<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-84191
------------------------
ACME COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0866283
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2101 E. FOURTH STREET, SUITE 202 A
SANTA ANA, CALIFORNIA, 92705
(714) 245-9499
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ NATIONAL MARKET
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed on the basis of $28.75 per share, which was the last
sale price on the Nasdaq on March 15, 2000, was $481,562,500.
As of March 15, 2000, there were 16,750,000 shares of registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed pursuant to
Regulation 14A relating to the 2000 Annual Meeting of Stockholders is
incorporated by reference in Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ACME COMMUNICATIONS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Description of Business..................................... 2
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.... 19
Item 6. Selected Financial Data..................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 22
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 25
Item 8. Financial Statements and Supplementary Data:
Independent Auditors' Report................................ 26
Consolidated Balance Sheets................................. 27
Consolidated Statements of Operations....................... 28
Consolidated Statements of Stockholders' Equity............. 29
Consolidated Statements of Cash Flows....................... 30
Notes to Consolidated Financial Statements.................. 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 46
PART III
Item
10.* Directors and Executive Officers of the Registrant.......... 46
Item
11.* Executive Compensation...................................... 47
Item
12.* Security Ownership of Certain Beneficial Owners and
Management.................................................. 47
Item
13.* Certain Relationships and Related Transactions.............. 47
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 47
Schedule I -- Condensed Financial Information of ACME
Communications, Inc. (Parent Company).
Schedule II -- Valuation and Qualifying Accounts
Exhibit 21.0 Subsidiaries
</TABLE>
- ---------------
* Items incorporated by reference to our Proxy Statement to be filed pursuant to
Regulation 14A relating to the 2000 Annual Meeting of Stockholders.
1
<PAGE> 3
PART I
ITEM 1. BUSINESS
ACME Communications, Inc. (the "Company" or "we") was formed as a
wholly-owned subsidiary of ACME Television Holdings, LLC ("Parent") on July 23,
1999. On September 8, 1999, the Company received $1,000 from its Parent, which
represented its contributed capital.
Immediately prior to the closing of the initial public offering of ACME
Communications' common stock on October 5, 1999, a reorganization (the
"Reorganization") of Parent resulted in ACME Communications directly owning 100%
of the membership units of Parent.
ACME Communications, Inc. is a holding company with no independent
operations other than its investment in its wholly-owned subsidiaries ACME
Intermediate Holdings, LLC and ACME Television, LLC. Segment information is not
presented as all of the Company's revenue is attributed to a single reportable
segment.
We currently own and operate ten broadcast television stations in
medium-sized markets across the United States. Nine of our stations are network
affiliates of The WB Network, making us the third largest WB Network affiliated
station group in the country. Our television stations broadcast in markets that
cover in aggregate approximately 5.4% of the total U.S. television households.
Mr. Kellner, our Chairman and Chief Executive Officer, is also a founder, Chief
Executive Officer and partner of The WB Network, and was President of Fox
Broadcasting Company from its inception in 1986 through 1993. Mr. Kellner and
our other founders formed our Company to capitalize on the opportunity to
affiliate with The WB Network, an emerging broadcast television network launched
in January 1995.
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 with an
emphasized focus on 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. Additionally, since many of the stations we own are in
markets where the Federal Communications Commission allows dual ownership of
broadcast television stations ("duopoly"), our long-term strategy also includes
acquiring such second stations.
Like The WB Network, we target our programming at 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 and
through the 1998/1999 season, The WB Network was 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 enhances our ability to sell advertising time to local and regional
advertisers and increase audience awareness of our newly launched stations.
PROGRAMMING
Our programming includes:
- The WB Network prime time programming (at nine of our ten stations)
- Kids' WB! (at nine of our ten stations);
2
<PAGE> 4
- syndicated programming; and
- local programming.
Prime Time Programming. In prime time, The WB Network is currently ranked
number one among female teens and, based on the average age of their viewers, is
the youngest broadcast network today. Prime time programming includes: 7th
Heaven, Buffy the Vampire Slayer, Dawson's Creek, Charmed, Felicity and Popular.
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 is providing
13 hours of prime time programming Sunday through Friday.
Kids' WB! Programming. The WB Network launched Kids' WB! in September 1995
with three hours of programming on Saturdays, and currently provides 19 hours of
kids' programming Monday through Saturday. Kids' WB! programming includes
Pokemon, the number one rated kids animated program. Kids' WB! also airs Warner
Bros. produced shows such as Batman Beyond, Histeria!, Men in Black and
Superman. Warner Bros.' animated programs also feature popular Looney Toons
characters such as Bugs Bunny, Daffy Duck, Tazmanian Devil, Tweety Bird,
Sylvester, Road Runner and Wile E. Coyote.
Syndicated Programming. In addition to The WB Network programming, our
stations air syndicated programs. Generally, our most profitable programming
time periods are those immediately before and after The WB Network programming.
Consequently, during these time periods, we air programs that are targeted to
the audiences similar in demographics as those that watch The WB Network prime
time programs. These syndicated programs include Friends, Star Trek: Next
Generation, Seinfeld, Star Trek: Voyager and The Drew Carey Show. We have
secured future broadcast rights for certain of our stations to Suddenly Susan,
Spin City and King of the Hill. We have multi-year contracts to air most of our
syndicated programming.
Local Programming. Each of our stations also 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 the broadcast rights and air certain regional and local
sporting events including games of the St. Louis Cardinals and the St. Louis
Blues at KPLR, the Seattle Mariners and the University of Oregon Ducks at KWBP,
the Atlanta Braves and the Atlanta Hawks at WBXX and the Colorado Rockies at
KUWB. In addition, KPLR airs a nightly 30-minute local newscast.
OUR STATIONS
The following table provides general information concerning our
stations(1):
<TABLE>
<CAPTION>
NOVEMBER 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 1,114,000 15 17 14 18 October 1997
KWBP -- 32
Portland, OR.................. 23 1,004,000 2 3 6 6 February 1997
KUWB -- 30
Salt Lake City, UT............ 36 721,000 4 4 6 7 April 1998
KWBQ -- 19
Albuquerque-Santa Fe, NM...... 49 569,000 2 1 3 3 March 1999
KASY -- 50
Albuquerque-Santa Fe, NM...... 49 569,000 2 2 1 1 November 1999
WBDT -- 26
Dayton, OH.................... 56 506,000 3 2 3 2 June 1999
WBXX -- 20
Knoxville, TN................. 63 452,000 7 5 16 13 October 1997
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
NOVEMBER 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>
WIWB -- 14
Green Bay-Appleton, WI........ 69 392,000 2 1 6 6 June 1999
WTVK -- 46
Ft. Myers-Naples, FL.......... 81 343,000 4 3 7 4 March 1998
WBUI -- 23
Champaign-Springfield-Decatur,
IL............................ 83 342,000 4 3 3 3 June 1999
</TABLE>
- ---------------
(1) All ownership and statistical information is from BIA Publishing, Inc. and
Nielsen Media Research.
(2) All television stations throughout the United States are grouped into 210
markets that are ranked in size according to the number of households with
televisions in the market for the 1999/2000 season.
KPLR: ST. LOUIS, MISSOURI
Designated Market Area: 21 TV Households: 1,114,000
Total Age 2+ Population: 2,826,000
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 Anheuser-Busch, Emerson Electric, May Department Stores,
Monsanto, Ralston Purina and TWA. The television advertising revenue in the St.
Louis marketplace was estimated at $215.1 million in 1999 and has grown at a
compound annual rate of approximately 4.2% 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 Kids'
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, The Drew Carey Show and
Cheers. The station has contracted for the future exclusive market broadcast
rights to popular shows such as Spin City (9/00) and Sabrina (9/00). In the
November 1999 sweeps period, KPLR delivered the highest household rating in WB
prime time to rank number one versus all other WB affiliates in the country.
KPLR also took top honors in other demographics including adults aged 18-34,
adults aged 18-49, and persons aged 12-34. In the St. Louis market, KPLR
continued to rank number one in the Monday through Sunday, 5:00 p.m. to 1:00
a.m. time period among St. Louis teens and persons aged 12-24. In the same time
period, KPLR improved its ranking in the market for adults aged 18-34 category
to number one from the number two spot in the previous year, and for adults aged
18-49, KPLR's ranking improved from number three to number two in the market as
compared to November of 1998.
KWBP: PORTLAND, OREGON
Designated Market Area: 23 TV Households: 1,004,000
Total Age 2 + Population: 2,519,000
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 $189.7 million in 1999 and has grown at a compound annual rate of
approximately 6.3% over the past five years.
4
<PAGE> 6
Station Overview. We began operating KWBP under a local marketing
agreement in February 1997 and acquired the station in June 1997. KWBP signed on
the air in 1989 and has been affiliated with The WB Network since the network's
launch. In addition to carrying The WB Network prime time programming and Kids'
WB!, the station's syndicated programming currently includes Star Trek: The Next
Generation, Full House, Xena: Warrior Princess and America's Funniest Home
Videos, The Drew Carey Show and Caroline in the City were added to the
syndicated programming during the fourth quarter of 1999. 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 low-power station in the
market that is licensed to the city of Portland which we believe will improve
our signal coverage. In addition, the station has contracted for the future
exclusive-market broadcast rights to popular shows such as King of the Hill
(9/01). In the November 1999 sweeps period, KWBP delivered an average weekly
cumulative number of 468,000 households from sign-on to sign-off, representing a
13% increase over November 1998.
KUWB: SALT LAKE CITY, UTAH
Designated Market Area: 36 TV Households: 721,000
Total Age 2+ Population: 2,155,000
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 $155.9 million in 1999 and has grown
at a compound annual rate of approximately 6.0% over the past five years.
Station Overview. We began operating KUWB in April 1998 under a local
marketing agreement and acquired the station in September 1999. KUWB has been
affiliated with The WB Network since the network's launch. When we began
operating the station, we replaced the primarily religious paid programming and
infomercials that were being run on the station in all non-WB Network time
periods with syndicated programming. This station's syndicated programming
currently includes The Drew Carey Show, Caroline in the City, The Fresh Prince,
Cheers, Roseanne and Full House it also carries the NBC-affiliated Saturday
Night Live. The station has contracted for the future exclusive-market broadcast
rights to popular shows such as, Spin City (9/00) and Sabrina (9/00). In the
November 1999 sweeps period, KUWB delivered an average weekly cumulative number
of 328,000 households from sign-on to sign-off, an increase of 44,000 homes
compared to November 1998. The WB Network prime time programming continued to
perform well in the market as highlighted by the 22% increase in its average
household rating as compared to November of 1998.
KWBQ: ALBUQUERQUE -- SANTA FE, NEW MEXICO
KASY: ALBUQUERQUE -- SANTA FE, NEW MEXICO
Designated Market Area: 49 TV Households: 569,000
Total Age 2+ Population: 1,517,000
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 $95.7
million in 1999 and has grown at a compound annual rate of approximately 4.9%
over the past five years.
KWBQ 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 Star Trek: Voyager, Caroline in the City, 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
5
<PAGE> 7
such as Sabrina and Spin City (2000/2001) and Seinfeld (March 2000). KWBQ
entered its third major sweeps period in November 1999. From sign-on to
sign-off, KWBQ reached an average of 80,000 households, or 14% of the total
designated market area. This represented a 95% increase over the station's
circulation during the May 1999 sweeps.
KASY Station Overview. We began operating KASY, the UPN affiliate in the
market, under an interim LMA on November 1, 1999 and closed our purchase of the
station on December 3, 1999. The station has been a UPN affiliate since that
network's launch in January 1995. Prior to November 1999, the station had been
operating as an LMA by another station owner in the market. The station's
syndicated programming includes Third Rock from the Sun, Star Trek: Next
Generation, Judge Joe Brown and Roseanne. All of the future program rights
negotiated for KWBQ are also available to air on KASY. During the November 1999
ratings period (the first month of our operation of the station) KASY reached an
average of 117,000 households, sign-on to sign-off, Monday through Sunday, 7:00
a.m. to 1:00 a.m., a 16,000 household decrease, which we believe to have been
caused, in part, by the change in operations at the station. KASY's highest
rated program was Star Trek: Voyager which delivered a 4 rating among adults
aged 18-34, a 3 rating among adults aged 18-49, and a 4 rating among adults aged
25-54. Among teen viewers, the WWF Smackdown was the station's top performer
with a 2 rating during the November 1999 sweeps period.
WBDT: DAYTON, OHIO
Designated Market Area: 56 TV Households: 506,000
Total Age 2+ Population: 1,271,000
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 $85.5 million in 1999 and has grown at a
compound annual rate of approximately 2.7% 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 TV station,
currently carries a combination of PAX TV and WB Network programming. PAX TV
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's syndicated programming currently includes Full House,
Fresh Prince and America's Funniest Home Videos, and the station has contracted
for the future exclusive-market broadcast rights to popular shows such as Family
Matters (9/00), 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 continue to improve WBDT's ratings.
During the November 1999 sweeps period, WBDT reached an average of 114,000
households weekly, representing an 8% increase over the July 1999 sweeps period.
WBXX: KNOXVILLE, TENNESSEE
Designated Market Area: 63 TV Households: 452,000
Total Age 2+ Population: 1,108,000
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 $73.1 million in 1999 and has grown at a compound
annual rate of approximately 6.0% 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 The Drew Carey Show, Caroline in the
6
<PAGE> 8
City, Friends, Sister Sister, Full House and Cheers. The station has contracted
for the future exclusive-market broadcast rights to popular shows such as
Sabrina (9/00), Spin City (9/00) and Suddenly Susan (9/00). In the November 1999
sweeps period, WBXX delivered an average weekly cumulative number of 168,000
households from sign-on to sign-off, an increase of 36,000 households compared
to November 1998. WBXX also made the WB Network's top 25 affiliate list for its
delivery of the WB Network prime time programming among teens and its overall
Teen rating in this time period increased 52% over the November 1998 period.
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 TV supplied programming and we will share equally
with Paxson Communications the excess of station revenues over certain operating
expenses.
WIWB: GREEN BAY -- APPLETON, WISCONSIN
Designated Market Area: 69 TV Households: 392,000
Total Age 2+ Population: 995,000
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 $57.9 million in 1999 and has grown at a compound annual rate of
approximately 6.0% over the past five years.
Station Overview. We acquired WIWB in June 1999. 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 TV station, currently carries a combination of
PAX TV and WB Network programming. PAX TV 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. In addition, the station's syndicated programming
currently includes Step by Step, Fresh Prince, and Jerry Springer, and the
station has contracted for the future exclusive-market broadcast rights to
popular shows such Sabrina (9/00), Clueless (9/00), Suddenly Susan (9/00), Jamie
Foxx (9/00) and Everybody Loves Raymond (9/01). In the November 1999 sweeps
period, WIWB's reach in the Green Bay/Appleton market climbed 53% over the July
1999 sweeps period to a weekly average of 93,000 homes. We believe that our
programming changes, in particular the airing of the WB Network programming and
new syndicated programs, will continue to improve WIWB's ratings.
WBUI: CHAMPAIGN -- SPRINGFIELD -- DECATUR, ILLINOIS
Designated Market Area: 83 TV Households: 342,000
Total Age 2+ Population: 833,000
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 $43.5 million in 1999 and has grown at a
compound annual rate of approximately 4.9% over the past five years.
Station Overview. We acquired WBUI in June 1999. 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 TV station, currently carries a combination of
PAX TV and WB Network programming. PAX TV 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. In addition, the station's syndicated programming
currently includes Full House, Star Trek: Voyager, Fresh
7
<PAGE> 9
Prince, and Entertainment Tonight, and the station has contracted for the future
exclusive market broadcast rights to popular shows such as Sabrina (9/00),
Suddenly Susan (9/00), Spin City (9/00) and Clueless (9/00). In the November
1999 sweeps period, WBUI's reach in their market increased 38% over the July
1999 period to a weekly average of 83,000 homes. We believe that our programming
changes, in particular the airing of The WB Network and new syndicated programs,
will continue to improve WBUI's ratings.
WTVK: FT. MYERS -- NAPLES, FLORIDA
Designated Market Area: 81 TV Households: 344,000
Total Age 2+ Population: 815,000
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 $61
million in 1999 and has grown at a compound annual rate of approximately 6.0%
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 Star Trek: Voyager, Drew Carey, 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 Sabrina (9/00),
Suddenly Susan (9/00), Spin City (9/00) and Caroline in the City (9/00). WTVK
delivered an average weekly household cumulative number of 92,000 in November
1999, an increase of 3,000 households since November 1998, and an increase of
19,000 households (26%) since May of 1998 when WTVK first became a WB affiliate.
WTVK's adult ratings during the WB Network prime time increased 21% to 78% as
compared to November of 1998.
WZPX: GRAND RAPIDS, MICHIGAN
In addition to the 10 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 TV. In connection with this
agreement, WZPX has entered into a secondary affiliation agreement with The WB
Network for five years. Beginning in October 1999 we entered into a standstill
agreement pursuant to which we were not obligated to perform under the terms of
the joint sales agreement. To date, we have not been requested to perform our
obligations under the joint sales agreement and the parties have informally
agreed to refrain from enforcing their respective rights and obligations under
that agreement. DP Media continues to have 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 to any party other than to Paxson Communications Corporation ("PCC") or
to a subsidiary of PCC's.
OUR AFFILIATION AGREEMENTS
Each of our nine WB Network affiliated 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 10 year terms. KASY,
our UPN affiliated station in Albuquerque-Santa Fe, New Mexico, has entered into
an affiliation agreement with UPN that expires in January 2005.
Under the affiliation agreements, The WB Network and UPN retain the right
to program and sell approximately 75% of the advertising time available during
their prime time schedule with the remaining 25% available for sale by our
stations. Both networks retain approximately 50% of the advertising time
available during Kids' WB! programs aired in other dayparts.
8
<PAGE> 10
For our nine WB Network affiliated stations, in addition to the advertising
time retained for sale by The WB Network, each station is also subject to annual
compensation payments 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. For
our UPN affiliate, KASY, no compensation is paid by either party. We participate
in cooperative marketing efforts with The WB Network and UPN whereby the
networks reimburse up to 50% of certain approved advertising expenditures by a
station to promote network programming. Our affiliation agreements for KPLR,
KWBP and WBXX, also entitle those stations to certain most favorable terms
agreed to by The WB Network and any affiliate, during the term of the
affiliation agreements, and any subsequent modifications.
In addition, as part of our acquisition of WBDT, WIWB and WBUI, we entered
into a five-year secondary affiliation agreement with PAX TV at these stations.
We are generally obligated to run the PAX TV prime time programming in certain
morning dayparts. We retain a portion of the advertising time during this
programming for local sales, and PAX TV retains the balance.
ADVERTISING/SALES
Virtually all of our revenues for 1997, 1998 and 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 42% of our net advertising revenues in 1997,
54% in 1998 and 55% in 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 58% of our net advertising
revenues in 1997, 46% in 1998 and 45% in 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 increasing extent, with radio stations, cable television system
operators, newspapers, billboard companies, direct mail and internet sites.
Traditional network and Fox programming generally achieves higher household
audience levels than that of The WB Network, UPN 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.
9
<PAGE> 11
However, because The WB Network and UPN provide fewer hours of programming
per week than the traditional networks, we have a significantly higher inventory
of advertising time for our own use and, therefore, 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 (via our programming) the audiences that are key
targets of advertisers, and our focus on advertising sales allows us to compete
effectively for advertising revenues within our stations' markets.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory bodies, including the FCC, any of which could possibly have an
adverse effect on a television station's operations and profits. Sources of
video service other than conventional television stations, the most common being
cable television, can increase competition for a broadcast television station by
bringing distant broadcasting signals not otherwise available to the station's
audience, serving as a distribution system for national satellite-delivered
programming and other non-broadcast programming originated on a cable system and
selling advertising time to local advertisers. Other principal sources of
competition include home video exhibition, direct-to-home broadcast satellite
television, entertainment services and multi-channel multi-point distribution
services. Currently, two FCC permittees, DirecTV and Echostar, provide
subscription DBS services via high-power communications satellites and small
dish receivers, and other companies provide direct-to-home video service using
lower powered satellites and larger receivers.
Other technology advances and regulatory changes affecting programming
delivery through fiber optic telephone lines and video compression could lower
entry barriers for new video channels and encourage the development of
increasingly specialized niche programming. The Telecommunications Act of 1996
permits telephone companies to provide video distribution services via radio
communication, on a common carrier basis, as cable systems or as open video
systems, each pursuant to different regulatory schemes. We cannot predict the
effect that these and other technological and regulatory changes will have on
the broadcast television industry or on the future profitability and value of a
particular broadcast television station.
Broadcast television stations compete with other television stations in
their designated market areas for the acquisition of programming. Generally,
cable systems do not compete with local stations for programming, but various
national cable networks do from time to time and on an increasing basis acquire
programming that could have been offered to local television stations. Public
broadcasting stations generally compete with commercially-rated broadcasters for
viewers, but do not compete for advertising revenues. Historically, the cost of
programming has increased because of an increase in the number of independent
stations and a shortage of quality programming.
FEDERAL REGULATION OF TELEVISION BROADCASTING
Television broadcasting is a regulated industry and is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended from
time to time. The Communications Act prohibits the operation of television
broadcasting stations except under a license issued by the FCC. The
Communications Act empowers the FCC, among other things:
- to issue, revoke and modify broadcast licenses;
- to decide whether to approve a change of ownership or control of station
licenses;
- to regulate the equipment used by stations; and
- to adopt and implement regulations to carry out the provisions of the
Communications Act.
Failure to observe FCC or other governmental rules and policies can result
in the imposition of various sanctions, including monetary forfeitures, the
grant of short, or less than maximum, license renewal terms or, for a
particularly egregious violations, the denial of a license renewal application,
the revocation of a license or denial of FCC consent to acquire additional
broadcast properties.
10
<PAGE> 12
License Grant, Renewal, Transfer and Assignment. A party must obtain a
construction permit from the FCC to build a new television station. Once a
station is constructed and commences broadcast operations, the permittee will
receive a license which must be renewed by the FCC at the end of each eight-year
license term. The FCC grants renewal of a broadcast license if it finds that the
station has served the public interest, convenience, and necessity and the
licensee has not seriously violated the Communications Act or FCC rules and
policies. If the FCC finds that a licensee has failed to meet these standards,
the FCC may deny renewal or condition renewal. Any other party with standing may
petition the FCC to deny a broadcaster's application for renewal. However, only
if the FCC issues an order denying renewal will the FCC accept and consider
applications from other parties for a construction permit for a new station to
operate on that channel. The FCC may not consider any applicant in making
determinations concerning the grant or denial of the licensee's renewal
application. Although renewal of licenses is granted in the majority of cases
even when petitions to deny have been filed, we cannot be sure our station
licenses will be renewed for a full term or without modification.
Our current licenses expire as follows:
<TABLE>
<CAPTION>
STATION (BY MARKET RANKING) EXPIRATION DATE
- --------------------------- ----------------
<S> <C>
KPLR.................................................... February 1, 2006
KWBP.................................................... February 1, 2007
KUWB.................................................... October 1, 2006
KWBQ.................................................... October 1, 2006
KASY.................................................... October 1, 2006
WBDT.................................................... October 1, 2005
WBXX.................................................... August 1, 2005
WIWB.................................................... December 1, 2005
WBUI.................................................... December 1, 2005
WTVK.................................................... February 1, 2005
</TABLE>
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including:
- compliance with various rules limiting common ownership of media
properties;
- the character of the licensee and those persons holding attributable
interests therein; and
- compliance with the Communications Act's limitations on alien ownership.
Character generally refers to the likelihood that the licensee or applicant
will comply with applicable law and regulation. Attributable interests generally
refers to the level of ownership or other involvement in station operations
which would result in the FCC attributing ownership of that station or other
media outlet to the person or entity in determining compliance with FCC
ownership limitations.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, an application must be filed with the FCC. If
the application involves a substantial change in ownership or control, the
application must be placed on public notice for a period of no less than 30 days
during which petitions to deny the application may be filed by interested
parties, including certain members of the public. If the FCC grants the
application, interested parties have no less than 30 days from the date of
public notice of the grant to seek reconsideration or review of that grant by
the full commission or, as the case may be, a court of competent jurisdiction.
The full FCC commission has an additional 10 days to set aside on its own motion
any action taken by the FCC's staff. When passing on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer to any party other than the
assignee or transferee specified in the application.
11
<PAGE> 13
Ownership Restrictions. The officers, directors and equity owners of 5% or
more of our outstanding voting stock or the voting stock of a company holding
one or more broadcast licenses are deemed to have attributable interests in the
broadcast company. However, minority voting stock interests generally will not
be attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. Also, specified institutional investors,
including mutual funds, insurance companies and banks acting in a fiduciary
capacity, may own up to (but not as much as) 20% of the outstanding voting stock
without being subject to attribution if they exercise no control over the
management or policies of the broadcast company.
The FCC will not grant a license to own a second television station to any
party, or parties under common control, that already has an attributable
interest in another television station in the same DMA unless:
- there will be eight independent full-power television stations n the DMA
after the acquisition or merger and one of the two television stations
owned by the same party is not among the top four-ranked stations in the
DMA based on audience share;
- the station to be acquired is a "failing" station under FCC rules and
policies;
- the station to be acquired is a "failed" station under FCC rules and
policies; or
- the acquisition will result in the construction of a previously unbuilt
station.
FCC regulations also prohibit one owner from having attributable interests in
television broadcast stations that reach in the aggregate more than 35% of the
nation's television households. For purposes of this calculation, stations in
the UHF band which covers channels 14 - 69 are attributed with only 50% of the
households attributed to stations in the VHF band, which covers channels 2 - 13.
Subject to certain exceptions, FCC rules generally allow the holder of an
attributable interest in a television station to have an attributable interest
in:
- up to six radio stations in a market with 20 independent media voices;
- up to four radio stations in a market with 10 independent media voices;
and
- at least one radio station in any market.
At the same time, FCC rules and policies generally prohibit a party with an
attributable interest in a television station from owning a daily newspaper or
cable television system serving a community located within the relevant coverage
area of that television station.
Some of the rules and policies described in the foregoing paragraph were
incorporated in amendments recently adopted by the FCC with respect to its
ownership rules. Other new rules encompassed additional changes:
- determine whether stations are in the same market by reference to a
Nielsen designated market area rather than through a signal overlap among
stations;
- attribute the ownership of a station to parties whose debt and/or equity
holdings in the company exceed 33% of the station's total assets if
certain other factors are present; and
- treat some local marketing agreements or time brokerage agreements with
television stations as an attributable interest.
Restrictions on Foreign Ownership. The Communications Act prohibits the
issuance of broadcast licenses to, or the holding of a broadcast license by
foreign citizens or any corporation of which more than 20% of the capital stock
is owned of record or voted by non-U.S. citizens or their representatives or by
a foreign government or a representative thereof, or by any corporation
organized under the laws of a foreign country. The Communications Act also
authorizes the FCC to prohibit the issuance of a broadcast license to, or the
holding of a broadcast license by, any corporation controlled by any other
corporation of which more than 25% of the capital stock is owned of record or
voted by aliens. The FCC has interpreted these restrictions to apply to other
forms of business organizations, including partnerships. As a result of these
provisions, the licenses granted to our subsidiaries that hold FCC licenses
could be revoked if more than 25% of our stock were directly or indirectly owned
or voted by aliens. Our certificate of incorporation contains limitations on
alien
12
<PAGE> 14
ownership and control substantially similar to those contained in the
Communications Act. Pursuant to our certificate of incorporation, we have the
right to refuse to sell shares to aliens or to repurchase alien-owned shares at
their fair market value to the extent necessary, in the judgment of our board of
directors, to comply with the alien ownership restrictions.
Programming and Operation. The Communications Act requires broadcasters to
serve the public interest, convenience and necessity. The FCC has gradually
restricted or eliminated many of the more formalized procedures it had developed
to promote the broadcast of programming responsive to the needs of the station's
community of license. Licensees continue to be required, however, to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming will be considered by the FCC when
it evaluates the licensee's renewal application, but these complaints may be
filed and considered at any time.
Stations must also pay regulatory and application fees and follow various
FCC rules that regulate, among other things:
- political advertising;
- children's programming;
- the broadcast of obscene or indecent programming;
- sponsorship identification; and
- technical operations and equal employment opportunity requirements.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short, less than the maximum, renewal terms, or for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
Review of Must Carry Rules. FCC regulations implementing the Cable
Television Consumer Protection and Competition Act of 1992 require each
television broadcaster to elect, at three-year intervals beginning October 1,
1993, to either:
- require carriage of its signal by cable systems in the station's market
which is referred to as must carry rules; or
- negotiate the terms on which such broadcast station would permit
transmission of its signal by the cable systems within its market which
is referred to as retransmission consent.
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 circumstances, a cable system may choose to
decline to carry a given station. We have elected must carry with respect to
each of our stations which are each carried on the related cable system.
Local Marketing Agreements. Under recently adopted FCC rules, the licensee
of a television station providing more than 15% of another television station's
programming under a local marketing agreement is considered to have an
attributable interest in the other station for purposes of the FCC's national
and local multiple ownership rules. The FCC also adopted a grandfathering policy
providing that local marketing agreements that are in compliance with the
previous FCC rules and policies and were entered into before November 5, 1996,
would be permitted to continue in force until the FCC conducts its biennial
review of
13
<PAGE> 15
regulations in 2004. Local marketing agreements entered into after November 5,
1996 but prior to the recently adopted FCC rules will be grandfathered until
August 2001.
Prior to the adoption of the FCC's new rules, we did, from time to time,
enter into local marketing agreements, generally in connection with pending
station acquisitions. By using local marketing agreements, we can provide
programming and other services to a station that we have agreed to acquire
before we receive all applicable FCC and other governmental approvals.
Subject to ownership restrictions in the new FCC rules and policies, 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 may have a local marketing
agreement with, or that we would receive the revenue from the sale of
advertising for such programming.
Digital Television Services. The FCC has adopted rules for implementing
digital television service in the United States. Implementation of digital
television will improve the technical quality of television signals and provide
broadcasters the flexibility to offer new services, including high-definition
television and data broadcasting.
The FCC has established service rules and adopted a table of allotments for
digital television. Under the table, all eligible broadcasters with a full-power
television station are allocated a separate channel for digital television
operation. Stations will be permitted to phase in their digital television
operations over a period of years following the adoption of a final table of
allotments, after which they will be required to surrender their license to
broadcast the analog, or non-digital television, signal. Affiliates of the top
four networks in the top thirty markets are already required to be on the air
with a digital signal. Our stations must be on the air with a digital signal by
May 1, 2002. Under applicable law and regulation, television broadcasters must
return their analog license to the government by 2006 unless specified
conditions exist, that in effect, affect the public's limited access to digital
television transmissions in a particular market.
The Communications Act and the FCC's rules impose certain conditions on the
FCC's implementation of digital television service. Among other requirements,
the FCC must:
- limit the initial eligibility for licenses to existing television
broadcast licensees or permittees;
- allow digital television licensees to offer ancillary and supplementary
services; and
- charge appropriate fees to broadcasters that supply ancillary and
supplementary services for which such broadcasters derive certain
non-advertising revenues.
Equipment and other costs associated with the digital television
transition, including the necessity of temporary dual-mode operations, will
impose some near-term financial costs on television stations providing the
services. The potential also exists for new sources of revenue to be derived
from digital television. We cannot predict the overall effect the transition to
digital television might have on our business.
Children's Television Act. FCC rules limit the amount of commercial matter
that a television station may broadcast during programming directed primarily at
children 12 years old and younger. FCC rules further require television stations
to serve the educational and informational needs of children 16 years old and
younger through the stations' own programming as well as through other means.
Television broadcasters must file periodic reports with the FCC to document
their compliance with foregoing obligations.
Other Pending FCC and Legislative Proceedings. In 1995, the FCC issued
notices of proposed rulemaking proposing to modify or eliminate most of its
remaining rules governing the broadcast network-affiliate relationship. The
network-affiliate rules were originally intended to limit networks' ability to
control programming aired by affiliates or to set station advertising rates and
to reduce barriers to entry by networks. The dual network rule, which generally
prevents a single entity from owning more than one broadcast television network,
is among the rules under consideration in these proceedings. Although the
Telecommunications Act substantially relaxed the dual network rule by providing
that an entity may own more than one
14
<PAGE> 16
television network, none of the four major national television networks may
merge with each other or acquire certain other networks in existence on February
8, 1996. We cannot predict how or when the FCC proceeding will be resolved or
how those proceedings or the relaxation of the dual network rule may affect our
business.
The Satellite Home Viewer Act allows satellite carriers to deliver
broadcast programming to subscribers who are unable to obtain television network
programming over the air from local television stations. Congress recently
amended the act to facilitate the ability of satellite carriers to provide
subscribers with programming from both local and non-local television station.
The FCC is conducting rulemaking proceedings to implement those legislative
changes.
On February 2, 2000, the FCC released a Report and Order in a proceeding
that reexamined rules that previously required broadcast licensees to provide
equal employment opportunities. The new rules generally require broadcast
licensees to widely disseminate information on employment vacancies and to
promote diversification in their employment. However, in contrast to prior
practice, a station's employment profile will no longer be screened in
conjunction with a station's license renewal application. The new rules
supplement a broadcaster's obligation to refrain from racial or other prohibited
discrimination in its employment practices under other applicable federal as
well as state and local laws and regulations.
Federal regulatory agencies and Congress from time to time consider
proposals for additional or revised rules. We cannot predict the resolution of
these issues or other issues discussed above, although their outcome could, over
a period of time, affect, either adversely or favorable, the broadcasting
industry generally or us specifically.
The foregoing summary of FCC and other governmental regulations is not
intended to be comprehensive. For further information concerning the nature and
extent of federal regulation of broadcast stations, you should refer to the
Communications Act, the Telecommunications Act, other Congressional acts, FCC
rules and the public notices and rulings of the FCC.
EMPLOYEES
At December 31, 1999, we had 331 employees, including 41 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.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 Annual Report on Form 10-K.
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 Annual Report on Form 10-K. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
Annual Report on Form 10-K might not occur.
15
<PAGE> 17
RISK FACTORS
The following factors (in addition to others) could have a material and
adverse impact on the Company's business:
Our highly leveraged financial position poses the following risks to
stockholders:
- a substantial portion of our cash flow from operations will be required
to service our indebtedness;
- our ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes, including
acquisitions might be impeded; and
- we are more vulnerable to economic downturns and our ability to withstand
competitive pressures is limited.
Our future cash flow might not be sufficient to meet our obligations and
commitments. If we do not meet our interest obligations under our credit
agreement or indentures, or if we otherwise default under these instruments, our
debt may be accelerated under these instruments as well as other debt
instruments we have. In addition, because we are highly leveraged, our ability
to respond to market conditions or meet extraordinary capital needs may be
limited. If we are unable to generate sufficient cash flow from operations to
meet our obligations and commitments, we will be required to refinance or
restructure our indebtedness or raise additional debt or equity capital.
Additionally, we may be required to sell material assets or operations or delay
or forego acquisitions. The alternative strategies might not be effected on
satisfactory terms, if at all.
Our credit agreement and our subsidiaries' indentures contain restrictive
covenants that may limit our ability to:
- incur additional debt;
- pay dividends;
- merge, consolidate or sell assets;
- make acquisitions or investments; or
- change the nature of our business.
Our credit agreement and indentures also require us to maintain certain
financial covenants, including specified financial tests. Without lender
consents, or if we do not meet these tests, we may not be able to make
acquisitions as planned or meet general or extraordinary capital needs.
Our growth could be limited if we are unable to successfully implement our
acquisition plans. Our ability to acquire additional television stations is
affected by the following:
- many competing acquirers have greater resources available to make such
acquisitions than we have;
- desired stations might not be available for purchase;
- we might be unable to obtain The WB Network affiliation for all of the
stations we acquire;
- we might not have the financial resources necessary to acquire additional
stations;
- we might be unable to obtain FCC approval of the assignments or transfers
of control of FCC licenses; and
- the law limits the number and location of broadcasting properties that
any one person or entity, including its affiliates, may own and could
limit our ability to pursue desired stations.
Mr. Kellner's consulting agreement provides that he may perform services
for other businesses unaffiliated with ours that, in certain limited
circumstances, may be competitive. Because of Mr. Kellner's experience in the
television broadcast industry, if Mr. Kellner provides services to a competing
business, it could materially affect our operations.
16
<PAGE> 18
Mr. Kellner's ownership and position at The WB Network could create
conflicts with his position with us if our interests differ from those of The WB
Network. Because Mr. Kellner is both our Chief Executive Officer and The WB
Network's Chief Executive Officer, The WB Network requires that he recuse
himself from any material transaction between The WB Network and us.
Additionally, due to his responsibilities with The WB Network, Mr. Kellner might
have limited time available to devote to us.
If our relationship with The WB Network changes in an adverse manner, or if
The WB Network's success diminishes, it might have a material adverse effect on
our ability to generate advertising revenue on which our business is dependent.
For example, The WB Network might not renew or might adversely change any of our
station affiliation agreements. Also, by aligning ourselves closely with The WB
Network, we might forego other opportunities that could provide diversity of our
network affiliation and avoid dependence on a single network.
If we cannot acquire future syndicated programming rights or if such
syndicated programming is available only at significantly increased costs, our
operating costs could increase or our ratings and revenues could decline.
Additionally, if currently licensed programming or programming we license in the
future fails to capture favorable audience ratings, our revenues could be
adversely affected.
If we experience a significant decline in broadcast cash flow from KPLR we
will not have any positive cash flow and will not be able to fulfill our current
and future obligations and commitments. Due to negative net cash flow at our
start-up stations, broadcast cash flow from KPLR accounted for more than 100% of
our total broadcast cash flow in 1999.
The required conversion of the broadcast industry to provide digitally
transmitted television signals will require us to make significant capital
expenditures which may not be balanced by consumer demand for digital
television. The FCC requires us to provide a digitally transmitted signal by
2002 for all of our stations and, generally, to stop using analog signals on the
stations by 2006. Although we have begun preparations to make the transition to
digital television by entering into lease agreements to install digital
television antennas and transmitters, we are unable to predict how much the
entire transition will cost and how long it will take. Because digital
television is generally available only in some of the top-ten viewing markets,
we are unable to predict what the consumer demand for digital division will be
or when the demand will arise.
ITEM 2. PROPERTIES
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 studios and
other facilities for our current stations. Information as to tower size reflects
the height above average terrain of the antenna radiation center.
<TABLE>
<CAPTION>
LOCATION APPROXIMATE SIZE OWNERSHIP
- -------- ---------------- ---------
<S> <C> <C>
St. Louis, Missouri
Corporate office facilities............................... 1,500 sq. ft. Leased
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
Digital Tower(3).......................................... 159 ft. Owned
Knoxville, Tennessee
Studio and office facilities.............................. 8,000 sq. ft. Leased
Tower(2).................................................. 2,399 ft. Owned
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
LOCATION APPROXIMATE SIZE OWNERSHIP
- -------- ---------------- ---------
<S> <C> <C>
Salt Lake City, Utah
Studio and office facilities.............................. 9,500 sq. ft. Leased
Tower..................................................... 3,839 ft. Leased
Digital Tower(3).......................................... 386 ft. Owned
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 (joint for KWBQ and KASY).... 9,000 sq. ft. Owned
Tower (KWBQ).............................................. 1,234 ft. Leased
Tower (KASY).............................................. 4,187 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(2).................................................. 660 ft. Leased
Champaign -- Springfield -- Decatur, Illinois
Studio and office facilities.............................. 9,600 sq. ft. Owned
Tower..................................................... 1,030 ft. Owned
Santa Ana, California
Corporate office facilities............................... 3,000 sq. ft. Leased
</TABLE>
- ---------------
(1) Excludes 30,000 square feet of apartment space located above the studio and
office facilities.
(2) Tower owned on leased property.
(3) Represents partnership interests in digital television towers in the Salt
Lake City and Portland markets.
ITEM 3. 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 that we believe to be adequate for the purpose. We are not
currently a party to any lawsuit or proceeding that we believe could have a
material adverse effect on our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders during the fourth
quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information about our executive officers at
December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jamie Kellner........................ 52 Chairman of the Board and Chief Executive Officer
Douglas Gealy........................ 39 President, Chief Operating Officer and Director
Thomas Allen......................... 47 Executive Vice President, Chief Financial Officer and
Director
Edward Danduran...................... 47 Vice President, Controller
</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.
18
<PAGE> 20
Douglas 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.
Thomas 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 Senior Vice President and 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under
the symbol ACME. The high sale price of the common stock during the fourth
quarter of 1999, its initial quarter of trading, was $39.625 and the low sale
price during the same period was $27.000. As of March 15, 2000, there were 57
stockholders of record.
We have not declared or paid any cash dividends or distributions on our
common stock since our inception. We anticipate that, for the foreseeable
future, all earnings will be retained for use in our business and no cash
dividends will be paid on our common stock. Any payment of future cash dividends
on our common stock will be dependent upon the ability of our subsidiaries to
pay dividends or make cash payments or advances to us. Our credit agreement and
our subsidiaries' indentures impose restrictions on our subsidiaries' ability to
make these payments. Our ability to pay future dividends will also be subject to
restrictions under any future debt obligations and other factors that our board
of directors deems relevant.
On September 27, 1999, the Board of Directors of ACME Communications, Inc.
(the "Company") approved a merger and reorganization (the "Reorganization")
pursuant to a single integrated plan for the capitalization of the Company,
following which the Company owned directly or indirectly 100% of the membership
units of each of ACME Television Holdings, LLC and ACME Intermediate Holdings,
LLC. We relied on Rule 506 of the Securities Act of 1933, as amended, as an
exemption from registration for the issuance of 4,850,129 shares of our common
stock in the Reorganization in exchange for: (1) all of the convertible
debentures of ACME Television Holdings, LLC; (2) the membership units
representing approximately 6% of ACME Intermediate Holdings, LLC; and (3) all of
the convertible debentures and preferred membership units of another subsidiary
of ACME Television Holdings, LLC which owned approximately 2% of ACME
Intermediate Holdings, LLC. We believe that Rule 506 exempted the securities
issuances in the exchange described above because such issuances satisfied all
of the terms and conditions of Rule 501 and 502 of the Securities Act of 1933,
as amended, and such issuances were made to persons who were accredited
investors as defined in Rule 501 of the Securities Act of 1933, as amended.
We also relied on Section 4(2) of the Securities Act of 1933, as amended,
to exempt from registration the remaining issuances of 6,899,871 shares of
common stock that were issued in the Reorganization in connection with the
merger of our subsidiary with and into ACME Television Holdings, LLC. We believe
that Section 4(2) exempted the issuance of these securities because the issuance
was a transaction by the issuer that was not a public offering of securities.
All transactions contemplated as part of the Reorganization closed on
October 5, 1999.
19
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
Following is ACME Communications' inception-to-date selected consolidated
financial data. This data is derived from the audited Consolidated Financial
Statements of the Company and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto (located at Item 8 of this
filing) and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" (located at Item 7 of this filing).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................... $ 11,347 $ 43,928 $ 60,008
Operating expenses:
Station operating expenses........................... 10,158 32,973 45,675
Depreciation and amortization........................ 1,215 11,355 17,325
Corporate............................................ 1,415 2,627 6,398
Equity-based compensation(1)......................... -- -- 39,688
---------- ---------- ----------
Operating loss......................................... (1,441) (3,027) (49,078)
Other income (expenses):
Interest income...................................... 287 231 499
Interest expense..................................... (6,562) (23,953) (28,694)
Gain on sale of assets............................... -- 1,112 (11)
Other................................................ -- (380) --
---------- ---------- ----------
Loss before income taxes and minority interest......... (7,716) (26,017) (77,284)
Income tax benefit..................................... -- 2,393 4,420
---------- ---------- ----------
Loss before minority interest.......................... (7,716) (23,624) (72,864)
Minority interest.................................... 237 1,684 2,085
---------- ---------- ----------
Net loss.......................................... $ (7,479) $ (21,940) $ (70,779)
========== ========== ==========
Pro forma net loss per share:
Loss before income taxes and minority interest, as
reported............................................. $ (7,716) $ (26,017) $ (77,284)
Pro forma tax benefit.................................. -- 8,398 12,259
---------- ---------- ----------
Loss before minority interest.......................... (7,716) (17,619) (65,025)
Pro forma minority interest allocation................. 237 1,385 1,629
---------- ---------- ----------
Pro forma net loss..................................... $ (7,479) $ (16,234) $ (63,396)
========== ========== ==========
Pro forma net loss per share, basic and diluted........ $ (4.40) $ (3.22) $ (7.96)
========== ========== ==========
Basic and diluted weighted average common shares
outstanding.......................................... 1,701,370 5,045,256 7,961,379
========== ========== ==========
</TABLE>
BALANCE SHEET DATA (AS OF DECEMBER 31, 1997, 1998 AND 1999):
<TABLE>
<S> <C> <C> <C>
Total assets........................................... $ 220,475 $ 286,827 $ 407,707
Long-term debt(2)...................................... 192,452 225,728 217,078
Total stockholders' equity............................. 16,306 1,413 126,835
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL FINANCIAL DATA:
Broadcast cash flow and adjusted EBITDA(3):
Operating loss....................................... $ (1,441) $ (3,027) $ (49,078)
Add back:
Equity-based compensation......................... -- -- 39,688
Depreciation and amortization..................... 1,215 11,355 17,325
LMA Fees.......................................... -- 228 28
Amortization of program rights.................... 1,433 5,321 8,475
Corporate expenses................................ 1,415 2,627 6,398
Adjusted program payments(3)...................... (1,598) (5,124) (8,441)
---------- ---------- ----------
Broadcast cash flow............................. 1,024 11,380 14,395
Less:
Corporate expenses................................ 1,415 2,627 6,398
---------- ---------- ----------
Adjusted EBITDA................................. $ (391) $ 8,753 $ 7,997
Broadcast cash flow margin(3).......................... 9.0% 25.9% 24.0%
Adjusted EBITDA margin(3).............................. n/m 19.9% 13.3%
CASH FLOWS PROVIDED BY (USED IN):
Operating activities................................... $ (599) $ 319 $ 4,324
Investing activities................................... $ (191,730) $ (20,879) $ (80,705)
Financing activities................................... $ 201,153 $ 12,737 $ 99,226
</TABLE>
- ---------------
(1) Equity-based compensation for 1999 is comprised of station operating
expenses and corporate expenses of $132,000 and $39.6 million, respectively.
(2) Includes the Company's 12% senior secured discount notes, the 10 7/8% senior
discount notes, convertible debt, revolving credit facility and capital
lease obligations.
(3) We define:
- broadcast cash flow as operating income, plus equity-based compensation,
depreciation and amortization, LMA fees, amortization of program rights,
and corporate expenses, less program payments -- the latter as adjusted
to reflect reductions for liabilities relating to expired rights or
rights which have been written-off in connection with acquisitions;
- adjusted EBITDA as broadcast cash flow less corporate expenses;
- broadcast cash flow margin is broadcast cash flow as a percentage of net
revenues; and
- adjusted EBITDA margin is adjusted EBITDA as a percentage of net
revenues.
We have included broadcast cash flow, broadcast cash flow margin, adjusted
EBITDA and adjusted EBITDA margin data because management believes that
these measures are useful to an investor to evaluate our ability to service
debt and to assess the earning ability of our stations' operations.
However, you should not consider these items in isolation or as substitutes
for net income, cash flows from operating activities or other statement of
operations or cash flows data prepared in accordance with generally
accepted accounting principles. These measures are not necessarily
comparable to similarly titled measures employed by other companies.
21
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We derive revenues primarily from the sale of advertising time to local,
regional and national advertisers. Our revenues depend on popular programming
that attracts audiences in the demographic groups targeted by advertisers,
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 ongoing 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 to us for such advertisement
and promotion from The WB Network or from other program suppliers.
RESULTS OF OPERATIONS
Years Ended December 31, 1999 compared to Year Ended December 31, 1998
Net revenues for the year ended December 31, 1999 increased $16.1 million
(37%) to $60.0 million as compared to $43.9 million for the year ended December
31, 1998. This increase is due primarily to increases in revenues at each
operating station, and to a lesser extent, to stations acquired or launched
during 1999. Increases in revenue were driven primarily by increased ratings,
distribution and higher unit prices.
Station operating expenses increased in 1999 to $45.7 million compared to
$33.0 million in 1998. This increase of $12.7 million (38%) was due to increased
programming expenses at many of our stations coupled with the impact of newly
acquired or launched stations during 1999.
Corporate expenses for 1999 increased to $6.4 million from $2.6 million in
1998. This increase reflects a $3.0 million charge relating to IPO bonuses paid
primarily to the Company's senior management founders and to increased staffing
to support the additional stations launched or acquired in 1999.
Equity-based compensation of $39.7 million in 1999 relates to a charge
reflecting the fully vested common stock issued in exchange for the management
carry units that were issued in June 1997 to our senior management members in
connection with the Company's initial public offering in September 1999. There
was no such expense in 1998.
Depreciation and amortization expense for the year was $17.3 million
compared to $11.4 million for 1998. This $5.9 million increase reflects the
amortization of intangible assets relating to newly acquired or launched
stations in 1999 along with increased depreciation relating to newly built
stations and ongoing upgrades of existing facilities.
Interest expense for the current year was $28.7 million compared to $24.0
million for 1998. This increase in interest expense relates to increasing
balances under the company's 10 7/8% Senior Discount Notes due 2004 (the
"Television Notes") and 12% Senior Secured Discount Notes due 2005 (the
"Intermediate Notes", and together with the Television Notes, the "Senior
Notes"), increased borrowings on the revolving credit facility, and interest
expense associated with the Bridge Loan. The Bridge Loan and the increased
borrowings under the revolving credit facility were both obtained to help
finance the purchase of WBDT, WBUI and WIWB,
22
<PAGE> 24
both of which were repaid with proceeds from the Company's initial public
offering of its common stock ("IPO") in October 1999.
In 1998, the Company sold its interest in a construction permit for a
station in the Springfield, Missouri market at a gain of $1.1 million.
Prior to the Reorganization, ACME Television Holdings, LLC was 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.
In conjunction with the Reorganization, the Company terminated its
non-taxable status. In conjunction with this termination, the Company recorded
deferred tax assets and liabilities at the termination date for the difference
between the financial statement carrying amount and tax bases of assets and
liabilities.
The tax benefit for 1999 was $4.4 million, including the impact of the
termination of the Company's non-taxable status, compared to a tax benefit of
$2.4 million in 1998. The increase relates primarily to the effect of the
Company's taxable status in the fourth quarter of 1999.
Minority interest represents the allocation of the loss for the respective
periods to the minority interest holders of our subsidiary ACME Intermediate
Holdings, LLC. Effective with the Company's September 1999 reorganization, the
minority interest holders exchanged their membership units of ACME Intermediate
Holdings, LLC for stock in ACME Communications, Inc. The amount allocated to
minority interests for 1999 reflects allocations through September 1999,
excluding equity-based compensation charges, which were not allocated the
minority interest.
Our broadcast cash flow for 1999 was $14.4 million, compared to an $11.4
million broadcast cash flow in 1998. This increase is primarily attributable to
the profitable operations at all of our stations that existed at the end of
1998, offset by start-up losses of approximately $700,000 at station KWBQ, which
launched in March 1999 and approximately $2.6 million at our three early-stage
development stations serving Dayton, Green Bay-Appleton and Champaign-Decatur
acquired from Paxson Communications in June 1999.
Our net loss for the current year was $70.8 million as compared with the
$21.9 million loss incurred in 1998, an increase of $48.9 million. This
increased loss is primarily the result of the equity-based compensation charge
incurred in conjunction with our IPO along with increased interest, depreciation
and amortization expenses, net of improved broadcast cash flow.
Years 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.
Station operating expenses increased to $33.0 million compared to the prior
year's operating expenses of $10.2 million, or 224%. Station operating and
corporate expenses increased significantly in 1998 due to the significant
increase in the number of stations we added or launched since the third quarter
of 1997.
Depreciation and amortization expense for the year includes $9.4 million in
the amortization of intangible assets. As of December 31, 1997, only KWBP and
WBXX stations had been acquired and, accordingly, there was only $874,000 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%
23
<PAGE> 25
convertible debentures, along with related amortization of prepaid financing
costs. The interest expense of $6.6 million for 1997 represents primarily the
interest expense on the 10 7/8% senior discounted notes and 12% senior secured
notes, which were outstanding only during the fourth quarter of the year and
interest on the convertible debentures, which were issued in June 1997 and
therefore were outstanding for only a little more than six months during 1997.
Station KPLR is our only operating C corporation. During 1993, KPLR, after
deduction of allocable interest charges, generated a net taxable loss. The
deferred tax benefit corresponding to that loss was $2.4 million.
Our net loss for 1998 was $21.9 million compared to a net loss of $7.5
million for 1997. This increased net loss is due primarily to the increased
amortization of intangible assets relating to our newly acquired and launched
stations and the substantially increased interest expense incurred in connection
with the September 1997 issuance of long-term debt to finance our acquisitions.
These increased expenses were offset by improved operating performance which is
attributable to the inclusion of the full year operating results of KPLR.
Our broadcast cash flow for 1998 was $11.4 million, compared to a $1.0
million broadcast cash flow in 1997. This increase is primarily attributable to
the profitable operations of KPLR -- only the fourth quarter operating results
of KPLR are included in our full year 1997 results, whereas KPLR's full year
results are included in our 1998 results. To a lesser extent, the increase in
broadcast cash flow is due to significantly reduced losses at KWBP for 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities were $4.3 million for the year
ended December 31, 1999 compared to net cash provided by operating activities of
$319,000 for 1998, an increase of $4.0 million. The increase was primarily due
to higher broadcast cash flows offset by increases in working capital needs.
Net cash used in investing activities were $80.7 million for the year ended
December 31, 1999. The major cash flows used in investing activities during 1999
related to the Company's acquisition stations KASY, WBDT, WIWB and WBUI, the
build-out of KWBQ, launched in March 1999, ongoing capital expenditures at the
Company's other stations and the acquisition of a 25% membership interests in
digital facilities in Portland and Salt Lake City. During 1998, the Company used
$20.9 million in investing activities, related primarily to the Company's
acquisition of WTVK in June 1998, and to capital expenditures which principally
related to the build-out of Station KUWB. These 1998 outflows were partially
offset by the purchase and subsequent sale at a gain of $1.1 million of the
construction permit for Channel 31 serving Springfield, Missouri.
Net cash provided by financing activities of $99.2 million relate primarily
to the Company's October 1999 initial public offering, which generated $105.3
million in net proceeds to the Company, less net repayments on the Company's
revolving credit facility of $8 million. In 1998, cash flows provided by
financing were $12.7 million related primarily to net bank borrowings in
connection with our acquisition of Station WTVK.
The Company's revolving credit facility allows for borrowings up to $40.0
million, dependent upon our meeting certain financial ratio tests as delineated
in the credit agreement. The revolving credit facility can be used to fund
future acquisitions of broadcast stations and for general corporate purposes. At
December 31, 1999, no borrowings were outstanding under the agreement,
approximately $39 million was available. At December 31, 1998, $8.0 million was
outstanding under the facility.
The Company also has capital lease facilities in the aggregate amount of
$20 million. Borrowings under these facilities are generally repaid over five
years. At December 31, 1998, amounts due under the facilities were $5.5 million
and bore an implicit average interest rate of 8.73%. As of December 31, 1999,
amounts due under the facilities were $7.4 million bearing an implicit average
interest rate of 8.86% per annum.
The Company believes that existing cash balances, funds generated from
operations and borrowings under its credit agreement and capital lease
facilities, if necessary, will be sufficient to satisfy the Company's
24
<PAGE> 26
cash requirements for its existing operations for at least the next twelve
months. The Company expects that any future acquisitions of television stations
would be financed through these same sources and, if necessary, through
additional debt and equity financings. However, there is no guarantee that such
additional debt and/or equity will be available or available at terms acceptable
to the Company.
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 our 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 entities 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 impact the Company's
financial statements since the Company currently has no derivative instruments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's revolving credit facility has a variable interest rate.
Accordingly, the Company's interest expense could be materially affected by
future fluctuations in the applicable interest rate. The Company had no
borrowings outstanding as of December 31, 1999.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
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, 1999 and December 31,
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audit of the consolidated financial
statements, we have also audited the financial statement schedules listed in the
index of Item 14. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
/s/ KPMG LLP
Los Angeles, California
February 17, 2000
26
<PAGE> 28
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,001 $ 23,846
Accounts receivable, net.................................. 10,842 14,090
Current portion of programming rights..................... 6,357 11,331
Prepaid expenses and other current assets................. 414 2,026
Deferred income taxes..................................... 2,556 2,448
-------- --------
Total current assets................................... 21,170 53,741
Property and equipment, net................................. 16,441 25,116
Programming rights, net of current portion.................. 8,046 14,704
Intangible assets, net...................................... 222,987 303,812
Other assets................................................ 18,146 10,201
Deposits.................................................... 37 133
-------- --------
Total assets......................................... $286,827 $407,707
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 4,425 $ 5,570
Accrued liabilities....................................... 4,210 8,231
Current portion of programming rights payable............. 7,649 10,727
Current portion of lease obligations...................... 1,273 1,617
-------- --------
Total current liabilities.............................. 17,557 26,145
Programming rights payable, net of current portion.......... 6,512 13,605
Lease obligations, net of current portion................... 4,199 5,796
Other liabilities........................................... 4,671 297
Deferred income taxes....................................... 29,986 25,364
Revolving credit facility................................... 8,000 --
Convertible debt............................................ 24,756 --
10 7/8% senior discount notes............................... 145,448 161,695
12% senior secured notes.................................... 42,052 47,970
-------- --------
Total liabilities...................................... 283,181 280,872
-------- --------
Minority interest........................................... 2,233 --
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value; 16,750,000 shares issued and
outstanding at December 31, 1999 and 5,180,051 issued
and outstanding at December 31, 1998................... 52 168
Additional paid-in capital................................ 30,780 130,279
Accumulated deficit....................................... (29,419) (3,612)
-------- --------
Total stockholders' equity............................. 1,413 126,835
-------- --------
Total liabilities and stockholders' equity........... $286,827 $407,707
======== ========
</TABLE>
See the notes to the consolidated financial statements
27
<PAGE> 29
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues........................................... $ 11,347 $ 43,928 $ 60,008
Operating expenses:
Station operating expenses........................... 10,158 32,973 45,675
Depreciation and amortization........................ 1,215 11,355 17,325
Corporate............................................ 1,415 2,627 6,398
Equity-based compensation(1)......................... -- -- 39,688
---------- ---------- ----------
Operating loss.................................... (1,441) (3,027) (49,078)
Other income (expenses)
Interest income...................................... 287 231 499
Interest expense..................................... (6,562) (23,953) (28,694)
Gain (loss) on sale of asset......................... -- 1,112 (11)
Other................................................ -- (380) --
---------- ---------- ----------
Loss before income taxes and minority interest......... (7,716) (26,017) (77,284)
Income tax benefit..................................... -- 2,393 4,420
---------- ---------- ----------
Loss before minority interest.......................... (7,716) (23,624) (72,864)
Minority interest................................. 237 1,684 2,085
---------- ---------- ----------
Net loss........................................ $ (7,479) $ (21,940) $ (70,779)
========== ========== ==========
Pro forma net loss per share (unaudited):
Loss before income taxes and minority interest, as
reported............................................. $ (7,716) $ (26,017) $ (77,284)
Pro forma tax benefit.................................. -- 8,398 12,259
---------- ---------- ----------
Loss before minority interest.......................... (7,716) (17,619) (65,025)
Pro forma minority interest allocation................. 237 1,385 1,629
---------- ---------- ----------
Pro forma net loss................................ $ (7,479) $ (16,234) $ (63,396)
========== ========== ==========
Pro forma net loss per share, basic and diluted........ $ (4.40) $ (3.22) $ (7.96)
========== ========== ==========
Basic and diluted weighted average common shares
outstanding.......................................... 1,701,370 5,045,256 7,961,379
========== ========== ==========
</TABLE>
- ---------------
(1) Equity-based compensation is comprised of station operating expenses and
corporate expenses of $132,000 and $39.6 million, respectively, in 1999.
See the notes to the consolidated financial statements
28
<PAGE> 30
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996................... -- -- $ -- $ -- $ --
Issuance of common stock, net................ 4,074 41 23,744 -- 23,785
Net loss..................................... -- -- -- (7,479) (7,479)
------ --- -------- -------- --------
Balance at December 31, 1997................... 4,074 41 23,744 (7,479) 16,306
Issuance of common stock, net................ 1,106 11 7,036 -- 7,047
Net loss..................................... -- -- -- (21,940) (21,940)
------ --- -------- -------- --------
Balance at December 31, 1998................... 5,180 52 30,780 (29,419) 1,413
Equity-based compensation.................... 1,720 17 39,671 -- 39,688
Issuance of stock options in exchange for
long-term incentive plan................... -- -- 738 -- 738
Conversion of convertible debt............... 3,926 40 29,200 -- 29,240
Acquisition of minority interest............. 924 9 21,241 -- 21,250
Initial public offering...................... 5,000 50 105,235 -- 105,285
Elimination of accumulated deficit during
non-taxable period. ....................... -- -- (96,586) 96,586 --
Net loss..................................... -- -- -- (70,779) (70,779)
------ --- -------- -------- --------
Balance at December 31, 1999................... 16,750 168 $130,279 $ (3,612) $126,835
====== === ======== ======== ========
</TABLE>
See the notes to the consolidated financial statements
29
<PAGE> 31
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (7,479) $(21,940) $(70,779)
Adjustments to reconcile net loss to net cash provided
by (used in operating activities:
Depreciation and amortization........................... 1,215 11,355 17,325
Amortization of program rights.......................... 1,433 5,321 8,475
Amortization of debt issuance costs..................... 445 989 1,044
Amortization of discount on 10 7/8% senior discount
notes................................................ 3,463 14,170 16,247
Amortization of discount on 12% senior secured notes.... 1,213 5,189 5,918
Minority interest allocation............................ (237) (1,684) (2,085)
Equity-based compensation............................... -- -- 39,688
Long-term incentive compensation........................ -- -- 738
Deferred income tax..................................... -- (2,393) (4,420)
(Gain) loss on sale of assets........................... -- (1,112) 11
Changes in assets and liabilities:
Increase in accounts receivables, net................... (888) (5,479) (3,248)
(Increase) decrease in prepaid expenses................. (3,060) 364 (622)
(Increase) decrease in due from affiliates.............. (7) 7 --
(Increase) decrease in other assets..................... -- (576) (105)
Increase in accounts payable............................ 3,363 59 1,145
Increase in accrued expenses............................ 651 2,639 4,021
Payments for programming rights......................... (1,758) (6,588) (9,936)
Increase (decrease) in other liabilities................ 1,047 (2) 907
--------- -------- --------
Net cash provided by (used in) operating
activities......................................... (599) 319 4,324
--------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment..................... (6,077) (8,320) (8,587)
Purchases of and deposits for station interests......... (175,129) (16,675) (68,470)
Cash acquired in acquisition -- St. Louis............... -- 779 --
Proceeds from sale of station interest.................. -- 3,337 --
Purchase of digital tower interests..................... -- -- (3,486)
Other................................................... (10,524) -- (162)
--------- -------- --------
Net cash used in investing activities................ (191,730) (20,879) (80,705)
--------- -------- --------
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in revolving credit facility................... -- 11,000 32,000
Increase in bridge loan................................. -- -- 15,000
Payments on revolving credit facility................... -- (3,000) (40,000)
Payments on bridge loan................................. -- -- (15,000)
Proceeds from capital lease facilities.................. -- 5,375 3,173
Payments on capital lease facilities.................... (97) (638) (1,232)
Proceeds from initial public offering................... -- -- 115,000
Costs of initial public offering........................ -- -- (9,715)
Issuance of members' capital............................ 19,385 --
Issuance of convertible debentures...................... 24,756 -- --
Issuance of 10 7/8% senior discount notes............... 127,370 -- --
Issuance of 12% senior secured notes.................... 35,650 -- --
Debt issuance costs..................................... (10,065) -- --
Minority interest....................................... 4,154 -- --
--------- -------- --------
Net cash provided by financing activities............ 201,153 12,737 99,226
--------- -------- --------
Net increase (decrease) in cash......................... 8,824 (7,823) 22,845
Cash at beginning of period............................. -- 8,824 1,001
--------- -------- --------
Cash at end of period................................... $ 8,824 $ 1,001 $ 23,846
========= ======== ========
Supplemental disclosures of cash flow information:
Cash Payments for:
Interest............................................. $ 514 $ 864 $ 2,591
Taxes................................................ $ -- $ 70 $ 80
Non-Cash Transactions:
Program rights in exchange for program rights
payable............................................ 5,195 24,066 20,107
Issuance of equity in purchase transactions.......... 4,400 7,047 --
Use of deposit as consideration for purchase
transaction........................................ -- 143,000 --
Exchange of note receivable and option deposit as
purchase consideration for station interest........ -- -- 7,000
Acquisition of minority interest of ACME Intermediate
Holdings, LLC...................................... -- -- 21,250
Conversion of Convertible Debentures into common
stock.............................................. $ -- $ -- $ 29,240
========= ======== ========
</TABLE>
See the notes to the consolidated financial statements
31
<PAGE> 33
(1) DESCRIPTION OF THE BUSINESS AND FORMATION
Formation and Presentation
ACME Communications, Inc. (the "Company") was formed on July 23, 1999, in
preparation for and in conjunction with an initial public offering of its stock.
On September 27, 1999, the Board of Advisors of ACME Television Holdings,
LLC and its members and the Board of Directors of the Company and its
stockholder approved a merger and reorganization (the "Reorganization"), whereby
the Company became the direct parent of ACME Television Holdings. As a result of
the Reorganization, the Company is the ultimate parent of ACME Intermediate
Holdings, LLC ("ACME Intermediate"), and its wholly-owned subsidiary ACME
Television, LLC ("ACME Television"). All transactions contemplated as part of
the Reorganization closed on October 5, 1999.
Among the significant transactions of the Reorganization were the exchange
of shares of the Company's common stock for members' units, management carry
units ("MCU's") and convertible debt of ACME Television Holdings. The common
stock exchanged for members' units in ACME Television Holdings was recorded at
historical cost. The management carry units were treated as a variable
compensation plan. As the number of shares of common stock issued to the holders
of the management carry units were fixed and fully vested, compensation expense
was recorded for the difference between the fair value of the shares issued and
the MCU expense previously recorded. The convertible debt was converted pursuant
to its original conversion terms, and accordingly, no gain or loss was
recognized. Also, the Company acquired the minority interest in ACME
Intermediate Holdings for 923,938 shares of the Company's common stock. The
acquisition of the minority interest was accounted for at fair market value.
The financial statements give effect to the exchange of common stock for
members' units for all periods presented.
On October 5, 1999, the Company completed its initial public offering of
5,000,000 shares of common stock at $23 per share, before underwriters'
discounts and other issuance costs. The Company received net proceeds of
approximately $105 million.
The accompanying consolidated financial statements are presented for ACME
Communications, Inc. and its wholly-owned subsidiaries. Segment information is
not presented since all of the Company's revenues are attributed to a single
reportable segment.
Nature of Business
ACME Communications, Inc. is a holding company with no independent
operations other than its indirect wholly-owned subsidiary, ACME Television.
ACME Television, through its wholly-owned subsidiaries, owns and operates the
following ten commercially licensed broadcast television stations located
throughout the United States:
<TABLE>
<CAPTION>
NETWORK
STATION -- CHANNEL MARKET AFFILIATION
- ------------------ ------ -----------
<C> <S> <C>
KPLR -- 11 St. Louis................................................... WB
KWBP -- 32 Portland, OR................................................ WB
KUWB -- 30 Salt Lake City.............................................. WB
KWBQ -- 19 Albuquerque -- Santa Fe..................................... WB
KASY -- 50 Albuquerque -- Santa Fe..................................... UPN
WBXX -- 20 Knoxville................................................... WB
WTVK -- 46 Ft. Myers-Naples............................................ WB
WBDT -- 26 Dayton...................................................... WB
WIWB -- 14 Green Bay -- Appleton....................................... WB
WBUI -- 23 Champaign -- Springfield -- Decatur......................... WB
</TABLE>
32
<PAGE> 34
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries. All significant inter-company transactions have been
eliminated.
Revenue Recognition
Revenue from the sale of airtime related to advertising and contracted time
is recognized at the time of broadcast. The Company generally receives such
revenues net of commissions deducted by the advertising agencies and national
sales representatives.
Cash and Cash Equivalents
For purposes of reporting the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are presented net of the related allowance for doubtful
accounts which totaled $555,000 and $716,000 at December 31, 1998 and 1999,
respectively.
Concentration of Credit Risk and Fair Value of Financial Statements
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. The estimated fair market of the 12%
senior discount notes and the 10 7/8% senior secured notes was approximately $50
million and $158 million, respectively, at December 31, 1999.
Program Rights
Program rights represent costs incurred for the right to broadcast certain
features and syndicated television programs. Program rights are stated, on a
gross basis, at the lower of amortized cost or estimated realizable value. The
cost of such program rights and the corresponding liability are recorded when
the initial program becomes available for broadcast under the contract.
Generally, program rights are amortized over the life of the contract on a
straight-line basis related to the usage of the program. The portion of the cost
estimated to be amortized within one year and after one year are reflected in
the balance sheets as current and non-current assets, respectively. The gross
payments under these contracts that are due within one year and after one year
are similarly classified as current and non-current liabilities.
Property and Equipment
Property and equipment are stated at cost. The cost of maintenance is
expensed when incurred. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the respective assets.
When property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the appropriate accounts and any gain or loss is
included in the results of current operations. The principal lives used in
determining depreciation rates of various assets are as follows:
<TABLE>
<S> <C>
Buildings and Improvements.................................. 20 - 30 years
Broadcast and other equipment............................... 3 - 20 years
Furniture and fixtures...................................... 5 - 7 years
Vehicles.................................................... 5 years
</TABLE>
33
<PAGE> 35
Intangible Assets
Intangible assets consist of broadcast licenses and goodwill, both of which
are amortized on a straight-line basis over a 20-year life.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Broadcast licenses.......................................... $154,351 $199,731
Goodwill.................................................... 78,808 127,920
-------- --------
Total intangible assets................................... 233,159 327,651
Less: accumulated amortization............................ (10,172) (23,839)
-------- --------
Net intangible assets.................................. $222,987 $303,812
======== ========
</TABLE>
Barter and Trade Transactions
Revenue and expenses associated with barter agreements in which broadcast
time is exchanged for programming rights are recorded at the estimated average
rate of the airtime exchanged. Trade transactions, which represent the exchange
of advertising time for goods or services, are recorded at the estimated fair
value of the products or services received. Barter and trade revenue is
recognized when advertisements are broadcast. Merchandise or services received
from airtime trade sales are charged to expense or capitalized when used or
received.
Local Marketing Agreements
In connection with station acquisitions, and pending FCC approval of the
transfer of license assets, the Company generally enters into local marketing
agreements with the sellers. Under the terms of these agreements, we obtain the
right to program and sell advertising time on 100% of the station's inventory of
broadcast time, incur certain operating expenses and may make payments to the
sellers. As the holder of the FCC license, the seller/licensee retains ultimate
control and responsibility for all programming broadcast on the station. We, in
turn, record revenues from the sale of advertising time and operating expenses
for costs incurred. Included in the accompanying consolidated statements of
operations for the years ended December 31, 1997, 1998, and 1999 are net
revenues of $9.5 million, $6.8 million and $125,000, respectively, that relate
to local marketing agreements. Payments to the sellers for the years ended
December 31, 1997, 1998 and 1999 were $0, $228,000, $27,500, respectively. At
December 31, 1999, the Company was not obligated for any future payments to
sellers.
Carrying Value of Long-lived Assets
The Company follows 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, identifiable
intangible, and goodwill) is reviewed if the facts and circumstances suggest
that they may be impaired. For purposes of this review, assets are grouped at
the operating company level, which is the lowest level for which there are
identifiable cash flows. If this review indicates that an asset's carrying value
will not be recoverable, as determined based on future expected, undiscounted
cash flows, the carrying value is reduced to fair market value.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." In
accordance with SFAS No. 109, income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
34
<PAGE> 36
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to the Reorganization, ACME Television Holdings, LLC was 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.
In conjunction with the Reorganization, the Company terminated its
non-taxable status. In conjunction with this termination, the Company recorded
deferred tax assets and liabilities at the termination date for the difference
between the financial statement carrying amount and tax bases of assets and
liabilities.
Loss per Share
The Company calculates loss per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share. SFAS No. 128
requires a presentation of basic earnings per share ("EPS") and diluted EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company, similar to fully diluted EPS under
APB No. 15. In calculating diluted EPS, no potential shares of common stock are
to be included in the computation when a loss from continuing operations
available to common stockholders exists. The statement requires dual
presentation of basic and diluted EPS by entities with complex capital
structures.
The company calculated pro forma net loss per share based upon the
historical 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 and (ii) the impact
on the net loss allocated to minority interests. In addition, the Company has
reflected the exchange of common stock for units for all periods presented.
Stock options outstanding amounting to 2,834,091 shares at December 31,
1999, were not included in the computation of diluted EPS because to do so would
have been antidilutive.
Accounting for Stock Options
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," which permits entities to
recognize (over the vesting period) the expense of all stock-based awards. The
expense is calculated based on the fair value at the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income disclosure for employee
stock option grants made, as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for interim and annual periods
beginning after December 15, 1997. The Company adopted SFAS No. 130 effective
January 1, 1998. Adoption had no impact on the Company's consolidated financial
position or results of operations.
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
35
<PAGE> 37
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.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Land........................................................ $ 553 $ 1,097
Buildings and improvements.................................. 2,529 5,555
Broadcast and other equipment............................... 13,163 22,678
Furniture and fixtures...................................... 287 776
Vehicles.................................................... 185 290
Construction in process..................................... 1,935 427
------- -------
Total..................................................... $18,652 30,823
Less: accumulated depreciation.............................. (2,211) (5,707)
------- -------
Net property and equipment.................................. $16,441 $25,116
======= =======
</TABLE>
Included in property and equipment are assets acquired under capital leases
with a total cost of $6,207,000 and $9,512,641 and the associated accumulated
depreciation of $767,000 and $2,045,668 at December 31, 1998 and 1999,
respectively.
(4) ACQUISITIONS
On June 17, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Channel 32, Incorporated, relating to the
operations of KWBP, in exchange for $18.7 million in cash and $4.4 million 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 $23.5 million has been recorded as an
intangible broadcast license and is being amortized over a period of 20 years.
In addition, the results of operations (excluding depreciation and amortization)
of KWBP were recorded by the Company beginning January 1, 1997 pursuant to a
local marketing agreement whereby ACME Oregon effectively operated the station
and funded the station's losses during the period from January 1, 1997 to June
17 1997 (the acquisition date).
On July 29, 1997, the Company entered into a stock purchase agreement to
acquire Koplar Communications, Inc. ("KCI") the owner of station KPLR. On
September 30, 1997, the Company placed $143.0 million in to an escrow account
(classified as a deposit on the December 31, 1997 consolidated balance sheet).
In connection with this acquisition, the Company entered into a long-term local
marketing agreement with KPLR and filed the requisite applications with the FCC
for the transfer of the Station's license to the Company.
Pursuant to the local marketing agreement, the Company retained all
revenues generated by the station, bore substantially all operating expenses
(excluding depreciation and amortization) of the station and was obligated to
pay a local marketing agreement fee. These revenues and expenses for the period
October 1 through December 31, 1997 are included in the Company's operating
results for the year ended December 31, 1997.
36
<PAGE> 38
On March 13, 1998, the Company completed its acquisition of Koplar
Communications, Inc. and acquired all of the outstanding stock of KCI for a
total consideration of approximately $146.3 million. The acquisition was
accounted for using the purchase method. Pursuant to the local marketing
agreement referred to above, all revenues and operating expenses of the station
(excluding depreciation and amortization) for the period from September 30, 1997
to March 31, 1998 (the effective date of the purchase transaction) are included
in the Company's operating results. The purchase transaction was recorded on the
consolidated balance sheet of the Company effective March 31, 1998 and the
Company's results of operations includes revenues and expenses (including
amortization of intangible assets) beginning April 1, 1998.
The fair value of the assets acquired and liabilities assumed relating to
the acquisition of KPLR (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Cash and cash equivalents................................... $ 779
Accounts receivables, net................................. 1,703
Program broadcast rights.................................. 8,490
Property and equipment.................................... 2,233
Prepaid expenses and other current assets................. 416
FCC license............................................... 82,563
Goodwill.................................................. 93,775
Other assets.............................................. 395
--------
Total assets acquired.................................. $190,354
========
Liabilities assumed:
Accounts payable.......................................... $ (1,005)
Accrued liabilities....................................... (1,332)
Program broadcast rights payable.......................... (8,258)
Deferred income taxes..................................... (29,889)
Other liabilities......................................... (3,531)
--------
Total liabilities assumed.............................. $(44,015)
--------
Total purchase price................................... $146,339
========
</TABLE>
On October 7, 1997, the Company acquired Crossville Limited Partnership,
the owner of WINT, in exchange for $13.2 million 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 $13.3
million, has been recorded as an intangible broadcast license and is being
amortized over a period of 20 years.
During 1997, the Company entered into an agreement that provided it with
the right to: (i) acquire 49% of the licensee of KUPX (formerly KZAR) in
exchange for membership units valued at $6.0 million, and (ii) pay $3.0 million
for an option to acquire the remaining 51% interest in the licensee of KUPX for
$5.0 million, exercisable immediately after the station commences on-air
operations. On December 15, 1997, the Company acquired the 49% interest in the
licensee of KUPX, paid $3.0 million to acquire the option and loaned the sellers
$4.0 million (to be applied to the subsequent majority interest purchase price).
On January 22, 1998, the Company issued $6.0 million of its member units to the
sellers for the 49% interest in the license of KUPX in connection with the above
transaction. The amount of the issuance was based upon a fixed dollar amount of
consideration. The Company accounted for the 49% investment using the equity
method of accounting. On February 16, 1999, the Company acquired the remaining
51% interest in KUPX. The $4.0 million loan was applied against the remaining
purchase price of $5.0 million.
In May 1998 the Company and the majority owners of KUPX entered into an
agreement with another broadcaster in Salt Lake City to (i) swap KUPX for KUWB,
subject to FCC approval (ii) enable the Company to operate KUWB under a local
marketing agreement and (iii) enable the owner of KUWB to
37
<PAGE> 39
operate KUPX under a local marketing agreement. Pursuant to the LMA's, the
Company retains all operating revenues and expenses (excluding depreciation and
amortization) of KUWB and the owner of KUWB retains all operating revenues and
expenses (excluding depreciation and amortization) of KUPX. In March 1999, the
FCC approved the swap of KUPX for KUWB and the transaction closed during the
third quarter of 1999. The Company has accounted for the swap as a business
combination and has recorded KUPX at its fair value. There was no significant
difference between the fair value of KUPX and the historical cost of KUWB.
On August 22, 1997, the Company entered into an agreement with affiliates
of the sellers of KZAR to acquire 100% of the interests in the construction
permit for KAUO for a consideration of $10,000. This agreement was consummated
on January 22, 1998. Subsequently, the call letters of KAUO were changed to
KWBQ. Construction of KWBQ was completed and the station commenced broadcasting
in March 1999.
On June 30, 1998, the Company acquired substantially all the assets and
assumed certain liabilities of WTVK-Channel 46 serving the Fort Myers-Naples,
Florida marketplace for approximately $14.5 million in cash and 1,047 membership
units (valued at approximately $1.0 million). The acquisition was accounted for
using the purchase method. The excess of the purchase price over the fair value
of the net assets assumed of approximately $15.5 million has been recorded as an
intangible broadcast license and goodwill, both of which are being amortized
over a period of 20 years. The Company had entered into a local marketing
agreement with WTVK wherein the Company, effective March 3, 1998, retained all
revenues generated by the station, bore all operating expenses of the station
(excluding depreciation and amortization) and had the right to program the
station (subject to WTVK's ultimate authority for programming) and the station's
existing programming commitments. The local marketing agreement terminated upon
the consummation of the acquisition. Consequently, under the local marketing
agreement the revenues and operating expenses (excluding depreciation and
amortization) of the station are included in the Company's results of operations
from March 3, 1998 to June 30, 1998. The purchase transaction was recorded on
the consolidated balance sheet of the Company on June 30, 1998 and the Company's
results of operations includes revenues and expenses (including amortization of
intangible assets) beginning July 1, 1998.
On April 23, 1999, the Company acquired the non-FCC license assets of three
Paxson Communication Corporation ("PCC") stations serving the Dayton, OH, Green
Bay, WI and Champaign-Decatur, IL markets for $32.0 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 a final payment to PCC of $8.0 million. The Company entered into local
marketing agreements with the seller wherein the Company, effective June 2,
1999, retained all revenues generated by the stations, bore all operating
expenses of the stations (excluding amortization) and had the right to program
the stations (subject to the seller's ultimate authority for programming) and
the stations' existing programming commitments. The local marketing agreement
terminated upon the consummation of the acquisition. Consequently, under the
local marketing agreement the revenues and operating expenses (excluding
amortization) of the station are included in the Company's results of operations
from June 2, 1999 to June 23, 1999. The purchase of the FCC licenses was
recorded on the consolidated balance sheet of the Company on June 23, 1999 and
the Company's results of operations includes revenues and expenses (including
amortization of intangible assets) beginning June 24, 1999. The Company financed
this $40.0 million transaction by a $25.0 million borrowing under its revolving
credit agreement and a $15.0 million loan from certain of its stockholders which
were formerly members of ACME Television Holdings, LLC (the "Bridge Loan"). The
acquisition was accounted for using the purchase method. The excess of the
purchase price over the fair market value of the assets acquired of
approximately $35.6 million has been recorded as intangible broadcast licenses
and goodwill, all of which are being amortized over a period of 20 years.
On December 3, 1999, the Company acquired substantially all of the assets
and assumed certain liabilities of station KASY TV-50, serving the
Albuquerque-Santa Fe, New Mexico market, from Ramar Communications ("Ramar") for
approximately $27 million. The Company entered into an interim LMA arrangement
with Ramar to begin operating the station effective November 1, 1999. The
interim LMA terminated upon the completion of the acquisition. Under the local
marketing agreement, all of the revenues and operating expenses (excluding
depreciation and amortization) of the station are included in the Company's
results of operations from November 1, 1999 to December 3, 1999. The purchase
transaction was
38
<PAGE> 40
recorded on December 3, 1999 and the Company's results of operations (including
depreciation and amortization) beginning December 3, 1999.
The unaudited pro forma financial information for the years ended December
31, 1998 and 1999, set forth below reflects the net revenues and net loss
assuming the KWBP, WBXX, KPLR, KUWB, WTVK, KWBQ, KASY, WBDT, WBUI and WIWB
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 1999.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Net revenues................................................ $ 49,905 $ 63,109
Net loss.................................................... (25,988) $(74,576)
Net loss per share.......................................... $ (5.15) $ (9.37)
</TABLE>
(5) UNIT OFFERING AND 12% SENIOR SECURED DISCOUNT NOTES
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 $71,634,000 (par value at
maturity) in 12% senior secured discount notes due 2005 (the "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 Notes
mature on September 30, 2005 and may not be prepaid prior to September 30, 2000
and subsequently, may not be prepaid without penalty prior to October 1, 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
Intermediate notes and $1.5 million to prepaid financing costs -- the latter
which is being amortized over the eight-year term of the notes. The Intermediate
Notes contain certain covenants and restrictions including restrictions on
future indebtedness and restricted payments, as defined, and limitations on
liens, investments, transactions with affiliates and certain asset sales. The
Company was in compliance with all such covenants and restrictions at December
31, 1999. In connection with the Reorganization the membership units issued in
the unit offering (representing a minority interest) were acquired by the
Company for shares of the Company's stock. The acquisition of minority interest
was recorded based upon the fair market value of the stock issued.
The Intermediate Notes are secured by a first priority lien on the limited
liability company interests in ACME Television and ACME Subsidiary Holdings II,
LLC, both of which are direct wholly-owned subsidiaries of ACME Intermediate.
ACME Subsidiary Holdings II, LLC was formed solely to own a 0.5% interest in
ACME Television, has no other assets or operations and does not constitute a
substantial portion of the collateral for the Intermediate Notes.
(6) 10 7/8% SENIOR DISCOUNT NOTES
On September 30, 1997, ACME Television issued 10.875% senior discount notes
due 2004 (the "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 commencing with the six-month period ending
on March 31, 2001. The Notes are subordinated to ACME Television's bank revolver
(see Note 7) and to the ACME Television's capital equipment finance facilities
(see Note 10). The Notes mature on September 30, 2004. Subject to certain
restrictions, up to 35% of the aggregate principal amount can be prepaid with
the net proceeds of any public equity offerings prior to September 30, 2000.
Other than prepayment with the proceeds of a public equity offering, the notes
may not be prepaid prior to September 30, 2001 and may not be prepaid without
penalty prior to October 1, 2003.
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 December 31, 1997, 1998 and 1999.
39
<PAGE> 41
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. The Company 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.
ACME Television and/or the Subsidiary Guarantors are parties to various
agreements which restrict their ability to pay dividends or make distributions
to the Company. These agreements include, but are not limited to, the Indenture
governing the Notes and ACME Television's revolving credit facility (see Note
7).
(7) BANK REVOLVER
On August 15, 1997, ACME Television entered into a $22.5 million revolving
credit facility (the "Loan Agreement") with Canadian Imperial Bank Corporation
(CIBC), as agent and lead lender. Under the terms of the Loan Agreement,
advances bear interest at a base rate, that at our option, is either the bank's
prime rate or LIBOR, plus a spread. Commitment fees are charged at a rate of .5%
per annum, paid quarterly, on the unused portion of the facility. On December 2,
1997, the Loan Agreement was amended to provide ACME Television with an
increased credit line to $40 million, more favorable interest rates and a
lengthened term. There was no outstanding balance under the Loan Agreement at
December 31, 1997. At December 31, 1998 there was an outstanding balance of $8.0
million under the Loan Agreement. As of December 31, 1999 there was no
outstanding balance under the Loan Agreement.
The Loan Agreement contains certain covenants and restrictions including
restrictions on future indebtedness and limitations on investments and
transactions with affiliates. ACME Communications was in compliance with all
such covenants and restrictions at December 31, 1997, 1998 and 1999.
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 boar interest at the rate of 10% per annum, compounded annually.
Pursuant to the terms of the debentures, on September 30, 1999, the holders
elected to convert all of the outstanding principal and accrued interest into
membership units of ACME Television Holdings, LLC which were then converted into
ACME Communications, Inc. common stock in connection with the Reorganization.
The conversion rate was fixed by contract and represented 24,756 membership
units that were converted to 39,262 shares of common stock. As of December 31,
1997 and 1998, the amount of accrued interest due to the holders of the
convertible debt was $1,048,000 and $3,523,000, respectively, and was included
in other liabilities on the Company's balance sheets.
40
<PAGE> 42
(9) BRIDGE LOAN
On April 23, 1999, the Company entered into a $15.0 million loan agreement
with certain investors, and the proceeds were used to partially fund the
acquisition of the property and equipment assets of Stations WBDT, WBWI and
WBUI.
The entire loan, plus the accrued interest, was repaid at the closing of
our initial public offering on October 5, 1999.
(10) COMMITMENTS AND CONTINGENCIES
Obligations Under Operating Leases
The Company is obligated under non-cancelable operating leases for office
space and transmission sites. Future minimum lease payments as of the year ended
December 31, 1999, under non-cancelable operating leases with initial or
remaining terms of one year or more are:
<TABLE>
<S> <C>
2000........................................................ $ 794,000
2001........................................................ 751,000
2002........................................................ 598,000
2003........................................................ 642,000
2004........................................................ 428,000
Thereafter.................................................. 946,000
----------
Total..................................................... $4,159,000
==========
</TABLE>
Total rental expense under operating leases for the twelve months ended
December 31, 1997, 1998 and 1999 was approximately $166,000, $967,463 and
$850,383, respectively.
Obligations Under Capital Leases
As of December 31, 1999, approximately $9,513,000 million of equipment was
leased under capital equipment facilities. These obligations are reflected as
current obligations under capital leases of $1,273,000 and $1,617,000, and as
non-current liabilities under capital lease of $4,199,000 and $5,796,000 at
December 31, 1998 and 1999, respectively. These capital lease obligations expire
over the next five years. Future minimum lease payments as of December 31, 1999
under capital leases are:
<TABLE>
<S> <C>
2000........................................................ $ 2,206,000
2001........................................................ 2,123,000
2002........................................................ 2,103,000
2003........................................................ 1,673,000
2004........................................................ 833,000
-----------
Total..................................................... 8,938,000
Less: Interest.............................................. (1,525,000)
-----------
Present value of minimum lease payments................... $ 7,413,000
===========
</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 $7,101,000,
$28,265,000 and $7,862,000 as of December 31, 1997, 1998 and 1999, respectively.
41
<PAGE> 43
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>
2000........................................................ $12,143,000
2001........................................................ 11,282,000
2002........................................................ 6,690,000
2003........................................................ 1,816,000
2004........................................................ 263,000
Thereafter.................................................. --
-----------
Total..................................................... $32,194,000
===========
</TABLE>
Certain Compensation Arrangements
In June 1997, the Company issued an aggregate of 100 management carry units
to certain members of management. These units entitled holders to certain
distribution rights upon achievement of certain returns by non-management
investors and are subject to forfeiture or repurchase by the Company in the
event of termination of each individual's employment by the Company under
certain specified circumstances. These management carry units were accounted for
as a variable plan resulting in an expense when it is probable that any such
distributions will be made. The Company determined the value of these at the
issuance date to be immaterial. Upon the closing of our IPO these management
carry units were exchanged for fully vested shares of our common stock. During
1999, the Company recorded an expense of $39.6 million relating to the units. No
expense was recorded relating to these units in 1998 or 1997.
Legal Proceedings
We are currently, and from time to time, involved in litigation incidental
to the conduct of our business. We are not currently a party to any lawsuit or
proceeding that we believe would have a material adverse effect on our financial
condition, results of operations or liquidity.
(11) INCOME TAXES
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current
Federal income taxes...................................... $ -- $ --
State income taxes........................................ -- --
------- -------
Total current expense.................................. -- --
Deferred
Deferred tax benefit...................................... (2,393) (4,420)
------- -------
Total income tax benefit............................... $(2,393) $(4,420)
======= =======
</TABLE>
42
<PAGE> 44
The differences between the income tax benefit and income taxes computed
using the U.S. Federal statutory income tax rates (34%) consist of the
following:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
EXPENSE/ EXPENSE/
(BENEFIT) (BENEFIT)
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Tax benefit at U.S. Federal rate............................ $(8,273) $(25,567)
State income taxes, net of Federal tax benefit.............. (261) (489)
Termination of non-taxable status........................... -- (953)
Losses allocated to LLC members............................. 4,802 7,193
Nondeductible expenses...................................... 1,430 15,202
Other....................................................... (91) 194
------- --------
Income tax benefit........................................ $(2,393) $ (4,420)
======= ========
</TABLE>
Deferred Income Taxes
Prior to our reorganization into a "C" corporation in October 1999, the
Company was a limited liability corporation and, therefore, all federal tax
attributes were passed through to the members of the Company, other than those
tax attributes for its Missouri operations which are organized as "C"
corporations. The 1999 data listed below take into consideration the tax effect
to the Company after its reorganization.
<TABLE>
<CAPTION>
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current:
Accrued vacation.......................................... 56 170
State income taxes........................................ -- 49
Bad debt and other reserves............................... 2,155 2,126
Deferred revenue.......................................... -- 86
Other..................................................... 345 17
------- -------
Total current.......................................... 2,556 2,448
------- -------
Non-current
Fixed asset depreciation.................................. -- (500)
Intangible amortization................................... (30,297) (28,700)
Deferred compensation..................................... -- 332
Net operating loss carryforward........................... 1,255 4,971
Program amortization...................................... (944) (1,533)
Charitable contributions.................................. -- 66
------- -------
Total non-current...................................... (29,986) (25,364)
------- -------
Total deferred income taxes................................. (27,430) (22,916)
======= =======
</TABLE>
(12) RELATED PARTY TRANSACTIONS
The Company's stations have entered into affiliation agreements and, from
time to time, related marketing arrangements with The WB Network. Jamie Kellner,
Chairman of the Board and Chief Executive Officer, is an owner and the chief
executive officer of The WB Network.
Pursuant to June 1995 agreements among Koplar Communications, Inc., Roberts
Broadcasting, Michael Roberts and Steven C. Roberts, Roberts Broadcasting cannot
(i) transfer its license for WHSL, East St. Louis, Illinois, (ii) commit any
programming time of the station for commercial programming or advertising or
(iii) enter into a local marketing agreement with respect to such station until
June 1, 2000. In the event that the current affiliation agreement for WHSL is
terminated, the substitute format must be substantially similar
43
<PAGE> 45
to the current home shopping network format or, in the alternative, an
infomercial format. The annual payment from KPLR for these agreements was
$200,000 during the first three years. The Company paid $300,000 in both 1998
and 1999 under this agreement.
In connection with our Salt Lake City and New Mexico stations, the Company
has entered into long-term agreements to lease studio facilities and/or
transmission tower space for KUWB, KUPX and KWBQ from an affiliate of Michael
Roberts. Michael Roberts serves on the Company's Board of Directors. These
leases have terms of approximately fifteen years and provide for monthly
payments aggregating approximately $25,000, subject to adjustment based on the
Consumer Price Index.
On October 1, 1997, in connection with our acquisition of KWBP, we paid
CEA, Inc., an affiliate of one of our stockholders, CEA Capital Partners, a
broker's fee of approximately $176,000. On the same day, we paid CEA, Inc.,
$132,000 in connection with the purchase of WBXX, $25,000 in connection with the
purchase of the construction permit for KWBQ (formerly KAUO), $45,000 in
connection with the purchase of the construction permit for KUPX (formerly KZAR)
and $889,000 in connection with the purchase of KPLR, as broker's fees in each
of the transactions. Additionally, in connection with the recent acquisition of
WBUI, WIWB and WBDT, we paid CEA, Inc. a broker's fee of $125,000. CEA, Inc.
also received compensation from the seller in connection with the purchase of
WBUI, WIWB and WBDT. One of our directors, Mr. Collis, is an officer of an
affiliate of CEA Capital Partners.
In June and September 1997, we issued 10% convertible debentures with the
right to convert into 24,775,970 membership units to affiliates of Alta
Communications, Banc Boston, CEA Capital Partners and TCW Asset Management
Company, each of which are stockholders of our company. Two of our directors,
Mr. Schall and Mr. McNeil, are officers of the companies listed above, Mr.
Schall is an officer of an affiliate of TCW Asset Management Company and Mr.
McNeil is an officer of Alta Communications
(13) DEFINED CONTRIBUTION PLAN
In 1998, the Company established a 401(k) defined contribution plan (the
Plan) which covers all eligible employees (as defined in the Plan). Participants
are allowed to make non-forfeitable 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 not match participants'
contributions in excess of 6% of their contribution per pay period. The Company
contributed and expensed $200,000 to the Plan for the year ended December 31,
1998, and $173,000 for the year ended December 31, 1999.
(14) STOCK OPTION COMPENSATION
Our 1999 Stock Incentive Plan provides additional means to attract,
motivate, reward and retain key personnel. The administrator has 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, other forms of awards may be granted to give us
flexibility to structure future incentives. Our employees, officers, directors,
and consultants may be selected to receive awards under the plan.
A maximum of 4,200,000 shares of our common stock may be issued under the
plan, (approximately 25.08% of our outstanding shares). The number of shares
subject to stock options and stock appreciation rights granted under the plan to
any one person in a calendar year cannot exceed 1,000,000 shares. The number of
shares subject to all awards granted under the plan to any one person in a
calendar year cannot exceed 1,000,000 shares. Performance-based awards payable
solely in cash that are granted under the plan to any one person in a calendar
year cannot provide for payment of more than $1,000,000.
Each share limit and award under the plan is subject to adjustment for
certain changes in our capital structure, reorganizations and other
extraordinary events. Shares subject to awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
plan.
In conjunction with the reorganization and initial public offering,
approximately 2,834,091 shares subject to options were granted.
44
<PAGE> 46
Currently outstanding options represent 10-year stock option grants. The
outstanding option grants consist of:
- Options to acquire 283,500 shares upon conversion of our long-term
incentive compensation plan awards. These options were granted at an
exercise price of $15.00 per share and vest in equal thirds on December
31, 2000, 2001 and 2002.
- Options to acquire approximately an additional 341,500 shares granted as
incentives to employees and other eligible persons. Of these grants,
options to acquire 58,500 shares were granted at an exercise price of
$18.00 per share and options to acquire 283,000 shares were granted at
$23.00 per share, the initial public offering price of our shares of
common stock. These options vest in equal installments over five years.
- Options to acquire an additional 2,209,091 shares, or approximately 13%
of our common stock after giving effect to this offering, were granted to
Messrs. Kellner, Gealy, and Allen. Of this number, options to acquire
838,635 shares were granted to Mr. Kellner, options to acquire 685,228
shares were granted to Mr. Gealy, and options to acquire 685,228 shares
were granted to Mr. Allen. These options were granted at $23.00 per
share, the initial public offering price of our shares of common stock
and vest in four equal annual installments. The first installment vests
on September 29, 1999. Vesting of these options accelerates upon a change
of control, death, disability or termination without cause.
Stock option activity during the year consisted of the following:
<TABLE>
<CAPTION>
1999
--------------------------
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Stock options outstanding, beginning of year................ -- --
Options granted (per share: $15.00 to $23.00)............... 2,834,091 $22.56
Options forfeited........................................... 2,500 23.00
Options exercised........................................... --
--------- ------
Stock options outstanding, end of year...................... 2,831,591 $22.56
========= ======
Stock options exercisable, end of year...................... -- --
========= ======
Options available for grant, end of year.................... 1,368,409 --
========= ======
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$15.00............................ 283,500 10.0 $15.00 -- $15.00
$18.00............................ 58,500 10.0 $18.00 -- $18.00
$23.00............................ 2,489,591 10.0 $23.00 -- $23.00
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations, in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized for options granted at or above fair
market value at the time of grant. For the grants that were made at an option
price lower than fair market value at the time of grant, compensation expense of
$132,000 was recognized in the fourth quarter of 1999 (the first quarter of the
vesting period). The options granted at below fair market value at the date of
grant were granted upon conversion of the Company's Long Term Incentive Plan
(LTIP). The Company recognized compensation expense under the LTIP of $338,000
during the year ended December 31, 1999 and $400,000 during the year ended
December 31, 1998. All amounts expensed prior to the conversion of the LTIP
($738,000) are netted against the total of the below market option compensation
expense to arrive at the expense to be recognized over the vesting period of
such options.
45
<PAGE> 47
Had the Company chosen to adopt the provisions of Statement of Financial
Accounting Standards No. 123, and recognized compensation cost based upon the
fair value of all options granted (including those granted at or above fair
market value) at the date of grant, the Company's net loss and net loss per
share for the year ended December 31, 1999 would have been as follows:
<TABLE>
<CAPTION>
NET LOSS TO
COMMON NET LOSS PER
STOCKHOLDERS COMMON SHARE
1999 1999
------------ ------------
<S> <C> <C>
As reported....................................... $(70,779) $(7.96)
Pro forma....................................... $(72,403) $(9.09)
</TABLE>
The fair value of the options granted were used to calculate the pro forma
net income and net income per common share above, on the date of grant, using a
binomial option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Dividend yield.............................................. --
Expected volatility......................................... 50.00%
Risk free interest rate..................................... 6.11%
Expected life (in months)................................... 60
Weighted average fair value of grants....................... $ 12.03
</TABLE>
(15) SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
Q-1 Q-2 Q-3 Q-4 YEAR END
------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1999
Net revenues.................................. $11,123 $ 15,512 $ 15,803 $17,570 $ 60,008
Operating income.............................. (4,294) (9,403) (34,626) (755) (49,078)
Net loss...................................... (9,278) (19,121) (38,768) (3,612) (70,779)
Pro forma net loss............................ (5,998) (15,341) (37,308) (4,749) (63,396)
Pro forma net loss per common share........... (1.16) (2.96) (7.20) (0.29) (7.96)
1998
Net revenues.................................. 7,757 11,570 11,805 12,796 43,928
Operating income.............................. 369 (1,582) (1,573) (241) (3,027)
Net loss...................................... (4,743) (6,511) (5,654) (5,032) (21,940)
Pro forma net loss............................ (2,834) (4,767) (4,162) (4,471) (16,234)
Pro forma net loss per common share........... (0.59) (0.95) (0.80) (0.86) (3.22)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Company" in Part I, Item 4 hereof, and the remainder is
contained in the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders (the "2000 Proxy Statement") under the caption "Election of
Directors" and is incorporated herein by reference.
46
<PAGE> 48
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 2000 Proxy
Statement under the captions "Directors Compensation," "Executive Compensation,"
and "Other Agreements," and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 2000 Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Company's 2000 Proxy
Statement under the captions "Certain Relationships and Related Transactions"
and "Compensation Committee Interlocks and Insider Participation" and are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements are included in Item 8:
ACME Communications, Inc. and Subsidiaries:
-- Consolidated Balance Sheets as of December 31, 1999 and 1998.
-- Consolidated Statements of Operations for the years ended December 31,
1999, December 31, 1998 and December 31, 1997.
-- Consolidated Statements of Members' Capital for the years ended December
31, 1999, December 31, 1998 and 1997.
-- Consolidated Statements of Cash Flows for the years ended December 31,
1999, December 31, 1998 and December 31, 1997.
-- Notes to the Consolidated Financial Statements.
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included in Item 14(d):
Schedule I -- Condensed Financial Information of ACME Communications,
Inc. (Parent Company):
- Balance Sheet as of December 31, 1999 and December 31, 1998.
- Statements of Operations for the years ended December 31, 1999,
December 31, 1998 and December 31, 1997
- Statements of Cash Flows for the years ended December 31, 1999,
December 31, 1998 and December 31, 1997
- Notes to the Condensed Financial Statements
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto, included in Item 8 herewith.
47
<PAGE> 49
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
2.1(10) Form of Agreement and Plan of Reorganization Relating to the
Capitalization of ACME Communications, Inc. by and among the
parties listed in the signature pages thereof.
2.2(10) Form Exchange Agreement among ACME Communications, Inc. and
the parties listed on the signature pages thereto.
2.3(10) Form of Agreement of Merger by and among ACME Television
Holdings, LLC, ACME Communications, Inc. and ACME
Communications Merger Subsidiary, LLC.
3.1(10) Form of Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2(10) Form of Restated Bylaws of ACME Communications, Inc.
4.1(1) Indenture, dated September 30, 1997, by and among ACME
Intermediate Holdings, LLC and ACME Intermediate Finance,
Inc., as Issuers, and Wilmington Trust Company.
4.2(1) Indenture, dated September 30, 1997, by and among ACME
Television, LLC and ACME Finance Corporation, as issuers,
the Guarantors named therein, and Wilmington Trust Company.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by
and among ACME Television, LLC and ACME Finance Corporation,
the Guarantors named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, the
Guarantors named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, as
issuers, the Guarantors named therein, and Wilmington Trust
Company.
4.6(10) Form of Stock Certificate of ACME Communications, Inc.
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(9) 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(9) 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(9) 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.
10.6(10) Amendment to Asset Purchase Agreement, dated July 30, 1999,
by and between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KASY-TV, Santa Fe, New Mexico.
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.7(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.
10.8(7) Purchase Agreement, dated October 30, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.9(7) Option Agreement, dated November 5, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.10(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.
10.11(1) Management Agreement, dated August 22, 1997, by and between
Minority Broadcasters of Santa Fe, Inc. and ACME Television
of New Mexico, LLC.
10.12(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.
10.13(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.
10.14(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.
10.15(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.
10.16(1) Management Agreement, dated August 22, 1997, by and between
Roberts Broadcasting of Salt Lake City, LLC and ACME
Television of Utah, LLC.
10.17(4) Asset Purchase Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.18(4) Time Brokerage Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.19(10) Station Affiliation Agreement, dated March 15, 1998, by and
between ACME Television Holdings, LLC and The WB Television
Network Partners, L.P.
10.20(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.
10.21(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.
10.22(1) Stock Purchase Agreement, dated July 29, 1997, by and among
ACME Television Holdings, LLC, Koplar Communications, Inc.
and the shareholders named therein.
10.23(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.
10.24(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.
10.25(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.
10.26(3) Management Agreement between Edward J. Koplar and ACME
Television Licenses of Missouri, Inc.
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.27(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.
10.28(3) Station Affiliation Agreement, dated August 18, 1997, by and
between ACME Holdings of Knoxville, LLC and The WB
Television Network Partners, L.P.
10.29(3) Station Affiliation Agreement, dated June 10, 1997, by and
between ACME Holdings of Oregon, LLC and The WB Television
Network Partners, L.P.
10.30(10) Joint Sales Agreement by and between ACME Television
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.31(10) Option Agreement, dated April 23, 1999, by and between ACME
Television Holdings, LLC and DP Media, Inc.
10.32(1) Programming Agreement, dated June 1, 1995, by and among
Koplar Communications, Inc., Roberts Broadcasting Company,
Michael V. Roberts and Steven C. Roberts.
10.33(5) Master Lease Agreement, dated June 30, 1998, by and between
General Electric Capital Corporation and ACME Television,
LLC.
10.34(1) Station Affiliation Commitment Letter dated August 21, 1997,
to ACME Communications, Inc. from The WB Television Network.
10.35(10) ACME Communications, Inc. 1999 Stock Incentive Plan.
10.36(10) Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Doug Gealy.
10.37(10) Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Tom Allen.
10.38(10) Consulting Agreement, as amended, by and between ACME
Communications, Inc. and Jamie Kellner.
10.39(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.
10.40(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.
10.41(10) Amendment No. 1 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.42(10) Amendment No. 2 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.43(10) Third Amendment to First Amended and Restated Credit
Agreement, dated March 1, 1999.
10.44(10) Fourth Amendment to First Amended and Restated Credit
Agreement, dated April 23, 1999.
10.45(10) Fifth Amendment to Credit Agreement, dated September 1999.
10.46(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.
10.47(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.
10.48(10) Form of Registration Rights Agreement, by and among ACME
Communications, Inc. and the parties on the signature pages
thereto.
10.49(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.
10.50(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.
10.51(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.
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.52(3) Limited Liability Company Agreement of ACME Television
Holdings, LLC.
10.53(3) First Amendment to Limited Liability Company Agreement of
ACME Television Holdings, LLC.
10.54(10) Employment Agreement, dated September 27, 1999 by and
between ACME Communications, Inc. and Ed Danduran.
10.55(10) 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.
10.56(10) Form of Convertible Debenture of ACME Television Holdings,
LLC. Due June 30, 2008.
10.57(8) Agreement of Lease, dated May 16, 1986, by and between CBS,
Inc. and Koplar Communications Inc.
10.58(8) Amendment to Agreement of Lease, dated September 2, 1986, by
and between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.59(1) Amended and Restated Lease Agreement, dated July 1, 1986, by
and between KKSN, Inc. and Channel 32 Incorporated.
10.60(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.
10.61(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.
10.62(10) Lease Agreement, dated January 1, 1997, by and between Mr.
Tom Winter and VCY/ America, Inc.
10.63(10) Assignment and Assumption of Lease and Estoppel Certificate,
dated October 6, 1997.
10.64(10) Assignment and Assumption of Lease, dated April 23, 1999.
10.65(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.
10.66(10) Tower License Agreement, dated May 21, 1992, by and between
Caloosa Television Corporation and Southwest Florida
Telecommunications, Inc.
10.67(10) Station Affiliation Agreement, dated April 9, 1998, by and
between ACME Television Licenses of Utah LLC and The WB
Television Network.
10.68(10) Station Affiliation Agreement, dated March 4, 1999, by and
between ACME Television Licenses of New Mexico LLC and The
WB Television Network.
10.69(10) Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Wisconsin LLC and The WB
Television Network.
10.70(10) Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Illinois LLC and The WB
Television Network.
10.71(10) Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Ohio LLC and The WB
Television Network.
10.72(10) 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.
10.73(10) Form of Stockholder and Voting Agreement by and among ACME
Communications Inc. and the parties on the signature pages
thereto.
10.74(10) Form of Voting Agreement by and among ACME Communications
Inc. and the parties on the signature pages thereto.
10.75(1) Management Agreement, dated February 6, 1997, by and between
Newco of Oregon, Inc. and Channel 32, Incorporated.
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.76(1) Amendment, dated June 17, 1997, to Management Agreement by
and between ACME Television Holdings of Oregon, LLC and
Channel 32, Incorporated.
10.77* Master Lease Agreement by and between Bankers Commercial
Corporation and ACME Television, LLC dated October 25, 1999.
10.78* Second Amendment to Asset Purchase Agreement, dated November
1, 1999, by and between ACME Television of New Mexico, LLC
and Ramar Communications II, Ltd., with respect to
television station KASY-TV, Santa Fe, New Mexico.
10.79* Tower space and site Lease Agreement dated November 1, 1999,
by and between Lee Enterprises, Incorporated, Sandia
Television Corporation and ACME Television of New Mexico,
LLC.
10.80* Time Brokerage Agreement dated November 1, 1999, by and
between Ramar Communications, II, Ltd. and ACME Television
of New Mexico, LLC.
10.81* Assignment and Assumption of Tower Lease by and between
Ramar Communications II, Ltd. and ACME Television of New
Mexico, LLC, dated December 3, 1999.
10.82* Standstill Agreement, dated October 4, 1999, by and between
ACME Television Holdings, LLC and DP Media of Battle Creek,
Inc.
21.0* Subsidiaries of Registrant.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on
November 14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4, File No. 333-40281, filed on November 14,
1997.
(3) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4/A, File No. 333-40281, filed on January 16,
1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual Report
on Form 10-K for the 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.
(10) Incorporated by reference to the Registration Statement for ACME
Communications, Inc. on Form S-1, File No. 333-84191, filed on September
29, 1999.
(b) REPORTS ON FORM 8-K.
The Company filed no reports on Form 8-K during the three months ended
December 31, 1999.
52
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACME Communications, Inc.
/s/ THOMAS ALLEN
--------------------------------------
Thomas Allen
Executive Vice President and Chief
Financial Officer and Director
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ JAMIE KELLNER Chairman of the Board and Chief March 28, 2000
- --------------------------------------------------- Executive Officer (Principal
Jamie Kellner Executive Officer)
/s/ DOUGLAS GEALY President and Chief Operating March 28, 2000
- --------------------------------------------------- Officer and Director
Douglas Gealy
/s/ THOMAS ALLEN Executive Vice President, Chief March 28, 2000
- --------------------------------------------------- Financial Officer and Director
Thomas D. Allen (Principal Financial and
Accounting Officer)
/s/ JAMES COLLIS Director March 28, 2000
- ---------------------------------------------------
James Collis
/s/ THOMAS EMBRESCIA Director March 28, 2000
- ---------------------------------------------------
Thomas Embrescia
/s/ BRIAN MCNEILL Director March 28, 2000
- ---------------------------------------------------
Brian McNeill
/s/ MICHAEL ROBERTS Director March 28, 2000
- ---------------------------------------------------
Michael Roberts
/s/ DARRYL SCHALL Director March 28, 2000
- ---------------------------------------------------
Darryl Schall
</TABLE>
53
<PAGE> 55
SCHEDULE I.
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 48 $ 19,834
Due from affiliates....................................... -- --
-------- --------
Total current assets................................... 48 19,834
Notes Receivable and accrued interest....................... 231 112
Due from subsidiaries....................................... -- 20,451
Investment in subsidiaries.................................. 28,456 63,661
Prepaid financing costs..................................... 959 --
Other assets................................................ -- 2,481
Intangible assets, net...................................... -- 20,840
-------- --------
Total assets........................................... $ 29,694 $127,379
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ -- $ 240
Accrued liabilities....................................... -- 89
Deferred income taxes..................................... -- 177
Other current liabilities................................. 2 --
-------- --------
Total current liabilities.............................. 2 506
Accrued interest payable.................................... 3,523 --
Convertible debentures...................................... 24,756 --
Other liabilities........................................... -- 38
-------- --------
Total liabilities...................................... 28,281 544
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value; 16,750,000 shares issued
outstanding at December 31, 1999 and 5,180,051 issued
and outstanding at December 31, 1998................... 52 168
Additional paid-in capital................................ 30,780 130,279
Accumulated deficit....................................... (29,419) (3,612)
-------- --------
Total stockholders' equity............................. 1,413 126,835
-------- --------
Total liabilities and stockholders' equity........... $ 29,694 $127,379
======== ========
</TABLE>
See accompanying notes to the condensed financial information.
54
<PAGE> 56
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating expenses.......................................... $ -- $ -- $ (16)
Amortization of intangible.................................. -- -- $ (264)
------- -------- --------
Operating loss.............................................. -- -- (280)
Interest income............................................. -- 20 418
Interest expense............................................ (1,096) (2,575) (3,192)
Other income (expenses)..................................... 4 (13) --
------- -------- --------
Loss before equity in the net loss of subsidiaries and
income taxes........................................... (1,092) (2,568) (3,054)
Equity in the net loss of subsidiaries...................... (6,387) (19,372) (67,548)
------- -------- --------
Loss before income taxes.................................... (7,479) (21,940) (70,602)
Income tax expense.......................................... -- -- (177)
------- -------- --------
Net loss............................................... $(7,479) $(21,940) $(70,779)
======= ======== ========
</TABLE>
See accompanying notes to the condensed financial information.
55
<PAGE> 57
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... -- $ -- $ -- $ -- $ --
Issuance of common stock, net...... 4,074 41 23,744 -- 23,785
Net Loss........................... -- -- -- (7,479) (7,479)
------ ---- -------- -------- --------
Balance at December 31, 1997......... 4,074 41 23,744 (7,479) 16,306
Issuance of common stock, net...... 1,106 11 7,036 -- 7,047
Net Loss........................... -- -- -- (21,940) (21,940)
------ ---- -------- -------- --------
Balance at December 31, 1998......... 5,180 52 30,780 (29,419) 1,413
Equity-based compensation.......... 1,720 17 39,671 -- 39,688
Issuance of stock options in
exchange for long-term incentive
plan............................ -- -- 738 -- 738
Conversion of convertible debt..... 3,926 40 29,200 -- 29,240
Acquisition of minority interest... 924 9 21,241 -- 21,250
Initial public offering............ 5,000 50 105,235 -- 105,285
Termination of non-taxable
status.......................... -- -- (96,586) 96,586 --
Net loss........................... -- -- -- (70,779) (70,779)
------ ---- -------- -------- --------
Balance at December 31, 1999......... 16,750 $168 $130,279 $ (3,612) $126,835
====== ==== ======== ======== ========
</TABLE>
See accompanying notes to the condensed financial information.
56
<PAGE> 58
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (7,479) $(21,940) $(70,779)
Adjustments to reconcile net loss to net cash: provided by
operating activities:
Amortization of debt issuance costs...................... 34 122 492
Equity in net loss of subsidiary......................... 6,387 19,372 67,548
Deferred taxes........................................... -- -- 177
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net......... (201) (20) 119
(Increase) decrease in prepaid expenses.................. -- 25 --
(Increase) decrease in due from affiliates............... (7) 7 (20,451)
(Increase) other assets.................................. -- -- --
Increase (decrease) in accounts payable.................. -- -- 240
Increase in other currently liabilities.................. -- 2 1,956
Increase in accrued expenses............................. 1,047 2,476 335
-------- -------- --------
Net cash provided by (used in) operating activity..... (219) 44 (20,363)
-------- -------- --------
Cash flows from investing activities:
Purchase of station interests............................ (18,675) -- (62,655)
Investments in and advances to subsidiaries.............. (24,128) -- (2,481)
-------- -------- --------
Net cash used in investing activities................. (42,803) -- (65,136)
-------- -------- --------
Cash flows from financing activities:
Initial public offering, net of expenses................. -- -- 105,285
Issuance of stock........................................ 19,385 -- --
Debt issuance costs...................................... (1,115) -- --
Issuance of convertible debt............................. 24,756 -- --
-------- -------- --------
Net cash provided by financing activities............. 43,026 -- 105,285
-------- -------- --------
Net increase (decrease) in cash.......................... 4 44 19,786
Cash at beginning of period.............................. -- 4 48
-------- -------- --------
Cash at end of period.................................... $ 4 $ 48 $ 19,834
======== ======== ========
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 -- --
Conversion of convertible debt........................... -- -- 29,240
Acquisition of minority interest of ACME Intermediate
Holdings, LLC......................................... $ -- $ -- $ 21,250
-------- -------- --------
</TABLE>
See accompanying notes to the condensed financial information
57
<PAGE> 59
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION
1. FORMATION AND BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of ACME Communications, Inc., do
not include all of the information and notes normally include 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.
ACME Communications, Inc. was formed on July 23, 1999, in preparation for
and in conjunction with an initial public offering of its stock.
On September 27, 1999, the Board of Advisors of ACME Television Holdings,
LLC and its members and the Board of Directors of the Company and its
stockholder approved a merger and reorganization (the "Reorganization"), whereby
ACME Communications became the direct parent of ACME Television Holdings. As a
result of the Reorganization, ACME Communications is the ultimate parent of ACME
Intermediate Holdings, LLC, and its wholly-owned subsidiary ACME Television,
LLC. All transactions contemplated as part of the Reorganization closed on
October 5, 1999.
Among the significant transactions of the Reorganization were the exchange
of shares of the Company's common stock for members' units, management carry
units and convertible debt of ACME Television Holdings. The common stock
exchanged for members' units in ACME Television Holdings was recorded at
historical cost. The management carry units were treated as a variable
compensation plan. As the number of shares of common stock issued to the holders
of the management carry units were fixed and fully vested, compensation expense
was recorded for the difference between the fair value of the shares issued and
the MCU expense previously recorded. The convertible debt was converted pursuant
to its original conversion terms, and accordingly, no gain or loss was
recognized. Also, the Company acquired the minority interest in ACME
Intermediate Holdings for 923,938 shares of the Company's common stock. The
acquisition of the minority interest was accounted for at fair market value.
The financial statements give effect to the exchange of common stock for
members' units for all periods presented.
On October 5, 1999, the Company completed its initial public offering of
5,000,000 shares of common stock at $23 per share, before underwriters'
discounts and other issuance costs. The Company received net proceeds of
approximately $104 million.
The accompanying condensed financial statements are presented for ACME
Communications, Inc.
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 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.
58
<PAGE> 60
SCHEDULE II.
ACME COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998 AND DECEMBER 31,
1999
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ADDITIONS ACQUIRED IN BALANCE AT
BEGINNING CHARGED TO PURCHASE END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD EXPENSE TRANSACTIONS(1) DEDUCTIONS PERIOD
- ------------------------------- ---------- ---------- ---------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997........ 0 51,000 -- 51,000
Year ended December 31, 1998........ 51,000 223,776 280,224 -- 555,000
Year ended December 31, 1999........ 555,000 485,000 -- 324,000 716,000
</TABLE>
59
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
2.1(10) Form of Agreement and Plan of Reorganization Relating to the
Capitalization of ACME Communications, Inc. by and among the
parties listed in the signature pages thereof.
2.2(10) Form Exchange Agreement among ACME Communications, Inc. and
the parties listed on the signature pages thereto.
2.3(10) Form of Agreement of Merger by and among ACME Television
Holdings, LLC, ACME Communications, Inc. and ACME
Communications Merger Subsidiary, LLC.
3.1(10) Form of Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2(10) Form of Restated Bylaws of ACME Communications, Inc.
4.1(1) Indenture, dated September 30, 1997, by and among ACME
Intermediate Holdings, LLC and ACME Intermediate Finance,
Inc., as Issuers, and Wilmington Trust Company.
4.2(1) Indenture, dated September 30, 1997, by and among ACME
Television, LLC and ACME Finance Corporation, as issuers,
the Guarantors named therein, and Wilmington Trust Company.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by
and among ACME Television, LLC and ACME Finance Corporation,
the Guarantors named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, the
Guarantors named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, as
issuers, the Guarantors named therein, and Wilmington Trust
Company.
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(9) 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(9) 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(9) 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.
10.6(10) Amendment to Asset Purchase Agreement, dated July 30, 1999,
by and between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KASY-TV, Santa Fe, New Mexico.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.7(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.
10.8(7) Purchase Agreement, dated October 30, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.9(7) Option Agreement, dated November 5, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.10(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.
10.11(1) Management Agreement, dated August 22, 1997, by and between
Minority Broadcasters of Santa Fe, Inc. and ACME Television
of New Mexico, LLC.
10.12(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.
10.13(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.
10.14(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.
10.15(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.
10.16(1) Management Agreement, dated August 22, 1997, by and between
Roberts Broadcasting of Salt Lake City, LLC and ACME
Television of Utah, LLC.
10.17(4) Asset Purchase Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.18(4) Time Brokerage Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.19(10) Station Affiliation Agreement, dated March 15, 1998, by and
between ACME Television Holdings, LLC and The WB Television
Network Partners, L.P.
10.20(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.
10.21(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.
10.22(1) Stock Purchase Agreement, dated July 29, 1997, by and among
ACME Television Holdings, LLC, Koplar Communications, Inc.
and the shareholders named therein.
10.23(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.
10.24(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.
10.25(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.
10.26(3) Management Agreement between Edward J. Koplar and ACME
Television Licenses of Missouri, Inc.
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.27(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.
10.28(3) Station Affiliation Agreement, dated August 18, 1997, by and
between ACME Holdings of Knoxville, LLC and The WB
Television Network Partners, L.P.
10.29(3) Station Affiliation Agreement, dated June 10, 1997, by and
between ACME Holdings of Oregon, LLC and The WB Television
Network Partners, L.P.
10.30(10) Joint Sales Agreement by and between ACME Television
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.31(10) Option Agreement, dated April 23, 1999, by and between ACME
Television Holdings, LLC and DP Media, Inc.
10.32(1) Programming Agreement, dated June 1, 1995, by and among
Koplar Communications, Inc., Roberts Broadcasting Company,
Michael V. Roberts and Steven C. Roberts.
10.33(5) Master Lease Agreement, dated June 30, 1998, by and between
General Electric Capital Corporation and ACME Television,
LLC.
10.34(1) Station Affiliation Commitment Letter dated August 21, 1997,
to ACME Communications, Inc. from The WB Television Network.
10.35(10) ACME Communications, Inc. 1999 Stock Incentive Plan.
10.36(10) Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Doug Gealy.
10.37(10) Form of Employment Agreement, as amended, by and between
ACME Communications, Inc. and Tom Allen.
10.38(10) Consulting Agreement, as amended, by and between ACME
Communications, Inc. and Jamie Kellner.
10.39(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.
10.40(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.
10.41(10) Amendment No. 1 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.42(10) Amendment No. 2 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.43(10) Third Amendment to First Amended and Restated Credit
Agreement, dated March 1, 1999.
10.44(10) Fourth Amendment to First Amended and Restated Credit
Agreement, dated April 23, 1999.
10.45(10) Fifth Amendment to Credit Agreement, dated September 1999.
10.46(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.
10.47(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.
10.48(10) Form of Registration Rights Agreement, by and among ACME
Communications, Inc. and the parties on the signature pages
thereto.
10.49(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.
10.50(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.
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.51(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.
10.52(3) Limited Liability Company Agreement of ACME Television
Holdings, LLC.
10.53(3) First Amendment to Limited Liability Company Agreement of
ACME Television Holdings, LLC.
10.54(10) Employment Agreement, dated September 27, 1999 by and
between ACME Communications, Inc. and Ed Danduran.
10.55(10) 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.
10.56(10) Form of Convertible Debenture of ACME Television Holdings,
LLC. Due June 30, 2008.
10.57(8) Agreement of Lease, dated May 16, 1986, by and between CBS,
Inc. and Koplar Communications Inc.
10.58(8) Amendment to Agreement of Lease, dated September 2, 1986, by
and between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.59(1) Amended and Restated Lease Agreement, dated July 1, 1986, by
and between KKSN, Inc. and Channel 32 Incorporated.
10.60(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.
10.61(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.
10.62(10) Lease Agreement, dated January 1, 1997, by and between Mr.
Tom Winter and VCY/America, Inc.
10.63(10) Assignment and Assumption of Lease and Estoppel Certificate,
dated October 6, 1997.
10.64(10) Assignment and Assumption of Lease, dated April 23, 1999.
10.65(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.
10.66(10) Tower License Agreement, dated May 21, 1992, by and between
Caloosa Television Corporation and Southwest Florida
Telecommunications, Inc.
10.67(10) Station Affiliation Agreement, dated April 9, 1998, by and
between ACME Television Licenses of Utah LLC and The WB
Television Network.
10.68(10) Station Affiliation Agreement, dated March 4, 1999, by and
between ACME Television Licenses of New Mexico LLC and The
WB Television Network.
10.69(10) Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Wisconsin LLC and The WB
Television Network.
10.70(10) Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Illinois LLC and The WB
Television Network.
10.71(10) Station Affiliation Agreement, dated May 1, 1999, by and
between ACME Television Licenses of Ohio LLC and The WB
Television Network.
10.72(10) 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.
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.73(10) Form of Stockholder and Voting Agreement by and among ACME
Communications Inc. and the parties on the signature pages
thereto.
10.74(10) Form of Voting Agreement by and among ACME Communications
Inc. and the parties on the signature pages thereto.
10.75(1) Management Agreement, dated February 6, 1997, by and between
Newco of Oregon, Inc. and Channel 32, Incorporated.
10.76(1) Amendment, dated June 17, 1997, to Management Agreement by
and between ACME Television Holdings of Oregon, LLC and
Channel 32, Incorporated.
10.77* Master Lease Agreement by and between Bankers Commercial
Corporation and ACME Television, LLC dated October 25, 1999.
10.78* Second Amendment to Asset Purchase Agreement, dated November
1, 1999, by and between ACME Television of New Mexico, LLC
and Ramar Communications II, Ltd., with respect to
television station KASY-TV, Santa Fe, New Mexico.
10.79* Tower space and site Lease Agreement dated November 1, 1999,
by and between Lee Enterprises, Incorporated, Sandia
Television Corporation and ACME Television of New Mexico,
LLC.
10.80* Time Brokerage Agreement dated November 1, 1999, by and
between Ramar Communications, II, Ltd. and ACME Television
of New Mexico, LLC.
10.81* Assignment and Assumption of Tower Lease by and between
Ramar Communications II, Ltd. and ACME Television of New
Mexico, LLC, dated December 3, 1999.
10.82* Standstill Agreement, dated October 4, 1999, by and between
ACME Television Holdings, LLC and DP Media of Battle Creek,
Inc.
21.0* Subsidiaries of Registrant.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on
November 14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4, File No. 333-40281, filed on November 14,
1997.
(3) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4/A, File No. 333-40281, filed on January 16,
1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual Report
on Form 10-K for the 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.
(10) Incorporated by reference to the Registration Statement for ACME
Communications, Inc. on Form S-1, File No. 333-84191, filed on September
29, 1999.
<PAGE> 1
EXHIBIT 10.77
MASTER LEASE AGREEMENT
Date 10/25/99
Lessor:
BANKERS COMMERCIAL CORPORATION
445 South Figueroa Street
Los Angeles, CA 90071
Lessee:
ACME TELEVISION, L.L.C.
2101 East 4th Street
Santa Ana, CA 92705
Co-Lessees:
<TABLE>
<CAPTION>
<S> <C> <C>
ACME TELEVISION OF NEW MEXICO, ACME TELEVISION OF TENNESSEE, ACME TELEVISION OF WISCONSIN,
L.L.C. L.L.C. L.L.C.
KWBQ-19 WBXX-20 WIWB-14
8341 Washington N.E. 10427 Cogdill Road, Ste 100 975 Parkview Road, Ste 4
Albuquerque, NM 87113 Knoxville, TN 37932 Green Bay, WI 54304
Tel: (505) 797-1919 Main: (423) 777-9220 Tel: (920) 983-9014
Fax: (505) 344-1145 Fax: (423) 777-9221 Fax: (920) 983-9424
ACME TELEVISION OF MISSOURI, INC. ACME TELEVISION OF FLORIDA, L.L.C. ACME TELEVISION OF OHIO, L.L.C.
KPLR-11 WTVK-6 WBDT-26
4935 Lindell Boulevard 3451 Bonita Bay Blvd. Ste 101 2675 Dayton Road
St. Louis, MO 63108 Bonita Springs, FL 34134 Springfield, OH 45506
Tel: (314) 367-7211 Tel: (941) 498-4600 Tel: (937) 323-0026
Fax: (314) 454-6480 Fax: (941) 498-0146 Fax: (937) 323-1912
ACME TELEVISION OF UTAH, L.L.C. ACME TELEVISION OF OREGON, L.L.C. ACME TELEVISION OF ILLINOIS, L.L.C.
KUWB-30 KWBP-32 WBUI-23
6135 S. Stratler 10255 SW Arctic Drive 2510 Parkway Court
Murray, UT 84107 Beaverton, OR 97005 Decatur, IL 62526
Tel: (801) 281-0330 Main: (503) 644-3232 Tel: (217) 428-2323
Fax: (801) 281-4503 Fax: (503) 626-3576 Fax: (217) 428-6455
</TABLE>
1 of 10
<PAGE> 2
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee hereby requests Lessor to purchase the personal property
described in any Equipment Schedule hereunder (herein called "Equipment") from
the supplier(s) listed in any Equipment Schedule hereunder (herein called
"Vendor" and/or "Manufacturer", as applicable) and to lease the Equipment to
Lessee on the terms and conditions of the lease set forth below. Lessor hereby
leases to Lessee, and Lessee hereby leases from Lessor, the Equipment upon the
following terms and conditions:
1. LEASE NON-CANCELLABLE. This lease and any Equipment Schedule hereto cannot
be cancelled or terminated except as expressly provided herein. Lessee
agrees that its obligation to pay all rent and other sums payable
hereunder and the rights of Lessor in and to such rent are absolute and
unconditional and are not subject to any abatement, reduction, setoff,
defense, counterclaim or recoupment due or alleged to be due to, or by
reason of, any past, present or future claims which Lessee may have
against Lessor, any assignee, any Manufacturer or Vendor, or against any
person for any reason whatsoever.
2. EQUIPMENT ORDERING. Lessee shall arrange for delivery of the Equipment so
that it can be accepted in accordance with Paragraph 3 hereof within 90
days after the date on which Lessor accepts Lessee's offer to enter into
this lease with respect to any Equipment Schedule or by such other date as
may be set forth in an Equipment Schedule or Approval Letter issued by
Lessor as the Approval Expiration Date. Unless otherwise specified on the
Equipment Schedule, Lessee shall be responsible for all transportation,
packing, installation, testing and other charges in connection with the
delivery, installation and use of the Equipment. Lessee hereby authorizes
Lessor to insert in any Equipment Schedule hereunder the serial numbers
and other identification data of Equipment when determined by Lessor.
3. ACCEPTANCE OF EQUIPMENT. Lessee acknowledges that for purposes of
receiving or accepting the Equipment from Vendor, Lessee is acting on
Lessor's behalf. Upon delivery of the Equipment to Lessee and Lessee's
inspection thereof, Lessee shall furnish Lessor a written statement (a)
acknowledging receipt of the Equipment in good condition and repair and
(b) accepting it as satisfactory in all respects for the purposes of this
lease (the "Certificate of Acceptance"). Unless otherwise set forth in the
applicable Equipment Schedule, the first day of the month following
receipt and acceptance of the Equipment covered by an Equipment Schedule
shall be the Rent Commencement Date therefor. However, should Lessee have
a previous lease with Lessor which is active at the time of acceptance of
the Equipment under the Equipment Schedule and said lease and the current
Equipment Schedule hereunder shall have the same invoice address then the
Rent Commencement Date shall occur in the month immediately following
acceptance of the Equipment on the rent payment due date established with
Lessee for said previous active lease. Lessor is authorized to fill in on
any Equipment Schedule hereunder the Rent Commencement Date in accordance
with the foregoing.
4. TERMINATION BY LESSOR. If, by the Approval Expiration Date, the Equipment
described in any Equipment Schedule has not been delivered to Lessee and
accepted by Lessee as provided in Paragraph 3 hereof, or if other
conditions of Lessor's Approval Letter, if any, have not been met, then
Lessor may, at its option, terminate this lease and its obligations
hereunder with respect to such Equipment Schedule at any time after the
expiration of such 90 days or any date after the Approval Expiration Date,
as applicable. Lessor shall give Lessee written notice whether or not it
elects to exercise such option within 10 days after Lessor's receipt of
Lessee's written request for such notice.
5. NO WARRANTIES BY LESSOR. Lessee has selected the Equipment and may have
entered into certain purchase, licensing, or maintenance agreements with
the Vendor and/or Manufacturer (herein referred to as an "Acquisition
Agreement") covering the Equipment as further described in Paragraph 26
hereof. If Lessee has entered into any Acquisition Agreement, each
agreement shall provide for certain rights and obligations of the parties
thereto with respect to the Equipment, and Lessee shall perform all of the
obligations set forth in each Acquisition Agreement as if this lease did
not exist. LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY
OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE
LEASES THE EQUIPMENT "AS IS." LESSOR SHALL HAVE NO LIABILITY FOR ANY LOSS,
DAMAGE OR EXPENSE OF ANY KIND WHATSOEVER RELATING THERETO, INCLUDING
WITHOUT LIMITATION ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES OF ANY CHARACTER.
6. CLAIMS AGAINST VENDOR AND/OR MANUFACTURER. If the Equipment is not
properly installed, does not operate as represented or warranted by Vendor
and/or Manufacturer, or is unsatisfactory for any reason, Lessee shall make
2 of 10
<PAGE> 3
any claim on account thereof solely against Vendor and/or Manufacturer
pursuant to the Acquisition Agreement, if any, and shall, nevertheless, pay
Lessor all rent payable under this lease. All warranties from Vendor and/or
Manufacturer are, to the extent they are assignable, hereby assigned to
Lessee for the term of the lease or until an Event of Default occurs
hereunder, for Lessee's exercise at Lessee's expense. Lessee may directly
inquire with Vendor and/or Manufacturer to receive an accurate and complete
statement of such warranties, including any disclaimers or limitations of
such warranties or of any remedies with respect thereto.
7. VENDOR NOT AN AGENT. Lessee understands and agrees that neither Vendor, nor
any sales representative or other agent of Vendor, is an agent of Lessor.
Sales representatives or agents of Vendor, and persons that are not
employed by Lessor (including brokers and agents) are not authorized to
waive or alter any term or condition of this lease, and no representation
as to the Equipment or any other matter by Vendor or any other person that
is not employed by Lessor (including brokers and agents) shall in any way
affect Lessee's duty to pay the rent and perform its other obligations as
set forth in this lease.
8. TERM. The term of this lease shall be comprised of an Interim Term and a
Basic Term. The Interim Term shall commence on the date the Certificate of
Acceptance is executed by Lessee (the "Acceptance Date") and terminate on
the Rent Commencement Date. The Basic Term of the Lease shall begin on the
Rent Commencement Date, and shall terminate on the later of (i) the last
day of the last month of the Basic Term (as that Term is set forth in the
applicable Equipment Schedule hereto) or (ii) the date Lessee fulfills all
Lessee's obligations hereunder.
9. RENTAL. The rental amount payable to Lessor by Lessee for the Equipment
will be set forth in the Equipment Schedule(s) ("Rental Amount"). As the
first rent payment for the Equipment, Lessee shall pay Lessor in
immediately available funds on the Rent Commencement Date the sum of, (i)
the Rental Amount, and (ii) Interim Rent in an amount equal to 1/30th of
the Rental Amount times the number of days from and including the
Acceptance Date through but excluding the Rent Commencement Date, and
subsequent rent payments shall be due on the same day of each calendar
period as indicated on the Equipment Schedule for the balance of the Basic
Term. Rent payments shall be due whether or not Lessee has received any
notice that such payments are due. All rent payments shall be paid to
Lessor at its address set forth on the Equipment Schedule or as otherwise
directed by Lessor in writing.
10. RENEWAL. If no default shall have occurred and be continuing, Lessee shall
be entitled to renew the lease with respect to all, but not less than all,
of the Equipment covered by an Equipment Schedule for a minimum 12 month
period at an amount equal to the fair market rental value thereof, in use
and operational, in the condition required by the lease, payable on a
periodic basis, as mutually agreed by Lessor and Lessee ("Renewal Rent").
Lessee must give Lessor written notice of its intention to exercise said
option, which notice must be received by Lessor at least 120 days before
expiration of the Basic Term. The first installment of the Renewal Rent
shall be due at expiration of the Basic Term of the lease. Should Lessee
fail to comply with the provisions described above covering renewal, upon
expiration of the Basic Term, the term of the lease shall be automatically
extended for a term of 3 months. Thereafter, the term of the lease will be
extended for subsequent full month periods, on a month to month basis,
until Lessee has given at least 120 days written notice terminating the
lease. Such termination will take effect upon completion of all Lessee's
obligations under the lease (including payment of all periodic rental
payments due during such 120-day period, as provided in Paragraph 9 of the
lease). At any time after the expiration of the Basic Term, if the lease
has been automatically extended as set forth herein, Lessor reserves the
right to terminate the lease by 30 days written notice to Lessee.
11. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to and shall
not be removed without Lessor's prior written consent from the "Equipment
Location" shown on the related Equipment Schedule, or if none is specified,
Lessee's billing address shown on the Equipment Schedule. Lessor shall have
the right to inspect the Equipment at any reasonable time. If Lessor
supplies Lessee with labels stating that the Equipment is owned by Lessor,
Lessee shall affix such labels to and keep them in a prominent place on the
Equipment.
12. REPAIRS; USE; ALTERATIONS. Lessee, at its own cost and expense, shall keep
the Equipment in good repair and working order, in the same condition as
when delivered to Lessee, reasonable wear and tear excepted, and in
accordance with the manufacturer's recommended specifications; shall use
the Equipment lawfully; shall not alter the Equipment without Lessor's
prior written consent, shall use the Equipment in compliance with any
existing Manufacturer's service and warranty requirements and any insurance
policies applicable to the Equipment and shall furnish all parts and
servicing required therefor. All parts, repairs, additions, alterations and
attachments placed on or incorporated into the Equipment which cannot be
removed without damage to the Equipment shall immediately become part of
the Equipment and shall be the property of
3 of 10
<PAGE> 4
the Lessor. Lessee will obtain and maintain all permits, licenses and
registrations necessary to lawfully operate the facility where the
Equipment is located. Lessee shall comply with all applicable
environmental and industrial hygiene laws, rules and regulations
(including but not limited to federal, state, and local environmental
protection, occupational, health and safety or similar laws, ordinances
and restrictions). Lessee shall, not later than 5 days after the
occurrence, provide Lessor with copies of any report required to be
filed with governmental agencies regulating environmental claims.
Lessee shall immediately notify Lessor in writing of any existing,
pending or threatened investigation, inquiry, claim or action by any
governmental authority in connection with any law, rule or regulation
relating to industrial hygiene or environmental conditions that could
affect the Equipment.
13. MAINTENANCE. If the Equipment is such that Lessee is not normally
capable of maintaining it, Lessee, at its expense, shall enter into
and maintain in full force and effect throughout the Basic Term, and
any renewal term, vendor and/or Manufacturer's standard maintenance
contract, and shall comply with all its obligations thereunder. An
alternate source of maintenance may be used with Lessor's prior
written consent. Such consent shall be granted if, in Lessor's
reasonable opinion, the Equipment will be maintained in an equivalent
state of good repair, condition and working order.
14. SURRENDER. Provided that Lessee does not exercise the purchase option
as set forth in Paragraph 28 hereof, upon the expiration of the Basic
Term, or any renewal term, or upon demand by Lessor made pursuant to
Paragraph 22 of the lease, Lessee, at its expense, shall return all,
but not less than all of the Equipment by delivering it to such place
or on board such carrier, packed for shipping, as Lessor may specify.
Lessee agrees that the Equipment, when returned, shall be in the same
condition as when delivered to Lessee, reasonable wear and tear
excepted, and in a condition which will permit Lessor to be eligible
for Manufacturer's standard maintenance contract without incurring any
expense to repair or rehabilitate such Equipment. Lessee shall be
liable for reasonable and necessary expenses to place the Equipment in
such condition. Lessee shall remain liable for the condition of the
Equipment until it is received and accepted at the destination
designated by Lessor as set forth above. If any items of Equipment are
missing or damaged when returned, such occurrence shall be treated as
an event of Loss or Damage with respect to such missing or damaged
items and shall be subject to the terms specified in Paragraph 15
below. Lessee shall provide Lessor with a Letter of Maintainability
from the Manufacturer of the Equipment, which letter shall state that
the Equipment will be eligible for the Manufacturer's standard
maintenance contract when sold or leased to a third party. Lessee
shall give Lessor prior written notice that it is returning the
Equipment as provided above, and such notice must be received by
Lessor at least 120 days prior to such return. Should Lessee fail to
comply with the provisions described above covering surrender, upon
expiration of the Basic Term, the term of the lease shall be
automatically extended for a term of 3 months. Thereafter, the term of
the lease will be extended for subsequent full month periods, on a
month to month basis, until Lessee has given at least 120 days written
notice terminating the lease. Such termination will take effect upon
completion of all Lessee's obligations under the lease (including
payment of all periodic rental payments due during such 120-day
period, as provided in Paragraph 9 of the lease). At any time after
the expiration of the Basic Term, if the lease has been automatically
extended as set forth herein, Lessor reserves the right to terminate
the lease by 30 days written notice to Lessee.
15. LOSS OR DAMAGE. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to the Equipment or any item thereof (herein
"Loss or Damage") from any cause whatsoever. No Loss or Damage shall
relieve Lessee of the obligation to pay rent or of any other
obligation under this lease. In the event of Loss or Damage, Lessee,
at the option of Lessor, shall: (a) place the same in good condition
and repair, (b) replace the same with like equipment acceptable to
Lessor in good condition and repair with clear title thereto in
Lessor; or (c) pay to Lessor the total of the following amounts; (i)
the total rent and other amounts due and owing at the time of such
payment, plus (ii) an amount calculated by Lessor which is the present
value at 5% per annum simple interest discount of all rent and other
amounts payable by Lessee with respect to said item from date of such
payment to date of expiration of its Basic Term, plus (iii) the
"reversionary value" of the Equipment, which shall be determined by
Lessor as the total cost of the Equipment less 60% of the total rent
(net of sales/use taxes, if any) required to be paid pursuant to
Paragraph 9. Upon Lessors receipt of such payment, Lessee and/or
Lessee's insurer shall be entitled to Lessor's interest in said item,
for salvage purposes, in its then condition and location, "as-is",
without any warranty, express or implied.
16. INSURANCE. Lessee shall provide, maintain and pay for (a) all risk
property insurance against the loss or theft of or damage to the
Equipment, for the full replacement value thereof, naming Lessor as a
loss payee, and (b) commercial general liability insurance (and if
Lessee is a doctor, hospital or other health care provider, medical
malpractice insurance). All such policies shall name Lessor as an
additional insured and shall have combined single limits in amounts
acceptable to Lessor. All such insurance policies shall be endorsed to
be primary and non-contributory to any policies maintained by Lessor.
In addition Lessee shall cause Lessor to be named as an additional
insured on any excess or umbrella policies purchased by
4 of 10
<PAGE> 5
Lessee. A copy of each paid-up policy evidencing such insurance
(appropriately authenticated by the insurer) or a certificate of the
insurer providing such coverage proving that such policies have been
issued, providing the coverage required hereunder shall be delivered to
Lessor prior to the Rent Commencement Date. All insurance shall be
placed with companies satisfactory to Lessor and shall contain the
insurer's agreement to give 30 days written notice to Lessor before
cancellation or any material change of any policy of insurance.
17. TAXES. Lessee shall reimburse to Lessor (or pay directly if, but
only if, instructed by Lessor) all charges and taxes (local, state and
federal) which may now or hereafter be imposed or levied upon the sale,
purchase, ownership, leasing, possession or use of the Equipment;
excluding, however, all income taxes levied on (a) any rental payments
made to Lessor hereunder, (b) any payment made to Lessor in connection
with Loss or Damage to the Equipment under Paragraph 15 hereof, or (c)
any payment made to Lessor in connection with Lessee's exercise of its
purchase option under Paragraph 28 hereof.
18. LESSOR'S PAYMENT. If Lessee fails to provide or maintain said insurance,
to pay said taxes, charges and fees, or to discharge any levies, liens
and encumbrances created by Lessee, Lessor shall have the right, but
shall not be obligated, to obtain such insurance, pay such taxes,
charges and fees, or effect such discharge. In that event, Lessee shall
remit to Lessor the cost thereof with the next rent payment.
19. INDEMNITY
(a) General Indemnity. Lessee shall indemnify Lessor against and hold
Lessor harmless from any and all claims, actions, damages, costs,
expenses including reasonable attorneys' fees, obligations, liabilities
and liens (including any of the foregoing arising or imposed under the
doctrines of "strict liability" or "product liability" and including
without limitation the cost of any fines, remedial action, damage to the
environment and cleanup and the fees and costs of consultants and
experts), arising out of the manufacture, purchase, lease, ownership,
possession, operation, condition, return or use of the Equipment, or by
operation of law, excluding however, any of the foregoing resulting
from the gross negligence or willful misconduct of Lessor. Lessee agrees
that upon written notice by Lessor of the assertion of such a claim,
action, damage, obligation, liability or lien, Lessee shall assume full
responsibility for the defense thereof. Lessee's choice of counsel shall
be mutually acceptable to both Lessee and Lessor. This indemnity also
extends to any environmental claims arising out of or relating to prior
acts or omissions of any party whatsoever. The provisions of this
paragraph shall survive termination of this lease with respect to events
occurring prior to such termination.
(b) Tax Indemnity. Lessee acknowledges that Lessor shall be entitled to
all tax benefits of ownership with respect to the Equipment (the "Tax
Benefits"), including but not limited to, (i) the accelerated cost
recovery deductions determined in accordance with Section 168(b)(1) of
the Internal Revenue Code of 1986 for the Equipment based on the
original cost of the Equipment to Lessor (ii) deductions for interest on
any indebtedness incurred by Lessor to finance the Equipment and (iii)
sourcing of income and losses attributable to this lease to the United
States. Lessee represents that the Equipment shall be depreciable for
Federal tax purposes utilizing the MACRS Recovery Period as set forth in
the Equipment Schedule, with such depreciation commencing as of the date
of Equipment acceptance by Lessee as set forth on the Certificate of
Acceptance. Lessee agrees to take no action inconsistent with the
foregoing or any action which would result in the loss, disallowance or
unavailability to Lessor of all or any part of the Tax Benefits. Lessee
hereby indemnifies and holds harmless Lessor and its assigns from and
against (i) the loss, disallowance, unavailability or recapture of all
or any part of the Tax Benefits resulting from any action, statement,
misrepresentation or breach of warranty or covenant by Lessee of any
nature whatsoever including but not limited to the breach of any
representations, warranties or covenants contained in this paragraph,
plus (ii) all interest, penalties, fines or additions to tax resulting
from such loss, disallowance, unavailability or recapture, plus (iii)
all taxes required to be paid by Lessor or upon receipt of the indemnity
set forth, in this paragraph. Any payments made by Lessee to reimburse
Lessor for lost Tax Benefits shall be calculated (i) on the assumption
that Lessor is subject to the maximum Federal Corporate Income Tax with
respect to each year and that all Tax Benefits are currently utilized,
and (ii) without regard to whether Lessor or any members of a
consolidated group of which Lessor is also a member is then subject to
any increase in tax as a result of the loss of Tax Benefits. For the
purposes of this paragraph, "Lessor" includes for all tax purposes the
consolidated taxpayer group of which Lessor is a part.
(c) Payment. The amounts payable pursuant to this Paragraph 19 shall be
payable upon demand of Lessor, accompanied by a statement describing in
reasonable detail such claim, action, damage, cost, expense, fee,
obligation, liability, lien or tax and setting forth the computation of
the amount so payable, which computation shall be binding and conclusive
upon Lessee, absent manifest error. The indemnities and assumptions of
liabilities and obligations contained in this Paragraph 19 shall
continue in full force and effect notwithstanding the expiration or
other termination of this Lease.
5 of 10
<PAGE> 6
20. ASSIGNMENT. Without Lessor's prior written consent, Lessee shall not
assign, transfer, pledge, hypothecate or otherwise dispose of this lease,
the Equipment, or any interest therein. Without Lessor's prior written
consent, Lessee shall not sublet or lend the Equipment or permit it to be
used by anyone other than Lessee or Lessee's employees. Lessor may assign
this lease in whole or in part without notice to Lessee. If Lessee is given
notice of such assignment it agrees to acknowledge receipt thereof in
writing. Each such assignee shall have all of the rights, but none of the
obligations, of Lessor under this lease. Lessee shall not assert against
assignee any defense, counterclaim or offset that Lessee may have against
Lessor. Notwithstanding any such assignment, Lessor warrants that Lessee
shall quietly enjoy use of the Equipment subject to the terms and
conditions of this lease so long as Lessee is not in default hereunder.
Subject to the foregoing, this lease inures to the benefit of and is
binding upon the successors and assigns of the parties hereto.
21. DEFAULT; REMEDIES. Any of the following shall constitute an Event of
Default: If (a) Lessee fails to pay when due any rent or other amount
required herein to be paid by Lessee, or (b) Lessee makes an assignment for
the benefit of creditors, whether voluntary or involuntary, or (c) a
petition is filed by or against Lessee under any bankruptcy, insolvency or
similar legislation, or (d) Lessee violates or fails to perform any
provision of either this lease or any Acquisition Agreement, or violates or
fails to perform any covenant or representation made by Lessee herein, or
(e) Lessee makes a bulk transfer of furniture, furnishings, fixtures or
other equipment or inventory, or (f) Lessee ceases doing business as a
going concern or terminates its existence, or (g) Lessee consolidates with,
merges with or into, or conveys or leases all or substantially all of its
assets as an entirety to any person or engages in any other form of
reorganization, or there is a change in the legal structure of Lessee, in
each case which results, in the opinion of Lessor, in a material adverse
change in Lessee's ability to perform its obligations under this lease, or
(h) any representation or warranty made by Lessee in this lease or in any
other document or agreement furnished by Lessee to Lessor shall prove to
have been false or misleading in any material respect when made or when
deemed to have been made, or (i) Lessee shall be in default under any
material obligation for the payment of borrowed money or the deferred
purchase price of, or for the payment of any rent due with respect to, any
real or personal property, or (j) Lessee shall be in default under any
other agreement now existing or hereafter made with Lessor or any of
Lessor's affiliates, or (k) any event or condition described in the
foregoing clauses (b), (c), (e), (f), (g), (h) (in clauses (g) and (h)
substituting the phrase "guaranty or other credit support document" for the
word "lease"), (i) or (j) shall have occurred with respect to any guarantor
of, or other party liable in whole or in part for, Lessee's obligations
hereunder, or such guarantor or other party shall have defaulted in the
observance or performance of any covenant, condition or agreement to be
observed or performed by it under the guaranty or other credit support
document pursuant to which it is liable for Lessee's obligations hereunder,
or such guaranty or other credit support document shall have been revoked
or terminated or shall have otherwise ceased, for any reason, to be in full
force and effect. An Event of Default with respect to any Equipment
Schedule shall constitute an Event of Default for all Equipment Schedules.
Lessee shall promptly notify Lessor of the occurrence of any Event of
Default.
If an Event of Default occurs, Lessor shall have the right to exercise any one
or more of the following remedies in order to protect the interests and
reasonably expected profits and bargains of Lessor: (a) Lessor may
terminate this lease with respect to all or any part of the Equipment, (b)
Lessor may recover from Lessee all rent and other amounts then due and as
they shall thereafter become due hereunder, (c) Lessor may take possession
of any or all items of Equipment wherever the same may be located, without
demand or notice, without any court order or other process of law and
without liability to Lessee for any damages occasioned by such taking of
possession, and any such taking of possession shall not constitute a
termination of this lease, (d) Lessor may recover from Lessee, with respect
to any and all items of Equipment, and with or without repossessing the
Equipment the sum of (1) the total amount due and owing to Lessor at the
time of such default, plus (2) an amount calculated by Lessor which is the
present value at 5% per annum simple interest discount of all rent and
other amounts payable by Lessee with respect to said item(s) from date of
such payment to date of expiration of its Basic Term, plus (3) the
"reversionary value" of the Equipment, which shall be determined by Lessor
as the total cost of the Equipment less 60% of the total rent (net of
sales/use taxes, if any) required to be paid pursuant to Paragraph 9, and
which the parties agree is a reasonable estimate of such value; and upon
the payment of all amounts described in clauses (1), (2) and (3) above,
Lessee will become entitled to the Equipment AS IS, WHERE IS, without
warranty whatsoever provided however, that if Lessor has repossessed or
accepted the surrender of the Equipment, Lessor shall sell, lease or
otherwise dispose of the Equipment in a commercially reasonable manner,
with or without notice and on public or private bid, and apply the net
proceeds thereof (after deducting all expenses, including attorneys' fees
incurred in connection therewith), to the sum of (1), (2) and (3) above,
and (e) Lessor may pursue any other remedy available at law or in equity,
including but not limited to seeking damages or specific performance and/or
obtaining an injunction.
No right or remedy herein conferred upon or reserved to Lessor is exclusive
of any right or remedy herein or by law or equity provided or permitted;
but each shall be cumulative of every other right or remedy given hereunder
or now or hereafter
6 of 10
<PAGE> 7
existing at law or in equity or by statute or otherwise, and may be
enforced concurrently therewith or from time to time, but Lessor shall not
be entitled to recover a greater amount in damages than Lessor could have
gained by receipt of Lessee's full, timely and complete performance of its
obligations pursuant to the terms of this lease plus accrued delinquent
payments under Paragraph 22.
22. DELINQUENT PAYMENTS.
(a) Service Charge. Since it would be impractical or extremely difficult
to fix Lessor's actual damages for collecting and accounting for a late
payment, if any payment to Lessor required herein (including, but not
limited to, rental, renewal, tax, purchase and other amounts) is not paid
on or before its due date, Lessee shall pay to Lessor an amount equal to 5%
of any such late payment.
(b) Interest. Lessee shall also pay interest on any such late payment from
the due date thereof until the date at the lesser of 18% per annum or the
maximum rate allowed by law.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses, including
attorneys' fees and the fees of collection agencies, incurred by Lessor in
enforcing any of the terms, conditions, or provisions hereof or in
protecting Lessor's rights herein. Lessee's obligation hereunder includes
all such costs and expenses expended by Lessor (a) prior to filing of an
action, (b) in connection with an action which is dismissed, and (c) in the
enforcement of any judgment. Lessee's obligation to pay Lessor's attorneys'
fees incurred in enforcing any judgment is a separate obligation of Lessee,
severable from Lessee's other obligations hereunder, which obligation will
survive such judgment and will not be deemed to have been merged into such
judgment.
24. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall at all times remain the
property of Lessor and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this lease and the
Equipment shall at all times be and remain personal property
notwithstanding that the Equipment or any part thereof may now be, or
hereafter become, in any manner, affixed or attached to real property or
any improvements thereon.
25. NOTICES. Service of all notices under this lease shall be sufficient if
given personally or mailed to the respective party at its address set forth
on any Equipment Schedule, or at such address as either party may provide
in writing from time to time. Any such notice mailed to said address shall
be effective when deposited in the United States mail, duly addressed and
with postage prepaid.
26. ACQUISITION AGREEMENTS. If the Equipment is subject to any Acquisition
Agreement, Lessee, as part of this lease, transfers and assigns to Lessor
all of its rights, but none of its obligations (except for Lessee's
obligation to pay for the Equipment conditioned upon Lessee's acceptance in
accordance with Paragraph 3), in and to the Acquisition Agreement,
including but not limited to the right to take title to the Equipment.
Lessee shall indemnify and hold Lessor harmless in accordance with
Paragraph 19 from any liability resulting from any Acquisition Agreement as
well as liabilities resulting from any Acquisition Agreement Lessor is
required to enter into on behalf of Lessee or with Lessee for purposes of
this lease.
27. UPGRADES. Any existing lease between Lessor and Lessee subject to an
"upgrade" program shall continue in full force and effect and shall be kept
free of default by Lessee (even if the Equipment covered by the existing
lease is sold, traded-in, etc.) until any such existing lease is cancelled
by Lessor when, if applicable, the new Equipment is accepted by Lessee for
all purposes of this lease.
28. PURCHASE OPTION. If no default shall have occurred and be continuing,
Lessee shall be entitled, at its option upon written notice to Lessor,
which notice must be received by Lessor at least 120 days prior to the end
of either the Basic Term or any renewal term of any Equipment Schedule, to
purchase all, but not less than all, of the Equipment covered by such
Equipment Schedule from Lessor at the end of the Basic Term or any renewal
term for such Equipment Schedule at a purchase price equal to the then fair
market value of the Equipment in use and operational, in the condition
required by the lease, as mutually agreed by Lessor and Lessee. On a date
which is no later than the expiration date of the Basic Term or any renewal
term, as applicable, Lessee shall pay to Lessor the purchase price for the
Equipment covered by such Equipment Schedule (plus any taxes levied
thereon) and Lessor shall sell the Equipment "as-is where-is" without any
warranties express or implied.
29. RELATED EQUIPMENT SCHEDULES. In the event that any Equipment Schedule
hereunder shall include Equipment that may become attached to, affixed to,
or used in connection with Equipment covered under another Equipment
Schedule
7 of 10
<PAGE> 8
hereunder ("Related Equipment Schedule"), Lessee acknowledges the following:
(a) if Lessee elects to exercise a purchase option or renewal option under
any Equipment Schedule, if provided; or (b) if Lessee elects to return the
Equipment under any Equipment Schedule as described in Paragraph 14, then
Lessor, at its discretion, may require the similar disposition of all
Related Equipment Schedules as provided for by this lease.
30. MISCELLANEOUS. This instrument and any Approval Letter or Commitment Letter
issued by Lessor and any Equipment Schedule hereunder constitutes the entire
agreement between Lessor and Lessee, and shall not be amended, altered or
changed except by a written agreement signed by the parties hereto, and in
the case of Lessor, such agreement shall not be valid unless executed by
Lessor at Lessor's home office. Lessee agrees and acknowledges that it is
the intent of both parties to this Lease that the Lease is a statutory
finance lease under Article 10 of the California Uniform Commercial Code.
Lessee acknowledges and agrees that the Lessee has selected both: (1) the
Equipment; and (2) the supplier from whom the Lessor is to purchase the
Equipment. Lessee acknowledges that the Lessor has not participated in any
way in the selection of the Equipment of the supplier, and Lessor has not
selected, manufactured, or supplied the Equipment. Lessee further
acknowledges and agrees that Lessor has acquired the Equipment in connection
with entering into the Lease with Lessee, that Lessee has received a copy of
the Supply Contract before entering into the Lease, and that each of the
conditions set forth in California Commercial Code, Section
10103(a)(7)(I)-(iv) has taken place and occurred and that for all purposes,
Lessor is a statutory finance Lessor. To the extent any provision of this
lease may be determined to be invalid or unenforceable, it shall be
ineffective without affecting the other provisions of this lease. To the
extent permitted by applicable law, Lessee hereby waives any provisions of
law which render any provision of this lease unenforceable in any respect.
Unless specified otherwise, in the event such written agreement is attached
to and made a part of an Equipment Schedule, the terms and conditions of
said written agreement shall apply only to said Equipment Schedule and shall
not apply to any other Equipment Schedule made a part of this lease. In the
event Lessee issues a purchase order to Lessor covering Equipment to be
leased hereunder, it is agreed that such purchase order is issued for
purposes of authorization and Lessee's internal use only, and none of its
terms and conditions shall modify the terms and conditions of this lease
and/or related documentation, or affect Lessor's responsibility to Lessee as
defined in this lease. An executed Equipment Schedule that incorporates by
reference the terms of this Master Lease Agreement, marked "Original," shall
be the original of the lease for the Equipment described therein for all
purposes. All other executed counterparts of the lease shall be marked
"Duplicate." To the extent the lease constitutes chattel paper, as such term
is defined in the Uniform Commercial Code of the applicable jurisdiction, no
security interest in the lease may be created through the transfer of
possession of any counterpart other than the Original of the lease. Lessor
reserves the right to charge Lessee fees for its provision of additional
administrative services related to the lease requested by Lessee. Lessee
shall provide Lessor with such corporate resolutions, opinions of counsel,
financial statements, and other documents (including documents for filing or
recording) as Lessor may request from time to time. LESSEE HEREBY APPOINTS
LESSOR OR ITS ASSIGNEE ITS TRUE AND LAWFUL ATTORNEY IN FACT TO EXECUTE ON
BEHALF OF LESSEE ALL UNIFORM COMMERCIAL CODE FINANCING STATEMENTS OR OTHER
DOCUMENTS WHICH, IN LESSOR'S DETERMINATION, ARE NECESSARY TO SECURE LESSOR'S
INTEREST IN SAID EQUIPMENT. The filing of UCC Financing Statements is
precautionary and shall not be evidence that the lease is intended as
security. If for any reason this agreement is determined not to be a lease,
Lessee hereby grants Lessor a security interest in the lease, the Equipment
or collateral pertaining thereto and the proceeds thereof, including
re-lease, sale or disposition of the Equipment or other collateral. If more
than one Lessee is named in this lease, the liability of each shall be joint
and several. Time is of the essence with respect to this lease. Lessee
represents and warrants that the Equipment is being leased hereunder for
business purposes. The descriptive headings which are used in this lease are
for convenience of the parties only and shall not affect the meaning of any
provision of the lease. Any failure of the Lessor to require strict
performance by the Lessee or any waiver by Lessor of any provision herein
shall not be construed as a consent or waiver of any other breach of the
same or of any other provision. This agreement shall be governed by the laws
of the state of California (without giving effect to principles of conflicts
of law thereof).
31. LESSEE'S REPRESENTATIONS; WAIVER OF JURY TRIAL. Lessee represents and
warrants, as of the date of this lease; (a) Lessee is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization, and is duly qualified to do business wherever
necessary to carry on its present business and operations and to own its
property; (b) this lease (and any Equipment Schedule entered into pursuant
to this lease) has been duly authorized by all necessary action on the part
of Lessee, duly executed and delivered by authorized officers or agents of
Lessee, does not require any further shareholder or partner approval, does
not require the approval of, or the giving notice to, any federal, state,
local or foreign governmental authority, does not contravene any law binding
on Lessee or contravene any certificate or articles of incorporation or
by-laws or partnership certificate or agreement, or any agreement, indenture
or other instruments to which Lessee is a party or by which it or any of its
assets or property may be bound; (c) this lease (and any Equipment Schedule
entered into pursuant to this lease) constitutes the legal, valid and
binding obligation of Lessee and is enforceable in
8 of 10
<PAGE> 9
accordance with its terms; (d) all credit and financial information, and
all other information submitted to Lessor at any time is true and correct,
and there does not exist any pending or threatened action or proceeding
before any court or administrative agency which might materially adversely
affect Lessee's financial condition or operations; (e) Lessee agrees to
furnish to Lessor (i) as soon as available, and in any event within 120
days after the last day of each fiscal year of Lessee, a copy of the
financial statements of Lessee as of the end of such fiscal year, certified
by an independent certified public accounting firm; (ii) as soon as
available, and in any event within 60 days after the last day of each
quarter of Lessee's fiscal year, a copy of quarterly financial statements
certified by the principal financial officer of Lessee; and (iii) such
additional information concerning Lessee as Lessor may reasonably request.
LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS
ARISING OUT OF THIS LEASE OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
32. GOOD FAITH DEPOSIT REQUIREMENT. Lessee agrees, with respect to each
transaction, to pay the Good Faith Deposit specified in Lessor's proposal
for such transaction or in the Equipment Schedule related thereto. This
Good Faith Deposit is given in consideration for Lessor's costs and
expenses in investigating and appraising and/or establishing credit for
Lessee. This Good Faith Deposit shall not be refunded unless Lessor
declines to accept Lessee's offer to enter into the lease. Upon Lessor's
acceptance of Lessee's offer to enter into the lease, unless otherwise
specified in the proposal or Equipment Schedule, the amount shall be
applied to the first period's rent payment. Lessee acknowledges that
Lessor's act of depositing any Good Faith Deposit into Lessor's bank
account shall not in itself constitute Lessor's acceptance of Lessee's
offer to enter into the lease.
IN WITNESS WHEREOF, the parties have executed this Master Lease Agreement
effective as of the first date it is executed by Lessee below.
- -------------------------------------------------------------------------------
Lessor: Bankers Commercial Corporation By _______________________________
Address: 445 South Figueroa Street
Los Angeles, CA 90071 Title ____________________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Lessee:
Acme Television, L.L.C. By /s/ [Illegible Signature]
_______________________________
Title EXEC. V.P./CFO
____________________________
- --------------------------------------------------------------------------------
Co-Lessees:
Acme Television of New Mexico, L.L.C. By /s/ [Illegible Signature]
_______________________________
Title EXEC. V.P./CFO
____________________________
Acme Television of Missouri, Inc. By /s/ [Illegible Signature]
_______________________________
Title EXEC. V.P./CFO
____________________________
Acme Television of Utah, L.L.C. By /s/ [Illegible Signature]
_______________________________
Title EXEC. V.P./CFO
____________________________
Acme Television of Tennessee, L.L.C. By /s/ [Illegible Signature]
_______________________________
Title EXEC. V.P./CFO
____________________________
9 of 10
<PAGE> 10
Acme Television of Florida, L.L.C. By /s/ Illegible
------------------------
Title Exec. V.P./CFO
---------------------
Acme Television of Oregon, L.L.C. By /s/ Illegible
------------------------
Title Exec. V.P./CFO
---------------------
Acme Television of Wisconsin, L.L.C. By /s/ Illegible
------------------------
Title Exec. V.P./CFO
---------------------
Acme Television of Ohio, L.L.C. By /s/ Illegible
------------------------
Title Exec. V.P./CFO
---------------------
Acme Television of Illinois, L.L.C. By /s/ Illegible
------------------------
Title Exec. V.P./CFO
---------------------
10 of 10
<PAGE> 11
AMENDMENT NO. 1
TO
MASTER LEASE AGREEMENT ("LEASE")
BETWEEN
ACME TELEVISION, L.L.C. ("LESSEE") TO INCLUDE THE ("CO-LESSEES") LISTED ON
EXHIBIT G,
AND
BANKERS COMMERCIAL CORPORATION ("LESSOR")
DATED AS OF 10/25/99
This Amendment No. 1 to Master Lease Agreement, dated as of 10/25/99,
amends the Master Lease Agreement between ("Lessee(s)") and ("Lessor") dated as
of 10/25/99 (the "Lease") in the following respects:
Amendment 1 to Master Lease
Event of Default shall be defined to include a sale, assignment or transfer, at
any time during the base or any renewal term of this Master Lease, of
i.) any FCC license to broadcast station KPLR in the St. Louis, MO,
broadcast area;
ii.) any assets material to the operation of station KPLR in St. Louis,
other than assets specifically replaced by upgraded or superior
assets placed in service and performing a redundant function or
functions prior to such sale or transfer, such replacement to have a
beneficial or not less than sustaining effect upon the operations of
KPLR;
iii.) any FCC license to broadcast a station named as co-lessee pursuant to
this Master Lease;
without prior written consent of the Lessor.
IN WITNESS WHEREOF, the parties have had their duly authorized signatories
execute this Amendment No. 1 to the Master Lease Agreement as of the date
written above.
<TABLE>
<S> <C>
Bankers Commercial Corporation (LESSOR) LESSEE SIGNATURE TITLE
BY BY
X X /s/ illegible Exec. V.P./CFO
- ------------------------------------------------ ------------------------------------------------
TITLE BUSINESS UNIT BY
X X
- ------------------------------------------------ ------------------------------------------------
HOME OFFICE: 445 South Figueroa Street CO-LESSEE SIGNATURE TITLE
Los Angeles, CA 90071 BY
Not valid unless executed by Lessor at Lessor's X See Exhibit G /s/ illegible Exec. V.P./CFO
home office ------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.78
SECOND AMENDMENT
This Second Amendment (this "Second Amendment"), made as of the 1st day
of November, 1999, is between Ramar Communications II, Ltd., a Texas limited
partnership ("Seller"), ACME Television of New Mexico, LLC, a Delaware limited
liability company ("ATNM"), and ACME Television Licenses of New Mexico, LLC, a
Delaware limited liability company ("ATLNM") (ATNM and ATLNM shall be
collectively referred to herein as "Buyer").
Seller and Buyer have entered into an Asset Purchase Agreement dated as
of February 19, 1999, as amended pursuant to an Amendment dated July 30, 1999
(the "First Amendment"), relating to the purchase and sale of Station KASY-TV,
Albuquerque, New Mexico (the "Purchase Agreement").
The Purchase Agreement provides that the Closing of the transaction
shall take place on October 31, 1999, unless Buyer, subject to Sections 2.2(c),
10.5(b) and 19.2 of the Purchase Agreement, elects to postpone Closing to a date
prior to February 1, 2000. Buyer and Seller have agreed to modify the terms and
conditions of the Purchase Agreement with respect to Closing and other matters
as set forth in this Second Amendment.
Accordingly, in view of the foregoing and the mutual promises and
covenants contained herein, Seller and Buyer hereby enter into this Second
Amendment to the Purchase Agreement.
1. Defined Terms. Unless otherwise defined, capitalized terms used
herein shall have the same meanings as set forth in the Purchase Agreement.
2. Closing. Section 1.1 of the Purchase Agreement shall be replaced in
its entirety with the following provision:
1.1. CLOSING. Except as otherwise mutually agreed upon by Seller
and Buyer, and subject to the satisfaction or waiver of the
conditions specified in Articles 11 and 12 of this Agreement
(except as otherwise expressly provided herein), the closing
of this transaction (the "Closing") shall take place on or
before December 3, 1999 on a
<PAGE> 2
2
date selected by Buyer with three business days' prior written
notice to Seller. The Closing shall be held at 10:00 a.m. in
the offices of Leventhal, Senter & Lerman P.L.L.C., 2000 K
Street, N.W., Suite 600, Washington, D.C., or at such place as
the parties may otherwise agree.
3. Purchase Price. Section 2.1 of the Purchase Agreement shall be
replaced in its entirety with the following provision:
2.1. PURCHASE PRICE. The total consideration to be paid by Buyer
for the Station Assets (the "Purchase Price") shall be
Twenty-Seven Million Sixty-Five Thousand Dollars
($27,065,000), plus all interest earned on the Additional
Escrow Deposit, as defined in Section 2.2(a)(2) below.
4. Payment of Purchase Price. Section 2.2 of the Purchase Agreement
shall be replaced in its entirety with the following provision:
2.2. PAYMENT OF PURCHASE PRICE. The Purchase Price will be payable
as follows:
(a) (1) No later than March 1, 1999, Buyer shall deposit the
amount of Five Hundred Thousand Dollars ($500,000) (the
"Escrow Deposit") with Escrow Agent to be held pursuant to the
terms and conditions of the Escrow Agreement (in the form of
Exhibit A), together with all interest earned thereon;
provided, however, that this Agreement shall terminate without
any further liability or obligation on the part of any party
hereto if the Escrow Agreement is not executed by the parties
thereto by close of business on March 1, 1999 or Buyer does
not deposit the Escrow Deposit with Escrow Agent by close of
business, March 1, 1999. At the Closing, the Escrow Deposit
shall be paid by Escrow Agent to Seller, and all interest
earned thereon shall be paid by Escrow Agent to Buyer.
<PAGE> 3
3
(2) On November 1, 1999, Buyer shall deposit the amount of
Eleven Million Eight Hundred Seventy Five Thousand
($11,875,000) (the "Additional Escrow Deposit") with Escrow
Agent to be held pursuant to the terms and conditions of the
Escrow Agreement, together with all interest earned thereon.
At the Closing, the Additional Escrow Deposit, and all
interest earned thereon shall be paid by Escrow Agent to
Seller.
(b) Buyer will pay Seller Nine Hundred and Ninety Thousand
Dollars ($990,000) on or before August 10, 1999 (the "Purchase
Price Deposit").
(c) Buyer will pay Seller Twelve Million Dollars ($12,000,000)
by wire transfer of immediately-available funds on November 1,
1999 (the "Further Purchase Price Deposit").
(d) On November 1, 1999, Buyer shall pay One Million Seven
Hundred Thousand Dollars ($1,700,000) to Lee Enterprises, Inc.
("Lee") to satisfy Buyer's obligation to pay the One Million
Seven Hundred Thousand Dollars ($1,700,000) liquidated damages
(the "Lee TBA Liquidated Damages"). Any Lee TBA Liquidated
Damages owing to Lee in excess of $1,700,000 shall be paid to
Lee by Buyer when due.
(3) Notwithstanding anything to the contrary in this section,
the parties agree to amend this section as necessary to
reflect any subsequent agreement they may mutually reach with
each other and Lee which relates to the Lee TBA Liquidated
Damages.
5. Covenants with Respect to Agreements with Lee. Section 10.5(b) of
the Purchase Agreement shall be replaced in its entirety with the following
provision:
(b) On August 13, 1999, Seller shall provide notice to Lee of
its intention to terminate the Lee TBA pursuant to Section 4.3
thereof; provided however, that notwithstanding anything to
the contrary contained herein, if this Agreement is terminated
at any time after July 30, 1999 for any reason other than
Seller's material uncured breach hereof or Seller's voluntary
election pursuant to Section 17.1(a)(iv) hereof, Buyer shall
be responsible for paying the full
<PAGE> 4
4
amount of the Lee TBA Liquidated Damages. Buyer agrees to
fulfill this obligation by paying Lee One Million Seven
Hundred Thousand Dollars ($1,700,000) on November 1, 1999 as
set forth in Section 2.2(d) hereof, and, in addition, by
paying directly to Lee when due any Lee TBA Liquidated Damages
in excess of $1,700,000.
6. Conditions Precedent to Buyer's and Seller's Obligation to Close.
The first two sentences of Sections 11.8 and 12.5 shall be replaced in their
entirety with the following sentences:
Subject to Buyer's right to terminate the KWBQ-TV Agreement
pursuant to Section 17.1(e) of the KWBQ-TV Agreement, the FCC
shall have granted its consent to the assignment of the FCC
authorizations for Station KWBQ-TV, Santa Fe, New Mexico, from
Buyer to Seller and such consent shall have become a Final
Order. Unless Buyer exercises its right to terminate the
KWBQ-TV Agreement pursuant to Section 17.1(e) of the KWBQ-TV
Agreement, the parties shall consummate the KWBQ-TV Agreement
and commence the term of the Local Marketing Agreement
executed by Seller and ACME Television of New Mexico, LLC on
July 30, 1999.
The final sentences of Sections 11.8 and 12.5 are hereby deleted.
7. Documents to be Delivered at Closing. Section 13.1 shall be modified
to eliminate items 13.1(c), (d) and, subject to Buyer's right to terminate the
KWBQ-TV Agreement pursuant to Section 17.1(e) of the KWBQ-TV Agreement, (f).
Section 13.2 shall be modified to eliminate items 13.2 (g), (h) and, subject to
Buyer's right to terminate the KWBQ-TV Agreement pursuant to Section 17.1(e) of
the KWBQ-TV Agreement, (f).
8. Termination Rights. Section 17.1(a)(v) of the Purchase Agreement
shall be replaced in its entirety with the following provision:
(v) Subject to Article 19 hereof, this Agreement may be terminated by
either Seller or Buyer if the Closing shall not have been consummated
on or before December 3, 1999; provided, that the party terminating the
<PAGE> 5
5
Agreement is not then in material breach of its obligations under
this Agreement.
9. Remedies. The following sentence shall be added at the end of
Section 19.1 of the Purchase Agreement.
Notwithstanding anything to the contrary herein, if the transactions
contemplated by this Agreement are not consummated solely because of
Seller's material uncured breach of its obligations under this
Agreement, Seller shall immediately refund to Buyer the Purchase Price
Deposit and the Further Purchase Price Deposit along with interest
calculated from the date of the Seller's receipt of those funds through
and including the date of their return to Buyer, with such interest to
be calculated at the rate of 6% per annum, provided that any such
refund shall not relieve Buyer of its obligation to pay to Seller the
full Purchase Price at any consummation of the transactions
contemplated hereunder.
Section 19.2 of the Purchase Agreement shall be replaced in its
entirety with the following provision:
19.2. FAILURE OF CONSUMMATION. Notwithstanding anything to the contrary
herein, if the transactions contemplated by this Agreement are not
consummated for any reason other than Seller's material uncured breach
of its obligations under this Agreement, Seller shall be entitled to,
in addition to Buyer's fulfillment of Buyer's obligation to pay Lee One
Million Seven Hundred Thousand Dollars ($1,700,000) and to pay any Lee
TBA Liquidated Damages in excess of $1,700,000 pursuant to Section
10.5(b) hereof: (i) receive payment of the Escrow Deposit paid into
escrow under Section 2.2(a)(1) of this Agreement, (ii) retain the
Purchase Price Deposit paid to Seller under Section 2.2(b) of this
Agreement, and (iii) retain the Further Purchase Price Deposit paid to
Seller under Section 2.2(c) of this Agreement, and Buyer shall be
entitled to a return of the Additional Escrow Deposit paid into Escrow
under Section 2.2(a)(2) of this Agreement along with interest earned
thereon and on the Escrow Deposit. Seller and Buyer hereby agree that
Seller's retention of the funds denoted in items (ii) and (iii) in the
preceding sentence, Seller's receipt of the Escrow Deposit, and the
fulfillment of Buyer's obligation to pay the Lee TBA Liquidated
<PAGE> 6
6
Damages pursuant to Section 10.5(b) shall be Seller's exclusive remedy
hereunder and in lieu of any and all other damages, including without
limitation all consequential, incidental and punitive damages, and
Seller hereby waives and shall have no further recourse against Buyer
or any of its affiliates, partners, shareholders, officers, directors,
representatives or agents under or in connection with this Agreement.
10. Amendment to Escrow Agreement. The parties agree to execute an
amendment to the Escrow Agreement to account for the changes herein and other
changes agreed to by the parties. The parties agree to give joint instructions
to the Escrow Agent to fulfill the purposes of this Agreement.
11. Effect of Second Amendment. Except as specifically modified by this
Second Amendment, all of the terms and conditions of the Purchase Agreement
continue in full force and effect and are hereby ratified and affirmed. To the
extent that any provision of this Second Amendment is inconsistent with or
conflicts with the provisions of the Purchase Agreement, the KWBQ-TV Purchase
Agreement or the Escrow Agreement dated as of March 1, 1999 by and among Seller,
ATNM and First Union National Bank, as amended, or any exhibits to any of the
foregoing documents, the provisions of this Second Amendment shall control and
such agreements shall be modified accordingly.
12. Distribution of funds. By executing this Second Amendment, each of
the parties agrees to the distribution of funds set forth in the Flow of Funds
Memorandum which is Schedule A hereto and agrees that, subject to Article 5 of
the Purchase Agreement, that such distribution reflects all the payments to be
made by and among the parties on or before Closing.
13. Counterparts. This Amendment may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
[signatures on following page]
<PAGE> 7
7
RAMAR COMMUNICATIONS II, LTD.
By: GP Ramar, LLC, its General Partner
By: Ramar Communications, Inc., Sole Member
By: /s/ Brad Moran
--------------------------------------------
Brad Moran, President
ACME TELEVISION LICENSES OF
NEW MEXICO, LLC
By: /s/ Tom Allen
--------------------------------------------
Tom Allen, Executive Vice-President
ACME TELEVISION OF NEW MEXICO, LLC
By: /s/ Tom Allen
--------------------------------------------
Tom Allen, Executive Vice-President
<PAGE> 8
SCHEDULE A
FLOW OF FUNDS MEMORANDUM FOR KWBQ/KASY TRANSACTION
(REVISED 11/1/99)
KASY PURCHASE PRICE: $ 27,065,000.00
KWBQ PURCHASE PRICE: $ 1,000.00
KASY PURCHASE PRICE
ACME Payment to Ramar on 8/10/99 $ 990,000.00
Escrow Deposit Held by First Union National Bank $ 500,000.00
ACME Deposit into First Union National Bank
Escrow Account (for Additional Escrow Deposit) on 11/1/99 $ 11,875,000.00
ACME Payment to Lee
(relating to KASY/Lee TBA Termination) on 11/1/99 $ 1,700,000.00
ACME Payment to Ramar on 11/1/99 $ 12,000,000.00
---------------
Total: $ 27,065,000.00
===============
KWBQ PURCHASE PRICE
Ramar Payment of KWBQ Purchase Price on 12/3/99 $ 1,000.00
===============
PAYMENT TO BROKER
ACME Payment to David Woods, as Broker, on11/1/99: $ 250,000.00
===============
<PAGE> 1
EXHIBIT 10.79
TOWER SPACE AND SITE LEASE AGREEMENT
This Tower Space and Site Lease Agreement is made and entered into
this 1st day of November, 1999 by and between Lee Enterprises, Incorporated
("Lee"), Sandia Television Corporation ("Sandia Corp.") and ACME Television of
New Mexico, LLC ("ACME").
W I T N E S S E T H
WHEREAS, Lee, Sandia Corp. and Ramar Communications, Inc. ("Ramar")
entered into a Transmitter Building Lease Agreement dated December 12, 1994
(the "Transmitter Building Lease") allowing for the use and rental by Ramar of
a transmitter building located on Sandia Crest, Bernalillo County, N.M.
("Sandia Crest"); and
WHEREAS, Lee and Ramar entered into a Tower Lease Agreement dated
December 12, 1994 (the "Tower Lease") allowing for the transmission of
television station KASY-TV (Channel 50) from Lee's tower located on Sandia
Crest; and
WHEREAS, Lee and Ramar entered into an Equipment Lease Agreement dated
December 12, 1994 (the "Equipment Lease") allowing for the use and rental of
certain television equipment, including a transmitter and other broadcast
equipment; and
WHEREAS, ACME has entered into an agreement (the "KASY Purchase
Agreement) to purchase from Ramar, television station KASY-TV (Channel 50) and
all necessary permits and licenses necessary to transmit its signal and the
consummation of that transaction (the "Closing") is expected to occur on or
before December 3, 1999; and
WHEREAS, ACME desires to receive an assignment from Ramar of the
Transmitter Building Lease, the Tower Lease and the Equipment Lease, but only
as it pertains to certain transmission equipment; and
WHEREAS, Sandia Corp. and Lee are agreeable to such assignments under
the terms and conditions set forth in this Agreement.
NOW; THEREFORE, for good and valuable consideration, the parties agree
as follows:
1. Tower Lease: Lee hereby accepts the assignment of the Tower Lease
from Ramar to ACME effective as of the earlier of the Closing of the KASY
Purchase Agreement or December 3, 1999. Pursuant to Section 4(b) of the Tower
Lease, the parties agree, however, that the monthly rental amount shall equal
$2,232 as of November 1, 1999. The rent amount shall be adjusted annually to
match the "current market value" as defined in Section 4(b) of the Tower lease.
2. Transmitter Building Lease: Sandia Corp. and Lee hereby accept the
assignment of the Transmitter Building Lease from Ramar to ACME effective as of
the earlier of the Closing of the KASY Purchase Agreement or December 3, 1999.
ACME agrees to abide
<PAGE> 2
by the terms of the Transmitter Building Lease and to assume and fulfill
Ramar's obligations thereunder. The rental amount shall be determined pursuant
to Section 4(b) of the Transmitter Building Lease. That amount is estimated at
$3,063.87 per month effective November 1, 1999.
3. Equipment Lease: Lee hereby accepts the assignment of the Equipment
Lease from Ramar to ACME effective on the earlier of the Closing or December 3,
1999 until September 30, 2000. ACME may extend the Equipment Lease for an
additional one year period by providing Lee with at least 60 days prior written
notice before the end of the original lease term.
a. The monthly rental amount will equal $3,000 effective
November 1, 1999.
b. Only the Transmitter Equipment, as defined in Exhibit A of
the Equipment Lease, shall be subject to this assignment. The
Studio Equipment, as defined in Exhibit A of the Equipment
Lease, shall not be included in the Equipment Lease and shall
revert to Lee on or prior to December 3, 1999.
c. ACME agrees to abide by the terms of the Equipment Lease and
to assume and fulfill Ramar's obligations thereunder.
d. The purchase option described in Section 4 of the Equipment
Lease must be exercised by ACME at the end of the lease term
if either the Tower Lease or the Transmitter Building Lease
(described in Sections 1 and 2 above) are still in effect.
e. ACME may terminate the Equipment Lease by providing Lee with
at least 30 days advance written notice.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
LEE ENTERPRISES, ACME TELEVISION OF NEW MEXICO, LLC
INCORPORATED
By: /s/ Colleen Brown By:
------------------------------- -------------------------------
Colleen Brown Tom Allen
President - Broadcast Group Executive Vice President
SANDIA TELEVISION CORPORATION
By:
-------------------------------
<PAGE> 1
EXHIBIT 10.80
SELLER/BUYER TIME BROKERAGE AGREEMENT
This TIME BROKERAGE AGREEMENT (the "Agreement") is made as of November
1, 1999, between Ramar Communications, II, Ltd., a Texas limited partnership,
("Licensee") and ACME Television of New Mexico, LLC, a Delaware limited
liability company ("Broker").
W I T N E S S E T H:
--------------------
WHEREAS, Broker is in the business of producing and transmitting news,
sports, informational, public service and entertainment programming and
associated advertising on Television Station KWBQ, Santa Fe, New Mexico
("KWBQ"); and
WHEREAS, Licensee is the holder of a license issued by the Federal
Communications Commission ("FCC") authorizing the operation of a television
station with the assigned call letters "KASY-TV" on Channel 50, Albuquerque, NM
(the "Station"); and
WHEREAS, Licensee as Seller and Broker (as one of the parties
comprising Buyer) are parties to that certain Asset Purchase Agreement dated
February 19, 1999, as amended pursuant to amendments dated July 30, 1999 and
November 1, 1999, relating to the Station ("Asset Purchase Agreement"); and
WHEREAS, Broker desires to provide programming to be transmitted on the
Station; and
WHEREAS, Licensee desires to transmit programming supplied by Broker on
the Station while maintaining control over the Station and continuing to
broadcast Licensee's own public interest programming;
NOW, THEREFORE, in consideration of these premises and the mutual
promises, undertakings, covenants and agreements of the parties contained in
this Agreement, the parties hereto do hereby agree as follows:
<PAGE> 2
2
ARTICLE 1
PROGRAMMING AGREEMENT
1.1 Brokered Programming. Subject to paragraphs 1.2 and 1.3 herein,
Broker hereby agrees to provide, for transmission by the Station, news, sports,
informational and entertainment programming and associated advertising,
promotional, and public service programming and announcement matter for 168
hours per week ("Brokered Programming") throughout the Term hereof. All Brokered
Programming and its transmission by the Station shall be subject to the
supervision and control of Licensee.
1.2 Licensee Programming. Licensee will retain sole responsibility for
ascertainment of the needs of its community of license and service area,
including specifically the children therein. The parties agree that the Brokered
Programming will include programming which responds to these ascertained needs
and concerns, including educational and informational children's programming
that complies with FCC rules (47 C.F.R. Section 73.670) and is in sufficient
quantity to satisfy FCC policies governing children's programming; provided,
however, Licensee shall have the right to broadcast such additional
noncommercial programming, either produced or purchased by Licensee, as it
determines appropriate to respond to the ascertained issues of community concern
("Licensee Programming"). Such Licensee Programming shall be broadcast at times
mutually agreed to by Broker and Licensee, provided, however, that in the
absence of such agreement, Licensee may delete or preempt in its sole discretion
any Brokered Programming for the purpose of transmitting such Licensee
Programming. For purposes of this Agreement, "noncommercial" shall mean any
programming for which no consideration of any kind is received by Licensee.
1.3. Preemption. Licensee may at its discretion preempt or delete any
Brokered Programming which Licensee believes to be unsatisfactory, unsuitable or
contrary to the public interest, and may substitute programming which, in
Licensee's opinion, is of greater local or national importance.
ARTICLE 2
OPERATIONS
2.1 Compliance with FCC Regulations. Subject to paragraph 9.14 herein,
Licensee will retain ultimate responsibility for compliance with all FCC rules
and policies, including, but not limited to (a) the employ of such personnel as
may be necessary to assure compliance with all FCC regulations, including all
technical regulations governing the operation of the Station; (b) complying with
all programming
<PAGE> 3
3
content requirements; (c) maintaining a main studio and providing a meaningful
managerial and staff presence at the main studio; (d) ascertainment of and
programming in response to community needs and concerns and the needs and
concerns of children; (e) adhering to FCC limits on commercial matter in
children's programming; and (f) meeting FCC requirements governing (i) political
programming, (ii) sponsorship identification, (iii) lottery and contest matters,
(iv) maintenance of the Station's public and political files, (v) compliance
with appropriate quarterly issues programs lists, children's programming lists,
and (vi) employment and EEO matters Broker will cooperate with Licensee so as to
assist Licensee in meeting FCC requirements pertaining to operation of the
Station, including but not limited to Broker's making main studio facilities and
related technical facilities necessary to KASY-TV operations, such as
studio-transmitter link facilities, available to Licensee at no expense at the
end of the transition period contemplated by that certain November 1, 1999
Closing and Transition Agreement between Licensee, Broker, Lee Enterprises,
Inc., and Sandia Television Corporation.
2.2 Provision of Programming. Subject to Licensee's control and
supervision, Broker shall provide the Brokered Programming and shall be
responsible for implementing its transmission by the Station, utilizing assets
owned or leased by Broker to the extent necessary. To the extent Broker
reasonably requests the use of tangible station assets owned by Licensee to
enable Broker to fulfill its obligations under this Agreement, Licensee shall
make the use of such assets reasonably available to Broker at no cost. To the
extent Licensee requests the use of assets owned by Broker to produce or
broadcast the programming specified in paragraphs 1.2 and 1.3 hereof, or to
fulfill Licensee's obligations pursuant to paragraph 2.1 hereof, Broker shall
make the use of such assets available to Licensee at no cost.
2.3 Station Staffing. Licensee shall have sole discretion to make and
effectuate staffing and personnel decisions relating to its employees at the
Station, including the sole responsibility to determine appropriate levels of
staffing to fulfill Licensee's duties under paragraph 2.1 herein. Broker shall
have no control or right of review whatsoever over any decision by Licensee to
hire or dismiss any Licensee employee.
2.4 Station Operation. Licensee shall retain ultimate control over the
Station's facilities, including specifically control over Station's finances,
personnel and programming. Licensee shall retain sole responsibility for
ensuring compliance with all FCC technical rules. Under the supervision and
ultimate control of Licensee's Chief Operator, Broker shall maintain in good
working order the Station's equipment used in connection with the broadcast of
the Station's program material. Broker shall bear full
<PAGE> 4
4
and exclusive responsibility for all expenditures that may be necessary to
maintain the Station's equipment in good working order; provided, however, that
Licensee shall retain responsibility for maintaining its antenna in good working
order so long as the antenna is not substantially damaged through Broker's use.
ARTICLE 3
CONSIDERATION
3.1 Fee. Starting on the Commencement Date, as hereinafter defined, and
each month thereafter during the Term of this Agreement, as defined below, so
long as Licensee is not in breach of this Agreement, Broker shall pay to
Licensee a monthly Time Brokerage Fee calculated according to the provisions set
forth in Exhibit A.
3.2 Adjustments. Licensee may broadcast up to two hours of Licensee
Programming per week pursuant to paragraph 1.2 without any adjustment to the fee
set out in paragraph 3.1. If at any time during the Term of this Agreement, the
Station shall fail to carry Brokered Programming for more than the two hours per
week specified in this paragraph 3.2, the fee payable to Licensee by Broker
shall be reduced by a fraction, the denominator of which equals the total
Broker's weekly programming hours on Station and the numerator of which equals
the sum be of Broker hours preempted by Licensee during the week in question.
ARTICLE 4
TERM
4.1 Term. The Term of this Agreement (the "Term") shall commence on
November 1, 1999 (the "Commencement Date") and shall, unless earlier terminated
pursuant to FCC regulation or by mutual consent of Licensee and Broker,
terminate on the earlier of: (a) the consummation of the transactions
contemplated by the Asset Purchase Agreement; or (b) the termination of the
Asset Purchase Agreement. If this Agreement terminates pursuant to this
paragraph 4.1, neither Licensee nor Broker shall have any liability to the other
for damages of any kind under this Agreement.
4.2 Termination for Default and Nonperformance. Should either party be
in breach of this Agreement for the nonperformance of a material obligation,
this Agreement may be terminated by the non-defaulting party if such breach
shall continue with respect to monetary defaults for a period of ten (10) days
and, with respect to non-monetary defaults, for a period of fifteen (15) days
following the receipt of written notice from the non-defaulting party ("Cure
Period"), which notice shall indicate the nature of such
<PAGE> 5
5
default; provided, however, that there shall be a final accounting of monies due
but unpaid under this Agreement within thirty (30) days after the consummation
or termination of the Asset Purchase Agreement. The Cure Period shall be
extended as necessary for up to (but not exceeding) thirty (30) days for those
non-monetary defaults which cannot be cured within fifteen (15) days, provided
that the defaulting party is diligently working with all reasonable haste to
remedy such default.
ARTICLE 5
ASSIGNABILITY
5.1 Assignability.
Neither party shall assign or transfer its rights, benefits, duties or
obligations under this Agreement without the prior written consent of the other
party, which consent shall not be unreasonably withheld or delayed.
ARTICLE 6
REGULATORY MATTERS
6.1 Renegotiation Upon FCC Action or Other Regulatory Changes. If the
FCC determines that this Agreement is inconsistent with Licensee's licensee
obligations or is otherwise contrary to FCC policies, rules and regulations, or
if regulatory, legislative, or judicial action subsequent to the Commencement
Date alters the permissibility of this Agreement under the FCC's rules or the
Communications Act of 1934, as amended, the parties shall renegotiate this
Agreement in good faith and recast this Agreement in terms that are likely to
cure the defects perceived by the FCC or the changes caused by regulatory,
legislative, or judicial action and return a balance of benefits to both parties
comparable to the balance of benefits provided by the Agreement in its current
terms. If, after such good faith negotiations, either party determines in good
faith that recasting the Agreement to meet the defects perceived by the FCC is
impossible without a material adverse effect on such party, either party may
terminate this Agreement without further liability upon fifteen (15) days prior
written notice to the other party. If termination shall occur pursuant to this
paragraph, such termination shall extinguish and cancel this Agreement without
further liability on the part of either party to the other; provided, however,
that there shall be a final accounting of monies due but unpaid under this
Agreement within thirty (30) days after such termination.
6.2 FCC Matters. Should a change in FCC policy or rules make it
necessary to obtain FCC consent for the implementation, continuation or further
effectuation of any
<PAGE> 6
6
element of this Agreement, both parties hereto shall use their best efforts
diligently to prepare, file and prosecute before the FCC all petitions, waiver
requests, construction permit applications, amendments, rulemaking comments and
other related documents necessary to secure and/or retain FCC approval of all
aspects of this Agreement. Notwithstanding anything in this Agreement to the
contrary (and except filings required as a matter of law) it is understood that
no filing shall be made with the FCC with respect to this Agreement unless both
parties hereto have reviewed said filing and consented to its submission.
6.3 Network Agreement. Licensee has affiliated with the United
Paramount Television Network ("UPN"). Broker acknowledges that the UPN
affiliation agreement as well as any network affiliation agreement hereinafter
entered into between Licensee and an entity which provides television
programming for use on the Station shall be and remain the sole property of
Licensee, as required by the FCC.
ARTICLE 7
BROADCAST EQUIPMENT AND RELATED ASSETS
7.1 Equipment and Assets. Licensee represents and warrants to Broker
that Licensee owns the Station antenna (the "Antenna"). Broker represents and
warrants to Licensee that Broker owns, leases or will acquire other equipment
from Lee Enterprises, Inc. necessary to operate the Station (the "Equipment")
7.2 Insurance. At Broker's expense, the parties shall during the Term
keep in force and effect by advance payment of premium comprehensive casualty,
property damage, business interruption, and liability insurance with an
insurance company and in an amount reasonably acceptable to Broker and Licensee,
insuring against any liability that may accrue on account of any loss or damage
to the Antenna and Equipment or occurrences on or about the Antenna and
Equipment. Broker and Licensee shall be specified as insureds under the policy
required under this Section 7.2. Broker will supply a certificate of insurance
to Licensee demonstrating Broker's compliance with its obligations under this
Section 7.2 on the Commencement Date and upon each and every renewal date for
the insurance policy maintained by Broker, and will provide Licensee fifteen
(15) days' prior notice of the expiration of said policy and immediate notice of
any cancellation of said policy.
7.3 Leases.
<PAGE> 7
7
(a) Licensee is the lessee under tower space and transmitter building
leases, (the "Leases"). Such Leases being crucial to the successful operation of
this Agreement, Licensee represents and warrants to Broker that Licensee is and
will remain in material compliance with the terms of the Leases. Subject to
reimbursement by Broker, Licensee shall timely pay all rents and expenses
relating to the operation of the Station's transmitter, including but not
limited to rents under the Leases.
(b) Licensee affirmatively covenants to Broker that Licensee will
timely pay all rental payments under the Leases promptly when due and otherwise
fully comply with all terms of the Leases. Broker shall pay or reimburse
Licensee for any fees assessed by the Forest Service in relation to the use of
Forest Service lands for the tower and antenna.
ARTICLE 8
REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Licensee's Representations and Warranties. Licensee represents and
warrants to Broker as follows:
(a) Organization. Licensee is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Texas and
has full power and authority to acquire and own the property, licenses and
permits associated with the Station, and to carry out all of the transactions
contemplated by this Agreement.
(b) Compliance with Law. Licensee has complied with and will continue
to comply with all laws, rules and regulations governing the business, ownership
and operations of the Station that are material in any way to this Agreement.
All attendant contracts and undertakings, as well as the carrying out of this
Agreement, do not result in any violation of, nor are they in conflict with
Licensee's organizational documents or any existing judgment, decree, order,
statute, law, rule or regulation of any governmental authority applicable to
Licensee.
(c) Authority. All requisite resolutions and other authorizations
necessary for the execution, delivery, performance and satisfaction of this
Agreement by Licensee have been duly adopted and complied with.
(d) Misrepresentation of a Material Fact. No document or contract
disclosed to Broker pursuant to this Agreement and in any way affects any of the
properties, assets or proposed business of Licensee as related to this
Agreement, and no certificate or statement furnished by Licensee or on behalf of
it in connection with the transactions
<PAGE> 8
8
contemplated herein contains or will contain any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein not misleading.
(e) Authorizations in Good Standing. Licensee is fully qualified under
the Communications Act of 1934, as amended, and the FCC's rules and policies to
be the Licensee and license holder of the Station. Licensee's license and all
related authorizations for the Station are in full force and effect and
unimpaired by any acts or omissions of Licensee, its employees or agents, and
there is no complaint, condition, event, defect or occurrence existing or, to
the knowledge of Licensee, threatened against said authorizations, that would
materially threaten their retention or renewability by Licensee.
(f) Litigation. There is no litigation at law or in equity, no
arbitration proceeding, and no proceeding before or by any court, commission,
agency, or other administrative or regulatory body or authority, or, to the best
of Licensee's knowledge, threatened or anticipated, which would have a material
adverse affect upon the Station. To the extent that any such event shall exist
on the Commencement Date, Licensee agrees that any and all costs, judgments, and
liabilities which have or shall become due and payable shall be the sole and
exclusive financial responsibility of Licensee.
(g) Taxes. All federal, state, county and local tax returns, reports
and declarations of estimated tax or estimated tax deposit forms required to be
filed in connection with the Station's operations, real estate, or payroll have
been duly and timely filed. All taxes which have become due pursuant to such
returns or pursuant to any assessment received by them have been paid as have
all installments of estimated taxes. All taxes, levies, and other assessments
which the Station is required by law to withhold or to collect have been duly
withheld and collected and have been paid over to the proper governmental
authorities.
8.2 Broker's Representations and Warranties, Broker represents and
warrants to Licensee as follows:
(a) Organization. Broker is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full power and authority to own its property and to carry out all of the
transactions contemplated by this Agreement.
<PAGE> 9
9
(b) Compliance with Law. Broker has complied with and continues to
comply with all laws, rules and regulations governing the business, ownership
and operations of KWBQ that are material in any way to this Agreement. All
attendant contracts and undertakings, as well as the carrying out of this
Agreement, do not result in any violation of nor are they in conflict with
Broker's organizational documents or any existing judgment, decree, order,
statute, law, rule or regulation of any governmental authority applicable to
Broker.
(c) Authority. All requisite resolutions and other authorizations
necessary for the execution, delivery, performance and satisfaction of this
Agreement by Broker have been duly adopted and complied with.
(d) Misrepresentation of Material Fact. No document or contract
disclosed to Licensee pursuant to this Agreement and which in any way affects
any of the properties, assets or proposed business of Licensee as relate to this
Agreement, and no certificate or statement furnished by Broker or on behalf of
it in connection with the transactions contemplated herein contains or will
contain any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein not misleading.
(e) Litigation. There is no litigation at law or in equity, no
arbitration proceeding, and no proceeding before or by any court, commission,
agency, or other administrative or regulatory body or authority, or, to the best
of Broker's knowledge, threatened or anticipated, which would have a material
adverse affect upon KWBQ. To the extent that any such event shall exist on the
Commencement Date, Broker agrees that any and all costs, judgments, and
liabilities which have or shall become due and payable shall be the sole and
exclusive financial responsibility of Broker.
(f) Taxes. All federal, state, county and local tax returns, reports
and declarations of estimated tax or estimated tax deposit forms required to be
filed in connection with KWBQ's operations, real estate, or payroll have been
duly and timely filed. All taxes which have become due pursuant to such returns
or pursuant to any assessment received by them have been paid as have all
installments of estimated taxes. All taxes, levies, and other assessments which
KWBQ is required by law to withhold or to collect have been duly withheld and
collected and have been paid over to the proper governmental authorities.
8.3 Licensee's Affirmative Covenant. Licensee covenants and agrees that
it will comply fully in all material respects with all applicable federal, state
and local laws,
<PAGE> 10
10
rules and regulations (including, without limitation, all FCC rules, policies
and regulations) and pertinent provisions of all contracts, permits and
pertinent agreements to which it is a party or is otherwise bound.
8.4 Broker's Affirmative Covenant. Broker covenants and agrees that it
will comply fully in all material respects all applicable federal, state and
local laws, rules and regulations (including, without limitation, all FCC rules,
policies and regulations) in the provision of the Brokered Programming to
Licensee.
ARTICLE 9
MISCELLANEOUS
9.1 Force Majeure. Notwithstanding anything contained in this Agreement
to the contrary, neither party shall be liable to the other for failure to
perform any obligation under this Agreement (nor shall any charges or payments
be made in respect thereof) if prevented from doing so by reason of fires,
strikes, labor unrest, embargoes, civil commotion, rationing or other orders or
requirements, acts of civil or military authorities, acts of God or other
contingencies, including equipment failures beyond the reasonable control of the
parties, and all requirements as to notice and other performance required
hereunder within a specified period shall be automatically extended to
accommodate the period of pendency of such contingency which shall interfere
with such performance.
9.2 Trademarks. For the Term of this Agreement, Licensee hereby grants
Broker an unlimited license to use any and all trademarks, service marks,
patents, trade names, jingles, slogans, logotypes and other intangible rights
owned and used or held for use by Licensee in conjunction with the Station.
Licensee agrees to execute such additional documentation as may be necessary or
desirable to effectuate the license granted under this paragraph.
9.3 Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing, addressed to
the following addresses, or to such other address as any party may request in
writing.
To Licensee: Ramar Communications II, Ltd.
9800 University Avenue
Lubbock, TX 79423
Attention: Mr. Brad Moran
Telecopy: 806-748-1949
Telephone: 806-745-3434
<PAGE> 11
11
With a copy (which shall not constitute notice) to:
Leventhal, Senter & Lerman P.L.L.C.
Suite 600
2000 K Street, N.W.
Washington, DC 20006
Attention: Dennis P. Corbett, Esq.
Telecopy: 202-293-7783
Telephone: 202-429-8970
To Broker: ACME Television of New Mexico, LLC
10829 Olive Boulevard, Suite 202
St. Louis, MO 63141
Attention: Mr. Doug Gealy
Telecopy: 314-989-0566
Telephone: 314-989-0616
Tom Allen
Executive Vice President
ACME Television of New Mexico, LLC
Suite 202
2101 4th Street
Santa Ana, CA 92705
With a copy (which shall not constitute notice) to:
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, DC 20037
Attention: Lewis J. Paper, Esq.
Telecopy: 202-887-0689
Telephone: 202-828-2265
Any such notice, demand or request shall be deemed to have been duly
delivered and received (i) on the date of personal delivery, or (ii) on the date
of transmission, if sent by facsimile (but only if a hard copy is also sent by
overnight courier), or (iii) on the date of receipt, if mailed by registered or
certified mail, postage prepaid and return receipt
<PAGE> 12
12
requested, or (iv) on the date of a signed receipt, if sent by an overnight
delivery service, but only if sent in the same manner to all persons entitled to
receive notice or a copy.
9.4 Duty to Consult. Each party agrees that it will use its best
efforts not to take any action that will unreasonably interfere, threaten or
frustrate the other party's purposes or business activities, and that it will
keep the other party informed of, and coordinate with the other party regarding,
any of its activities that may have a material effect on such party.
9.5 Press Releases. Except as may be required by law or any
governmental agency, no announcement to the press or to any third party of the
transactions contemplated herein shall be made by either party unless the same
shall be approved in advance in writing by both Broker and Licensee.
9.6 Severability. Subject to paragraph 6.1, if any provision of this
Agreement is held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remainder of this Agreement shall not be
affected thereby, and the parties agree to use their best efforts to negotiate a
replacement article that is neither invalid, illegal nor unenforceable.
9.7 Entire Agreement. This Agreement and the documents referenced
herein constitute the entire agreement of the parties with respect to its
subject matter and supersede all prior agreements and understandings of the
parties, oral and written, with respect to its subject matter. This Agreement
may be modified only by an agreement in writing executed by all of the parties
hereto.
9.8 Survival. All representations, warranties, covenants and agreements
made herein by the parties hereto or in any certificate to be delivered
hereunder or made in connection with the transactions contemplated herein shall
serve the execution and delivery of this Agreement. All such representations,
warranties, covenants and agreements shall survive for one year past the date on
which this Agreement terminates.
9.9 Payment of Expenses. Except as otherwise provided, Licensee and
Broker shall pay their own expenses incident to the preparation and carrying out
of this Agreement, including all fees and expenses of their respective counsel.
9.10 Further Assurances. From time to time after the date of execution
hereof, the parties shall take such further action and execute such further
documents, assurances and certificates as either party reasonably may request of
the other to effectuate the purposes of this Agreement.
<PAGE> 13
13
9.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and shall become
effective when each of the parties hereto shall have delivered to it this
Agreement duly executed by the other party hereto.
9.12 Headings. The headings in this Agreement are for the sole purpose
of convenience of reference and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
9.13 Dealings with Third Parties. Neither party is nor shall hold
itself out to be vested with any power or right to bind contractually or act on
behalf of the other as its contracting broker, agent or otherwise for
committing, selling, conveying or transferring any of the other party's assets
or property, contracting for or in the name of the other party, making any
contractually binding representations contractually binding such party.
9.14 Indemnification.
(a) Each party shall, to the fullest extent permitted by law, protect,
save, defend and keep the other party harmless and indemnify said other party
against, all claims, demands, causes of action, loss, investigations,
proceedings, demands, penalties, fines, expenses and judgments, including
reasonable attorneys, fees and costs, resulting directly or indirectly from a
breach of the indemnifying party's representations, warranties or covenants
under this Agreement.
(b) Broker shall, to the fullest extent permitted by law, protect,
save, defend and keep Licensee and the general and limited partners, their
members, and the officers, directors, employees, and agents of each of them
harmless and indemnify them from and against any and all loss, damage,
liability, or expense, including reasonable attorney's fees, resulting from any
claim of libel, slander, defamation, copyright infringement, idea
misappropriation, invasion of right of privacy or publicity, or any other claim
against Licensee arising out of Broker's programming on the Station, provided
that Licensee shall give Broker prompt notice of any claim and shall cooperate
in good faith with Broker in attempts to resolve and settle any such claims. The
foregoing shall not apply to the use of any new matter that Licensee may insert
in or adjacent to Broker's programming, or to alterations in Broker's
programming caused by Licensee, its agents or employees.
<PAGE> 14
14
(c) Licensee shall, to the fullest extent permitted by law, protect,
save, defend, and keep Broker and its members, employees, and agents harmless
and indemnify them from and against any and all loss, damage, liability, or
expense, including reasonable attorney's fees, resulting from any claim of
libel, slander, defamation, copyright infringement, idea misappropriation,
invasion of right of privacy or publicity, or any other claim against Broker
arising out of Licensee's programming on the Station, provided that Broker shall
give Licensee prompt notice of any claim and shall cooperate in good faith with
Broker in attempts to resolve and settle any such claims.
9.15 Governing Law. This Agreement shall be construed under and in
accordance with the laws of the State of New Mexico, without giving effect to
the principles of conflict of laws.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
RAMAR COMMUNICATIONS II, LTD.
By: GP Ramar LLC, its General Partner
By: Ramar Communications, Inc., its Sole Member
By: /s/ Brad Moran
-------------------------------------------------------
Brad Moran, President
ACME TELEVISION LICENSES OF NEW MEXICO, LLC
By: /s/ Tom Allen
-------------------------------------------------------
Tom Allen, Executive Vice-President
ACME TELEVISION OF NEW MEXICO, LLC
By: /s/ Tom Allen
-------------------------------------------------------
Tom Allen, Executive Vice-President
<PAGE> 15
EXHIBIT A
The monthly Time Brokerage Fee will consist of Twenty Thousand Dollars
($20,000.00), plus reimbursement of all costs and expenses incurred by Licensee
in fulfilling its obligations under this Agreement relating to operation and
maintenance of the Station, including but not limited to Licensee's Station
personnel costs, and the monthly rentals paid by Licensee pursuant to the
Leases, as defined in Section 7.3(a) hereof. Such payment shall be made on the
tenth day of each month beginning in December 1999; provided, that Licensee
shall submit an invoice to the Broker by the thirtieth day of the preceding
month itemizing each expense with appropriate documentation. To the extent
Broker disputes any item of expense, the amount not in dispute shall be paid in
accordance with this Exhibit. If the parties cannot resolve the disputed matter
within twenty (20) days after its submission by Licensee, the matter shall be
referred to a mutually agreeable Certified Public Account ("CPA") whose decision
will be final and binding on the parties. Each of the parties will pay half of
the fees and expenses of the CPA.
<PAGE> 1
EXHIBIT 10.81
ASSIGNMENT AND ASSUMPTION OF TOWER LEASE
This ASSIGNMENT AND ASSUMPTION OF TOWER LEASE ("Assignment and
Assumption"), dated as of December 3, 1999, is entered into by and between Ramar
Communications II, Ltd. ("Assignor") and ACME Television of New Mexico, LLC
("Assignee").
WHEREAS, Assignor, ACME Television Licenses of New Mexico, LLC
("ACME"), and Assignee have entered into an Asset Purchase Agreement, dated as
of February 19, 1999, as amended pursuant to an Amendment dated July 30, 1999
and a Second Amendment dated November 1, 1999 (the "Purchase Agreement"),
pursuant to which Assignor has agreed to sell and assign, and ACME and Assignee
have agreed to purchase and acquire, certain assets used or useful in the
conduct of the business or operation of Television Station KASY-TV, Albuquerque,
New Mexico (the "Station").
NOW THEREFORE in consideration of the mutual covenants contained herein
and in the Purchase Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Assignor and
Assignee covenant and agree as follows:
1. Assignor hereby sells, assigns, transfers and conveys to
Assignee, all of Assignors' rights in and to that certain Tower Lease Agreement
by and between Ramar Communications, Inc. (predecessor-in-interest to Assignor)
and Lee Enterprises, Incorporated dated December 12, 1994 (the "Lease").
2. Assignee hereby assumes and undertakes to pay, satisfy or
discharge the liabilities, obligations and commitments of Assignor arising and
accruing after 12:01 a.m., Mountain Time, on the Closing Date, under the Lease.
3. From time to time, at Assignee's or Assignor's request,
whether on or after the date hereof and without further consideration, Assignor
and Assignee shall execute and deliver or cause to be executed and delivered
such further instruments of conveyance, transfer and assumption as may be
reasonably necessary to convey, transfer and assume the Lease or for purposes of
recording this Assignment and Assumption.
4. This Assignment and Assumption is intended to evidence the
consummation of the transactions contemplated by the Purchase Agreement. This
Assignment and Assumption is made without representation or warranty except as
provided in and by the Purchase Agreement. This Assignment and Assumption is in
all respects subject to the provisions of the Purchase Agreement and is not
intended in any way to supersede, limit or qualify any provision of the Purchase
Agreement.
<PAGE> 2
5. Capitalized terms used but not defined herein shall have
the meanings given to them in the Purchase Agreement. Sections refer to sections
in the Purchase Agreement.
6. This Assignment and Assumption shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
the State of New Mexico, without regard or reference to the rules of conflicts
of law that would require the application of the law of any other jurisdiction.
7. This Assignment and Assumption may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8. This Assignment and Assumption shall be binding upon, and
inure to the benefit of Assignee and Assignor and their respective successors
and assigns.
IN WITNESS WHEREOF, the parties have caused this Assignment and
Assumption to be executed and delivered effective as of the date first written
above.
[signatures on following page]
<PAGE> 3
3
IN WITNESS WHEREOF, the parties have caused this Assignment and
Assumption to be executed and delivered effective as of the date first written
above.
RAMAR COMMUNICATIONS II, LTD.
By: GP Ramar LLC, its General Partner
By: Ramar Communications, Inc., Its Sole Member
By: Brad Moran
-------------------------------------------------
Brad Moran, President
STATE OF TEXAS
COUNTY OF ___________
I HEREBY CERTIFY that on this ____ day of October, 1999, before me
personally appeared _________________, as _______________ of Ramar
Communications II, Ltd, a Texas limited partnership, who has produced
__________________ as identification, or who is personally known to me.
--------------------
NOTARY PUBLIC
My Commission Expires:
ACME TELEVISION OF NEW MEXICO, LLC
By: /s/ Tom Allen
------------------------------------------
Tom Allen, Exec. Vice President & CFO
STATE OF _____________
COUNTY OF ___________
I HEREBY CERTIFY that on this ____ day of October, 1999, before me
personally appeared _________________, as _______________ of ACME Television of
New Mexico, LLC, a Delaware limited liability corporation, who has produced
__________________ as identification, or who is personally known to me.
--------------------
NOTARY PUBLIC
My Commission Expires:
<PAGE> 1
EXHIBIT 10.82
ACME Television Holdings, LLC
Suite 202
10829 Olive Boulevard
St. Louis, MO 63141
Tel: (314) 989-0566 Fax: (314) 989-0616
October 4, 1999
VIA FACSIMILE (561-833-1096)
Devon Paxson, President
DP Media of Battle Creek, Inc.
Suite 204
231 Bradley Place
Palm Beach, FL 44380
Re: WZPX-TV
Dear Mr. Paxson:
This letter concerns implementation of the Joint Sales Agreement (the
"Agreement"), dated April 23, 1999, by and between DP Media of Battle Creek,
Inc. ("DP Media") and ACME Television Holdings, LLC ("ACME").
In order to explore and hopefully facilitate a mutually satisfactory
resolution of issues relating to the Agreement, the parties have agreed that,
except as otherwise stated in this letter, they will not implement or seek to
enforce their respective rights and obligations under the Agreement for a period
of thirty (30) days from the date of this letter (the "Standstill Period"),
which is the close of business on Thursday, November 4, 1999. Notwithstanding
the existence of the Standstill Period, DP Media will honor its obligations
under its Secondary Affiliation Agreement with The WB Television Network
commencing on 7 a.m. on October 6, 1999.
It is understood and agreed that neither the execution of this letter
nor the existence of the Standstill Period will prejudice any party with respect
to its rights or any position which any party has taken or may take in the
future with respect to the Agreement and ancillary documents. To that end, the
failure of the Term to commence as planned on October 1, 1999 cannot be invoked
to the prejudice of either party.
If this letter accurately and completely reflects our agreement, I
would appreciate it if you could sign on the appropriate line below and fax the
signed letter back to me and mail the hard copy to me at the above address.
Execution of the letter will also confirm that copies of faxed signatures will
be deemed sufficient to make this letter agreement effective.
<PAGE> 2
Devon Paxson, Vice President
October 4, 1999
Page 2
Sincerely,
ACME TELEVISION HOLDINGS, LLC
By: /s/ DOUGLAS GEALY
----------------------------------
Douglas Gealy, President
AGREED:
DP MEDIA OF BATTLE CREEK, INC.
By: /s/ DEVON PAXSON
--------------------------------
Devon Paxson, Vice President
cc: Lew Paper (via facsimile)
Alan Campbell (via facsimile)
<PAGE> 1
EXHIBIT 21.0
ACME COMMUNICATIONS, INC.
SUBSIDIARIES
ACME TELEVISION HOLDINGS, LLC:
ACME INTERMEDIATE HOLDINGS, LLC:
ORGANIZED
SUBSIDIARIES: UNDER LAWS OF
ACME Television, LLC Delaware
ACME Subsidiary Holdings II, LLC Delaware
ACME Intermediate Finance, Inc. Delaware
ACME TELEVISION, LLC:
ORGANIZED
SUBSIDIARIES: UNDER LAWS OF
ACME Subsidiary Holdings III, LLC Delaware
ACME Finance Corporation Delaware
ACME Television of New Mexico, LLC Delaware
ACME Television Licenses of New Mexico, LLC Delaware
ACME Television of Oregon, LLC Delaware
ACME Television Licenses of Oregon, LLC Delaware
ACME Television of Tennessee, LLC Delaware
ACME Television Licenses of Tennessee, LLC Delaware
ACME Television of Utah, LLC Delaware
ACME Television Licenses of Utah, LLC Delaware
ACME Television Holdings of Missouri, Inc. Missouri
ACME Television of Missouri, Inc. Missouri
ACME Television Licenses of Missouri, LLC Missouri
ACME Television of Florida, LLC Delaware
ACME Television Licenses of Florida, LLC Delaware
ACME Television of Ohio, LLC Delaware
ACME Television Licenses of Ohio, LLC Delaware
ACME Television of Illinois, LLC Delaware
ACME Television Licenses of Illinois, LLC Delaware
ACME Television of Wisconsin, LLC Delaware
ACME Television Licenses of Wisconsin, LLC Delaware
ACME Television of Michigan, LLC Delaware
70
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001092013
<NAME> ACME COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 23,846
<SECURITIES> 0
<RECEIVABLES> 14,806
<ALLOWANCES> 716
<INVENTORY> 0
<CURRENT-ASSETS> 53,741
<PP&E> 30,823
<DEPRECIATION> 5,707
<TOTAL-ASSETS> 407,707
<CURRENT-LIABILITIES> 26,145
<BONDS> 209,665
0
0
<COMMON> 168
<OTHER-SE> 126,667
<TOTAL-LIABILITY-AND-EQUITY> 407,707
<SALES> 60,008
<TOTAL-REVENUES> 60,008
<CGS> 45,675
<TOTAL-COSTS> 109,086
<OTHER-EXPENSES> (488)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,694
<INCOME-PRETAX> (77,284)
<INCOME-TAX> 4,420
<INCOME-CONTINUING> (70,779)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,779)
<EPS-BASIC> (7.96)
<EPS-DILUTED> (7.96)
</TABLE>
