Taxes
relating to the applicable period. The Company
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<PAGE> 18
shall take all actions which are necessary or appropriate to ensure that the
Company meets all requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), the treasury regulations promulgated thereunder and currently
applicable rulings and revenue procedures of the Internal Revenue Service (the
"IRS"), as the same may be modified or amended in the future, to assure that the
Company will be classified for federal income tax purposes as a partnership and
not as an association taxable as a corporation, and the Company shall refrain
from taking any action that would cause the Company to be classified other than
as a partnership for federal income tax purposes.
(b) Neither the IRS nor any other Governmental Authority is now
asserting or, to the knowledge of the Company, has threatened to assert against
the Company any deficiency or claim for additional Taxes. No written claim has
ever been made by an authority in a jurisdiction where the Company does not file
reports and returns that the Company is or may be subject to taxation by that
jurisdiction. There are no Liens on any of the assets of the Company that arose
in connection with any failure (or alleged failure) to pay any Taxes, except
Liens for Taxes not yet due and payable. The Company has never entered into a
closing agreement pursuant to Section 7121 of the Code. The Company is not and
never has been a "personal holding company" as defined under Section 541 of the
Code. Except as set forth on Schedule 2.14, there has not been any audit of any
tax return filed by the Company, no such audit is in progress, and the Company
has not been notified in writing by any tax authority that any such audit is
contemplated or pending. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes. The Company is not now and has never been a
member of an affiliated group filing a consolidated federal income tax return.
The Company does not have any liability for the Taxes of any person or entity.
(c) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections.
2.15 Contracts and Commitments. Except as set forth in this Agreement
(including the Schedules hereto) and the LLC Agreement, neither the Company nor
any member of Management is a party to any contract, obligation, commitment or
understanding relating to the business of the Company or the acquisition,
operation, management or disposition of Station Assets: (a) which involves a
potential commitment or payment in excess of $50,000 or which is otherwise
material and not entered into in the ordinary course of business; (b) with the
WB Network, any of its Affiliates, any of the Company's officers or key
employees or persons or organizations related to or Affiliated with any such
persons; (c) which relates to the acquisition or disposition of, or the
provision of programming or network affiliation for, any television stations;
(d) which relates to the provision of investment banking or brokerage services;
or (e) which relates to the purchase, redemption, transfer or voting of its
membership interests, and copies of all such agreements have been delivered or
made available to the Lenders, the Investors and their counsel (all such
contracts and commitments are collectively referred to as the "Material
Agreements"). Except as set forth on Schedule 2.15, the Company does not have
any outstanding Indebtedness. Other than termination or expiration in the
ordinary course of business, the Company does not know of any basis for the
termination, expiration or
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modification of any of the Material Agreements within one year from the date
hereof nor has it received any notice thereof, which termination, expiration or
modification would not be at the Company's option, as the case may be. Neither
the Company nor any member of Management is in default in any material respect
under any Material Agreement, and to the best knowledge of the Company there is
no state of facts which upon notice or lapse of time or both would constitute
such a default. Neither the Company nor any member of Management is a party to
any contract or arrangement which under circumstances reasonably foreseeable is
reasonably likely to have a material adverse effect on, or prove to be unduly
burdensome to, the Company. The Company does not have any liability for
renegotiation of any government contracts or subcontracts.
2.16 Intellectual Property. Except with respect to syndication and
programming agreements, set forth in Schedule 2.16 hereto is a list and brief
description of all material patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights owned by or registered in the name of the Company, or
of which the Company is a licensor or licensee or in which the Company has any
right. The Company owns free and clear of claims or rights of any other person,
or possesses licenses to use, all patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, programming processes and software,
algorithms, formulae, trade secrets and know how (collectively, "Intellectual
Property") necessary to the conduct of its business as presently conducted. The
Company has no knowledge of any infringement by any other person of any rights
of the Company under any Intellectual Property. No claim is pending or, to the
knowledge of the Company, threatened against the Company nor has the Company
received any notice from any third parties to the effect that any Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, or the operation, products or services of the Company,
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the knowledge of the Company, there is no basis
for any such claim (whether or not pending or threatened). All licenses or other
agreements listed in Schedule 2.16 are in full force and effect and neither the
Company nor, to the knowledge of the Company, any other party thereto is in
material default thereunder.
2.17 Litigation and Compliance with Laws.
(a) There is no investigation, action, suit or proceeding at law
or in equity or by or before any Governmental Authority now pending or, to the
best knowledge of the Company threatened against the Company or key employee of
the Company, which calls or has a possibility of calling into question the
validity, or hindering the enforceability or performance, of this Agreement or
any action taken or to be taken pursuant hereto or by any of the other
agreements and transactions contemplated hereby; nor to the best knowledge of
the Company, has there occurred any event or does there exist any condition on
the basis of which any such litigation, proceeding or investigation should
reasonably be anticipated to be instituted and have a material adverse effect on
the Company or the business prospects of the Company.
(b) The Company is and at all times during its existence has been
in material compliance with all laws and governmental rules and regulations,
domestic or foreign and all
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export control or similar laws or regulations (including without limitation,
those relating to copyright, including the Copyright Act of 1976, 17 U.S.C.
Section 101 et seq.), except where non-compliance therewith, in any individual
instance or any series of related instances, would not have a material adverse
effect on the Company. The Company is not in default in any material respect
with respect to any judgment, order, writ, injunction, decree, demand or
assessment to which the Company or its assets are subject or by which the
Company is bound and which has been issued by any court or any federal, state,
municipal or other governmental or self-regulatory agency, organization, board,
commission, bureau, instrumentality or department, domestic or foreign, of
competent jurisdiction, relating to any aspect of the business, prospects,
affairs, properties or assets of the Company. The Company has not been charged
or threatened with, nor, to the best knowledge of the Company, has it been under
investigation with respect to, any material violation of material federal,
foreign, state, municipal or other law or any administrative rule or regulation,
domestic or foreign in any matter directly relating to or affecting the
business, prospects, affairs, properties or assets of the Company.
2.18 Investment Company. The Company is not an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), and will not be an "investment company" under the 1940 Act after
giving effect to the Oregon Acquisition, including the use of proceeds from the
sale of the Debentures and Investor Units on the date hereof.
2.19 Employee Benefit Programs. Except as set forth on Schedule 2.19
hereto, the Company does not maintain and has not in the past maintained any
Employee Program (as defined herein). For purposes of this Section 2.19,
"Employee Program" means (a) all employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, but not limited to, multiple employer welfare arrangements
(within the meaning of ERISA Section 3(4)), plans to which more than one
unaffiliated employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (b) all stock option
plans, bonus or incentive award plans, severance pay policies or agreements,
deferred compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans, agreements, and arrangements not
described in (a) above. An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program, or
has any obligation (by agreement or under applicable law) to contribute to or
provide benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or their
spouses, dependents, or beneficiaries). The Company has not maintained any
employee benefit plan to which more than one employer contributes pursuant to
one or more collective bargaining agreements. Schedule 2.19 sets forth a list of
every Pension Plan (as hereinafter defined) that has been maintained by the
Company at any time during the twelve-month period ending on the Initial Closing
Date and on and as of any Subsequent Closing Date. After giving effect to the
Oregon Acquisition, the Company has not incurred (a) any material accumulated
funding deficiency within the meaning of ERISA, or (b) any material liability to
the Pension Benefit Guaranty Corporation established under ERISA (or any
successor thereto under ERISA) in connection with any Pension Plan established
or maintained by it. After giving effect to the Oregon Acquisition, the Company
has not had any tax assessed against it by the IRS for any alleged violation
under Section 4975 of the Internal Revenue Code. The
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Company does not have any unfunded liability under a Pension Plan or a
contingent liability for withdrawal from a multi-employer Pension Plan except as
disclosed in the financial statements. "Pension Plan" shall mean an employee
benefit plan or other plan maintained for the employees of the Company as
described in Section 4021(a) of ERISA.
2.20 Labor Laws. Schedule 2.20 sets forth the names of the individual
employees employed by the Company who are subject to written or oral contracts
of employment. The Company is not (i) subject to any collective bargaining
agreement or other labor agreement, or (ii) delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Except as set forth on Schedule
2.20, upon termination of the employment of any of said employees, the Company
will not be obligated to provide advance notice of termination of employment or
be liable to any of said employees for so-called "severance pay." The Company
(i) is in material compliance with all applicable laws and regulations
respecting labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours, (ii) there are no charges of employment
discrimination or unfair labor practices or strikes, slowdowns, stoppages of
work, or any other concerted interference with normal operations existing,
pending or, to the knowledge of the Company, threatened against or involving the
Company, and (iii) no union has demanded or requested to represent or, to the
best knowledge of the Company, is currently attempting to represent, any of the
Company's employees.
2.21 Solvency. The Company has not to the best knowledge of the Company:
(a) made a general assignment for the benefit of creditors; (b) filed any
voluntary petition in bankruptcy or suffered the filing of any involuntary
petition by its creditors; (c) suffered the appointment of a receiver to take
possession of all, or substantially all, of its assets; (d) suffered the
attachment or other judicial seizure of all, or substantially all, of its
assets; (e) admitted in writing its inability to pay its debts as they come due;
or (f) made an offer of settlement, extension or composition to its creditors
generally. The Company believes that it (a) will be able to pay its debts as
they come due in the usual course of business and will have adequate capital to
conduct its business; and (b) will have total assets greater than its total
liabilities (total assets for this purpose being determined on the basis of the
"fair saleable value" thereof). For purposes of this Section 2.21, the "fair
saleable value" of assets means the gross amount (without deduction for costs of
sale, taxes or other payments) of money that might be expected to be realized,
as of the valuation date, from an interested purchaser in a not theoretical
market aware of all relevant information and a seller, equally informed, who is
interested in disposing of the entire operation as a going-concern, neither
party being under a compulsion to act.
2.22 Environmental Matters.
(a) Except as disclosed on Schedule 2.22, and except for
individual instances or any series of related instances which would not have a
material adverse effect on the assets, business prospects, or financial
condition of the Company: (i) to the best knowledge of the Company, the Company
has never generated, transported, used, stored, treated, disposed of, or managed
any Hazardous Waste (as defined in Section 2.22(c) below) in violation of any
Environmental Law, nor has the Company contracted with any party for the
generation,
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transportation, use, storage, treatment, disposal or management of any Hazardous
Waste in violation of any Environmental Law; (ii) to the best knowledge of the
Company, the Company does not presently own, operate, lease, or use, nor has it
previously owned, operated, leased, or used any site on which underground
storage tanks are or were located or which contain or contained any asbestos or
asbestos-containing material, any polychlorinated byphenyls ("PCBs") or
equipment containing PCBs, or any urea formaldehyde foam insulation; and (iii)
the Company, the operations of its businesses, and any real property owned,
operated, leased, or used by the Company, and any facilities and operations of
the Company thereon, are presently in compliance in all material respects with
all applicable Environmental Laws and any and all orders or directives of any
governmental authorities having jurisdiction under such Environmental Laws,
including, without limitation, any orders or directives with respect to any
clean-up or remediation of any release or threat of release of any Hazardous
Material.
(b) With respect to the Oregon Acquisition, the Company has
provided to the Lenders and the Investors copies of all material documents,
records, and information reasonably available to the Company concerning any
environmental or health and safety matter relevant to the Station, whether
generated by the Station, or others, including, without limitation,
environmental or health and safety audits, environmental or health and safety
risk assessments, site assessments, documentation regarding off-site treatment,
storage or disposal of Hazardous Materials, spill control plans, discharge
monitoring reports, hazardous waste manifests, community right-to-know filings,
insurance policies, and reports, correspondence, permits, licenses, approvals,
consents, registrations and other authorizations related to or filed with
environmental or health and safety matters issued by or filed with any
Governmental Authority with respect to such matters.
(c) For purposes of this Section 2.22, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, asbestos, polychlorinated byphenyls, urea
formaldehyde, toxic substance, pollutant, contaminant, or other substance which
may pose a threat to the environment or to human health or safety, as defined or
regulated under any Environmental Law; (ii) "Hazardous Waste" shall mean and
include any hazardous waste as defined or regulated under any Environmental Law;
(iii) "Environmental Law" shall mean any environmental or health and
safety-related law, regulation, rule, ordinance, or by-law at the federal,
state, or local level existing as of the date hereof or previously enforced; and
(iv) the "Company" shall mean and include the Company and all other entities for
whose conduct the Company is or may be held responsible under any Environmental
Law including, but not limited to, lessees.
2.23 Information Supplied to Lenders and Investors. Neither this
Agreement, nor the Schedules referenced herein, nor any certificate or written
statement furnished to the Lenders and the Investors by or on behalf of the
Company pursuant to the terms hereof, when taken together, contain any untrue
statement of a material fact, and none of this Agreement, the Schedules or such
other documents, omits to state a material fact necessary in order to make the
statements contained therein not misleading. To the Company's knowledge, there
is no material fact directly relating to its business, operations or condition
of the Company (other than facts which relate to general economic or industry
wide conditions) that materially adversely affects or, to the best of the
Company's knowledge, in the future in the reasonable business judgment of the
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Company (so far as it may now foresee based upon material facts of which it is
now aware) is reasonably likely to materially adversely affect the same that has
not been set forth in this Agreement or in the Schedules hereto.
2.24 Broker's Fee. Except as set forth on Schedule 2.24 hereto, the
Company has not incurred or become liable for any brokerage commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement. The Company agrees to indemnify Lenders and the Investors
against any claims against the Lenders or the Investors for brokerage fees or
commissions payable to any broker or finder retained by or on behalf of the
Company in connection with the financing contemplated by this Agreement and to
pay all expenses incurred by the Lenders and the Investors in connection with
the defense of any action brought to collect any brokerage fees or commissions
by any such broker or finder.
2.25 Offerees. Neither of the Company nor Management or anyone acting on
their behalf has in the past sold, offered for sale or solicited offers to buy
any securities of the Company so as to bring the offer, issuance or sale of the
securities issued to the Lenders and the Investors, within the provisions of
Section 5 of the Securities Act, unless such offer, issuance or sale was within
the exemptions of Section 4 thereof. The Company has complied with all
applicable Federal and state securities laws, including blue-sky laws, in
connection with the offer, solicitation of offers and sales of its securities.
2.26 Anti-Israel Boycott. Neither of the Company nor any Affiliate
thereof has participated in, or is participating in, an anti-Israeli boycott
within the scope of Chapter 7 of Part 2 of Division 4 of Title 2 of the
California Government Code as in effect from time to time.
2.27 Transactions with Affiliates. Except as set forth in Schedule 2.27,
neither the Company nor any officer, employee, manager or director of the
Company or any of their respective spouses or family members or any of their
Affiliates, owns, directly or indirectly, on an individual or joint basis, any
material interest or serves as an officer, director, partner, or in another
similar capacity of, any competitor of the Company, any organization which has a
contract or arrangement with the Company, including the WB Network or Warner
Brothers, a division of Time Warner Entertainment Company, L.P. ("WB") or any of
the Lenders or the Investors. Except as set forth in Schedule 2.27, the Company
is not a party to any transactions with, nor has the Company made any payments
or distributions to or for the benefit of, any officer or key employee of the
Company or persons or entities controlling, controlled by, under common control
with or otherwise Affiliated with the Company or any of the Lenders or the
Investors.
2.28 Small Business Concern, Etc.
(a) The Company, together with its "affiliates" (as that term is
defined in 13 C.F.R. Section 121.103), is a "smaller business" within the
meaning of SBIC Regulations, including 13 C.F.R. Section 107.710. The
information regarding the Company and its affiliates set forth in SBA Forms 480
and 652 and Section A of SBA Form 1031 delivered prior to the Initial Closing
Date is accurate and complete. Neither the Company nor any subsidiary of the
Company presently engages in, or shall hereafter engage in, any activities, nor
shall the Company or any subsidiary
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<PAGE> 24
of the Company use the proceeds of the sale of the Class B Founder Units,
Debentures and Investor Units hereunder directly or indirectly for any purpose
for which an SBIC is prohibited from providing funds by the SBIC Regulations
(including, without limitation, 13 C.F.R. Section 107.720).
(b) As of the date hereof, the primary business activity of the
Company is (i) as set forth in the LLC Agreement and (ii) classified under
Standard Industrial Classification Code number 4833 (Television Broadcasting
Stations).
(c) For all purposes of this Agreement, the following terms shall
have the following meanings:
(i) "SBA" means the United States Small Business
Administration, and any successor agency performing the functions
thereof;
(ii) "SBIC" means a Small Business Investment Company
licensed by the SBA under the SBIC Act;
(iii) "SBIC Act" means the Small Business Investment Act of
1958, as amended; and
(iv) "SBIC Regulations" means the SBIC Act and the
regulations issued by the SBA thereunder, codified at Title 13 of the
Code of Federal Regulations ("13 C.F.R."), Parts 107 and 121.
SECTION 3. CLOSING CONDITIONS OF INVESTORS
The Lenders' and the Investor's obligation to purchase and pay for the
Debentures and the Investor Units, whether with respect to the purchase to be
consummated at the Initial Closing or at Subsequent Closings, shall be subject
to compliance by the Company with the following conditions:
3.1 Opinions of Company Counsel. The Lenders and the Investors shall have
received from counsel for the Company, Dickstein Shapiro Morin & Oshinsky L.L.P.
its favorable opinion, dated as of the date of the Initial Closing or the
Subsequent Closings, as the case may be, substantially in the form attached
hereto as Exhibit E-1 and a FCC regulatory opinion substantially in the form
attached hereto as Exhibit E-2.
3.2 Authorization. The Company shall have duly adopted resolutions in
form reasonably satisfactory to the Lenders and the Investors authorizing it to
consummate the transactions contemplated hereby in accordance with the terms
hereof, including, without limitation, the issuance of the Debentures, the
issuance of the Investor Units, and upon conversion of the Debentures and the
Investor Units, the securities resulting from such conversion, the Station
Acquisition to be consummated with the Initial Closing or the Subsequent
Closing, as the case may be, and the Lenders and the Investors shall have
received
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<PAGE> 25
duly executed certificate(s) of an authorized officer of the Company setting
forth a copy of such resolutions and such other matters as may be requested by
the Lenders and the Investors.
3.3 Delivery of Documents.
(a) Concurrently with the Initial Closing of the transactions
contemplated hereby, the Company shall have executed and delivered to the
Lenders and the Investors (or shall have caused to be executed and delivered to
the Lenders and the Investors, by the appropriate Persons), the following:
(i) The Debentures;
(ii) Certified copies of resolutions of the Company
authorizing the execution and delivery of this Agreement, the Debentures
and the other transfers, agreements, documents and instruments
contemplated hereby, including the Oregon Acquisition;
(iii) A copy of the Company's Certificate, as amended,
certified as of a recent date by the Secretary of State of Delaware and a
copy of the Company's LLC Agreement, as amended;
(iv) The Registration Rights Agreement in the form attached
hereto as Exhibit F;
(v) A copy certified by an officer of the Company of any
affiliation agreement to which the Company is a party with the WB Network
relating to the Oregon Acquisition and dated prior to or as of the date
of the Initial Closing;
(vi) Employment Agreements executed by the Company and each
of Messrs. Allen and Gealy and a Consulting Agreement executed by the
Company and Mr. Kellner, satisfactory in form and substance to the
Lenders and the Investors; and
(vii) Such other supporting documents and certificates as
the Initial Lenders and the Initial Investors may reasonably request and
as may be required pursuant to this Agreement.
(b) Concurrently with any Subsequent Closing, the Company shall
have executed and delivered to the Lenders and the Investors (or shall have
caused to be executed and delivered to the Lenders and the Investors, by the
appropriate Persons), the following:
(i) The Additional Securities to be issued in connection
therewith;
(ii) Certified copies of the Company authorizing the
issuance and sale of the Additional Securities and other transactions,
agreements, documents and instruments contemplated in connection with the
sale of Additional Securities, including any Pending Acquisitions;
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<PAGE> 26
(iii) A copy of the Company's Certificate, as amended,
certified as of no more than five (5) Business Days prior to the date of
the Subsequent Closing by the Secretary of State of Delaware and a copy
of the Company's LLC Agreement, as amended;
(iv) A copy certified by an officer of the Company of any
affiliation agreement to which the Company is a party with the WB Network
relating to the Pending Acquisition dated prior to or as of the date of
the Subsequent Closing;
(v) A Certificate in substantially the form of Exhibit C
hereto, dated as of the date of such Subsequent Closing, stating that
each of the representations and warranties, covenants and agreements of
the Company and Management made hereunder on the date hereof remain in
full force and effect after giving effect to (i) the Oregon Acquisition,
(ii) the Pending Acquisition scheduled to be consummated concurrently
with the Subsequent Closing and (iii) any other Station Acquisition
consummated after the Initial Closing but prior to the relevant
Subsequent Closing; provided that, whenever any such representation and
warranty, covenant or agreement refers to (i) the "Oregon Acquisition" it
shall be deemed to refer to the "Pending Acquisition" and give effect to
the Oregon Acquisition, the Pending Acquisition scheduled to be
consummated concurrently with the Subsequent Closing and to any other
Station Acquisition by the Company consummated after the Initial Closing
but prior to the relevant Subsequent Closing; and (ii) the stations, the
assets, property or business of the Company it shall be deemed to refer
to the television broadcast station, the assets, the property and the
business which is the subject of the Pending Acquisition scheduled to be
consummated concurrently with the Subsequent Closing and to any other
Stations acquired after the Initial Closing but prior to the relevant
Subsequent Closing; and
(vi) Such other supporting documents and certificates as
the Lenders and the Investors may reasonably request, and as may be
required pursuant to this Agreement.
3.4 No Violation or Injunction. After giving effect to the Oregon
Acquisition and to any Pending Acquisitions, the consummation of the
transactions contemplated by this Agreement shall not be in violation of any law
or regulation applicable to the Company, shall not be subject to any injunction,
stay or restraining order and shall not require any filings, approvals or
consents which shall not have previously been made or obtained.
3.5 No Litigation. After giving effect to the Oregon Acquisition and to
any Pending Acquisitions, no litigation, suit, action, claim or investigation
shall be pending, or threatened, which might impair or prevent the performance
of the Company hereunder or the transactions contemplated herein or which may
have a material adverse effect on the Company.
3.6 No Adverse Change. After giving effect to the Oregon Acquisition and
to any Pending Acquisitions, no condition or state of events shall exist which
has resulted in, or could reasonably be expected to result in, a material
adverse effect on the conditions and prospects (financial or otherwise) of the
Company or the WB Network or on the properties, assets,
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<PAGE> 27
liabilities, business or operations of the Company, whether or not in the
ordinary course of business.
3.7 Lenders and Investors Approval. The terms and conditions of any
financing obtained by the Company (including any High Yield Debt or Bank Debt
financing) or securities issued in connection with any Pending Acquisition and
the terms and conditions of such Pending Acquisition, including, without
limitation, the Pending Acquisition Pro Formas which shall reflect the most
recent projections previously delivered to and accepted by the Lenders and the
Investors as revised solely to reflect the results of operations, financial
condition and related financing of the relevant Pending Acquisition and
appropriately revised EBITDA and Revenue levels for the Company, shall have been
approved by Lenders and the Investors holding a majority in interest of the
Debentures and Investor Units (determined on an as converted basis). The
provisions of this Section 3.7 shall not be deemed to require additional
approval by the Lenders and the Investors other than approval required pursuant
to other sections of this Agreement and to the LLC Agreement for (i) issuances
of Additional Securities to the Lenders or the Investors or a party designated
by any of them, pursuant to Section 1.4 hereof or (ii) Indebtedness for money
borrowed for unaffiliated institutional lenders incurred for the purpose of
enabling the Company to satisfy its obligations pursuant to Section 1.6,
provided that the terms thereof are commercially reasonable.
3.8 All Proceedings Satisfactory. All corporate and other proceedings
taken by the Company prior to or at the Initial Closing or any Subsequent
Closings in connection with the transactions contemplated by this Agreement, and
all documents and instruments related thereto, or in connection with any Pending
Acquisition, shall be reasonably satisfactory in form and substance to the
Lenders and the Investors, and the Lenders and the Investors shall receive such
copies thereof and other materials (certified, if requested) as they may
reasonably request in connection therewith. The issuance and sale of the
Debentures and the Investor Units to the Lenders and the Investors shall be made
in conformity with all applicable state and federal securities laws. Unless
waived by the Consenting Holders, the Company shall have received all consents
from the FCC and any other appropriate Governmental Authority necessary to
consummate the Oregon Acquisition and any Pending Acquisition, without any
adverse conditions to such consents, including the transfer of all FCC Licenses
necessary to operate the broadcast television stations to be acquired by the
Company and the period for seeking reconsideration, review or appeal of such FCC
consents shall have expired and no such reconsideration, review or appeal shall
have been sought by any party, and the FCC shall have not reconsidered such FCC
consent on its own motion. After giving effect to each Pending Acquisition, all
renewal applications relating to the FCC Licenses shall have been timely and
properly filed, no renewal proceedings shall be pending or threatened which may
result in the revocation, cancellation, suspension or modification of, or the
refusal to renew, any such FCC Licenses, and no petitions to deny any pending
renewal application, informal objections, or any other protests to the grant of
any such renewal application, or any competing applications shall be pending.
3.9 Satisfactory Due Diligence. With respect to the Oregon Acquisition at
the Initial Closing and any Pending Acquisition being consummated in connection
with a Subsequent Closing, the Lenders and the Investors shall have completed
their legal and business due
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<PAGE> 28
diligence review of such Station Acquisition and shall have been satisfied with
the results of such review and such Station Acquisition shall have been
consummated on the terms approved by the Lenders and the Investors.
3.10 SBIC Deliveries. The Company shall have delivered to the Investors:
(a) Duly completed and executed SBA Forms 480 and 652 and Part A
of SBA Form 1031.
(b) If not delivered prior to the Initial Closing, a business plan
showing the Company's financial projections for a five-year period from the
Initial Closing.
(c) A written statement from the Company regarding its intended
use of the proceeds of the sale of the Class B Founder Units, Debentures and the
Investor Units.
(d) A list, after giving effect to the Initial Closing, of (a) the
name of each member of the Company's Board of Advisors, (b) the name and title
of each of the Company's Officers, and (c) the name of each of the Company's
Members (as such term is defined in the LLC Agreement), setting forth the number
and class of Membership Interests held.
3.11 Representations and Warranties. The representations and warranties
contained in this Agreement including but not limited to the representations and
warranties made in Section 2 and the representations and warranties given in the
Certificate delivered pursuant to Section 3.3(b)(v) hereof (which shall have all
the force and effect of the representations and warranties given under Section 2
hereof), shall be true and correct in all material respects with the same force
and effect as though such representation and warranties had been made on and as
of the date of the Initial Closing after giving effect to the Oregon Acquisition
and, with respect to a Subsequent Closing, after giving effect to any Pending
Acquisitions consummated after the Initial Closing and as though made on and as
of the date of such Subsequent Closing; each of the conditions hereafter
specified in this Section 3 shall have been satisfied in all material respects;
there shall be no Event of Default or any event or condition which, after notice
or lapse of time or both, would constitute an Event of Default. The Company
acknowledges that, subject to any exceptions approved by the Lenders and the
Investors at the time of any Subsequent Closing, the Company will be required to
make the representations and warranties made in Section 2 on and as of the date
of each Subsequent Closing after giving effect to (i) the Oregon Acquisition,
(ii) the Pending Acquisition scheduled to be consummated concurrently with the
Subsequent Closing and (iii) any other Station Acquisition consummated after the
Initial Closing but prior to the relevant Subsequent Closing.
SECTION 4. FINANCIAL AND PRINCIPAL OPERATING COVENANTS
The Company (which term shall be deemed to include, for purposes of this
Section 4, any majority owned subsidiary or subsidiaries controlled by the
Company) shall comply with the following covenants, from the date hereof and for
so long as the Lenders and the Investors hold Debentures and Investor Units
representing at least (i) thirty-five percent (35%) (determined on
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<PAGE> 29
the basis of principal amount and/or Capital Contributions) of the Debentures
and Investor Units issued at the Initial Closing and the First Subsequent
Closing and (ii) aggregate Non-Carry Distribution Percentages (as defined in the
LLC Agreement) equal to or greater than fifty and one-tenth percent (50.1%) (all
determined on an as converted basis). Compliance with any of the following
covenants may be waived, amended or modified by the prior written consent of the
holders of 60% in interest of the Debentures and the Investor Units held by the
Investors and Lenders (determined on an as converted basis) (the "Consenting
Holders") or such higher percentage as indicated.
4.1 Indebtedness. Except as set forth below, the Company will not
directly or indirectly, incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any Indebtedness or liability, except as
follows:
(a) Indebtedness of the Company under the Debentures and any other
Indebtedness owed by the Company to the Lenders and the Investors;
(b) Indebtedness or other liabilities of the Company on account of
incidentals or services furnished to the Company (including accountants' and
attorneys' fees) in an aggregate amount which does not exceed Five Thousand
Dollars ($5,000) at any one time outstanding;
(c) Indebtedness of any Subsidiary for money borrowed not in
excess of $500,000 or in an aggregate amount in excess of $1,250,000, provided,
however, that the foregoing limitations shall be increased by $500,000 and
$1,250,000, respectively, upon the consummation of each Pending Acquisition;
(d) Indebtedness of any Subsidiary as described in Schedule 4.1(b)
("Permitted Indebtedness"); provided that the same shall not be amended or
modified without the prior written consent of the majority Lenders and the
Investors;
(e) Indebtedness of any Subsidiary with respect to trade
obligations (including trade payables) and other normal accruals, including
Taxes, assessments and other governmental charges, arising in the ordinary
course of business and not yet due and payable, or which are being contested in
good faith by appropriate proceedings, and then only to the extent the amount
thereof has been set aside on the Company's books;
(f) Indebtedness of any Subsidiary incurred for purchase money
obligations and Capital Leases, so long as: (i) the pertinent assets are
acquired for use in the ordinary course of the Company's business; (ii) the
Indebtedness secured thereby does not exceed the fair market value of such
assets or the purchase price thereof if such assets are acquired directly from
the manufacturer or an authorized dealer thereof; and (iii) such Indebtedness is
incurred in compliance with Section 4.4;
(g) Indebtedness of any Subsidiary in respect of guarantees to a
third party, to the extent that any such guarantee secures Indebtedness of a
Subsidiary which is specifically permitted to be incurred or to remain
outstanding under the provisions of this Section 4.1;
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<PAGE> 30
(h) Indebtedness of any Subsidiary to such commercial lenders, in
such principal amounts and on such commercially reasonable terms and conditions
as are consented to by the Consenting Holders in their sole discretion, the
proceeds of which are used to finance a Pending Acquisition or Pending
Acquisitions or for working capital purposes relating thereto or as contemplated
by Section 1.6 (the "Bank Debt"); and
(i) Unsecured, high-yield debt of any Subsidiary placed by an
investment bank or banks in a Rule 144A private placement or public offering in
such principal amounts and on such commercially reasonable terms and conditions
as are consented to by the Consenting Holders in their sole discretion, and the
proceeds of which are used substantially to finance a Pending Acquisition or
Pending Acquisitions or as contemplated by Section 1.6 (the "High-Yield Debt").
4.2 Liens. The Company will not, directly or indirectly, create, incur,
assume or suffer to exist any Lien of any nature whatsoever on any of its assets
(including any leasehold interests in property used by the Company) or ownership
interests now or hereafter owned, other than:
(a) Liens securing the payment of taxes and other government
charges, either not yet due or the validity of which is being contested in good
faith by appropriate proceedings, and as to which the Company shall have set
aside on its books adequate reserves to the extent required by generally
accepted accounting principles and provided that, in any event, payment of any
such tax, assessment, charge, levy or claim shall be made before any of the
Company's property shall be seized and sold in satisfaction thereof;
(b) Liens securing Indebtedness permitted under Sections 4.1(c),
4.1(d), 4.1(f) and 4.1(h) above;
(c) Deposits under worker's compensation, unemployment insurance
and social security laws;
(d) Restrictions, easements, and minor irregularities in title
which do not and will not materially interfere with the occupation, use and
enjoyment of the properties of the Company in the normal course of business as
presently conducted or materially impair the value of such assets for the
purpose of such business;
(e) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due or which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established;
(f) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of indebtedness),
leases (to the extent permitted under the terms of this Agreement), public or
statutory obligations, surety, stay, appeal, indemnity, performance or other
similar bonds, or other similar obligations arising in the ordinary course of
business;
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(g) Judgment and other similar Liens arising in connection with
court proceedings, provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings; and
(h) Liens against the fee interest in real property leased by the
Company which are securing obligations of the owner of such property.
4.3 Capital Expenditures. For each of the calendar years set forth below,
the Company will not make or incur any Capital Expenditures (as defined below)
in excess of the amounts indicated for such year as set forth below; provided
that any unused portion of these amounts for a given year may be carried over to
the following year so as to increase the amount of Capital Expenditures that can
be made in such later year without invoking the supermajority vote otherwise
required by this subparagraph. The term "Capital Expenditures" shall mean any
payments that are made or liabilities that are incurred by the Company for the
lease, purchase, improvement, construction or use of any Property, the value or
cost of which under GAAP is required to be capitalized and appears on the
Company's balance sheet in the category of property, plant or equipment, without
regard to the manner in which such payments or the instruments pursuant to which
they are made are characterized by the Company or any Person, and shall include,
without limitation, payments for or liabilities incurred with respect to the
installment purchase of Property and payments under Capital Leases. A Capital
Expenditure shall be deemed to be made as of the time the Property which is the
subject thereof is put in to service by the Company.
<TABLE>
<CAPTION>
Year Capital Expenditures
---- --------------------
<S> <C>
1997 $12,000,000
1998 $ 5,000,000
1999 $ 1,250,000
2000 $ 1,250,000
2001 $ 1,250,000
</TABLE>
4.4 Revenue and EBITDA Levels. For each of the calendar years set forth
below, the Company shall have had both Revenue and EBITDA for such year that
equals or exceeds the Revenue and EBITDA amounts indicated for such year as set
forth below, which levels shall be increased from time to time in connection
with each of the Pending Acquisitions solely to reflect the increases in Revenue
and EBITDA levels resulting from such Pending Acquisition as set forth in
Pending Acquisition Pro Formas delivered to and approved by the Consenting
Holders prior to the consummation of such Pending Acquisition:
<TABLE>
<CAPTION>
Year Revenue EBITDA
---- ------- ------
<S> <C> <C> <C>
1998 $35,635,000 $ 8,745,000
1999 $45,229,000 $13,306,000
2000 $58,127,000 $25,276,000
2001 $67,343,000 $33,318,000
</TABLE>
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<PAGE> 32
4.5 Issuance of Securities. Except as set forth in the LLC Agreement, the
Company will not authorize or issue, or obligate itself to issue, any equity,
convertible or debt securities or any securities issued pursuant to an initial
public offering (or any options, warrants or other rights to purchase or acquire
any of such equity, convertible or debt securities) or take any other actions
inconsistent with the permanent capital structure contemplated by this Agreement
and the LLC Agreement without the prior written consent of the Consenting
Holders and, in the case of the issuance of any Additional Securities,
compliance with Section 1.4 hereof.
4.6 Equity Interest Distributions and Redemptions; Debt Payments. Except
as set forth in this Agreement or the LLC Agreement, the Company will not,
directly or indirectly, declare, order, pay or make any (a) payment or
declaration of any dividend (whether in cash, membership interests, capital
stock or any other property) on any Equity Interest (as defined below) of the
Company or any other distribution on account of any class of membership
interests or capital stock; (b) redemption, purchase or other acquisition for
consideration by the Company, directly or indirectly, of any Equity Interest;
(c) payments of principal or interest in respect of any indebtedness that is
subordinated to the Debentures, other than ordinary trade debts and expenses
incurred in the ordinary course of business; or (d) payments or accrue any
obligations to any member of Management or other Affiliate (including any
management fees), except employment compensation and other payments incident to
employment and payments and/or obligations to Affiliates disclosed in Schedule
4.6. Any redemption, purchase or other acquisition by the Company of any Equity
Interest shall be made in compliance with all laws, including but not limited to
Federal and state securities laws and the SBIC Act and SBIC Regulations. "Equity
Interest" shall mean capital stock or membership interests and warrants or
options to purchase stock or membership interests.
4.7 Change of Control. No event or events shall occur which either (a)
require the Company to file with the FCC a transfer application on Form 315 in
accordance with the Communications Act, and the rules and polices of the FCC, or
(b) change any of the initial members of the Board of Advisors of the Company or
the persons entitled to appoint a majority of the members of the Board of
Advisors.
4.8 Affiliated Transactions. Except as otherwise permitted under this
Agreement, the Company will not engage in any transactions with, or make any
payments or distributions to or for the benefit of, the WB Network, any officer
or key employee of the Company or the WB Network or persons or entities
controlling, controlled by, under common control with or otherwise Affiliated
with the Company or the WB Network, provided, however, that the Company may (i)
issue Membership Interests or execute an employment, consulting or
noncompetition agreement with Ted Koplar in connection with the Station KPLR,
Channel 11, St. Louis, Missouri; (ii) enter into affiliation agreements with the
WB Network so long as such transactions are conducted on an arm's-length basis,
are on terms and conditions no less favorable to the Company than could be
obtained from nonrelated persons and are approved by a majority in interest of
the Lenders and the Investors after full disclosure of the terms thereof; and
(iii) purchase programming from WB or an Affiliated entity so long as such
transactions are conducted on an arm's-length basis, are on terms and conditions
no less favorable to the Company than could be obtained from nonrelated persons
and are disclosed to the Lenders and the Investors.
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4.9 Sale of Assets and Certain Fundamental Changes. The Company will not:
(a) purchase or otherwise acquire or sell, transfer, lease or otherwise dispose
of any FCC Licenses, Stations, or any other broadcast properties or other assets
at a price in excess of $2,000,000, other than in the ordinary course of
business; (b) sell, transfer, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or any substantial portion
of its assets or accounts receivable, whether with or without recourse; (c)
authorize or permit the bankruptcy, reorganization, liquidation, dissolution or
winding up of the Company; (d) consolidate or merge with, or otherwise acquire,
in one or a series of transactions, all or any substantial portion of the assets
or ownership interests in any Person, except for mergers among its wholly-owned
subsidiaries; (e) make any advance, loan, extension of credit or capital
contribution to, or purchase any securities of or any assets constituting a
business unit or make any other investment in, any Person, except for Capital
Expenditures as and to the extent specifically permitted hereunder; (f) engage
in any material business or transaction except those relating to the operation
and management of television stations; or (g) enter into any agreement that (i)
would substantially change the nature of the broadcasting operations of any
station acquired pursuant to any Pending Acquisition as a national network
affiliate, (ii) pursuant to which any station acquired pursuant to any Pending
Acquisition would broadcast a home shopping, foreign language or similarly
specialized audience service during substantial portions of time, or (iii) would
make available substantial portions of the broadcast time on any station
acquired pursuant to a Pending Acquisition to third parties to program pursuant
to a time brokerage, local management, joint sales or similar type of
programming agreement.
4.10 No Amendments to Organizational Documents or this Agreement. The
Company will not make any amendment or modification to, or waiver of any of the
terms of, the Certificate or the LLC Agreement or this Agreement, without the
prior written consent of each of the Lenders and the Investors.
4.11 Restrictions on Other Agreements. The Company will not enter into
any agreement with any party which: (a) restricts the payments due the holders
of the Debentures or Investor Units; or (b) otherwise conflicts with or impairs
any of the rights or privileges granted to the Lenders and the Investors
hereunder or under the agreements, documents and instruments contemplated hereby
and thereby.
4.12 Change in Senior Management. Each member of Management shall
continue to hold his same management position, shall continue to be employed by
the Company and the members of Management shall collectively continue to hold a
majority of the Management Carry Units, unless the Company shall, within sixty
(60) days following such change or departure, fill such position or replace such
employee with a qualified individual with comparable experience in the
television broadcasting industry, provided, however, that the Company shall not
offer any such qualified individual employment (i) without the prior written
consent of the holders of sixty percent (60%) in interest of the Class B Founder
Units purchased hereunder, on an as converted basis, which consent shall not be
unreasonably withheld, and (ii) until he or she has executed an agreement to be
subject to the provisions of Section 6.2 hereof. The Company also agrees to
enforce the terms of the Employment Agreements and the Consulting Agreement of
which the Lenders and the Investors are third party beneficiaries, and the
vesting and repurchase provisions in the LLC Agreement.
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4.13 Annual Updates; Number of Members; Use of Proceeds; Regulatory
Violation; Economic Impact Information Amendment.
(a) As long as an SBIC Investor holds any Investor Units, Class B
Founder Units or Debentures, the Company shall, on an annual basis, provide to
such SBIC Investor the information required under 13 C.F.R. Section 107.620(b)
and shall provide the information and access required by 13 C.F.R.
Section 107.620(c).
(b) As long as an SBIC Investor holds any Investor Units, Class B
Founder Units or Debentures, the Company shall notify such SBIC Investor:
(i) at least fifteen (15) days prior to taking any action
after which the number of record holders of the Company's Membership
Units would be increased from fewer than 50 to 50 or more;
(ii) of any other action or occurrence after which the
number of record holders of the Company's Membership Units was increased
(or would increase) from fewer than 50 to 50 or more, as soon as
practicable after the Company becomes aware that such other action or
occurrence has occurred or is proposed to occur.
For purposes of this Agreement, an "SBIC Investor" shall mean the
BancBoston or an Affiliate of the BancBoston that has been licensed as an SBIC
and holds Investor Units, Class B Founder Units or Debentures of the Company;
(c) Regulatory Violation. Upon the occurrence of a Regulatory
Violation (as defined below) or in the event that any SBIC Investor determines
in its reasonable good faith judgment that a Regulatory Violation has occurred,
in addition to any other rights and remedies to which it may be entitled
(whether under this Agreement or any other agreement), such SBIC Investor shall
have the right, to the extent disposition is required under SBIC Regulations, to
demand the immediate repurchase of all of the Investor Units, Class B Founder
Units and/or Debentures owned by such SBIC Investor at a price equal to the
purchase price paid for such Investor Units, Class B Founder Units and/or
Debentures hereunder plus accrued interest and/or dividends by delivering
written notice of such demand to the Company; provided, however, that, in the
event of a Regulatory Violation, any SBIC Investor shall, prior to demanding the
repurchase of all of the Investor Units, Class B Founder Units and/or Debentures
owned by such SBIC Investor, use reasonable efforts to retain its investment in
the Investor Units, Class B Founder Units and/or Debentures, including, without
limitation, petitioning the SBA, pursuant to 13 C.F.R. Section 107.760(b), for
its approval of such retention. The Company shall pay the purchase price for
such Investor Units, Class B Founder Units and/or Debentures by a cashier's or
certified check or by wire transfer of immediately available funds to such SBIC
Investor within thirty (30) days after the Company's receipt of the demand
notice, and, upon such payment, such SBIC Investor shall deliver the
certificates, if any, evidencing the Investor Units, Class B Founder Units
and/or Debentures being repurchased duly endorsed for transfer or accompanied by
duly executed forms of assignment.
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For purposes of this Agreement, "Regulatory Violation" means a change in
the principal business activity of the Company and its subsidiaries to an
ineligible business activity (within the meaning of 13 C.F.R. Section 107.720),
if such change occurs within one (1) year after the Initial Closing Date.
(d) Economic Impact Information. Promptly after the end of each
calendar year (but in any event prior to February 28 of each year), the Company
shall deliver to all SBIC Investors a written assessment of the economic impact
of the total investment by all SBIC Investors in the Company, specifying the
full-time equivalent jobs created or retained in connection with the investment,
the impact of the investment on the businesses of the Company in terms of
expanded revenue and taxes, and the other economic benefits resulting from the
investment, including but not limited to, technology development or
commercialization, minority business development, urban or rural business
development and expansion of exports, together with all other information
reasonably requested by any SBIC Investor in order to provide the information
required by 13 C.F.R. Section 107.630.
SECTION 5. OPERATING AND REPORTING COVENANTS.
The Company (which term shall be deemed to include, for purposes of this
Section 5, any majority owned subsidiary or subsidiaries controlled by the
Company) shall comply with the following covenants, from the date hereof and for
so long as the Lenders and the Investors hold Debentures and Investor Units
representing at least (i) thirty-five percent (35%) (determined on the basis of
principal amount or Capital Contributions) of the Debentures and Investor Units
issued at the Initial Closing and the First Subsequent Closing (ii) aggregate
Non-Carry Distribution Percentages equal to or greater than fifty and one-tenth
percent (50.1%) (determined on an as converted basis). Compliance with any of
the following covenants may be waived, amended or modified by the prior written
consent of the Consenting Holders.
5.1 Financial Statements; Minutes. The Company shall maintain a system of
accounts from which financial statements prepared in accordance with generally
accepted accounting principles consistently applied can be derived, keep full
and complete financial records and furnish to each of the Lenders and the
Investors the following reports: (a) within 90 days after the end of each fiscal
year, a copy of the consolidated and consolidating balance sheet of the Company
and any subsidiaries as at the end of such year, together with statements of
operations and cash flow of the Company for such year, audited by independent
public accountants of recognized standing reasonably satisfactory to the Lenders
and the Investors, prepared in accordance with GAAP consistently applied, and
including in comparative form the corresponding figures for the prior fiscal
period; (b) within 30 days after the end of each month, an unaudited
consolidated and consolidating balance sheet of the Company and any subsidiaries
as at the end of such month and unaudited statements of operations for the
Company for such month and for the year to date, and including in comparative
form the corresponding figures for the prior fiscal periods; (c) promptly after
the same are available, copies of any financial statements and reports that the
Company shall send or make available generally to any of its securityholders or
any regulatory authority; (d) as soon as reasonably practicable after any
meetings of the Board of Advisors of the Company, copies of the minutes of such
meeting; (e) in
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connection with the annual financial statements delivered pursuant to clause (a)
above, a certification from the Company's independent public accountants that
there exists no default or Event of Default under this Agreement, or any set of
facts or circumstances which, with the giving of notice or the passage of time
or both, could constitute such a default or Event of Default and if there is a
default, Event of Default or such a set of facts or circumstances, a
certification from the President or Chief Financial Officer of the Company
stating the relevant facts and the related consequences and what actions the
Company proposes to remedy them; and (f) such other financial information as the
Lenders or the Investors may reasonably request. With respect to any Pending
Acquisition, prior to the closing thereof or the relevant Subsequent Closing, if
any, the Company shall have furnished five year projections for such Pending
Acquisition as well as Pending Acquisition Pro Formas. The Lenders and the
Investors or their authorized representatives shall have the right to meet with
the Company's independent auditors not less than once each year to discuss the
financial condition and results of operation of the Company, its financial
controls and the accounting principles applied in the preparation of its
financial statements.
5.2 Existence, Foreign Qualification and Conduct of Business. The Company
will maintain and preserve in full force and effect its existence as a limited
liability company. From and after June 1, 1997, the Company will qualify to do
business in each jurisdiction in which such qualification is required and the
failure to so qualify would have a material adverse effect on the financial
condition or results of operations of the Company. The Company will continue to
engage principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith. The Company will
use its best efforts to keep in full force and effect its existence as a limited
liability company and all intellectual property rights owned by it and useful in
its business.
5.3 Payment of Taxes, Compliance with Laws, Etc. The Company shall file
all tax returns and related forms and pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon it or its property
before the same shall become in default, as well as all lawful claims for labor,
materials and supplies which, if not paid when due, might become a lien or
charge upon its property or any part thereof; provided, however, that the
Company shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof is being contested by it
in good faith by appropriate proceedings and an adequate reserve therefor has
been established. The Company shall treat the Debentures as indebtedness for tax
purposes, shall file all tax returns and related forms consistently with the
treatment of the Debentures as indebtedness for tax purposes and shall not give
effect to the conversion of such Debentures into Investor Units in any manner by
the Lenders except in accordance with the terms hereof. The Company shall comply
in all material respects with all laws and regulations applicable to its
Stations and business, including all FCC laws, regulations and policies.
5.4 Adverse Changes. The Company will promptly advise the Lenders and the
Investors of any event which represents a material adverse change in the
condition or prospects, financial or otherwise of the Company, or in the assets,
liabilities, properties or business of the Company, and of each suit or
proceeding commenced or threatened against the Company which, if adversely
determined, could result in such a material adverse change.
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5.5 Insurance. The Company will keep its insurable properties insured,
upon commercially reasonable terms, against liability, errors and omissions, and
the perils of casualty, fire, business interruption, and extended coverage in
amounts of coverage substantially similar to those customarily maintained by
companies in the same or similar business, and of similar size, as the Company.
The Company will also maintain with such insurers insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies engaged in the same or similar business, and of
similar size. The Company shall not limit, amend, alter, modify or waive any
director indemnification or exculpation provisions in its Certificate or in the
LLC Agreement without prior written approval by the Lenders and the Investors of
such action.
5.6 Maintenance of Properties. The Company, in its reasonable discretion,
will maintain all properties used or useful in the conduct of its business in
good repair, working order and condition, ordinary wear and tear excepted.
5.7 Employee Matters. The Company shall establish a long-term incentive
employee benefit plan for the benefit of the managers of Stations acquired
pursuant to the any acquisitions of Station Assets and intended to provide an
incentive for performance in the operation of the Stations.
5.8 Budget and Strategic Plan. The Company shall prepare and submit to
the Lenders and the Investors a budget and strategic plan for the Company for
each fiscal year of the Company at least 30 days prior to commencement of each
fiscal year thereafter, commencing with the Company's 1997 fiscal year. The
Company shall review the budget and strategic plan periodically with the Lenders
and the Investors and shall promptly advise the Lenders and the Investors of all
material changes therein and all material deviations therefrom.
5.9 Pending Acquisition Documents, Additional Instruments and Assurance.
(a) With respect to any Pending Acquisition, the Company shall
deliver to each of the Lenders and the Investors, true and complete copies of
all Pending Acquisition Documents.
(b) The Company will make, execute, endorse, acknowledge and
deliver to the Lenders and the Investors any amendments, modifications or
supplements hereto or restatements hereof and any other agreements,
instructions, financing statements, certificates or other documents, and take
any and all such other actions, as may from time to time be reasonably requested
by the Lenders and the Investors to effect, confirm or further assure or protect
and preserve the interests, rights and remedies of the Lenders and the Investors
under this Agreement or the LLC Agreement, including specifically, at the cost
and expense of the Company, the use of the Company's and Management's best
efforts to assist in obtaining approval of any governmental authority for any
action or transaction contemplated by this Agreement or the LLC Agreement then
required by law.
5.10 Management Rights.The Lenders and the Investors shall be entitled to
consult with and advise Management on significant business issues with respect
to the Company,
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including Management's proposed annual operating plans for the Company, and
Management will meet with the Lenders and the Investors regularly during each
year at the Company's facilities at mutually agreeable times for such
consultation and advice and to review progress in achieving said plans. The
Lenders and the Investors may examine the books and records of the Company and
inspect its facilities and request information at reasonable times and intervals
concerning the general status of the financial condition and operation of the
Company, and may request full information pertinent to any covenant, provision
or condition hereof, provided that access to highly confidential proprietary
information and facilities need not be provided. The Lenders agree to keep
confidential all financial, marketing and other information with respect to the
Company as to which confidentiality is requested. If any of the Lenders or the
Investors are not represented on the Company's Board of Advisors, the Company
shall invite a representative of such Lender or Investor to attend all meetings
of its Board of Advisors and of any committees of the Board of Advisors, in a
nonvoting observer capacity, and in this respect shall give such representative
copies of all notices, minutes, consents, and other material that it provides to
the members of its Board of Advisors. Any expenses incurred by the Lenders and
the Investors in exercising their rights pursuant to this Section 5.10 shall be
paid by the Company in accordance with Section 12.8 hereof. Notwithstanding
anything in this Agreement to the contrary, the sole remedy of the Lenders and
the Investors for any breach of this Section 5.10 shall be limited to specific
performance.
5.11 FCC Licenses. The Company shall file all necessary applications for
renewal of, and shall preserve in full force and effect the FCC Licenses, and
shall obtain all necessary waivers and permits in connection therewith. In the
event that the Company learns of any petition, action, investigation, notice of
violation or apparent liability, notice of forfeiture, order to show cause,
complaint or proceeding before the FCC or the threat thereof (other than
proceedings of general applicability to members of the television broadcast
industry but excluding proceedings regarding the allocation of digital
television channels), the Company shall promptly notify the Lenders and the
Investors, of the same in writing and shall take all reasonable measures to
contest in good faith or seek removal or rescission thereof. The Company and
Management will comply in all material respects with all applicable filing and
operating FCC Rules and Regulations and policies and all applicable provisions
of the Communications Act, as amended, the Telecommunications Act of 1996 and
all currently published FCC Rules and Regulations and policies, and the Company
and Management will comply in all material respects with the terms of the FCC
Licenses. The Company shall promptly furnish or cause to be furnished to the
Lenders and the Investors copies of all applications, reports and filings filed
by the Company with the FCC, copies of all petitions and motions filed by third
parties with the FCC involving the Company, the Station or the FCC Licenses and
material correspondence between the Company and the FCC.
SECTION 6. SALES COVENANT AND FCC COOPERATION
6.1 Sales Covenant. Notwithstanding anything in this Agreement to the
contrary, following (i) the occurrence of any of the events set forth below
(each a "Sales Event") and (ii) the receipt by the Company, of written notice
from the Lenders and the Investors holding 60% or more of the Debentures and
Investor Units then outstanding (determined on an as
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converted basis) directing that the Company is to be sold in accordance with
this Section 6.1 (the "Sale Notice"), the Company shall use its best efforts to:
(a) enter into a signed purchase and sale agreement for the sale of the Company
or its assets as soon as possible satisfactory to the Lenders and the Investors
and yielding sufficient proceeds to satisfy in full Company's obligations on the
Bank Debt, the High-Yield Debt, the Debentures, the Class B Founder Units, the
Investor Units, and any Additional Securities or any other securities or
instruments that any of the foregoing are convertible into or exchangeable for,
(b) timely file and diligently prosecute with the FCC all necessary assignment
or transfer applications in connection therewith, and (c) close on such sale and
purchase within four (4) months after execution of the applicable purchase and
sale agreement; provided that if, despite the exercise of best efforts, the
required FCC approval is not obtained within such four-month period, such period
shall be extended for an additional four months:
(i) the holders of any Indebtedness in the aggregate amount of
$5,000,000 for money borrowed by the Company or any Subsidiary takes any
action to accelerate any of its Indebtedness outstanding or to foreclose
on collateral pledged in connection therewith relating to its
Indebtedness;
(ii) the Company fails to consummate the Put Closing pursuant to
the terms of Section 1.5 within 150 days after the Put Notice is given;
(iii) the Company breaches the EBITDA and Revenue covenant set
forth in Section 4.4; or
(iv) the Company breaches one or more of the other covenants set
forth in Section 4 hereof or the LLC Agreement (including Section 3.03(c)
and Section 3.04 thereof) and such default remains uncured for forty-five
(45) days after receipt of written notice from any of the Investors and
the Lenders.
In the event the Company fails to enter into a signed purchase and sale
agreement within sixty (60) days after the Sale Notice is given, or to close on
any such purchase and sale agreement within four (4) months after the execution
thereof, the Lenders and the Investors shall have the right to seek to take
control, or appoint a receiver, trustee, transferee or other official to take
control, of the Company and to consummate such transactions, subject to any
necessary FCC approval.
Each of the Company and the members of Management (the "Interested
Parties") also acknowledge and agree that the Investors and the Lenders have the
right in connection with this Section 6.1 hereof or Section 3.03(c) or Section
6.07 of the LLC Agreement to: (i) seek appointment of a receiver, trustee or
similar official to effect the transactions contemplated by such provisions,
including, without limitation, to seek from the FCC an involuntary assignment or
transfer of control of each FCC License held by the Company or any of its
Subsidiaries for the purpose of transferring control of such FCC Licenses to the
Class B Founders, their designees or a purchaser; and (y) make a request, in any
action in law or at equity to any court of competent jurisdiction that a
representative of the Lenders and Investors or the clerk of the court or some
other person be authorized to execute and file with the FCC any application
requesting FCC
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approval for the involuntary assignment or transfer of control of all FCC
Licenses issued to or held by the Company.
6.2 FCC Cooperation. Each of the Interested Parties agrees to take any
actions that the Lenders and the Investors may reasonably request in writing in
order to enable the Lenders and the Investors to obtain and enjoy the full
rights and benefits granted by this Agreement, the LLC Agreement and any of the
related documents, including without limitation, the use of their best efforts
(or, in the case of the Management, commercially reasonable efforts) consistent
with the rules, regulations and policies of the FCC, to obtain the approval of
the FCC for any action or transaction contemplated by this Agreement or the LLC
Agreement, including any sale, transfer of control or exercise of voting rights
under Section 6.1 hereof or Section 3.03(c) or Section 6.07 of the LLC Agreement
for which such FCC action is then required or prudent. Such obligation shall
specifically include the preparation, signing and filing, or causing to be
prepared, signed and filed, with the FCC, the assignor's, transferor's or
controlling person's application or applications for consent to the assignment
of licenses or transfer of control thereof necessary or appropriate under the
FCC's rules and regulations for approval of (i) any sale or transfer to the
Lenders and/or the Investors or their respective designees of all or part of the
membership interests in the Company or the assets and FCC Licenses of the
Company, (ii) any assumption by the Lenders and/or the Investors or any designee
thereof of voting and management rights pursuant to any pledge agreement
relating to the membership interests in the Company and (iii) the conversion of
the Debentures and the Investor Units in accordance to the terms of the LLC
Agreement. None of the Interested Parties will take any action to obstruct,
impede or infringe upon the Lenders' or the Investor's exercise and enforcement
of their rights, benefits and remedies under this Agreement and any agreement
related hereto, and each of the Interested Parties agree to cooperate fully with
any and all actions taken by the Lenders and the Investors in good faith
pursuant to this Agreement to exercise rights granted to them hereunder,
including without limitation the cooperation and assistance in all proceedings,
correspondence and other communications before or with the FCC or in connection
with obtaining the approvals referred to above.
Each of the Interested Parties acknowledge that the foregoing provisions
are, inter alia, intended to ensure that during the term of this Agreement and
upon the occurrence of any Event of Default, Sales Event or Voting Event, the
Lenders and the Investors receive, to the fullest extent permitted by applicable
law and governmental policy (including, without limitation, the rules,
regulations and policies of the FCC), all rights necessary to exercise control
over and/or sell the Station Assets (including all of the FCC Licenses); and to
exercise all remedies available to them under this Agreement and the other
agreements contemplated hereunder, the Uniform Commercial Code of Massachusetts
or other applicable law. The Company and Management agree that irreparable
damage would result if the provisions of this Section 6.2 are not specifically
enforced, and that, therefore, the rights of the Lenders and the Investors and
the obligations of the Company and Management may be enforced by a decree of
specific performance issued by a court of competent jurisdiction and appropriate
equitable relief or money damages may be applied for by the Lenders and the
Investors and granted in connection therewith. The Company and Management
further acknowledge and agree that, in the event of changes in law or
governmental policy occurring subsequent to the date hereof that affect in any
manner the Lenders' or the Investor's rights of access to, security interest in,
or use or sale of, the
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FCC Licenses, or the procedures necessary to enable the Lender to obtain such
rights of access, use or sale, the parties hereto shall amend this Agreement and
the agreements contemplated hereunder, in such manner as the Lenders and the
Investors shall reasonably request, in order to provide such rights to the
greatest extent possible, consistent with then-applicable law and governmental
policy, provided that such modifications do not materially adversely affect the
substantive economic rights of any other party hereto.
None of the members of Management shall be deemed to be in breach of his
obligations set forth above in this Section 6.2 (a "Cooperation Breach"), unless
and until, the members of Management fail to fulfill any of their obligations
hereunder after the first to occur of: (x) the failure of the members of
Management to dispute the occurrence of a Sales Event in a written notice
delivered to each of the Lenders and the Investors within fifteen (15) days
after the date of any Sales Notice setting forth in reasonable detail the basis
for such dispute and demanding that such dispute be resolved by binding,
non-appealable arbitration in accordance with the provisions of Section 12.3
hereof and pursuant to procedures designed to render a decision within thirty
(30) days after the date of such written dispute notice (a "Sales Dispute
Notice"); or (y) the rendering of an arbitration decision to the effect that a
Sales Event has occurred. The costs of any arbitration proceeding hereunder
shall be borne by the losing parties and, except for their right to issue a
Sales Dispute Notice and arbitrate whether a Sales Event has occurred, the
members of Management hereby waive any other rights they may have to contest the
actions of the Lenders and the Investors hereunder. The Lenders and Investors
shall not have any personal recourse to the members of Management for a
Cooperation Breach, except to the extent of certain pledges of the Management's
Membership Interests in the Company and provided that the Members of Management
may be terminated without severance payments upon the occurrence of a
Cooperation Breach and may withhold severance payments during the pendency of an
arbitration proceeding hereunder. Notwithstanding anything herein to the
contrary, the Lenders and the Investors shall not be precluded in any way from
pursuing any of their rights under Section 6.1 hereof or elsewhere in this
Agreement or the LLC Agreement as a result of the fact that a Cooperation Breach
may not yet have occurred hereunder.
The Interested Parties also acknowledge and agree that the Investors and
the Lenders have the right in connection with Section 6.1 hereof or Section
3.03(c) or Section 6.07 of the LLC Agreement to seek appointment of a receiver,
trustee, transferee or similar official to effect the transactions contemplated
by this Agreement or the LLC Agreement, including, without limitation, to seek
from the FCC an involuntary transfer of control of each FCC License held by the
Company or the FCC License held by the Company or the Subsidiaries for the
purpose of seeking a bona fide purchase to whom control will ultimately be
transferred, and that the Investors and the Lenders are entitled to seek such
relief and the Interested Parties agree not to object thereto on any grounds.
SECTION 7. EVENTS OF DEFAULT; REMEDIES
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7.1 Events of Default.
In each case of the happening of the following events (each of which is
herein sometimes referred to as an "Event of Default"):
(a) if a default occurs in the payment of any premium, installment
of the principal of, interest on, or other obligation with respect to, the
Debentures, whether at the due date thereof or upon acceleration thereof, and,
solely in the case of any such default in the payment of interest, charges, fees
or expenses, such default continues for more than five (5) days after the due
date thereof;
(b) if any representation or warranty of the Company or Management
made herein or in any agreement executed in connection with, or in any schedule,
certificate, financial statement or other instrument furnished in connection
with, this Agreement shall prove to have been false or misleading when made in
any material respect;
(c) if a default occurs in the due observance or performance of
any covenant, condition or agreement on the part of the Company or Management to
be observed or performed pursuant to any of the provisions of this Agreement or
the LLC Agreement and such default remains uncured for forty-five (45) days
after written notice thereof has been delivered to the Company by the Lenders
holding a majority of the Debentures then outstanding, or for such longer period
if the default cannot reasonably be cured within such 45-day period and the
Company is diligently pursuing cure of the default, but in no event for a period
greater than 90 days after written notice thereof has been delivered by the
Lenders and the Investors to the Company, provided, however, that if such
default cannot be remedied, then such default shall be deemed to be an Event of
Default as of the date of the occurrence thereof;
(d) if the payment of any other Indebtedness of the Company for
borrowed money in an aggregate amount in excess of $1,000,000 (including any
Senior Debt or any High Yield Debt) is accelerated prior to the stated maturity
thereof;
(g) if the Company shall (i) discontinue its business, (ii) apply
for or consent to the appointment of a receiver, trustee, custodian or
liquidator of it or any of its property, (iii) admit in writing its inability to
pay its debts as they mature, (iv) make a general assignment for the benefit of
creditors, or (v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors, or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation laws or statutes, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law,
or if corporate action shall be taken for the purpose of effecting any of the
foregoing;
(h) there shall be filed against the Company an involuntary
petition seeking reorganization of the Company or the appointment of a receiver,
trustee, custodian or liquidator of the Company or a substantial part of its
assets, or an involuntary petition under any bankruptcy, reorganization or
insolvency law of any jurisdiction, whether now or hereafter in effect (any of
the foregoing petitions being hereinafter referred to as an "Involuntary
Petition"), which petition shall not have been dismissed within sixty (60) days
of the date it was filed;
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(i) if final judgment(s) from a court of competent jurisdiction
for the payment of money in excess of an aggregate of $1,000,000 shall be
rendered against the Company and the same shall remain unstayed or undischarged
for a period of thirty (30) consecutive days, during which time execution shall
not be effectively stayed;
(j) if there occurs any attachment of any property of the Company
in an amount exceeding $1,000,000, which shall not be discharged or bonded
within thirty (30) days of the date of such attachment; or
(k) the Company shall lose, fail to keep in force, suffer the
termination, suspension or revocation of or terminate, forfeit or suffer an
amendment to any FCC License or other material license at any time held by it,
the loss, termination, suspension or revocation of which would have a material
adverse effect on the operations of the Company taken as a whole or the
Company's ability to perform its obligations under this Agreement;
then, upon each and every such Event of Default thereafter and during the
continuance of any such Event of Default, and, upon the consent of all of the
holders of the Debentures then outstanding, the Debentures shall immediately
become due and payable upon written notice to the Company, both as to principal
and interest, without presentment, demand, or protest, all of which are hereby
expressly waived, anything contained herein or in the Debentures to the contrary
notwithstanding (except in the case of an Event of Default under subsections (g)
or (h) of this Section 7.1, in which event such Debentures shall automatically
become due and payable).
7.2 Remedies on Default, Etc. In case any one or more Events of Default
shall occur and be continuing, each Lender and the Investors may proceed to
protect and enforce their rights by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained in this Agreement, or for an injunction against a violation of any of
the terms hereof or thereof or in and of the exercise of any power granted
hereby or thereby or by law. No right conferred upon the Lenders and the
Investors hereby or the Debentures shall be exclusive of any other right
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise. The consent of all of the holders of Debentures shall
be required in order for any of the Lenders to seek monetary remedies pursuant
to this Section 7.2.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE LENDERS AND THE
INVESTORS
8.1 Representation of the Lenders and the Investors. In order to induce
the Company to enter into this Agreement, the Lenders and the Investors hereby
represent and warrant to and agree with the Company with respect to such
Lenders' and the Investor's purchase of Debentures and the Investor Units,
respectively, hereunder that as of the date hereof:
(a) The execution of the Agreement has been duly authorized by
all necessary action on the part of the Lenders and the Investors, and this
Agreement has been duly executed
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and delivered, and constitutes a valid, legal and binding agreement of the
Lenders and the Investors 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.
(b) Each of the Lenders and the Investors is acquiring the
Debentures and the Investor Units, respectively, for its own account, for
investment, and not with a view to "distribution" thereof within the meaning of
the Securities Act. The Lenders and the Investors have not been formed for the
specific purpose of making the investment contemplated by this Agreement, the
information concerning the state of residence of each Lender and of the
Investors supplied to counsel for the Company is true and correct as of the date
hereof and, the Lenders and the Investors are each an "accredited investor" as
defined under the Securities Act and the regulations promulgated thereunder.
(c) Each of the Lenders and the Investors understands that
because the Debenture and the Investor Units, respectively, have not been
registered under the Securities Act, it cannot dispose of any or all of them
unless such are subsequently registered under the Securities Act or exemptions
from such registration are available. Each of the Lenders and the Investors
acknowledges and understands that, except as provided in the Registration Rights
Agreement, it has no independent right to require the Company to register the
Debentures or the Investor Units, that the Company has no intention to register
the Debentures or the Investor Units, and that the Company may not accomplish a
public offering of the Debentures or the Investor Units or the securities into
which they are convertible.
(d) Each of the Lenders and the Investors is knowledgeable and
experienced in the making of investments in private enterprises, is able to bear
the economic risk of loss of its investment in the Company, has been granted the
opportunity to investigate the affairs of the Company, and has availed itself of
such opportunity either directly or through its authorized representative.
(e) Each of the Lenders and the Investors has been advised that
the Debentures and the Investor Units have not been and are not being registered
under the Securities Act or under the securities or "blue sky" laws of any
jurisdiction and that the Company in issuing the Debentures and the Investor
Units is relying upon, among other things, the representations and warranties of
contained in this Section 8 in concluding that each such issuance is a "private
offering" and does not require compliance with the registration provisions of
the Securities Act.
(f) Each of the Lenders and the Investors have had access to or
been supplied with all material information regarding the Company, its financial
condition and historical results of operations, and all questions concerning the
Company have been answered to its satisfaction.
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SECTION 9. INTERCREDITOR MATTERS
The Company, the Lenders and the Investors hereby acknowledge and agree
that the Lenders and the Investors shall execute and deliver a subordination
agreement with the holders of Bank Debt and High-Yield Debt in form and
substance reasonably satisfactory to such holders.
SECTION 10. INDEMNIFICATION
(a) The Company shall, to the full extent permitted by law, and in
addition to any such rights which any Indemnified Party (as defined herein) may
have pursuant to statute, the Company's Certificate, the LLC Agreement, or
otherwise, indemnify and hold harmless the Lenders and the Investors (including
their respective directors, officers, partners, employees and agents,
"Indemnified Purchasers") and each Person (a "Controlling Person" and
collectively with Indemnified Purchasers, the "Indemnified Parties") who
controls any of them 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"), 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 the investigation, defense, settlement or
appeal of, and any amount paid in settlement of, any action, suit or proceeding
or any claim asserted ("Losses" or "Loss"), to which they, or any of them, may
become subject solely by reason of their status as a securityholder, creditor,
director, agent, representative or controlling person of the Company,
(including, without limitation, any and all Losses under the Securities Act, the
Exchange Act, the SBIC Act, the SBIC Regulations or other federal or state
statutory law or regulation, at common law or otherwise, which relates directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto);
provided, however, that the Company will not be liable to the extent that such
Loss arises from and is based on (i) an untrue statement or omission or alleged
untrue statement or omission in a registration statement or prospectus which is
made in reliance on and in conformity with written information furnished to the
Company in an instrument duly executed by or on behalf of such Indemnified Party
specifically stating that it is for use in the preparation thereof, or (ii)
income taxes due on the Debentures or the Investor Units. The indemnification
and contribution provided for in this Section 10(a) 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.
(b) If the indemnification provided for in Section 10(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 referred to therein, then the
Company, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Lenders and the Investors, 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, the
Lenders and the Investors in connection with the action or inaction which
resulted
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in such Losses, as well as any other relevant equitable considerations. In
connection with the registration of the Company's securities, the relative
benefits received by the Company, the Lenders and the Investors shall be deemed
to be in the same respective proportions that the net proceeds from the offering
(before deducting expenses) received by the Company, the Lenders and the
Investors, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company, the Lenders and the
Investors shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Lenders and the Investors and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Lenders and the Investors agree that it would not be
just and equitable if contribution pursuant to this Section 10(b) 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 connection with the registration
of the Company's securities, in no event shall a Lender or the Investors be
required to contribute any amount under this Section 10(b) in excess of the
lesser of (i) that proportion of the total of such Losses indemnified against
equal to the proportion of the total securities sold under such registration
statement which is being sold by such Lender or the Investors or (ii) the
proceeds received by such Lender or the Investors from its sale of securities
under such registration statement. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Securities Act)
shall be entitled to contribution from any person who was not found guilty of
such fraudulent misrepresentation.
(c) Any Indemnified Party that proposes to assert the right to be
indemnified under this Section 10 will, promptly after receipt of notice of
commencement of any claim or action against such party in respect of which a
claim is to be made against the Company under this Section 10, notify the
Company of the commencement of such action, enclosing a copy of all papers
served, but the omission so to notify the Company will not relieve the Company
from any liability that the Company may have to any Indemnified Party under the
foregoing provisions of this Section 10 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
Company. The Indemnified Party will have the right to retain its own counsel in
any such action and all fees, disbursements and other charges incurred in the
investigation, defense and/or settlement of such action shall be advanced and
reimbursed by the Company promptly as they are incurred; provided, however, that
the Indemnified Party shall agree to repay any expenses so advanced hereunder if
it is ultimately determined by a court of competent jurisdiction that the
Indemnified Party to whom such expenses are advanced is not entitled to be
indemnified as a matter of law; and provided further that so long as the
Indemnified Party has reasonably concluded that no conflict of interest exists,
the Company may assume the defense of any action hereunder with counsel
reasonably satisfactory to the Indemnified Party. The Company shall not settle
any action or claim for which indemnification is sought under this Section 10
without the prior written consent of the Indemnified Party, unless such
settlement releases such Indemnified Party from liability without requiring any
payment or other action (except executing documents) by such Indemnified Party.
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SECTION 11. DEFINITIONS
Unless the context specifically requires otherwise, capitalized terms
used in this Agreement shall have the meaning specified below:
"Affiliate" shall mean, with respect to a specified Person, any Person that
directly or indirectly controls, is controlled by or is under common control
with, the specified Person. The term Affiliate shall be deemed to include any
investment funds in which a Lender or the Investors and/or one or more partners,
managers, advisers or Affiliates thereof directly or indirectly serve as general
partner, manager or in like capacity. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"Business Day" means any day other than a Saturday, Sunday or Massachusetts or
Federal holiday.
"Capital Lease" means any lease of property (real, personal or mixed) which in
accordance with generally accepted accounting principles consistently applied,
would be capitalized on the lessee's balance sheet or for which the amount of
the asset and liability thereunder should be disclosed in a note to such balance
sheet as if so capitalized.
"EBITDA" means, as of the date of determination on a trailing twelve (12) month
basis, the Company's consolidated gross revenues during such period, (excluding,
to the extent included in gross revenues, (i) any revenues resulting from the
exchange of advertising time for non-cash consideration, such as merchandise or
services, (ii) any other non-cash income (including the cumulative effect of a
change in accounting principles and extraordinary items) and (iii) any gains
from sales, exchanges and other dispositions of property not in the ordinary
course of business) minus any investment income, interest income and other
non-operating income, minus any cash payments made in respect of Programing
Obligations, minus operating expenses, corporate overhead and agency commissions
for such period, plus amortization in respect of Programming Obligations for
such period, all as determined in accordance with GAAP consistently applied.
"FCC" means the Federal Communications Commission and any successor governmental
agency performing functions similar to those performed by the Federal
Communications Commission on the date hereof.
"Governmental Authority" means and includes any court and any foreign, federal,
state, municipal or other governmental or self-regulatory agency, organization,
board, commission, bureau, instrumentality or department.
"Indebtedness" means with respect to any Person, (i) any liability, contingent
or otherwise, of such Person (A) for borrowed money (whether or not recourse of
the Investors is to the whole of the assets of such Person or only to a portion
thereof), (B) evidenced by a note, debenture or similar instrument (including a
purchase money obligation) given in connection with the
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acquisition of any property or assets, (C) for any letter of credit or
performance bond in favor of such Person, (D) for the payment of money relating
to a capitalized lease obligation, or (E) any liability, contingent or
otherwise, of such Person to any other Person for any purchase price associated
with any acquisition of assets, business or otherwise (including any deferred
purchase price, assumption of Indebtedness, noncompetition payments or other
forms of consideration); (ii) any liability of others of the kind described in
the preceding clause (i), which the Person has guaranteed or which is otherwise
its legal liability, contingent or otherwise; (iii) any obligation secured by a
Lien to which the property or assets of such Person are subject, whether or not
the obligations secured thereby shall have been assumed by or shall otherwise be
such Person's legal liability; (iv) all other items (except items of capital
stock, capital or paid-in surplus or of retaining earnings) which in accordance
with generally accepted accounting principles, would be included as a liability
on the balance sheet of such Person on the date of determination; and (v) any
and all deferrals, renewals, extensions or refinancing of, or amendments,
modifications of supplements to, any liability of the kind described in any of
the preceding clauses (i), (ii), (iii) or (iv).
"Lien" means any interest in, or claim against, property relating to an
obligation owed to, or claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract, and
including but not limited to any security interest, lien arising from a
mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes, any rights of first refusal,
charges, claims, liabilities, limitations, conditions, restrictions or other
adverse claims; provided, however, that "Lien" shall not include the interest
retained by the lessor under a lease which is not a Capital Lease. For the
purposes of this Agreement, the Company shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the property has
been retained by or vested in some other person or entity for security purposes
and such retention or vesting shall be deemed to be a Lien.
"Person" means any individual, corporation, association, partnership (general or
limited), joint venture, trust, unincorporated organization, limited liability
company, and other entity or organization of any kind or any government or any
agency or political subdivision thereof.
"Programming Obligations" means all direct or indirect monetary liabilities,
contingent or otherwise, with respect to contracts for television broadcast
rights relating to television series or other programs produced or distributed
for television release.
"Property" means all types of real, personal, or mixed property and all types of
tangible or intangible property.
"Registration Rights Agreement" means the Registration Rights Agreement in the
form attached hereto as Exhibit F, dated as of the date hereof, by and between
the Company and the Lenders and the Investors, as amended, supplemented or
modified from time to time.
"Revenue" means, for any fiscal period, the net revenues of the Company, on a
consolidated basis, as determined in accordance with GAAP.
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"Securities Act" means the Securities Act of 1933 and the rules and regulations
promulgated thereunder, each as amended from time to time.
"Senior Debt" means the aggregate principal amount of any indebtedness for money
borrowed and other amounts due in respect thereof in accordance with the
provisions of Sections 4.1(f) and (g).
"Tax" means any federal, state, local, or foreign income, gross receipts,
capital stock, franchise, profits, windfall profits, withholding, payroll,
social security (or similar), unemployment, disability, real property, personal
property, excise, occupation, sales, use, transfer, value added, alternative
minimum, environmental, customs, duties, estimated or other tax, including any
interest, penalty or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
The following terms shall have the meanings assigned to them in the
provisions of this Agreement referred to below:
1940 Act - Section 2.18
Additional Securities - Section 1.4(a)
Allen - Preamble
ALTA VI - Preamble
ALTA INC. - Preamble
ALTA S by S - Preamble
ALTA SDP - Preamble
Asset Purchase Agreement - Section 2.7
BancBoston - Preamble
Bank Debt - Section 4.1(f)
Capital Expenditures - Section 4.3
CEA - Preamble
CEA INC. - Preamble
Certificate - Section 2.1
Co-Sale Option - Section 1.8
Class B Founder Units - Section 1.1
Code - Section 2.14
Communications Act - Section 2.9
Company - Preamble
Consenting Holders - Section 4
Controlling Person - Section 10(a)
Co-Sale Option - Section 1.8(a)
Debentures - Preamble
Employee Program - Section 2.19
Environmental Law - Section 2.22
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Equity Interest - Section 4.6
ERISA - Section 2.19
Event of Default - Section 7.1
Exchange Act - Section 10(a)
First Subsequent Closing - Section 1.1(c)
FCC Licenses - Section 2.9
GAAP - Section 2.10
Gealy - Preamble
Hazardous Material - Section 2.22
Hazardous Waste - Section 2.22
High-Yield Debt - Section 4.1(g)
Indemnified Parties - Section 10(a)
Indemnified Purchasers - Section 10(a)
Independent Appraiser - Section 1.5
Initial Closing Date - Section 1.1(a)
Initial Closing - Section 1.1(a)
Initial Investors - Section 1.1(a)
Initial Lenders - Section 1.1(a)
Intellectual Property - Section 2.16
Interest - Section 1.2(a)
Investors - Preamble
Investor Units - Preamble
Involuntary Petition - Section 7.1(h)
IRS - Section 2.14
Kellner - Preamble
Lenders - Preamble
Licenses - Section 2.8
LLC Agreement - Section 1.1(a)
Loss or Losses - Section 10(a)
Management - Preamble
Management Agreement - Section 2.7
Material Agreements - Section 2.15
Membership Interest - Section 1.4(a)
Net Equity Value - Section 1.5
Offer Notice - Section 12.2(b)
Offered Securities - Section 12.2(b)
Oregon Acquisition - Section 1.1(b)
PCBs - Section 2.22
Pending Acquisition - Section 2.2
Pending Acquisition - Section 1.4(a)
Pending Acquisition Documents - Section 2.7(c)
Pending Acquisition Pro Formas - Section 1.4(a)
Pension Plan - Section 2.19 Permitted Indebtedness - Section 4.1(b)
Proposed Transferee - Section 12.2(b)
Purchase Price - Section 1.1(a)
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Put Closing - Section 1.5(c)
Put Notice - Section 1.5
Put Parties - Section 1.5
Put Price - Section 1.5
Put Option - Section 1.5
Regulatory Violation - Section 4.14(c)
Sale Notice - Section 6.1
Sale Transaction - Section 1.5
Sales Offer - Section 1.4(a)
Sales Event - Section 6.1
SBA - Section 2.28
SBIC Act - Section 2.28
SBIC Act - Section 4.6
SBIC Investor - Section 4.14
SBIC Regulations - Section 2.28
Selling Member - Section 1.8
Station Acquisitions - Preamble
Station Assets - Preamble
Station - Section 2.9
Stations - Preamble
Subsequent Closing - Section 1.4(a)
Taxes - Section 2.14
Transferor - Section 12.2(b)
WB - Section 2.27
WB Network - Preamble
Defined terms not otherwise defined herein shall have the meanings ascribed to
them in the LLC Agreement.
SECTION 12. GENERAL
12.1 Amendments, Waivers and Consents. For the purposes of this Agreement
and all agreements, documents and instruments executed pursuant hereto, except
as otherwise specifically set forth herein or therein, no course of dealing
between the Company and any of the Lenders or the Investors and no delay on the
part of any party hereto in exercising any rights hereunder or thereunder shall
operate as a waiver of the rights hereof and thereof. No covenant or other
provision hereof or thereof may be waived otherwise than by a written instrument
signed by the party so waiving such covenant or other provision; provided,
however, that except as otherwise provided herein or therein, changes in or
additions to, and any consents required by, or requests or demands made pursuant
to, this Agreement may be made, and compliance with any term, covenant,
condition or provision set forth herein may be omitted or waived (either
generally or in a particular instance and either retroactively or prospectively)
by a written instrument or instruments signed by the Company and a majority
interest of both the Investors and the Lenders; provided, however, that any
provisions in this Agreement which require a greater or different percentage of
the Lenders and/or the Investors for any waiver or consent may
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be amended if such greater or different percentage of Lenders and/or Investors
also agree in writing.
12.2 Survival of Covenants; Assignability of Rights.
(a) All covenants, agreements, representations and warranties of
the Company made herein and to be performed prior to or at the Initial Closing
and Subsequent Closings, if any, and in the certificates, lists, exhibits,
schedules or other written information delivered or furnished to any Lender or
to the Investors pursuant to the terms of this Agreement shall survive the
delivery of the Debentures and the sale of the Investor Units and shall bind the
Company's successors and assigns, whether so expressed or not, and, except as
otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Lenders' and
Investor's successors and assigns and to transferees of the Debentures and the
Investor Units (or any securities received upon conversion thereof), whether so
expressed or not. Upon the consummation of an initial public offering by the
Company which has been consented to by the Lenders and the Investors and in
connection with which the Debentures and the Investor Units are converted into
common stock in accordance with Section 7.01 of the LLC Agreement, all of the
provisions of this Agreement shall terminate and be of no further force and
effect, except that the provisions of Sections 5.1 and 10 shall survive after
such conversion; provided that any financial information provided to the Lenders
and the Investors after an initial public offering should be limited to the
information provided to other public shareholders, unless otherwise requested by
any of the Lenders or the Investors. Notwithstanding the foregoing or anything
to the contrary contained in this Agreement, all representations and warranties
of the Company contained or referenced in Section 2 hereof shall survive only
for a period of two (2) years from the later of (i) Initial Closing Date and
(ii) the date of each Subsequent Closing, if any, and any claim based upon any
misrepresentations or breach of warranty by the Company under Section 2 must be
made within such period.
(b) Except as provided in Section 4.13 of this Agreement and
Section 6.04 of the LLC Agreement, the Class B Founder Units and Debentures
("Offered Securities") may only be Transferred (as such term is defined in the
LLC Agreement) by the holder thereof (the "Transferor") if such Transferor first
offers to sell such Offered Securities to the other Lenders and the Investors in
a written notice stating its intent to Transfer such Offered Securities and the
terms of such Transfer (the "Offer Notice"). Any Lender and/or Investors
desiring to purchase such Offered Securities (a "Proposed Transferee") shall
give written notice, within thirty (30) calendar days from the date of the Offer
Notice. The Lenders and/or the Investors may purchase any or all of such Offered
Securities, with each of the Lenders and/or Investors having a right to purchase
its pro rata share, equal to (x) the principal amount of the Debentures plus the
total capital contribution for all Membership Units held by such Investor and/or
Lender (y) divided by the total principal amount of all outstanding Debentures
plus the total capital contribution for all Membership Units held by the
Investors and Lenders, with a right of over-allotment. The closing of the
purchase of the Offered Securities pursuant hereto shall take place on a date
not less than ten (10) days nor more than thirty (30) days after expiration of
the thirty-day period following the Offer Notice. Any Offered Securities not
purchased by the other Lenders and Investors may be sold to an unaffiliated
third party who is reasonably acceptable to a majority in interest of the other
Lenders and Investors within ninety (90) days following the expiration of the
above-
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referenced thirty-day period on terms no more favorable to the transferee than
those set forth in the Offer Notice and subject to compliance with, Section
12.2(c) below
(c) In the event that the Lenders and the Investors right of
first offer to purchase all of any Offered Securities is not exercised in full,
then such Transfer(s) shall be subject to compliance with Section 6.06 of the
LLC Agreement and the foregoing terms of this Section 12.2(c) shall not apply to
such Transfer(s).
12.3 Governing Law; Limitation of Litigation; Dispute Resolution. THIS
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
(a) The parties to this Agreement hereby agree that any dispute
relating to, or arising from, the terms or conditions of this Agreement shall,
within thirty (30) days after good faith negotiation among the parties to this
Agreement, be submitted to J.A.M.S./Endispute, Inc. ("Endispute") for final and
binding arbitration pursuant to Endispute's Arbitration Rules, and Endispute's
determination shall be made within thirty (30) days of being submitted. Any such
arbitration shall be conducted in Boston, Massachusetts. Except as provided in
Section 6, the costs of such proceedings shall be borne as determined by
Endispute.
(b) Subject to the provisions of Section 12.3 (a) above, each of
the Company, the Lenders, the Investors and Management hereby agrees that the
state and federal courts of The Commonwealth of Massachusetts shall have
jurisdiction to hear and determine any claims or disputes between the Lenders,
the Investors and the Company pertaining directly or indirectly to the
enforcement of any arbitration determinations or awards relating to this
Agreement and all documents, instruments and agreements executed pursuant
hereto, or to any matter arising therefrom (unless otherwise expressly provided
for therein). To the extent permitted by law, the Company hereby expressly
submit and consent in advance to such jurisdiction in any action or proceeding
commenced by the Lenders and/or the Investors in any of such courts, and agrees
that service of such summons and complaint or other process or papers may be
made by registered or certified mail addressed to the Company at the address to
which notices are to be sent pursuant to this Agreement. Each of the Company,
the Investors, the Lenders and Management waives any claim that Boston,
Massachusetts is an inconvenient forum or an improper forum based on lack of
venue. The choice of forum set forth in this Section 12.3 shall not be deemed to
preclude the enforcement of any judgment obtained in such forum or the taking of
any action to enforce the same in any other appropriate jurisdiction. Nothing
herein shall be deemed to limit the right of the Company to remove any
proceeding to federal court if such court has jurisdiction.
12.4 Section Headings. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
12.5 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
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12.6 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 or provided to be
given shall 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:
To the Lenders: Alta Communications VI, L.P.
Alta-Comm S by S, LLC
Alta Subordinated Debt Partners III, L.P.
Alta Acme, Inc.
c/o Alta Communications, Inc.
One Post Office Square
Boston, MA 02109
Attn: Brian W. McNeill
CEA Capital Partners USA, L.P.
CEA Acme, Inc.
17 State Street
35th Floor
New York, NY 10004
Attn: James Collis
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Facsimile: (617) 570-8150
Attn: John J. Egan III, Esq.
TCW Leveraged Income Trust, L.P.
c/o Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
With copies to: O'Melveny & Myers
400 South Hope Street
Los Angeles, CA 90071
Attn: Kathryn Sanders, Esq.
To the Investors: BancBoston Ventures Inc.
175 Federal Street
Boston, MA 02110
Attn: Lars Swanson
With copies to: Goodwin, Procter & Hoar LLP
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Exchange Place
Boston, MA 02109
Facsimile: (617) 570-8150
Attn: John J. Egan III, Esq.
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TCW Shared Opportunities Fund II, L.P.
LINC ACME, Corporation
c/o Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Darryl Schall
With copies to: O'Melveny & Myers
400 South Hope Street
Los Angeles, CA 90071
Attn: Kathryn Sanders, Esq.
To the Company: c/o ACME Television Holdings, LLC
West Oak Street
Burbank, CA 91505
Attn: Jamie Kellner
With a copy to: Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attn: Lewis J. Paper, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose of receiving notice hereunder.
12.7 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
12.8 Expenses. The Company shall pay all costs and expenses that it
incurs (including, without limitation, those of its accountants and lawyers)
with respect to the negotiation, execution, delivery, performance and
enforcement of this Agreement and the agreements, documents and instruments
contemplated hereby or executed pursuant hereto. At the Initial Closing (and any
Subsequent Closing), the Company will reimburse the Lenders and the Investors
for all out-of-pocket costs and expenses incurred with respect to the
negotiation, execution, delivery and performance of this Agreement and the
agreements, documents and instruments contemplated hereby or executed pursuant
hereto and any amendments or modifications to this Agreement or such other
agreements, documents or instruments, including the reasonable legal fees and
disbursements for the professional services of Goodwin, Procter & Hoar LLP, as
special counsel for the Lenders and the Investors, or such other counsel
reasonably acceptable to a majority in interest of the Lenders and Investors,
including in connection with any Pending Acquisitions, and, with respect to SBIC
issues only, Ropes & Gray, special counsel
52
<PAGE> 58
to the SBIC Investor, and including travel, accounting and other fees incurred
in connection with their due diligence with respect to the Oregon Acquisition or
to any Pending Acquisitions. Upon and after the Initial Closing, the Company
shall reimburse the Lenders and the Investors for all out-of-pocket costs
thereafter incurred by them on account of any filing fees, transfer taxes or
documentary stamp taxes due on account of the issuance of the Debentures, the
Investor Units or any securities into which they are convertible, or in
connection with their attendance at Board of Advisors meetings or committee
meetings as provided in Section 5.10, or enforcement of this Agreement, and the
agreements, documents and instruments contemplated hereby or executed pursuant
hereto.
12.9 Integration. This Agreement, including the exhibits, documents and
instruments referred to herein or therein and any other instruments, documents
or agreements executed or delivered herewith on the date hereof, constitutes the
entire agreement, and supersedes all other prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof. In the event and to the extent that the terms of any provision of this
Agreement conflict with the terms of any provision in the LLC Agreement, the
provision in the LLC Agreement shall be deemed to supersede the provision in
this Agreement.
12.10 No Event of Default. The Company hereby represents and warrants
that there has been no Event of Default since June 30, 1997 to the date hereof.
[End of Text]
53
<PAGE> 59
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Investment and Loan Agreement as of the day and year first above
written.
ACME TELEVISION HOLDINGS, LLC
By: /s/ Douglas E. Gealy
------------------------------------
Name: Douglas E. Gealy
Title: President and COO
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI
Management Partners, L.P.,
its general partner
By: /s/ Brian McNeill
------------------------------------
Name: Brian McNeill
Title: General Partner
ALTA COMM S BY S, LLC
By: /s/ Brian McNeill
------------------------------------
A member
ALTA SUBORDINATED DEBT PARTNERS III, L.P.
By: Alta Subordinated Debt Management III, L.P., its
General Partner
By: /s/ Brian McNeill
------------------------------------
Name: Brian McNeill
Title: General Partner
ALTA ACME, INC.
By: /s/ Brian McNeill
------------------------------------
Name: Brian McNeill
Title: President
54
<PAGE> 60
CEA CAPITAL PARTNERS USA, L.P.
By: CEA Management Corp.,
its authorized representative
By: /s/ James J. Collis
------------------------------------
Name: James J. Collis
Title: Executive Vice President
CEA ACME, INC.
By: /s/ James J. Collis
------------------------------------
Name: James J. Collis
Title: President
BANCBOSTON VENTURES INC.
By: /s/ Lars A. Swanson
------------------------------------
Name: Lars A. Swanson
Title: Vice President
55
<PAGE> 61
TCW SHARED OPPORTUNITY FUND II, L.P.
By TCW Investment Management Company, as General
Partner
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
TCW LEVERAGED INCOME TRUST, L.P.
By TCW Investment Management Company, its
Investment Manager
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
TCW Advisers (Bermuda), Ltd., as General Partner
By:
------------------------------------
Name:
Title:
56
<PAGE> 62
LINC ACME, Inc.
By:
------------------------------------
Name:
Title:
57
<PAGE> 63
SOLELY FOR PURPOSES OF SECTIONS 6 AND 12.3:
/s/ Jamie Kellner
------------------------------------
Jamie Kellner, individually
/s/ Douglas Gealy
------------------------------------
Douglas Gealy, individually
/s/ Thomas Allen
------------------------------------
Thomas Allen, individually
58
<PAGE> 64
<TABLE>
<CAPTION>
Schedule I
Principal Amount Capital Contribution Capital Contribution
of Debentures for Investor Units for Founder Units Future
Purchased at the Purchased at the Purchased at the Financing
Name Initial Closing Initial Closing Initial Closing Percentage
---- --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Alta Communications
VI, L.P. $5,035,381.60 24.44%
Alta Subordinated Debt
Partners III, L.P. 1,716,666.67 8.33%
Alta-Comm S by S, LLC 114,618.40 0.56%
Alta Acme, Inc. $133,333.33
BancBoston 1,000,000 $5,866,666.66 133,333.34 33.33%
Ventures, Inc.
CEA Capital Partners 6,866,666.67 33.33%
USA, L.P.
CEA Acme, Inc. 133,333.33
TOTAL: $13,733,333.34 $5,866,666.66 $400,000.00 100%
</TABLE>
59
<PAGE> 65
<TABLE>
<CAPTION>
Schedule II
Principal Amount Capital Contribution Capital Contribution
of Debentures for Investor Units for Founder Units
Purchased at the Purchased at the Purchased at the
Name Subsequent Closing Subsequent Closing Subsequent Closing
---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Alta Communications
VI, L.P. 1,924,933.50
Alta Subordinated Debt
Partners III, L.P. 656,250.00
Alta-Comm S by S, LLC 43,816.50
Alta Acme, Inc.
BancBoston $2,625,000.00
Ventures, Inc.
CEA Capital Partners $2,625,000.00
USA, L.P.
TCW Shared Opportunity
Fund II, L.P. 1,590,878.92 $ 33,333.34
TCW Leveraged Income
Trust, L.P. $4,772,636.75
LINC Acme, Corporation $100,000.00
TOTAL: $10,022,636.75 $4,215,878.92 $133,333.34
</TABLE>
60
<PAGE> 66
<TABLE>
<CAPTION>
Schedule III
Total Principal Amount Total Capital Contribution Total Capital Contribution
of Debentures for Investor Units for Founder Units
Purchased at the Purchased at the Purchased at the Future
Initial Closing and the Initial Closing and the Initial Closing and the Financing
Name First Subsequent Closing First Subsequent Closing First Subsequent Closing Percentage
---- ------------------------ ------------------------ ------------------------ ----------
<S> <C> <C> <C> <C>
Alta Communications
VI, L.P. $6,960,315.10 16.00%
Alta Subordinated Debt
Partners III, L.P. 2,372,916.67 5.45%
Alta-Comm S by S, LLC 158,434.90 0.36%
Alta Acme, Inc. $133,333.34 0.31%
BancBoston 1,000,000.00 $8,491,666.66 133,333.34 22.13%
Ventures, Inc.
CEA Capital Partners 9,491,666.67 21.82%
USA, L.P.
CEA Acme, Inc. 133,333.34 0.31%
TCW Shared Opportunity 1,590,878.92 33,333.34 3.37%
Fund II, L.P.
TCW Leveraged Income
Trust, L.P. 4,772,636.75 10.97%
LINC Acme, Corporation 100,000.00 0.23%
TOTAL: $24,755,970.09 $10,082,545.58 $533,333.36 81.31%
</TABLE>
61
<PAGE> 1
EXHIBIT 10.54
THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE LAW, AND MAY NOT BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION OR (b) SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY ARE ALSO SUBJECT TO
CERTAIN TRANSFER RESTRICTIONS AS SET FORTH IN THE ACME TELEVISION HOLDINGS, LLC
LIMITED LIABILITY COMPANY AGREEMENT, DATED AS OF THE DATE HEREOF, AND A CERTAIN
INVESTMENT AND LOAN AGREEMENT, DATED AS OF THE DATE HEREOF, BY AND AMONG THE
COMPANY AND THE PARTIES IDENTIFIED ON THE SIGNATURE PAGES THERETO.
CONVERTIBLE DEBENTURE
DUE JUNE 30, 2008
$[ ] June 17, 1997
Boston, Massachusetts
FOR VALUE RECEIVED, ACME TELEVISION HOLDINGS, LLC, a Delaware limited
liability company (the "Maker"), promises to pay to [ ] (hereinafter called the
"Payee"), or to its order, at its address [ ], the principal sum of [ ],
together with interest in arrears on the unpaid principal balance from time to
time outstanding from the date hereof until the entire principal amount due
hereunder is paid in full at the rates provided in that certain Investment and
Loan Agreement dated as of the date hereof by and among the Payee, the Maker and
the other parties identified on the signature pages thereto (the "Agreement").
Principal shall be paid, and interest shall accrue and be paid, as provided in
the Agreement.
This Convertible Debenture due June 30, 2008 ("Debenture") is one of
the Debentures (as defined in the Agreement) referred to in and issued pursuant
to the Agreement, and is entitled to the benefits of, and is subject to, the
terms and provisions of the Agreement, including, without limitation, the terms
and provisions relating to payment and conversion of the Debentures. The
outstanding principal amount of this Debenture shall be paid in full as provided
in the Agreement and may only be prepaid in accordance with the provisions of
the Agreement.
In the event that the Payee or any subsequent holder of this Debenture
shall exercise or endeavor to exercise any of its remedies hereunder or under
the Agreement, the Maker shall pay on demand all reasonable costs and expenses
incurred in connection therewith including, without limitation, reasonable
attorneys' fees, and the Payee may take judgment for all such amounts in
addition to all other sums due hereunder; provided, however, that any remedies
hereunder or under the Agreement may only be exercised by a holder hereof in
accordance with the terms of the Agreement.
Except as otherwise specifically provided in the Agreement, the Maker,
to the extent permitted by applicable law, waives presentment for payment,
protest and demand, and notice of
<PAGE> 2
protest, demand and/or dishonor and nonpayment of this Debenture, and all other
notices or demands otherwise required by law that the Maker may lawfully waive.
No unilateral consent or waiver by the Payee with respect to any action or
failure to act which, without consent or waiver, would constitute a breach by
the Maker of any provision of this Debenture or the Agreement, shall be valid
and binding unless in writing and signed by all required parties in accordance
with Section 12.1 of the Agreement.
Upon receipt of evidence satisfactory to the Maker of the loss, theft,
destruction or mutilation of this Debenture and, in the case of any such loss,
theft or destruction, upon delivery of indemnity satisfactory to the Maker, or
in case of such mutilation, upon surrender and cancellation of this Debenture,
the Maker will issue a new debenture, of like tenor, in lieu, and dated the
date, of such lost, stolen, destroyed or mutilated Debenture.
The rights and obligations of the Maker and all provisions hereof shall
be governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
All agreements between the Maker and the Payee are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid or
agreed to be paid to the Payee for the use, forbearance or detention of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof; provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest than the highest
permissible rate under applicable law in effect as of the date hereof, then this
Debenture shall be governed by such new law as of its effective date. If, from
any circumstance whatsoever, fulfillment of any provision hereof or the
Agreement at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then the obligation to be
fulfilled shall automatically be reduced to the limit of such validity, and if
from any circumstances the Payee should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest, and if the principal amount of this
Debenture has been paid in full, shall be refunded to the Maker. This provision
shall control every other provision of all agreements between the Maker and the
Payee.
2
<PAGE> 3
IN WITNESS WHEREOF, the Maker has caused this Debenture to be executed
by its duly authorized representative as of the day and year first above
written.
WITNESS: ACME TELEVISION HOLDINGS, LLC
___________________________ By:______________________________
Name:
Title:
3
<PAGE> 1
EXHIBIT 10.60
LEASE AGREEMENT
This Lease Agreement is made and entered into effective the 1st day of
January, 1997 by and between Mr. Tom Winter, N4135 - Highway 32, Krakow,
Wisconsin 54137, hereinafter called Lessor, and VCY/America, Inc. 3434 W.
Kilbourn Ave., Milwaukee, WI 53208 a Wisconsin corporation, hereinafter called
Lessee.
1. DESCRIPTION OF PROPERTY.
Lessor hereby grants and conveys permission to Lessee to construct,
operate and install buildings and/or radio communications structures and
equipment as required and necessary to support Lessee's Broadcasting System
pursuant to tower and site design attached hereto on the following tract of
land:
[Description and location of property to be attached
upon receipt of land survey of property]
2. TERM.
The term of this lease agreement shall be five (5) years from the first
day of January, 1997. Said term shall be extended seven (7) additional five (5)
year terms upon the option of Lessee. Lessee must notify Lessor in writing of
Lessee's intention to exercise it's option for such additional term not less
than one (1) year before the expiration date of lease or each renewal term. The
amount of rent and additional extensions of this lease shall be adjusted as
hereinafter provided.
1
<PAGE> 2
3. LEASE PAYMENTS.
The annual lease payment shall be One Thousand, Two Hundred Dollars
($1,200), payable on or before the date this lease became effective, and each
anniversary of the lease thereafter as set forth in Article 13.
The base rent shall be subject to changes on the renewal date of this
lease, in accordance with changes in the Consumer Price Index. The adjustment
shall be based on the CPI-U change for the preceding five (5) year period. If
application of the CPI-U would result in a decrease in the lease payment to
less than the rent for the preceding period, no change shall be made.
If the CPI-U publication is discontinued during the term of this lease,
any remaining rental adjustments shall be made using the most nearly comparable
statistics of the Bureau of Labor Statistics of the United States Department of
Labor. If the rent amount determined by such formula is not acceptable to
Lessee, this Lease shall terminate at the end of the one hundred eighty (180)
day period without further action by either party.
4. INSTALLATION AND MAINTENANCE OF LESSEE'S BUILDING, STRUCTURES AND
EQUIPMENT.
Lessor agrees and hereby grants Lessee free access to the described land
for the purpose of constructing, inspecting and maintaining the facilities as
set forth in article 1. It is agreed that only engineers and contractors of
Lessee, including their subcontractors, or persons under their direct
supervision, and employees of Lessee, will be permitted to enter the property.
It is further agreed that Lessee's construction and installation will comply
with all applicable rules and regulations of the Federal Communications
Commission, State Corporation Commission of the State of Wisconsin, and all
applicable Electrical Codes. Lessee shall construct, maintain, and operate all
improvements on the leased premises in accordance with applicable statutes,
ordinances, regulations and standards.
5. LESSEE'S EQUIPMENT.
Lessor acknowledges and agrees that all personal property, equipment,
apparatus, fittings, fixtures and trade fixtures installed or stored on
Lessee's premises constitute personal and exclusive property of Lessee or one
of Lessee's affiliates, including without imitation, all telecommunications
equipment, towers, switches, cables, wiring and associated equipment or
personal property (collectively, the "Equipment").
2
<PAGE> 3
The equipment shall remain at all times the personal property of the
Lessee or one of Lessee's affiliates, and neither the Lessor nor any person
claiming by, through or under Lessor shall have any right, title or interest
(including without limitation a security interest) in the equipment except as
otherwise provided herein. Lessee, and Lessee's successors in interest, shall
have the right to remove the equipment at any time during the term of this
lease, including without limitation upon the expiration of the term of this
lease or its earlier termination.
Lessee shall remove all improvements within one hundred eighty (180) days
following termination of this lease and shall restore the land to its original
condition. Any improvements not so removed shall be deemed abandoned and shall
become the property of Lessor. Lessor shall remove the abandoned property
within 180 days and sell it for its reasonable salvage value and Lessee shall
be liable for any deficiency incurred in the cost of its removal. Lessee shall
continue to pay the annual rent, prorated per month for the months required to
remove all of the improvements and restore the land to its original condition.
With respect to the holder of any mortgage, deed of trust or other lien
affecting Lessor's interest in the premises, whether existing as of the date
hereof or arising hereafter, Lessor and Lessee hereby agree, acknowledge and
declare that the equipment is now and shall at all times hereafter remain the
personal and exclusive property of Lessee or one of Lessee's affiliates. The
parties further acknowledge and agree that Lessor shall have no right or
authority to grant a lien or security interest in or to any of the equipment.
Lessee shall be responsible for and shall pay all personal property taxes,
real taxes on real estate improvements on the leased premises, or other taxes,
licensing fees or any other charges assessed or imposed against Lessee's
equipment or material located on the leased property. Upon demand, Lessee shall
furnish Lessor with reasonable evidence of Lessee's compliance with this
section. To the extent any such property of Lessee shall be assessed together
with real or personal property of Lessor, Lessee shall reimburse Lessor for any
taxes paid by Lessor attributable to such assessment upon demand by Lessor,
which demand shall be accompanied by reasonable documentation of such
assessment.
6. LEASEHOLD MORTGAGES AND SECURITY AGREEMENTS.
(a) Lessor hereby agrees that Lessee may execute and deliver to one or
more of Lessee's Lenders ("Lender"), and perfect one or more leasehold
mortgages and security agreements ("Mortgage") creating a lien on the leasehold
estate created by this lease and on any and all property now or hereafter in or
on such leasehold estate.
3
<PAGE> 4
(b) Lessor further agrees (i) that if an address of Lender is provided to
Lessor, Lessor shall provide to Lender written notice of any default in payment
of lease payments required to be made by Lessee under this lease, (ii) that
Lender shall have the right, but not the obligation, to cure any such default
at any time within sixty days after Lender's receipt of such notice, and (iii)
that Lessor shall not seek to cancel this lease if such default is so cured.
(c) Lessor further agrees that if Lender shall foreclose or otherwise
realize upon any Mortgage, Lender may elect in writing to succeed to, and to
have all of the benefits of, all of Lessee's right, title and interest in and
to said leasehold estate, but Lender shall not be responsible for lease payment
or indemnity obligations of Lessee prior to Lender's written election,
provided, however, that there shall be no monthly proration of yearly lease
payments. If Lender assigns and transfers such leasehold estate,
notwithstanding other provisions, Lender shall have no obligation under this
lease arising, accruing, or attributable to the period subsequent to such
assignment and transfer by Lender; and Lessor shall not require otherwise for
any consent to such an assignment or transfer.
(d) Lessor agrees to execute and deliver to Lender from time to time, as
requested, Lessor's written consent regarding the foregoing.
7. SUBLEASE.
Lessee shall not assign this lease or sublet the premises or any part
thereof, except to an affiliate of the Lessee, without first obtaining the
written consent of the Lessor. In the event of any other assignment, sublease,
or sale, the amount of the lease payment as set forth in paragraph 3 shall be
renegotiated based on facts and circumstances existing at that time.
Notwithstanding the above prohibition or limitation of Lessee's right to
sublease or assign its interest under this lease, Lessor acknowledges and
agrees that Lessee shall have the right to grant a security interest in its
right and interest under this lease. Lessor further agrees that any person
foreclosing or otherwise realizing upon such a security interest granted by
Lessee shall succeed to, and shall have the benefits of, all Lessee's rights,
title and interest under this lease.
8. LESSEE'S RIGHT TO LEASE.
Notwithstanding Article 7 Lessee shall have the right to lease use of or
space on its facilities to other entities in a manner consistent with other
provisions of this lease.
4
<PAGE> 5
9. HAZARDOUS SUBSTANCES.
Lessor represents and warrants, to the best of Lessor's knowledge, to
Lessee and Lessee's successors and assigns that:
(a) no dangerous, toxic or hazardous pollutants, contaminants, chemicals,
wastes, materials, or substances, as defined in or governed by the provisions
of any federal, state or local law, statute, code, ordinance, regulation,
requirement or rule relating thereto (collectively, the "Environmental
Regulations"), including without limitation urea-formaldehyde, dioxins,
polychlorinated biphenyls, asbestos, asbestos-containing materials,
nuclear-fuel wastes, and petroleum products, or any other wastes or substances
which would subject the owner or occupant of the premises to any damages,
penalties or liabilities under any applicable environmental regulation
(collectively, the "Hazardous Substances") are now or have been located,
produced, treated, transported, incorporated, discharged, emitted, released,
deposited or disposed of in, upon, under, over or from the premises;
(b) no threat exists of a discharge, release or emission of a Hazardous
Substance upon or from the premises into the environment;
(c) the premises have not ever been used as a mine, a landfill, a dump or
other disposal facility, an industrial manufacturing facility, or a gasoline
service station.
(d) no underground storage tank is now located in or under the premises,
or has previously been located therein but has been removed therefrom;
(e) no violation of any Environmental Regulation now exists or has ever
existed in, upon, under, over or from the premises;
(f) no notice of any such violation or any alleged violation of an
Environmental Regulation has been issued or given by any governmental entity or
agency, and there is not now or has there ever been any investigation or report
involving the premises by any governmental agency or entity which in any way
relates to Hazardous Substances;
(g) no person, party or governmental agency or entity has given notice of
or asserted any claim, cause of action, penalty, cost or demand for payment or
compensation, whether or not involving any injury or threatened injury to human
health, the environment or natural resources, resulting or allegedly resulting
from any activity or event described in (a) above;
(h) there are not now, nor have there ever been, any actions, suits,
proceedings or damage settlements relating in any way to Hazardous Substances
in, upon, under, over or from the premises;
5
<PAGE> 6
(i) the premises are not listed in the United States Environmental
Protection Agency's national priorities list of hazardous waste sites or any
other state or local governmental agency; and
(j) the premises are not subject to any lien or claim for lien in favor of
any governmental entity or agency as a result of any release or threatened
release of any Hazardous Substance.
(k) Lessee shall not permit any dangerous, toxic or hazardous pollutants,
contaminants, chemicals, wastes, materials, or substances, as defined in or
governed by the provisions of any federal, state or local law, statute, code,
ordinance, regulation, requirement or rule relating thereto (collectively, the
"Environmental Regulations"), including without limitation urea-formaldehyde,
dioxins, polychlorinated biphenyls, asbestos, asbestos-containing materials,
nuclear-fuel wastes, and petroleum products, or any other wastes or substances
which would subject the owner or occupant of the premises to any damages,
penalties or liabilities under any applicable environmental regulation
(collectively, the "Hazardous Substances") to be located, produced, treated,
transported, incorporated, discharged, emitted, released, deposited or disposed
of in, upon, under, over or from the premises. Lessee shall be liable for any
and all costs to correct any such condition resulting from Lessee's violation
of this provision.
10. SURFACE USE.
Lessor shall have the right to use all areas of the leased premises not
within any fenced enclosure or dedicated for road use. Such use by Lessors may
include cultivation, as well as grazing, provided such cultivation does not
interfere with Lessee's equipment, including, but not limited to, tower,
anchors, guy wires and fences.
Lessee shall install fencing around the anchor points, approximately four
feet (4') in height pursuant to site design attached hereto.
11. LESSOR'S INDEMNITY.
Lessor hereby agrees to indemnity and hold Lessee harmless from any
damages, claims or causes of action which may arise during the term of this
lease as a result of any action or negligence by the Lessor, their agents,
servants or employees, and to pay all reasonable costs and expenses, including,
but not limited to, attorney's fees and court costs.
12. LESSEE'S INDEMNITY.
Lessee hereby agrees to indemnify and hold Lessor harmless from any
damages, claims or causes of action which may arise during the term of this
lease as a result of any action or negligence by the Lessee, their agents,
servants or employees, and to pay all reasonable costs and expenses, including,
but not limited to, attorney's fees and court costs.
6
<PAGE> 7
13. CONTINGENCY.
This Lease Agreement is contingent upon Lessee receiving all necessary
permits and licenses, including, but not limited to, FAA, FCC and local zoning
requirements. Any other provision herein contained notwithstanding, no lease
payment shall be due until receipt by Lessee of final approval. The date of
receipt of such final approval shall be the anniversary date of this agreement
and the date payment is due pursuant to Article 3. Provided, however, that this
lease agreement shall terminate if payment is not made to Lessor within thirty
(30) days after receipt of construction permit from the FCC and each annual
contract anniversary.
14. GOVERNING LAW.
Any claim arising out of this agreement shall be governed by the laws of
the State of Wisconsin.
15. BINDING EFFECT.
This agreement is binding upon the parties hereto, their respective heirs,
executors, administrators, successors and assigns.
IN WITNESS WHEREOF, each party has executed this agreement on the date as
set forth below.
LESSEE LESSOR
VCY/America, Inc. Tom Winter
3434 West Kilbourn Ave. N4135 - Highway 32
Milwaukee, Wisconsin 53208 Krakow, Wisconsin 54134
/s/ VIC ELIASON /s/ TOM WINTER
----------------------------------- -----------------------------------
Vic Eliason Tom Winter, Lessor
Title: Vice President-Communications
Date: 1-1-97
------------------------------ -----------------------------------
(Additional Name if needed)
Date: 1-1-97
------------------------------
7
<PAGE> 8
ACKNOWLEDGEMENT
STATE OF WISCONSIN )
COUNTY OF BROWN )
This instrument was acknowledged before me on this 1st day of January,
1997, by Tom Winter.
/s/ BONITA L. POLACZINSKI
-----------------------------------
Notary Public Bonita L. Polaczinski
My Appointment Expires: 3-21-99
---------
ACKNOWLEDGEMENT
STATE OF WISCONSIN )
COUNTY OF MILWAUKEE )
This instrument was acknowledged before me on this _____ day of _________,
19__, by Vic Eliason, Vice President-Communications, VCY/America, Inc., a
Wisconsin corporation, for and on behalf of said corporation.
-----------------------------------
Notary Public
My Appointment Expires:
<PAGE> 1
EXHIBIT 10.61
ASSIGNMENT OF LEASE
AND ASSUMPTION AGREEMENT
AND
ESTOPPEL CERTIFICATE
THIS ASSIGNMENT OF LEASE AND ASSUMPTION AGREEMENT (the "Assignment") is
made as of October 6, 1997, by and between VCY AMERICA, INC., a non-stock,
not-for-profit Wisconsin corporation ("VCY"), and PAXSON COMMUNICATIONS
CORPORATION, a Delaware corporation ("Paxson") (as successor by assignment to
Paxson Communications of Green Bay-14, Inc., a Florida corporation).
WHEREAS, VCY and Paxson have entered into an Asset Purchase Agreement
dated as of April 30, 1997, as amended (the "Purchase Agreement"), pursuant to
which VCY has agreed to sell to Paxson, and Paxson has agreed to purchase from
VCY, substantially all of the assets used or useful in the business and
operations of television station WSCO(TV), Suring, Wisconsin (the "Station").
NOW, THEREFORE, for valuable consideration paid to VCY, the receipt and
sufficiency of which are hereby acknowledged, and in further consideration of
the mutual covenants and agreements contained in the Purchase Agreement, VCY
does hereby sell, transfer, and deliver to Paxson, its successors and assigns
all of VCY's right, title and interest in and to the lease listed on Exhibit A
hereto (the "Lease"), free and clear of any claims, liabilities, security
interests, mortgages, liens, pledges, conditions, charges, or encumbrances of
any nature whatsoever, and on the terms specified in the Estoppel Certificate
executed by Tom Winter as of October 3, 1997, a copy of which is attached
hereto.
Paxson hereby accepts assignment of the Lease and agrees to assume and
undertake to pay, discharge, and perform all obligations and liabilities of VCY
under the Lease insofar as it relates to the time on and after the date hereof,
and arise out of events related to Paxson's operation of the Station on or after
the date hereof.
This assignment and assumption is in accordance with and is subject to
all of the representations, warranties, and covenants set forth in the Purchase
Agreement. All representations, warranties, and covenants set forth in the
Purchase Agreement shall survive the delivery of this Agreement of Lease and
Assumption Agreement (subject to the terms and conditions of the Purchase
Agreement).
This Agreement may be signed in counterparts with the same effect as if
the signature on each counterpart were upon the same instrument.
Capitalized terms used but not defined herein shall have the same
meanings as set forth in the Purchase Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
duly executed as of the date first written above.
VCY AMERICA, INC.
By: /s/ Vic Eliason
--------------------------------
Name: Vic Eliason
Title: Vice President
PAXSON COMMUNICATIONS CORPORATION
By: /s/ William L. Watson
--------------------------------
Name: William L. Watson
Title: Assistant Secretary
ESTOPPEL CERTIFICATE
NOW COMES Tom Winter ("Winter") of N4135 Hwy. 32, Krakow, WI 54137 and
represents that he is the owner of premises known as N4251 Hwy. 32, Angelica,
WI, that he has entered into a valid and binding agreement with VCY America
Inc., a non-stock, not for profit Wisconsin corporation ("VCY"), to lease said
property pursuant to a lease agreement dated 1/1/97, a copy of which is attached
hereto (the "Lease"), and that he agrees to the assignment of VCY's interest as
a lessee to Paxson Communications Corporation, pursuant to paragraph seven of
said Lease. The specific parcel to be leased has the following legal
description.
That part of the SW 1/4 and the SE 1/4 of Section 12,
Township 26 North, of Range 18 East, in Shawano County,
Wisconsin, bounded and described as follows: Commencing at the
South 1/4 corner of the said Section 12; thence N
03(degree)04'29" W along the 1/4 line 388.87 feet to the
place of beginning thence continue on the same line 930.00
feet to the one-sixteenth corner; thence S 87(degree)17'22" E
along the one-sixteenth line 2536.03 feet to the west line of
STH 32; thence S 02(degree)07'42" E along the said east line
30.11 feet; thence N 87(degree)17'22" W 1685.53 feet; thence
S 03(degree)04'29" E 899.85 feet; thence N 87(degree)17'22" W
850.00 feet to the place of beginning. Containing 19.216
acres.
The Lease is in full force and effect and is enforceable in accordance
with its terms. The Lease constitutes the entire agreement between the parties
and there are no amendments or modifications thereto. There are no defaults by
any party under the Lease.
Winter further agrees not to do or permit anything which would encumber
said property prior to the time of assignment of said lease. Winter acknowledges
and understands that this
-2-
<PAGE> 3
Certificate is being given as part of a transaction wherein Paxson
Communications Corporation intends to purchase television station WSCO-TV from
VCY America, Inc., and that Paxson Communications Corporation will reasonably
relying on the representations made by Winter herein.
Winter agrees with Paxson Communications Corporation to enter into an
amendment to the Lease in recordable form incorporating the legal description of
the leased premises set forth herein. The Lease shall be hereby amended to
incorporate said legal description, and shall further be amended to provide for
lease payments from Paxson Communications Corporation of $11,000.00.
Winter further agrees to the provisions of the attached Rider, which is
hereby incorporated by reference.
Dated this 3rd day of October, 1997.
/s/ Tom Winter
---------------------------
Tom Winter
-3-
<PAGE> 1
EXHIBIT 10.62
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT and ASSUMPTION OF LEASE, dated as of the 23rd day of
April, 1999, is by and between PAXSON COMMUNICATIONS CORPORATION ("Assignor"),
and ACME TELEVISION OF WISCONSIN, LLC ("Assignee").
WHEREAS, Assignor and Assignee are parties to a certain Asset Purchase
Agreement, dated as of April 23, 1999;
WHEREAS, Assignee and ACME Television Licenses of Wisconsin, LLC, will
purchase from Assignor and certain of its affiliates substantially all of the
assets used or useful in connection with the operation of WPGX-TV, Suring,
Wisconsin (the "Station");
WHEREAS, Assignor is the lessee under a Lease (the "Lease"), dated
January 1, 1997, by and between VCY/America, Inc. ("VCY") and Tom Winter
("Lessor"), subsequently assigned by VCY to Assignor, which Lease is attached
hereto as Exhibit A;
WHEREAS, pursuant to the Lease, Assignor leases from Lessor the
property located in Shawano County, Wisconsin, more specifically described as
N4251-Highway 32, Angelica, Wisconsin, the term of which is January 1, 1997
through December 31, 2002;
WHEREAS, the above-described property is used as the tower site for the
Station's transmission tower and related facilities;
WHEREAS, Assignee desires to assume the above-referenced Lease for its
use as the tower site for the Station, and agrees to assume the obligations and
liabilities for the Lease;
WHEREAS, Assignor desires to assign the Lease to Assignee; and
WHEREAS, all consents required to assign the Lease have been obtained
and are in full force and effect.
NOW THEREFORE, for and in consideration of the assignment by Assignor
to Assignee of the Lease, and in further consideration of and subject to the
mutual covenants and agreements contained herein and in the Asset Purchase
Agreement, the parties hereby agree as follows:
1. Assignor does hereby bargain, sell, assign, transfer, convey and
deliver to Assignee and its successors and assigns all of Assignor's right,
title and interest in and to the Lease, and the Assignee hereby accepts and
assumes all said liabilities and obligations of the Assignor under the Lease,
subject to the further provisions of this Assignment and Assumption of Lease and
the Purchase Agreement.
2. Assignee shall not assume or be deemed to assume any debts,
liabilities or obligations of Assignor with regard to the Lease that occurred
prior to the date hereof, and Assignor shall not be responsible for any debts,
liabilities or obligations of Assignee with regard to the Lease arising on and
after this date.
<PAGE> 2
3. This Assignment and Assumption of Lease may be signed in counterpart
originals, which collectively shall have the same legal effect as if all
signatures had appeared on the same physical document.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first written above.
PAXSON COMMUNICATIONS CORPORATION
By: /s/ William L. Watson
-------------------------------
Name: William L. Watson
Title: Vice President and
Assistant Secretary
CITY OF WASHINGTON
DISTRICT OF COLUMBIA
I hereby certify that on this 22nd day of April, 1999, William Watson
personally appeared before me known and known by me to be the person executing
the foregoing instrument, and he acknowledged said instrument by him executed to
be his free act and deed in said capacity.
/s/ Deborah Gorham
---------------------------------------
Notary Public
Print Name: Deborah Gorham
My commission expires: October 31, 2003
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<PAGE> 3
ACME TELEVISION OF WISCONSIN, LLC
By: /s/ Thomas Allen
-----------------------------------
Name: Thomas D. Allen
Title: Executive Vice President and
Chief Financial Officer
STATE OF CALIFORNIA
COUNTY OF ORANGE
I hereby certify that on this 21 day of April, 1999, Thomas D. Allen
appeared before me known and known by me to be the person executing the
foregoing instrument, and he acknowledged said instrument by him executed to be
his free act and deed in said capacity.
/s/ John H. Wilson
---------------------------------------
Notary Public
Print Name: John H. Wilson
My commission expires: May 31, 2002
-3-
<PAGE> 1
EXHIBIT 10.71
BRIDGE LOAN AGREEMENT
AGREEMENT made as of this 23rd day of April, 1999, by and among ACME
TELEVISION HOLDINGS, L.L.C., a Delaware limited liability company (the
"Borrower"), and ALTA COMMUNICATIONS VI, L.P., a Delaware limited partnership,
ALTA COMM S BY S, LLC, a Delaware limited liability company, ALTA SUBORDINATED
DEBT PARTNERS III, L.P., a Delaware limited partnership, BANCBOSTON INVESTMENTS
INC., a Massachusetts corporation, CEA CAPITAL PARTNERS USA, L.P., a Delaware
limited partnership, CEA CAPITAL PARTNERS USA CI, L.P., a Cayman Islands limited
partnership, TCW SHARED OPPORTUNITY FUND III, L.P., a Delaware limited
partnership, SHARED OPPORTUNITY FUND IIB, LLC, a Delaware limited liability
company and TCW LEVERAGED INCOME TRUST II, L.P., a Delaware limited partnership
(collectively, the "Lenders").
WHEREAS, the Borrower has agreed to pay $40,000,000 (the "Purchase
Price") as purchase price payable in connection with the acquisition (the
"Acquisition Transaction") of (i) WPXG-TV, a broadcast television station in
Suring, Wisconsin, (ii) WDPX-TV, a broadcast television station in Springfield,
Ohio, and (iii) WPXU-TV, a broadcast television station in Champaign-Decatur,
Illinois (collectively, the "Stations"), pursuant to that certain asset purchase
agreement attached hereto as Exhibit A (the "Asset Purchase Agreement");
WHEREAS, pursuant to the First Amended and Restated Credit Agreement
among ACME Television, LLC, the several Lenders from time to time parties
thereto (the "Senior Lenders") and Canadian Imperial Bank of Commerce, as Agent
(the "Bank"), the Senior Lenders have agreed to loan to the Borrower $25,000,000
in order to fund part of the Purchase Price payable in connection with the
Acquisition Transaction; and
WHEREAS, the Lenders are willing to lend to the Borrower $15,000,000 to
be invested in its subsidiaries and used solely to fund the portion of the
Purchase Price not funded with proceeds received from the Bank on the terms and
conditions hereinafter set forth (the "Loan") and in the respective amounts set
forth opposite their names on Schedule A attached hereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I. TERMS OF THE LOAN.
Section 1.01. The Loan.
(a) Loan. Subject to the terms and conditions herein, the Lenders
severally but not jointly as set forth in Schedule A hereto agree to loan to the
Borrower an aggregate amount equal to $15,000,000, of which $7,000,000 ("Tranche
A") shall be drawn on or prior to April 23, 1999 (the "Initial Draw Down"). The
remaining $8,000,000 ("Tranche B") may be drawn down by the Borrower upon the
consummation of the Acquisition Transaction (the "Second Draw Down") by
providing advance written notice (the "Draw Down Notice") to the Lenders. The
Draw Down Notice shall contain appropriate wire transfer instructions and shall
be provided to the Lenders at least five (5) business days prior to the draw
down date for the
<PAGE> 2
remaining portion of the Loan. Notwithstanding anything contained herein to the
contrary, the Lenders shall not be required to advance any funds following the
occurrence of an Event of Default (as defined in Article V below). The principal
amount of the Loan together with all accrued interest thereon and expenses
incurred by the Lenders in connection therewith shall be due and payable in full
on the earliest to occur of: (i) the acceleration of the Loan by the Lenders
upon the occurrence of an Event of Default; (ii) the consummation by the
Borrower or any of its subsidiaries of one debt or equity financing or series of
related financings which results in net proceeds of more than the outstanding
balance of the Loan at that time, including without limitation an initial public
offering of the capital stock or other equity interests in the Borrower or any
of its subsidiaries, affiliates or successors (a "Permanent Financing"); or
(iii) April 23, 2002 (the "Maturity Date"). NOTWITHSTANDING ANYTHING CONTAINED
HEREIN, THE MAKING OF THE LOAN SHALL NOT BE DEEMED TO CREATE AN OBLIGATION ON
THE PART OF THE LENDERS TO PROVIDE OR ASSIST IN OBTAINING PERMANENT FINANCING
FOR THE ACQUISITION TRANSACTION, NOR SHALL THE FAILURE OF THE BORROWER OR ITS
AFFILIATES TO OBTAIN FINANCING FOR THE ACQUISITION TRANSACTION RELIEVE OR EXCUSE
ANY NON-PERFORMANCE BY THE BORROWER UNDER THIS AGREEMENT.
(b) The Notes. All amounts owed by the Borrower with respect to
the Loan shall be evidenced by promissory notes in the form attached hereto as
Exhibit B dated the date hereof and in the aggregate amount of the principal of
the Loan (the "Notes").
(c) Interest. The Notes shall bear interest, prior to the
Maturity Date, at a rate per annum equal to twenty-two and one-half percent
(22.5%), compounded semi-annually (the "Interest Rate") on such amount
outstanding from time to time under the Notes. The Interest Rate shall increase
by 250 basis points on October 23, 1999, and shall continue to increase 250
basis points every 90 days from the date of such increase provided, however,
that in no event shall the Interest Rate exceed thirty-five percent (35%), with
such increases to be cumulative and to continue until the unpaid principal
balance of the Notes and all accrued interest thereon have been repaid in full.
The Borrower may at any time at its option prepay all or any part of the
principal balance of the Notes, without premium or penalty, and any interest
accrued thereon, upon three (3) days' written notice to the Lenders.
Section 1.02. Use of Proceeds; Acquisition Transactions. The proceeds of
the Loan shall be used by the Borrower to invest in one or more subsidiaries,
which shall use such proceeds solely to fund the portion of the Purchase Price
payable pursuant to the Acquisition Transaction not funded with proceeds
received from the Bank.
Section 1.03. Conditions Precedent. The Lenders' obligation to advance
the proceeds of the Loan upon each of the First Draw Down and the Second Draw
Down shall be subject to the fulfillment to the Lenders' satisfaction of the
following conditions:
2
<PAGE> 3
(a) Delivery of Documents. The Lenders shall have received the
following documents: (i) fully-executed Notes; (ii) certified copies of
the organizational documents of the Borrower with good standing
certificates; and (iii) certified resolutions of the Borrower
authorizing the Acquisition Transaction and the execution and delivery
of this Agreement and the Notes.
(b) Opinions. The Lenders shall have received (i) a written
opinion dated as of the date of each draw down, in form and substance
satisfactory to them, from Dickstein Shapiro Morin & Oshinsky L.L.P.,
counsel to the Borrower, as to existence and authorization, execution,
delivery and enforceability of this Agreement, the Notes, the Asset
Purchase Agreement, noncontravention and third-party consents and such
other matters as the Lenders may reasonably request and (ii) on or prior
to the Second Draw Down, an FCC regulatory opinion substantially in the
form attached hereto as Exhibit B.
.
(c) Representations and Covenants. All of the representations and
warranties of the Borrower shall be materially true and correct, and the
Borrower shall have materially fulfilled all of its obligations
hereunder.
(d) Absence of Violation or Litigation. The consummation of the
transactions contemplated hereby shall not be in violation of any law or
regulation applicable to the Borrower. The Borrower shall not be subject
to any injunction, stay or restraining order or shall require any
filings, approvals or consents which shall not have been previously made
or obtained. In addition, no litigation, suit, action, claim or
investigation shall be pending, or threatened, which might impair or
prevent the consummation of the Acquisition Transaction or the
performance by the parties hereto of their obligations hereunder.
(e) Absence of Material Adverse Changes. There shall not be any
material adverse change in the financial condition, assets, liabilities,
prospects, business or operations of the Stations or the Borrower.
(f) All Proceedings Satisfactory. All organizational and other
proceedings taken by the Borrower in connection with the transactions
contemplated by this Agreement, and all documents and instruments
related thereto, shall be reasonably satisfactory in form and substance
to the Lenders, and the Lenders shall have received copies thereof and
other materials (certified, if requested) as they may reasonably request
in connection therewith. The issuance and sale of the Notes shall be
made in conformity with all applicable state and federal securities
laws.
(g) Evidence of FCC Approval. Prior to the Second Draw Down, the
Company shall have received all consents from the Federal Communications
Commission (the "FCC") necessary to consummate the Acquisition
Transaction, without any adverse conditions to such consents, including
the transfer of all commercial broadcast station and auxiliary licenses,
permits, authorizations and other certificates
3
<PAGE> 4
required by the FCC rules, regulations and policies and the
Communications Act of 1934, 47 U.S.C. Section 151 et. seq., as amended
(collectively, the "FCC Licenses") necessary to operate the broadcast
television stations to be acquired by the Company and no
reconsideration, review or appeal shall have been sought by any party,
and the FCC shall have not reconsidered such FCC consent on its own
motion. After giving effect to the Acquisition Transaction, all renewal
applications relating to the FCC Licenses shall have been timely and
properly filed, no renewal proceedings shall be pending or threatened
which may result in the revocation, cancellation, suspension or
modification of, or the refusal to renew, any such FCC Licenses, and no
petitions to deny any pending renewal application, informal objections,
or any other protests to the grant of any such renewal application, or
any competing applications shall be pending.
(h) The Borrower's subsidiaries shall have received proceeds in
the amount of at least $25,000,000 from the Senior Lenders concurrently
with the Initial Draw Down, and the Borrower shall have used such
proceeds to fund the Purchase Price payable pursuant to the Acquisition
Transaction.
ARTICLE II. COOPERATION. The Borrower hereby agrees:
(a) not to take any action to obstruct, impede or infringe upon
the Lenders' enforcement of their rights, benefits and remedies under this
Agreement and the Notes;
(b) to cooperate fully with any and all actions taken by the
Lenders pursuant to this Agreement or in the exercise of any rights granted to
the Lenders hereunder or under applicable law, including without limitation the
full and complete cooperation and assistance in all proceedings, correspondence
and other communications before or with the Federal Communications Commission or
in connection with obtaining any approvals necessary or appropriate to enforce
the Lenders' remedies; and
(c) upon the acceleration of the Loan by the Lenders following
the occurrence of an Event of Default, to use its best efforts to (i) sell the
Borrower's assets or refinance the Borrower as soon as possible following such
Event of Default and (ii) repay the Loan;
provided, however, that the Borrower shall not be required to undertake one or
more of the required actions described in this Article II if it provides the
Lenders with written notice that it has been advised by outside legal counsel
that such action(s) would be inconsistent with its fiduciary duties under
applicable law.
ARTICLE III. REPRESENTATIONS AND WARRANTIES.
Section 3.01. Power and Authority; Legal and Binding Nature; Compliance
with Other Instruments. The Borrower has full power and authority and has taken
all required corporate and other action necessary to permit it to execute,
deliver and perform all of its respective obligations contained in this
Agreement and the Notes, and to borrow hereunder and thereunder; and such
4
<PAGE> 5
actions will not violate any provision of law customarily applicable to such
transactions, the certificate of formation or the operating agreement of the
Borrower or result in the breach of or constitute a default under any agreement
or instrument to which the Borrower or any of its subsidiaries or affiliates is
a party or by which it is bound, which default has not been waived in writing on
or prior to the date hereof. This Agreement has been duly authorized and validly
executed by and is the valid and binding obligation of the Borrower enforceable
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance and similar laws affecting creditors' rights generally, and general
principles of equity. Neither the execution and delivery by the Borrower of this
Agreement or the Notes, nor the performance by the Borrower of its obligations
hereunder or thereunder, requires the consent, approval or authorization of any
person or governmental authority, which consent, approval or authorization has
not been obtained.
Section 3.02. Representations and Conditions in Acquisition Transaction
Documents. The Borrower represents and warrants that the representations and
warranties of the Borrower contained in the Asset Purchase Agreement and all
other documents related to the Acquisition Transaction and, to its knowledge, of
all other parties thereto are true and correct in all material respects as of
the date hereof. The Borrower represents and warrants that the Asset Purchase
Agreement, including amendments thereto, attached hereto as Exhibit A (i) is
true, complete, in full force and effect and is a valid, binding and enforceable
obligation of the Borrower and to the Borrower's knowledge, the remaining
parties thereto, (ii) has not been breached by the Borrower or, to its
knowledge, any other party thereto and (iii) has not been amended, waived,
modified or superseded as of the date hereof.
Section 3.03 Absence of Certain Developments. Since December 31, 1998,
there has been: (a) no material adverse change in the condition or reasonably
foreseeable prospects (financial or otherwise) of the Borrower or its
subsidiaries and affiliates or in the assets, liabilities, properties or
business of the Borrower or its subsidiaries and affiliates; (b) no declaration,
setting aside or payment of any dividend or other distribution with respect to,
or any direct or indirect redemption or acquisition of, any ownership interest
in the Borrower or its subsidiaries and affiliates; (c) no waiver of any
valuable right of the Borrower or its subsidiaries and affiliates or
cancellation of any material debt or claim held by the Borrower or its
subsidiaries and affiliates; (d) no material loan by the Borrower or its
subsidiaries and affiliates to any officer, director, employee or shareholder of
the Borrower or its subsidiaries and affiliates, or any agreement or commitment
therefor; (e) no increase, direct or indirect, in the compensation paid or
payable to any officer, director, employee, agent or shareholder of the Borrower
or its subsidiaries and affiliates (other than salary increases in the ordinary
course of business consistent with past practice); (f) no material loss,
destruction or damage to any property of the Borrower or its subsidiaries and
affiliates, whether or not insured; (g) no labor trouble involving the Borrower
or its subsidiaries and affiliates and no material change in the senior
management or other key personnel of the Borrower or its subsidiaries and
affiliates, or the terms and conditions of their employment, and (h) except as
contemplated by this Agreement or otherwise disclosed to the Lenders in writing
prior to the date hereof, no acquisition or disposition of any assets (or any
contract or arrangement therefor), time brokerage or local marketing agreement
or
5
<PAGE> 6
any other material transaction by the Borrower or its subsidiaries and
affiliates outside the ordinary course of business.
Section 3.04 SEC Reporting Obligations. The Borrower and each of its
subsidiaries and affiliates has filed all required forms, reports and documents
with the Securities and Exchange Commission ("SEC") since the earliest date on
which the Borrower and any of its subsidiaries and affiliates became subject to
the reporting obligations of Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (collectively, the "Borrower SEC
Reports"), all of which were prepared in accordance with the applicable
requirements of the Exchange Act and the Securities Act of 1933, as amended (the
"Securities Act"). As of their respective dates, Borrower SEC Reports (i)
complied as to form in all material respects with the applicable requirements of
the federal securities laws and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets of the Borrower and of each of its subsidiaries and affiliates included
in or incorporated by reference into Borrower SEC Reports (including the related
notes and schedules) fairly presents the consolidated financial position of the
Borrower and its subsidiaries and affiliates and each of the consolidated
statements of income, retained earnings and cash flows of the Borrower and of
its subsidiaries and affiliates included in or incorporated by reference into
the Borrower SEC Reports (including any related notes and schedules) fairly
presents the results of operations, retained earnings or cash flows, as the case
may be, of the Borrower and its subsidiaries and affiliates for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments which would not be material in amount or effect), in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC.
ARTICLE IV. LENDERS' COVENANTS
Section 4.01. Consent. By its execution hereof, each Lender, in its
capacity as a holder of Investor Units or Convertible Debentures (each as
defined in the Investment Agreement) of the Borrower, consents to the
consummation of the Acquisition Transaction in accordance with the terms of the
Asset Purchase Agreement, for all purposes under Articles IV and V of the
Amended and Restated Investment Agreement dated September 30, 1997 among the
Borrower and several investors and lenders signatories thereto (the "Investment
Agreement").
Section 4.02. Investment Representation.
Each Lender represents and warrants to the Borrower that in making Loans
hereunder such Lender will be acquiring the Notes issued to it for the purpose
of investment and not with a view to, or for sale in connection with, any
distribution in violation of the Securities Act of 1933, as amended.
6
<PAGE> 7
ARTICLE V. DEFAULT
Section 5.01. Events of Default. If, while any part of the principal of
or interest on the Notes remains unpaid, a "Sales Event" as defined in the
Investment Agreement shall occur, then and in every such event (each, an "Event
of Default"), the Lenders may, without notice to the Borrower, declare the Notes
to be forthwith due and payable, whereupon the Notes shall forthwith become due
and payable without presentment, demand, protest or further notice of any kind,
all of which are expressly waived by the Borrower.
Section 5.02. Remedies on Default, Etc. In case any one or more Events
of Default shall occur and be continuing, each Lender may proceed to protect and
enforce its rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained in
this Agreement, or for an injunction against a violation of any of the terms
hereof or thereof or in and of the exercise of any power granted hereby or
thereby or by law. No right conferred upon the Lenders hereby or the Notes shall
be exclusive of any other right referred to herein or therein or now or
hereafter available at law, in equity, by statute or otherwise.
ARTICLE VI. MISCELLANEOUS.
Section 6.01. Notices. All necessary notices, demands and requests
permitted or required under this Agreement shall be in writing and shall be
deemed effective (a) if given by facsimile, when such facsimile is transmitted
to the facsimile number specified below, the appropriate answer back is received
and a copy is sent to such party by an express mail carrier at the address
indicated below, (b) four (4) days after being mailed by certified mail, return
receipt requested, postage prepaid to the applicable party at the address
indicated below or (c) one (1) business day after being sent by an express mail
carrier to the applicable party at the address indicated below:
To the Lenders: Alta Communications VII, L.P.
Alta Comm S by S, LLC
Alta Subordinated Debt Partners III, L.P.
c/o Burr, Egan, Deleage & Co.
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 482-1944
Attn: Brian McNeill and Thomas Trowbridge
CEA Capital Partners USA, L.P.
CEA Capital Partners USA CI, L.P.
17 State Street
35th Floor
New York, NY 10004
Attn: James Collis
7
<PAGE> 8
TCW Shared Opportunity Fund III, L.P.
Shared Opportunity Fund IIB, LLC
TCW Leveraged Income Trust II, L.P.
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Darryl L. Schall
BancBoston Investments Inc.
175 Federal Street
Boston, MA 02110
Attn: Lars Swanson
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 570-8150
Attn: John J. Egan III, P.C. and
Lizette M. Perez, Esq.
If to the Borrower: c/o ACME Television Holdings, LLC
West Oak Street
Burbank, CA 91505
Attn: Thomas D. Allen
With a copy to: Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attn: Lewis J. Paper, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose of receiving notice hereunder.
Section 6.02. No Waiver. No failure to exercise, and no delay in
exercising, on the part of the Lenders, any right, power or privilege hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
Section 6.03. Governing Law; Construction. This Agreement and the Notes
shall each be deemed to be a contract made under the laws of The Commonwealth of
Massachusetts, and shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. The proceeds of the Loan shall be deemed to have
been loaned to the Borrower in The Commonwealth of Massachusetts and obligations
hereunder shall be deemed to have been
8
<PAGE> 9
performed in The Commonwealth of Massachusetts. The descriptive headings of the
several Sections hereof are for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof. This Agreement, the
Notes together with the Exhibits hereto and all documents, instruments and
agreements executed pursuant hereto, constitute the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof, supersede all prior agreements, understandings or representations
pertaining to the subject matter hereof, whether oral or written, and may not be
contradicted by evidence of any alleged oral agreement.
Section 6.04. Amendments, Waivers and Consents. Any term, covenant or
condition of this Agreement may be amended, omitted or waived (either generally
or in a particular instance and either retroactively or prospectively) only by
written consent of the Borrower and the majority in interest of the Lenders
(determined on the basis of their pro rata share of the Loan as set forth in
Schedule A hereto).
Section 6.05. Indemnity. The Borrower hereby agrees, to the full extent
permitted by law, and in addition to any such rights which any Indemnified Party
(as defined herein) may have pursuant to statute or otherwise, to indemnify and
hold harmless the Lenders (including its subsidiaries and affiliates and persons
serving as officers, directors, partners, employees and agents, each an
"Indemnified Purchaser") and each person (a "Controlling Person" and
collectively with Indemnified Purchasers, the "Indemnified Parties") who
controls any of them within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, taxes, fines, penalties, costs, expenses and liabilities, joint or
several, including any investigation, reasonable legal and other expenses
incurred in connection with the investigation, defense, settlement or appeal of,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted ("Losses" or "Loss"), to which they, or any of them, may become
subject by reason of their status as a security holder or creditor of the
Borrower in respect of the Loan (including, without limitation, any and all
Losses under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relates directly
or indirectly to the registration, purchase, sale or ownership of the Notes. The
indemnification and contribution provided for in this Section 6.05 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.
If the indemnification provided for in this Section 6.05 is for any
reason held by a court of competent jurisdiction to be unavailable to an
Indemnified Party in respect of any Losses referred to therein, then the
Borrower, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Borrower and the Lenders, 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 Borrower and the
Lenders
9
<PAGE> 10
in connection with the action or inaction which resulted in such Losses, as well
as any other relevant equitable considerations.
The Borrower and the Lenders agree that it would not be just and
equitable if contribution pursuant to the foregoing paragraph was 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.
Section 6.06. Expenses. Any expense incurred by the Lenders (including,
without limitation, reasonable attorneys' fees and disbursements) in connection
with (a) the negotiation, execution, administration or enforcement of this
Agreement, any other document executed by the Borrower in connection with this
Agreement and the Notes and any amendment thereto, (b) the exercise of any right
or remedy upon the occurrence of an Event of Default, (c) recording and filing
fees in transferring documentary stamp and similar taxes at any time payable in
respect of this Agreement, or (d) the enforcement of any rights hereunder,
including costs of collection and reasonable attorneys' fees and expenses, shall
be paid by the Borrower within fifteen (15) days of receiving written notice
thereof from the Lenders.
[END OF TEXT]
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above written.
Borrower: ACME TELEVISION HOLDINGS, LLC
By: /s/ Thomas Allen
--------------------------------
Name: Thomas Allen
Title: Exec. VP
Lenders: ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI
Management
Partners, L.P.,
its general partner
By: /s/ Brian McNeill
--------------------------------
Name: Brian McNeill
Title:
ALTA COMM S BY S, LLC
By: /s/ Brian McNeill
--------------------------------
A member
ALTA SUBORDINATED DEBT PARTNERS
III, L.P.
By: Alta Subordinated Debt
Management III, L.P., its
General Partner
By: /s/ Brian McNeill
--------------------------------
Name: Brian M. McNeill
Title:
BANCBOSTON INVESTMENTS INC.
By: /s/ Lars A. Swanson
--------------------------------
Name: Lars A. Swanson
Title: Vice President
<PAGE> 12
CEA CAPITAL PARTNERS USA, L.P.
By: CEA Management Corp.,
its authorized representative
By: /s/ James J. Collis
-------------------------------
Name: James J. Collis
Title: Executive Vice President
CEA CAPITAL PARTNERS USA CI, L.P.
By: CEA Management Corp.,
its authorized representative
By: /s/ James J. Collis
-------------------------------
Name: James J. Collis
Title: Executive Vice President
TCW SHARED OPPORTUNITY
FUND III, L.P.
By: TCW Asset Management Company,
its Investment Advisor
By: /s/ Darryl L. Schall
-------------------------------
Name: Dayrrl L. Schall
Title: Senior Vice President
By: /s/ Nicholas W. Tell, Jr.
-------------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
SHARED OPPORTUNITY FUND IIB, LLC
By: TCW Asset Management Company,
its Investment Advisor
By: /s/ Darryl L. Schall
-------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
By: /s/ Nicholas W. Tell, Jr.
-------------------------------
<PAGE> 13
Name: Nicholas W. Tell, Jr.
Title: Managing Director
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW Investment Management
Company, as Investment adviser
By: /s/ Darryl L. Schall
-------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
By: TCW (LINC II), L.P. as General
Partner
By: TCW Advisers (Bermuda), Ltd.,
as its General Partner
By: /s/ Melissa V. Weiler
-------------------------------
Name: Melissa V. Weiler
Title: Managing Director
<PAGE> 14
SCHEDULE A
<TABLE>
<CAPTION>
Name of Lender Amount of Loan
- -------------- --------------
<S> <C>
TRANCHE A
ALTA COMMUNICATIONS VI, L.P. $1,283,288
ALTA COMM S BY S, LLC $29,213
ALTA SUBORDINATED DEBT PARTNERS III, L.P. $437,499
BANCBOSTON INVESTMENTS INC. $1,750,000
CEA CAPITAL PARTNERS USA, L.P. $1,337,525
CEA CAPITAL PARTNERS USA CI, L.P. $412,475
TCW SHARED OPPORTUNITY FUND III, L.P. $1,000,000
SHARED OPPORTUNITY FUND IIB, LLC $250,000
TCW LEVERAGED INCOME TRUST II, L.P. $500,000
TRANCHE B
ALTA COMMUNICATIONS VI, L.P. $1,466,615
ALTA COMM S BY S, LLC $33,386
ALTA SUBORDINATED DEBT PARTNERS III, L.P. $499,999
BANCBOSTON INVESTMENTS INC. $2,000,000
CEA CAPITAL PARTNERS USA, L.P. $1,528,600
CEA CAPITAL PARTNERS USA CI, L.P. $471,400
TCW SHARED OPPORTUNITY FUND III, L.P. $1,142,857
SHARED OPPORTUNITY FUND IIB, LLC $285,714
TCW LEVERAGED INCOME TRUST II, L.P. $571,429
</TABLE>
<PAGE> 1
EXHIBIT 21.0
ACME COMMUNICATIONS, INC
SUBSIDIARIES
<TABLE>
<CAPTION>
ORGANIZED
SUBSIDIARY UNDER LAWS OF
---------- -------------
<S> <C>
ACME Intermediate Holdings, LLC Delaware
ACME Subsidiary Holdings II, LLC Delaware
ACME Intermediate Finance, Inc. Delaware
ACME Subsidiary Holdings III, LLC Delaware
ACME Finance Corporation Delaware
ACME Television, LLC 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
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 23.2
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
July 30, 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
July 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 954 1,001
<SECURITIES> 0 0
<RECEIVABLES> 9,245 10,840
<ALLOWANCES> 599 555
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,435 18,614
<PP&E> 18,420 16,441
<DEPRECIATION> 2,842 2,211
<TOTAL-ASSETS> 290,902 288,082
<CURRENT-LIABILITIES> 18,777 17,557
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (5,365) 1,413
<TOTAL-LIABILITY-AND-EQUITY> 290,902 288,082
<SALES> 11,123 43,928
<TOTAL-REVENUES> 11,123 43,928
<CGS> 0 0
<TOTAL-COSTS> 15,417 46,727
<OTHER-EXPENSES> (14) (963)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,466 23,953
<INCOME-PRETAX> (10,023) (24,333)
<INCOME-TAX> (745) (2,393)
<INCOME-CONTINUING> (9,278) (21,940)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,278) (21,940)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
